September 18, 2015
To Whom It May Concern,
Company name:Name of representative:(Code No. 5449
Contact:

Osaka Steel Co., Ltd.
Junji Uchida, President
First Section of TSE)
Masanori Ando, General Manager,
General Administration Division(Tel: 06-6204-0300)

Notice regarding the Planned Commencement of the Tender Offer
for Tokyo Kohtetsu Co., Ltd.’s Shares (Securities Code 5448)
Osaka Steel Co., Ltd. (“Osaka Steel” or the “Tender Offeror”) hereby announces that Osaka Steel’s
board of directors, at its meeting held today, adopted a resolution to acquire the shares of the common
stock of Tokyo Kohtetsu Co., Ltd. (Code No. 5448, TSE JASDAQ (Standard), the “Target Company”)(the “Shares”) through a tender offer (the “Tender Offer”) pursuant to the Financial Instruments andExchange Act (Act No. 25 of 1948, as amended, the “FIEA”).
The Tender Offer will be commenced once Osaka Steel receives a notice from the Fair Trade
Commission of Japan (the “FTC”) stating that the FTC will not issue a cease-and-desist order pursuant
to Article 17-2, paragraph 1 of the Act on Prohibition of Private Monopolization and Maintenance ofFair Trade (Act No. 54 of 1947, as amended, the “Anti-Monopoly Act”) as a result of the businesscombination review currently underway pursuant to the Anti-Monopoly Act. Osaka Steel plans to
conduct the Tender Offer soon after the completion of the FTC’s business combination review, whichis expected in approximately February 2016. Osaka Steel will promptly announce the specificscheduling of the Tender Offer once it has been determined.
1.

Purpose, etc. of the Purchase(1)

Overview of the Tender Offer

At its board of directors’ meeting held on September 18, 2015, Osaka Steel adopted a resolution to
conduct the Tender Offer as part of a transaction in which Osaka Steel will acquire the Shares, which
are listed on the JASDAQ Standard Market (“JASDAQ”) of the Tokyo Stock Exchange, Inc. (the“TSE”), the result of which will be that there are no other shareholders of the Target Company thanOsaka Steel and Hanwa Co., Ltd., the second largest shareholder of the Target Company (number of
Shares owned as of today: 4,611,000 Shares; ownership ratio (Note 1): 26.48%; hereinafter “Hanwa”),
and which will result in the Target Company’s becoming a subsidiary of Osaka Steel, and in its going
private (these transactions shall be hereinafter referred to as the “Transaction”).
In the Tender Offer, for the purpose of both companies performing business within the same company
group by Osaka Steel alone acquiring the majority of the Target Company’s voting rights and by
making the Target Company a subsidiary of Osaka Steel as a result, Osaka Steel will determine theminimum number of Shares to be purchased (Note 2) in order for Osaka Steel to hold the majority of
the Target Company’s voting rights after the successful completion of the Tender Offer. If theaggregate number of Shares tendered for the Tender Offer (“Tendered Shares”) does not reach theminimum number of Shares to be purchased, no Tendered Shares will be purchased. On the other
hand, because Osaka Steel will not determine a maximum number of Shares to be purchased, if theaggregate of the Tendered Shares reaches or exceeds the minimum number of Shares to be purchased,
all such Shares will be purchased.

-2-

Furthermore, if, after the successful completion of the Tender Offer, the total amount of voting rights
corresponding to the Shares owned by Osaka Steel and Hanwa reaches or exceeds the voting rights
threshold (Note 3), Osaka Steel will request that the Target Company implement the procedures
described in “(5) Policies regarding Reorganization, etc. after the Tender Offer (Matters regarding the
So-called Two-Stage Purchase)” below (the “Procedures to Go Private”), and Osaka Steel will acquire
all of the Shares (excluding those owned by Hanwa and the Target Company). After the Procedures to
Go Private are implemented, the Shares will be delisted in accordance with established procedures.
On the other hand, where the total amount of the voting rights corresponding to the Shares owned by
Osaka Steel and Hanwa does not reach the voting rights threshold after the successful completion of
the Tender Offer, Osaka Steel will determine whether to implement the procedures to take the Target
Company private after discussing with Hanwa and the Target Company, and will announce thedecision by the commencement of the Tender Offer.
If the Target Company determines not to go private, it is expected that the Shares will remain listed on
JASDAQ. If the Target Company determines to go private, a method for providing cash considerationfor each shareholder of the Target Company who did not tender Shares in the Tender Offer (excluding
Osaka Steel, Hanwa and the Target Company) will be adopted pursuant to the Procedures to Go
Private as stated below, and in that case, the amount of the consideration to be paid to each suchshareholder will be calculated to equal the purchase price (the “Tender Offer Price”) of each Share in
the Tender Offer multiplied by the number of Shares owned by each such shareholder.
(Note 1) As used herein, the “ownership ratio” means the ratio (any fraction to be rounded off
to two decimal places) of the relevant Shares to the total number of outstanding Shares(17,413,100 Shares), which is the aggregate number of issued Shares as of June 30,
2015 (17,446,000 Shares) as stated in the “Summary of Financial Results for the First
Quarter of the FY ending in March 2016 (JGAAP) (non-consolidated),” announced by
the Target Company on August 7, 2015, minus the number of treasury shares as of thesame date (32,900 Shares), hereinafter the same.
(Note 2) The “minimum number of Shares to be purchased” means half of the aggregate
number of outstanding Shares as stated in the latest Securities Report of the Target
Company, or in the latest Summary of Full-Year Financial Results or Summary of
Quarterly Financial Results disclosed by the Target Company, whichever is later, atthe time of the public notice of commencement of the Tender Offer (any fraction to berounded up), plus the number of Shares constituting one unit (100 Shares).
(Note 3) The “voting rights threshold” means the amount of voting rights corresponding to twothirds of the aggregate number of outstanding Shares as stated in the latest Securities
Report of the Target Company, or in the latest Summary of Full-Year Financial
Results or Summary of Quarterly Financial Results disclosed by the Target Company,
whichever is later, at the time of the public notice of the commencement of the Tender
Offer (to be rounded up), plus the number of Shares constituting one unit (100
Shares).
The Tender Offer will commence after Osaka Steel receives a notice from the FTC stating that the
FTC will not issue a cease-and-desist order under the Anti-Monopoly Act as a result of the businesscombination review currently underway pursuant to the Anti-Monopoly Act. Osaka Steel plans to
conduct the Tender Offer soon after the completion of the FTC’s business combination review.
Osaka Steel filed a prior notification with the FTC on August 20, 2015 in connection with theacquisition of Shares through the Tender Offer, which was accepted on the same date. Osaka Steelplans to conduct the Tender Offer soon after the completion of the FTC’s business combination
review, which is expected to be around February 2016. Osaka Steel will promptly announce thespecific scheduling of the Tender Offer once it has been determined.

-3-

Prior to conducting the Tender Offer, Osaka Steel entered into the Agreement on Tendering Shares for
Tender Offer and Share Transfer (the “Tendering and Transfer Agreement”) with Hanwa as of
September 18, 2015. Under the Tendering and Transfer Agreement, Hanwa has agreed not to tenderthe 4,611,000 Shares owned by it as of the date above (ownership ratio: 26.48%) in the Tender Offer.
However, Hanwa has agreed that, upon request from Osaka Steel, Hanwa will be obliged to tenderpart of its Shares (in the number requested by Osaka Steel) in the Tender Offer to meet such a request
so that Osaka Steel can achieve the minimum number of Shares to be purchased (for an outline of theTendering and Transfer Agreement, please refer to “(I) The Tendering and Transfer Agreement” of“(3) Material Agreement and related matters regarding the Tender Offer” below). Based on the
progress of the tender by shareholders during the Tender Offer period, if it is expected that the numberof the Tendered Shares tendered by shareholders other than Hanwa will not reach the minimum
number of Shares to be purchased, Osaka Steel plans to request that Hanwa tender its Shares in thenumber deemed necessary to reach the minimum number of Shares to be purchased. The maximum
number of Shares that Hanwa will tender upon request from Osaka Steel will be the minimum numberof Shares to be purchased for the Tender Offer less the number of Shares that Mitsui & Co., Ltd.
(“Mitsui”) agreed to tender (5,092,000 Shares), as stated in the following paragraph.
Prior to conducting the Tender Offer, Osaka Steel agreed as of September 18, 2015 with Mitsui, thelargest major shareholder of the Target Company, to the effect that Mitsui is to tender all of the
5,092,000 Shares owned by it as of the date above (ownership ratio: 29.24%) in the Tender Offer (the“Tender Agreement”) (for details of the Tender Agreement, please refer to “(II) The Tender
Agreement” of “(3) Material Agreement and related matters regarding the Tender Offer” below).
The Target Company has explained the following to Osaka Steel:Based on the Target Company Share Value Appraisal Report (as defined in “(II) The Target Company
Obtaining a Share Value Appraisal Report from an Independent Third-Party Appraiser” of “4.
Measures to Ensure Fairness of the Tender Offer including Measures to Ensure Fairness of thePurchase Price and Measures to Avoid Conflicts of Interest” below) obtained from Mitsubishi UFJ
Morgan Stanley Securities Co., Ltd. (“Mitsubishi UFJ Morgan Stanley Securities”), legal advice
obtained from Anderson, Mori & Tomotsune, the written report from the third-party panel, and otherrelevant materials, the Target Company adopted a resolution at its board of directors’ meeting held
today to express an opinion, as its opinion at present, to support the Tender Offer and to recommendthat the Target Company’s shareholders tender their Shares in the Tender Offer in the event of its
commencement (for details, please refer to “Notice regarding Expressing an Opinion to Support the
Planned Tender Offer for the Company’s Shares by Osaka Steel Co., Ltd. and to Recommend
Tendering Shares” announced by the Target Company as of today (the “Target Company’s Press
Release”). The Target Company’s board of directors also adopted the following resolutions: (i) when
the Tender Offer commences, the board of directors will ask the third-party panel established by theTarget Company to examine whether its opinion as of September 17, 2015 has changed; and, if there
has been no change, to advise the Target Company’s board of directors accordingly, or, if there havebeen any changes, to provide its new opinion; and (ii) based on such opinion of the third-party panel,
the board of directors will adopt a resolution to express its opinion regarding the Tender Offer again at
the time that the Tender Offer commences (for details of the decision-making process and opinions of
the Target Company’s board of directors, please refer to “(V) Unanimous Approval of the Target
Company’s Directors without Conflicts of Interest” of “(4) Measures to Ensure Fairness of the Tender
Offer including Measures to Ensure Fairness of the Purchase Price and Measures to Avoid Conflicts ofInterest” below).
(2)

