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CORPORATE NEWS [latest news list] May 12, 2009
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Announcement of Extension of the Company's Basic Policy Regarding Persons Who Control the Company's Decisions on Financial Matters and Business Policies (DSR Policy)



DAIKIN INDUSTRIES, LTD. (hereinafter "the Company"), publicly announced on May 10, 2006, that its Board of Directors at a meeting held on the same day adopted the DAIKIN Shareholder Relationship Policy (hereinafter the "DSR Policy"), a basic policy that refers to the persons who control the Company's decisions on financial matters and business policies, in accordance with Article 118, paragraph 3, of the Enforcement Regulations of the Corporation Act, and that the Board of Directors determined the Company's special commitment guidelines to implement this basic policy, in accordance with Item 3 b (1) of the same article.

The DSR Policy is intended to raise the level of transparency and objectivity in the event of a large-scale acquisition and ensure the provision of sufficient information to allow the Company's shareholders to make appropriate decision making on such an acquisition. Accordingly, the DSR Policy is not a so-called takeover defense measure using methods such as the allocation of stock acquisition rights or new shares.

Meanwhile, the Board of Directors of the Company has further reviewed the advisability of maintaining the DSR Policy from the viewpoint of ensuring and furthering the corporate value of the Company and the common interests of the shareholders while taking into account subsequent changes in the situation or the like after the DSR Policy was implemented.
As a result of the study on the extension, the Company today announced that its Board of Directors at a meeting held on May 12, 2009, determined the extension of the DSR Policy with partial revisions thereto as the Company's basic policy that refers to the persons who control the Company's decisions on financial matters and business policies.


[Outline of the revisions from the current DSR Policy]
1. The Assessment Period for the Independent Committee to review the content of the purchase, etc., is set at a maximum of 60 days. An extendable period of a maximum of 30 days, which is authorized to the extent necessary, is newly set and clearly stated hereto.
2. The condition (7) "In case the Purchase may affect or damage the Company's corporate value, thereby leading to a material infringement of the common interests of shareholders, by affecting relations with stakeholders including employees and business partners, all of whom are indispensable for creating the Company's renewed corporate value." is excluded from the previous "Conditions for an Inappropriate Purchase." (Refer to Attachment (3).)

Measures to ensure objective and transparent evaluation in the event of large-scale purchases
(a) Outline of the measures
The Company has determined the procedure (hereinafter the "DSR Rules") according to which the independent committee, which consists of outside directors and other members who are independent from the Company's Board of Directors, collects sufficient information, studies the specific purchase and expresses its opinion to shareholders before a large-scale purchase actually takes place.
(b)Content of the procedures
(i)Application of the DSR Rules
The DSR Rules shall apply to actions or proposals for the purchase or similar acts (hereinafter collectively the "Purchase") of the Company's shares and other securities that fall under either <1> or <2> below. Any purchaser who intends to make such a Purchase (hereinafter the "Purchaser") is requested by the Company to comply with the DSR Rules in advance.
<1> As for shares and other securities1 of which the issuer is the Company, a Purchase for which a holder's2 ratio of shares and other securities3 becomes 20% or more;
<2> As for shares and other securities4 of which the issuer is the Company, a public tender for which the total holding ratio of shares and other securities5 relating to a public tender6 and the holding ratio of shares and other securities of special related parties7 becomes 20% or more.

Notes:
1. Defined in Article 27-23, Paragraph 1, of the Financial Instrument and Exchange Law. Hereinafter the same shall apply unless otherwise stipulated.
2. Including a person deemed as a holder pursuant to Article 27-23, Paragraph 3, of the Financial Instrument and Exchange Law.
3. Defined in Article 27-23, Paragraph 4, of the Financial Instrument and Exchange Law.
4. Defined in Article 27-2, Paragraph 1, of the Financial Instrument and Exchange Law. The same as in <2>.
5. Defined in Article 27-2, Paragraph 8, of the Financial Instrument and Exchange Law. Hereinafter, the same shall apply.
6. . Defined in Article 27-2, Paragraph 6, of the Financial Instrument and Exchange Law.
7. Defined in Article 27-2, Paragraph 7, of the Financial Instrument and Exchange Law. However, the subjected persons or the companies enumerated in Item 1 of the said Paragraph shall exclude those set forth in Article 3, Paragraph 1, of the Cabinet Office regulations regarding the disclosure of the public tender of shares and other securities by any person other than the issuer.



