J-Holdings Corp. (TSE: 2721) told shareholders on September 2 that its board had voted to grant voting rights on 1,000,000 common shares its president and representative director acquired on September 1, two days before the company's extraordinary shareholders meeting on September 4. The shares came from exercising 10,000 units of the company's 11th series stock acquisition rights, warrants allotted to him in a January 28 third-party allotment of 28,000 units.
Because the shares were bought after the meeting's August 4 record date, they would not normally carry a vote. Under Article 124(4) of the Companies Act, J-Holdings used its discretion to grant them anyway: 10,000 voting rights, equal to 5.71% of an adjusted total of 175,259 voting rights (165,259 rights outstanding at the record date, plus the newly granted 10,000). Combined with shares from an earlier warrant exercise on July 29 that had already made him the company's largest shareholder before the record date, the president now controls 3,600,000 shares, 36,000 voting rights, and 20.54% of the vote.
The company did not extend the same courtesy to EVO Fund, which also exercised warrants (its 10th series) after the record date and acquired 300,000 shares carrying 3,000 voting rights. J-Holdings said EVO Fund had disclosed an intent to sell shares in the market rather than hold them long term, and pointed to large-shareholding reports filed with the Kanto Local Finance Bureau showing repeated buying and selling of the stock. EVO Fund consented to the exclusion.
J-Holdings said it asked its outside counsel to review the arrangement. The lawyers concluded, according to the company, that selectively granting rights based on how a holder acquired shares and that holder's stated intentions is permissible under Article 124(4), and that the provision's protection for "record-date shareholders" does not extend to warrant holders who acquired shares afterward. The president, as an interested director, did not take part in the board's deliberation or vote on the matter.