New Listing Guidebook

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1 New Listing Guidebook 2017 for Foreign Companies Tokyo Stock Exchange

2 Table of Contents 2017 New Listing Guidebook for Foreign Companies Table of Contents Table of Contents Benefits of Listing... 6 (1) Smooth and Diversified Fundraising... 6 (2) Enhance Corporate Value... 6 (3) Improve its Internal Management System and Enhance the Employees Motivation Mechanism for Initial Listing... 6 (1) Mechanism for Initial Listing... 6 (2) Composition of Market Overview of the Initial Listing and Disclosure Systems... 8 (1) Listing Schedule... 9 (2) Roles of Each Party Involved in an IPO (3) Lead Underwriters (4) Rules and Regulations on the Disclosure System on the Secondary Market a. Statutory Disclosure b. Timely Disclosure (5) Commitment to IR Listing Examination by TSE (Primary Listing) (1) Main Markets (TSE 1 st Section and 2 nd Section)(Primary Listing) a. Formal Requirements b. Eligibility Requirements c. Documents to be Filed (2) Mothers (Primary Listing) a. Formal Requirements b. Eligibility Requirements c. Documents to be Filed (3) JASDAQ Market (Primary Listing) a. Formal Requirements b. Eligibility Requirements (Standard Market) c. Eligibility Requirements (Growth Market) d. Documents to be Filed (4) Listing Examination Schedule (Primary Listing) Listing Examination by TSE (Multiple Listing) (1) Main Markets (TSE 1st Section and 2nd Section)(Multiple Listing) a. Formal Requirements b. Eligibility Requirements and Special Exceptions to Multiple Listing of Foreign Companies c. Documents to be Filed (2) Mothers (Multiple Listing)

3 Table of Contents a. Formal Requirements b. Eligibility Requirements c. Documents to be Filed (3) JASDAQ Market (Multiple Listing) a. Formal Requirements (Standard and Growth Markets) b. Eligibility Requirements (Standard and Growth Markets) c. Documents to be Filed (4) Listing Examination Schedule (Multiple Listing) Listing of JDR (1) What is JDR? (2) JDR Issue Scheme (3) Listing of Stock via JDR (4) Handling of DRs under the Formal Requirements Finance through Listing (Public Offering and Secondary Offering) (1) Procedure for Public Offering, etc. for Listing (2) Finance Schedule on Listing (in the case of an Unlisted Company) Statutory Disclosure (1) Offering Disclosure a. Securities Registration Statement b. Obligation of Preparation and Delivery of Prospectus (2) Continuous Disclosure a. Annual Securities Report b. Internal Control Report c. Quarterly Securities Report d. Confirmation Letter e. Extraordinary Report (3) Accounting Standards Applied to and Audit Certificate on Financial Documents a. Accounting Standards b. Audit Certificate (4) English Language Disclosure System a. Outline b. Documents Eligible for the English-Language Disclosure c. Requirements for the English-Language Disclosure d. Supplementary Documents e. Attachments f. Submission Deadline Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc (1) Custody and Book-Entry Transfer Systems for Foreign Stocks, etc (2) Dividend Payment (3) Record Date of Shareholders Eligible for Dividend (4) Other Rights such as Subscription Warrants (5) Exercise of Voting Rights at General Shareholders Meetings (6) Book-Entry Transfers from JASDEC to Securities Companies (7) Handling under TSE Listing Administration Rules a. Selection of Agent and Entity Responsible for Handling Information in Japan

4 Table of Contents b. Setting Up Offices for Handling Exercise, etc c. Ensuring Appropriate Shareholder Services and Dividend Payment Services d. Notification and Public Notice of Period or Date for Rights Allotment e. Notification of Decision Concerning Depositories, etc. Pertaining to Listed Foreign Stock Depositary Receipts, etc Overview of Listed Company Compliance (1) Overview of Timely Disclosure System a. Significance of Timely Disclosure b. Overview of the Rules Concerning Timely Disclosure of Corporate Information c. Notes on Using TDnet d. Overview of Trading Halt System e. Outline of System for Issuing Alerts f. Disclosure to Clarify Content of Unclear Information (2) Practical Guide for Timely Disclosure a. Matters to Note regarding Need for Disclosure b. Matters to Note regarding the Disclosure Schedule c. Matters to Note regarding Preparation of Disclosure Documents d. Disclosure regarding Postponement/ Change/ Correction/ Progress of Disclosed Matters e. Others (3) Practical Handling of Timely Disclosure of Corporate Information for Listed Foreign Companies a. Changes in Laws and Regulations, etc. of the Home Country concerning the Company System b. A Fact that Occurs in a Foreign Country that Has Material Impact on the Circulation of a Listed Stock, etc. or a Foreign Stock Depositary Receipt, etc c. Fact of Decision or Occurrence with Material Impact on Rights, etc. Related to Listed Foreign Stock Depositary Receipt, etc., (4) Code of Corporate Conduct a. Overview of Code of Corporate Conduct b. Handling of Code of Corporate Conduct of Listed Foreign Companies c. Matters to be Observed d. Matters Desired to Be Observed (Matters to be Addressed) e. Measures for enforcing the Code of Corporate Conduct and reporting requirement f. Japan s Corporate Governance Code (5) Submission of Documents, etc a. Corporate Governance Report b. Notice Concerning Submission of Foreign Company Registration Statement, etc (6) Mothers Global (7) Disciplinary Actions against Listed Companies a. Overview b. Examination Related to the Disclosure of Corporate Information c. Disciplinary Actions or Measures to Ensure Effectiveness d. Principle of Equity Finance

5 Table of Contents e. Duty of CPAs, etc.to Cooperate with the Exchange, Which Seeks Explanations of CPAs, etc f. Examination and Inspection of Securities Trading, etc (8) Delisting Delisting Criteria (Primary Listing) (1) Main Markets (TSE 1st Section and 2nd Section)(Primary Listing) (2) Mothers (Primary Listing) (3) JASDAQ (Standard Market) (Primary Listing) (4) JASDAQ (Growth Market) (Primary Listing) Delisting Criteria (Multiple Listing) (1) Main Markets (TSE 1st Section and 2nd Section)(Multiple Listing) (2) Mothers (Multiple Listing) (3) JASDAQ (Standard and Growth Markets) (Multiple Listing) Listing Fees (1) Fees for Initial Listing on TSE (2) Annual Listing Fee (Main Market (First & Second Sections) and Mothers) (3) Annual Listing Fee (JASDAQ) (4) Fees for Listing on Tokyo PRO Market Securities Taxation System (Japanese Investors Investing in TSE Listed Foreign Stocks) (1) Taxation for Individual Investors (2) Taxation on Corporations (3) Taxation on Deemed Dividend (4) Consumption Tax Q&A (1) Insider Trading Regulations (2) Tender Offer Rules (TOB Rules) (3) Large Shareholding Reporting System (4) Listing on TSE through the Establishment of a Japanese Company A. Forms of Documents, etc. to be Filed for Initial Listing Application (Foreign Stocks) (1) Confirmation Report prior to Initial Listing Application (for Applicant Company) (2) Confirmation Report prior to Initial Listing Application (for Trading Participant Handling Matters) B. Tokyo Stock Exchange Listing by US Companies (1) Overview of Disclosure Requirements for Primary Listing on Tokyo Stock Exchange by US Companies a. Offering Disclosure b. Continuous Disclosure (2) Securities Taxation System a. Japanese Investors Investing in TSE Listed US Stocks b. US Investors Investing in TSE Listed US Stocks

6 Legend Legend TSE: Tokyo Stock Exchange JPX Regulation: Japan Exchange Regulation Act: Financial Instruments and Exchange Act Rules for the Act: Enforcement Rules for the Financial Instruments and Exchange Act Ordinance: Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc. Regulations: Securities Listing Regulations Rules: Enforcement Rules for Securities Listing Regulations Guidelines: Primary Listing: Multiple Listing: JDR: Guidelines Concerning Listing Examinations, etc. Listing other than Multiple Listing Listing or continuous trading on foreign financial instruments exchange(s), etc., or equivalent to this. (1) With respect to a foreign stock, a foreign stock depositary receipt representing a right pertaining to said foreign stock is listed or continuously traded on a foreign financial instruments exchange, etc.; (2) With respect to a foreign stock depositary receipt, a foreign stock represented by said foreign stock depositary receipt is listed or continuously traded on a foreign financial instruments exchange, etc.; and (3) With respect to a foreign stock trust beneficiary certificate, a foreign stock that is a trust asset of the foreign stock trust beneficiary certificate or a foreign stock depositary receipt representing a right pertaining to said foreign stock is listed or continuously traded on a foreign financial instruments exchange, etc. Japanese Depositary Receipt (A beneficial interest in trust issuing beneficiary certificates whose trust assets are foreign stock certificates, etc., as defined in the Trust Act (Act No. 108 of 2006) provided in Rule 2, paragraph 1, item 14 of the Financial Instruments and Exchange Act.) 5

7 1. Benefits of Listing 1. Benefits of Listing By listing on Tokyo Stock Exchange (TSE), your company can: (1) Smooth and Diversified Fundraising Once listed on TSE, your company will have access to direct finance by capital increase by issuing shares at a market price through publicly offering stock or issuing subscription warrants, corporate bonds with subscription warrants, etc. Our highly liquid market can bring more efficient and diverse fund-raising capacity for your company to grow further. (2)Enhance Corporate Value Coverage by media, including market news of newspapers, will allow your company to enhance its corporate and product reputation in Japan. The company will be able to retain and attract excellent people as well. (3)Improve its Internal Management System and Enhance the Employees Motivation Corporate disclosure will allow investors and other third parties to examine your company s corporate management. Therefore, your company has obligations to continue to improve and strengthen its management system as well as its internal management. Becoming a public company will also help boost the morale of the officers and employees of the company. Please keep in mind that since the shares of stocks issued by a listed company will be a choice of investment by a large number of public investors, going public also involves taking on new social responsibilities and duties for the purpose of protection of investors. It will be required, among other things, to disclose earnings information and corporate profile in an appropriate and timely manner. 2. Mechanism for Initial Listing (1)Mechanism for Initial Listing Listing of stock is effected on the basis of application filed by a company issuing the stock (hereinafter referred to as an applicant ). When the stock is listed, it will be an investment choice for a large number of general investors. Thus, TSE (Note) will examine whether an applicant is eligible for listing on TSE from the perspective of investor protection. TSE has developed and set forth various regulations and rules for initial listing. The listing examination will be conducted by assessing whether the requirements in the regulations and rules are satisfied. ( Securities Listing Regulations and Enforcement Rules for Securities Listing Regulations, etc.) by which the examination will be conducted. When the examination results reveal that the applicant is eligible for listing, TSE will approve and announce the listing of applicant, following which the stock will eventually be listed on TSE. Various rules concerning initial listing comprise Securities Listing Regulations, Enforcement Rules for 6

8 2. Mechanism for Initial Listing Securities Listing Regulations and Guidelines for Listing Examinations, etc. The standards for listing examination specified by various rules provide for Formal Requirements which specify quantitative requirements for the number of shareholders, amount of profit, etc. and standards for Substantive Examination Standards which represent the qualitative criteria for assessing disclosure systems, corporate governance practices and so on. Please refer to II Formal Requirements and III Listing Examination, respectively, in this booklet. As a result of listing examination, when an applicant is determined to meet the eligibility for listing, TSE will approve and announce the listing of the applicant. Subsequently the applicant will be listed through the process of public offering or secondary offering. Note: Actual examination will be conducted by JPXR to which the role of examination is delegated by TSE. (2)Composition of Market TSE operates five markets of the First Section, Second Section, Mothers, JASDAQ and TOKYO PRO Market. 1) First Section and Second Section The First and Second Sections represent the main boards of TSE where leading large and second tier Japanese and foreign companies are listed. Especially the First Section is viewed as one of the top rank markets in terms of the size and liquidity, as foreign investors account for a large portion of equity trading. The First and Second Sections are collectively referred to as the Main Markets. 2) Mothers Mothers offers a trading market for companies with growth potential which aim to be reassigned to the First Section in near future. Thus TSE requires applicants to demonstrate high growth potential. Whether an applicant has growth potential or not shall be assessed and determined by lead underwriters on the basis of its business model or business environment. As the objective of Mothers is to offer financing opportunities for many companies with growth potential, Mothers has no restrictions on the size or business category of applicants. After successfully listing their stock on Mothers, many have satisfied the criteria for alteration to the First Section and listed their stock on the First Section. 3) JASDAQ JASDAQ is a market characterized by the three concepts of (1) reliability, (2) innovativeness and (3) region and internationalization. JASDAQ is split into the Standard market for growth companies with a certain size and business performance and the Growth market for companies with stronger future growth potential and unique technologies or business models. Furthermore, any company which successfully lists its stock can change its listed market according to the stage of business development and growth after initial listing as follows. 7

9 3. Overview of the Initial Listing and Disclosure Systems Assignment to the First Section or alteration thereto requires an application by a listed company, which has to receive the re-examination of the application. The examination thereof will be implemented in accordance with the examination procedures for the listing on the main board of the TSE markets. 3. Overview of the Initial Listing and Disclosure Systems TSE and JPX Regulation, the organization entrusted by TSE to perform listing examination, assess whether applicants satisfy quantitative criteria and numerical thresholds required by the Regulations based on the listing application filed by the applicant. In performing the listing examination, JPX Regulation focuses on the applicant s abilities to contribute to fair price formation, the appropriate distribution of shares of stock in the market, the public interest, and investor protection. When a listing is determined to be appropriate based on comprehensive examination and evaluation, TSE will authorize the applicant to list its stock on TSE. As noted above, an applicant can identify and address potential roadblocks in a listing examination by engaging a consultant before the listing application is filed. When examining a listing application from a foreign company, TSE closely considers the legal system and conventions in practice in the applicant s home country. As such, TSE will address the listing application filed by foreign companies more flexibly than Japanese applicants. Foreign companies can also list on TSE via depository receipts (JDRs, ADRs, or GDRs). (Please see section 8 for details.) 8

10 3. Overview of the Initial Listing and Disclosure Systems (1) Listing Schedule When a foreign company files an application for listing on TSE, the listing examination will require about three months 1. After listing approval by TSE, about one month will be required for public offering procedures (the IPO). An applicant therefore needs four months, as a rule, from the listing application date to the first day of listing. For details on the listing examination performed by JPX Regulation, please see sections 6 and 7. The period for preparing the listing application and period for the underwriting examination may vary, depending on the internal systems and underwriting policies of the underwriting securities firm. 1 Listing schedule for foreign companies may vary depending on legal basis for foundation, applicable accounting standards, and so on. 9

11 3. Overview of the Initial Listing and Disclosure Systems Listing Schedule (2) Roles of Each Party Involved in an IPO The following are the key parties in Japan and the home country who support the listing of a foreign company on TSE. These participants work together closely during the preliminary listing process to support preparations for a listing. 10

12 3. Overview of the Initial Listing and Disclosure Systems Lead Underwriter (TSE trading participant) Legal Firm Audit Firm 2 (foreign audit firm, etc.) TSE Trust and Banking company A lead underwriter is comprehensively involved in the procedures and preparations for listing overall. It provides underwriting business by entering into a lead underwriting agreement with an issuer and provides advice and consultation on the listing and listing schedule. At the time of listing, the lead underwriter submits a Sponsor s Letter of Recommendation to TSE. A legal firm checks and reviews listing-related matters from a legal perspective and prepares a legal opinion. It also helps the applicant prepare disclosure documents. After listing, it discloses corporate information as a legal representative of the listed foreign company. An audit firm provides advice on the design and implementation of the accounting organization and financial statements and also audits the financial statements (expression of an audit opinion). TSE explains its listing system to companies, IPO-related parties, and so on, and provides preliminary or prior consultation on the listing. A trust and banking company acts as a shareholder services agent for Japanese shareholders after the listing and may act as a dividend payment bank to provide services related to dividend payment. If a foreign company lists through JDRs, the trust and banking company will be responsible for the issuance of the JDRs. Please see section 8 for details on listing through JDRs. 2 Please see section 10 (3) for details on accounting standards and audit certificate. 11

13 3. Overview of the Initial Listing and Disclosure Systems (3) Lead Underwriters The securities companies that assist the applicant with the various tasks for listing are called underwriters. The main underwriter is called the lead underwriter (lead trading participant). The lead underwriter is required to file a Sponsor s Letter of Recommendation with TSE for the applicant s listing on TSE. The following securities companies have sufficient experience as lead underwriters and established systems that have been duly evaluated and approved. Reference: List of possible lead underwriters 3 - Daiwa Securities Co.Ltd. - Goldman Sachs Japan Co., Ltd. - H.S. SECURITIES CO., LTD. - Ichiyoshi Securities Co., Ltd. - Japan Asia Securities Co.,Ltd. - JPMorgan Securities Japan Co., Ltd. - Merrill Lynch Japan Securities Co., Ltd. - Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. - Mizuho Securities Co., Ltd. - Monex, Inc. - Nomura Securities Co., Ltd. - OKASAN SECURITIES CO., LTD. - SBI SECURITIES Co., Ltd. - SMBC Friend Securities Co., Ltd. - SMBC Nikko Securities Inc. - Tokai Tokyo Securities Co., Ltd. - TOYO SECURITIES CO., LTD. - UBS Securities Japan Co., Ltd. 3 As of March 31, 2016 (alphabetical order). This list should not be construed as a recommendation for applicants to enter into transactions with specific companies. TSE will give no guarantees on the involvement or decisions of securities companies or the performance of securities companies with respect to the preparation or success of an initial listing. 12

14 3. Overview of the Initial Listing and Disclosure Systems (4) Rules and Regulations on the Disclosure System on the Secondary Market Information used for decisions on the value of securities must be accurate, fair, and disclosed in a timely manner to ensure that investors can invest in securities based on reasonable judgment. For this purpose, the Financial Instruments and Exchange Act prescribes requirements for information disclosure in the corporate profiles of issuers (statutory disclosure) and TSE prescribes requirements on timely disclosure by listed companies in the Regulations (timely disclosure). a. Statutory Disclosure Companies listed on TSE are required to electronically submit securities reports, quarterly reports, etc. outlining their financial position, and business lines and performance to the Japanese Prime Minister (in practice, to the local Finance Bureau.) The submitted securities reports, etc. are then entered into EDINET (Electronic Disclosure for Investors NETwork) for public inspection and made available to investors via the Internet. Please see the details in section 10. b. Timely Disclosure In addition to statutory disclosure, companies listed on TSE are obliged to promptly disclose decisions and events that may greatly affect investor decisions, in accordance with the Regulations and other relevant rules. Please see the details in section 12 (1). Such information will then be released to the media and investors via the Internet and TSE s online disclosure system, TDnet (Timely Disclosure Network). 13

15 3. Overview of the Initial Listing and Disclosure Systems (5) Commitment to IR In addition to statutory and timely disclosures, TSE encourages all listed companies to engage in IR activities that enable them to communicate with investors about their corporate status. The Regulations require, for example, that Mothers listed companies hold meetings with investors to explain their company profiles and affairs twice a year. Many TSE-listed companies have implemented individual IR activities that go considerably further. Active IR activities are a secure way to enhance corporate brand value and companies can strongly benefit from a listing on TSE. 14

16 4. Listing Examination by TSE (Primary Listing) 4. Listing Examination by TSE (Primary Listing) There are two types of requirements by which the company will be examined to list its stock encompassed by the so called Listing Requirements: Formal Requirements and Eligibility Requirements. TSE examines the company, which meets Formal Requirements and conducts an examination on in under Eligibility Requirements. In application of the rules and regulations of the Exchange to a foreign country or a foreign corporation where the foreign country or the foreign corporation is an issuer, etc. of a listed security, the Exchange shall take into account legal systems, practices and customs, etc. in such foreign country or the country, etc. of the foreign corporation. [Rule 7 of the (1) Main Markets (TSE 1 st Section and 2 nd Section)(Primary Listing) a. Formal Requirements Item 1. Number of shareholders (expected at listing) Requirements 1 st Section 2 nd Section 2,200 shareholders or more 800 shareholders or more [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 1 of the [Rule 210, Paragraph 1, Item 1 of the 2. Number of tradable shares (expected at listing) The following a. through c. must be satisfied: a. The number of tradable shares : 20,000 units or more; The following a. through c. must be satisfied: a. The number of tradable shares: 4,000 units or more; [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 2 of the [Rule 210, Paragraph 1, Item 2 of the b. The market capitalization of the tradable shares: 1 billion yen or more; and (in principle, the value derived by the expected price at the time of public offering for the purpose of listing by the number of tradable shares expected at the time of listing) b. The market capitalization of the tradable shares: 1 billion yen or more; and (in principle, the value derived by the expected price at the time of public offering for the purpose of listing by the number of tradable shares expected at the time of listing) 15

17 4. Listing Examination by TSE (Primary Listing) c. The number of tradable shares (as a percentage of the total number of issued shares outstanding): 35% or more c. The number of tradable shares (as a percentage of the total number of issued shares outstanding): 30% or more 3. Market capitalization (expected at listing) [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 3 of the [Rule 210, Paragraph 1, Item 3 of the 25 billion yen or more (The market capitalization is, in principle, determined by multiplying the number of listed shares expected at the time of listing by the prospective prices for public offering or secondary offering) 2 billion yen or more (The market capitalization is, in principle, determined by multiplying the number of listed shares expected at the time of listing by the prospective prices for public offering or secondary offering) 4. Number of consecutive years of conducting business [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 4 of the 5. Amount of net assets (expected at listing) [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 5 of the The business activities have been continuously carried out by setting up a board of directors (meaning an institution corresponding to this in cases of a foreign company) since a day before the day which is three (3) years prior to the end of a business year immediately prior to the business year containing the initial listing application day The amount of consolidated net assets: 1 billion yen or more (in addition, the amount of non-consolidated net assets are not negative) 6. Amount of profits and market capitalization (Amount of profits calculated based on the consolidated income statement. Market capitalization is expected at listing) The following a. or b. must be satisfied: a. The total amount of profits in the last two (2) years: 500 million yen or more; and b. The market capitalization: 50 billion yen or more In addition, sales for the last year: 10 billion yen or more [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 6 of the 16

18 4. Listing Examination by TSE (Primary Listing) The following a. through c. must be satisfied: a. No false statement is made in the securities reports, etc. for each business year or each consolidated accounting year which ended in the last two (2) years; 7. False statement or adverse opinion, etc. [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 7 of the b. The audit report attached to financial statements, etc. for each business year or each consolidated accounting year which ended in the last two (2) years (excluding a business year and a consolidated accounting year which ended in the last year) contains an "unqualified opinion" or a "qualified opinion with exceptions" of certified public accountants, etc.; and c. The audit report attached to financial statements, etc. for the business year and consolidated accounting year which ended in the last year contain, as a general rule, an "unqualified opinion" of certified public accountants, etc. The merger, etc. shall not fall under the following a. and b.: 8. Expected implementation of merger, etc [Rule 206, Paragraph 1, Item 1 of the [Rule 205, Item 12 of the a. Where a merger, demerger, making other company a subsidiary or making a subsidiary a non-subsidiary or transfer of a business to or from other entity is scheduled to be carried out on or after the initial listing application day and within two (2) years from the end of the most recent business year before such day, and, in addition, where TSE deems that an initial listing applicant will cease to be a substantial surviving company by such an act; provided, however, that the same shall not apply where the Enforcement Rules so specify; and b. Where a merger in which an initial listing applicant becomes a dissolution company, a stock swap or a stock transfer whereby it becomes a wholly-owned subsidiary of another company is expected to be carried out within two (2) years from the end of the business year immediately prior to the business year containing the initial listing application day (except cases where such acts are scheduled to be carried out before the listing day). 9. Handling by a book-entry transfer institution [Rule 206, Paragraph 1, Item 2 of the The following a. or b. must be satisfied: a. Said issue shall be subject to the custody and book-entry transfer operation for foreign stocks, etc. or the book-entry transfer operation of the designated book-entry transfer institution; and 17

