Jul. 12, 2018
Komatsu Ltd. (“Komatsu”) hereby
announces that the Board of Directors, at its meeting held on July 11, 2018
U.S. time (July 12, 2018 Japan time), resolved to issue new shares (the
“Issuance of New Shares”), as follows:
1. Outline of the Issuance
2.
Purpose of and Reasons for the Issuance
Komatsu has resolved at the
meeting of the Board of Directors held on April 26, 2018 to introduce, for the
purpose of providing its directors (other than the Outside Directors) (the “Eligible
Directors”) with medium- to long-term incentives and advancing the sharing of
value between the Eligible Directors and shareholders of Komatsu, a new
compensation plan, i.e., the restricted stock compensation system.
In addition, at the 149th Ordinary
General Meeting of Shareholders of Komatsu held on June 19, 2018, an approval
was granted to the effect that (i) Komatsu may grant to the Eligible Directors,
as compensation to be used as contributed assets to acquire restricted stocks pursuant
to the restricted stock compensation system (the “Restricted Stock
Compensation”), monetary receivables in an amount (a) no more than JPY 360
million per year with respect to the Stock-Based Remuneration A
(Performance-Based Remuneration for a Single Year) as stated in <Outline of
the System> below (provided, however, that the employee salaries for the
Directors concurrently serving as employees are not included in this amount)
and (b)no more
than JPY 180 million per year with respect to the Stock-Based Remuneration B (Performance-Based
Remuneration Linked to Performance of Mid-Range Management Plan) as stated in <Outline
of the System> below (provided, however, that the employee salaries for the
Directors concurrently serving as employees are not included in this amount),
and (ii) the transfer restriction period for both the Stock-Based Remuneration
A (Performance-Based Remuneration for a Single Year) and the Stock-Based
Remuneration B (Performance-Based Remuneration Linked to Performance of
Mid-Range Management Plan) shall be a period of three (3) years. Since the approval of shareholders with
respect to the restricted stock compensation system for the Eligible Directors was
granted, Komatsu introduced the system for employees of Komatsu and Directors
and employees of Komatsu’s major subsidiaries (together with the Eligible
Directors, the “Eligible Directors, etc.”), which is similar to the restricted
stock compensation system for the Eligible Directors (together with the
restricted stock compensation system for the Eligible Directors, the “System”).
The
outline of the System is as described below.
<Outline
of the System>
The System is comprised of the
following two (2) compensation systems:
(i) Stock-Based
Remuneration A (Performance-Based Remuneration for a Single Year)
As an alternative to Stock
Acquisition Rights which have been granted as stock-based remuneration, Komatsu
shall determine the amount of remuneration based on Komatsu’s single-year performance,
etc. and pay a part of the amount of remuneration so determined in the form of
restricted stock to the Eligible Directors, etc. each fiscal year. The transfer restrictions will, in principle,
be lifted three (3) years after the grant of the shares.
(ii) Stock-Based Remuneration B (Performance-Based
Remuneration Linked to Performance of Mid-Range Management Plan)
With respect to the period of Komatsu’s
mid-range management plan, Komatsu shall grant restricted stock to the Eligible
Directors, etc. each fiscal year based on the base amount of remuneration for
each position. After the expiry of the
period of the mid-range management plan, Komatsu shall determine the number of
shares with respect to which the transfer restriction will be lifted according
to the achievement status of the targets raised in the mid-range management
plan, etc. In principle, Komatsu shall
lift the transfer restrictions three (3) years after the grant of the shares.
The Eligible Directors, etc.
shall pay all monetary receivables granted by Komatsu and its subsidiary under
the System as contribution in kind to Komatsu, and Komatsu shall issue or
dispose of Komatsu’s shares of common stock. The total number of common stock of Komatsu to be issued or
disposed of by Komatsu under the System shall be no more than 239,000 shares per
year with respect to the Stock-Based Remuneration A (Performance-Based Remuneration for
a Single Year) and no more than 120,000 shares per year with respect to the
Stock-Based Remuneration B (Performance-Based Remuneration Linked to
Performance of Mid-Range Management Plan), and the amount to be paid per share of common
stock of Komatsu to be issued or disposed of by Komatsu under the System shall
be the closing price of shares of common stock of Komatsu on the Tokyo Stock
Exchange, Inc. on the business day immediately preceding the date of the
resolution of the Board of Directors for the issuance or disposal of shares of
common stock of Komatsu (or, if there is no closing price on such business day,
the closing price on the trading day immediately prior thereto).
