Notice of EGM

12th Jan 2006 07:00

Konami Corporation11 January 2006 NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS January 11, 2006 Dear Shareholder, You are cordially invited to attend an Extraordinary General Meeting ofShareholders, which will be held as described hereunder. If you are unable to attend the meeting, please review the reference materialscontained herein and exercise your voting rights either by returning to us bymail the enclosed voting form or via the Internet. Please exercise your votingright by Wednesday, January 25, 2006. Sincerely yours, Kagemasa KozukiPresident and Representative DirectorKONAMI CORPORATION4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-6330 MEETING AGENDA 1. Date and Time: 10:00 a.m., Thursday, January 26, 2006 2. Venue: "Arena" of Konami Sports Corporation, 10-1, Higashi Shinagawa 4-chome, Shinagawa-ku, Tokyo 3. Agenda: Proposals Proposal 1: To approve Share Exchange Agreement concluded between Konami Corporation and Konami Sports Corporation: For details about the proposal, please refer to " Reference Materials Concerning the Exercise of Voting Rights" on pages 3 to 35. Proposal 2: To approve Plan for Corporate Split: For details about the proposal, please refer to "Reference Materials Concerning the Exercise of Voting Rights" on pages 36 to 54. Proposal 3: Amendments to the Articles of Incorporation: For details about the proposal, please refer to "Reference Materials Concerning the Exercise of Voting Rights" on pages 55 to 56. * If attending the meeting, please hand in the voting form enclosed with thesematerials to the receptionist at the Meeting. (This is an English translation provided for your reference and convenience.) Procedures for Proxy Voting If you are unable to attend the meeting, you may exercise your voting right byfollowing one of the procedures described below. Voting by Mail To vote by mail, please indicate on the enclosed voting form your approval ordisapproval of the proposal, affix your seal, and return the completed form tous. All forms must be received no later than Wednesday, January 25, 2006. Procedures for proxy voting by electronic means Shareholders are asked to follow the procedures detailed below if they wish toexercise their voting rights using the Internet. 1. Shareholders may only exercise their voting rights online through thededicated voting website designated by the Company. This voting website may bealso accessed by mobile phone. Voting website URL: http://www.webdk.net 2. Shareholders choosing to exercise their voting rights online need to use thevoting code and password specified on the enclosed voting form. Once you haveentered the site, please vote for or against the resolution by following theinstructions on screen. 3. Online votes may be accepted up to Wednesday, January 25, 2006. However,shareholders are kindly requested to register online votes as early as possibleto facilitate the counting of online votes. 4. If you duplicate your vote, i.e., if you exercise your voting rights both bymail and via the Internet, we will consider only the Internet vote to be valid. 5. If you vote a number of times over the Internet, or if you duplicate yourvote using a PC and a mobile phone, we will consider the final vote to be thevalid one. 6. Any connection fees to the Internet providers or time charges (telephonecharges, etc.) incurred by shareholders in exercising votes online are to beborne by the shareholders. - System requirements for voting by electronic means The following systems are required to access to the voting website. (1) Internet access. (2) Shareholders choosing to exercise their voting rights using a PC shouldnote that the site only supports the following browser software: Microsoft(R)Internet Explorer 5.5 or above, Netscape(R) 6.2 or above. The site supports anyhardware platform running the software specified above. (3) Shareholders choosing to exercise their voting rights using a mobile phoneshould note that a handset model that supports 128-bit SSL (encrypted)communication is required. (For security reasons, the site has been designedonly to be accessible by mobile phones with 128-bit SSL encryption technology.) (Microsoft(R) is a registered trademark in the United States and othercountries of Microsoft Corporation of the U.S. Netscape(R) is a registeredtrademark in the United States and certain other countries of NetscapeCommunications Corporation.) Reference Materials Concerning the Exercise of Voting Rights 1. Number of Voting Rights Held by All Shareholders: 1,298,498 2. Agenda and Reference Matters Proposal No. 1: To approve Share Exchange Agreement concluded between KonamiCorporation and Konami Sports Corporation 1. Reasons for Share Exchange Assuming that the merger under the merger agreement dated January 5, 2006 inwhich Konami Sports Corporation is to be the surviving entity and Konami SportsLife Corporation is to be the dissolving entity becomes effective, the Companyand Konami Sports Corporation (hereinafter referred to as "Konami Sports") haveagreed that the Company will become the wholly-owning parent company of KonamiSports and Konami Sports will become the wholly-owned subsidiary of the Companythrough a share exchange effective on March 1, 2006. Eventually, the twocompanies entered into a share exchange agreement effective on January 5, 2006.It is specified in the agreement that the share exchange shall be made at aratio of 1.0: 0.79 (one share of the Company for every 0.79 share of KonamiSports). With the advent of aging society, people are increasingly interested in thepursuit of health and, as a trend, their needs against health-related servicesare expected to be diversified. From the view point of coping quickly with thechange of times, we have come to a conclusion that it would be the best solutionfor us to make Konami Sports, which is engaged in the operation of fitnessclubs, distribution of health-related devices and provision of health-relatedservices, our wholly-owned subsidiary by way of share exchange if and after theMerger is consummated. The Company believes that such measure will enable itsmanagement to be with appropriate allotment of resources and speedydetermination, eventually making shareholder value of the Company to furtherincrease. In this light, we sincerely request our shareholders to understand thepurpose of the share exchange and give approval to the share exchange agreement. 2. Contents of the Share Exchange Agreement Share Exchange Agreement (Copy) Konami Corporation (hereinafter referred to as "Konami") and Konami SportsCorporation (hereinafter referred to as "Konami Sports") hereby enter into ashare exchange agreement (such agreement hereinafter referred to as the"Contract" and, if reduced to any form of instrument, the "Agreement") under thefollowing terms and conditions. Article 1. (Share Exchange) Konami and Konami Sports shall engage in the Share Exchange where Konami willbecome the wholly-owning parent company of Konami Sports and Konami Sports willbecome the wholly-owned subsidiary of Konami. Article 2. (Shares Issued and Allotted upon the Share Exchange) 1. Konami shall, in addition to its treasury stock of 5,874,833 shares,issue 4,024,078 common shares making the total number of common stock to beallotted by Konami to Konami Sport's shareholders 9,898,911 shares. By usingsuch shares, Konami will allot its 0.79 common shares in exchange for each one(1) common share of Konami Sports to Konami Sport's shareholders (includingbeneficial shareholders and hereinafter the same) who are listed or registeredin the final register of shareholders (including register of beneficialshareholders and hereinafter the same) of Konami Sports as of the dayimmediately preceding the day when the Share Exchange was executed; provided,that no such allotment will be made concerning Konami Sport's 15,760,500 sharesof common stock held by Konami as of the day immediately preceding the day whenthe Share Exchange was executed. 2. The calculation of the profit dividend payable on common stock allottedby Konami to Konami Sport's shareholders pursuant paragraph 1 hereof shallcommence on October 1, 2005. Article 3. (Cash Consideration for the Share Exchange) No cash consideration shall be distributed by Konami in connection with theShare Exchange. Article 4. (Increase in Common Stock and Capital Reserve) The amount of common stock and capital reserve of Konami to be increased uponthe Share Exchange shall be as follows: (1) Amount of common stock to be increased: None. (2) Amount of capital reserve to be increased:An amount obtained by subtracting the sum of book value of Konami's commonshares to be allotted to Konami Sport's shareholders in accordance with Article2, paragraph 1 hereof from the amount obtained by multiplying Konami Sport's netassets on the day of the share exchange by the ratio of the Konami Sport'sshares to be transferred to Konami through the share exchange to the totalnumber of outstanding shares of Konami Sports. Article 5. (Succession of Stock Subscription Rights) Konami shall, as set forth below, succeed the obligations of Konami Sportsconcerning stock subscription rights in the number of 12,200 which were, as thefirst round of issuance, issued by Konami Sports effective on July 30, 2004pursuant to a resolution adopted at Konami Sport's ordinary general shareholdersmeeting held on June 23, 2004: (1) Class and number of shares to be issued upon the exercise of stocksubscription rights:Class of shares: Common stock of KonamiNumber of shares: 963,800 shares (79 common stock of Konami will be allotted inexchange for each one (1) stock subscription right) (2) Amount to be paid in upon the exercise of each stock subscription right:The amount to be paid in upon the exercise of each stock subscription rightshall be an amount obtained by multiplying the amount to be paid in for eachshare issued or transferred upon the exercise of each stock subscription right(hereinafter referred to as the "Exercise Amount") by the number of shares to beissued upon the exercise of stock subscription rights. The amount to be paid infor each share shall be 3,133 yen. (3) Stock subscription right exercise period:From July 1, 2006 to June 30, 2009. (4) Terms and conditions of the exercise of stock subscription rights:No partial exercise of stock subscription rights shall be allowed. (5) Events and conditions to cancel stock subscription rights:Konami may at any time cancel the unexercised stock subscription rights obtainedand held by Konami without consideration. (6) Restriction on a transfer of stock subscription rights:Any transfer of stock subscription rights shall be subject to the approval ofthe Board of Directors of Konami. (7) Others:Other details not specified above-such as the number of stocks subjectto the stock subscription rights, adjustments in amounts to be paid in upon theexercise of each right, etc.