Information Memorandum

Transcription

1 Information Memorandum for the holders of Swedish Depository Receipts over shares in Alliance Oil Company Ltd. in relation to Alliance Group's proposed acquisition of Alliance Oil Company Ltd. by way of amalgamation between Alliance Oil Company Ltd. and Alford Financial Ltd 1

2 The Boards of Directors of Lambros Overseas S.A. corporate registration no , and OJSC Alliance Group, corporate registration no , (together Alliance Group ) and Alliance Oil Company Ltd., corporate registration no , ( AOC or the Company ) propose that Alliance Group s jointly owned subsidiary Alford Financial Ltd, corporate registration no , ( Alford ) is amalgamated with the Company pursuant to a transaction whereby holders of all the ordinary shares in AOC ( Ordinary Shares ), represented by Swedish Depositary Receipts ( SDRs ) and of par value US$ 1.00 per share, and all the preference shares in AOC ( Preference Shares ), represented by SDRs and of par value US$ 1.00 per share (the Ordinary Shares and the Preference Shares together referred to as the Shares ), which are held by parties other than Alliance Group and its affiliates would receive a cash consideration, on the terms and conditions set out in this information memorandum (the Information Memorandum ) (the Transaction ). The Transaction shall be governed by and construed in accordance with Bermuda law. Any dispute arising out of the Transaction shall be subject to the jurisdiction of the Bermuda courts applying Bermuda law. The Transaction is subject to shareholder approval at a Special General Meeting of the Company (the SGM ). The threshold for approval at the SGM is at least 75 per cent. of the votes cast at the SGM for which the required quorum is two persons at least holding or representing by proxy more than one third of the issued shares in AOC. Alliance Group and its affiliated companies intend to vote for their Shares in favour of the Transaction at the SGM. As of 30 September 2013, Alliance Group and its affiliated companies control 45 per cent. of the SDRs over Ordinary Shares in AOC, and seven (7) per cent. of the SDRs over Preference Shares in AOC. In total, Alliance Group controls approximately 43 per cent. of the total Shares and 45 per cent. of total votes in AOC. Alliance Group, together with Shareholders (as defined below) having issued irrevocable undertakings to vote in favour of the Transaction, represent approximately 48.2 per cent. of AOC votes. The threshold for approval of the Transaction at the SGM is at least 75 per cent. of the votes cast at the SGM. AOC has commissioned Skandinaviska Enskilda Banken AB (publ) ( SEB ), on behalf of Shareholders (as defined below), to hold all Shares on a depository account, and to issue one (1) ordinary SDR for each Ordinary Share and one (1) preference SDR for each Preference Share, which are listed on NASDAQ OMX Stockholm Large Cap under the ticker symbols AOIL SDB and AOIL SDB PREF, respectively. Alford and the Company entered into a conditional implementation agreement on 30 October 2013 with respect to the proposed amalgamation between Alford and the Company (the Implementation Agreement ) (see further in Implementation Agreement and Amalgamation Agreement, section 7, page 23). Under the terms of the Transaction, holders of Shares will receive in cash for each Ordinary Share SEK 60 and for each Preference Share, SEK 313 plus SEK 7.5 multiplied by the percentage of the period between the most recent dividend record date and the subsequent dividend record date which has elapsed at the registration of the Amalgamation (as defined below). If approved by the beneficial holders of SDRs representing the Shares in the Company (the Shareholders ) at the SGM, Alford and the Company will upon the amalgamation, which will be implemented under Bermuda law, amalgamate and continue as one company under the name Alliance Oil Ltd (the Amalgamated Company ) (the Amalgamation ). Further to the Amalgamation all of the Shares will be cancelled, in exchange for the Cash Consideration (as defined below), and the SDRs will 2

3 be delisted from NASDAQ OMX Stockholm and deregistered from Euroclear Sweden AB. Shares will be converted into the right to receive the Cash Payment (as defined below). Any Shareholders who hold their interest in Shares through SDRs who do not vote in favour of the Amalgamation at the SGM are entitled, if they do not consider the Cash Consideration to represent a fair price for their Shares, to apply to the Court in Bermuda under Section 106 of the Companies Act 1981 of Bermuda (as amended) for an appraisal of the fair value of their Shares. Such dissenting Shareholders are advised to obtain the advice of counsel before proceeding, and the following does not constitute legal advice. See further Dissenting Shareholder Rights in section 8, page 48. As the Transaction is proposed to be made by way of amalgamation between Alford and AOC under applicable Bermuda law, the Stock Market (Takeover Bids) Act (Sw. lagen (2006:451) om offentliga uppköpserbjudanden på aktiemarknaden) (the Takeover Act ) and the NASDAQ OMX Stockholm Takeover Rules (Sw. NASDAQ OMX Stockholms regler rörande offentliga uppköpserbjudanden på aktiemarknaden) (the Takeover Rules ) will not apply to the Transaction. Hence, this Information Memorandum has not been registered with, or approved by, the Swedish Financial Supervisory Authority (the SFSA ). Alliance Group has, in relation to the Transaction, requested a statement from the Swedish Securities Council (Sw. Aktiemarknadsnämnden) (the Securities Council ) and has undertaken to comply with the Company's bye-laws, mandatory Bermuda law, any special directions given by the Company's general meeting and the information requirements, as appropriate, set out in Chapter 2a, section 2 of the Financial Instruments Trading Act (Sw. lagen (1991:980) om handel med finansiella instrument) (the Trading Act ) and rule II.3 of the Takeover Rules. This approach has been considered by the Securities Council in statement 2013:35 and the SFSA (further information is included in the section Statement from the Swedish Securities Council and Compliance with the Takeover rules, page 10). The figures reported in this Information Memorandum have been rounded as appropriate. All shareholding percentages in AOC, and the value of the Transaction, in this Information Memorandum are based on 171,528,414 outstanding Ordinary Shares and 7,280,000 outstanding Preference Shares as of 31 October This Information Memorandum has been prepared in Swedish and English language versions. In case of any inconsistency between the Swedish and the English versions of the Information Memorandum, the English version shall prevail. 3

4 Important information Certain statements included in this Information Memorandum constitute or are based on forwardlooking statements. Examples of forward-looking statements include, among others, statements regarding AOC's and Alliance Group s future financial position, income growth, assets, business strategy, leverage, projected levels of growth, projected costs, plans and objectives for future operations, statements related to the planned amalgamation of Alford and AOC and anticipated benefits associated therewith, and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, domestic and global economic and business conditions, the effects of continued volatility in credit markets, market related risks such as changes in interest rates and exchange rates, effects of changes in valuation of credit market exposures, changes in valuation of issued notes, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ( IFRS ) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions and other strategic transactions and the impact of competition a number of such factors being beyond AOC's and Alliance Group s control. These statements as they appear throughout this Information Memorandum are not guarantees of future performance and are subject to inherent risks and uncertainties. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as: may ; will ; expects ; believes ; anticipates ; plans ; intends ; estimates ; projects ; targets ; forecasts ; seeks ; could ; or the negative of such terms, and other variations on such terms or comparable terminology. Actual results could differ materially from those expressed or implied in such forward-looking statements. Any forward-looking statements made herein speak only as of the date they are made. Except as required by NASDAQ OMX Stockholm or applicable law, AOC and Alliance Group and its affiliates expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Information Memorandum to reflect any change in AOC or Alliance Group expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The Convertible Bonds Tender Offer and Consent Solicitation (as defined below) is not being made, and will not be made, directly or indirectly in or into, or by use of the mail of, or by any means or instrumentality of interstate or foreign commerce of or of any facilities of a national securities exchange of, the United States. This includes, but is not limited to, facsimile transmission, electronic mail, telex, telephone, the internet and other forms of electronic communication. The Convertible Bonds (as defined below) may not be tendered in the Convertible Bonds Tender Offer and Consent Solicitation by any such use, means, instrumentality or facility from or within the United States or by persons located or resident in the United States as defined in Regulation S of the U.S. Securities Act of 1933 (the Securities Act ) or to U.S. persons as defined in Regulation S of the Securities Act. THIS INFORMATION MEMORANDUM HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTIONS CONTEMPLATED THEREBY NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THE INFORMATION MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. 4

5 Contents 1 The Transaction Background to and reasons for the Transaction Terms and Conditions Summary of Fairness Opinion Recommendation by the Independent Directors of AOC Information on AOC Implementation Agreement and Amalgamation Agreement Approval and implementation of the Amalgamation Financial Information in summary Share Capital and Ownership Structure AOC s Board of Directors, Group Management and Auditors AOC s Bye-Laws AOC s interim report for January June Other information Information on Alford and Alliance Group Tax issues in Sweden Statement from the Board of Directors of AOC Statement from the Auditors Contact details

