Tokyo Century : Q&A Regarding the Bond-Type Class Shares

Q&A regarding the Bond-

Type Class Shares

May 14, 2024

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Q&A regarding the Bond-Type Class Shares

Question

Answer

1. What is the purpose of the Amendment to the Articles of Incorporation regarding the Bond-Type Class Shares?

• We intend to amend the Articles of Incorporation and add various provisions pertaining to the Bond-Type Class Shares in order to add the Bond-Type Class Shares as one of the options for securing a wide range of financing methods for us to execute optimal and flexible financial strategies and capital policies, while maintaining financial soundness and liquidity, with the overall aim of achieving the "Medium-Term Management Plan 2027," which started in the business year ended March 31, 2024.

	•	The Bond-Type Class Shares are considered by their nature to be ill-suited as a takeover protection measure
		and are not anticipated to be used in that manner owing to the lack of voting rights at general shareholders
2. Is it possible to use the Bond-Type Class		meetings and the lack of the rights to convert the Bond-Type Class Shares into common shares, irrespective
Shares as a takeover protection measure?		of the ownership ratio.
	•	Further, the Bond-Type Class Shares are not anticipated to be allotted to the holders of common shares by
		gratis allotment or the like.
3. While multiple series of the Bond-Type Class	•	We propose to have the authorized share capital so as to realize flexible issuance in the event of any demand
	for an increase in equity capital.
Shares are provided under the proposed Articles
•	In addition, since we expect to refinance through products certified as capitalized at least at the level of the
of Incorporation, what are the thoughts of the
	Bond-Type Class Shares or hybrid bonds by the rating agencies in general if we acquire (call) them		in
Company on the specific issuances?
	exchange for money, further series of the Bond-Type Class Shares may be issued for such acquisition.
	•	While the Bond-Type Class Shares are shares provided under the Companies Act, we envision a product
4. What are the characteristics of the Bond-Type		nature that has "bond-like" features, in consideration of the Common Shareholders.
•	Specifically, the holders of the Bond-Type Class Shares will not have the rights to vote or to convert the Bond-
Class Shares?
	Type Class Shares into common shares, and as the Bond-Type Class Shares are non-participating class
		shares, no dividend will be paid beyond the preferred dividend initially set.

5. Will the Bond-Type Class Shares cause any disadvantages to the Common Shareholders?

• Since the holders of the Bond-Type Class Shares will not have the rights to vote or to convert the Bond-Type Class Shares into common shares, the Bond-Type Class Shares will not cause any dilution of voting rights.
• The shares are non-participating class shares for which no dividend is paid beyond the preferred dividend initially set, and only the Common Shareholders have the right to receive dividends other than such preferred dividend.
• We believe that we can secure a sound financial base while containing the impact on our ROE, EPS, or the like for the common shares(*1), compared to a capital increase through the issuance of common shares.

*1: On the assumption that the relevant amounts of the Bond-Type Class Shares (paid-in amount and preferred dividends) are deducted from the net assets and net income when calculating ROE, EPS, or the like for common shares.

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Q&A regarding the Bond-Type Class Shares

Question

Answer

	•	In addition to conventional common shares and bonds, bond-type class shares have been used as a means
		of financing, and there are also examples such as listed preferred shares.
6. What are the examples of bond-type class	•	We are aware that listed bond-type class shares were first issued by Softbank Corp. in 2023, and several
shares issued by other companies?		other companies are preparing to issue similar shares.
	•	Meanwhile, we believe that we are the first to prepare for issue of the bond-type class shares in the leasing
		industry.

7. What does "product nature similar to that of hybrid bonds" mean?

• We are considering a product nature for the Bond-Type Class Shares that are able to be certified as capitalized(*2) by the rating agencies (R&I, JCR, and S&P).
• The dividend is fixed for approximately the first 5 years, and after 5 years have elapsed from the issuance, we may acquire (call) the Bond-Type Class Shares in exchange for money in an amount equal to the issue price plus adjustments for accrued dividends, etc.

8. Why is the timing of the 1% increase in the	•	The timing has been set after 25 years have elapsed in order to ensure a product nature in which the Bond-
spread in this case after 25 years rather than after		Type Class Shares are able to be certified as capitalized (*2) by all rating agencies (R&I, JCR, and S&P) from
5 years, unlike the case of other issuances?		which we will obtain ratings, which is similar to our outstanding hybrid bonds.
	•	The Bond-Type Class Shares differ significantly from ordinary hybrid bonds in that they allow for increased
9. What is the difference between the Bond-Type		equity for accounting purposes.
Class Shares and hybrid bonds?	•	In addition, the Bond-Type Class Shares will be a product available for investment by a wide range of
		investors (eligible for NISA) through listing on the Tokyo Stock Exchange.

10. What is the expected role of hybrid capital in the financial strategy and positioning of that in the capital structure?

• Considering the feasibility of increased investment while aiming for sustainable growth, we expect the Bond- Type Class Shares to contribute to our financial soundness as a capital buffer without dilution of the voting rights of common shares.
• We believe that it will be a useful method for pursuing optimal financing options for our business and financial strategies going forward since it will lead us to secure a variety of financing methods.

