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Underwriting on the wall for DaytraderHQ

DAYTRADERHQ Ltd has raised just $300,000 from a non-renounceable rights issue that was to raise more than $1.1 million, and is negotiating to ensure the issue’s underwriter makes up the difference.

The amount of capital raised is the minimum that DaytraderHQ needed to remain solvent and at this point it remains a gross amount without fees and other expenses deducted.

The company intended to issue up to 57,251,000 shares to existing shareholders, with Sequentes Pty Ltd underwriting the issue. Sequentes is a private company controlled by Craig Burton, a director of a number of private and public companies, including the Perth-based junior explorer West Oil NL.

The arrangement with Sequentes was made after DaytraderHQ had already lodged a prospectus with the Australian Securities and Investments Commission on February 20. That prospectus was intended to raise nearly $2.7 million through the issue of 59,664,615 shares in the company at 4.5 cents each with a free option exercisable at five cents by 31 March 2005.

After discussions with Sequentes, the rights issue was amended. Shares would be issued at a price of two cents each, and the free attaching option would be exercisable at three cents on or before 31 March. Sequentes also would receive an underwriting fee of $60,000 for its work.

Several other conditions were imposed on the underwriting agreement, including that DaytraderHQ withdraw the Perth iX initial public offering priority application right offered under the prospectus. In the original prospectus, DaytraderHQ had flagged its intention to spin-off the Perth iX business later this year.

The two companies also agreed that Sequentes could terminate the agreement if certain events were to occur. One of these nominated events is the outbreak of hostilities involving any one of Australia, the United Kingdom, People’s Republic of China, Japan, Germany, the Commonwealth of Independent States or the United States of America.

The offer closed on Monday 25 March 2002 with a shortfall of 46.9 million shares.

TraderHQ Pty Ltd, a company controlled by Ross Smith, a non-executive director of DaytraderHQ and until last month the company’s managing director, was entitled to subscribe for nearly 34 million new shares and options under the Prospectus, but it declined to take up any of its entitlement.

On March 27 2002 Sequentes wrote to DaytraderHQ about the certain circumstances as prescribed in the terms of the underwriting agreement.

DaytraderHQ’s chief financial officer Simon Storm rejected as “absolutely incorrect” the suggestion that Sequentes had concerns about TraderHQ’s non-participation in the issue, saying instead that discussions revolved around “operational issues”, specifically, the company’s financial structure.

“We’re working with them to get this sorted out in the best interests of shareholders,” Mr Storm said.

“Everything is still positive as far as I’m concerned, and there’s obviously still a deal on the table – they haven’t cancelled the underwriting arrangements and that’s what’s important to us.”

Mr Burton was unable to be reached for comment.

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