For Immediate Release

March 23, 2021
Company Name: FUNAI ELECTRIC CO., LTD.
Name of Representative: Hideaki Funakoshi,
Representative Director and President and CEO(Code:6839 TSE First Section)
Contact Person: Kyo Otani,
General Manager of Investor/Public Relations Office(TEL: 072-870-4395)

Announcement of Opinion on the Tender Offer for Shares, Etc.
in FUNAI ELECTRIC CO., LTD. by SHUWA SYSTEM HOLDINGS CO., LTD.
FUNAI ELECTRIC CO., LTD. (the “Company”) hereby announces that it has resolved as stated below at
the meeting of its board of directors held today to express its opinion in support of the tender offer for theCompany’s common shares (the “Company Shares”) and the Stock Acquisition Rights (as defined in “2. Pricefor Purchase, Etc.” below) to be conducted by SHUWA SYSTEM HOLDINGS CO., LTD. (the “Tender Offeror”,
and this tender offer, the “Tender Offer”), and to recommend that the shareholders of the Company tender theirCompany Shares in the Tender Offer and that the decision regarding whether or not to tender Stock Acquisition
Rights in the Tender Offer will be left to the judgment of the holders of the Stock Acquisition Rights (the “Stock
Acquisition Right Holders”).
The resolution of the board of directors stated above was made on the assumption that the Tender Offeror
intends to make the Company its wholly-owned subsidiary through the Tender Offer and a series of subsequent
procedures and that the Company Shares will be delisted.
1.

Outline of Tender Offeror
(1)
(2)
(3)

Name
Location
Name and title ofrepresentative
Description of business

(4)

2.

SHUWA SYSTEM HOLDINGS CO., LTD.
4-2 Toyo 2-chome, Koto-ku, Tokyo
Tomokazu Ueda, President and Representative Director
To acquire and hold the shares, etc. of the Company and to control
and manage the business activities of the Company
JPY 1,360 million (as of March 23, 2021)
September 28, 2020
SHUWA SYSTEM CO., LTD
100%

(5)
(6)
(7)

CapitalDate of incorporation
Major shareholders andshare holding ratios (as ofMarch 23, 2021)(8)

Relationship between the Tender Offeror and the Company
Capital relationship
N/A
Personnel relationship
N/A
Business relationship
N/A
Status as related party
N/A

Price for Purchase, Etc.
(1)

JPY 918 per Company Share (the “Tender Offer Price”)(2)

Stock Acquisition Rights

A.

The first stock acquisition rights for the year ended March 2015 issued pursuant to the resolution
approved at the ordinary general meeting of shareholders of the Company held on June 20, 2014
and at the meeting of the board of directors of the Company held on September 18, 2014 (the “FY1

2014 Stock Acquisition Rights”) (the exercise period for which is from September 1, 2016 to August
31, 2023):
JPY 1 per unit
B.

The first stock acquisition rights for the year ended March 2017 issued pursuant to the resolution
approved at the ordinary general meeting of shareholders of the Company held on June 28, 2016
and at the meeting of the board of directors of the Company held on January 11, 2017 (the “FY
2016 Stock Acquisition Rights”) (the exercise period for which is from September 1, 2018 to August
31, 2023):
JPY 1 per unitC.

The first stock acquisition rights for the year ended March 2018 issued pursuant to the resolution
approved at the ordinary general meeting of shareholders of the Company held on June 28, 2017and at the meeting of the board of directors of the Company held on November 13, 2017 (the “FY
2017 Stock Acquisition Rights ”) (the exercise period for which is from September 1, 2019 toAugust 31, 2024):
JPY 1 per unit

D.

The stock acquisition rights for the year ended March 2020 issued pursuant to the resolution
approved at the ordinary general meeting of shareholders of the Company held on June 26, 2019
and at the meeting of the board of directors of the Company held on August 5, 2019 (the “FY 2019
Stock Acquisition Rights”, and collectively with the FY 2014 Stock Acquisition Rights, the FY
2016 Stock Acquisition Rights , and the FY 2017 Stock Acquisition Rights, the “Stock Acquisition
Rights”) (the exercise period for which is from September 1, 2021 to August 31, 2026):
JPY 1 per unit

3.

Details of and Grounds and Reasons for the Opinion on the Tender Offer(1)

Details of the Opinion on the Tender Offer

The Company resolved at its board of directors meeting held today to express an opinion in support of theTender Offer, and to recommend that the shareholders of the Company tender their shares to the Tender Offer,and to leave to the Stock Acquisition Right Holders the decision of whether to tender their Stock Acquisition
Rights to the Tender Offer based on the grounds and reasons stated in “(2) Grounds and Reasons for the Opinion
on the Tender Offer” below.
The board of directors resolution was conducted as described in “E. Approval of Majority of Disinterested
Directors (Including Those Who are Audit and Supervisory Committee Members) of the Company” in “(6)Measures to Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer
Price and Measures to Avoid Conflicts of Interest” below.
(2)

Grounds and Reasons for the Opinion on the Tender Offer

The grounds and reasons for the opinion on the Tender Offer that relate to the Tender Offeror are based on
explanations received from the Tender Offeror.
A.

Outline of the Tender Offer

The Tender Offeror is a stock company established on September 28, 2020 with the principal purpose of
acquiring and holding the Company Shares and the Stock Acquisition Rights. All of the issued shares of theTender Offeror are held by SHUWA SYSTEM CO., LTD (“Shuwa System”). Shuwa System’s business consistsof publishing (mainly IT and business), systems construction, and software development. All of the issued
shares of Shuwa System are held by its representative director, Mr. Tomokazu Ueda. Shuwa Group Co., Ltd.
(“Shuwa Group”) was established in March 2018 as a wholly owned subsidiary of Shuwa System, and its
representative director is Mr. Tomokazu Ueda; its principal business is to hold the shares of group companies
engaged in various kinds of business and to manage the business activities of those companies. The Tender
Offeror, Shuwa System, Shuwa Group, and Mr. Tomokazu Ueda do not hold any Company Shares or Stock
Acquisition Rights as of today.

2The Tender Offeror determined today to conduct the Tender Offer to acquire all of the Company Shares(including Company Shares to be delivered upon the exercise of the Stock Acquisition Rights, and excluding theReserved Shares (defined below) held by Mr. Tetsuo Funai, the eldest son of the Company’s late founder Mr.
Tetsuro Funai (“Tetsuro Funai”), and the Company’s largest major shareholder (shares held: 11,738,780 shares;
ownership percentage (see Note 1): 34.18%; “Mr. Tetsuo Funai”) and the treasury shares held by the Company;
the “Target Shares”) listed on the First Section of the Tokyo Stock Exchange (“TSE”) and the Stock Acquisition
Rights as part of a series of transactions (the “Transaction”) intended to make the Company a wholly owned
subsidiary of the Tender Offeror, which are predicated on the delisting of the Company Shares.
Note 1:“Ownership percentage” means the percentage (rounded to two decimal places) of the numberof shares (34,348,166 shares) equal to the sum (36,359,996 shares) of the number of issued
shares as of December 31, 2020 (36,130,796 shares) as stated by the Company in the “Financial
Report for the Third Quarter of the Fiscal Year Ending March 31, 2021” submitted on February
10, 2021 (the “Company's Financial Report for the Third Quarter”) plus the number of Company
Shares (229,200 shares) underlying the total number of FY 2014 Stock Acquisition Rights, FY
2016 Stock Acquisition Rights, and FY 2017 Stock Acquisition Rights remaining as ofDecember 31, 2020 and exercisable as of today (2,292 stock acquisition rights; see Note 2) lessthe number of treasury shares held by the company as of December 31, 2020 (2,011,830 shares)
as stated in the “Consolidated Financial Results for the Third Quarter of the Fiscal Year Ending
March 31, 2021 (Japan Basis)” submitted on February 8, 2021 (the “Company's Financial
Results for the Third Quarter”); the same applies hereinafter. Because the exercise period of
the FY 2019 Stock Acquisition Rights begins on September 1, 2021, the FY 2019 Stock
Acquisition Rights cannot be exercised during the tender offer period of the Tender Offer (the“Tender Offer Period”); therefore, the number of Company Shares underlying the FY 2019
Stock Acquisition Rights (173,000 shares) is not added to the number of issued shares.

Note 2:The itemization of the Stock Acquisition Rights as of December 31, 2020 is as follows (thenumber of Company Shares underlying the Stock Acquisition Rights, the “Number of Potential
Shares”):
Name

FY 2014 Stock
Acquisition Rights
FY 2016 Stock
Acquisition Rights
FY 2017 Stock
Acquisition Rights
FY 2019 Stock
Acquisition Rights

Number of Stock Acquisition Rights as ofDecember 31, 2020
93

Number of Underlying Company
Shares9,300

894

89,4001,305

130,500

1,730

173,000

Through the Transaction, the Tender Offeror intends (i) to make Mr. Tetsuo Funai and the Tender Offeror
the sole shareholders of the Company through the Tender Offer and the share consolidation that the Company
will conduct in the case where the Tender Offer is successful but the Tender Offeror is unable to acquire all of
the Target Shares and the Stock Acquisition Rights through the Tender Offer (the “Share Consolidation”), (ii) to
conduct a reduction of the capital stock and capital reserves of the Company (see Note 3; the “Capital Reduction”)
pursuant to Article 447, paragraph 1 and Article 448, paragraph 1 of the Companies Act (Act No. 86 of 2005, as
amended; the “Companies Act”) in order to secure the distributable amount necessary to conduct the Purchase ofTreasury Shares (defined below), and (iii) subject to the success of the Tender Offer and the effectiveness of the
Share Consolidation, to cause the Company to conduct a purchase of treasury shares (the “Purchase of Treasury
Shares”) to acquire all of the Reserved Shares, and ultimately make the Company a wholly owned subsidiary of
the Tender Offeror. See “(5) Policy for Organizational Restructuring, Etc. After the Tender Offer (Matters
Relating to So-Called “Two-Step Acquisition”)” below for details of the Share Consolidation, and “(ii) Capital
Reduction (August 2021 (scheduled))” and “(iii) Purchase of Treasury Shares (August 2021 (scheduled))” in “III.
After the Tender Offer” below for details of the Capital Reduction and the Purchase of Treasury Shares.
Note 3:In the Capital Reduction, the capital stock and capital reserves of the Company will be reduced
and transferred to other capital surplus and other retained earnings.

3

As stated in “B. Background and Purpose of and Decision-Making Process for the Tender Offeror Leading
to the Decision to Conduct the Tender Offer,” prior to the Tender Offer, Shuwa Group (after the establishment of
the Tender Offeror, the Tender Offeror and Shuwa Group) conducted ongoing consultations and negotiations with
the Company and Mr. Tetsuo Funai after executing an agreement with Mr. Tetsuo Funai on March 10, 2020 for
exclusive negotiating rights with respect to the purchase of the Company Shares held by Mr. Tetsuo Funai. As
a result, in early October 2020, the Tender Offeror, Shuwa System and Mr. Tetsuo Funai confirmed theirintentions to the effect that: (a) in executing the Transaction, the purchase price per share of the Company Shares
held by Mr. Tetsuo Funai should be set at a level lower than the price offered per share of the Company Sharesof other shareholders in order to offer the shareholders other than Mr. Tetsuo Funai an opportunity to sell at ahigher price by setting the Tender Offer Price higher than it would be if the same purchase price per share were
offered for both the Company Shares held by Mr. Tetsuo Funai and those held by other shareholders of theCompany; and (b) for that purpose, Mr. Tetsuo Funai would not tender his Company Shares to the Tender Offer,
and would instead sell all of the Company Shares that he holds, at a price of JPY 400 per share, through either (i)the Purchase of Treasury Shares or (ii) a private sale to the Tender Offeror after the Company Shares have beendelisted through the Tender Offer and the Share Consolidation. On December 5, 2020, the Tender Offeror,
Shuwa Group and Mr. Tetsuo Funai reached an agreement to the effect that Scheme (i) would be adopted because
Scheme (i) would be more beneficial than Scheme (ii) in terms of reducing the Tender Offeror’s financing costs.
In addition, on the same day, the Tender Offeror and Shuwa Group reached an agreement with Mr. Tetsuo Funai
to increase the purchase price per share of the Reserved Shares from JPY 400 to JPY 403 in order to reduce theeconomic burden on Mr. Tetsuo Funai caused by the Transaction. On December 28, 2020, the Tender Offeror,
Shuwa Group and Mr. Tetsuo Funai reached an agreement to the effect that while the Purchase of Treasury Shares
itself would be conducted promptly after the delisting of the Company Shares, in order to avoid any negative
effect on the Company’s financial situation and operating funds due to the Purchase of Treasury Shares, paymentof the consideration for the Purchase of Treasury Shares would not be conducted at the time of the Purchase ofTreasury Shares, and would instead be conducted on a date agreed upon through separate consultation in goodfaith between the Tender Offeror, the Company, and Mr. Tetsuo Funai based on the Company’s financial condition,
operating capital, and other factors, which date would fall after the principal repayment date specified in thefinancing agreement between the Tender Offeror and Resona Bank, Limited (“Resona Bank”) with respect to thefinancing for the settlement of the Transaction. As a result, the Tender Offeror, Shuwa Group, the Company,
and Mr. Tetsuo Funai today reached an agreement regarding, and the Tender Offeror, Shuwa System, theCompany, and Mr. Tetsuo Funai today executed the Agreement on Capital Policy (the “Agreement”) stipulating,the terms and conditions of the Transaction, including (i) that Mr. Tetsuo Funai shall not tender any of the
11,738,780 Company Shares that he holds (ownership percentage: 34.18%; the “Reserved Shares”) to the Tender
Offer, (ii) that the Company shall conduct the Share Consolidation subject to the success of the Tender Offer, andonce the Tender Offeror and Mr. Tetsuo Funai have become the sole shareholders of the Company through the
Share Consolidation, shall conduct the Capital Reduction and conduct the Purchase of Treasury Shares at thepurchase price of JPY 403 per share of the Company Shares held by Mr. Tetsuo Funai, which is lower than thepurchase price per share of JPY 918 offered to the shareholders other than Mr. Tetsuo Funai, and (iii) Mr. Tetsuo
Funai shall sell the Reserved Shares to the Company through the Purchase of Treasury Shares and set the payment
date of the purchase price in the Purchase of Treasury Shares to a date agreed upon through separate consultationin good faith between the Tender Offeror, Shuwa System, the Company, and Mr. Tetsuo Funai based on the
Company’s financial condition, operating capital, and other factors, which date shall fall after the principal
repayment date specified in the financing agreement between the Tender Offeror and Resona Bank with respect
to the financing for the settlement of the Transaction.
The Tender Offeror has also entered into agreements with Funai Kosan Co., Ltd., the 9th-largest
shareholder of the Company as of today, which was established as the asset management company of thefounder’s family (shares held: 470,000 shares; ownership percentage: 1.37%; “Funai Kosan”), F2 YK (shares
held: 470,000 shares; ownership percentage: 1.37%; “F2”) and T&N YK (shares held: 470,000 shares; ownership
percentage: 1.37%; “T&N,” and collectively with Funai Kosan and F2, the “Shareholders Agreeing to Tender”)
to the effect that each of the Shareholders Agreeing to Tender shall tender all of its Company Shares (total shares
held: 1,410,000 shares; total ownership percentage: 4.11%) to the Tender Offer (collectively, the “Tendering
Agreements”).
See “A. The Agreement” and “B. The Tendering Agreements” in “4. Details of Material Agreements
Between the Tender Offeror and the Shareholders of the Company Concerning Tendering Shares in the Tender
Offer” below for details of the Agreement and the Tendering Agreements.

4

In addition, on March 14, 2021, the Tender Offeror has received a communication from the Funai
Foundation, the Company’s third-largest shareholder, of which Mr. Tetsuo Funai is chairman (shares held:
1,740,000 shares; ownership percentage: 5.07%; “FFIT”), to the effect that the Funai Foundation confirmed at
the extraordinary meeting of its board of directors on March 13, 2021 that it would tender all of the Company
Shares that it holds to the Tender Offer, provided that the board of directors of the Company resolve to express
an opinion in favor of the Tender Offer and recommend that the shareholders of the Company tender their sharesto the Tender Offer, and subject to the separate adoption of official resolutions by the board of directors and boardof councilors of the Funai Foundation. On March 17, 2021, the Tender Offeror has also received acommunication from Funai Shougakukai, the Company’s 12th-largest shareholder, of which Mr. Tetsuo Funai ischairman (shares held: 462,000; ownership percentage: 1.35%; “Funai Shougakukai”), to the effect that Funai
Shougakukai intends to obtain resolutions from its board of directors and board of councilors, promptly after thecommencement of the Tender Offer on March 24, 2021, toward tendering all of the Company Shares it holds to
the Tender Offer. The Funai Foundation and Funai Shougakukai have not expressed any intention to set
conditions on their tendering to the Tender Offer. The Tender Offeror has not executed a tendering agreementwith FFIT or Funai Shougakukai (combined shares held: 2,202,000 shares; combined ownership percentage:
6.41%).
The Tender Offeror has set the minimum number of shares to be purchased through the Tender Offer (seeNote 4) at 11,160,020 shares (ownership percentage: 32.49%), and the Tender Offeror will not purchase any of
the share certificates, etc. tendered through the Tender Offer (the “Tendered Share Certificates, Etc.”) if theaggregate number of the Tendered Share Certificates, Etc. is less than the minimum number of shares to bepurchased. As the Tender Offeror aims to make the Company a wholly owned subsidiary of the Tender Offeror
through the Tender Offer, a special resolution of the shareholder meeting of the Company will be required
pursuant to Article 309, paragraph 2 of the Companies Act when conducting the share consolidation procedures
described in “(5) Policy for Organizational Restructuring, Etc. After the Tender Offer (Matters Relating to SoCalled “Two-Step Acquisition”)” below. For this reason, the Tender Offeror and Mr. Tetsuo Funai have set theminimum number of shares to be purchased such that they will hold two thirds of the voting rights of allshareholders of the Company after the Tender Offer, in order to ensure that the Transaction can be completed.
Conversely, given that the Tender Offeror intends to make the Company a wholly owned subsidiary through theTender Offer, the Tender Offeror has not set a maximum number of shares to be purchased, and the Tender Offeror
will purchase all of the tendered share certificates, etc. if the total number of the tendered share certificates, etc.
exceeds the minimum number of shares to be purchased (11,160,020 shares).
Note 4:The minimum number of shares to be purchased (11,160,020 shares; ownership percentage:
32.49%) represents the product (22,898,800 shares) of (a) the number of voting rights (229,988
voting rights) equal to two thirds of the voting rights (343,481 voting rights) pertaining to thenumber of shares (34,348,166 shares) equal to the sum (36,359,996 shares) of the number ofissued shares as of December 31, 2020 (36,130,796 shares) as stated by the Company in the
Company's Financial Report for the Third Quarter plus the number of Company Shares (229,200
shares) underlying the total number of the FY 2014 Stock Acquisition Rights , the FY 2016
Stock Acquisition Rights, and the FY 2017 Stock Acquisition Rights remaining as of December
31, 2020 and exercisable as of today (2,292 stock acquisition rights) less the number of treasury
shares held by the company as of December 31, 2020 (2,011,830 shares) as stated in the
Company's Financial Results for the Third Quarter multiplied by (b) the Company’s number ofshares per unit (100 shares), less (c) the number of Reserved Shares as of today (11,738,780
shares).

