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NEC Infrontia Corporation Announces Notice of Approval of the Tender Offer for Shares of NEC Infrontia Corporation and the Stock-for-Stock Exchange

Posted on: Thursday, 24 November 2005, 03:02 CST

NEC Infrontia Corporation ("NEC Infrontia") resolved at the meeting of the Board of Directors today to recommend acceptance of the tender offer under the Securities and Exchange Law of Japan for the shares of NEC Infrontia by NEC Corporation (hereinafter referred to as "NEC") followed by a stock-for-stock exchange under the Commercial Code of Japan in order to make it its wholly-owned subsidiary as follows:

1. Summary of Offeror 1) Corporate Name NEC Corporation 2) Business IT/Network Solutions, including manufacture and sale of computers, communications equipment, and software, as well as provision of services related to such products 3) Date of Incorporation July 17, 1899 4) Head Office 7-1, Shiba 5-chome, Minato-ku, Tokyo 5) Representative Akinobu Kanasugi, President 6) Stated Capital 337,821 million yen 7) Major Shareholders and Ownership Ratios Japan Trustee Services Bank, Ltd. (Trust Account) 4.98% The Master Trust Bank of Japan, Ltd. (Trust Account) 3.60% Nippon Life Insurance Company 2.06% Sumitomo Life Insurance Company 2.05% 8) Relationship with NEC Infrontia Equity: NEC owns 53.31% of the issued shares of NEC Infrontia. Human Resources: Officers and employees of NEC concurrently serve as directors (two) and corporate auditors (two) of NEC Infrontia. Business: NEC purchases from NEC Infrontia key telephone and POS products and sells to NEC Infrontia personal computers, servers, PBXs, and other products.

2. Details of the Opinion on and Purpose of the Tender Offer

Having discussed the tender offer by NEC Corporation (NEC), under which NEC proposes to purchase all of our shares, at our board of directors' meeting held on November 24, 2005, our board has decided that the tender offer will contribute to developing our business and has passed a resolution declaring its acceptance of the tender offer.

NEC is our largest shareholder, holding 53.31% of our total outstanding shares, and it aims to carry out a tender offer so that it can acquire 100% of our outstanding shares. We believe that the tender offer will enable us to further strengthen our core business, the enterprise networking business, as well as to dramatically boost our competitiveness and increase our corporate value.

In its current drive to selectively concentrate its businesses, NEC considers the integrated IT & network solutions business and the semiconductor solution business to be the core businesses of the NEC group. By bringing the NEC group's managerial resources such as research and development, intellectual properties, software development power, and personnel to these fields, and by creating greater business and technological synergies between the businesses, NEC has been maximizing the corporate value of the NEC group.

Our strengths lie in our key telephone and POS terminal equipment businesses, which are part of the field in which NEC operates its core business of integrated IT & network solutions. We are top class in Japan when it comes to the business of terminal equipment exclusively for corporate telecommunication, and we are particularly known throughout the world as one of the leaders in the key telephone business.

We also have a history of business alliances with NEC. In June 2001 our and NEC's key telephone and POS terminal equipment businesses were merged into us and we became a consolidated subsidiary of NEC. Then in October 2002 we purchased NEC's PDA business. Through these business alliances, we have worked to consolidate our businesses and have contributed to improving the efficiency with which the NEC group is managed.

Over recent years the increasing proliferation of IP (internet protocol) in the field of networking has caused a rapid increase in the fusing of the IT and network markets. For communications infrastructure, this has also sped up the transition toward broader IP communication networks that use internet networks as relay lines from the conventional land lines.

NEC provides government and companies PBX devices (devices that allow internal company telephone extensions to connect to each other as well as to outside lines) as part of their internal information and communications systems, and these are gradually being replaced by IP telephony servers (servers that make it possible to use both PBX functions compatible with IP phones together with software applications for office equipment).

