as reported in 2 days australian

Chemeq slumps on 'default'
Michael West
October 27, 2006
CHEMEQ shares went into free-fall yesterday as the company's major bond holder issued a default notice, giving the struggling biotech group just 10 days to find $50 million.
Despite a 33 per cent slump in the stock price, Chemeq chief executive David Williams put a brave face on the redemption notice from convertible bondholder Stark Trading.

"We have had strong advice from legal counsel that we have satisfied the revenue milestone," Mr Williams said.

"Our position is, therefore, that this is an invalid notice."

Mr Williams said Stark had sought to renegotiate the terms of its bonds to improve its commercial position.

He said Stark alleged Chemeq had failed to achieve total gross revenue for the June 2006 year of $4 million. The disagreement over the revenue covenant related to Chemeq's South African contract.

Stark representatives could not be contacted last night.

The other bondholder, Harmony (which accounts for $10 million of the $60 million in bonds), has not issued a default notice. Its representative on the Chemeq board, John Nicholls, resigned to avoid any potential conflicts of interest.

Stark can convert its debt into 49.9 per cent of Chemeq shares at any time, but compounding its dilemma is the stock price.

It is understood the company's founder, Dr Graeme Melrose, has a margin loan worth more than $6 million over his 26 per cent stake in Chemeq backed by Chemeq shares.

But the falling share price has now left Dr Melrose's margin lender, Primebroker (assuming it still owns the shares), with equity of about $5 million.