The Tender Offeror plans to partially finance the settlement of the Tender Offer using financing from
Resona Bank (the “Settlement Financing”), and will receive the Settlement Financing by the last business day
before the start of the settlement period of the Tender Offer, subject to the success of the Tender Offer.
As stated in “(5) Policy for Organizational Restructuring, Etc. After the Tender Offer (Matters Relating to
So-Called “Two-Step Acquisition”)” below, if the Tender Offeror is unable to acquire all of the Company Sharesand the Stock Acquisition Rights through the Tender Offer, it will request that the Company conduct the Share
Consolidation as part of the Transaction, and finance the acquisition of the Company Shares equivalent to thetotal of the remainders arising through the Share Consolidation using financing from Resona Bank (the“Remainder Purchase Financing”).
The details of the Settlement Financing and the Remainder Purchase Financing described above will be

5

provided for in the relevant financing agreements following separate consultation with Resona Bank. Thatfinancing agreement is intended to contain the standard provisions for similar financing agreements with respect
to the loan drawdown conditions specified in the loan certificate attached to the registration statement for theTender Offer and certain financial limitation provisions. It is planned that Mr. Tomokazu Ueda will be the joint
and several guarantor of the Tender Offeror, and the ordinary shares of the Tender Offeror held by Shuwa System,
the Company Shares acquired by the Tender Offeror through the Tender Offer, and certain assets of the Company
will be provided as collateral under the financing agreements for the Settlement Financing and the Remainder
Purchase Financing.
The general structure of the Transaction can be represented by the following diagrams.
I. Before the Tender Offer
As of today, Mr. Tetsuo Funai holds 11,738,780 shares (ownership percentage: 34.18%), and the minority
shareholders hold the remaining 22,609,386 shares (ownership percentage: 65.82%).
Minorityshareholders

Mr. Tetsuo Funai

34.18%

Tender Offeror

65.82%
Company

II. Tender Offer (March 24 through May 10, 2021)
The Tender Offeror will conduct the Tender Offer for all of the Company Shares and the Stock Acquisition
Rights (the Tender Offer Price will be JPY 918, and the purchase price per each of the Stock Acquisition
Rights (the “Stock Acquisition Rights Purchase Price”) will be JPY 1).
Minorityshareholders

Mr. Tetsuo Funai

Tender Offeror
Tender Offer

34.18%
Company
III. After the Tender Offer(i) Share Consolidation (August 2021 (scheduled))
If the Tender Offeror fails to acquire all of the Target Shares and the Stock Acquisition Rights through theTender Offer, the Tender Offeror intends to request that the Company conduct the Share Consolidation
procedures after the Tender Offer is completed, and conduct procedures such that the Tender Offeror and
Mr. Tetsuo Funai become the sole shareholders of the Company.

6

Minority
shareholders

Mr. Tetsuo Funai

34.18%

Tender Offeror
Squeeze-out throughthe Share
Consolidation

Company(ii) Capital Reduction (August 2021 (scheduled))
The Company Shares will be delisted, and after the Share Consolidation takes effect, the company willconduct the Capital Reduction in order to secure the distributable amount necessary for the Purchase ofTreasury Shares in (iii) below.

Mr. Tetsuo Funai

Tender Offeror

Company
Capital Reduction(iii) Purchase of Treasury Shares (August 2021 (scheduled))
The Company will use the distributable amount secured through the Capital Reduction in (ii) above to
conduct the Purchase of Treasury Shares (the Treasury Shares Purchase Price (defined in “(2) Backgroundand Purpose of and Decision-Making Process for the Tender Offeror Leading to the Decision to Conduct theTender Offer” below) will be JPY 403). As a result, the Tender Offeror will make the Company its whollyowned subsidiary.

Mr. Tetsuo Funai

Tender Offeror
Purchase of Treasury
SharesCompany

B.

Background and Purpose of and Decision-Making Process for the Tender Offeror Leading to theDecision to Conduct the Tender Offer

Mr. Tomokazu Ueda, the representative director of the Tender Offeror and Shuwa System, joined Andersen
Consulting (now Accenture) in May 1998, where he worked for ten years mainly on company-wide SCM reform(see Note 1), BPR (see Note 2) projects, and system innovation projects in the manufacturing industry (hightechnology industry and device industry). In March 2015, he founded and became the representative directorof Ueno Group Co., Ltd. (“Ueno Group”), whose main business is investment. In December 2015, Ueno Groupacquired all of the issued shares of the former Shuwa System from its wholly owning parent company, MCJ Co.,

7

Ltd., which is listed on the Second Section of the TSE, and in February 2016 conducted an absorption-type merger
with Shuwa System as the surviving company and Ueno Group as the non-surviving company, which resulted in
the formation of the current Shuwa System. Shuwa System was founded in December 1974 as Shuwa System
Trading Co., Ltd. Since November 2016, when Mr. Tomokazu Ueda became its representative director andpresident and acquired all of its issued shares as described above, its businesses consist of publishing (mainly IT
and business), system construction, and software development.
Note 1:“SCM” stands for supply chain management, the management and administration of a company
to improve overall efficiency of production and logistics processes from materials procurement
to delivery to consumers.

Note 2:“BPR” stands for business process re-engineering, radically reforming the organization andsystems of a business in line with its original business purposes, and re-engineering its work
content, work-flows, management and administration, IT systems and other structures from aprocess standpoint.

In addition, as of today, Shuwa System has eight consolidated subsidiaries including the Tender Offeror(Shuwa System and its eight consolidated subsidiaries (prior to the establishment of the Tender Offeror on
September 28, 2020, its seven consolidated subsidiaries excluding the Tender Offeror) collectively, the “Tender
Offeror Group”).
Mr. Tomokazu Ueda has invested in six companies through Shuwa Group, and has implemented measures
to improve the performance and expand the business of each of those companies. Those six companies are:Shuwa System; Wing Corporation, which conducts business buying and selling existing apartments, real estate
investment and management business, and is currently a member of the Tender Offeror Group; Cradle Co., Ltd.
(Yokohama-shi, Kanagawa), which conducts internal fittings business including renovation of existing
apartments and houses; Soken Group Co., Ltd. and Shibata Soken YK (Kuwana-shi, Mie), which conduct
renovation and real estate business, etc.; Keiyashachu Co., Ltd. (“Keiyashachu”) (Kyoto-shi, Kyoto), which
conducts advertising agency and management consulting business; and Kamata Co., Ltd. (Yugawara,
Ashigarakami-gun, Kanagawa), which operates Japanese-style inns.
The Tender Offeror Group, in addition to improving and reforming the management of its various
operating companies, also seeks to sustainably enhance corporate value by expanding its scale through M&Atransactions such as this transaction. Under its basic policies of “improving efficiency by leveraging andmotivating existing human resources,” “growth strategy leveraging core business strengths” and “acceleratingorganizational reforms,” the Tender Offeror Group aims to improve the efficiency of the whole group byencouraging group companies to develop management systems and strengthen governance while leveraging
potential and existing business assets.
The Company was established in August 1961 as a spin-off of Funai Light Machinery Manufacturing Co.,
Ltd., due to the expansion of its transistor radio business. The Company went on to diversify its business by
manufacturing and selling video equipment, information and communications equipment, home appliances, andother devices, with video equipment as its main focus. The Company performed well thanks to its proactive
expansion into overseas markets, and in February 1999 it listed on the Second Section of the former Osaka Stock
Exchange (“OSE”), followed by the First Section of the TSE and the First Section of the OSE in March 2000.
In July 2013, with the merger of the OSE and the TSE, the Company became solely listed on the First Section of
the TSE.
The corporate group consisting of the Company, its 28 subsidiaries, and its one affiliated company (as oftoday; the “Company Group”) pursues its business activities with the basic policy of building strong bonds oftrust and furthering the mutual prosperity of all people connected to the Company by building the most efficientsystems of development, production and distribution to consistently provide high-quality products to the global
market at an appropriate price, in accordance with its corporate commitments to “adopt continual productimprovements,” to “continually promote ever deeper trust,” and to “seek further harmony and mutual prosperity.”
In addition, the Company Group aims to further enhance corporate value by establishing new businesses,
reorganizing its production bases, training personnel, and taking other measures to respond appropriately to
global environmental changes.
Around late September 2017, in light of the Company’s performance, Mr. Tetsuo Funai came to believe8that, as the eldest son of the Company’s founder, he needed to improve the Company’s performance and returnit to growth; however, as the largest major shareholder of the Company, he considered it better to entrust therevitalization of the Company’s performance and the promotion of its medium- to long-term development andgrowth to a manager with experience in returning stagnating companies to growth, rather than engaging in thatwork himself. Beginning in late August 2018, Mr. Tetsuo Funai had opportunities to meet with multiple
investment funds through Mr. Akihiro Kuromiya, the senior managing director of the Company’s 9th-largest
shareholder, Funai Kosan. However, he was unable to develop a relationship of trust with any of thoseinvestment funds. Then, on August 30, 2019, Mr. Tetsuo Funai consulted, through Mr. Kuromiya, with Mr. Koji
Bando—then an adviser of the Company (he stepped down from that position as of May 31, 2020) who had
experience with returning NTT Plala Inc. (formerly GrR HomeNet Corporation; “NTT Plala”) to revenue growthand profitability after it had been running a loss at the time of his appointment as representative director andpresident on June 24, 1998—regarding his desire to entrust the promotion of the Company’s medium- to longterm development and growth to a manager trusted by Mr. Kuromiya and Mr. Bando, and his willingness toassign his own Company Shares to that manager to that end. Mr. Bando determined in early September 2019that it would be appropriate to entrust the preparations for the Company’s recovery and medium- to long-term
development and growth to, and collaborate on measures to return the Company to growth with, Mr. Tomokazu
Ueda, the representative director and president of Keiyashachu (where Mr. Bando serves as an adviser) and therepresentative director of Shuwa Group, given that Mr. Tomokazu Ueda has extensive experience in M&A andexperience with improving the performance and expanding the business of the companies in which he invests.
In early September 2019, Mr. Bando made a proposal to and obtained approval from Mr. Tetsuo Funai to workwith Mr. Tomokazu Ueda on returning the Company to growth. He explained the above background to Mr.
Tomokazu Ueda, and requested that he work with Mr. Bando to return the Company to growth. Upon receivingthat request, Mr. Tomokazu Ueda determined that the Tender Offeror Group could expect to expand and grow its
business by acquiring the Company Shares held by Mr. Tetsuo Funai and a certain amount of the Company Shares
held by other shareholders and that Mr. Tomokazu Ueda’s personal expertise in the manufacturing industry built
up through Andersen Consulting would be of use in supporting the growth of the Company, and in early
September 2019 he began strategic deliberations toward enhancing the Company’s corporate value.
In late November 2019, Mr. Bando and Mr. Tomokazu Ueda explained to Mr. Tetsuo Funai through Mr.
Kuromiya that the ideal policy for the Company’s recovery, development and return to profitability over the
medium- to long term was to bring in a leader like the late Tetsuro Funai who could clearly establish management
policies and lead their implementation, and to motivate and effectively utilize existing personnel and bring inappropriate personnel from outside in order for that leader to demonstrate their leadership skills in actual
management, and to monitor the business and cost structures to allow swift and appropriate business decisions
and implement a system enabling BPR, and obtained Mr. Tetsuo Funai’s agreement. From early February
through early March 2020, Shuwa Group met with Mr. Tetsuo Funai two times to discuss options for decisively
and swiftly enhancing the Company’s corporate value, including the possibility of delisting the Company, andthe Company’s future. Shuwa Group explained to Mr. Tetsuo Funai its policy for the operation of the Company,
namely to streamline operations while constructing a system that enables swift business decision-making and thedevelopment of new businesses through referrals of personnel and alliance partners by leveraging Mr. Bando’s
experience in returning a loss-running business to profitability through new business development and Mr.
Tomokazu Ueda’s extensive M&A experience, experience improving the performance and expanding thebusiness of investment targets, and experience in streamlining manufacturing businesses, and the networks built
up by Mr. Bando and Mr. Tomokazu Ueda, and on March 10, 2020, Mr. Tetsuo Funai and Shuwa Group enteredinto an agreement regarding exclusive negotiating rights with respect to the acquisition of the Company Shares
held by Mr. Tetsuo Funai, having come to a shared understanding based on that policy.
On April 1, 2020, Shuwa Group made a request to meet with the Company via e-mail, which the Company
accepted. Shuwa Group met with the Company on April 3, 2020 regarding starting talks to discuss acquiring
the Company Shares, gave an outline of the Tender Offeror Group and an explanation of the background andpurpose of the acquisition of the Company Shares, and requested the Company’s cooperation in due diligence.
In early April 2020, Shuwa Group has judged that the probability of improving the Company’s performance
would be increased by operating the Company in accordance with the above policy, and that the Tender Offeror
Group would be able to further expand its business and enhance its overall group branding using the Company’s
existing brand power in the electrical appliances industry. In order to achieve those goals, Shuwa Group
believed that it must acquire the Company Shares held by Mr. Tetsuo Funai and a certain amount of the Company
Shares held by other shareholders, and also that it must carefully deliberate whether it is necessary to delist theCompany Shares. For this reason, Shuwa Group aimed to acquire at least two thirds of the voting rights of theshareholders of the Company, including the Company Shares held by Mr. Tetsuo Funai and a certain amount of

9the Company Shares held by other shareholders, while not ruling out either possibility with respect to keeping
the Company public or delisting it. On this premise, Shuwa Group submitted a preliminary letter of intent to
the Company regarding the acquisition of the Company Shares on May 8, 2020, gave an outline of the Tender
Offeror Group, and explained to the Company in further detail the background and purposes of the acquisition of
the Company Shares, its intention to make a tender offer to acquire the Company Shares, an outline of theschedule, the subjects and methods of the due diligence, and that Shuwa Group will propose the details of thescheme, including the concrete number of shares to be acquired and the maximum and minimum number to beacquired, after the due diligence.
Shuwa Group subsequently came to believe that maintaining the Company’s listed status while working
to achieve development and growth in the medium- to long-term may not necessarily be the best strategy, given
the necessity to construct a system that would enable swift management decisions and new business development
for restructuring while also conducting significant future-focused investments toward streamlining the business,
which would trigger an unavoidable short-term decline in profitability that would affect minority shareholders,and potentially a large drop in the Company’s share price due to insufficient evaluation by capital markets, andthat the costs of maintaining listed status (such as ongoing disclosure costs and the like) were a burden on the
Company’s business. In contrast, Shuwa Group believed that by delisting the Company, it could work on
improving the Company’s business over the medium- to long-term, and more quickly and effectively enhance
the Company’s corporate value and achieve future business development. During the consultations with Mr.
Tetsuo Funai in early June 2020 toward enhancing the Company’s corporate value, there was discussion about
the possibility of delisting the Company in order to rapidly restructure the Company based on the above
considerations. Mr. Tetsuo Funai agreed that delisting the Company would contribute more to quickly andeffectively enhancing the Company’s corporate value and achieving future business development and rapid
restructuring of the Company than would maintaining the Company’s listed status while working to achieve
development and growth in the medium- to long-term, and as such, on June 17, 2020, Shuwa Group indicated to
the Company that it was also considering delisting the Company, although the due diligence had not yet been
conducted.
With the Company’s agreement, Shuwa Group conducted the due diligence on the Company from earlyJuly to late September 2020. In early October 2020, Shuwa Group concluded, based on the results of that due
diligence and the challenging market environment surrounding the Company, that in order for the Company toachieve development and growth in the medium- to long-term, it would be necessary to clearly define
management policies and bring in leadership committed to those policies, revitalize and streamline theCompany’s organization by implementing incentive payments and bringing in outside personnel, ensuresustainable price competitiveness in existing business through cost reviews, improve profitability by enhancing
selling power, develop and rapidly bring to profitability new businesses leveraging existing technologies, andconduct M&A to supplement those initiatives. Specifically, Shuwa Group considered the following strategies
to be effective in enhancing the Company’s corporate value:(i) Bringing in leadership to clearly define management policies and revitalizing and streamlining theCompany’s organization
In the market environment surrounding the Company, which is challenging in terms of both pricecompetition and competition for market share, it is essential to clearly define management policies and bring inleadership committed to those policies to enable swift and precise decision-making. Specifically, Shuwa Group
believes it would be possible to create an organization that enables swift and precise decision-making by engaging
Mr. Koji Bando as a director with the right to represent the Company, with the aim of returning the Company to
growth by leveraging Mr. Bando’s 21 years of experience as the representative of NTT Plala, where he madedecisions as a leader by personally negotiating with business partners while clearly demonstrating themanagement policies and led the establishment of an organizational structure than enabled swift decision-making.
NTT Plala was running a loss at the time of his appointment as representative, but he returned it to revenue
growth and profitability by steadfastly enacting business reforms from a long-term perspective and swiftly
developing new businesses, such as the provider business and video broadcasting business, with the objective of
opening up new business areas.
In addition, through up-front investment in system integration (SI), the Company can retire the datacompilation processes currently being done by hand, enable real-time monitoring of management data, andsupport faster managerial judgments and decision-making, from the perspective of enhancing corporate value
and returning to growth in the medium- to long-term. While the Company had been aware of the need to10

