Proposed Placing/EGM Notice

Proton Power Systems PLC
01 May 2008


1 May 2008


                           Proton Power Systems plc

                      ('Proton Power' or the 'Company')

                 Proposed Placing to raise up to £3.0 million

                  Notice of Extraordinary General Meeting

The Board of Proton Power Systems plc (AIM: PPS), a leading designer, developer
and producer of fuel cells and fuel cell electric hybrid systems for 'back to
base' markets, announces today that it is seeking to raise up to £3.0 million
(before expenses) through a conditional placing of up to 30,000,000 new ordinary
shares of 5 pence each in the Company at 10 pence per Placing Share subject to
approval by shareholders at an EGM on the 23 May 2008.

Attached to this announcement are extracts from the Circular which sets out the
background to the proposals and further details on them. Copies of the Circular,
including the Notice of EGM, were posted to shareholders on 30 April 2008 and
are available from the Company's nominated adviser and broker, Noble & Company
Limited, 120 Old Broad Street, London, EC2N 1AR, United Kingdom, free of charge,
for a period of one month.

                                   - Ends -

For further information:

Proton Power Systems plc                          Tel: [phone] 
Felix Heidelberg, CEO                             www.protonpowersystems.com
[e-mail]

Noble & Company Limited                           Tel: [phone]
Andy Yeo / Nick Athanas                           www.noblegp.com

Media enquiries:                                  Tel: [phone]
Abchurch Communications Limited                   www.abchurch-group.com
Justin Heath / Monique Tsang
[e-mail]



The following information is an extract from the Circular that was posted to 
shareholders on 30 April 2008:



1. Introduction

On 10 April 2008 the Company announced, inter alia, its intention to raise up to
£2.0 million (before expenses) by way of a proposed partially underwritten
placing of up to 20,000,000 new Ordinary Shares in the Company at the Placing
Price. In addition, as part of the proposed underwriting arrangements, it was
proposed that warrants would be issued to the underwriters. Subsequently, the
Company has had further discussions with interested parties and now proposes to
raise up to £3.0 million (before expenses) pursuant to the Placing at the
Placing Price without any underwriting of such placing or the issue of warrants.
Subscription Agreements are expected to be entered into shortly between the
Company and the proposed placees under the Placing. However, as at the date of
publication of the Circular, no Subscription Agreements have been entered into
by the proposed placees and as such there is no certainty on the level of funds
which will be raised under the Placing.



In addition, the Group has put in place Short Term Loans totalling €375,000
which have been advanced to PMFC with immediate effect. Further details are set
out in paragraph 4 below.



The Company's existing authority to allot shares is insufficient for the
purposes of the Placing and, therefore, the Placing is conditional (amongst
other things) upon the passing of certain Resolutions by the Shareholders at an
Extraordinary General Meeting of the Company convened for 11.00 a.m. on 23 May
2008 at the offices of Dechert LLP, 160 Queen Victoria Street, London, EC4V 4QQ.
A summary of the Resolutions is set out on page 8 of the Circular and the text
of the Resolutions is set out in full in the Notice of Extraordinary General
Meeting at the end of the Circular.



The Board expects that the net proceeds of the proposed Placing, assuming the
amount of £2.0 million (after expenses) is raised (plus the amount equal to the
total amount of principal outstanding under the Loan Facility with General
Capital referred to in paragraph 3 below, being approximately £0.73 million)
will give the Company sufficient working capital for the next 12 months.
Shareholders should be aware that, as at the date of publication of the
Circular, none of the proposed placees has entered into Subscription Agreements
with the Company and as such there is no certainty on the level of funds which
will be raised under the Placing. Notwithstanding the Placing being successful,
the Company will not have sufficient funds to execute the Company's
manufacturing strategy and the Board will have to pursue further sources of
funding. Alternative sources of funding, if they are available at all, are
likely to be expensive and onerous for the Company.



The Directors believe that it is essential that further permanent capital be
raised by the Company to enable it to continue to trade. If the Resolutions are
not approved at the Extraordinary General Meeting or the Company does not raise
sufficient funds under the Placing, the Directors may have no alternative but to
seek immediately the protection of a formal insolvency procedure (such as
administration or liquidation) under the Insolvency Act 1986.