6 The Transaction in brief On 31 October 2013, AOC and Alliance Group announced a recommended transaction following which AOC by way of Amalgamation would become wholly owned by Alliance Group. Under the terms and conditions of the Transaction, Alliance Group would acquire all Shares of AOC not currently held by Alliance Group and its affiliated companies, to be implemented by way of amalgamation between AOC and Alford under Bermuda law. The Transaction is recommended by the Independent Directors of AOC (as defined below). If approved by the SGM with the required voting majority, Shareholders of AOC will, via SEB, receive cash consequent upon the cancellation of their Shares. Price per Ordinary Share: Price per Preference Share: SEK 60 in cash. SEK 313 in cash, plus SEK 7.5 for each Preference Share multiplied by the percentage of the period between the most recent dividend record date and the subsequent dividend record date, which has elapsed at the registration of the Amalgamation. 1 Preliminary timetable 31 October 2013 Announcement of the Transaction 4 November 2013 Notice of SGM and Information Memorandum published 2 December 2013 SGM of AOC to consider a resolution to approve the Amalgamation Announcement of SGM outcome, disclosure of last trading day, delisting, record date and settlement date 10 December 2013 Confirmation regarding all regulatory approvals expected to be received Last day of trading of the SDRs in AOC 11 December 2013 Delisting of the SDRs The Bermuda Registrar of Companies issues certificate of amalgamation for the Amalgamated Company 13 December 2013 Cash Consideration Record Date 18 December 2013 Date for settlement of the Cash Consideration All the dates above are preliminary and, inter alia, subject to relevant regulatory clearances being obtained. A firm timetable will be announced by Alliance Group and AOC in due time if the above dates change. Approval and implementation of the Amalgamation The Implementation Agreement was entered into between Alford and the Company on 30 October If the Amalgamation is approved by the SGM on 2 December 2013 (or any adjournment thereof) with the required voting majority, the Amalgamation will be implemented in accordance with Bermuda law. Upon successful completion of the Transaction, all of the Shares will be cancelled and the SDRs will be delisted from NASDAQ OMX Stockholm and deregistered from 1 For example, if the registration of the Amalgamation takes place on 11 December 2013, each Preference Share holder will be entitled to receive from the Company SEK 313 of principal amount per one Preference Share plus an accrued dividend of SEK 7.5 multiplied by 12/91, which represents the proportion of the number of days between 30 November 2013 and 11 December 2013 (inclusive) to the number of days between 30 November 2013 and 28 February 2014 (inclusive) (29 November 2013 and 28 February 2014 being the upcoming quarterly dividend record dates). 6

7 Euroclear Sweden AB. Shareholders will, without further action from them, via SEB, receive the Cash Consideration (as defined below) consequent upon the cancellation of their Shares (see further in the section No further actions needed by Shareholders to receive the Cash Consideration, page 14). 7

8 1 The Transaction On 31 October 2013, Alliance Group and AOC announced the Transaction. The Transaction is proposed to be implemented by way of amalgamation, through which Alford and AOC will amalgamate in accordance with Bermuda law and continue as the Amalgamated Company. The Transaction is conditional, inter alia, on approval by the Shareholders at the SGM on 2 December 2013 (or any adjournment thereof), on receipt of relevant antitrust clearances in Russia, Germany and Cyprus, and on that no bona fide third party offer having been made for all Shares that is deemed more attractive in the view of the Independent Directors. Upon fulfilment of all conditions, the Amalgamation will be registered with the Bermuda Registrar of Companies. The threshold for approval at the SGM is at least 75 per cent. of the votes cast at the SGM for which the required quorum is two persons at least holding or representing by proxy more than one third of the issued Shares. Alliance Group and its affiliated companies will be permitted and intend to vote for their shares at the SGM. Following registration of the Amalgamation, all of the Shares will be cancelled, and the SDRs will be delisted from NASDAQ OMX Stockholm and deregistered from Euroclear Sweden AB. Under the terms of the Transaction all Shareholders, except for Alliance Group and its affiliated companies, will, via SEB, receive a cash consideration in exchange for their Shares in the amount of: SEK 60 in cash for each Ordinary Share; and SEK 313 in cash for each Preference Share, plus SEK 7.5 per Preference Share multiplied by the percentage of the period between the most recent dividend record date and the subsequent dividend record date, which has elapsed at the registration of the Amalgamation 2 (the cash consideration for all Shares together referred to as the Cash Consideration ). The Cash Consideration represents a premium for each Ordinary Share of approximately: 4 per cent. to the closing price of the relevant SDRs on 30 October 2013 (being the last trading day before announcement of the Transaction); 17 per cent. to the volume weighted average closing price of the relevant SDRs over the 3 month period prior to 31 October 2013; 25 per cent. to the volume weighted average closing price of the relevant SDRs over the 6 month period prior to 31 October 2013; and 48 per cent. to the closing price on 24 July 2013, which is the last date prior to press speculation about a potential third party acquisition of a significant stake in the Company or its assets. The Cash Consideration represents a premium per Preference Share of approximately: 4 per cent. to the closing price of the relevant SDRs on 30 October 2013; 6 per cent. to the volume weighted average closing price of the relevant SDRs over the 3 month period prior to 31 October 2013; and 2 For example, if the registration of the Amalgamation takes place on 11 December 2013, each Preference Share holder will be entitled to receive from the Company SEK 313 of principal amount per one Preference Share plus an accrued dividend of SEK 7.5 multiplied by 12/91, which represents the proportion of the number of days between 30 November 2013 and 11 December 2013 (inclusive) to the number of days between 30 November 2013 and 28 February 2014 (inclusive) (29 November 2013 and 28 February 2014 being the upcoming quarterly dividend record dates). 8

9 6 per cent. to the volume weighted average closing price of the relevant SDRs over the 6 month period prior to 31 October The total value of the Transaction, excluding the value of the Shares beneficially held by Alliance Group and its affiliated companies, amounts to approximately SEK 7,813,451,060 (excluding the amount of any accrued dividends relating to the Preference Shares). Shareholders will not be charged for any brokerage fee or commission in conjunction with settlement of the Cash Consideration. However, Shareholders will be responsible for paying customary fees to custodians or intermediaries through whom such SDR interests are held. Recommendation from the Independent Directors of AOC The Independent Directors of AOC (as defined below) have unanimously decided to recommend that Shareholders vote in favour of the Transaction at the SGM. Two of the directors of AOC, Arsen Idrisov (a beneficiary of Alliance Group) and Isa Bazhaev (Managing Director of one of Alliance Group s subsidiaries), have absented themselves from all deliberations of the board in connection with the Transaction. Accordingly, the Transaction has been considered only by the Independent Directors: Eric Forss, Raymond Liefooghe, Fred Boling, Claes Levin and Fernando Martinez-Fresneda (the Independent Directors ). Recommendation from the Financial Advisor of AOC Merrill Lynch International ( BofA Merrill Lynch ) and Carnegie Investment Bank ( Carnegie ) have acted as financial advisors to the Company in connection with the Transaction, and BofA Merrill Lynch has provided the Independent Directors with an opinion that the value of the Cash Consideration to be received by the holders of Ordinary Shares and Preference Shares is fair, from a financial point of view, to such holders. In providing their advice, BofA Merrill Lynch has taken into account the commercial assessments of the Independent Directors as well as their consideration of the Company's bye-laws with respect to the provisions relating to the Preference Shares. The Independent Directors recommendation is included in the section Recommendation from the Independent Directors of AOC on page 17. Financing of the Transaction The Transaction will be funded by a committed debt facility, as described in more detail below, which will be provided by Gazprombank (Open Joint-Stock Company) as lender (the Lender ). Further information on conditions for the financing are included in the section Financing on page 91. Alliance Group s current ownership in AOC Alliance Group and its affiliated companies currently hold SDRs representing 76,700,878 Ordinary Shares and 494,700 Preference Shares, jointly representing 43 per cent. of the total number of Shares and 45 per cent. of the total number of votes in AOC as of 30 September Alliance Group and its affiliated companies intend to vote for their holdings in favour of the Transaction at the SGM. Irrevocable undertakings by Shareholders The board of directors of Repsol Exploracion S.A., a company which is one of the largest holders of SDRs, representing three (3) per cent. of the total number of SDRs representing Shares, corresponding to three (3) per cent. of the total number of votes in AOC as of 30 September 2013, has approved to vote in favour of the Transaction at the SGM. 9