In the field of key telephone systems, on the other hand, rapid developments in IT and network technologies have made it possible to create IP telephony systems that can perform the same functions as IP telephony servers. The recent proliferation of mobile phone terminals has also created a surge in demand for IP telephony systems that work with mobile communication technologies.

Likewise with the POS terminal equipment business, the proliferation of broadband has fed an increase in demand for products compatible with shop information systems that use the web, which has in turn produced a rise in demand for POS equipment that comes with advanced IT and network functions.

As our markets have undergone these changes, and particularly as IP has become more prolific, NEC and we have watched our businesses related to IP telephony products quickly converge, and we have both noted the increasing tendency for investment to overlap when it comes to development in these areas. We have therefore been having discussions with NEC's top management on how our two companies can ensure we succeed, on what strategies we need to succeed, in the corporate network market's IP telephony business, in which we predict the global competition will become increasingly intense.

As a result of those discussions, we have concluded that we would like to work toward fusing and strengthening NEC's IP network technologies and our communication terminal technologies and increasing the efficiency and speed with which we develop IP telephony products, and we have agreed to combine the resources we use to develop products. By doing this, we will bring even more competitive products to market and secure a firm presence in the corporate network business.

We have all the functions required from the development and manufacturing stages through to the sales and maintenance stages, and together we have succeeded in developing a business unit that makes fast decisions and conducts extremely efficient management. By drawing on these strengths, we would like to create new products, conduct business in more areas, and take a leading role in developing those business areas, thereby developing our responsible business operations.

We have been a listed company for 44 years since first listing our shares on the Second Section of the Tokyo Stock Exchange in October 1961, and then on the First Section in August 1970. For that reason, we believe that strengthening our alliance with NEC will dramatically increase our competitiveness and considerably raise our corporate value. That is why we have accepted NEC's tender offer.

We believe that the tender offer price is fair, based on our careful consideration with reference to the report on the calculation of our share value prepared by Deloitte Touche Tohmatsu, a third party institution.

3. Basic Information about the Relevant Parties (as of September 30, 2005) (1) NEC Infrontia 1) Corporate Name NEC Infrontia Corporation 2) Business Development, manufacture and sale of IT/Network systems and office application terminals, and System Solutions 3) Date of Incorporation November 17, 1932 4) Head Office 6-1, Kitamikata 2-chome, Takatsu-ku, Kawasaki-shi, Kanagawa 5) Representative Kazunori Kiuchi, President 6) Stated Capital 10,331 million yen 7) Issued Shares 126,724,074 shares 8) Shareholders' Equity 29,323 million yen 9) Total Assets 54,333 million yen 10) End of Fiscal Year March 31 11) Number of Employees 1,351 12) Major Customers NEC Group, NTT Group 13) Major Shareholders and Ownership Ratios NEC Corporation 53.31% Morgan Stanley and Company International, Ltd. 2.65% Mitsui Sumitomo Insurance Co., Ltd. 1.88% Aozora Bank, Ltd. 1.78% 14) Main Bank Sumitomo Mitsui Banking Corporation The Sumitomo Trust & Banking Co., Ltd. (2) NEC 1) Corporate Name NEC Corporation 2) Business IT/Network Solutions, including manufacture and sale of computers, communications equipment, and software, as well as provision of services related to such products 3) Date of Incorporation July 17, 1899 4) Head Office 7-1, Shiba 5-chome, Minato-ku, Tokyo 5) Representative Akinobu Kanasugi, President 6) Stated Capital 337,821 million yen 7) Issued Shares 1,995,923,384 shares 8) Shareholders' Equity 977,923 million yen 9) Total Assets 2,400,255 million yen 10) End of Fiscal Year March 31 11) Number of Employees 23,552 12) Major Customers NTT Group, governments, and other public sector institutions 13) Major Shareholders and Ownership Ratios Japan Trustee Services Bank, Ltd. (Trust Account) 4.98% The Master Trust Bank of Japan, Ltd. (Trust Account) 3.60% Nippon Life Insurance Company 2.06% Sumitomo Life Insurance Company 2.05% 14) Main Bank Sumitomo Mitsui Banking Corporation The Sumitomo Trust & Banking Co., Ltd. 15) Relationship between the Parties Equity: NEC owns 53.31% of the issued shares of NEC Infrontia. Human Resources: Officers and employees of NEC concurrently serve as directors (two) and corporate auditors (two) of NEC Infrontia. Business: NEC purchases from NEC Infrontia key telephone and POS products and sells to NEC Infrontia personal computers, servers, PBXs, and other products.

