Arkios Italy

LLeeaaddiinngg SSooffttggeell EEnnccaappssuullaattiioonn MMaacchhiinneerryy SSuupppplliieerr –– BBlliinndd PPrrooffiillee

Transaction Outline

The Company (“Target”) is one of Global Leaders in designing and developing Complete Softgel Encapsulation Systems for Pharmaceutical, Cosmetic, Nutraceutical and Leisure Industries.

The Company is facing some financial problems, mainly caused by the increasing competition from countless Low-Price/Low-Quality competitors. Therefore, it’s experiencing a turnover drop which leaded to a financial shortage, undermining the Company’s actual Economic Value, i.e. the High-level Technology developed through 40-year long activity. Such technology is well recognized and appreciated in the Industry for its uniqueness, quality and reliability.

Management recognizes the need to change its business model, having the Design/Engineering in Europe and Production in a low-cost country, or being part of a Group able to exploit significant synergies and economies of scale.

In order to safeguard the business and give continuity to the Company’s well-known brand, the shareholders are willing to sell the Business or to find a strong Industrial Partner, able to enhance and increase the value of its Tangible and Intangible Assets, which are the well appreciated Technology and Know-how.

For this reason, the shareholders are going to fill for admission to a Pre-insolvency Workout Agreement (under a procedure equal to US Chapter 11), so as to negotiate a strong haircut with debtors (mainly Banks) and to allow the Investor to acquire a NewCo, debt-free.

The Company

Located in Europe, the Company historically began its activity with the production of Soft Gelatin Capsules. Afterwards, it focalized its business into engineering and manufacturing of Softgel Encapsulation Lines & Machinery (SEM), becoming worldwide recognized producer (its Brand is synonym of Quality, Reliability, High Level Service, Innovation), by distributing its machineries/lines in 24 countries all over the world and supplying worldwide Multinationals capsule producers who appreciate the Company’s products for the high quality and reliability.

Products and Services

For more than 40 years, the Target has been engaged in engineering and manufacturing a very wide variety of machinery and ancillary equipment to encapsulate Softgel of all sizes and shapes. Such capsules, are increasingly used in many industries and experiencing an explosive growth.

More precisely, the Target is specialized in manufacturing complete Semi-Turnkey Softgel Encapsulation Equipment, which applies the Rotary Die Encapsulation Process, a form/fill/seal one-line process, which is more efficient and more hygienic. Together with its products, the Company provides also services and full assistance before, during and after the installation of plants, in order to guarantee the correct functioning and therefore to enhance the performance and efficiency of its products. Such services include:

Preliminary Plant Layout planning: indeed, the Company advises its clients in planning the optimal plant layout;

Design and Drawing of a complete capsules manufacturing facility, according to the GMP requirements (Good Manufacturing Practice);

Arkios Italy

Plant set up, assisted by the Target’s long-experienced technicians; this phase is extremely crucial for the proper functioning of the equipment and the Company is well recognized for its professionalism and experience;

Training for technical staff;

Assistance and maintenance, by supplying also spare parts;

Encapsulating products’ formulation: specifically, the Company is able to provide complete formulation services and encapsulation tests.

The Target pays great attention to quality and reliability of its products, in order to guarantee the performance and efficiency of customers’ production of capsules (by meeting GMP criteria). Besides, the production of such capsules are under a very stringent regulation, therefore the Target has always been engaged in providing its products which are in compliance with Health Authority requirements of each customer country. For all these reasons, the Target is well appreciated by clients, among them we can mention some: Bayer, Glaxo Smith Kline, and Sanofi-Aventis. Furthermore, in 2010 it started collaborating with some main contractors or subcontractors in complete design projects of new facility plants in Europe.

Economics

The Company showed Revenues CAGR (2008 to 2011) of 22.8% per year, with a turnover of € 12 million in 2011. However, starting form 2012 the Company is facing difficulties, when it reached a turnover of only € 6 million. This is mainly due to the rigid cost structure which does not allow the Company to offer competitive prices, while the market is crowed by countless aggressive Players who keep introducing on the market low Quality/low Price products. The Management recognizes the necessity to change its business model, having the Design/Engineering in Europe and the production in a low-cost country, or being part of a Group who can bring significant synergies and economies of scale.

Therefore, the Company’s shareholders are deciding to enter into a Pre-insolvency Workout Agreement which allows it to renegotiate its liabilities, mainly bank loans, with the purpose to re-launch the business and to give continuity to the Value of the Target. This is possible upon the presence of an Investor, strongly interested and confident in the Company’s Value and such an Investor will take over a NewCo (a Special Purpose Vehicle) practically debt free (because restructured). ----------------------------------------------------------------------------------------------------------------------------------------------------------- Reference market

(A) Softgels Market

Soft Gelatin Capsules, aka Softgels are more and more preferred to Hard Gelatin Capsules and appreciated by capsule manufacturers and end users, given their exceptional specific features. More precisely, in addition to the traditional Pharmaceutical sector, Softgels are more and more commonly used in:

Nutraceutical and Health Food, which are and keep boosting the growth of the Softgel market, mainly thanks to the growing popularity of dietary supplement products;

Cosmetic, this industry is leading the Softgel market as well, given the increasing appreciation of such Softgels for their excellent properties appreciated mainly by female consumers (good appearance, odorless, colored, etc.)