10 The Independent Directors have confirmed that they intend to undertake irrevocably to vote in favour of the Transaction at the SGM in respect of their own beneficial holdings of SDRs representing 264,718 of AOC s Ordinary Shares (representing approximately 0.2 per cent. of the total number of votes in AOC as of 30 September 2013). Convertible Bonds Tender Offer and Consent Solicitation A tender offer of a total of US$ 278,250,000 in cash and a related consent solicitation (the Convertible Bond Tender Offer and Consent Solicitation ) to be announced on 4 November 2013 by AOC for its outstanding US$ 265,000,000 convertible bonds due in 2014 (the Convertible Bonds ) simultaneously with announcement of this Information Memorandum. For further information see Convertible Bonds Tender Offer and Consent Solicitation on page 92. Statement from the Swedish Securities Council and Compliance with the Takeover Rules On 1 September 2013, Alliance Group requested a statement from the Securities Council in relation to interpretation of the Takeover Rules and sound stock market practice in Sweden in the context of the Transaction. The Securities Council concluded in AMN 2013:35 that, as AOC is a Bermuda company and the Transaction is made by way of amalgamation under Bermuda law, the Securities Council considered that it cannot, from a sound stock market practice point of view, set up other requirements than those required under Bermuda law. However, from a sound stock market practice point of view, the Securities Council emphasised the importance of informing the Shareholders of the planned actions in a manner as similar as possible to the information which would have been required had AOC been a Swedish listed company. Please refer to for the full statement. Alliance Group has undertaken to comply with AOC s bye-laws, mandatory Bermuda law, any special directions given at the SGM and the information requirements, as appropriate, set out in Chapter 2a, section 2 of the Trading Act and rule II.3 of the Takeover Rules. No registration of the Information Memorandum with the SFSA As the Takeover Act and the Takeover Rules will not apply to the Transaction, this Information Memorandum has not been registered with, or approved by, the SFSA. The terms and conditions for the Transaction are described in the section Terms and Conditions on page

11 2 Background to and reasons for the Transaction Alliance Group has been a supportive and committed long-term shareholder of AOC as a public company since the origination of AOC through the merger of Alliance Oil and West Siberian Resources Ltd in Alliance Group began work on a potential take-private transaction as it became clearer that the strategy being pursued by the Company was not being appropriately rewarded by the public equity market. Alliance Group believes that AOC management s time would be best spent on the fundamental strategy and challenges of the Company, including on-going operational challenges in Timan-Pechora and the impact of fiscal changes on the downstream business, without the additional and simultaneous pressure of addressing the market volatility these challenges can bring. In the current environment, Alliance Group believes public equity markets do not represent the optimal ownership structure for AOC. As a private company: It will be easier to take a strategic approach to operational challenges and opportunities facing AOC today; Earnings will be improved through the increased leverage afforded by the high liquidity and low interest rates the debt markets offer, which will be more easily accessed under private ownership; and AOC s corporate structure, administration and corporate governance will be simplified, enabling more efficient operations and cost reductions. Finally, Alliance Group believes that while in the past access to the public equity capital markets has been a significant benefit, the relative value of the optionality of this access is now significantly reduced as funds would only be available at a cost of unacceptable dilution to current shareholders. Alliance Group would enter into the Transaction as a strategic investor, with the aim of developing AOC as an independent oil company under its ownership. Alliance Group is acting as principal and not as agent in the Transaction, and is not in discussion with any third parties about the on-sale of AOC or all or significant parts of AOC s business. 11

12 3 Terms and Conditions Cash Consideration The Transaction provides for the payment of the following Cash Consideration consequent upon the cancellation of Shares: SEK 60 in cash for each Ordinary Share; and SEK 313 in cash for each Preference Share, plus SEK 7.5 per Preference Share multiplied by the percentage of the period between the most recent dividend record date and the subsequent dividend record date which has elapsed at the registration of the Amalgamation. 3 The Cash Consideration represents a premium for each Ordinary Share of approximately: 4 per cent. to the closing price of the relevant SDRs on 30 October 2013 (being the last trading day before announcement of the Transaction); 17 per cent. to the volume weighted average closing price of the relevant SDRs over the 3 month period prior to 31 October 2013; 25 per cent. to the volume weighted average closing price of the relevant SDRs over the 6 month period prior to 31 October 2013; and 48 per cent. to the closing price on 24 July 2013, which is the last date prior to press speculation about a potential third party acquisition of a significant stake in the Company or its assets. The Cash Consideration represents a premium per Preference Share of approximately: 4 per cent. to the closing price of the relevant SDRs on 30 October 2013; 6 per cent. to the volume weighted average closing price of the relevant SDRs over the 3 month period prior to 31 October 2013; and 6 per cent. to the volume weighted average closing price of the relevant SDRs over the 6 month period prior to 31 October The total value of the Transaction, excluding the value of the Shares beneficially held by Alliance Group and its affiliated companies, amounts to approximately SEK 7,813,451,060 (excluding the amount of any accrued dividends relating to the preference SDRs). Information memorandum The Information Memorandum will be available by, and can be obtained/ordered free of charge from, Carnegie at their website, The Information Memorandum will also be available at AOC s website, 3 For example, if the registration of the Amalgamation takes place on 11 December 2013, each Preference Share holder will be entitled to receive from the Company SEK 313 of principal amount per one Preference Share plus an accrued dividend of SEK 7.5 multiplied by 12/91, which represents the proportion of the number of days between 30 November 2013 and 11 December 2013 (inclusive) to the number of days between 30 November 2013 and 28 February 2014 (inclusive) (29 November 2013 and 28 February 2014 being the upcoming quarterly dividend record dates). 12

13 Costs Shareholders will not be charged for any brokerage fee or commission in conjunction with settlement of the Cash Consideration. However, Shareholders will be responsible for paying customary fees to custodians or intermediaries through whom such SDR interests are held. Pre-amalgamation undertakings The Implementation Agreement includes undertakings from AOC that it will, during the period from the date of announcement of the Transaction until the date of registration of the Amalgamation with the Registrar of Companies in Bermuda, carry on its business in the ordinary course of business and will not, other than as publicly announced at the date of announcement of the Transaction, without the prior written consent of Alliance Group, take any of the following actions: a) subject to dividends previously resolved at the Annual General Meeting of AOC held 22 May 2013 to holders of Preference Shares, make any distributions or resolve to make any distributions to Shareholders or to issue, sell, purchase or redeem any financial instruments; b) commit to merge, de-merge, amalgamate or enter into any corporate restructuring, liquidation, dissolution or any business combination transaction, or make any corporate acquisition or disposals or discontinue from Bermuda; c) enter into, or announce an intention to enter into, any transaction which is material and outside the ordinary business of AOC; or d) fail to comply in any material respect with any law or any of its regulatory obligations, including all filings in connection therewith, or include any information in such filings that is untrue, inaccurate or misleading in any material respect. Conditions to the Transaction The Transaction is subject to the following conditions: 1. that the Amalgamation is approved at the SGM as required under Bermuda law (namely, approval at the SGM by 75 per cent. of the votes cast at the SGM for which the required quorum is two (2) persons at least holding or representing by proxy more than one third of the issued Shares) (the Approval ); 2. that all permits and approvals of the authorities that are necessary for the Amalgamation have been obtained on terms that are acceptable for AOC, Alford and Alliance Group, in the opinion of each respective Board of Directors; 3. that the pre-amalgamation undertakings made by AOC as set out under the Preamalgamation undertakings section on page 13 are not breached before the day of the registration of the Amalgamation; 4. subject to what Alford and/or Alliance Group could reasonably have foreseen or had knowledge of, that no event occurs which is outside the control of Alliance Group and Alford, which will materially adversely affect the results, liquidity or profit of AOC; and 5. subject to what Alford and/or Alliance Group could reasonably have foreseen or had knowledge of, that the Amalgamation is not, in whole or in part, made impossible, made materially more difficult or negatively affected to a considerable extent by legislation, decisions of the courts, decisions by public authorities or other circumstances outside the control of AOC, Alford and Alliance Group in Sweden, Bermuda or Russia. 13