-are pursuant to Konami Sport's issuanceguideline. Article 6. (General Shareholders Meeting for the Approval of the Share Exchange) Konami and Konami Sports shall each convene their respective generalshareholders meeting on January 26, 2006 (hereinafter referred to as the"General Shareholders Meeting for the Approval of the Share Exchange") to askfor the approval of this Agreement and for resolutions on matters necessarythereto; provided, however, that such date may be changed through consultationbetween Konami and Konami Sports where necessary in light of the proceeding onshare exchange procedures or for any other reason. Article 7. (Effective Date of the Share Exchange) The date on which the Share Exchange should be consummated shall be March 1,2006; provided, however, that such date may be changed through consultationbetween Konami and Konami Sports where necessary in light of the proceeding ofshare exchange procedures or for any other reason. Article 8. (Submission of Share Certificates of Konami Sports) In executing the Share Exchange, any and all share certificates that representKonami Sport's share shall be submitted to Konami Sports by the day immediatelypreceding the day when the share exchange is consummated. Article 9. (Management of Corporate Assets) During the period from the date of the execution of this Agreement up to theShare Exchange Date, Konami and Konami Sports shall execute their businessoperations and manage and operate their properties with the due diligence of agood manager and no action that may have any material effect on their respectiveproperties or rights and obligations shall be taken, without prior consultationand agreement between the Parties. Article 10. (Term of Office of the Corporate Auditors of Konami Who Took Officebefore the Share Exchange) The term of office of corporate auditors of Konami who took office prior to theShare Exchange shall not be affected by the Share Exchange, and they shallremain in office for the respective term stipulated at their inauguration. Article 11. (Amendment of the Terms and Conditions of the Share Exchange andTermination of the Agreement) In case there shall be any material change in the financial conditions oroperational conditions of Konami or Konami Sports or any event that materiallyimpair the ability of the Parties to consummate the Share Exchange during theperiod from the date of execution of this Agreement up to the Share ExchangeDate, Konami or Konami Sports may through consultation amend the terms andconditions of the Share Exchange or terminate this Agreement. Article 12. (Merger of Konami Sports and Corporate Split of Konami) 1. The Share Exchange set forth under the Contract shall be conditionalupon the effectuation of the Merger Agreement on February 28, 2006 as specifiedin Exhibit 1, in which Konami Sports is to be the surviving entity and KonamiSports Life Corporation is to be the dissolving entity, and should the MergerAgreement fail to become effective on that day, the Share Exchange shall beterminated. 2. Konami Sports shall, in accordance with the Plan for Corporate Split asspecified in Exhibit 2, adopt a resolution at its general shareholders meetingto the effect that a type of corporate split "Bunshagata Shinsetsu Bunkatsu, "under which Konami Digital Entertainment Co., Ltd., a newly incorporatedsubsidiary, will succeed digital entertainment business of Konami, will beexecuted effective on the Split Date (March 31, 2006). Article 13. (Effect of the Agreement) If any approval at the General Shareholders Meeting for the Approval of theShare Exchange of both Konami and Konami Sports as set forth in Article 6 hereofor of competent government authorities as set forth in any applicable laws andregulations necessary to fulfil the Contract is failed to obtain, the Agreementshall become null and void. Article 14. (Matters not Specified in the Contract) Any matter necessary for the Share Exchange other than as specified in theAgreement shall be determined through consultation between Konami and KonamiSports in accordance with the purpose hereof. IN WITNESS WHEREOF, Konami and Konami Sports have affixed their respectivesignatures and seals to execute this Agreement in duplicate, keeping one copyeach. January 5, 2006 Konami By: Kagemasa Kozuki (Seal) Title: Representative Director of Konami Corporation Address of the Corporation: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan Konami Sports By: Toshimitsu Oishi (Seal) Title: Representative Director of Konami Sports Corporation Address of the Corporation: 10-1, Higashi-Shinagawa 4-chome, Shinagawa-ku, Tokyo, Japan Exhibit 1: Merger Agreement Merger Agreement Konami Sports Corporation (hereinafter referred to as "Konami Sports") andKonami Sports Life Corporation (hereinafter referred to as "Konami Sports Life")hereby enter into a merger agreement (hereinafter referred to as the "MergerAgreement") under the following terms and conditions. Article 1. (Method of Merger) Konami Sports and Konami Sports Life shall engage in a merger where KonamiSports is the surviving entity and Konami Sports Life is the dissolving entity. Article 2. (Merger Date) The date of merger shall be February 28, 2006 (the "Merger Date"); provided,however, that such date may be changed through consultation between KonamiSports and Konami Sports Life where necessary in light of the status of themerger procedures or for any other reason. Article 3. (Shares Issued and Allotted upon Merger) 1. Upon the Merger, Konami Sports shall allot to the shareholders listedor registered on the final register of shareholders of each of Konami SportsLife as of the date immediately preceding the Merger Date 3.99 common stock ofKonami Sports per share of common stock of Konami Sports Life. 2. Konami Sports shall, in exchange for the issuance of new shares, addcommon stock of 15,457,741 shares that it may succeed from Konami Sports Lifethrough the Merger to its treasury stock of 302,759 shares, making the totalnumber of common stock to be transferred to Konami Sports Life's shareholders15,760,500 shares. Article 4. (Increase in Common Stock and Capital Reserve) 1. The amounts of common stock, capital reserve, legal reserve, voluntaryreserve and other retained earnings of Konami Sports to be increased upon theMerger shall be as follows; provided, however, such amounts may be changedthrough consultation between Konami Sports and Konami Sports Life, depending onthe position of assets and liabilities of Konami Sports Life as of the MergerDate: (1) Common stock to be increased:None. (2) Capital reserve to be increased:An amount obtained by subtracting the amounts specified in items 3 and 4 of thisparagraph from the amount obtained by subtracting the total of the amount ofliabilities succeeded from Konami Sports Life and of treasury stock to betransferred to Konami Sports Life's shareholders in exchange for the issuance ofnew shares from the amount of properties succeeded from Konami Sports Life(hereinafter referred to as the "Gain on the Merger"), if the Gain on the Mergerexceeds the amounts specified in items 3 and 4 of this paragraph. (3) Legal reserve to be increased:The amount of the legal reserve of Konami Sports Life as of the Merger Date. (4) Voluntary reserve and other retained earnings to be increased:The total amount of the voluntary reserves and other retained earnings of KonamiSports Life as of the Merger Date; provided, however, the amounts to beallocated to various capital accounts shall be determined through consultationbetween Konami Sports and Konami Sports Life. 2. If the Gain on the Merger does not reach the total of the amountsspecified in Items (3) and (4) in paragraph 1 hereof, the amount of increasewill be deducted, first from Item (4) and then from Item (3) down to the amountof the Gain on the Merger. Article 5. (General Shareholders Meeting for the Approval of the Merger) Konami Sports and Konami Sports Life shall each convene their respective generalshareholders meetings for the approval of the Merger (hereinafter referred to asthe "General Shareholders Meeting for the Approval of the Merger") on January26, 2006 to ask for the approval of the Merger Agreement and for resolution onmatters necessary thereto; provided, however, that such date may be changedthrough consultation between the Parties where necessary in light of theproceeding of merger procedures or for any other reason. Article 6. (Changes in the Articles of Incorporation) Upon the Merger, Konami Sports shall add following changes to its Articles ofIncorporation (amendments shown by underlines), which shall come into forceeffective on the Merger Date. Before Amendment After Amendment Article 2. (Purpose) Article 2 (Purpose) The purpose of the Corporation shall be to engage in The purpose of the Corporation shall be to engage inthe following business activities: the following business activities: 24. Manufacture, processing, sale and import and export 24. Manufacture, processing, sale and import and exportof cosmetics, pharmaceuticals, quasi-pharmaceuticals, of food stuffs, cosmetics, pharmaceuticals, -----------health appliances and medical equipment; quasi-pharmaceuticals, health appliances and medical equipment; Article 7. (Succession of Corporate Assets) As of the Merger Date, Konami Sports Life shall transfer to Konami Sports andKonami Sports shall succeed from Konami Sports Life any and all assets,liabilities, rights and obligations based on the balance sheets and otheraccountings as of September 30, 2005, after making adjustments for the period upto the Merger Date. Article 8. (Dividend Calculation Commencement Day) The calculation of the profit dividend payable on shares to be transferred fromKonami Sports to Konami Sports Life's shareholders pursuant to Article 3 shallcommence on October 1, 2005. Article 9. (Cash Consideration for Merger) No cash consideration shall be distributed by Konami Sports in connection withthe Merger. Article 10. (Management of Corporate Assets) During the period from the date of the execution of the Merger Agreement up tothe Merger Date, Konami Sports and Konami Sports Life shall execute theirbusiness operations and manage and operate their properties with the duediligence of a good manager and no action that may have any material effect ontheir respective properties or rights and obligations shall be taken, withoutprior consultation and agreement between the Parties. Article 11. (Treatment of Employees) Effective from the Merger Date, all employees of Konami Sports Life as of thatDate shall become employees of Konami Sports. The length of service for KonamiSports Life shall be regarded as the length of service for Konami Sports. Otherworking conditions shall be determined through consultation between the Parties. Article 12. (Term of Office of Konami Sport's Corporate Auditors Who Took OfficePrior to the Merger) The term of office of Konami Sport's corporate auditors who took office prior tothe Merger shall not be affected by the Merger, and they shall remain in officefor the respective term stipulated at their inauguration. Article 13. (Cost of Dissolution) Any cost or expense that may incur on or after the Merger Date for thedissolution of Konami Sports Life shall be borne by Konami Sports. Article 14. (Amendment to the terms and conditions of Merger and termination ofthe Agreement) In case there shall be any material change in the financial conditions oroperational conditions of Konami Sports or Konami Sports Life or any event thatmaterially impair the ability of the Parties to consummate the Merger during theperiod from the date of execution of the Merger Agreement up to the Merger Date,Konami Sports or Konami Sports Life may through consultation amend the terms andconditions of the Merger or terminate the Merger Agreement. Article 15. (Share Exchange between Konami Sports and Konami Corporation andCorporate Split of Konami Corporation) 1. Assuming that the Merger comes into force, Konami Sports shall executea share exchange with Konami Corporation, in which Konami Corporation shallpursuant to Appendix 1 "Share Exchange Agreement" become the wholly-owningparent company of Konami Sports and Konami Sports shall become the wholly-ownedsubsidiary of Konami Corporation effective on March 1, 2006; provided, however,that such share exchange shall be conditional upon the approval at generalshareholders meetings of Konami Sports and Konami Corporation. 