Steel Partners Submits Proposal to Acquire Noritz Corporation

Steel Partners Japan Strategic Fund (Offshore), L.P. (“Steel Partners” or the “Fund”) announced today that it has sent a letter to Noritz Corporation (5943.JP) (“Noritz” or the “Company”), indicating its willingness to enter into negotiations with the Board of Directors to acquire on a voluntary basis all of the outstanding capital stock of the Company, excluding treasury shares, for Yen 1,025 per share, which represents an approximate 7.6% premium to the current market price of Yen 953 per share (as of September 9, 2008).

“Because management has failed to meet its operating profit plans for the past six of seven years while destroying stakeholder value and since management and the Board of Directors have not given us any reason to believe that they are taking appropriate steps to ensure that such deterioration will not continue well into the future, Steel Partners hereby submits this proposal,” wrote Warren Lichtenstein, Managing Partner of Steel Partners Japan, in the letter sent to Noritz.

Steel Partners is Noritz’s largest shareholder, owning approximately 18.7% of the outstanding capital stock of the Company.

Steel Partners said that if they are successful in increasing their ownership position in the Company to 50.1% or greater, they intend to sell unprofitable business and implement operational excellence programs to increase sales and margins. They will examine the cash needs of the Company and develop an appropriate capital structure.

Steel Partners stressed that it undertook the offer as a last resort due to frustration and concern over the rapidly deteriorating performance of the Company. Steel Partners noted that since November 30, 2007, when the Fund submitted to the Company an extensive presentation detailing suggestions for improving operating performance and corporate value, which was rejected by the current Board, the Company’s operating profit and operating margins have steadily decreased and are significantly below those of Japanese and non-Japanese competitors.

Since November 30, 2007, the market price of Noritz’s shares has decreased from Yen 1,476 per share to Yen 953 per share as of September 9, 2008, or by approximately 35.4%.

“It is inexcusable that management and the Board of Directors have continued to defiantly ignore our suggestions while their so-called ‘superior’ plans have only led to further financial deterioration,” Mr. Lichtenstein wrote. “It has become clear to us that management does not have any real alternative plans as claimed and evidently does not understand the need to immediately implement appropriate changes. The status quo is not acceptable.”

Steel Partners pointed out that the Company’s average return on equity (“ROE”) from 1996-2006 was 2.8%, well below the 8% target used by the Japan Pension Fund Association (“PFA”) to determine whether to support incumbent directors. Noritz’s ROE was an alarming -1.4% for 2007.

“We believe our offer will present an excellent opportunity for investors, the Company, its employees and other stakeholders,” Mr. Lichtenstein wrote. “Existing shareholders electing to participate gain liquidity and a chance to sell at a premium to market price.”

Full text of the letter follows:

 September 11, 2008  Noritz Corporation 93 Edo-machi, Chuo-ku Kobe 650-0033 Japan Attention: Shigeharu Kanzaki President and Representative Director  Steel Partners Japan Strategic Fund (Offshore), L.P. P.O. Box 2681 GT, Century Yard, 4th Floor Cricket Square, Hutchins Drive George Town, Grand Cayman Cayman Islands, British West Indies  Dear Mr. Kanzaki:  As you know Steel Partners Japan Strategic Fund (Offshore), L.P. (“Steel Partners”) owns approximately 18.7% of the outstanding capital stock of Noritz Corporation (“Noritz” or the “Company”) and is Noritz’s largest shareholder. Over the past five years, and during the past ten months in particular, we have had several in-person meetings and telephone conference calls with management to provide our detailed views on ways to improve corporate value for the benefit of all stakeholders. Despite the great lengths we have gone to assess the Company and its operating environment and to offer detailed solutions to management to help overcome the Company’s ever-worsening financial condition and operating performance for the benefit of all stakeholders, it has become readily apparent to us that management does not have any intention of seriously considering our suggestions. The Company continues to miss its budgets, operating performance continues to significantly deteriorate and stakeholder value is being destroyed. It is inexcusable that management and the Board of Directors have continued to defiantly ignore our suggestions while their so-called “superior” plans have only led to further financial deterioration.  We have raised with you time and time again our significant concerns with the following operational failures:  — The Company has not met its operating profit target in six of the past seven years and, based on the Company’s recent downward revision of its sales, we anticipate that Noritz will miss its operating profit target for 2008;  — Operating profit and operating margins have steadily decreased since 2003;  — Operating margins are significantly below those of Japanese and non-Japanese competitors; and  — Average return on equity (“ROE”) from 1996-2006 was 2.8%, well below the 8% target used by the Japan Pension Fund Association (“PFA”) to determine whether to support incumbent directors, and the ROE was an alarming -1.4% for 2007.  