14 Alliance Group and Alford reserve the right to waive, in whole or in part, the conditions to the Transaction other than the requirement for Shareholder approval of the Amalgamation under Bermuda law. The Transaction may, however, only be withdrawn with reference to condition 3 to 5 if the non-satisfaction of such conditions is of material importance to Alford s acquisition of the Shares. No further actions needed by Shareholders to receive the Cash Consideration Provided that the SGM approves the Amalgamation with at least a 75 per cent. majority of the votes cast, and that a quorum of two (2) persons at least holding or representing by proxy more than one third of the issued Shares are present, the Amalgamation will be implemented without further action from the Shareholders and the Cash Consideration will be paid to the Shareholders via SEB. Amalgamation implementation, settlement of the Cash Consideration and impact of delisting AOC The Amalgamation is expected to be completed on or about 11 December Upon Approval of the Amalgamation at the SGM, the record date for settlement of the Cash Consideration (the Cash Consideration Record Date ) will be confirmed and notified to the market in due course and well in advance of settlement. Within approximately 10 days following Approval, provided that all other conditions to the Transaction have been satisfied or waived, as appropriate, the Amalgamation will be registered with the Bermuda Registrar of Companies, which will issue a certificate of amalgamation confirming implementation of the Amalgamation. As a result of the Amalgamation, Alford and AOC will be amalgamated and continue as one company under the name Alliance Oil Company Ltd. Following registration of the Amalgamation, all of the Shares will be cancelled and the SDRs will be delisted from NASDAQ OMX Stockholm and deregistered from Euroclear Sweden AB. All shareholders who are entered in AOC s register of members, kept at AOC s registered office in Bermuda, on the Cash Consideration Record Date, are entitled to receive the Cash Consideration. SEB will be responsible for on-payment of the Cash Consideration to holders of SDRs who are entered in the register of SDR holders kept by Euroclear Sweden AB on the Cash Consideration Record Date. Settlement of the Cash Consideration is expected to occur on or around 18 December Last day of trading of the SDRs in AOC The last day of trading of the SDRs in AOC is expected to occur around 10 December Right to postpone settlement of the Cash Consideration Completion of the Amalgamation is subject to relevant antitrust clearances. Referring to this circumstance, Alliance Group and Alford reserve the right to defer the date for settlement of the Cash Consideration to a date occurring later than as set out above. 4 Introductions and registrations for the SGM of AOC A notice convening the holders of SDRs to an SGM, which will be held on 2 December 2013 at 3.00 p.m. CET at Nalen, Regeringsgatan 74, Stockholm, Sweden, was announced on 4 November 2013 (the Notice ) and is available on AOC s website: Shareholders in Sweden will be sent an information brochure summarizing the Amalgamation. 4 Notice of any such extension or deferral will be announced by Alliance Group by means of a press release. 14

15 Shareholders who hold their interest in Shares through SDRs will require authorisation from SEB in order to attend the SGM. The manner in which this authorisation may be requested is set out in the Notice. Alliance Group and its affiliated companies will be permitted and intend to vote in favour of the Transaction at the SGM in respect of all of the Shares beneficially held through SDRs on their behalf. Notice of attendance at the SGM shall be made either by to: via regular mail to; SEB, Issuer Agent Department, RB6, SE Stockholm, by fax, no or by telephone, no , no later than 26 November 2013 at 5.00 p.m. CET. When giving notice of participation, the Shareholders shall state their names, as well as the name of any accompanying advisor, address, telephone number and personal identification number and/or company registration number as well as its holding of SDRs representing Shares. Only Shareholders registered in their own name with Euroclear Sweden AB on Tuesday 26 November 2013 and who have notified SEB are entitled to attend and vote at the meeting. Shareholders whose SDRs are registered in the names of nominees must temporarily re-register the SDRs in their own name in order to be entitled to participate. SDR holders wishing to re-register must inform the nominee well in advance of Tuesday 26 November Shareholders who wish to participate by way of proxy must submit a dated form of proxy. The original proxy must be sent to SEB at the above address well in advance of the SGM. If the proxy is issued by a legal entity, a certified copy of the certificate of registration, or an equivalent certificate of authority, shall be attached to the proxy. Any Shareholders who hold their interest in Shares through SDRs who do not vote in favour of the Amalgamation at the SGM are entitled, if they do not consider the Cash Consideration to represent a fair price for their Shares, to apply to the Court in Bermuda under Section 106 of the Companies Act 1981 of Bermuda (as amended) for an appraisal of the fair value of their Shares. See further Dissenting Shareholder Rights in section 8, page 48. Such dissenting Shareholders are advised to obtain the advice of counsel before proceeding, and the following does not constitute legal advice. In brief, dissenting Shareholders will likely be required to exchange their SDRs for registered Shares before the SGM, not vote in favour if the Amalgamation at the SGM and apply to the Bermuda court for appraisal within one (1) month of the giving of the Notice of SGM. 15

16 4 Summary of Fairness Opinion BofA Merrill Lynch has provided the Independent Directors with an opinion that the value of the Cash Consideration to be received by the holders of Ordinary Shares and Preference Shares is fair, from a financial point of view, to such holders. In providing their advice, BofA Merrill Lynch has taken into account the commercial assessments of the Independent Directors as well as their consideration of the Company's bye-laws with respect to the provisions relating to the Preference Shares. 16

17 5 Recommendation from the Independent Directors of AOC Two of the directors of AOC, Arsen Idrisov (a beneficiary of Alliance Group) and Isa Bazhaev (Managing Director of one of Alliance Group s subsidiaries), have absented themselves from all deliberations of the board in connection with the Transaction. Accordingly, the Transaction has been considered only by the Independent Directors: Eric Forss, Raymond Liefooghe, Fred Boling, Claes Levin and Fernando Martinez-Fresneda. The Independent Directors have, together with their financial and legal advisors, evaluated the Transaction, and the Independent Directors have determined that it is in the interest of the Shareholders that the Transaction is presented to them for resolution at the SGM. The Independent Directors unanimously recommend that the Shareholders vote in favour of the Transaction. The recommendation was announced 31 October 2013 by AOC in a press release. In making their recommendation, the Independent Directors have considered a number of factors, including the considerations described in the section Background to and reasons for the recommendation by the Independent Directors. BofA Merrill Lynch and Carnegie have acted as financial advisors to the Company in connection with the Transaction, and BofA Merrill Lynch has provided the Independent Directors with an opinion that the value of the Cash Consideration to be received by the holders of Ordinary Shares and Preference Shares is fair, from a financial point of view, to such holders. In providing their advice, BofA Merrill Lynch has taken into account the commercial assessments of the Independent Directors as well as their consideration of the Company's bye-laws with respect to the provisions relating to the Preference Shares. The Independent Directors have confirmed that they intend to irrevocably undertake to vote in favour of the Transaction at the SGM and in respect of their own beneficial holdings of 264,718 of SDRs representing Ordinary Shares (representing approximately 0.2 per cent. of the total number of votes in AOC as of 30 September 2013). Background to and reasons for the recommendation by the Independent Directors Cash Consideration for Ordinary Shares In evaluating the Transaction, the Independent Directors have considered several factors deemed to be relevant. These factors include AOC s current position, its future potential to realise value as well as the evolving risks to that value. The Independent Directors are pleased with the historic track-record of the Company s upstream and downstream volume growth, as well as EBITDA and earnings growth, achieved since the merger of AOC with West Siberian Resources in The Independent Directors also recognise the potential for future value creation from current upstream projects as well as from the Company s substantial refinery modernisation programme, due to be completed in The Independent Directors also believe, however, that there are a number of risks to realising additional value, including geological complexity in the Timan-Pechora region, changes in domestic gas tariffs and taxation for independent oil and gas producers, fiscal risks for Russian refiners and market risk in the Company s domestic market for refined products. The Independent Directors note that the Cash Consideration for the Ordinary Shares of SEK 60 represents a modest premium of 4 per cent. to the closing price of the relevant SDRs on 30 October 2013 (being the last trading day before announcement of the Transaction) and believe that the premium level needs to be considered against the background of the SDR price increasing over 48 per cent. to the closing price on 24 July 2013, which is the last date prior to press 17

18 speculation about a potential third party acquisition of a significant stake in the Company or its assets. The Independent Directors have based their assessment of the offer from Alliance Group on their views on the fundamental value of the Company, including the commercial prospects and risks facing AOC. In arriving at their decision to recommend the Transaction, the Independent Directors have also taken into account Alliance Group s significant shareholding in AOC and its limiting effect on the Company s ability to attract an alternative offer. In light of these considerations, the Independent Directors consider the terms of Alliance Group s offer to be fair and reasonable and believe that the Transaction represents an opportunity for all of AOC s independent Shareholders to realise cash value for their investment at a fair price that reflects the future prospects of the Company. Cash Consideration for Preference Shares The Independent Directors believe that the Cash Consideration for the Preference Shares, including the payment of accrued dividend up to completion of the Transaction, is fair and reasonable, reflecting the fundamental debt-like characteristics of preference shares as well as the trading performance of the Preference Shares. In arriving at their recommendation to the holders of the Preference Shares, the Independent Directors have considered the Company s bye-laws with respect to the provisions relating to the Preference Shares. 18

