Information Memorandum

Transcription

1 Information Memorandum Information memorandum regarding the demerger of Aktieselskabet Borgestad ASA, whereby Borgestad Industries ASA takes over the industry businesses of Aktieselskabet Borgestad ASA Manager 8. May 2008

2 Important Notice This Information Memorandum has been prepared in connection with the demerger of Borgestad Industries ASA ( Borgestad Industries ) from Aktieselskabet Borgestad ASA ( Borgestad or The Company ). The Information Memorandum has been prepared solely in the English language. The Company has furnished the information in this Information Memorandum. The Managers make no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Information Memorandum is, or shall be relied upon as, a promise or representation by the Managers. All inquiries relating to this Information Memorandum should be directed to the Company or the Managers. No other person has been authorised to give any information about, or make any representation on behalf of, the Company in connection with the demerger. If given or made, such other information or representation must not be relied upon as having been authorised by the Company or the Managers. The information contained herein is as of the date hereof and subject to change, completion and amendment without notice. In accordance with section 7-15 of the Norwegian Securities Trading Act, every significant new factor, material mistake, or inaccuracy relating to the information included in the Information Memorandum, which is capable of affecting the assessment of the Shares between the time when the Information Memorandum is approved and the completion of the demerger, will be included in a supplement to the Information Memorandum. Neither the publication nor distribution of this Information Memorandum or any sale made hereunder shall under any circumstances create any implication that the information herein is correct as of any date subsequent to the date of the Information Memorandum. In the ordinary course of their respective businesses, the Managers and certain of their affiliates have engaged, and may continue to engage, in investment and commercial banking transactions with the Company. The contents of this Information Memorandum are not to be construed as legal, business or tax advice. Each reader of this Information Memorandum should consult with its own legal, business or tax adviser as to legal, business or tax advice. If you are in any doubt about the contents of this Information Memorandum you should consult your stockbroker, bank manager, lawyer, accountant or other professional adviser. The distribution of this Information Memorandum in certain jurisdictions may be restricted by law. The Company and the Managers require persons in possession of this Information Memorandum to inform them about and to observe any such restrictions. This Information Memorandum is subject to Norwegian law. Any dispute arising in respect of or in connection with the Offering or this Information Memorandum is subject to the exclusive jurisdiction of the Norwegian courts with Oslo District Court as the legal venue. Cautionary Note Regarding Forward-Looking Statements Certain statements in this Information Memorandum are forward-looking. Such forward-looking statements and information are based on the beliefs of the Company s management or assumptions based on information available to the Company. When used in this document, the words anticipate, believe, estimate and expect and similar expressions, as they relate to the Company or its management, are intended to identify forwardlooking statements. Such forward-looking statements reflect the current views of the Company or its management with respect to future events and are subject to certain risks, uncertainties and assumptions. The Company can give no assurance as to the correctness of such forward-looking statements. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, risks or uncertainties associated with the Company s products, technological development, growth management, relations with customers and, more generally, general economic and business conditions, changes in domestic and foreign laws and regulations (including those of the European Union), taxes, changes in competition and pricing environments, and other factors referenced in this document. Some of these factors are discussed in more detail under Section 2 Risk Factors. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document as anticipated, believed, estimated or expected. Except as required by applicable law, the Company does not intend, and does not assume any obligation, to update the forward-looking statements included in this Information Memorandum as at the date hereof.

3 Table of contents 1 Summary Risk Factors Statement from the Board of Directors of Borgestad Third party information The Demerger of Borgestad Industries Information about Aktieselskabet Borgestad ASA Financial Information Pro forma financial information, Borgestad after the Demerger Borgestad Industries after the Demerger Documents on display Tax matters Definitions and glossary of terms List of Appendices

4 1 SUMMARY This summary provides a brief description of Borgestad and Borgestad Industries. Investors are advised that (a) it should be read as an introduction to the Information Memorandum; (b) any decision to invest in the shares issued by Borgestad or on how to assess the proposed demerger should be based on consideration of the Information Memorandum as a whole by the investor; (c) where a claim in relation to the information contained in the Information Memorandum is brought before a court, the plaintiff investor might have to bear the costs of translation of the Information Memorandum before the legal proceedings are initiated; and (d) civil liability attaches to those persons who have tabled the summary, including any translation thereof, and applied for its notification, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Information Memorandum. 1.1 The Proposed Demerger of Borgestad Industries The Boards of Directors of Aktieselskabet Borgestad ASA and Borgestad Industries ASA have entered into a Demerger Plan dated 10 April 2008, with Borgestad Industries as the acquiring company. The Demerger Plan will be presented to the shareholders of Aktieselskabet Borgestad and the shareholders of Borgestad Industries for their approval at the General Meetings to be held in June Borgestad is currently operating within the following business-segments: real-estate, shipping and industry. The demerger process is carried out such that the industry business is demerged from Borgestad with Borgestad Industries as the recipient company, according to Norwegian Public Limited Liability Companies Act chapter 14, where existing shareholders in Borgestad receive compensation in form of shares in Borgestad Industries Conditions to the Demerger Borgestad Industries prerequisite for the demerger to take place is that it will be listed on Oslo Axess. The parties goal is that the formal demerger will take place on or about the same day as Borgestad Industries first day of listing on Oslo Axess Reasons for the Demerger Borgestad is demerging its industry business by transferring it to Borgestad Industries. The reason for such a transaction is that the members of the board wish to refine the company structure by establishing an independent company that has its main focus within the industry segment, while the remaining part of Borgestad continues its focus on real estate and shipping. Such a structure will benefit investors with an increased opportunity to focus their investments instead of investing in a conglomeration of companies. This will also increase transparency and potentially enhance values in the two companies. 1.3 Share capital and compensation The process of demerging the companies is carried out according to the Norwegian Public Limited Liability Companies Act chapter 14. In detail, it will be carried out by transferring the industry business and its assets and debts to an existing limited liability company, Borgestad Industries, while the remaining assets and debts and the connected businesses will stay with Borgestad. Borgestad Industries is valued at NOK 147 million and the remaining businesses of Borgestad after the demerger is valued at NOK 470 million. A reduction of the share capital of Borgestad will take place as part of the demerger process. Borgestad s share capital will be reduced with NOK from NOK to NOK by reducing the face value of each share with NOK from NOK 10 to NOK On completion of the demerger process, a share capital increase of NOK by issuance of new shares in Borgestad Industries will be undertaken. The shares in Borgestad Industries issued in the process of the 4

5 share capital increase will be split between the shareholders of Borgestad in the same ratio as they currently hold shares in Borgestad. Compensation for reduced face value per share in Borgestad, in connection with the demerger process, will be given in its entirety by the delivery of shares in Borgestad Industries. The shareholders of Borgestad will receive a total of shares in Borgestad Industries, each with a face value of NOK Description of Borgestad subsequent to the Demerger Borgestad, subsequent to the Demerger, will have a strong financial and strategic platform, and the Demerger will enable Borgestad to further sharpen its focus on its real-estate and shipping activities. The operations will be divided into the said two main markets. For a further description of the business of Borgestad, please refer to section 6 in this Information Memorandum Board of Directors, Senior Management and Employees Board of Directors The Board of Directors of Borgestad subsequent to the Demerger will be the same as of today. The board members are: Bertel O. Steen jr. (chairman), Live Haukvik Aker, Gudmund Bratrud, Sissel Grefsrud and Sverre Stavseth. In addition, Niels C. Møller is deputy member of the Board of Directors. For further information, please see section Management Christen Knudsen continues as managing director of Borgestad, and Geir Vala will continue as chief financial officer. For further information, please see section Employees Borgestad, subsequent to the Demerger, will employ approximately 17 employees, including employees in affiliated companies Advisors and Auditors Financial advisor The financial advisor to Borgestad in connection with the Demerger is Orion Securities ASA, Rådhusgaten 25, P.O. Box 236 Sentrum, 0103 Oslo, Norway. Legal counsel Borgestad s legal counsel in Norway is Thommessen Krefting Greve Lund AS Advokatfirma. Auditor Borgestad s auditor is Ernst & Young AS, Porsgrunn, Norway. For further information, please see section Description of Borgestad Industries Borgestad Industries is currently a fully owned subsidiary of Borgestad, with a share capital of NOK divided on shares each with a face value of NOK The equity of Borgestad Industries is NOK The company is currently not involved in any operations. In the Demerger, Borgestad Industries will acquire the industry business of Borgestad, and will subsequently; through the operation of its acquired subsidiaries have a strong position in the segments of refractory products, systems and productivity-boosting accessories for several key manufacturing industries. For a further description of the business of Borgestad, please refer to section 6 and 9. 5

6 1.5.1 Board of Directors, Senior Management and Employees Board of Directors The Board of Directors of Borgestad Industries subsequent to the Demerger will consist of 3-7 members elected by the shareholders. The current members of the Board of Directors are: Christen Knudsen (chairman), Reidar Huglen and Hedda Foss Five. For further information, please see section Management Egil Friestad is managing director of Borgestad Industries. For further information, please see section Employees Borgestad Industries, subsequent to the Demerger, will employ approximately 179 employees, including employees in affiliated companies. 1.6 Selected financial information The selected financial data set forth in this Information Memorandum should be read in conjunction with the relevant consolidated financial statements and the notes to those statements which are attached to the demerger Plan and which may be inspected at Borgestad s website or be obtained, free of charge at the offices of Borgestad. The selected financial information data presented in this section was derived from the audited financial statements as of and for the 3 years ended 31 December 2005, 2006 and For more detailed financial information see chapter NOK 1000 IFRS IFRS IFRS Net operating income Operating result Profit before taxes Result Total fixed assets Total current assets TOTAL ASSETS Total equity Total non-current liabilities Total current liabilities TOTAL LIABILITIES AND EQUITY

7 1.7 Selected unaudited Pro Forma Financial Information The table below shows the unaudited preliminary condensed pro forma income statement and the unaudited condense pro forma balance sheet as of 31 December Please refer to chapter 8 for a description of the proforma adjustments. Borgestad Pro forma Borgestad Industries Pro forma Borgestad group Group Adjustments Group NOK 1000 Historical Unaudited Unaudited Unaudited Net operating income Operating result (7 106) Profit before taxes (904) Result (651) Total fixed assets Total current assets TOTAL ASSETS Total equity Total non- current liabilities Total current liabilities TOTAL LIABILITIES AND EQUITY Expected timetable for implementation of the Demerger An overview of the time table for the Demerger is set out below: 5 June 2008: Shareholder meetings of Borgestad and Borgestad Industries approve the Demerger. 10 August 2008: Creditor notice period for the demerger expires. 27 August 2008: Listing application for Borgestad Industries on Oslo Axess approved. Approx 30 September 2008: Approx 30 September 2008: Completion of the Demerger and delivery of shares in Borgestad Industries to shareholders of Borgestad as consideration in the Demerger. First day of listing of the shares of Borgestad Industries on Oslo Axess. 1.9 Summary of risk factors Please revert to section 2 Risks Factors below for relevant risk factors, summarised in the following: Competition Investments in the production of refractory products, charmotte, alumina bricks etc Commercialisation of new technology Dependency on key customers and suppliers Dependency on key personnel Wages and difficulties in recruiting Regulatory risks 7

