Acquisition

RNS Number : 2432H

Oxford Catalysts Group PLC

03 November 2008

 



3rd November 2008

OXFORD CATALYSTS GROUP PLC 

('Oxford Catalysts' or 'the Company' or 'the Group')

Proposed Acquisition of Velocys, Inc. ('Velocys')

Placing of 8,251,888 Ordinary Shares at £1.25 per Ordinary Share,

Admission of the Enlarged Share Capital to trading on AIM

Highlights

• Acquisition of Velocys, Inc. from Battelle Memorial Institute for $35.0 million.
  
• Velocys:
• • is the recognised world leader in the design and development of microchannel process technology for the production of synthetic fuels and commodity chemicals;
  • has had over $160 million invested in its technology to date;
  • had revenue of $15.8 million for the year ended 30 September 2007;
  • strategic partners include Dow Chemical, Toyo Engineering and MODEC; and
  • expects commercial demonstrations to begin in 2009.
    

• The Directors believe that:

• • there is a natural fit between the Oxford Catalysts and Velocys technologies;
  • there is strong demand for smaller scale applications of Fischer-Tropsch − a potentially significant new addressable market from captured flare gas, gas that is currently reinjected, stranded gas reserves and biomass that can be converted to liquid fuels; and
  • the Acquisition will create a leader in smaller scale synthetic fuels technologies.
    

• Oxford Catalysts is raising approximately £10.3 million via a non pre-emptive institutional placing at £1.25 per share underwritten by KBC Peel Hunt Ltd and Piper Jaffray Ltd.

The Board is pleased to announce that it has agreed to acquire the entire issued and to be issued share capital of Velocys, the recognised world-leader in the design and development of microchannel process technology for the production of synthetic fuels and commodity chemicals, for consideration of $35.0 million (approximately £21.4 million), to be satisfied by the payment of $5.0 million in cash (approximately £3.1 million), $28.2 million (approximately £17.2 million) by the issue of 10,442,207 Consideration Shares and 388,196 Settlement Shares, and the remainder by the Velocys Option Settlement.

In order to fund the cash element of the consideration for the Acquisition and to provide working capital to finance the Enlarged Group's integration, development and commercialisation strategies, Oxford Catalysts intends to raise approximately £10.3 million (£8.2 million net of expenses) via a conditional, non pre-emptive institutional placing. The Placing has been underwritten by KBC and Piper Jaffray. 

In view of the size of Velocys, the Acquisition will, on Completion, constitute a reverse takeover under Rule 14 of the AIM Rules for Companies, and as such will require Shareholder approval at a general meeting of the Company, to be held on 19 November 2008. 

The Company has obtained irrevocable undertakings to vote in favour of the Resolutions from certain Shareholders (including the two Directors who hold Ordinary Shares) in respect of their own beneficial shareholdings, which amount in aggregate to 18,913,915 Ordinary Shares (representing approximately 46.6 per cent. of the Existing Ordinary Shares currently in issue).

Background to and reasons for the Acquisition

Production of alternative fuels, including synthetic fuels, is set to grow faster than conventional fuels reaching nine per cent. of global liquid fuels production by 2030.

The Directors consider that the largest potential opportunity for Oxford Catalysts' current business is in the emerging synthetic fuels market, primarily through the use of Fischer-Tropsch ('FT').

In particular, the Directors believe that there is strong demand for smaller scale applications of FT, for which there is a potentially significant new addressable market from captured flare gas, gas that is currently reinjected, stranded gas reserves and biomass that can be converted to liquid fuels via BTL.

For conventional process technology, efficiency and cost-effectiveness rapidly deteriorate as plant capacities decrease. In contrast, the relative potential benefits achievable with microchannel reactors become more pronounced at smaller scales. The Directors believe that at smaller scales of 5,000 bpd and less, microchannel reactors are the clear solution of choice for certain key steps in the production of synthetic fuels, including FT.

As microchannel reactors need catalysts that are significantly more active than those utilised by conventional reactors, and since the Group's platform technology could enable the production of such catalysts, there is potentially a strong natural fit between Oxford Catalysts' and Velocys' technologies.

Velocys and the Group have been working together since May 2007 to integrate and demonstrate their technologies in the area of FT. Indeed, tests using the combined technologies show significantly superior performance to that which either company has been able to attain separately to date, and at a level which meets initial commercial targets required by Velocys' partners.

The Directors believe that by extending the Company's offering to include Velocys' microchannel reactors, it will be able to capture a larger proportion of the revenue available in the emerging synthetic fuels market, and that the Enlarged Group will have a strong competitive advantage in smaller scale applications of FT.

The Directors believe that the Acquisition will accelerate time to market, reduce risks and cost of commercialisation, broaden the product portfolio to appeal to a wider group of potential partners and customers, strengthen competitiveness and achieve critical mass.

Statistics

Mid-market closing price per Ordinary Share on 31 October 2008 (being the last practicable date prior to the publication of this Admission Document)		£1.59
Number of Existing Ordinary Shares		40,566,990
Number of Consideration Shares being issued and allotted pursuant to the Acquisition		10,442,207
Number of Settlement Shares		388,196
Number of Placing Shares being issued and allotted pursuant to the Placing		8,251,888
Enlarged Share Capital following Admission		59,649,281
Placing Price	£1.25 per Ordinary Share
Market capitalisation of the Company at the Placing Price on Admission		£74.6 million
Gross proceeds of the Placing		£10.3 million
Estimated net proceeds of the Placing		£8.2 million
Percentage of Enlarged Share Capital represented by:	% of Enlarged Share Capital
Existing Ordinary Shares		68.0
Consideration Shares		17.5
Placing Shares		13.8
Settlement Shares		0.7
ISIN of Ordinary Shares		GB 00B11SZ269

If the Resolutions are duly passed by Shareholders at the General Meeting and other conditions set out in the Acquisition Agreement are met, trading in the Existing Ordinary Shares on AIM will be cancelled and the Enlarged Share Capital will be admitted to trading on AIM, with dealings expected to commence at 8.00 a.m. on 20 November 2008.

