Rights Issue in Pergo AB

Rights Issue in Pergo AB Pergo makes a 2:1 rights issue at a subscription price of SEK 11 per share. The total issue size amounts to MSEK 394 Shareholders representing more than 60 percent of the voting rights and share capital support the rights issue Pergo has decided on and begun implementation of an extensive action program with an expected annual profit improvement of at least MSEK 500 within a two-year period The Rights Issue The Board of Directors of Pergo has passed a resolution regarding an equity issue in Pergo of MSEK 394 with preferential rights for the company's shareholders. According to the resolution by the Board of Directors, which is subject to approval by an extraordinary general meeting on February 7, 2002, the company's shareholders will have the right to subscribe for two new shares for each share held at a subscription price of SEK 11 per share. The issue will lead to an increase in the share capital of a maximum amount of SEK 357,948,600, through the issue of a maximum of 35,794,860 shares in the company. The capital injection will be used to provide Pergo with sufficient financial resources and liquidity to implement the previously decided action program (see below "Action Program") aiming to strengthen Pergo's competitive position and profitability by, among others, a sharp reduction of the cost level. The capital injection will also facilitate Pergo's active participation in the on-going structural change in the industry. The resolution by the Board of Directors is subject to the passing of necessary decisions regarding Pergo's loan financing by the company's lenders no later than January 2002 to an extent and accessibility as described below in the section "Loan Financing" and on market terms acceptable to the Board of Directors. Shareholders representing 56.8 percent of the number of shares in Pergo is positive to, and intends to subscribe for their part of, the rights issue. These shareholders include AB Custos, Sydsvenska Kemi AB, several members of the Wendt family, Nordea funds, 3th AP fund, 2nd AP fund, 6th AP fund and Riksbankens Jubileumsfond. In addition shareholders representing 6.0 percent of the number of shares in Pergo are positive to the issue. Management and Directors Acquires Shares in Pergo An extended executive management group of ten persons has expressed an interest in acquiring shares in Pergo. Those will be offered to use 25 percent of the base salary net of tax during 2002 and 2003 to acquire Pergo shares. CEO Raimo Issal will in addition acquire shares in Pergo corresponding to a value of at least MSEK 1. The remuneration net of tax for current term of office to the Board of Directors will be used to acquire shares in Pergo. Individual directors have, as shareholders, committed to subscribe for their part of the rights issue. The chairman of the Board of Directors, Christer Gardell, has expressed his intention to acquire shares in Pergo in connection to the rights issue corresponding to a value of at least MSEK 2.5. Background Pergo's profitability has, due to a high general cost level and a late shift to new production technology, been weak during the last years. Together with large one-time costs this has led to a deterioration of the company's financial position, in particular during the later part of 2001. Pergo has therefore initiated an extensive action program in the fall 2001 that will result in an annual profit improvement of at least MSEK 500 within a two-year period. The action program calls for considerable restructuring costs, which requires for Pergo to possess the necessary financial strength. In addition, unexpected inventory cutbacks and extended terms of credit by some of Pergo's largest customers have led to a critical liquidity situation during December 2001. For this reason, and after discussions with the company's lenders, the Board of Directors, before the Christmas holidays, contacted shareholders representing slightly more than 60 percent of the outstanding shares in Pergo, to investigate the conditions for accomplishing a for the company necessary equity issue. Following these contacts, which have continued during the Christmas and New Year holidays, the Board of Directors has concluded that strong ownership support exists for the implementation of an equity issue. Estimate of Full Year 2001 Results Despite the economic down turn, Pergo's sales has developed relatively well during the fourth quarter 2001 and sales for the full year 2001 is estimated to amount to close to MSEK 3,800. The continued weak profitability has made the fourth quarter the weakest during 2001. Pergo estimates that the 2001 operating profit before one-time costs described below will amount to close to MSEK -300. One-time costs that among others include restructuring costs as a result of the extensive action program are estimated to amount to slightly more than MSEK 550, of which MSEK 200 will affect the company's cash flow. The Profit before tax for 2001 is estimated to amount to approximately MSEK -890. The equity ratio is estimated to be 36 percent on December 31, 2001. Performa adjusted for the rights issue, and assuming full participation, the equity ratio is estimated to be 51 percent on December 31, 2001. Pergo intends to publish its preliminary year-end report for 2001 on January 28, 2002. Action Program