8 Variability of operating results Uncertainty of future contract awards Operational accidents and hazards Disruption of business operations due to strikes or labour union problems Legal claims/legal matters Access to financial funding Financial risks Currency risks Interest risk Cost and organisational control Price volatility of public traded securities Control by major shareholder Nominee accounts and voting rights Project planning Risk associated with costs overruns on projects The level of activity Strategic choices Management execution Liquidity risk Credit risk 1.10 Documents on display The following documents (or copies thereof) may for the life of the Information Memorandum be inspected at or at the business address of Borgestad and Borgestad Industries: The Demerger Plan dated Borgestad s Articles of Association Borgestad Industries Articles of Association Borgestad Articles of Incorporation All other reports, letters and other documents, historical financial information, valuations and statements prepared by any expert at Borgestad s request, any part of which is included or referred to in this Information Memorandum. 8

9 2 RISK FACTORS A number of risk factors may adversely affect either Borgestad or Borgestad Industries. These risk factors include financial risks, technical risks, risks related to the business operations of the Company, environmental and regulatory risks. If any of these risks or uncertainties actually occurs, the business, operating results and financial condition of the company affected could be materially and adversely. The risks presented in this Information Memorandum are not exhaustive, and other risks not discussed herein may also adversely affect the companies. Prospective investors should consider carefully the information contained in this Information Memorandum and make an independent evaluation before making an investment decision. Included in this Information Memorandum are various forward-looking statements, including statements regarding the intent, opinion, belief or current expectations of Borgestad and Borgestad Industries or their management with respect to, among other things, (i) the companies' target market, (ii) evaluation of the companies' markets, competition and competitive position, (iii) trends which may be expressed or implied by financial or other information or statements contained herein. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance and outcomes to be materially different from any future results, performance or outcomes expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the risk factors described below and elsewhere in this Information Memorandum. 2.1 Risk factors relating to the de-merged activity and Borgestad Industries Industry related risk factors Investments in the market segment in which Borgestad Industries operates A continuing need for refractory products for the aluminium, ferro-alloy, foundry and cement industries is widely anticipated. Similarly, the need for fireclay, high-alumina bricks, monolithics, mortars, insulation material and anchors is also expected to remain high. However, the demand for such products is to a large extent dependent upon general economic development. If the expected level of demand for the relevant products fails to materialise or is delayed for a significant period of time either due to less favourable general economic conditions or for any other reason this could have an adverse effect on Borgestad Industries and other industry participants business, operating results or financial conditions Competition There is significant competition in all of the business segments in which Borgestad Industries operates. Within many of the activities that Borgestad Industries is involved in, contracts are awarded on a competitive bid basis, and price competition is often the principal factor in determining which supplier bid is successful. The entrance of low cost providers, especially from Eastern Europe and Asia may influence the Nordic market and lead to further competition. Some of the companies, either those already in the market or those entering the industry, may also have greater resources than Borgestad Industries, and the failure to maintain a competitive service offering could have a material adverse effect on Borgestad Industries business, operating results or financial condition Commercialisation of new technology Borgestad Industries future performance will depend on the successful development, introduction and market acceptance of existing and new products that address customer requirements in a cost effective manner. If Borgestad Industries does not expand or enhance its product range or respond effectively to technological change, 9

10 its business may not grow. The introduction of new products, market acceptance of products based on new or alternative technologies, or the emergence of new industry standards could render Borgestad Industries existing products obsolete or make it easier for other products to compete with its products Dependence on key customers and suppliers Dependence on key customers and suppliers may have a material adverse effect on the Company s business if the demand and/or supply of products to these customers/suppliers are reduced by any substantial amount. In 2007, over 50% of the total volume of products sold came from strategic partners such as Mangesita SA and Calderys. The contract with Calderys expires in 2011, and the contract with Magnesita has a mutual 3 months termination period Dependence on key personnel Borgestad Industries future growth and success is to a large extent dependent on the ability to attract and retain highly skilled technical, managerial and marketing personnel. Key personnel in the company may possess specialised knowledge within one or several of the business areas of the company and the potential loss of these individuals may have an adverse effect on the company s business, financial results and the general market outlook. If Borgestad Industries should encounter difficulties in replacing any such personnel, this may also have a negative impact Wages and difficulties in recruiting The low unemployment rate in Norway and Sweden combined the need for skilled personnel could result in recruitment challenges for Borgestad Industries. The lack of an adequately skilled workforce may increase wage costs, reduce productivity and profitability, and thereby affect the financial results and development of the company Regulatory risks Borgestad Industries is subject to numerous environmental, health and safety regulations. The company has satisfactory routines for complying with these requirements, but failure to comply with these regulations may result in sanctions and could have an adverse effect on the business. Company specific risk factors Variability of operating results Borgestad Industries operating results can fluctuate from quarter to quarter. The company s operating income is difficult to forecast due to changes in customer budgets and expenditures, seasonality, the competitive environment and other general economic and market conditions. Unanticipated difficulties in pursuing the company s business strategy as described herein could have a material adverse effect on the company s business, operating result or financial condition Uncertainty of future contracts Borgestad Industries future performance depends, among other factors, on whether and when it will receive new contracts and orders. New contracts and placement of orders are often affected by events outside the company s control. Because of this uncertainty, effective utilisation of the workforce is a critical factor in achieving satisfactory profit margins. Difficulties in workforce management and loss of expected purchase orders may adversely affect the company s operations and financial condition. 10

11 Operational accidents and hazards Borgestad Industries operations are subject to the usual hazards inherent in the industry, such as the risk of equipment failure, work accidents or fire. These hazards can cause personal injury and loss of life, business interruption, property and equipment damage, pollution and environmental damage. The company may be subject to claims as a result of these hazards, and may also be subject to claims resulting from the subsequent products it has delivered. The company s policy of covering these risks through contractual limitations of liability and indemnities and through insurance may not always be effective. Failure to cover the company adequately against industry risks for any of these reasons could expose the company to costs and potentially lead to material losses. Additionally, the occurrence of any of these risks could damage the company s reputation Disruption of business operations due to strikes or labour union problems Borgestad Industries is subject to the risk of labour disputes and adverse employee relations. Such disputes and adverse relations may disrupt business operations and adversely affect operating results and financial conditions Legal claims / legal matters In the ordinary course of business activities, Borgestad Industries is involved from time to time in legal disputes. Such disputes may disrupt business operations and adversely affect operating results and financial conditions Access to financial funding Borgestad Industries may require additional capital in the future, due to unforeseen liabilities or in order for it to take advantage of opportunities for acquisitions, joint ventures or other business opportunities that may be presented to it. Further, negative development of sales or gross margin may lead to a strained liquidity position and a need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders. There can be no assurance that the company will be able to obtain necessary funding in a timely manner and on acceptable terms. Should the contemplated financing of the Company not be sufficient to meet the company s need, it may be forced to reduce or delay capital expenditure or research and development expenditure or to sell assets or businesses at unanticipated times and/or at unfavourable prices or other terms, or to seek additional equity capital or to restructure or refinance its debt. There can be no assurance that such measures will be successful or will be adequate to meet debt and other obligations as they arise, or that they will not result in the company being placed in a less competitive position Financial risks Borgestad Industries is exposed to various financial risks in its business. Financial risk is the risk that changes in currency rates, interest rates, transportation costs and oil prices will affect the value of the company s assets, obligations and future cash flows. To control and reduce these risks, management periodically seeks to evaluate the company s most important financial risks. When a risk factor is identified, measures are taken to reduce the given risk. When appropriate, the main strategy for reducing risk is through the use of derivatives. Derivatives are used periodically to ensure that different net exposures within the company are kept in balance, as well as securing specific exposures. If it is found that the use of derivatives is suitable for the given purpose, only well-known and conventional derivative instruments are used. It is part of management s strategy only to enter into agreements with acknowledged financial institutions. The company will only use derivatives with the purpose of controlling risk connected to the development of interest levels and exchange rates. The company does not use financial derivatives to achieve financial profit linked to fluctuations in interest rates. 11

12 The company is exposed to a currency risk through its production, purchases and sales in different countries. The most common currencies it deals with are SEK, EUR and NOK. The company is exposed to interest rate risk through its financial activities. The company has funds placed in bank accounts and its financing consists of long-term interest-bearing debt. As of 31 December 2007, the company had fixed interest rates neither for its bank deposits nor its loans Cost and organisational control Cost and organisational control are key issues in a period of strong growth. Growth increases the risk of higher cost increases than were assumed, as well as organisational disruption. Growth also requires development of administrative systems and routines. Risk factors relating to the shares Price volatility of publicly traded securities The trading price of the shares could fluctuate significantly in response to variations in operating results, adverse business developments, interest rates, changes in financial estimates by securities analysts, matters announced in respect of major customers or competitors, or changes to the regulatory environment in which the company operates. The market price of the shares could decline due to sales of a large number of the shares in the market or the perception that such sales could occur. Such sales could also make it difficult for the company to offer equity securities in the future at a time and at a price that are deemed appropriate Control by major shareholder After the completion of the demerger, Christen Knudsen is expected, on a consolidated basis, to hold approximately 40% of the shares in Borgestad Industries. Accordingly, Christen Knudsen will have the ability to influence matters submitted for shareholder vote, including electing members to the board of directors, approval of annual financial statements, declarations of dividends and capital increases in connection with acquisitions, investments or otherwise. As long as Christen Knudsen controls more than 1/3 of the shares and votes, he will have a veto control in all matters requiring a vote of 2/3 or more, such as share capital increases, mergers, demergers, the issuances of warrants or convertible loans and all matters requiring an amendment to the company s Articles of Association. The interests of Christen Knudsen in deciding the matters and factors he considers in exercising his votes could be different from the interests of the company s other shareholders Nominee accounts and voting rights Beneficial owners of the shares that are registered in a nominee account (e.g. through brokers, dealers or other third parties) may not be able to vote for such shares unless their ownership is re-registered in their names with the VPS prior to the company s general meetings. The company cannot guarantee that beneficial owners of the shares will receive notice of a general meeting in time to instruct their nominees to either affect a re-registration of their shares or otherwise vote for their shares in the manner desired by such beneficial owners. 2.2 Risk factors relating to real estate, shipping activity and Aktieselskabet Borgestad ASA Industry related risk factors in connection with real estate business Project planning Planning and developing new real estate projects that are attractive to customers requires highly skilled and qualified personnel. There can be no assurance that in the future, Borgestad will successfully develop projects which are seen as sufficiently attractive to customers to achieve a price required to secure the necessary project profitability for the Company. 12

