Business News

Notice of Epson Toyocom Corporation’s Becoming Wholly-Owned Subsidiary of Seiko Epson Corporation by Share Exchange

Thursday 30. April 2009 - Seiko Epson Corporation ("Seiko Epson") and Epson Toyocom Corporation ("Epson Toyocom") resolved at meetings of their respective boards of directors, held on April 30, 2009, to carry out a share exchange through which Epson Toyocom will become the wholly-owned subsidiary of Seiko Epson (the "Share Exchange"), and today they entered into the agreement for the Share Exchange (the "Share Exchange Agreement").

The shares of Epson Toyocom are scheduled to be delisted before the effective date of the Share
Exchange Agreement (June 1, 2009; final date for trading will be May 25, 2009).

1 Purpose of Complete Subsidiarization by Share Exchange

(1) Purpose of Share Exchange

Seiko Epson carried out a tender offer for the ordinary shares of Epson Toyocom over the
period March 12, 2009, through April 23, 2009, with the aim of making Epson Toyocom its
wholly-owned subsidiary (the “Tender Offer”), as set out in the Notice of Commencement of Tender
Offer for Shares of Subsidiary Epson Toyocom Corporation dated March 11, 2009. As a result of the
Tender Offer, Seiko Epson as of today now owns 171,127,462 ordinary shares of Epson Toyocom
(representing a holding ratio of 91.05% of Epson Toyocom’s outstanding shares (as of March 31,
2009) and 91.21% of the voting rights of all of Epson Toyocom’s shareholders, etc.: see Note below).

The Seiko Epson Group (which means Seiko Epson, its consolidated subsidiaries, and its
subsidiaries and affiliates accounted for under the equity method) primarily engages in the businesses
of developing, manufacturing, and selling information-related equipment (such as printers, 3LCD
projectors, PCs), electronic devices (such as small- and medium-sized LCDs, crystal units, CMOS
LSIs), and precision products (such as watches, watch movements, plastic corrective lenses,
horizontally articulated robots), and it has been developing its businesses globally together with its
domestic and overseas manufacturing and distribution subsidiaries and affiliates (97 consolidated subsidiaries, 3 non-consolidated subsidiaries accounted for under the equity method, and 5 affiliates
accounted for under the equity method).

This fiscal year, the Seiko Epson Group has formulated its SE15 long-range business vision as
a roadmap for adapting to dramatic changes in the market and for driving future growth. In doing so,
the Seiko Epson Group aims to further hone its strengths of energy-saving, compact, and
high-precision technologies to become a “combination of strong businesses” by pooling its
managerial resources into its stronger businesses and developing its platform, meeting customer
needs, and creating, producing and delivering products and services that appeal to customers’
emotions.

Epson Toyocom’s main business is the manufacture and sale of crystal devices under the Epson
Toyocom brand. It has expanded its presence globally together with its 7 consolidated subsidiaries as
a leader in the quartz devices industry, and its role within the Seiko Epson Group is as a specialist in
crystal devices.

Epson Toyocom began operations in 1891 as Yoshimura Trading Company as a manufacturer
and seller of communication devices. The trading company was incorporated in 1938 as Toyo
Communication Equipment Co., Ltd. (the “Toyo Communication Equipment”), to manufacture and
sell communication device and quartz device businesses. It subsequently grew in the communication
devices related business as a result of the postwar economic growth and demand from the public
sector, and in 1961 it was listed on the Second Section of the Tokyo Stock Exchange, and then in
1971, it was designated for listing on the First Section of the Tokyo Stock Exchange. It extended its
customer base out to the private sector, launching into the ticket-vending machine business and
working to expand its communication device business and quartz device business. Business dropped
sharply, however, when the IT bubble burst around 2000, and as part of its structural reforms, Toyo
Communication Equipment spun off and sold its defense business and wireless device business in
2004 and then its ticket-vending machine business in 2005, making itself a company specializing in
crystal devices. In order to strengthen its quartz device business and become a leader in the industry,
in October 2005, Toyo Communication Equipment integrated its entire business in an absorption type
split with a spin-off of quartz device business from Seiko Epson. The new company changed its name
to Epson Toyocom Corporation, became Seiko Epson’s consolidated subsidiary and has continued its
business to date. However, following the unprecedented global economic disruption caused by the
financial crises triggered by the subprime loan problem in the United States in the second half of 2008,
Epson Toyocom now faces an urgent need to further strengthen its business foundation to achieve a
turnaround and ensure its future growth.