implement SI and monitor management data in real time, it had been delaying that implementation because thecost-return relationship of SI is difficult to explain to shareholders and investors as it requires initial investmentthat will not necessarily produce short-term results, and there were insufficient personnel capable of defining the
SI criteria for the whole company. The Tender Offeror believes that by delisting the Company, implementationof SI will become a possibility.
From the perspective of leveraging existing human resources, Shuwa Group is considering implementing
a performance-linked compensation system for the Company’s officers and employees. Such a system may
motivate officers and employees and bring them together as one to return the Company to profitability. In
addition, by involving new staff in the formulation of the Company’s business plans, the next generation ofmanagement can gain an awareness of management participation from an early stage.
Furthermore, Shuwa Group believes that under the Company’s current system, each director and executive
officer has a large burden of duties, and that by hiring talented personnel from outside the Company through theTender Offeror Group’s network, it will be able to increase the Company’s decision-making speed and quickly
streamline its business. The specific targets for hiring are mainly anticipated to be executive staff to handle
reforms and non-Japanese officers and employees, with the aim of having more staff to handle areas such as
work-flow improvements, increasing efficiency of overseas bases, and overseas expansion, because the Company
is currently understaffed in these areas. The role of executives handling reforms is anticipated to including
identifying current challenges, explaining issues as necessary to achieve resolutions, building a system for
implementing reforms, following up on practical implementation with the relevant parties toward resolving issues,
and actually engaging in practical implementation when a systemic response is required, based on the companywide reform policy and BPR policy. The role of non-Japanese officers and employees is expected to include
hiring at overseas bases and tailoring operations to the customs and realities of different countries, based on the
Company’s future business developments and globally focused growth strategy.
(ii) Ensuring ongoing price competitiveness of existing businesses through cost reviews
The Company holds assets that are not essential to the enhancement of corporate value and growth overthe medium- to long-term, including some real estate assets that are not used for the Company’s business, which
gives rise to certain management costs. Shuwa Group anticipates assessing the importance of the Company’s
assets, and selling off any assets considered non-essential for the development of its business. In addition, thepromotion of SI will also enable the Company to retire the data compilation processes currently being done byhand, fully implement administration and management based on numerical financial analysis, establish andmanagement administrative indices to shift to high value-added operations, optimize operating costs, and secureongoing cost competitiveness.
Furthermore, given that the Company’s ratio of research and development
expenses to sales is currently around 20% greater than that of its competitors, the Company could review costs
versus returns for each research and development topic to optimize costs, reduce low-importance advertisingexpenses from a cost-return perspective, and otherwise review its costs.
(iii) Enhancing selling power to improve profitability
The main sales channel for video equipment, one of the Company’s major product categories, is sales atbrick-and-mortar stores operated by companies such as Walmart Inc. and Yamada Holdings Co. Ltd. However,Shuwa Group believes that in light of the market trend toward a larger proportion of electronics being purchased
online, the Company also needs to pursue e-commerce business and diversify its sales channels. Going forward,
it is anticipated that the Company will consider incorporating content provided by platform operators andimplementing a subscription model.
In addition, the majority of the Company’s consolidated revenue is represented by sales under the Sanyoand Philips brands in the United States, not the Funai brand. Shuwa Group believes that the Company’s
profitability is reduced by using non-Funai brands, which gives rise to royalties. Therefore, Shuwa Group
believes that the Company should also consider establishing a different brand through coordination with existingretailers in the long term. Shuwa Group also believes that it is necessary to expand the AV business, which is
the Company’s major business area, to other markets outside of the existing markets such as United States, Japanand Mexico. Through these efforts, the Company can enhance its selling power and increase profitability.
(iv) Finding and developing new businesses for rapid profitability supplemented by M&A

11

With the Company’s existing business portfolio, the Company’s overall performance is affected bychanges in panel prices. Therefore, in order to stabilize the Company’s performance, new businesses must be
found, developed, and rapidly brought to profitability, in addition to deepening existing businesses. For thatreason, Shuwa Group considers it important that the Company proactively pursue business alliances and joint
research and development of technologies to achieve functions that contribute to the enhancement of its productportfolio, for which purpose it should maximally leverage the network of the Tender Offeror Group to accelerate
the deliberation and selection of partners, and enhance the Company’s existing “alliance strategy.”
In conducting M&A to grow its business and supplement these efforts, the Company should coordinate
with financial institutions to find and develop potential transactions, and select business types where it can
maximally leverage its strengths in manufacturing, with a special emphasis on “lifestyle-related business,” which
is where Tetsuro Funai focused his efforts continuously.
Furthermore, by maintaining its relationship with Funai Kosan, which has taken the lead in finding anddeveloping the Company’s new businesses up to this point, and continuing to uncover new businesses valuable
to the Company while bringing in and leveraging personnel from a broad network, it is anticipated that theCompany will be able to further enhance the above “alliance strategy,” expand existing businesses to new
potential clients, bring new businesses to rapid profitability, and more efficiently identify and pursue potential
M&A targets.
While Shuwa Group deliberated the specific terms and conditions of the Transaction, including the Tender
Offer, Shuwa System established the Tender Offeror on September 28, 2020 as a vehicle for conducting theTransaction.
After conducting due diligence, the Tender Offeror and Shuwa Group held discussions with Mr. Tetsuo
Funai and the Company regarding the implementation of the Transaction, in the course of which they reviewed
their forecasts of how shareholders would respond to the Tender Offer based on motivations for selling, including
the Company’s corporate value and the market share price and trading volume of the Company Shares. As aresult, in early October 2020, they proposed that the purchase price per share of the Company Shares held by Mr.
Tetsuo Funai should be set at a level lower than the price offered per share of the Company Shares of othershareholders in order to offer the shareholders other than Mr. Tetsuo Funai an opportunity to sell at a higher priceby setting the Tender Offer Price higher than it would be if the same purchase price per share were offered forboth the Company Shares held by Mr. Tetsuo Funai and those held by other shareholders of the Company, andthat Mr. Tetsuo Funai should not tender his Company Shares to the Tender Offer, and instead sell all of theCompany shares that he holds, at a price of JPY 400 per share, through either (i) the Purchase of Treasury Sharesor (ii) a private sale to the Tender Offeror after the Company Shares have been delisted through the Tender Offer
and the Share Consolidation. In response, while specific estimates had not been prepared, Mr. Tetsuo Funai
confirmed that irrespective of whether Scheme (i) or Scheme (ii) were to be adopted, there would be no taxrelated benefit to himself, and that the economic benefits realized by Mr. Tetsuo Funai in the case that Scheme(i) or Scheme (ii) were adopted would be less than the economic benefit he could realize by tendering his
Company Shares to the Tender Offer. However, in light of the Company’s performance, Mr. Tetsuo Funai
believed that, as the eldest son of the Company’s founder, he needed to improve the Company’s performance andreturn it to growth. Thus, Mr. Tetsuo Funai determined that the success of the Transaction was important for
the Company’s corporate value enhancement and future business development, and expressed that he wanted toincrease the viability of the Transaction and prioritize the economic returns offered to shareholders other thanhimself. In early October 2020, he responded to the effect that he consented to not tendering his Company
Shares to the Tender Offer, and instead selling all of his Company Shares at a price of JPY 400 per share throughmethod (i) or (ii) above, from the perspective of cooperating in the Transaction as a member of the founding
family and the largest shareholder.
In response, the Tender Offeror and Shuwa Group submitted to the Company and the special committee
established by the Company (for details of the special committee, see “A. Establishment of an Independent
Special Committee by the Company and Obtainment of a Report from the Special Committee” in “(6) Measures
to Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer Price andMeasures to Avoid Conflicts of Interest” below) a written opinion on the Transaction dated November 26, 2020
(the “Opinion of November 26, 2020”) to the effect that: the Tender Offeror would acquire all of the Company
Shares and the Stock Acquisition Rights through the Tender Offer and the subsequent Share Consolidation; theTender Offeror would adopt a scheme in which the Reserved Shares are acquired through method (i) or (ii) above
after delisting the Company Shares following the Tender Offer and the Share Consolidation; the Tender Offer

12would commence on February 9, 2021; and the total value of the Company Shares should be approximately JPY
21.5 billion, the Tender Offer Price should be JPY 750, the Stock Acquisition Rights Purchase Price should be
JPY 1, and the price per share of the Reserved Shares (the “Treasury Shares Purchase Price”) should be JPY 400
as the result of consultations with Mr. Tetsuo Funai based on thoroughgoing consideration for the results ofmultifaceted and comprehensive analysis of the Company’s business and finances based on the results of due
diligence, the level of premiums granted when setting the tender offer price in similar past tender offers for the
purpose of acquisition as a wholly owned subsidiary by an entity other than the issuer, the movements of theCompany’s market share price and trading volume, and the forecasts of how shareholders would respond to theTender Offer. The Stock Acquisition Rights have been granted to the officers and employees of the Company
and its related companies as stock options, and one of the conditions of exercise is that the holder maintains thestatus of director, auditor, executive officer, or employee of the Company or a related company at the time of
exercise; as such, in the Opinion of November 26, 2020, the Tender Offeror and Shuwa Group proposed a Stock
Acquisition Rights Purchase Price of JPY 1, given that even if the Tender Offeror acquires the Stock Acquisition
Rights it will be unable to exercise them. The Company and the special committee did not make any specificresponse at that time, but responded on March 12, 2021 that because the proposed Stock Acquisition Rights
Purchase Price is merely a nominal price, it would not be recommending that the Stock Acquisition Right Holders
tender the Stock Acquisition Rights to the Tender Offer.
Subsequently, the Tender Offeror and Shuwa Group continued consultations and negotiations with theCompany, the special committee, and Mr. Tetsuo Funai regarding the Transaction, including the Tender Offer
Price. Specifically, between November 30, 2020 and January 10, 2021, the Tender Offeror and Shuwa Group
received a total of four question sheets from the Company and the special committee, which it answered. In themeantime, the Tender Offeror and Shuwa Group continued to deliberate whether to adopt Scheme (i) or Scheme(ii) above, and on December 5, 2020, concluded that Scheme (i) would be more beneficial than Scheme (ii) in
terms of reducing the Tender Offeror’s financing costs. On the same day, the Tender Offeror made a proposal
to Mr. Tetsuo Funai to adopt Scheme (i), explaining the reasoning therefor and the fact that no matter which of
the above schemes was adopted, the timing of the completion of the acquisition of the Company as a wholly
owned subsidiary and the economic benefit realized by Mr. Tetsuo Funai would be the same. Mr. Tetsuo Funai
agreed to adopting Scheme (i) on the same day after confirming that the economic benefit that he would
personally receive through the Purchase of Treasury Shares would be less than that which he would receive
through tendering his shares to the Tender Offer. In addition, in order to reduce the economic burden on Mr.
Tetsuo Funai as a result of the Transaction, the Tender Offeror and Shuwa Group reached an agreement with Mr.
Tetsuo Funai on the same day to increase the Treasury Shares Purchase Price from JPY 400 to JPY 403. The
Tender Offeror and Shuwa Group have also confirmed that the economic benefits realized by Mr. Tetsuo Funai
through Scheme (i) would be less than through the tendering to the Tender Offer, and the Tender Offeror Groupand the Company do not intend to pay any consideration or compensation to Mr. Tetsuo Funai in connection with
the Purchase of Treasury Shares in the Transaction other than the consideration for the Purchase of Treasury
Shares. In addition, in order to avoid any negative effect on the Company’s financial situation and operating
capital due to the Purchase of Treasury Shares, the Tender Offeror, Shuwa Group, and Mr. Tetsuo Funai agreed
on December 28, 2020 that while the Purchase of Treasury Shares itself would be conducted promptly after thedelisting of the Company Shares, in order to avoid any negative effect on the Company’s financial situation andoperating funds due to the Purchase of Treasury Shares, payment of the consideration for the Purchase of Treasury
Shares would not be conducted at the time of the Purchase of Treasury Shares, and would instead be conducted
on a date agreed upon through separate consultation in good faith between the Company, the Tender Offeror, and
Mr. Tetsuo Funai based on the Company’s financial condition, operating capital, and other factors, which dateshall fall after the principal repayment date specified in the financing agreement between the Tender Offeror andResona Bank with respect to the financing for the settlement of the Transaction. In addition, the Tender Offeror
and Shuwa Group made a proposal to the Company and the special committee on January 10, 2021 to adopt
Scheme (i) above, including the reasoning therefor. On January 25 and February 5, 2021, in response to thespecial committee’s inquiries as to whether Mr. Tetsuo Funai had agreed to adopt Scheme (i), the Tender Offeror
and Shuwa Group replied to the special committee to the effect that Mr. Tetsuo Funai had agreed to adopt that
scheme.
On January 18, 2021, the Tender Offeror and Shuwa Group received a request from the Company and thespecial committee to increase the Tender Offer Price due to the above Tender Offer Price of JPY 750 not being
fair and not sufficiently taking into account the interests of the Company’s minority shareholders. On January
20, the Tender Offeror determined that it should give more consideration to the interests of the minority
shareholders, and made a proposal to the Company and the special committee with a Tender Offer Price of JPY
780 and a Treasury Shares Purchase Price of JPY 403.

13

However, on February 3, 2021, the Tender Offeror and Shuwa Group received a request from the Company
and the special committee to delay the commencement of the Tender Offer because, due to the prolonged durationof consideration of the Transaction caused by the negotiations with the Tender Offeror, it now needed to secure
enough time to discuss the Company’s corporate value and the Tender Offer Price with the Tender Offeror andShuwa Group based on its new draft business plan, which had been reviewed and amended based on the mostrecent business environment after being prepared and reported to the board of directors in August 2020 (the“Business Plan”). Accordingly, on February 5, 2021, the Tender Offeror and Shuwa Group proposed to theCompany and the special committee that the commencement of the Tender Offer be delayed from February 9,2021 to March 4, 2021, and on February 19, 2021 the Company and the special committee agreed to continue
consultations and negotiations on the premise that the Tender Offer, if conducted, would commence on March 4,2021. After the request to delay the commencement of the Tender Offer on February 3, 2021, the Tender Offeror
and Shuwa Group again received a question sheet from the Company and the special committee, which theyanswered.
On February 17, 2021, the Tender Offeror and Shuwa Group received a request from the Company andthe special committee to increase the Tender Offer Price due to the above Tender Offer Price of JPY 780 not
being fair and not sufficiently taking into account the interests of the Company’s minority shareholders. On
February 19, 2021, the Tender Offeror and Shuwa Group made a proposal to the Company and the special
committee with a Tender Offer Price of JPY 800, but the Company and the special committee responded on thatday to the effect that the Tender Offer Price of JPY 800 was not a fair price and the interests of the minority
shareholders were not sufficiently taken into account, and requested that the Tender Offeror and Shuwa Groupconsider further increasing the Tender Offer Price, without indicating any specific price. However, the Tender
Offeror and Shuwa Group considered the Tender Offer Price of JPY 800 to sufficiently address the interests ofthe shareholders of the Company, and on February 26 offered to the Company and the special committee theTender Offer Price of JPY 800, and proposed that if they did not agree to the Tender Offer Price of JPY 800, theTender Offeror and Shuwa Group would consider raising the Tender Offer Price to JPY 808, subject toconsultations with Resona Bank and Mr. Tetsuo Funai.
However, on February 26, 2021, the Company and the special committee told the Tender Offeror andShuwa Group that they could not recommend that the shareholders tender at the proposed Tender Offer Price of
JPY 800, nor JPY 808 or any slightly higher Tender Offer Price, and inquiring whether the Tender Offer Price
could be raised significantly. Although the Tender Offeror and Shuwa Group considered the Tender Offer Priceof JPY 800 to sufficiently address the interests of the shareholders of the Company as stated above, on March 1,
2021, the Tender Offeror and Shuwa Group having received that message from the Company and the special
committee, made a proposal to the Company and the special committee to raise the Tender Offer Price to JPY
900, subject to consultations with Resona Bank and Mr. Tetsuo Funai, and to delay the commencement of theTender Offer beyond March 4, 2021 to secure time to conduct those consultations. On March 2, 2021, theCompany and the special committee responded that although a Tender Offer Price of JPY 900 would exceed theestimated range reported to the Company by Daiwa Securities Co., Ltd. (“Daiwa Securities”) at that time basedon discounted cash flow analysis (“DCF Analysis”), it was lower than the estimated range reported to the special
committee by Plutus Consulting (“Plutus”) at that time based on DCF Analysis, and so could not be recommended
to the shareholders. The Company and the special committee thus requested that the Tender Offer Price beincreased, and that part of the increase be financed by equity financing from Shuwa Group or Shuwa System, inorder to avoid increasing the Company’s interest-bearing liabilities through the absorption-type merger in which
the Tender Offeror is the absorbed company and the Company is the surviving company that is planned for after
the Transaction is completed. At the same time, the Company and the special committee agreed to continue
discussions and negotiations on the premise of delaying the commencement of the Tender Offer beyond March
4, 2021. For details of this absorption-type merger, see “C. Management Policy After the Completion of theTender Offer and the Transaction” below.
On March 8, 2021, the Tender Offeror and Shuwa Group explained to the Company and the special
committee that the Tender Offeror would finance the increase in the Tender Offer Price through an equity
contribution from Shuwa System. Because the Tender Offer Price of JPY 900 proposed to the Company andthe special committee on March 2 had been lower than the estimated range reported to the special committee by
Plutus at that time based on DCF Analysis, the Tender Offeror and Shuwa Group also made a proposal to increase
the Tender Offer Price to JPY 918, which was greater than the minimum value of that range and within the scopeof possible proposals based on that equity financing. The Company and the special committee informed theTender Offer and Shuwa Group that the Tender Offer Price of JPY 918 exceeded the minimum value of that range

14and agreed to that proposal on March 9.
While negotiating with the Company and the special committee on and after February 3, 2021, nonegotiations were held with Mr. Tetsuo Funai regarding increasing the Treasury Shares Purchase Price.
Following the above proposals and negotiations, the Tender Offeror, Shuwa System, the Company, and
Mr. Tetsuo Funai entered into the Agreement today, specifying a Tender Offer Price of JPY 918, a Stock
Acquisition Rights Purchase Price of JPY 1, a Treasury Shares Purchase Price of JPY 403, and various otherterms of the Transaction. After three rounds of arm’s-length negotiations between the Tender Offeror, Shuwa
Group, and the Shareholders Agreeing to Tender between early April and early October 2020, the Tender Offeror
today entered into the Tendering Agreements with each of the Shareholders Agreeing to Tender specifying a
Tender Offer Price of JPY 918 and damages in the event of a breach, confidentiality obligations, obligations
prohibiting the transfer of rights and obligations under the Tendering Agreements, obligations to consult in goodfaith regarding matters not provided for in the Tendering Agreements, and various other terms of the Transaction.
For details of the Agreement and the Tendering Agreements, see “4. Details of Material Agreements Between theTender Offeror and the Shareholders of the Company Concerning Tendering Shares in the Tender Offer” below.
After those consultations and negotiations, the Tender Offeror determined today to conduct the Transaction,
including the Tender Offer, at the Tender Offer Price of JPY 918 and the Stock Acquisition Rights Purchase Priceof JPY 1, and the Purchase of Treasury Shares at the Treasury Shares Purchase Price of JPY 403, with theobjective of making the Company a wholly owned subsidiary of the Tender Offeror.
C.