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(ii)Independent Committee
The Company has established the Independent Committee to objectively judge whether a Purchaser is appropriate in view of the DSR Policy in advancing the procedure under the DSR Rules. The Independent Committee consists of external Directors and other members who are independent from the Company's Board of Directors. The Committee shall request that the Purchaser supply information in advance to the Committee, as well as study and judge the content of the Purchase and express its opinion regarding the Purchase to increase objectivity, rationality and transparency of the procedure toward large-scale Purchases of the Company's shares. Refer to Attachment (1), "Independent Committee Details," for details about the Independent Committee. The Committee shall be convened immediately after a Purchase provided for in Item (i) is identified.
(iii)Content of the DSR Rules
a) Supply of Required Information
The Independent Committee will request that a Purchaser who proposes a Purchase without the prior accord of the Board of Directors provide the Company with sufficient information (hereinafter the "Required Information") as set forth in Attachment (2) before the Purchase is actually made.
b)Review of the content of the Purchase, negotiation with the Purchaser and proposal of alternative plans
If all the Required Information is provided by the Purchaser, the Independent Committee may also request that the Company's Board of Directors present its opinion (which might include some restrictions) regarding the content of the Purchase, supporting materials to show its reasoning, alternative plans (if any) and other information deemed necessary by the Committee within the predetermined period set by the Committee. In addition, the Independent Committee may even request some opinions of the Company's stakeholders such as employees, the labor union, suppliers, and customers as necessary.
During a maximum 60-day period (of which, however, the Committee may extend this period a maximum 30-day limit according to the provision set forth in Item c) below; hereinafter the "Assessment Period") after such information is provided by the Purchaser and the Company's Board of Directors (in case the Committee had requested that the Board of Directors supply therewith as described above), the Independent Committee will review the content of the Purchase, examine the alternative plans submitted by the Board of Directors, collect information and then make comparisons with regard to the business plans between those proposed by the Purchaser and those by the Board of Directors.
To ensure the contribution of its judgment to the corporate value and the common interests of the shareholders, the Independent Committee, at the expense of the Company, may seek advice from independent third parties (including financial advisers, certified public accountants, lawyers, consultants and other experts).
The Independent Committee shall, at a time that it judges appropriate, disclose the fact that the Required Information was submitted to the Company and the matters it considers appropriate to disclose of the Required Information and other information previously obtained.
c) Disclosure of opinion by the Independent Committee
The Independent Committee shall, after the elapse of the Assessment Period stated above, judge whether the Purchase falls under any of the conditions stipulated in Attachment (3). The Independent Committee shall inform the results of the assessment, its opinion, the reasons therefore and other information that may help shareholders make their own judgment.
In case the Independent Committee cannot reach a judgment as outlined above by the end of the initial Assessment Period, it may extend the period a maximum 30-day limit within the scope deemed necessary to review the content of the Purchase.
(iv)Abolition or modification of the DSR Rules
The DSR Rules shall come into force on July 1, 2009, and its effective period shall be three years from that date, provided, however, that the Company may review and modify the DSR Rules, from time to time, as necessary within this period.



The above document, including body text, attachments and notes, represents a translation, for reference and convenience only, of the original notice issued in Japanese. We did our utmost to ensure accuracy in our translation and believe it to be of the highest standard. However, due to differences of legal and other systems as well as of language, this English version might contain inaccuracies, and therefore might be inconsistent with the original intent imported from the Japanese. In the event of any discrepancies between the Japanese and English versions, the former shall prevail as the official version.