 Operating Profit & Margin (Yen Billions)            2003      2004      2005      2006      2007  Operating Profit       Yen 8.1   Yen 7.7   Yen 6.9   Yen 5.8   Yen 2.4 OP Margin                 4.7%      4.5%      3.9%      3.2%      1.3%  Return on Equity          2003      2004      2005      2006      2007  Return on Equity          3.8%      5.9%      4.9%      3.3%     -1.4%  Source: Company annual reports.  

 Since November 30, 2007, when we submitted to you an extensive presentation detailing our suggestions for improving corporate value, the market price of Noritz’s shares has decreased from Yen 1,476 per share to Yen 953 per share as of September 9, 2008, or by approximately 35.4%. Comparatively, the Nikkei 225 and the TOPIX indices have declined only 20.9% and 22.2%, respectively, over this same period. Meanwhile, Rinnai, a primary competitor of Noritz, has experienced a 7.9% increase in the market price of its shares over this period.  At our February 2008 meeting in Tokyo, we were told that our recommendations were only one way to improve corporate value and that management had a different plan that it deemed to be superior. It has become clear to us that management does not have any real alternative plans as claimed and evidently does not understand the need to immediately implement appropriate changes. The status quo is not acceptable.  Consider the following and ask yourself if management is justified in continuing to ignore our detailed suggestions:  On divesting the non-core, unprofitable system bath and kitchen segments:  STEEL PARTNERS’ SUGGESTION: The Company should immediately sell or exit its unprofitable system bath and kitchen business segments in order to focus on growing its core water heating business both domestically and internationally.  MANAGEMENT’S RESPONSE: Management stated that it is not considering a sale of its non-core, underperforming system bath business because it is the original business of the Company. The Midterm Plan contemplates continuing these non-core, loss-making business segments and seeking alliances with other operating companies, thereby diverting management attention even further from the Company’s profitable business segments.  THE REALITY: The Company’s system bath and system kitchen business segments both operate in a competitive landscape where substantially larger competitors dominate. Even these larger competitors deliver poor operating margins. One such larger competitor in the kitchen business sector, Matsushita Electric Works, Ltd., recently recognized this reality in closing two of its kitchen plants in order to improve profitability. According to a recent report by Mizuho Securities Equity Research, another market share leader in this sector, TOTO Ltd., is forecasted to experience operating losses for its Bath & Kitchen unit for 2009 and 2010. It defies business logic to keep pouring money into a loss-maker simply because it is a company’s original business. Even under the most optimistic market forecasts for both of these business segments, we do not believe the Company will be able to achieve the market share necessary to achieve an acceptable return on its invested capital. The combination of an overall shrinking market, large, well-capitalized competitors offering superior products, and a lack of product innovation/differentiation suggest that Noritz’s best course of action is to exit these businesses and focus on and reinvest in business segments where it can increase long-term profitability for all stakeholders.  On aggressively growing the Company’s market and technology leading businesses:  STEEL PARTNERS’ SUGGESTION: The Company should focus on its core water heating business and on strengthening its OEM business. Steel Partners strongly believes Noritz has an outstanding brand and portfolio of products, including its water heating products, offering world-class technology. We also believe in the long-term prospects of Noritz’s business, particularly the water heating product business in today’s environment of rising energy prices and environmental concerns.  MANAGEMENT’S RESPONSE: Although management stated in the Midterm Plan that it is aiming by 2010 for overseas sales of Yen 30.0 billion, or 14% of the forecasted consolidated sales in 2010, we believe management should be much more aggressive in growing its overseas water heating business.  