Ferronordic Machines AB announces preference share issue

• At an extraordinary general meeting earlier today, 9 October 2013, the shareholders in Ferronordic Machines AB (publ) («Ferronordic Machines» or the «Company») resolved on a preference share issue to raise SEK 400 million.
• Proceeds from the issue will be used to create financial flexibility to continue expansion, the repayment of the existing bond and general corporate purposes.
• The highest number of preference shares to be issued is 500,000 corresponding to an amount of SEK 500 million.
• Subscription price per preference share is fixed at SEK 1,000. Minimum subscription is 1,000 preference shares. Annual preference dividend is SEK 100, paid semi-annually with SEK 50, corresponding to an annual effective yield of 10.25%.
• The preference shares will either be exchangeable into ordinary shares in connection with a potential future listing and IPO of the ordinary shares at a discount or be redeemable by the Company in cash. The first twelve months after the issue, the discount to IPO price will be approximately 13% and the cash redemption premium 5% for those who do not wish to convert the preference shares into ordinary shares. In the event that an IPO does not take place within 12 months from the issue of the preference shares, the IPO discount and redemption premium will start to increase up to predetermined maximum levels.
• Current bondholders under the 2011/2014 bond loan are offered to use their bonds as payment for preference shares. If a bondholder wishes to accept this offer, one bond would be exchanged into 1,020 preference shares (accrued interest up until and including the settlement day will be paid in cash by Ferronordic Machines).
• The application period runs from 9 October – 24 October 2013, with expected settlement on 30 October.
• The Company intends to apply for a listing of the preference shares at NASDAQ OMX Stockholm First North within one month from the issue of preference shares.
• Today’s extraordinary general meeting in Ferronordic Machines also resolved on a share split, to authorize the board of directors to resolve on the issue of preference shares and to pay dividends on the preference shares.

«Since the start of Ferronordic Machines’ operations in 2010 our sales, profits and number of outlets have developed strongly. With further interesting growth opportunities ahead that are in line with our strategy, the shareholders of the Company decided earlier today to issue preference shares in order to give investors the opportunity to be part of our continued journey and, at the same time, improve our financial flexibility. The preference shares to be issued are exchangeable into ordinary shares at a later stock market listing. The proceeds from the transaction will be used to create financial flexibility to grow the operations of the Company further and to repay our outstanding bond issued back in 2011. The board of directors has also decided to investigate a potential listing of Ferronordic Machines’ on NASDAQ OMX Stockholm with an aim to list the ordinary shares in 2014. The reason for the future listing is to raise additional growth capital for the Company», said Lars Corneliusson, CEO of Ferronordic Machines group

BACKGROUND AND REASONS

Ferronordic Machines is the authorized dealer of Volvo Construction Equipment in Russia. The Company began its operations in June 2010 and has expanded rapidly across Russia and today is well established in all seven federal districts with 75 outlets and over 700 employees. In addition to distributing and providing aftermarket support to Volvo Construction Equipment machines, the Company has also been appointed aftermarket dealer for Volvo Trucks as well as dealer for Volvo Penta in certain parts of Russia. The Company has also signed up some other high quality brands such as LogSet and several attachment manufacturers. The vision of the Company is to be regarded as the leading service- and sales company in the CIS markets.

Since established, Ferronordic Machines has shown a strong development. Sales have increased from EUR 127 million in 2010 (annualized) to EUR 285 million on a last twelve month basis per June 2013. During the same period EBITDA has increased from negative EUR 2.3 million (annualized) to EUR 16 million. Number of outlets has increased from 12 in the end of 2010 to 75 as of September 2013. In June 2011, the Company issued a bond partly to finance this expansion and partly to repay a shareholder loan.

