Hitachi to Issue Euro Yen Zero Coupon Convertible Bonds Due 2009

Business Wire, Sept 21, 2004

TOKYO -- Hitachi, Ltd. (TSE:6501 / NYSE:HIT, the "Company") today announced that, pursuant to the decision by the President and Chief Executive Officer, the Company decided the issuance of Euro Yen Zero Coupon Convertible Bonds due 2009 (bonds with stock acquisition rights, tenkanshasaigata shinkabu yoyakuken-tsuki shasai) in the total amount of JPY 100 billion, consisting of JPY 50 billion Series A Zero Coupon Convertible Bonds due 2009 and JPY 50 billion Series B Zero Coupon Convertible Bonds due 2009 (collectively, the "Convertible Bonds").

The Convertible Bonds will be subscribed and purchased by Saman Capital Limited ("Saman"), the special purpose vehicle established in Cayman Islands. Saman will then issue various series of the repackaging notes secured by the Convertible Bonds and enter into certain derivative transactions with Nomura Securities Co., Ltd.

Purpose of Financing

Under its medium-term management plan "i.e. HITACHI Plan II," the Company is pursuing a realignment of its business portfolio by increasing focus on targeted businesses, businesses that will drive its growth and businesses where it can best leverage its strengths, in an effort to achieve increased profitability and enhance the financial positions. The proceeds are expected to be used to secure funding for forward-looking investments such as R&D and capital investments in the targeted businesses in an effort to realize further growth in the medium and long term.

The Company has financed flexibly by raising funds from diverse sources, according to use of the proceeds and market conditions. Under this financial policy, the Company issued debentures in May 2003 and raised funds through syndicated loan in September 2004 to secure funds for redemption of convertible bonds.

The Company intends to secure funds for the forward-looking investments by low costs and to enhance the financial positions by the conversion into the shares with high conversion price in the long term.

Features of Convertible Bonds

Zero coupon financing by the Convertible Bonds allows the Company to minimize its interest cost and the terms of the stock acquisition rights are intended to enhance the financial position of the Company by encouraging the conversion of the Convertible Bonds when the market price of shares is going up, concurrently minimizing the potential dilution of earnings per share.

To minimize the potential dilution of earnings per share, the Company intends to target the initial conversion price with a high premium compared to the current market price and the terms of the Convertible Bonds will have a contingent conversion feature. In addition, by adding the conversion price reset feature, the potential dilution of earnings per share will be further minimized as the conversion price would be reset higher under certain conditions if the market price of share rises beyond the initial conversion price. If the market price of share goes down, the conversion price would be reset downward, but the Company intends to minimize the potential dilution by setting the floor conversion price enough higher than the current market price.

Since the conversion price reset feature functions as incentives to exercise the conversion before upward reset of the conversion price in case the market price of share rises beyond the initial conversion price, the Company expects the conversion of the Convertible Bonds will be encouraged in case the market price of share moves up. In addition, two series of the Convertible Bonds have different reset dates for the reset of the conversion price, it is expected that the conversion prices of two series of the Convertible Bonds become different and the timing of the conversion will be dispersed.