Pierre Jungels, Chairman of Oxford Catalysts commented:

'The combination of Oxford Catalysts and Velocys creates a powerful player in the fast emerging market for small scale synthetic fuels production. There is a natural fit between the two companies' technologies which will enable us to meet the strong demand for smaller scale applications of FT, namely from captured flare gas, stranded gas reserves and biomass.'

Roy Lipski, Chief Executive Officer of Oxford Catalysts said:

'We are delighted to have been able to execute this acquisition given the unequivocal benefits that arise from combining our two businesses. This transaction is a defining moment for Oxford Catalysts along its path to leadership in the clean fuels technology market.'

Martin Inglis, Executive Vice President and Chief Financial Officer of Battelle Memorial Institute said:

'The group formed by combining these two innovative technology companies is well positioned to become an early commercial winner in the drive for cleaner and more accessible fuels. The combined business will benefit greatly from the increased funding made available through this placing, facilitating the acceleration of key programmes and leading to early commercialisation. We are delighted to be significant shareholders in this exciting venture which brings together technologies originating from two world renowned institutions − the University of Oxford and Battelle.'

The admission document containing full details of Oxford Catalysts (as enlarged by the acquisition of Velocys) and admission of its Ordinary Shares to trading on AIM will be available on the Company's website at www.oxfordcatalysts.com/investors/financial-information.html

Enquiries:

Oxford Catalysts Group PLC
Pierre Jungels, Chairman	[phone]
Roy Lipski, Chief Executive Officer
KBC Peel Hunt Ltd (nominated adviser, broker and joint bookrunner)
Jonathan Marren	[phone]
Megan MacIntyre
Piper Jaffray Ltd. (joint bookrunner)
Amer Khan (Corporate Broking)	[phone]
Michael Covington/Paul Dwyer (Corporate Finance)
Houlihan Lokey (financial adviser to Battelle)
Jonathan Adams	+ 1 (0)212 497 4208
Financial Dynamics Limited (financial public relations)
Billy Clegg	[phone]
Alex Beagley

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction. 

KBC, which is authorised and regulated by the Financial Services Authority, is acting exclusively as nominated adviser, broker and joint bookrunner to Oxford Catalysts and for no one else solely in connection with the Placing and Admission and will not be responsible to anyone other than Oxford Catalysts for providing the protections afforded to the customers of KBC or for providing advice in relation to the Placing.

Piper Jaffray, which is authorised and regulated by the Financial Services Authority, is acting exclusively as joint bookrunner to Oxford Catalysts and for no one else solely in connection with the Placing and will not be responsible to anyone other than Oxford Catalysts for providing the protections afforded to the customers of Piper Jaffray or for providing advice in relation to the Placing.

APPENDIX

Information on Velocys

Velocys is the recognised world leader in the design and development of microchannel process technology for the production of synthetic fuels and commodity chemicals. It was formed in 2001 to commercialise microchannel technology developed by Battelle Memorial Institute, (the world's leading independent science and technology organisation), at PNNL, one of the US Department of Energy's national laboratories. Velocys owns, or has licences to, the largest microchannel patent portfolio in the world. It is commercialising systems for both FT and methane reforming, two of the key components of the GTL process.

The basic building blocks of the Velocys technology are reactor components, each with large numbers of parallel and/or perpendicular microchannels. These microchannel reactors enable the use of significantly more active catalysts than can be utilised by conventional reactors, such as the FT catalyst developed by the Group. They can result in substantial capital cost savings, improved product yields, and greater energy efficiencies than conventional technologies, particularly when incorporated into smaller scale projects such as those suited to BTL, and to GTL for flare gas and small to medium scale stranded gas, a potentially significant new addressable market.

Velocys has formed strategic partnerships with several industry leaders in various application areas. Over $160 million has been invested to date in its technology, primarily by industrial partners. Several partner supported projects are currently targeting commercial demonstration of the technology, including one with Toyo Engineering Corporation (a global EPC company with Mitsui as a minority shareholder) and MODEC, INC. (the world's second largest owner/provider of FPSOs, owned by Mitsui). In the synthetic fuels market, these projects are aiming for commercial demonstration beginning as early as 2009.

Velocys has over 60 employees and operates from a 27,000 sq. ft. custom fitted facility near Columbus, Ohio. In the year ended 30 September 2007, Velocys had $15,790,000 of revenue and an operating loss of $714,000.

www.velocys.com

Information on Battelle Memorial Institute

Battelle Memorial Institute is the world's leading independent science and technology organisation that develops technology and manages laboratories for companies and government agencies, including the United States Department of Energy and the Department of Homeland Security. It oversees more than 20,000 staff and conducts approximately $4 billion in annual R&D. Velocys is, as at the date of this announcement, a subsidiary of Battelle Memorial Institute.

www.battelle.org

Information on Oxford Catalysts

Oxford Catalysts is developing and commercialising catalysts primarily for use in the production of clean fuels from both fossil fuels and certain renewable resources, such as biogas. These include applications in the hydro-desulphurisation of crude oil fractions, and in the production of synthetic fuels via the Fischer-Tropsch process. In addition, the Group is aiming to co-develop products incorporating its novel steam production technology for the steam-applications market. Furthermore, the Group is developing catalysts to be used for other applications such as biogas conversion.

