Sumitomo Metals Announces Policy Toward Large-scale Purchases of Sumitomo Metals Shares (Anti-takeover Defense Plan)

Sumitomo Metal Industries, Ltd. (Sumitomo Metals) today announced that its Board of Directors decided to adopt a policy (hereinafter called as the Policy), as a so-called "anti-takeover defense plan to be introduced in advance", toward (i) a purchase of Sumitomo Metals' certificates of shares and other securities (Note:1) by a group of shareholders (Notes:2) with the intent to hold 20% or more of the total voting rights (Notes:3) of Sumitomo Metals, or (ii) a purchase of Sumitomo Metals' certificates of shares and other securities resulting in a group of shareholders holding 20% or more of the total voting rights of Sumitomo Metals (the purchases set out in (i) or (ii) above do not include the purchases to which Sumitomo Metals' Board of Directors has given consent in advance). A purchase of Sumitomo Metals' certificates of shares and other securities set out in (i) or (ii) above shall be hereinafter referred to as a Large-scale Purchase. A person or a company that intends to conduct a Large-scale Purchase shall be hereinafter referred to as a Large-scale Purchaser.
The meeting of the Board of Directors, at which the Policy was adopted, was held today with all of the four Corporate Auditors of Sumitomo Metals present, two of whom are outside Corporate Auditors. They expressed their opinion that the Policy is an appropriate rule that provides for the process for a large-scale purchase of Sumitomo Metals' certificates of shares and other securities.

Notes: 1

Certificates of shares and other securities as either defined in Paragraph 1, Article 27-23 or Paragraph 1, Article 27-2 of the Securities and Exchange Law of Japan; hereinafter the same.

Notes: 2

A group of shareholders shall mean any of the following:
(i) a holder (defined in Paragraph 1, Article 27-23 of the Securities and Exchange Law of Japan, including a person deemed as a holder pursuant to Paragraph 3, Article 27-23 thereof) of certificates of shares and other securities (defined in Paragraph 1, Article 27-23 of the Securities and Exchange Law of Japan) of Sumitomo Metals and any joint holders (defined in Paragraph 5, Article 27-23 of the Securities and Exchange Law of Japan, including a person deemed as a joint holder pursuant to Paragraph 6, Article 27-23 thereof) thereof, or
(ii) a person or a company who makes a purchase (defined in Paragraph 1, Article 27-2 of the Securities and Exchange Law of Japan, including a purchase made on a securities exchange market) of certificates of shares and other securities (defined in Paragraph 1, Article 27-2 of the Securities and Exchange Law of Japan) of Sumitomo Metals and any specially related parties (defined in Paragraph 7, Article 27-2 of the Securities and Exchange Law of Japan) ; hereinafter the same.

Note: 3

The ratio of the total voting rights shall mean:
(i) in case of note 2(i) above, the share holding ratio (defined in Paragraph 4, Article 27-23 of the Securities and Exchange Law of Japan) of the holder of certificates of shares and other securities of Sumitomo Metals (taking into account the number of certificates of shares and other securities (defined in the said Paragraph) held by any joint holders), or
(ii) in case of note 2(ii) above, the sum of the shareholding ratio (defined in Paragraph 8, Article 27-2 of the Securities and Exchange Law of Japan) of the purchaser of certificates of shares and other securities of Sumitomo Metals and its specially related parties; hereinafter the same.

In calculating the voting rights ratio, the annual report, the semi-annual report or the treasury stock purchase report of Sumitomo Metals, whichever is submitted to the authorities most recently, may be referred to in deciding the total number of voting rights (defined in Paragraph 8, Article 27-2 of the Securities and Exchange Law of Japan) or the total number of issued and outstanding shares (defined in Paragraph 4, Article 27-23 of the Securities and Exchange Law of Japan).

