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2020
Notice of Disposal of Treasury Stock through a Third-Party Allocation

Notice of Disposal of Treasury Stock through a Third-Party Allocation

October 30,2020

KDDI Corporation

KDDI Corporation (hereinafter, "KDDI") hereby provides notice of a Board of Directors meeting resolution in a meeting held on October 30, 2020 concerning the disposal of treasury stock through a third-party allocation (hereinafter, "Disposal of Treasury Stock"), as described below. KDDI concluded an agreement on a business and capital alliance (hereinafter, "Business and Capital Alliance Agreement") with Toyota Motor Corporation (hereinafter, "Toyota") with plans to dispose of the treasury stock by third-party allocation to Toyota.

1. Summary of the Disposal

(1)	Date of disposal	January 29, 2021
(2)	Number of shares for disposal	18,301,600 shares
(3)	Disposal price	2,853 yen per share
(4)	Raised capital	52,214,464,800 yen
(5)	Method of offer or disposal (Planned disposal recipient)	All shares will be allocated to Toyota through third-party allocation.
(6)	Other	The above items are conditional upon the effectiveness of the registration statement filed in accordance with the Financial Instruments and Exchange Act.

Note:

Subscription rights were forfeited for shares that were not applied for by Toyota.

2. Objective of and Reason for the Disposal

Since KDDI's founding in October 2000 through the merger of Daini Denden Inc. (DDI), KDD Corporation, and IDO Corporation, Toyota has been KDDI's second largest shareholder (with 12.95% of shares held as of September 2020). Since 2002, Toyota and KDDI have cooperated on G-BOOK and other services for the telematics business of Toyota.
In addition, prompted by the increase in internet-connected vehicles-connected cars-the two companies have been working together since 2016 to build a global communications platform independent of existing roaming services to ensure stable high-quality communications around the globe between data communications modules and cloud services. In this and other ways, the companies have been accelerating initiatives to provide safety and comfort through the integration of vehicles and communications.
The companies are also accelerating new initiatives that go beyond the borders of their core businesses of mobility and communications in anticipation of the coming future society in which towns, homes, people, and cars are all connected.
The companies will continue working to promote R&D in the areas of technologies in communications and connected cars, to develop services that enrich people's lives, and to solve social issues mainly through the use of big data.
Specifically, the companies will continue promoting the following initiatives;

1)

Jointly conducting R&D focused on communication platforms that enable optimal communications between towns, homes, people and cars as communication technologies evolve, including 4G, 5G, and 6G
2)

Jointly developing an operations and management system for next-generation connected cars to enable sophisticated operations by integratedly managing devices, networks, platforms, and services
3)

Jointly developing services and service platforms that aim to enrich people's lives and ensure their safety and security not only inside or outside of vehicles but also in every scenes
4)

Jointly working to address social issues arising between urban and rural areas and in regional communities using big data about towns, homes, people, cars, and more

Against the backdrop of the aforementioned business alliance, both companies reached the conclusion that it will be necessary to further strengthen their capital ties to promote their strategic alliance over the medium and long terms. The companies agreed to the Disposal of Treasury Stock and concluded a new Business and Capital Alliance Agreement against Toyota that includes the aforementioned business alliance to go into effect from today.

3. Amount of Funds Raised, Their Use, and Expected Payment Period

(1) Amount of Funds Raised

1	Total amount of money paid	52,214,464,800 yen
2	Estimated issuance expenses	17,000,000 yen
3	Estimated amount of cash on hand after deductions	52,197,464,800 yen

Notes:

1. Estimated issuance expenses do not include consumption tax.
2. Estimated issuance expenses include advisory expenses and expenses for creating securities registration statements.

