August 15, 2011 MARUWA CO., LTD. Sei Kanbe President and Representative Director Code No. 5344, First Section of the Tokyo Stock Exchange and Nagoya Stock Exchange Contact: Kunito Niwa General Manager of Administrative Headquarter Phone: 0561-51-0841 Announcement Concerning Issuance of New Shares, Disposal of Treasury Shares and Secondary Offering of Shares MARUWA CO., LTD. (the "Company") resolved, at a meeting of the board of directors held on August 15, 2011, the issuance of new shares, the disposal of treasury shares and the secondary offering of shares of the Company, as set forth below: Purpose of this financing Last year the Group formulated "NEXT 3", a new three-year growth strategy, and announced three enhanced strategies. This is a growth scenario which aims to establish the Company in a firm position in the global market by (i) enhancing its "technological strength and product development capability", "systems of production and promotion" and "quality assurance system", (ii) combining the ceramic materials and production technologies which have been its core competence since its foundation in 1973 and (iii) concentrating its management resources on the product areas where future growth is expected. The Group has focused its product development on three areas, which it identifies as growth markets: (i) the LED lighting market, (ii) the power module market and (iii) the medical and communications markets. The Company's strategy parallels market demand for increased efforts to reduce CO 2 emissions and for energy savings arising from global warming, and the Group believes the Company is strongly positioned for further growth. The products appropriate to these markets include: (i) LED ceramic module substrates for power LEDs and (ii) ceramic substrates for power modules used in inverters for hybrid cars, electric cars, wind-power generation, etc. The Group expects further market growth for these products. In addition, the Group believes that (iii) anti-noise components for high-function cell phones, including smart phones, show potential for high - 1 -
growth, as the number of cell phone users increases globally. The Group will focus on these three businesses. The purpose of the issuance of new shares and the disposal of treasury shares at this time is to raise funds for capital expenditures, with the goal of achieving higher production capacity in response to increased global demand in the strategic growth areas of the Group. As the speed of change in the business environment increases, the Company believes it is necessary to ensure stable funding for the long term, in order to prepare immediately for enhanced production of high-value added products and to expand business. Accordingly, the Company has resolved the issuance of new shares and the disposal of treasury shares. The Group intends to proactively extend its business in emerging markets through the combination of technological elements it has cultivated so far; and the Group aims to maximize the interests of stakeholders, including shareholders, by enhancing its corporate value. - 2 -
1. Issuance of New Shares by way of Offering (Public Offering) (1) Class and Number of Shares to be Offered (2) Method of Determination of the Amount to be Paid (3) Amount of Stated Capital and Additional Paid-in Capital to be Increased 1,100,000 shares of common stock of the Company. The amount to be paid shall be determined on the date of determination of the issue price, etc. (which may be a day in the period from Tuesday, August 23, 2011 to Friday, August 26, 2011) (the "Determination Date") in accordance with the method stated in Article 25 of the Regulations Concerning Underwriting, etc. of Securities provided by the Japan Securities Dealers Association ("JSDA"). The amount of stated capital to be increased shall be half of the maximum increased amount of stated capital, as calculated in accordance with the provision of Article 14, Paragraph 1 of the Rules of Account Settlement of Corporations with any fraction less than one yen resulting from the calculation being rounded up to the nearest yen. The amount of the additional paid-in capital to be increased shall be the amount obtainable by subtracting the amount of stated capital to be increased from the maximum amount of stated capital increase. (4) Method of Offering The offering shall be a public offering. All of the new shares shall be purchased for sale by the underwriting syndicate led by Nomura Securities Co., Ltd. ("Nomura Securities") as the lead manager in the public offering (collectively, the "Underwriters"). The issue price with regard to the Public Offering (offer price) shall be determined, based on the provisional range calculated by multiplying the closing price in regular trading of the shares of common stock of the Company on the Tokyo Stock Exchange on the Determination Date (or, if no closing price is quoted, the closing price of the immediately preceding date) by 0.90-1.00 (with any fraction less than one yen being rounded down), in accordance with the method stated in Article 25 of the Regulations Concerning Underwriting, etc. of Securities provided by the JSDA, taking into account market demand. (5) Consideration to be paid to the The Company shall not pay any underwriting fees to the Underwriters. Instead, the aggregate amount of the - 3 -