19 4. Listing Examination by TSE (Primary Listing) b. Said issue is expected to become so by the time of listing The following a. or b. must be satisfied: 10. Restriction on transfer of stocks, etc. [Rule 206, Paragraph 1, Item 3 of the a. There is no restriction on transfer of a foreign stock, etc. pertaining to an initial listing application; and b. It is expected that there will be no restriction by the time of listing; provided, however, that the same shall not apply to cases where imposing a restriction on transfer of a foreign stock, etc. is deemed necessary to receive application of provisions of laws in its home country or a case equivalent to this and, in addition, where its details are deemed not to hinder trading in TSE market 11. Deposit agreement, etc. [Rule 206, Paragraph 1, Item 4 of the [Rule 213, Paragraph 3 of the Rules] Where an initial listing applicant is an applicant for initial listing of a foreign stock depositary receipt, etc., the deposit agreement, etc. concerning a foreign stock depositary receipt, etc. and any other agreement pertaining to an initial listing application shall be those entered into pursuant following a. or b.: a. Foreign stock depositary receipts: Said deposit agreement, etc. is to be concluded among the initial listing applicant, the depository, etc. pertaining to said foreign stock depositary receipts, and holders of said foreign stock depositary receipts; and b. Foreign stock trust beneficiary certificates: Said deposit agreement, etc. is to be concluded between the depository, etc. pertaining to said foreign stock trust beneficiary certificates and holders of said foreign stock trust beneficiary certificates; and the initial listing applicant has concluded a contract deemed appropriate by TSE 18

20 4. Listing Examination by TSE (Primary Listing) b. Eligibility Requirements Item Requirements (1) Profit and loss and income and expenditure in consolidated financial statements of an initial listing applicant have not deteriorated. 1. Corporate continuity and profitability A business is operated continuously and a stable revenue base is present [Rule 207, Paragraph 1, Item 1 of the [II, 7 of Guidelines] In this case, even where such profit and loss or income and expenditure have deteriorated, where they are deemed not to impair sound continuity of management activities of the corporate group of the initial listing applicant, it shall be treated as if such profit and loss or income and expenditure have not deteriorated (2) Management activities of the corporate group of an initial listing applicant are in a state enumerated in the following a. and b.: a. There is no material obstacle to the execution of management activities of the corporate group; and b. The structure of the corporate group does not seriously hinder the continuous execution of business activities (3) Concerning the matters which are the premises of the main business activities of the corporate group of an initial listing applicant, there is no factor which hinders their continuity (4) There is no factor which seriously hinders the management and administration of the corporate group of an initial listing applicant. 2. Soundness of corporate management A business is carried out fairly and faithfully [Rule 207, Paragraph 1, Item 2 of the [II, 8 of Guidelines] (1) The corporate group of an initial listing applicant is recognized not to give or enjoy profit wrongfully through a trading act or any other management activities with related parties and other specified entities, in light of the matters enumerated in the following a. and b. and other matters: a. Where a transaction has been conducted between the corporate group of an initial listing applicant and its related parties and/or any other specified entities, and such transaction has rationality of continuing being carried out and reasonability of trading terms including trading prices b. Benefits of the corporate group of an initial listing applicant are not lost wrongfully because related parties and any other specified 19

21 4. Listing Examination by TSE (Primary Listing) entities of the corporate group of an initial listing applicant give priority to their own benefits (2) Where an initial listing applicant has a parent company, etc., management activities of the corporate group of an initial listing applicant are recognized to be independent from such parent company, etc. in light of the matters enumerated in the following a. to c. or any other matters: a. In light of the relationship between the business line of the corporate group of an initial listing applicant and that of the corporate group of the parent company, etc., the state of business adjustment made by the corporate group of the parent company, etc. and its possibility and any other matters, an initial listing applicant is not recognized to be substantially a business division of such parent company, etc.; b. The corporate group of an initial listing applicant or that of a parent company, etc. does not coerce or induce a trading act which becomes disadvantageous to said parent company, etc. or the corporate group of said initial listing applicant such as transactions on markedly different terms from those of normal transactions; and c. The state of receiving seconded persons of the corporate group of an initial listing applicant is recognized not to heavily depend on the parent company, etc. and not hinder continuous management activities 3. Effectiveness of corporate governance and internal management system of an enterprise Corporate governance and internal management system are properly prepared and functioning (1) The system to secure the execution of appropriate work duties of officers of the corporate group of an initial listing applicant, and an internal management system, etc. to carry out management activities of the corporate group of the initial listing applicant are recognized to be appropriately developed and operated (2) The accounting system of the corporate group of an initial listing applicant is recognized as appropriate from the viewpoint of investor protection [Rule 207, Paragraph 1, Item 3 of the [II, 9 of Guidelines] 20

22 4. Listing Examination by TSE (Primary Listing) (1) The corporate group of an initial listing applicant is recognized to be able to properly manage corporate information of facts, etc. which will have a material effect on management, and a system for making timely and appropriate disclosure to investors and the preemptive prevention of insider trading is deemed to be developed and operated appropriately (2) Documents pertaining to disclosure of corporate information, out of the initial listing application documents, are deemed to be prepared in compliance with laws and regulations, and contain the matters enumerated in the following a. and b. and other matters 4. Appropriateness of disclosure of corporate information, etc. a. The legal system of the home country, etc. of an initial listing applicant, the financial condition and financial results of an initial listing applicant and its corporate group, and matters which may have a material effect on investment decisions of investors, such as important matters, etc. concerning officers, major shareholders, related companies, etc.; and The applicant is in a status where disclosure of the corporate information, etc. may be carried out in an appropriate manner [Rule 207, Paragraph 1, Item 4 of the [II, 10 of Guidelines] b. Matters enumerated in the following (a) to (d) pertaining to the matters which are the premises of main business activities of the corporate group of an initial listing applicant: (a) Details of the matters which are the premises of main business activities of the corporate group of an initial listing applicant; (b) Where the validity period of permission, authorization, etc. and any other time limit are specified by laws and regulations or contract, etc., such time limit; (c) Where cancellation, rescission, and any other event of permission and authorization, etc. are stipulated by laws and regulations or contract, etc., such fact and content; and (d) The fact that there is no factor which hinder their continuity concerning the matters which are the premises of main business activities of the corporate group of an initial listing applicant, and if there is such factor, the fact that it will have a material effect on business activities; (3) The corporate group of an initial listing applicant does not provide distorted information disclosure on the actual state of the corporate group of the initial listing applicant by conducting a trading act with its related party or any other specified entity or adjustment of stock ownership ratios, etc.; 21

23 4. Listing Examination by TSE (Primary Listing) (4) Where an initial listing applicant has a parent company, etc., the following a. or b. shall be met on the premise that disclosure of such parent company, etc. is valid: a. A stock, etc. issued by a parent company, etc. of an initial listing applicant is listed on a domestic financial instruments exchange (including cases where a stock, etc. issued by such parent company, etc. is listed or continuously traded on such foreign financial instruments exchange, etc., and the state of disclosure on corporate affairs in a country in which such parent company, etc. or such foreign financial instruments exchange, etc. is located is not deemed to markedly lack investor protection); and b. An initial listing applicant can appropriately understand company information such as facts and information concerning the parent company, etc. which has a material effect on its management, and the initial listing applicant pledges in writing that such parent company, etc. agrees to its disclosure of company information which has a material effect on its management, out of such company information concerning the parent company, etc., to investors in an appropriate manner; (1) The contents of the rights of shareholders or holders of foreign stock depositary receipts, etc. and the state of their exercise are deemed appropriate from the viewpoints of the public interest or the protection of investors, because of the matters enumerated as follows and other matters: 5. Other matters deemed necessary by TSE from the viewpoint of the public interest or the protection of investors [Rule 207, Paragraph 1, Item 5 of the [II, 11 of Guidelines] a. The contents of the rights of shareholders or holders of foreign stock depositary receipts, etc., and their exercise are not unreasonably restricted; and b. Where an initial listing applicant has introduced a takeover defense measure, the initial listing applicant complies with the matters enumerated in the following (a) to (d): (a) Sufficient disclosure: The listed company shall make necessary and sufficient timely disclosure concerning takeover defense measures; (b) Transparency: Conditions of implementation and abolishment of takeover defense measures shall not depend on arbitrary decisions by the management; (c) Effect on the secondary market: Takeover defense measures shall not include factors which may 22

24 4. Listing Examination by TSE (Primary Listing) cause extremely unstable price formation of a stock or any other factors which may cause unpredictable damage to investors; and (d) Respect for shareholders rights: Takeover defense measures shall give consideration to shareholders rights and their exercise. (2) The corporate group of an initial listing applicant does not have a contention or dispute, etc. which would have a material effect on management activities and business performance (3) The corporate group of an initial listing applicant is recognized to prepare an internal system to prevent criminal and extremist elements from being involved in management activities, and making efforts to prevent such involvement, and their actual state is recognized as appropriate from the viewpoints of the public interest or the protection of investors (4) Other cases deemed appropriate from the viewpoints of the public interest or the protection of investors 23

25 4. Listing Examination by TSE (Primary Listing) c. Documents to be Filed The following highlights the documents required to be filed for the purpose of the initial listing application. Each of these documents is requested to be filed when the requirements for the filing thereof are met. The following also includes the documents to be filed only for the purpose of multiple listing. Please refer to the footnotes at the end of this paragraph with respect to Documents Required to be Filed only for the Purpose of Multiple Listing and Documents Not Required to be Filed for the Purpose of Multiple Listing. (a) Documents to be filed at the time of conducting initial listing application Number Documents to be filed 1 Preliminary application form for initial listing of securities 2 Application form for initial listing of securities 3 Written Oath relating to initial listing application 4 Articles of Incorporation (including by-laws) Minutes of general shareholders meeting or the meeting of the Board of Directors concerning 5 the acquisition of shares of treasury stock, the disposal of shares of treasury stock and the retirement of shares of treasury stock 6 Statement certifying no ties with anti-social forces 7 Written Recommendation (by listing approval date) 8 Sponsor s letter of confirmation Statement of specific considerations and focused matters during the process of instructions on 9 going public and underwriting examination Statement concerning the matters which constitute the premise underlying major business 10 activities Table of distribution of share ownership 11 (unnecessary if the company conducts offering) (Note 2) 12 Statement describing matters concerning controlling shareholders 13 Sample of foreign stock certificate and etc. (to be attached stock sample list) 14 Minutes of the meeting of the Board of Directors on initial listing application 15 Securities Report for Initial Listing Application (Part I) 16 A legal opinion 17 A copy of the document proving that the representative is a person with a legitimate authority Document certifying the deposit agreement concerning depositary receipts, etc. for the new 18 listing application (Note 3) A document certifying that the depository, etc. has agreed to the matters TSE deems necessary 19 for the new listing application (Note 3) In case it has not passed at least two (2) years after the merger or the becoming a foreign 20 holding company to the initial listing application date to a day immediately prior to the listing date, financial statements deemed necessary by TSE for listing examination Table of Change in Number of Shareholders or of Holders of Foreign Stock Depositary Receipts, 21 etc. (Note 4) 24

26 4. Listing Examination by TSE (Primary Listing) 22 A document certifying that the agent, etc. has been appointed or given informal consent to accept the appointment 23 Documents describing the plan for the shareholder directed spin-off (Note 5) 24 Materials concerning the value of the stock pertaining to the initial listing application (Note 6) Corporate Governance Report 25 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is a main market) 26 Audit reports, interim audit reports or quarterly review reports (Excluding Applicants exempted under the clause in Rule 204, Paragraph 6 of the Rules) 27 Summary audit reports, summary interim audit reports or summary quarterly review reports (Excluding Applicants exempted under the clause in the Rule 204, Paragraph 6 of the Rules) 28 Preliminary Initial Listing Application Report (prepared by the applicant) 29 Preliminary Initial Listing Application Report (prepared by the managing trading participant) 30 Corporate report(materials describing the Applicant's business and operation) 31 Materials sent to shareholders and official publications (including the notice of the general shareholders' meeting) regarding the general shareholders' meetings in the past two (2) years Documents (such as prospectuses) sent to shareholders regarding rights issues in the past two 32 (2) years or regarding most recent right issue in the past five (5) years where there is none in the past two (2) years 33 A copy of the annual report sent to Shareholders or Holders of Foreign Stock Depositary Receipts in the past five (5) years 34 A copy of the interim report and quarterly reports sent to Shareholders or Holders of Foreign Stock Depositary Receipts in the past two (2) years A copy of the securities report, annual report, interim report, quarterly reports and extraordinary reports submitted to the Prime Minister etc. in the past two (2) years (Note 1) A copy of the securities registration statement (including amendment thereto) submitted to the Prime Minister etc. in the past two (2) years (Note 1) 37 News releases and newspaper publications regarding earnings announcements, dividend, stock split, rights issue, and other material information in the past one (1) year 38 Relevant laws pertaining to the incorporation of the Applicant in the Applicant's jurisdiction 39 List of agenda of the meeting of the Board of Directors in the past two (2) years 40 A set of documents submitted by the Applicant to relevant authorities in relation to application of tax refund 41 The check sheet regarding the legal framework of accounting and audit in the home country submitted to the Financial Services Agency of Japan 42 Other matters deemed necessary by TSE for listing examination (Note 7) (b) Documents to be filed at the time of making initial listing application (When an applicant has a non-listed parent company, etc.) Number Documents to be filed 43 Written document of the last financial information of non-listed parent company, etc. (Note 8) 44 Written confirmation concerning timely disclosure, etc. of parent company, etc. (Note 8) 25

27 4. Listing Examination by TSE (Primary Listing) (c) Documents to be filed at the time of making initial listing application (Where becoming a subsidiary or merger, etc.) Number Documents to be filed Where merger during the recent one year or after the beginning of the business year in which the listing application is filed, financial statements deemed necessary by TSE Where becoming a subsidiary or non-subsidiary company during the recent one year or after the beginning of the business year in which the listing application is filed, financial statements deemed necessary by TSE (d) Documents to be filed after making initial listing application where necessary /applicable Number Documents to be filed Quarterly reports for Initial Listing Application where: (Note 1) (Note 2) The listing day falls anytime after three (3) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the first quarter of said business year The listing day falls anytime after six (6) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the second quarter of said business year The listing day falls anytime after nine (9) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the third quarter of said business year Quarterly balance sheet of the final day of the above period (In cases where a management company is the entity preparing consolidated financial statements) Notice of board meeting resolutions or general shareholders' meeting resolutions during the period from the first day of the business year containing the initial listing application day to the listing day Reports of corporate information having significant impact on the business of the initial listing applicant during the period from the first day of the business year containing the initial listing application day to the listing day A copy of the following documents submitted to the Prime Minister etc. during the period from the first day of the business year containing the initial listing application day to the listing day (Note 1) Securities registration statement (including amendment thereto)and document attached thereto Notice of effectiveness of securities registration statement Securities notification (including amendment thereto) and document attached thereto 26

28 4. Listing Examination by TSE (Primary Listing) (e) Documents to be filed after making initial listing application where necessary / applicable (If there are shares that have not been issued as of the new listing application date in the shares as of desired listing date) Number Documents to be filed A document certifying the resolution authorizing the issuance of such stocks, etc., a copy of the securities notification, a copy of the notice of effectiveness of the securities registration statement or a copy of shelf registration statement, or a copy of notification of receipt of securities notification or a copy of notification of receipt of shelf registration notification, as well as a document certifying completion of payment (certificate of registered matters, etc.) (Note 1) Notification of initial listing application securities report amendment (at time of effect of amended details) (f) Documents to be filed after making initial listing application but no later than listing approval is granted Number Documents to be filed 54 Written Confirmation Regarding Compliance with Exchange Rules and Regulations The written document containing the effect that the representative of such initial listing 55 applicant is aware that the Securities Report for Initial Listing Application (Part I) and other documents do not contain any untrue statements Corporate Governance Report (PDF version) 56 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is the main market) 57 The report containing risk information pertaining to the structure of the corporate group (Note 9) 58 Listing Agreement 59 Articles of incorporation (including by-laws) 60 Securities Report for Initial Listing Application (Part I) 61 Securities Report for Initial Listing Application (Part I) PDF version 62 Quarterly report of initial listing application (Note 1) (Note 2) 63 Quarterly report of initial listing application PDF version (Note 1) (Note 2) 64 Calculation of the expected market capitalization 65 Corporate Brochure of Applicant 27

29 4. Listing Examination by TSE (Primary Listing) (g) Documents to be filed by the applicant making a public offering, etc. Number Documents to be filed 66 Expected public offering or secondary offering plan 67 Securities Registration Statement and its accompanying documents (Note 1) 68 Amendment of Securities Registration Statement (after the determination of the tentatively set price range) (Note 1)(Note 10) 69 Amendment of Securities Registration Statement (after the determination of offering price) (Note 1) 70 Notice on effectiveness of securities registration statement 71 Notice of Execution of public offering or secondary offering 72 Press release of notice of the determination of offering prices and the reasons, etc. therefor 73 Press release of notice of provisional conditions and the reasons for deciding them (Note 10) 74 Materials pertaining the determination of the assumed tentatively set price range 75 Materials pertaining the determination of the tentatively set price range 76 Materials pertaining the determination of offering price 77 Notification of the revisions of the Security Initial Listing Application Form Note 1: In cases of submission to the Prime Minister, etc. via electronic data processing for disclosure (refers to electronic data processing for disclosure as prescribed by Rule of the Financial Instruments and Exchange Act), the submission of such documents is not required. Note 2: The applicant applying for a multiple listing need not submit the document. Note 3: Only the applicant applying for a multiple listing needs to submit the document. Note 4: Only the applicant applying for a listing of Foreign Stock Depositary Receipts needs to submit the document. Note 5: Submission only required in cases of a company succeeding business due to a shareholder-directed split of a listed company, which conducts initial listing application prior to such shareholder-directed split. Note 6: In cases where the foreign stock, etc. pertaining to initial listing application is not listed or continuously traded on a domestic financial instruments exchange or foreign financial instruments exchange, etc., submission is only required when public offering or secondary offering will not be conducted for the foreign stock, etc. pertaining to initial listing application. Note 7: There may be cases which require a copy of the "minutes of the board of directors meeting," "internal audit documents," "monthly performance management documents," "documents used in annual budget plan, medium-term management plan, and planning," "important agreements," etc. Note 8: The applicant needs to submit the document where none of the following is the case: (1) the shares issued by the parent company, etc. are listed on a financial instruments exchange in Japan (2) the shares issued by the parent company, etc. are listed or continuously traded on a foreign financial instruments exchange, etc. and it is not deemed that disclosure status of the parent company, etc. in its home country, etc. is seriously detrimental to investor protection. (3) the parent company, etc. is subject to ongoing disclosure (4) the parent company, etc. is subject to ongoing disclosure in its home country and such status is not deemed to be seriously detrimental to investor protection. Note 9: Submission only required in cases where TSE deems the corporate group to have a special composition. Note 10: Submission only required in cases of direct listing. Note 11: The applicant needs to submit documents pertaining a shelf registration, possession of a large volume of shares, and tender offer that it makes after the beginning of the business year containing the initial listing application day 28

30 4. Listing Examination by TSE (Primary Listing) (2) Mothers (Primary Listing) a. Formal Requirements Item Requirements 1. Number of shareholders (expected at listing) 200 shareholders or more [Rule 213, Paragraph 1, Item 1 of the [Rule 212, Item 1 of the The following a. through c. must be satisfied: 2. Number of tradable shares (expected at listing) [Rule 213, Paragraph 1, Item 1 of the [Rule 212, Item 2 of the a. The number of tradable shares: 2,000 units or more; b. The market capitalization of the tradable shares: 500 million yen or more; and (in principle, the value derived by the expected price at the time of public offering for the purpose of listing by the number of tradable shares expected at the time of listing) c. The number of tradable shares (as a percentage of the total number of issued shares outstanding): 25% or more 3. Implementation of public offering [Rule 213, Paragraph 1, Item 1 of the [Rule 212, Item 3 of the 4. Market capitalization (expected at listing) [Rule 213, Paragraph 1, Item 1 of the [Rule 212, Item 4 of the The applicant must carry out a public offering of a stock, etc. of at least 500 units pertaining to an initial listing application during the period from the initial listing application day to the day preceding the listing day 1 billion yen or more (The market capitalization is, in principle, determined by multiplying the prospective prices for public offering or secondary offering by the number of listed shares expected at the time of listing) 5. Number of consecutive years of business conduct [Rule 213, Paragraph 1, Item 1 of The applicant has conducted the business activities, setting up a board of directors (meaning an institution corresponding to this in cases of a foreign company) for at least a year before the initial listing application day 29

31 4. Listing Examination by TSE (Primary Listing) the [Rule 212, Item 5 of the The following a. through c. must be satisfied: a. The audit report attached to a "Securities Report for Initial Listing Application" (excluding an audit report attached to financial statements, etc. for the business year or the consolidated business year ending in the last year) shall contain an "unqualified opinion" or a "qualified opinion with exceptions" of certified public accountants, etc.; provided, however, that the same shall not apply to cases where the Enforcement Rules specify otherwise; 6. False statement or adverse opinion, etc. [Rule 213, Paragraph 1, Item 1 of the [Rule 212, Item 6 of the b. The audit report (limited to an audit report attached to financial statements, etc. for the business year or the consolidated business year ended in the last year), an interim audit report or a quarterly review report attached to a "Securities Report for Initial Listing Application" shall contain an "unqualified opinion", an "opinion that the interim financial statements, etc. provide useful information" or an "unqualified conclusion" of certified public accountants, etc.; provided, however, that the same shall not apply to cases specified by the Enforcement Rules; and c. No false statement shall be made in a Securities Report, etc. containing or making reference to financial statements, etc., interim financial statements, etc., or quarterly financial statements, etc. pertaining to the audit report, the interim audit report, or the quarterly review report prescribed by a. and the preceding b.; 7. Handling by a book-entry transfer institution [Rule 213, Paragraph 1, Item 2 of the [Rule 206, Paragraph 1, Item 2 of the The following a. or b. must be satisfied: a. Said issue shall be subject to the custody and book-entry transfer operation for foreign stocks, etc. or the book-entry transfer operation of the designated book-entry transfer institution; and b. Said issue is expected to become so by the time of listing 8. Restriction on transfer of stocks, etc. [Rule 213, Paragraph 1, Item 2 of the [Rule 206, Paragraph 1, Item 3 of The following a. or b. must be satisfied: a. There is no restriction on transfer of a foreign stock, etc. pertaining to an initial listing application; and b. It is expected that there will be no restriction by the time of listing; 30