In order to increase financial flexibility and let investors take advantage of further interesting opportunities in line with the Company’s strategy, shareholders in Ferronordic Machines resolved at an extraordinary general meeting earlier today on a preference share issue aimed at raising SEK 400 million. The preference shares are issued with a possibility to exchange into ordinary shares in connection with a potential future IPO of the Company. The preference shares will also constitute a new share class. In parallel to the proposed preference share issue, the Company is in discussions to raise new debt financing.

The board of directors of the Company has also decided to investigate a potential listing of Ferronordic Machines’ ordinary shares on NASDAQ OMX Stockholm with a targeted listing during 2014. The reason for the future listing of the ordinary shares is to raise additional growth capital for the Company and to broaden its shareholder base.

THE OFFER IN BRIEF

General
The intended number of preference shares in the offer is 400,000 at a subscription price of SEK 1,000 per preference share (the «Issue»), corresponding to an amount of SEK 400 million, during the application period from 9 October until and including 24 October 2013. The issue is up to a maximum of 500,000 preference shares, however the board reserves the right to proceed with the offer at a level with fewer number of preference shares subscribed for (the «Offer»).

Application period
9 October until and including 24 October 2013. Ferronordic Machines reserves the right to extend the application period or to end the application period earlier

Minimum subscription
The subscription price in the offer is SEK 1,000 per preference share. The minimum subscription is 1,000 preference shares corresponding to a subscription price of SEK 1,000,000 (for the avoidance of doubt the minimum subscription shall always exceed EUR 100,000).

Current bondholders under the 2011/2014 bond loan are offered to use their bonds as payment for preference shares. If a bondholder wishes to accept this offer, one bond (with a nominal amount of SEK 1 million) would be exchanged into 1,020 preference shares corresponding to the early redemption amount in the bond terms (accrued interest up until and including the settlement day will be paid in cash by Ferronordic Machines).

Allocation and settlement day
Allocation of preference shares will be made on the basis of demand and will be decided by the Company’s board of directors in consultation with Carnegie, whereby the objective will be to achieve a good investor base.

THE PREFERENCE SHARES WITH CONVERSION RIGHT IN BRIEF

Subscription price and preference dividend
The subscription price is SEK 1,000 per preference share. The annual preference dividend is SEK 100 (semi-annual payments of SEK 50, corresponding to an annual effective yield of 10.25%).

Dividend step-up
As of the first record date after the annual general meeting in 2016, the dividend amount will increase by SEK 10 per annum until the shares are either redeemed or until and including the first record date after the annual general meeting in 2023.

Failure to distribute dividends
If no dividends or dividends of less than SEK 50 per preference share and half-year are paid , any unpaid portion of the dividends will be added to other unpaid dividends (the «Outstanding Amount»). The Outstanding Amount shall be adjusted upwards by a rate equivalent to an annual interest rate of 20%. Adjustment shall be made from the semi-annually payment date until full dividends are received by the holders of preference shares. No dividend may be made to the holders of ordinary shares before the holders of preference shares have received full payment of any Outstanding Amount.

Voting right
Each preference share carries a one tenth (1/10) voting right.

Redemption
Conversion right:
In connection with, or subsequent to, a possible IPO of the Company’s ordinary shares the preference shareholders have the possibility to exchange the preference shares into ordinary shares.

Each preference share will entitle its holder to subscribe for an amount of ordinary shares of series 2 corresponding to SEK 575 divided by 50% of the price per each ordinary share offered in the IPO. The conversion right is combined with a lock-up period of up to three months after which the ordinary shares of series 2 will be converted into ordinary shares. The ordinary shares of series 2 have the same rights as ordinary shares in Ferronordic Machines. An exchange into ordinary shares at these terms implies a discount to the IPO share price of approximately 13% (excluding compensation for accrued dividend and Outstanding Amount, if any).

After 25 October 2014, the amount used for exchange into ordinary shares of series 2 will start to increase by SEK 5 per month until 25 January 2016 when the value to be used in an exchange into ordinary shares would equal SEK 650. An exchange into ordinary shares at SEK 650 would imply a discount to the share price in the IPO of approximately 23% (excluding compensation for accrued dividend and outstanding preference dividend, if any).