THE REALITY: Opportunities for the Company to gain market share in the U.S. and around the world have been lost because management’s attention is continually diverted to money losing, non-core business segments. Noritz should be a leader in the U.S. market and across the world, yet management readily concedes the market to other Japanese and foreign competitors despite Noritz’s leading technology. According to Credit Suisse Securities, in the U.S. market, Noritz sold only 62,000 tankless gas water heater units in 2007, representing less than 1% of the total water heater market. By way of comparison, Rinnai sold 158,000 units in the U.S. market in 2007, or more than 250% of Noritz’s volume. Additionally, Rinnai expects robust growth of 35% for its U.S. business in 2008, while Noritz recently reduced its sales target from 91,000 units to 68,000 units, representing a modest 9.7% increase. Rinnai has also established key OEM partnerships with General Electric Company and A.O. Smith Corporation in the U.S. market, and strategic partnerships with Bosch in other international markets. Noritz’s rate of international expansion is shockingly low and unacceptable given the overall global market growth and demand for energy efficient products.  On using excess capital to implement a share repurchase program:  STEEL PARTNERS’ SUGGESTION: The Company should utilize its excess cash for a share repurchase program offered to all shareholders in order to improve ROE and reduce the size of the Company’s large cash and investment holdings on hand. Such a program would be accretive to earnings per share and ROE, while leaving the Company with ample financial flexibility to pursue a turnaround strategy. Steel Partners has stated that it does not anticipate participating in such a repurchase program.  MANAGEMENT’S RESPONSE: Management responded by doing nothing while simply dismissing the PFA guidelines as “too aggressive” and insisting that its own plans for increasing corporate value are “superior” to our detailed and well-researched suggestions. Management’s Midterm Plan does not include any future plans with regard to implementing a share repurchase program and instead only makes vague mention of cash dividends as a means of providing a return to shareholders.  THE REALITY: The Company’s large cash and investment holdings are providing little to negative returns due in large part to management’s misguided investment policies and the low interest rate environment in Japan. As a result, ROE remains low and overall shareholder value is unnecessarily at risk. In fact, Noritz lost approximately Yen 3.6 billion in holding securities between June 2007 and June 2008 and has an unrealized loss of approximately Yen 289.0 million as of June 30, 2008. This combination of mismanaging investment holdings and failing to achieve a minimum 8% ROE is unacceptable. For at least the last nine fiscal years, the Company has failed to achieve an 8% ROE, the minimum required by the PFA for the support of an incumbent Board of Directors. The Midterm Plan does not even seek to achieve the minimum 8% ROE benchmark.  On hiring consultants to prepare a plan to improve operational results and margins:  STEEL PARTNERS’ SUGGESTION: The Company should hire consultants with experience in operational excellence programs, including Six Sigma, the Toyota Manufacturing System and Lean Manufacturing, to help prepare a feasible plan to improve operational results and margins. We even recommended an operational improvement firm to work with management so that the Company could achieve margins in line with its domestic and global competitors.  MANAGEMENT’S RESPONSE: Management refused to take an introductory meeting with an operational consultant who has extensive experience with world-class companies in Japan and around the world.  THE REALITY: Over the past seven fiscal years, the Company has fallen behind competitors for international sales, mismanaged its highly inefficient ERP systems and failed to incorporate process improvement systems throughout all levels of the Company on a consistent basis. The Company’s first half 2008 results clearly show continued financial deterioration. First half 2008 results showed further deterioration from last year both in sales (-2.8%) and operating profit (-61.3%). The Company is well on its way to missing its operating profit plan for the seventh time in eight years. The increasing decline in the Company’s returns on sales and assets over the past four years is inexcusable.  