32 4. Listing Examination by TSE (Primary Listing) the provided, however, that the same shall not apply to cases where imposing a restriction on transfer of a foreign stock, etc. is deemed necessary to receive application of provisions of laws in its home country or a case equivalent to this and, in addition, where its details are deemed not to hinder trading in TSE market 9. Deposit agreement, etc. Where an initial listing applicant is an applicant for initial listing of a foreign stock depositary receipt, etc., the deposit agreement, etc. concerning a foreign stock depositary receipt, etc. and any other agreement pertaining to an initial listing application shall be those entered into pursuant following a. or b.: [Rule 213, Paragraph 1, Item 2 of the [Rule 206, Paragraph 1, Item 4 of the [Rule 213, Paragraph 3 of the Rules] a. Foreign stock depositary receipts: Said deposit agreement, etc. is to be concluded among the initial listing applicant, the depository, etc. pertaining to said foreign stock depositary receipts, and holders of said foreign stock depositary receipts; and b. Foreign stock trust beneficiary certificates: Said deposit agreement, etc. is to be concluded between the depository, etc. pertaining to said foreign stock trust beneficiary certificates and holders of said foreign stock trust beneficiary certificates; and the initial listing applicant has concluded a contract deemed appropriate by TSE 31

33 4. Listing Examination by TSE (Primary Listing) b. Eligibility Requirements Item Requirements (1) The corporate group of an initial listing applicant is deemed to be able to properly manage corporate information of facts, etc. which will have a material effect on management and to disclose it to investors in a timely and appropriate manner, and a system for the preemptive prevention of insider trading is deemed to be eveloped and operated appropriately 1. Appropriateness of the disclosure of corporate information, risk information, etc. The company is able to make disclosure of the corporate information, risk information, etc. may be carried out in an appropriate manner [Rule 214, Paragraph 1, Item 1 of the [III, 2 of Guidelines] (2) Documents pertaining to disclosure of corporate information, out of initial listing application documents, are deemed to be prepared in compliance with laws and regulations, and contain the matters enumerated in the following a to c and other matters appropriately in consideration of the state of the business line and the business condition of an initial listing applicant and its corporate group a. Useful matters for investment decisions of investors such as analysis and explanation pertaining to the state of financial conditions, management performance & receipt and disbursement of funds, the state of the related companies, the state of R&D activities, the state of major shareholders, the state of officers & employees, dividend policy, purposes of funds of an increase in paid-in capital through a public offering concerning an initial listing applicant and its corporate group; b. Matters that should be considered as a risk factor of an initial listing applicant, when investors make investment decisions, such as a small number of years in business operations, the state of the occurrence of cumulative losses or business losses, dependence on a specified officer, the state of competition of business with other companies, uncertainties of markets and technologies, the state of support for the purpose of the administration of business from a specified entity, etc., concerning an initial listing applicant; and c. Matters enumerated in the following (a) to (d) with respect to matters which are the premises of the main business activities of an initial listing applicant and its corporate group: (a) Details of the matters which are the premises of the main business activities of an initial listing applicant and its corporate group; (b) Where the validity period of permission and authorization, etc. and any other time limit is specified by laws and regulations or a contract, etc., such time limit; 32

34 4. Listing Examination by TSE (Primary Listing) (c) Where cancellation, rescission and any other event of permission and authorization, etc. are stipulated by laws and regulations or a contract, etc., such fact; and (d) The effect that there is no factor which hinder their continuity concerning the matters which are the premises of the main business activities of the corporate group of an initial listing applicant, and if there is such factor, the effect that it will have a material effect on business activities; (3) The corporate group of an initial listing applicant does not make distorted information disclosure on the actual state of the corporate group of the initial listing applicant by carrying out a trading act with its related party or any other specified entity or adjustment of the stock ownership ratios, etc. (4) Where an initial listing applicant has a parent company, etc., any one of the following a or b shall be met on the premise that disclosure of such parent company, etc. is valid; provided, however, that the same shall not apply to cases where the business relationship between the initial listing applicant and such parent company, etc. is weak and, in addition, it is clear that the ownership of the stock of the initial listing applicant by such parent company, etc. is for the purpose of encouraging investment, not for the substantial control of business activities of the initial listing applicant: a. A stock, etc. issued by a parent company, etc. of an initial listing applicant is listed on a domestic financial instruments exchange (including cases where a stock, etc. issued by such parent company, etc. is listed or continuously traded on such foreign financial instruments exchange, etc., and, the state of disclosure of corporate information in a country in which such parent company, etc. or such foreign financial instruments exchange, etc. is located is not deemed to conspicuously lack investor protection); and b. An initial listing applicant can appropriately understand company information such as facts concerning the parent company, etc. which has a material effect on its management, and the initial listing applicant pledges in writing that such parent company, etc. agrees to its disclosure of company information which has a material effect on its management, out of such company information concerning the parent company, etc., to investors in an appropriate manner 33

35 4. Listing Examination by TSE (Primary Listing) (5) Where an initial listing company is a foreign company, the accounting system adopted by the initial listing company shall be deemed appropriate from the viewpoint of investor protection (6) Where an initial listing company is a foreign company, and a stock, etc. pertaining to such initial listing applicant is not listed or continuously traded on a Foreign Financial Instruments Exchange, etc., and the initial listing application is made only to TSE, the "Securities Report for Initial Listing Application (Part I)" shall contain matters enumerated in the following a. and b.: a. Matters enumerated in the following (a) and (b) for a period from a day one year prior counting from the end date of a business year immediately prior to the initial listing application date to a day immediately prior to the listing date: (a) The state of new stock issues, or issues of subscription warrants or subscription warrant securities by the method other than allocation to shareholders; and (b) The state of change in the ownership of the shares pertaining to a stock, etc. by an entity with special interest, etc. (meaning an entity as prescribed in i) and ii) of Item (31) of Paragraph 1 of Rule 2 of the Cabinet Office Ordinance on Disclosure); b. Where a holder of a stock, a subscription warrant or a subscription warrant security has made an arrangement concerning the holding of such securities for a certain period after listing with an initial listing applicant or with a financial instruments broker-dealer which enters into the principal underwriting agreement with an initial listing applicant, such details. 2. Soundness of corporate management The company is carrying out business in a fair and faithful manner [Rule 214, Paragraph 1, Item 2 of the [III, 3 of Guidelines] (1) The corporate group of an initial listing applicant is recognized, as a general rule, not to give or enjoy profit wrongfully through a trading act or any other management activities with relevant parties or other specified entities, for the reason of the matters enumerated in the following a. and b. and other matters: a. Where a transaction has occurred between the corporate group of an initial listing applicant and its relevant parties or any other specified entities, and such transaction has rationality of continuing the transaction, and trading terms including trading prices are clearly not disadvantageous to the corporate group of an initial listing applicant; and b. Benefits of the corporate group of an initial listing applicant are not 34

36 4. Listing Examination by TSE (Primary Listing) lost wrongfully because relevant parties and any other specified entities of the corporate group of an initial listing applicant give priority to their own benefits; (2) The mutual relationship of relatives of officers of an initial listing applicant, its composition, actual situation of providing services or the state of concurrent posts as officers and employees, etc. with any other company, etc. are recognized not to impair the fair, faithful and full execution of office duties or the implementation of effective auditing as officers of such initial listing applicant. In this case, where directors, accounting advisors or executive officers, spouses of persons corresponding to these and relatives by blood within the second degree of kinship and relatives by affinity take a position as an auditor, a member of an auditing committee or any other persons corresponding to these, it shall be deemed to impair the implementation of an effective auditing (3) Where an initial listing applicant has a parent company, etc., management activities of the corporate group of an initial listing applicant are recognized to have independence from such parent company, etc. for the reason of the matters enumerated in the following a. to c. or any other matters: a. In light of the relationship between the business line of the corporate group of an initial listing applicant and that of the corporate group of the parent company, etc., the state of business adjustment made by the corporate group of the parent company, etc. and its possibility and any other matters, an initial listing applicant is not recognized to be substantially a business division of such parent company, etc.; b. The corporate group of an initial listing applicant or that of a parent company, etc., as a general rule, does not coerce or induce a trading act which becomes disadvantageous to such parent company, etc. or the corporate group of such initial listing applicant, such as transactions under markedly different terms from those of normal transactions in principle; and c. The state of receiving seconded persons of the corporate group of an initial listing applicant is recognized not to excessively depend on the parent company, etc. and not hinder continuing management activities. 35

37 4. Listing Examination by TSE (Primary Listing) (1) The system to secure the execution of appropriate work duties of officers of the corporate group of an initial listing applicant is recognized to be reasonably developed and appropriately operated in light of the matters enumerated in the following a and b and other matters: a. An initial listing applicant has an organizational plan and an officer composition which is able to effectively conduct checking and auditing concerning the execution of work duties of officers of the corporate group of an initial listing applicant; and 3. Effectiveness of corporate governance and internal management system of an enterprise Corporate governance and internal management system are developed in accordance with the size, corporate maturity, etc. of the enterprise, and functioning properly [Rule 214, Paragraph 1, Item 3 of the b. Checking and auditing the execution of work duties of officers for efficient management is carried out and functions effectively in the corporate group of an initial listing applicant (2) The internal management system is recognized to be reasonably developed and appropriately operated for an initial listing applicant and its corporate group to carry out effective management activities for the reason of the matters enumerated in the following a. and b. and other matters: a. A necessary managerial and administrative body is reasonably developed and appropriately operated to secure efficiency of management activities and internal checking functions of the corporate group of an initial listing applicant; and b. An internal auditing system of the corporate group of an initial listing applicant is reasonably developed and appropriately operated; [III, 4 of Guidelines] (3) Necessary personnel are recognized to be competent to carry out stable and continuing execution of management activities of the corporate group of an initial listing applicant and to maintain its internal management system; (4) The corporate group of an initial listing applicant adopts accounting treatment standards adaptable to its actual situation and, in addition, a necessary accounting body is recognized as being prepared and operated appropriately; and (5) It is recognized that an effective system to comply with laws and regulations, etc. concerning management activities and other matters in the corporate group of an initial listing applicant is prepared and operated appropriately, and that no material breach 36

38 4. Listing Examination by TSE (Primary Listing) of laws and regulations has recently been made, and no act which is likely to become a material breach of laws and regulations in the future is being carried out 4. Reasonableness of the business plan The listing applicant has developed reasonable and suitable business plans, and has developed the operating base necessary for executing such business plans, or there is reasonable expectation that it will develop such operating base (1) The business plan of the business group of the initial listing applicant is deemed to have taken into account the business model, business environment, risk factors, etc. and appropriately drawn up. (2) The operating base necessary for executing the business plan of the business group of the initial listing applicant is deemed to have been developed or that there is reasonable expectation that such operating base will be developed. [Rule 214, Paragraph 4, Item 1 of the [III, 5 of Guidelines] (1) The contents of the rights of shareholders or holders of foreign stock depositary receipts, etc. and the state of their exercise are deemed appropriate from the viewpoints of the public interest or the protection of investors, in light of the matters enumerated as follows and other matters: 5. Other matters deemed necessary by TSE from the viewpoint of the public interest or the protection of investors. [Rule 214, Paragraph 1, Item 5 of the [III, 6 of Guidelines] a. The contents of the rights of shareholders or holders of foreign stock depositary receipts, etc. and their exercise are not unreasonably restricted; and b. Where an initial listing applicant has introduced a takeover defense measure, the initial listing applicant complies with the matters enumerated in the following (a) to (d): (a) Sufficient disclosure: The listed company shall make necessary and sufficient timely disclosure concerning takeover defense measures; (b) Transparency: Conditions of implementation and abolishment of takeover defense measures shall not depend on arbitrary decisions by the management; (c) Effect on the secondary market: 37

39 4. Listing Examination by TSE (Primary Listing) Takeover defense measures shall not include factors which may cause extremely unstable price formation of a stock or any other factors which may cause unpredictable damage to investors; and (d) Respect for shareholders rights: Takeover defense measures shall give consideration to shareholders rights and their exercise. (2) The corporate group of an initial listing applicant does not have a contention or dispute, etc. which would have a material effect on management activities and business performance (3) Concerning the matters which are the premises of the main business activities of the corporate group of an initial listing applicant, there is no factor which hinders their continuity (4) The corporate group of an initial listing applicant is recognized to develop an internal system to prevent criminal and extremist elements from being involved in management activities, and making efforts to prevent such involvement and their actual state is recognized as appropriate from the viewpoints of the public interest or the protection of investors (5) Other cases deemed appropriate from the viewpoints of the public interest or the protection of investors 38

40 4. Listing Examination by TSE (Primary Listing) c. Documents to be Filed The following highlights the documents required to be filed for the purpose of the initial listing application. Each of such documents is requested to be filed when the requirements for the filing thereof are met. The following also includes the documents to be filed only for the purpose of multiple listing. Please refer to the footnotes at the end of this paragraph with respect to Documents Required to be Filed only for the Purpose of Multiple Listing and Documents Not Required to be Filed for the Purpose of Multiple Listing. (a) Documents to be filed at the time of conducting the initial listing application Number Documents to be filed 1 Preliminary Application Form for initial listing of securities 2 Application form for initial listing of securities 3 Written Oath relating to initial listing application 4 Articles of Incorporation (including by-laws) 5 Statement certifying no ties with anti-social forces Statement concerning the matters which constitute the premise underlying major business 6 activities Table of Distribution of Share Ownership 7 (unnecessary if the company conducts offering) (Note 2) 8 Written document of the last financial information of non-listed parent company, etc. (Note 3) 9 Written confirmation concerning timely disclosure, etc. of parent company, etc. 10 Statement describing matters concerning controlling shareholders 11 Minutes of the Meeting of the Board of Directors on initial listing application 12 A legal opinion 13 A copy of the document proving that the representative is a person with a legitimate authority Document certifying the deposit agreement concerning depositary receipts, etc. for the new 14 listing application (Note 4) A document certifying that the depository, etc. has agreed to the matters TSE deems necessary 15 for the new listing application (Note 4) Table of Change in Number of shareholders or of holders of Foreign Stock Depositary Receipts, 16 etc. (Note 5) A document certifying that the agent, etc. has been appointed or given informal consent to 17 accept the appointment 18 Materials concerning the value of the stock pertaining to the initial listing application (Note 6) 19 Written Recommendation (by listing approval date) 20 Sponsor s Letter of Confirmation Statement of specific considerations and focused matters during the process of instructions on 21 going public and underwriting examination Various explanatory materials concerning listing applicant: Lines of business ; Business plan 22 Going Forward ; Nature of Transactions with Special Interested Party ; Status of Industry and Trading Partners ; 23 Statement of accounts of consolidated subsidiaries for the last two business years 39

41 4. Listing Examination by TSE (Primary Listing) 24 Financial statements, etc. of merged companies in a merger transaction for the recent two business years 25 Materials concerning the value of the stock pertaining to the initial listing application (Note 7) 26 Securities Report for Initial Listing Application (Part I) 27 Written confirmation concerning timely disclosure, etc. Corporate Governance Report 28 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is a main market) 29 Audit Reports, Interim Audit Reports or Quarterly Review Reports (Excluding applicants exempted under the clause in Rule 211, Paragraph 6 of the Rules) 30 Summary Audit Reports, Summary Interim Audit Reports or Summary Quarterly Review Reports (Excluding Applicants exempted under the clause in the Rule 211, Paragraph 6 of the Rules) 31 Preliminary Initial Listing Application Report (prepared by the applicant) 32 Preliminary Initial Listing Application Report (prepared by the managing trading participant) 33 Corporate Report(materials describing the applicant's business and operation) 34 Materials sent to Shareholders and official publications (including the notice of the general shareholders' meeting) regarding the General Shareholders' Meetings in the past two (2) years Documents (such as prospectuses) sent to shareholders regarding rights issue in the past two 35 (2) years or regarding most recent right issue in the past five (5) years where there is none in the past two (2) years 36 A copy of the Annual Report sent to shareholders or holders of Foreign Stock Depositary Receipts in the past one (1) year 37 A copy of the Interim Report and Quarterly Reports sent to shareholders or holders of Foreign Stock Depositary Receipts in the past one (1) year 38 A copy of the Securities Report, Annual Report, Interim Report, Quarterly Reports and Extraordinary Reports submitted to the Prime Minister etc. in the past one (1) year (Note 1) 39 A copy of the Securities Registration Statement (including amendments thereto) submitted to the Prime Minister etc. in the past one (1) year (Note 1) 40 News releases and newspaper publications regarding earnings announcements, dividend, stock split, rights issue, and other material information in the past one (1) year 41 Relevant laws pertaining to the incorporation of the applicant in the applicant's jurisdiction 42 List of Agenda of the Meeting of the Board of Directors in the past two (2) years 43 A set of documents submitted by the applicant to relevant authorities in relation to application of tax refund 44 The check sheet regarding the legal framework of accounting and audit in the home country submitted to the Financial Services Agency of Japan 45 Sample of foreign stock certificates and etc. (to be attached stock sample list) 46 Other matters deemed necessary by TSE for listing examination (Note 8) 40

42 4. Listing Examination by TSE (Primary Listing) (b) Documents to be filed after the initial listing application where necessary /applicable Number Documents to be filed Quarterly Reports for Initial Listing Application where: (Note 1) (Note 2) The listing day falls anytime after three (3) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the first quarter of said business year The listing day falls anytime after six (6) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the second quarter of said business year The listing day falls anytime after nine (9) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the third quarter of said business year Quarterly balance sheet of the end day of the above period (In cases where a management company is the entity preparing consolidated financial statements) (Note 9) Notice of board meeting resolutions or General Shareholders' Meeting resolutions during the period from the first day of the business year containing the initial listing application day to the listing day Reports of corporate information having significant impact on the business of the initial listing applicant during the period from the first day of the business year containing the initial listing application day to the listing day A copy of the following documents submitted to the Prime Minister etc. during the period from the first day of the business year containing the initial listing application day to the listing day (Note 1) Securities Registration Statement (including amendment thereto)and document attached thereto Notice of effectiveness of Securities Registration Statement Securities notification (including amendment thereto) and document attached thereto Notification of Initial Listing Application Securities Report Amendment (at time of effect of amended details) 41

43 4. Listing Examination by TSE (Primary Listing) (c) Documents to be filed after the initial listing application but no later than listing approval is granted Number Documents to be filed 53 Written Confirmation Regarding Compliance with Exchange Rules and Regulations 54 Listing Agreement 55 Articles of Incorporation (including by-laws) 56 Securities Report for Initial Listing Application (Part I) 57 Securities Report for Initial Listing Application (Part I) PDF version The written document containing the effect that the representative of such initial listing 58 applicant is aware that the Securities Report for Initial Listing Application (Part I) and other documents do not contain any untrue statements 59 Calculation of the expected market capitalization Corporate Governance Report (PDF version) 60 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is a main market) 61 Quarterly Report of Initial Listing Application (Note 1) 62 Quarterly Report of Initial Listing Application PDF version (Note 1) 63 Corporate Brochure of Applicant 64 Drafted disclosures (matters concerning growth potential) as of listing date (d) Documents to be filed by the applicant making a public offering, etc. Number Documents to be filed 65 Expected Public Offering or Secondary Offering Plan 66 Securities Registration Statement and its accompanying documents (Note 1) 67 Materials pertaining the determination of the assumed tentatively set price range 68 Press release of Notice of Provisional Conditions and the reasons for deciding them 69 Materials pertaining the determination of the tentatively set price range 70 Amendment of Securities Registration Statement (after the determination of the tentatively set price range) (Note 1) 71 Press release of Notice of the Determination of Offering Prices and the reasons, etc. therefor 72 Materials pertaining the determination of the assumed tentatively set price range 73 Amendment of Securities Registration Statement (after the determination of offering price) (Note 1) 74 Notice on effectiveness of Securities Registration Statement 75 Notice of execution of Public Offering or Secondary Offering 76 Notification of the revisions of the Security Initial Listing Application Form 42

44 4. Listing Examination by TSE (Primary Listing) Note 1: In cases of submission to the Prime Minister, etc. via electronic data processing for disclosure (refers to electronic data processing for disclosure as prescribed by Article of the Financial Instruments and Exchange Act), the submission of such documents is not required. Note 2: The applicant applying for a multiple listing need not submit the document. Note 3: The applicant needs to submit the document where none of the following is the case: (1) the shares issued by the parent company, etc. is listed on a financial instruments exchange in Japan (2) the shares issued by the parent company, etc. is listed or continuously traded on a foreign financial instruments exchange, etc. and it is not deemed that disclosure status of the parent company, etc. in its home country, etc. is seriously detrimental to investor protection. (3) the parent company, etc. is subject to ongoing disclosure (4) the parent company, etc. is subject to ongoing disclosure in its home country and such status is not deemed to be seriously detrimental to investor protection. Note 4: Only the applicant applying for a multiple listing needs to submit the document. Note 5: Only the applicant applying for a listing of Foreign Stock Depositary Receipts needs to submit the document. Note 6: Submission only required in cases of a company succeeding business due to a shareholder-directed split of a listed company, which conducts initial listing application prior to such shareholder-directed split. Note 7: Submission only required in cases of a company succeeding business due to a shareholder-directed split of a listed company, which conducts initial listing application prior to such shareholder-directed split. Note 8: There may be cases which require a copy of the "Minutes of the Board of Directors Meeting," "Internal Audit Documents," "Monthly Performance Management Documents," "Documents Used in Annual Budget Plan, Medium-Term Management Plan, and Planning," "Important Agreements," etc. Note 9: Submission only required in cases where TSE deems the corporate group to have a special composition. Note 10: The applicant needs to submit documents pertaining a shelf registration, possession of a large volume of shares, and tender offer that it makes after the beginning of the business year containing the initial listing application day 43

45 4. Listing Examination by TSE (Primary Listing) (3) JASDAQ Market (Primary Listing) a. Formal Requirements Item Standard Requirement Growth 1. Number of shareholders (expected at listing) 200 shareholders or more (in Japan) 200 shareholders or more (in Japan) [Rule 216-4, Item 1-b of the [Rule 216-7, Item 2 of the 2. Market capitalization of tradable shares (expected at listing) 500 million yen or more 500 million yen or more [Rule 216-4, Item 2-a of the [Rule 216-7, Item 3 of the [Rule 216-3, Item 2 of the 3. Implementation of Public Offering or Secondary Offering [Rule 216-4, Item 1-a of the [Rule 216-7, Item 2 of the The applicant is required to implement public offering or secondary offering of the higher of the number of shares described below and 10% of the number of listed shares expected at the time of listing during the period from the listing application date to the day preceding the listing date. (a) Issues with a trading unit of 1,000 shares: one million shares (b) Issues with a trading unit of 500 shares: 500,000 shares (c) Issues with a trading unit of 100 shares: 100,000 shares (d) Issues with a trading unit of 50 shares: 50,000 shares (e) Issues with a trading unit of 10 shares: 10,000 shares (f) Issues with a trading unit of 1 share: 1,000 shares 44

46 4. Listing Examination by TSE (Primary Listing) 4. Net Asset Value (expected at listing) 200 million yen or more Positive [Rule 216-4, Item 2-a of the [Rule 216-3, Item 3 of the [Rule 216-7, Item 1 of the [Rule 216-6, Item 1 of the 5. Profits or Market Capitalization (Amount of profits calculated based on the consolidated income statement. Market capitalization is expected at listing) [Rule 216-4, Item 2-a of the [Rule 216-3, Item 4 of the The following a. or b. must be satisfied: a. Profits during the most recent year are at least JPY 100 million. b. Market capitalization is expected to reach JPY 5 billion by the time of listing. The following a. through d. must be satisfied: a. No false statements in Securities Reports for the year ended during the recent two years are identified. 6. Audit by listed company audit firm, including false statement or adverse opinion b. The audit opinion on financial statements and so on for the business year ended during the recent two years (excluding the recent one year) is unqualified and fair or qualified opinion with exceptions. [Rule 216-4, Item 2-b of the [Rule 216-7, Item 4 of the [Rule 212, Item 6 of the c. The audit opinion on financial statements and so on for the business year ended during the recent one year is, in principle, unqualified and fair. d. If any stock of an applicant is listed on another financial instruments exchange in Japan, it shall not meet both (a) and (b) below. (a) An internal control audit report for the business year ended during the recent one year includes the statement that no assessment result can be expressed. 45