19 6 Information on AOC The following is a summary description of AOC. The information given in this description is based on publicly available information primarily gathered from AOC s 2010, 2011 and 2012 annual reports and other public disclosure and has been reviewed by AOC s Board of Directors. The financial information has been prepared in accordance with IFRS (the financial years 2010, 2011 and 2012) and IAS 34 (the interim accounts Q and 2013), respectively. Business Overview AOC is an independent and vertically integrated oil and gas company with both upstream and downstream operations in Russia and upstream operations in Kazakhstan. AOC s upstream operations include crude oil exploration and production in the Timan-Pechora, Volga-Urals and Tomsk regions of Russia and the Atyrau region of Kazakhstan, as well as upstream gas operations in the Tomsk region; its downstream operations include oil refining as well as transportation, marketing and sale of refined petroleum products primarily in the Russian Far East. History AOC is an exempted company limited by shares incorporated under the laws of Bermuda. AOC was incorporated on 1 September 1998 for an unlimited duration, with corporate registration number The Ordinary Shares were initially listed in 2000 on NASDAQ OMX First North (former Nya Marknaden of the Stockholm Stock Exchange) under the name Vostok Oil Limited, subsequently the name was changed to West Siberian Resources Ltd. and in 2007 the Ordinary Shares were delisted from NASDAQ OMX First North and listed its Ordinary Shares on NASDAQ OMX Stockholm. After a merger with NK Alliance, the name was changed to Alliance Oil Company Ltd. Key strategic historical milestones for AOC and its acquired companies: 1998 Incorporated in 1998 in Bermuda as Vostok Oil Limited 1999 Acquired the Middle Nyurola production license in the Tomsk region 2000 Listed its Ordinary Shares on NASDAQ OMX First North (former Nya Marknaden) 2004 Restructuring and recapitalisation of the company Name changed to West Siberian Resources Limited 2005 Acquired the Khvoinoye oil field and the Alexandrov Refinery in the Tomsk region Entered the Timan-Pechora region through acquisition of the Middle Kharyaga oil field Acquired the Liginski Block exploration licence near the Middle Kharyaga oil field Acquired two 25-year production licences for North and Lek-Kharyaga oil fields adjacent to the Middle Kharyaga oil field infrastructure 2006 Entered the Volga-Urals region through acquisition of three production and three exploration licences Strategic alliance with Repsol YPF Acquired the Kolvinskoye oil field in the Timan-Pechora region 2007 Listed its Ordinary Shares on NASDAQ OMX Nordic Stockholm (formerly the Stockholm Stock Exchange) 19

20 2008 Merger with NK Alliance, with assets including: Crude oil production in the Tatarstan Region Crude oil production in Kazakhstan Oil refinery in Khabarovsk Large network of gas stations and wholesale terminals in the Russian Far East Significant fleet of railway oilcars 2009 Name changed to Alliance Oil Company Ltd Reverse split of shares 1:20 Equity and convertible bond offerings raised about MUSD$ Eurobonds and Rouble bonds successfully placed Long-term project financing from Vnesheconombank 2011 Production at the Kolvinskoye oil field is launched 2012 First preference share issuance Entered the Russian gas market via acquisition of SN-Gazdobycha located in the Tomsk region 2013 Eurobond offering raised MUSD$ 500 Second preference share issue of MUSD$ 100 In 2013, the Company completed the formation of the joint venture AROG with Repsol. Repsol contributed its subsidiary Eurotek to the joint venture. Eurotek owns one production license and one combined exploration and production license. In March 2013, Eurotek commenced commercial gas production in the Khanty-Marsiysk region in Russia. Business Concept AOC s business concept is to conduct both upstream and downstream operations. The Company s operations include crude oil exploration and production, upstream gas operations and oil refining as well as transportation, marketing and sale of refined petroleum products. Business Segments Upstream Operations AOC has a diversified portfolio of oil and gas producing assets. Exploration and production of crude oil and gas is conducted in Russia and Kazakhstan. AOC operates in three of Russia s largest basins: Western Siberia, Timano-Perchora and the Volga-Urals. As of 31 December 2012, AOC s proven and probable hydrocarbon reserves were estimated at mmboe. AOC s crude oil production increased to 19.7 mmbbl in 2012, compared to 17.9 mmbbl and 16.0 mmbbl in 2011 and 2010, respectively. Growth in AOC s upstream operations is primarily achieved by adding and developing hydrocarbon reserves through drilling within existing licence blocks. Downstream Operations AOC s downstream business has two principal areas of activity; refining and marketing and sales. AOC, including its subsidiaries and affiliated companies conducts its oil refining operations at the Khabarovsk Refinery, which as of 31 December 2012 had a refining capacity of 90,000 barrels per 20

21 day. In 2012, 2011 and 2010, the Khabarovsk Refinery processed 29.3, 26.9 and 23.7 mmbbl of oil, respectively. As to marketing and sales, AOC, including subsidiaries and affiliated companies, markets refined petroleum products to (i) retail customers through its own network of filling stations and (ii) merchants through wholesale petroleum products terminals located in the Russian Far East as well as (iii) exports products through large and small third-party wholesalers to neighbouring Asian markets, namely South Korea, Japan and China. 21

22 Overview of Operating Profits per Business Segments Upstream segment operational data is presented below: Quarter ended Quarter ended Six months ended Six months ended 30 June June June June 2012 Sales volume (barrels of oil equivalent) 5,565,037 4,831,258 9,430,631 9,712,933 to external customers 3,421,429 2,974,613 5,345,901 5,621,047 to intragroup companies 2,143,608 1,856,645 4,084,730 4,091,886 Revenue per barrel sold (US$/barrel) Total production costs of crude oil and gas per barrel sold (US$/barrel) Production costs Production and other taxes Depreciation, depletion and amortisation Selling, administrative and other income/expenses, net (US$/barrel) EBITDA per barrel sold (US$/barrel) Downstream segment operational data is presented below: Quarter ended Quarter ended Six months ended Six months ended 30 June June June June 2012 Sales volume to external customers (barrels) 8,285,945 7,556,894 15,843,947 14,000,734 Revenue per barrel sold (US$/barrel) Production costs per barrel sold (US$/barrel) Cost of refining Transportation of crude oil for refining Cost of crude oil purchased for refining Cost of oil products purchased for re-sale Taxes Depreciation of refining assets Selling, administrative and other income/expenses, net (US$/barrel) EBITDA per barrel sold (US$/barrel)

23 7 Implementation Agreement and Amalgamation Agreement 23

24 24

25 25

26 26

27 27

28 28

29 29

30 30

31 31

32 32

33 33

34 34

35 35

36 36

37 37

38 38

39 39

40 40

41 41

42 42

43 43

44 44

45 45

46 46

47 47

48 8 Approval and implementation of the Amalgamation The final decision on approval of the Amalgamation is made by the Shareholders at the SGM of AOC, subject to relevant antitrust clearances. Such a resolution requires a 75 per cent. majority of the votes cast at the SGM, at which a quorum of two persons at least holding or representing by proxy more than one third of the issued Shares is present. The SGM will be held on 2 December Alliance Group and its affiliated companies will be allowed and intend to vote for all of their Shares. Upon approval of the Amalgamation by the SGM, Alford and the Company will apply for registration of the Amalgamation with the Bermuda Registrar of Companies, which will issue a certificate of amalgamation, thereby confirming implementation of the Amalgamation. As a result of the Amalgamation, Alford and the Company will be amalgamated into the Amalgamated Company and continue as one company. All of the Shares will be cancelled and the SDRs will be delisted from NASDAQ OMX Stockholm and deregistered with Euroclear Sweden AB as a consequence hereof, whereupon all Shareholders will receive the Cash Consideration in exchange for their respective Shares. All shareholders who are entered in AOC s register of members, kept at AOC s registered office in Bermuda, on the Cash Consideration Record Date, are entitled to receive the Cash Consideration. SEB will be responsible for on-payment of the Cash Consideration to holders of SDRs who are entered in the register of SDR holders kept by Euroclear Sweden AB on the Cash Consideration Record Date. Dissenting Shareholder Rights Any Shareholders who hold their interest in Shares through SDRs who do not vote in favour of the Amalgamation at the SGM are entitled, if they do not consider the Cash Consideration to represent a fair price for their Shares, to apply to the Court in Bermuda under Section 106 of the Companies Act 1981 of Bermuda (as amended) for an appraisal of the fair value of their Shares. Such dissenting Shareholders are advised to obtain the advice of counsel before proceeding, and the following does not constitute legal advice. In brief, dissenting Shareholders will likely be required to exchange their SDRs for registered Shares before the SGM, not vote in favour of the Amalgamation at the SGM and apply to the Bermuda court for appraisal within one month of the giving of the Notice of SGM. An extract of Section 106 (6) of the Companies Act 1981 of Bermuda (as amended) has been set out in Appendix 1, page 101. Any Shareholders who apply to the Court in Bermuda for an appraisal will, subject to Approval at the SGM, receive its entitlements to the Cash Consideration when it is paid to Shareholders who have not dissented. In case the Court in Bermuda later decides that a higher cash consideration should be paid for the dissenting Shareholder s Shares, a top-up of the difference between the Cash Consideration and the price established by the Court will be made. 48

