Notice regarding basic agreement on proposed share exchange to make Seiko Instruments a wholly-owned subsidiary by Seiko Holdings

Transcription

1 January 26, 2009 Company: Seiko Holdings Corporation Representative: Koichi Murano, President (Code: 8050; First Section of Tokyo Stock Exchange) Contact: Yoshinobu Nakamura, Senior Executive Director Notice regarding basic agreement on proposed share exchange to make Seiko Instruments a wholly-owned subsidiary by Seiko Holdings Seiko Holdings Corporation (SHD; Principal Place of Business: , Ginza, Chuo-ku, Tokyo; President: Koichi Murano; listed on the first section of Tokyo Stock Exchange) and Seiko Instruments Inc. (SII; Principal Place of Business: 1-8, Nakase, Mihama-ku, Chiba, Chiba Prefecture; President: Masafumi Shimbo; unlisted) reached an agreement on management integration through share exchange and concluded a basic agreement today. The two companies intend to formulate an action plan for management integration after consultation with each other, and to conclude a formal agreement on proposed share exchange to make SII a wholly-owned subsidiary by SHD, in or around early May Purpose of the share exchange to make SII a wholly-owned subsidiary of SHD (1) History K. Hattori, the predecessor of SHD, was founded in 1881 and was originally in the business of selling timepieces and other products. It was then incorporated in 1917 as a company limited by shares. The company established Seikosha as its factory in 1892 and started production of wall clocks. The business expanded from the initial wholesale and retail of import clocks and watches to sale and export of products manufactured by Seikosha, the assortment of which was further extended to encompass watches (pocket watches and wristwatches) as well as clocks (wall clocks, table clocks and alarm clocks)

2 Having survived the confusion of World War II, the company, K. Hattori & Co., Ltd., listed its stock on the Tokyo Stock Exchange in 1949, and became a publicly held company. K. Hattori carried various other products such as glasses and optical goods, in addition to its main business of domestic and overseas sales of watches and clocks under the Seiko brand, and its retail department was spun off as Wako Co., Ltd. Furthermore, Seikosha also became an independently managed subsidiary as Seikosha Co., Ltd. The corporate name was changed to Hattori Seiko Co., Ltd. in Then, after being renamed as Seiko Corporation in 1997, the Company started a new management scheme and became a pure holding company of the corporate group including Wako Co., Ltd.; Seiko Watch Corporation; Seiko Clock Inc.; and Seiko Precision Inc. in In addition, in order to expressly show its nature as a pure holding company, it changed its name to Seiko Holdings Corporation in Meanwhile, Daini Seikosha Co., Ltd., the predecessor of SII, was incorporated in 1937 in Kameido, Tokyo as a spinoff of Seikosha to manufacture watches under the Seiko brand. The company expanded into diversified fields such as electronic devices and measuring and analytical instruments, including CMOS ICs, in the 1970s, and further entered into the field of information-related equipment and printers in the 1980s. In 2004, the company established Shizukuishi Watch Studio to provide a vertically integrated system for production of high-end mechanical watches such as GRAND SEIKO and CREDOR. It changed its corporate name to Seiko Instruments Inc. in SHD and SII have been enjoying a close relationship through business tie-ups mainly in the field of watches as well as capital tie-ups: currently SHD holds 21.7% of SII s shares, including indirect holdings, and SII holds 5.2% of SHD s shares. In the midst of a further maturing watch market and market changes in electronic device industries, the two companies concluded that it is of the first order of importance and the best choice to push forward with reconstructing their businesses through management integration, and boost earnings, in order to realize stable growth and further expansion of each business

3 (2) Purpose Following the management integration, each member of the SHD Group including SII aims at sustainable growth and development through closer cooperation. To realize these goals, with respect to the watch business their basis of profitability SHD and SII will develop products that customers will trust and find more appealing, by combining the marketing know-how from planning and sales that Seiko Watch of the SHD Group has acquired thus far, and the advanced precision technologies for watch manufacturing that SII has been nurturing till now, in addition to the know-how on research, development and manufacturing of LCD devices and microbatteries. Furthermore, the two companies will promote integrated manufacture-to-sales management, in which product planning, research, design, manufacture and sales are undertaken in a fully consistent manner. At the same time, the two companies will spare no efforts in severely selecting and concentrating product planning, as well as decreasing manufacturing costs, thereby further improving profitability. Aiming to establish a business that will be a pillar of profitability commensurate with the watch business, the two companies will step up efforts for slashing redundant costs and expanding profitability, by mutually utilizing the results of R&D at each business domain of the SHD Group, including electronic devices, precision instruments and systems solutions; and business locations and sales networks in Japan and abroad, in a closely-coordinated manner. Furthermore, with regard to business management framework, the group endeavors to have optimum operations from a comprehensive point of view and aims to unify the strategies of the SHD Group; to have prompter decision making, a strengthened financial base, and strategic investment; and to assign the right human resources to the right places. 2. Summery of Share Exchange (1) Schedule for the Share Exchange January 26, 2009: Resolution and execution of basic agreement on proposed share exchange to make SII a wholly-owned subsidiary by SHD by boards of directors of both companies - 3 -