Background Leading up to, Purposes of, and Decision-making Process for, the Tender Offer,and the Post-Tender Offer Management Policies

Both Osaka Steel and the Target Company are ordinary electric furnace steel manufacturers which
manufacture steel products using electric furnaces, and their main business is to manufacture and sell

-4medium and small sections. Since its establishment in May 1978, Osaka Steel has, for 37 years,
maintained its competitive strength in the ordinary steel industry because of its technologicaladvancement (high accuracy in dimensions of angle steel, channel steel, etc.), product superiority(elevator guide rails, light rails, etc. that are not provided by other companies) and superiority indelivery (timely responses to short-notice delivery requests from customers), and it has been abackbone support for a wide range of industrial fields, from the construction and civil engineering
industry to the shipbuilding industry in Japan, driving the expansion of its sales network from its
manufacturing bases in Osaka Prefecture and Kumamoto Prefecture into mainly western Japan.
Meanwhile, the Target Company was established as a limited partnership company (goshi-kaisha) in
November 1918, and was transformed into a limited liability company (kabushiki-kaisha) in July
1962. For nearly 100 years since its establishment, the Target Company has supplied highly-valueadded steel products, such as equal-angle steel and unequal-angle steel mainly used for building
materials, as an integrated steel manufacturer with technological strength (a capability to manufacture
a wide size range of products with one line). The Target Company has expanded its sales network
reaching small customers from its manufacturing base in Tochigi Prefecture, focusing mainly oneastern Japan, and it has also contributed to the development of a wide range of industrial fields, fromthe construction and civil engineering industry to the shipbuilding industry in Japan.
On October 26, 2006, Osaka Steel and the Target Company entered into a share exchange agreement,
under which Osaka Steel would be the wholly owning parent company and the Target Company
would be its wholly owned subsidiary, however, this agreement was not approved at the extraordinary
shareholders’ meeting of the Target Company held on February 22, 2007 and it ceased to be effective.
Recently, Osaka Steel and the Target Company again considered the Transaction separately from theshare exchange agreement mentioned above, and as a result, as stated in the sections “(I) Recognizing
the Environment” and “(II) The Post-Tender Offer Direction and Expected Outcomes” below, bothcompanies have decided to conduct the Transaction, for the purpose of maintaining and improving
their respective corporate value.
(I)

Recognizing the Environment

Osaka Steel and the Target Company recognize that competition in the market environment
surrounding the ordinary steel and steel stock industry, to which both companies belong, will become
increasingly fierce in the future. Specifically, Osaka Steel and the Target Company expect that in thedomestic ordinary steel and steel stock market, demand will decrease in the future given the backdrop
of a declining birth rate and an aging population in Japanese society. In particular, in the ordinary
electric furnace steel industry, while Osaka Steel and the Target Company expect that domestic
construction demand, which constitutes a large portion of demand for both companies’ products, willremain steady until around 2018 based on economic forecast, etc., given the Tokyo Olympics in 2020,
they expect that construction investments will decrease thereafter due to a declining birth rate and an
aging population, etc., and that construction demand will decrease in the mid- to long-term. In
addition, while a certain level of metal spread (Note 1) is currently obtainable due to stable scrap steel
prices, the Tender Offeror and the Company expect that the stabilization of scrap steel prices is merely
tentative, and that the metal spread will decrease due to past fluctuations in scrap steel prices for along period, future fluctuations therein, as well as increased competition.
In terms of costs, electric power prices have risen because nuclear power plants ceased operations after
the Great East Japan Earthquake. The renewal energy power promotion surcharge is also projected toincrease in the future. Accordingly, Osaka Steel and the Target Company expect that electric power
costs will increase or remain high. In addition, while fuel prices currently remain low due to a drop in
crude oil prices, given the fluctuations in the past performance, etc., Osaka Steel and the Target
Company expect that fuel costs will also increase along with future increases in crude oil prices.
Regarding the market environment surrounding exports, Osaka Steel and the Target Company also
expect that as the downward trends in overseas steel prices will continue because of the rapid increase-5in the export volume from China caused by the decline in domestic demand for steel and the excessive
production in China, and as a result of overseas countries controlling import volume, the export
volume from Japan will decrease.
(Note 1)

(II)

Metal spread means a difference between the steel shipment price and the raw material(scrap steel) purchase price.

The Post-Tender Offer Direction and Expected Outcomes

Based on the circumstances mentioned above, in late April 2015, Osaka Steel proposed to the Target
Company the plan that Osaka Steel would make the Target Company its subsidiary and take it private.
The aim of this proposal was to maintain and improve both companies’ corporate value, through thefollowing two approaches: (1) reinforcing the Target Company’s business infrastructure, improving
the efficiency of its business, and improving its technological capabilities, by Osaka Steel making theTarget Company its subsidiary and taking it private, and (2) improving cost competitiveness, productvariety, delivery, and other types of customer services by improving the efficiency of the
manufacturing structure through the alliance of the two companies, which have manufacturing bases ineastern and western Japan respectively. Since then, Osaka Steel and the Target Company havediscussed and considered measures to maintain and improve their corporate value on numerous
occasions.
As a result, Osaka Steel and the Target Company reached a conclusion that, in order to maintain andimprove their respective corporate values in such a fiercely competitive market environment as is
anticipated, it is necessary to form a close alliance, facilitate mutual use of management resources, andenhance their business infrastructures, which will all be achieved by conducting the Transaction.
Osaka Steel has its main bases in Osaka and Kumamoto, in western Japan, and has a competitive
advantage in western Japan in terms of its technological strength, product superiority and superiority
in delivery, etc. On the other hand, the Target Company has its base in eastern Japan, which is thearea with the largest domestic demand. In an environment where competition with other companies inthis industry is accelerating, we believe that by Osaka Steel and the Target Company integrating
management by means of the Transaction, we will be able to certainly capture demand in eastern andwestern Japan and fully enjoy the outcomes of cost reductions on, for example, manufacturing costs
and transportation expenses, and both companies will be able to develop a nationwide businessthrough, among other things, flexible delivery from the manufacturing bases in eastern and westernJapan, which will timely meet nationwide customers’ delivery requests while continuing businessactivities to carry out local production for local consumption, where raw materials are procured in theareas where the manufacturing plants are located and products are mainly supplied to these areas.
Osaka Steel and the Target Company intend to effectively use the management resources through theTransaction to strengthen their domestic business and, at the same time, to put efforts into the overseas
business on which Osaka Steel is currently placing a focus (i.e., joint venture to manufacture and sellmedium and small sections, steel bars for concrete reinforcement, and flat bars in Indonesia), and will
thereby build a business base with product superiority and competitiveness in order to achieve theideal status as an ordinary electric furnace steel manufacturer in the future wherein both domestic andoverseas businesses will be developed and strengthened.
In addition, Osaka Steel respectively discussed with Hanwa and Mitsui, major shareholders, separatelyfrom the discussion with the Target Company above. Details of the discussions are below.
In mid-July 2015, Osaka Steel proposed to Hanwa that Osaka Steel would take the Target Company
private and started discussions. In late July 2015, Hanwa requested that it be allowed to continue tomaintain its position as a shareholder of the Target Company to a certain extent after the going privateof the Target Company. Hanwa is one of the Target Company’s important business partners in termsof the Target Company’s business strategies and the smooth performance of its business andreinforcing the sales alliance with Hanwa, as a partner (shareholder) in the iron and steel productmanufacturing business, which has good customers of iron and steel products including small