2. In accordance with the Plan for Corporate Split as specified inAppendix 2, Konami Corporation has a plan to execute corporate split effectiveon March 31, 2006, under which Konami Digital Entertainment Co., Ltd., a newlyincorporated subsidiary, will succeed digital entertainment business of KonamiCorporation. Article 16. (Effect of the Agreement) If any approval at the General Shareholders Meeting for the Approval of theMerger of both Konami Sports and Konami Sports Life as set forth in Article 5hereof or of competent government authorities as set forth in any applicablelaws and regulations necessary to fulfil the Merger Agreement is failed toobtain, this Agreement shall become null and void. Article 17. (Consultation) Any matter necessary for the Merger other than as specified in the MergerAgreement shall be determined through consultation between Konami Sports andKonami Sports Life in accordance with the purpose of the Merger Agreement. IN WITNESS WHEREOF, Konami Sports and Konami Sports Life have affixed theirrespective signatures and seals to execute this Agreement in duplicate, keepingone copy each. January 5, 2006 Konami Sports By: Toshimitsu Oishi Title: Representative Director of Konami Sports Corporation Address of the Corporation: 10-1, Higashi-Shinagawa 4-chome, Shinagawa-ku, Tokyo, Japan Konami Sports Life By: Tomiaki Tanaka Title: Representative Director of Konami Sports & Life Co., Ltd. Address of the Corporation: 10-27, Higashi-Shinagawa 4-chome, Shinagawa-ku, Tokyo, Japan Appendix 1: Share Exchange Agreement: As described in pages 3 to 7, in the section of Reference Materials Concerningthe Exercise of Voting Rights. Appendix 2: Plan for Corporate Split: As described in pages 36 to 39, in the section of Reference Materials Concerningthe Exercise of Voting Rights. Exhibit 2: Plan for Corporate Split: As described in pages 36 to 39, in the section of Reference Materials Concerningthe Exercise of Voting Rights. 3. A Paper Documents Stating the Reasons for Share Allotment as Provided for inArticle 354, Paragraph 1, Item 2 of the Commercial Code Statements of Reasons for the Calculation of Share Exchange Ratio (1) Request for the Calculation of the Share Exchange Ratio to aThird-party OrganizationPrior to the execution of the Share Exchange, Konami Corporation (hereinafterreferred to as "Konami") and Konami Sports Corporation (hereinafter referred toas "Konami Sports"), in order to ensure fairness and appropriateness, askedNikko Cordial Securities Inc. (hereinafter referred to as "Nikko CordialSecurities") as a neutral third-party organization to calculate the shareexchange ratio. (2) Method and Ground of the Calculation of the Share Exchange Ratio by theThird-party OrganizationNikko Cordial Securities performed an analysis and evaluated share values ofeach of Konami and Konami Sports using the market share price method anddiscounted cash flow method (DCF), and calculated the potential range of shareexchange ratio taking into account the overall results of the evaluation of eachmethod and submitted the results to Konami and Konami Sports. (3) Examination of the Share Exchange RatioKonami and Konami Sports examined the proposal for the potential share exchangeratio submitted by Nikko Cordial Securities. Finding that the suggested methodand ground of the calculation are reasonable, Konami and Konami Sports continueddiscussion based on the proposal. (4) The Share Exchange RatioIn light of the above background, Konami and Konami Sports each adopted aresolution at respective Board of Directors meeting held on January 5, 2006 toenter into a share exchange agreement, which includes a provision to set thefollowing share exchange ratio within the range of ratio suggested by NikkoCordial Securities. Name of Company Konami Konami Sports Share Exchange Ratio 1 0.79 4. A Paper Documents Stating the Reasons for the Succession of ObligationsConcerning Stock Acquisition Rights Issue by a Company Becoming a Wholly-OwnedSubsidiary as Provided for in Article 354, Paragraph 1, Item 2 (2) of theCommercial Code Statement of Reasons for the Succession of Obligations Concerning StockAcquisition Rights Issue by a Company Becoming a Wholly-Owned Subsidiary Konami Corporation (hereinafter referred to as "Konami") has a plan that it willbecome the wholly-owning parent company of Konami Sports Corporation(hereinafter referred to as "Konami Sports") which will become the wholly-ownedsubsidiary of Konami by way of a share exchange that will take effect on March1, 2006. Based on a resolution adopted at its ordinary general shareholders meetingheld on June 23, 2004, Konami Sports, as the first round of issuance, issued12,200 stock acquisition rights (hereinafter referred to as the "First Round ofStock Acquisition Rights"). In this relation, we are of the view that in orderto maximize its corporate value, it is indispensable for Konami Sports toincrease the motivation and bolster the morale of officers and employees ofKonami Sports by endorsing the stock acquisition rights it has issued. Due tosuch reason, Konami determined that it will succeed obligations concerning theFirst Round of Stock Acquisition Rights as shown below. Matters Concerning the Succession of the First Round of Stock Acquisition Rights (1) Class and number of shares to be issued upon the exercise of stockacquisition rights:Class of shares: Common stock of KonamiNumber of shares: 963,800 shares (79 common stock of Konami will be allotted inexchange for each one (1) stock acquisition right) (2) Amount to be paid in upon the exercise of each stock acquisition right:The amount to be paid in upon the exercise of each stock acquisition right shallbe an amount obtained by multiplying the amount to be paid in for each shareissued or transferred upon the exercise of each stock acquisition right(hereinafter referred to as the "Exercise Amount") by the number of shares to beissued upon the exercise of stock acquisition rights. The amount to be paid infor each share shall be 3,133 yen. (3) Stock acquisition right exercise period:From July 1, 2006 to June 30, 2009. (4) Terms and conditions of the exercise of stock acquisition rights:No partial exercise of stock acquisition rights shall be allowed. (5) Events and conditions to cancel stock acquisition rights:Konami may at any time cancel the unexercised stock acquisition rights obtainedand held by Konami without consideration. (6) Restriction on a transfer of stock acquisition rights:Any transfer of stock acquisition rights shall be subject to the approval of theBoard of Directors of Konami. (7) Others:Other details not specified above-such as the number of stocks subjectto the stock acquisition rights, adjustments in amounts to be paid in upon theexercise of each right, etc.-are all pursuant to Konami Sports' issuanceguideline. 5. Balance sheets and statements of operations of the companies involved in theshare exchange pursuant to Items 3 to 6, Paragraph 1, Article 354 of theCommercial Code of Japan (1) Balance sheets and statements of operations prepared six months beforethis extraordinary general shareholders meeting Konami Corporation Non-consolidated Balance Sheet As of September 30, 2005 (Millions of yen)ASSETS LIABILITIES Current Assets: Current Liabilities:Cash and cash equivalents Y57,773 Trade notes payable Y1,448Trade notes receivable 1 Trade accounts payable 8,710Trade accounts receivable 12,207 Current portion of long-term debt 2,152Inventories 13,061 Current portion of long-term bonds 15,000Other 16,711 Income taxes payable 573Allowance for doubtful accounts (16) Other 7,236Total current assets 99,738 Total current liabilities 35,120 Fixed Assets: Long-Term Liabilities: Tangible fixed assets 3,709 Straight bonds 15,000Intangible fixed assets 11,767 Long-term debt 2,276Investments and other assets 88,001 Allowance for directors' retirement 1,332Investment securities 80,654 benefits Other 7,446 Long-term deposits received 2Allowance for doubtful accounts (98) Total long-term liabilities 18,610 Total fixed assets 103,478 Total Liabilities 53,730 STOCKHOLDERS' EQUITY: Common Stock 47,398 Additional paid-in capital 60,236 Retained earnings 70,018 Legal reserve 206 Voluntary earned surplus 34,094 Unappropriated earned surplus 35,716 Net unrealized gains on available-for-sale securities 1 Treasury Stock (28,168) Total stockholders' equity 149,486TOTAL ASSETS Y203,217 TOTAL LIABILITIES AND STOCKHOLDERS' Y203,217 EQUITY See accompanying notes to non-consolidated financial statements. Konami Corporation Non-consolidated Statement of Operations Six months ended September 30, 2005 (Millions of yen)Net revenues Y51,016Cost of revenues 33,041Gross profit 17,975Selling, general and administrative expenses 12,795Operating income 5,179Non-operating income 4,505Non-operating expenses 276Ordinary income 9,408Extraordinary income 5,788Extraordinary losses 25Income before income taxes 15,172Income taxes:Current 697Deferred 3,277Total income taxes 3,974Net income 11,197Unappropriated earned surplus carried forward 7,710Received undistributed profit from merger 16,808Unappropriated earned surplus Y35,716 See accompanying notes to non-consolidated financial statements. Summary of Significant Accounting Policies 1. Methods and Standards for the Valuation of Assets (1) Marketable and Investment SecuritiesInvestments in subsidiaries and affiliated companies and other securities forwhich the market value is not readily determinable are stated at cost based onthe moving average method.Other securities for which the market value is determinable are stated at marketvalue as of the balance sheet date. (Unrealized gains and losses on thosesecurities are reported in the stockholders' equity and the cost of securitiessold is determined by the moving average method.) (2) Derivative Financial InstrumentsDerivative financial instruments are stated at market value. (3) InventoriesInventories other than work in process are stated at cost determined by themoving average method.Work in process consisting of hardware products is stated at cost determined bythe moving average method, while work in process consisting of software productsis stated at cost determined by the specific identification method. 2. Depreciation Methods Tangible fixed assets are depreciated using the declining balance method.Intangible fixed assets are amortized mainly using the straight-line method.For in-house software, amortization is computed using the straight-line methodbased on the estimated useful life of 5 years. 