The Placing is also conditional on Admission of the Placing Shares to trading on
AIM (the market on which the Company's existing issued Ordinary Shares are
currently trading), occurring by no later than 8:00 a.m. on 13 June 2008.



The Company has received irrevocable undertakings to vote in favour of the
Resolutions from Directors of the Company holding a total of 800,000 Ordinary
Shares representing approximately 2.5 per cent of the existing issued ordinary
share capital.



The purpose of the Circular is to provide you with further information on the
Placing which, if the Resolutions are passed, will be carried out on a non
pre-emptive basis, and to explain why your Board considers the Placing to be in
the best interests of the Company and Shareholders as a whole.





2. Background

The Group is a European leader in the design, development and production of fuel
cells and fuel cell electric hybrid systems for the ''back-to-base'' market and
has more than 13 years of experience in the fuel cell market. The Company's
wholly owned subsidiary, Proton Motor Fuel Cell GmbH, has developed and produced
a fuel cell module running on hydrogen and integrated this with an energy
storage system to create a hybrid electric fuel cell system. The system
harnesses the excess power generated by the fuel cell during partial load (such
as stop-start operations) and uses the stored energy in peak demand times. The
system provides lower fuel consumption and more consistent levels of power
delivery than conventional combustion engines or fuel cell-only systems, in
addition to producing zero harmful emissions.



The Group's market focus lies in industrial applications where ''back-to-base''
refuelling occurs at the end of each shift or work period, such as in the
materials handling and mass transportation sectors. In these markets, the
commercialisation of applications is possible at a very early stage, as they do
not depend on the existence of an ubiquitous hydrogen infrastructure. Through
partnerships with leading OEMs such as Skoda Electric and Bucher, PMFC's
technology is being deployed in city buses and utility (street cleaning)
vehicles.



The Group is also targeting the growing market for marine transportation
applications and provided the hybrid fuel cell propulsion system for Europe's
first fuel-cell powered passenger/river boat ferry, which is expected to be
operational in Hamburg in 2008.





3. Position with General Capital

On 17 October 2006, the Company entered into a loan and asset finance facility
agreement with General Capital whereby General Capital agreed to lend the
Company up to £2 million for working capital and asset finance facilities (the '
'Loan Facility''). As outlined in the Company's AIM admission document dated 23
October 2006, the Loan Facility was available for draw down for a period of 36
months from the date of the agreement.



Currently, the Company has drawn down £1 million of the Loan Facility and
recently sought to draw down the second £1 million tranche of the Loan Facility
(which would have provided the Company with sufficient working capital until
September 2008). However, following certain breaches by the Company of the loan
agreement, General Capital has informed the Company that it is exercising its
rights under the terms of the loan agreement not to permit any further draw down
of the Loan Facility. The Board of the Company has discussed these breaches with
General Capital which has confirmed that the balance of the Loan Facility will
not be capable of being drawn down.



In light of these breaches, General Capital may demand immediate repayment of
all of the amounts outstanding under the Loan Facility. As at 30 April 2008, the
total amount of principal outstanding under the Loan Facility amounted to £0.73
million. If the Placing is successful, the Company is likely to have sufficient
funds to repay any amounts due to General Capital under the Loan Facility and
will set funds aside from the Placing to enable repayment in full of amounts
owed to General Capital.





4. Short Term Loans

The Group has put in place Short Term Loans totalling €375,000 which have been
advanced to PMFC with immediate effect. The funds have been provided to PMFC by
the Lenders (being the Tundra Alternative Energy Fund (€125,000), Felix
Heidelberg (€125,000) and Dr Goetz Heidelberg (€125,000)) and will be used to
satisfy PMFC's immediate working capital requirements. The Short Term Loans will
provide the Group with sufficient working capital until the end of May 2008.



The funds are being provided by the Lenders on the basis of loans which will be
repayable on the earlier of 14 calendar days following completion of the Placing
and 31 July 2008. A fee of 5% will be paid to the Lenders for arranging the
loans and will be added to the principal of the loans. No interest will be
payable on the Short Term Loans until the end of May 2008. Thereafter, interest
will be payable at the rate of 1 per cent. per full calendar month, which will
be payable on the last day of each calendar month.