-6customers, is expected to result in the Target Company maintaining and improving its corporate value
in the mid- to long-term and to further enhance the outcome of Osaka Steel making the Target
Company a subsidiary and taking it private. Therefore, Osaka Steel decided to accept this request, andhad discussions regarding specific terms and conditions for the Tender Offer.
As a result, as stated in “(I) The Tendering and Transfer Agreement” of “(3) Material Agreement andrelated matters regarding the Tender Offer” below, Osaka Steel entered into the Tendering andTransfer Agreement with Hanwa as of September 18, 2015.
In addition, in late April 2015, Osaka Steel informed Mitsui that it started considering the Transaction,and specifically discussed the Tender Offer Price from late July 2015. As a result, as stated in “(II)The Tender Agreement” of “(3) Material Agreement and related matters regarding the Tender Offer”
below, Osaka Steel agreed as of September 18, 2015, with Mitsui that Mitsui would tender all the
5,092,000 Shares held by Mitsui (ownership ratio: 29.24%) in the Tender Offer. Osaka Steel willcontinue to maintain a strong relationship with Mitsui as an important business partner of the Target
Company.
Compared to the scenario that Osaka Steel makes the Target Company its subsidiary and maintains it
listed, and that the Target Company operates its business while respecting many minority
shareholders’ interests, Osaka Steel believes that by Osaka Steel taking the Target Company private
wherein only Osaka Steel and Hanwa will be shareholders, we will be able to achieve the integrated
management between Osaka Steel and the Target Company and the flexible and efficient performanceof both companies’ business. While continuing the sales alliance between Hanwa, which will
maintain its position as a shareholder of the Target Company, and the Target Company, Osaka Steelwill effectively use the management resources of the three companies to build the most suitablesystems to accommodate customer needs and to survive in the domestic market. Osaka Steel and theTarget Company expect that taking the Target Company private will produce the particular outcomesstated below, and expect it to lead to further enhancement of the revenue base and improvements inthe corporate value of the entire Osaka Steel group, including the Target Company.
(i)

Improved manufacturing efficiency and superiority in delivery, and reductions intransportation expenses, through optimization of the manufacturing systems by taking
advantage of the locations of both companies’ business sites.
As stated above, Osaka Steel has its main bases in Osaka and Kumamoto, western Japan,
while the Target Company has its main base in eastern Japan, which is the area with the mostdomestic demand. We believe that we will be able to improve productivity and reducetransportation expenses by taking advantage of each business’s site locations, reviewing the
manufacturing systems that were separated into two companies from an integration
perspective, and conducting an optimized allocation for each manufacturing line.
In addition, both companies already have superior delivery (i.e., timely responses to shortnotice delivery requests from customers, etc.); however, we believe that we will be able tofurther enhance efficiencies in delivery by sharing the respective companies’ business
infrastructure and knowhow.

(ii)

Improvements in cost and quality competitiveness and promotion of overseas business by
sharing manufacturing technologies and knowhow
We believe that we will be able to achieve improvements in operational technologies, such asenergy savings and the enhancement of production yield (i.e., the ratio of non-defective
products to the entire production volume), by sharing the manufacturing technologies andknowhow that Osaka Steel and the Target Company have independently fostered thus far, andthat we will be able to strengthen our competitive advantage by reducing costs and improving
quality. In addition, we believe that we will be able to effectively optimize and promote

-7efficiency in capital expenditures through sharing technologies used at both companies’
facilities. For example, by this optimization and promotion of efficiency, we expect that wewill be able to supply semi-finished products on a stable basis in Osaka Steel’s overseas
business.
(iii)

Reductions in procurement costs and maintenance costs
We believe that we will be able to reduce procurement costs by sharing Osaka Steel’s and theTarget Company’s purchase knowhow in the procuring of materials. In addition, we believethat we will be able to reduce maintenance costs of the manufacturing facilities by making the
manufacturing facility specifications and their parts common.

(iv)

Optimized administration costs by reorganizing functions of the administration divisions
We believe that we will be able to optimize administration costs by reorganizing theadministration divisions of the head offices and branches of Osaka Steel and the Target
Company and making them common, thereby creating efficiencies in management.

(v)

Improvements in financial and funding efficiencies by integrating the management of finances
We believe that we will be able to manage the finances of both companies, including theirassets held (raw materials, products, semi-finished products, other materials, etc.), in an
integrated manner. This will allow us to further improve efficiencies in finance and funding.

(vi)

Correctly captured customer needs, including those of small customers, and enhanced
profitability
Although by taking the Target Company private, shareholders other than Osaka Steel and
Hanwa will cease to be shareholders of the Target Company, we believe that by Hanwa
maintaining its position as a shareholder of the Target Company and by Osaka Steel and
Hanwa sharing strategies with the Target Company, we will be able to strengthen thecooperative relationship between Osaka Steel, the Target Company, and Hanwa, and by fullyusing Hanwa’s sales force capabilities with respect to small customers and by building thesystems in which manufacturers and trading companies meet detailed requests from individual
customers in an integrated manner, we will become able to increase added-value and enhance
profitability.

Where the total amount of the voting rights corresponding to the Shares owned by Osaka Steel and
Hanwa does not reach the voting rights threshold after the successful completion of the Tender Offer,
Osaka Steel will determine the post-Tender Offer management policies after discussing with theTarget Company, and will announce the decision by the commencement of the Tender Offer.
In addition to the matters stated in “(I) Recognizing the Environment” and “(II) The Post-Tender Offer
Direction and Expected Outcomes” above, the Target Company has explained to Osaka Steel theprocess and reasons for its decision that resulted in supporting the Tender Offer, as follows:
The Target Company has appointed Mitsubishi UFJ Morgan Stanley Securities as its financial advisor
and third-party appraiser independent of Osaka Steel and the Target Company, and Anderson Mori &Tomotsune as its legal advisor, and that it held discussions and negotiations with Osaka Steelregarding the Tender Offer Price and various other matters. Based on advice from Mitsubishi UFJ
Morgan Stanley Securities and Anderson Mori & Tomotsune, and using as reference the Target
Company’s past 5-year stock price changes, the percentage of premiums paid in similar tender offer
cases, and the results of valuation analyses including the discounted cash flow analysis (“DCF
Analysis”) conducted by Mitsubishi UFJ Morgan Stanley Securities, the Target Company held a seriesof discussions and negotiations with Osaka Steel. Furthermore, as stated in “(III) The Target

-8Company Establishing an Independent Third-Party Panel” of “(4) Measures to Ensure Fairness of theTender Offer including Measures to Ensure Fairness of the Purchase Price and Measures to Avoid
Conflicts of Interest” below, on September 17, 2015, the Target Company received from the thirdparty panel its written report stating that: it would be reasonable and not particularly disadvantageous
to the minority shareholders of the Target Company for the Target Company’s board of directors to
express an opinion, as its opinion as of September 18, 2015, to support the Tender Offer and torecommend that the Target Company’s shareholders tender their Shares in the Tender Offer, and to
adopt a resolution to conduct the Transaction, including the Procedures to Go Private.
Thereafter, the Target Company took the following into consideration: (i) as stated in “(II) The Target
Company Obtaining a Share Value Appraisal Report from an Independent Third-Party Appraiser” of“(4) Measures to Ensure Fairness of the Tender Offer including Measures to Ensure Fairness of thePurchase Price and Measures to Avoid Conflicts of Interest” below, among the valuation results from
Mitsubishi UFJ Morgan Stanley Securities, the Tender Offer Price is higher than the upper limit of thevaluation range based on the market price method, yet is within the range based on the comparable
companies analysis and the DCF Analysis; (ii) the Tender Offer Price is higher than the highest stock
price for the past five years of the Target Company; (iii) the Tender Offer Price represents a premiumof 55.9% (rounding off to the first decimal place; the same method was applied to the calculation ofpremiums in this paragraph) to 404 yen (the closing price of the Shares on JASDAQ on September 17,
2015, which is the most recent business day preceding today), a premium of 60.3% to 393 yen (thesimple average closing price for the most recent one (1) month leading up to September 17, 2015;
rounding off to the closest whole number; the same applies to calculations of the simple averageclosing price), a premium of 57.5% to 400 yen (the simple average closing price for the most recent
three (3) months leading up to September 17, 2015), and a premium of 55.2% to 406 yen (the simple
average closing price for the most recent six (6) months leading up to September 17, 2015),
respectively, and is considered to be a reasonable percentage of premium compared with those insimilar tender offer cases; and (iv) the Tender Offer Price was determined after having taken adequate
measures necessary to avoid conflicts of interest as stated in the “(4) Measures to Ensure Fairness of
the Tender Offer including Measures to Ensure Fairness of the Purchase Price and Measures to Avoid
Conflicts of Interest” below. Furthermore, after carefully considering the Tender Offer, the Target
Company has determined that the Tender Offer will provide the Target Company’s shareholders witha reasonable opportunity to sell their Shares, and the Target Company’s board of directors, at its
meeting held on September 18, 2015, adopted a resolution to express an opinion, as its opinion atpresent, to support the Tender Offer and recommend that the Target Company’s shareholders tender
Shares in the Tender Offer in the event of its commencement. For details of the decision-making
process of the Target Company’s board of directors, please refer to “(V) Unanimous Approval of theTarget Company’s Directors without Conflicts of Interest” of “(4) Measures to Ensure Fairness of theTender Offer including Measures to Ensure Fairness of the Purchase Price and Measures to Avoid
Conflicts of Interest” below.
Osaka Steel and the Target Company will discuss mutually and determine the Target Company’sbusiness strategy after the execution of the Transaction. After the execution of the Transaction, Osaka
Steel will infuse its technological advancement (high accuracy in dimensions of angle steel, channel
steel, etc.) and management efficiency know-how into the Target Company, and will manage theTarget Company by fully utilizing the Target Company’s operational features/business operation
characteristics, such as their sales network mainly developed over eastern Japan, and their strength insupplying highly-value-added steel products, such as equal-angle steel and unequal-angle steel, andfurther improve the Target Company’s business. Nothing has been determined as of today regarding
the composition of directors and officers of the Target Company or other management structure after
the execution of the Transaction; however, we will examine as to, and promptly put it into practice, themost appropriate management structure to realize the business synergies between Osaka Steel and theTarget Company.