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Attachment (1)
Independent Committee Details
1.Outline of the Independent Committee Regulations
· The Independent Committee shall be established by a resolution of the Company's Board of Directors.
· The Committee shall consist of three or more members, and the members shall be elected and appointed by the Company's Board of Directors from among the qualified candidates who are either (i) external Directors of the Company, (ii) external Corporate Auditors of the Company, both of whom are independent from management executives who are engaged in the execution of the Company's business affairs, or (iii) intellectual key figures. Such intellectual key figures shall be either experienced corporate managers, experts familiar with the investment banking business, lawyers, certified public accountants, researchers in the field of the Corporation Act, etc., or those deemed to be engaged in any of the enumerated occupations, and who must have concluded several relevant agreements, which would otherwise be specified by the Company's Board of Directors, represented by the contract that includes a mandatory provision regarding the care of a good manager.
· The term of office of the Committee members shall be three years. However, this shall not apply to cases where any other clause is stipulated by a resolution of the Board of Directors.
· The Independent Committee shall be capable of determining matters as listed below. Each Committee member must conduct his/her decision making from the viewpoint of whether his/her judgment would contribute to raising the corporate value and the common interests of the shareholders but not on behalf of an individual's or management's interests.
1) Decision on the Purchase to which the DSR Rules apply;
2) Decision on the information to be supplied to the Independent Committee by the Purchaser and the Company's Board of Directors;
3) Careful review and study of the content of the Purchase;
4) Study of the actual plans if any alternative plans regarding the Purchase are presented by the Board of Directors;
5) Elongation of the Assessment Period
6) Disclosure of opinions concerning the Purchase
7) Any other matters that can be taken up by the Independent Committee as provided for in the DSR Rules; and
8) Any other matters that can be taken up by the Independent Committee that have been otherwise provided for by the Board of Directors.
· In case the Independent Committee judges the information supplied by the Purchaser insufficient as to the Required Information, it will request that the Purchaser submit additional information. Furthermore, if the relevant additional information is provided by the Purchaser, the Independent Committee may request that the Company's Board of Directors present its opinion regarding the content of the Purchase, supporting information and materials to prove the reasoning, alternative plans (if any) and other information deemed necessary by the Committee within the predetermined period
· The Independent Committee, at the expense of the Company, may seek advice from independent third parties (including financial advisers, certified public accountants, lawyers, consultants and other experts).
· A representative director of the Company may convene the Independent Committee when a Purchase is proposed or whenever he deems necessary. A representative director must convene a Committee meeting if any other director requests such a meeting.
· Resolutions of the Independent Committee shall be, in principle, adopted by an affirmative vote of the majority of all the members present. However, a quorum for a resolution may be a majority of all members in case of unavoidable circumstances and the resolution may be adopted by a majority of the members present in such a case.


2. Introduction of the Members of the Independent Committee

Chiyono Terada (born in 1947)
<Career summary>
June 1976Founded Art Hikkoshi Center
June 1977Established Art Hikkoshi Center Co., Ltd. (currently Art Corporation) and assumed the position of President and CEO (current position)
June 2002Director, DAIKIN INDUSTRIES, LTD.(current position)

Yoshiyuki Kaneda (born in 1933)
<Career summary>
April 1957Joined Tokyo Tsushin Kogyo Kabushiki Kaisha (currently Sony Corporation)
January 1986Director, Sony Corporation
June 1988Managing Director, Sony Corporation
June 1991Senior Managing Director, Sony Corporation
April 1994Director and Executive Deputy President, Sony Corporation
June 1994Representative Director and Executive Deputy President, Sony Corporation
September 1996Representative Director, Executive Deputy President and Executive Representative, Western Japan, Sony Corporation
June 1999Advisor and Executive Representative, Western Japan, Sony Corporation
November 2003Advisor, Sony Corporation
June 2004Corporate Auditor, DAIKIN INDUSTRIES, LTD. (current position)
April 2006Exclusive Alumnus, Sony Corporation (current position)

