News Release

Air Water enters stock swap agreement with Air Water Emoto

May 17, 2006

Osaka, May 17, 2006 – Air Water Inc. (AWI) announces that the Board of Directors of both AWI and Air Water Emoto Inc. (AW Emoto) approved at meetings held at the respective companies today that Air Water will become the full parent company of AW Emoto and that AW Emoto will become a wholly-owned subsidiary of AWI on August 10 2006 through a stock swap and that both parties have signed a stock swap agreement to that effect. Further details are as provided below.

1. Background to stock swap

The housing industry is today operating in a business environment that is characterized by sluggish new housing starts. While companies engaged in the industry have shifted the focus of their sales activities to home improvements and have been working to strengthen further the marketability of their products, their cost competitiveness and their supply and installation services organizations they continue to face very trying market conditions. Further, in addition to the need to make housing as pleasant to live in as possible, there is an increasing need to provide wider-ranging domestic fittings and appliance services that encompass burglary and fire prevention and other facets of security as well as energy saving and other environmental considerations.

Given the current situation, AWI and AW Emoto, with an eye on collaboration with other companies capable of providing full-line housing and domestic fittings and appliance installation services, both recognize the necessity of establishing a competitive presence in the housing industry and of working to expand and grow that business on an ongoing basis.

It is for these reasons that AWI and AW Emoto have decided to conduct a stock swap that will make AWI the full parent company and AW Emoto a wholly-owned subsidiary of AWI for the purpose of creating a framework to swiftly and flexibly restructure housing and domestic fittings and appliance operations in the Air Water Group and thereby maximize corporate value.

2. Stock swap schedule

May 17 2006:
Stock swap agreement approved at meetings of the Board of
Directors of the two parties.
Parties conclude stock swap agreement.
June 29 2006:
AW Emoto Ordinary General Shareholders’ Meeting to approve stock swap agreement.
August 4 2006 (plan):
Delisting of AW Emoto shares on stock exchange.
August 9 2006 (plan):
AW Emoto to submit stock certificates.
August 10 2006 (plan): Effective date of stock swap. September 20 2006 (plan):
Stock certificates to be issued.

Note: Pursuant to Article 796 Paragraph 3 of the Commercial Code (Summary Stock Swap) AWI does not intend to present the stock swap agreement for General Stockholders’ Meeting approval.

3. Stock swap details

(1) Method
AWI and AW Emoto will conduct a stock swap on August 10 2006 as a result of which AW Emoto will become a wholly-owned subsidiary of AWI and AWI will become the full parent company.

(2) Stock exchange ratio

Company Air Water Inc.
(Full parent company)
Air Water Emoto.Inc
(Wholly-owned subsidiary)
Exchange ratio 1 0.1

Notes:
i. Basis of stock swap ratio: AWI and AW Emoto commissioned Nikko Cordial Securities Inc. to conduct an appraisal for the purpose of determining the stock swap ratio. The parties to the Stock Swap Agreement agreed on the above ratio following negotiations after both parties had carefully studied the methods used for and results of the appraisal.
ii. Results, method and basis of third-party institution appraisal: Nikko Cordial Securities calculated the swap ratio for AWI and AW Emoto stock after making a comprehensive appraisal using market price and discounted cash flow methods.
iii. New shares to be issued for swap and their allocation: AWI will newly issue 949,300 common stocks for the stock swap. Together with the 450,000 common treasury shares held by AWI, AWI will allocate 1,399,300 common stocks to all shareholders registered in AW Emoto’s Shareholders’ List (including beneficial shareholders) on the day prior to the effective date of the stock swap. AW Emoto shareholders will receive 0.1 AWI common stock per one AW Emoto common stock. The 32,821,000 AW Emoto common stocks held by AWI will not be part of the allocation.

(3) Stock swap subsidization
AWI will make no subsidization payments in the stock swap.

(4) Listing after stock swap
AWI will maintain its stock exchange listing after it becomes the full parent company through the stock swap. AW Emoto, which will become a wholly-owned subsidiary through the stock swap, plans to delist its shares on the JASDAQ Exchange on August 4 2006.

4. Post-stock swap status

There are no plans to make any changes to company names, type of business, head office location or authorized capital after the stock swap.

5. Accounting principles applied

(1) Classification
The stock swap is expected to be classified as a transaction between companies under common control.

(2) Goodwill value and amortization period
Goodwill amortization value: Approx. ¥300 million (excluding that corresponding to cost of stock transfer)
Amortization period: 5 years

6. Impact on consolidated results

Air Water Emoto was already a consolidated subsidiary of AWI (which has a 70.11% shareholding) and so the stock swap is not forecast to produce any significant impact on AWI’s consolidated or unconsolidated results after fiscal 2005.

CONTACT: S. Kishi and J. Ishino
Public Relations, Air Water Inc.
20-16, Higashi Shinsaibashi 1-chome,
Chuo-ku, Osaka 542-0083
TEL: 06-6252-5411 / FAX: 06-6252-3965

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