On June 20, 2025, Yuya Shimizu, the representative director and CIO of Hibiki Path Advisors (“we” “our” or “us”) attended the Annual General Meeting of Shareholders (the “AGM” or the “meeting”) of Japan Pure Chemical CO., LTD. ( “JPC” or “the Company”).
Under the strict supervision of the AGM inspector we had requested and placed by court in advance, AGM was prolonged for a notable duration of more than two hours. During the meeting, Yuya Shimizu passionately presented and explained our shareholder proposal (Items 10 – 13), followed by a lively Q&A session.
Very sadly, none of our shareholder proposals went through, while JPC’s proposed items were all approved. However, we are actually thrilled to mention that several individual shareholders raised serious and pointed questions regarding the Company’s balance sheet management and the relationship between Honorary Advisor Masao Watanabe and President Kojima. With that said, we are confident that many fellow shareholders are equally concerned about JPC’s issues we have highlighted in our campaign.
One interesting and important aspect of what has gone though in the actual AGM scene was that nearly half of the roughly 15 shareholders at the venue actually showed up expressed opposition to Proposal No. 2 (the reappointment of directors)¹. Witnessing so many actual shareholders voting ‘No’ against management—who have failed to improve mid- to long-term performance despite holding significant cross-shareholdings and substantial cash on the balance sheet (not returning to shareholders) — was truthfully encouraging. It confirmed that a large number of fellow shareholders understand and support our view.
Although we find it extremely disappointing that our shareholder proposals were once again not approved, we hereby reaffirm our strong determination to strengthen and further intensify our engagement efforts to enhance corporate value. We will exercise every shareholder rights and firmly press management and the Board of Directors to fulfill their responsibilities. In short, we will become more aggressive.
It is also worth mentioning that the AGM of Taiyo Holdings Co., Ltd. (“Taiyo HD”) — a leading manufacturer of solder resists with which JPC maintains a cross-shareholding relationship — was held on June 21, the day after JPC’s AGM. At Taiyo HD’s meeting, the proposal to reappoint President and CEO Eiji Sato was REJECTED. This outcome should serve as a reminder to President Kojima and the other Directors of JPC that similar consequences could arise in JPC. There is no doubt that executives of publicly listed companies are ultimately accountable for both their business performance and their share price.
We sincerely thank all shareholders who supported our proposals. We respectfully ask for your continued support as we advance initiatives aimed at maximizing corporate value.
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The following is the script of Yuya Shimizu’s explanation of Items 10 through 13 at the AGM, along with the related Q&A from shareholders. We hope it will serve as a useful reference to understand the situation.
To eliminate any subjectivity in presentation, the content has been compiled to reflect the actual remarks made as closely as possible. We hope this allows you to grasp the atmosphere of the meeting and understand the legitimacy of our position.
①Yuya Shimizu’s explanation of our shareholder proposals
My name is Yuya Shimizu, representative director of the Hibiki Path Value Fund. Good morning to the members of the Board, and good morning to all shareholders. Thank you for this opportunity. Given the 10-minute time frame, I will now proceed with a concise statement.
Before delving into the specific details of our proposals, I would like to begin by explaining two fundamental points that underlie shareholder proposals to the Board and fellow shareholders.
First, we are, in fact, shareholders who genuinely support the growth of the Company. We wish for the success of the business and the happiness of its employees. We have remained shareholders for nearly seven years, since 2018 with those splits
Therefore, our proposals are not made from the short-term perspective often associated with investment funds. Instead, they are based on a long-term vision for enhancing corporate value. For many years, we have engaged in constructive dialogue with President Kojima, offering suggestions in good faith from this perspective. However, unfortunately, those suggestions have not been sufficiently heeded, and as a result, this marks the third consecutive year of shareholder proposal submissions.