In addition, Softgels have potentialities to be applied also in other industries, e.g. Veterinary, Leisure (Paintball) toward which the Company is addressing its researches

Arkios Italy

Main Softgel Producers are all multinationals, with production plants spread all over of the world and are planning to expand the production capacity in meeting the increasing demand, given the strong potentialities of such capsules and their new innovative applications to be discovered.

Most of these manufacturers are owned by the largest Private Equity Funds and Investments Banks. This means such P.E. Funds and Investment Banks are attracted by the extremely interesting potentialities of Softgel Industry to be exploited.

The mentioned potentialities are indeed confirmed by figures. The Softgel Market reached a total turnover of USD 8 billion in 2012 and the CAGR for the period 2010-2017 is estimated to be circa 12%.

(B) Softgel Encapsulation Machinery (SEM) market

Softgel Technology is a non-free technology and requires a very high specialization. Currently, Catalent is the owner of the Rotary Die Process Technology invented by R.P. Scherer in the 30s. Besides, manufacturing Softgels as well as other Pharmaceutical/Health Care products is regulated by severe Health Authorities rules. Therefore, there are only few big players involved in engineering and manufacturing of SEM. Most of them are producers of machinery not only for the Softgel Encapsulation, but also other equipment for the Pharmaceutical sector. It is, hence, a niche market where those manufacturers able to produce machinery in compliance with stringent requirements of Health Authorities are really very little, all of them based in North America.

Then, there are countless Asian producers which are competing for the Low Prices but not able deliver High Quality.

Given the strict connection of SEM market to Softgel Industry, it is estimated the same growth for SEM, especially because of the expansion projects undertaken by the most important Softgel Manufactures and the increasing interest of other Pharma/Nutraceutical players, willing to enter in this sector (i.e. recently there have been some M&A deals where Softgel producers are acquired by Industrial Players like drug developer etc.).

Such interests foresee a future concentration of the SEM Market as well, i.e. large Industrial Players (Pharma producers or Equipment/machinery manufacturer) will be involved in acquisitions of SEM manufacturers, in order to widen their product offer and to diversify their business. In particular, they will be attracted by the extremely interesting opportunities to be exploited relating to the SEM market, a very specific market composed by very little high-quality specialists, among them our Target.

----------------------------------------------------------------------------------------------------------------------------------------------------------- Key Investment Highlights

The Company’s strengths

The Company is one of few Worldwide Top Players in the SEM, specifically it is appreciated for:

Deep knowledge of Softgels themselves: that is fundamental in Engineering and Manufacturing Encapsulation Equipment, knowing any characteristic of Softgel to be produced. The Company exploits its competencies and focuses the needs of its clients in order to provide them the best machinery in terms of efficiency and performance;

High quality and reliability of machineries produced: in particular, the Company’s machineries are well-known for:

o High production capacity (over 97%), by minimizing waste products and optimally calibrating the machine; e.g.: large equipment can produce 1 billion Softgels per year;

o Attention to the cleaning and safety, in order to avoid any contamination of capsules; o Long duration: more than 30 years;

Unique Technology: developed in more than 40 years of activity, which is also an entry barrier to be a top player. Indeed, those producers can offer their products at much lower prices only because they are not able to compete with the technology; instead, the Company is able to provide more complex customized machineries, in meeting clients’ needs; in addition, the Company is the only supplier of 360° visual inspection machine all over the world;

Arkios Italy

Full assistance and tailor-made services: the Company completes its offer with full assistance and tailor-made services, which particularly distinguish the seriousness and professionalism of the Company, such as:

o Facility planning; o Plan set up; o Technical staff training; o Maintenance; o Softgel formulation.

Given the unique characteristics described above, the Company represents a very appealing opportunity for investors. In particular, with an Industrial Investor it is possible to create some synergies for both:

For example, a large Multinational in Pharma-Nutraceutical sector and/or Softgel Capsules Producer who is planning to expand business and consolidate the market positioning. The Target can widen the product portfolio of such an Investor and diversify his business, offering him the opportunity to enter in a so specific market as the SEM market, whose the main entry barrier is the Technology and Know-how; Softgel and SEM market is particularly interesting to be exploited, given their strong potentialities of growth;

- Indeed, Pharma Players and Hard-Shell Capsules Producers are expanding their business in the Machinery Engineering –Production and Distribution.

- In general, the Industry of Softgel Encapsulation Machinery sees a process of concentration

On the other hand, the Target can benefit the widespread network of the Investor, in order to be flexible in the SEM market, a niche market where only few players can survive to the increasing low-quality competition of Asian producers and they need the financial support of a large group in order to consolidate their own market positioning.

Indeed, some interests from large multinationals are already showed, since there have been some M&A deals where large multinationals, intent to spread their market to Softgel, acquired SEM manufacturers. These interests foresee a next future concentration of the SEM market.

For further information, please contact:

Paolo Cirani Andrea Rossotti Hong Hong CEO & Founder Manager Analyst +39 335.68.40.737 paolo.cirani@arkios.it www.arkios.it www.arkios.co.uk

+39 339.869.86.74 andrea.rossotti@arkios.it

www.arkios.it www.arkios.co.uk

+39 380.290.10.34 hong@arkios.it www.arkios.it www.arkios.co.uk