(2) Specific Use of Funds Raised

As stated above in "2. Objective of and Reason for the Disposal," KDDI is focusing its efforts not just on its existing telecommunications business but also on areas providing services that integrate telecommunications into people's lives. Based on the business alliance with Toyota, KDDI will continue promoting businesses for automotive telecommunications and other relevant areas. In line with this plan, KDDI plans to allocate the funds raised through the Disposal of Treasury Stock to total operational funds. Moreover, until the money can be used as operational funds, KDDI plans to manage it as a bank deposit.

4. Considerations Concerning the Rational Use of Funds

Allocating the funds raised from the Disposal of Treasury Stock for the purposes listed in "3. Amount of Funds Raised, Their Use, and Expected Payment Period (2) Specific Use of Funds Raised" has been judged reasonable because it will help enhance KDDI's corporate value.

5. Rationality of Disposal Conditions

(1) Calculation Basis for the Amount of Money Paid, etc.

As a result of negotiations with the disposal side, KDDI set the amount of money paid at 2,853 yen per share. This was determined after negotiations with the disposal side that took into account various factors, including recent trends in KDDI's shares and the effect of its treasury stock acquisition policy on market supply and demand, and with reference to the average closing price of KDDI's common stock over the most recent three months and average closing price of KDDI's common stock in the most recent month.
The resulting amount of money paid conforms to the Japan Securities Dealers Association's Guidelines for the Handling of the Allocation of New Shares to a Third-Party. The amount of money paid is obtained by applying a 3.2% premium rate (rounded to nearest second decimal place, same for below) to 2,765 yen, the closing price of KDDI's common stock on the Tokyo Stock Exchange, Inc. (hereinafter, Tokyo Stock Exchange) on October 29, 2020, which is the business day preceding the Board of Directors' resolution related to the Disposal of Treasury Stock; or applying a 4.3% premium rate to 2,736 yen (decimal places truncated, same for below), which is the simple average closing price for the one-month period leading up to October 29, 2020; or applying a 3.9% discount rate to 2,970 yen, which is the simple average closing price for the three-month period leading up to October 29, 2020; or applying a 7.5% discount rate to 3,083 yen, which is the simple average closing price for the six-month period leading up to October 29, 2020. KDDI believes that the said amount does not constitute a favorable price for the planned disposal recipient for any of the periods laid out above.
We disclosed the EPS targeted in KDDI's new medium-term management plan (FY20.3-FY22.3, hereinafter, medium-term management plan) which was announced on May 15, 2019. Also we disclosed the flexible share buyback policy (hereinafter referred to as the "Treasury Stock Acquisition Policy") described in the medium-term management plan based on this time's acquisition of treasury stock (defined later).
Based on its disclosed information, we assume that transactions are conducted in the market and KDDI's stock price is formed, and it is considered that this information has already been incorporated in the market, that the acquisition of treasury stock is planned for a certain long period of 7 months, taking into consideration the balance between supply and demand in the market, and that the total number of shares that can be acquired for the treasury stock acquisition is up to 84,000,000 shares, and the total acquisition price of stocks is up to 200 billions of yen. Therefore KDDI believes that the amount of money paid was does not constitute a favorable price for the planned disposal recipient for any of the periods laid out above. With considering that the simple average acquisition price calculated using the upper limit is lower than the latest market price.

(2) Basis for Judging the Disposal Quantity and Scale of Share Dilution to Be Rational