4 Early May 2009: May to End of June 2009: October 1, 2009: Resolution and execution of formal agreement on proposed share exchange to make SII a wholly-owned subsidiary by SHD by boards of directors of both companies Approval of formal agreement on proposed share exchange to make SII a wholly-owned subsidiary by SHD at the ordinary general meetings of shareholders of the two companies Effective date of share exchange (the date when it becomes effective) The aforementioned schedule is a plan at this point. Aiming for earlier management integration, the two companies will further discuss the possibility of bringing forward the above-mentioned effective dates. Specific schedules will be decided by the two companies after discussions in accordance with various procedures for the management integration, including approval by general meetings of shareholders and screening by relevant institutions. (2) Details of Appropriation relevant to Share Exchange SHD will be the 100% parent company, and SII will be its 100% subsidiary. SHD will issue new shares, which shall then be appropriated through a share exchange. The proportion of shares to be exchanged will be determined by both companies through negotiations and based on valuations made by an external professional institute. 3. Outline of Parties to Share Exchanges Trade Name Seiko Holdings Corporation Seiko Instruments Inc. Business Month and Year of Incorporation Principal Place of Business Representative Management control of business entities; Production and distribution of precision watch business, clock business, optical instruments and electronic devices products business, sporting goods business, precision equipment business and other goods December 1881 September , Ginza, Chuo-ku, Tokyo 1-8, Nakase, Mihama-ku, Chiba, Chiba Prefecture Katsumi Yamamura, Chairman Masafumi Shimbo, President Koichi Murano, President - 4 -

5 Capital 10.0 billion yen 7.25 billion yen Number of Shares Issued and Outstanding Number of common shares: 116,424,000 Number of common shares: 20,000,000 Number of preferred shares (Class A): 7,500,000 Number of preferred shares (Class B): 5,000,000 Net Assets 51.2 billion yen (at the end of September 2008, on a consolidated basis) 35.2 billion yen (at the end of August 2008, on a consolidated basis) Total Assets billion yen (at the end of billion yen (at the end of August September 2008, on a consolidated basis) 2008, on a consolidated basis) Fiscal Year End March 31 February 28 Number of Employees 7,924 (at the end of September 2008, on a consolidated basis) 13,572 (at the end of August 2008, on a consolidated basis) Main Customers Domestic and foreign major department stores including Takashimaya and JC Penny; major retail chain stores of glasses such as Miki; and other major precision instruments makers such as Nikon and Seiko Epson Seiko Watch Corporation Time Module (Hong Kong) Ltd. Major telecommunication equipment makers, major electronics appliance makers and major transport machine makers Principal Sanko Kigyo K.K. 18.2% Reijiro Hattori 15.7% Shareholders Reijiro Hattori 5.3% Sanko Kigyo 15.6% and Shareholdings Ratios Main Financing Banks Mizuho Corporate Bank, Ltd. Mizuho Corporate Bank, Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. The Chiba Bank, Ltd. Sumitomo Mitsui Banking Corporation Significant Relationships between the Parties Capital relationship: SHD holds Common stock: 4,343 thousand shares (of which 2,803 thousand shares are held indirectly) of SII, and SII holds 6,014 thousand shares of SHD. SHD 2,000 thousand shares of preferred shares (Class B) of SII. Human Resources relationships N/A - 5 -

6 Business relationships Seiko Watch Corporation, a wholly-owned subsidiary of SHD, purchases and sells products manufactured by SII. Other Related Parties There are no relevant matters as of the end of the preceding fiscal year. For reference, after the start of the current fiscal year, SII became a relevant party of SHD, because SII had become an affiliate of SHD. Financial Results of the Past three Fiscal Years (Million yen) Seiko Holdings Corporation (consolidated) Seiko Instruments Inc. (consolidated) End of Fiscal year March 2006 March 2007 March 2008 February 2006 February 2007 February 2008 Net sales 213, , , , , ,521 Operating income 9,357 7,146 7,229 13,170 11,961 12,112 Ordinary income 8,563 7,386 7,265 12,018 11,423 10,003 Net income 9,206 9,922 3,216 7,608 2,815 1,794 Net income per share (yen) Dividend per share (yen) Net asset per share (yen) , Outline of situation after share exchange (plan) (1) Trade Name Seiko Holdings Corporation (2) Business outline Management control of business entities; watch business, clock business, optical products business, sporting goods business, precision equipment business, electronic device business, information technology equipment business and other goods. (3) Principal Place of Business , Ginza, Chuo-ku, Tokyo - 6 -

7 (4) Representative Katsumi Yamamura, Chairman Koichi Murano, President (5) Accounting settlement March 31 (6) Others Other matters not specified here shall be announced when determined by both companies through negotiations. For smooth management integration, SHD and SII will establish a Management Integration Preparation Committee and have discussions, with Presidents of both companies being joint chairpersons, and directors of both companies designated by each chairperson being the committee