Underwriters difference between (a) the issue price in the Public Offering (offer price) and (b) the amount to be paid to the Company by the Underwriters shall be taken by the Underwriters. (6) Subscription Period The subscription period shall be from the next business day after the Determination Date to the second business day following the Determination Date. (7) Payment Date The payment date shall be a day in the period from Tuesday, August 30, 2011 to Friday, September 2, 2011, provided, however, that such day shall be the fifth business day following the Determination Date. (8) Subscription Unit 100 shares (9) The amount to be paid, the amount of stated capital and additional paid-in capital to be increased, and any other matters necessary for issuance of new shares by the Public Offering shall be determined at the discretion of the President and Representative Director of the Company. (10) The foregoing items shall be subject to the effectiveness of the securities registration statement filed under the Financial Instruments and Exchange Act of Japan. 2. Disposal of Treasury Shares by way of Offering (Public Offering) (1) Class and Number of Shares to be Offered (2) Method of Determination of the Amount to be Paid 250,000 shares of common stock of the Company. The amount to be paid shall be determined on Determination Date in accordance with the method stated in Article 25 of the Regulations Concerning Underwriting, etc. of Securities provided by the JSDA. The amount to be paid shall be same as the amount to be paid with regard to the issuance of new shares by way of offering. (3) Method of Offering The offering shall be a public offering. All of the new shares shall be purchased for sale by the Underwriters. The disposal price with regard to the Public Offering (offer price) shall be determined, based on the provisional range calculated by multiplying the closing price in regular trading of the shares of common stock of the Company on the Tokyo Stock Exchange on the Determination Date (or, - 4 -
if no closing price is quoted, the closing price of the immediately preceding date) by 0.90-1.00 (with any fraction less than one yen being rounded down), in accordance with the method stated in Article 25 of the Regulations Concerning Underwriting, etc. of Securities provided by the JSDA, taking into account market demand. The disposal price with regard to the Public Offering (offer price) shall be same as the issue price with regard to the issuance of new shares by way of offering. (4) Consideration to be paid to the Underwriters The Company shall not pay any underwriting fees to the Underwriters. Instead, the aggregate amount of the difference between (a) the disposal price in the Public Offering (offer price) and (b) the amount to be paid to the Company by the Underwriters shall be taken by the Underwriters. (5) Subscription Period The subscription period shall be from the next business day after the Determination Date to the second business day following the Determination Date. The subscription period shall be the same as the subscription period with regard to the issuance of new shares by way of offering. (6) Payment Date The payment date shall be a day in the period from Tuesday, August 30, 2011 to Friday, September 2, 2011, provided, however, that such day shall be the fifth business day following the Determination Date. The payment date shall be the same as the payment date with regard to the issuance of new shares by way of offering. (7) Subscription Unit 100 shares (8) The amount to be paid and any other matters necessary for the disposal of treasury shares by the Public Offering shall be determined at the discretion of the President and Representative Director of the Company. (9) The foregoing items shall be subject to the effectiveness of the securities registration statement filed under the Financial Instruments and Exchange Act of Japan. - 5 -