KDDI holds 1 share of treasury stock as of September 30, 2020 (excluding the 4,117,083 KDDI shares held by the executives' compensation BIP Trustee and the share issuing ESOP Trustee). This number of shares is not enough to correspond to the number for the planned disposition. However, as stated in the "Notice of Decision on Matters Related to Treasury Stock Acquisition (acquisition of treasury stock based on rules in the Articles of Incorporation according to regulations of the Companies Act Article 165 Paragraph 2)" released today, the Board of Directors met on October 30, 2020, and resolved to acquire treasury stock (hereinafter, "Treasury Stock Acquisition"). KDDI will acquire common stock, a total of up to 84,000,000 shares, for a total acquisition amount of up to 200 billion yen, over the period from November 2, 2020 to May 31, 2021 through open-market purchases on the Tokyo Stock Exchange. In light of the past acquisition of treasury stock at KDDI, the recent trading volume of KDDI's common stock, and the period of about 3 months until the payment date, KDDI is therefore expected to own enough treasury stock for the number of shares planned for the disposition by the deadline of the disposal payment.
In addition, under the Business and Capital Alliance Agreement, in the event that KDDI is unable to amass holdings of 18,301,600 shares of treasury stock, which is the number to be issued for the Disposal of Treasury Stock, by January 22, 2021, or a date separately agreed upon between KDDI and Toyota (including the confirmed number to be acquired by KDDI through a financial instruments exchange), the rules state that Toyota's application in relation to the Disposal of Treasury Stock will be for a number of shares equivalent to the number of treasury shares owned by KDDI on that day. Accordingly, regardless of the status of the treasury stock acquisition, the Disposal of Treasury Stock will not dilute shares from the date of the resolution for the disposal. In addition, KDDI plans to proceed with the medium- to long-term strategic alliance by strengthening the capital ties, and KDDI believes the Disposal of Treasury Stock is rational and will contribute to the enhancement of shareholder value.

6. Reason for the Selection of the Planned Disposal Recipient

(1) Overview of the Planned Disposal Recipient

(13)	Relationship with KDDI
(1)	Name	Toyota Motor Corporation
(2)	Head office address	1 Toyota-Cho, Toyota City, Aichi
(3)	Name and role of representative	President and Representative Director Akio Toyoda
(4)	Business	Automotive, financial, and other businesses
(5)	Capital	635,401,000,000 yen
(6)	Date founded	August 28, 1937
(7)	Number of shares issued and outstanding	Common Stock: 3,262,997,492 shares First Series Model AA Class Shares: 47,100,000 shares
(8)	Fiscal year-end	March 31
(9)	Employees	(Consolidated) 359,542
(10)	Main business partners	-
(11)	Main banks	-
(12)	Major shareholders and percentage ownership	Japan Trustee Services Bank, Ltd. 12.71% Toyota Industries Corporation 8.48% The Master Trust Bank of Japan, Ltd. 7.18% Nippon Life Insurance Company 4.53% JPMorgan Chase Bank (Standing proxy: Mizuho Bank, Ltd., Settlement Sales Department) 3.61% DENSO Corporation 3.20% State Street Bank and Trust Company (Standing proxy: Mizuho Bank, Ltd., Settlement Sales Department) 2.79% Mitsui Sumitomo Insurance Group Holdings, Inc. 2.02% Trust & Custody Services Bank, Ltd. 1.82% Tokio Marine & Nichido Fire Insurance Co., Ltd. 1.82%
	Capital relationships	The number of shares of the planned disposal recipient held by KDDI: 7,994,500 (As of March 31, 2020) Number of shares of KDDI held by the planned disposal recipient: 298,492,800 (As of March 31, 2020)
	Personal relationships	The planned disposal recipient has dispatched one director to KDDI.
	Transactional relationships	KDDI provides the planned disposal recipient with telecommunications network services in Japan and overseas, provides various solutions (including system integration) in Japan and overseas, provides IoT services (including for connected cars) in Japan and overseas, and contracts marketing for domestic mobile phone services (au retailers).
	Status of relationships with related parties	Not applicable.
(14)	Business performance and financial condition for the last three years (US GAAP) (Millions of yen)
	Fiscal year	March 31, 2018	March 31, 2019	March 31, 2020
	Total net assets	19,922,076	20,565,210	21,241,851
	Total assets	50,308,249	51,936,949	52,680,436
	Total net assets per share (yen)	6,438.65	6,830.92	7,252.17
	Operating revenue	29,379,510	30,225,681	29,929,992
	Operating income	2,399,862	2,467,545	2,442,869
	Ordinary income	-	-	-
	Profit attributable to owners of the parent	2,493,983	1,882,873	2,076,183
	Net income per share attributable to common shareholders of the parent (yen)	842.00	650.55	735.61
	Dividends per share Common stock (yen) First Series Model AA Class Shares (yen)	220 158	220 211	220 264