Management Policy After the Completion of the Tender Offer and the Transaction

If the Tender Offer is completed, the Tender Offeror intends to (i) make Mr. Tetsuo Funai and the Tender
Offeror the only shareholders of the Company through the Share Consolidation, (ii) conduct the Capital
Reduction for the purpose of procuring a distributable amount necessary for the Company’s Purchase of Treasury
Shares, and (iii) eventually become a wholly-owned subsidiary of the Tender Offeror in August 2021 through theconducting of the Purchase of Treasury Shares by the Company.
In the Agreement, the Tender Offeror, Shuwa System, the Company, and Mr. Tetsuo Funai agreed that at
the Meeting of Shareholders (defined in “(5) Policy for Organizational Restructuring, Etc. After the Tender Offer(Matters Relating to So-Called “Two-Step Acquisition”)” below; hereinafter the same), the Company will makea proposal that Mr. Koji Bando and Mr. Tomokazu Ueda will be elected as directors of the Company at the closeof the Meeting of Shareholders, and the Tender Offeror and Mr. Tetsuo Funai agreed to each take all actions
necessary for the approval of such proposal (including exercising affirmative votes at the Meeting of
Shareholders). Based on the above, Mr. Tomokazu Ueda and Mr. Koji Bando will assume the office of directorof the Company; however, the Tender Offeror will maintain the current management structure of the Company
and continue to strengthen compliance and the governance structure. The details of the above will be
determined through consultation with the Company after the completion of the Tender Offer.
Further, in the Agreement, the Company, Shuwa System, the Tender Offeror, and Mr. Tetsuo Funai agreed
that the Tender Offeror and Shuwa System (on and after the effective date of the Absorption-type Merger (asdefined below), Shuwa System) will maintain and continue the employment of employees who belong to theCompany Group for three years following the date on which settlement for the Tender Offer commences andmake best efforts to maintain and continue the working conditions at substantially the same standard as of theexecution date of the Agreement.
The Tender Offeror intends to conduct an absorption-type merger (the “Absorption-type Merger”) in which
the Tender Offeror is the absorbed company and the Company is the surviving company on April 1, 2022, whichis the day immediately following the day on which the Tender Offeror and the Company will close their accounts
for the first time after the completion of the Transaction. The details of the absorption-type merger such as its
specific schedule have not been determined yet. However, even after the Absorption-type Merger, the present
conditions of the Company will not be changed for the time being, and specifically, (i) the name of the Company
will remain the same, and (ii) the place of the Company’s head office is not planned to be changed.
D.

Process of and Reasons for Decision-Making for Supporting the Tender Offer by the Company
In mid-March 2020, the Company received from Mr. Akihiro Kuromiya an explanation that, as stated in15

“B. Background and Purpose of and Decision-Making Process for the Tender Offeror Leading to the Decision to
Conduct the Tender Offer” above, although Mr. Tetsuo Funai had opportunities to contact multiple investment
funds through Mr. Akihiro Kuromiya, such opportunities did not lead to fostering a relationship of trust withthese investment funds, and that Mr. Tetsuo Funai intends to entrust a manager whom Mr. Koji Bando and Mr.
Tetsuo Funai trust with the development and regrowth of the Company in the medium- to long term.
Subsequently, on April 1, 2020, the Company received from Shuwa Group an inquiry regarding a meeting with
Shuwa Group and had the meeting with Shuwa Group on April 3, 2020, and the Company received from Shuwa
Group a request that Shuwa Group wishes to commence discussions with the Company regarding an acquisitionof the Company Shares, an outline of the Tender Offeror Group, an explanation of the background and purposeof the acquisition of the Company Shares, and a request to conduct due diligence. After the Company received
from Shuwa Group on May 8, 2020 a preliminary letter of intent regarding the acquisition of the Company Shares,
and an explanation of the outline of the Tender Offeror Group, further details of the background and purposes of
the acquisition of the Company Shares, its intention to make a tender offer to acquire the Company Shares, anoutline of the schedule, an overview of the subjects and methods of the due diligence, and its intention to propose
the details of the scheme, including the concrete number of shares to be acquired and the maximum and minimum
number to be acquired, after the due diligence, in considering the contents of the above, in order to ensure fairnessof the terms and conditions of the Transaction including the Tender Offer Price, as stated in “(6) Measures to
Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer Price andMeasures to Avoid Conflicts of Interest” below, the Company appointed Daiwa Securities in late April 2020 as afinancial advisor and third-party valuation institution independent from the Company and Shuwa Group (andindependent from the Company, the Tender Offeror, and Shuwa Group after the establishment of the Tender
Offeror on September 28, 2020) in relation to the acquisition of the Company Shares and requested Daiwa
Securities, a third-party valuation institution, to submit a share price valuation report on the Company Shares (the“Share Price Valuation Report (Daiwa Securities)”, in addition to which the Company appointed Mori Hamada& Matsumoto in early June 2020 as a legal adviser independent from the Company and Shuwa Group (andindependent from the Company, the Tender Offeror, and Shuwa Group after the establishment of the Tender
Offeror on September 28, 2020) in relation to the acquisition of the Company Shares.
In addition, although the Transaction does not constitute a transaction with the controlling shareholder, itis planned that the shares of the Company will be sold by Mr. Tetsuo Funai, who is one of the major shareholdersof the Company; therefore, in light of ensuring the fairness of the Transaction, the Company received legal advice
from its legal advisor, Mori Hamada & Matsumoto, and resolved at a meeting of the board of directors of theCompany held on August 3, 2020 to promptly establish a special committee (for the composition and specificactivities of the special committee, please see “(A. Establishment of an Independent Special Committee by theCompany and Obtainment of a Report from the Special Committee” in “(6) Measures to Ensure the Fairness of
the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer Price and Measures to Avoid
Conflicts of Interest” below) in order to engage in the consideration of and negotiations concerning theTransaction from a standpoint independent of Shuwa Group (and independent of the Tender Offeror and Shuwa
Group after the establishment of the Tender Offeror on September 28, 2020).
Further, the Company has received legal advice from its legal advisor, Mori Hamada & Matsumoto,regarding notable points concerning the decision-making process, decision-making method, and otherconsiderations relating to decision-making regarding the Tender Offer since early June 2020 and has also received
advice and assistance from its financial advisor, Daiwa Securities, regarding financial perspectives and the likesince late April 2020.
On November 26, 2020, the Company and the special committee received the Opinion of November 26,
2020 regarding the Transaction from the Tender Offeror and Shuwa Group, the contents of which included (a)adopting a scheme consisting of acquiring all of the Target Shares and the Stock Acquisition Rights through theTender Offer and the subsequent Share Consolidation and acquiring the Reserved Shares through either (i) the
Purchase of Treasury Shares or (ii) bilateral trading by the Tender Offeror after the Company Shares are delisted
following the Tender Offer and the Share Consolidation, (b) commencing the Tender Offer on February 9, 2021,
and (c) setting the total share value of the Company Shares, the Tender Offer Price, the Stock Acquisition Rights
Purchase Price, and the purchase price of the Reserved Shares at JPY 21.5 billion (approximately), JPY 750, JPY
1, and JPY 400 respectively based on the results of discussions with Mr. Tetsuo Funai after comprehensively
considering multifaceted and comprehensive analyses of the Company’s business and financial conditions basedon the result of due diligence, the level of prior premiums paid in determining the price for purchase, etc. in othersimilar instances of tender offers by persons other than the issuer for the purpose of making a listed company awholly-owned subsidiary, the trends in the market value of the Company Shares and trading volume of the16Company Shares, and the prospects that shareholders would tender their shares in the Tender Offer. Following
that, the Company and the special committee engaged in continual discussions and negotiations with the Tender
Offeror and Shuwa Group regarding the terms and conditions of the Transaction, including the Tender Offer Price.
The Stock Acquisition Rights have been granted to the officers and employees of the Company and its relatedcompanies as stock options, and one of the conditions of exercise is that the holder maintains the status of director,
auditor, executive officer, or employee of the Company or a related company at the time of exercise. As such,
the Tender Offeror and Shuwa Group proposed to the Company, in the Opinion of November 26, 2020, a Stock
Acquisition Rights Purchase Price of JPY 1 for the reasons that even if the Tender Offeror acquires the Stock
Acquisition Rights it will be unable to exercise them and that the exercise price of the Stock Acquisition Rights
per Company Share (The FY 2014 Stock Acquisition Rights: JPY 1,296; The FY 2016 Stock Acquisition Rights:
JPY 1,019; The FY 2017 Stock Acquisition Rights: JPY 947; The FY 2019 Stock Acquisition Rights: JPY 841)
is higher than the current market price of the Company Shares and the Tender Offer Price.
Specifically, the Company and the special committee have sent five written inquiries in total to, andreceived answers from, the Tender Offeror and Shuwa Group during the period between November 30, 2020 toFebruary 9, 2021.
During this period, based on the advice received from Plutus and Mori Hamada & Matsumoto and opinions
obtained from Daiwa Securities, the special committee evaluated the proposal above, and on January 18, 2021,
the Company and the special committee considered that the Tender Offer Price in the proposal received did notreach the appropriate price and that the interests of the minority shareholders of the Company had not been fully
considered, and thus requested the Tender Offeror and Shuwa Group to increase the Tender Offer Price.
Subsequently, the Company and the special committee received from the Tender Offeror and Shuwa Groupa proposal on January 20, 2021 to set the Tender Offer Price, the Stock Acquisition Rights Purchase Price, andthe Treasury Shares Purchase Price at JPY 780, JPY 1, and JPY 403 respectively and a proposal on February 19,
2021 to set the Tender Offer Price, the Stock Acquisition Rights Purchase Price, and the Treasury Shares Purchase
Price at JPY 800, JPY 1, and JPY 403 respectively. However, based on the advice received from Plutus andMori Hamada & Matsumoto and opinions obtained from Daiwa Securities, the special committee evaluated the
proposals above, and on February 17, 2021 and again on February 19, 2021, the Company and the special
committee considered that the Tender Offer Prices in the proposals did not reach the appropriate price and thatthe interests of the minority shareholders of the Company had not been fully considered, and thus requested theTender Offeror and Shuwa Group to further increase the Tender Offer Price.
Due to the prolonged duration of consideration of the Transaction caused by the negotiations with theTender Offeror, and based on the recent business environment, the Company reviewed the draft business plan
prepared and reported at the meeting of the board of directors in August 2020 and formulated the Business Plan,and on February 15, 2021, the Business Plan was approved at the meeting of the board of directors.
Subsequently, there were continued discussions and negotiations with the Tender Offeror and Shuwa
Group through the financial advisor of the Company. As a result, on February 26, 2021, the Company and thespecial committee received from the Tender Offeror and Shuwa Group a new proposal in which the Tender Offer
Price, the Stock Acquisition Rights Purchase Price, and the Treasury Shares Purchase Price will be set at JPY
800, JPY 1, and JPY 403 respectively, and if the Company does not agree to set the Tender Offer Price at JPY
800, the Tender Offeror and Shuwa Group will consider increasing the Tender Offer Price up to JPY 808, although
discussions with Resona Bank and Mr. Tetsuo Funai will be necessary in that case. Based on the advice received
from Plutus and Mori Hamada & Matsumoto and opinions obtained from Daiwa Securities, the special committee
evaluated the proposal above, and on February 26, 2021, the Company and the special committee communicatedto the Tender Offeror that neither the Tender Offer Price of JPY 800 in the proposal above nor JPY 808 or any
slightly higher Tender Offer Price would be a level at which the Company and the special committee could
recommend tendering in the Tender Offer and confirmed with the Tender Offeror if there is any possibility that
the Tender Offer Price will be significantly increased.
Subsequently, on March 1, 2021, the Company and the special committee received from the Tender Offeror
and Shuwa Group a proposal to set the Tender Offer Price, the Stock Acquisition Rights Purchase Price, and theTreasury Shares Purchase Price at JPY 900, JPY 1, JPY 403 respectively on the condition that there will be
discussions with Resona Bank and Mr. Tetsuo Funai. Based on the advice received from Plutus and Mori
Hamada & Matsumoto and opinions obtained from Daiwa Securities, the special committee evaluated the
proposal above, and on March 2, 2021, the Company and the special committee communicated to the Tender17Offeror that the Tender Offer Price of JPY 900 in the proposal above exceeds the upper limit of the estimatedrange using the DCF method that had been reported by Daiwa Securities at that time but is below the lower
limit of the estimated range using the DCF method that had been reported by Plutus at that time, and that therefore,
the Tender Offer Price of JPY 900 is not a level at which the Company and the special committee could
recommend tendering in the Tender Offer, and the Company and the special committee requested the Tender
Offeror to further increase the Tender Offer Price and that part of the increase be financed by equity financing
from Shuwa Group or Shuwa System to the Tender Offeror, in order to avoid increasing the Company’s interestbearing liabilities through the Absorption-type Merger in which the Tender Offeror is the absorbed company andthe Company is the surviving company that is planned for after the Transaction is completed.
Subsequently, on March 8, 2021, the Company and the special committee received from the Tender Offeror
and Shuwa Group a proposal in which the Tender Offer Price, the Stock Acquisition Rights Purchase Price, andthe Treasury Shares Purchase Price will be set at JPY 918, JPY 1, and JPY 403 respectively and the Tender
Offeror will fund the increased amount of the Tender Offer Price from an investment that Shuwa System will
make to the Tender Offeror. On March 9, 2021, the Tender Offer Price of JPY 918 in the proposal above
exceeded the upper limit of the estimated range using the DCF method that had been reported by Daiwa Securities
at that time and also was above the lower limit of the estimated range using the DCF method that had beenreported by Plutus at that time; therefore, the Company and the special committee agreed to the proposal.
Although the market price of the Company Share has been increasing since March 9, 2021, based on the fact that
the Tender Offer Price of JPY 918 in the proposal above exceeds the upper limit of the estimated range using the
DCF method reported by Daiwa Securities and also exceeds the lower limit of the estimated range using the DCF
method reported by Plutus, and taking into consideration that the Tender Offer Price of JPY 918 is the result ofsincere discussions and negotiations between the Tender Offeror and the Company, the Company continues toagree to the proposal to set the Tender Offer Price at JPY 918.
In the process of the evaluation and negotiation stated above, the special committee received reports fromthe Company and advisors of the Company from time to time and made confirmation, gave approval, made direct
proposals, and held negotiations when necessary, and the special committee received reports from the Company
regarding the details, material assumptions, and preparation process of the Business Plan of the Company(including the reasons for the review of the draft business plan prepared in August 2020 due to the prolonged
duration of consideration of the Transaction caused by the negotiations with the Tender Offeror and based on the
recent business environment, as stated above) that was presented to the Tender Offeror and Shuwa Group andconstitutes the basis for the valuation of the Company Shares by Daiwa Securities and Plutus, following which
the special committee gave approval that there was no problem in regard to the rationality thereof. In addition,in the Company’s and the special committee’s negotiations with the Tender Offeror and Shuwa Group, thefinancial advisor of the Company took measures in accordance with the strategy for the negotiations deliberated
on and determined by the special committee in advance, and upon the receipt of the proposals on the Tender Offer
Price and the Treasury Shares Purchase Price from the Tender Offeror and Shuwa Group, the Company
immediately made reports to the special committee each time and took measures such as sending written inquiries
from the special committee to the Tender Offeror and Shuwa Group regarding the proposals and setting up
meetings between the special committee, the Tender Offeror, and Shuwa Group in accordance with instructions
from the special committee.
Further, in addition to the discussions and negotiations with the Tender Offeror and Shuwa Group, in
considering the appropriateness of the transaction terms and conditions, the Company confirmed the intentionsof three possible offerors, as a result of which the Company received written opinions from these three possible
offerors in early February 2021 regarding the acquisition of or investment in the Company as part of ensuring
opportunities for proposals for competing acquisitions (market check). The written opinions from two of thethree possible offerors included proposals based on maintaining the Company’s status as a listed company.
However, the written opinion from the other company included a proposal based on the delisting of the Company;
therefore, the Company requested the possible offeror that provided that proposal based on the delisting of theCompany to make another proposal after presenting the Business Plan to it, and in mid-February, the Company
received the proposal from the possible offeror. The Company compared and considered the proposals from thepossible offeror and the Tender Offeror, and based on the advice received from Plutus and Mori Hamada &Matsumoto and opinions obtained from Daiwa Securities, the special committee evaluated the proposals, taking
into account the fact that the tender offer price in the proposal of the possible offeror was a non-legally-binding
price before the performance of detailed due diligence, the fact that the median of that tender offer price range,
which was offered by such possible offeror, was below the Tender Offer Price (JPY918), although the maximumof that tender offer price range was over the Tender Offer Price (JPY918), and the fact that although the proposal18