1. Basic Philosophy

The Board of Directors of Sumitomo Metals today announced the Medium-term Business Plan (Fiscal Years 2006~2008) which aims at not only pursuing expansion of scale but also sustainable enhancement of corporate value with emphasis on quality in the global iron and steel market. By implementing this Medium-term Business Plan, Sumitomo Metals intends to (i) improve the value of intangible assets such as customers, human resources, technologies, etc. which are driving force for differentiation from its competitors, (ii) strengthen the company's physical and financial assets which are comprised of its steel works and other facilities, and (iii) construct a solid operating base so that Sumitomo Metals becomes a ¡Ècompany trusted by its stakeholders".
Sumitomo Metals' Board of Directors believes that the company's shareholders should make the final decisions as to whether or not a Large-scale Purchase is acceptable. The Board of Directors also believes that such decision will be properly made based upon the shareholders' understanding of the above-mentioned management policy and the corporate value to be realized through such management policy. Accordingly, the Board of Directors believes that shareholders should be provided with sufficient and appropriate information, from both of the Board of Directors and the Large-scale Purchaser, including information on the (i) conditions of the Large-scale Purchase, (ii) influence of the Large-scale Purchase affecting Sumitomo Metals' and its group companies' corporate value, (iii) management policies and business plans that the Large-scale Purchaser intends to adopt for Sumitomo Metals and its group companies, (iv) influence on various stakeholders such as customers, suppliers, employees, etc. and (v) any proposals alternative to the Large-scale Purchase (hereinafter referred to as alternative plans), and furthermore, should be given an opportunity and time to carefully consider the provided information.
Based on the basic philosophy mentioned above, in order to provide an opportunity for Sumitomo Metals shareholders to receive necessary information about the Large-scale Purchase and any alternative plans and to secure a period of time for their consideration, the Board of Directors has established rules concerning Large-scale Purchases of Sumitomo Metals shares (hereinafter referred to as the Large-scale Purchase Rules) as described below. The Board of Directors will require any Large-scale Purchaser to comply with the rules. If the Large-scale Purchaser does not comply with the rules, the Board of Directors intends to take certain countermeasures.

2. Large-scale Purchase Rules (Steps to be taken when any Large-scale Purchaser comes forward)
Sumitomo Metals' Board of Directors believes that a Large-scale Purchase should be conducted in compliance with the Large-scale Purchase Rules for the benefit of all shareholders of Sumitomo Metals. The Large-scale Purchase Rules require that (i) a Large-scale Purchaser provide sufficient information to the Board of Directors before the commencement of the Large-scale Purchase, and (ii) a Large-scale Purchaser be permitted to commence the Large-scale Purchase only after the prescribed period has elapsed during which the Board of Directors assesses and examines the provided information. The details of the Large-scale Purchase Rules are as prescribed in the following paragraphs. A flowchart showing the process after the commencement of the Large-scale Purchase is attached hereto as Exhibit 1.

(1) Submission of Intention Letter
First, when a Large-scale Purchaser intends to commence a Large-scale Purchase, such Large-scale Purchaser is required to submit to Sumitomo Metals a letter of intention to comply with the Large-scale Purchase Rules (hereinafter referred to as the Intention Letter). In the Intention Letter, the name of the Large-scale Purchaser, address, governing law of incorporation, the name of the representative, contact details in Japan and an outline of the proposed Large-scale Purchase should be specified. When Sumitomo Metals receives the proposal of a Large-scale Purchase, Sumitomo Metals shall make disclosure in accordance with the relevant laws and stock exchange regulations regarding timely disclosure.