-9(3)

Material Agreement and related matters regarding the Tender Offer(I)

The Tendering and Transfer Agreement

Prior to conducting the Tender Offer, Osaka Steel entered into the Tendering and Transfer Agreementwith Hanwa on September 18, 2015. Under the Tendering and Transfer Agreement, Hanwa has
agreed to not tender the 4,611,000 Shares that it owns as of today (ownership ratio: 26.48%) in theTender Offer. However, Hanwa has agreed that upon Osaka Steel’s request, Hanwa will be obliged totender part of its Shares (4,611,000 Shares; ownership ratio: 26.48%) in the Tender Offer (in thenumber requested by Osaka Steel) to meet the request so that Osaka Steel can achieve the minimum
number of Shares to be purchased. Based on the progress of the tender by shareholders during theTender Offer period, if it is expected that the number of the Tendered Shares tendered by shareholders
other than Hanwa will not reach the minimum number of Shares to be purchased, Osaka Steel plans torequest that Hanwa tender its Shares in the number deemed necessary to achieve the minimum numberof Shares to be purchased. The maximum number of Shares that Hanwa will tender upon request from
Osaka Steel will be the minimum number of Shares to be purchased for the Tender Offer less thenumber of Shares that Mitsui agreed to tender (5,092,000 Shares) as stated in “(II) The Tender
Agreement” below.
Furthermore, under the Tendering and Transfer Agreement, on the condition that the total amount of
the voting rights corresponding to the number of Shares owned by Osaka Steel and Hanwa meets orexceeds the voting rights threshold after the successful completion of the Tender Offer, Osaka Steeland Hanwa have agreed to implement the Procedures to Go Private and Hanwa has agreed tocooperate with Osaka Steel and the Target Company for the smooth facilitation of the Procedures to
Go Private as stated in “(5) Policies regarding Reorganization, etc. after the Tender Offer (Mattersregarding the So-called Two-Stage Purchase)” below.
Hanwa intends to maintain its status as a shareholder of the Target Company to a certain extent evenafter the Procedures to Go Private are completed. Therefore, upon implementation of the Procedures
to Go Private, Hanwa has agreed to transfer the Shares between Osaka Steel and Hanwa (the“Negotiated Transaction”) so that the ratio of the voting rights of the Target Company corresponding
to the Shares owned by Osaka Steel and Hanwa against the aggregate voting rights of the Target
Company would be 90% (Osaka Steel) and 10% (Hanwa) on the condition that the duty of the Target
Company to submit the securities report ceases pursuant to the proviso of Article 24, paragraph 1 of
the FIEA after the Procedures to Go Private. Subject to the timing of the successful completion of theTender Offer, or of a resolution adopted at the Target Company’s general shareholders meeting
regarding the share consolidation for going private, at the Negotiated Transaction is presently expected
to be completed in approximately August 2016.
Osaka Steel and Hanwa have agreed in principle that the transfer price in the Negotiated Transaction
will be substantially the same as the Tender Offer Price.
Under the Tendering and Transfer Agreement, on the condition that the total amount of the voting
rights corresponding to the number of Shares owned by Osaka Steel and Hanwa meets or exceeds thevoting rights threshold after the successful completion of the Tender Offer, it was agreed as follows:(a) Osaka Steel and Hanwa will submit to the Target Company’s general shareholders meeting a
proposal for the Procedures to Go Private and take any measures necessary for the proposal to beapproved; (b) in exercising its voting rights corresponding to the number of Shares owned by Hanwa
and other rights at the Target Company’s general shareholders meeting to be held by setting the dateafter the execution date of the Tendering and Transfer Agreement and before the execution date of the
Negotiated Transaction as the reference date, in accordance with Osaka Steel’s choices, (i) Hanwa will
grant comprehensive agency rights to Osaka Steel or the person designated by Osaka Steel, or (ii)
Hanwa will exercise its voting rights pursuant to Osaka Steel’s direction. Upon settling accounts for
the Tender Offer, if it is revealed that the total amount of the voting rights corresponding to thenumber of Shares owned by Osaka Steel and Hanwa does not reach the voting rights threshold, Osaka- 10 Steel will determine whether to implement the procedures to take the Target Company private after
discussing with Hanwa and the Target Company, and will announce the decision by thecommencement of the Tender Offer.
(II)

The Tender Agreement

Prior to conducting the Tender Offer, Osaka Steel concluded an agreement dated September 18, 2015
with Mitsui for Mitsui to tender all of the 5,092,000 Shares that it owns as of September 18, 2015
(ownership ratio: 29.24%) in the Tender Offer. There are no provisions regarding conditions
precedent for Mitsui to tender its Shares.
Mitsui will discuss with Osaka Steel in advance, as necessary, for exercising its voting rights at theTarget Company’s general shareholders meeting to be held after the execution date of the agreement.
(4)

Measures to Ensure Fairness of the Tender Offer including Measures to Ensure Fairness of thePurchase Price and Measures to Avoid Conflicts of Interest

As of today, the Target Company is not a subsidiary of Osaka Steel. However, because making theTarget Company a subsidiary and going private is being contemplated by means of the Transaction,
Osaka Steel and the Target Company have taken the following measures to ensure the fairness of theTender Offer.
(I)
Osaka Steel Obtaining a Share Value Appraisal Report from an Independent Third-Party
Appraiser
In determining the Tender Offer Price, Osaka Steel asked SMBC Nikko Securities Inc. (“SMBC
Nikko Securities”), its financial advisor and a third-party appraiser independent of Osaka Steel, theTarget Company, and Hanwa, to calculate the Target Company’s share value.
After considering calculation methods for the Tender Offer, SMBC Nikko Securities calculated theTarget Company’s share value using the market price method, comparable listed company method,and discounted cash flow method (“DCF Method”), and Osaka Steel obtained a share value appraisal
report (the “Share Value Appraisal Report”) on September 17, 2015 from SMBC Nikko Securities.
For an overview of the Share Value Appraisal Report that Osaka Steel received from SMBC Nikko
Securities, please refer to “(4) Basis for the Calculation of the Purchase Price” of “2. Overview of thePurchase” below.
(II)

The Target Company Obtaining a Share Value Appraisal Report from an Independent ThirdParty Appraiser

According to the Target Company, in order to ensure the fairness of the Tender Offer Price, the Target
Company, when formulating its opinion on the Tender Offer, asked Mitsubishi UFJ Morgan Stanley
Securities, its financial advisor and a third-party appraiser independent of the Target Company, Osaka
Steel, and Hanwa, to analyze the Target Company’s share value. The third-party appraiser, Mitsubishi
UFJ Morgan Stanley Securities, is not a related party of the Target Company, Osaka Steel, or Hanwa,
nor is it materially interested in the Tender Offer.
After considering methods to adopt for calculating the Target Company’s share value from among a
number of methods, Mitsubishi UFJ Morgan Stanley Securities analyzed the Target Company’s sharevalue using the market price analysis method, seeing as the Shares are listed on JASDAQ and themarket share price is available; the comparable company analysis method, seeing as the Target
Company’s share value can be calculated by comparing financial indices representing the market shareprices and earnings, etc., of listed companies which conduct relatively similar businesses to that of theTarget Company; and the DCF Analysis method, in order to reflect the Target Company’s future
expected earnings and cash flow forecast in the calculation; and the Target Company obtained a

- 11 valuation report (the “Target Company Share Value Appraisal Report”) on September 17, 2015 from
Mitsubishi UFJ Morgan Stanley Securities. The Target Company has not obtained any opinion
regarding the fairness of the Tender Offer Price (a fairness opinion) from Mitsubishi UFJ Morgan
Stanley Securities.
According to the Target Company, the range of the per-share value of the Shares analyzed based oneach of the methods, are as follows:
Market price analysis:
Comparable company analysis
DCF Analysis