47 4. Listing Examination by TSE (Primary Listing) (b) An internal control audit report for the business year ended during the recent one year includes the statement that any opinion is refrained from being expressed. 7. Treatment at designated book-entry transfer institution [Rule 216-4, Item 2-b of the [Rule 216-7, Item 4 of the [Rule 206, Item 2 of the The following a. or b. must be satisfied: a. The stock is subject to the foreign stock book-entry transfer or book-entry transfer of the designated book-entry transfer institution. b. The stock is expected to be subject to the transfer as mentioned above by the time of listing. The following a. or b. must be satisfied: 8. Restrictions on transfer of stock a. No restrictions have been imposed on the transfer of foreign stock, etc. for which an initial listing application is filed. [Rule 216-4, Item 2-b of the [Rule 216-7, Item 4 of the [Rule 206, Item 3 of the b. No restrictions are expected be imposed by the listing; provided, however that this criterion does not apply to cases where imposing restrictions on the transfer of foreign stock is required to meet the provisions of laws and regulations of a home country and the nature of such restrictions is determined not to impede trading on JASDAQ 9. Depository agreement, etc. [Rule 216-4, Item 2-b of the [Rule 216-7, Item 4 of the [Rule 206, Item 4 of the [Rule 213, Paragraph 3 of the Rules] If an initial listing applicant files an application for listing of foreign stock depositary receipts, the depository agreement and other agreements for foreign depository receipts for which the listing applicant is filed shall meet the requirements of a and b below. a. In the case of foreign stock depositary receipts, the depository agreement will be entered into concerning the depository period of the receipts and by and between the holders of the receipts. b. In the case of foreign stock trust beneficiary certificates, the depository agreement will be entered into concerning the depository period of the certificates and by and between the holders of certificates, and the initial listing applicant enters into the agreement which TSE determines is appropriate. 46

48 4. Listing Examination by TSE (Primary Listing) b. Eligibility Requirements (Standard Market) Item Requirements (1) Outlook for business performance and financial condition of the corporate group of an initial listing applicant do not hinder the corporate continuity of the applicant in the future. In this case, when falling under the following a. or b., the outlook for business performance and financial condition shall be deemed to not hinder corporate continuity. a. Maintenance of the levels of recent business performance and financial condition of the corporate group of an initial listing applicant is reasonably expected. 1. Business continuity There are no obstacles to continuity of business activities [Rule 216-5, Paragraph 1, Item 1 of the [III-2, 2 of Guidelines] b. In cases where the business performance or financial condition of the corporate group of an initial listing applicant is deteriorating or poor, such situation is deemed to improve in such way as the levels of such performance and conditions are expected to recover or improve in the future based on an objective fact(s). (2) Management activities of the corporate group of an initial listing applicant are deemed to be able to be carried out stably and continuously in light of matters including those enumerated in the following a. to d.: a. Business activities of the corporate group of an initial listing applicant can be conducted stably and continuously in light of purchases, production, sales, and actual results of transactions with customers and suppliers, as well as characteristics and demand trends for manufactured products and services and the state of performance of any other business. b. Investment activities such as capital investment and business investment, etc. of the corporate group of the initial listing applicant do not hinder the continuity of management activities in light of the trend and future outlook, etc. for its investment. c. Financial activities such as fund-raising, etc. of the corporate group of the initial listing applicant do not hinder the continuity of management activities in light of the trend and future outlook, etc. of its financial state. d. With respect to the matters which are the basis of the main business activities of the corporate group of the initial listing 47

49 4. Listing Examination by TSE (Primary Listing) applicant, there are no issues that will hinder the continuity of such business activities. (1) The system to ensure the appropriate execution of duties of officers of the corporate group of the initial listing applicant is deemed to be properly established and appropriately operated in light of matters including those enumerated in the following a. and b.: a. An initial listing applicant has an organizational structure and an officer composition which allow for effective checking and audit of the execution of duties by officers of the corporate group of an initial listing applicant. The listing examination in such case shall be conducted in consideration of the state of compliance with matters prescribed in the provisions of Rules through 439 of the Regulations. 2. Establishment of sound corporate governance and internal management system b. Checking and audit of the execution of officer duties are carried out and function effectively toward the efficient management of the corporate group of an initial listing applicant. Corporate governance and internal management system have been established in accordance with corporate scale and function effectively [Rule 216-5, Paragraph 1, Item 2 of the [III-2, 3 of Guidelines] (2) The mutual relationship between relatives of officers of an initial listing applicant, its composition, the actual working situation or the state of concurrent positions as officers and employees, etc. at another company, etc. are deemed to not impair the fair, faithful, and proper execution of officer duties or effective audit of such initial listing applicant. In this case, where a spouse, blood relative within the second degree of kinship, and relations by affinity of directors, accounting advisors, executive officers, or persons equivalent thereto assume a position as an auditor, a member of an audit committee, or persons equivalent thereto, it shall be deemed to impair effective audit. (3) The corporate group of an initial listing applicant is deemed to adopt accounting treatment standards suited to its actual situation and, in addition, a necessary accounting structure is deemed to be established and operated appropriately. (4) An effective system for compliance with laws and regulations, etc. concerning management activities and other matters in the corporate group of an initial listing applicant is deemed to be established and operated appropriately. (5) The internal management system is deemed to be properly 48

50 4. Listing Examination by TSE (Primary Listing) established and appropriately operated so that an initial listing applicant and its corporate group carry out effective management activities in light of matters including those enumerated in the following a. and b.: a. A necessary managerial and administrative system is properly established and appropriately operated to ensure efficiency of management activities and internal check-and-balance functions of the corporate group of an initial listing applicant. b. An internal audit system of the corporate group of an initial listing applicant is properly established and appropriately operated. (6) Necessary personnel are deemed to be secured in order to carry out stable and continuous execution of management activities and maintenance of the internal management system of the corporate group of an initial listing applicant. (1) The corporate group of an initial listing applicant is deemed, as a general rule, to not unfairly grant or enjoy benefits through a transaction or any other management activities with relevant parties or other specific entities in light of matters including those enumerated in the following a. and b.: 3. Reliability of Corporate Actions Corporate actions which cause market disorder are not expected a. Where a transaction has occurred between the corporate group of an initial listing applicant and relevant parties or other specific entities, and such transaction has reasonability of continuance, and its terms including the transaction price are appropriate. b. The interests of the corporate group of an initial listing applicant are not unfairly undermined due to relevant parties or other specific entities of the corporate group of an initial listing applicant giving priority to their own interests. [Rule 216-5, Paragraph 1, Item 3 of the [III-2, 4 of Guidelines] (2) Where an initial listing applicant has a parent company, etc. (excluding cases where such applicant is expected to cease to have a parent company, etc. by the end of the first business year after listing), management activities of the corporate group of an initial listing applicant are deemed to be independent of such parent company, etc. in light of matters including those enumerated in the following a. to c.: a. In light of the relationship between the business line of the corporate group of the initial listing applicant and that of the 49

51 4. Listing Examination by TSE (Primary Listing) corporate group of the parent company, etc., the state and possibility of business line adjustment made by the corporate group of the parent company, etc. and any other matters, the initial listing applicant is not deemed to be substantially a business division of such parent company, etc. b. The corporate group of an initial listing applicant or that of a parent company, etc., as a general rule, has not been coercing or inducing transactions which will undermine the interests of such parent company, etc. or the corporate group of such initial listing applicant, such as transactions that have markedly different terms from those of normal transactions c. The state of receiving seconded persons of the corporate group of an initial listing applicant is deemed not to excessively depend on the parent company, etc. and not hinder continuous management activities. (3) The management of the corporate group of an initial listing applicant has insight into the responsibilities and significance of being listed on a financial instruments market. (4) An initial listing applicant shall not fall under any of the following a. through c. a. In case where the listing applicant plans to effect merger, divesture of business, or become a subsidiary or non-subsidiary within three years from the end of the business year following the initial listing application date, TSE determines that the initial listing company would not be a de facto surviving company through any of such acts; provided that this will not apply to cases where it is determined that the merger is effected to make any company without substance a surviving company and the divesture is determined to be a divesture of business to receive the business from the parent company. b. The initial listing applicant plans to effect a merger where the initial listing applicant becomes a dissolved company, a share exchange or share transfer where the initial listing applicant becomes a fully owned subsidiary of another company within three years from the end of business year immediately preceding the initial listing application date. 50

52 4. Listing Examination by TSE (Primary Listing) c. The initial listing applicant plans to delist its stock by means of acquisition of all the shares by large shareholders, management, employees or other specified persons or other means within three years from the end of business year immediately preceding the initial listing application date. (5) Where an initial listing applicant has introduced a takeover defense measure, the initial listing applicant complies with the matters enumerated in the following (a) to (d): (a) Sufficient disclosure: The listed company shall make necessary and sufficient timely disclosure concerning takeover defense measures; (b) Transparency: Conditions of implementation and abolishment of takeover defense measures shall not depend on arbitrary decisions by the management; (c) Effect on the secondary market: Takeover defense measures shall not include factors which may cause extremely unstable price formation of a stock or any other factors which may cause unpredictable damage to investors; and (d) Respect for shareholders rights: Takeover defense measures shall give consideration to shareholders rights and their exercise. (6) The corporate group of an initial listing applicant has developed a corporate structure to prevent anti-social forces from intervening in management activities and is making efforts to prevent such intervention, and such efforts are deemed appropriate in light of the public interest or investor protection. (7) The corporate group of an initial listing applicant has not recently committed material violations of laws and regulations or acts against the public interest, and furthermore is deemed not to conduct acts which are likely to become a material violation of laws and regulations or work against the public interest in the future. 4. Appropriateness of disclosure of corporate details, etc. The company is capable of appropriately disclosing corporate details, etc. (1) The corporate group of an initial listing applicant is deemed to be able to properly manage corporate information of facts, etc. which will have a material impact on management and to disclose it to investors in a timely and appropriate manner. Moreover, its system for the preemptive prevention of insider trading is deemed to be developed and operated appropriately. 51

53 4. Listing Examination by TSE (Primary Listing) [Rule 216-5, Paragraph 1, Item 4 of the [III-2, 5 of Guidelines] (2) Documents pertaining to disclosure of corporate information, out of initial listing application documents, are deemed to be prepared in compliance with laws and regulations, and appropriately contain the matters enumerated in the following a. to c. and other matters in consideration of the state of the business line and the business condition of an initial listing applicant and its corporate group: a. Useful matters for investment decisions of investors such as analysis and explanation pertaining to the state of financial condition, management performance, and receipt and disbursement of funds, the state of related companies, the state of research and development activities, the state of major shareholders, the state of officers and employees, dividend policy, and purposes of funds raised for capital increase through a public offering with respect to an initial listing applicant and its corporate group. b. Matters that should be considered as risk factors of an initial listing applicant when investors make investment decisions, such as the small number of years in business operation, the state of cumulative losses or business losses, dependence on a specific officer, the state of competition for business with other companies, uncertainties of markets and technologies, and the state of support for the purpose of the administration of business from a specific entity, etc., concerning an initial listing applicant. c. Matters enumerated in the following (a) to (d) with respect to matters which are the premises of the main business activities of an initial listing applicant and its corporate group: (a) Details of the matters which are the premises of the main business activities of an initial listing applicant and its corporate group; (b) Where the validity period of permission and authorization, etc. and any other time limit is specified by laws and regulations or a contract, etc., such time limit; (c) Where cancellation, rescission, and any other event of permission, authorization, etc. are stipulated by laws and regulations or a contract, etc., such fact; and (d) The effect that there is no factor which hinders their continuity concerning the matters which are the premises of the main business activities of the corporate group of an initial listing applicant, and if there is such factor, the effect that it will have a material effect on business activities. (3) The corporate group of an initial listing applicant does not make distorted information disclosure on the actual state of the 52

54 4. Listing Examination by TSE (Primary Listing) corporate group of the initial listing applicant by carrying out a trading act with its relevant party or any other specific entity or adjusting share ownership ratios, etc. (4) If an initial listing applicant owns a company which in effect holds a majority of voting rights of the initial listing applicant, the disclosure on the company must be effective and meet either a. or b. below; provided that this will not apply to cases where the actual relationship between the initial listing applicant and its apparent major shareholding company is thin and the shareholding by the majority shareholding company has been made for the fostering of investment and has not been made for substantially controlling the business activities of the initial listing applicant. a. Stock, etc. issued by the majority shareholding company of an initial listing applicant is listed on a domestic financial instruments exchange (including cases where a stock, etc. issued by such parent company, etc. is listed or continuously traded on such foreign financial instruments exchange, etc., and the state of disclosure on corporate affairs in a country in which such parent company, etc. or such foreign financial instruments exchange, etc. is located is not deemed to markedly lack investor protection). b. The listing applicant can appropriately grasp the facts, etc. concerning the majority shareholding company which may significantly affect its management and the applicant undertakes in writing that the majority shareholding company agrees to appropriately disclose to investors any information of its corporate information which may have significant effect on the management of the initial listing applicant. (5) Where an initial listing company is a foreign company, the accounting system adopted by the initial listing company shall be deemed appropriate from the viewpoint of investor protection. (6) Where an initial listing company is a foreign company, the stock, etc. pertaining to such initial listing applicant is not listed or continuously traded on a foreign financial instruments exchange, etc. and the initial listing application is made only to the Exchange, the "Securities Report for Initial Listing Application (Part I)" shall contain matters enumerated in the following a. and b.: a. Matters enumerated in the following (a) and (b) for the period from 53

55 4. Listing Examination by TSE (Primary Listing) the day that falls one year prior to the end of the first business year immediately before the initial listing application date to the day immediately prior to the listing date (a) The state of new stock issues, or issues of subscription warrants or bonds with subscription warrants by a method other than allocation to shareholders (b) The state of change in the ownership of the shares pertaining to the stock, etc. held by parties having special interests, etc. b. Where a holder of a stock, a subscription warrant or a bond with subscription warrants has made an arrangement concerning the holding of such securities for a certain period after listing with an initial listing applicant or with a financial instruments business operator which enters into the principal underwriting agreement with an initial listing applicant, such details. (1) The details of the rights of shareholders or holders of foreign stock depositary receipts, etc. and the state of their exercise are not unfairly restricted. (2) The corporate group of an initial listing applicant does not have an ongoing lawsuit or dispute, etc. which would have a material impact on management activities and business performance. 5. Other matters deemed necessary by TSE from the viewpoint of the public interest or investor protection (3) Where the domestic stock, etc. pertaining to an initial listing applicant is shares without voting rights or shares with a small number of voting rights, all of the following a. to f. shall be met: a If a company is controlled with an extremely small ratio of equity contribution, a scheme of shares without voting rights or a small number of voting rights is expected to be dissolved. [Rule 216-5, Paragraph 1, Item 5 of the [III-2, 6 of Guidelines] b Where conflicts of interest arise between shareholders of different classes, it is deemed that protection measures can be taken so that shareholders of a domestic stock, etc. pertaining to such initial listing applicant are not unfairly damaged. c. Where the issuer of the domestic stock, etc. pertaining to such initial listing application carries out a transaction with an entity enumerated in the following (a) to (c) (including transactions, out of transactions carried out between an entity enumerated in the following (a) to (c) and such issuer on behalf of a third party and those between such issuer and a third party, where an entity enumerated in the following (a) to (c) has a material impact on such issuer concerning such transactions), it is deemed that 54

56 4. Listing Examination by TSE (Primary Listing) measures to protect minority shareholders are expected to be able to be taken: (a) A parent company (b) The controlling shareholders (excluding a parent company) and their close relatives (c) The company, etc. whose majority of voting rights are held by the entities enumerated in the preceding (b) for their own account that holds the majority of the voting rights on its own account and a subsidiary of such company, etc. d. Where the domestic stock, etc. pertaining to such initial listing application are shares with a small number of voting rights, shares with a large number of voting rights shall be converted to shares with a small number of voting rights when the transfer of such shares, etc. is carried out. e. Where the domestic stock, etc. pertaining to such initial listing application has preferential contents concerning dividends from retained earnings, as a general rule, estimated profits for two (2) years after the end of the business year immediately prior to listing application date and a distributable amount as of the end of the business year immediately prior to the listing application date are deemed to be good, and it is expected that the issuer of such domestic stock, etc. will record enough profits to carry out dividends from retained earnings pertaining to such domestic stock, etc. f. The interests of shareholders and investors are deemed to be highly unlikely to be undermined. (4) It is deemed appropriate from the viewpoint of the public interest or investor protection. 55

57 4. Listing Examination by TSE (Primary Listing) c. Eligibility Requirements (Growth Market) Item Requirements (1) The profit/loss situation or financial condition of the corporate group of the initial listing applicant is expected to rise. An initial listing applicant that falls under the following a or b shall be handled as being in a situation where its profit/loss situation or financial condition is expected to rise. a. From the business plan, it can reasonably be expected to achieve sustainable growth from the fiscal year of the application. 1. Corporate growth potential The company has growth potential b. In the case of a company that is an anticipatory investment prospect expected to achieve sustainable growth in the future, from the business plan, it is expected to achieve net income within five (5) years counting from the fiscal year of the application. [Rule 216-8, Item 1 of the (2) There are reasonable grounds for the competitive edge and business environment on which the business plan is based. [III-3, 2 of Guidelines] (3) There are no questions regarding the current state or the basis for plans for staff allocation in the company and construction of facilities to achieve the business plan. (4) There are no factors, regarding matters which are the premises of the main business activities of the corporate group of the initial listing applicant, will hinder the continuity of such matters. 2. Establishment of sound corporate governance and internal management systems in accordance with the stage of growth (1) The system to ensure the appropriate execution of duties of officers of the corporate group of an initial listing applicant is recognized to be properly developed and appropriately operated in light of matters including those enumerated in the following a. and b.: Corporate governance and internal management systems have been established in accordance with the company's stage of growth and function effectively [Rule 216-8, Item 2 of the a. Organ design and composition of executives whereby effective check and balance functions will be provided for the execution of duties of executives of the corporate group of the initial listing applicant and effective audit can be performed. b. Check and balance functions are implemented and audit is performed for the execution of executives of the corporate group of the initial listing applicant to ensure efficient management. 56

58 4. Listing Examination by TSE (Primary Listing) [III-3, 3 of Guidelines] (2) The mutual relative relationship among officers of an initial listing applicant, its composition, the actual working situation or the state of concurrent positions as officers and employees, etc. at another company, etc. are deemed not to impair the fair, faithful, and proper execution of officer duties or effective audit of such initial listing applicant. In this case, where a spouse, blood relative within the second degree of kinship, and relations by affinity of directors, accounting advisors, executive officers, or persons equivalent thereto assume a position as an auditor, a member of an audit committee, or persons equivalent thereto, it shall be deemed to impair effective audit. (3) The corporate group of an initial listing applicant is deemed to adopt accounting standards suited to its actual situation and, in addition, a necessary accounting structure is deemed to be established and operated appropriately. (4) It is recognized that an effective system to comply with laws and regulations, etc. concerning management activities and other matters in the corporate group of an initial listing applicant is prepared and operated appropriately. (5) The internal management system is deemed to be established properly and operated appropriately so that an initial listing applicant and its corporate group carry out effective management activities in light of matters including those enumerated in the following a. and b.: a. A necessary managerial and administrative system required to ensure efficiency of management activities and internal check-and-balance functions of the corporate group of an initial listing applicant have been properly established and appropriately operated. b. An internal audit system of the corporate group of an initial listing applicant is properly established and appropriately operated. (6) Necessary personnel are deemed to be secured in order to carry out stable and continuous execution of management activities and maintain the internal management system of the corporate group of an initial listing applicant. 57

59 4. Listing Examination by TSE (Primary Listing) (1) The corporate group of an initial listing applicant is deemed, as a general rule, to not unfairly grant to or enjoy benefits from relevant parties or other specific entities through a transaction or any other management activities in light of matters including those enumerated in the following a. and b.: a. Where a transaction has occurred between the corporate group of an initial listing applicant and relevant parties or other specific entities, and continuance of such transaction is reasonable and its terms and conditions including the transaction price are not clearly disadvantageous for the corporate group of an initial listing applicant. b. The interests of the corporate group of an initial listing applicant are not unfairly undermined due to relevant parties and other specific entities of the corporate group of an initial listing applicant giving priority to their own interests. 3. Reliability of Corporate Actions Corporate actions which cause market disorder are not expected (2) Where an initial listing applicant has a parent company, etc., management activities of the corporate group of an initial listing applicant are deemed to be independent of such parent company, etc. in light of matters including those enumerated in the following a. to c.: [Rule 216-8, Item 3 of the [III-3, 4 of Guidelines] a. In light of the relationship between the business line of the corporate group of an initial listing applicant and that of the corporate group of the parent company, etc., the state and possibility of business line adjustment made by the corporate group of the parent company, etc. and any other matters, the initial listing applicant is not deemed to be substantially a business division of such parent company, etc. b. The corporate group of an initial listing applicant or that of a parent company, etc., as a general rule, has not been coercing or inducing transactions which will undermine the interests of such parent company, etc. or the corporate group of such initial listing applicant, such as transactions that have markedly different terms and conditions from those of normal transactions c. The state of receiving seconded persons of the corporate group of an initial listing applicant is deemed not to excessively depend on the parent company, etc. and not hinder continuous management activities. 58

60 4. Listing Examination by TSE (Primary Listing) (3) The management of the corporate group of an initial listing applicant has insight into the responsibilities and significance of being listed on a financial instruments market. (4) An initial listing applicant shall not fall under any of the following a. through c. a. In case where the listing applicant plans to effect merger, divesture of business, or become a subsidiary or non-subsidiary within three years from the end of the business year following the initial listing application date, TSE determines that the initial listing company would not be a de facto surviving company through any of such acts; provided that this will not apply to cases where it is determined that the merger is effected to make any company without substance a surviving company and the divesture is determined to be a divesture of business to receive the business from the parent company. b. The initial listing applicant plans to effect a merger where the initial listing applicant becomes a dissolved company, a share exchange or share transfer where the initial listing applicant becomes a fully owned subsidiary of another company within three years from the end of business year immediately preceding the initial listing application date. c. The initial listing applicant plans to delist its stock by means of acquisition of all the shares by large shareholders, management, employees or other specified persons or other means within three years from the end of business year immediately preceding the initial listing application date. (5) Where an initial listing applicant has introduced a takeover defense measure, the initial listing applicant complies with the matters enumerated in the following (a) to (d): (a) Sufficient disclosure: The listed company shall make necessary and sufficient timely disclosure concerning takeover defense measures; (b) Transparency: Conditions of implementation and abolishment of takeover defense measures shall not depend on arbitrary decisions by the management; (c) Effect on the secondary market: 59