The current business environment surrounding the Seiko Epson Group is particularly severe
because of fiercer competition brought about by lower entry barriers as a result of the progress of
digitalization because of intensified price competition and shorter product cycles caused by the
maturation of products and technologies, making differentiation all the more difficult, and because of
the severe global economic disruption mentioned above since the second half of 2008. The Seiko
Epson Group therefore also faces an urgent need to turn around and reform the structure of its overall
electronic device business in the same way as Epson Toyocom. In order to survive such a severe
business climate and realize further growth for the Seiko Epson Group in the future, it is essential to
improve the management quality of the Seiko Epson Group through prompt and precise
decision-making and the implementation of those decisions in accordance with the Seiko Epson
Group’s management strategies. Seiko Epson aims to place Epson Toyocom’s quartz device business,
which has the top share in the industry, as the core of the Seiko Epson Group’s electronic device
business in the future, and with Seiko Epson’s original micro-sensing technology at the core, Seiko
Epson will utilize various crystal device applications, such as sensors, and develop its module
businesses with an eye on input/output equipment, while also enhancing the cooperation between quartz device business and its semiconductor business and utilizing the broad capabilities of the
semiconductor business. Further, in anticipation of future strategic movements in the quartz device
industry, Seiko Epson plans to consolidate its position at the top of the industry and strengthen the
foundation of the Seiko Epson Group’s electronic device business. To this end, it is necessary to align
the management resources of the Epson Toyocom Group (which means Epson Toyocom and its
consolidated subsidiaries) and the Seiko Epson Group more closely.

Making Epson Toyocom a wholly-owned subsidiary of Seiko Epson through the Share
Exchange will strengthen the capital relationship between the companies and enable Seiko Epson to
utilize management resources effectively and promote necessary measures. It will, as a result,
improve the management speed of the Seiko Epson Group and, through further streamlining, enhance
the overall strength of the Seiko Epson Group, enhance its management basis, and maximize
corporate value. Seiko Epson therefore decided that the best option is to make Epson Toyocom its
wholly-owned subsidiary.

For Epson Toyocom, although an increased demand for crystal devices can be expected in the
medium- and long-term because of the expansion of the digital device market and the increasingly
broad range of functions of such devices, it is anticipated in the short term that the situation will
remain on the edge because of, among other factors, the uncertain outlook for trends in foreign
exchange markets and the global economy, fluctuations in prices of raw materials and intensified
price-cutting competition for products. In a market that demands products that are both “compact”
and “high-precision,” it is essential to further strengthen the competitiveness of compact,
high-precision, high-quality, cost competitive products through micro-fabrication technologies such
as photo-etching processing, which is Epson Toyocom’s strength. Furthermore, it is necessary for
Epson Toyocom to move away from its tendency to depend on the mobile phone-related business and
instead to expand into a broad range of applications such as sensor modules, a market that is expected
to expand in the future, and to maintain and strengthen its status as a leader even after any
reorganization of the quartz device industry that may occur in the future. It is necessary to carry out
appropriate capital investment and promote streamlining of production through the reallocation of
resources according to the roles of manufacturing sites in order to create a global production system
that takes into consideration both the responsibility to supply customers and the diversification of
production risk.

In such a business environment, Seiko Epson and Epson Toyocom believe that there is a limit to
how far the Epson Toyocom Group can enhance its technical strength, product development ability
and productivity on its own with its current business structure. By Epson Toyocom’s becoming Seiko
Epson’s wholly-owned subsidiary, the Epson Toyocom Group will be able to strengthen its business
foundation with more flexibility and agility and concentrate on stable business operations within the
Epson Toyocom Group, thus achieving better production efficiency through further development of
technologies and products, timely and appropriate capital investment and reallocation of resources as
noted above. Seiko Epson and Epson Toyocom believe this will ultimately prove a good opportunity
to provide sustainable profits to stakeholders, such as Epson Toyocom’s customers, employees, and
business partners.

Seiko Epson’s policy is to continue to retain the employees and brand of Epson Toyocom after
making Epson Toyocom its wholly-owned subsidiary. After Epson Toyocom becomes Seiko Epson’s
wholly-owned subsidiary, Seiko Epson will manage Epson Toyocom in a way in which the Epson
Toyocom Group will be able to strengthen its development capabilities and product competitiveness
in tighter coordination with the Epson Toyocom Group’s semiconductor business, producing
synergies and building an effective and agile business operations system through effective utilization
of management resources, such as technology, know-how, production facilities and production
methods. Through these measures, Seiko Epson aims to strengthen the business constitution and management foundation of the Epson Toyocom Group and maximize the overall corporate value of
both the Epson Toyocom Group and the Seiko Epson Group.

Through these developments, and as a result of the offering of shares in the Tender Offer and
careful consideration of other circumstances, Seiko Epson and Epson Toyocom have decided today to
carry out the Share Exchange, effective June 1, 2009, and entered into the Share Exchange
Agreement.