393 yen to 406 yen
439 yen to 708 yen
504 yen to 747 yen

Under the market price analysis, the per-share value of the Shares was analyzed to range from 393 yen
to 406 yen based on the respective simple average closing prices of the Shares on JASDAQ on dates
on which any Shares were actually traded, within the most recent one (1) month, three (3) months, andsix (6) months (respectively, 393 yen, 400 yen, and 406 yen; rounding off to the nearest whole
number; the same method was applied to the calculation of the simple average closing price), with areference date of September 17, 2015.
Under the comparable company analysis, the per-share value was analyzed to range from 439 yen to
708 yen by comparing the market price and financial indicators of profitability and the like of listedcompanies that engage in businesses comparatively similar to those of the Target Company.
Under the DCF Analysis, the per-share value of the Shares was analyzed to range from 504 yen to 747
yen based on the business plan prepared by the Target Company for the period ending March 2016
through the period ending March 2020, trends in business results to date, publicly released informationand other various factors, and by analyzing the Target Company’s corporate value and the share value
by discounting the free cash flow that is expected to be generated in and after the period ending March
2016 at a certain discount rate to the present value. According to the Target Company, no significant
increase/decrease of profit is estimated in the business plan underlying the above DCF Analysis; suchbusiness plan does not assume the execution of the Transaction.
(Note) In performing its analysis with respect to the Target Company’s share value,
Mitsubishi UFJ Morgan Stanley Securities has assumed and relied upon, without
independent verification, the accuracy and completeness of the information that was
publicly available or supplied or otherwise made available to it by the Target
Company, as appropriate basis for its analysis. With respect to the financial
projections, Mitsubishi UFJ Morgan Stanley Securities has assumed that they havebeen reasonably prepared to reflect the best currently available estimates andjudgments of the management of the Target Company of the future financial
performance of the Target Company. Mitsubishi UFJ Morgan Stanley Securities has
not made, nor has it obtained from any third party, any independent valuation orappraisal of the assets or liabilities (including any off-balance sheet assets andliabilities and contingent liabilities) of the Target Company and its affiliates. The
analysis by Mitsubishi UFJ Morgan Stanley Securities is based on the aforementioned
information made available to it as of September 17, 2015.
(III)

The Target Company Establishing an Independent Third-Party Panel

The Target Company has explained the following to Osaka Steel:
In order to carefully discuss the Transaction, including the Tender Offer, and to ensure the fairness,transparency and objectiveness of the Target Company’s decision-making process, the Target
Company established a third-party panel consisting of Mr. Akito Takahashi (attorney-at-law,
Takahashi & Katayama), Mr. Shinsuke Hasegawa (certified public accountant, Hasegawa CPA

- 12 Office), and Mr. Keiichi Takasaki (certified public accountant, Takasaki & Hara Tax and Accounting
Office) who are independent of the Target Company, Osaka Steel and Hanwa. The Target Company
has appointed the above three persons as third-party panel members from the beginning and has neverchanged them.
The Target Company requested the third-party panel to evaluate and review the following issues: (a)whether the Target Company should express an opinion to support the Tender Offer, and if yes, should
it recommend that the Target Company’s shareholders tender their Shares in the Tender Offer; (b)whether the Transaction is disadvantageous to the minority shareholders of the Target Company (the“Issues for Consultation”) prior to discussing the details of the opinion to be expressed by the Target
Company. The Target Company also requested that the panel submit its opinion regarding the Issues
for Consultation to the Target Company’s board of directors.
The third-party panel held seven meetings in total from July 21, 2015 to September 17, 2015, andcarefully discussed and considered the Issues for Consultation.
When discussing the Issues for Consultation, the third-party panel received explanations from theTarget Company regarding the details of Osaka Steel’s proposal, the purpose of the Transaction, andspecific information on the expected enhancement of the Target Company’s corporate value thereby,
based on the materials provided by the Target Company, and then conducted a Q&A session regardingthese points. Furthermore, the third-party panel received explanations from the Target Company
regarding its business plan, and conducted a Q&A session; it also received explanations from
Mitsubishi UFJ Morgan Stanley Securities regarding its analysis of the Target Company’s share value
based on the valuation report submitted to the Target Company and conducted a Q&A session. Basedon these discussions, the third-party panel submitted to the Target Company’s board of directors awritten report on September 17, 2015 stating that: it would be reasonable and not particularly
disadvantageous to the minority shareholders of the Target Company for the Target Company’s boardof directors as of September 18, 2015 to express an opinion to support the Tender Offer, and torecommend that the Target Company’s shareholders tender their Shares in the Tender Offer, and to
adopt a resolution to conduct the Transaction, including the Procedures to Go Private.
According to the written report received from the third-party panel, major elements that they haveconsidered in providing the foregoing written report are as follows:A)(a) The purpose, necessity, and background circumstances of the Tender Offer and theProcedures to Go Private stated in “(2) Background Leading up to, Purposes of, and Decisionmaking Process for, the Tender Offer, and the Post-Tender Offer Management Policies”
above, and (b) the benefit of the Procedures to Go Private after the Tender Offer stated in (i)through (vi) of “(II) The Post-Tender Offer Direction and Expected Outcomes” of “(2)Background Leading up to, Purposes of, and Decision-making Process for, the Tender Offer,and the Post-Tender Offer Management Policies” above, both of which have been explainedby the Target Company, are considered to be reasonable because they are specific based on theTarget Company’s current business and management conditions, they are consistent with what
are generally explained as the environments of the industry and market to which the Target
Company belongs, and they are considered to be realistic for the enhancement of futurecompetitiveness and as growth strategies, and from these explanations, the purpose of theTender Offer and the Procedures to Go Private can be said to aim for an increase in corporate
value of the Target Company; in addition, the Target Company is discussing the necessity andbenefit of the Tender Offer and the Procedures to Go Private based on a specific review andevaluation for the future growth plan, etc. of the Target Company, which it has discussed andreviewed with the Tender Offeror in the Tender Offer (and the shareholder after theProcedures to Go Private); and the future business prospects and growth prospects of theTarget Company, and the management policies after the Procedures to Go Private (i.e., theplan to further enhance the Target Company’s business by conducting management fully using
the Target Company’s strength), which the Target Company has explained, can be said to be- 13 specific based on the Target Company’s business and management conditions and the Tender
Offeror’s business as well, and are not considered to be unreasonable; for these reasons, thethird-party panel believes that the Tender Offer and the Procedures to Go Private will serve toincrease the Target Company’s corporate value.
B)(a) In the course of the discussion and determination of the terms and conditions for theTender Offer and the Procedures to Go Private, in order to ensure the fairness of such terms
and conditions, particularly the fairness of the Tender Offer Price, the Target Company hasretained and appointed an independent third-party appraiser to calculate the Target Company’s
share value, and obtained a valuation report from the third-party appraiser and used it forreference. Then, (A) there is no particularly unreasonable point or significant concern
regarding the calculation process leading to the conclusion stated in the share valuation report
prepared by the third-party appraiser because the calculation method can be said to be a
general and reasonable method in light of the current practices, and the details can be also
considered to be reasonable in light of the current practices; (B) the Target Company has also
discussed the Tender Offer Price comprehensively taking into consideration thecircumstances, such as the necessity and benefit of the Transaction, and the influence on theTarget Company’s future business, based on the share valuation report; and (C) the Tender
Offer Price that is planned to be finally approved at the Target Company’s board of directors’
meeting is considered a price with a reasonable percentage of premium in light of the recent
similar tender offer cases; and (D) the third-party panel recognizes no particularly
unreasonable point or significant concern about it, including the conclusion of discussions andconsiderations at the third-party panel as stated in (A) through (C) above; for these reasons,these actions by the Target Company are considered to be reasonable and appropriate as ameans to ensure the fairness of the terms and conditions for the Tender Offer, particularly theTender Offer Price, and to remove arbitrariness from the process for the Target Company’s
judgment and decision-making therefor; (b) the Target Company has explained that it willcalculate and determine the terms and conditions for the Procedures to Go Private based on thesame price as the Tender Offer Price, unless there occurs any special circumstance going
forward, and while the Procedures to Go Private is planned to be conducted as post-Tender
Offer procedures (procedures of a so-called Two-Stage Purchase), to make the terms andconditions for the two procedures which are close in terms of timing uniform is considered tobe reasonable; furthermore, as stated above, the measures to ensure the fairness of the terms
and conditions for the Tender Offer, particularly, the Tender Offer Price, and to remove
arbitrariness from the process for the Target Company’s judgment and decision-making
therefor are considered to be reasonable and appropriate; therefore, the third-party panel
believes that the fairness of the terms and conditions for the Procedures to Go Private is
ensured.

C)

Under the framework and circumstances set forth in “(II) The Target Company Obtaining a
Share Value Appraisal Report from an Independent Third-Party Appraiser” above, and “(IV)
An Independent Law Firm’s Advice to the Target Company” below, the Target Company has
explained as follows: recognizing the necessity to carefully ensure appropriateness andfairness of the terms and conditions for the Tender Offer and the Procedures to Go Private, theTarget Company requested the Tender Offeror, from an early stage of discussions, todetermine the terms and conditions with full consideration of the interests of the Target
Company’s minority shareholders, and has comprehensively examined the factors, such as
their reasonableness and fairness, and the reality of these terms and conditions; during a seriesof discussions with the Tender Offeror, the Target Company has worked to finalize thediscussion on the Tender Offer Price to be approved at the board of directors’ meeting; then,the Target Company and the Tender Offeror finally reached an agreement on the terms andconditions for the Tender Offer, including the Tender Offer Price and the Procedures to Go
Private, and the Target Company decided to use such agreed price as the Tender Offer Priceplanned to be resolved at the board of directors. In light of these facts, the Target Company isconsidered to have taken specific measures in the process of responding to and reviewing the- 14 Tender Offer and the Procedures to Go Private, such as: securing a reasonable opportunity for
all shareholders of the Target Company to make their decisions by giving early and detailed
disclosures and explanations, removing arbitrariness from the decision-making process, aswell as securing objective circumstances toward ensuring the fairness of the terms andconditions for the Tender Offer, particularly, the Tender Offer Price, and for the Procedures to
Go Private; for these reasons, the Target Company is considered to have provided fullconsideration of the interests of the Target Company’s shareholders through fair procedures.
D)

Regarding those other than the matters reviewed in A) to C) above, the third-party panel foundno particular circumstances at present where the Transaction will be disadvantageous to theminority shareholders of the Target Company.