3. Provisions (1) Allowance for doubtful accountsGenerally, allowance for doubtful accounts is calculated based on the actualratio of bad debt losses incurred. For specific accounts with higher possibilityof bad debt loss, the allowance is determined by independent judgment. (2) Allowance for employees' retirement benefits (prepaid pension expense)Allowance for retirement benefits to be paid to employees as of balance sheetdate is calculated based on the estimated amount of the projected benefitobligation and the plan assets at the fiscal year-end.Unrecognized net transition asset or obligation is amortized over 13 years.Unrecognized actuarial net gain or loss will be amortized from the followingfiscal year within the average remaining service period of 8 years on astraight-line basis. (3) Allowance for directors' retirement benefitsRequired amount for retirement benefits to be paid to directors as of balancesheet date is reserved as liability. 4. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translatedat the current exchange rates as of the balance sheet date, and the translationgains and losses are credited or charged to income. 5. Leases Finance leases other than those that deem to transfer ownership of the leasedproperty to the lessee are accounted for as operating lease transactions. 6. Accounting Standard for Impairment of Fixed Assets Since the interim fiscal period, the Company adopts the accounting standard forimpairment of fixed assets (the statement of position regarding the accountingstandard for impairment of fixed assets; compiled by Business Accounting Councilon August 9, 2002) and the policy for accounting standard for impairment offixed assets (the policy to apply corporate accounting standards No. 6, August31, 2003). The effects on income/loss due to this change are insignificant. 7. Other Significant Matters Consumption Tax: Consumption tax is excluded from the stated amount of revenueand expenses. Notes to Non-consolidated Financial Statements (Notes to Balance Sheet) 1. Net amount of consumption tax payable and consumption tax to be refunded at September 30, 2005, is included in "Other" of current assets. 2. Accumulated depreciation of tangible fixed assets is as follows: Y5,734 million 3. The Company guarantees subsidiaries' loans payable to financial institutions as follows: Konami Software Shanghai, Inc. (Y97 million (US$863,000)) 4. Number of shares issued for the six months ended September 30, 2005 Reason for Issue: Merger Issued date: April 1, 2005 Number of shares issued: 10,794,142 shares Issued price: - Total capitalized amount: - (Notes to Statement of Operations) 1. Non-operating income mainly consists of the following: Interest income: Y29 million Dividend income: Y4,394 million Foreign exchange gains: Y4 million 2. Non-operating expenses mainly consist of the following: Bond interest expenses: Y200 million 3. Extraordinary income mainly consists of the following: Gains due to sell-off of affiliates' stocks: Y5,555 million 4. Extraordinary losses mainly consist of the following: Loss on sale and disposal of fixed assets: Y25 million 5. Depreciation expense is as follows: Tangible fixed assets: Y634 million Intangible fixed assets: Y1,352 million Konami Sports Corporation Non-consolidated Balance Sheet As of September 30, 2005 (Millions of yen)ASSETS LIABILITIESCurrent Assets: Current Liabilities:Cash and cash equivalents Y328 Trade notes payable Y109Trade accounts receivable 1,658 Trade accounts payable 581Inventories 1,141 Short-term borrowings 7,490Other 4,040 Other accounts payable 3,021Allowance for doubtful accounts (35) Income taxes payable 227Total current assets 7,133 Advances received 5,637 Allowance for bonuses 484Fixed Assets: Other 2,662Tangible fixed assets 15,312 Total current liabilities 20,215Intangible fixed assets 1,329Investments and other assets 24,944 Long-Term Liabilities:Affiliated company shares 371 Straight bonds 15,000Long-term lease deposits 20,578 Long-term debt of affiliates 150Other 3,994 Allowance for employees' retirementAllowance for doubtful accounts 0 benefits 1,258 Allowance for directors' retirementTotal fixed assets 41,586 benefits 12 Other 714 Total long-term liabilities 17,135 Total Liabilities (37,351) STOCKHOLDERS EQUITY: Common Stock 5,040 Additional paid-in capital 6,549 Retained earnings 7,782 Voluntary earned surplus 6,743 Unappropriated earned surplus 1,039 Net unrealized gains on other securities 80 Treasury Stock (8,085) Total Stockholders' Equity (11,368)TOTAL ASSETS Y48,719 TOTAL LIABILITIES AND STOCKHOLDERS' Y48,719 EQUITY See accompanying notes to non-consolidated financial statements. Konami Sports Corporation Non-consolidated Statement of Operations Six months ended September 30, 2005 (Millions of yen)Net revenues Y39,946Cost of revenues 36,720Selling, general and administrative expenses 2,262Operating income 963Non-operating income 36Non-operating expenses 166Ordinary income 833Extraordinary losses 133Income before income taxes 700Income taxes: Current 111 Deferred 287Net income 301Unappropriated earned surplus carried forward 737Unappropriated earned surplus Y1,039 See accompanying notes to non-consolidated financial statements. Summary of Significant Accounting Policies 1. Methods and Standards for the Valuation of Assets (1) Marketable and Investment SecuritiesInvestments in subsidiaries and other securities for which the market value isnot readily determinable are stated at cost based on the moving average method.Other securities for which the market value is determinable are stated at marketvalue as of the balance sheet date. (Unrealized gains and losses on thosesecurities are reported in the stockholders' equity and the cost of securitiessold is determined by the moving average method.) (2) InventoriesMerchandise: Stated at cost based on the moving average method.(Change in accounting policies)The Company has changed the method for the evaluation of merchandise from theone stated at cost based on the specific identification method to the one statedat cost based on the moving average method. This change is intended to enablethe Company to promptly make managerial decisions by speedily determiningmonthly profits/losses and period profits/losses, with the launch of a newintegrated mission critical system. The change has little effect on financialstatements for the first half of the fiscal half-year under review.Supplies: Stated at the last purchase cost. 2. Depreciation Methods for Fixed Assets (1) Tangible fixed assets are depreciated using the declining balance method,while buildings (excluding fixtures) acquired after April 1, 1998 aredepreciated using the straight-line method. The estimated useful lives are asfollows: Buildings: 8-50 years; Others: 2-50 years (2) Intangible fixed assets are amortized mainly using the straight-linemethod. For in-house software, amortization is computed using the straight-linemethod based on the estimated useful life of 5 years. 3. Provisions (1) Allowance for doubtful accountsGenerally, allowance for doubtful accounts is calculated based on the actualratio of bad debt losses incurred. For specific accounts with higher possibilityof bad debt loss, the allowance is determined by independent judgment. (2) Allowance for bonusesProvided for the payment of bonuses to employees by the estimated amount ofpayment. (3) Allowance for employees' retirement benefitsAllowance for retirement benefits to be paid to employees as of balance sheetdate is calculated based on the estimated amount of the projected benefitobligation and the plan assets at the fiscal year-end. Unrecognized actuarial net gain or loss will be amortized from the followingfiscal year within the average remaining service period of 12 years on astraight-line basis. (4) Allowance for directors' retirement benefitsRequired amount for retirement benefits to be paid to directors as of balancesheet date is reserved as liability. 4. Leases Finance leases other than those that deem to transfer ownership of the leasedproperty to the lessee are accounted for as operating lease transactions. 5. Other Significant Matters Consumption Tax: Consumption tax is excluded from the stated amount of revenueand expenses. 6. Tax Effect Accounting Tax amounts and income taxes for this interim fiscal period are calculatedassuming to reverse extraordinary reserves for depreciation of specifiedtelecommunication equipment in the form of planned appropriation of surplus inthe fiscal year under review. Notes to Non-consolidated Financial Statements (Notes to Balance Sheet) 1. Accumulated depreciation of tangible fixed assets is as follows: Y24,104 million 2. Consumption Tax Suspense receipts and payments of consumption taxes, etc. are offset against each other, and the net amount is posted under "other" in the current liabilities, due to the amount being immaterial. 3. Assets subject to lien Investment securities: Y1 million This amount is pledged as collateral for borrowings made by contract companies, etc. and posted under "other" in the investments and other assets. 4. Amounts less than one million yen are disregarded. (Notes to Statement of Operations) 1. Non-operating income mainly consists of the following: Interest income: Y22 million Dividend income: Y6 million 2. Non-operating expenses mainly consist of the following: Interest expenses: Y23 million Bond interest expenses: Y95 million 3. Extraordinary losses mainly consists of the following: Loss on sale and disposal of fixed assets: Y114 million Loss on lease cancellation: Y10 million Others: Y8 million 4. Depreciation expense for each period is as follows: Tangible fixed assets: Y927 million Intangible fixed assets: Y56 million 5. Net income per share: Y12.50 6. Amounts less than one million yen are disregarded. (2) Final balance sheets and statements of operations Konami Corporation Non-consolidated Balance Sheet As of March 31, 2005 (Millions of yen)ASSETS LIABILITIESCurrent Assets: Current Liabilities:Cash and cash equivalents Y37,121 Trade notes payable Y5,662Trade accounts receivable 18,233 Trade accounts payable 8,589Finished products 2,846 Short-term borrowings (bonds) 15,000Raw materials and supplies 719 Current portion of long-term debt 912Work in process 2,019 Other accounts payable 2,443Advances 3,862 Accrued expenses 4,843Prepaid expenses 577 Income taxes payable 3,245Deferred tax assets 9,719 Short-term deposits received 136Short-term loans 3,192 Other 173Other accounts receivable 1,244 Total current liabilities 41,008Other 567Allowance for doubtful accounts (199) Long-Term Liabilities:Total current assets 79,904 Straight bonds 30,000 Long-term debt 3,972Fixed Assets: Liability for directors' retirement benefits 1,354Tangible fixed assets Long-term deposits received 41 Building improvement 356 Total long-term liabilities 35,367Structures 1 Total Liabilities (76,375)Machinery 0Transportation equipment 3Tools and fixtures 1,596Construction in process 27 STOCKHOLDERS' EQUITY:Total tangible fixed assets 1,986 Common stock 47,398Intangible fixed assets Additional paid-in capital 47,106In-house software 5,899 Retained earnings 45,188In-house software development in Voluntary earned surplus 29,094progress 5,427 General reserve 29,094Other 5 Unappropriated earned surplus 16,093Total intangible fixed assets 11,332 Net unrealized gains onInvestments and other assets available-for-sale securities 0Investment securities 360 Treasury stock (28,271)Investments in subsidiaries andaffiliates 87,318Long-term loans 1,496Receivables from customers in bankruptcy proceedings 98Long-term prepaid