In addition, the issuance or disposal of
the shares of common stock of Komatsu under the System shall be subject to the
execution of a restricted stock grant agreement that includes the provisions
set forth in items (i) to (iii) below between Komatsu and the Eligible
Directors, etc. who will be granted the Restricted Stock Compensation.
(i) The
Eligible Directors, etc. shall not be allowed to transfer, create a security
interest on or otherwise dispose of the shares to a third party during a given
period.
(ii) Although the transfer restriction
will in principle be lifted three (3) years after the grant of the shares,
Komatsu shall acquire the shares free of charge if prescribed events occur.
(iii)
With respect to “the Stock-Based Remuneration B (Performance-Based
Remuneration Linked to Performance of Mid-Range Management Plan),” the transfer
restriction will be lifted when, in addition to the conditions above, the
restricted period expires in regards to the number of the shares corresponding
to the achievement status of the targets that the Board of Directors set in
advance based on the targets raised in the mid-range management plan of
Komatsu, such as the consolidated ROE target, operating income ratio target,
ESG (Environment, Social and Corporate Governance) target, etc.
At this time, based on the deliberations
and reports of the Compensation Advisory Committee, after considering the
objectives and roles of the System, the business performance of Komatsu, the
scope of the duties of each of the Eligible Directors, etc. and other various
factors, it is decided that the following compensation will be granted for the
purpose of procuring talent and further improving the motivation of each of the
Eligible Directors, etc. to achieve the performance.
(i) The
Stock-Based Remuneration A (Performance-Based Remuneration for a
Single Year): JPY 119,737,700 of monetary receivables for the Eligible
Directors of Komatsu (38,650 shares of common stock), JPY 69,426,180 of
monetary receivables for the directors of Komatsu’s subsidiaries (22,410 shares
of common stock) and JPY 405,373,300 of monetary receivables for the employees
of Komatsu and Komatsu’s subsidiaries (130,850 shares of common stock)
(ii) The
Stock-Based Remuneration B (Performance-Based Remuneration Linked to
Performance of Mid-Range Management Plan): JPY 79,804,480 of monetary
receivables for the Eligible Directors of Komatsu (25,760 shares of common
stock), JPY 30,639,220 of monetary receivables for the directors of Komatsu’s
subsidiaries (9,890 shares of common stock) and JPY 177,329,520 of monetary
receivables for the employees of Komatsu and Komatsu’s subsidiaries (57,240
shares of common stock)
(The shares of common
stock in (i) and (ii) above are hereinafter collectively the “Granted
Shares.”)
In addition, the
restricted period for both the Stock-Based Remuneration A (Performance-Based
Remuneration for a Single Year) and the Stock-Based Remuneration B
(Performance-Based Remuneration Linked to Performance of Mid-Range Management
Plan) shall be three (3) years, which the shareholders approved at the 149th
General Meeting of Shareholders.
With respect to the Issuance of
New Shares, 87 members of the Eligible Directors, etc. who will be the
allottees shall pay all of the monetary receivables as a contribution in kind
to Komatsu, and Komatsu shall issue the Granted Shares, subject to the
execution of restricted stock grant agreements between Komatsu and the Eligible
Directors, etc. for each of the Stock-Based Remuneration A (Performance-Based
Remuneration for a Single Year) and the Stock-Based Remuneration B
(Performance-Based Remuneration Linked to Performance of Mid-Range Management
Plan) (collectively the “Grant Agreement”) under the System. The outline of the Grant Agreement is as
described in 3. below.