3. Secondary Offering of Shares (Secondary Offering by way of Over-Allotment) (See 1. of "For Reference" attached hereto) (1) Class and Number of Shares to be Sold 200,000 shares of common stock of the Company. The number of shares to be sold mentioned above is the maximum number of shares to be sold. The above number may be decreased, or the Secondary Offering by way of Over-Allotment may be cancelled entirely, depending on market demand. The number of shares to be sold shall be determined on the Determination Date, taking into account market demand. (2) Seller Nomura Securities (3) Selling Price Undetermined (The selling price shall be determined on the Determination Date; provided, however, that such selling price shall be the same as the issue price and disposal price (offer price) for the Public Offering.) (4) Method of Secondary Offering Taking into account market demand for the Public Offering, Nomura Securities will undertake a secondary offering of shares of common stock of the Company (up to 200,000 shares) that it will borrow from certain shareholder(s) of the Company. (5) Subscription Period The subscription period shall be the same as the subscription period in respect of the Public Offering. (6) Delivery Date The delivery date shall be the next business day after the payment date in respect of the Public Offering. (7) Subscription Unit 100 shares (8) The selling price and any other matters necessary for the Secondary Offering by way of Over-Allotment shall be determined at the discretion of the President and Representative Director of the Company. (9) The foregoing items shall be subject to the effectiveness of the securities registration statement filed under the Financial Instruments and Exchange Act of Japan. - 6 -
4. Issuance of New Shares by way of Third-Party Allotment (See 1. of "For Reference" attached hereto) (1) Class and Number of Shares to be Offered (2) Method of Determination for the Amount to be Paid (3) Amount of Stated Capital and Additional Paid-in Capital to be Increased 200,000 shares of common stock of the Company. The amount to be paid shall be determined on the Determination Date; provided, however, that such amount to be paid shall be the same as the amount to be paid in respect of the Public Offering. The amount of stated capital to be increased shall be half of the maximum increased amount of stated capital, as calculated in accordance with the provisions of Article 14, Paragraph 1 of the Rules of Account Settlement of Corporations with any fraction less than one yen resulting from the calculation being rounded up to the nearest yen. The amount of the additional paid-in capital to be increased shall be the amount obtainable by subtracting the amount of stated capital to be increased from the maximum amount of stated capital increase. (4) Allottee Nomura Securities (5) Subscription Period (Subscription Date) Tuesday, September 13, 2011 (6) Payment Date Wednesday, September 14, 2011 (7) Subscription Unit 100 shares (8) Shares not subscribed within the subscription period (Subscription Date) mentioned in (5) above shall not be issued. (9) The amount to be paid, the amount of stated capital and additional paid-in capital to be increased and any other matters necessary for the Issuance of New Shares by way of Third-Party Allotment shall be determined at the discretion of the President and Representative Director of the Company. (10) The foregoing items shall be subject to the effectiveness of the securities registration statement filed under the Financial Instruments and Exchange Act of Japan. - 7 -
[For Reference] 1. Secondary Offering by way of Over-Allotment and other matters The Secondary Offering by way of Over-Allotment as mentioned in "3. Secondary Offering of Shares (Secondary Offering by way of Over-Allotment)" above, is a secondary offering to be made in relation to the Public Offering mentioned in "1. Issuance of New Shares by way of Offering (Public Offering)" and "2. Disposal of Treasury Shares by way of Offering (Public Offering)" for shares of common stock of the Company, in a number not exceeding 200,000 shares, that will be borrowed by Nomura Securities, the Lead Manager of the Public Offering, from certain shareholder(s) of the Company, taking into account market demand. The number of shares to be offered in the Secondary Offering by way of Over-Allotment is scheduled to be 200,000 shares; however, this is the maximum number of shares to be sold, and such number may be decreased, or the Secondary Offering by way of Over-Allotment may be cancelled entirely, depending on market demand. In connection with the Secondary Offering by way of Over-Allotment, the board of directors of the Company has resolved, at the meeting held on Monday, August 15, 2011, that the Company will issue 200,000 shares of common stock of the Company to Nomura Securities by way of third-party allotment (the "Capital Increase