(IV)

An Independent Law Firm’s Advice to the Target Company

The Target Company has explained to Osaka Steel that, in order to carefully discuss the Transaction,
including the Tender Offer, and to ensure the fairness and appropriateness of the decision-making
process of the Target Company’s board of directors, the Target Company appointed Anderson Mori &Tomotsune as its legal advisor, which is independent of the Target Company, Osaka Steel and Hanwa,
and received legal advice regarding the decision-making methods and processes used by the Target
Company’s board of directors, including the procedures regarding the Tender Offer.
(V)

Unanimous Approval of the Target Company’s Directors without Conflicts of Interest

The Target Company has explained to Osaka Steel that the Target Company took the following into
consideration: (i) as stated in “(II) The Target Company Obtaining a Share Value Appraisal Reportfrom an Independent Third-Party Appraiser” above, among the valuation results from Mitsubishi UFJ
Morgan Stanley Securities, the Tender Offer Price is higher than the upper limit of the valuation range
based on the market price method, yet is within the range based on the comparable companies analysis
and the DCF Analysis; (ii) the Tender Offer Price is higher than the highest stock price for the past
five years of the Target Company; (iii) the Tender Offer Price is the price obtained by adding apremium of 55.9% (rounding off to the first decimal place; the same method was applied to thecalculation of premiums in this paragraph) to 404 yen (the closing price of the Shares on JASDAQ on
September 17, 2015, which is the immediately preceding business day to that on which the plan of theTender Offer is announced (September 18, 2015)), a premium of 60.3% to 393 yen (the simple
average closing price for the most recent one (1) month leading up to September 17, 2015; rounding
off to the closest whole number; the same applies to calculations of the simple average closing price),a premium of 57.5% to 400 yen (the simple average closing price for the most recent three (3) months
leading up to September 17, 2015), and a premium of 55.2% to 406 yen (the simple average closing
price for the most recent six (6) months leading up to September 17, 2015), respectively, and isconsidered to be a reasonable percentage of premium compared with those in similar tender offer
cases; and (iv) the Tender Offer Price was determined after having taken adequate measures necessary
to avoid conflicts of interest as stated in “(II) The Target Company Obtaining a Share Value Appraisal
Report from an Independent Third-Party Appraiser,” “(III) The Target Company Establishing an
Independent Third-Party Panel” and “(IV) An Independent Law Firm’s Advice to the Target
Company” above. Furthermore, after carefully considering the Tender Offer, the Target Company
determined that the Tender Offer will offer a reasonable opportunity for the Target Company’s
shareholders to sell their Shares. Accordingly, the Target Company’s board of directors, at its meeting
held on September 18, 2015, adopted a resolution with the unanimous approval of all the directors
who participated in the deliberations and the resolution (including directors who are audit committee
members) to express an opinion, as its opinion at present, to support the Tender Offer and recommendthat the Company’s shareholders tender Shares in the Tender Offer, in the event of its commencement.

- 15 (5)

Policies regarding Reorganization, etc. after the Tender Offer (Matters regarding the So-called
Two-Stage Purchase)

As stated in “(1) Overview of the Tender Offer” above, Osaka Steel will conduct the Tender Offer aspart of the Transaction to cause the two companies (i.e., Osaka Steel and Hanwa) to become the Target
Company’s only two shareholders, and to make the Target Company a subsidiary of Osaka Steel andto make it go private. Osaka Steel also intends to request that the Target Company implement theProcedures to Go Private as stipulated below, on the condition that the total amount of the voting
rights corresponding to the number of Shares owned by Osaka Steel and Hanwa reaches or exceeds thevoting rights threshold after the successful completion of the Tender Offer.
More specifically, if the total amount of the voting rights corresponding to the number of Shares
owned by Osaka Steel and Hanwa reaches or exceeds the voting rights threshold after the successful
completion of the Tender Offer, Osaka Steel will request that the Target Company submit to its
general shareholders meeting (the “Shareholders Meeting”) a proposal to consolidate the Shares (the“Stock Consolidation”) and a proposal to partially amend the Articles of Incorporation, including
abolishing the unit share clause, on the condition that the Stock Consolidation becomes effective.
Subject to the timing of the successful completion of the Tender Offer, at present, the Shareholders
Meeting is expected to be held when an ordinary shareholders meeting is held in June 2016.
Osaka Steel and Hanwa plan to agree to each proposal mentioned above at the Shareholders Meeting.
If the proposal for the Stock Consolidation is approved at the Shareholders Meeting, the Target
Company’s shareholders will own the number of Shares reflecting the consolidation ratio that wasapproved at the Shareholders Meeting, on the day when the Stock Consolidation takes effect. If, as aresult of the Stock Consolidation, there is any fraction of less than one share, then pursuant to theprocedures provided in Article 235 of the Companies Act (Act No. 86 of 2005, as amended) and otherrelevant laws and regulations, the amount of money obtained by the sale of the Shares corresponding
to the total of such fractions (any fraction of less than one share in the total number shall be roundedoff) to the Target Company or Osaka Steel will be delivered to each shareholder having such fractional
Shares based on the number of Shares owned by it immediately before the Stock Consolidation. The
sale price of the Shares corresponding to the total of such fractions will be calculated so that theamount of money to be delivered to each shareholder of the Target Company (excluding Osaka Steel,Hanwa and the Target Company) who did not tender Shares in the Tender Offer equals the Tender
Offer Price multiplied by the number of Shares owned by each such shareholder as a result of the sale,and a request to permit such voluntary sale will be filed with the court. The consolidation ratio is not
yet determined as of today; however, it will be determined in a way so that the number of Shares
owned by the Target Company’s shareholders (excluding Osaka Steel, Hanwa and the Target
Company) who did not tender Shares in the Tender Offer will be a fraction of less than one share andOsaka Steel and Hanwa can own all of the Shares accordingly.
Furthermore, if, as a result of the Stock Consolidation, there is any fraction of less than one share, theCompanies Act provides that each shareholder of the Target Company may request that the Target
Company purchase all fractions of the Shares owned by it at a fair price, and that each shareholder
may file a petition to determine the price of the Shares pursuant to Articles 182-4 and 182-5 of theCompanies Act and other relevant laws and regulations.
The method and timing of the above-mentioned procedures may change subject to any revision or
enforcement of relevant laws or regulations, or depending on the interpretation by the competentauthorities, the ownership ratio of Shares by Osaka Steel and Hanwa after the Tender Offer, and theownership of the Shares by any person other than Osaka Steel and Hanwa. However, even in thosecases, the plan to conduct the process to make Osaka Steel and Hanwa the only shareholders of theTarget Company remains unchanged on the condition that the total amount of voting rights
corresponding to the number of Shares owned by Osaka Steel and Hanwa reaches or exceeds thevoting rights threshold after the successful completion of the Tender Offer. A method for providing
cash consideration to each shareholder of the Target Company who did not tender Shares in the- 16 Tender Offer (excluding Osaka Steel, Hanwa, and the Target Company) will be adopted, and in thatcase, the amount of the consideration to be paid to each such shareholder will be calculated to equal
the Tender Offer Price multiplied by the number of Shares owned by each such shareholder.
However, where a petition to determine the price for requesting to purchase Shares in the Stock
Consolidation is conducted, the price regarding the share purchase request will be finally determinedby the court.
The Tender Offer does not invite the Target Company’s shareholders to support the Tender Offer at
the Shareholders Meeting. Each shareholder should confirm with a tax accountant or other specialists,
at its own responsibility, how receiving money as a result of the Tender Offer or the procedures
mentioned above, and the purchase of Shares upon the share purchase request, are treated underrelevant tax laws.
(6)

Likelihood of and Reasons for Delisting

As of today, the Shares are listed on JASDAQ. However, because Osaka Steel has not determined amaximum limit on the number of Shares to be purchased in the Tender Offer, depending on theoutcome of the Tender Offer, there is a possibility of the Shares being delisted in accordance with theestablished procedures and pursuant to the share delisting standards of the TSE. Furthermore, even if
these standards are not applicable at the time of completing the Tender Offer, when the total amount of
the voting rights corresponding to the number of Shares owned by Osaka Steel and Hanwa reaches orexceeds the voting rights threshold after the successful completion of the Tender Offer as stated in “(5)Policies regarding Reorganization, etc. after the Tender Offer (Matters regarding the So-called TwoStage Purchase),” the Procedures to Go Private will be implemented. In that case, the Shares are
expected to be delisted in accordance with established procedures and pursuant to the share delisting
standards of the TSE. After the delisting, the Shares will no longer be able to be traded on JASDAQ.
In the meantime, where the total amount of the voting rights corresponding to the number of Shares
owned by Osaka Steel and Hanwa does not reach the voting rights threshold after the successful
completion of the Tender Offer, Osaka Steel will determine whether to implement the procedures totake the Target Company private after discussing with Hanwa and the Target Company, and will
announce the decision by the commencement of the Tender Offer. If the Target Company determines
not to go private, the Shares are expected to remain listed on JASDAQ. If the Target Company
determines to go private, in accordance with the Procedures to Go Private, a method for providing
cash consideration for each shareholder of the Target Company who did not tender Shares in theTender Offer (excluding Osaka Steel, Hanwa, and the Target Company) will be adopted, and in thatcase, the amount of the consideration to be paid to each such shareholder will be calculated to equal
the Tender Offer Price multiplied by the number of Shares owned by each such shareholder.
2.

