UT Soft Law Review

UT Soft Law Review No.2 2010Nireco(Tokyo High Court Judgment of June 15, 2005,Hanrei-Jiho No. 1900, p. 156)[Summary of Facts]The obligee, the SFP Value Realization Master Fund Ltd. (X) was a shareholder of theobligor Nireco Corporation (Company Y), a company trading on the Jasdaq market. X held2.85% of the outstanding shares of Company Y. At a meeting of its board of directors on 14March 2005, Company Y voted to carry out a share option issue on the following terms, and itmade a public announcement to the Jasdaq Securities Exchange of a “security plan” to thateffect (hereinafter, the “Plan”).(1) Company Y intended to forestall any losses to its corporate value as a result of apredatory acquisition of Company Y, and in the event of a proposal to acquire Company Y, itwould issue share options with the aim of using them as a reasonable means for maximizingCompany Y’s corporate value; (2) Share options were to be given to shareholders listed inCompany Y’s shareholder registry as of 31 March 2005, without contribution, at the rate oftwo options for each share held; (3) The issue date of the share options would be 16 June2005; (4) The amount to be paid in on the exercise of the share options would be \1; (5) Theperiod for exercising the share options would be from 16 June 2005 to 6 June 2008; (6) Theterms of exercise would be that the share options could be exercised should the mechanismcommencement prerequisite be met at any time between 1 April 2005 and 16 June 2008. The“mechanism commencement prerequisite” was that Company Y’s board of directors hadbecome aware of, and made a public announcement about, the existence of a specific holderof Company Y’s shares (namely, a person such as a person making a takeover bid for CompanyY, where that person and persons in certain relationships with that person together hold 20%or more of Company Y’s total issued shares with voting rights); (7) As to cancellation, if theboard of directors thinks it necessary in order to maximize Company Y’s corporate value, atany time before the mechanism commencement prerequisite is triggered Company Y couldcancel all of the share options simultaneously without consideration by way of a resolution ofthe board of directors on a date to be determined by the board of directors; (8) That transfersof the share options would be subject to approval by Company Y’s board of directors;provided, however, that Company Y’s board of directors would approve no such transfer.On that same 14 March, Company Y’s board of directors adopted guidelines for properlydeciding the cancellation of the share options in this case. These guidelines stipulated that:(9) After taking into reasonable account the matters for consideration stipulated by theguidelines (such as matters pertaining to a fair value for Company Y’s issued shares to be115