The Group has developed a high activity fixed bed FT catalyst that can operate at more than fifteen times the productivity of conventional catalysts. The catalyst was demonstrated by Velocys for over 3,000 hours in a nominal two gallon per day pilot unit. The performance of the catalyst was better than any other catalyst it had tested, including catalysts provided by other catalyst companies, as well as those developed by Velocys.

In addition to its ongoing development project with Velocys, the Group has announced active working engagements with PTT Public Company Limited, the Thai state controlled oil and gas company, a leading fast moving consumer goods multinational, and Novus Energy LLC, a Minneapolis-based renewable fuels company.

www.oxfordcatalysts.com

Background to the Acquisition

Following Oxford Catalysts' admission to AIM in April 2006, it has continued to focus on developing catalysts, particularly for use in the production of clean fuels from both fossil fuels and certain renewable sources, such as biogas. Catalysts are a key element in the production process of certain clean fuels, including low-sulphur diesel and synthetic fuels.

Liquid fuels derived from crude oil are the world's dominant energy source, and despite increasing fuel efficiency, world consumption of transportation fuels is expected to keep rising over the next 20 years. Production of alternative fuels, including synthetic fuels from FT, is set to grow faster than conventional fuels reaching nine per cent. of global liquid fuels supply by 2030.

The Directors consider that the largest potential opportunity for Oxford Catalysts' current business is in the emerging synthetic fuels market, primarily through the use of FT.

In particular, the Directors believe that there is strong demand for smaller scale applications of FT, for which there is a potentially significant new addressable market, including: up to 1.7 million bpd potential from captured flare gas, and almost twice as much potential from gas that is currently reinjected; over 20 million bpd potential from small and medium scale stranded gas reserves; and millions of bpd potential via BTL, where for example 1.1 million bpd of biofuels that could be made by BTL have been mandated in the US alone by 2022. 

For conventional process technology, efficiency and cost-effectiveness rapidly deteriorate as plant capacities decrease. In contrast, the relative potential benefits achievable with microchannel reactors become more pronounced at smaller scales. The Directors believe that at smaller scales of 5,000 bpd and less, microchannel reactors are the clear solution of choice for certain key steps in the production of synthetic fuels, including FT.

Microchannel reactors are able to exploit the benefits of catalysts that are more active than those utilised by conventional reactors, and since the Group's platform technology enables the production of such catalysts, there is potentially a strong natural fit between Oxford Catalysts' and Velocys' technologies. 

Velocys and the Group have been working together since May 2007 to integrate and demonstrate their technologies in the area of FT. Indeed, tests using the Group's proprietary high activity catalysts with Velocys' microchannel reactors show significantly superior performance to that which either company has been able to attain separately to date, and at a level which meets initial commercial targets required by Velocys' partners.

The Directors believe that by extending the Company's offering to include Velocys' microchannel reactors, it will be able to capture a larger proportion of the revenue available in the emerging synthetic fuels market, and that the Enlarged Group will have a strong competitive advantage in smaller scale applications of FT.

Reasons for the Acquisition

The Directors believe that the Acquisition would provide the following key benefits to Oxford Catalysts, particularly in the area of FT.

(a) Accelerate time to market

The Directors believe that targeting smaller scale FT using the Enlarged Group's technologies will provide a faster route to gaining market acceptance for its FT catalysts, and to enhancing income. The Acquisition will provide the Company with direct and intimate access to a proprietary FT process, thereby accelerating the development cycle, as well as providing scope for producing a better overall offering (process and catalyst combined).

(b) Reduce risk and cost of commercialisation

Velocys has already secured several partnerships in the synthetic fuels and commodity chemical markets. The Directors believe that access to these partnerships will not only validate the Company's technology and help fund commercial demonstration but that they will also provide the initial routes to market for the Enlarged Group. Furthermore, the Directors consider that the modular nature of the Velocys technology will alleviate a substantial proportion of the time and risk typically associated with scaling up a chemical process.

(c) Broaden the product portfolio

In addition to its FT microchannel reactor, Velocys is commercialising a compact steam methane reformer for GTL applications, as well as solutions for the commodity chemical and emulsion markets. The Directors anticipate that the Enlarged Group will be able to licence or supply catalysts for operation in other parties' processes, licence reactors to incorporate other parties' catalysts and, most importantly, offer integrated catalyst/reactor solutions.

(d) Appeal to a wider group of potential partners and customers

The Directors believe that the Enlarged Group will not only have offerings for the Company's current target partners (primarily catalyst companies and technology developers), but will also be in a position to offer technology solutions to energy companies, engineering firms, process licensors, project integrators, and producers of fuels and commodity chemicals.

(e) Strengthen competitiveness

The Company will benefit from a strengthened intellectual property portfolio of approximately 590 granted patents and patent applications (including those patents and patent applications licensed to the Enlarged Group as at 1 September 2008). As the Enlarged Group will operate from both Europe and the US, the Directors believe that the Company will be better positioned to target the emerging global market for synthetic fuels.

(f) Achieve critical mass

Velocys has over 60 employees, who will broaden and complement the Group's existing skills, particularly in the areas of business development, intellectual property management, process engineering, scale up and commercial deployment. Furthermore, the Company's management team will be strengthened, which the Directors anticipate will enable the Enlarged Group to function more effectively during the anticipated period of rapid growth.