There are no guarantees that the ordinary shares will be listed or that Ferronordic Machines will, or will be able to, implement the conversion right as it requires a resolution on a directed issue of ordinary shares of series 2 to the preference shareholders who wish to utilize the conversion right. Furthermore, a resolution to redeem shares is conditional upon that Ferronordic Machines has sufficient unrestricted equity. However, more than two thirds of the current shareholders of Ferronordic Machines have undertaken to represent their shares and vote in favor of necessary resolutions to implement the conversion right.

Cash redemption:
In the event that a preference shareholder does not wish to participate in the exchange offer, the Company has the right, at its sole discretion, to redeem the relevant preference shares at a later stage at SEK 1,050 (excluding compensation for accrued dividend and Outstanding Amount, if any) up until 25 October 2014, after which the redemption premium will increase by SEK 10 every month up until 25 January 2016 when the redemption price will be fixed at SEK 1,200 (excluding compensation for accrued dividend and Outstanding Amount).

Liquidation
The preference shares have priority over ordinary shares to an amount per preference share of SEK 1,200 (plus accrued dividend and Outstanding Amount, if any).

Listing
The Company intends to apply for a listing of the preference shares at NASDAQ OMX Stockholm First North within one month from the issue of preference shares.

Miscellaneous
The terms of the preference shares will be governed by Ferronordic Machines’ Articles of Association. Amendments to the terms and conditions of the preference shares require (i) a resolution by the general meeting supported by at least two-thirds of the votes cast and the shares represented at the general meeting, and (ii) that the owners of at least half of the total amount of outstanding preference shares and nine-tenths of the preference shares represented at the general meeting agree to such amendments.

PRELIMINARY SCHEDULE

9 October: Application period starts
24 October: Application period ends at 15.00 CET
25 October: Announcement of the outcome of the offer
30 October: Settlement day

INVITATION TO LUNCH PRESENTATION WITH MANAGEMENT

In connection with the Offer you are invited for a lunch meeting with management on 14 October 2013 at 12.00 hours at Carnegie’s offices, Regeringsgatan 56 in Stockholm. For registration please email credit@carnegie.se or call Carnegie at +46 8 5886 89 05.

ADDITIONAL EGM RESOLUTIONS

The extraordinary general meeting in Ferronordic Machines held earlier today also resolved on a 100:1 share split where each 1 existing share will be split into 100 shares. The record date for the share split is 16 October 2013. Furthermore, it was resolved to pay dividends of SEK 50 per preference share with record date 25 April 2014. The total amount of dividends shall not exceed EUR 3.5 million. Finally, the extraordinary general meeting resolved to authorize the board of directors to, during the period up until and including 31 December 2013, resolve upon a new issue of preference shares, with or without deviation from the shareholders’ preferential rights. The maximum number of preference shares that can be issued, by virtue of the authorization, shall not exceed the number of shares that can be issued in the preference share issue resolved upon by the extraordinary general meeting.

FINANCIAL AND LEGAL ADVISORS

Carnegie is financial advisor to Ferronordic Machines. Gernandt & Danielsson Advokatbyrå KB is legal advisor to Ferronordic Machines and Carnegie.

FOR FURTHER INFORMATION PLEASE CONTACT

Lars Corneliusson, CEO, Ferronordic Machines group Tel: +7 985 76 32738
Anders Blomqvist, CFO, Ferronordic Machines group, Tel: +46 70 7766 485
or e-mail pr@ferronordic.ru

Also visit www.ferronordic.ru

The information above has been made public in accordance with the Securities Market Act and/or the Financial Instruments Trading Act. The information was published at 08.30 (CET) on 9 October 2013.