of the possible offeror stated a proposed price before the performance of detailed due diligence on the Company,
it was not unreasonable to compare that proposed price to the Tender Offer Price because performing that due
diligence would take a considerable period of time, during which the business activities of the Company might
possibly slow down. Accordingly, in early March 2021, the Company and the special committee determinedthat even taking into consideration the proposal of the possible offeror, the proposal of the Tender Offeror was
found to be reasonable, and thus came to the determination that the Company and the special committee should
consider whether or not to accept the proposal of the Tender Offeror but not the proposal of the possible offeror.
Subsequently, the Company obtained the Share Price Valuation Report (Daiwa Securities) from Daiwa
Securities and received a written report submitted by the special committee (the “Report”) on March 22, 2021.
For details of the Share Price Valuation Report (Daiwa Securities), see “A. Obtainment by the Company of the
Share Price Valuation Report from an Independent Third-Party Valuation Institution” in “(3) Matters Related to
Valuation” below. For details of the Report, see “A. Establishment of an Independent Special Committee by
the Company and Obtainment of a Report from the Special Committee” in “(6) Measures to Ensure the Fairnessof the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer Price and Measures to Avoid
Conflicts of Interest” below.
In addition to the Report, the Company received from the special committee a valuation report on the
result of the valuation of the Company Shares (the “Share Price Valuation Report (Plutus)”) and a fairness opinion
stating that JPY 918 per share as the Tender Offer Price is fair to the general shareholders (which has the same
meaning as “minority shareholders” as defined in Article 441-2 and Article 436-3 of the Securities Listing
Regulations of the Tokyo Stock Exchange; hereinafter the same) of the Company from a financial point of view(the “Fairness Opinion”), which were received by the special committee from Plutus on March 22, 2021. For
details of the Valuation Report (Plutus) and the Fairness Opinion, see “B. Obtainment by the Special Committeeof the Share Price Valuation Report and the Fairness Opinion from an Independent Third-Party Valuation
Institution” in “(3) Matters Related to Valuation” below).
The board of directors of the Company then carefully discussed and considered the Transaction fromviewpoints such as whether the Transaction would improve the corporate value of the Company and whether theterms and conditions of the Transaction, including the Tender Offer Price, are reasonable, in consideration of thelegal advice received from Mori Hamada & Matsumoto regarding notable points concerning the decision-making
process, decision-making method, and other considerations relating to decision-making regarding the Transaction,
including the Tender Offer, as well as the advice from a financial point of view and Share Price Valuation Report(Daiwa Securities) obtained from Daiwa Securities, while respecting the content of the Report obtained from thespecial committee to the maximum extent.
As a result, the Company believes that the Transaction will contribute to the improvement of the corporate
value of the Company through the Company becoming a wholly owned subsidiary of the Tender Offeror andutilizing the management resources of the Tender Offeror.
The Company places the television business as its core business especially in the North America market,
which is the largest market in the world, and achieved results as a global corporation. In addition, in 2018, theCompany presented the future vision that the Company Group aims to achieve to all of the Company’s
stakeholders by announcing its management policy, “Challenge the company to grow by becoming helpful in thecommunity,” and its group vision, “FUNAI creates products that will be chosen by people all over the world,” in
addition to which it announced its “Mid-term Management Policy (FY 2018 to FY 2020)” in May 2018, in which
the basic policies were establishing revenue sources and aiming to achieve profitability by reconstructing current
businesses and aggressively introducing new products. Based on the management policy, the group vision, andthe “Mid-term Management Policy (FY 2018 to FY 2020),” the Company actively promotes the development of
new businesses through alliances with other companies in addition to the further expansion of its market share inits current businesses and other similar activities. However, in FY 2018, which was the first fiscal year of thepolicy, the Company recorded a surplus; however, because the Company’s sales of plasma televisions decreased
due to increased price competition caused by Chinese companies rushing to export a large number of plasma
televisions to the North America market before an increase to tariffs following trade friction between the UnitedStates and China in FY 2019, and because the price of panels for plasma televisions sharply increased due to theimpact of COVID-19 in FY 2020, the Company anticipates that it will record final deficits for two fiscal years ina row, and therefore, taking actions to respond to the external environment is more necessary than ever.
Specifically, as the current businesses of the Company, primarily the Television Division, have been exposed to
an intensely competitive environment, it is urgently necessary to attempt reconstruction of the current businesses

19and embark into new businesses that will become the next revenue sources in order to improve the corporate
value of the Company. In order to implement such measures, the Company considers it necessary to enableswift decision-making by newly introducing human resources from outside the Company and to make large-scale
investments in the short term. It is also urgently necessary to renovate the IT system in order to succeed incompetition with global competitors, and the Company also considers it necessary to make large-scale
investments for that renovation.
The Company believes that, based on the business environment surrounding the Company as describedabove, the delisting of the shares of the Company through the Transaction including the Tender Offer would leadto the early achievement of the medium- to long-term manufacturing policy that the Company aims to achieve
by organically combining the manufacturing strength of the Company, the leadership of Mr. Koji Bando and
Mr. Tomokazu Ueda, and the Company’s human resources and alliances and would thereby contribute toincreasing the corporate value of the Company Group. The details are as follows.
(i)

Swift decision-making

As mentioned above, the business environment surrounding the Company is extremely volatile, and in our
mainstay Television Division, we have had to face fierce competition from rapidly strengthening Chinesecompanies. In order to increase our corporate value, it is urgent that we not only rebuild our existing businesses,
but also launch new businesses that will become our next revenue base. In implementing these measures, we
believe it is necessary to carry out swift decision-making based on strong leadership.
According to the Tender Offeror and Shuwa Group, it is expected that Mr. Koji Bando will be appointed
as the Representative Director of the Company. Mr. Bando served as the representative of NTT Plala for 21
years and has a proven track record in reforming the business of that company, which used to struggle withprofitability. We believe that swift decision-making under his strong leadership will lead to an improvement in
the revenue base through restructuring of existing businesses and the launch of new businesses at the Company,
which in turn will lead to an increase in the Company’s corporate value.
In addition, utilizing the Tender Offeror Group’s network to recruit and hire excellent human resourcesfrom outside the Company will reduce the burden of management duties for the Company’s directors andexecutive officers and increase the speed of the Company’s decision-making.
(ii)

Strengthening sales capabilities and building a new revenue base

As mentioned above, the business environment surrounding the Company is extremely volatile, and theCompany has had to face fierce competition from rapidly strengthening Chinese companies in our mainstay
Television Division. Therefore, it is urgent for the Company to build and strengthen its revenue base bystrengthening the revenue of the existing Audiovisual Division as well as by growing the Printing Solutions
Division (Note 1) and other new businesses. Accordingly, we believe that it is necessary to implement various
measures as soon as possible. Specifically, we will strengthen sales and marketing capabilities, optimize
inventory management, logistics and costs; restructure business management workflows; conduct financial
management by establishing a strategic bank formation; develop R&D themes based on medium- to long-termplans and establish a progress management system; and improve business efficiency through the use of systems.
By implementing such measures, the Company believes that it will be able to restructure its existing businesses
and build its revenue base.
(Note 1) The Printing Solutions Division manufactures and sells printer-related equipment such as
printers and ink cartridges.
However, in order to promptly implement the above measures, we believe that in addition to utilizing theCompany’s current human resources it is necessary to actively recruit excellent human resources from outside
the Company, and to make decisions more swiftly. The Company believes that it will be able to recruit suchhuman resources through the Tender Offeror Group’s prominent researchers and extensive contacts and networks.
In addition, the Company has been considering as part of its mid-term policy to make a shift away fromour focus on manufacturing and hardware, that is, to implement a business model in which the Company canmake profits from services by focusing on manufacturing that provides added value from software and services,while maximizing the Company’s strengths in manufacturing. Through the Transaction, Mr. Tomokazu Ueda

20and Mr. Koji Bando will be appointed as directors of the Company, which will enable the Company to actively
utilize their experience as well as the human resources and alliance partners through the network that they havecultivated to date, and enable the implementation of a new business model which includes promoting e-commerce,diversifying sales channels, and introducing a subscription model.
In addition, for a long time the Company’s strategy has been to accelerate the business model of increasing
revenue and profit by growing the Printing Solutions Division and other new businesses as the next pillars of the
Audiovisual Division, and as a part of this strategy, the Company has been considering implementing measures
such as M&A and proactively forming business alliances. However, in implementing such measures, it isnecessary to secure human resources to maximize the effects of such measures. To that end, the Transaction
will enable the Company to recruit and hire excellent human resources from outside through the Tender Offeror
Group’s prominent researchers and extensive contacts and networks, which will lead to an increase in thedecision-making speed not only for M&A, but also to promote proactive business alliances, etc., and will increase
the feasibility of implementing thoroughgoing measures.
In addition, in reviewing the existing business portfolio and implementing thoroughgoing measures andreforms to efficiently develop existing businesses and quickly make profits from new businesses, it is necessary
to make short-term and large-scale investments and recruit the right people for the right jobs. However, if theCompany were to remain listed and carry out short-term, large-scale investments of resources, there is apossibility that it may lead to a deterioration of cash flow and a deterioration in our financial position in the shortterm, which could adversely affect the Company’s minority shareholders due to a decline in the share price, andtherefore the Company believes that there are limits on our investment in such resources while the Company
remains listed. Therefore, the Company believes that it is necessary to delist its shares in order to flexibly
implement these measures.
Furthermore, we believe that the implementation of system integration will lead to the improvement andfurther growth of corporate value in the medium- to long term by realizing optimization of operational costs andimproving the efficiency of business management operations based on analysis of existing human resources byusing financial data. However, the introduction of system integration will require large-scale upfront investment,
and since it will not directly lead to profits in the short term, there is a possibility that the Company’s minority
shareholders will be adversely affected by a decline in the share price. Therefore, under the current
circumstances where the Company maintains its listing and has minority shareholders, we believe that there arecertain restrictions on the immediate implementation of measures to improve the efficiency of business
management operations as described above, since the interests of the Company’s minority shareholders must also
be considered. Accordingly, from the perspective of implementing measures to improve the efficiency ofbusiness management operations, the Company believes that it is necessary to delist its shares.
(iii)

Disadvantages of delisting

The Company’s delisting may have disadvantages such as a loss of the trust that business partners placein the Company, and adverse effects on recruiting new employees and retaining existing employees. However,
we believe that the impact of delisting will have a limited impact on the trust our business partners place in us,
as we will be able to maintain that trust by continuing to have our financial statements audited in the future, while
continuing to build on the relationships of trust that we have fostered with our business partners since going
public. Furthermore, according to the Tender Offeror and Shuwa Group, a management structure after theTransaction is being considered in which a performance-linked remuneration system will be introduced for theCompany’s officers and employees. In addition, measures will be adopted to encourage younger employees toparticipate in the formulation of the Company’s business plans, and foster a sense of participation in management
early on among junior employees who are candidates for the next generation of management. Therefore, we
believe that there will not be a significant risk of adverse effects on the recruitment of new employees andretention of existing employees. Furthermore, while the Company will not be able to raise funds through thestock market for the foreseeable future due to the prolonged sluggishness of business performance, and while
there is little meaning in listing as a means of raising funds, the tangible and intangible costs of maintaining ourlisting have become quite a burden for the Company, and therefore we believe that the reduced costs associatedwith delisting is expected to make a reasonable contribution to the financial soundness of the Company.
Accordingly, although there are disadvantages in delisting, the impact of such disadvantages can beevaluated as being limited, and the Company has determined that the above advantages of delisting outweigh thedisadvantages of delisting.

21Based on the above, the board of directors of the Company has determined today that delisting theCompany Shares through the Transaction, including the Tender Offer, will contribute to the improvement of thecorporate value of the Company Group.
In addition, the board of directors of the Company has determined today that the Transaction, including
the Tender Offer, is expected to increase the corporate value of the Company, and that the Tender Offer Price, as
well as the other terms and conditions of the Tender Offer, are appropriate for the shareholders of the Company,
and that the Tender Offer provides the shareholders of the Company with a reasonable opportunity to sell theirshares, based on the following factors concerning the Tender Offer Price:
(i)

(ii)

(iii)

(iv)

(v)

(vi)

the price was agreed upon after the Company took measures to ensure the fairness of the Tender
Offer and raised the price by 22.4% from the initial proposal as a result of sincere and repeatednegotiations with the Tender Offeror, with the substantial involvement of the special committee,
which is independent of the Company, the Tender Offeror and Shuwa Group;in the Report obtained from the Company’s independent special committee it has been determinedthat the appropriateness of the terms and conditions of the Transaction, including the Tender Offer
Price, have been secured, as stated below in “A. Establishment of an Independent Special
Committee by the Company and Obtainment of a Report from the Special Committee” in “(6)Measures to Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of
the Tender Offer Price and Measures to Avoid Conflicts of Interest”;
based on the results of the valuation of the share value of the Company Shares by Daiwa Securities,
as stated below in “(3) Matters Related to Valuation,” the price exceeds the upper limit of the resultsof the valuation based on the market price method, and exceeds the upper limit of the results of thevaluation based on the DCF method;
the price is inclusive of a premium of 46.65% (to be rounded to the second decimal place; the same
applies for each calculation of the premium rates on the share prices below) on JPY 626, the closing
price of the Company Shares on the First Section of the TSE as of March 9, 2021, the date on which
the Tender Offeror and the Company agreed on the price, and although the market price of theCompany’s shares subsequently increased, following that the price continued to reflect a premiumof (a) 31.90% on JPY 696, the closing price of the Company Shares on the First Section of the TSE
on March 22, 2021, which is the business day immediately preceding the announcement date of theimplementation of the Tender Offer, (b) 54.03% on JPY 596, the simple average closing price (tobe rounded to the nearest yen; the same applies for each calculation of the simple average closing
prices below) for the past one-month period (from February 24, 2021 to March 22, 2021), (c)87.73% on JPY 489, the simple average closing price for the past three-month period (fromDecember 23, 2020 to March 22, 2021), and (d) 97.00% on JPY 466, the simple average closing
price for the past six-month period (from September 23, 2020 to March 22, 2021); andit is deemed that measures have been taken to ensure the fairness of the Tender Offer as stated below
in “(6) Measures to Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairnessof the Tender Offer Price and Measures to Avoid Conflicts of Interest” and that the interests ofminority shareholders have been taken into consideration; andthe Tender Offer Price is deemed to be reasonable even taking into consideration the proposal in
the expression of intent received from another possible offeror, taking into account the fact that thetender offer price proposed therein is a non-legally-binding price before the performance of detailed
due diligence, the fact that the median of that tender offer price range which was offered by suchpossible offeror, is below the Tender Offer Price (JPY918), although the maximum of that tender
offer price range was over the Tender Offer Price (JPY918), and the fact that although the proposalof the possible offeror states a proposed price before the performance of detailed due diligence on
the Company, it is not unreasonable to compare that proposed price to the Tender Offer Pricebecause performing that due diligence would take a considerable period of time, during which thebusiness activities of the Company might possibly slow down.

Based on the above, the Company, with the approval of all of its directors except one, resolved at themeeting of its board of directors held today to express an opinion in support of the Tender Offer and to recommendthat the shareholders of the Company tender their shares in the Tender Offer (such resolution is hereinafterreferred to as the “Resolution in Support of the Tender Offer and to Recommend Tendering”). In addition, since
the Stock Acquisition Rights Purchase Price is to be set at JPY 1, the Company resolved that it would leave thedecision to Stock Acquisition Right Holders as to whether or not to tender their Stock Acquisition Rights in the22

Tender Offer.
For details of the decision-making process for such resolution by the board of directors, please refer to “E.
Approval of Majority of Disinterested Directors (Including Those Who are Audit and Supervisory Committee
Members) of the Company” in “(6) Measures to Ensure the Fairness of the Tender Offer, such as Measures to
Ensure the Fairness of the Tender Offer Price and Measures to Avoid Conflicts of Interest” below.
Based on the results of the considerations above, the Company today entered into the Agreement with theTender Offeror, Shuwa System, and Mr. Tetsuo Funai, which includes provisions for a Tender Offer Price of JPY
918, a Stock Acquisition Rights Purchase Price of JPY 1, and a Treasury Stock Acquisition Price of JPY 403, as
well as other terms and conditions concerning the Transaction. For details of the Agreement, please refer to “4.
Details of Material Agreements Between the Tender Offeror and the Shareholders of the Company Concerning
Tendering Shares in the Tender Offer” below.
(3)

Matters Related to Valuation

A.