Summary financial information

The following financial information has been extracted from the historical financial information contained in Parts VI and VII of the Admission Document and should be read in conjunction with the full text of the Admission Document. Investors should not rely solely on the summarised information.

(a) Oxford Catalysts

		For the year ended 31 December
	2007		2006
	£'000		£'000
Revenue	163		64
Gross profit	32		27
Operating loss	(2,560)		(1,410)
Net cash outflow from operating activities	(2,048)		(739)
Short term investments - cash held on deposit	7,000		7,000
Cash and cash equivalents	8,630		6,528
Net assets	16,533		14,078

(b) Velocys

		For the year ended 30 September
	2007		2006
	$'000		$'000
Revenue	15,790		12,494
Gross profit	6,137		3,514
Operating loss	(714)		(738)
Net cash inflow/(outflow) from operating activities	2,357		(70)
Cash and cash equivalents	3,278		987
Borrowings	(6,331)		(5,787)
Net liabilities	(4,616)		(3,820)

Current trading and prospects of the Enlarged Group

Oxford Catalysts and Velocys reported operating losses before tax for the half year ended 30 June 2008 and for the nine months ended 30 June 2008 of £1,720,000 and $2,438,000 respectively, on revenues of £158,000 and $9,470,000 respectively. (Further financial information on Oxford Catalysts and Velocys is set out in Parts VI and VII of the Admission Document.)

In its 2008 Interim Statement published on 25 September 2008, Pierre Jungels, Chairman of Oxford Catalysts said: 'The outlook for the Group across the markets in which we operate is universally positive. I am confident that we are on course to deliver commercial agreements which will enhance shareholder value. The Board is optimistic of exceeding management revenue expectations for the full year, and looks to the future with confidence and excitement.'

Following Completion, the Enlarged Group will have active working engagements with several companies and industry leaders, including Dow Chemical, Toyo Engineering, MODEC, PTT, a leading FMCG company, a major petrochemical producer, the biofuels subsidiary of a large European company, a company set up by one of the leading US coal industrialists, and Novus Energy.

The Board intends that the Enlarged Group will focus on nurturing its existing relationships and leading current projects to successful commercial conclusion (further details of which are set out in paragraph 3.3 of Part II of the Admission Document). In addition, the Board aims for the Enlarged Group to enter into further select partnerships - Velocys and the Company are currently engaged, or in discussions, with several leading petroleum companies, chemical companies, catalyst companies, project and technology developers, and cosmetics and personal care companies, as well as companies in other potentially relevant industries.

Board of the Enlarged Group

The existing Directors of Oxford Catalysts will make up the board of the Enlarged Group. The Executive and Non-executive Directors are:

Pierre Jungels, PhD, CBE (64), Chairman

Pierre, a chartered engineer, holds a PhD in geophysics and hydraulics from the California Institute of Technology, and has over 30 years' experience in the oil industry, 12 of which have been served at main board level, including appointments as Chief Executive of Enterprise Oil plc, Executive Director of PetroFina and Managing Director of British Gas. He is currently also Chairman of Rockhopper Exploration plc, and holds non-executive directorships at Woodside Petroleum Ltd, Baker Hughes Inc. and Imperial Tobacco Group plc. He was twice President of the Institute of Petroleum. Pierre was appointed Chairman of Oxford Catalysts in March 2006.

Roy Lipski (37), Chief Executive Officer

Roy has a scientific background, having obtained a MA degree in Natural Sciences from Cambridge University. Following university, he joined Goldman Sachs International where he worked for several years. Roy founded Infonic Limited, an internet research software and services company, which served numerous multinational clients. As Managing Director of Infonic Limited, he raised venture capital financing from Herald Ventures, developed and then sold the company to Corpora plc in 2004, a UK publicly listed company, at which point he was appointed as Group Strategy Director. Roy has served as Oxford Catalysts' Chief Executive Officer, and as an Executive Director, since March 2006.

Susan Robertson (née Hill) (44), Chief Financial Officer

Susan has an economics degree from Cambridge University and qualified as a chartered accountant with Arthur Andersen in 1989. Subsequently, she worked for over 18 years for the BOC Group where she held various senior financial management positions in Japan, the UK and globally, as well as strategic and business development roles in the UK. Susan served as Vice President and Chief Financial Officer of Japan Air Gases (JAG) between 2003 and 2006, from the inception of this £700 million joint venture between The BOC Group and Air Liquide. Susan joined Oxford Catalysts as Chief Financial Officer in October 2007 and was appointed to the Board in May 2008.

Jeremy Scudamore (61), Non-executive Director

Jeremy worked for ICI, Zeneca, AstraZeneca and Avecia for 35 years in a number of senior positions, latterly as Chairman and Chief Executive of the Avecia Group and previously as Chief Executive of Zeneca Specialties, Managing Director of Zeneca Seeds, and Business Director of Zeneca Agrochemicals. He has held various general manager and international roles including Zeneca Group Regional Executive for Eastern Europe and General Manager in Brazil. Jeremy was educated at Nottingham University and INSEAD, France. Currently, he is also Non-executive Chairman of SkyePharma plc and Oxford Advanced Surfaces Group plc, and Senior Independent Director of ARM Holdings plc and non-executive director of Plant Health Care PLC. Jeremy was appointed Non-executive Director of Oxford Catalysts in May 2007.