Overview of the Purchase(1)

Overview of the Target Company(1) Name(2) Location(3) Title and Name ofRepresentative(4) Type of Business(5) Stated CapitalTokyo Kohtetsu Co., Ltd.
17-9, Uchikanda 1-chome, Chiyoda-ku, Tokyo
Hideo Kurihara, President
Manufacturing and rolling steel using electric furnaces;
Manufacturing and selling equal-angle steel, unequal-angle steel, equalangle steel with R, and billet
Precision cutting, press drilling, welding, processing and selling
Processing into, and designing, manufacturing and selling particularshapes of steel
Designing, manufacturing, and selling solar panel mounts
2,453 million yen (as of June 30, 2015)

- 17 (6) Date of Incorporation(7) Major Shareholders
and Ownership Ratio(as of March 31,2015)(Note)

July 18, 1962
Mitsui & Co., Ltd.
(standing agency: Trust & Custody Services Bank, Ltd.
29.19%
Hanwa Co., Ltd.
26.43%BBH FOR FIDELITY LOW-PRICED STOCK FUND
(standing agency: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
7.85%
ASAHI INDUSTRIES CO., LTD.
4.99%
Morgan Stanley MUFG Securities Co., Ltd.
3.62%
NIPPON STEEL & SUMIKIN BUSSAN CORPORATION
3.15%
Shinichiro Shimizu
2.87%
Masanori Shimizu
2.87%
BBH FIDELITY PURITAN FIDELITY SERIES INTRINSICOPPORTUNITIES FUND
(standing agency: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
1.76%
Mikio Kobayashi
1.40%
Tatsuo Kobayashi
1.40%(8) Relationship between Osaka Steel and the Target Company
Capital Relationship
Not applicable.
Personnel Relationship
Not applicable.
Business Relationship
Not applicable.
Whether to fall under the
The Target Company is not a related party of Osaka Steel. None
Related Partiesof Osaka Steel’s interested parties or related companies are a
related party of the Target Company.
(Note 1)

(2)

“Major Shareholders and Ownership Ratio” is from “Status of Major Shareholders” in the Securities
Report filed on June 26, 2015 by the Target Company.

Schedule, etc.

The Tender Offer will commence after Osaka Steel receives a notice from the FTC stating that the
FTC will not issue a cease-and-desist order under the Anti-Monopoly Act as a result of the businesscombination review currently underway pursuant to the Anti-Monopoly Act. Osaka Steel plans to
conduct the Tender Offer soon after the completion of the FTC’s business combination review, whichis expected in approximately February 2016. Osaka Steel will promptly announce the specificscheduling of the Tender Offer once it has been determined.
(3)

Purchase Price

630 yen per Share(4)

Basis for the Calculation of the Purchase Price(I)

Basis for the Calculation

In determining the Tender Offer Price, Osaka Steel asked SMBC Nikko Securities, its financial
advisor and a third-party appraiser independent of Osaka Steel, the Target Company and Hanwa, tocalculate the Target Company’s share value.
After considering calculation methods for the Tender Offer, SMBC Nikko Securities calculated theTarget Company’s share value using the market price method, the comparable listed company method,
and the DCF Method, and Osaka Steel obtained the Share Value Appraisal Report on September 17,
2015 from SMBC Nikko Securities. Osaka Steel has not obtained any opinion regarding the fairnessof the Tender Offer Price (a fairness opinion) from SMBC Nikko Securities.

- 18 According to the Share Value Appraisal Report, the adopted methods, and the range of the per-sharevalue of the Shares calculated based on each of the methods, are as follows:
Market price method:
Comparable listed company method
DCF Method

391 yen to 400 yen
462 yen to 670 yen
581 yen to 667 yen

Under the market price method, the per-share value ranges from 391 yen to 400 yen based on therespective simple average closing prices of the Shares on JASDAQ for the period from August 26,
2015, the business day following the date when the Target Company released the “Announcement
regarding Revision to the Prospect of Dividends for the Period Ending in March 2016” on August 25,
2015 up to a reference date of September 17, 2015, the most recent one (1) month up to the reference
date and the most recent three (3) months up to the reference date (respectively, 391 yen, 393 yen and
400 yen).
Under the comparable listed company method, the per-share value ranges from 462 yen to 670 yen by
selecting listed companies that engage in businesses comparatively similar to those of the Target
Company, and applying the ratio of financial figures to the share price, etc. of those listed companies,
to the Target Company’s financial figures.
Under the DCF Method, the per-share value of the Shares ranges from 581 yen to 667 yen subject tothe business plan of the Target Company from the business year ending March 2016 to the businessyear ending March 2020, which Osaka Steel independently examined, trends in business results todate, publicly released information, and other various factors, and by analyzing the Target Company’s
corporate value and the share value by discounting the free cash flow that is expected to be generated
by the Target Company from March 2016 at a certain discount rate to the present value.
In its board of directors’ meeting held on September 18, 2015, Osaka Steel ultimately determined to
set the Tender Offer Price at 630 yen per Share by comprehensively taking into consideration: thevaluation results of the Share Value Appraisal Report obtained from SMBC Nikko Securities, as wellas the results of the due diligence which Osaka Steel conducted on the Target Company; trends inmarket prices of the Target Company’s stock for the past three (3) months; premiums granted when
determining the purchase price in other cases of a tender offer for shares conducted by a party otherthan an issuer; whether consent was obtained from the Target Company’s board of directors and othermatters. Additionally, the outcome of discussions with each of the Target Company, Hanwa and
Mitsui were also taken into consideration.
The per-share value of 630 yen, which is the Tender Offer Price, is the price obtained by adding apremium of 55.94% (rounding off to the second decimal place; the same method was applied to
calculations of premiums) to 404 yen (the closing price of the Shares on JASDAQ on September 17,
2015, which is the immediately preceding business day to that on which the plan of the Tender Offer
is announced (September 18, 2015)), a premium of 60.31% to 393 yen (the simple average closing
price for the most recent one (1) month leading up to the above-stated date), a premium of 57.50% to
400 yen (the simple average closing price for the most recent three (3) months leading up to the abovestated date), and a premium of 55.17% to 406 yen (the simple average closing price for the most recent
six (6) months leading up to the above-stated date), respectively.
(Note) SMBC Nikko Securities prepared the Share Value Appraisal Report on the assumptionthat all the materials and information used as the basis of the report were accurate andcomplete, and it has not verified the accuracy and completeness of those materials andinformation independently, and owes no obligation or duty to do so. In addition, it has
not valued, appraised, or assessed assets and liabilities of the Target Company andaffiliates thereof independently, nor has it asked a third-party institution to value,
appraise or assess the same. If any issue regarding the accuracy or completeness of
those materials or information is found, the valuation results may be significantly

- 19 different. Furthermore, it is assumed that there are no undisclosed lawsuits, disputes,
claims or liabilities related to the environment, tax, or the like, or other contingent
liabilities or off-balance sheet liabilities, any other facts that have material impact on
the Share Value Appraisal Report, in relation to the Target Company nor its affiliates.
It is assumed that the business plan and the like which SMBC Nikko Securities used in
the Share Value Appraisal Report was prepared based on the best forecast andjudgment as of the reference date, and that the provider of this information prepared
the business plan and the like in accordance with reasonable and appropriate
procedures. The Share Value Appraisal Report may have been compiled using
analyses based on materials and information provided to it and by setting certain
hypotheses, on the assumption that the materials and information so provided and the
hypotheses are accurate and reasonable. SMBC Nikko Securities has not verified theaccuracy, appropriateness, and feasibility of the above assumptions independently, andshall not be obligated or liable therefor.
SMBC Nikko Securities submitted the valuation results to Osaka Steel upon Osaka
Steel’s request solely to help Osaka Steel’s Board of Directors determine the Tender
Offer Price, and the results are not a representation by SMBC Nikko Securities of its
opinion regarding the fairness of the Tender Offer Price.
(II)

Background of the Calculation(Background Leading to the Determination of the Tender Offer Price)
As stated in “(2) Background Leading up to, Purposes of, and Decision-making Process for, theTender Offer, and the Post-Tender Offer Management Policies” in “1. Purpose, etc. of the Purchase”
above, Osaka Steel and the Target Company have recognized that competition in the market
environment in the ordinary steel/steel products industry, to which they both belong, will become
increasingly fierce in the future. In late April 2015, Osaka Steel proposed to the Target Company theplan that Osaka Steel would make the Target Company its subsidiary and take it private. The aim of
this proposal was to maintain and improve both companies’ corporate value, through the following
two approaches: (1) reinforcing the Target Company’s business infrastructure, improving theefficiency of its business, and improving its technological capabilities, by Osaka Steel making theTarget Company its subsidiary and taking it private, and (2) improving cost competitiveness, productvariety, delivery, and other types of customer services by improving the efficiency of the
manufacturing structure through the alliance of the two companies, and this proposal further aimed toallow them to have manufacturing bases in both eastern and western Japan. Since then, Osaka Steeland the Target Company have discussed and considered measures to maintain and improve theircorporate value on numerous occasions.
As a result, Osaka Steel and the Target Company reached a conclusion that, in order to maintain andimprove their respective corporate values in such a fiercely competitive market environment as is
anticipated, it is necessary to form a close alliance, facilitate mutual use of management resources, andenhance their business structures, which will all be achieved by conducting the Transaction.
Accordingly, in its board of directors’ meeting held on September 18, 2015, Osaka Steel decided to
implement the Tender Offer to make the Target Company its subsidiary and take it private, and to set
the Tender Offer Price at 630 yen after discussions with the Target Company from late April 2015 to
September 18, 2015, with Hanwa from late July 2015 to the same date, and with Mitsui from late
April 2015 to the same date.
(i)Name of the Third Party with Which Osaka Steel consulted for the Calculation
When determining the Tender Offer Price, Osaka Steel referred to the Share Value
Appraisal Report submitted by SMBC Nikko Securities, its financial advisor and athird-party appraiser independent of Osaka Steel, the Target Company, and Hanwa.