The Company is also in discussions with an additional lender to provide a
further loan of €125,000 to PMFC. Any such loan provided to PMFC would be on the
same terms as the Short Term Loans.





5. Reasons for the Placing and use of proceeds

The Company has over the past few months been in discussions with potential
funders for a further equity and debt capital raising to provide the Company
with additional funding to implement its stated business plan. The funds raised
by the Company under such a further capital raising would be used to enable the
Company to establish a volume manufacturing facility to support the market
introduction and commercialisation of the fuel cell and hybrid systems which
have been developed by PMFC as well as to provide additional working capital for
the Group. However, these discussions have been protracted and at this stage
there can be no certainty that any of these long-term financing options will be
successful. In parallel with this, the Company is also considering its strategic
options including the possible sale of the business, the disposal of assets by
the Company or an investment in the Company.



The Directors believe that, given the Company's requirements for additional
financing, the Placing is the most appropriate way at the present time for the
Company to raise additional funds. The Directors consider that the Placing
provides greater certainty than other available means of raising additional
funds and minimises transactional costs. The Company intends to use the net
proceeds of the Placing for general working capital purposes and to enable the
Short Term Loans and the Loan Facility with General Capital to be repaid.



The Directors are confident that the Company will, on the basis of the Company
raising £2.73 million (net of expenses), have sufficient working capital for the
next 12 months. However, it will not be sufficient to execute the Company's
manufacturing strategy.





6. Current trading and prospects

Overall, the rate of order intake during the last 12 months has been in line
with the Board's expectations with, as reported during 2007, orders received for
the Group's hybrid drive systems for:



•          a passenger ferry which will operate on Hamburg's Alster river;

•          a utility (street cleaning) vehicle for Bucher/EMPA, Switzerland; and

•          a city bus for Skoda Electric which will operate in Prague.



Key developments since the announcement of interim results on 19 September 2007
are:



•          the commissioning of the first triple hybrid forklift demonstrator
truck;

•          the framework contract with Austrian based AVL, one of the largest
Tier 1 & 2 engineering service providers, which enables the Group access to a
variety of new applications;

•          the signing of a memorandum of understanding with Karmann, an
engineering and production company to the car industry, which is expected to
convert into a joint product;

•          the appointment of Achim Loecher as Financial Director of the
Company;

•          the appointment of John Wall as Executive Chairman, Bernard
Robinson's move from Chairman to a Non-Executive Director role and his
subsequent retirement from the Board with effect from 31 January 2008; and


•          the hire of key staff in management, R&D and sales.



PMFC's facility at Puchheim near Munich has the capability for modular expansion
with minimum disruption to ongoing production. This facility provides the
platform for the Group to increase the scale of its volume production and the
transition and transformation of the Group from a project based model (low
volume/high cost) to a series-based model (high volume/low cost) in its
activities as a designer, developer and manufacturer of fuel cell hybrid systems
for the ''back-to-base'' applications market.



The facility will enable the Group to invest upfront in automation and staff in
order to drive down unit costs and thereby deliver volume orders for customers.
The Group's manufacturing plan is built around the development of a standardised
platform and components. The systems developed by PMFC are built on a basic
platform which can be re-used across multiple applications. The Directors
believe that the manufacturing costs can be reduced substantially through volume
production. In particular, the cost for certain fuel cell components, such as
membranes and bi-polar plates, is anticipated to decrease significantly with
increasing production volumes. On this basis it is expected that automation will
allow both capacity increase and cost reductions.



Enquiries and expressions of interest in the Group's products are being received
from a wide variety of potential customers with varying application requirements
and with the benefit of the Group's new manufacturing facilities and the
additional funds from the Placing the Directors believe they will be able to
convert certain of these enquiries into firm orders during the course of the
next few months. The memorandum of understanding with Karmann (referred to
above) and the joint presentation given at the Hanover Fair in April 2008 for a
joint product illustrate this.



Up to February 2008, PMFC had €6.5 million of secured project development work
under contract (of which €4.6 million was still outstanding).



The Company expects to release its results for the year ended 31 December 2007
on 30 June 2008.