Jan Verloop, PhD (65), Non-executive Director

Jan received a PhD in chemical engineering from the Technical University of Delft in 1971. He worked for over 30 years at Shell in The Netherlands, UK and Singapore, in a variety of technical and senior management positions in research, refining, licensing, strategy, planning and product development. In 1998, he became Innovation Manager for Shell Global Solutions where he was responsible for developing strategic innovation. In 2003, Jan founded and is director of Causa Innovatie, an innovation consultancy company in The Hague. He is the author of Insight in Innovation. Jan is also a Non-executive Director of the Commonwealth Partnership for Technology Management Limited, a London based not-for-profit organisation. Jan was appointed Non-executive Director of Oxford Catalysts in March 2006.

Details of the senior management of the Enlarged Group are set out in paragraph 4 of Part II of the Admission Document.

Principal terms and conditions of the Acquisition 

Battelle Memorial Institute and the Company have entered into the Acquisition Agreement, pursuant to which the Company will acquire the entire issued and to be issued share capital of Velocys. The Company is acquiring Velocys for consideration of $35.0 million (approximately £21.4 million), to be satisfied by the payment of $5.0 million in cash (approximately £3.1 million), $28.2 million (approximately £17.2 million) by the issue of 10,442,207 Consideration Shares to Battelle Memorial Institute and 388,196 Settlement Shares and the remainder by the Velocys Option Settlement. The Consideration Shares will represent 17.5 per cent. of the Enlarged Share Capital and will rank in full for all dividends or other distributions hereafter declared, made or paid on the ordinary share capital of the Company, and will rank pari passu in all other respects with all other Ordinary Shares in issue on Admission.

Completion of the Acquisition Agreement is conditional, amongst other things, upon:

(a) the Underwriting Agreement becoming unconditional;

(b) the passing of the Resolutions by the Shareholders at the General Meeting; and

(c) Admission.

A full summary of the terms of the Acquisition Agreement is set out in Part IX of the Admission Document.

Placing

(a) Reasons for the Placing

The Directors consider that the Group has sufficient capital to pursue its current business strategy, but that additional funds are required to take advantage of the commercial opportunities that will be available to the Enlarged Group.

Historically, Velocys has primarily been financed through its partner development programmes, as well as by government and state grants. The Directors consider that whilst this approach has been appropriate for a technology-led business, it will not result in the fastest route to market for Velocys' technologies, and it is not suited to the market-led strategy that the Board plans for the Enlarged Group.

The Board considers speed to market as crucial to achieving competitive advantage, particularly in the synthetic fuels market. In order to maximise speed to market, the Directors intend to draw on the Enlarged Group's working capital to support and supplement current development programmes, and to help ensure timely commercialisation of Velocys' technologies.

Assuming the full proceeds of the Placing are vested, the Directors intend to use the proceeds of the Placing to fund the cash element of the purchase price payable pursuant to the terms of the Acquisition Agreement, being $5.0 million (approximately £3.1 million), and to provide additional working capital to the Enlarged Group.

(b) Details of the Placing and Admission

KBC and Piper Jaffray, as agents for the Company, have conditionally placed, at the Placing Price, 8,251,888 Placing Shares with institutional investors representing, in aggregate, approximately 13.8 per cent. of the Enlarged Share Capital. Each of KBC and Piper Jaffray shall severally subscribe for those Placing Shares that are not subscribed for by prospective Placees. As part of the Placing, the Directors have agreed to subscribe, in aggregate, for 68,000 Placing Shares. The Placing is conditional on, amongst other things, Admission taking place on or before 20 November 2008, or such later time as KBC, Piper Jaffray and the Company may agree.

The Placing is intended to raise approximately £10.3 million for the Company, before expenses. After the expenses of the Placing and Admission, estimated to be £2.1 million (excluding VAT) in total, the Placing is intended to raise £8.2 million.

Application has been made for the Enlarged Share Capital to be admitted to trading on AIM, conditional on the Resolutions being passed at the General Meeting. It is expected that Admission will become effective and dealings will commence on AIM at 8.00 a.m. on 20 November 2008 and that the proceeds of the Placing due to the Company will be received by it on or soon after Admission. In the case of Placees requesting Placing Shares in uncertificated form, it is expected that the appropriate stock accounts will be credited with effect from 20 November 2008. In the case of Placees requesting Placing Shares in certificated form, it is expected that certificates in respect of such shares will be dispatched by post within 14 days of Admission.

Pending dispatch of share certificates or crediting of CREST accounts, the Company's Registrars will certify any instruments of transfer against the register.

The Placing Shares will rank in full for all dividends or other distributions hereafter declared, made or paid on the ordinary share capital of the Company and will rank pari passu in all other respects with all other Ordinary Shares in issue on Admission.

A further application will be made to the London Stock Exchange, for admission to trading on AIM, if any Ordinary Shares are issued pursuant to the Velocys Option Settlement.

Put and call option

The Company and Avenir Finances S.A. have entered into a put and call option pursuant to which:

(a) either Avenir Finances S.A. may, in the period of 24 months after Completion, exercise a call option to acquire 1,600,000 Ordinary Shares in the capital of the Company at the Placing Price (in aggregate, £2,000,000); or

(b) the Company may, in the period from 12 months after Completion up to 24 months after Completion, exercise a put option to require Avenir Finances S.A. to acquire 1,600,000 Ordinary Shares in the capital of the Company at the Placing Price (in aggregate £2,000,000).

The put and call option was arranged by Innovator Capital Ltd on behalf of Avenir Finances S.A. in consideration of the payment of a fee of £100,000 which will be payable by the Company upon the exercise of the put or call option.

Lock in and orderly market arrangements

The Directors have entered into lock in deeds and orderly market restrictions pursuant to which they have agreed (i) for a period of 12 months from the date of Admission, that neither they (nor their respective spouses or infant children) shall dispose of any shares in which they are interested, other than in circumstances permitted by the AIM Rules for Companies; and (ii) for a further period of 12 months, the Directors (and their respective spouses or infant children) shall only be entitled to dispose of these shares through KBC as the agent selling stockbroker. 