13 2.2.2 Risks associated with cost overruns on projects Real estate projects employ the services of external building contractors and service providers. The majority of contractors work on a fixed price basis and Borgestad uses established contractors with a long track record for its projects. However, such projects may be exposed to cost overruns as a result of contractors experiencing financial difficulties, changes in plans or additional work outside the scope originally agreed. Industry related risk factors in connection with the shipping business The level of activity Borgestad s shipping business currently only consists of management assignments on behalf of ship owners. This activity is exposed the credit worthiness of its customers which again is linked specifically to charterers financial position and generally to fluctuations in the general economy. These factors may affect the Company s performance directly through the lack of payment by its customers or indirectly through changes in demand or supply of its management services. The demand for tonnage is closely related to the general economic outlook. Any changes in the future demand of the Company s services may have an adverse effect on the Company s business, operational results and financial condition. Company specific risk factors Competition and strategic choices Borgestad s competitors will always be a possible threat to the Company s performance. The competitive situation means that strict requirements are set with respect to the Company s Board and Management and the long term strategic choices made. The Board and Management s competence and ability to make the correct strategic choices may have a significant effect on the Company s future financial performance and position. Competitors of the Company may have greater financial, personnel, technical, marketing and other resources than the Company. As a result, they may be able to react more quickly to changes in the general market in which the Company operates and to changes in customer requirements. If the Company does not maintain its competitiveness through the strategic choices made by the board or by the management of its products, this could have a material adverse effect on the Company s business, operational results and financial condition Management and strategy The planned growth in revenues and profits is partly dependent on management s successful execution of the Company s strategy and plans. There is a risk that management may not succeed in implementing the Company s strategy and plans, and consequently may not deliver the expected revenues and profits. The completion of the demerger is subject to certain conditions, including, but not limited to, approval of the demerger by the General Meeting of Borgestad. There can be no assurance that such conditions will be satisfied, and if they are not, the demerger may not be completed. If the demerger is not completed, the failed demerger process will have resulted in costs, time consumption and decisions that may not have occurred if the process had not started. The share price may also be affected if the demerger fails. Moreover, the announcement of the intention to demerge and the subsequent process and flow of information, may also affect the share price. 2.3 Financial risks The Company is exposed to various financial risks in its business. Financial risk is the risk that changes in currency rates and interest rates will affect the value of the company s assets, obligations and future cash flows. To control and reduce this risk, management periodically seeks to evaluate the Company s most important financial risks. When a risk factor is identified, measures are taken to reduce the given risk. When appropriate, the main strategy for reducing risk is through the use of derivatives. Derivatives are used periodically to ensure different net exposures within the Company are kept in balance, as well as securing specific exposures. If it is found 13

14 that the use of derivatives is suitable for the given purpose, only well-known and conventional derivative instruments are used. It is part of management s strategy only to enter into agreements with acknowledged financial institutions. The company will only use derivatives with the purpose of controlling risk connected to the development of interest levels and exchange rates. The company does not use financial derivatives to achieve financial profit linked to the fluctuations in interest rates Liquidity risk Liquidity risk is the risk that Borgestad s group of companies will not be capable of fulfilling their financial obligations as they expire. The strategy of handling liquidity risk is to, at all times, have enough liquidity to be able to fulfil financial obligations on their expiry date, both under normal and extraordinary circumstances, without the risk of achieving unacceptable losses or at the expense of the reputation of the Company. Surplus liquidity is generally invested in listed stocks and certificates and bonds, in addition to bank deposits Credit risk Borgestad s group of companies will seek only enter into business transactions with approved, creditworthy entities. All parties that receive credit from Borgestad s group of companies e.g. its customers must be approved and submitted for a credit evaluation. Borgestad s group of companies has no substantial credit risk connected to any entities that may be regarded as a common group, due to similarities in credit risk. Borgestad s group of companies has internal routines to ensure that sales to customers with previous payment problems and/or customers with excessive outstanding debts are not completed. The maximum risk exposure is represented by the value of the Company s financial assets, including derivatives, as listed in the balance sheet. The party responsible for derivatives trading and for the Company s monetary deposits is a bank, and therefore the associated credit risk is considered very low. Furthermore, Borgestad s pension fund is administered by a Norwegian insurance company and the risk related to the pension fund is also considered minimal. Risk factors relating to the shares Price volatility of publicly traded securities The trading price of the shares could fluctuate significantly in response to variations in operating results, adverse business developments, interest rates, changes in financial estimates by securities analysts, matters announced in respect of major customers or competitors, or changes to the regulatory environment in which the Company operates. The market price of the shares could decline due to sales of a large number of the shares in the market or the perception that such sales could occur. Such sales could also make it difficult for the Company to offer equity securities in the future at a time and at a price that are deemed appropriate Control by major shareholder Similarly to the situation today, Christen Knudsen is expected, on a consolidated basis, after completion of the Demerger to hold approximately 40% of the shares in the Company. Accordingly, Christen Knudsen will have the ability to influence matters submitted for shareholder vote, including electing members to the board of directors, approval of annual financial statements, declarations of dividends and capital increases in connection with acquisitions, investments or otherwise. As long as Christen Knudsen controls more than 1/3 of the shares and votes, he will have a veto control in all matters requiring a vote of 2/3 or more, such as share capital increases, mergers, demergers, the issuances of warrants or convertible loans and all matters requiring an amendment to the Company s Articles of Association. The interests of Christen Knudsen in deciding the matters and factors he considers in exercising his votes could be different from the interests of the Company s other shareholders. 14

15 2.3.5 Nominee accounts and voting rights Beneficial owners of the shares that are registered in a nominee account (e.g. through brokers, dealers or other third parties) may not be able to vote for such shares unless their ownership is re-registered in their names with the VPS prior to the Company s general meetings. The Company cannot guarantee that beneficial owners of the shares will receive notice of a general meeting in time to instruct their nominees to either affect a re-registration of their shares or otherwise vote for their shares in the manner desired by such beneficial owners. 15

16 3 STATEMENT FROM THE BOARD OF DIRECTORS OF BORGESTAD This Information Memorandum has been prepared in connection with the transaction described herein. The Board of Directors of Borgestad is responsible for the information given in this Information Memorandum. The members of the Board of Directors confirm that, having taken all reasonable care to ensure that such is the case, the information contained in this Information Memorandum is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. Skien, Board of Directors of Borgestad: Bertel O. Steen Live Haukvik Aker Gudmund Bratrud Sissel Grefsrud Sverre Stavseth Statement from the Manager Orion Securities ASA acts as Manager to Borgestad in connection with the Transaction. The Information Memorandum has been prepared by the Board of Directors and management of Borgestad, in cooperation with the Manager. The Manager does not, however, make any representation, warranty or undertaking, express or implied, and accepts no responsibility or liability as to the accuracy or the completeness of the information contained in this Information Memorandum or any other information supplied in connection with the Transaction. Oslo, Orion Securities ASA 16

17 4 THIRD PARTY INFORMATION The information in this Information Memorandum that has been sourced from third parties has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. 17

18 5 THE DEMERGER OF BORGESTAD INDUSTRIES The Boards of Directors of Aktieselskabet Borgestad ASA and Borgestad Industries ASA have entered into a Demerger Plan dated 10 April 2008, with Borgestad Industries as the acquiring company. The Demerger Plan will be presented to the shareholders of Aktieselskabet Borgestad and the shareholders of Borgestad Industries for their approval at General Meetings to be held in June The transaction s main content The current business activities of Borgestad, including its subsidiaries, comprise commercial real estate, shipping, and industry. The central activities of the industry business are concentrated in the subsidiary Höganäs Bjuf AB and its subsidiaries. Höganäs Bjuf AB and its subsidiaries will, in their entirety, be transferred to Borgestad Industries during the transaction. The remaining part of Borgestad that is not transferred to Borgestad Industries will continue its remaining business, being primarily commercial real estate and shipping. Borgestad Industries is incorporated with called-up and fully paid share capital of NOK 31.2 million, leaving Borgestad with an ownership share of 17.5% in Borgestad Industries after the Demerger has entered into effect. 5.2 Technical details The demerger process is carried out such that the industry business is demerged from Borgestad with Borgestad Industries as the recipient company, according to Norwegian Public Limited Liability Companies Act chapter 14, where existing shareholders in Borgestad receive compensation in form of shares in Borgestad Industries. Borgestad Industries prerequisite for the demerger to take place is that it will be listed on Oslo Axess. The parties goal is that the formal demerger will take place on the same day as Borgestad Industries first day of listing on Oslo Axess. 5.3 Reasons for the demerger Borgestad is demerging its industry business by transferring it to Borgestad Industries. The reason for such a transaction is that the members of the board wish to refine the company structure by establishing an independent company that has its main focus within the industry segment, while the remaining part of Borgestad continues its focus on real estate and shipping. Such a structure will benefit investors with an increased opportunity to focus their investments instead of investing in a conglomeration of companies. 5.4 Method of demerger and compensation of shares The process of demerging the companies is carried out according to the Norwegian Public Limited Liability Companies Act chapter 14. In detail, it will be carried out by transferring the industry business and its assets and debts to an existing limited liability company, Borgestad Industries, while the remaining assets and debts and the connected businesses will stay with Borgestad. Borgestad Industries is valued at NOK 147 million and the remaining businesses of Borgestad after the demerger is valued at NOK 470 million. A reduction of the share capital of Borgestad will take place as part of the demerger process. Borgestad s share capital will be reduced with NOK from NOK to NOK by reducing the face value of each share with NOK from NOK 10 to NOK On completion of the demerger process, a share capital increase of NOK by issuance of new shares in Borgestad Industries will be undertaken. The shares in Borgestad Industries issued in the process of the share capital increase will be split between the shareholders of Borgestad in the same ratio as they currently hold shares in Borgestad. 18

19 Compensation for reduced face value per share in Borgestad, in connection with the demerger process, will be given in its entirety by the delivery of shares in Borgestad Industries. The shareholders of Borgestad will receive a total of shares in Borgestad Industries, each with a face value of NOK The demerger consideration The demerger consideration has been established by valuation of the demerged parts and the remaining parts of Borgestad. The demerged parts have been valued based on discounted future cash flow, while the remaining parts of Borgestad have been valued based on adjusted balance sheet values. The reason for using different valuation methods is the very different nature of the businesses, which require different valuation methods in order to reach fair real value. The net value of the demerged parts of Borgestad is set at NOK and the net value of the remaining parts of Borgestad, after the demerger, is set at NOK Accordingly, the remaining parts equal 76.18% of the total value of the Company, while the demerged parts equal 23.82% of the total value of the Company. Borgestad s share capital before the demerger is NOK , divided into shares, each with a face value of NOK 10. As a result of the demerger, the share capital of Borgestad will be reduced by NOK by reducing the face value of each share of the Company by NOK to NOK The shares in Borgestad Industries will be brought forward by increasing Borgestad Industries share capital by NOK with an issuance of new shares. Each share in Borgestad Industries will have a par value of NOK and a premium of NOK , giving NOK 74.30, which equals NOK 147 million in total for all the issued shares. The premium per share is equal to the premium paid on each existing share in Borgestad Industries prior to the demerger. 5.6 The formal introductory stages and consequences of the demerger The Parties will submit the demerger plan for approval in the General Meetings of both Borgestad and Borgestad Industries as soon as possible, but not later than three months from the date that the demerger plan was entered into. The completion of the demerger process, by registration in the Norwegian Register of Securities, according to Norwegian Public Limited Liability Companies Act 14-8, is to take place on or about the same day as Borgestad Industries first day of listing on Oslo Axess. The company aims for registration in October On the date of the formal introduction, the following changes take place: a) reduction in share capital of Borgestad, b) increase in share capital of Borgestad Industries, c) assets, rights and obligations are transferred from Borgestad to Borgestad Industries, d) the Articles of Association in Borgestad are changed according to suggestions in the demerger plan, e) the Articles of Association in Borgestad Industries are changed according to suggestions in the demerger plan, f) any other effects that, according to the demerger plan, are due to happen at the time of demerger. 5.7 Accounting and taxation effects The Demerger will take place, with taxation effects, from and including 1 January 2008, such that all transactions, costs and revenues connected to assets and liabilities due to be taken over by Borgestad Industries, from this date on, are to be considered in the ownership of Borgestad Industries.. The Demerger will in accordance with IFRS be reported in the group accounts as from the moment when all elements in the process are fully implemented i.e. from the first day of listing at Oslo Axess. 19