expenses 61Deferred tax assets 2,380Lease deposits 2,459Other 511Allowance for doubtful accounts (111)Total investments and other assets 94,574Total fixed assets 107,894 Total Stockholders' Equity 111,423TOTAL ASSETS Y187,798 TOTAL LIABILITIES AND STOCKHOLDERS' Y187,798 EQUITY See accompanying notes to non-consolidated financial statements. Konami Corporation Non-consolidated Statement of Operations For the fiscal year ended March 31, 2005 (Millions of yen)Net revenues Y134,117Cost of revenues 107,121 Finished goods, beginning of year 4,287 Purchases 19,560 Cost of goods manufactured 76,514 Less: Transfer to other accounts (104) Finished goods, end of year (2,846) Royalty expenses 9,711 Gross profit 26,995 Selling, general and administrative expenses 22,733 Operating income 4,261Non-operating income 9,838 Interest income 64 Dividend income 9,418 Foreign exchange gains 245 Other 109Non-operating expenses 652 Interest expenses 153 Bond interest expenses 400 Other 98 Ordinary income 13,447Extraordinary income 1,722 Gain on sales of shares of affiliated companies 703 Gain on reversal of allowance for loss incurred by subsidiaries 1,019Extraordinary losses 67 Loss on sale and disposal of fixed assets 67 Income before income taxes 15,102Income taxes 2,308 Current 4,410 Deferred (2,102) Net income 12,794 Unappropriated earned surplus carried forward 6,534 Interim cash dividends 3,235 Unappropriated earned surplus Y16,093 See accompanying notes to non-consolidated financial statements. Summary of Significant Accounting Policies 1. Marketable and Investment Securities (1) Investments in subsidiaries and other securities for which the marketvalue is not readily determinable are stated at cost based on the moving averagemethod.Other securities for which the market value is determinable are stated at marketvalue as of the balance sheet date. (Unrealized gains and losses on thosesecurities are reported in the stockholders' equity and the cost of securitiessold is determined by the moving average method.) (2) Derivative financial instrumentsDerivative financial instruments are stated at market value. (3) InventoriesInventories other than work in process are stated at cost determined by themoving average method.Work in process consisting of hardware products is stated at cost determined bythe moving average method, while work in process consisting of software productsis stated at cost determined by the specific identification method. 2. Depreciation Methods Tangible fixed assets are depreciated using the declining balance method. Intangible fixed assets are amortized mainly using the straight-line method. For in-house software, amortization is computed using the straight-linemethod based on the estimated useful life of 5 years. 3. Provisions (1) Allowance for doubtful accountsGenerally, allowance for doubtful accounts is calculated based on the actualratio of bad debt losses incurred. For specific accounts with higher possibilityof bad debt loss, the allowance is determined by independent judgment. (2) Allowance for employees' retirement benefits (prepaid pension expense)Allowance for retirement benefits to be paid to employees as of balance sheetdate is calculated based on the estimated amount of the projected benefitobligation and the plan assets at the fiscal year-end. Unrecognized nettransition asset or obligation (Y81 million) is amortized over 13 years.Unrecognized actuarial net gain or loss will be amortized from the followingfiscal year within the average remaining service period of 8 years on astraight-line basis. (3) Allowance for directors' retirement benefitsRequired amount for retirement benefits to be paid to directors as of balancesheet date is reserved as liability in accordance with Article 43 of theEnforcement Regulations of Commercial Code of Japan. 4. Leases Finance leases other than those that deem to transfer ownership of the leasedproperty to the lessee are accounted for as operating lease transactions. 5. Consumption Tax Consumption tax is excluded from the stated amount of revenue and expenses. 6. Calculation Basis Amounts less than one million yen are disregarded. 7. Others "The extraordinary cases of affiliates" described in Article 48 of theEnforcement Regulations of the Commercial Code of Japan are applied. Notes to Non-consolidated Financial Statements (Notes to Balance Sheet) 1. Monetary assets and liabilities in relation to affiliated companies Short-term assets: Y26,278 million Short-term liabilities: Y4,421 million Long-term assets: Y2,641 million Long-term liabilities: Y39 million 2. Accumulated depreciation of tangible fixed assets is as follows: Y3,949 million 3. Significant lease assets In addition to tangible fixed assets shown on the Balance Sheet, computers used for R&D and production, and some office equipment are leased. 4. Number of issued and treasury stocks as follows: Shares issued and outstanding: 128,737,566 shares (common stock) Treasury stocks the Company holds: 9,256,155 shares (common stock) 5. Limits to dividends Net assets evaluated in fair market value based on Article 124-3 of the Commercial Code of Japan: Y0 million (Notes to Statement of Operations) 1. Non-consolidated statements of operations include inter-company transactions as follows: Net sales: Y133,209 million Purchases: Y23,399 million Selling, general and administrative expenses: Y4,454 million Non-operating transactions: Y9,866 million 2. Net income per share: Y105.33 Konami Sports Corporation Non-consolidated Balance Sheet As of March 31, 2005 (Millions of yen)ASSETS LIABILITIESCurrent Assets: Current Liabilities:Cash and cash equivalents Y837 Trade notes payable Y47Trade notes receivable 0 Trade accounts payable 198Trade accounts receivable 1,341 Short-term borrowings 8,800Merchandise 843 Other accounts payable 3,121Supplies 303 Income taxes payable 240Prepaid expenses 1,555 Consumption tax payable 227Deferred tax assets 1,499 Accrued expenses 1,281Other current assets 290 Advance payments 5,047Lease deposits to be returned within Short-term deposits received 596one year 375 Allowance for bonuses 329Other current assets 140 Trade notes payable for capitalAllowance for doubtful accounts (31) expenditure 529Total current assets 7,155 Total current liabilities 20,420 Fixed Assets: Long-Term Liabilities:Tangible fixed assets Straight bonds 15,000Building 12,755 Long-term deposits received 760Structures 375 Allowance for employees' retirement benefitsTransportation equipment 1 Allowance for directors' retirement 1,304Tools and fixtures 676 benefits 12Land 1,728 Other long-term liabilities 20Construction in process 17 Total long-term liabilities 17,098Total tangible fixed assets 15,553Intangible fixed assets Total Liabilities 37,518Tenant rights 2,901Facility use rights 72In-house software 131 STOCKHOLDERS' EQUITY:Other intangible fixed assets 473 Common stock 5,040Total intangible fixed assets 3,578 Additional paid-in capital 6,550Investments and other assets Retained earnings 7,861Investment securities 140 Voluntary earned surplus 6,257Subsidiary shares 171 Reserve for special depreciation ofLong-term loans 636 specified telecommunication equipment 57Long-term lease deposits 19,947 General reserve 6,200Facility leasehold in progress 495 Unappropriated earned surplus 1,603Long-term prepaid expenses 157 Net unrealized gains on available-for-sale securities 69Deferred tax assets 1,110 Treasury stock (8,083)Other investment 9 Allowance for doubtful accounts 0 Total investments and other assets 22,668Total fixed assets 41,800 Total Stockholders' Equity 11,437 TOTAL ASSETS Y48,955 TOTAL LIABILITIES AND STOCKHOLDERS' Y48,955 EQUITY See accompanying notes to non-consolidated financial statements. Konami Sports Corporation Non-consolidated Statement of Operations For the year ended March 31, 2005 (Millions of yen)Net revenues Y77,380 Sales from fitness services 70,919 Sales from merchandise 4,576 Other net revenue 1,884Cost of revenues 72,967 Cost of sales 68,775 Selling, general and administrative expenses 4,192 Operating income 4,412Non-operating income 93 Interest income and dividend income 44 Others 48Non-operating expenses 540 Interest expenses 36 Bond interest expenses 190 Other 312 Ordinary income 3,965Extraordinary losses 1,630 Loss on sale and disposal of fixed assets 27 Valuation loss of investment securities 10 Valuation loss of inventories 116 Loss related to reconstruction of facilities 1,239 Expenses related to brand unification 237 Income before income taxes 2,335 Income taxes Current 163 Deferred 967 Net income 1,204 Unappropriated earned surplus carried forward 760 Interim cash dividends 362 Unappropriated earned surplus Y1,603 See accompanying notes to non-consolidated financial statements. Summary of Significant Accounting Policies 1. Marketable and Investment Securities (1) Investments in subsidiaries and other securities for which the marketvalue is not readily determinable are stated at cost based on the moving averagemethod.Other securities for which the market value is determinable are stated at marketvalue as of the balance sheet date. (Unrealized gains and losses on thosesecurities are reported in the stockholders' equity and the cost of securitiessold is determined by the moving average method.) (2) InventoriesMerchandise: Stated at cost based on the specific identification method.Supplies: Stated at the last purchase cost. 2. Depreciation Methods (1) Tangible fixed assets are depreciated using the declining balance method,while buildings (excluding fixtures) acquired after April 1, 1998 aredepreciated using the straight-line method. The estimated useful lives are asfollows: Buildings: 8-50 years; Others: 2-50 years (2) Intangible fixed assets are amortized mainly using the straight-linemethod. For in-house software, amortization is computed using the straight-linemethod based on the estimated useful life of 5 years. 3. Accounting Treatment of Deferred Assets Debenture issue expenses: Evenly amortized over the longest period specified inthe Commercial Code of Japan (3 years). 4. Provisions (1) Allowance for doubtful accountsGenerally, allowance for doubtful accounts is calculated based on the actualratio of bad debt losses incurred. For specific accounts with higher possibilityof bad debt loss, the allowance is determined by independent judgment. (2) Allowance for bonusesProvided for the payment of bonuses to employees by the estimated amount ofpayment. (3) Allowance for employees' retirement benefitsAllowance for retirement benefits to be paid to employees as of balance sheetdate is calculated based on the estimated amount of the projected benefitobligation and the plan assets at the fiscal year-end. Unrecognized actuarial net gain or loss will be amortized from the followingfiscal year within the average remaining service period of 12 years on astraight-line basis. (4) Allowance for directors' retirement benefitsRequired amount for retirement benefits to be paid to directors as of balancesheet date is reserved as liability. This allowance is regarded as liabilitystipulated in Article 43 of the Enforcement Regulations of the Commercial Codeof Japan. 5. Leases Finance leases other than those that deem to transfer ownership of the leasedproperty to the lessee are accounted for as operating lease transactions. 