Iwao Nakatani (born in 1942)
<Career summary>
October 1991Faculty of Commercial Science, Hitotsubashi University
June 1999Retired from the post of Professor, Hitotsubashi UniversityDirector, Sony Corporation
Committee person, Advisory Council, DAIKIN INDUSTRIES, LTD. (current position)
September 2001Principal, Tama University
April 2002President, UFJ Research Institute (currently Mitsubishi UFJ Research and Consulting Co., Ltd.) (current position)
June 2003Chairman of the Board, Sony Corporation
April 2005Emeritus Professor, Hitotsubasi University (current position)
June 2005Retired from the position of Director, Sony Corporation
April 2008Emeritus President,Tama University (current position)




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Attachment (2)
Required Information
1)Detailed information (e.g., specific designation, capital structure, financial affairs) of the Purchaser and its group (including joint holders, special related parties and associates and members [in case of a Fund]);
2)Purpose, methods and substance of the Purchase (including the value and type of the compensation for, timing of, mechanism for related transactions of, legality of the method for, probability of the execution of the Purchase);
3)Basis for computing prices of the Purchase (including the fact and suppositions that would be the premises of computation, calculation methods, numerical information used for computing and the synergies expected to be generated from a series of transactions relating to the Purchase, and the substance of the synergies to be distributed to minority shareholders);
4)Proof of the Purchase fund (including the specific designation, fund-raising method and related transactions of the (de facto) supplier(s) of the Purchase fund);
5)The management policy, business plans, capital policy and dividend policy for the Daikin Group after the Purchase has been completed;
6)Guidelines on the treatment of employees, business partners, customers and other stakeholders after the Purchase has been completed;
7)Specific measures to avoid any conflict of interest with minority shareholders of the Company; and
8)Any other information reasonably judged necessary by the Independent Committee.



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Attachment (3)
Conditions for an Inappropriate Purchase
1)In case the Purchase does not comply with the DSR Rules;
2)In case the Purchase is likely to cause a clear violation of the corporate value of the Company or consequently the common interests of the Company's shareholders (e.g., the below-mentioned actions): ·Buy up a considerable ratio of the Company's shares and demand that the Company purchase the shares at a considerably higher price;
·Forcibly realize individual interests of the Purchase by sacrificing the Company, including the acquisition of the Company's important assets at unfairly low prices, through temporary control of the Company's management initiative;
·Appropriate the Company's assets as collateral for liabilities or as underlying assets for payments for the sake of the Purchaser or any of its group companies; and
·Through temporary control of the Company's management initiative, cause the Company's management to dispose of its highly valued assets, which have no specific relations with the ongoing Company businesses, to make management distribute temporarily higher dividends with the profit from the disposal, or temporarily shore up the Company's shares and sell them off at a higher price by leveraging a temporarily raised stock price through temporarily increased dividends.
3)In case the Purchase refers to a compulsory action, in effect, through a forced two-tier purchase procedure that compels shareholders to sell their shares (i.e., making the purchase in the form of a tender offer, etc., by unilaterally setting unfavorable second-tier purchase conditions without inviting shareholders to purchase all shares at the first tier or intentionally not clarifying the second-tier purchase conditions to shareholders);
4)In case the Purchase features do not give the Company a reasonably necessary Assessment Period to allow the Company to submit alternative plans with respect to the Purchase;
5)In case the Purchaser does not sufficiently supply the Company's shareholders with reasonably necessary information such as the Required Information and other materials from which to help shareholders form their own opinion and make decisions; and
6)In case the Purchase conditions (including the value and type of compensation, Purchase timing, the propriety of the Purchase method and the probability of the Purchase being executed, guidelines to treat stakeholders such as minority shareholders, employees, business partners and customers after the Purchase has completed) are insufficient or improper in view of the Company's primary values.


  For more information, please contact
     Daikin Industries, Ltd.
 
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