7. Terms of the Placing

The Company proposes to raise up to £3.0 million (before expenses) through the
issue of up to 30,000,000 new Ordinary Shares at the Placing Price pursuant to
the Placing. The Placing Shares will, assuming maximum subscription, represent
48.87 per cent. of the Enlarged Share Capital.



The Placing is conditional, inter alia, on:



•          proposed placees entering into Subscription Agreements on or before
           19 May 2008;

•          the passing of the Resolutions at the Extraordinary General Meeting;
           and

•          Admission taking place on or before 13 June 2008.



Application will be made to the London Stock Exchange for the Placing Shares to
be admitted to trading on AIM. It is expected that dealings in the new Ordinary
Shares will commence on or around 27 May 2008. The Placing Shares will rank pari
passu with the existing Ordinary Shares in the Company. The Placing is being
made on a non pre-emptive basis as the time and costs associated with a
pre-emptive offer are considered by the Directors to be excessive. The making of
a pre-emptive offer to Shareholders would require the production of a
prospectus, which would have to comply with the Prospectus Directive and be
vetted and approved by the FSA.



Following completion of the Placing, the Board will consider the appointment of
additional non-executive directors to the Board taking into account, where
appropriate, the views of the placees. Further announcements will be made as
appropriate.





8. Related party transactions

Dr Goetz Heidelberg has today provided a short-term loan of €125,000 to the
Company and intends to subscribe for a maximum of 3,500,000 Placing Shares
pursuant to the Placing. Dr Goetz Heidelberg is a substantial shareholder of the
Company and therefore a related party for the purposes of the AIM Rules. The
provision of the loan and proposed subscription for Placing Shares by Dr Goetz
Heidelberg constitutes, when aggregated, a related party transaction for the
purposes of the AIM Rules.



The Company's directors consider, having consulted with Noble, the Company's
nominated adviser, that the terms of the transactions being entered into by the
Company with Dr Goetz Heidelberg are fair and reasonable insofar as its
shareholders are concerned. In discussing the provision of the loan and the
proposed subscription for Placing Shares by Dr Goetz Heidelberg with the
Company's directors, Noble has taken into account the Directors' commercial
assessments, the Company's current funding requirement and the absence of any
alternative funding currently available to the Company.





9. Extraordinary General Meeting

On pages 12 to 14 of the Circular is a notice convening the Extraordinary
General Meeting to be held at the offices of Dechert LLP, 160 Queen Victoria
Street, London, EC4V 4QQ on 23 May 2008 at 11.00 a.m, at which the Resolutions
set out in such notice will be proposed.



The Resolutions propose:



1.       to increase the Company's authorised share capital by the creation of
an additional 15,000,000 ordinary shares of 5p each;



2.       to grant the Directors generally pursuant to Section 80 of the Act
authority to allot relevant securities of up to £930,456.85 in nominal amount;



3.       to grant the Directors generally pursuant to Section 80 of the Act
authority to allot additional relevant securities of up to £1,500,000 in nominal
amount (being the nominal value of the Placing Shares);



4.       to authorise the Directors to allot equity securities for cash without
regard to Shareholders' statutory pre-emption provisions under the Act of up to
£153,477 in nominal amount or pursuant to a rights issue or other pre-emptive
offer; and



5.       to authorise the Directors to allot additional equity securities for
cash without regard to Shareholders' statutory pre-emption provisions under the
Act of up to £1,500,000 in nominal amount (being the nominal value of the
Placing Shares).



Following completion of the Placing (and assuming the allotment of 30,000,000
Placing Shares) there will remain, authorised but unissued, 18,609,137 Ordinary
Shares (representing approximately 30.31 per cent. of the Enlarged Share
Capital). If the Resolutions are passed and the Placing is completed in full
then the Directors would have authority to allot 3,069,540 Ordinary Shares
otherwise than on a pre-emptive basis, representing approximately 5 per cent. of
the Enlarged Share Capital.



Shareholders should be aware that if all the Resolutions are not approved by
Shareholders at the Extraordinary General Meeting, the Directors may have no
alternative but to seek immediately the protection of a formal insolvency
procedure (such as administration or liquidation) under the Insolvency Act 1986.



