28. Convertible bond 2005/2012

On October 5, 2005, Kudelski Financial Services Holding SCA issued a CHF 350 000 000 unsubordinated convertible bond due 2012, convertible into bearer shares of Kudelski SA. This bond has a denomination of CHF 5 000 nominal amount with an initial conversion price of CHF 67.76 per bearer shares of Kudelski SA with a nominal value of CHF 10. Bondholders may request conversion at any time from January 1, 2006 until September 12, 2012. The bond is callable at par value after October 5, 2010, subject to a 110% provisional call hurdle. If not converted prior to the date of maturity, the bonds will be redeemed at par value. Interest expense on the liability component of the bond is calculated on the effective yield basis using an effective rate of 3.2%.

Following the payment of an extraordinary dividend on May 30, 2007, conversion price has been set at CHF 66.98 per bearer share.

The convertible bond is recognized in the consolidated balance sheets as of December 31, as follows:

In CHF'000	2009	2008
Face value of convertible bond issued on October 5, 2005	350 000	350 000

Transactions costs	-5 719	-5 719
Equity conversion component	-34 087	-34 087

Liability component on initial recognition on October 5, 2005	310 194	310 194

Cumulative Interest expense as of January 1	18 792	13 242
Interest expense for the year	11 391	11 238
Interest paid	-5 688	-5 688
Interest accrued (short term portion)	-1 343	-1 343

Liability component as of December 31	333 346	327 643

Transaction costs amounted to kCHF 6 337 of which kCHF 618 were allocated to the equity component of the convertible bond.

The above interest expense includes the following:

In CHF'000	2009	2008
Base interest (1.625%)	5 688	5 688
Allocation of the equity conversion component	4 886	4 733

Effective interest expense (effective yield rate of 3.2%)	10 574	10 421

Allocation of transaction costs	817	817

Interest expense	11 391	11 238