Battelle Memorial Institute has also entered into a lock in deed and pursuant to which it has agreed not to dispose of the Ordinary Shares which it will be interested in following Admission for a period of 24 months after the date of Admission save that Battelle Memorial Institute shall be entitled to dispose of its Ordinary Shares during the first 12 months of that period in the circumstances permitted by the AIM Rules for Companies and, for the following 12 month period, shall only be entitled to dispose of those shares in the event of claim(s) against it, which are in excess of $5,000,000 under the Acquisition Agreement.

Further, certain key employees of Velocys will enter into lock in and orderly market arrangements, pursuant to which they will agree (i) for a period of 12 months from the date of Admission, neither they (nor their connected persons) shall dispose of any restricted shares other than in certain specified circumstances; and (ii) for a further period of 12 months, those persons (and their connected persons) shall, subject to the Company's and KBC's consent (not to be unreasonably withheld), only be entitled to dispose of these shares through KBC.

The aggregate number of Ordinary Shares to be held by Battelle Memorial Institute and the Directors as at Admission, to which such lock in and orderly restrictions will apply, will be 10,861,675 Ordinary Shares, representing 18.2 per cent. of the Enlarged Share Capital.

Dividend policy

The Directors currently intend to retain earnings for the foreseeable future to finance the growth of the Enlarged Group. However, the Directors intend to pay dividends when the Enlarged Group has sufficient cash and distributable reserves for this purpose and it becomes commercially prudent to do so.

Recommendation

The Board unanimously recommends that all Shareholders vote in favour of the Resolutions as Pierre Jungels and Jan Verloop (being those Directors who hold Ordinary Shares) have confirmed they will do in respect of their own beneficial shareholdings, which amount in aggregate to 351,468 Ordinary Shares (representing approximately 0.87 per cent. of the Existing Ordinary Shares).

 Definitions 

The following words and expressions taken from the Admission Document shall have the following meanings in this Announcement, unless the context otherwise requires:

'Acquisition'	the acquisition of all of the issued and outstanding shares of Velocys pursuant to the Acquisition Agreement
'Acquisition Agreement'	the conditional agreement dated 31 October 2008 between (1) the Company and (2) Battelle Memorial Institute the terms of which are summarised in Part IX of the Admission Document
'Admission'	the admission of the Enlarged Share Capital to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules for Companies
'Admission Document'	the Admission Document dated 3 November 2008 in relation to the Admission following completion of the Acquisition
'AIM'	AIM, a market of the London Stock Exchange
'AIM Rules for Companies'	the rules and guidance for companies whose shares are admitted to trading on AIM entitled 'AIM Rules for Companies' published by the London Stock Exchange, as amended from time to time
'Battelle'	Battelle Memorial Institute, the world's leading independent science and technology organisation headquartered in the State of Ohio, United States
'Board' or 'Directors'	the existing directors of the Company, whose names appear on page 6 of the Admission Document and 'Director' shall mean any one of them
'certificated' or 'in certificated form'	shares or other securities which are not in uncertificated form
'Company' or 'Oxford Catalysts'	Oxford Catalysts Group PLC, a company incorporated and registered in England and Wales with registered number 5712187
'Completion'	completion of the Acquisition in accordance with the Acquisition Agreement
'Consideration Shares'	the 10,684,886 Ordinary Shares to be issued by the Company pursuant to the Acquisition Agreement
'CREST'	the relevant system (as defined in the CREST Regulations) operated by Euroclear UK & Ireland in accordance with which securities may be held or transferred in uncertificated form
'CREST Regulations'	the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755) as amended
'Enlarged Group'	the Company and its subsidiaries from time to time, following Completion as described in paragraph 3.2 of Part X of the Admission Document
'Dow Chemical'	The Dow Chemical Company, Inc., a diversified chemical company which delivers a broad range of products and services to customers in around 160 countries
'Enlarged Share Capital'	the entire issued ordinary share capital of the Company immediately following Admission, comprising the Existing Ordinary Shares, the Consideration Shares, the Placing Shares, but for the avoidance of doubt, excludes any Ordinary Shares which may fall to be issued pursuant to the Velocys Option Settlement
'Euroclear UK & Ireland'	Euroclear UK & Ireland Limited, a company registered in England and Wales
'Existing Ordinary Shares'	the 40,566,990 Ordinary Shares in issue at the date of the Admission Document
'FSA'	the Financial Services Authority of the United Kingdom
'FSMA'	the Financial Services and Markets Act 2000, as amended, including any regulations made pursuant thereto
'General Meeting' or 'GM'	the general meeting of the Company to be held at the offices of Mayer Brown International LLP, 11 Pilgrim Street EC4V 6RW at 10.00 a.m. on 19 November 2008, notice of which is set out at the end of the Admission Document
'Group'	the Company and its subsidiaries and subsidiary undertakings as described in paragraph 3.1 of Part X of the Admission Document and 'member of the Group' shall be construed accordingly
'intellectual property'	all intellectual property, including patents, utility models, trade and service marks, trade names, domain names, right in designs, copyrights, moral rights, topography rights, rights in databases, trade secrets and know-how, in all cases whether or not registered or registrable and including registrations and applications for registration of any of these and rights to apply for the same and all rights and forms of protection of a similar nature or having equivalent or similar effect to any of these anywhere in the world
'ISIN'	International Securities Identification Number
'KBC'	KBC Peel Hunt Ltd, which is authorised and regulated in the United Kingdom by the FSA
'London Stock Exchange'	London Stock Exchange plc
'MODEC'	MODEC, INC., the world's second largest owner/provider of FPSOs, owned by Mitsui
'Notice of General Meeting'	the notice convening the General Meeting set out on pages 276 to 278 of the Admission Document
'Novus Energy'	Novus Energy LLC, a Minneapolis based renewable fuels company
'Ordinary Shares'	ordinary shares of £0.01 each in the capital of the Company
'Piper Jaffray'	Piper Jaffray Ltd., which is authorised and regulated in the United Kingdom by the FSA
'Placee'	a subscriber for Placing Shares
'Placing'	the proposed, conditional, non pre-emptive placing by KBC and Piper Jaffray of the Placing Shares with institutional investors pursuant to the Underwriting Agreement
'Placing Price'	£1.25 per Placing Share
'Placing Shares'	8,251,888 Ordinary Shares to be allotted and issued by the Company pursuant to the Placing
'PNNL'	Pacific Northwest National Laboratory, one of the US Department of Energy national laboratories
'PTT'	PTT Public Company Limited, the Thai State controlled oil and gas company
'Put and Call Option'	the put and call option as described in the put and call option agreement between the Company and Avenir Finances S.A. dated 31 October 2008
'Registrars'	Capita Registrars Limited
'Resolutions'	the resolutions to be proposed at the General Meeting as set out in the Notice of General Meeting
'Securities Act'	US Securities Act of 1933, as amended
'Settlement Shares'	the number of shares to be issued under the separation agreement and general release between the Company, Battelle, Trinet HR Corporation and Wayne Simmons dated October 2008
'Shareholders'	holders of Ordinary Shares from time to time, each individually being a 'Shareholder'
'Toyo Engineering'	Toyo Engineering Corporation, a global EPC company with Mitsui as a minority shareholder
'uncertificated' or 'in uncertificated form'	an Ordinary Share recorded on the Company's register as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST
'Underwriting Agreement'	the conditional agreement dated 31 October 2008 between (1) KBC (2) Piper Jaffray (3) Oxford Catalysts and (4) each of the Directors, relating to the Placing and Admission the terms of which are summarised in paragraph 14.1(f) of Part X of the Admission Document
'United Kingdom' or 'UK'	the United Kingdom of Great Britain and Northern Ireland
'United States' or 'US' or 'USA'	the United States of America, its territories and possessions, any state of the United States and the District of Columbia
'Velocys'	Velocys, Inc., a subsidiary of Battelle Memorial Institute, subsisting under the laws of the State of Delaware, United States
'Velocys Option Settlement'	the consideration to be issued to holders of options over common stock in Velocys either by way of the issue of additional Ordinary Shares, by way of Velocys Rollover Options or by cash, further details of which are set out in Part IX of the Admission Document
'Velocys Rollover Options'	has the meaning given in paragraph 16.1(c) and 16.6 of Part X of the Admission Document