Second, while our proposals are necessarily detailed and specific in order to comply with the Companies Act, in essence, we are calling on the Board and the management team to embody two fundamental attitudes that all corporate executives should uphold. One: all corporate executives must have a strong sense of ownership. This is directly related to the equity-based compensation component of Item 10. Unless the success of executives is aligned with that of shareholders, it is difficult for them to truly take a shareholder-oriented perspective. This misalignment risks weakening accountability for the company’s prolonged underperformance. Two: directors must commit themselves fully to corporate value maximization, as if there were no turning back. Relying excessively on cash or real estate is akin to seeking shelter in the shade of a large tree—in the company’s case, the shade of its abundant financial assets. This is not acceptable.
With that background in mind, I would now like to explain each of the proposals from Items 10 through 13.
First, regarding Item 10, please refer to page² 43 of the AGM Notice. As I mentioned earlier, this relates to the idea that all corporate executives must have a strong sense of ownership. While we leave the exact composition of the compensation structure to the discretion of the Board, we propose a framework in which stock-based compensation would comprise 50% of total remuneration only if two KPIs are met: a certain level of ROE and a certain level of TSR. To clarify, the low fundamental ROE we are referring to here reflects the pure, intrinsic ROE, which excludes gains from securities sales or other externally driven factors. This fundamental ROE has been weak. We imagine that stock compensation would be triggered once ROE exceeds 8%, as cited in the Ito Report. However, we leave the specifics to the Board, trusting that they will act in the spirit of their fiduciary duty.
Next, I will explain Items 11 through 13 together.
Please turn to page 47. Item 11 is a proposal to partially amend the Articles of Incorporation to restore the authority to determine dividends to the General Meeting of Shareholders, as originally stipulated under the Companies Act. Legally speaking, shareholders are the owners of the company. The appropriation of surplus is fundamentally a matter that should be resolved at the General Meeting. This proposal seeks to restore the right that shareholders are entitled to under the law. We made the same proposal last year and received support from 40% of shareholders. In addition, the global proxy advisory firm Institutional Shareholder Services (ISS) has again recommended support for this proposal this year.
Assuming the amendment to the Articles of Incorporation is approved, we turn next to Item 12 — please refer to page 49. This is a proposal for the company to repurchase shares with an upper limit of 610,000 shares, or up to 2.1 bn yen in total value, over the course of this year. This buyback is proposed as the minimum necessary measure to reduce the company’s excessive net assets and achieve the ROE of 10% that the company is aiming for. As of the FY3/25, the company held 13.5 bn yen in net assets, and its balance of cash, deposits, and securities also stood at 13.5 bn yen. Even if 2.1 bn yen worth of shares were repurchased, the equity ratio would decrease only slightly from approximately 90% to 88%. This would by no means constitute a deterioration in the company’s financial soundness.
Finally, Item 13 concerns dividends — please refer to page 51. We propose setting the total annual dividend at 170 yen per share and request that this fixed amount be maintained not only for this year but for at least three years. If this dividend is continued for three years, the total dividend payout would be 2.6 bn yen. When combined with the 2.1 bn yen buyback proposed in Item 12, the total capital return to shareholders would be 4.7 bn yen.
Even under the conservative assumption that the company generates zero profit over the next three years, net assets would still be approximately 8.9 bn yen, and the equity ratio would remain at 85% — still significantly higher than the average listed company. This would allow the company to maintain solid financial health, a robust net asset level, and also it would allow the company to remain in a position with sufficient capacity for future investments.
Moreover, a leaner balance sheet would earn higher market valuation, which in turn would enable the company to access a broader set of financing and M&A options should a promising investment opportunity arise — including borrowing on stronger credit, issuing new shares at elevated valuations, or executing stock exchanges — all enabled by improved market valuation.
As a publicly listed company seeking growth, it is essential to demonstrate capital allocation and balance sheet that are highly regarded by the market — thereby increasing corporate value. We also recognize that the ROE levels expected by the market will likely become even more stringent and demanding in the future.
Items 10 through 13 are proposals made by us, the Company’s largest shareholder, out of a genuine wish for the Company’s growth — as a wake-up call — a warning —to the management team that has been lagging behind market expectations. If the company is unwilling to implement the level of capital allocation we are proposing, then regrettably, we are compelled to question whether its public listing holds any substantive value at all.
