Karo Bio to issue new shares with preferential rights

Karo Bio to issue new shares with preferential rights · The Board of Directors of Karo Bio AB has on August 12, 2004 decided, subject to the approval by the special general meeting on August 30, 2004, on a new share issue with preferential right for existing shareholders. If fully subscribed, the rights issue will raise approximately MSEK 96. · A consortium consisting of existing as well as new shareholders have secured 85 percent of the rights issue through guarantees and letters of intent to subscribe for shares in the rights issue. · In order to secure commitments from the consortium, the Board has determined to offer an opportunity to subscribe for shares without preferential rights in case of over-subscription and therefore proposes that the special general meeting authorizes the Board to issue additional shares equivalent to no more than 10 percent of the outstanding shares after the rights issue. · With a cash position calculated to last throughout the first quarter 2005, the Company has an imminent need to raise capital. The capital raising is conducted in order to secure continued operations and development of the project portfolio as well as to provide the Company with a better position when negotiating future collaboration agreements. Background and reasons Karo Bio is an innovative drug discovery company that is focused on nuclear receptors for the development of novel pharmaceuticals. Nuclear receptors are one of the most important drug targets for major diseases and the importance is predicted to continue to increase in the future. Nuclear receptors are key regulators of a number of biological processes in the body. Therefore, specific intervention in nuclear receptor function may allow for the development of novel pharmaceuticals with improved efficacy and reduced adverse effects. Karo Bio has a strong project portfolio targeting diseases with some of today's largest unmet medical needs, such as diabetes, obesity, atherosclerosis and dyslipidemia, all with blockbuster potential. Karo Bio's business model implies outlicencing of projects, at a suitable stage, to large pharmaceutical companies. So far, the Company has limited this model to outlicensing of projects at early research phases, from concept stage to drug discovery phase. Today, Karo Bio has internal projects that may be developed further internally into clinical phase before outlicensing. Such later stage projects usually generate significantly higher value when outlicensing compared to projects in preclinical stage as the project risk is lower and also due to a shortage of high quality clinical stage projects. Thus, it may be advantageous for Karo Bio to take selected projects into clinical development in order to achieve higher project value when outlicensing. Karo Bio's portfolio includes projects with compounds at different stages, from drug discovery to late preclinical phase. The Company may elect to outlicense these at early stage or to continue internal development before outlicensing at a potentially higher value. Thus, Karo Bio has reached a stage where the Company can be more flexible in its business model and by selective later stage outlicensing increase future earnings potential from the innovative portfolio. Recently, Karo Bio has obtained rights to two compounds, KB3305 and KB2115, that have been developed extensively by prior partners to Karo Bio, and subsequently returned to the Company. Based on consultation with medical opinion leaders in each area and experts in regulatory affairs, the Company believes that these compounds might offer a major future opportunity. To secure continued operations and take advantage of the high potential that lies in Karo Bio's project portfolio, through internal as well as external development, and also to strengthen the position of the Company in ongoing discussions with potential collaboration partners, the Karo Bio Board of Directors decided on August 12, 2004 to conduct a new share issue with preferential rights for existing shareholders, subject to the approval by the shareholders at a special general meeting August 30, 2004. Karo Bio has an imminent need to raise more capital as the cash position is calculated to last throughout the first quarter 2005, a situation that will be addressed through the proposed issue. The issue The Board of Directors of Karo Bio AB has on August 12, 2004 decided, subject to the approval by the special general meeting of the Shareholders on August 30, 2004, on a new share issue of no more than 11,260,043 shares 1) , each with a nominal value of SEK 5, with preferential rights for existing shareholders. Each three shares held entitle to subscription of two new shares at a price of SEK 8.50 per share. If fully subscribed, the rights issue will raise approximately MSEK 96 excluding transaction costs. Assuming full subscription, the share capital will increase by no more than SEK 56,300,215. A consortium consisting of existing as well as new shareholders have secured 85 percent of the rights issue through guarantees and letters of intent to subscribe for shares in the rights issue. In order to secure commitments from the consortium, the Board has determined that it is imperative to offer an opportunity to subscribe for shares without preferential rights in case of over-subscription and therefore proposes that the special general meeting authorizes the Board to issue additional shares equivalent to no more than 10 percent of the outstanding shares after the rights issue, 2,815,010 shares, at an issue price of SEK 8.50 per share. Provided the authorization is granted, and that the board resolves on a new issue pursuant thereto, investors who have applied for new shares in accordance with guarantee undertakings or statements of intent to subscribe and who have not received shares to the extent applied for in the rights issue, will be allocated shares. All shareholders will have the opportunity to subscribe for more shares than entitled by their shareholding at the record date. The Board is of the view that the structure with a rights issue followed by another issue in order to meet potential over-subscription is the most favorable alternative to meet Karo Bio's imminent capital need. Terms in Brief Stated terms in brief and time schedule for the rights issue are listed below. · Each three shares held entitles to subscribe for two new shares · The subscription price is SEK 8.50 per share · Last date for trading in the Karo Bio shares including rights to participate in the issue is September 3, 2004 · Record date for participation in the rights issue is September 8, 2004 · Trading in subscription rights will take place September 13 - 28, 2004 · The subscription period is from September 13 - October 1, 2004 · Prospectus, subscription form and issue statement will be distributed to Karo Bio's shareholders beginning around September 10, 2004 Special General Meeting The Board of Directors' decision on a rights issue is subject to approval by the special general meeting on August 30, 2004. Notice for the special general meeting will be announced Monday August 16 through a press release as well as on Company's web site at www.karobio.com/sgm. ABG Sundal Collier is financial advisor to Karo Bio. Huddinge, August 13, 2004 The Board of Directors KARO BIO AB For further information, please contact Björn O. Nilsson, President & Chief Executive Officer, phone +46 8 608 60 20 Facts about Karo Bio Karo Bio has operations in Huddinge, Sweden. The Company has 95 employees. Karo Bio has been listed on the Stockholm stock exchange (Reuters: KARO.ST) since 1998 and maintains a leading position in the field of drug discovery focused on nuclear receptors. Nuclear receptors are validated drug targets for a number of clinical indications and the Company uses proprietary technologies for the development of novel and improved therapies for major markets. Karo Bio has drug discovery programs in several therapeutic areas including women's health care, cancer, cardiovascular disease, atherosclerosis and diabetes. Karo Bio collaborates with major pharmaceutical companies for the development of products and marketing. In these collaborations Karo Bio receives upfront payments, R&D funding and milestone payments, as well as royalties on net sales when products reach the market. Karo Bio has strategic pharmaceutical drug discovery collaborations with Merck & Co., Inc. and Wyeth Pharmaceuticals. This press release is also available online at www.karobio.com and at www.waymaker.net. Prior to exercise of outstanding warrants. Should new shares be issued before the record date for the rights issue through the exercise of warrants, such shares will be entitled to participate in the rights issue whereby the number of new shares will increase. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2004/08/13/20040813BIT00040/wkr0001.pdf