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Elimination of negative net worth by capital increase through Debt equity swap and new stock allocation to third parties

KENWOOD Corporation Ltd. (Director & President Haruo Kawahara) has been endeavoring to restructure the company based on its "Drastic Restructuring Action Plans." to the company requested various financial institutions, including Asahi Bank Ltd., who have been extending various assistance, to take the below mentioned measures. This is to advise you of the resolutions made in our Directors meeting held today regarding the financial assistance measures and issuance of preferred stocks for debt equity swap.

The company is now able to eliminate its negative net worth of ¥17 billion at the end of the previous term (the 73rd term) through the ¥25 billion debt equity swap and to make investments for future growth through a ¥2 billion capital increase. As a result of these, the elimination of negative net worth, which was scheduled to take place at the end of the 75th term, is now considerably advanced and the company is happy to announce that it will be able to strengthen its financial standings within this year.

Capital Increase (Background)

After the announcement of the "Drastic Restructuring Plans" on July 11, 20002, this company announced on September 17 a total of 567 employee resignations, including 546 voluntary retirements. The total surpassed the planned target of 550 and the company will have overcome the largest restructuring hurdle of employee reduction by the end of September.

Asahi Bank, who has been extending various assistance in full awareness of our restructuring efforts, has agreed to the ¥25 billion debt equity swap and establishment of ¥20 billion commitment line of credit. The company also requested financial assistance to other financial institutions based on a three year repayment program.

The ¥17 billion negative net worth at the end of March, which was projected to be eliminated in the fiscal year ending March, 2004 (the 75th term) according to the action plans, will be eliminated through the debt equity swap by the end of this year and the company is now able to devote its full strength to future developments.

In addition to these, Sparks Asset Management Investment Trust Company, the largest share holder of this company having been assisting us in a belief of our future potential, and Merrill Lynch Investment Managers Company have agreed to underwriting our common stock increase through allocation to third parties, enabling this company to strengthen its capital base for future growth. The increased capital will be appropriated for building wide variety of activity bases including new developments, equipment investments, alliances with others, etc.

We are very much impressed by Asahi Bank's enthusiasm and sense of responsibility for the restructuring of manufacturing industries and value addition as well as Sparks Asset Management's professionalism in assisting corporate growth. The company vows to endeavor for restructuring and future growth.

We are going to resolve revisions of the article of incorporation regarding issuance of preferred stocks for the debt equity swap in an extraordinary stockholders' meeting scheduled in December 2002.

Capital Increase and the outline of capital injection

  1. Capital increase through a total of ¥25 billion debt equity swap

    (1)  The purpose of debt equity swap
    This enables the company to reduce interest-bearing debts and to increase capital for an overall strengthening of its capital base.
    (2)  Debt equity swap process
    Converting the company's debt of ¥25 billion owed to Asahi Bank into the capital account results in an increase of capital by the amount of ¥25 billion and a decrease in interest bearing debts by the same amount. The stocks issued will be all preferred stocks, with terms and conditions per attached sheet. Through this process, this company's capital base will be increased by a total of ¥25 billion, divided into ¥12.5 billion capital account and ¥12.5 billion capital reserve account respectively.
    (3)  Time frame of debt equity swap
    A resolution regarding the article of incorporation revisions will be made in an extraordinary stockholders' meeting scheduled in early December 2002. The details will be notified when definite. Please refer to IV. Determination of the cutoff date for an extraordinary stockholders' meeting below as to the stockholders who can vote in the extraordinary stockholders' meeting.

  2. A total of ¥2 billion common stock issuance by allocation to third parties

    (1)  The purpose of the capital increase through allocation to third parties
    The purpose is to raise necessary funds for future growth through investment participation by Sparks Asset Management Investment Trust Company, our largest stock holder, and Merrill Lynch Investment Managers Company, a new investor.
    (2)  The process and time frame For the details of this capital increase by allocation to third parties, please refer to "the notice regarding to new stock issuance by allocation to third parties".

Future Outlook

Through a total of ¥27 billion capital increase, this company's negative net worth situation in both consolidated and non-consolidated balance sheet (¥17 billion on consolidated and ¥12 billion on non-consolidated basis) will be eliminated. With these measures, the company will further strengthen its efforts to accelerate and complete the restructuring plans for performance recovery and new developments.

Determination of the cutoff date for an extraordinary stockholders' meeting

An extraordinary stockholders' meeting is scheduled in early December 2002 to resolve revisions of the article of incorporation in connection with issuance of preferred stocks. The directors' meeting held today resolved that the cutoff date for the extraordinary stockholders' meeting would be October 21, 2002 (Monday). Please be advised that stockholders listed on the latest or actual stockholder's registry of this day can exercise their right for the meeting.

Outline of preferred stocks to be issued

  Preferred stock A Preferred stock B
Issuance resolution Resolution to be made in the directors meeting in October, 2002
Stock number 31,250 M 31,250 M
Issuance value ¥400/share ¥400/share
Total amount

(amount to be appro-priated to capital)
¥12.5 billion

(¥6.25 billion)
¥12.5 billion

(¥6.25 billion)
Voting right No No
In case preferred stock dividend was not paid in full after 3/07, the right will be revived.
Dividends Preferred dividend

(Dividend ceiling)
Issuance value×(6 month TIBOR +0.5%)

first 5 years:
Issuance value×(6 ms. TIBOR+0.7%)

first 5 years:
Cumulative first 5 years :cumulative/thereafter:non-cumulative
Participation no participation
Conversion Request period 12/1/05 - 11/30/17 12/1/07 - 11/30/21
Initial conversion price To be determined in the directors' meeting scheduled in 12/02
Conversion price revision

(revision range)
To be revised to the average common stock closing price during the 30 business days starting 45 days prior to December 1 (adjusting days) every year commencing one year after the conversion request period.

(The ceiling is the initial conversion price, with the bottom of 70% of the initial conversion price or ¥60, whichever higher.)
Simultaneous conversion The preferred stocks will be converted into common stocks after the conversion request period.
Residual asset distribution ¥400/share and unpaid cumulative dividend amount prior to common stocks in case of residual asset distribution.
Purchase by issuing entity The issuing entity can purchase the stocks upon agreement with the preferred stock holders.
Payment period Projected to be end of December
Allocation All the stocks are allocated to Asahi Bank

For queries regarding this article, please contact:

Mr. S. Yamaga
PR Department
KENWOOD Corporation (Japan)
email: pr.qa@pr.kenwood.co.jp

Updated 02/09/27 (C) 2002 KENWOOD Corporation