by way of Third-Party Allotment"), with the payment date set to be Wednesday, September 14, 2011, in order for Nomura Securities to obtain the number of shares necessary to return the shares of common stock of the Company that will have been borrowed by Nomura Securities from certain shareholder(s) of the Company, as mentioned above (the "Borrowed Shares"). Nomura Securities may also purchase shares of common stock of the Company (the "Syndicate Cover Transactions") on the Tokyo Stock Exchange, up to the number of shares to be offered in the Secondary Offering by way of Over-Allotment, for the purpose of returning the Borrowed Shares. Such Syndicate Cover Transactions would be made during the period from (a) the day immediately following the last day of the subscription period for the Public Offering and the Secondary Offering by way of Over-Allotment to (b) Wednesday, September 7, 2011 (the "Syndicate Cover Transaction Period"). All of the shares of common stock of the Company purchased by Nomura Securities during the Syndicate Cover Transaction Period will be used to return the Borrowed Shares. During the Syndicate Cover Transaction Period, Nomura Securities may decide not to conduct any Syndicate Cover Transaction or may decide to terminate the Syndicate Cover Transactions before the number of shares purchased reaches the number of shares offered in the Secondary Offering by way of Over-Allotment. - 8 -
Nomura Securities may conduct stabilizing transactions along with the Public Offering and the Secondary Offering by way of Over-Allotment. The shares of common stock of the Company purchased through such stabilizing transactions may be used, in whole or in part, to return the Borrowed Shares. With respect to the number of shares obtained by deducting (a) the number of shares purchased through stabilization transactions and Syndicate Cover Transactions that are to be used to return the Borrowed Shares from (b) the number of shares to be offered in the Secondary Offering by way of Over-Allotment (the "Number of Shares to be Purchased"), Nomura Securities will accept the allotment under the Capital Increase by way of Third-Party Allotment and will purchase an equivalent number of shares of common stock of the Company. As a result, a part or all of the shares to be issued under the Capital Increase by way of Third-Party Allotment may not be subscribed for, which may result in a decrease in the determined number of shares to be issued under the Capital Increase by way of Third-Party Allotment, or in the cancellation of the issuance, due to forfeiture. In the event that Nomura Securities accepts the allotment under the Capital Increase by way of Third-Party Allotment, it will make payment for the Number of Shares to be Purchased with the fund obtained from the Secondary Offering by way of Over-Allotment. 2. Change in the number of outstanding shares as a result of this capital increase by Public Offering and the Capital Increase by way of Third-Party Allotment Total number of outstanding shares at present: 11,072,000 shares (as of August 15, 2011) Increase in number of shares as a result of the capital increase by public offering: 1,100,000 shares Total number of outstanding shares after the capital increase by public offering: 12,172,000 shares Increase in number of shares as a result of the capital increase by way of third-party allotment: 200,000 shares (Note) Total number of outstanding shares after the capital increase by way of third-party allotment: 12,372,000 shares (Note) - 9 -
(Note) These figures are based on the assumption that the shares to be offered in "4. Issuance of New Shares by way of Third-Party Allotment" are all subscribed by Nomura Securities and issued. 3. Change in the number of Treasury Shares as a result of this Disposal of Treasury Shares Number of treasury shares at present: 322,113 shares (as of July 31, 2011) Number of shares disposed: 250,000 shares Number of treasury shares as a result of the disposal of treasury shares: 72,113 shares 4. Use of proceeds (1) Use of proceeds raised this time Proceeds from the Public Offering and the Capital Increase by way of Third-Party Allotment of shares, which are estimated to be up to 5,111,500,000 yen in total, are expected to be used in full as funds for capital expenditures in connection with the ceramic components business of the Company and Maruwa (Malaysia) Sdn.Bhd, a subsidiary of the Company. Funds required for capital expenditures of Maruwa (Malaysia) Sdn.Bhd. are expected to be invested or loaned by the Company. These capital expenditures are intended to enhance production capacity, with proceeds to be allocated to the following product lines during the period from September, 2011 to March, 2013: (i) 2,823,000,000 yen for ceramic substrates for power modules (1) used in inverters for hybrid cars, electric cars, wind-power generation, high-speed rail, etc. all of which constitute effective measures against global warming and for energy conservation; (ii) (iii) 1,110,000,000 yen for EMC components used in high-function cell phones to assure accurate operation of contactless communication of cell phones typified by "Osaifu-Keitai" (2) ; and the remainder for LED ceramic module substrates for power LEDs (3) used in high-brightness lighting equipment, including fixtures for roads and apparatus for streets and public spaces. - 10 -