Pergo is currently implementing an extensive action program aiming at an annual profit improvement of at least MSEK 500 within a two-year period. The action program comprises the entire group and will require considerable restructuring costs that will affect the 2001 results. The action program comprises a reduction of fixed costs and improved efficiency in distribution, product line, supply chain and capital tied up. In addition, production costs will be reduced. During 2001 substantial changes have been made to the product line, which has yielded a positive response from customers. A newly developed process technology will be used from the first half of 2002, which will enable the use of existing machinery to produce products similar to those produced with the cost efficient DL-technique, but with considerably higher quality. Negotiations concerning lay-off of personnel will immediately be initiated at all production sites. In addition Pergo is currently reviewing the existing production structure. The marketing organisations in Europe as well as in the US will be subject to appreciably improved efficiency by simplifying the organisational structure and by reducing the number of decision levels. The South American organisation will be restructured. Forecasts The Board of Directors expects the market for laminate flooring to continue to grow at 10-20 percent annually for a longer period. The strongest development is expected in the US were laminate flooring is in an early development stage. The US market accounts for approximately two thirds of Pergo's total sales. With the action program described above Pergo's focus will be cost efficiency. The objective of the Board of Directors is for Pergo to reach profitability in 2002 and in addition to show positive cash flow from 2003. Consolidation of the Industry A restructuring and consolidation process of the fragmented laminate flooring market is currently ongoing. It is the Board of Directors' opinion that Pergo, with its strong market position, its good customer relations and its strong brand name is favourably positioned to actively participate in this phase of consolidation in a way that is interesting both to the company and to its shareholders. Pergo is currently engaged in ongoing discussions with other parties concerning possible structural transactions. Loan Financing Pergo has with the company's creditors agreed on new terms for Pergo's loan financing. The lenders have expressed that they are prepared to (i) assist, if required, on new credits of MSEK 200; (ii) retain existing credit agreements; and (iii) provide possible bridge financing until the proceeds from the equity issue are available. The loan financing is subject to customary credit decisions by the lenders during January 2002. It is the opinion of the Board of Directors that, if the rights issue is implemented and the above mentioned loan financing is secured, Pergo will have the financial resources necessary for competitive and profitable operations. Time Schedule for the Rights Issue Prospectus pursuant to the rights issue is expected to be sent to shareholders approximately one week before the extraordinary general meeting on February 7. February 7 Extraordinary general meeting to decide on the Board of Directors rights issue resolution February 8 The Pergo share is traded excluding the right to participate in the rights issue February 12 The record day for the right to participate in the rights issue, i.e. shareholders registered as shareholders in Pergo this day will receive rights to participate in the rights issue February 15-26 Trading in rights February 15- Subscription period March 1 Trading in the Pergo Share The Board of Directors together with the Stockholm exchange (Stockholmsbörsen) halted the trading in the Pergo share on January 2. Trading in the company's shares will resume at Stockholmsbörsen on Tuesday January 8, 2002. Pergo has engaged Enskilda Securities as financial advisor in connection with the rights issue. Trelleborg, January 8, 2002 Pergo AB (publ) The Board of Directors For further information, please contact: Christer Gardell, Chairman, tel. +46 70 595 82 74 Raimo Issal, CEO, tel. +46 410 36 31 00 Annette Kumlien, CFO, tel. +46 410 36 31 00 This is Pergo Pergo is a laminate flooring company with leading market positions, particularly in Europe and the US. The Company also sells system components, such as glue, floor-installation tools and moldings that are adapted to Pergo's products. Pergo had sales of MSEK 3,713 in full-year 2000 and the number of employees was 1,083 at December 31, 2000. Pergo developed laminate flooring at the end of the 1970s and launched the product in Europe during the 1980s. The company started sales in the US in 1994 and, to a smaller degree, in Asia in 1995 and Latin America in 1997. The company's products have been marketed under the Pergo® brand name since 1989. For further information about Pergo, please visit our homepage www.pergo.com. Not for distribution in the United States of America or Canada The rights issue is not directed to shareholders in countries where participation requires other measures in addition to those required under Swedish law. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/01/08/20020108BIT00190/bit0002.doc http://www.waymaker.net/bitonline/2002/01/08/20020108BIT00190/bit0002.pdf