49 9 Financial Information in summary Condensed consolidated Statements of profit or loss in summary* (Expressed in USD thousands) Six months ended 30 June 2013 Six months ended 30 June 2012 Year ended 31 December 2012 Year ended 31 December 2011 Year ended 31 December 2010 Revenue Revenue from sales of crude oil and gas 314, , , , ,943 Revenue from sales of oil products 1,440,772 1,299,923 2,787,761 2,496,218 1,756,295 Revenue from other sales 33,148 26,600 55,124 54,786 41,518 1,788,918 1,632,259 3,445,239 3,082,660 2,195,756 Cost of sales Production costs of crude oil and gas -201, , , , ,162 Production costs of oil products -1,005, ,817-1,898,780-1,635,262-1,168,068 Cost of other sales -11,425-11,495-24,315-23,911-21,824 Depletion and depreciation of oil and gas and refining assets -108,745-90, , , ,625 Reversal of impairment of oil and gas assets 58,721 1,051 Gross profit 462, ,111 1,041, , ,128 Selling expenses -183, , , , ,730 Administrative expenses -44,060-43,865-95,740-77,457-67,890 Depreciation and amortisation of marketing and other assets -10,258-9,294-18,484-18,025-14,610 Other operating expenses, net -14,688-4,619-19,485-18,220-6,691 Share of (losses)/profits of associates and joint venture -5, ,309 2, Loss on disposal of shares in subsidiaries -2,894 9 Operating income 204, , , , ,320 Interest income 7,205 6,855 14,977 12,259 7,901 Finance costs -63,987-45,382-95,034-59,134-29,473 (Loss)/gain on derivatives classified as held for trading, net -3,645 1,070 7,678-15,444 Currency exchange gain/loss, net -21,635-6,966 21,688-18,176 3,923 Profit before tax 122, , , , ,671 Current tax expense -37,231-44,029-95,676-83,246-46,276 Deferred tax benefit/(expense) -1,586-3,858-27,970-21,225-17,063 Profit for the period 84, , , , ,332 Attributable to: Owners of the Company 57, , , , ,221 Non-controlling interests 26,215 3,344 17,937 9,417 4,111 84, , , , ,332 *The full year numbers for 2010, 2011 and 2012 in the statements of profit or loss are audited and the six month numbers are unaudited. 49

50 Balance Sheet for the AOC Group in summary* (Expressed in USD thousands) 30 June June 2012 ASSETS Non-current assets 31 December December December 2010 Property, plant and equipment 4,355,062 3,437,369 4,474,599 3,223,798 2,528,244 Intangible assets ,917 3,840 Goodwill 18,937 18,875 20,394 19,239 11,728 Investments in associates and joint venture 181,206 22, ,191 21, Deferred tax assets 34,205 27,010 28,531 26,439 25,319 Other assets 2,849 36,619 2,991 30,045 48,303 Current assets 4,593,006 3,542,937 4,714,577 3,323,264 2,617,584 Inventories 214, , , , ,316 Trade and other accounts receivable 268, , , , ,135 Value added tax and other taxes receivable 244, , , , ,766 Income tax receivable 20,509 27,146 13,811 11,814 9,876 Advances paid and prepaid expenses 91, , , ,907 98,003 Other financial assets 25, ,131 49,821 93,263 49,629 Restricted cash ,037 26,887 27,318 79,322 Cash and cash equivalents 397,791 95, , ,483 98,777 1,262, ,942 1,277, , ,824 TOTAL ASSETS 5,855,877 4,457,879 5,991,886 4,225,235 3,347,408 EQUITY AND LIABILITIES Capital and reserves Share capital 178, , , , ,528 Additional paid-in capital 1,389,683 1,104,357 1,296,210 1,104,355 1,103,845 Other reserves -529, , , , ,100 Retained earnings 1,670,842 1,316,294 1,638,943 1,159, ,716 Equity attributable to owners of the Company 2,709,640 2,050,923 2,787,311 1,955,450 1,773,989 Non-controlling interests 218,954 40, ,699 37,983 31,307 TOTAL EQUITY 2,928,594 2,091,563 3,033,010 1,993,433 1,805,296 Non-current liabilities Loans and borrowings 1,774,935 1,533,520 1,669,014 1,514, ,471 Deferred tax liabilities 243, , , , ,031 Provision for decommissioning and site restoration costs 85,505 28,937 73,195 15,440 15,960 Other non-current liabilities 9,147 19,331 35,037 13,783 2,113,154 1,772,774 2,042,248 1,731,484 1,106,462 Current liabilities Loans and borrowings 383, , , , ,134 Payables and accrued expenses 338, , , , ,281 Income tax payable 10,121 2,937 10,199 5,524 1,607 Other taxes payable 72,928 63,461 72,913 68,408 58,628 Derivatives classified as held for trading 9,074 4,896 5,981 4, , , , , ,650 TOTAL LIABILITIES 2,927,283 2,366,316 2,958,876 2,231,802 1,542,112 TOTAL EQUITY AND LIABILITIES 5,855,877 4,457,879 5,991,886 4,225,235 3,347,408 50

51 *The full year numbers for 2010, 2011 and 2012 numbers in the balance sheet for the group in summary are audited and the six month numbers are unaudited. Cash Flow Statement for the AOC Group in summary* (Expressed in USD thousands) Operating activities Six months ended 30 June 2013 Six months ended 30 June 2012 Year ended 31 December 2012 Year ended 31 December 2011 Year ended 31 December 2010 Profit before tax 122, , , , ,671 Adjustments for: Depreciation, depletion and amortisation 119,003 99, , , ,235 Reversal of impairment of oil and gas assets -58,721-1,051 Interest income -7,205-6,855-14,977-12,259-7,901 Finance costs 63,987 45,382 95,034 59,134 29,473 Loss/(gain) on derivatives classified as held for trading, net 3,645-1,070-7,678 15,444 Currency exchange loss, net 21,635 6,966-21,688 18,176-3,923 Share of losses/(profits) of associates and joint venture 5, ,309-2, Loss on disposal of shares in subsidiaries 2,894-9 Loss on disposal of assets 1,689 1,874 5,948 3, Other non-cash items 10,634 12,360 29,100 3,271 4,733 Operating cash flows before changes in working capital 341, , , , ,328 Movements in working capital Increase in inventories -1,148-56,568-72,905-13,832-26,052 Decrease/(increase) in accounts receivable, advances paid and prepaid expenses 31,323-16,434-56, , ,934 (Decrease)/increase in accounts payable, advances received and accrued expenses -106,136 12, ,482 40,078 21,357 Cash generated from operations 265, , , , ,699 Interest paid -50,724-39,855-82,136-42,106-18,934 Income tax paid -45,094-60,904-95,829-71,675-45,010 Total cash generated from operating activities 169, , , , ,755 Investing activities Investments in oil and gas assets -147, , , , ,905 Investments in refining assets -119, , , , ,505 Investments in marketing and other assets -11,242-28,258-40,719-28,194-29,234 Interest capitalised and paid -41,416-35,892-77,751-78,268-45,991 Acquisition of controlling interest in subsidiaries, net of cash acquired -155,758-15,636 Proceeds from disposal of assets 4,946 1,325 2,963 1,683 1,704 Interest received 8,914 5,755 8,984 5,582 6,711 Payments on settlement of swap contract, net of interest received -2, Loans provided -26,777-15,605-56,417-56,588-29,372 Loans repaid 13,883 11,608 57,903 19,169 16,912 Investments in promissory notes -15,621-15,621 51