6. Consumption Tax Consumption tax is excluded from the stated amount of revenue and expenses. Notes to Non-consolidated Financial Statements (Notes to Balance Sheet) 1. Accumulated depreciation of tangible fixed assets: Y23,483 million yen 2. Short-term monetary assets in relation to the shareholder holding the majority voting rights: Y22 million 3. Short-term monetary liabilities in relation to the shareholder holding the majority voting rights: Y378 million 4. Long-term monetary liabilities in relation to the shareholder holding the majority voting rights: Y20 million 5. Short-term monetary assets in relation to subsidiaries: Y48 million 6. Short-term monetary liabilities in relation to subsidiaries: Y735 million 7. Major leased assets: In addition to tangible fixed assets shown on the Balance Sheet, fitness machines, school buses, etc. are leased. 8. Fixed assets whose ownership is reserved to the sellers: Some of buildings, etc. are purchased on installment terms and hence the ownership is reserved to sellers. The unpaid amount is Y101 million. 9. Net assets increased by Y69 million as a result of securities being valued at market price. However, the allocation of this amount for dividends is restricted pursuant to Paragraph 3, Article 124 of the Enforcement Regulations of the Commercial Code of Japan. 10. Amounts less than one million yen are disregarded. (Notes to Statement of Operations) 1. Transactions with the shareholder holding the majority voting rights Revenues (sales commissions, etc.): Y330 million Operating expenses (for the purchase of merchandise, the repairs and maintenance of facilities, etc.): Y3,659 million Purchase amounts of fixed assets: Y28 million 2. Transactions with subsidiaries Revenues (royalty earnings, etc.): Y235 million Non-operating revenues (dividends received): Y5 million Non-operating expenses (interest expenses): Y3 million 3. Net income per share: Y48.08 4. Amounts less than one million yen are disregarded. Proposal No. 2: To approve Plan for Corporate Split 1. Reasons for Corporate Split Ever since its establishment, the Company has expanded its business forthirty-two years by adding every cutting-edge business one at a time. Currently,it is composed of highly competitive three core businesses-digitalentertainment business, health & fitness business and gaming & system business. However, with the remarkable moves toward speedier management practicesbrought about by the development of information technology and increasing demandfor management transparency at a global level due to the expansion of borderlessbusiness activities, environment around the business has changed dramatically.In such circumstances, we have come to a conclusion that it would be the bestchoice for us to adopt holding company structure in order to enhance ourcorporate as well as shareholder value. In view of this, the Company has determined that, by conducting a corporatesplit ("Butteki Shinsetsu Bunkatsu") effective on March 31, 2006 under whichKonami Digital Entertainment Co., Ltd., a newly incorporated subsidiary, willsucceed digital entertainment business of the Company, it will adopt holdingcompany structure, in which the Company will operate multiple wholly-ownedbusiness entities under the umbrella of a single company, including entities fordigital entertainment business, health & fitness business and gaming & systembusiness. Under the new system, the Company will endeavor to achieve its main goals ofimproving management transparency, building up speedy and flexible managementstructure and building up complete profit responsibility structure. We sincerely request shareholders to approve the Plan for the CorporateSplit. The contents of the Plan for the Corporate Split are as follows: 2. Contents of the Plan for Corporate Split Plan for Corporate Split (Copy) Konami Corporation (hereinafter referred to as "Party A") specifies in this Planfor Corporate Split (hereinafter referred to as the "Plan") a corporate split(or "Shinsetsu Bunkatsu" and hereinafter referred to as the "Corporate Split "),under which Konami Digital Entertainment Co., Ltd. (hereinafter referred to as"Konami Digital Entertainment"), a newly incorporated subsidiary, will succeedthe digital entertainment business of Konami (hereinafter referred to as the"Business"). 1. Contents of the Articles of Incorporation of Konami Sports LifeThe contents of the Articles of Incorporation of Konami Digital Entertainmentshall be as specified in Appendix 1 ("Articles of Incorporation of KonamiDigital Entertainment Co., Ltd.") 2. Date When the Corporate Split Should Be MadeThe Corporate Split shall be made on March 31, 2006 (hereinafter referred to asthe "Corporate Split Date"); provided, however, that such Date may be changedthrough the resolution of the Board of Directors of Konami where necessary inlight of the proceeding of the corporate split procedures. 3. Class, Number and Allotment of Shares to be Issued by Konami DigitalEntertainment through the Corporate SplitAt the execution of the Corporate Split, Konami Digital Entertainment shallissue 520,000 shares of common stock and allot all of them to Konami. 4. Paid-in Capital and Capital ReserveThe paid-in capital and capital reserve of Konami Digital Entertainment shall beas follows; provided, however, that they may be changed where necessary in lightof the position of assets and liabilities of Konami Digital Entertainment as ofthe Corporate Split Date: (1) Paid-in capital: Y26 billion (26,000,000,000 yen) (2) Capital reserve: An amount of the difference between (i) the amountobtained by subtracting the amount of liabilities of Konami DigitalEntertainment succeeded from Konami from the amount of assets of Konami DigitalEntertainment succeeded from Konami, and (ii) the amount of the paid-in capitalset forth in the immediately preceding paragraph hereof, if (i) exceeds (ii). 5. Cash Consideration for the Corporate SplitNo cash consideration shall be distributed by Konami Digital Entertainment inconnection with the Corporate Split. 6. Assets and Liabilities and Rights and Obligations Konami DigitalEntertainment should Succeed (1) Konami Sports Life shall, effective from the Corporate Split Date,succeed assets from Konami liabilities, rights, obligations and contractualstatus as specified in Appendix 2 "Details of Rights, Obligations, etc. to beSucceeded." (2) As to the liabilities succeeded from Konami to Konami DigitalEntertainment by way of the Corporate Split, Konami shall, even on or after theCorporate Split Date, remain liable jointly and severally with Konami DigitalEntertainment. (3) As to the liabilities succeeded from Konami to Konami DigitalEntertainment by way of the Corporate Split, Konami Digital Entertainment shall,as between Konami and Konami Digital Entertainment, solely shoulder any burdenarising from the liabilities set forth in (2) above and, should Konami beobligated to pay or perform any liability set forth in (2) above, in whole or inpart, Konami Digital Entertainment shall immediately reimburse full amount toKonami if claimed by Konami. 7. Name of Directors and Corporate Auditors of Konami Digital EntertainmentThe directors and corporate auditors of Konami Digital Entertainment shall be: (1) Directors:Fumiaki TanakaAkira TamaiNaoyoshi Nozu (2) Corporate Auditors:Nagahiro MorimotoNoboru OnumaYasumasa Iwagaki 8. Name of Independent AuditorThe Independent Auditor of Konami Digital Entertainment shall be KPMG AZSA & Co. 9. Registration, Filing and Notification, etc.If, as a result of the Corporate Split, any cost or expense includingregistration fees or taxes is incurred for procedures of registration, filing ornotice required in relation to assets, liabilities, rights and obligations andcontractual status succeeded from Konami to Konami Digital Entertainment, Konamishall solely be responsible for such expenditures. 10. Change in the Terms and Conditions of the Corporate SplitIn case there shall be any material change in the financial conditions oroperational conditions of Konami due to natural disaster or any other reasonduring the period from the date of production of the Plan up to the CorporateSplit Date, Konami may amend the terms and conditions of the Corporate Split orterminate it. 11. Obligation not to CompeteKonami may, even after the Corporate Split becomes effective, engage in abusiness that is competitive with the Business. 12. Matters not Specified in the PlanAny matter necessary for the Corporate Split other than as specified in the Planshall be determined by Konami in accordance with the purpose thereof. January 5, 2006 By: Kagemasa Kozuki (Seal) Title: Representative Director of Konami Corporation Address of the Corporation: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan Appendix 1: Articles of Incorporation of Konami Digital Entertainment Co., Ltd.(the "Company") Articles of Incorporation CHAPTER I GENERAL PROVISIONS Article 1. (Trade Name) The name of the Company is Kabushiki Kaisha Konami Digital Entertainment, or"Konami Digital Entertainment Co., Ltd." in English. Article 2. (Purpose) The purpose of the Company is to engage in the following businesses: 1. Research, production, manufacture and distribution of software and hardware relating to electronic appliances and electronic components; 2. Provision and distribution of software using communications circuits; 3. Planning, production and distribution on the Internet; 4. Planning, establishment and operation of a shopping complex on the Internet, provision of know-how thereof and correspondence sales (mail ordering); 5. Design of character products (with images of people, animals, and such like, that have unique names or characters); 6. Planning, manufacture and distribution of toys; 7. Planning, production and distribution of audio and video that are recorded on record, tape, disk, film, or other media; 8. Planning, production and distribution of books, magazines and other publications; 9. Purchase and sale of antiques; 10. Acquisition and management of copyrights, trademark rights, design rights, performance rights and rights to produce records and videos related to the preceding items; 11. Import, export and agency business related to each of the preceding items; 12. Investment in parties in charge of the business specified in the preceding items; and 13. Any and all businesses incidental to any of the preceding items. Article 3. (Location of Head Office) The Company shall have its head office in Minato-ku, Tokyo. Article 4. (Method of Public Notice) Public notices of the Company shall be carried in the official gazette. CHAPTER II SHARES Article 5. (Total Number of Shares to be Issued and Non-Issuance of ShareCertificates) 1. The total number of shares authorized to be issued by the Company shallbe two million (2,000,000); provided, however, that in case of cancellation thenumber shall be reduced by the number of shares so canceled. 