As manufacturer of the products mentioned above, the Group will respond to increasingly sophisticated market needs by improving the quality of existing materials and developing new materials. (Notes) 1. Power modules: Modules are components with certain functions which are assembled from groups of parts. Power modules are modules for use under high electric current and/or high voltage. 2. Osaifu-Keitai: "Osaifu-Keitai" (mobile phones with wallet functions) is a trademark of NTT DOCOMO, INC. 3. Power LEDs: Power LEDs are light-emitting diodes capable of producing extremely bright light. The content of the capital expenditure plans of the Group as of August 15, 2011 (except for "Amount Paid" in the "Amount expected to be invested" column, which is as of June 30, 2011.) are as follows: (i) Company Name of Office (Location) Toki Plant (Toki-city, Gifu-prefecture) Seto Plant (Seto-city, Aichi-prefecture) Naoetsu Plant (Joetsu-city, Niigata-prefecture) Kasugayama Plant (Joetsu-city, Niigata-prefecture) Name of Segment Ceramic Components Business Ceramic Components Business Ceramic Components Business Ceramic Components Business Amount expected to be invested Facility Content Aggregate Amount Amount Paid (Millions of (Millions yen) of yen) and Development 2,122 93 Facility, etc. (Note 2.) and Development Facility, etc. (Note 3.) Facility, etc. Facility, etc. (Note 3.) 260 0 Finance Method Self-financing and Capital Increase Self-financing and Capital Increase 40 1 Self-financing 297 154 Self-financing and Capital Increase Scheduled Launch and Completion Increase after Launch Completion Completion April, 2011 April, 2011 April, 2011 April, 2011 March, 2013 March, 2013 March, 2013 March, 2013 24% Increase in 35% Increase in 15% Increase in 180% Increase in - 11 -
(Notes) 1. The amount above does not include consumption tax. 2. Produces ceramic substrates for power modules and LED ceramic module substrates. 3. Produces EMC components for high-function cell phones. (ii) Consolidated subsidiaries Name of Company and Office (Location) MARUWA QUARTZ CO., LTD. Miharu Plant (Miharu-machi, Tamura-gun, Fukushima -prefecture) MARUWA SHOMEI CO., Ltd. Toki Plant (Toki-city, Gifu-prefecture) HOKKO DENSHI CO., LTD. Toki Plant (Toki-city, Gifu-prefecture) Maruwa (Malaysia) Sdn.Bhd. (Melaka, Malaysia) Name Segment of Ceramic Components Business Lighting Business Ceramic Components Business Ceramic Components Business Facility Content Facility, etc. Facility, etc. Facility, etc. Facility, etc. (Note 2.) Amount expected to be invested Aggregate Amount Amount Paid (Millions of (Millions yen) of yen) Finance Method 473 13 Self-financing 50 0 Self-financing 10 0 Self-financing 4,031 35 Self-financing and investment and loan by the Company (Note 3.) Scheduled Launch and Completion Launch Completion April, 2011 April, 2011 April, 2011 April, 2011 March, 2013 March, 2013 March, 2013 March, 2013 Increase after Completion 18% Increase in 15% Increase in Enhancement in Productivity 60% Increase in (Notes) 1. The amount above does not include consumption tax. 2. Produces ceramic substrates for power modules, LED ceramic module substrates and EMC components for high-function cell phones. - 12 -
3. "Investment and loan by the Company" means that the Company will invest or loan the proceeds from this Capital Increase (Public Offering and Third-Party Allotment) to this subsidiary. (2) Change in the use of proceeds raised last time Not applicable. (3) Expected impact on business results The Company believes that investing the proceeds for businesses which are expected to boost profitability and growth potential of the Group will contribute to multiplying future operational results. 