61 4. Listing Examination by TSE (Primary Listing) Takeover defense measures shall not include factors which may cause extremely unstable price formation of a stock or any other factors which may cause unpredictable damage to investors; and (d) Respect for shareholders rights: Takeover defense measures shall give consideration to shareholders rights and their exercise. (6) The corporate group of an initial listing applicant has developed a corporate structure to prevent anti-social forces from intervening in corporate activities, is making efforts to prevent such intervention, and such efforts are deemed appropriate in light of the public interest or investor protection. (7) The corporate group of the initial listing applicant has not recently committed material violations of laws and regulations or acts against the public interest, and furthermore is not conducting acts which are likely to become a material violation of laws and regulations or work against the public interest in the future. (1) The corporate group of an initial listing applicant is deemed to be able to properly manage corporate information of facts, etc. which will have a material impact on management and to disclose it to investors in a timely and appropriate manner. Moreover, its system for the preemptive prevention of insider trading is deemed to be developed and operated appropriately. 4. Appropriateness of disclosure of corporate details, etc. The company is capable of appropriately disclosing corporate details, etc. (2) Documents pertaining to disclosure of corporate information, out of initial listing application documents, are deemed to be prepared in compliance with laws, regulations, etc., and appropriately contain the matters enumerated in the following a. to c. and other matters in consideration of the state of the business line and the business condition of an initial listing applicant and its corporate group: [Rule 216-8, Item 4 of the [III-3, 5 of Guidelines] a. Useful matters for investment decisions of investors such as technologies with growth potential, features of its business model, business environment, schedule or state of progress until full business launch, analysis and explanation pertaining to the state of financial condition, management performance & receipt and disbursement of funds, the state of the related companies, the state of R&D activities, the state of major shareholders, the state of officers & employees, dividend policy, and purposes of funds raised for capital increase through a public offering concerning an initial listing applicant and its corporate group. 60

62 4. Listing Examination by TSE (Primary Listing) b. Matters that should be considered as risk factors for an initial listing applicant when investors make investment decisions, such as the small number of years in business operation, the state of the occurrence of cumulative losses or business losses, management dependence on a specific officer, the state of competition for business with other companies, uncertainties of markets and technologies, and the state of support for the purpose of the administration of business from a specific entity, etc., concerning an initial listing applicant. c. Matters enumerated in the following (a) to (d) with respect to matters which are the premises of the main business activities of the corporate group of an initial listing applicant: (a) Details of the matters which are the premises of the main business activities of the corporate group of an initial listing applicant (b) Where the validity period of permission and authorization, etc. and any other time limit is specified by laws and regulations or a contract, etc., such time limit (c) Where cancellation, rescission, and any other event of permission and authorization, etc. are stipulated by laws and regulations or a contract, etc., such fact (d) With regard to the matters which are the premises of the main business activities of the corporate group of an initial listing applicant, the effect that there is no factor which hinders their continuity, and if there is such factor, the effect that it will have a material impact on business activities (3) An initial listing applicant is able to appropriately develop a medium-term management plan and hold briefings and other sessions for investors. (4) The corporate group of an initial listing applicant does not make distorted information disclosure on the actual state of the corporate group of the initial listing applicant by carrying out a trading act with its relevant party or any other specific entity or adjusting share ownership ratios, etc. (5) If an initial listing applicant owns a company which in effect holds a majority of voting rights, the disclosure on the company must be effective and meet either a. or b. below; provided that this will not apply to cases where the actual relationship between the initial listing applicant and its apparent 61

63 4. Listing Examination by TSE (Primary Listing) major shareholding company is thin and the shareholding by the majority shareholding company has been made for the fostering of investment and has not been made for substantially controlling the business activities of the initial listing applicant. a. Stock, etc. issued by the majority shareholding company of an initial listing applicant is listed on a domestic financial instruments exchange (including cases where a stock, etc. issued by such parent company, etc. is listed or continuously traded on such foreign financial instruments exchange, etc., and the state of disclosure on corporate affairs in a country in which such parent company, etc. or such foreign financial instruments exchange, etc. is located is not deemed to markedly lack investor protection). b. The listing applicant can appropriately grasp the facts, etc. concerning the majority shareholding company which may significantly affect its management and the applicant undertakes in writing that the majority shareholding company agrees to appropriately disclose to investors any information of its corporate information which may have significant effect on the management of the initial listing applicant. (6) Where an initial listing company is a foreign company, the accounting system adopted by the initial listing company shall be deemed appropriate from the viewpoint of investor protection. (7) Where an initial listing company is a foreign company, the stock, etc. pertaining to such initial listing applicant is not listed or continuously traded on a foreign financial instruments exchange, etc. and the initial listing application is made only to the Exchange, the "Securities Report for Initial Listing Application (Part I)" shall contain matters enumerated in the following a. and b.: a. Matters enumerated in the following (a) and (b) for the period from the day that falls one year prior to the end of the first business year immediately before the initial listing application date to the day immediately prior to the listing date: (a) The state of new stock issuance, or issuance of subscription warrants or bonds with subscription warrants by a method other than allocation to shareholders (b) The state of change in the ownership of the shares pertaining to the stock, etc. held by a party having special interests, etc. b. Where a holder of a stock, a subscription warrant or a bond with 62

64 4. Listing Examination by TSE (Primary Listing) subscription warrants security has made an arrangement concerning the holding of such securities for a certain period after listing with an initial listing applicant or with a financial instruments business operator which enters into the principal underwriting agreement with an initial listing applicant, details of such arrangement. (1) The details of the rights of shareholders or holders of foreign stock depositary receipts, etc. and the state of their exercise are not unfairly restricted. (2) The corporate group of an initial listing applicant does not have an ongoing lawsuit or dispute, etc. which would have a material impact on management activities or business performance. (3) Where the domestic stock, etc. pertaining to an initial listing application is shares without voting rights or shares with a small number of voting rights, all of the following a. to f. shall be met: 5. Other matters deemed necessary by TSE from the viewpoint of the public interest or investor protection. [Rule 216-8, Item 5 of the a. If a company is controlled with an extremely small ratio of equity contribution, a scheme of shares without voting rights or a small number of voting rights is expected to be dissolved. b. Where conflicts of interest arise between shareholders of different classes, protection measures are deemed to be able to be taken so that shareholders of the domestic stock, etc. pertaining to such initial listing application are not unreasonably damaged. [III-3, 6 of Guidelines] c. Where the issuer of the domestic stock, etc. pertaining to such initial listing application carries out a transaction with an entity enumerated in the following (a) to (c) (including transactions, out of transactions carried out between an entity enumerated in the following (a) to (c) and such issuer on behalf of a third party and those between such issuer and a third party, where an entity enumerated in the following (a) to (c) has a material impact on such issuer concerning such transactions), it is deemed that protection measures for minority shareholders are expected to be able to be taken: (a) A parent company (b) The controlling shareholders (excluding a parent company) and their close relatives (c) The company, etc. in the preceding (b) that holds the majority of the voting rights on its own account and a subsidiary of such company, etc. 63

65 4. Listing Examination by TSE (Primary Listing) d. Where the domestic stock, etc. pertaining to such initial listing application is shares with a small number of voting rights, shares with a large number of voting rights shall be converted to shares with a small number of voting rights, when transfer, etc. of such shares is carried out. e. Where the domestic stock, etc. pertaining to such initial listing application has preferential contents concerning dividends from retained earnings, estimated income for two (2) years after the end of the business year immediately prior to the listing application date and a distributable amount as of the end of the business year immediately prior to the listing application date are, as a general rule, deemed to be good, and it is expected that the issuer of such domestic stock, etc. will record enough income to carry out dividends from retained earnings pertaining to such domestic stock, etc. f. The interests of shareholders and investors are deemed to be highly unlikely to be undermined. (4) It is deemed appropriate from the viewpoint of the public interest or investor protection. 64

66 4. Listing Examination by TSE (Primary Listing) d. Documents to be Filed The following highlights the documents required to be filed for the purpose of the initial listing application. Each of such documents is requested to be filed when the requirements for the filing thereof are met. The following also includes the documents to be filed only for the purpose of multiple listing. Please refer to the footnotes at the end of this paragraph with respect to Documents Required to be Filed only for the Purpose of Multiple Listing and Documents Not Required to be Filed for the Purpose of Multiple Listing. (a) Documents to be filed at the time of conducting the initial listing application Number Documents to be filed 1 Preliminary Application Form for initial listing of securities 2 Application form for initial listing of securities 3 Written Oath relating to initial listing application 4 Articles of Incorporation (including by-laws) 5 Statement certifying no ties with anti-social forces 6 Financial Statement of account for non-listed majority holding company, etc (Note 3) 7 Written statement of assurance of parent company s concerning cooperation regarding listing examination, etc. of parent company (Note 3) 8 Written statement of assurance of parent company s concerning timely disclosure, etc. of parent company (Note 3) 9 Statement describing matters concerning controlling shareholders 10 Minutes of the Meeting of the Board of Directors on initial listing application 11 A legal opinion 12 A copy of the document proving that the representative is a person with a legitimate authority 13 Document certifying the deposit agreement concerning depositary receipts, etc. for the new listing application (Note 4) 14 A document certifying that the depository, etc. has agreed to the matters TSE deems necessary for the new listing application (Note 4) 15 Table of Change in Number of shareholders or of holders of Foreign Stock Depositary Receipts, etc. (Note 5) 16 A document certifying that the agent, etc. has been appointed or given informal consent to accept the appointment 17 Materials concerning the value of the stock pertaining to the initial listing application (Note 6) 18 Written Recommendation (by listing approval date) 19 Sponsor s Letter of Confirmation 20 Statement of specific considerations and focused matters during the process of instructions on going public and underwriting examination 21 JASDAQ Listing Application Report 22 Materials concerning the value of the stock pertaining to the initial listing application (Note 7) 23 Securities Report for Initial Listing Application (Part I) 24 Written confirmation concerning timely disclosure, etc. 65

67 4. Listing Examination by TSE (Primary Listing) 25 Audit Reports, Interim Audit Reports or Quarterly Review Reports (Excluding applicants exempted under the clause in Rule 211, Paragraph 6 of the Rules) 26 Summary Audit Reports, Summary Interim Audit Reports or Summary Quarterly Review Reports (Excluding Applicants exempted under the clause in the Rule 211, Paragraph 6 of the Rules) 27 Preliminary Initial Listing Application Report (prepared by the applicant) 28 Preliminary Initial Listing Application Report (prepared by the managing trading participant) 29 Corporate Report(materials describing the applicant's business and operation) 30 Materials sent to Shareholders and official publications (including the notice of the general shareholders' meeting) regarding the General Shareholders' Meetings in the past two (2) years Documents (such as prospectuses) sent to shareholders regarding rights issue in the past two 31 (2) years or regarding most recent right issue in the past five (5) years where there is none in the past two (2) years 32 A copy of the Annual Report sent to shareholders or holders of Foreign Stock Depositary Receipts in the past one (1) year 33 A copy of the Interim Report and Quarterly Reports sent to shareholders or holders of Foreign Stock Depositary Receipts in the past one (1) year 34 A copy of the Securities Report, Annual Report, Interim Report, Quarterly Reports and Extraordinary Reports submitted to the Prime Minister etc. in the past one (1) year (Note 1) 35 A copy of the Securities Registration Statement (including amendments thereto) submitted to the Prime Minister etc. in the past one (1) year (Note 1) 36 News releases and newspaper publications regarding earnings announcements, dividend, stock split, rights issue, and other material information in the past one (1) year 37 Relevant laws pertaining to the incorporation of the applicant in the applicant's jurisdiction 38 A set of documents submitted by the applicant to relevant authorities in relation to application of tax refund 39 The check sheet regarding the legal framework of accounting and audit in the home country submitted to the Financial Services Agency of Japan 40 Sample of foreign stock certificates and etc. (to be attached stock sample list) 41 Written oath concerning matters relevant to the applicant Financial statements and supplementary statements about the business year that the company 42 has not made its consolidated financial statements and/or non-consolidated financial statements in last five years (copy) (Note 8) 43 List of meetings of Board of Directors for the last two years and the year in which the application is filed (Note 8) 44 Minutes of meetings of Board of Directors for the latest year and the year in which the application is filed (copy) (Note 8) 45 List of meetings of Board of Company Auditors for the last two years and the year in which the application is filed (Note 8) 46 Minutes of meetings of Committee of Company Auditors for the latest and the year in which the application is filed (copy) (Note 8) A series of company auditors (audit committee s) audit materials ranging from the audit 47 planning and implementation to report, etc. for the latest year and application year (copy) (Note 8) 48 Financial statements, business report or corporate tax return of related parties of the corporate group of the applicant for each of the last two years (Note 8) 66

68 4. Listing Examination by TSE (Primary Listing) Monthly performance management data for the previous year and the year in which the 49 application is filed (copy) (Note 8) Annual budget plan and medium-term management plan and (the series of internal data used 50 for the preparation thereof) for the fiscal year in which the listing application is filed (copy) (Note 8) 51 Contract which is important for Material contracts for the management 52 Management organization chart and assignment plan as of listing date (Note 8) 53 Catalogs and pamphlets for products, goods, and services, etc. (Note 8) 54 Flow chart (related to procurement and sales procedures) (Note 8) Corporate Governance Report 55 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is a main market) JASDAQ Listing Application Report 15.(5) Materials were documenting the correspondence 56 described in the "management of timely disclosure materials, etc." (company regulation and manuals, etc.) A series of internal audit materials ranging from the audit planning and implementation to 57 report, etc. for the recent year and application year (copy) Financial statements, business reports or a document submitted by the applicant to relevant 58 authorities in relation to application of tax refund of each fiscal year in the last two years of related parties of the applicant company group. (Note 8) (Note 9) 67

69 4. Listing Examination by TSE (Primary Listing) (b) Documents to be filed after the initial listing application where necessary /applicable Number Documents to be filed Quarterly Reports for Initial Listing Application where: (Note 1) (Note 2) The listing day falls anytime after three (3) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the first quarter of said business year The listing day falls anytime after six (6) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the second quarter of said business year The listing day falls anytime after nine (9) months from the beginning of the business year containing the initial listing application day, the Quarterly Report for Initial Listing Application for the third quarter of said business year Notice of board meeting resolutions or General Shareholders' Meeting resolutions during the period from the first day of the business year containing the initial listing application day to the listing day Reports of corporate information having significant impact on the business of the initial listing applicant during the period from the first day of the business year containing the initial listing application day to the listing day A copy of the following documents submitted to the Prime Minister etc. during the period from the first day of the business year containing the initial listing application day to the listing day (Note 1) Securities Registration Statement (including amendment thereto)and document attached thereto Notice of effectiveness of Securities Registration Statement Securities notification (including amendment thereto) and document attached thereto Notification of Initial Listing Application Securities Report Amendment (at time of effect of amended details) 68

70 4. Listing Examination by TSE (Primary Listing) (c) Documents to be filed after the initial listing application but no later than listing approval is granted Number Documents to be filed 64 Written Confirmation Regarding Compliance with Exchange Rules and Regulations 65 Listing Agreement 66 Articles of Incorporation (including by-laws) 67 Securities Report for Initial Listing Application (Part I) 68 Securities Report for Initial Listing Application (Part I) PDF version 69 A document describing the matters relating to a controlling shareholder, etc PDF version 70 Financial Statement of account for non-listed majority holding company, etc PDF version (Note 3) The written document containing the effect that the representative of such initial listing 71 applicant is aware that the Securities Report for Initial Listing Application (Part I) and other documents do not contain any untrue statements 72 Calculation of the expected market capitalization Corporate Governance Report (PDF version) 73 (only for an initial listing applicant who makes an initial listing application of a domestic stock, etc. and a foreign stock, etc. for which TSE is a main market) 74 Quarterly Report of Initial Listing Application (Note 1) 75 Quarterly Report of Initial Listing Application PDF version (Note 1) 76 Corporate Brochure of Applicant 77 Drafted disclosures (matters concerning growth potential) as of listing date (d) Documents to be filed by the applicant making a public offering, etc. Number Documents to be filed 78 Expected Public Offering or Secondary Offering Plan 79 Securities Registration Statement and its accompanying documents (Note 1) 80 Materials pertaining the determination of the assumed tentatively set price range (accompanying documents of calculation of the expected market capitalization) 81 Press release of Notice of Provisional Conditions and the reasons for deciding them 82 Materials pertaining the determination of the tentatively set price range 83 Amendment of Securities Registration Statement (after the determination of the tentatively set price range) (Note 1) 84 Press release of Notice of the Determination of Offering Prices and the reasons, etc. therefor 85 Materials pertaining the determination of the assumed tentatively set price range 86 Amendment of Securities Registration Statement (after the determination of offering price) (Note 1) 87 Notice on effectiveness of Securities Registration Statement 88 Notice of execution of Public Offering or Secondary Offering 89 Notification of the revisions of the Security Initial Listing Application Form 69

71 4. Listing Examination by TSE (Primary Listing) Note 1: In cases of submission to the Prime Minister, etc. via electronic data processing for disclosure (refers to electronic data processing for disclosure as prescribed by Article of the Financial Instruments and Exchange Act), the submission of such documents is not required. Note 2: The latest quarterly report is only required in the business year containing the initial listing application day. The applicant applying for a multiple listing need not submit the document. Note 3: The applicant only needs to submit the document when an applicant has a non-listed majority holding company. However, "Financial Statement of account for non-listed majority holding company, etc" and "Written statement of assurance of parent company s concerning timely disclosure, etc. of parent company" are needed to submit, where none of the following is the case: (1) the shares issued by the parent company, etc. is listed on a financial instruments exchange in Japan (2) the shares issued by the parent company, etc. is listed or continuously traded on a foreign financial instruments exchange, etc. and it is not deemed that disclosure status of the parent company, etc. in its home country, etc. is seriously detrimental to investor protection. (3) the parent company, etc. is subject to ongoing disclosure (4) the parent company, etc. is subject to ongoing disclosure in its home country and such status is not deemed to be seriously detrimental to investor protection. Note 4: Only the applicant applying for a listing of Foreign Stock Depositary Receipts needs to submit the document. Note 5: Only the applicant applying for a multiple listing needs to submit the document. Note 6: Submission only required in cases of a company succeeding business due to a shareholder-directed split of a listed company, which conducts initial listing application prior to such shareholder-directed split. Note 7: In cases where the foreign stock, etc. pertaining to initial listing application is not listed or continuously traded on a domestic financial instruments exchange or foreign financial instruments exchange, etc., submission is only required when public offering or secondary offering will not be conducted for the foreign stock, etc. pertaining to initial listing application. Note 8: When the company did not make the documents or is too difficult to made them due to a foreign company, please contact New Listings, Tokyo Stock Exchange. Note 9: Submission only required in cases where the applicant for Growth Market. Note 10: The applicant needs to submit documents pertaining a shelf registration, possession of a large volume of shares, and tender offer that it makes after the beginning of the business year containing the initial listing application day 70

72 4. Listing Examination by TSE (Primary Listing) (4) Listing Examination Schedule (Primary Listing) The listing examination schedule of stock of foreign companies may vary dependent on the legal basis for foundation, accounting standards applied or whether the application relates to single or multiple listing. For reference, the following shows a typical listing schedule for foreign companies. The examination period for foreign companies may take three months from the acceptance of listing application. Actual examination will be carried out by JPX Regulation entrusted by TSE to do so. Standard Examination Schedule (Foreign companies) 4, 5 4 The schedule shown here is a typical example and may be subject to change. 5 TSE shall examine the regulatory system of the home country of an applicant company in preliminary confirmation procedure. Note that, it may take longer time than the others when the applicant company is the first from its country to apply. Please refer to forms of "Confirmation Report prior to Initial Listing Application (for Applicant Company)" and "Confirmation Report prior to Initial Listing Application (for Trading Participant Handling Matters)" at A. 71

73 5. Listing Examination by TSE (Multiple Listing) 5. Listing Examination by TSE (Multiple Listing) When a foreign company that is already listed on the market of its home country lists on TSE, it shall be treated as a multiple listing. Subset of the listing criteria of multiple listing are different from primary listing. The formal requirements and the eligibility requirements of each market are as follows. In application of the rules and regulations of TSE to a foreign country or a foreign corporation where the foreign country or the foreign corporation is an issuer, etc. of a listed security, TSE shall take into account legal systems, practices and customs, etc. in such foreign country or the country, etc. of the foreign corporation. [Rule 7 of the (1) Main Markets (TSE 1st Section and 2nd Section)(Multiple Listing) a. Formal Requirements The formal requirements for the purpose of multiple listing are similar to those for the purpose of primary listing in many aspects. However the following criteria differ from those for primary listing. For the formal criteria for primary listing, please refer to Formal Criteria at section 6(1) a. Item TSE 1st Section Requirements TSE 2nd Section Status of distribution of a foreign stock, etc. 6 [Rule 206, Paragraph 2, Item 1 of the Tradable shares (expected at listing) 7 A remarkably large number of shares is deemed not to be held by specific shareholders or holders of a foreign stock depositary receipt, etc. [Rule 206, Paragraph 2, Item 2 of the [Rule 205, Item 2-a of the The number of tradable shares : 20,000 units or more; and The number of tradable shares : 4,000 units or more; and [Rule 210, Item 2 of the [Rule 210, Item 1-a of the 6 Required for multiple listing. 7 The market capitalization of the tradable shares and The number of tradable shares (as a percentage of the total number of issued shares outstanding), which are required for primary listing, are not required for multiple listing. 72

74 5. Listing Examination by TSE (Multiple Listing) b. Eligibility Requirements and Special Exceptions to Multiple Listing of Foreign Companies The same eligibility requirements as those for primary listing will apply. For the requirements of eligibility requirements, please refer to sections 6(1) b. Where an initial listing applicant is a foreign company, and the main market of a foreign stock, etc. issued by such initial listing applicant is other than TSE and, furthermore, where TSE deems it appropriate in light of listing of securities, timely disclosure of the issuer of listed securities, delisting, the state of the development and operation of the legal system and rules concerning listed securities in such main market, they shall be treated as appropriate for all or part of the examination. [II. 12 of the Guidelines] In addition, Special Exceptions to Multiple Listing Foreign Companies is not for Mothers market or JASDAQ market but for Main Markets (TSE 1 st Section and 2 nd Section). c. Documents to be Filed The same documents as those for primary listing are required to be filed. For details, please refer to section 6(1)c. 73

75 5. Listing Examination by TSE (Multiple Listing) (2) Mothers (Multiple Listing) a. Formal Requirements The formal requirements for the purpose of multiple listing are similar to those for the purpose of primary listing in many aspects. However the following criteria differ from those for primary listing. For the formal criteria for primary listing, please refer to Formal Criteria at section 6 (2) a. Item Tradable shares 8 (expected at listing) Requirements [Rule 213, Paragraph 2, Item 2 of the [Rule 212, Item 2-a of the The number of tradable shares : 2,000 units or more; and b. Eligibility Requirements The same eligibility requirements as those for primary listing will apply. For the requirements of eligibility requirements, please refer to section 6 (2) b. c. Documents to be Filed The same documents as those for primary listing are required to be filed. For details, please refer to section 6 (2) c. 8 The market capitalization of the tradable shares and The number of tradable shares (as a percentage of the total number of issued shares outstanding), which are required for primary listing, are not required for multiple listing. 74