(2) Provision of Information
Second, the Large-scale Purchaser is required to provide Sumitomo Metals' Board of Directors with sufficient information (hereinafter referred to as the Large-scale Purchase Information) so that the company's shareholders may make decisions and the Board of Directors may form its opinion regarding such Large-scale Purchase. The Large-scale Purchase Information includes the following:
(i) an outline of the Large-scale Purchaser and its group;
(ii) the purposes and conditions of the Large-scale Purchase (in the case of a partial purchase of Sumitomo Metals shares, including the reason for the upper limit of the shares to be purchased and the capital composition of the company after the purchase);
(iii) the basis for determination of the purchase price and funds for purchase;
(iv) management policies which the Large-scale Purchaser intends to adopt after the completion of the Large-scale Purchase (including business plans (including a reorganization plan of existing business, new business plan and capital expenditure plan), financial plan, equity policy, dividend policy, labor policy, asset utilization policy and other measures and policies to implement the Large-scale Purchaser's management policy, and plan of the integration and alliance between the Large-scale Purchaser's business and Sumitomo Metals' businesses (including its group companies' businesses) and specific measures to avoid conflict of interests between the Large-scale Purchaser and Sumitomo Metals (including its group companies));
(v) policies to be implemented after the completion of the Large-scale Purchase on customers, suppliers, local community, employees and any other interested parties of Sumitomo Metals and its group companies; and
(vi) in case where the Large-scale Purchaser conducts business of the same kind as Sumitomo Metals' or its group companies' business, view on the legality of the Large-scale Purchase in terms of the Antimonopoly Act of Japan and overseas competition laws.
In order for the Large-scale Purchaser to provide the Large-scale Purchase Information, Sumitomo Metals will, within five (5) business days after receipt of the Intention Letter, deliver to the Large-scale Purchaser a list of the Large-scale Purchase Information to be provided by the Large-scale Purchaser. If the information initially provided by the Large-scale Purchaser is deemed insufficient as Large-scale Purchase Information, Sumitomo Metals may require additional information to the extent necessary for Sumitomo Metals shareholders to make decisions and for the Board of Directors to examine and assess the Large-scale Purchase and form an opinion. The Board of Directors will disclose all or part of the Large-scale Purchase Information submitted to the Board of Directors at the time it deems appropriate, if such disclosure is considered necessary for shareholders to make decisions. When the Board of Directors determines that it has fully received the Large-scale Purchase Information, the Board of Directors shall make disclosure in accordance with the relevant laws and stock exchange regulations regarding timely disclosure.

(3) Assessment Period
The Board of Directors of Sumitomo Metals believe that after the provision of the Large-scale Purchase Information is completed, the Board of Directors should be allowed a sixty-business-day period (in case of the purchase of all Sumitomo Metals shares by a tender offer with cash-only (yen) consideration) or a ninety-business-day period (in case of any other Large-scale Purchase), depending on the difficulty level of assessment of the Large-scale Purchase, as the period during which it will assess, examine, negotiate, form an opinion and seek any alternative plans (hereinafter referred to as the Assessment Period). The Large-scale Purchaser may commence the Large-scale Purchase only after the Assessment Period has elapsed. The reason why the Board of Directors requests a sixty- or ninety-business-day period as the Assessment Period which is longer than a sixty- or ninety-calendar-day period is that the impact of the Large-scale Purchase should be carefully considered in terms of corporate value because (i) Sumitomo Metals has a relationship of trust with major customers and suppliers that has been formed over a long period of time, (ii) Sumitomo Metals has broad range of alliance relationships with Nippon Steel Corporation, Kobe Steel, Ltd., etc., and (iii) Sumitomo Metals' activity will have a significant impact on the local economy of the areas where the company's steel works and other facilities are located. The Board of Directors will thoroughly examine and assess the provided Large-scale Purchase Information with advice from outside experts including lawyers, accountants and financial advisors during the Assessment Period, and form and disclose its opinion. The Board of Directors may negotiate with the Large-scale Purchaser in order to improve the terms of the proposed Large-scale Purchase or it may offer the alternative plan to shareholders, if necessary.

3. Countermeasures against Non-compliance with the Large-scale Purchase Rules
If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules, Sumitomo Metals' Board of Directors may take countermeasures against the Large-scale Purchaser to protect the interests of all of its shareholders as a whole. Countermeasures include the issuance of stock acquisition rights or any other measures that the Board of Directors is permitted to take under the Commercial Code of Japan (or the Corporate Code of Japan when it takes effect) or other laws and the company's articles of incorporation. The Board of Directors will adopt specific countermeasures which it deems appropriate at that time. If the Board of Directors elects to issue stock acquisition rights, the outline of the issuance thereof shall be as described in Exhibit 2. If the Board of Directors elects to issue stock acquisition rights as a countermeasure, it may determine the exercise period, exercise conditions and others of the stock acquisition rights in consideration of the effectiveness thereof as a countermeasure, including such exercise conditions as not allowing the exercise of stock acquisition rights held by a person or a company belonging to a group of shareholders holding a specific percentage of the total voting rights at some point after the effective date of the Policy. Sumitomo Metals today files the issuance registration (hakko-toroku) of stock acquisition rights for the issuance of stock acquisition rights as a countermeasure.
The purpose of the Large-scale Purchase Rules is (i) to provide an opportunity for Sumitomo Metals shareholders to receive (a) information necessary to determine whether or not a purchase of Sumitomo Metals shares that may have an impact on the management of the company is acceptable and (b) an opinion by the Board of Directors that is currently in charge of Sumitomo Metals' management, (ii) to secure the period of time necessary for the provision of such information and opinion, and (iii) to provide an opportunity for Sumitomo Metals' shareholders to consider any alternative plans. The Large-scale Purchase Rules are established from the viewpoint that the interests of all its shareholders as a whole shall be protected in the event of a purchase of Sumitomo Metals shares that may have an impact on the management of the company. If a Large-scale Purchaser complies with the Large-scale Purchase Rules, the Board of Directors does not intend to prevent the Large-scale Purchase at its own discretion.
Sumitomo Metals believes that the establishment of the Large-scale Purchase Rules and countermeasures to be taken in the event of non-compliance with such rules are reasonable and appropriate in order to protect the legitimate interests of all Sumitomo Metals shareholders as a whole. The company recognizes that the aforementioned countermeasures may cause damage or loss, economic or otherwise, to a prospective Large-scale Purchaser who does not comply with the Large-scale Purchase Rules. Thus, the Board of Directors is hereby advising in advance against commencing a Large-scale Purchase that does not comply with the Large-scale Purchase Rules.