20 5.8 Time frame for splitting of assets, rights, obligations and transactions The Demerger process is carried out with effect from 1 January From the time of demerger, Borgestad Industries is considered to have ownership of the assets, rights and obligations etc that Borgestad Industries will take over according to the Demerger Plan. At the same time, all costs and revenues connected to that which Borgestad Industries will take over, will be considered under the ownership of Borgestad Industries. 5.9 Assets, rights and obligations to be transferred to Borgestad Industries Borgestad s industry business is to be transferred to Borgestad Industries. The industry business comprises all assets, rights and obligations that partly, or in their entirety, are connected to Borgestad s business within production, development, transportation, processing, marketing and sales of, including research and development connected to, industry, including all shares and interests Borgestad has in companies affiliated with this kind of work. The substantial asset of the industry business is the shares in Höganäs Bjuf AB. If the transfer of assets, rights and obligations triggers a prerequisite or similar for third parties, the compensation Borgestad receives is to form part of Borgestad Industries business. Aside from any exceptions outlined in the demerger plan, the demerger process involves a transfer of all assets, rights and obligations that today are seen as part of Borgestad s industry business, independent of character, including concessions, permits, labour relationships, receivables, liabilities, bond loans, intangible assets, disputes, securities, guarantees, taxes, environmental relationships, and any other agreements, irrespective of whether they are publicly known or not or whether they are conditional or unconditional. All free cash and bank deposits that are not part of the industry business or syndicated loans are to be considered part of Borgestad s remaining business that consists primarily of commercial real estate and shipping Information about assets, rights and obligations to be transferred The assets and debts that are listed in Borgestad s balance sheet as of the date of the demerger are to be divided between Borgestad and Borgestad Industries as set out in appendix 1. The undertaken split of share capital in the opening balance sheet is based on the predicted division of the real net assets Employees Employees will be split between Borgestad and Borgestad Industries according to which business area they work within currently. The employees concerned will be transferred according to Norwegian labour laws and any other relevant laws. Wages and terms of employment remain unchanged More on pension terms Borgestad Industries will, from the date of the demerger onwards, assume responsibility for all pension related matters concerning the active employees being transferred to Borgestad Industries, and also all pension related matters concerning previous employees who, on their leave of absence as active employees in Borgestad, had as their main working area the industry business Costs connected to the group of companies Borgestad s administration costs of the group of companies is, from the date of demerger to the formal introduction, to be divided between the parties in accordance with the allocation principles used by Borgestad in Costs that, according the allocation principles, are not charged to any specific business area, will be split according to the split ratio. 20

21 5.14 Tax positions The demerger process is undertaken with the tax continuity allowed according to the rules of a tax free demerger. This means that Borgestad Industries will take over the taxation values of all transferred assets from Borgestad. Additionally, the tax positions are presumed to be split according to relevant laws Documents, archives, accounts etc Documents, archives, accounts etc will follow the business, assets and obligations to which they are connected. The other company will only keep such material if it is by law obligated to do so. In such a case, copies will be supplied to the other party Splits that cannot be accomplished If the splits listed cannot be accomplished in full, there shall be given compensation in cash between the companies given that the relationship has economic value Reduction of capital as result of demerger other regulations As a result of the demerger the share capital in Borgestad will be reduced from NOK to NOK by a reduction of face value per share of NOK 10 to NOK With effect from the date of the formal introduction, the Articles of Association 4, is hereby changed to: The share capital is NOK divided between shares, each with a face value of NOK Increase of share capital in Borgestad Industries The proposed share capital increase of Borgestad Industries is as follows: a) Borgestad Industries share capital will be increased by NOK , from NOK to NOK by issuance of new shares, each with a face value of NOK b) The share deposit will be settled by a takeover of assets, rights and obligations from Borgestad, valued at NOK as of 27 March 2008, according to the provisions of the demerger plan. c) The new shares will, in their entirety, accrue to the shareholders of Borgestad. The shareholders of Borgestad Industries will thus not have any priority when it comes to subscription of shares. The shares will be considered as subscribed when the General Meeting of Borgestad has approved the demerger plan. d) The new shares confer the right to dividends decided after the share capital increase has been registered in the Norwegian Registry of Securities Change of regulation in Borgestad Industries after the formal introduction As a result of the capital increase, Borgestad Industries Articles of Association, 4, is hereby changed, with effect from the date of the formal introduction, to: The share capital is NOK divided between shares, each with a face value of NOK Conditions for completion of the demerger Completion of the demerger is dependent on the parties fulfilling the following conditions: (i) (ii) The General Meetings in Borgestad and Borgestad Industries respectively will approve the demerger plan with the necessary majority of votes The parties will obtain all necessary permissions from public authorities for completion of the demerger and such permissions will not include any conditions that may have a fundamental negative influence on Borgestad Industries. 21

22 (iii) Any third party agreements that are necessary for the completion of the demerger will be completed, on the understanding that that the boards in both companies do not find that such agreements will have any substantial negative effect on any of the parties when any possible compensations are taken into account. (iv) The deadline for any challenges from creditors, under Norwegian Public Limited Liability Companies Act 14-7, jf 13-15, jf 13-16, will have expired and any relationships with creditors having issued such a challenge will be settled, or the relevant Court of Law will have decided that the demerger can be completed, no matter the challenge, and reported to the Norwegian Register of Securities. (v) All conditions for Borgestad s listing on the Oslo Stock Exchange will have been fulfilled and all conditions for the listing of Borgestad Industries on Oslo Axess will have been fulfilled Costs of demerger The costs of the Demerger are to be split between Borgestad and Borgestad Industries in the same ratio as the share capital. Costs of the demerger include but are not restricted to, document fees, public registration fees, fees to Norwegian Register of Securities and fees to Borgestad s auditor, adviser and lawyer. The total costs of the demerger are estimated to be no higher than NOK Draft of opening balance sheet Draft of the opening balance sheet of Borgestad Industries ASA as of 10 April 2008 can be found in the Demerger plan and are considered part of the plan. Ernst & Young AS has given a declaration stating that the balance sheet has been prepared in accordance with the provisions in the Norwegian Accounting Act Changes to the Demerger Plan The Board of Borgestad can, after the General Meeting has approved the Demerger Plan, on behalf of the General Meeting, make small changes to the plan, with appendices, if this is found necessary or desirable and will not disadvantage the company s shareholders. The Chief Executive Officer of Borgestad can carry out changes to the Demerger Plan, with appendices, if the Norwegian Register of Securities demands this and the changes to be made are of formal and/or technical substance and will not lead to any material economic consequences for the company Diverging conditions If the split between the companies is based on incorrect or incomplete information about real circumstances, and certain non-favourable conditions should arise as a result of this, these circumstances, if they cannot be corrected through other measures mentioned in this demerger plan, are to be compensated through cash payment. In determining the timing of such payment, the company s liquidity situation will be taken into consideration Conditions regarding shareholder rights in Borgestad Industries Those who will take over shares in Borgestad Industries will be registered in Borgestad Industries shareholder register as soon as possible after the formal introduction of the company. These parties will receive full shareholder benefits upon registration. The terms required to be registered as a shareholder in Borgestad Industries register are that the shareholder is listed in Borgestad s shareholder register or that the party s share acquisition is reported and approved with respect to Borgestad Industries or Borgestad. 22

23 6 INFORMATION ABOUT AKTIESELSKABET BORGESTAD ASA 6.1 Information about the Company The Company s name is Aktieselskabet Borgestad ASA, organisation number It is a Norwegian public limited liability company (ASA), subject to the provisions of the Norwegian Public Limited Liability Companies Act. The Company s registered business address is Gunnar Knudsensvei 144, 3712 Skien, NORWAY with postal address PO Box 1093, 3905 Porsgrunn, NORWAY. The Company s telephone number is and the fax number is The Company s website is The Company s ticker symbol on the Oslo Stock Exchange is "BOR", ISIN # NO Borgestad principal activities are industry, shipping and commercial real estate. The industrial activity includes research, production and sale of refractory materials. The group s real estate activity includes management of Borgestad Business Park, Bridge Eiendom in Brevik, Grenland Arena in Skien and the development of a shopping centre in Bytom, Poland Statutory Auditors The Company s auditor is Ernst & Young AS (Ernst & Young) with business address Chr. Fredriks plass 6, 0154 Oslo, NORWAY. The audit partners of Ernst & Young are members of the Norwegian Institute of Public Accountants. Ernst & Young AS has audited the 2007, 2006 and 2005 financial statements of the Company. Ernst & Young has not audited or reviewed or produced any report on other information provided in this Information Memorandum except for the Independent Assurance Report on Pro Forma Financial Information which is enclosed in Appendix History Prime Minister Gunnar Knudsen founded Aktieselskabet Borgestad ASA in 1904 when he merged his three single ship companies into one. The company s shares were listed on the Oslo Stock Exchange in Gunnar Knudsen had previously founded Borgestad Fabrikker in Borgestad Fabrikker originally had brickwork as its main focus, but in 1889 experiments were initiated for the development of heat resistant bricks. The raw materials were based on rejected chamotte saggars from porcelain firing at Porsgrund s Porcelain Factory. After the turn of the century production of firebricks had grown so much that ordinary brick production was discontinued. The Borgestad group is one of Europe s 10 largest producers of shaped products and is the dominant Scandinavian producer of such materials. The operations that will be transferred to Borgestad Industries under the planned demerger consist of research, production and sales of refractory materials such as shaped products and monolithics in Aktieselskabet Borgestad ASA. Borgestad Industries is comprised of Höganäs Bjuf AB and its subsidiaries. These companies have each been in operation for over 100 years. 23

24 6.3 Business overview The Organisational Structure of the Borgestad group is as follow: For the organisational structure after the Demerger, see chapter Industry The industrial part of the Borgestad Group develops, produces and markets refractory products. Most basic industrial processes include production stages where high temperatures must be treated. Refractory products 24