 2003     2004     2005     2006      2007  Return on Sales              1.9%     2.9%     2.4%     1.6%     -0.7%  2003     2004     2005     2006      2007  Return on Assets             2.0%     3.3%     2.8%     2.0%     -0.8%  Source: Company annual reports.  

 On negotiating price increases with gas companies and residential builders:  STEEL PARTNERS’ SUGGESTION: The Company should negotiate price increases with gas companies and general house builders to grow the top line.  MANAGEMENT’S RESPONSE: Management failed to include our suggestion, or any alternate solution or strategy, in its Midterm Plan.  THE REALITY: The Company has successfully increased prices to small house builders and also has successfully introduced higher priced new products in its gas range business. Operating margins continue to suffer while management fails to negotiate higher prices with three of its sales channels.  If our suggestions were implemented, we believe Noritz could have achieved a minimum 8% ROE while enhancing the value of the Company to the benefit of all stakeholders.  

 SPJSF Suggestion (FYE 12/’07P)        Co’s Actual      The Co’s Midterm Plan —————————————————————– -Pro    -w/ Share     FYE      FYE      FYE      FYE      FYE Forma-  Repurchase-  12/’06A  12/’07A  12/’08E  12/’09E  12/’10E —————————————————————– Sales  179.0        179.0    182.1    180.0    186.0    200.0    215.0 OP   13.6         13.6      5.8      2.4      3.5      7.0      9.0 OPM   7.6%         7.6%     3.2%     1.3%     1.9%     3.5%     4.2%  —————————————————————– ROE   8.5%        10.2%     3.3%    -1.4%     2.2%     4.5%     6.0% EPS  170.7        274.2     62.6    -25.3     41.8     85.7    115.0 —————————————————————–  

