****capital raising*******

Late annoucement:

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31 January 2005
$60 MILLION CAPITAL RAISING
DUE DILIGENCE COMPLETED AND FINAL
DOCUMENTATION SIGNED
Veterinary pharmaceutical company Chemeq Limited (Chemeq; ASX: CMQ) today
announced that Mizuho International Plc (MHI) and its nominees have completed
confirmatory due diligence and signed final documentation in relation to their
investment of up to $60 million in Chemeq.
The transaction, which is subject to the approval of Chemeq shareholders, provides
for Chemeq to issue AU$20 million in convertible bonds to MHI and a further AU$20
million to related entities of Stark Investments (Stark). Stark was nominated as an
investor by MHI, as contemplated by the Term Sheet announced on 6 January 2005.
The documentation further provides for MHI and Stark (the Investors) to commit to
underwrite an additional AU$20 million investment in Chemeq to the extent its June
2005 options do not generate additional capital for Chemeq.
The Investors have completed their due diligence investigation in relation to Chemeq
and are satisfied with its outcomes.
In all material respects, the final documentation reflects the Term Sheet announced to
the market on 6 January 2005 except for minor adjustments to clarify the commercial
intentions of Chemeq and MHI at the time of signing the Term Sheet:
• the floor conversion price for all convertible bonds will be AU$0.60; and
• during the course of detailed due diligence, it was determined that the date by
which Chemeq must provide evidence of confirmed orders for the combined
sale of a minimum of 40,000 litres of Chemeq product for the 12 month period
ending 30 June 2006 should be extended to 30 September 2005.
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Chemeq Chairman and CEO Dr Graham Melrose said he was looking forward to
putting the capital raising proposal to Chemeq shareholders.
“Now that the Investors have completed their due diligence and final documentation
has been agreed, we can now put the capital raising proposal to shareholders and get
on with building Chemeq’s global business,” he said.
“We will prepare an explanatory memorandum for shareholders and seek to hold an
extraordinary general meeting during March for shareholders to approve the
transaction.”
“Throughout this process, we have developed a very productive relationship with the
Investors and the interim management team now in place.”
“Combining this relationship and the skills of the interim management team with
sufficient funding to enable Chemeq to execute its business plan provides Chemeq
with a foundation for growth it has not had in the past.”
An extraordinary general meeting of Chemeq shareholders is expected to be held
during March 2005.
An explanatory memorandum with the recommendation of the Chemeq Board and
supported by an independent expert’s report will be sent to shareholders as soon as
practicable.
About Chemeq
Chemeq is an emerging veterinary drug producer, which has developed a unique
product, CHEMEQ® polymeric antimicrobial, for the prevention and control of intestinal
bacterial diseases in feedstock animals such as pigs and poultry.
The company’s manufacturing facility in Western Australia is currently undergoing
commissioning and optimisation.
Chemeq has secured conditional approval from the Australian Pesticides & Veterinary
Medicines Authority (APVMA) to commence production at its manufacturing facility,
south of Perth, Western Australia.
To date, product approval has been secured in South Africa (pigs and poultry) and
New Zealand (pigs); distribution agreements with leading distributors have been
secured in South Africa, New Zealand and Malaysia.
Chemeq signed a AU$1.5 million sales order for its CHEMEQ® polymeric antimicrobial
with an agent in South Africa, in August 2004.
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About MHI
MHI is part of the Mizuho Financial Group which is one of the world’s largest financial
institutions, having assets of over US$1.1 trillion and a capital base in excess of
US$30.0 billion.
Within the Mizuho Financial Group, MHI is a subsidiary of Mizuho Securities Co. Ltd.
and is based in London. Through the Global Special Situations Group, MHI has made
a variety of investments around the world, including more recently in Australia. To
date, investments have been made in the mining, telecommunications, cable
television, airline, property, speciality chemical and specialist engineering sectors.
About Stark
Stark’s interests will be held by Stark Trading and Shepherd Investments
International, Ltd., two of several investment entities affiliated with Stark
Investments. Stark Investments is an investment management group founded in
1992 which currently has over US$5 billion in assets under management. Based in
Milwaukee, Wisconsin in the United States, Stark Investments has offices in New York,
San Francisco, Chicago, London and Hong Kong.
As a multi-strategy fund, Stark Investment’s various funds and entities, including Stark
Trading and Shepherd Investments International, Ltd., have invested in a variety of
situations around the world. Stark's investment in Chemeq will be held as a direct
investment and as such will not be managed as part of the firm's convertible bond
arbitrage strategy.
Independent Engineering Report
Following the company’s announcement of 15 November 2004 and as part of the due
diligence process, Chemeq asked independent engineering consultants S2F Pty Ltd
(S2F) to independently assess and report on the design, current performance and
ultimate performance capabilities of the world-first manufacturing facility, constructed,
owned and operated by Chemeq at Rockingham, Western Australia.
In recent years, S2F have provided engineering and architectural services to a range
of multi-national pharmaceutical groups, including Eli Lily, GlaxoSmithKline, Johnson &
Johnson, Merck Sharp and Dohme and Roche.
The key findings of the S2F report were:
• Chemeq’s manufacturing facility has been designed and constructed in a
manner consistent with a reliable pharmaceutical manufacturing plant;
• The performance of the plant at this stage of its start-up is within expected
capacity ranges for comparable types of projects;
• The plant is currently operating at 15% to 25% of nameplate capacity with the
production constraint being the final filtration stage, as previously announced
by Chemeq;
• Chemeq’s developmental plans to remedy the filtration constraint should result
in nameplate production being met; and
• S2F was able to confirm areas within the production process where there is
scope to increase production output beyond the nameplate 20 tonnes per
annum (of active ingredient) without significant changes in plant construction.
In its report, S2F stated that the approximate time for implementation of a
pharmaceutical active ingredient manufacturing plant from design through to
commissioning and final regulatory approval was typically between 50 and 108
months. Chemeq began the design stage of planning its plant approximately 36
months ago.
“Chemeq’s progress in the current stage of project development indicates that the
plant is tracking appropriately against similar types of projects,” said S2F in its report.
“The methodology being employed by Chemeq to commission, validate and optimise
the plant is following the practices normally employed in the production of active
pharmaceutical ingredients.”
-ends-
FOR FURTHER INFORMATION CONTACT:
Adam Deane
Company Secretary
Tel: 08 9362 0100