25 withstand heat exceeding degrees Celsius. Refractory products are used to protect the production equipment. Refractory materials are normally divided into two categories- bricks (shaped products), monolithics (unshaped products). Geometric shape and chemical structure defines the product portfolio. An extensive product program is needed to handle numerous applications. The steel industries consume two thirds of the world s total production of refractory. In order to deliver complete solutions, the Company needs to complement their own product range with product from other manufacturers. So far, complementing products have been bought mainly from the company s strategic partners Magnesita SA in Brazil and Calderys, the world s largest producer of monolithic products. The Company s solutions are in use around the world. The business mission of Borgestad Fabrikker is to deliver three important values to its customers: refractory products, quality and know-how. In order to satisfy these objectives, the company uses only the best contractors, with the most experience and know-how for each individual project. Borgestad Fabrikker takes full responsibility for ensuring that: Each shipment is handled correctly Installations are made according to set standards The refractories perform as specified when the furnace is started Documentation is complete. Höganäs Bjuf aims to answer its client s needs and address their problems instantly. The company delivers its refractory products directly from its production unit in Sweden, following agreed schedules. The industry business also includes the business of GL Contracting AS (60% ownership) and J.H. Bjørklund AS (wholly owned). 1 January 2007, Borgestad acquired all shares in the companies Kay Lindegaard AS and J.H. Bjørklund AS. J.H. Bjørklund AS has succeeded well in the market for insulation products. As of 29 August 2007 Kay Lindegaard AS was merged with Grenland Industrimuring AS. The merged company, named GL Contracting AS, with a turnover of NOK 40 million, will be one of the largest installation contractors for refractory materials in the Norwegian market. Demand for refractory products remains good, and the order back log remains on a high level. In the last months, a number of major new orders have been agreed, including the Qatalum- projects of Norsk Hydro and to QNC cement plant, both in Qatar. In March the Company got a new order for a cement project in Egypt. To further improve the cost efficiency of the Bjuf plant, investment in a new press was completed in January Due to high demand and to be able to shorten delivery times, a second kiln was put into service in December The strategy for the company s refractory business is further expansion of its market positions in the Nordics and towards the cement industry globally. Improving the cost efficiency of the Bjuf plant will also be a priority Principal activities Industrial activity includes research, production and sale of refractory materials such as shaped products and monolithics. Borgestad Fabrikker AS specialises in refractory products for the aluminium, ferro-alloy and foundry industries. Höganäs Bjuf AB supplies a complete range of refractory materials. Application-driven R&D and a highly automized production are cornerstones for the business activities to customers around the world. GL Contracting AS provides installation services for mainly the Norwegian industry. J.H. Bjørklund AS provides advanced insulating solutions for the Norwegian industry, such as the Ormen Lange and Snøhvit projects. 25

26 Product groups Borgestad Industries product portfolio includes: Bricks o Wet-pressed fireclay o Dry- pressed fireclay o High- alumina o Silicon carbide o Basic bricks o Insulating bricks Monolithics o Castables o Gunning material o Ramming material o Mouldables o Mortars Special products o Wear resistant products o Ceramic fibres 26

27 Principal markets Borgestad Industries is one of Europe s 10 largest producers of shaped products and it is the dominant Scandinavian producer of such materials. The homemarket is the Nordic market with focus on Swedish and Finnish aluminium, ferro-alloy and foundry industries. Hôganes Bjuf has a leading position as a supplier of refractory materials to the ferro- alloy industri in Sweden and Finland. During 2007 there have been several major deliveries to the Kiruna palletizing plant. Exports outside the Nordic countries made up a total of 42.3% in 2007 and refractory products were sold to more than 50 countries. The group of companies total export business is primarily directed towards the global cement industry. The total sales to the cement industry increased by 8% in The cement industry s proportion of the total revenues of the group of companies was 43%. The cement industry in Höganäs Bjuf today serves more than 400 customers in 50 countries. The development of total sales in Asia is still positive and the establishment of the subsidiary Höganäs Bjuf Asia Pacific Sdn. Bhd has been a central part of this. Also a new subsidiary in the Middle- East is established and is located in Nicosia, Cyprus. This company is expected to be fully operational in June/July 2008 and will primarily serve the upcoming markets in this region. 27

28 For a detailed overview of revenues by geographical location, please see chapter Customer segments Borgestad Industries specialises in refractory products, systems and productivity-boosting accessories for several key manufacturing industries, among them producers of steel, cement, aluminium, ferro alloy and pulp and paper Marketing and distribution A worldwide sales and service network provides customers with access to premium quality refractory products. Refractories from Borgestad Industries are marketed under the Borgestad Fabrikker and Höganäs Bjuf brand names Patents and licenses Borgestad Industries does not rely on any specific patents or licenses Research and development Borgestad Fabrikker AS does not conduct any research and development. Höganäs Bjuf AB production, engineering and R&D are all SS-EN ISO 9001:2000 certified, a further guarantee of quality & reliability Shipping After the sale of shares in Borgestad Shipping AS in May 2006, the company has been without individual tonnage. The shipping activities comprise of an ownership of 45% of Aker Borgestad Operations AS, established in 2006 to maintain the operation of floating production and offloading vessels (FPSOs) for Aker Floating Production ASA. Aker Borgestad AS entered into its first contract in October with an Indian oil company, concerning operation and maintenance of an FPSO in Indian waters. Over a 10-year period this contract will have a gross value of USD Borgestad has decided to shut down business in Borgestad Ship Management AS following termination of the contracts for the 11 open hatch vessels as from 11 April Real estate The group of companies property business comprises several properties and projects under development. The group of companies greatest property investment, the shopping centre Forum Gliwice (50% share ownership) in Poland, was sold in 2007 with a profit of NOK The board is satisfied with the realisation of this project. In March 2007, a deal was made regarding purchase of 50% of a square metre shopping centre in Bytom, Poland. To date, Borgestad has invested NOK in the project and has, under certain conditions, committed to further investments of approximately NOK As of January 2008, leasing contracts had been made for 40% of the total area. Negotiations are currently in progress with building contractors. Realisation of the project assumes satisfying leasing contracts, an acceptable building contract and reasonable currency exchange levels. Borgestad has also invested EUR in a central business property in Maximillianstrasse, in central Munich. The property is fully leased and the development of the value of the property is positive. Borgestad Industrial park is still in its development phase. The parts of the property that can be leased are almost fully occupied. The board has agreed upon an investment plan of NOK to arrange for rental possibilities of a further square metres. This work has begun and the building project will be finished in the near future. 28

29 The building work at the private property project on Borgestadholmen (30% ownership) is in its final stages and the apartments will be taken over by the buyers at the beginning of March. A further 24 apartments are in their second phase and will be finished during the first half of The building of a new office building (50% ownership) of approximately square metres in Brevik is going as planned and is expected to be finished in August The office building is fully leased by an external party with a yield of ca. 7%. Grenland Arena (48.5% ownership) in Skien will, in addition to its platform section, comprise to square metres of industrial space. Work on the platform will be finished in April Work on the industrial building is expected to commence in the second quarter of 2008, with completion during the first half of As yet, no leasing contracts or deals with building contractors have been agreed regarding the industrial space. 6.4 The environment, health and safety Borgestad considers the working climate satisfactory for employees within all the companies in the group. As a company with global operations, Borgestad aims to strengthen its recruitment and to take measures to further develop its employees. Borgestad acknowledges that its operating activities have consequences for individuals both within and outside the company. The company s strategic assumption is that its operations are governed in a way whereby social, environmental and ethical aspects are adhered to and integrated within its operations. Borgestad admits its responsibility to protect the environment in which it operates. It strives to minimise environmental impacts from its operations. The Company s activities are executed in accordance with national and international rules and regulations. Activity in Höganäs Bjuf AB is ISO 9000 certified. In 2005 and 2006 there have been no records of pollution to air or water beyond permitted limits. This is expected to continue to be the case in the future. 6.5 Capital resources As of 31 December 2007, Borgestad s shareholders equity amounted to NOK 598,3 million, representing an equity ratio of 71.7%. Borgestad has a credit facility of NOK 150 million, which at the time of this Information Memorandum is not beeing used. Other liquidity resources consist of cash, tradable securities, and other easily tradable bonds, which enables the Company to repay in total its current loan portfolio if wanted. There are no planned investments for the Company which will require any further funding other than the current loan instalments of existing construction loans for its real-estate investments. For more information regarding capitalisation and indebtedness, see chapter 7.5. Also see note 12 to the Annual Report 2007 for loan commitments. There are no restrictions on Borgestad s capital resources that have materially affected, or could materially affect, directly or indirectly, its operations. 6.6 Trend information The Company has not experienced any changes or trends outside the ordinary course of business that are significant to the Company after the publication of its 4th quarter report 2007 and at the date of this Information Memorandum, other than those described elsewhere in this Information Memorandum. For any governmental, economic, fiscal, monetary or political policies or factors that could materially affect the Company s future operations, please refer to chapter 2, Risk factors. Historically, no such events have had any adverse impact on the Company s operations. 29

30 6.7 Administrative management, supervisory bodies and senior management Description of the Board of Directors The Board of Directors consists of the following individuals: Steen, Bertel O. jr. (born 1948) Chairman Steen was a board member in the periods and In 2004 he was elected Chairman of the board. He is a lawyer empowered for the Supreme Court and has a Master s Degree in Business Administration from the University of Aston. Steen is a committee member in several private companies within the areas of commerce, property, industry and shipping in addition to being partner in the law firm Torkildsen, Tennøye & Co. Aker, Live Haukvik (born 1963) Haukvik Aker was elected as a member of the board in She has a Master s Degree in Finance from Fribourg, Switzerland, in addition to a Master of Management from the School of Management in Oslo, Norway. Haukvik Aker has comprehensive experience as director of economics and CEO and also CFO in Grenland Group ASA, starting in Bratrud, Gudmund (born 1947) Bratrud was elected as a member of the board in In addition to his Master of Science in Business and Administration, he is a state authorised public accountant and has several years of experience both in this field and as an investor. At present he is the chairman of several property and holding companies and his main focus today is on private investments. Grefsrud, Sissel (born 1963) Grefsrud was elected as a member of the board in She holds a Master of Science in Business and Administration in addition to her authorisation as a financial analyst from NFF (The Norwegian Society of Financial Analysts), Norway. Grefsrud has several years of experience from various leading positions within shipping and finance, e.g. Statens bankinvesteringsfond, First Olsen Tankers Ltd and Arne Blystad AS. Stavseth, Sverre (born 1945) Stavseth, who has been member of the board for several years, has had various employee positions in the company since 1978 in the period as a partner in the company Gunnar Knudsen, and as CEO of Borgestad from Stavseth holds a Master of Science in Business and Administration and prior to his work with Borgestad he worked as a consultant/director of Shipping Consultants. At present he holds several board memberships in privately held companies in Norway. Møller, Niels C. (born 1945) Deputy Member Møller was elected as a member of the board in He holds a Master of Engineering and has several years of experience from the maritime consultant business, in addition to control of construction, reparation and operation of ships. Møller is a member of several boards and owns the private company Dione AS Description of senior management Knudsen, Christen (born 1955) CEO Aktieselskabet Borgestad ASA Knudsen is the fourth generation descendant of Borgestad s original founder. He is currently the CEO of Aktieselskabet Borgestad ASA. He holds a Master of Science in Business and Administration and prior to entering Borgestad he worked 10 years in Vesta/Investa within the departments of investment and property. He is the chairman of Grenland Investeringsfond. Friestad, Egil (born 1953) CEO Borgestad Industries ASA Friestad is the Director of Borgestad s industrial department, Borgestad Industries ASA. Friestad holds a Master of Science in Business and Administration with several years of experience from both Swedish and Norwegian industry. 30