52 Proceeds from sale of promissory notes 7,209 Short-term deposits placed -22,687-30,320-30,015-29,859 Proceeds from deposits withdrawn 56,218 27,030 30,076 Dividends received from associate 497 Advances for acquisition of shares -20,000 Total cash used in investing activities -284, , ,737-1,070, ,539 Financing activities Proceeds from loans and borrowings 671, , ,151 1,111, ,837 Repayment of loans and borrowings -536, , , , ,668 Proceeds from joint venture formation 3, ,728 Proceeds from issue of preference shares, net of issue costs 201,527 Acquisition of non-controlling interest in subsidiaries ,069-1,551-1,267-4,716 Dividends paid by subsidiaries Other financing activities 89 Dividends on preference shares -11,493 Total cash generated from financing activities 127, , , , ,534 Effect of exchange rate changes on cash balances held in foreign currencies ,799-7,166 4,148-4,970 Translation difference -26,133 1,046 15,887-16,982-9,751 Change in cash, cash equivalents and restricted cash -13,539-65, ,019 9, ,971 Cash, cash equivalents and restricted cash at beginning of the period 411, , , , ,070 Cash, cash equivalents and restricted cash at end of the period 398, , , , ,099 *The full year numbers for 2010, 2011 and 2012 in the cash flow statement for the group in summary are audited and the six month numbers are unaudited. 52

53 Key Financials for the AOC Group* Six months ended 30 June 2013 Six months ended 30 June 2012 Year ended 31 December 2012 Year ended 31 December 2011 Year ended 31 December 2010 Financial ratios EBITDA 1 for the last twelve months, TUSD 707, , , , ,391 Debt/equity ratio 4 74% 84% 68% 81% 58% Equity ratio 5 50% 47% 51% 47% 54% Risk-bearing capital 6 54% 51% 55% 52% 59% Interest-coverage ratio Debt coverage ratio Debt/EBITDA Bsic EPS, USD Diluted EPS, USD Upstream and downstream segments operational data Sales volume crude oil, million barrels Crude oil revenue per barrel sold Production costs per barrel sold crude oil, USD/barrel Sales volume oil products, milion barrels Oil products revenue per barrel sold, USD/barrel Production costs per barrel sold oil- products, USD/barrel *The numbers in the key financials for the Company are unaudited. Key financial ratios and data definitions 1. EBITDA for the last twelve months. The Company's operating result plus depletion, depreciation and amortisation, impairment of oil and gas assets and goodwill (if applicable), and less reversal of impairment, gain on disposal of shares in subsidiaries (if applicable) and other significant one-off items in the consolidated statement of profit or loss. 2. Return on shareholders' equity. The Company's result divided by the shareholders' equity at the end of the financial period. 3. Return on capital employed. Result before tax plus interest expenses, plus/less сurrеncy exchange gain/loss, divided by average total capital employed (the average total assets less non-interest bearing liabilities over the financial period). 4. Debt/equity ratio. Loans and borrowings, as shown in the consolidated statement of financial position, in relation to the shareholders' equity. 5. Equity ratio. The proportion of the Company's shareholders equity (including noncontrolling interests) to total assets. 53

54 6. Risk-bearing capital. The sum of shareholders' equity (including non-controlling interests) and deferred tax liabilities, divided by total assets. 7. Interest-coverage ratio. Result before tax plus interest expenses, plus/less currency exchange gain/loss, divided by interest expense (both capitalised and expensed in the consolidated statement of profit or loss). 8. Debt coverage ratio. The Company's EBITDA divided by interest expense (both capitalised and expensed in the income statement). 9. Debt/EBITDA. Loans and borrowings, as shown in the consolidated statement of financial position, divided by EBITDA 10. Earnings per share, before dilution. Earnings per share, before dilution, are calculated by dividing profit for the period attributable to owners of the Company by the weighted average number of Ordinary Shares for the period. 11. Earnings per share, after dilution. Earnings per share, after dilution, are calculated by dividing profit for the period attributable to owners of the Company by the weighted average number of dilutive potential Ordinary Shares for the period. Dilutive potential Ordinary Shares for the Company are convertible bonds, share options and warrants. OPERATIONAL RATIOS Sales volume crude oil. Volume crude oil sold in terms of mmbbl. Crude oil revenue per barrel sold. Revenue from sale of crude oil divided by volume of crude oil sold both intra-group and to external customers. Production costs per barrel sold crude oil. Based on volume of crude oil sold both intragroup and to the external customers excluding crude oil purchased for re-sale. Include production cost, taxes, depletion and depreciation. Sales volume oil products. Volume oil products sold in terms of mmbbl. Oil products revenue per barrel sold. Net sales price (gross price less VAT or export duties) per barrel of oil products sold to external customers. Production costs per barrel sold oil products. Operating costs (including purchases of crude oil and other services from intra-group companies) divided by volumes of oil products sold both intragroup and to external customers. Include cost of refining, transportation cost, cost of crude oil purchased for re-sale, taxes and depreciation of refining assets. 54

55 10 Share Capital and Ownership Structure General AOC s Shares are listed on NASDAQ OMX Stockholm Large Cap list under the ticker symbols AOIL SDB and AOIL SDB PREF. The Ordinary Shares were initially listed in 2000 on NASDAQ OMX First North (former Nya Marknaden of the Stockholm Stock Exchange) under the name Vostok Oil Limited, subsequently the name was changed to West Siberian Resources Ltd. and in 2007 the Ordinary Shares were delisted from NASDAQ OMX First North and listed on NASDAQ OMX Stockholm. After a merger with NK Alliance in 2008, the name was changed to Alliance Oil Company Ltd. In 2012 the Company issued and listed its first Preference Shares. Share capital The number of Shares outstanding according to information from AOC as of 31 October 2013, was 171,528,414 Ordinary Shares and 7,280,000 Preference Shares. No Shares are held by AOC. The Ordinary Share carries one vote and the Preference Share carries a 1/10 vote. The Shares are traded through SDRs at NASDAQ OMX Stockholm. The nominal value per share is US$ 1.00 per Ordinary Share and US$ 1.00 per Preference Share. Development of share capital Share capital development Increase in number of Shares Number of Shares Par value of shares, US$ Change in share capital, US$ Share capital, US$ Company formation 12,000 12, , , Split 4:1 48,000 48, , New issue 30,414,049 30,462, ,603, ,615, New issue 442,615 30,904, , ,726, New issue 48,000 30,952, , ,738, New issue 1,227,325 32,179, , ,044, Reduction in share capital 0 32,179, ,435, ,608, Set-off issue 75,082, ,262, ,754, ,363, ,787, ,050, ,089, ,452,

56 Share capital development Rights issue Rights issue 257,430, ,480, ,871, ,324, Private placement 106,046, ,527, ,302, ,626, Private placement 306,500,000 1,099,027, ,325, ,951, Private placement 90,000,000 1,189,027, ,500, ,451, Rights issue 1,783,540,968 2,972,568, ,177, ,628, Private placement 258,000,000 3,230,568, ,900, ,528, Reverse split 1:20-3,069,039, ,528, ,528, Private placement 10,000, ,528, ,000, ,528, Rights issue of preference shares 5,000, ,528, ,000, ,528, Rights issue of preference shares 2,280, ,808, ,280, ,808,

57 Shareholders The number of Shareholders was 34,461 as of 30 September 2013 according to information from AOC. The largest Shareholders according to information from AOC as of 30 September 2013 are shown in the table below. 15 largest shareholders As of No. of Ordinary Shares No. of Preference Shares Share capital, % Voting rights, % BP2S PARIS/NO CONVENTION 40,686, , ALLIANCE GROUP OJSC 30,816, CJSC INVESTMENT COMPANY ALLIANCE CAPITAL 6,637, REPSOL EXPLORACION S.A. 5,495, JP MORGAN CHASE N.A 4,322, FÖRSÄKRINGSAKTIE- BOLAGET, AVANZA PENSION 3,800, , CATELLA REAVINSTFOND 3,750, SWEDBANK ROBUR FOLKSAMS LO SVERIGE 2,945, JPM CHASE NA 2,888, JPM CHASE NA 2,207, AFA SJUKFÖRSÄKRINGS AB 2,015, BK JULIUS BAER & CO SWEDEN MAIN AC 1,861, EUROCLEAR BANK S.A/N.V, W8-IMY 1,183, , Catella Sverige Select 1,764, SIX SIS AG, W8IMY 1,611,913 69, Subtotal 15 largest shareholders 111,987,836 1,527, Other Shareholders 59,540,578 5,752, Total 171,528,414 7,280,