Note The ratio of voting rights indicated above is the result of calculating the number of voting rights
represented by the Epson Toyocom shares held by Seiko Epson (171,127) as a ratio of the number
of voting rights of all of Epson Toyocom’s shareholders, etc. (187,624), as of March 31, 2009.
The number of voting rights of all of Epson Toyocom’s shareholders is the number of voting
rights represented by the number of shares (187,624,716) remaining after the number of shares of
treasury stock held by Epson Toyocom as of March 31, 2009 (327,338), deducted from the
number of shares issued by Epson Toyocom as of that date (187,952,054). Fractions are rounded
to the second decimal place.

(2) Prospects and Reasons for Delisting Epson Toyocom Shares from the Tokyo Stock
Exchange

As a result of the Share Exchange, Epson Toyocom will become the wholly-owned subsidiary
of Seiko Epson on June 1, 2009, the effective date of the Share Exchange, and in accordance with the
Tokyo Stock Exchange’s share delisting standards, the shares of Epson Toyocom are planned to be
delisted on May 26, 2009, through the procedures prescribed by the TSE (the final day of trading will
be May 25, 2009). After the delisting, Epson Toyocom’s shares will not be able to be traded on the
TSE.

(3) Reason for Purposefully Delisting Shares and Considerations of Alternative Measures

Seiko Epson’s ordinary shares, which Seiko Epson is to deliver to Epson Toyocom’s
shareholders as consideration for the Share Exchange, are listed on the Tokyo Stock Exchange, so
Seiko Epson and Epson Toyocom believe that Epson Toyocom shareholders who hold 477 or more
shares in Epson Toyocom will still continue after the Share Exchange to be assured of liquidity in
their holdings with the Seiko Epson shares allotted to them. Epson Toyocom shareholders who hold
less than 477 shares in Epson Toyocom will be allotted shares of Seiko Epson less than one unit (100
shares). For the handling of Seiko Epson shares less than one unit, please see Note 3 in (2) Details of
Allotment Relating to Share Exchange of section 2 below.

It is possible, under Article 785 of the Companies Act and the provisions of other related laws
and regulations, that shareholders of Epson Toyocom who oppose the Share Exchange will have a
right to demand that Epson Toyocom purchase their shares. Epson Toyocom plans to make the
amount payable on exercise of that right the same amount as the purchase price for the ordinary
shares of Epson Toyocom in the Tender Offer, but the per-share purchase price in the event that right
is exercised will ultimately depend on the judgment of the court, so there is a possibility that it will
differ from the economic value of the consideration Epson Toyocom shareholders will receive in the
Share Exchange.

(4) Measures to Ensure Fairness

As set out above, Seiko Epson now owns 91.21% of the voting rights of all of Epson
Toyocom’s shareholders. In order to ensure the fairness and reasonableness of the Share Exchange
Ratio, Epson Toyocom has requested a third-party valuation organization independent of both Seiko
Epson and Epson Toyocom to calculate the share exchange ratio for the Share Exchange (the “Share Exchange Ratio”), as set out in (3) Basis for Calculation of Details of Allotment Relating to Share
Exchange of section 2 below and received the results of those calculations in the Report on
Calculation of Share Exchange Ratio. As a result of carefully considering the Share Exchange Ratio,
with reference to that report, and repeated negotiations and consultations with Seiko Epson, Epson
Toyocom decided the Share Exchange Ratio at its board of directors’ meeting on April 30, 2009.
Epson Toyocom has not obtained from a third-party valuation organization an opinion as to the
fairness of the Share Exchange Ratio (a so-called “fairness opinion”).

Seiko Epson also carefully considered the Share Exchange Ratio, with reference to advice from
its financial advisor, Merrill Lynch Japan Securities Company, Limited (“Merrill Lynch”), which
also advised Seiko Epson at the Tender Offer stage. (Seiko Epson has not obtained a report on
calculations of the Share Exchange Ratio from Merrill Lynch.) As a result of Seiko Epson’s careful
consideration and repeated negotiations and consultations with Epson Toyocom, Seiko Epson
believes that it would be reasonable to allot for each Epson Toyocom ordinary share a number of
Seiko Epson shares calculated by dividing 285 yen, the purchase price offered for Epson Toyocom’s
ordinary shares in the Tender Offer, by the closing price of the ordinary shares of Seiko Epson on
April 28, 2009, and Seiko Epson’s board of directors gave its approval at its meeting held on April 30,
2009.

Through these developments, Seiko Epson and Epson Toyocom have entered into the Share
Exchange Agreement on April 30, 2009.

