Report of the Management Board

of

AT & S Austria Technologie & Systemtechnik Aktiengesellschaft

in accordance with Section 174 (4) in conjunction with
Section 153 (4) Stock Corporation Act

Exclusion of subscription rights when issuing convertible bonds

on item 10 of the agenda of the

30th Ordinary General Meeting on July 4, 2024

 

In the Ordinary General Meeting of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft, commercial register number FN 55638 x, 8700 Leoben-Hinterberg, Fabrikgasse 13 (the “Company“), to be held on July 4, 2024, (i) the Management Board of the Company shall be authorized for a period of five years from the date of the resolution by the General Meeting, i.e. until July 3, 2029, to issue convertible bonds in bearer form once or repeatedly in a total amount of up to EUR 400,000,000.00 with the possibility of excluding subscription rights, and (ii) to conditionally increase the nominal capital of the Company in accordance with Section 159 (2) (1) Stock Corporation Act by up to EUR 21,367,500.00 by issuing up to 19,425,000 new no-par value bearer shares, whereby this conditional capital increase shall only be carried out to the extent that holders of convertible bonds issued on the basis of the authorization granted by the General Meeting on July 4, 2024 make use of the conversion and/or subscription right for shares in the Company granted to them. The following resolution is proposed to be adopted on item 10 of the agenda:

  1. The Management Board is authorized in accordance with Section 174 (2) Stock Corporation Act to issue for a period of five years from the date of the resolution by the General Meeting, i.e. until July 3, 2029 and with the consent of the Supervisory Board once or repeatedly convertible bonds in bearer form in a total amount of up to EUR 400,000,000.– and to grant the holders of convertible bonds conversion and/or subscription rights for up to 19,425,000 new no-par value bearer shares of the Company in accordance with the terms and conditions for the convertible bonds to be defined by the Management Board. The convertible bonds can be issued against cash contributions and also against contributions in kind. The fulfilment of the conversion and/or subscription rights can be effected through conditional capital, authorized capital, out of treasury shares or by way of delivery from third parties or a combination thereof.The Management Board shall be authorized to determine with the consent of the Supervisory Board and under consideration of the regulations under stock corporation law the conditions of the convertible bonds (in particular the interest rate, issue amount, maturity and denomination, dilution protection provisions, conversion period, conversion rights and obligations, conversion ratio and conversion price). In particular, the following terms and conditions (or a combination thereof) may be provided for:
  1. additional cash payment and consolidation or adjustment for fractional amounts that cannot be converted;
  2. fixed or variable conversion ratio or the determination of the conversion price within a specified range dependent on the Company’s share price development during the term of the convertible bonds;
  3. the Company’s right, in case of conversion (exercise of the conversion and/or subscription right) not to deliver shares, but to pay an adequate cash amount on the basis of the Company’s share price;
  4. the Company’s right to redeem the convertible bonds prior to maturity at their nominal amount and, if necessary, to pay compensation for such premature redemption;
  5. the right of the convertible bond holders to terminate the convertible bonds prior to the maturity date at their nominal amount and, if necessary, to receive compensation for the premature termination; or
  6. a conversion obligation (conversion and/or subscription obligation) at the maturity date (or at another date) or the Company’s right to wholly or partially deliver shares of the Company at the maturity date instead of making a cash payment to the holders of convertible bonds.

The price of the convertible bonds shall be calculated under consideration of calculation methods customary in the market in a standard market pricing procedure. The price (issue amount) of a convertible bond is to be determined in particular from the price (issue amount) of a fixed-interest bond and the price for the conversion right, taking into account the other features. The issue price of a bond is determined on the basis of standard market calculation methods in accordance with the maturity of the bond, the interest rate of the bond, the current market interest rate and taking into account the credit quality of the Company. The value of the conversion and/or subscription right is calculated using the option price calculation methods, in particular taking into account the maturity/exercise period, the share price performance (volatility) or other key financial figures and the ratio of the conversion and/or subscription price to the price of the Company’s shares. Other features, such as early termination rights, a conversion obligation, a fixed or variable conversion ratio, must be taken into account.

