ETIC to Provide Support to Kishimoto Clinical Laboratory and related company
December 9th 2010
Enterprise Turnaround Initiative Corporation of JapanThe Enterprise Turnaround Initiative Corporation of Japan (“ETIC”), has decided to provide
support to Kishimoto Clinical Laboratory, Inc. and a related company under Article 25,
Clause 4 of the Enterprise Turnaround Initiative Corporation of Japan Act (Act 63, of 2009,
hereafter “the ETIC Act”),
1. Name(s) of persons or companies concerned
Kishimoto Clinical Laboratory, Inc. and Doutou Clinical Laboratory, Inc. (hereaftercollectively “Kishimoto Laboratories”)
2. Name(s) of financial institutions jointly applying for rehabilitation support with Kishimoto
Laboratories
Mizuho Bank, Ltd.
BML, Inc.
3. Outline of business revitalization plan
Please see appendix.
4. Comments from State Ministers in charge of ETIC
Prime Minister, Minister of Internal Affairs, Minister of Finance, Minister of Economy,
Trade and Industry: No opinion expressed.
Minister of Health, Labour and Welfare: “I have no objection to the decision to support
Kishimoto Laboratories. However, I ask that after reaching the decision to support, ETIC
should encourage Kishimoto Laboratories to discuss the situation with employees of thecompany as soon as possible. I also ask that in advising on and guiding theimplementation of the corporate revitalization plan, ETIC should aim to ensure that
Kishimoto Laboratories complies with related laws and regulations, and that Kishimoto
Laboratories also provides adequate opportunities for substantive discussions with theworkforce with due consideration of employment stability and other such factors.”
5. Comment from state minister supervising business activities
Minister of Health, Labour and Welfare: “I have no objection to the decision to support

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Kishimoto Laboratories.”
6. Debt purchase application period
From Thursday, December 9th, 2010 for receipt by ETIC no later than Wednesday,
February 24th, 2011.
7. Request for temporary suspension
Under Article 27, Clause 1 of the ETIC Act, financial institutions have been requested
not to recover loans or exercise any other rights they may have as creditors, other thanthose permitted under the corporate revitalization plan, before the end of the debt
purchase period as per item 6 above.
8. Treatment of trade creditors
The decision by ETIC to provide support involves requesting the waiver of debt only
from financial institutions providing loans to Kishimoto Laboratories. No request for
support will be made with regard to trade debt. Therefore there will be no impact on
trade creditors.
9. Basis for decision to support
ETIC’s basis for deciding to provide support is as follows.
9.1 Rationale
Kishimoto Laboratories operates a clinical laboratory business mainly in Hokkaido
Prefecture. Kishimoto Laboratories plays an indispensable role in the healthcare
infrastructure of Hokkaido, and holds a high market share in the region, providing
services to approximately 3,000 hospitals and clinics (hereafter “hospitals”). Clinicaltesting requires a system which ensures the prompt collection and delivery andreporting of test samples between client hospitals and laboratories. Furthermore, for
testing method and reference purposes, it is necessary to maintain consistency andcontinuity in data. Therefore a certain amount of time is required before a clinicaltesting mandate can be granted or undertaken.
Accordingly, if Kishimoto Laboratories were to be impacted by unforeseen
circumstances, there is a high likelihood of a severe effect on testing and diagnostic
systems at client hospitals, causing significant impact on healthcare in the region.
Moreover, Kishimoto Laboratories mainly provides its services to the Hokkaido region,
which is an area with a low concentration of hospitals in relation to land mass. If the2/10