3. Outline of Grant Agreement
(1)
Transfer Restriction Period
(i) Stock-Based Remuneration A
(Performance-Based Remuneration for a Single Year) From September 3, 2018 to September 2, 2021
(ii) Stock-Based Remuneration B
(Performance-Based Remuneration Linked to Performance of Mid-Range Management
Plan) From September 3, 2018 to
September 2, 2021
(2) Lifting of Transfer Restriction
(i) Stock-Based
Remuneration A (Performance-Based Remuneration for a Single Year)
In principle, the transfer restriction on all of the Granted
Shares will be lifted at the expiry of the transfer restriction Period.
(ii)Stock-Based Remuneration B (Performance-Based Remuneration Linked to
Performance of Mid-Range Management Plan)
At the
expiry of the transfer restriction period, Komatsu will lift the transfer
restrictions on the number of the Granted Shares (provided, however, that, if
such calculation results in shares less than 10 shares, such shares shall be
rounded down) obtained by multiplying (i) the number of the Granted Shares held
by the Eligible Director, etc., at the expiry of the transfer restriction
period by (ii) the rate of which the restriction is lifted, which is determined
(from 0 to 100%) depending on the rate of achievement of the performance targets
during the period of the Performance-Based Remuneration Linked to Performance
of Mid-Range Management Plan (“Valuation Period”).
Performance
targets consist of the five indicators below, which are based on the important
targets raised in the mid-range management plan and determined beforehand by
the Board of Directors. Additionally,
the rate of which the transfer restriction is lifted, shall be decided by the
Board of Directors after comprehensively assessing the rate of achievement of
each of the indicators and based on the recommendation of the Compensation
Advisory Committee.
1.Consolidated sales growth rate (Relative comparison with domestic and foreign
major competitors in the same industry)
2.Consolidated operating income ratio (Relative comparison with domestic and
foreign major competitors in the same industry)
3.
Consolidated return on equity
4. Net
debt-to-equity ratio (Relative comparison with domestic and foreign major
competitors in the same industry)
5. ESG
(Environment, Social, Governance) Targets in respect of mid-range ESG
activities
(3) Treatment in the event an Eligible Director, etc.,
retires during the Restricted Period due to a legitimate reason, such as the
expiration of the term of office or having reached the retirement age
• Timing of the Lifting of the Restrictions
(i) If the Eligible
Director, etc. has retired or resigned for a legitimate reason, excluding death
Komatsu shall lift the restrictions
on the Granted Shares for both the Stock-Based Remuneration A
(Performance-Based Remuneration for a Single Year) and the Stock-Based
Remuneration B (Performance-Based Remuneration Linked to Performance of
Mid-Range Management Plan) at the expiry of the restriction period
(ii) If the Eligible
Director, etc. has retired due to death
Komatsu shall
lift the restrictions on the Granted Shares for both the Stock-Based
Remuneration A (Performance-Based Remuneration for a Single Year) and the Stock-Based
Remuneration B (Performance-Based Remuneration Linked to Performance of
Mid-Range Management Plan) at such time determined appropriate by the Board of
Directors after the death of the relevant Eligible Director, etc.
• Number of Granted Shares with Respect to which Restrictions
are to be Lifted
(i) If the Eligible
Director, etc. has retired or resigned for a legitimate reason, excluding death
(a) Stock-Based Remuneration A
(Performance-Based Remuneration for a Single Year): All of the shares that are
granted
(b)Stock-Based Remuneration B (Performance-Based Remuneration Linked to
Performance of Mid-Range Management Plan): Number of shares set forth in (2)
(ii) above
(ii) If the Eligible
Director, etc. has retired due to death
(a) Stock-Based Remuneration A
(Performance-Based Remuneration for a Single Year)：All of the granted shares
(b) Stock-Based Remuneration B
(Performance-Based Remuneration Linked to Performance of Mid-Range Management
Plan): The number of shares (provided, however, that, if such calculation
results in shares less than 10 shares, such shares shall be rounded down)
obtained by multiplying the rate of which the restriction is lifted (this rate
is calculated based on the rate of achievement of the performance targets or
the prospect thereof at the time of the relevant retirement/resignation) by the
number of shares held as allotted as of the relevant retirement/resignation;
and multiplying the resulting figure by the number of months obtained by dividing the number of months of tenure during the transfer
restriction period by 12 (provided, however, that, when the resulting number is
more than 1, the number shall be set at 1); provided, however, that the number
of shares shall be as set forth in (2) (ii) above, with respect to the period
following the determination of the number of shares with respect to which the
transfer restriction will be lifted according to the achievement status of the
targets raised in the mid-range management plan, etc.