76 5. Listing Examination by TSE (Multiple Listing) (3) JASDAQ Market (Multiple Listing) a. Formal Requirements (Standard and Growth Markets) The formal requirements for the purpose of multiple listing are similar to those for the purpose of primary listing in many aspects. However the following criteria differ from those for primary listing. For the formal criteria for primary listing, please refer to Formal Criteria at section 6 (3) a. Item Implementation of public offering or secondary offering [Rule 216-4, Item 1-a of the Multiple listing (Standard and Growth) Primary listing Public offering or secondary offering at the higher of the number of shares described in the division mentioned below or 10% of the number of shares issued expected at the time of listing shall be implemented during the period from the listing application date to the previous day of the listing date. (a) Trading unit comprising 1,000 shares: one million shares (b) Trading unit comprising 500 shares: 500,000 shares (c) Trading unit comprising 100 shares: 100,000 shares (d) Trading unit comprising 50 shares: 50,000 shares (e) Trading unit comprising 10 shares: 10,000 shares (f) Trading unit comprising 1 shares: 1,000 shares b. Eligibility Requirements (Standard and Growth Markets) The same eligibility requirements as those for primary listing will apply. For the requirements of eligibility requirements, please refer to sections 6 (3) b and 6 (3) c. c. Documents to be Filed The same documents as those for primary listing are required to be filed. For details, please refer to section 6 (3) d. 75

77 5. Listing Examination by TSE (Multiple Listing) (4) Listing Examination Schedule (Multiple Listing) Listing schedules of foreign companies may vary dependent on their legal basis for their foundation and the accounting standards applied. For the listing schedule of foreign companies, please refer to section 6 (4). 76

78 6. Listing of JDR 6. Listing of JDR (1) What is JDR? Japanese Depositary Receipt (JDR) is a beneficial interest in trust issuing beneficiary certificate whose trust assets are foreign stocks, etc., as defined in the Trust Act (Act No. 108 of 2006) provided in Rule 2, Paragraph 1, Item 14 of the Act. JDR is often called Japanese ADR or Japanese GDR. In the United States and Europe, the depositary receipt scheme has traditionally allowed foreign companies to list their stocks on US stock exchanges. In the United States, American Depositary Receipts or ADRs are issued and listed on a US stock exchange pursuant to the laws of the United States of America. In the United Kingdom, depositary receipts (Global Depositary Receipts or GDRs) are issued and listed on UK stock exchanges mainly under the laws of European jurisdictions. A depositary receipt represents a negotiable certificate issued by a depositary facility as a document evidencing the stocks (hereinafter, underlying stock ) deposited at the depositary facility located in the home country in which the depositary receipt is issued, and it is listed as an alternative for the underlying stock. This listing of shares via depositary receipt scheme is an effective fund-raising mechanism for any foreign company whose underlying stock has difficulty or inconvenience in direct listing in a foreign market (e.g. when foreign investors are restricted from acquiring underlying stock of a company in the country, or when the governing laws in the country in which the underlying stock is issued do not allow the issuer to list the underlying stock in any foreign stock exchange). JDR is positioned as a Japanese version of depositary receipt. To be more precise, JDR is not a depositary receipt but a beneficiary certificate. In November 2007, TSE prepared listing rules for JDRs for foreign stocks, and made a partial revision to the rules in February JDR is defined as a foreign stock trust beneficiary certificate in the Rules (Rule 2, Item 10 of the Rules). 77

79 6. Listing of JDR (2) JDR Issue Scheme An example of JDR issue scheme is shown in the diagram below. The following procedures are expected. (1) Foreign Company assigns the stock (underlying stock) to a Securities Company (Type I Financial Instruments Business Operator) which serves as Trustor (2) Securities Company (Trustor) entrusts the underlying stock to a Trust Bank serving as Trustee. (3) Trust Bank (Trustee) consigns the custody of the underlying stock to a Foreign Financial Institution (Custodian). (4) Trust Bank (Trustee) issues JDR for Trustor. (5) & (6) Securities Company (Trustor) performs an IPO via JDR, and investors pay the value. (7) After JDRs are listed on the TSE market, investors may buy and sell JDRs in the TSE market. JDR Issue Scheme (Example) 9 9 The above example indicates a basic scheme for JDR and does not exclude other schemes. 78

80 6. Listing of JDR (3) Listing of Stock via JDR When an issuer lists its stock on the TSE market via JDR scheme, the statutory disclosure under the Financial Instruments and Exchange Act (See section 10) and the procedures under the listing rules are almost the same as the case when listing the stock (underlying stock) directly on the TSE market. Therefore, the Foreign Company is required to implement the statutory disclosure as issuer and also to make a listing application to TSE as a listing applicant. (4) Handling of DRs under the Formal Requirements In addition to the JDR, listing of stock via GDR or ADR is also possible. There are two different types of formal requirements on the cross-listing of stock via Depositary Receipt ( DR ): one is to assess the underlying stock deposited in addition to the DR; and the other is to assess only the DR. The relevant formal requirements are as shown below. For your reference, the table below indicates the formal requirements in the case of cross-listing in the main market (TSE First and Second Sections). The same will apply to cases of cross-listing in TSE Mothers and JASDAQ markets. Number of shareholders (estimated as of listing date) Tradable shares (estimated as of listing date) (1) Number of tradable shares (2) Market capitalization of tradable shares (3) Ratio of tradable shares to listed shares Market capitalization (estimated as of listing date) (Reference) Deposit agreement, etc. Handling of DR (JDR/ADR/GDR/etc.) Number of DR Holders (on a world wide basis) *JASDAQ only requires the number of holders in Japan. Outstanding number of DRs (on a world wide basis) Outstanding number of DRs (on a world wide basis) Outstanding number of DRs (on a world wide basis) Market capitalization of all the outstanding shares and DRs (including the market capitalization of other class shares listed) Reference: Listing Examination Criteria for Main Markets (Multiple Listing) TSE First Section TSE Second Section 2,200 persons or 800 persons or more more Significantly-large number of shares shall not be held by a specific shareholder or owner of foreign stock depositary receipts, etc. 20,000 units or more 20,000 units or more JPY 25 billion or more JPY 2 billion or more Deposit agreement shall be concluded in the case of foreign stock depositary receipt, etc. 79

81 7. Finance through Listing (Public Offering and Secondary Offering) 7. Finance through Listing (Public Offering and Secondary Offering) (1) Procedure for Public Offering, etc. for Listing Under TSE Rules, there are no special rules for foreign companies regarding the procedure of public offering or secondary offering on listing. In general, foreign companies are required to take the same procedures as Japanese companies. In addition, all the listing procedures in the past fifteen years 10, 11 have been performed via book-building. (i) Book-building (Survey on investors' demand for public offering, etc. before listing that is conducted pursuant to TSE Rules). (ii) Public offering, etc. through competitive bidding (Public offering, etc. before listing that is conducted pursuant to TSE Rules) [Rule 233 of the Rules] 10 There have been no cases where Rule 233 of the Rules applied to foreign companies. Therefore, foreign companies are not solely subject to the above procedures. 11 As far as a company incorporated in Japan goes, when a company allocates shares for subscription through third party allotment, etc. on and after the date one year prior to the final date of the fiscal year immediately before the listing application date, both the listing applicant and the person who received the allocation of shares are required to submit a notice in writing to TSE with regard to the continued holding of the shares for subscription and the state of holding of the shares when transferred and inquired by TSE and also submit a commitment in writing to TSE to the effect that they will affirm public inspection on the above document and the description or any other matters TSE considers necessary. In cases where the listing applicant fails to submit the document to TSE, TSE will refuse the listing application or cancel the approval. In addition, TSE s accreditation as to whether the shares for subscription are allocated or not will be made on the basis of the due date of payment or the final date of the payment period with respect to the shares for subscription. 80

82 7. Finance through Listing (Public Offering and Secondary Offering) (2) Finance Schedule on Listing (in the case of an Unlisted Company) The chart below indicates a model schedule up to the listing of shares. As this schedule is only a model, the actual finance schedule (including pre-marketing period, book-building period, board of directors meeting for resolution of terms and conditions thereof, and timing of submission of Securities Registration Statement) may differ according to each applicant. 81

83 8. Statutory Disclosure 8. Statutory Disclosure Statutory disclosure under the Financial Instruments and Exchange Act shall be classified into two categories of disclosures: Offering Disclosure, which is required at the time of offering securities; and Continuous Disclosure, which is required after offering or listing securities. (1) Offering Disclosure a. Securities Registration Statement (a) Filing of Securities Registration Statement In normal cases, IPOs (public offering and secondary offering) of shares of foreign stock are conducted in the Japanese market before listing. In this case, before the solicitation for subscription for sales of shares of foreign stock, the foreign company is required to file the Securities Registration Statement with the Kanto Finance Bureau as part of Offering Disclosure (stipulated in Article 4, Paragraph (1) of the Financial Instruments and Exchange Act). The form of the Securities Registration Statement, the matters to be described and required accompanying documents, etc. are defined by law (please refer to section 10 (1) a (c)). The Securities Registration Statement, other disclosure documents and the accompanying documents shall be filed and made available to the public via an electronic disclosure system called EDINET (Electronic Disclosure for Investors' NETwork), managed by the Financial Services Agency. Please keep in mind that the foreign company is required to appoint a standing proxy for the purpose of filing the Securities Registration Statement (stipulated in Article 7, Paragraph (1) of the Cabinet Office Ordinance on Disclosure of Information, etc.). In practice, Japanese law firms are usually appointed for that purpose, and such law firms in the capacity of standing proxy in Japan file the Securities Registration Statement on behalf of foreign issuers. (b) Prohibition of Solicitation before the Notification of Securities Registration Statement and Transactions before the Effective Date As stated above, as it is required to file the Securities Registration Statement with the Kanto Finance Bureau before the solicitation for subscription for sales of shares of foreign stock (Article 4, Paragraph (1) of the Financial Instruments and Exchange Act), such solicitation to Japanese investors (promotion etc.) is prohibited before the filing of the Securities Registration Statement. In addition, it shall not be allowed to have Japanese investors acquire any shares of foreign stock or sell any shares of foreign stock to Japanese investors before the Securities Registration Statement takes effect (Article 15 of the Financial Instruments and Exchange Act). The period required for the Securities Registration Statement to take effect (waiting period) is usually fifteen (15) days (stipulated in Article 8, Paragraph (1) of the same act). 82

84 8. Statutory Disclosure However, pre-hearing which refers to a preliminary hearing conducted by an issuer and/or underwriters regarding the prospective of investors demand for the securities that plans to offer or sale in advance should not be deemed as solicitation of securities, together with targeting the Specified Investors (tokutei-toushika) or existing shareholders holding 5% or more of all the voting securities of the issuer and taking certain required measures (Consideration Points with respect to Disclosure of Corporate Affairs, etc. (the Disclosure Guidelines )). (c) Matters to be Described and Required Accompanying Documents, etc. of the Securities Registration Statement Foreign companies are required to file Form 7 of the Securities Registration Statement (stipulated in Article 8, paragraph 1, item (4) of the Cabinet Office Ordinance on Disclosure of Information, etc.). Description items required in Form 7 are as follows: Cover Page Part I Information Concerning Securities I Terms and Conditions of Primary Offering II Terms and Conditions of Secondary Offering III Special Description of Third Party Allotment IV Other Description Part II Corporate Information I Outline of the Legal and Other Systems in the Home Country II Outline of the Company III Description of Business IV Conditions of Facilities V Description of the Company VI Financial Conditions (*)This includes the financial statements for the recent two or three years. VII Trend of Foreign Exchange Rates VIII Summary of Issuer's Share Handling, etc. in Japan IV Reference Information of Issuer Part III Information on Guarantor, etc. (*)This is required for Guaranteed Bonds but is not required for Foreign Stock. Part IV Additional Information (*) Financial statements for the recent five fiscal years other than those listed in VI of Part II shall be posted; provided, however, that this does not applicable to cases where financial statements for the recent three fiscal years are posted in VI of Part II. As stated above, foreign companies are required to include the financial statements for the recent three years in Part IV Additional Information of the Securities Registration 83

85 8. Statutory Disclosure Statement. For details of accounting standards and audit certificates of the financial documents, please see section 10 (3). In addition, foreign companies are required to file the following documents as accompanying documents (Article 10, paragraph (1), item (4) of the Cabinet Office Ordinance on Disclosure of Information, etc.). 1) Articles of Incorporation 2) Minutes of the board of directors' meeting, etc. (any of the following: a copy of minutes of the board of directors meeting at which a resolution authorizing the issuance of the securities; a copy of minutes of the board of directors meeting in the case where a resolution of the shareholders meeting; a copy of minutes of the shareholders meeting; or certificate evidencing a permission, approval or admission by the administrative agency regarding the issuance) 3) A certificate of authorization related to changes in the amount of capital (a written statement containing description sufficient to understand that the company obtained permission, authorization, or approval from administrative agencies in cases where such permission, authorization, or approval from administrative agencies is required for changing the amount of capital of the company) 4) Trust agreement or other major contract (in case of JDR) 5) Certificate of incumbency (a written statement that proves that the representative of a foreign company submitting such Securities Registration Statement is a person who has legitimate authority regarding the registration of such offering or secondary offering of the securities) 6) Power of attorney (a written statement that proves that such foreign company granted the authority to represent the company for all acts regarding the registration of such offering or secondary offering of securities to a party domiciled in Japan.) 7) Written legal opinion by a legal expert (certifying that the public offering or secondary offering is legitimate and the statement contained in the Securities Registration Statement is correct and accurate) 8) Certificate of authorization pursuant to the Foreign Exchange and Foreign Trade Act (a written statement that proves that such foreign company obtained such permission in cases where it is necessary pursuant to Article 21, Paragraph 1 or 2 of the Foreign Exchange and Foreign Trade Act) 9) A copy of the principal underwriting agreement (a copy of the principal underwriting agreement that was concluded between such foreign company and a financial instruments business operator) b. Obligation of Preparation and Delivery of Prospectus An issuer who has filed the Securities Registration Statement shall prepare Prospectus (stipulated in Article 13, paragraph (1) of the Cabinet Office Ordinance on Disclosure of Information, etc.) and subsequently (or at the same time) deliver Prospectus to investors (stipulated in Article 15, paragraph (2) of the Cabinet Office Ordinance on Disclosure of Information, etc.) 84

86 8. Statutory Disclosure Description items required to be included in Prospectus are almost the same as shown above in the Securities Registration Statement. Therefore, in practice, the Securities Registration Statement as amended to some extent could be used and delivered as the Prospectus. 85

87 8. Statutory Disclosure (2) Continuous Disclosure After listing, foreign companies are required to file Annual Securities Reports, Internal Control Reports, Quarterly Securities Reports and Extraordinary Reports as part of Continuous Disclosure. These disclosure documents and the accompanying documents shall be filed and disclosed via EDINET consistent with the Securities Registration Statement. In addition, the practical submission of the documents will be made by a standing proxy in Japan, which is also the same with the Securities Registration Statement. a. Annual Securities Report Foreign companies whose shares of stock are listed on a Japanese stock exchange are required to file Annual Securities Report to the Kanto Finance Bureau within six (6) month after the end of each fiscal year (stipulated in Article 24, paragraph (1) of the Financial Instruments and Exchange Act, Article 3-4 of the Order for Enforcement of the Financial Instruments and Exchange Act). However, foreign companies shall be allowed to extend the deadline for submission of Annual Securities Reports by obtaining approval of the FSA Commissioner in cases where it is deemed that they are unable to submit the reports by the deadline due to unavoidable reasons such as the laws and regulations or practices in their home country (stipulated in Article 24, paragraph (1) of the Financial Instruments and Exchange Act, Article 3-4 of the Order for Enforcement of the Financial Instruments and Exchange Act, Article of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.). Foreign companies are required to file Form 8 of Annual Securities Report (stipulated in Article 15, Paragraph 2, Item a. of the Cabinet Office Ordinance on Disclosure of Information, etc.). Description items required in Form 8 are almost the same as shown above in the Securities Registration Statement (Form 7). However, Part I Information Concerning Securities and Part IV Additional Information are not required in the Annual Securities Report. Foreign companies are required to include the financial documents for the most recent two (2) fiscal years (the financial documents for the most recent fiscal year, in the case where the financial documents for the most recent fiscal year include information equivalent to comparative information, prescribed in the Ordinance on Consolidated Financial Statements or the Ordinance on Financial Statements, etc., and the financial documents for the most recent two (2) fiscal years have already been disclosed in past submissions of Securities Registration Statements or Annual Securities Reports) in the Annual Report. For details of accounting standards applied to and audit certificate on the financial documents, please see section 10 (3). It is necessary to file the following documents as accompanying documents of the Annual Securities Report (stipulated in Article 17, Paragraph (1), Item (2) of the Cabinet Office Ordinance on Disclosure of Information, etc.). 1) Articles of Incorporation 2) Matters reported or resolved at ordinary general shareholders meeting (Annual Report, 86

88 8. Statutory Disclosure etc.) 3) Copy of Trust agreement or other major contract (in case of JDR) 4) Certificate of incumbency (a written statement that proves that the representative of a foreign company described in the Annual Securities Report is a person who has legitimate authority regarding the submission of the Annual Securities Report) 5) Power of attorney (a written statement that proves that such foreign company granted the authority to represent the company for all acts regarding the submission of the Annual Securities Report to a party domiciled in Japan.) 6) Written legal opinion by legal expert (certifying that the statement as to legal matters contained in the Securities Registration Statement is correct and accurate) 7) (In cases where a foreign company submitted the Securities Registration Statement, etc. with respect to bonds issued and outstanding) Copy of any agreement by the foreign company and the other parties for the purpose that the foreign company will entrust the credit management or acts for other creditors, the act for itself, or task for the act for itself, and copy of agreement on payment of the principal and interest. b. Internal Control Report Listed companies are required to submit an Internal Control Report each year, together with Annual Securities Report (stipulated in Article , Paragraph (1) of the Financial Instruments and Exchange Act). The Internal Control Report is a report which is made by the management for the purpose of validity assessment of the organization required to secure the reliability of financial reporting. In cases where a foreign issuer includes financial documents in the Annual Securities Report in the home country or a third country and where the Commissioner of the Financial Services Agency determines that such disclosure is appropriate in the light of the protection of investors, the foreign issuer may submit the Internal Control Report disclosed in the home country or third country to the Japanese authority as eligible Internal Control Report. (Stipulated in Article , Paragraph (1) of the Financial Instruments and Exchange Act; and Article 12 of the Cabinet Office Ordinance on Disclosure of Information, etc.). In fact, there are past cases where Internal Control Reports disclosed in the United States, Korea and Malaysia have been submitted in Japan. This Internal Control Report shall be audited by an auditing firm, etc., including the auditing firm which issued the notification to the Financial Services Agency (stipulated in Article 193-2, Paragraph (2) of the Financial Instruments and Exchange Act). In the case where a company submits its internal control report during the period of three years from the date on which the company became an issuer of listed securities, the company is exempted from an obligation to audit internal control reports (Stipulated in Article 193-2, Paragraph (2) of the Financial Instruments and Exchange Act; and Article 35-3 of the Order for Enforcement of the Financial Instruments and Exchange Act) However, newly-listed companies that are deemed to exert a strong influence over the market or over society or over the economy (such as those with capital amounts of 10 million yen or more, or total liabilities of 100 billion yen or more) would not be subject to the exemption. 87

89 8. Statutory Disclosure c. Quarterly Securities Report Foreign listed companies are required to file Quarterly Securities Reports every three months (Article , Paragraph (1) of the Financial Instruments and Exchange Act). Therefore, Quarterly Securities Report shall consist of 1Q, 2Q, and 3Q securities reports. In addition, the deadline for the submission of the Quarterly Securities Report is within forty-five (45) days after the end of each quarterly period (Article , Paragraph (1) of the Financial Instruments and Exchange Act; and Article , Paragraph 3 of the Order for Enforcement of the Financial Instruments and Exchange Act). However, foreign companies shall be allowed to extend the deadline for submission of Quarterly Securities Reports in cases where it is deemed that they are unable to submit the reports by the deadline due to unavoidable reasons such as the laws and regulations or practices in their home country (Article , Paragraph (1) of the Financial Instruments and Exchange Act; and Article , Paragraph (1) of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.). Foreign issuers are required to file Form 9-3 of the Quarterly Securities Report (stipulated in Article 17-15, Paragraph (1), Item (2) of the Cabinet Office Ordinance on Disclosure of Information, etc.). Description items required in Form 9-3 are as follows: Cover Page Part I Corporate Information I Outline of the Legal and Other Systems in the Home Country II Outline of the Company III Description of Business IV Description of the Company V VI Part II Financial Conditions Trend of Foreign Exchange Rates Information on Guarantor, etc. (*) This is required for Guaranteed Bonds and is not required for Foreign Stock. Foreign companies are required to include quarterly financial statements in V Financial Conditions of Part I Corporate Information as listed in the above table in the quarterly reports. For details of accounting standards applied to and audit certificate on the financial documents, please see section 9 (3). Foreign companies are required to submit the following documents as accompanying documents to Quarterly Securities Report (Article 17-15, Paragraph 3 of the Cabinet Office Ordinance on Disclosure of Information, etc.). 1) Certificate of incumbency (a written statement that proves that the representative of a foreign company described in the Quarterly Securities Report is a person who has legitimate authority regarding the submission of the Quarterly Securities Report) 2) Power of attorney (a written statement that proves that such foreign company granted the authority to represent the company for all acts regarding the submission of the Quarterly Securities Report to a party domiciled in Japan.) 88

90 8. Statutory Disclosure d. Confirmation Letter Listed companies are required to submit to the Prime Minister a Confirmation Letter to the effect that they confirmed these documents are in compliance with the applicable laws and regulations (stipulated in Article and Article of the Financial Instruments and Exchange Act). If a listing company has a Chief Financial Officer, the Confirmation Letter requires a signature of the Chief Financial Officer as well as the Representative Director (Stipulated in Article 17-10, Paragraph 1, Item (1) of the Cabinet Office Ordinance on Disclosure of Information, etc.; Form 9-2). 89

91 8. Statutory Disclosure e. Extraordinary Report Listed companies are required to file an Extraordinary Report without delay when a significant event exceeding prescribed criteria occurs (Article 24-5, Paragraph (4) of the Financial Instruments and Exchange Act). Main events that are required for the submission of the Extraordinary Report are as listed below; provided, however, that the submission of the Extraordinary Report is not required in the case of minor events which do not meet certain conditions (Article 19 of the Cabinet Office Ordinance on Disclosure of Information, etc.). [Non-Consolidated Basis] 1) Public Offering or Secondary Offering of Securities in Foreign Market 2) Issuance of Privately Placed Securities 3) Issuance of Stock Options Not Required for Notification 4) Change in Parent Company or Specified Subsidiaries 5) Change in Major Shareholders 6) Occurrence of Significant Disaster 7) Filing or Settlement of Lawsuit 8) Determination of Stock Swap, Stock Transfer, Absorption-type Company Split, Incorporation-type Company Split, or Consolidation-type Merger 9) Determination of Transfer or Acquisition of Key Business 10) Change of President or Representative Director 11) Commencement of Bankruptcy Proceedings, etc. 12) Occurrence of Large Uncollectible Claims 13) Occurrence of Event Significant Adverse Effect on Financial Condition and Results of Operations 14) Occurrence or Change of Initial Public Offering Information [Consolidated Basis] 1) Occurrence of Significant Disaster at Consolidated Subsidiary 2) Filing or Settlement of Lawsuit at Consolidated Subsidiary 3) Determination of Stock Swap, Stock Transfer, Absorption-type Company Split, Incorporation-type Company Split, or Consolidation-type Merger at Consolidated Subsidiary 4) Determination of Transfer or Acquisition of Key Business at Consolidated Subsidiary 5) Commencement of Bankruptcy Proceedings, etc. at Consolidated Subsidiary 6) Occurrence of Large Uncollectible Claims at Consolidated Subsidiary 7) Occurrence of Event Significant Adverse Effect on Financial Condition and Results of Operations at Consolidated Subsidiary 90