IMPORTANT INFORMATION

This press release is not an offering to subscribe for shares in Ferronordic Machines. A prospectus for the share issue presented in this press release will not be published or registered with the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) or any other regulatory authority as the minimum subscription in the issue is SEK 1,000,000 (for the avoidance of doubt the minimum subscription shall always exceed EUR 100,000).

The distribution of this press release may in certain jurisdictions be subject to legal restrictions, and persons who gain access to it, or part of it, should become acquainted with and comply with such legal restrictions. The information in this press release shall not constitute an offering to sell shares or encouragement to buy shares; neither shall there be any sale of the securities referred to herein in any jurisdiction in which such an offering, or encouragement to buy or sell, would require the production of prospectuses or any other offering documents, or would not be legal without registration or applicable exemptions from registration pursuant to securities legislation in such jurisdictions.

This press release neither constitutes nor represents part of an offering or encouragement of an offering to buy or subscribe for shares pursuant to the US Securities Act of 1933 («Securities Act»), and the share may not be offered or sold in the US without registration in accordance with the Securities Act or exemptions related to it. The securities noted herein are not offered to the public in the US. Copies of this press release will not be made and it may not be distributed or sent, wholly or in part, directly or indirectly to the United States, Australia, Canada, Hong Kong or Japan, New Zealand, Switzerland, Singapore or South Africa.

Carnegie Investment Bank is acting on behalf of the Company and for no other party in connection with the share issue and will not be liable to any party for the provision of advice in connection with the share issue and/or any other matter to which reference is made in this publication.

Carnegie Investment Bank does not accept any responsibility whatsoever and does not provide any representation, warranty, pledge or guarantee, either explicitly or implicitly, regarding the content of this publication, including its accuracy, its comprehensiveness or its verification, or for any statement that has been made or is intended to be made in connection with the Company and the new shares, or share issue, and nothing in this publication is or shall be relied upon as an undertaking or commitment in this respect, irrespective of the future or the past. In accordance herewith, Carnegie Investment Bank completely disclaims liability to the extent permitted by law, as well as all liability, regardless of whether it pertains to damages, agreements or any other matter that it would otherwise have had in respect of this publication or any such statement.

This press release has not been approved by any authority. This press release is not a prospectus and investors should not subscribe for or purchase securities based only on the information herein. The Company’s articles of association, which will be registered with the Swedish Companies Registration Office within short and are available at the Company, should be reviewed for a full understanding of the terms and conditions for the preference shares and the conversion right.

This press release contains forward-looking statements that reflect executive management’s current view of future events and potential financial development. While the Company believes that the expectations described in such statements are reasonable, there is no guarantee that these forward-looking statements will be realized or prove correct. Thus, as a result of various factors, the outcome could differ markedly from that stated in forward-looking statements. You are urged to read this press release and the Company’s articles of association and other investment presentations for a further discussion of the factors that could affect Ferronordic Machines’ future performance and the industries within which the Company is active. In the light of these risks, uncertainties and assumptions, it is possible that the events described in the forward-looking statements in this publication will not transpire.

1 The issuer can only pay dividend in accordance with the provisions of the Swedish Companies Act (Sw. aktiebolagslagen (2005:551)). This implies i.a. that Ferronordic Machines must have enough unrestricted equity and that the shareholders’ meeting resolves on a dividend.
2 Technically this will be accomplished by using B-preference share and ordinary shares of series 2. In the event of an IPO each preference share may be converted into a B-preference share upon the shareholders request. Subsequently each B-preference share should be redeemed; and the compensation for the share redemption may only be used to subscribe for ordinary shares of series 2 in a share issue directed to the shareholders whose B-preference shares were redeemed. The ordinary shares of series 2 will then be converted into ordinary shares within three months from the first day of trading of the Company’s ordinary shares at NASDAQ OMX Stockholm or another regulated market. The Company’s articles of association, which will be registered with the Swedish Companies Registration Office within short and are available at the Company, should be reviewed for a full understanding of the terms and conditions for the preference shares and the conversion right.