We sincerely ask for the understanding and support of our fellow shareholders regarding our views and the sense of urgency we hold.
That concludes my remarks. Thank you very much.
②Q&A
This section also aims to follow the original dialogue as closely as possible. That said, given the conversational nature of many exchanges, we have made minor editorial adjustments for readability, while ensuring that the intent and substance of each remark remain intact. Please note that the questions are not necessarily presented in chronological order, and general inquiries regarding the company’s business operations have been omitted.
Questions by Yuya Shimizu
Reappointment of Director and Honorary Advisor Mr. Masao Watanabe
Q1 (Yuya Shimizu):
This question concerns candidate No.3 for Item 2, Mr. Masao Watanabe, currently serving as Director and Honorary Advisor. On page 20 of the convocation notice, it states that he was nominated because “Masao Watanabe has contributed to the development of the Company by making use of his abundant experience as corporate management. The Company expects that he will continue to contribute to further vitalization of the Company based on his abundant experience, track record, strong leadership and decisiveness.” However, from an external perspective, it is hard to say that Mr. Masao Watanabe has contributed to enhancing corporate value. In a magazine interview back in 2009, he said the company could grow fivefold by continuing on its current path. Since then, the company’s scale has remained largely unchanged, and operating profit has actually declined from 1.3 bn yen at the time to less than half — currently around 500 mn yen. Could you please clarify what specifically is meant by “contributed to the company’s development,” and how that forms the basis for his reappointment?
A1 (Tomoyuki Kojima, President):
Honorary Advisor Masao Watanabe has, since the company went public, utilized his extensive experience as a corporate executive to contribute to our development. He brings valuable insights in sales, marketing, and technology, and from the standpoint of the Board’s skill matrix, he is a necessary member. He is thus proposed for reappointment as a director. Also, since there is no one in the industry who does not know him, we consider him an important presence in negotiations with potential counterparties as we pursue M&A opportunities in the future. That said, we take your concern regarding performance seriously. We believe that steady execution of our recently disclosed medium-term management plan is key to enhancing corporate value over the long term. Honorary Advisor Masao Watanabe has deep knowledge of technology and sales experience, which we expect to translate into a responsible contribution to enhancing corporate value as a member of the Board.
Q2 (Yuya Shimizu):
I fully understand his title as “Honorary Advisor.” However, the Board of Directors is the highest decision-making body responsible for the future of the company. If, within that important decision-making body, there remains someone who has been unable to achieve performance growth as a representative director over the past 20 years, we are concerned — in the sense that there may be a failure to humbly recognize past successes and failures, resulting in an inability to craft a growth strategy based on that reflection. We are concerned that such “constructive reflection” is lacking. If this concern is unfounded, I would appreciate the explanation of specifically in which aspects why my concern, which is the concern about the potential lack of humility and reflection on past performance, is, in your view, not valid. If possible, I would also like to hear from the Chair of the Nomination and Remuneration Committee.
A2 (Tomoyuki Kojima):
Mr. Masao Watanabe has many years of experience and is engaging in initiatives aimed at the company’s future business development. As a voting member of the Board, he makes responsible statements and decisions essential to the advancement of our business activities. In particular, in the highly specialized plating chemicals industry, he brings deep knowledge of the industry’s structure, history, and technological trends — knowledge he shares with fellow board members, including outside directors, to support informed decision-making.
Q3 (Yuya Shimizu):
Does the Chair of the Nomination and Remuneration Committee have any comments?
A3 (Tomoyuki Kojima):
I believe the points have already been covered in my previous response.
The definition of “good M&A”
Q4 (Yuya Shimizu):
Following up on that, one of the reasons given for transitioning to a company with an Audit and Supervisory Committee was the prospect of expanding through M&A. However, the discussion gives the impression that M&A is already assumed to be the path forward, which raises concerns. Regrettably, when a company with no prior experience in M&A suddenly claims it can now execute such deals successfully, it is difficult for us to be convinced. To reassure us, could you, President Kojima, explain what you believe constitutes a “good M&A” — one that truly increases shareholder value?