Obtainment by the Company of the Share Price Valuation Report from an Independent Third-Party
Valuation Institution(i)Name of valuation institution and its relationship with the Company and the Tender Offeror

When announcing its opinion on the Tender Offer, the Company requested Daiwa Securities, which is afinancial advisor and a third-party valuation institution independent from the Company, the Tender Offeror, andShuwa Group, to calculate the value of the Company Shares and obtained the Share Price Valuation Report(Daiwa Securities) dated March 22, 2021.
Daiwa Securities is not a related party of the Company or the Tender Offeror and does not have any
material interest to be disclosed in relation to the Tender Offer. The Company has not obtained from Daiwa
Securities an opinion on the fairness of the Tender Offer Price (a fairness opinion).
The remuneration payable to Daiwa Securities includes a contingency fee to be paid only upon the
successful completion of the Transaction and satisfaction of other conditions.
(ii)

Outline of valuation

After considering which of the various calculation methods available should be applied to calculate thevalue of the Company Shares, based on the assumption that the Company is a going concern and the belief that
it is appropriate to evaluate the value of the Company Shares from various perspectives, Daiwa Securities
analyzed the value per share of the Company Shares using (i) the market price method because the Company
Shares are listed on the First Section of the TSE and therefore have a market share price and (ii) the DCF method
in order to reflect the current and expected business results of the Company in the valuation. The Company
obtained the Share Price Valuation Report (Daiwa Securities) on March 22, 2021. Taking into consideration the
restrictions in regard to the comparability of the business details and profitability of the Company, Daiwa
Securities did not use the comparable company comparison method to calculate the value of the Company Shares.
above.

The following are the ranges of per-share value of the Company Shares evaluated by the methods describedMarket price method: JPY 466 – JPY 696
DCF method:
JPY 798 – JPY 867

Under the market price method, using March 22, 2021 as the calculation record date, the per-share valueof the Company Shares was evaluated to range from JPY 466 to JPY 696, based on the closing price of the record
date (JPY 696), the simple average closing share price for the preceding one-month period (JPY 596), the simple
average closing share price for the preceding three-month period (JPY 489), and the simple average closing shareprice for the preceding six-month period (JPY 466) of the Company Shares on the First Section of the TSE.
The range of values per-share of the Company Shares obtained from the DCF method is from JPY 798 to
JPY 867, which is based on the corporate value and share value of the Company calculated by discounting to the23current value at a certain discount rate the free cash flow that the Company is expected to generate from thefourth quarter of the fiscal year ending March 2021 based on the Company’s estimated future earnings andinvestment plan in the Business Plan for the period of four fiscal years from the fiscal year ending March 2021
to the fiscal year ending March 2024 prepared by the Company, publicly disclosed information, and otherinformation.
The Business Plan prepared by the Company and used by Daiwa Securities for analysis through the DCF
method includes business years in which it is expected there will be a significant increase or decrease in revenue
and profits. Specifically, the Company expects that its operating income in the fiscal year ending March 2022
will decrease by 63.3% compared to the previous fiscal year due to shortages and rising prices of liquid crystal
panels, which are the key component part of televisions, during the period from the latter half of the fiscal year
ending March 2021 to the first half of the following fiscal year. On the other hand, the Company expects thatits operating income in the fiscal year ending March 2023 will increase by 95.1% compared to the previous fiscal
year from the recovery of television sales based on the assumption that stability will be restored to liquid crystal
panel prices in the latter half of the fiscal year ending March 2022, and expects another increase in its operating
income in the fiscal year ending March 2024 by 1,449.8% compared to the previous fiscal year from expanded
sales of in-vehicle backlight and medical and healthcare modular products, a new business that has a high margin
potential, in addition to the expanded sales of high-value-added flat-screen televisions. In addition, synergies
anticipated as a result of the Transaction are not considered in the valuation above since it is difficult to makespecific numerical estimations at this time.
B.

Obtainment by the Special Committee of the Share Price Valuation Report and the Fairness Opinion
from an Independent Third-Party Valuation Institution(i)Name of valuation institution and its relationship with the Company and the Tender Offeror

In considering the Consulted Matters (as defined in “A. Establishment of an Independent Special
Committee by the Company and Obtainment of a Report from the Special Committee” in “(6) Measures to Ensure
the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of the Tender Offer Price and Measures
to Avoid Conflicts of Interest” below.), in order to exercise greater prudence in ensuring the fairness of the terms
and conditions of the Transaction, including the Tender Offer Price, the special committee requested Plutus, its
own advisor and third-party valuation institution independent from the Company, the Tender Offeror, and Shuwa
Group, to conduct a valuation of the Company Shares and financial analysis incidental thereto and also to express
an opinion concerning the fairness of the Tender Offer Price (a fairness opinion). The special committee
obtained the Share Price Valuation Report (Plutus) and the Fairness Opinion dated March 22, 2021.
Plutus is not a related party of the Company or the Tender Offeror and does not have any material interest
to be disclosed in connection with the Tender Offer.
The remuneration payable to Plutus does not include a contingency fee to be paid only upon the successful
completion of the Transaction and satisfaction of other conditions.
(ii)

Outline of valuation

After considering which of the various calculation methods available should be applied to calculate thevalue of the Company Shares, based on the assumption that the Company is a going concern and the belief that
it is appropriate to evaluate the value of the Company Shares from various perspectives, Plutus analyzed the valueof the Company Shares using (i) the market price method because the Company Shares are listed on the First
Section of the TSE and therefore have a market share price and (ii) the DCF method in order to reflect the current
and expected business results of the Company in the valuation. Taking into consideration the restrictions inregard to the comparability of the business details and profitability of the Company, Plutus did not use thecomparable company comparison method to calculate the value of the Company Shares.
above.

The following are the ranges of per-share value of the Company Shares evaluated by the methods describedMarket price method: JPY 466 – JPY 696
DCF method:
JPY 894 – JPY 950

24

Under the market price method, using March 22, 2021 as the calculation record date, the per-share valueof the Company Shares was evaluated to range from JPY 466 to JPY 696, based on the closing price of the record
date (JPY 696), the simple average closing share price for the preceding one-month period (JPY 596), the simple
average closing share price for the preceding three-month period (JPY 489), and the simple average closing shareprice for the preceding six-month period (JPY 466) of the Company Shares on the First Section of the TSE.
The range of values per-share of the Company Shares obtained from the DCF method is from JPY 894 to
JPY 950, which is based on the corporate value and share value of the Company calculated by discounting to thecurrent value at a certain discount rate the free cash flow that the Company is expected to generate from thefourth quarter of the fiscal year ending March 2021 based on the Company’s estimated future earnings andinvestment plan in the Business Plan for the period of four fiscal years from the fiscal year ending March 2021
to the fiscal year ending March 2024 prepared by the Company, publicly disclosed information, and otherinformation.
The Business Plan prepared by the Company and used by Plutus for analysis through the DCF method
includes business years in which it is expected there will be a significant increase or decrease in revenue andprofits. Specifically, the Company expects that its operating income in the fiscal year ending March 2022 will
decrease by 63.3% compared to the previous fiscal year due to shortages and rising prices of liquid crystal panels,
which are the key component part of televisions, during the period from the latter half of the fiscal year ending
March 2021 to the first half of the following fiscal year. On the other hand, the Company expects that its
operating income in the fiscal year ending March 2023 will increase by 95.1% compared to the previous fiscal
year from the recovery of television sales based on the assumption that stability will be restored to liquid crystal
panel prices in the latter half of the fiscal year ending March 2022, and expects another increase in its operating
income in the fiscal year ending March 2024 by 1,449.8% compared to the previous fiscal year from expanded
sales of in-vehicle backlight and medical and healthcare modular products, a new business that has a high margin
potential, in addition to the expanded sales of high-value-added flat-screen televisions. In addition, synergies
anticipated as a result of the Transaction are not considered in the valuation above since it is difficult to makespecific numerical estimations at this time. Plutus analyzed and reviewed the substance of the Business Plan
through multiple question and answer sessions with the Company, among other means, and the special committee
has also confirmed the rationality of the details, material assumptions, and preparation process of the Business
Plan, as stated in “D. Process of and Reasons for Decision-Making for Supporting the Tender Offer by theCompany” in “(2) Grounds and Reasons for the Opinion on the Tender Offer” above.”(iii)

Outline of the Fairness Opinion

The special committee received the Fairness Opinion on March 22, 2021 from Plutus, which stated that
the Tender Offer Price of JPY 918 per share is fair to the general shareholders of the Company from a financial
point of view (Note). The Fairness Opinion expresses the opinion that the Tender Offer Price of JPY 918 pershare is fair to the general shareholders of the Company from a financial point of view, in light of factors such as
the result of the valuation of the Company Shares based on the outlook for the business. The Fairness Opinion
was issued by Plutus based on the result of the valuation of the Company Shares after receiving disclosure of
information such as the current state of the Company Group’s business and the outlook for the business from theCompany and receiving explanations thereof, as well as question-and-answer sessions with the Company
concerning the outline, background, and purpose of the Tender Offer, examination of factors, to the extent deemednecessary by Plutus, such as the Company Group’s business environment, the economy, markets and financial
conditions, and the review procedures carried out by an examination committee independent of Plutus’
engagement team.
(Note) In preparing and submitting the Fairness Opinion and evaluating the share value underlying it,
Plutus relied on the information and base materials provided by or discussed with the Company, as
well as publicly available materials, on the assumption that they were accurate and complete andthat there were no facts that had not been disclosed to Plutus that could materially affect the analysis
and evaluation of the value of the Company Shares, and Plutus has not independently investigatedor verified such facts, nor is it obligated to investigate or verify them.
Plutus has not conducted any independent evaluation or appraisal, and has not received any
evaluation or appraisal report, in connection with any assets or liabilities (including off-balance
sheet assets and liabilities and other contingent liabilities), including any analysis or evaluation ofindividual assets and liabilities, of the Company and its affiliated companies. Additionally, Plutus

25has not undertaken any analysis of the creditworthiness of the Company pursuant to any applicablebankruptcy, stop-payment, or similar laws.
Plutus has assumed that the Company’s business outlook and other materials used as the basis for
the Fairness Opinion have been reasonably prepared by the Company’s management based on thebest currently available forecasts and judgments, and Plutus does not guarantee their feasibility andexpresses no view as to the analysis or forecasts on which their preparation is based or the premises
on which they are based.
The Fairness Opinion expresses Plutus’ opinion as of the date of preparation as to whether theTender Offer Price is fair from a financial point of view to the general shareholders of the Company
based on financial and capital markets, economic conditions, and other circumstances as of the dateof preparation and based on information available to Plutus up to the date of preparation, and while
the content of the Fairness Opinion may be affected by subsequent changes in conditions, Plutus
has no obligation to amend, change, or supplement the content of the Fairness Opinion even in suchcases. The Fairness Opinion does not imply or suggest any opinion other than that expressly statedin the Fairness Opinion or any opinion with respect to any matter after the date of submission of
the Fairness Opinion. The Fairness Opinion only expresses the opinion that the Tender Offer Priceis fair to the general shareholders of the Company from a financial point of view and is notdisadvantageous to them; it does not express opinions or make recommendations concerning the
propriety of implementing the Tender Offer or tendering or other actions with respect to the Tender
Offer, and it does not express any opinion to the holders of securities issued by the Company,
creditors, or other related parties.
The Fairness Opinion was provided by Plutus for the purpose of being used as a basis for decisions
made by the Company’s board of directors and the special committee regarding the Tender Offer
Price and is not to be relied upon by any other party.
(4)

Prospects of, and Reasons for, Delisting

The Company Shares are currently listed on the First Section of the TSE as of today. However, since theTender Offeror has not set a maximum number of shares to be purchased in the Tender Offer, the Company Shares
may be delisted through prescribed procedures in accordance with the delisting criteria set out by the TSE,
depending on the results of the Tender Offer.
Also, even in the case that the delisting criteria are not met upon completion of the Tender Offer, theCompany plans to make the Tender Offeror and Mr. Tetsuo Funai the only shareholders of the Company andprivatize the Company in accordance with the procedures stated in “(5) Policy for Organizational Restructuring,
Etc. after the Tender Offer (Matters Relating to So-Called “Two-Step Acquisition”)” below after the successful
completion of the Tender Offer, in which case the Company Shares will be delisted through the prescribed
procedures in accordance with the delisting criteria of the TSE. If the Company Shares are delisted, theCompany Shares will no longer be traded on the First Section of the TSE.
(5)

Policy for Organizational Restructuring, Etc. After the Tender Offer (Matters Relating to So-Called“Two-Step Acquisition”)

As stated in “(A) Outline of the Tender Offer” in “(2) Grounds and Reasons for the Opinion on the Tender
Offer,” the Tender Offeror intends to make the Company a wholly-owned subsidiary of the Tender Offeror, andif the Tender Offeror is unable to acquire all of the Target Shares and the Stock Acquisition Rights in the Tender
Offer, the Tender Offeror intends, after the successful completion of the Tender Offer, to carry out a set ofprocedures necessary for making the Tender Offeror and Mr. Tetsuo Funai the only shareholders of the Company.
Specifically, the Tender Offeror plans to request the Company to hold an extraordinary meeting ofshareholders (the “Meeting of Shareholders”) in August 2021 that will include (a) a proposal regarding the Share
Consolidation pertaining to the Company Shares pursuant to Article 180 of the Companies Act and (b) a proposal
regarding a partial amendment to the Articles of Incorporation subject to the Share Consolidation becoming
effective for the purpose of abolishing the provision regarding the number of shares constituting one unit.
However, the procedures above may be replaced with a method of using class shares subject to class-wide call orother methods as separately agreed by the Tender Offeror, Mr. Tetsuo Funai, and the Company, if it is reasonably

26necessary for the smooth implementation of the Transaction or for any other purposes. The Tender Offeror and
Mr. Tetsuo Funai intend to vote in favor of each of the above-mentioned proposals at the Meeting of Shareholders.
If the proposal for the Share Consolidation is approved at the Meeting of Shareholders, the shareholdersof the Company will, on the effective date of the Share Consolidation, hold the number of Company Sharesproportionate to the ratio of the Share Consolidation that is approved at the Meeting of Shareholders. If, due tothe Share Consolidation, the number is a fraction less than one, each such shareholder of the Company will
receive an amount of cash obtained by selling the Company Shares equivalent to the total number of such
fractional shares (with such aggregate sum rounded down to the nearest whole number) to the Company or theTender Offeror as per the procedures specified in Article 235 of the Companies Act and other applicable laws andregulations. The purchase price for the aggregate sum of such fractional shares will be valued so that the amountof cash received by each shareholder who did not tender its shares in the Tender Offer (excluding the Company
and Mr. Tetsuo Funai) as a result of the sale will be equal to the price obtained by multiplying the Tender Offer
Price by the number of Company Shares held by each such shareholder, and then a petition will be filed to thecourt for permission for such voluntary sale. Although the ratio of the Share Consolidation of the Company
Shares has not been determined as of today, it is intended to be set such that shareholders (excluding the Company
and Mr. Tetsuo Funai) who hold shares in the Company and do not tender in the Tender Offer will have less than
one Company Share in order for the Tender Offeror and Mr. Tetsuo Funai to become the only owners of all of theissued shares of the Company (excluding treasury shares held by the Company).
In the interest of protecting the rights of minority shareholders in circumstances involving the Share
Consolidation, the Companies Act provides that if the Share Consolidation occurs and there are shares less than
one as a result thereof, each shareholder (excluding the Company and Mr. Tetsuo Funai) may request that theCompany purchase all such shares less than one at a fair price, and such shareholders may file a petition to thecourt to determine the price of the Company Shares in accordance with Articles 182-4 and 182-5 of theCompanies Act and other applicable laws and ordinances. As stated above, because the number of the Company
Shares held by the shareholders who do not tender their shares in the Tender Offer (excluding the Company and
Mr. Tetsuo Funai) will be less than one, the shareholders of the Company objecting to the Share Consolidation
may file a petition described above. In the event that the petition described above is filed, the purchase price of
the Company Shares will be finally determined by the court.
With regard to the above procedure, it is possible that, depending on amendments to or the implementationand interpretation of the relevant laws and ordinances by authorities, the shareholding percentage of the Tender
Offeror and Mr. Tetsuo Funai after the Tender Offer, and the ownership of Company Shares by shareholders otherthan the Tender Offeror or Mr. Tetsuo Funai, the methods or the timing of implementation may be altered.
Specifically, if the number of Company Shares held by a shareholder (other than Mr. Tetsuo Funai) exceeds thenumber of Company Shares held by the Tender Offeror, it is possible that the ratio of the consolidation of theCompany Shares will be determined in order for Mr. Tetsuo Funai to become the only owner of all of the issued
shares of the Company (excluding treasury shares held by the Company) and the Company Shares equivalent to
the total number of shares less than one (with such aggregate sum rounded down to the nearest whole number)will be sold to the Tender Offeror. Even in such a case, the Tender Offeror intends to ultimately make theCompany a wholly-owned subsidiary of the Tender Offeror through the Purchase of Treasury Shares to be
implemented after the Share Consolidation, as mentioned in “A. Outline of the Tender Offer” in “(2) Grounds
and Reasons for the Opinion on the Tender Offer.” However, even in such a case, it is intended that a method
will be used whereby the shareholders of the Company who do not tender their shares in the Tender Offer(excluding the Company and Mr. Tetsuo Funai) will ultimately receive cash consideration equal to the numberof Company Shares held by such shareholder multiplied by the Tender Offer Price in exchange for their shares.
If a petition for determination of a price regarding a share purchase demand in relation to the Share Consolidation
is filed, the court will finally determine the price regarding the share purchase demand. The specific details andexpected timing for the procedures described above will be determined through consultation with the Company
and then promptly announced by the Company.
If the Tender Offeror fails to acquire all Stock Acquisition Rights in the Tender Offer and there areunexercised Stock Acquisition Rights remaining, the Tender Offeror plans either to request the Company toimplement, or to itself implement, procedures reasonably required for carrying out the Transaction, such as theacquisition of the Stock Acquisition Rights by the Company by way of repurchase or a recommendation by theCompany to the Stock Acquisition Right Holders to waive the Stock Acquisition Rights.
It is further noted that shareholders of the Company will not be solicited to agree to the Tender Offer at27

the Meeting of Shareholders. All shareholders and Stock Acquisition Right Holders of the Company are solely
responsible for seeking their own specialist tax advice with regard to the tax consequences of tendering theirshares in the Tender Offer or the procedures outlined above.
(6)