5. Profit distribution to shareholders, etc. (1) Basic policy concerning profit distribution The Company's basic policy is to allocate cash flow from business activities principally to (i) timely capital investment in new growth areas, (ii) dividends after comprehensive consideration of consolidated performance results, etc. and (iii) retained earnings to ensure that the Company can respond flexibly to changes in business environment. While the Company secures retained earnings for strategic investment necessary for the continued expansion of its core businesses, the Company attaches great importance to returning profits to shareholders. (2) Concept of determination of dividends The Company's basic policy is to distribute surplus semiannually in the form of an interim dividend and a year-end dividend. The year-end dividend is determined by the annual meeting of shareholders and the interim dividend is determined by the board of directors. (3) Use of retained earnings The Company intends to (i) use retained earnings for research and development investment and capital investment leading to future growth and (ii) enhance its corporate value. (4) Dividends, etc. for past three fiscal years - 13 -
FY March 2009 FY March 2010 FY March 2011 Current net income per share (consolidated) ( represent current net loss JPY71.68 JPY102.97 JPY187.14 per share (consolidated)) Annual dividends per share (and interim dividends per share) JPY28.00 (JPY14.00) JPY28.00 (JPY14.00) JPY30.00 (JPY15.00) Actual payout ratio (consolidated) - 27.2% 16.0% Net return on equity (consolidated) 2.9% 4.3% 7.4% Ratio of dividends / net assets (consolidated) 1.1% 1.2% 1.2% (Notes) 1. The consolidated actual payout ratio is a fraction, the numerator of which is the dividends per share paid during each fiscal year; and the denominator of which is the consolidated current net income per share. The consolidated actual payout ratio for the FY March 2009 is not stated as the consolidated current net loss is recognized. 6. Other matters 2. The consolidated net return on equity is a fraction, the numerator of which is the consolidated current net income or the consolidated current net loss; and the denominator of which is the equity capital (i.e. the average of the equity capital at the beginning and the end of the relevant fiscal year obtained by deducting stock acquisition rights and minority shareholders' interests from the total net assets). 3. The consolidated ratio of dividends/net assets is a fraction, the numerator of which is the dividends per share paid during each fiscal year; and the denominator of which is the consolidated net assets per share (i.e. the average of the net assets per share at the beginning and the end of the relevant fiscal year). (1) Designation of party to receive distribution Not applicable. (2) Information on dilutive shares Not applicable. - 14 -
(3) Equity finance for past years (i) Equity finance for past three years Not applicable. (ii) Change in share prices for past three fiscal years and at the most recent time point (in JPY, other than the price/earnings ratio) FY March 2009 FY March 2010 FY March 2011 FY March 2012 Opening 1,228 966 1,975 2,697 High 1,470 2,450 2,869 3,800 Low 880 966 1,772 2,549 Closing 976 1,986 2,695 3,400 Price/earnings ratio - 19.3 14.4 - (Notes) 1. The share prices are based on the Tokyo Stock Exchange. 2. The share prices for the FY March 2012 above are the prices as of Friday, August 12, 2011. 3. Price/earnings ratio is a fraction, the numerator of which is the share price (closing price) as of the end of each fiscal year; and the denominator of which is the consolidated current net income per share for the relevant fiscal year. Price/earnings ratio for the FY March 2009 is not stated as the consolidated current net loss is recognized. (iii) Changes in the shareholding policy of the allottee concerning capital increase by way of third-party allotment for past five years (4) Lock-up Not applicable. In relation to the Public Offering, K Maruwa Co., Ltd. and Mr. Sei Kanbe, shareholders of the Company, have agreed with Nomura Securities not to sell their shares of the Company in principle during the period commencing on the - 15 -
Determination Date and ending on the 90th day after the delivery date for the Public Offering (the "Lockup Period") without Nomura Securities' prior written consent. Moreover, the Company has agreed with Nomura Securities not to issue shares of the Company, securities that can be converted to or exchanged for shares of the Company, or any other securities to which the right to acquire or receive shares of the Company is granted (excluding the Issuance of New Shares by way of the Public Offering, the Capital Increase by way of Third-Party Allotment and issuance and transfer of shares of the Company by way of stock split) during the Lockup Period without Nomura Securities' prior written consent. In relation to any of the above, Nomura Securities have the authority to waive a part or all of the conditions of that agreement during the Lockup Period at their own discretion. - 16 -