- 20 Osaka Steel has not obtained any opinion regarding the fairness of the Tender Offer
Price (a fairness opinion) from SMBC Nikko Securities.
(ii)

Outline of the Report
SMBC Nikko Securities calculated the share value of the Target Company by using
the market price method, the comparable listed company method, and the DCF
Method. The ranges of the per-share value of the Target Company’s stock calculatedusing each method are as follows:
Market price method:
Comparable listed company method
DCF Method(iii)

391 yen to 400 yen
462 yen to 670 yen
581 yen to 667 yen

Background Leading to the Determination of the Tender Offer Price Taking Into
Consideration the Report
As stated in “(I) Basis for the Calculation,” in its board of directors’ meeting held on
September 18, 2015, Osaka Steel ultimately decided to set the Tender Offer Price at
630 yen, by referring to the Share Value Appraisal Report it obtained from SMBC
Nikko Securities on September 17, 2015, by comprehensively considering: the resultsof the due diligence which Osaka Steel conducted on the Target Company; trends inmarket prices of the Target Company’s stock for the past three (3) months; premiums
granted when determining the purchase price in other cases of a tender offer for sharesconducted by a party other than an issuer; whether consent to the Tender Offer was
obtained from the Target Company’s board of directors; and other matters, and after
holding discussions with each of the Target Company, Hanwa, and Mitsui, as statedabove.

(III)

Relationship with the Appraiser

Osaka Steel’s financial advisor SMBC Nikko Securities is not a related party of Osaka Steel, Hanwa,
or the Target Company, nor is it materially interested in the Tender Offer.
(5)

Number of Shares to be Purchased

Osaka Steel will announce the specific number of Shares to be purchased before the commencementof the Tender Offer. If the aggregate number of the Tendered Shares does not reach the minimum
number of Shares to be purchased (see Note 2 of “(1) Overview of the Tender Offer” in “1. Purpose,etc. of the Purchase”), no Tendered Shares will be purchased. If the aggregate number of theTendered Shares reaches or exceeds the minimum number of Shares to be purchased, all such Shares
will be purchased.
Shares less than one unit will also be subject to the Tender Offer.
Osaka Steel does not intend to acquire treasury shares through the Tender Offer.
(6)

Changes in the Share Holding Ratio as a Result of the Purchase, etc.

Osaka Steel will announce these matters before the commencement of the Tender Offer.
(7)

Purchase Price

The total purchase price will be the amount obtained by multiplying the Tender Offer Price, which isthe per-share value of the Shares (630 yen) by the number of Shares to be purchased. Osaka Steel will
announce the specific amount before the commencement of the Tender Offer.

- 21 -

(8)

Other Conditions and Method of the Purchase, etc.

Osaka Steel will announce these matters as soon as they are determined, as it will with the schedulingof the Tender Offer.
(9)

Tender Offer AgentSMBC Nikko Securities Inc.
3-3-1, Marunouchi, Chiyoda-ku, Tokyo
3.

Policies after the Tender Offer and Future Prospects(1)

Policies after the Tender Offer

The policies after the Tender Offer are as stated in “(II) The Post-Tender Offer Direction and Expected
Outcomes” in “(2) Background Leading up to, Purposes of, and Decision-making Process for, theTender Offer, and the Post-Tender Offer Management Policies,” and “(5) Policies regarding
Reorganization, etc. after the Tender Offer (Matters regarding the So-called Two-Stage Purchase)”and “(6) Likelihood of and Reasons for Delisting,” under “1. Purpose, etc. of the Purchase, etc.”(2)

Future Prospects

Osaka Steel is currently investigating the impact of the Tender Offer on its financial results. If any
need to revise the results forecast arises or if any facts to be disclosed are found, it will disclose thesame promptly.
4.

Others(1)

Agreement between the Tender Offeror and the Target Company or its Officers, and theDetails Thereof

Osaka Steel has been informed by the Target Company that the Target Company adopted a resolution
at its board of directors’ meeting held on September 18, 2015 to express an opinion, as its opinion atpresent, to support the Tender Offer and recommend that the Target Company’s shareholders tender
Shares in the Tender Offer in the event of its commencement. For the details of the decision-making
process of the Target Company’s board of directors and the opinion, please see “(2) BackgroundLeading up to, Purposes of, and Decision-making Process for, the Tender Offer, and the Post-Tender
Offer Management Policies” and “(V) Unanimous Approval of the Target Company’s Directors
without Conflicts of Interest” in “(4) Measures to Ensure Fairness of the Tender Offer including
Measures to Ensure Fairness of the Purchase Price and Measures to Avoid Conflicts of Interest,” under“1. Purpose, etc. of the Purchase, etc.”(2)

Other Information that is Considered to be Necessary When Investors Determine Whether toTender an Offer to Purchase, etc.

(I)

Revision to the Prospect of Dividends

The Target Company released the “Announcement regarding revision to the Prospect of Dividends for
the Period Ending in March 2016” on September 18, 2015. According to the announcement, theTarget Company resolved in its board of directors’ meeting held on September 18, 2015, to revise theprospect of dividends for the period ending in March 2016, which was released on May 8, 2015, andnot to pay any dividends for that period, subject to successful completion of the Tender Offer. For
details, please see the announcement by the Target Company.
End.

- 22 -

This press release is a document to publicly release the schedule of the Tender Offer process, and was
not prepared for the purpose of soliciting a tender for a sale or purchase of the Shares. If you intend totender an offer to sell Shares in the Tender Offer upon the commencement of the Tender Offer, please
make sure that you refer to the Tender Offer Explanatory Document regarding the Tender Offer inadvance, and tender for it at your own discretion. This press release is not a tender for, or asolicitation for a tender for, a sale or purchase of securities, and does not constitute a part of theforegoing. In addition, this press release (or any part of it) or distribution thereof will not be the basis
for any agreement concerning the Tender Offer, nor will it be relied upon when executing anagreement.
If the Tender Offer is commenced, the Tender Offer will be conducted in compliance with theprocedures and information disclosure standards stipulated under Japanese law, and those procedures
and standards are not always the same as those in the United States. In particular, neither Section
13(e) nor Section 14(d) of the U.S. Securities Exchange Act of 1934 and rules under these sections
apply to the Tender Offer; therefore, the Tender Offer is not conducted in accordance with those
procedures and standards. The financial information included in this press release is based onJapanese accounting standards, and these standards may largely differ from the general accounting
principles adopted in the U.S. or other countries.
If the Tender Offer is commenced, all procedures regarding the Tender Offer will be conducted inJapanese unless specifically set forth otherwise. All or a part of the documents regarding the Tender
Offer will be prepared in English; however, if there is any discrepancy between the documents in
English and in Japanese, the document in Japanese shall prevail.
This press release includes the “forward-looking statements” as defined in Section 27A of the U.S.
Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. The actual
results may be significantly different from the content expressly or impliedly indicated in the forwardlooking statements, due to known or unknown risks, uncertainty, or other factors. The Tender Offeror
and its affiliates do not guarantee that the outcomes expressly or impliedly indicated in the forwardlooking statements will be accomplished. The forward-looking statements included in this press
release were prepared based on the information held by the Tender Offeror as of the date hereof, andunless obligated by laws or regulations, the Tender Offeror and its affiliates shall not be obligated to
update or revise the statements to reflect future incidents or situations.
The financial advisor to the Offeror and the Tender Offer Agent (including their affiliates) may,within their ordinary course of business and to the extent permitted under Japan’s securities laws andin accordance with the requirements of Rule 14e-5(b) under the U.S. Securities Exchange Act of 1934
(including any amendments thereafter), prior to the commencement of, or during the tender offer
period in the Tender Offer, engage in the purchase, or arrangement to purchase, of shares of the Target
Company for its own account or for its customer’s accounts by means other than pursuant to theTender Offer. If any information concerning any such purchases is disclosed in Japan, corresponding
disclosure will be made on the websites of the financial advisor or the Tender Offer Agent (orthrough other public disclosure methods) in English.