4. Financial Results for the Three Most Recent Fiscal Years (1) NEC Infrontia Fiscal Year Fiscal Year Fiscal Year Fiscal year ended ended ended March 31, 2003 March 31, 2004 March 31, 2005 Net sales (million yen) 89,464 84,706 83,816 Operating income (loss) (million yen) (1,972) (1,594) (406) Ordinary income (loss) (million yen) 185 (1,871) 407 Net income (loss) (million yen) (185) (736) 121 Net income (loss) per share (yen) (1.47) (5.86) 0.97 Dividend per share (yen) 6.00 6.00 6.00 Shareholders' equity per share (yen) 251.92 240.75 235.66 (2) NEC Fiscal Year Fiscal Year Fiscal Year Fiscal year ended ended ended March 31, 2003 March 31, 2004 March 31, 2005 Net sales (million yen) 2,781,436 2,509,114 2,426,835 Operating income (loss) (million yen) 24,890 16,252 22,083 Ordinary income (loss) (million yen) 6,119 31,900 40,245 Net income (loss) (million yen) (14,917) 25,253 24,254 Net income (loss) per share (yen) (9.01) 14.43 12.49 Dividend per share (yen) - 6.00 6.00 Shareholders' equity per share (yen) 406.26 473.87 474.41

5. Prospects after the Tender Offer

NEC aims to make NEC Infrontia its wholly-owned subsidiary. Accordingly, in the event it is unable to acquire all of the issued shares of NEC Infrontia (excluding treasury stock held by NEC Infrontia) in the tender offer, NEC intends to conduct a stock-for-stock exchange to accomplish this objective effective on May 1, 2006, or a later date if the short-form stock-for-stock exchange procedure is not available to NEC. In the stock-for-stock exchange, all shares of NEC Infrontia not tendered in the tender offer will be exchanged for shares of NEC. Shareholders of NEC Infrontia who are allotted more than one share will become NEC shareholders. After the completion of the stock-for-stock exchange, NEC Infrontia will become a wholly-owned subsidiary of NEC, and NEC Infrontia will be delisted pursuant to the delisting criteria of the Tokyo Stock Exchange. However, depending on the results of the tender offer, NEC Infrontia may be delisted shortly after the completion of the tender offer.

The share exchange ratio for the stock-for-stock exchange will be determined by the end of February 2006 through discussions between NEC and NEC Infrontia, taking into full consideration the interest of their shareholders, together with the results of valuation, due diligence, and other factors. There is no guarantee that the consideration offered in the stock-for-stock exchange (that is, shares of NEC and, in the case of shareholders of NEC Infrontia who are assigned less than one share of NEC, cash accrued from the sale of the aggregate of such fractional shares) would be of the same value as the consideration to be received by tendering shares of NEC Infrontia (that is, cash) in the tender offer. The tender offer enables shareholders of NEC Infrontia who tender their shares to receive cash consideration earlier than shareholders of NEC Infrontia who receive shares of NEC (or, in the case of shareholders of NEC Infrontia who are assigned less than one share of NEC, cash accrued from the sale of the aggregate of such fractional shares) in the stock-for-stock exchange. Further, dissenting shareholders of NEC Infrontia who appropriately object to the stock-for-stock exchange at the NEC Infrontia shareholders meeting to be convened to approve the stock-for-stock exchange agreement may demand that their shares be purchased by NEC Infrontia in accordance with the Commercial Code of Japan. The purchase price, however, may not be the same as the tender offer price.

