The company wants the money to pay off debt and free itself to take advantage of what it sees as a significant turnaround in its fortunes.
Roger Regan, the new chairman, said yesterday: 'The board believes that economic activity is increasing. It is essential that Spring Ram has the working capital available to seize the opportunities afforded by such conditions and to support an increase in the level of the group's activity.'
Spring Ram, which was admired in the late 1980s and early 1990s because it had no debt and grew profits organically rather than by acquisition, ended last year with pounds 35m of borrowings, most of which was to pay for an ambitious new factory for its Regency Doors subsidiary.
Mr Regan confirmed that the company would persevere with Regency. When he joined the board last July he said he would review its viability.
He said yesterday: 'The operational review initially revealed a factory of great potential . . . I am impressed with the vigour being applied by the new and experienced management team in developing the business from what was an appalling inheritance.'
The City received news of the rights issue warmly. Spring Ram is offering two new shares at 53p for every nine already held.
The shares rose 30 per cent this week and added another 3p to close at 75p yesterday, 20 per cent above the theoretical ex-rights price.
Large institutional shareholders reacted positively to the cash- raising exercise. 'It is definitely the right thing to do,' one said. 'We have confidence that the new management will win back the exciting growth profile.'
Bill Rooney, the founder chairman who was ousted last summer, controls 16 per cent of the shares. He received no compensation for loss of office but has been retained as an adviser on pounds 1,500 a month. The contract expires on 31 March and is unlikely to be renewed.
Three other directors did receive compensation. The former finance director, Stuart Greenwood, was paid pounds 322,000 and David Riley - once responsible for the bathrooms side - received pounds 158,000. Ron Farr, who presided over Regency Doors and the special products division, received pounds 135,000.
The company has paid out a total of pounds 1.4m in compensation for terminating employment with 23 of its 62 main board and subsidiary company directors.
Full-year losses for 1993 will total pounds 36.5m, the same amount as the company lost in the first half of the year.
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