31 Vala, Geir (born 1968) CFO Vala is the Chief Financial Officer of Aktieselskabet Borgestad ASA. He is a public accountant with five years of experience with Ernst & Young AS. He has been an employee of Borgestad since All management personnel mentioned above have their business address at Borgestad s office, Gunnar Knudsensvei 144, 3712 Skien, NORWAY. According to their employment contracts, upon termination of employment, Christen Knudsen and Egil Friestad are entitled to payment for a period of 24 months. Other than that, there are no members of the administrative, management or supervisory bodies that have service contracts with Borgestad or any of its subsidiaries that provide for benefits upon termination of employment. There exist no, nor is expected to be entered into, any agreements regarding any benefits to the above mentioned persons as a result of the Demerger Board of Directors and management shareholdings Shareholder No of shares Percent Bertel O. Steen 3) Gudmund Bratrud 4) Christen Knudsen 1) Niels C. Møller 2) Sverre Stavseth Total ) Includes shares owned and controlled by Betina AS, where Christen Knudsen is the sole shareholder, in addition to shares owned by immediate family. Betina AS has shareholder majority in the companies AS Reform and AS Kollen. 2) Applies to shares owned by AS Dione, where Niels C. Møller has a controlling influence. 3) Applies to the company AS Bemacs. AS Bemacs is owned by Bertel O. Steen and close relatives. 4) Applies to the company AS Regent, Myra Matsenter AS, Substantia AS, Analyseinvest AS and HFA Eiendom where Gudmund Bratrud is the main shareholder Conflict of interest etc There are no potential conflicts of interest between the management s and the directors duties to the Company, and their private interests and or/other duties. During the five years preceding the date of this document, no member of the Board of Directors or the senior management has: Had any convictions in relations to fraudulent offences; Been publicly incriminated and/or sanctioned by any statutory or regulatory authorities or been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company; or Been associated with any bankruptcy, receivership or liquidation. 6.8 Legal and arbitration proceedings From time to time the Company and its subsidiaries may be engaged in litigation affecting their business. As of the date of this Information Memorandum and for the preceding 12 months, the Company is not and has not been involved in any governmental, legal or arbitral proceedings, including any such proceedings which are pending or threatened of which the Company is aware of, which may have or have had significant effects on the Company s financial position or profitability. 31

32 6.9 Share capital and shareholder matters Borgestad s registered share capital before the Demerger is NOK , divided into shares each with a nominal value of NOK 10, fully paid Share capital development Changes in share capital and nominal share value since 1 January 2005 are as follows: Date No. of shares Deleted No. of shares Nominal value Share capital before change shares after change NOK NOK After the completion of the demerger, the nominal value of each share will be NOK 7.618, and total share capital reduced to NOK Major Shareholders The following table, with shareholder structure as of 7 April 2008, sets out the 20 largest shareholders of the Company. Investor Shares Shares % A.S. REFORM % A/S DIONE % A/S BEMACS % REGENT AS % MYRA MATSENTER AS % SUBSTANTIA AS % ANALYSEINVEST AS % A.S KOLLEN % A/S HERDEBRED % TOLLEFSEN SUSANNE % KNUDSEN NINA SIGNE % M. SCHIØTTS LEGAT FOR % SKIENS AKTIEMØLLE ASA % MP PENSJON % HFA EIENDOM AS % A.S BETINA % STIFTELSEN BORGESTAD GÅRD % SKAGEN VEKST % SKOGSBORG AS % MOHN JOHAN BALTHAZAR FLOTTMANN % <Other investors> % Christen Knudsen owns (41.2%) shares in Aktieselskabet Borgestad ASA. This includes all the outstanding shares of Reform AS where Knudsen is the major shareholder. Six of the Company s shareholders have a shareholding of more than 5%, and are therefore subject to disclosure obligations pursuant to section 3-2 of the Norwegian Securities Trading Act. 32

33 6.9.3 Stock options At present, there are no share options for management or employees of the Company Corporate Governance Borgestad currently complies with the Norwegian Code of Practice for Corporate Governance issued 4 December Borgestad strives for an open communication with the market, in order to add confidence to its group of companies. The shares can be traded freely without restrictions, though there may be limitations according to relevant Norwegian laws, including the navigational laws (sjøfartsloven) of Norway. Borgestad has one class of shares and each share yields one vote in the Company s General Meeting. Borgestad has outstanding shares divided between 763 shareholders (as of ). The General Meeting is the company s main body and all shareholders have the right to participate in the General Meeting. There are five board members of Borgestad. The Committee s responsibilities are set down by Norwegian Law and comprises of the principal control of the company. The Committee is, among others, to represent the owners in front of the company s administration. The company aims to provide precise economic and financial information that investors can rely on. Up to and including financial year 2004, Borgestad reported its figures according to Norwegian Laws. From and including financial year 2005, Borgestad has reported its figures according to IFRS. Compensation for the CEO of Borgestad was NOK in The company treats all shareholders equally regarding access to financial information Material contracts Borgestad is not aware of any material contracts other than the agreements entered into in the ordinary course of business Related party transactions There have been no related party transactions during the last 3 years. 33

34 7 FINANCIAL INFORMATION The selected consolidated financial data set forth in this section has been derived from Borgestad s audited group financial statements for the financial years 2005, 2006 and Borgestad s annual reports for the years 2006 and 2007, including the auditor s reports, are included as Appendix 3. Borgestad s consolidated financial statements for the year 2005, 2006 and 2007 have been prepared in accordance with IFRS. The selected financial data set forth below may not contain all of the information that is important to a potential purchaser of shares in the demerged company, and the data should be read in conjunction with the relevant financial statements and the notes to those statements Balance sheet Balance Sheet (NOK 1000) ASSETS FIXED ASSETS Intangible fixed assets Deferred tax asset Intangible assets Tangible assets Building and plant Fixtures, machinery and vehicles Vessels Financial fixed assets Other financial assets Other shares Share in associated company Pension assets TOTAL FIXED ASSETS CURRENT ASSETS Inventories Project Bytom Debtors Accounts receivable Other receivables Investments Shares Listed investments and bonds Cash and bank deposits Bank deposits TOTAL CURRENT ASSETS TOTAL ASSETS

35 EQUITY AND LIABILITIES EQUITY Share capital Other contributed equity Own shares (18) (684) (772) Share premium reserve Total restricted equity Reserve for valuation variances Other equity Retained earnings Minority interest TOTAL EQUITY NON-CURRENT LIABILITIES Deferred tax Pension liabilities Mortgage debt Other long term liabilities TOTAL NON-CURRENT LIABILITIES SHORT TERM LIABILITIES Bank overdraft Mortgage debt Creditors/suppliers Taxes payable Public duties payable Other short term liabilities TOTAL CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES Cash flow statement CASH FLOW STATEMENT (NOK 1000) Cash flow from operating activities Cash flow from investment activities (24 461) (57 968) Cash flow from financial activities (30 330) Net cash flow (28 427) Cash position 1 January Cash position end of period Bank and cash deposits Bank overdraft (5 602) (19 400) (30 421) Cash position end of period Bank overdraft reserves Liquidity reserves end of period

36 7.1.3 Profit and loss account PROFIT AND LOSS ACCOUNT (NOK 1000) OPERATING INCOME AND OPERATING EXPENSES Gross revenue shipping and industry Management income Gain/(loss) from disposal of fixed assets 124 (125) Other income Voyage costs 0 (362) (921) Net operating Income Consumption of new materials ( ) ( ) ( ) Wages, salaries and social costs (92 866) (82 525) (86 523) Other operating costs (78 605) (65 627) (99 749) Changes in stock of goods Operating result before admin costs and depreciation Salaries, social costs (19 524) (16 684) (13 586) Other administration costs (15 219) (22 279) (9 658) Depreciation/write-down (8 239) (27 238) (53 440) Total administration costs and depreciation (42 982) (66 201) (76 684) OPERATING RESULT Financial Income and financial expenses Dividends from other companies Interest income Unrealised net gain(loss)on financial current assets Gain sale of shares in subsidiary comp and joint vent Foreign currency gain/(loss) (34 525) Interest expenses (8 223) (14 645) (20 526) Other financial income/(expenses) (1 047) Share of result in associated companies (263) Net financial items (47 647) PROFIT BEFORE TAXES Tax on ordinary result (6 206) (15 659) Result

37 7.1.4 Operating results by sector OPERATING RESULT DIVIDED BY SECTOR (MNOK) Shipping Industry Real estate (6.0) (13.0) 18.4 "Parent company" (8.4) (7.4) (7.1) Total Revenues by geographical location Segment Shipping Industri Property Europe North -America Asia Others Total Working capital statement It is in the opinion of the Company that the working capital is sufficient for the Company s present requirements. 37

38 7.3 Capitalisation and indebtedness NOK 1000 CAPITALISATION Borgestad Material group changes as of UNAUDITED Total current debt Guaranteed - Secured Unguaranteed/unsecured Total current debt Total non-current debt Guaranteed - Secured Unguaranteed/unsecured Total non-current debt Total debt (a) Shareholder`s equity Share Capital Retained earnings and other reserves (11 469) Total shareholder`s equity (b) (11 469) Total Capitalisation (a+b) INDEBTEDNESS Cash (17 004) Cash equivalent - Trading securities (16 668) Total liquidity (c) (33 672) Current financial receivables (d) Current bank debt Current portion of non-current debt - Other current financial debt 601 Current financial debt (e) Net current financial indebtedness (e-c-d) (f) ( ) Non-current financial receivables (g) Non-current bank loans Other non-current loans 370 Non-current financial indebtedness (h) Net non-current financial indebtedness (h-g) (i) (7 632) Net financial indebtedness (f+i) ( )

39 7.4 A statement that the historical financial information has been audited The historical financial statements that are presented in this chapter have been audited. The auditor s reports regarding the historical financial statements is incorporated as an appendix to the annual reports for 2005, 2006 and

40 8 PRO FORMA FINANCIAL INFORMATION, BORGESTAD AFTER THE DEMERGER 8.1 Organizational structure The organizational structure of Borgestad after the Demerger is as follow: 8.2 Unaudited pro forma condensed financial information The unaudited pro forma condensed financial information has been prepared for illustrative purposes to show how the demerger of the industry activities of the Borgestad Industries ASA (the Company), described below, might have affected the Company s consolidated income statement for 2007 if the demerger occurred on 1 January 2007 and the unaudited consolidated balance sheet 31 December 2007 if the demerger occurred at the balance sheet date. Due to its nature, the unaudited pro forma condensed financial information addresses a hypothetical situation and, therefore, does not represent what the statements of operations would actually have been if the transactions had in fact occurred on an earlier date and is not representative of the results of operations for any future periods. Investors are cautioned not to place undue reliance on this unaudited pro forma financial information. 40