A4 (Tomoyuki Kojima):
Gold plating is not a standalone process — it includes various preceding and subsequent treatments. The kind of M&A we have in mind, as outlined in our medium-term plan, involves creating integrated solutions that include those upstream and downstream processes. While I will not name specific companies, we believe that mutual synergy and compatibility of corporate culture are important considerations. A good M&A is one where 1 + 1 does not equal 2, but 3 or 4 — where the two companies complement each other’s weaknesses to create new products and generate new value for shareholders.
Cross share holdings
Q5 (Yuya Shimizu):
I would like to ask about the Company’s cross-shareholdings. According to the securities report filed yesterday, your largest cross-held position — JCU — has been reduced this year from 880,000 shares to 600,000 shares. Also, there is no reciprocal cross-shareholding with JCU. In an investor meeting we held with JCU, they clearly stated that they would not object if JPC were to sell its JCU shares. Given all of this, why has the Company not sold off its entire holding? Especially if the share price of JCU has declined, meaning the balance sheet of JPC continues to be exposed to market fluctuations. Also, JCU told us quite clearly that there is hardly any technical knowledge exchange between the two companies — though that may be incorrect. That said, I would like to ask: why are you not fully selling the JCU shares?
A5 (Motoki Watanabe, Senior Director):
As you may be aware, the daily trading volume of JCU shares is not particularly large. If we were to sell our holdings all at once, it could have a significant impact on the market. We are proceeding with the sale in consideration of the market environment and our relationship with the company. That explains the current status. Our overall policy to reduce cross-shareholdings remains unchanged, and we would appreciate it if you could continue to watch how things develop.
The Company’s opposing opinion to our shareholder proposal (Item 10) regarding an increase in stock-based compensation
Q6 (Yuya Shimizu):
I would like to follow up on the Company’s opinion opposing Item 10, our shareholder proposal. You have expressed concern that the proposal may create incentives focused on short-term improvements in ROE and TSR. However, under our proposal, the stock-based compensation would remain non-transferable until the director retires. As long as a director performs well, they will be reappointed each year. So I do not understand why this would lead to short-term thinking. If the stock price were to spike temporarily but then drop by the time of retirement, for instance, to half its value, the assets obtained would also be halved. In other words, the stock price at the time of retirement is what matters most — which naturally encourages a mid- to long-term perspective. Could you explain again why this proposal is considered to promote short-term thinking?
A6 (Motoki Watanabe):
According to your shareholder proposal, the condition for equity-based compensation to reach 50% is achieving an ROE of 8% or more. We believe that when such KPIs are set, management may be tempted to pursue short-term increases in ROE by reducing the denominator — that is, equity — rather than the more fundamental path of growing the numerator, or profits. This could lead to actions such as large-scale share buybacks or excessive dividends — as you proposed. If such measures were implemented by management, we believe this could ultimately constrain our ability to make growth investments and exercise managerial flexibility. As such, we are unable to support a system that may incentivize such behavior.
Q7 (Yuya Shimizu):
Has the idea not been considered that executives should share in the potential downside with shareholders during the period between receiving and being able to transfer their equity compensation? Even if ROE temporarily rises, directors cannot sell the shares until retirement — so I do not believe the incentive is short-term in nature. That is the spirit behind our proposal.
A7 (Motoki Watanabe):
Thank you — we acknowledge your opinion.
Questions by other shareholders
Investment securities holdings and balance sheet management
Q8 (Shareholder A):
Looking at the balance sheet, your investment securities seem to make up a significantly large portion. Unlike cash, the value of these assets fluctuates depending on the market. So even if your core business performs well, a drop in market prices could erase your gains — making this a source of instability. I am sure there are advantages, but could you please provide more concrete details on the kinds of investments you’ve made, the rationale behind them, and—if possible—the names of the companies involved?”