	•	Although the specific format of the issuance has not yet been determined at this time, if we issue the Bond-
11. What format of the issuance is planned?		Type Class Shares, we plan to make them available for purchase by a wide range of investors, including retail
	investors, through a public offering in Japan.
	•	We plan to make the Bond-Type Class Shares also available for investment by the Common Shareholders.
	•	The specific timing of the issuance has not yet been determined at this time.
12. When is the planned timing of the issuance of	•	If the proposal for the Amendment to Articles of Incorporation for the Bond-Type Class Shares is approved at
	the General Shareholders Meeting, we expect to consider the timing and amount, taking market conditions
the Series 1 Bond-Type Class Shares and what is
	into account, based on our financial strategies and capital policies.
the planned amount for the issuance?
•	In addition, the maximum issuance amount has been set at 100 billion yen in the shelf registration for the
		Series 1 Bond-Type Class submitted on May 14, 2024.

*2: The amount to be certified as capitalized under rating assessments is expected to be as follows: for R&I, 50% of the amount of financing; for JCR, 50% of the amount of financing for approximately 5 years after the issuance and 25% of the amount of financing thereafter; and for S&P, 100% of the amount of financing for approximately 5 years after the issuance and 0% thereafter.

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Q&A regarding the Bond-Type Class Shares

Question

Answer

13. What will the proceeds obtained from the Series 1 Bond-Type Class Shares be used for?

• The proceeds will be allotted as general business funds such as funds for equipment including leased properties, funds for the purchase of properties for installment sales and the like, loan funds, funds for the acquisition of securities, funds for investments, working capital, funds for repayment of loans, funds for redemption of short-term bonds, and funds for redemption of commercial papers or bonds. We expect to consider the specific use of proceeds as one of the options to implement flexible financial strategies and capital policies when demand for such funds materializes.

	•	We have set the annual dividend ratio range after comprehensively taking into account the market pricing of
		our outstanding hybrid bonds and other similar hybrid bonds and other factors under the current market
14. Why is the annual dividend ratio range		conditions and based on the product nature of its position between equity and debt.
•	In practice, because the annual dividend ratio will be determined by the similar method to the book building
anticipated to be from 2 to 4%?		method as prescribed in Article 25 of the Rules Concerning Underwriting, Etc. of Securities provided by the
		Japan Securities Dealers Association, it is possible that the annual dividend ratio for the period until the
		business year in which the date on which five years have elapsed after that issuance date falls will not
		actually be within the anticipated range above.
15. What is the reason for considering listing the	•	Because in order to make the Bond-Type Class Shares available for investment by a wide range of investors,
Bond-Type Class Shares on the Tokyo Stock		we believe it is important to increase recognition of the shares and provide trading opportunities by listing
Exchange?		them on the Tokyo Stock Exchange.
	•	We will determine whether to acquire (call) the Bond-Type Class Shares in exchange for money after
		comprehensively taking into consideration our business and financial strategy at the time, market conditions,
16. Does the Company plan to acquire (call) the		and other factors.
Bond-Type Class Shares in exchange for money	•	We are fully aware that, as is customary in the market for hybrid financing, many investors will expect a call
after 5 years from the issuance?		when it becomes possible to implement, such as 5 years after the issuance date or later (when the
		capitalization certified by the rating agency declines).
	•	In April 2024, the Series 1 Hybrid Bonds were redeemed prior to their maturity on the first call date.
17. Will your dividend policy on the common	•	Our basic dividend policy of realizing long-term and stable shareholder returns remains unchanged. There is
shares be affected if the Series 1 Bond-Type
	no change to our dividend forecast for this business year.
Class Shares are issued?
18. If the Series 1 Bond-Type Class Shares are
issued, are the holders of the Series 1 Bond-Type	•	The holders of the Series 1 Bond-Type Class Shares will not be eligible for shareholder benefits.
Class Shares eligible for shareholder benefits?

19. What is the reason for the Amendment to Articles of Incorporation while hybrid bonds are also certified as capitalized under rating assessments?

• Hybrid bonds are liabilities for accounting purposes, and the Amendment to Articles of Incorporation will increase our options of financing methods to realize an increase in our equity capital for accounting purposes.
• The issuance of the Bond-Type Class Shares has not yet been determined and will be determined after careful examination in addition to being compared with other financing methods.

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Disclaimer

This material has been prepared solely for the benefit of the holders of shares of common stock of Tokyo Century Corporation (the "Company") in evaluating the proposal of the Company for a partial amendment to the Articles of Incorporation scheduled to be submitted to the Company's 55th annual general shareholders meeting planned to be held on June 24, 2024 and not for the purpose of soliciting investment or engaging in any other similar activities in Japan or any foreign country.

This material does not constitute an offer of securities in the United States or elsewhere. The securities referred to herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration thereunder or an applicable exemption from registration requirements under the Securities Act. The securities referred to above will not be publicly offered or sold in the United States.

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