92 8. Statutory Disclosure (3) Accounting Standards Applied to and Audit Certificate on Financial Documents a. Accounting Standards As stated above, foreign companies are required to include their financial statements in Securities Registration Statement, Annual Securities Report and Quarterly Securities Report. In the same way as Japanese companies, foreign companies may adopt US GAAP 13 or J-GAAP in consolidated financial statements (or non-consolidated financial statements if the company does not submit consolidated financial statements) if they satisfy certain requirements. However, in cases where the Commissioner of the Financial Services Agency determines that such financial statements are appropriate in light of the public interest or the investor protection, the foreign issuer may use the financial statements as disclosed in the home country or another country. (Rule 131, Paragraph (1) & (2) of the Regulations for Financial Documents; Article 85, Paragraph (1) & (2) of Quarterly Regulations for Financial documents) Approval by the Commissioner of the Financial Services Agency will be made on a case-by-case basis. However, in cases where a foreign company submits financial statements that were approved by the Commissioner of the Financial Services Agency in the past, the procedure to obtain approval could be simplified. The accounting standards approved by the Commissioner of the Financial Services Agency in the past are as given below. Therefore, in case of initial public offering, an foreign company is required to confirm whether the type of financial document disclosed by the company in the home country or another country has been approved by the Commissioner of the Financial Services Agency in the past or not. 13 For a company registered with the US Securities and Exchange Commission ( SEC ) that prepares consolidated financial statements in accordance with the terminology, forms, and preparation methods for issuance, etc. of American depositary receipts as required by SEC, it may apply said terminology, forms, and preparation methods in the submission of such consolidated financial statements as statutory filings if the Commissioner of the Financial Services Agency deems them to be sufficient in terms of the public interest and investor protection. However, this shall exclude items on which the Commissioner of the Financial Services Agency has deemed necessary to provide instruction. (Article 95 of the Ordinance on Consolidated Financial Statements) 91

93 8. Statutory Disclosure International Financial Reporting Standards (IFRS) Accounting principles generally accepted in the United States of America Accounting principles generally accepted in Canada Accounting principles generally accepted in Mexico Accounting principles generally accepted in the United Kingdom Accounting principles generally accepted in Ireland Accounting principles generally accepted in Germany Accounting principles generally accepted in France Accounting principles generally accepted in Holland Accounting principles generally accepted in Spain Accounting principles generally accepted in Italia Accounting principles generally accepted in Switzerland Accounting principles generally accepted in Luxembourg Accounting principles generally accepted in Sweden Accounting principles generally accepted in Finland Accounting principles generally accepted in Norway Accounting principles generally accepted in Korea Accounting principles generally accepted in Hong Kong Accounting principles generally accepted in Taiwan Accounting principles generally accepted in Australia Accounting principles generally accepted in Singapore Accounting principles generally accepted in Malaysia b. Audit Certificate In order to disclose financial statements in the Securities Registration Statement, Annual Securities Report, and Quarterly Securities Report, it is necessary to obtain an audit certificate issued by a certified public accountant or audit firm (Article 193-2, Paragraph 1 (body text) of the Financial Instruments and Exchange Act; Article 1, Paragraph 1 and 7 of the Cabinet Office Ordinance on Audit Certification of Financial Statements, etc.). However, in cases of foreign companies, it is generally considered that an audit certificate or equivalent to that issued by a foreign audit firm, etc. is deemed as eligible, as long as it is consistent with the audit certificate in Japan (stipulated in Article 193-2, Paragraph (1), Item (1) of the Financial Instruments and Exchange Act; Rule 35, Paragraph (2), Item (4) of the Order for Enforcement of the Financial Instruments and Exchange Act; Article 1-2 of the Cabinet Office Ordinance on Audit Certification of Financial Statements, etc.). Therefore, practically, foreign companies may usually use audit certificates abroad (in other words, do not obtain new audit certificates issued by a Japanese certified public accountant or auditing firm in Japan). However, in this case, please keep in mind that it is necessary to file a prior notification to the Financial Services Agency in order to be approved as eligible foreign audit firm, etc. (Article 193-2, Paragraph (1), Item (1) of the Financial Instruments and Exchange Act; and Rule 1-3, Paragraph (7) and Article 34-35, Paragraph (1) of the Certified Public Accountants Act). On the other hand, it is not required to provide audit certificates on quarterly financial 92

94 8. Statutory Disclosure statements that are disclosed in Quarterly Securities Report. However, in cases where such quarterly financial statements are reviewed in home countries, some foreign companies disclose the results of the reviews in Japan at their own discretion. 93

95 8. Statutory Disclosure (4) English Language Disclosure System a. Outline The English-Language Disclosure System is a system which allows foreign companies to submit English documents (limited to those which were actually disclosed in a foreign country pursuant to laws and regulations, including rules of a stock exchange or an equivalent institution, in the foreign country) in place of the Securities Registration Statement, Annual Securities Report and other disclosure documents that are required to be submitted under the Financial Instruments and Exchange Act Japanese documents, in cases where these English documents are deemed not to be inadequate in consideration of the public interest and investor protection in Japan. In cases where a foreign company submits these English documents (including those which are required as supplementary documents), such company shall be deemed to have submitted Securities Registration Statement, Annual Securities Report and other disclosure documents, with the same effect under the governing laws and regulations (Article 5, Paragraph 8 and Article 24, Paragraph 11 of the Financial Instruments and Exchange Act and others). The outline of the English Language Disclosure System will be discussed below. For further discussion, please see Preparation Procedure of Foreign Company Annual Securities Reports, etc. (1.5 version) as published on the website below. b. Documents Eligible for the English-Language Disclosure Among the documents that are eligible for the English-Language disclosure, the important items for foreign companies are as below: Type of the disclosure documents Securities Registration Statement (limited to those prepared in the regular method) and its amendment statements Annual Securities Report and its amendment statements Quarterly Securities Report and its amendment statements Confirmation Letter and its amended Confirmation Letter Internal Control Report and its amendment statements Extraordinary Report and its amendment statements Corresponding documents under the English-Language Disclosure System Foreign Company Registration Statement and supplementary documents as well as their amendment statements Foreign Company Annual Securities Report and supplementary documents as well as their amendment statements Foreign Company Quarterly Securities Report and supplementary documents as well as their amendment statements Foreign Company Confirmation Letter and supplementary documents as well as their amended Confirmation Letter Foreign Company Internal Control Report and supplementary documents as well as their amendment statements Foreign Company Extraordinary Report and its amendment statements 94

96 8. Statutory Disclosure c. Requirements for the English-Language Disclosure For the use of the English-Language Disclosure System, the requirements specified in the followings in accordance with the classification of the documents listed in each item shall be met. A. Foreign Company Registration Statement, Foreign Company Annual Securities Report, and Foreign Company Quarterly Securities Report, etc. (Article 5, Paragraph 6, Item 2 of the Financial Instruments and Exchange Act, and Article 9-6, Paragraph 1 of the Cabinet Office Ordinance on Disclosure of Information, etc.) 1) The document shall be prepared in English. 2) The documents were disclosed pursuant to the laws and regulations in the foreign country. 3) The documents shall be deemed not to be inadequate by the FSA Commissioner in consideration of the public interest and investor protection in Japan. B. Foreign Company Internal Control Report and Foreign Company Confirmation Letter Only a foreign company which submitted a Foreign Company Annual Securities Report may submit a document containing matters required in the form of an Internal Control Report or Foreign Company Confirmation Letter are provided in English (Article , Paragraph 6 and Article , Paragraph 6 of the Financial Instruments and Exchange Act, etc.). Such company shall be allowed to submit either a newly prepared document or an existing document which was disclosed in a foreign country. C. English Language Disclosure in lieu of Extraordinary Report In cases where a foreign company satisfies the requirements in the following requirements 1) and 2), it may submit a document in which matters required in the form of the Extraordinary Report are provided in English (Article 24-5, Paragraph 1 of the Financial Instruments and Exchange Act, and Article of the Cabinet Office Ordinance on Disclosure of Information, etc.). Such company shall be allowed to submit either a newly prepared document or an existing document which was disclosed in a foreign country. 1) The reason for submission is provided in Japanese. 2) The document shall be deemed not to be inadequate by FSA Commissioner in consideration of the public interest and investor protection in Japan. d. Supplementary Documents For the purpose of English-Language Disclosure, foreign companies are required to submit the following supplementary documents (Article 5, Paragraph 7 of the Financial Instruments and Exchange Act, Article 9-7, Paragraphs 2 through 4, of the Cabinet Office Ordinance on Disclosure of Information, etc.). 1) Japanese Translation of Summary on Specific Items For example, with regards to Foreign Company Registration Statement, summary of transition of major management indicators, etc., outline of business and risks in 95

97 8. Statutory Disclosure business etc. are required to be translated into Japanese and attached as one of supplementary documents. 2) Non-described items falling under the items for which Japanese translation of a summary should be prepared. In cases where there is no description for items which are required to be included in each form corresponding to a Foreign Company Registration Statement, Foreign Company Annual Securities Report, and Foreign Company Quarterly Securities Report, etc., and such items fall under those for which a Japanese translation of a summary should be prepared (specifically, the items enumerated in the preceding 1)), documents which include such items in Japanese or English are required to be attached as supplementary documents. A Japanese translation of a summary must be attached in cases where these documents are prepared in English. 3) Non-described Items In cases where there is no description for items which are required to be included in each form equivalent to a Foreign Company Registration Statement, Foreign Company Annual Securities Report and Foreign Company Quarterly Securities Report, etc. (excluding the items specified in the above 2), documents which include such items in Japanese or English are required to be attached as one of the supplementary documents. 4) Comparison Table For the Foreign Company Registration Statement, etc. (excluding the Foreign Company Extraordinary Report), foreign companies are required to prepare a comparison table for items in each corresponding form and those in the Foreign Company Registration Statement, etc. (excluding the Foreign Company Extraordinary Report) to be submitted. 5) Certificate of Incumbency and Power of Attorney, etc. e. Attachments The following documents are required to be attached to a Foreign Company Registration Statement (Article 5, Paragraph 10 of the Financial Instruments and Exchange Act, and Article 10, paragraph 1, item 8 of the Cabinet Office Ordinance on Disclosure of Information, etc.). 1) Minutes of board of directors meetings, etc. (a copy of the minutes, etc. of board of directors meetings or general shareholders meeting in cases where the issuance of the securities is resolved at such board of directors meetings or general shareholders meeting, or a written statement that proves that the company was authorized by administrative agencies) 2) A certificate of authorization related to changes in the amount of capital (a written statement containing description sufficient to understand that the company obtained permission, authorization, or approval from administrative agencies in cases where such permission, authorization, or approval from the administrative agencies is required for changing the amount of capital of the company (including a designated corporation) due to the issuance of such securities) 3) Copies of the trust agreement and other important agreements (in the case of JDR) 96

98 8. Statutory Disclosure 4) Written legal opinion by a legal expert (written legal opinion by a legal expert on the legality of such offering or secondary offering of securities) 5) Certificate of incumbency (a written statement that proves that the representative of a foreign company submitting such Securities Registration Statement is a person who has legitimate authority regarding the registration of such offering or secondary offering of the securities) 6) Power of attorney (a written statement that proves that such foreign company granted the authority to represent the company for all acts regarding the registration of such offering or secondary offering of securities to a party domiciled in Japan.) 7) Certificate of authorization pursuant to the Foreign Exchange and Foreign Trade Act (a written statement that proves that such foreign company obtained such permission in cases where it is necessary pursuant to Article 21, Paragraph 1 or 2 of the Foreign Exchange and Foreign Trade Act) 8) A copy of the principal underwriting agreement (a copy of the principal underwriting agreement that was concluded between such foreign company and a financial instruments business operator) f. Submission Deadline With regard to a Foreign Company Annual Securities Report that will be submitted in lieu of an Annual Securities Report, the foreign company is required to submit such report within four months after the end of its fiscal year (Article 24, Paragraph 10 of the Financial Instruments and Exchange Act; and Article of the Order for Enforcement of the Financial Instruments and Exchange Act). Please note that the period is shorter compared to cases where a foreign company submits an Annual Securities Report. In contrast, a foreign company is allowed to submit an Annual Securities Report within six months after the end of its fiscal year taking into account the burden of translation into Japanese. In principle, foreign companies are required to submit other English-Language Disclosure documents by the same deadline as Japanese companies. 97

99 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. 14 (1) Custody and Book-Entry Transfer Systems for Foreign Stocks, etc. Foreign stocks are settled under the business regulations relating to the depository and book-entry transfers for foreign stocks, etc. of Japan Securities Depository Center, Inc. (JASDEC). In this system, securities companies and banks, etc. establish participant accounts in JASDEC and general investors establish customer accounts in securities companies or banks, etc. in accordance with the rules of JASDEC and TSE. Regular transactions of foreign stocks listed on the TSE market are settled, in the same way as domestic stocks, via book-entry transfer on the fourth business day counting from the trade day (T+3) based on the system for custody and book-entry transfer for foreign stocks, etc. of JASDEC. Please also visit JASDEC's website for description of custody and book-entry transfer system for foreign stocks, etc. ( The physical certificates of foreign stocks are not brought into Japan but are held in custody in the foreign depository designated by JASDEC. The shareholdings of beneficial shareholders (customers who actually own the foreign stocks, etc.) are recorded in the relevant customer accounts. (2) Dividend Payment The foreign depository receives dividends from listed foreign companies on behalf of JASDEC and transfers the corresponding amount to the dividend-paying bank in Japan (trust bank or major retail bank). When the dividend-paying bank receives dividends, it distributes the dividends to the beneficial shareholders on the relevant lists of the beneficial shareholders according to the instructions from shareholder services agents (trust banks). These distributions of dividends are made by crediting the accounts designated by beneficial shareholders or sent in the form of postal money orders. Dividend payments are made in Japanese yen. As a general rule, conversion into Japanese yen is calculated using the Telegraphic Transfer Buying (TTB) rate on the day when the dividend-paying bank receives the dividends. (3) Record Date of Shareholders Eligible for Dividend In the case of registered stocks, the record date shall, as a general rule, be the same as that in the home market. For the most of bearer stocks, the record date on the TSE market shall be one business day prior to the dividend payment date in the home market. Dividends will be paid to the beneficial stockholders as of record date. 14 Please refer to the following TSE website regarding stock administration and clearing rules for foreign stocks. 98

100 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. (4) Other Rights such as Subscription Warrants In cases where subscription warrants are granted, if a beneficial shareholder wishes to subscribe for new shares and pays for them through a participant, JASDEC exercises the subscription warrants and receives the new shares which are then credited to the customer account of the beneficial shareholder. Such payment is generally made in Japanese yen. On the other hand, if a beneficial shareholder does not wish to subscribe for new shares or JASDEC determines that it is unable to exercise the rights taking into account factors such as the payment schedule in the home country, JASDEC collectively sells all such subscription warrants in the home market of the listed foreign company and pays sales proceeds to the beneficial shareholders via shareholder services agents. In addition, in the case of a stock listed only on the TSE market, if a corresponding subscription warrants market is opened at TSE, JASDEC will not collectively sell all subscription warrants and the beneficial shareholder may sell the subscription warrants in such market. New shares, which are allotted due to a stock split or gratis allotment, etc., shall be received by JASDEC and credited to the costumer account of the corresponding beneficial shareholder. However, JASDEC will sell fractional shares in the home market of the listed foreign company and pay sales proceeds to the relevant beneficial shareholders via shareholder services agents. Note that, if there is no market to sell the relevant rights, there may be no choice other than to abandon such rights. (5) Exercise of Voting Rights at General Shareholders Meetings Voting rights at general shareholders meetings are exercised by JASDEC in accordance with instructions issued by beneficial shareholders (submission of instruction for the proxy exercise of voting rights). If no instruction is issued by a beneficial shareholder, JASDEC will not exercise the corresponding voting right. In addition, in cases where the record date for a general shareholders meeting is set in the home country, the same date is set as record date in Japan. Documents such as notice of convening a general shareholders meeting and form for instruction for the proxy exercise of voting rights are sent to the beneficial shareholders as of the record date. Beneficial shareholders are able to exercise their voting rights referring to such documents. However, even though a record date is set, in cases where procedures, such as sending of notice of convening a general shareholders meeting to beneficial shareholders, are deemed difficult due to the limited schedule, such beneficial shareholder will be required to perform procedures to exercise the voting right through the shareholder services agent within the period published by the company in the newspapers. In the case of a company which does not set a record date for the general shareholders meeting, a beneficial shareholder intending to exercise his/her voting right should perform the procedures within the period published by the company in newspapers. For your information, TSE has defined Framework Improvement to Facilitate Exercise of Voting Rights for Listed Foreign Companies as a measure in line with the Code of Corporate Conduct. For details, please see section 12 (3) c (d). 99

101 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. (6) Book-Entry Transfers from JASDEC to Securities Companies Foreign stocks bought on the TSE market can be sold in any other market where the foreign company is listed. In this case, the shareholder will be able to sell his/her shares after transfer of custody under the custodian of JASDEC to that of a securities company, etc. is completed. In addition, in cases where TSE decides to delist a foreign stock, such stock will also be transferred from a foreign custodian of JASDEC to that of a securities company, etc. Workflow of Shareholder Services and Dividend Payments 100

102 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. (7) Handling under TSE Listing Administration Rules Based on the shareholder services and book-entry transfer systems as discussed above, listed foreign companies shall assume the following obligations: a. Selection of Agent and Entity Responsible for Handling Information in Japan Selection of Agent of the Company in Japan A listed foreign company is obliged to select a person as agent in Japan who has an address or residence in Japan and has the authority to deputize or represent such listed foreign company with respect to all acts in relation to TSE. The agent in Japan shall, in principle, be selected from amongst the officers and employees of the listed foreign company. However, if selection from such officers and employees is difficult, the agent shall be a person approved by TSE. [Rule 426 of the Listed Foreign Companies, etc. with a main market listing on TSE It is assumed that a listed foreign company with a main market listing on TSE has a large number of shareholders in Japan. Therefore, in principle, such listed foreign company shall select a person responsible for handling of information amongst the directors, executive officers or equivalent senior persons residing in Japan and notify TSE of such person responsible for handling of information for the purpose of ensuring smooth communication and reporting in reply to inquiries from TSE. The person responsible for handling of information shall be not only in charge of liaison pertaining to reporting to TSE but also engaged in internal management of important corporate information and timely disclosure. In addition, the person responsible for handling of information may reside in a home country or countries other than Japan, as long as he/she can ensure smooth reporting structure with TSE. For details, please consult with TSE in advance. [Rule 417 of the b. Setting Up Offices for Handling Exercise, etc. A listed foreign company who is an issuer of a listed convertible bond shall set up an exercise handling office or agency office for a subscription warrant pertaining to a listed convertible bond in Chuo-ku, Chiyoda-ku or Minato-ku in Tokyo or any of the places specified by TSE. [Rule 423 of the c. Ensuring Appropriate Shareholder Services and Dividend Payment Services A listed foreign company shall ensure that shareholder services and dividend payment services for beneficial shareholders of foreign stocks, etc. will be carried out appropriately in each of the following items. 101

103 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. A. Notice shall be made in Japanese as to measures taken by a listed foreign company (including depository facilities, etc. pertaining to listed foreign stock depositary receipts, etc., if the listed foreign company is an issuer of listed foreign stock depositary receipts, etc.) with respect to surplus dividends, granting of subscription warrants, and other rights or interests of shareholders. * The notice may be made by public notice in Japan (which shall be carried out in a manner similar to public notice carried out by an issuer of listed domestic stocks), by a method subject to the prior approval of TSE in which the notice is kept at an office of the shareholder services agent, or by other methods that are prescribed by TSE. B. Notice shall be made in Japanese for Business Reports, such as Annual Securities Reports, Interim Securities Reports, and Quarterly Securities Reports (Quarterly Securities Reports may replace Interim Securities Reports). * These reports may be summarized or replaced by other reports pursuant to the provisions of TSE. However, when the listed foreign company does not provide such notice to the shareholders, these notices are not required. [Rule 425 of the d. Notification and Public Notice of Period or Date for Rights Allotment Where a listed foreign company decides a period or a date to determine those who may exercise voting rights, those who receive dividends or allocation of a stock, or those who may exercise rights as shareholders (in cases of an issuer of a listed foreign stock depositary receipt, etc., where a depository, etc. pertaining to the listed foreign stock depository security, etc. decides a period or a date to determine entities who may exercise rights concerning such foreign depositary receipt, etc.), the listed foreign company shall notify TSE of such period or date two (2) weeks before such period or date (where the deadline of notification and public notice required in the home country, etc. of such listed foreign company is earlier than a day two (2) weeks prior to such period or date, prior to such deadline) and, in addition, shall make public notice in Japan; provided, however, that it may omit such public notice in the cases listed below: A. Public notice of a period or date that is determined to fix the persons who are entitled to exercise the voting rights at a general shareholders meeting, if applicable; provided, however, that the documents necessary to exercise voting rights are delivered to beneficial shareholders before the date of said general shareholders meeting; B. Public notice of the period or date that has been determined in advance to fix the persons who are entitled to receive dividends, if applicable; C. Public notice of the period or date that is determined to fix the persons who are entitled to exercise rights, from amongst those that are impossible or extremely difficult to exercise in Japan, that are deemed by TSE to have particularly low economic value; and D. Public notice of matters that correspond to matters to be publicized through public notice, if such matters are disclosed in a manner prescribed by TSE. [Rule 430 of the 102

104 9. Shareholder Services and Book-Entry Transfer Systems for Foreign Stocks, etc. e. Notification of Decision Concerning Depositories, etc. Pertaining to Listed Foreign Stock Depositary Receipts, etc. Where a dividend or a subscription warrant or any other right is given to a foreign stock pertaining to a right representing a listed foreign stock depositary receipt, etc., if a depositary, etc. pertaining to the listed foreign stock depositary receipt, etc. makes decision on how to deal with such right, etc. concerning such foreign stock depositary receipt, etc., the issuer shall immediately notify TSE thereof. [Rule 431 of the 103

105 10. Overview of Listed Company Compliance 10. Overview of Listed Company Compliance (1) Overview of Timely Disclosure System a. Significance of Timely Disclosure A financial instruments market functions to contribute to the development of the national economy through the proper and efficient linking of asset management via securities by the public and stable, long-term fund-raising via the issue of securities by companies. In order for a market to fulfill this role, it is vital to maintain investors' confidence in the fairness and soundness of the market, as well as provide appropriate information on securities required for investment decisions. Rules for statutory disclosure (securities registration statement, securities report, quarterly financial reports, etc.) based on the Financial Instruments and Exchange Act as discussed in section 10 (Securities Registration Statement, Annual Securities Report, and Quarterly Securities Report, etc.) as well as rules for timely disclosure in financial instruments exchanges co-exist and serve the function of providing information required for investment decision-making. Timely disclosure rules are established pursuant to the rules of a financial instruments exchange for the purpose of providing investors with important corporate information from listed companies. These disclosures are characterized by their widespread and timely transmission to investors, through either the media or Timely Disclosure network (TDnet). Because of the large impact corporate information occurring minute-to-minute has on trading, timely disclosure is extremely vital to investors. Particularly, during this period of dynamic changes to the corporate environment where investors need access to accurate information, timely disclosure is becoming increasingly important as a quick, accurate, and fair means of providing the latest corporate information. Timely disclosure of corporate information should be initiated by each listed company responsible for the function. Therefore, each listed company is required to recognize the significance and importance of timely disclosure of corporate information and maintain a faithful stance to fulfill the disclosure, and at the same time, is required to prepare and improve its internal structure to carry out disclosure in a timely and appropriate manner. TSE prescribes requirements on timely disclosure about corporate information in the Securities Listing Regulations (hereinafter referred to as the "Regulations") and requires each listed company to disclose important corporate information, with the basic understanding that timely and appropriate disclosure of corporate information lies at the foundations of a sound financial instruments market. b. Overview of the Rules Concerning Timely Disclosure of Corporate Information (a) Basic Principle Concerning Faithful Execution of Services The Regulations stipulate the obligations of listed companies, including but not limited to strengthening prompt, accurate and fair disclosure of corporate information at all times from the viewpoint of investors with full recognition that timely and appropriate disclosure of corporate information to investors is the foundation of a sound financial instruments market. Each listed company is required to understand the meaning of this basic principle to the full extent, carry out faithful services and work on pro-active timely disclosure. [Rule 401 of the 104