41 The Boards of Directors of Aktieselskabet Borgestad ASA and Borgestad Industries ASA have entered into a Demerger Plan dated 10 April 2008, where Borgestad Industries ASA as the acquiring company, which will be presented to the shareholders of Aktieselskabet Borgestad ASA for their approval in a General Meeting to be held on 5 June The completion of the demerger is subject to certain conditions, including, but not limited to, approval of the Demerger by the General Meeting of Borgestad and expiry of creditor notification period. There can be no assurance that such conditions will be satisfied and, and if they are not, the Demerger may not be completed. Except for the segment information in the Borgestad Group, no historical financial reporting from the Industry Group has not been published. In connection with the demerger, a new holding company, Borgestad Industries ASA, has been established for the demerged activities. Borgestad Industries ASA is a wholly-owned subsidiary of Aktieselskabet Borgestad ASA and was established on 27 March The basis for the figures for Borgestad Industries in the pro forma presentation is identical to the underlying material used as a basis for the Borgestad Group's segment reporting in its official group financial statements. This corresponds to the sum of the lines on the income statements and balance sheets for the legal entities/companies that are included in the industry segment with considerations and eliminations made for internal transactions and internal inter-company claims and receivables between companies in the same segment (industry). Further information regarding segments can be found in Note 3 to the annual report Please note that the underlying material used for the pro forma balance cannot be read from Note 3 as the balance sheet for Borgestad Industries previously has not been reported separately, but only been prepared for internal use. 41

42 8.3 Unaudited pro forma profit and loss account 2007 A B C A-B+C UNAUDITED PRO FORMA Borgestad Pro forma PROFIT AND LOSS ACCOUNT 2007 Borgestad Industries Pro forma Borgestad (NOK 1 000) Group Group Adjustments Notes Group Historical Unaudited Unaudited Unaudited OPERATING INCOME AND EXPENSES Gross revenue shipping and industry Management income Profit from disposals of fixed assets Other income Net operating income Consumption of raw materials ( ) ( ) - Wages, salaries and social costs (92 866) (78 342) (14 524) Other operating costs (78 605) (57 503) (21 102) Changes in stock of goods Operating result before admin. costs etc Salaries, social costs (19 524) - (19 524) Other administration costs (15 219) (1 636) (13 582) Depreciation (8 239) (5 729) (2 510) Total admin. costs and depreciation (42 982) (7 365) - (35 616) Operating result (7 106) FINANCIAL INCOME AND EXPENSES Dividends from other companies Interest income (904) Unrealised net gain/loss on financial current Gain on sale of shares in Intra Group company Foreign currency gain (loss) (647) Interest expenses (8 223) (4 667) (3 556) Other financial income/expenses (1 048) (1 112) 64 Share of result in associated companies Net financial items (6 162) (904) Profit before taxes (904) Tax on ordinary result (6 206) (2 657) 253 1, 3 (3 296) Result for the year (651)

43 8.4 Unaudited pro forma balance sheet A B C A-B+C UNAUDITED PRO FORMA Borgestad Pro forma BALANCE SHEET (NOK 1 000) Borgestad Industries Pro forma Borgestad Group Group Adjustments Notes Group ASSETS Historical Unaudited Unaudited Unaudited Non-current assets Deferred tax asset Intangible assets Buildings and plant Fixtures, machinery and vehicles Other shares Share in associated companies Long term receivables (8 600) Pension assets Total non-current assets Current assets Inventories Project Bytom Accounts receivables Other receivables Shares Listed investments and bonds Bank deposits (22 593) Total current assets Total assets

44 A B C A-B+C UNAUDITED PRO FORMA Borgestad Pro forma BALANCE SHEET (NOK 1 000) Borgestad Industries Pro forma Borgestad Group Group Adjustments Notes Group EQUITY AND LIABILITIES Historical Unaudited Unaudited Unaudited Equity Share capital Own shares - (18) Share premium reserve Other contributed reserves Total restricted equity Reserve for valuation changes Other equity Retained earnings Minority interest Total equity Long term liabilities Pension liabilities Deferred tax Mortgage debt Other long-term liabilities (497) Total non-current liabilities Short term liabilities Bank overdraft Creditors/suppliers Taxes payable Public duties payable Other short-term liabilities Total current liabilities Total equity and liabilities Notes to the unaudited pro forma condensed financial information The financial information in Column A above is identical to the consolidated financial statements for Aktieselskabet Borgestad ASA as of and for the year ended 31 December Column B contains the income statement information and balance sheet information for the same year for the industry segment in the Borgestad Group which is now demerged and will become the Borgestad Industries Group. Höganäs Bjuf AB, a wholly-owned subsidiary of Aktieselskabet Borgestad ASA, has been the parent company for these activities. This financial information is derived from the consolidation schedules and segment information for the activities being demerged. Except for the segment information in the Borgestad Group s financial statements, no historical financial reporting from the Industry Group has been published. The unaudited pro forma condensed financial information for the Borgestad Group does not include all of the information required for financial statements under International Financial Reporting Standards (IFRS), and should be read in conjunction with the historical information of the Company. 44

45 8.6 Notes to the unaudited pro forma adjustments 1. By the formation of Borgestad Industries ASA, Aktieselskabet Borgestad ASA has invested cash and receivables totalling TNOK The cash investment amounts to TNOK and receivables as contribution in kind amounts to TNOK A pro forma adjustment has been included to remove the historical interest income in Borgestad related to this cash amount. The historical interest was 4% p.a, resulting in a pro forma adjustment of TNOK 904. The shares in Borgestad Industries ASA owned by Aktieselskabet Borgestad ASA will be classified as available-for-sale. 2. In 2006, Höganäs Bjuf AB acquired 100% of the shares in Borgestad Fabrikker AS from Borgestad Properties AS (a subsidiary of Aktieselskabet Borgestad ASA). The goodwill and corresponding unrealised gains of TNOK in Borgestad Properties have been eliminated in the historical consolidated financial statements of the Borgestad Group. The goodwill, TNOK , is included in the segment information of Borgestad Industries Group in column B. 3. Tax effects have been included on all the pro forma income statement effects based on the effective tax rate for the Group (28%) All the unaudited pro forma adjustments will have a continuing impact. 45

46 9 BORGESTAD INDUSTRIES AFTER THE DEMERGER This section provides information on Borgestad Industries ASA after the Demerger and does not discuss the detailed business operations. Such information is set out in the presentation of Borgestad in chapter Incorporation, registered office The company s name is Borgestad Industries ASA, organisation number It is a Norwegian public limited liability company (ASA), subject to the provisions of the Norwegian Public Limited Liability Companies Act. Borgestad Industries was incorporated on 27 March 2008 Borgestad Industries registered business address is Gunnar Knudsensvei 144, 3712 Skien, Norway. Borgestad Industries telephone number is and the fax number is Borgestad Industries website is Borgestad Industries will be incorporated with called-up and fully paid share capital of NOK 31.2 million, which will leave Borgestad with an ownership of 17.5%. 9.2 Statutory Auditors Borgestad Industries auditor is Ernst & Young (Org. number: ) with business address Chr. Fredriks plass 6, 0154 Oslo, NORWAY. The audit partners of Ernst & Young are members of the Norwegian Institute of Public Accountants. 46

47 9.3 Organisational Structure The planned functional Organisational Structure of Borgestad Industries is presented in the chart below. 47

48 9.4 Administrative management, supervisory bodies and senior management Board of Directors At the date of the incorporation of Borgestad Industries, the Board of Directors consists of the following people: Knudsen, Christen, Chairman Knudsen is the fourth generation descendant of Borgestad s original founder. He is currently the CEO of Aktieselskabet Borgestad ASA. He holds a Master of Science in Business and Administration and prior to entering Borgestad he worked 10 years in Vesta/Investa within the departments of investment and property. He is the chairman of Grenland Investeringsfond. Reidar Huglen Huglen holds a Doctorate in Engineering in addition to his Master of Engineering and has extensive competence from Norwegian and international industry. He is a member of several boards in privately held companies and has a membership in several technical committees in international aluminium companies. Additionally, he is a participant of the Norwegian Academy of Technological Sciences. Huglen has been a member of Aktieselskabet Borgestad ASA s board in the period He is currently employed by Hydro Aluminium AS Technology and Part Owned Smelters. Hedda Foss Five Five has been the party leader of Skien labour party since She has, among others, passed examinations from ex.phil., ex.fac., social sciences and cultural sciences and is now completing a year s unit in work- and organisational psychology. Five has experience as a teacher, in the Postal Network, as political advisor and chief secretary in Norway s largest political youth organisation department Oppland, in addition to being deputy leader in Telemark s Labour Party group over the years She holds numerous political duties locally and some nationally, both in the Labour Party and in the worker s union in Norway. All of the members of the Board of Directors of Borgestad Industries are independent from the company s executive management and material business contacts. The Board of Directors also satisfies the requirement of the Norwegian Code of Practice for Corporate Governance that at least two directors shall be independent from major shareholders. Additional Directors will be elected at the time of listing on Oslo Axess Management At the date of incorporation of Borgestad Industries, the Management of Borgestad Industries consists of the following people: Friestad, Egil (born 1953) CEO Borgestad Industries ASA Friestad is the Director of Borgestad s industrial department, Borgestad Industries ASA. Friestad holds a Master of Science in Business and Administration with several years of experience from both Swedish and Norwegian industry. All management personnel mentioned above have their business address at Borgestad Industries office, Gunnar Knudsensvei 144, 3712 Skien, NORWAY. There are no members of the administrative, management or supervisory bodies that have service contracts with Borgestad Industries that provide for benefits upon termination of employment Conflict of Interest etc There are no potential conflicts of interest between the management s and the directors duties to the Company, and their private interests and or/other duties. During the five years preceding the date of this document, no member of the Board of Directors or the senior management has: 48

49 Had any convictions in relations to fraudulent offences; Been publicly incriminated and/or sanctioned by any statutory or regulatory authorities or been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company; or Been associated with any bankruptcy, receivership or liquidation. 9.5 Corporate Governance Borgestad Industries currently complies with the Norwegian Code of Practice for Corporate Governance issued 4 December 2007, except for not having established an election committee. However, this will be in place at the time of the Listing application to Oslo Axess. 9.6 Material Contracts In order to deliver complete solutions, Borgestad Industries needs to complement their own product range with product from other manufacturers. So far, complementing products have been bought mainly from the company s strategic partners Magnesita SA in Brazil and Calderys, the world s largest producer of monolithic products. In 2007, over 50% of the total volume of products sold came from strategic partners such as Mangesita SA and Calderys. The contract with Calderys expires in 2011, and the contract with Magnesita has a mutual 3 months termination period. Besides those, Borgestad Industries in not aware of any material contracts other than the agreements entered into in the ordinary course of business. 9.7 Trend information Borgestad Industries is not aware of any trends, uncertainties, demands, commitments or events within or outside the ordinary course of business that are reasonably likely to have significant change in the financial or trading position. 9.8 Legal and arbitration proceedings From time to time the Borgestad Industries and its subsidiaries may be engaged in litigation affecting their business. As of the date of this Information Memorandum and for the preceding 12 months, Borgestad Industries or its subsidiaries is not and has not been involved in any governmental, legal or arbitral proceedings, including any such proceedings which are pending or threatened of which Borgestad Industries or its subsidiaries is aware of, which may have or have had significant effects on Borgestad Industries or its subsidiaries financial position. 9.9 Related party transactions There have been no related party transactions since the incorporation of Borgestad Industries Working capital statement It is in the opinion of Borgestad Industries that the working capital is sufficient for Borgestad Industries present requirements. 49