4. Influence on Shareholders and Investors, etc.

(1) Influence on Shareholders and Investors, etc. given by the Large-scale Purchase Rules
The purpose of the Large-scale Purchase Rules is (i) to provide an opportunity for Sumitomo Metals shareholders to receive (a) information necessary to determine whether or not the Large-scale Purchase is acceptable and (b) an opinion by the Board of Directors that is currently in charge of Sumitomo Metals' management, (ii) to secure the period of time necessary for the provision of such information and opinion and (iii) to consider any alternative plans. The Board of Directors believes that under the Large-scale Purchase Rules, Sumitomo Metals shareholders will be able to receive sufficient information and make appropriate decisions as to whether or not the Large-scale Purchase is acceptable, whereby the interests of all Sumitomo Metals shareholders as a whole shall be protected. Accordingly, the Board of Directors believes that the establishment of the Large-scale Purchase Rules is an appropriate condition in order for shareholders and investors to make appropriate decisions and is for the benefit of Sumitomo Metals shareholders and investors.
The Board of Directors is hereby advising Sumitomo Metals shareholders and investors to observe carefully any actions taken by a Large-scale Purchaser, because steps and actions to be taken by Sumitomo Metals will be different depending on whether or not a Large-scale Purchaser complies with the Large-scale Purchase Rules as described in 3 above.

(2) Influence on Shareholders and Investors, etc. given by Countermeasures
If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules, Sumitomo Metals' Board of Directors may take countermeasures, which the Board of Directors is permitted to take under the Commercial Code of Japan (or the Corporate Code of Japan when it takes effect) or other laws and the company's articles of incorporation, against the Large-scale Purchaser to protect the interests of all its shareholders as a whole. As a function of a countermeasure itself, however, the Board of Directors is not assuming that such countermeasure taken will cause any specific legal or economic damage or loss to Sumitomo Metals shareholders (excluding a Large-scale Purchaser who does not comply with the Large-scale Purchase Rules). When the Board of Directors elects to take any specific countermeasure, Sumitomo Metals shall make disclosure in accordance with the relevant laws and stock exchange regulations regarding timely disclosure.
With respect to the issuance of stock acquisition rights contemplated as a countermeasure, it may be necessary for Sumitomo Metals shareholders to make subscription within a specific period in order to acquire such stock acquisition rights or it may be necessary for a stock acquisition rights holder to make a specific amount of payment in order to exercise such stock acquisition rights, depending on the conditions of such stock acquisition rights. Sumitomo Metals will make notification about the details of such steps in accordance with the relevant laws and stock exchange regulations regarding timely disclosure in case Sumitomo Metals is to issue such stock acquisition rights. Please note, however, that a Sumitomo Metals shareholder who has not been recorded in the register of shareholders needs to complete the entry into the register of shareholders by the record date, which the Board of Directors will separately determine and make a public notice of, in order to acquire the stock acquisition rights.