Measures to Ensure the Fairness of the Tender Offer, such as Measures to Ensure the Fairness of theTender Offer Price and Measures to Avoid Conflicts of Interest

The Company is not a subsidiary of the Tender Offeror as of today, and therefore the Tender Offer does
not fall into the category of a tender offer by the controlling shareholder. There is no plan for all or some of the
management members of the Company to contribute to the Tender Offeror, directly or indirectly, and therefore
the Transaction (including the Tender Offer) does not fall into the category of a so-called management buyout(Note 1).
However, considering the fact that Mr. Tetsuo Funai, the Company’s major shareholder, intends to sell his
shares, the Company implemented the following measures to exercise greater prudence in ensuring the fairnessof the Transaction (including the Tender Offer).
The Tender Offeror did not set a so-called “majority of minority” minimum number of shares to bepurchased in the Tender Offer. Given that the Tender Offeror has agreed with Shuwa System, the Company and
Mr. Tetsuo Funai not to tender all of the Reserved Shares (number of shares owned: 11,738,780 shares; ownership
percentage: 34.18%) in the Tender Offer as of today and that the Tender Offeror and the Shareholders Agreeing
to Tender have executed the Tender Agreements wherein the Shareholders Agreeing to Tender agree to tender allof the Company Shares they own (number of shares owned: 1,410,000 shares; ownership percentage: 4.11%) in
the Tender Offer, the Tender Offeror believes that deducting such number of Company Shares from thedenominator and setting a so-called majority of minority condition may make the completion of the Tender Offer
uncertain and, conversely, would potentially not contribute to the interests of the minority shareholders who wish
to tender shares in the Tender Offer. The Tender Offeror also believes that not setting a majority of minority
condition in the Transaction would not directly impair the fairness of procedures for the Transaction because (i)the Transaction does not fall into the category of a so-called management buyout (MBO) or an acquisition of a
subsidiary by the controlling shareholder, (ii) measures to ensure the fairness of the Transaction have been taken
as stated below, and (iii) the Tender Offeror and the Company agreed to the transaction terms and conditions(including the Tender Offer Price) based on sincere discussions and negotiations conducted by the Tender Offeror
and the Company, in which the special committee was substantially involved.
The descriptions concerning the measures implemented by the Tender Offeror described below are basedon explanations given by the Tender Offeror.
(Note 1) “Management buyout (MBO)” refers to a transaction where the Tender Offeror undertakes theTender Offer pursuant to its agreement with officers of the Company and the Tender Offeror and officers of theCompany have common interests.
A.

Establishment of an Independent Special Committee by the Company and Obtainment of a Reportfrom the Special Committee

Based on the fact that the sale of shares by Mr. Tetsuo Funai, a major shareholder of the Company, isplanned, in order to ensure the fairness of the Transaction, the Company, at the board of directors meeting heldon August 3, 2020, decided to establish a special committee comprising the following three members who haveno interest in the Company or Shuwa Group, are outside directors of the Company with respect to whom theCompany has filed notification with the TSE to the effect that they are independent officers, and are deemed tohave expertise and qualifications for considering the Transaction: Hiroyuki Yamada (an audit and supervisorycommittee member and certified public accountant); Takahiro Tanaka (an audit and supervisory committee
member and attorney-at-law); and Atsushi Shirakami (a director who is not an audit and supervisory committee
member). In addition, the special committee elected Hiroyuki Yamada as the chairperson of the special
committee by mutual vote from among the members. Compensation for the members of the special committee
will be paid in the sum of a fixed amount plus an amount calculated in proportion to the number of meetings ofthe special committee held regardless of whether or not the Transaction is consummated.
Upon the decision to establish the special committee, the board of directors of the Company requested thatthe special committee: (i) consider whether the board of directors of the Company should support the Tender28

Offer and whether to recommend that the shareholders of the Company tender their shares in the Tender Offer,and give a recommendation to the board of directors of the Company after (a) considering and determining theappropriateness of the Transaction from the perspective of whether the Transaction would contribute to theenhancement of the corporate value of the Company and (b) considering and determining the appropriateness ofthe transaction terms and conditions and the fairness of the procedures from the perspective of securing theinterests of general shareholders of the Company, and (ii) consider whether the decision on the Transaction by
the board of directors of the Company is disadvantageous to the general shareholders of the Company, and express
an opinion to the board of directors of the Company (collectively, the “Consulted Matters”), and the board of
directors of the Company commissioned the special committee to submit a report on the Consulted Matters to
the Company. Furthermore, the Company decided at the board of directors meeting described above that any
decisions by the Company’s board of directors on the Transaction will be made by respecting to the maximum
extent the determinations of the special committee, including its opinion in support of or against the Tender Offer,and that the board of directors grants to the special committee the authorization to perform the following acts: (i)being substantially involved in the process of negotiations between the Company and the Tender Offeror(including giving instructions or making requests regarding the policies for negotiations with the Tender Offeror);(ii) designating or approving (including post-facto approval) advisors in regard to the financial, legal, or otheraffairs of the Company; (iii) receiving information from the Company’s officers and employees that is necessary
for its consideration and determinations regarding the Transaction, including the details of the business plan andinformation that was used as the basis for preparing the business plan; and (iv) other actions that the special
committee determines necessary for consideration and determinations regarding the Transaction. In responseto this, the special committee confirmed that there are no issues concerning the independence of Mori Hamada& Matsumoto, who has been appointed by the Company as a legal advisor, and Daiwa Securities, who has been
appointed by the Company as a financial advisor, from the Company, the Tender Offeror, and Shuwa Group andapproved their appointment. In addition, the special committee appointed Plutus as its own advisor and thirdparty valuation institution independent from the Company, the Tender Offeror, and Shuwa Group on September
16, 2020 in order to exercise greater prudence in ensuring the fairness of the terms and conditions of theTransaction, including the Tender Offer Price.
During the period from August 21, 2020 to March 12, 2021, the special committee held a total of 24
meetings for a total of approximately 45 hours, where the members discussed and considered the Consulted
Matters. Specifically, the special committee received explanations from the Company regarding the purposesof the Transaction, the course of events leading to the Transaction, the details of the business of the Company, its
business results, financial condition, and business plan, received explanations from the Tender Offeror regarding
matters such as the measures to enhance the corporate value of the Company proposed by the Tender Offeror andthe scheme of the Transaction, and held question-and-answer sessions in relation to these matters. In addition,
at each phase of the negotiations with the Tender Offeror and Shuwa Group, the special committee expressed its
opinion and provided advice to the Company and, if necessary, directly negotiated with the Tender Offeror andShuwa Group based on its authority to conduct any other actions that the special committee determines necessary
for consideration and determination regarding the Transaction as described in (iv) above. Furthermore, thespecial committee received explanations from Daiwa Securities regarding the process of negotiations about theterms and conditions of the Transaction or the like and the calculation of the share value of the Company, received
explanations from Mori Hamada & Matsumoto regarding measures to ensure the fairness of the procedures for
the Transaction, the methods and processes of decision-making by the Company’s board of directors regarding
the Transaction, and other measures to avoid any conflicts of interests, and held question-and-answer sessions inrelation to these matters. The special committee also received explanations from Plutus regarding the
calculation of the share value of the Company and received explanations regarding, and confirmed, the details of
the Fairness Opinion and material assumptions.
As a result of careful discussion and consideration of the Consulted Matters through the above process, on
March 23, 2021, the special committee submitted to the Company’s board of directors the Report on theConsulted Matters with the content summarized below.
(i)

Opinion(a)

The special committee believes that the board of directors of the Company should resolve to express an
opinion in support of the Tender Offer and to recommend that the shareholders of the Company tendertheir shares in the Tender Offer and to express its opinion that it is appropriate that the decision regardingwhether or not to tender Stock Acquisition Rights in the Tender Offer be left to the judgment of the holdersof the Stock Acquisition Rights.

29

(b)

The special committee believes that resolving to express an opinion in support of the Tender Offer and torecommend that the shareholders of the Company tender their shares in the Tender Offer and to express
its opinion that it is appropriate that the decision regarding whether or not to tender Stock Acquisition
Rights in the Tender Offer be left to the judgment of the holders of the Stock Acquisition Rights at themeeting of the board of directors of the Company would not be disadvantageous to the generalshareholders of the Company. The special committee also believes that the decision of the Tender Offeror
to make the Company its wholly-owned subsidiary after the completion of the Tender Offer would not bedisadvantageous to the general shareholders of the Company.

(ii)

Reasons(a)Based on the following points, the special committee determined that the proposal by the Tender Offeror
in relation to the management measures of the Company can be deemed to contribute to a certain degree
to the enhancement of the corporate value of the Company:-

As stated in “D. Process of and Reasons for Decision-Making for Supporting the Tender Offer by theCompany” in “(2) Grounds and Reasons for the Opinion on the Tender Offer” above, it is considerednecessary to make short-term and large-scale investments of resources and implement thoroughgoingmeasures and reforms in order for the Company to efficiently develop existing businesses and quickly
achieve profitability in new businesses. However, it is possible that short-term and large-scale
investments of resources will have adverse effects on the general shareholders of the Company, and theCompany’s ability to make decisions in a flexible, agile, or similar manner would be limited under thecurrent circumstances where the Company Shares remain listed and there are general shareholders. The
special committee therefore considers that the measures proposed by the Tender Offeror, which aim to
implement thoroughgoing measures and reforms by privatizing the Company, thereby ensuring that theCompany will be able to make decisions in a flexible, agile, or similar manner, are reasonable to a certain
degree.

-The Tender Offeror has proposed a variety of measures to enhance corporate value, and although thosemeasures to enhance corporate value do not indicate any direct synergies for the Company, they identify
the issues facing the Company and set out efforts for resolving those issues, and they therefore can be
determined to be reasonable. In addition, although the executive directors of the Company are aware of
the fact that the Company itself does not have sufficient personnel who are suitable for implementing thosemeasures to enhance corporate value, they believe that the procurement of necessary human resources will
be possible using the networks and the like of the Tender Offeror by becoming a wholly-owned subsidiaryof the Tender Offeror.

-

The special committee recognizes the significance of the leadership of a new manager of the Company,
which requires agile and thoroughgoing reforms, and as a corporate manager, Mr. Koji Bando can beevaluated favorably to a certain degree in light of his track record in reforming a loss-making corporation
through measures such as improvements in corporate culture.

-

It is planned that, upon the Tender Offeror obtaining the financing required for the Transaction from
Resona Bank, an amount equivalent thereto in the Company’s fixed deposit account will be subject to, andbound by, a security interest to be created thereon. This will raise concerns about procuring the working
capital of the Company, but the Tender Offeror explained that it was considering specific financing to doaway with those concerns and attempting to take various measures to procure sound cash-flow
management. In addition, the executive officer in charge of financing at the Company recognizes thatbased on the current sales of the Company and assuming that there will be no material changes in the termsof collection and payment between the Company and its customers/suppliers, there are not necessarily any
material concerns about the procurement of the working capital of the Company.

-

Although it is expected that the Transaction will have certain disadvantages to the Company and its
stakeholders, namely lower creditability due to the Company becoming an unlisted company and acorresponding worsening of transaction terms and conditions, as well as adverse effects on the recruitmentof new employees and the retention of existing employees, the special committee believes that thedetermination of the Tender Offeror that such effects are considered to be limited at the present stage is
not necessarily unreasonable and also believes that the advantages of the delisting of the Company will be30

greater than the disadvantages.
(b)

Based on the following points, the special committee determined that the appropriateness of the terms andconditions of the Transaction (including the Tender Offer Price) has been ensured from the perspective ofsecuring the interests of the Company’s general shareholders:-With respect to the methods and results of the calculation of share value performed by Plutus, who is the
special committee’s own third-party valuation institution independent from the Company and the Tender
Offeror, the special committee believes that the market price method and the DCF method used for
calculation are commonly used and reasonable methods in light of current practices, that the explanations
about the basis of the method of classification of assets for business purposes and assets for non-businesspurposes and the discount rate used in the DCF method are reasonable, and that the results of thecalculation are appropriate in light of current practices, and the Tender Offer Price is above the maximum
value of the results of calculation by the market price method and is within the range of the results ofcalculation by the DCF method.

-

With respect to the methods and results of the calculation of share value performed by Daiwa Securities,
who is the Company’s financial advisor and third-party valuation institution independent from theCompany and the Tender Offeror, the special committee believes that the market price method and the
DCF method used for calculation are commonly used and reasonable methods in light of current practice.
In addition, although the discount rate and the like used by Daiwa Securities are different from those usedby Plutus, and the maximum value in the range of the results of calculation by Daiwa Securities using the
DCF method is below the minimum value in the range of the results of calculation by Plutus using the
DCF method, the results of calculation by Daiwa Securities can be considered to be reasonable to a certain
degree, and the Tender Offer Price is above the maximum value of the results of calculation using themarket price method and the DCF method.

-

The special committee confirmed the reasonableness of the details of the business plan used as the basis
for calculation by Plutus and Daiwa Securities, its material assumptions, and the process of its preparation.
Due to the prolonged consideration of the Transaction caused by the negotiations with the Tender Offeror,
the business plan was reviewed in February 2021 based on the business environment, and the special
committee confirmed the reasonableness of the business plan after the review, including the reasons forthe review.

-

The special committee obtained the Fairness Opinion from Plutus, and Plutus expressed its opinion that
the Tender Offer Price is fair for the general shareholders of the Company from a financial perspective
based on certain assumptions.

-

The Company received a proposal for the delisting of the Company from a possible offeror other than theTender Offeror through the process of a market check, and as a result of the comparison and considerationof the proposals, the special committee considers that the proposal by the Tender Offeror and the Tender
Offer Price are reasonable, taking into account the fact that the tender offer price in the proposal of thepossible offeror was a non-legally-binding price before the performance of detailed due diligence, the factthat the median of that tender offer price range which was offered by such possible offeror, was below theTender Offer Price, although the maximum of that tender offer price range was over the Tender Offer Price(JPY918), and the fact that although the proposal of the possible offeror stated a proposed price before theperformance of detailed due diligence on the Company, it was not unreasonable to compare that proposed
price to the Tender Offer Price because performing that due diligence would take a considerable period oftime, during which the business activities of the Company might possibly slow down.

-

The special committee received reports on the status of negotiations with the Tender Offeror in a timely
manner, and such negotiations proceeded with the involvement of the special committee, wherein thespecial committee expressed opinions, gave instructions, and made requests to the Company and Daiwa
Securities in critical phases and directly negotiated with the Tender Offeror if necessary; as a result of suchnegotiations, the Company and the special committee successfully obtained an increase to the price of theTender Offer from the price initially proposed by the Tender Offeror.

-

The special committee does not find anything unreasonable in the methods of the Transaction, in which a
two-step acquisition will be conducted for the purpose of making the Company a wholly-owned subsidiary31

of the Tender Offeror.
-

Based on the information available to the special committee as of the date of the Report, the special
committee has confirmed that the economic benefits to be gained by Mr. Tetsuo Funai as a result of
accepting the Purchase of Treasury Shares will be smaller than the economic value that would be received
by Mr. Tetsuo Funai if he tenders his shares in the Tender Offer, and the special committee has been
informed that there is no consideration, compensation, or the like other than the consideration for the
Purchase of Treasury Shares that is planned to be paid to Mr. Tetsuo Funai from the Tender Offeror Groupor the Company upon the Transaction with respect to the Purchase of Treasury Shares. Therefore, those
procedures contribute to the interests of the general shareholders of the Company and are reasonable.

(c)Based on the following points, the special committee determined that sufficient measures for ensuring
fairness have been taken as the procedures to ensure the fairness of the terms and conditions of theTransaction and the interests of the general shareholders of the Company have been fully consideredthrough fair procedures:-

The Company has established the special committee, which conducts consideration, engages innegotiations, and makes determinations with regard to the Transaction from the perspective of enhancing
the corporate value of the Company and securing the interests of the general shareholders of the Company
in a position independent from the Tender Offeror.

-

It can be determined that the special committee has been substantially or directly involved in the processof negotiations between the Company and the Tender Offeror in regard to the terms and conditions andother matters regarding the Transaction.

-

The Company has obtained legal advice from Mori Hamada & Matsumoto as a legal advisor independent
from the Company and the Tender Offeror.

-

The Company has obtained advice on the Transaction from a financial perspective from Daiwa Securities,
who has been appointed as a financial advisor and third-party valuation institution independent from theTender Offeror and the Company, and obtained the Share Price Valuation Report (Daiwa Securities) dated
March 22, 2021 from Daiwa Securities.

-

The special committee has obtained advice, opinions, and the like from a financial perspective from Plutus,
who is a third-party valuation institution independent from the Company and the Tender Offeror, andobtained the Share Price Valuation Report (Plutus) and the Fairness Opinion dated March 22, 2021 from
Plutus.

-The Company has taken procedures to ensure opportunities for counter tender offers (an active market
check). In addition to gaining important reference information relating to the fairness of the Company’svalue and transaction terms and conditions, an active market check serves the functions of strengthening
the negotiating power of the Company in the process of establishing the transaction terms and conditions
and of contributing to the Transaction being conducted under terms and conditions favorable to generalshareholders. In this instance as well, the tender offer price proposed by another possible offeror served
as a reference in the negotiations with the Tender Offeror and in determining the share price of theCompany, and the special committee believes that it fulfilled its functions.