2. The Company shall not issue share certificates. Article 6. (Number of Shares Constituting One Unit) One (1) unit shall be one hundred shares of the Company. Article 7. (Limits to Share Transfer) It is prohibited to transfer the Company's shares unless the Board of Directorsapproves it. Article 8. (Share Handling Regulations) The registration of transfer of shares, registration of pledges, purchase andsale of Shares Constituting Less than One Unit and other matters relating toshares shall be subject to the provisions of the Share Handling Regulationsdetermined by the Board of Directors as well as these Articles of Incorporation. Article 9. (Record Date) 1. The Company shall deem that the shareholders, who are listed orrecorded on the shareholders list on March 31 every year are entitled toexercise their voting rights at the ordinary general meeting of shareholders forthe relevant fiscal year. 2. In addition to the preceding paragraph, the Company may, giving priorpublic notice, set a special record date when necessary, by a resolution of theBoard of Directors. CHAPTER III GENERAL MEETING OF SHAREHOLDERS Article 10. (Convocation) An ordinary general meeting of shareholders of the Company shall be convenedwithin three (3) months after the day following each account settlement date ofevery fiscal year and an extraordinary general meeting of shareholders shall beconvened from time to time whenever necessary. Such general meetings ofshareholders shall be held within metropolitan Tokyo and its surrounding wards. Article 11. (Convener and Chairperson) The Chairman or President shall convene the general meeting of shareholders ofthe Company and act as a chairperson, unless otherwise provided for by laws orregulations. If both Chairman and President are unable to act in this capacity,one of the other Directors shall take his/her place in the order previouslydetermined by a resolution of the Board of Directors. Article 12. (Method of Resolution) 1. Unless otherwise provided for by laws, regulations or these Articles ofIncorporation, any resolution at a general meeting of shareholders shall beapproved by a majority decision of shareholders present with voting rights. 2. Extraordinary resolutions, subject to Article 343 of the CommercialCode of Japan, can be made by a two-thirds majority of the shareholders present,who possess one-third or more of the total voting rights. Article 13. (Exercise of Voting Rights by Proxy) A shareholder may exercise his/her voting right by a proxy who is also ashareholder having voting rights of the Company; provided, however, that onlyone (1) proxy shall be admitted and such proxy shall be required to submitdocuments evidencing his/her authority. CHAPTER IV DIRECTORS AND THE BOARD OF DIRECTORS Article 14. (Number of Directors) There shall be no more than ten (10) Directors of the Company. Article 15. (Election of Directors) 1. Directors of the Company shall be elected at a general meeting ofshareholders. 2. Directors of the Company shall be elected by a majority decision of theshareholders present at a general meeting of shareholders where shareholdershaving one third (1/3) or more of voting rights of all the shareholders shall bepresent. 3. The election of Directors of the Company shall not be made bycumulative voting. Article 16. (Term of Office of Directors) 1. The term of office of Directors of the Company shall expire upon theconclusion of the ordinary meeting of shareholders with respect to the lastfiscal year ending within one (1) year after their assumption of office. 2. The term of office of Directors elected to increase the number ofDirectors shall expire at the time of expiration of the term of office of theother incumbent Directors. 3. The term of office of Directors elected to fill a vacancy of a retiredDirector shall be the remaining period of office of such retired Directors. Article 17. (Representative Directors and Directors with Titles) Directors who represent the Company, the President and any other Directors withspecific titles shall be appointed at a meeting of the Board of Directors. Article 18. (Convocation of the Meeting of the Board of Directors andChairperson) 1. The Chairman or President shall convene a meeting of the Board ofDirectors and act as a chairperson unless otherwise provided for by laws orregulations. If both Chairman and President are unable to act in this capacity,one of the other Directors shall take his/her place in the order previouslydetermined by a resolution of the Board of Directors. 2. Notice of convocation of a meeting of the Board of Directors shall bedispatched to each Director and Corporate Auditor three (3) days prior to thedate of such meeting; provided, however, that such period may be shortened incase of emergency. Article 19. (Regulations of the Board of Directors) Matters regarding the Board of Directors of the Company shall be determinedpursuant to the Regulations of the Board of Directors unless otherwise providedfor by laws, regulations or these Articles of Incorporation. Article 20. (Remuneration) The remuneration of Directors shall be determined at a general meeting ofshareholders. CHAPTER V CORPORATE AUDITORS AND THE BOARD OF CORPORATE AUDITORS Article 21. (Number of Corporate Auditors) There shall be no more than five (5) Corporate Auditors of the Company. Article 22. (Election of Corporate Auditors) 1. Corporate Auditors of the Company shall be elected at a general meetingof shareholders. 2. Corporate Auditors of the Company shall be elected by a majoritydecision of shareholders present at a general meeting of shareholders whereshareholders having one third (1/3) or more of voting rights of all theshareholders shall be present. Article 23. (Term of Office of Corporate Auditors) 1. The term of office of Corporate Auditors of the Company shall expireupon the conclusion of the ordinary general meeting of shareholders with respectto the last fiscal year ending within four (4) years after their assumption ofoffice. 2. The term of office of the Corporate Auditor elected to fill a vacancyof a retired Corporate Auditor shall be the remaining period of the term ofoffice of such retired Corporate Auditor. Article 24. (Standing Corporate Auditors) Corporate Auditors shall elect Standing Corporate Auditors from amongthemselves. Article 25. (Notice of Convocation of the Meeting of the Board of CorporateAuditors) Notice of convocation of a meeting of the Board of Corporate Auditors shall bedispatched to each Corporate Auditor three (3) days prior to the date of suchmeeting; provided, however, that such period may be shortened in case ofemergency. Article 26. (Regulations of the Board of Corporate Auditors) Matters regarding the Board of Corporate Auditors shall be determined pursuantto the Regulations of the Board of Corporate Auditors unless otherwise providedfor by laws, regulations or these Articles of Incorporation. Article 27. (Remuneration) The remuneration of Corporate Auditors shall be determined at a general meetingof shareholders. CHAPTER VI ACCOUNTS Article 28. (Business Year) The business year of the Company shall commence on April 1 of every year and endon March 31 of the following year and the account settlement date shall be thelast day of each business year. Article 29. (Dividend and Interim Dividend) 1. Dividends shall be paid to the shareholders or the registered pledgeeswho are listed or recorded on the shareholders list on the account settlementdate. 2. The Company may, by a resolution of the Board of Directors, distributeinterim dividends to the shareholders or the registered pledgees who are listedor recorded on the shareholders list on September 30 every year. Article 30. (Prescription) If any dividend or any interim dividend remains uncollected after three (3)years from the day on which such dividends became due and payable, the Companyshall be relieved of the obligation to pay such dividends. SUPPLEMENTARY PROVISIONS Article 1. (Shares to be Issued upon Establishment of the Company) The total number of shares that the Company will issue when it is establishedshall be 520,000. Article 2. (First Business Year) The first business year of the Company shall commence on the day of itsestablishment and end on March 31, 2006. Article 3. (Term of Office of First Directors and Corporate Directors) The term of office of the first Directors and Corporate Auditors of the Companyshall expire upon the conclusion of the ordinary general meeting of shareholderswith respect to the last fiscal year ending within one (1) year after theirassumption of office. Article 4. (Application of Laws and Regulations) Matters that are not prescribed in these Articles of Incorporation shall bedetermined pursuant to the Commercial Code of Japan and other laws andregulations. Appendix 2: "Details of Rights, Obligations, etc. to be Succeeded" 1. Assets to be succeededKonami Digital Entertainment shall succeed the following assets that Konami ownsand manages for its operations associated with the digital entertainmentbusiness as of the previous day of the split. (1) Movables (a) Inventories of products, components, and such like (b) Machinery, tools, instrument and fixtures (c) Software (except for production management systems) (d) Others: expendables, utensils, and such like, that are not listed in account books (2) SecuritiesInvestments excluding all investment securities and amounts invested insubsidiaries and affiliates (3) Monetary credits (a) Trade accounts receivable and notes receivable (b) Other receivables (c) Temporary payment (d) Others (4) Other assets (a) Deferred tax assets and long-term deferred tax assets (b) Advances, prepaid expenses and long-term prepaid expenses 2. Liabilities to be succeededKonami Digital Entertainment shall succeed the following liabilities that Konamiowns and manages for its operations associated with the digital entertainmentbusiness as of the previous day of the split. (a) Other accounts payable (b) Accrued expenses (c) Advances received (d) Allowance for bonuses (e) Allowance for retirement benefits 3. Intellectual property rights to be succeededKonami Digital Entertainment shall succeed the intellectual property rights thatKonami owns and exercises for its operations associated with the digitalentertainment business as of the previous day of the split. The intellectualproperty rights that Konami will continue to own are provided in the end of theAppendix: Suffix. 4. Contractual status to be succeededKonami Digital Entertainment shall succeed contractual status in all contractsconcerning the digital entertainment sector managed by Konami as of the previousday of the split, as well as incidental rights and obligations. 