NEC and NEC Infrontia have agreed to the stock-for-stock exchange, which will be implemented in accordance with the schedule below. In addition, NEC and NEC Infrontia have agreed to commence discussions as to the integration of the development and manufacturing resources for the IP telephony products of the two companies, which will be scheduled for July 1, 2006, if the stock-for-stock exchange agreement is approved at NEC Infrontia's shareholders' meeting. The stock-for-stock exchange ratio and the status after the stock-for-stock exchange will be announced when determined. Schedule: February 2006 Board Meeting to approve execution of the stock-for- stock exchange agreement Execution of the stock-for-stock exchange agreement March 2006 NEC Infrontia's Shareholders' Meeting to approve the stock-for-stock exchange agreement May 1, 2006 Effective date of stock-for-stock exchange (Note) For the calculation of the ownership ratio and other items, figures are rounded off to two decimal places.

(Reference)

Summary of the Tender Offer by NEC for shares of NEC Infrontia

(1) Type of Shares to be Common Shares Purchased: (2) Tender Offer Period: From November 25, 2005 (Friday) to January 12, 2006 (Thursday) (3) Purchase Price: 569 yen per share (4) Basis for Calculating Purchase Price: The Purchase Price was determined by taking into consideration various factors including the market price of NEC Infrontia shares, the financial condition and prospects of NEC Infrontia, the results of a share value appraisal conducted by NEC's advisor (Daiwa Securities SMBC Co., Ltd.), and the possibility of a decrease in liquidity of NEC Infrontia shares resulting from the tender offer and the subsequent stock-for-stock exchange. The Purchase Price is approximately 20% higher than the average closing price of NEC Infrontia shares on the Tokyo Stock Exchange, 1st Section for the one- month period ended November 22, 2005 (474 yen), and is 19.3% higher than the closing price on November 22, 2005 (477 yen). (5) Total Number of Shares Planned to Be 58,948,372 shares Purchased: Number of Shares Planned to Be Purchased: 58,948,372 shares Number of Shares in Excess of Number of Shares Planned to Be Purchased: 0 shares (Note 1) Fractional shares less than one unit are also targeted by this tender offer. (Note 2) NEC will purchase all the shares tendered, including any shares that may be issued or transferred to those who exercise stock options of NEC Infrontia. However, NEC does not intend to purchase treasury stock owned by NEC Infrontia. The Number of Shares Planned to Be Purchased was calculated by deducting the Number of Shares Held Prior to Tender Offer and treasury stock owned by NEC Infrontia from the issued shares of NEC Infrontia and adding the maximum number of the shares that may be potentially issued or transferred in connection with stock options. (6) Change in Number of Shares Held by NEC Number of Shares Held Prior to Tender 67,554,980 shares Offer: (Ownership Ratio 53.31%) Number of Shares Held After Tender 126,503,352 shares Offer: (Ownership Ratio 100.00 %) (Note 1) The Number of Shares Held After Tender Offer is the number of shares NEC will hold after NEC purchases the Total Number of Shares Planned to Be Purchased, or 58,948,372 shares. (Note 2) The ownership ratio for the Number of Shares Held Prior to Tender Offer was calculated based on 126,724,074 shares, which is the total number of issued shares of NEC Infrontia (as of September 30, 2005). (Note 3) The ownership ratio for the Number of Shares Held After Tender Offer was calculated based on the sum of the total number of issued shares of NEC Infrontia (126,724,074 shares (as of September 30, 2005)), and the maximum number of the shares that may be potentially issued or transferred in connection with NEC Infrontia's stock options (732,000 shares), deducting the number of treasury stock owned by NEC Infrontia (952,722 shares (as of September 30, 2005)). (7) Date of Public Notification: November 25, 2005 (Friday) (8) Tender Offer Agent: Daiwa Securities SMBC Co., Ltd. Daiwa Securities Co., Ltd. (a sub-agent of Daiwa Securities SMBC Co., Ltd.)

Source: Business Wire

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