58 ort F Share Price Performance AOC was incorporated in 1998 and was in 2000 listed on NASDAQ OMX First North (former Nya Marknaden of the Stockholm Stock Exchange). In 2007 the Ordinary Share SDRs were delisted from NASDAQ OMX First North and listed the main list on NASDAQ OMX Stockholm. The chart below illustrates the performance and turnover of the AOC SDRs since 1 January 2013, compared with the OMXS 30 index for the same period. Exhibit 1: Ordinary Share SDR Price Exhibit 2: Preference Share SDR Price (1) Since 1-Jan-2013 SEK/SDR Daily trading volume, USD MM % % Since 1-Jan-2013 SEK/SDR Daily trading volume, USD MM 4 7.2% yy 04-yy 07-yy 10-yy (2) Volume AOC OMXS yy 04-yy 07-yy 10-yy Volume AOC 0 (1) Price adjusted for dividend (2) Rebased to AOC Ordinary Share SDR Price As of 30 th October 2013 Source: Capital IQ Shareholder Agreements, etc. No shareholder agreements or similar agreements exist between shareholders of AOC, for the purpose of obtaining joint influence of AOC, as far as the Board of Directors of AOC is aware. However, a relationship deed, dated 17 February 2008, (the "Relationship Deed ) was originally entered into by AOC and certain holders of SDRs of AOC, including Alliance Group. Clauses 3.8 and 3.20 of the Relationship Deed stipulate certain restrictions of such holders to carry out certain transactions affecting AOC, including the Amalgamation. Therefore, on 30 October 2013, the parties to the Relationship Deed entered into a deed of termination which terminates the Relationship Deed, thus, rendering the Amalgamation possible. The Relationship Deed will be reactivated on the same terms and conditions as previously between the parties if the Amalgamation is not approved at the SGM. Authorisations for the Board of Directors On 22 May 2013, the Annual General Meeting authorized the Board of Directors of AOC to issue a maximum of 15 million Shares. The authorization further covers a right for the Board of Directors to resolve on cash issues, non-cash issues as well as set-off issues, including a right to deviate from the shareholders preferential right. In June 2013, AOC issued 2.28 million Preference Shares based on the authorisation. Incentive Programmes Global Share Option Plan At AOC s general shareholders meeting held on 14 November 2000, it was resolved to adopt a Global Share Option Plan (the Option Plan ). An amended Option Plan was adopted on 31 58

59 January The Option Plan allows for managers and directors of AOC and its consolidated subsidiaries and affiliates (eligible employees) to be granted call options each entitling the holder to acquire one ordinary Share in AOC. As of 30 June 2013, the total number of the outstanding options amounted to 2,298,851. Exercise prices range from SEK 55 to SEK 115. Participants in AOC s Global Share Option Plan will be contacted regarding the effect of the Amalgamation on their rights under AOC s Global Share Option Plan. Dividend Policy AOC has historically reinvested cash flows from operations through its capital expenditure programme aimed at increasing oil reserves and production and upgrading the Khabarovsk Refinery. AOC has not paid any dividends to holders of Ordinary Shares since it was listed in Holders of Preference Shares are entitled to an annual dividend of SEK 30 per Preference Share and have priority over dividends on Ordinary Shares. Such annual dividend shall be paid quarterly in an amount of SEK

60 11 AOC s Board of Directors, Group Management and Auditors Board of Directors Eric Forss (1965) Chairman of the Board Board member: Since July 2004 Other assignments: Chief executive officer of Forssgruppen and Forsinvest, Chairman of the Board of Directors of Mediagruppen Stockholm MGS AB, Member of the Board of Directors of Forcenergy AB, Forsinvest AB, Consortum Capital Investments AB and S.O.G. Energy AB Background: Forcenergy AB Education: B.Sc. degree in Finance from Babson College, Wellesley, Massachusetts USA Holdings in AOC: 94,000 Ordinary Share SDRs, 3,700 Preference Share SDRs and 1,059,995 Ordinary Share options. Arsen E Idrisov (1970) Board member: Since May 2008 Other assignments: Vice president for corporate finance at OJSC Alliance Group, Member of the Board of Directors of OJSC Alliance Group and OJSC Alliance Oil Company Background: LIA OIL S.A. and Sidanco, Education: Major in international economic relations, Russian Economic Academy and Otto Beisheim School of Management/ WHU (Vallendar, Germany) Holdings in AOC: 147,730 Ordinary Share options. Mr Idrisov holds 5 per. cent of the shares of OJSC Alliance Group with the fully owned subsidiaries CJSC Alliance Capital and Betino Investments Limited and 5 per cent. of Daumier Investments Ltd. Raymond Liefooghe (1942) Board member: Since May 2008 Other assignments: Director at Diamond Capital Fund, Diamond Growth Fund, Diamond Fixed Income Ltd, Diamond Asia Ltd, Nutrimenta Finance & Investments Ltd, Sucafina S.A., Sucafina Ingredients S.A., Lia Oil and Metinvest International. Background: BNP, United European Bank, BNP Paribas, OJSC Alliance Oil Company Education: International Trade Institute, Paris Holdings in AOC: 40,000 Ordinary Share SDRs and 149,311 Ordinary Share options. Fred Boling (1940) Board member: Since July 2004 Other assignments: Director of Energi Insurance Co. and Harbor Fuel Oil Corporation Background: Sinclair Oil, Atlantic Richfield, BP Oil Corp., Gibbs Oil, and Astroline Oil Trading Corp., Security National Bank, Bank of New England and Pacific National Bank, Massachusetts Education: B.Sc. and M.Sc. degrees from the Georgia Institute of Technology Holdings in AOC: 80,000 Ordinary Share SDRs and 163,568 Ordinary Share options. Fernando Martinez-Fresneda (1951) Board member: Since May 2009 Other assignments: Managing director of Repsol s office and operations in the Russian Federation Background: various positions in the Repsol organization 60

61 Education: Mining Engineer, ETSIM Mining Engineer School at the Polytechnic University of Madrid, PDD in Business Administration, INALDE Bogota. Holdings in AOC: 109,595 Ordinary Share options. Isa Bazhaev (1962) Board member: Since May 2009 Other assignments: Board member and Vice president for finance of Alliance-Prom Background: Lia Oil SA, OJSC Alliance Group, OJSC Alliance Oil Company Education: Degree in engineering and construction, Grozny Oil Institute Holdings in AOC: 120,155 Ordinary Share options. Claes Levin (1942) Board member: Since July 2004 Other assignments: Chairman of several companies including Bröderna Falk AB, SH Förvaltning AB and Variant Fastighets AB. and Member of the Board of Directors of First Baltic Property Ltd. Background: Skandinaviska Enskilda Banken AB, Diligentia, Reinhold Bygg AB, Platzer Bygg Education: Law degree and a B.A. degree in economics, University of Lund Holdings in AOC: 50,718 SDRs and 128,641 Ordinary Share options. Group Management Arsen E Idrisov (1970) Director and Managing Director Employed since November 2008 Holdings in AOC: 147,730 Ordinary Share options Yevgeny Vorobeichik (1958) Chief Operating Officer Employed since 1999 Holdings in AOC: 0 SDRs Alexander Sutyagin (1958) Executive Vice President Downstream Employed since 2003 Holding in AOC: 0 SDRs Angelika Adieva (1975) Chief Financial Officer Employed since 2008 Holdings in AOC: 0 SDRs Mugammir Galiullin (1958) Executive Vice- President Upstream Employed since 2013 Holdings in AOC: 0 SDRs Auditors Deloitte AB and ZAO Deloitte & Touche CIS Auditors in charge The auditors of AOC are, for the entire period covered by the historical financial statements, Deloitte AB with authorised public accountant Mr. Svante Forsberg (born 1952 and member of FAR) and ZAO Deloitte & Touche CIS with authorised public accountant Ms. Natalia Golovkina (member of Audit Chamber Russia) as auditors in charge. 61

62 12 AOC s Bye-Laws For the complete Bye-Laws of AOC, please refer to AOC s website, 62

63 13 AOC s interim report for January June

64 64

65 65

66 66

67 67

68 68

69 69

70 70

71 71

72 72

73 73

74 74

75 75

76 76

77 77

78 78

79 79

80 80

81 81

82 82

83 83

84 84

85 85

86 86