The issue amount of the shares issued upon conversion (exercise of the conversion and/or subscription right) and the conversion and/or subscription ratio shall be determined with regard to market standard calculation and the stock market price of the shares of the Company (basis of the calculation of the issue amount); the issue amount must not be below the pro-rata amount of the nominal capital.

The statutory subscription right may also be granted in such way that the convertible bonds are underwritten by a bank or a banking syndicate with the obligation to offer them to the shareholders for subscription (indirect subscription right). However, the Management Board is authorized to exclude the shareholders subscription rights to convertible bonds in whole or in part. The authorization to exclude subscription rights only applies to convertible bonds that grant the right to convert and/or subscribe to shares in the Company of, in total, no more than 10 % (ten percent, rounded to the second decimal place) of the Company’s nominal capital at the time the authorization is granted. The number of shares issued during the term of this authorization from authorized capital with the exclusion of subscription rights is to be counted towards this 10 % threshold.

The convertible bonds can also be issued by a direct or indirect wholly-owned subsidiary of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft; in this event, the Management Board shall be authorized, with the consent of the Supervisory Board, to assume a guarantee for the Company for the convertible bonds and to grant the holders of the convertible bonds conversion and/or subscription rights to bearer shares of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft.

 

  1. The nominal capital of the Company shall be conditionally increased pursuant to Section 159 (2) (1) Stock Corporation Act by an amount of up to EUR 21,367,500.00 by the issue of up to 19,425,000 new no-par value bearer shares. This conditional increase of the nominal capital will only be carried out to the extent that holders of the convertible bonds issued based on the authorization by the General Meeting on July 4, 2024 exercise the conversion and/or subscription right for shares in the Company granted to them.

The issue amount and the conversion and/or subscription ratio shall be calculated under consideration of calculation methods customary in the market and the price of the shares of the Company (basics of the calculation of the issue amount); the issue amount must not lie below the proportionate amount of the nominal capital. The Management Board shall be authorized to determine further details concerning the execution of the conditional increase of capital with the approval of the Supervisory Board (including without limitation issue amount, contents of share rights).

The newly issued shares shall participate in the profits in the same way as the shares traded at the stock exchange at the time of issuance.

The Supervisory Board shall be authorized to resolve on amendments to the Articles of Association which result from the issuance of the shares from the conditional capital. The same shall apply in case the authorization to issue convertible bonds has not been exercised by the expiration of the period of authorization and in case the conditional capital has not been utilized by the expiration of the periods in accordance with the terms and conditions for convertible bonds.

The sum of (i) the number of the new shares actually or potentially issued from the conditional capital in accordance with the terms and conditions of the convertible bonds and (ii) the number of the shares issued from the Authorized Capital 2024 shall not exceed the number of 19,425,000 (limitation of the authorizations according to amount).

 

  1. The Articles of Association will accordingly be amended in Section 4 (Nominal capital) so that Section 4 paragraph 6 b) and c) shall read as follows:
    6) „b) In accordance with Section 159 (2) (1) Stock Corporation Act the nominal capital shall be conditionally increased by an amount of up to EUR 21,367,500.00 by the issue of up to 19,425,000 new no-par value bearer shares. This conditional increase of capital will only be carried out to the extent that holders of the convertible bonds issued based on the authorization by the General Meeting on July 4, 2024 exercise the conversion and/or subscription right for shares in the Company granted to them. The issue amount and the conversion and/or subscription ratio shall be calculated under consideration of calculation methods customary in the market and the price of the shares of the Company (basics of the calculation of the issue amount); the issue amount must not lie below the proportionate amount of the nominal capital. The Management Board shall be authorized to determine further details concerning the execution of the conditional increase of capital with the approval of the Supervisory Board (including without limitation issue amount, contents of share rights). The newly issued shares shall participate in the profits in the same way as the shares traded at the stock exchange at the time of issuance. The Supervisory Board shall be authorized to resolve on amendments to the Articles of Association which result from the issuance of the shares from the conditional capital. The same shall apply in case the authorization to issue convertible bonds has not been exercised by the expiration of the period of authorization and in case the conditional capital has not been utilized by the expiration of the periods in accordance with the terms and conditions for convertible bonds.“
    6) „c) The sum of (i) the number of the new shares actually or potentially issued from the conditional capital in accordance with the terms and conditions of the convertible bonds and (ii) the number of the shares issued from the Authorized Capital 2024 shall not exceed the number of 19,425,000 (limitation of the authorizations according to amount pursuant to literae a and b).“