-

The Tender Offer Period has been set to 30 business days, which is longer than the minimum period (20business days) prescribed by laws and ordinances. In addition, the Tender Offeror and the Company havenot entered into any agreement that restricts the Company from contacting or otherwise negotiating withpersons making counter tender offers, including any agreement containing a transaction protection clausethat forbids the Company from contacting such counter tender offerors, and this, together with the settingof a longer tender offer period as stated above, ensures opportunities for counter tender offers or the like,thereby giving consideration to ensuring the fairness of the Tender Offer.

-

The Tender Offeror does not intend to set a majority of minority condition in the Tender Offer. However,given that setting a majority of minority condition may make the completion of the Tender Offer uncertain
and, conversely, would potentially not contribute to the interests of the general shareholders who wish totender shares in the Tender Offer and that sufficient measures for ensuring the fairness of the Transaction

32

have been taken by the Company, the special committee believes that not setting a majority of minority
condition in the Tender Offer will not directly impair the fairness of the procedures for the Tender Offer.
-

The special committee will make appropriate information disclosure after obtaining advice from Mori
Hamada & Matsumoto.

-

It can be said that the legality of the squeeze out procedures has also been ensured by giving consideration
to avoiding the issue of coerciveness with respect to the Transaction.

(d)Based on the reasons above, the special committee believes that the board of directors of the Company
should resolve to express an opinion in support of the Tender Offer and to recommend that the shareholdersof the Company tender their shares in the Tender Offer and to express its opinion that it is appropriate thatthe decision regarding whether or not to tender Stock Acquisition Rights in the Tender Offer be left to the
judgment of the holders of the Stock Acquisition Rights.

(e)

In addition, the special committee believes that resolving to express an opinion in support of the Tender
Offer and to recommend that the shareholders of the Company tender their shares in the Tender Offer andto express its opinion that it is appropriate that the decision regarding whether or not to tender Stock
Acquisition Rights in the Tender Offer be left to the judgment of the holders of the Stock Acquisition
Rights at the meeting of the board of directors of the Company would not be disadvantageous to the generalshareholders of the Company. The special committee also believes that the Tender Offeror making theCompany its wholly-owned subsidiary after the completion of the Tender Offer would not bedisadvantageous to the general shareholders of the Company.

B.

Obtainment by the Special Committee of the Share Price Valuation Report and the Fairness Opinion
from an Independent Third-Party Valuation Institution

In expressing its opinion on the Tender Offer, with a view to ensuring fairness in the decision-making
process concerning the Tender Offer Price presented by the Tender Offeror, the special committee also requested
that Plutus, as a financial advisor and third-party valuation institution independent from the Company, the Tender
Offeror, and Shuwa Group, calculate the share value of the Company Shares and received the Share Price
Valuation Report (Plutus) dated March 22, 2021 from Plutus. Furthermore, the special committee received from
Plutus the Fairness Opinion stating that JPY 918 per share as the Tender Offer Price is fair to the generalshareholders of the Company from a financial point of view. For an outline of the Share Price Valuation Report(Plutus) and the Fairness Opinion, please refer to “B. Obtainment by the Special Committee of the Share Price
Valuation Report and the Fairness Opinion from an Independent Third-Party Valuation Institution” in “(3) Matters
Related to Valuation” above.
C.

Obtainment by the Company of the Share Price Valuation Report from the Independent ThirdParty Valuation Institution

In expressing its opinion on the Tender Offer, with the view to ensuring fairness in the decision-making
process concerning the Tender Offer Price presented by the Tender Offeror, the Company requested that Daiwa
Securities, as a financial advisor and third-party valuation institution independent from the Company, the Tender
Offeror, and Shuwa Group, calculate the share value of the Company Shares and received the Share Price
Valuation Report (Daiwa Securities) dated March 22, 2021 from Daiwa Securities. For an outline of the Share
Price Valuation Report (Daiwa Securities), please refer to “A. Obtainment by the Company of the Share Price
Valuation Report from an Independent Third-Party Valuation Institution” in “(3) Matters Related to Valuation”
above.
D.

Advice from a Law Firm Independent from the Company

The Company appointed Mori Hamada & Matsumoto as its legal advisor in order to ensure the fairness
and appropriateness of decision-making by the Company’s board of directors and received legal advice on themethod of the selection of the members of the special committee and the methods and processes of, and otherpoints to note in, decision-making by the Company’s board of directors on the Tender Offer and the subsequent
series of procedures. Mori Hamada & Matsumoto is independent from the Company, the Tender Offeror, andShuwa Group and does not have any material interest in the Company or the Tender Offeror.

33

E.

Approval of Majority of Disinterested Directors (Including Those Who are Audit and Supervisory
Committee Members) of the Company

The Company prudently discussed and considered the details of the terms and conditions of the Tender
Offer by the Tender Offeror based on the legal advice received from Mori Hamada & Matsumoto, the advice
given by Daiwa Securities from a financial perspective, the content of the Share Price Valuation Report (Daiwa
Securities), the content of the Report obtained from the special committee, the content of the continual
discussions on multiple occasions with the Tender Offeror, and other related materials. As a result, as stated in“D. Process of and Reasons for Decision-Making for Supporting the Tender Offer by the Company” in “(2)Grounds and Reasons for the Opinion on the Tender Offer” above, the Company, with the approval of all of its
directors except one, resolved at its board of directors meeting held today to express its opinion in support of theTender Offer, recommend that the Company’s shareholders tender their shares in the Tender Offer, and leave thedecision regarding whether or not to tender Stock Acquisition Rights in the Tender Offer to the judgment of theStock Acquisition Right Holders.
At the above-mentioned the board of directors meeting held today, Director Mitsuo Yonemoto expressed
his opinion to oppose the Tender Offer on the grounds that the disadvantages of delisting, mainly a loss of thetrust that business partners place in the Company, would be significant.
F.

Measures to Ensure Opportunities for Other Tender Offerors to Purchase Shares

As stated in “D. Process of and Reasons for Decision-Making for Supporting the Tender Offer by theCompany” in “(2) Grounds and Reasons for the Opinion on the Tender Offer” above, as part of the procedures toensure opportunities for counter tender offers (a market check), the Company received proposals from possible
offerors other than the Tender Offeror and, after comparing those proposals with the proposal by the Tender
Offeror, decided to execute the Transaction with the Tender Offeror. By doing so, the Company has actively
provided opportunities for persons other than the Tender Offeror to purchase or otherwise execute a transaction
involving the Company Shares.
In addition, the Company has not entered into any agreement with the Tender Offeror that restricts theCompany from contacting persons other than the Tender Offeror making counter tender offers (“Counter
Offerors”), including any agreement containing a transaction protection clause that forbids the Company fromcontacting Counter Offerors, so that opportunities for Counter Offerors to make takeover proposals after theannouncement of the Tender Offer will not be hindered, thereby giving consideration to ensuring the fairness of
the Tender Offer.
Furthermore, according to the Tender Offeror, by setting the Tender Offer Period to 30 business days,
which is longer than the minimum period (20 business days) prescribed by laws and ordinances, the Tender
Offeror ensures that the general shareholders and Stock Acquisition Right Holders of the Company are given an
appropriate consideration period before making a decision on whether or not to tender their shares or Stock
Acquisition Rights in the Tender Offer and that parties other than the Tender Offeror are given an opportunity tocarry out a counter tender offer, etc. for the Company Shares and the Stock Acquisition Rights, thereby intending
to ensure the fairness of the Tender Offer.

4.

Details of Material Agreements Between the Tender Offeror and the Shareholders of theCompany Concerning Tendering Shares in the Tender OfferA.

The Agreement

As stated in “A. Outline of the Tender Offer” above, the Company, upon implementing the Tender Offer,
entered into the Agreement dated today with the Tender Offeror, Shuwa System, and Mr. Tetsuo Funai.
that:
(a)
(b)
(c)

Under the Agreement, the Company, the Tender Offeror, Shuwa System, and Mr. Tetsuo Funai have agreed
Mr. Tetsuo Funai shall not tender any of the Reserved Shares in the Tender Offer;
after the completion of the Tender Offer, the Company shall implement procedures necessary to make theTender Offeror and Mr. Tetsuo Funai the sole shareholders of the Company (the “Squeeze-Out”);
as a general rule, the Squeeze-Out will be implemented through the Share Consolidation (however, the

34

(d)
(e)

(f)

(g)

(h)

(i)

(j)

(k)

Squeeze-Out will be implemented through a method using class shares subject to class-wide call or othermethod separately agreed on by the Tender Offeror, Shuwa System, the Company, and Mr. Tetsuo Funai
if it is reasonably necessary for the smooth implementation of the Transaction or for other purposes);as soon as practicable and reasonable after the effective date of the Squeeze-Out, the Company shall
implement the Capital Reduction in order to duly implement the Purchase of Treasury Shares;
as soon as practicable and reasonable after the effective date of the Squeeze-Out, through the Purchase ofTreasury Shares, the Company shall purchase from Mr. Tetsuo Funai, and Mr. Tetsuo Funai shall transfer
to the Company, all of the Company Shares owned by Mr. Tetsuo Funai at that time in exchange for theTreasury Shares Purchase Price (Total) as consideration; the date on which the consideration is to be paid
will be a date on which the Company, the Tender Offeror, Shuwa System, and Mr. Tetsuo Funai separately
agree upon mutual consultation in good faith based on the Company’s financial condition, operating
capital, and other factors, which date shall fall after the principal repayment date specified in the financing
agreement between the Tender Offeror and Resona Bank with respect to the financing for the settlementof the Transaction;
the Company shall submit a proposal at the Meeting of Shareholders to the effect that Mr. Tomokazu Ueda
and Mr. Koji Bando will be elected as directors of the Company at the close of the Meeting of
Shareholders; promptly after such election, the Company shall hold a meeting of the board of directors
and appoint the persons designated by the Tender Offeror as the representative director, chairman andpresident and as a representative director in accordance with such designation by the Tender Offeror; andthe Tender Offeror and Mr. Tetsuo Funai shall perform all actions necessary for them to approve theproposal (including exercising their voting rights in favor of that proposal at the Meeting of Shareholders);
after the completion of the Tender Offer, the Tender Offeror may dispatch a person designated by Mr.
Tetsuo Funai or the Tender Offeror to attend the board of directors meetings and meetings of the investment
and financing council of the Company as an observer to the extent permitted by laws and ordinances, etc.
until Mr. Tomokazu Ueda and Mr. Koji Bando are elected as directors at the Meeting of Shareholders;the Tender Offeror and Shuwa System (however, on and after the effective date of the Absorption-typeMerger, Shuwa System) shall essentially respect the management structure of the Company as of theexecution date of the Agreement, except for the dispatch of Mr. Tomokazu Ueda, Mr. Koji Bando, andother persons designated by the Tender Offeror;
for three years after the date on which settlement for the Tender Offer commences, the Tender Offeror andShuwa System (however, on and after the effective date of the Absorption-type Merger, Shuwa System)
shall endeavor to the fullest extent possible to maintain and continue the employment of the employees
who belong to the Company Group and to maintain and continue the employment terms as of the execution
date of the Agreement at substantially the same level;on and after the date on which settlement for the Tender Offer commences, the Tender Offeror and Shuwa
System (however, on and after the effective date of the Absorption-type Merger, Shuwa System) shallcause the Company to maintain and not to change the Company’s trade name as of the execution date of
the Agreement and shall maintain the trademark of the Company and the “FUNAI” brand; andeach party has agreed that unless the Company withdraws or amends the Resolution in Support of theTender Offer and to Recommend Tendering, the Company will, at least three business days before the dateon which settlement of the Tender Offer commences, concentrate in the account of the Company opened
with Resona Bank money equal to or greater than the maximum loan amount in the financing agreement
between the Tender Offeror and Resona Bank with respect to the financing for the settlement of theTransaction and maintain that money therein until the Squeeze-Out becomes effective, and that the parties
will otherwise cooperate in good faith for the completion of the Transaction.

In addition, although the Company has agreed in the Agreement that the Company will maintain and notwithdraw or amend the Resolution in Support of the Tender Offer and to Recommend Tendering until the last dayof the Tender Offer Period, if the Company receives any proposals for a transaction with substantially the sameterms and conditions as those of the Transaction or that are likely to substantially contradict or conflict with theTransaction (a “Counter Transaction”) before the end of the Tender Offer Period, and the board of directors of
the Company reasonably determines, after receiving advice from a lawyer or legal expert who has sufficientexperience in corporate law practice, that there is a high possibility that not withdrawing or amending the
Resolution in Support of the Tender Offer and to Recommend Tendering would constitute a breach of the duty ofcare of the Company’s directors, the Company may, upon prior written notice to the Tender Offeror, withdraw oramend the Resolution in Support of the Tender Offer and to Recommend Tendering. However, even in such acase, if the Company receives a proposal for a Counter Transaction, the Company shall, in response to areasonable request from the Tender Offeror, consult in good faith with the Tender Offeror to the extent reasonable
and possible in light of the duty of care of the Company’s directors.

35

In addition to the above, each party to the Agreement has made representations and warranties with respect
to itself (Note 1) and bears obligations to provide indemnification upon a breach of agreement, to maintainconfidentiality, not to assign rights and obligations under the Agreement, and to engage in mutual consultation ingood faith with regard to any matters not provided for in the Agreement.
(Note 1)In the Agreement, the Tender Offeror has made representations and warranties with respect
to (a) its incorporation and continued existence, (b) having the authority to execute and perform the Agreement
and the performance of internal procedures required by laws, ordinances, and the articles of incorporation andother internal rules of the Tender Offeror, (c) the validity of the execution of the Agreement, (d) non-existence ofany violation of law, ordinance, the articles of incorporation, other internal rules, or permissions and approvals
given to the Tender Offeror, and (e) not being an anti-social force; Shuwa System has made representations andwarranties with respect to (a) its incorporation and continued existence, (b) having the authority to execute andperform the Agreement and the performance of internal procedures required by laws, ordinances, and the articles
of incorporation and other internal rules of Shuwa System, (c) the validity of the execution of the Agreement, (d)non-existence of any violation of law, ordinance, the articles of incorporation, other internal rules, or permissions
and approvals given to Shuwa System, and (e) not being an anti-social force; Mr. Tetsuo Funai has maderepresentations and warranties with respect to (a) his power and competence, (b) the validity of the execution of
the Agreement, (c) holding of the Reserved Shares, (d) non-existence of any agreement regarding the rights ofshareholders of the Reserved Shares, and (e) not being an anti-social force; and the Company has maderepresentations and warranties with respect to (a) its incorporation and continued existence, (b) having theauthority to execute and perform the Agreement and the performance of internal procedures required by laws,
ordinances, and the articles of incorporation and other internal rules of the Company, (c) the validity of theexecution of the Agreement, (d) non-existence of any violation of law, ordinance, the articles of incorporation,other internal rules, or permissions and approvals given to the Company, (e) non-existence of insider information,and (f) not being an anti-social force.
B.

The Tendering Agreements

According to the Tender Offeror, upon implementing the Tender Offer, the Tender Offeror has entered into
the Tendering Agreements dated today with each of the three shareholders who are concurrently the 9th -largest
shareholders of the Company, namely Funai Kosan (shares held: 470,000 shares; ownership percentage: 1.37%),
F2 (shares held: 470,000 shares; ownership percentage: 1.37%), and T&N (shares held: 470,000 shares;
ownership percentage: 1.37%), under which the Shareholders Agreeing to Tender have agreed to tender in theTender Offer all of the Company Shares owned by them (total shares held: 1,410,000 shares; total ownership
percentage: 4.11%).
Other than that, under the Tendering Agreements, (i) the Shareholders Agreeing to Tender have agreed thatthey shall not make or solicit the making of an offer for, engage in discussions or negotiations about, or makeany agreement regarding, and shall not provide information for the purpose of any of the foregoing, anytransaction with substantially the same terms and conditions as those of the Transaction or any transaction that is
likely to substantially contradict or conflict with the Transaction with any third party other than the Tender Offeror
during the period from the execution date of the Tendering Agreements to the date on which settlement for theTender Offer commences, and (ii) the Shareholders Agreeing to Tender confirmed that the Tender Offer, theevents that will occur in connection with the execution of the Transaction, and the actions to be performed by theCompany in connection with the execution of the Transaction will not constitute any breach of obligation, eventof default, termination event, or the like on the part of the Company or any of its subsidiaries under any agreement
executed between the Shareholders Agreeing to Tender or their subsidiaries or affiliates and the Company or its
subsidiaries, and they have agreed that they shall not themselves, and shall not cause any of their subsidiaries oraffiliates to, terminate the Agreement, demand an injunction, claim compensation, or exercise any other rights
against the Company, its subsidiaries, or the Tender Offeror on the grounds of the execution of the Transaction.
In addition to the above, under the Tendering Agreements, each party bears the obligation to provide
indemnification upon a breach of agreement, to maintain confidentiality, not to assign rights and obligations
under the Tendering Agreements, and to engage in mutual consultation in good faith with regard to any matters
not provided for in the Tendering Agreements. There are no conditions precedent to the tendering of shares
under the Tendering Agreements.

36

5.

Details of Benefits Received from the Tender Offeror or any of its Special Related Parties
Not applicable.

6.

Response Policy with Respect to Basic Policies Relating to the Control of the Company
Not applicable.

7.

Questions to the Tender Offeror
Not applicable.

8.

Requests for Extension of the Tender Offer Period
Not applicable.

9.

Future Prospects

Please refer to “B. Background and Purpose of and Decision-Making Process for the Tender Offeror
Leading to the Decision to Conduct the Tender Offer,” “C. Management Policy After the Completion of theTender Offer and the Transaction,” and “D. Process of and Reasons for Decision-Making for Supporting theTender Offer by the Company” in “(2) Grounds and Reasons for the Opinion on the Tender Offer,” “(4) Prospects
of, and Reasons for, Delisting,” and “(5) Policy for Organizational Restructuring, Etc. After the Tender Offer(Matters Relating to So-Called “Two-Step Acquisition”)” in “3. Details of and Grounds and Reasons for theOpinion on the Tender Offer” above.
End37