 Since inception, the Steel Partners group has repeatedly demonstrated its ability to identify and make long-term investments in undervalued public and private companies and to work with management to increase value for all stakeholders over the long term. The Company’s failure to seriously consider or implement any of our detailed suggestions confirms our belief that the Board of Directors and management have little, if any, interest in working with us and care little about providing acceptable returns on shareholders’ capital, creating jobs for its employees and improving value for all stakeholders. Such blatant disregard for improving stakeholder value would be a breach of a director’s fiduciary duties under most every corporate law regime around the globe.  Therefore, because management has failed to meet its operating profit plans for six of the past seven years while destroying stakeholder value and since management and the Board of Directors have not given us any reason to believe that they are taking appropriate steps to ensure that such deterioration will not continue well into the future, Steel Partners hereby submits this proposal indicating our willingness to enter into negotiations with the Board of Directors to acquire on a voluntary basis all of the outstanding capital stock, excluding treasury shares, of the Company for Yen 1,025 per share, which represents an approximate 7.6% premium to the current market price of Yen 953 per share (as of September 9, 2008). We believe this all-cash offer (our offer is not subject to financing contingencies) will provide the Company’s shareholders electing to participate with immediate liquidity and an immediate opportunity to maximize their investment in the Company. We propose that the acquisition of shares be accomplished through a tender offer for which we are hereby seeking the Company’s consent. A minimum condition of our offer would be the acquisition of 50.1% or more of the outstanding capital stock of the Company.  If, through such tender offer, we are successful in increasing our ownership position in the Company to 50.1% or greater, we intend to replace the Company’s senior executive(s) and the Board of Directors with a mix of highly qualified Japanese and international business leaders with relevant industry experience.  We believe our offer will present an excellent opportunity for investors, the Company, its employees and other stakeholders. Existing shareholders electing to participate gain liquidity and a chance to sell at a premium to market price. The shareholders who elect not to participate in Steel Partners’ offer will share in the Company’s future prospects and will be treated in the same manner as Steel Partners. Steel Partners is committed to making sure that the Company treats all shareholders fairly and equally. The Company will benefit from having a single, supportive majority investor that is ready to offer expertise, capital and global resources to help the Company grow and prosper. If we complete our offer, we intend to cause the new Board of Directors of the Company to implement the proposals detailed in our suggestions to the Board of Directors, dated November 30, 2007, a copy of which is attached. Specifically, the new Board of Directors would cause a comprehensive strategic review of the Company to be performed and would be committed to, among other things, (i) discontinuing or selling the loss-making system bath and system kitchen businesses, (ii) returning excess capital to shareholders, and (iii) seeking strategic partners to help aggressively grow international sales and profits to take advantage of the Company’s market- and technology-leading business segments. We believe that international expansion alone will increase employment at the Company and position it to effectively compete in the Japan and the global marketplace for the long-term, and that the Company will quickly be recognized as a global leader.  Our proposal is based upon publicly available information regarding the Company. As part of our proposal, we request that while we negotiate with the Board of Directors on the final structure of an offer that the Board of Directors would support, it give us the opportunity to perform an expedited due diligence review of non- public information concerning the Company. We believe we can quickly and efficiently conduct our due diligence review with the cooperation of the Company. If as a result of our due diligence we find evidence of additional value inherent in the Company based on operating results, we would be willing to upwardly adjust the offer price to reflect such additional value. We invite you to share with us any documentation in your possession that you believe reflects additional value in the shares that you believe is not already known to us.  We are familiar with the Company’s Corporate Takeover Defense Policy enacted by the Board of Directors in 2007, also commonly referred to as an “advance warning system” policy (the “AWS”). Based on our past experience, we believe the AWS process is flawed in that it serves mainly to limit available negotiation channels and entrench management. Furthermore, we note that although the AWS process is purportedly overseen by an “independent” Special Committee, the members of this committee are elected by the Board of Directors, all of whom are insiders, and the Board of Directors is the ultimate decision maker under the AWS. In light of this clear lack of independence and conflict of interest, we urge the Company to take no defensive action and allow its shareholders to decide for themselves whether to accept our offer for their shares in the Company.  We firmly believe that a negotiated transaction with the support of the Board of Directors is in the best interests of all stakeholders. We therefore call upon the Company’s Board of Directors, in accordance with its fiduciary obligations, to open up communications with us concerning our proposal as soon as possible as we believe that our proposal will provide a substantial benefit to the Company and its stakeholders. Should you have any questions concerning our proposal, we are prepared to speak with you at any time. In any event, we would appreciate your response to our proposal by the close of business on September 19, 2008.  We will contact you this week to find out when it will be convenient for you to speak. You may reach me at +1 (212) 520-2300 to discuss.  Sincerely,   Warren G. Lichtenstein Copy to: Thomas J. Niedermeyer, Jr., managing partner  

CAUTIONARY NOTE

Sales and operational profit in chart three are in billions of Japanese Yen and earnings per share are in Japanese Yen. Pro forma figures used herein may not have been prepared under Japan’s generally accepted accounting principles (“GAAP”) and in some cases pro forma figures may differ greatly from those derived from GAAP. Steel Partners has not independently verified the accuracy of Noritz’s forecasts or estimated results, or any third-party forecasts or estimated results that may be reflected herein, and the accuracy of such figures cannot be assured and there is no certainty that pro forma results reflected herein would actually have been achieved. While certain information on Noritz has been obtained from information Steel Partners believes is reliable and, in the case of estimations based upon assumptions by Steel Partners it believes are reasonable, Steel Partners does not provide any warranty for the accuracy of such information. Again, there is NO assurance that certain assumptions and other information provided herein are an accurate reflection or prediction of future performance.

About SPJSF

Steel Partners Japan Strategic Fund (Offshore), L.P. is a long-term relationship/active value investor that seeks to work with the management of its portfolio companies to increase corporate value for all stakeholders and shareholders.