 

In accordance with the statutory provisions, the Executive Board of the Company therefore submits the following written report to the General Meeting pursuant to Section 174 (4) in conjunction with Section 153 (4) Stock Corporation Act.

REPORT

on the authorization to exclude subscription rights when issuing convertible bonds:

The proposed authorization to issue convertible bonds with the exclusion of subscription right is in the interest of the Company and the shareholders.

The advantages of such convertible bonds can generally be found in the following material aspects: (i) improved financing conditions for the Company, (ii) tapping of new investor groups, and (iii) an issue price being attractive for the Company.

(i) Improved financing conditions

The issue of convertible bonds would enable the Company to actively shape its capital structure and optimize its capital costs. By subscribing convertible bonds, investors additionally to the interest payments for their invested capital receive the right to purchase shares in the Company in the future at a price already determined at the time of the issuance of the convertible bond, thus enabling them to participate in the substance and profitability of the Company. In this way, investors also obtain the opportunity to participate in a possible increase of the value of the Company, with low default risk compared to direct equity investments. By the issuance of convertible bonds, the Company can achieve a flexible and quick access to attractive financing conditions, which are generally below the levels of pure debt instruments. Convertible bonds also offer the opportunity to utilize the high volatility of the share price in favor of the Company and thus reduce the Company’s capital costs.

However, attractive financing terms can only be achieved if the Company can respond in a quick and flexible way to favorable market conditions. Such advantage can often not be achieved by an issue of subscription rights with a minimum subscription period of at least two weeks. Experience has shown that issues with the exclusion of subscription rights usually can achieve better conditions, since by means of an immediate placement price-influencing risks at the expense of the Company due to changing market situations can be avoided and therefore investors being specialized on convertible bonds can be approached. On the contrary, for issuances with subscription rights a minimum subscription period of two weeks has to be observed. Any subscription period could lead to the result, that because of the respective (unusual) structuring or allotment mechanisms and/or market risks for investors during the subscription period, professional investors could not be approached at all or only by receiving a lower issuance amount. Usually, if subscription rights are excluded, more funds can be generated for the Company from a lower number of shares to be issued. Therefore, the exclusion of subscription rights is standard practice on the international capital markets for convertible bond issuances.

Finally, the economic relevance of subscription rights is immaterial if the bonds are valued at market and placed at the best terms available in the markets, as it is intended by the Company in its own interest as well as in the interest of the shareholders. With respect to convertible bonds this can in particular be achieved through determination of the issue amount of the shares to be issued upon exercise of conversion and/or subscription rights at a sufficient level above the current share price so that existing shareholders are protected from dilution to the extent possible.

Without the time consuming and costly implementation of the subscription right, the financing and capital demands of the Company can be met out of short-term market opportunities in a timely and cost effective manner and new investors can be accessed domestically and abroad. Hence, through the opportunity to exclude the shareholders’ subscription rights, a stabilization of the equity capital and a reduction in financing costs both in the interest of the Company and of all shareholders can be achieved.

Because of the conditions which are common for convertible bonds on the capital markets the conversion price of the shares to be issued at conversion (exercise of the conversion and/or subscription right) will be above the share price at the time of issuance of the convertible bonds, so that the Company can achieve a higher issue amount in comparison to an immediate capital increase.

(ii) Tapping of new investor groups

Convertible bonds are predominantly subscribed by institutional investors which are specialized in that kind of investment and which shall be reached by the possible convertible bond to be issued. Institutional investors make specific demands on the denomination, configuration and temporal flexibility when the convertible bonds are issued. In general, it is appropriate and usual to meet these demands through an issuance with the exclusion of subscription rights. Thus, the Company can tap an additional investor base. Any issue with subscription rights could lead to the result, that because of the respective (unusual) structuring or allotment mechanisms and/or market risks for institutional investors during the subscription period, such investors could not be approached at all or only by receiving a lower issuance amount.