A8 (Tomoyuki Kojima):
We disclosed our securities report yesterday. If you look at page 66, you will find a full list of our cross-held stocks. Most of the companies are business partners. As you may know, in plating, if the pre-treatment is not done properly, the gold layer may peel off. We conduct joint experiments with these pre-treatment partners and leverage each other’s technologies to deliver better products to the market. That is the thinking behind our strategic holdings. As I mentioned earlier, going forward, not only plating chemicals but also processes before and after plating will become increasingly important. In that context, we hope to expand our business by collaborating with companies involved in those processes and receiving various forms of advice and support.
Q9 (Shareholder B):
To put it simply, I do not think there is hardly any other company on the Prime Market with a balance sheet like yours. Frankly, I can understand why you are being questioned about it. The combined value of your cash and investment securities is close to your total market capitalization — which makes it look like the rest of the business is essentially valued at zero. With 3,000 to 4,000 listed companies across the Prime, Standard, and Growth markets, I would guess you fall into the top 1% in terms of this unusualness. I do not quite understand how this situation will contribute to enhancing the company’s value going forward. Could you give a broad overview of how the company intends to address this?
A9 (Yasutoshi Ohata, Outside Director):
This is something we are actively discussing at the Board level. I believe your question was about how we plan to use our securities and cash. As President Kojima noted, we are currently exploring several specific growth investment opportunities. M&A is one such area, but it takes time to execute. But rest assured, we are working toward deploying our resources in ways that contribute to future growth.
Q10 (Shareholder B):
Assuming you proceed with M&A while your operating profit is still hundreds of millions of yen, will you not end up recording goodwill and running into the risk of losses? May we understand that you are proceeding with the M&A while also taking such considerations into account?
A10 (Tomoyuki Kojima):
Yes, we are fully aware of that. At the moment, our electronic components business is in a temporary lull, and we regret the current low level of profitability. But as I mentioned earlier, we aim to enhance corporate value not only for our company but also for our partners by pursuing M&A that leverages mutual synergies. We envision achieving medium- to long-term growth.
Whether Honorary Advisor Masao Watanabe and President Tomoyuki Kojima had Differences of opinion at the BoD meetings
Q11 (Shareholder C):
This question relates to Hibiki’s proposal. Has there ever been a case where President Kojima and Honorary Advisor Watanabe were on opposite sides of a vote in a Board meeting?
A11 (Tomoyuki Kojima):
Mr. Masao Watanabe and I have known each other since I joined the company, and we have had many discussions over the years — not just in Board meetings but also during the period prior to appointment, during employee years. Even after joining the Board of Directors, we have continued to engage in discussions from various perspectives regarding the company’s vision. While there have been differing views, we have exchanged opinions with the shared aim of driving the company’s medium- to long-term growth.
Q12 (Shareholder C):
To be clear, my question is, “Has there ever been a case in a formal Board vote where the two of you voted differently?”
A12 (Tomoyuki Kojima):
No, not to the extent that we were completely opposed. As we deepen discussions, we usually reach a mutual understanding and align our views before a final decision is made. Even when our views differ, our discussions have never ended in a breakdown.
Q13 (Shareholder C):
Have there ever been cases where President Kojima made an executive appointment decision without consulting Honorary Advisor Masao Watanabe?
A13 (Tomoyuki Kojima):
Appointments of executives are discussed and decided within the Nomination and Remuneration Committee, which is a separate body. Mr. Masao Watanabe is not a member of that committee.
Q14 (Shareholder C):
So just to confirm: since the Honorary Advisor is not a member of that committee, there have been cases where an executive appointment was made without any involvement or consultation with him at all? Are we correct to understand that you, President Kojima, also do not consult with Mr. Masao Watanabe in advance regarding these matters?
A14 (Tomoyuki Kojima):
That’s correct — I do not.
EOD
¹Resolutions for Agenda Items 1 through 9 were conducted by asking shareholders who opposed the Company’s proposals to raise their hands. As our representative, Yuya Shimizu, was seated in the front row, he was unable to confirm the exact number of hands raised; however, it was clear that a significant number of shareholders expressed opposition.
²Based on the page number of the Japanese version of the convocation notice (hereinafter the same)
This post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters. In the event of any discrepancy or conflict between the English and Japanese versions, unless otherwise noted, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.