Sony 2005 Annual Report Download - page 110

Sony Corporation 107
16. Stockholders’ equity
(1) Subsidiary tracking stock:
On June 20, 2001, Sony Corporation issued shares of subsid-
iary tracking stock in Japan, the economic value of which is
intended to be linked to the economic value of Sony Communi-
cation Network Corporation (“SCN”), a directly and indirectly
wholly owned subsidiary of Sony Corporation which is engaged
in Internet-related services. The subsidiary tracking stock hold-
ers have no direct rights in the equity or assets of SCN or the
assets of Sony Corporation. Except as summarized below, the
shares of subsidiary tracking stock have the same rights and
characteristics as those of shares of common stock.
The dividend on the shares of this series of subsidiary tracking
stock is payable only when the Board of Directors of SCN has
resolved to pay to its common stock holders a dividend in an
amount per share of the subsidiary tracking stock equal to the
amount of SCN’s dividend per share of its common stock
multiplied by the Standard Ratio (as defined in the articles of
incorporation), subject to statutory restriction on Sony
Corporation’s ability to pay dividends on its shares of capital
stock and the maximum dividend amount (as defined in the
articles of incorporation). If the amount of dividends paid to the
subsidiary tracking stock holders is less than the amount, which
should have been paid pursuant to the formula set forth above
due to the statutory restriction referred to above or for any other
reason, such shortfall will be accumulated and such cumulative
amount will be paid to the subsidiary tracking stock holders for
subsequent fiscal years. Any such dividend on the subsidiary
tracking stock is payable in priority to the payment of dividends
to the common stock holders. However, the subsidiary tracking
stockholders have no right to participate in the dividends to
common stock holders. Furthermore, even if the Board of
Directors of SCN does not take a resolution for the payment of
dividends to SCN’s common stock holders, Sony Corporation
may decide to pay dividends to its common stock holders.
The subsidiary tracking stockholders have the same voting
rights as those of the common stock holders and, thus, are
entitled to participate and vote at any General Meeting of Share-
holders in the same way as the common stock holders. In
addition, as each series of subsidiary tracking stock is a sepa-
rate class of stock different from common stock, if any resolu-
tion of the General Meeting of Shareholders would adversely
affect the rights of the shareholders of a particular class of
subsidiary tracking stock, the shareholders of each class of
subsidiary tracking stock will have the right to approve or disap-
prove such resolution by a special resolution of the meeting of
shareholders of that class of subsidiary tracking stock.
In the event of distribution of residual assets to the sharehold-
ers of Sony Corporation where, as long as such assets include
shares of common stock of SCN, the number of shares of SCN
common stock obtained by multiplying the number of shares of
the subsidiary tracking stock held by each holder by the Stan-
dard Ratio or the net proceeds from the sale of the shares of
SCN common stock so to be distributed will be distributed to
the holders of the subsidiary tracking stock.
The shares of subsidiary tracking stock may be subject to
repurchase and retirement in the same manner and under the
same restriction as the shares of common stock. In addition, at
any time after the passage of three years from the date of the
initial issuance of shares of a series of subsidiary tracking stock,
it may retire the entire amount of all outstanding shares of that
series of subsidiary tracking stock upon paying to the sharehold-
ers thereof an amount equal to the current market price of the
subsidiary tracking stock out of Sony Corporation’s retained
earnings available for dividend payments. Sony Corporation may
also retire the shares of a series of subsidiary tracking stock in
their entirety pursuant to the procedures prescribed by the
Japanese Commercial Code for the reduction of capital upon
payment to the subsidiary tracking stock holders an amount
equal to the market value thereof as set forth above.
At any time after the passage of three years from the date of
the initial issuance of shares of a series of subsidiary tracking
stock, it may convert the entire amount of all outstanding shares
of the subsidiary tracking stock into the shares of Sony
Corporation’s common stock at the rate of the multiple of 1.1 of
the market value (as defined in the articles of incorporation) of
shares of the subsidiary tracking stock divided by the market
value (as similarly defined) of the shares of Sony Corporation’s
common stock.
If any events (as defined in the articles of incorporation) occur,
the entire amount of all outstanding shares of the subsidiary
tracking stock will be either retired or converted into shares of
Sony Corporation’s common stock at the price or rate set forth
above. On April 26, 2005, Sony Corporation decided at the Board
of Directors to go through procedures for the initial public offering
of SCN. If the listing of SCN common stock is approved by the
stock exchange, subject to required procedures, all of the subsid-
iary tracking stock will be compulsorily terminated pursuant to the
articles of incorporation. The method of such termination will be
one of the following: 1) compulsory retirement in cash, 2) compul-
sory conversion to common stock of Sony Corporation, or 3)
compulsory exchange with common stock of SCN.
The number of shares of the subsidiary tracking stock issued
and outstanding at March 31, 2005 was 3,072,000. At March
31, 2005, 136,454 shares of the subsidiary tracking stock would
be issued upon exercise of warrants and stock acquisition rights
outstanding.
BH6/30 Adobe PageMaker 6.0J /PPC