Therefore, the authorization of the Management Board to exclude shareholders’ subscription rights is necessary due to strategic, financial and organizational reasons in order to (i) position the convertible bonds appropriately in the capital markets, (ii) offer them to investors specialized in convertible bonds in the best possible and target group-specific manner and (iii) to best utilize the benefits to the Company arising from the issuance of convertible bonds. The issuance of convertible bonds with subscription rights could substantially reduce the aforementioned benefits which result from the comparably favorable interest component as well as from the fast implementation possibility and the flexibility for the Company, in particular because of the heavily increased processing efforts (such as the time-intensive preparation, marketing- and commercial efforts) and the one-time, and recurring processing costs related thereto.

(iii) Issue amount, terms of the convertible bonds and issue amount of the shares

The Management Board shall be authorized to determine with the consent of the Supervisory Board the emission and configuration features and the terms of the convertible bonds (in particular the interest rate, issue amount, maturity and denomination, dilution protection provisions, conversion period, conversion rights and obligations, conversion ratio and conversion price).

The price of the convertible bonds shall be determined with regard to market-standard calculation methods in a market-standard pricing procedure. The price (issue amount) of a convertible bond thereby has to be determined by the price (issue amount) of an ordinary fixed-interest bond and the price for the conversion rights taking into consideration the other terms and conditions. The issue price of a bond is determined on the basis of market-standard calculation methods subject to the maturity of the bond, interest rate of the bond, the current market interest rate as well as considering the credit rating of the Company. The value of the conversion and/or subscription right is calculated by means of option price calculation, in particular considering maturity/exercise period, share price development (volatility) or other financial ratios as well as the relation of the conversion and/or subscription price to the share price of the Company. Further conditions, e.g. rights to early redemption, conversion obligations, and a fixed or variable conversion ratio are to be considered.

The issue amount of the shares issued upon conversion (exercise of the conversion and/or subscription right) and the conversion and/or subscription ratio shall be determined with regard to market standard calculation and the price of the shares of the Company (basis of the calculation of the issue amount); the issue amount must not lie below the proportionate amount of the nominal capital.

Since the share price is an important criterion for the determination of the terms and conditions of the convertible bonds, it is in the Company’s interest to have a considerable influence on the date of issuance. Both the share price performance and the market assessment can be subject to very significant changes within a two-week subscription period, whereas in the case of an issue with exclusion of subscription rights, the Company can select what it considers to be a favorable allocation date comparatively quickly and flexibly. As a rule, more funds can be generated in a shorter period of time at more favorable conditions for the Company.

Through the authorization to exclude the subscription rights the Company is able to determine favorable issuing terms in a flexible way within the term of the authorization and can thus optimize the conversion as well as then financing terms in the interest of the Company and all shareholders. At the same time both the expected share price development as well as the general capital market situation can be accounted for. This way the development potential can be fully utilized to the benefit of the Company and the current shareholders.

Additionally, by the issuance of convertible bonds the capital structure of the Company can be optimized and the balance sheet structure of the Company can be improved. Depending on the structure chosen, a part of the debt capital acquired through the convertible bonds may be assessed as equity by external analysts. Such an assessment may allow an improved rating of the Company by investors and can therefore lead to lower financing costs for future debt capital of the Company. Furthermore, a convertible bond is often valued as a positive signal on the capital markets in relation to the confidence of the management with regard to the future development of the share price. Such confidence is reflected in the conversion price, which mostly can – due to the above mentioned reasons – be set forth at a higher level, if the subscription rights are excluded.

In addition, convertible bonds according to Section 174 Stock Corporation Act with conversion or option rights might also be used by the Management Board, with consent of the Supervisory Board, as transaction currency when acquiring companies, stakes in companies or assets from third parties. By using such instruments as consideration, the Company’s liquidity can be preserved. Also, a deferral of payment of the purchase price can be achieved this way.

