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MARINE LOG AWARDS

October 30, 2001

Kvaerner comes up with rescue proposal
Kvaerner today proposed what it called "a complete solution" for solving its financial problems. The proposal has been agreed by Yukos (Russian's second largest oil company and now Kvaerner's largest shareholder) and a group of Norwegian and international banks, including DnB, Nordea, and Norsk Tillitsmann on behalf of the Norwegian bond and certificate owners.

The plan comes the day after Kvaerner announced third quarter results that it says were "heavily affected by the need to make substantial new provisions in the operating divisions, together with write-downs in the book values of certain investments and financial assets."

These include a NOK 37 million provision in the Philadelphia Shipyard accounts reflecting the fact that the costs for the first ship to be built are now expected to be higher that the obtainable value in the current market. And in a reassessment of group assets, a NOK 374 million provision was made against assets held at the Philadelphia yard, The write down, which is equal to the book value of the yard, follows "weak result forecasts for the business – due to unexpected problems in raising yard productivity to the expected level, as well as weakening prospects of a sale in the present economic climate."

The cornerstone of Kvaerner's rescue proposal is a NOK 3 billion (about $340 million) underwriting consortium that has been established to implement a Rights Offering.

Kvaerner has also entered into a deal with the lenders to propose a conversion of approximately NOK 4.5 billion (about $510 million) in debt, to a subordinate convertible note. Furthermore, it is presumed that existing loans will be rescheduled to the end of 2004.

Kvaerner says proposal means a long-term solution that will reestablish confidence among its customers, subcontractors, financial institutions, and employees.

“This is a solution that mirrors the efforts of many parties who have genuinely wanted to find a long-term solution for Kvaerner,” said Harald Arnkvaern, Chairman of Kvaerner. “Important shareholders, led by Yukos, have contributed to this solution which gives us the opportunity to move forward, develop the company – and demonstrate to the world that Kvaerner, with its 35,000 employees and unique qualities, is a viable going concern. The foundations that have now been established should also make it attractive for investors to participate in the rights offering,” he concluded.

The main elements of the agreed plan, are as follows:

  • Underwritten Rights Issue of NOK 3 billion. NOK 3 billion will be raised through a Rights Issue of ordinary shares, to be approved by shareholders by the end of November. The subscription price will be set at the lower of (i) NOK 10 per share, and (ii) 20 % below the volume weighted average share price quoted on the Oslo Exchanges during the first 5 trading days following the date upon which the final prospectus for the Rights Issue has been released to the market, and rounded downwards to the closest NOK 0.10. The Issue will be underwritten by Yukos, Folketrygdfondet, Den norske Bank, Odin, Kristian Siem and lead managers with a total of NOK 2 billion. Additionally, employees of Kvaerner will collectively participate with NOK 25 million.
  • Furthermore, the lenders will collectively participate as underwriters for NOK 1 billion. If the underwriting of the lenders, or parts of it, is turned into a subscription of shares, the proceeds will be paid through the conversion of debt from the lenders – in proportion to their share of the debt.
  • Lenders conversion of approximately NOK 4.5 billion of debt to subordinated convertible note. Lenders, bondholders, and holders of loan certificates will convert up to approximately NOK 4.5 billion of debt into a redeemable, zero coupon, ten year subordinated convertible note. To the extent the underwriting of the lenders will become effective, this will reduce the conversion amount of approximately NOK 4.5 billion. Note holders will have the right to convert to shares after 3 and 5 years at the market share price. This figure will be determined by the average share price over a forty trading day period – twenty days before and twenty days after – the note holder has announced its election to convert, less a discount of 5 per cent.
  • Kvaerner will have the right at any time to redeem any or parts of the notes, which have not already been subject to notification of conversion at any time at a price equal to par value plus 5 per cent per annum, capitalised annually.
  • Three- year exemption from debt repayment. It is proposed to freeze the maturity date for all of Kvaerner’s remaining loans until the existing debt of approximately NOK 9 billion has been rescheduled with maturity on December 31, 2004. The interest rate of the long-term loans will be NIBOR/LIBOR, plus a margin of 1.25 per cent. Furthermore, it is required that the parties agree on a three-year business plan.

Kvaerner said the propsed solution will remove the uncertainty that has made it difficult for the Group to access all of its available cash in various subsidiaries.

In connection with its participation in the underwriting consortium, Yukos has emphasized that the management and operations of Kvaerner should be conducted in an appropriate manner and based on sound industrial thinking. To this effect, a number of measures have already been implemented. These include:

  • efforts to reduce the cost of financial advisors;

  • the establishment of a working group with shareholder representation to reduce outstanding claims against the company.

  • Furthermore, Kjell E Almskog, President & CEO has waived his right for two years salary, upon his departure from the group.

The solution is dependent on acceptance by all lenders, including bondholders and certificate owners. Further, the refinancing plan must have support from a two-thirds majority of the attending shareholders at an Extraordinary General Meeting of Kvaerner. The underwriting commitments for the proposed rights offering are also dependent on fulfilment of the lenders’ conditions.

In its efforts to find the best solution for Kvaerner, the Board of Directors also considered concrete proposals from the company’s second largest shareholder, Aker Maritime. These proposals implied that the lenders would have to write-off a considerable part of their loans. The lenders were not willing to accept this. Based upon this conclusion, the Board decided there was no basis upon which to explore these proposals.

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