operation of Kishimoto Laboratories was to stall, with concomitant destabilization ofthe testing and diagnostic infrastructure of client hospitals, the region may face aninability to provide residents in the community with necessary clinical testing.
In collaboration with a sponsor, industry leader BML, Inc., it is expected that Kishimoto
Laboratory can work to make a rapid recovery in the quality and consistency of its
clinical testing by renewing its clinical testing facilities through a new capital injection
and introducing industry-leading testing methods and know-how. These measures, inconjunction with a reduction in costs through the consolidation of overlapping
operations, are expected to enable the realization of a swift business rehabilitation.
Accordingly, ETIC has determined that there is ample merit in supporting therevitalization of Kishimoto Laboratories as a means of preventing the occurrence ofthe destabilization mentioned above, and as a means of contributing to thesustainability of clinical testing quality and reliability.
Moreover, Kishimoto Laboratories employs a workforce of around 1,000 people
across the Kishimoto Clinical Laboratories Group, contributing significantly to thesustainable employment of the community in Tomakomai-shi, Hokkaido, the locationof the group’s head office.
9.2 Role of ETICIn deciding to support Kishimoto Laboratories, ETIC will seek to facilitate a smooth
progression of the revitalization plan, by coordinating activities which Kishimoto
Laboratories would have found difficult to execute alone, including reconciling theinterests of the concerned companies, the related financial institutions, sponsors, andother related parties from a fair and neutral standpoint.
Under the business plan, ETIC will not supply any capital or financing to Kishimoto
Laboratories.
ENDS

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Appendix: Outline of the Business Revitalization Plan
Section 1: Overview of the companies receiving support
1.1 Names of companies
Kishimoto Clinical Laboratory, Inc. (hereafter “Kishimoto Laboratory”)
Doutou Clinical Laboratory, Inc. (hereafter “Doutou”)
1.2

Head office, Subsidiaries
Kishimoto Clinical Laboratory

Tomakomai-shi, Hokkaido

Doutou Clinical Laboratory, Inc.

Kitami-shi, Hokkaido

Tokachi Clinical Laboratory, Inc.

Obihiro-shi, Hokkaido

Takikawa Clinical Laboratory, Inc.

Takikawa-shi, Hokkaido

Kyoei Medical Institute Co., Ltd.

Maebashi-shi, Gunma-ken

Sapporo Immuno Diagnostic Laboratory (IDL)

Sapporo-shi, Hokkaido

Acty Inc.

Sapporo-shi, Hokkaido

Seven System Inc.

Sapporo-shi, Hokkaido

SKL K.K.

Okinawa-shi, Okinawa-ken

Yukinohana Shuzo K.K.

Otaru-shi, Hokkaido

Hokkaido Golf Resort K.K.

Tomakomai-shi, Hokkaido

Nakano Sogo Shokuryouhinten

Tomakomai-shi, Hokkaido

Kishimoto Laboratory and Doutou are hereafter collectively referred to as the“Kishimoto Laboratories”; The company headquarters and subsidiaries are hereaftercollectively referred to as “KCLG”
1.3

Company GroupKCLG is made up of Kishimoto Laboratory and 11 subsidiaries. The Group isengaged in a clinical laboratory business, a reagent production and sales business,a real estate leasing business, and other businesses. Subsidiaries relating to eachbusiness area are as follows:
1. Clinical laboratory business: Kishimoto Clinical Laboratory and 4 subsidiaries:
Tokachi Clinical Laboratory, Inc., Takikawa Clinical Laboratory, Inc., Doutou
Clinical Laboratory, Inc., and Kyoei Medical Institute Co., Ltd.
2. Reagent production and sales business: Sapporo Immuno DiagnosticLaboratory
3. Electrocardiographic business: 2 subsidiaries: Acty Inc., and Seven System.

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4. Real estate and equipment leasing business: SKL Co., Ltd.
5. Other businesses: 3 subsidiaries practicing the sale of alcohol, and operationof golf courses.
1.4

1.5

Number of employees
Kishimoto898 (As of September 2010. Including temporary andLaboratories:

part-time employees.)