50 9.11 Capitalisation and indebtedness Borgestad Industries Material group changes in as of NOK 1000 UNAUDITED UNAUDITED CAPITALISATION Total current debt Guaranteed Secured Unguaranteed/unsecured Total current debt Total non-current debt Guaranteed Secured Unguaranteed/unsecured Total non-current debt Total debt (a) Shareholder`s equity Share Capital Retained earnings and other reserves Total shareholder`s equity (b) Total Capitalisation (a+b) INDEBTEDNESS Cash Cash equivalent Trading securities Total liquidity (c) Current financial receivables (d) - Current bank debt Current portion of non-current debt Other current financial debt Current financial debt (e) Net current financial indebtedness (e-c-d) (f) (15 915) (5 859) Non-current financial receivables (g) Non-current bank loans Other non-current loans Non-current financial indebtedness (h) Net non-current financial indebtedness (h-g) (i) Net financial indebtedness (f+i) (5 859) 50

51 9.12 Capital resources At the incorporation of Borgestad Industries, the company was funded and capitalized entirely by shareholders equity. There are no planned investments for Borgestad Industries that will require any further funding which can t be serviced by the cash flow from operations. 51

52 10 DOCUMENTS ON DISPLAY The following documents (or copies thereof) may for the life of the Information Memorandum be inspected at or at the business address of Borgestad and Borgestad Industries: The Demerger Plan dated Borgestad s Articles of Association Borgestad Industries Articles of Association Borgestad Articles of Incorporation All other reports, letters and other documents, historical financial information, valuations and statements prepared by any expert at Borgestad s request, any part of which is included or referred to in this Information Memorandum. 52

53 11 TAX MATTERS 11.1 Introduction to tax matters Set out below is a summary of Norwegian tax matters related to the holding and disposal of shares in Norwegian limited liability companies. The summary is based on Norwegian laws, rules and regulations applicable at the date of this Information Memorandum, and it does not address foreign tax laws. Such laws, rules and regulations are subject to change, possibly on a retroactive basis. The summary is of a general nature and does not purport to be a comprehensive description of all the tax considerations that may be relevant to the investors. Investors who wish to clarify their own tax situation should consult with and rely upon their own tax advisers. Investors resident in jurisdictions other than Norway should consult with and rely upon local tax advisors as regards the tax position in the country of residence. Please note that for the purpose of the summary below, a reference to a Norwegian or foreign shareholder refers to the tax residency rather than the nationality of the shareholder Shareholders resident in Norway for tax purposes In general This section summarises Norwegian rules of taxation relevant to shareholders that are residents of Norway for Norwegian tax purposes ( Norwegian shareholders ) Net wealth tax Norwegian limited liability companies and certain similar entities are exempt from Norwegian net wealth tax. For other Norwegian shareholders, shares are included as part of their wealth, and are subject to net wealth taxation by the state and the local municipality. Shares listed on Oslo Børs are valued at 100% of their quoted value on 1 January in the assessment year. The maximum combined rate of net wealth tax is 1.1% Taxation of dividends Most of Norwegian corporate shareholders (i.e. limited liability companies and similar entities) are exempt from tax on dividends received on shares in Norwegian limited liability companies. Dividends distributed to Norwegian individual shareholders are taxable as general income at a flat rate of 28% to the extent the dividends exceed a statutory tax-free allowance. The allowance is calculated separately for each share as the tax purchase price of the share, including RISK-adjustments up to 1 January 2006, multiplied with a determined risk-free interest rate, which will be based on the effective rate after tax of interest on treasury bills (Norwegian: statskasseveksler) with three months maturity. The allowance one year will be allocated to the shareholder owning the share on 31 December the relevant income year. The part of the allowance one year exceeding the dividends distributed on the share the same year ( unused allowance ) will be added to the tax purchase price of the share and be included in the basis for calculating the allowance the next year, and may also be carried forward and set off against future dividends received on, and against gains upon the realisation of, the same share Taxation of capital gains upon the realisation of shares Most of Norwegian corporate shareholders are exempt from tax on capital gains upon the realisation of shares in Norwegian limited liability companies. Losses upon the realisation and costs incurred in connection with the purchase and realisation of such shares are not deductible for tax purposes for such shareholders. 53

54 Norwegian individual shareholders are taxable in Norway for capital gains upon the realisation of shares, and have a corresponding right to deduct losses that arise upon such realisation. The tax liability applies irrespective of time of ownership and the number of shares realised. Gains are taxable as general income in the year of realisation, and losses can be deducted from general income in the year of realisation. The tax rate for general income is currently 28%. The taxable gain / deductible loss is calculated per share as the difference between the consideration received and the tax purchase price of the share, including any RISK-adjustments up to 1 January Any unused allowance on a share (see above) may be set off against gains upon the realisation of the same share, but this may not lead to or increase a deductible loss, i.e. any unused allowance exceeding the capital gain upon the realisation of a share will be annulled. When calculating the gain or loss, Norwegian shareholders must apply a first-in, first-out (FIFO) principle, i.e. the shares that were first acquired will be deemed as first sold. Costs incurred in connection with the acquisition and/or sale of shares may be deducted from Norwegian individual shareholders taxable income in the year of realisation. A Norwegian personal shareholder who moves abroad and ceases to be tax resident in Norway as a result of this, will be deemed taxable in Norway according to Norwegian tax legislation or tax treaty is subject to taxation for any contingent gain on the shares held at the time the tax residency ceased, as if the shares were realised at this time. Total gains of NOK 500,000 or less are not taxable. If the person moves to a jurisdiction within the EEA, losses on shares held at the time tax residency ceases will be tax deductible. Upon satisfactory guarantee, the tax authorities will grant delay of payment of assessed taxes payable. Further, if the shares are sold within five years, and the value of the shares are decreased, the tax payer can demand a corresponding decrease in the assessed taxable gain. If the shares are not realised within five years after the shareholder ceased to be resident in Norway for tax purposes, the tax liability calculated under these provisions will cease. The tax treaty concluded by Norway with the state to which the shareholder has moved may influence upon the application of these rules 11.3 Shareholders not resident in Norway for tax purposes In general This section summarises Norwegian rules of taxation relevant to shareholders that are not regarded as residents of Norway for Norwegian tax purposes ( foreign shareholders ). Foreign shareholders tax liabilities in their home country or other countries will depend on tax rules applicable in the relevant jurisdictions Taxation of dividends Dividends paid by Norwegian limited liability companies to foreign shareholders, both corporate and individual, are as a general rule subject to withholding tax in Norway at a flat rate of 25%, unless otherwise provided for in an applicable income tax treaty or the recipient is covered by the specific regulations for shareholders resident within the EEA (see below). Norway has entered into income tax treaties with over 80 countries, with withholding taxes reduced to 15% in most tax treaties. The withholding obligation lies with the company distributing the dividends. Foreign corporate shareholders that are tax resident within the EEA are exempt from Norwegian withholding tax on dividends distributed from Norwegian limited liability companies, provided that the shareholder is the beneficial owner of the dividends and that the shareholder is de facto established and engaged in economic activities in the EEA state. Foreign individual shareholders that are tax resident within the EEA are subject to Norwegian withholding tax on dividends received from Norwegian limited liability companies at the regular rate or at a reduced rate determined in an applicable tax treaty. However, such shareholders may apply individually to the tax authorities for a refund of an amount corresponding to the difference between 25% of the dividend exceeding the calculated tax-free allowance on each individual share (see above), and the withholding tax according to the reduced tax treaty rate. In accordance with the present administrative system in Norway, a distributing company will generally deduct withholding tax at the applicable reduced rate when dividends are paid directly to an eligible foreign shareholder, based on information registered with the VPS (the Norwegian Central Securities Depository) with regard to the tax residence of the foreign shareholder. Dividends paid to foreign shareholders in respect of nominee registered 54

55 shares are not eligible for reduced treaty-rate withholding at the time of payment unless the nominee, by agreeing to provide certain information regarding beneficial owners, has obtained approval for reduced treaty-rate withholding from the Central Office for Foreign Tax Affairs (Sentralskattekontoret for utenlandssaker). Foreign shareholders who have suffered a higher withholding tax than set out by an applicable tax treaty may apply to the Norwegian tax authorities for a refund of the excess withholding tax deducted. If a foreign shareholder is carrying on business activities in Norway, and the relevant shares are effectively connected with such business activities, dividends distributed to such shareholder will be subject to the same taxation as Norwegian shareholders, as described above. Foreign shareholders should consult their own advisers regarding the availability of treaty benefits in respect of dividend payments, including the ability to effectively claim refunds of over-withheld amounts Taxation of capital gains upon the realisation of shares Capital gains upon the realisation of shares in Norwegian limited liability companies by foreign shareholders that are limited liability companies or similar entities are not subject to taxation in Norway. For foreign individual shareholders, capital gains upon the realisation of shares in Norwegian limited liability companies will be subject to taxation in Norway if the shareholding is effectively connected with a business which the shareholder takes part in or carries out in Norway. With regard to a foreign individual shareholder that has been a resident of Norway for tax purposes, please confer the last but one section above under Shareholders resident in Norway for tax purposes, Taxation of capital gains upon the realisation of shares. The taxation of capital gains upon the realisation of shares may be limited pursuant to an applicable tax treaty Duties on the Transfer of Shares No stamp or similar duties are currently imposed in Norway on transfer of shares, whether on acquisition or disposal Inheritance tax When shares are transferred either through inheritance or as a gift, such transfer may give rise to inheritance or gift tax in Norway if the deceased, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway. However, in the case of inheritance tax, if the deceased was a citizen but not a resident of Norway, Norwegian inheritance tax will not be levied if inheritance tax or a similar tax is levied by the country of residence of the deceased. Irrespective of residence or citizenship, Norwegian inheritance tax may be levied if the shares are held in connection with the conduct of a trade or business in Norway. The basis for the inheritance or gift tax computation on listed shares is the market value of the shares at the time the transfer takes place. 55

56 12 DEFINITIONS AND GLOSSARY OF TERMS The following definitions and glossary apply in this Information Memorandum unless otherwise dictated by the context, including the foregoing pages of this Information Memorandum. Definitions Borgestad Borgestad Industries Industries Demerger Demerger Plan Demerged Company Information Memorandum ISIN IFRS Manager NOK Public Limited Companies Act The Company VPS Aktieselskabet Borgestad ASA Borgestad Industries ASA and all of its subsidiaries Borgestad Industries ASA The demerger of Borgestad Industries ASA from Aktieselskabet Borgestad ASA The demerger plan entered into between by the Boards of Directors of Aktieselskabet Borgestad ASA and Borgestad Industries on 10 April Aktieselskabet Borgestad ASA after the demerger This information memorandum International Securities Identification Number International Financial Reporting Standards Orion Securities AS The currency of Norway (Norwegian kroner) The act of 13 June 1997 no 45 on Public Limited Companies Aktieselskabet Borgestad ASA The Norwegian Central Securities Depository 56

57 13 LIST OF APPENDICES Appendix 1: Demerger Plan, dated 10 April 2008 Appendix 2: Report of the Board of Directors Appendix 3: Annual Reports Appendix 4: Statement from the auditor regarding pro forma figures Appendix 5: Articles of Association, Borgestad ASA Appendix 6: Independent expert statement regarding the Demerger plan 57

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201 Appendix 6: Independent expert statement regarding the Demerger plan 201

202 Manager: Orion Securities ASA Rådhusgaten 25 P.O. Box 236 Sentrum NO-0103 Oslo Phone: Telefax: