Judge OKs Aquasearch
reorganization plan

The Big Island biotech company
had been in Chapter 11 bankruptcy

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By Lyn Danninger
ldanninger@starbulletin.com

The reorganization plan for Big Island biotech firm Aquasearch got the go-ahead yesterday from U.S. Bankruptcy Judge Robert Faris.

Aquasearch, a 14-year old public company that makes nutritional supplements out of microalgae grown in Kona, entered Chapter 11 bankruptcy last year after a group of creditors sued to force the company into reorganization. The company later voluntarily entered bankruptcy.

Under the reorganization plan, California company Aqua Reorganization Co., run by venture capitalist Richard Propper and other investors, will acquire a majority interest in the company.The company bought $3.9 million of the total $4.5 million in outstanding claims. Another California company affiliated with Propper, Chardan Ventures, already helped Aquasearch stay afloat by providing $500,000 in financing.

Propper was named chairman of the new Aquasearch board and will serve as interim chief executive. Other board members include Propper associate Daniel Beharry, who will serve as interim chief operating officer; Richard Sherman, a holdover from the previous board; and Gregory F. Kowal, an Aquaseach creditor.

Current Aquasearch shareholders will get one share in the new company for each share owned in the old company, for a total of 120 million shares. To facilitate the deal, Aquasearch would be allowed to increase its number of outstanding shares to approximately 410 million from the original 120 million shares. Existing stockholders will hold approximately 30 percent of the shares.

The deal has already passed a required shareholder vote.

Unsecured creditors will be paid 17.5 percent of their claims in cash for a total of about $700,000. Several claims remain outstanding but the judge set an Aug. 26 date for a final claims hearing.

Aquasearch will also receive a new $3 million investment, said Harry Dougherty, who has been serving as interim president and chief executive of the company. Dougherty will remain as Aquasearch president.

"(The investment) will help support operations and expand the marketing of AstaFactor, Aquasearch's first product," he said.

Dougherty said it's likely all outstanding Aquasearch debts will be paid off before the 90-day period set by the court yesterday expires.

"We're expecting everything to go smoothly," he said. "We now have a future."

Aquasearch, incorporated in Colorado, may undergo a name change and become Mera Pharmaceuticals Inc., with incorporation in Delaware, Dougherty said.

The name change would reflect the greater emphasis the company will place on drug discovery activity, but the name has not been decided, he said.

The company also announced it will expand distribution to the mainland Chinese market and will eventually develop a manufacturing facility there. The current Kona location will focus on technical research and development of new species and products, they said.

Aquasearch's stock, which has been edging up over the past month, rose 2.5 cents, or 29.4 percent today, to close at a seven-month high of 11 cents. It was the stock's highest close since Nov. 2, when it hit 12 cents. Today's volume of 307,000 shares was more than double its six-month average.

Aquasearch's stock, which now trades on the Nasdaq with the "Q" bankruptcy designation at the end of its ticker symbol (AQSEQ), is still far below its 52-week high of 28 cents on June 20, 2001.

Parts of the plan

Under a reorganization plan approved yesterday by U.S. Bankruptcy Judge Robert Faris:

>> Current Aquasearch shareholders will get one share in the new company for each share owned.

>> The number of outstanding shares will increase to 410 million from 120 million.

>> Unsecured creditors will get 17.5 percent of claims in cash.

>> Venture capitalist Richard Propper and other investors will have majority interest. Propper becomes chairman and interim CEO.

>> The company's name will likely change to Mera Pharmaceuticals Inc. and its incorporation will move from Colorado to Delaware.