Glossary

The following glossary of terms taken from the Admission Document shall have the following meanings in this Announcement, unless the context otherwise requires:

alternative fuels	any materials or substances that can be used as a fuel, other than conventional fuels such as oil, coal, propane, natural gas, and nuclear materials such as uranium
biofuels	fuels that are derived from biomass, such as biodiesel
biogas	gas produced as a result of the natural decomposition of biomass, typically by anaerobic digestion, such as is found at landfills and waste water treatment plants. Biogas typically comprises a mixture of carbon dioxide and methane
biogas conversion	reforming of biogas
biomass	biological materials including plant or animal matter
Biomass-to-Liquid or BTL	a process to produce liquid biofuels from biomass using FT
bpd	barrels per day
catalyst	a material used to initiate or accelerate a chemical reaction, while not itself being consumed in the reaction
chemical process	a method intended to be used in manufacturing of chemical(s), typically in a chemical plant
clean fuels	fuels that combust without emitting excessive harmful emissions such as sulphur oxides or nitrogen oxides
commodity chemical	a chemical that is manufactured and sold in large quantities, such as methanol and hydrogen peroxide, and is typically low in cost
emulsion	a mixture of two immiscible (unblendable) substances. One substance (the dispersed phase) is dispersed in the other (the continuous phase). Many emulsions are oil/water emulsions. Examples of emulsions include butter and margarine, milk, creams, lotions and paints
EPC	engineering, procurement and construction. An EPC contractor designs and delivers finished process plants to its clients fine chemical a chemical that is produced in relatively small quantities and is typically high in cost, for example a flavouring or vitamin
Fischer-Tropsch or FT	a chemical process that converts syngas into hydrocarbons such as diesel or waxes, as used in XTL processes, including GTL, CTL, and BTL
flare gas	natural gas that is flared. See flaring below
flaring	the process of burning off unwanted natural gas or flammable gas and liquids through an elevated vertical stack or chimney, often found on oil wells or oil rigs, and in refineries, chemical plants and landfills
FMCG	fast moving consumer goods. Examples of FMCG companies include Unilever and Gillette
fossil fuel	energy-rich substances that have formed from long-buried plants and micro-organisms. Fossil fuels, which include petroleum, coal, and natural gas, provide most of the energy that powers modern industrial society. With the exception of coal, fossil fuels are hydrocarbons. They are non-renewable resources
FPSO	a Floating Production Storage and Offloading vessel, a type of floating tank system used by the offshore oil and gas industry and designed to take all of the oil or gas produced from a nearby platform(s), process it, and store it until the oil or gas can be offloaded onto waiting tankers, or sent through a pipeline
Gas-to-Liquid or GTL	a process for converting methane (natural gas) into liquid fuels such as gasoline or diesel using FT
hydrocarbons	a class of chemicals comprising primarily carbon and hydrogen, such as natural gas, diesel or gasoline
hydro-desulphurisation or HDS	a process for the removal of sulphur from liquid hydrocarbons, such as oil distillates, by treating with hydrogen gas over a catalyst
microchannel	a small chamber, typically 0.1-5mm wide, designed to perform chemical reactions and/or to conduct heat between a substance and its surrounding environment
microchannel process technology or microchannel technology or MPT	process technology that comprises chambers (microchannels) that are significantly smaller than those used conventionally
microchannel reactor	a reactor comprising one or more microchannels
natural gas	natural gas used in general domestic and industrial applications which is mainly composed of methane
process technology	technology used in a chemical process
reactor	a device, or a vessel, designed to perform chemical reactions reformer, a device for reforming a fuel
reforming	a chemical process for converting a fuel into hydrogen gas and either or both of carbon dioxide and carbon monoxide. Reforming is a common method of producing syngas
renewable resource	a natural resource that is replenished by natural processes at a rate comparable to or faster than its rate of consumption by humans or other users. Some renewable resources, such as geothermal, fresh water, timber, and biomass must be carefully managed to avoid exceeding the environment's capacity to replenish them
stranded gas	natural gas that exists in locations where no economic method of transporting it to market exists or where the local market for natural gas is saturated
syngas or synthesis gas	a mixture of hydrogen gas and carbon monoxide that can be used to synthesise a variety of chemicals, including methanol and hydrocarbons such as diesel
synthetic fuels	near zero sulphur and aromatics liquid transport fuels made with Fischer-Tropsch, such as via the GTL, CTL and BTL processes
XTL	a process involving Fischer-Tropsch for the production of synthetic fuels, whereby the feedstock used to produce the intermediary syngas required is not specified. It could, for example, be natural gas, coal, biomass or plastics