Notes:

1. The columns related to the overview of the planned disposal recipient are as of March 31, 2020.
2. Toyota, the planned disposal recipient, is listed on the First Section of the Tokyo Stock Exchange and the First Section of the Nagoya Stock Exchange. The planned disposal recipient has declared it will expunge antisocial forces in articles on matters related to internal control systems featured in its Report Related to Corporate Governance dated June 24, 2020 and provided to the Tokyo Stock Exchange. KDDI confirmed Toyota's basic policy on expunging antisocial forces and its status in achieving that goal by checking the Tokyo Stock Exchange website. In this way, KDDI determined that the planned disposal recipient and its executives are not, and have no relationship with, individuals, companies, or organizations that economically benefit from violence, intimidation, fraud, or other criminal activity.

(2) Reason for the Selection of the Planned Disposal Recipient

Please refer to the aforementioned "2. Objective of and Reason for the Disposal."

(3) Holding Policy of the Planned Disposal Recipient

KDDI has verbally confirmed that Toyota's policy is to continue holding the shares acquired through the Disposal of Treasury Stock over the medium to long term.
Furthermore, KDDI plans to acquire pledges from Toyota to ensure that, in the event that the latter transfers all or part of the KDDI shares acquired through the Disposal of Treasury Stock within two years of the payment deadline, it will report the details of the action in writing to KDDI and for KDDI to report the content of said report to the Tokyo Stock Exchange and for the content of said report to be made public.

(4) Confirmed Existence of the Financial Assets Needed by the Planned Disposal Recipient for Payment

KDDI has determined that there should be no obstacle to payment by confirming that the planned disposal recipient possesses cash and cash equivalent (6,801,561 millions of yen) in an amount sufficient to pay for the Disposal of Treasury Stock with reference to the consolidated quarterly financial statement included in the first quarter earnings report provided by the planned disposal recipient to the Kanto Local Finance Bureau on August 7, 2020.

7. Principal Shareholders and Percentage of Shareholdings after Disposal

Major shareholders of the Company	Ratio of controlling shares
Major shareholders of the Company	Before disposal (as of September 30, 2020)	After disposal
KYOCERA CORPORATION	14.54%	14.54%
Toyota Motor Corporation	12.95%	13.74%
The Master Trust Bank of Japan, Ltd. (Trust Account)	10.24%	10.24%
Custody Bank of Japan, Ltd. (Trust Account)	5.49%	5.49%
Custody Bank of Japan, Ltd. (Trust Account 7)	1.85%	1.85%
JP Morgan Securities Japan Co., Ltd.	1.60%	1.60%
Custody Bank of Japan, Ltd. (Trust Account 5)	1.29%	1.29%
Barclays Securities Japan Limited	1.25%	1.25%
JP MORGAN CHASE BANK 385781 (Standing proxy: Mizuho Bank, Ltd., Settlement Sales Department)	1.21%	1.21%
STATE STREET BANK AND TRUST COMPANY 505103 (Standing proxy: Mizuho Bank, Ltd., Settlement Sales Department)	1.20%	1.20%

Notes:

1. Figures stated above are based on the shareholder registry as of September 30, 2020.
2. The percentages of shareholdings are calculated based on the total number of shares issued and outstanding. Figures are rounded after the second decimal place.
3. Because treasury stock acquired through the Treasury Stock Acquisition will be allocated to the shares to be disposed of upon the Disposal of Treasury Stock, the ratios of controlling shares held by shareholders after disposal is calculated by dividing a) the number of shares held by each major shareholder after disposal if all shares disposed of through the Disposal of Treasury Stock are paid for by b) the number of KDDI shares issued and outstanding as of September 30, 2020 (2,304,179,550).