KCLG

1,048 (As above)

Labor union
None

1.6

Main banks
Mizuho Bank, Ltd.
Bank of Tokyo-Mitsubishi UFJ, Ltd.
Development Bank of Japan Inc.
Sumitomo Mitsui Banking Corporation
Resona Bank, Ltd.
The 77 Bank, Ltd.
Shoko Chukin Bank, Ltd.
North Pacific Bank, Ltd.
Jogashima Godo Kaisha
Kanagawa Bank, Ltd.
Shizuoka Bank, Ltd.
The Akita Bank, Ltd.
Tomakomai Shinkin Bank
Kitami Shinkin Bank

1.7

Financial overview (financial results for year ended December 31, 2009)
Kishimoto Laboratories
Revenue¥8,157 million

Operating income before amortization¥1,310 million

Interest-bearing debt

¥12,392 million

Section 2: Background and circumstances leading to request for ETIC support
Established in 1970 as the Tomakomai Clinical Laboratory, Kishimoto Laboratories spent its

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first 20 years expanding its operations in Hokkaido, and in the year 2000, actively began
expanding its operations in Honshu. However, increased costs associated with thisaggressive investment led to a decline in profitability, and in 2002 the company recorded acapital deficit. Moreover, during the same period, the company attempted to diversify into a
range of businesses unrelated to its main business, including golf courses, wineries andJapanese sake breweries, which led to an accelerated outflow of funds.
To cover the decline in revenues in its main business and funding deficiencies due to thefailure of non-core businesses, Kishimoto Laboratories used improper accounting
procedures to enable an increase in interest-bearing debt, and in 2009, with interest-bearing
debt of ¥12.8 billion, faced a liquidity crunch.
From June 2009, Kishimoto Laboratories’ newly appointed president, Mitsuhiro Tokuda, ledmeasures aimed at achieving a self-directed business restructuring, gaining the cooperationof financial institutions to extend repayments of interest-bearing debt, and seeking toimprove business performance.
Meanwhile, in order to prevent the deterioration of the quality of its testing and services dueto the aging of its laboratory equipment, in April 2010 the company began searching for abusiness partner in the same industry. This resulted in the formation of a business
partnership with BML Inc. (hereafter “BML”) to pursue service outsourcing and othermeasures.
However, in addition to continued financial problems, the company was faced with theurgent need to procure funds necessary for vital capital investment. After consulting its main
financial institutions, it made the decision to apply for support from ETIC.

Section 3: Outline of business revitalization plan
1. Basic policy and main measures of business revitalization plan
Under the business plan, the sponsor BML will establish a subsidiary that will receive thecontinuing operations of Kishmoto Laboratories (using the Second Company Method)
via an absorption separation. Under the control of BML, the following measures will beimplemented.
(1)

Introduce BML’s institutional knowledge so as to provide high quality services thatmeet BML’s service standards.

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After receiving Kishimoto Laboratories’ continuing operations, BML will introduce
its institutional know-how, and progressively change to clinical investigation
methodology and drugs that meet BML’s standards while adopting those same
standards within the organization. At the same time, older laboratory equipment
will be replaced with new equipment, enabling the creation of a structure that canefficiently undertake clinical testing procedures with a high level of quality andstability. By providing a higher level of services and recovering lost credibility andtrust, the business will endeavor to prevent further customer losses and gain newcustomers.
(2)

Reduce costs by closing and integrating locations, concentrating sales activities andimproving distribution efficiency.
By making use of BML’s infrastructure, the efficiency of Kishimoto Laboratories’
operations will be improved.

(3)

Dispose of non-core assets.
Non-core assets will be sold in the process of withdrawing from businesses otherthan clinical laboratory testing.

2. Request for financial support from financial institutions, etc.
Of the ¥11.94562 billion owed to financial institutions and others by Kishimoto
Laboratories (current estimated figure) financial support (effectively, debt forgiveness)
will be requested for ¥7.6 billion. (Note: With regard to debt repayment under theDisposal Linked Method, additional financial support will be requested if therepayment amount achieved using this method is lower than the value of the secured
provisional debt amount.)
3. Financing
Under the plan, financing of debt repayment and other funds required for thecontinuing business will be provided by a capital injection and loans from BML.