(4) Company’s Acquisition Free of charge
Komatsu shall automatically
acquire, free of charge, the Granted Shares with respect to which the Company
decides not to lift the transfer restriction.
(5) Management of Shares
In order to
prevent the Granted Shares from being transferred, having any security interest
created thereon, or otherwise being disposed of during the transfer restriction
period; the Granted Shares will be managed using a dedicated account that has
been opened at Nomura Securities Co., Ltd. by the Eligible Directors, etc.,
during the transfer restriction period.
In order to ensure the effectiveness of the transfer restriction, etc.,
concerning the Granted Shares, Komatsu executed an agreement regarding
management of the accounts of the Granted Shares held by each of the Eligible
Directors, etc., with Nomura Securities Co., Ltd. The Eligible Directors, etc., consent to the
details regarding the management of the relevant accounts.
(6) Treatment in Case of Organizational Restructuring
During the transfer restriction period, if a matter
relating to a merger agreement under which Komatsu will become the dissolving
company, a share exchange agreement, or a share transfer plan under which
Komatsu will become a wholly-owned subsidiary, or any other organizational
restructuring is approved at a General Meeting of Shareholders of Komatsu (or,
if an approval at a General Meeting of Shareholders of Komatsu is not required
regarding the above-mentioned organizational restructuring, then the approval
of the Board of Directors of Komatsu), by way of a resolution of the Board of
Directors, the transfer restriction shall, at the time immediately prior to the
business day immediately preceding the effective date of such organizational
restructuring, be removed in respect of the number of the shares below. In addition, all of the Granted Shares for
which the transfer restriction has not been removed, as of the time immediately
after the removal of the transfer restriction will automatically be acquired by
Komatsu without consideration.
(i) Stock-Based Remuneration A (Performance-Based Remuneration
for a Single Year):
All of the Granted Shares
(ii) Stock-Based Remuneration B (Performance-Based Remuneration
Linked to Performance of Mid-Range Management Plan):
The number of shares (provided,
however, that, when a fraction of less than 10 shares arise as a result of
calculation, fractions shall be rounded down) obtained by multiplying the rate
of which the restriction is lifted (this rate is calculated based on the rate
of achievement of the performance targets or the prospect thereof at the time
of the relevant termination) by the number of shares held as allotted as of the
relevant termination; and multiplying the resulting figure by the number of
months obtained by dividing the number of months of tenure during the transfer
restriction period by 12 (provided, however, that, when the resulting number is
more than 1, the number shall be set at 1); provided,
however, that the number of shares shall be as set forth in (2) (ii) above, with
respect to the period following the determination of the number of shares with
respect to which the restrictions will be lifted according to the achievement
status of the targets raised in the mid-range management plan, etc.
4. Basis of Calculation of the
Payment Amount and Specific Details thereof
The Issuance of New Shares to scheduled
allottees shall be carried out under the System through contribution in kind of
the monetary receivables paid as the Restricted Stock Compensation for the
fiscal year 2017 (April 1, 2017 – March 31, 2018) of Komatsu and its
subsidiaries with respect to Stock-Based Remuneration A (Performance-Based
Remuneration for a Single Year) and as the Restricted Stock Compensation for
the fiscal year 2018 (April 1, 2018 – March 31, 2019) of Komatsu and its
subsidiaries with respect to Stock-Based Remuneration B (Performance-Based
Remuneration Linked to Performance of Mid-Range Management Plan).
In order to eliminate any arbitrariness in the determination of the
issue price, the issue price shall be 3,098 yen, which is the closing price of
the shares of common stock of Komatsu on the Tokyo Stock Exchange, Inc. on July
11, 2018 (JST), which was the business day immediately preceding the date of
the resolution of the Board of Directors (JST: July 12, 2018). We believe that this amount is the market
stock price immediately prior to the date of resolution of the Board of
Directors, and is reasonable, and does not represent a price that is particularly
favorable to the Eligible Directors, etc.