106 10. Overview of Listed Company Compliance (b) Maintenance of Timely Disclosure Structure Appropriate and timely disclosure of important corporate information upholds an important role for investors as basic premise of self-responsibility in investments in the financial instruments market. Therefore, each listed company needs to conduct effective internal structure so as to fulfill appropriate information disclosure. In preparing and improving a timely disclosure structure appropriately, the following three points are especially important: A. Management of each listed company should indicate a clear stance and policy on the importance of corporate information disclosure in person in order to maintain and manage timely disclosure structure effectively, and also enlighten employees about the clear stance and policy. B. Clarifying key points to be accomplished for the purpose of conducting timely disclosure in an appropriate manner. C. Conducting monitoring of the timely disclosure structure by the internal audit division, director and company auditor (audit committee or similar bodies in the case of a company with committees) so as to manage and maintain the structure in appropriate manner. Outline of a listed company's timely disclosure structure is included in the report containing matters concerning corporate governance, and this information is publicly-available on the TSE homepage (corporate governance information service), etc. (c) Corporate Information Required for Timely Disclosure Corporate information required for timely disclosure includes information related to the company's business, operations, or performance which has a significant effect on securities investment decisions. The Regulations stipulate that a listed company is obliged to immediately disclose any items, excluding those falling under any of criteria items having insignificant influence on investors decision-making as in the Rules (hereinafter, De minimis Criteria ). Since a listed foreign company should pay careful attention that it is required to disclose any item in a timely manner, even though it is not clear whether it falls under the De minimis Criteria or not. When applying the rules and regulations of TSE to a foreign country or a foreign corporation where the foreign country or the foreign corporation is an issuer, etc. of a listed security, TSE shall take into account legal systems, practices and customs, etc. in such foreign country or the country, etc. of the foreign corporation as well. [Rule 7 of the 105

107 10. Overview of Listed Company Compliance Corporate Information Required for Timely Disclosure i. Listed Company Information (i) Decisions by Listed Companies Offering of issued shares, treasury shares to be disposed of, issued subscription warrants, or offering to entities who will subscribe to treasury subscription warrants to be disposed of, or a secondary offering of shares or subscription warrants Shelf-registration or commencement of a demand survey Decrease in amount of capital Decrease in amount of capital reserve or profit reserve Acquisition of own stock Gratis allotment of shares or gratis allotment of subscription warrants Shelf-registration concerning gratis allotment of subscription warrants or commencement of a demand survey or a survey on intention to exercise the warrants Stock split or reverse stock split Issue of stock options Dividend from surplus Stock swap, stock transfer, merger, demerger Takeover bid or takeover bid for own shares Announcement of opinions about a takeover bid, etc. Transfer or acquisition of all or part of a business Dissolution (excluding dissolution by means of merger) Commercialization of a new product or new technology Business alliance or dissolution of business alliance Transfer or acquisition of shares or equity interest accompanied by a change in a subsidiary or other matters accompanied by a change in a subsidiary Transfer or acquisition of fixed assets, lease of fixed assets Suspension or abolition of all or part of a business Application for delisting Petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, or commencement of reorganization proceedings Commencement of a new business Change in representative directors or representative executive officers Rationalization such as personnel reduction Change in a trade name or a corporate name Change in the number of shares for a share unit of a stock, or abolition/introduction of provisions for the number of shares for a share unit Change in accounting period (change in the end date of the business year) Petition to the Prime Minister stating an excess of liabilities or possibility of the halt of repayment of deposit, etc. (Petition pursuant to the provisions of Article 74, Paragraph 5 of the Deposit Insurance Act) Petition for mediation in accordance with specified mediation procedures pursuant to the Act on Specified Mediation for Promoting Adjustment of Specified Liabilities, etc. 106

108 10. Overview of Listed Company Compliance Advanced redemption of a listed bond or convocation of a bondholders meeting and any other important matters related to rights pertaining to listed bonds Change in certified public accountants, etc. Putting notes on matters related to the going concern assumption Submission of application for approval of deadline extension for submission of Annual Securities Report or Quarterly Securities Report Cancellation of entrustment of shareholding services to a shareholding service proxy institution Submission of internal control reports containing content to the effect that there is a material deficiency or that the evaluation result cannot be stated Amendment to the articles of incorporation Acquisition of all classified stocks subject to whole acquisition clause Approval or rejection of a special controlling shareholder s request for sale of shares, etc. Other important matters related to listed company operations, business, assets, or listed company stock certificates, etc. (ii) Facts which Occurred for a Listed Company Loss arising from a disaster or damage which occurs in the course of business execution Change in major shareholders or the largest shareholder Fact which causes delisting Filing of a lawsuit or a court decision Petition for a provisional disposition or decision on such petition, etc. Cancellation of a license, suspension of a business or any other disciplinary action corresponding to these on the basis of laws and regulations by an administrative agency or accusation of violation of laws and regulations by an administrative agency Change in a parent company, change in controlling shareholders (excluding a parent company) or change in other related company Petition or notification for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings, or execution of enterprise mortgage Dishonor of a bill or check or suspension of trading by a clearing house Petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings, or execution of enterprise mortgage pertaining to a parent company, etc. Default on obligations or delay in collection Suspension of trade with a business partner Financial support, such as exemption of obligations Discovery of natural resources Special controlling shareholder s request for sale of shares, etc. Claim for suspension of issue of stock or subscription warrants Demand for convocation of a general shareholders meeting Unrealized loss of securities held 107

109 10. Overview of Listed Company Compliance Acceleration of obligations pertaining to a corporate bond Convocation of a meeting of bondholders for a listed bond, etc. and other important facts pertaining to rights of a listed bond, etc. Change in certified public accountants, etc. Delay in submission of Annual Securities Report or Quarterly Securities Report Approval and etc. of deadline extension for submission of Annual Securities Report or Quarterly Securities Report The fact that an audit report attached to financial statements, etc. contains an "adverse opinion", "opinions are not expressed", or a "qualified opinion" with making issues concerning a going concern assumption as exceptions An internal control audit report contains an "adverse opinion" or the fact that "opinions are not expressed" Receipt, etc. of a notice of canceling a shareholder services agent agreement Other important matters related to operation, business or assets of such listed company or related to a listed stock certificates, etc. (iii) Listed Company Earnings Information Earnings Reports (Kessan Tanshin) Quarterly Earnings Reports (Shihanki Kessan Tanshin) (iv) Amendments, etc. to Performance Estimates or Dividend Estimates of Listed Company Amendments to performance estimates, differences in estimates and earnings values Dividend estimate or amendment to dividend estimate (v) Other Information Disclosure related to lowering the size of investment units Disclosure of the status of membership in Financial Accounting Standards Foundation Disclosure of status of conversion or exercise of MSCB, etc. Disclosure of matters relating to controlling shareholder, etc. Earnings information of unlisted parent company, etc. Disclosure related to delisting, etc. ii.information on Subsidiaries (i) Decisions by Subsidiaries Stock swap, stock transfer, merger, demerger A takeover bid or a takeover bid for own shares Transfer or acquisition of all or part of a business Dissolution (excluding dissolution by means of merger) Commercialization of a new product or new technology Business alliance or dissolution of business alliance Transfer or acquisition of shares or equity interest accompanied by change in a sub-subsidiary, or other matters accompanied by change in a sub-subsidiary 108

110 10. Overview of Listed Company Compliance Transfer or acquisition of fixed assets, lease of fixed assets Suspension or abolition of all or part of a business Petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, or commencement of reorganization proceedings Commencement of a new business Change in trade name or corporate name Petition to the Prime Minister stating an excess of liabilities or possibility of the halt of repayment of deposit, etc. (Petition pursuant to the provisions of Article 74, Paragraph 5 of the Deposit Insurance Act) Petition for mediation in accordance with specified mediation procedures pursuant to the Act on Specified Mediation for Promoting Adjustment of Specified Liabilities, etc. Other important matters related to operation, business or assets of a subsidiary of such listed company (ii) Facts which Occurred for a Subsidiary Loss arising from a disaster or damage which occurs in the course of business execution Filing of a lawsuit or a court decision Petition for a provisional disposition or decision on such petition, etc. Cancellation of a license, suspension of a business or any other disciplinary action corresponding to these on the basis of laws and regulations by an administrative agency or accusation of violation of laws and regulations by an administrative agency Petition or notification for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings, or execution of enterprise mortgage Dishonor of a bill or check or suspension of trading by a clearing house Petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings, or execution of enterprise mortgage pertaining to a sub-subsidiary Default on obligations or delay in collection Suspension of trade with a business partner Financial support, such as exemption of obligations Discovery of natural resources Other important matters related to operation, business or assets of such subsidiary (iii) Amendment, etc. to Performance Estimates of Subsidiary (Amendment to Performance Estimate of Subsidiary, Difference in Estimate and Earnings Values, etc.) 109

111 10. Overview of Listed Company Compliance Implementation of Timely and Appropriate Disclosure of Corporate Information The provisions defined in the Regulations state the minimum requirements, methods, etc. that a listed company should observe with respect to timely disclosure of corporate information, etc., and a listed company shall not use the provisions of the same section as an excuse for failures to disclose corporate information in a more timely and appropriate manner. A listed company is urged to make a proactive timely disclosure of corporate information in any event that is assumed to have influence on investors decision making in the light of each individual situation of such event which occurred with the listed company. [Rule of the For example, when an event falls under the following case examples, it is appropriate to regard that it is significant in the light of investment decision-making even though it may fall into the De minimis Criteria. In cases where a decision or occurrence of a corporate event is expected to cause the listed company to turn business around or vice versa for and after the fiscal year to which the decision or occurrence of the corporate event belongs. In cases where a decision or occurrence of a corporate event is expected to bring about a significant change in fundamentals of the listed company related to its management, operations and properties, including but not limited to a change in business organization or earnings structure thereof. In cases where separate facts of decision or occurrence that fall under the same disclosure items are deemed to collectively have material impact on the listed company in light of continuity or connection on the whole, even though each of events does not fall under the criteria of corporate information required for timely disclosure (in the case that combination of separates events falls under the criteria of the corporate information required for timely disclosure). (d) Disclosure Timing Listed companies are obliged to disclose any important information immediately upon decision or occurrence pursuant to the Regulations. As for disclosure timing, listed companies are required to make a judgment based on actual conditions without heavily depending on any formal aspects, such as resolution of board of directors meeting. Concretely, any facts of decision made by a listed company shall be disclosed immediately upon resolution or decision by an organization body with substantial authorization to make a decision to perform operations of the company. On the other hand, any facts of occurrence to be caused by external factors shall be disclosed upon recognition of the occurrence. 110

112 10. Overview of Listed Company Compliance Given that quick disclosure to investors is required with respect to timely disclosure of corporate information, listed companies are required to disclose the information immediately upon occurrence, irrespective of trading hours. (e) Matters to be Described in Disclosure Documents (Disclosure Matters) It is extremely important to make a disclosure document that fully and accurately describes corporate information because timely disclosure is the basis for providing material for investors to properly understand the situation and make investment decisions. The Enforcement Rules includes the following matters as requiring disclosure. (TSE may deem disclosure as inappropriate if it is found lacking in matters corresponding to the following.) a. Reason behind the decision by the listed company or how and why it was made b. Summary of decided facts and facts that occurred c. Future prospects related to decided facts and facts that occurred d. Other matters that are deemed by TSE to have material significance on investment decisions [Rule 402-2, Paragraph 1 of the Enforcement Rules] A listed company is required to comply with following matters pertaining to timely disclosure of corporate information and shall pay careful attention in preparing disclosure documents. The contents of the information to be disclosed do not contain false statements. The information to be disclosed is not lacking information deemed to be significant to investment decisions. The information will not cause misunderstanding regarding investment decisions. The information is not found lacking in appropriateness in any other way. [Rule 412, Paragraph 1 of the * Even though this guide book only describes certain matters, this does not contradict the above points regarding whether disclosure is lacking in information deemed important for investment decisions and will not cause misunderstanding regarding investment decision. Whether it is material information for investment decisions or may cause misunderstanding in investment decisions are judged on a case-by-case basis. (f) Examinations Pertaining to Disclosure of Corporate Information JPX Regulation conducts examinations concerning disclosure of corporate information based on the Regulations when JPX Regulation deems it is necessary and appropriate for ensuring the adequacy of disclosure of company information. The examination is carried out for disclosure of material corporate information from the following points of view. In case where a disclosure document has any problem concerning the following points, such disclosure may be regarded as inappropriate. 111

113 10. Overview of Listed Company Compliance Whether or not the timing of disclosure is appropriate Whether or not the details of disclosed information are false Whether or not the disclosed information lacks information deemed important for investment decisions Whether or not the disclosed information gives rise to misunderstandings for investment decisions Whether or not the disclosure is lacking in appropriateness [Rule 412, Paragraph 2 of the Regulations, II of the Guidelines] (g) Prior Explanation on Corporate Information before Disclosure of Corporate Information If a listed company decides, for the smooth implementation of timely disclosure of material corporate information, to disclose the corporate information based on the Rules 402 to and 416, the listed company is required to explain the contents of the disclosure to TSE before the corporate information is disclosed. [Rule 413, Paragraph 1 of the At TSE, each listed company has a TSE-side staff responsible for disclosure. When a listed company registers a disclosure document via TDnet, TSE will call the person responsible for disclosure at the listed company to ask for an explanation of the contents (generally within 30 minutes). Therefore, the person (not limited to the one responsible for handling information) should wait for a call from TSE. (h) Matters to Note Concerning Publication of Corporate Information on Listed Company s Own Website When a listed company intends to save corporate information requiring timely disclosure in a public directory (meaning in folders on web servers, which are accessible to outsiders via the Internet), it is obliged to take necessary measures, including not saving it before the corporate information has been disclosed or, in the case the information is to be saved before disclosure is carried out, to implement access controls by setting a password, etc. so that outsiders would not be able to access the information easily. [Rule 413, Paragraph 2 of the Timely disclosure matters include information which falls under the "material facts" in the insider trading regulations. If outsiders can access the information easily before the scheduled disclosure time, they may use such information to carry out trading. As a result, that may significantly undermine the fairness of the financial instruments market. Therefore, a listed company is required to take appropriate measures. In addition, a listed company is encouraged to establish internal rules concerning the publication of corporate information on its own website. The rules should be made known throughout the company, and there should also be regular inspections on compliance. 112

114 10. Overview of Listed Company Compliance (i) Method of Disclosure of Corporate Information Disclosure of corporate information shall be carried out using TDnet. [Rule 414 of the TDnet functions as an integrated electronic system jointly used by Japanese financial instruments exchanges for the purpose of achieving fairer, faster, and more extensive timely disclosure of corporate information. Specifically, on the day when performing a timely disclosure, listed companies are required to register disclosure documents via TDnet Online Registration System, make a reply to an inquiry from TSE and make a prior explanation to TSE. Later, at the specified disclosure time after completion of TSE disclosure process, the registered disclosure documents are transmitted to a lot of media institutions via TDnet. At the same time, it is also posted to the Timely Disclosure Information Browsing Service, a website created by TSE, and the corporate information is made available for public inspection on the browsing service. * Posting documents to the Timely Disclosure Information Browsing Service constitutes one of the publication measures under insider trading regulations. By posting corporate information to this service, listed companies are able to execute the publication measures pertaining to material facts under insider trading regulations such as the fact concerning tender offers (limited to those (Tender Offer for Share Certificates, etc. by Issuer) pertaining to tender offer prescribed in Article , Paragraph 1 of the Financial Instruments and Exchange Act) simultaneously (Article 30 of the Order for Enforcement of the Financial Instruments and Exchange Act). (j) Report and Disclosure on Inquiry Concerning Corporate Information A listed company is required to make an accurate report on an inquiry matter immediately, in the case where TSE makes an inquiry on corporate information of a listed company where it deems necessary. In the case where TSE deems that it is necessary and appropriate to disclose a fact pertaining to the inquiry, a listed company shall disclose details immediately. [Rule 415 of the When a news report or rumor concerning a listed security or its issuer is circulated, or when TSE receives an accusation from an outside party, TSE may make an inquiry to the listed company about the authenticity of such circulated information, etc. The listed company is required to make an accurate report to TSE. If TSE deems it necessary and appropriate for the listed company to clarify the authenticity, TSE may request the listed company to disclose the details of report. In such a case, the listed company is obliged to carry out disclosure immediately. Listed companies are reminded that non-action on a request for disclosure by TSE may constitute a violation of the Regulations, furthermore, that it may hinder fair price formation in the financial instruments market and cause to investors to lose confidence in them. 113

115 10. Overview of Listed Company Compliance On the other hand, when a news report or rumor concerning a listed security or its issuer is circulated, TSE may issue an alert to inform investors. For details on the system for issuing alerts, please refer to Outline of system for issuing alerts. (k) Cancellation, modification, or correction of disclosed information A listed company is required to disclose "cancellation of or change in a disclosed matter" in the case of cancellations or changes of any material corporate information already disclosed, and "addition, correction, or explanation of timely disclosure materials" in the case of corrections. In the case where a change or correction should be made to a disclosed earnings report/quarterly earnings report, the listed company shall disclose details of such change or correction, for example, as "correction of earnings report." However, in the case where a listed company recognizes the need to change or correct the disclosed earnings information prior to the submission of the securities report/quarterly securities report, it shall be sufficient to carry out disclosure after submitting such report, except in cases where such changes or corrections may have a remarkable effect on investment decisions. [Rule 416 of the In addition, regarding voluntary disclosure that is not under the Regulations, but is carried out via TDnet based on a decision by the listed company, in the case where a change or correction should be made to the content of disclosed information, the listed company is also required to disclose the details of such change or correction. (l) Notification of Person Responsible for Handling Information A listed company is required to select a person responsible for handling information from among its directors or any other person of similar capacity, and notify TSE of such person. [Rule 417 of the A person responsible for handling information means a liaison for reporting in response to inquiries from TSE and other matters regarding the disclosure of corporate information. Specifically, the person is the point of contact for TSE, and will be in charge of managing material corporate information and carrying out disclosure. When a listed company changes its person responsible for handling information, or alters the contents (e.g. name, title, or contact information) of the notification, the listed company is required to notify TSE immediately. In the case where alteration of the person responsible for handling information is scheduled due to the re-election of board directors, etc., the listed company may notify TSE in advance, describing the expected date of alteration. 114

116 10. Overview of Listed Company Compliance c. Notes on Using TDnet TDnet functions as an integrated electronic system jointly used by Japanese financial instruments exchanges for the purpose of achieving extensive corporate information which have influence on investment decisions. TDnet is developed and operated by TSE. Besides disclosure of corporate information to be carried out under the Regulations, a listed company is encouraged to voluntarily disclose corporate information that may be useful for investment decisions via TDnet from the point of view of disseminating information to investors. In this case, as the information is registered as "Timely Disclosure Information" via TDnet, such information will be disseminated to investors, directly through the "Corporate Announcement Disclosure Service" operated by TSE, and indirectly through the media and information vendors. In addition, TDnet is also available for the dissemination of corporate information that may not be useful for investment decisions to the media and information vendors. If such information is registered as "PR information, etc.," it is not posted to the "Corporate Announcement Disclosure Service" and is disseminated only to the media and information vendors. Due to the public purpose of TDnet, it is permitted to be connected to major media agencies and information vendors directly. As such, posting to TDnet is, at the same time, recognized as a "publication measure" under the insider trading regulations. Due to this situation, listed companies are not permitted to register information that deviates from the intended purpose of publishing corporate information for investment decisions. This includes expressing opinions in cases where there are differences or conflicts of opinion with other parties. The basic policy regarding appropriate usage of "Timely Disclosure Information" and "PR information, etc." is as follows. (a) Matters to be disclosed as "Timely Disclosure Information" A listed company is required to disclose its corporate information as "timely disclosure information" when the information is required to be disclosed under the Regulations. On the other hand, in the case where a fact is expected to have a certain effect on business performance, even though there is no disclosure obligation under the Regulations, or where company information briefing materials, monthly business performance reports, materials concerning corporate management policy are prepared, a listed company is encouraged to disclose such information as "timely disclosure information" because it is regarded as useful for investment decisions. (Note) Disclosure of corporate information as "timely disclosure information" is recognized as disclosure for the purpose of providing information that is useful for investment decisions. Therefore, referring to the practical handling of each disclosure item, etc., a listed company shall take care to prepare disclosure material appropriately from the viewpoint of providing material for investment decisions by describing matters necessary for investors to understand and judge the fact appropriately. (b) Matters to be disclosed as "PR information, etc." Regarding corporate information which may have little effect on business performance and usefulness in investment decisions, disclosure of such information is required to be carried out as "PR information, etc." instead of "timely disclosure information." 115

117 10. Overview of Listed Company Compliance (c) Scope of "Timely Disclosure Information" and "PR Information, etc." The scope for "Timely Disclosure Information" and "PR Information" is different in terms of posting to "Company Announcements Disclosure Service" as shown in the table below. Post to Company Announcements Disclosure Service Timely Disclosure Information PR Information, etc. Display in Listed Company Search (Note 1) Yes Yes Distribute to News Agencies & Information Vendors TDnet Database Service Yes Yes (Note 1) Disclosure information is shown in the listed company search on the day after disclosure. Yes Yes No Yes 116

118 10. Overview of Listed Company Compliance d. Overview of Trading Halt System TSE may halt trading of a listed security when TSE deems it necessary to do so from the perspective of ensuring fair price formation and investor protection. [Rule 29 of the Business (a) Reason for trading halt Where information on a certain security or issuer that may have a significant effect on investment decisions is revealed and details of such information are not clear and/or TSE deems it necessary to inform the public. (b) Duration of trading halt i. In the case where a trading halt is implemented due to information that may have significant effect on investment decisions, such as a merger of a listed company, and was reported without official disclosure by the listed company, trading will resume, in principle, fifteen (15) minutes after disclosure regarding the authenticity of such information by the listed company. ii. In the case where a trading halt is implemented due to information that may have a significant effect on investment decisions, such as a merger concerning the listed company, and for which the listed company has carried out timely disclosure, trading will resume, in principle, fifteen (15) minutes after disclosure by the listed company. iii. In the case where such corporate information falls under a reason for designation as a Securities Under Supervision or Securities To Be Delisted, trading will resume as follows. - Designation as Securities Under Supervision: Fifteen (15) minutes after TSE announces the designation - Designation as Securities To Be Delisted: On the business day following TSE's announcement of the designation 117

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