In this announcement all references to times and dates are to those observed in London, United Kingdom. All references to legislation in this announcement are to the legislation of England and Wales unless the contrary is indicated. Any reference to any provision of any legislation shall include any amendment, modification, re-enactment or extension thereof.

In this announcement the symbols '£', 'p', 'pence' and 'penny' refers to pounds and pence sterling, and the symbol '$' refers to United States dollars and 'cents' refers to United States cents. The exchange rate used in this announcement is at the close of business on 30 October 2008 of $1.6377 per pound sterling, as published by Bloomberg.

Notices

This announcement does not constitute an offer or invitation to purchase or subscribe or a solicitation of an offer to buy any securities pursuant to this announcement or otherwise in any jurisdiction and investors should not subscribe for any shares referred to herein except on the basis of the Admission Document, produced by the Company, drawn up in accordance with the AIM Rules for Companies. It is intended that copies of the admission document when published, will be available at www.oxfordcatalysts.com/investors/financial-information.html.

The release, publication or distribution of this announcement in jurisdictions other than the UK may be restricted by the laws of those jurisdictions and therefore persons should inform themselves about and observe such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdictions.

This communication does not constitute an offer of securities to the public in the United Kingdom. No prospectus has been or will be registered in the United Kingdom in respect of the securities referred to in this communication. This document is exempt from the general restriction on the communication of invitations or inducements to enter into investment activity (within the meaning of section 21 of FSMA) and has therefore not been approved by an authorised person within the meaning of FSMA. This communication is being distributed only to and directed only at (i) persons falling within Article 19(5) ('investment professionals') of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the 'Order') who have professional experience in matters relating to investments, and/or (ii) other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as 'relevant persons'). This communication must not be acted on or relied on by any person who is not a relevant person. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.

Information for United States and other overseas shareholders

This announcement is not for release in the United States, Australia, Canada or Japan. This information is not for publication or distribution to persons in the United States. The distribution of this announcement in whole or part may, in certain jurisdictions, be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. 

The information herein is not an offer of securities for sale in the United States. The Ordinary Shares have not been and nor will be, registered or qualified for sale under the US Securities Act of 1933, as amended (the 'Securities Act') and, unless the Ordinary Shares are registered under the Securities Act or an exemption from the requirements of the Securities Act is available, the Ordinary Shares may not be offered or sold directly or indirectly within the United States or to, or for the account or benefit of, any US persons or any national, citizen or resident of the United States. The Placing Shares are being offered and sold only outside the United States to non-US persons in reliance on Regulation S under the Securities Act. Further the Ordinary Shares have not been, nor will be, registered or qualified for sale under the securities laws of any of Canada, Australia or Japan and they may not be offered or sold directly or indirectly within Canada, Australia or Japan or to, or for the account or benefit of any national, citizen or resident of Canada, Australia or Japan.

Cautionary note regarding forward-looking statements

This announcement contains forward-looking statements. Such statements are subject to certain risks and uncertainties, in particular statements regarding plans, goals, prospects, developments and strategies for the Enlarged Group's future. The Enlarged Group's actual results and operations could differ fundamentally from those anticipated in such forward looking statements as a result of many factors including the risks faced by the Enlarged Group which are described in Part III and elsewhere in the Admission Document. These statements and assumptions that underlie them are based on the current expectations of the Directors and are subject to a number of factors, many of which are beyond their control. As a result, there can be no assurance that actual results will not differ materially from those described in this announcement. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'estimate', 'intend', 'may', 'plan', 'will' or the negative of those, variations or comparable expressions, including reference to assumptions.

 

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