An exclusion of subscription rights shall not only be possible in the case of contributions in kind, but also in the case of cash contributions if there is a respective interest of the Company and the legal requirements are met, e.g. in the case of a cooperation with another company in the interest of the Company, if the partner makes its engagement subject to the acquisition of participations, in the case a strategic partner wants to acquire a participation in the Company and such participation is substantially in the interest of the Company, or if a third party offers necessary additional financial benefits which cannot be obtained otherwise or in the case of a necessary participation of further persons for marketing and market reasons. Investors may also make their participation in the Company – possibly including otherwise unattainable additional financial benefits (such as bonuses, agios or premiums) – dependent on reaching a certain minimum participation; such a minimum shareholding can be facilitated or made possible in the first place by granting a convertible bond with the exclusion of subscription rights to such an investor, thereby making the Company more attractive to the investors concerned. The entry of such investors, who are prepared to grant otherwise unattainable additional financial benefits (including any bonuses, agios or premiums), may be to the benefit and in the interest of the Company and the existing shareholders. Also special transaction structures in the interest of the Company and of the shareholders may require the issuance of convertible bonds with the exclusion of subscription rights.

In order to allow the implementation of the issuance of convertible bonds, the Management Board shall also have the possibility to offer the convertible bonds by way of an indirect subscription right pursuant to Section 153 (6) Stock Corporation Act.

The authorization to exclude subscription rights only applies to convertible bonds that grant the right to convert and/or subscribe to shares in the Company of, in total, no more than 10 % (ten percent, rounded to the second decimal place) of the Company’s nominal capital at the time the authorization is granted. The number of shares issued during the term of this authorization from authorized capital with the exclusion of subscription rights is to be counted towards this 10 % threshold. There is no reason to fear a noticeable dilution of voting rights if convertible bonds with conversion and/or subscription rights to shares in the Company totaling no more than 10 % of the nominal capital are issued with the exclusion of subscription rights. Shareholders also have the option of maintaining their relative shareholding quota and their relative share of voting rights by purchasing additional shares on the stock exchange.

If the Management Board exercises its authorization to issue convertible bonds with the exclusion of shareholders’ subscription rights, the approval of the Supervisory Board is required. Therefore, the Management Board has to establish a new written report outlining the reasons for the exclusion of the subscription rights and has to publish such report at the latest two weeks prior the respective resolution of the Supervisory Board. In such case, also all other provisions of the Stock Corporation Act and the capital markets law applicable to such an issue, in particular publication and notification obligations have to be observed.

Weighing of interests

The proposed authorization to exclude the subscription rights is objectively justified by the aspired goals, namely an optimization of the capital structure and a reduction of financing costs to provide a further stabilization and improvement of the Company’s competitive position in the interest of the Company and the shareholders.

Furthermore, the exclusion of subscription rights is also necessary and required, because the financing and anticipated inflow of equity from the target group specific orientation of the convertible bonds replaces more cost-intensive capital measures, offers favorable financing terms and secures a long-term and flexible business planning and realization of planned corporate goals for the benefit of the Company and therefore also all shareholders. Without the exclusion of the subscription right, the Company will not be able to respond quickly and flexibly to favorable conditions in the market.

The Management Board of the Company expects that the Company’s advantage from issuing convertible bonds with the exclusion of subscription rights will benefit all shareholders and will clearly outweigh the (potential) pro rata reduction in shareholding of the shareholders excluded from the subscription rights. This is particularly true in view of the fact that a noticeable dilution of shareholders is not to be feared due to the restriction of the exclusion of subscription rights to a maximum of 10 % of the nominal capital.

For the reasons stated above, the proposed authorization to exclude shareholders’ subscription rights, is necessary, suitable, appropriate and objectively justified and advisable in the overwhelming interest of the Company.

Leoben, in June 2024

The Management Board of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft

 

This document represents a convenience translation of the official (German) version. In case of discrepancies between the official (German) version and this English convenience translation the official (German) version shall prevail.