5. Effective Date and Effective Term of the Policy
The Policy was adopted by the meeting of Sumitomo Metals' Board of Directors held today, and took effect as of today. The Policy will remain effective until the first meeting of the Board of Directors to be held after the ordinary general shareholders meeting in 2009.
The Board of Directors plans to propose the outline of the Policy at the ordinary general shareholders meeting to be held in June this year (the ¡ÈSH meeting") as an agendum for affirmative votes. Notwithstanding the preceding paragraph, in case not more than a half of Sumitomo Metals shareholders present or represented at the SH meeting vote for the affirmative, then the Policy will be abolished immediately.
Sumitomo Metals intends to review the Policy from time to time from the viewpoint of enhancing the benefit of its shareholders as a whole, taking into account the enactments of various legislations including the Corporate Code of Japan and any development of its Medium-term Business Plan (Fiscal Years 2006-2008), and may amend or abolish the Policy if necessary even during the effective term of the Policy by a resolution of the Board of Directors. In this connection, the Board of Directors intends to propose at the SH meeting an amendment to the articles of incorporation, whereby the terms of office of the directors shall be set for one (1) year. If such proposal is approved by the resolution of the SH meeting, the directors will be elected at an ordinary general shareholders meeting held every year. Further, if the outline of the Policy is properly resolved by the affirmative votes of majority of shareholders present or represented at the SH meeting, then any amendment or abolishment of the Policy after the SH meeting will be determined by the Board of Directors composed of directors elected by the general shareholders meeting every year.
If the Policy is amended or abolished, Sumitomo Metals will make a prompt disclosure regarding the amendment (including the contents of the amendment) or abolishment of the Policy and other matters that the Board of Directors deems appropriate.

Exhibit 1

Flowchart of Large-scale Purchase under the Large-scale Purchase Rules

Notice: The above flowchart is provided only to help the understanding of the Large-scale Purchase Rules. Please refer to the contents of the press release for details of the Large-scale Purchase Rules.

Exhibit 2

Outline of Issuance of Stock Acquisition Rights

1. Shareholders who are entitled to receive stock acquisition rights and conditions of issuance thereof:

One stock acquisition right shall be granted to a shareholder, per one share of common stock held by such shareholder (excluding the shares held by Sumitomo Metals as treasury stock), whose name is recorded in the register of shareholders or the register of beneficial shareholders as of the record date to be specified by the Board of Directors; provided, however, that, on the day and after the Corporate Code of Japan becomes effective, (i) Sumitomo Metals may grant to each of the shareholders holding a share of common stock a right to subscribe for a stock acquisition right and make an offering for subscription of the offered stock acquisition right, or (ii) Sumitomo Metals may distribute stock acquisition rights to the shareholders without consideration.

2. Type and number of shares to be acquired upon exercise of stock acquisition rights:

The type of shares to be acquired upon exercise of stock acquisition rights shall be common stock, and the number of shares to be acquired upon exercise of one stock acquisition right shall be one share or less to be determined by the Board of Directors. Provided, however, that such number shall be adjusted if Sumitomo Metals makes a stock split or a stock consolidation.

3. Total number of stock acquisition rights to be issued:

The total number of stock acquisition rights to be granted shall be determined by the Board of Directors. The Board of Directors may grant stock acquisition rights more than once.

4. Issue price of each stock acquisition right:

Zero yen

5. Amount to be paid upon exercise of a stock acquisition right:

The amount to be paid upon exercise of a stock acquisition right shall be one Japanese yen or more to be determined by the Board of Directors.

6. Restriction on transfer of stock acquisition rights:

Stock acquisition rights may only be transferred with the approval of the Board of Directors.

7. Conditions of exercise of stock acquisition rights:

Conditions of exercise of stock acquisition rights may be established by the Board of Directors. The Board of Directors may prohibit a person or company belonging to a group of shareholders including a Large-scale Purchaser from exercising stock acquisition rights.

8. Exercise period and other conditions of stock acquisition rights:

The exercise period, cancellation events, conditions of cancellation (on the day and after the Corporate Code of Japan becomes effective, repurchase events and conditions of repurchase) and other conditions of stock acquisition rights shall be determined by the Board of Directors. On the day and after the Corporate Code of Japan becomes effective, the Board of Directors may determine that the company may repurchase stock acquisition rights that are not exercised and not held by a holder of a stock acquisition right who is prohibited from exercising stock acquisition rights due to the exercise condition mentioned in item 7 above, and deliver one share of common stock or less to be determined by the Board of Directors per one stock acquisition right to each of the holders of stock acquisition rights.