8. Future Outlook

Under the Business and Capital Alliance, the companies will jointly consider new businesses, joint development, and the resolution of social issues while working to maximize corporate value over the medium and long terms. However, the impact of the Disposal of Treasury Stock on KDDI's consolidated business performance is expected to be minor.

9. Procedures within the Scope of Corporate Behavior

As this matter will have 1) a dilutive effect of less than 25% on shares and 2) does not involve a change in the controlling shareholder, procedures for the receipt of the opinion of a third-party who is independent from management and the confirmation of shareholders' intention, as provided by Rule 432 of the Tokyo Stock Exchange's Securities Listing Regulations, are not necessary.

10. Operating Performance and Status of Equity Finance for the Most Recent Three Years

(1) Consolidated Business Performance for the Last Three Years (IFRS) (Millions of yen)

Fiscal year	March 31, 2018	March 31, 2019	March 31, 2020
Operating revenue	5,041,978	5,080,353	5,237,221
Operating income	962,793	1,013,729	1,025,237
Profit for the year before income tax	955,147	1,010,275	1,020,699
Profit attributable to owners of the parent	572,528	617,669	639,767
Basic earnings per share (yen)	235.54	259.10	275.69
Dividends per share (yen)	90.00	105.00	115.00
Equity attributable to owners of the parent per share (yen)	1,568.84	1,779.41	1,906.35

Note:

Dividends per share are KDDI's unconsolidated figures based on JGAAP.

(2) Status of Issued Shares and Number of Dilutive Shares (As of September 30, 2020)

	Shares	The ratio to the number of outstanding shares
Number of shares issued and outstanding	2,304,179,550	100.0%
Number of dilutive shares at current conversion price (issue price)	-	-
Number of dilutive shares at lower limit of conversion price (issue price)	-	-
Number of dilutive shares at upper limit of conversion price (issue price)	-	-

(3) Recent Share Price

1) Status over the most recent three years

Fiscal year	March 31, 2018	March 31, 2019	March 31, 2020
(Yen)
Opening price	2,901	2,700	2,396
High price	3,260	3,187	3,451
Low price	2,551.5	2,331.5	2,372.5
Closing price	2,716.5	2,385	3,190

2) Status over the most recent six months

	2020
(Yen)
	May	June	July	August	September	October
Opening price	3,131	3,137	3,242	3,340	3,099	2,689.5
High price	3,283	3,258	3,372	3,368	3,099	2,837
Low price	3,041	3,116	3,163	3,063	2,604	2,640.5
Closing price	3,136	3,234	3,259	3,078	2,656	2,765

Note:

The share price for October 2020 covers the period from October 2, 2020 to October 29, 2020 due to a suspension of buying and selling on October 1, 2020 following a system shutdown of the Tokyo Stock Exchange.

3) Share price one business day prior to disposal resolution date

	October 29, 2020
(Yen)
Opening price	2,736
High price	2,781
Low price	2,725
Closing price	2,765

(4) Operating Status of Equity Finance for the Most Recent Three Years

Not applicable.

11. Summary of the Disposal

(1) Type and number of shares

18,301,600 shares of common stock
(2) Amount paid

2,853 yen per share
(3) Total amount paid

52,214,464,800 yen
(4) Disposal or allocation method

Disposal of treasury stock through third-party allocation
(5) Planned disposal recipient

Toyota Motor Corporation
(6) Application period

January 28, 2021 to January 29, 2021
(7) Payment deadline

January 29, 2021
(8) The above items are conditional upon the effectiveness of the registration statement filed in accordance with the Financial Instruments and Exchange Act.

The information contained in the articles is current at the time of publication.
Products, service fees, service content and specifications, contact information, and other details are subject to change without notice.

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