Section 4. Conformance with standards for support
1. Requirements related to standards of support(1) Possession of effective management resources
KCLG, and in particular Kishimoto Laboratories, possesses effective businessresources in that it operates a clinical laboratory business and a reagent production
and sales business with a capacity to provide services to approximately 3000 facilities,

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and a staff of approximately 200 qualified clinical laboratory technicians and hygienic
laboratory technicians who play a vital role in conducting clinical testing. The businesssupports client hospitals’ medical services for their patients through its laboratory
facilities’ delivery and collection routes that enable the fast implementation of clinicaltesting. Moreover, it employs a workforce of around 1,000 people mainly inTomakomai-shi, Hokkaido, the location of the group’s head office.
(2) Carrying excessive debt
Because Kishimoto Laboratories bear excessive debt, financial support such as debt
forgiveness is indispensable for business revitalization.
2. Requirements related to decision to provide support(1) Conformance with application for support
Kishimoto Laboratories made a joint application for support with core creditor
Mizuho Bank, Ltd. and sponsor BML Inc.
(2) Standards for productivity improvement
The business revitalization plan is deemed to meet the standards for productivityimprovement.
(3) Standards for financial soundness
The business revitalization plan is deemed to meet the standards for financialsoundness.
(4) Comparison with liquidation value
The recovery rate for debt applicable to the business revitalization plan is greaterthan the estimated recovery rate through bankruptcy proceedings.
(5) Potential to refinance within three years
Implementation of the business revitalization plan is expected to significantly
improve the financial condition of Kishimoto Laboratories and enable the continuing
companies to secure sustainable cash flow, making refinancing sufficiently likely.
(6) Connection with structural oversupply
Under the business revitalization plan, there will be no attempt to increase thesupply capacity of Kishimoto Laboratories. Accordingly, the plan has been judged as
not hindering the resolution of structural oversupply as specified in Article 19 of the8/10

Act on Special Measures for Industrial Revitalization.
(7) Consultation with workforce
Because there is no labor union at Kishimoto Laboratories, it is planned that
following the decision to provide support, meetings with employees will be promptly
scheduled as part of the revitalization process to explain the main points of thebusiness revitalization plan, and consult on employment and working conditions.

Section 5. Responsibility of management
1. Responsibility of managers(1) Resignation of directors
In order to take management responsibility for previous improper accounting proceduresand poor business performance, Katsuyasu Kishimoto and Noriyoshi Kishimoto, whowere representative directors in the period prior to June 2009, resigned their board
positions in June 2009; they currently have no role in the management of Kishimoto
Laboratories, and will have no role in the management of the continuing business after thecompany separation.
Mitsuhiro Tokuda, who became CEO and representative of Kishimoto Laboratories inJune 2009, has been implementing a range of measures to improve businessperformance, and with Yoichi Sakai, who became a director of the business in Novemberof the same year, has been working to revitalize the operations. However, as part of thecurrent proceedings, and in order to receive effective debt forgiveness from financial
institutions, both these persons will resign their positions promptly after completion of thecompany separation. Kishimoto Laboratories will move to special liquidation proceedings
after the company separation becomes effective, at which point all directors, other than
Mitsuhiro Tokuda and Yoichi Sakai will also promptly resign. Yoichi Sakai will be appointed
liquidator of Kishimoto Laboratories.
Mitsuhiro Tokuda and Yoichi Sakai will have an essential role to play in facilitating asmooth transfer of the operations of Kishimoto Laboratories to the continuing company,and for a necessary period after implementation of the company separation will cooperatewith the business transfer as Special Advisor and General Manager respectively.
(2) Abandonment of claim for retirement benefits
All resigning directors will abandon any claim to the compassionate allowance related to9/10

board members’ retirement.
2. Responsibility of shareholders
After completion of the company separation, it is planned that special liquidation
proceedings will commence by around May 2011. To reflect the responsibility ofshareholders, no allocation of remaining assets will be made to shareholders in the courseof these proceedings.
ENDS

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