(5) Measures to Avoid Conflicts of Interest

Epson Toyocom is taking the following measures as measures to avoid conflicts of interest on
the part of its board of directors.

(i) Procurement of the Report on Calculation of Share Exchange Ratio from an
independent third-party valuation organization

Epson Toyocom has determined the Share Exchange Ratio as a result of obtaining and
carefully considering a Report on Calculation of Share Exchange Ratio from a third-party
valuation organization independent of both Seiko Epson and Epson Toyocom, as set out in (3)
Basis for Calculation of Details of Allotment Relating to Share Exchange of section 2 below,
and repeated negotiations and consultations with Seiko Epson.

(ii) Establishment of an independent committee

In deciding the Share Exchange Ratio, in light of the fact that many of the directors and
auditors who make up Epson Toyocom’s board of directors are employees or former employees
of Seiko Epson, Epson Toyocom received advice from its legal adviser, Yanagida & Nomura,
on decision-making procedures and based on the resolution of the board of directors held on
February 26, 2009, have submitted for deliberation by an independent committee composed of
outside experts who are objectively and substantially independent of Seiko Epson and Epson
Toyocom regarding the fairness of the Share Exchange Ratio, following their prior submission
for deliberation regarding the merits of the Tender Offer,

The three members of the independent committee are Iwao Taka (Professor, International
School of Economics and Business Administration, Reitaku University, and Visiting Professor,
Graduate School of Management, Kyoto University), Takashi Kanai (Attorney-at-law and
Representative of Frantech Law Office), Yoshihide Hirowatari (Certified Public Accountant,
A.G.S. Consulting Co., Ltd). The committee met on multiple occasions and deliberated on the above matters, and in order to gather and examine information considered necessary for those
deliberations, it interviewed the people in charge of negotiations in Epson Toyocom and Seiko
Epson, and people in charge of the matter in the third-party valuation organization. As a result
of careful deliberation on the fairness of the Share Exchange Ratio, the committee resolved on
April 28, 2009, to respond to Epson Toyocom’s board of directors to the effect that, based on
the relevant materials, etc., it had received from Epson Toyocom’s board of directors, it found
that the procedures in deciding the Share Exchange Ratio were fair and considerate of
shareholders’ interests and that its decisions were reasonable and thus the Share Exchange
Ratio was fair.

(iii) Approval or endorsement from directors and auditors who participated at meetings
of Epson Toyocom’s board of directors

As was the case with the Tender Offer, in light of the fact that Epson Toyocom’s
President and Representative Director, Kaname Miyazawa, is an executive officer of Seiko
Epson and therefore has a structural conflict of interest with respect to any board of directors’
meetings held in relation to the Share Exchange, he has not participated in the deliberations or
voting for any of the resolutions relating to the Share Exchange, and nor has he represented
Epson Toyocom in any of its consultations or negotiations with Seiko Epson. Further, Epson
Toyocom’s external auditor, Kaoru Hashizume, also has not participated in any such board
meetings in light of the fact that he holds the position of deputy head of the Corporate Strategy
Department of Seiko Epson and therefore also has a structural conflict of interest. Taking into
account the Report on Calculation of Share Exchange Ratio obtained from the third-party
valuation organization and showing the utmost respect to the findings of the independent
committee, as a result of careful consideration of the fairness of the Share Exchange Ratio, all
of Epson Toyocom’s directors other than Kaname Miyazawa participated in the deliberations
and resolution of the meeting of Epson Toyocom’s board of directors on April 30, 2009, and
Epson Toyocom decided on the Share Exchange Ratio with the unanimous consent of all
directors who participated. Further, each auditor who participated in that meeting of the board
of directors indicated their opinion to the effect that they have no objection to the Share
Exchange Ratio.

Epson Toyocom also received the necessary legal advice from its legal adviser, Yanagida
& Nomura, on ensuring the fairness of decision-making procedures.

2 Overview of the Share Exchange

(1) Schedule for the Share Exchange

Board of directors’ meetings deciding to carry
out share exchange (both companies) April 30, 2009 (Thursday)
Signing of Share Exchange Agreement April 30, 2009 (Thursday)
Date of delisting (Epson Toyocom) May 26, 2009 (Tuesday) (Planned)
Planned date for share exchange (effective date) June 1, 2009 (Monday) (Planned)

Note The Share Exchange is scheduled to be carried out without following the procedures for a
shareholders meeting of either company in accordance with, in the case of Seiko Epson, the
procedures for a simplified share exchange as provided in Article 796(3) of the Companies Act
and, in the case of Epson Toyocom, the procedures for a summary share exchange as provided in
Article 784(1) of the Companies Act.