5. Employment contracts to be succeededKonami Digital Entertainment shall succeed Konami's employment contracts withemployees engaged in the digital entertainment business of Konami, incidentalrights and obligations, as well as labor conditions stipulated by working rules.In addition, Konami's employees who will not be succeeded by Konami DigitalEntertainment are those belonging to the following sectors: (a) IR Department, Financial Division (b) Operations Inspection Office, Finance and Accounting Division (c) President's Office, Headquarters (d) Public Relations Office 6. Permits and licenses to be succeededKonami Digital Entertainment shall succeed from Konami the permits, licenses,approval, registration, notifications, which Konami had acquired in associationwith the business to be succeeded as of the previous day of the split and can belegally succeeded. (Suffix) Intellectual property rights that Konami will continue to own according to Item3 of Appendix 2: Trademarks that Konami applies or has registration in each country: Paste the following link into your web browser to download the related PDF document: http://www.rns-pdf.londonstockexchange.com/rns/8214w_-2006-1-12.pdf 3. Directors, Corporate Auditors and Accounting Auditor of the companyestablished through the corporate split (1) Directors Name Brief personal record Number of Company's stock owned (Date of Birth)Fumiaki Tanaka Apr. 1981 Joined the Company 64,693 (March 10, 1961) Jun. 1996 Director Mar. 1998 Managing Director Mar. 2000 General Manager of AM Business Division (presently Amusement Company) Jun. 2000 Senior Managing Director and Corporate Officer Nov. 2002 General Manager of IT Supervisory Division Dec. 2002 Chairman and Representative Director of Konami Sports Life Corporation Apr. 2005 Senior Executive Corporate Officer, in charge of Japan (to present) Akira Tamai Sep. 1999 Joined the Company 922 (October 14, 1963) Apr. 2001 General Manager of Tax Affairs Office (presently Tax Affairs Supervisory Division) Oct. 2002 Manager of IT Strategy Division Oct. 2004 General Manager of Finance and Accounting Division as well as Manager of Finance Division (presently Finance Supervisory Division) Apr. 2005 Corporate Officer (to present) Naoyuki Notsu Apr. 2000 Joined the Company, Manager of Administration Division 779 (November 18, 1955) Jan. 2004 General Manager of Business Administration Division May 2004 Corporate Officer (to present) (2) Corporate Auditors Name Brief personal record Number of Company's stock owned (Date of Birth)Nagahiro Morimoto Jul. 1995 Joined the Company 6,438(February 13, 1947) Feb. 2002 Corporate Auditor of Konami Olympic Sports Club Co., Ltd. (present Konami Sports Corporation) Jan. 2003 Standing Corporate Auditor of Konami Sports Life Corporation (to present) Noboru Onuma Jun. 1999 Standing Corporate Auditor of the Company (to present) 1,285(January 1, 1948) Yasumasa Iwagaki Jan. 1999 Corporate Auditor of Konami Computer Entertainment 0 Japan, Inc.(August 16, 1947) Jun. 1999 Corporate Auditor of Konami Computer Entertainment Tokyo, Inc. Jun. 1999 Corporate Auditor of Konami Computer Entertainment Osaka, Inc. Jun. 2004 Standing Corporate Auditor of Konami Real Estate, Inc. Jun. 2005 Corporate Auditor of Konami Sports Corporation (to present) (3) Accounting Auditors Overview of Accounting Auditors (As of November 30, 2005) Auditors name: KPMG AZSA & Co. Offices: Main office: 1-2 Tsukudo-cho, Shinjuku-ku, Tokyo Other offices in: Sapporo, Morioka, Sendai, Yamagata, Kanazawa, Toyama, Niigata, Nagano, Takasaki, Mito, Saitama, Chiba, Yokohama, Shizuoka, Nagoya, Mie, Gifu, Kyoto, Nara, Osaka, Wakayama, Kobe, Okayama, Hiroshima, Yonago, Matsuyama, Shimonoseki, Takamatsu, Oita, Fukuoka and Nagasaki Corporate history: July 1, 1985: Asahi Shinwa Auditing Corporation established October 1, 1993: Merged with Inoue, Saito & Eiwa Auditing Corporation (established on April 5, 1978) to form Asahi & Co. January 2004: Merged with and changed the name to KMPG AZSA & Co. (established on February 26, 2003) Number of employees (figures in square brackets include part-time employees): CPA: 1,459 (1,649) (representative employees: 232; regular employees: 182) Junior CPA: 786 (806) Others: 642 (667) Total: 2,887 (3,122) Number of clients: 5,665 Audit service: 4,159 corporations (Statutory audit: 733; Japanese SEC audit: 90; Commercial Code audit: 1,279; School: 277; Labor union: 74; Others: 307; Other statutory audit: 307; Other voluntary audit: 1,399) Other services: 1,506 corporations Amount of capital: Y3,230 million 4. Documents which describe reasons for new share allocation, as provided inItem 2, Paragraph 1, Article 374-2 of the Commercial Code of Japan Statement of Reasons for New Share Allocation Konami Corporation (hereinafter referred to as the "Company") plans to split thedigital entertainment business and set up Konami Digital Entertainment Co., Ltd.(hereinafter referred to as "Konami Digital Entertainment"), which will takeover this business, on March 31, 2006, based on the split plan approved by theBoard of Directors on January 5, 2006. All 520,000 common stock newly issued byKonami Digital Entertainment in connection with this split will be allocated tothe Company. 5. Documents which describe the prospect of the fulfillment of obligation to beborne by each company, as provided in Item 3, Paragraph 1, Article 374-2 of theCommercial Code of Japan, and the relevant reasons Statement Regarding the Prospect of the Performance and Discharge of Liabilities According to the split plan approved by the meeting of the Board of Directorsheld on January 5, 2006, the Company plans to split its digital entertainmentbusiness and set up Konami Digital Entertainment Co., Ltd. (hereinafter referredto as the "New Company"), which will take over the subject business, on March31, 2006. With respect to this split, the Company concludes that the Company andthe New Company will be able to perform and discharge the liabilities to beborne by the respective companies. (1) Regarding the Company The assets and liabilities booked on the Balance Sheets of the Company as ofSeptember 30, 2005 amounted to Y203,217 million and Y53,730 million,respectively, indicating that its assets far outnumbered its liabilities. TheCompany absorbed its wholly owned subsidiary Konami Marketing Japan, Inc. onOctober 1, 2005, and its assets and liabilities became Y211,851 million andY61,618 million, respectively, on the Balance Sheets as of October 1, 2005, andits assets again far exceeded its liabilities. From October 1, 2005 until now, no event has occurred that would adverselyaffect the performance and discharge by the Company of liabilities to be borneby the Company, and until the split date, no event is expected to occur thatwill adversely affect the performance and discharge by the Company of itsliabilities. Furthermore, no event is expected to occur that will constitute a hindranceto the performance and discharge by the Company of the subject liabilities, inits business activities after the corporate split. Therefore, the Company concludes that the Company will be able to perform anddischarge all of its liabilities when they become due, to be performed after thesplit date. (2) Regarding the New Company The assets and liabilities, which the New Company is expected to succeed fromthe Company upon the planned corporate split, amounted to Y72,943 million andY20,943 million, respectively. This indicates that the New Company's assets arelikely to far outnumber its liabilities even if this corporate split isimplemented. From October 1, 2005 until now, no major change has occurred in the assetsand liabilities that the New Company is expected to succeed from the Company inthe wake of the planned corporate split, and until the split date, no event isexpected to occur that will significantly change the subject assets andliabilities. Furthermore, no event is expected to occur that will constitute a hindranceto the performance and discharge by the New Company of liabilities to be borneby the New Company, in its business activities after the corporate split. Therefore, the Company concludes that the New Company will be able to performand discharge all of its liabilities when they become due to be performed afterthe split date. 6. Balance sheets and statements of operations pursuant to Items 4 to 7,Paragraph 1, Article 374-2 of the Commercial Code of Japan (1) Balance sheets and statements of operations prepared six months beforethis extraordinary general shareholders meetingAs described in pages 16 to 20, in the section of Reference Materials Concerningthe Exercise of Voting Rights. (2) Final balance sheets and statements of operationsAs described in pages 26 to 30, in the section of Reference Materials Concerningthe Exercise of Voting Rights. Proposal No. 3: Amendments to the Articles of Incorporation 1. Reasons for the amendments The Company plans to become the holding entity through the partial split of itsbusiness as presented in Proposal 2: "To approve Plan for Corporate Split."Accordingly, necessary changes to Article 2 of the current Articles ofIncorporation (Purpose) are proposed. The amendments to the Articles shallbecome effective as of the effective date of the corporate split, provided thatProposal 2: "To approve Plan for Corporate Split" is approved and the corporatesplit of the Proposal becomes effective. 2. Details of the amendments Details of the amendments are as follows: (The underlined sections are the amendments.) Current Articles of Incorporation Proposed Amendments Article 2. (Purpose) Article 2 (Purpose) The purpose of the Company is to engage in the The purpose of the Company shall be to own shares of -------------------------following business: companies which run the following businesses or a ------------------------------------------------- foreign company which runs equivalent businesses, and ------------------------------------------------------ be engaged in the control and administration of the -------------------------------------------------- subject companies' business activities as well as ------------------------------------------------- implementation of operations incidental to such ------------------------------------------------- activities.1. Research, development, manufacture and 1-20: No amendmentsdistribution of software and hardware relating toelectric appliance and electronic components; 2. Planning, production, manufacture, rental anddistribution of music, audio and visual software(including disks, tape and film, etc.); production andacquisition of master copies, and transferal or usagepermission thereof; 3. Acquisition, management, promotion of usageand development of music copyright and relatedperformance rights, and transferal or usage permissionthereof; 4. Planning, production and distribution ofbooks, magazines, sheet music and other publications; 5. Development, manufacture and distribution oftoys; 6. Design of character products (with images ofpeople, animals, etc. which have unique names orcharacters); 7. Planning, production and distribution on theInternet; 8. Planning, establishment and operation ofshopping complex on the Internet, provision of know-howthereof and correspondence sales; 9. Provision and distribution of software usingcommunication circuits; 10. Management of sports facilities and amusementarcades; 11. Distribution of soft drinks, foods, alcoholicbeverages, sports gear, clothing and computer gamemachines; 12. Advertising agency, insurance agency,broadcasting business and leisure business includingtour, sports, etc.; 13. Purchase and sale of antiques; 14. Sale, purchase, lease, blockage and managementof real estate; 15. Job placement; 16. Holding of and investment in securities; 17. Acquisition and management of copyrights,trademark rights, design rights, performance rights andrights to produce records and videos related to thepreceding items; Current articles of incorporation Proposed amendments 18. Import, export and agency business related toeach of the preceding items; 19. Investment in the party in charge of thebusiness specified in the preceding items; and 20. Any and all business incidental to any of thepreceding items. To view the full PDF version of this press release, paste the following link into your web browser: http://www.konami.co.jp/en/ir/pdf/generalmeeting/060126/syosyu.pdf This information is provided by RNS The company news service from the London Stock Exchange

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