The Board expects that the net proceeds of the proposed Placing, assuming £2.73
million (net of expenses) is raised, will give the Company sufficient working
capital for the next 12 months. Shareholders should be aware that, as at the
date of publication of the Circular, none of the proposed placees has entered
into Subscription Agreements with the Company and as such there is no certainty
on the level of funds which will be raised under the Placing.



Notwithstanding the Placing being successful, the Company will not have
sufficient funds to execute the Company's manufacturing strategy and the Board
will have to pursue further sources of funding. Alternative sources of funding,
if they are available at all, are likely to be expensive and onerous for the
Company.



10. Noble & Company Limited

On 29 April 2008 Noble provided the Board with notice of its intention to step
down as nominated adviser and broker to the Company, which will become effective
at a date to be agreed between Noble and the Company.

11. Recommendation

The Directors consider the terms of the Placing and the Resolutions to be in the
best interests of the Company and its Shareholders as a whole and unanimously
recommend that you vote in favour of the Resolutions, as your Directors intend
to do or procure to be done in respect of their beneficial holdings of Ordinary
Shares, which amount, in aggregate, to 800,000 Ordinary Shares, representing
approximately 2.5 per cent. of the current issued share capital of the Company.


Definitions

The following definitions apply throughout the Circular unless the context requires otherwise:

''Act''                                     the Companies Act 1985, as amended


''Admission''                               the admission of the Placing Shares to trading on AIM becoming

                                            effective in accordance with the AIM Rules

''AIM''                                     AIM, a market operated by the London Stock Exchange

''AIM Rules''                               the rules for AIM companies and their nominated advisers published by the   
                                            London Stock Exchange governing admission to 
                                            and the operation of AIM, as amended from time to time

''Board'' or ''Directors''                  the Directors of the Company at the date of the Circular whose names are set
                                            out on page 4 of the Circular

''Company'' or ''PPS''                      Proton Power Systems plc, a company incorporated in England and Wales with  
                                            registered number 05700614 and having its registered office 
                                            at St Ann's Wharf, 112 Quayside, Newcastle upon Tyne, NE99 1SB

''Enlarged Share Capital''                  the issued share capital of the Company immediately following Admission and 
                                            the Placing

''Extraordinary General Meeting''           the extraordinary general meeting of the Company to be held at the offices  
                                            of Dechert LLP, 160 Queen Victoria Street, London, EC4V 4QQ at 
                                            11.00 a.m. on 23 May 2008, notice of which is set out at the end of the
                                            Circular

''Form of Proxy''                           the form of proxy for use in connection with the Extraordinary General      
                                            Meeting

''General Capital''                         General Capital Venture Finance Limited, a company incorporated in and      
                                            registered in England No 02505924 and having its registered office at 
                                            The Oaks, Kirby Road, Trowse, Norwich, Norfolk, NR14 8RS

''Group''                                   the Company and its subsidiaries

''Lenders''                                 the Tundra Alternative Energy Fund, Felix Heidelberg (Chief Executive       
                                            Officer) and Dr Goetz Heidelberg, all of whom are 
                                            providing the Company with the Short Term Loans

''Loan Facility''                           a loan and asset finance facility between the Company and General Capital   
                                            dated 17 October 2006 pursuant to which General Capital 
                                            agreed to lend the Company up to £2 million for working capital and asset   
                                            finance facilities

''London Stock Exchange''                   London Stock Exchange plc

''Noble''                                   Noble & Company Limited, the Company's nominated adviser and broker, which  
                                            is authorised and regulated by the Financial Services 
                                            Authority and has its registered address at 76 George Street, Edinburgh, EH2
                                            3BU

''Notice of Extraordinary General Meeting'' the notice of Extraordinary General Meeting set out at the end of the       
                                            Circular

''Ordinary Shares''                         ordinary shares of 5 pence each in the capital of the Company

''Placees''                                 the persons who subscribe for Placing Shares

''Placing''                                 the proposed placing of the Placing Shares at the Placing Price

''Placing Price''                           10 pence per Placing Share

''Placing Shares''                          up to 30,000,000 new Ordinary Shares to be allotted and issued to certain   
                                            institutions and other investors pursuant to the Placing

''PMFC''                                    Proton Motor Fuel Cell GmbH, a subsidiary of the Company

''R&D''                                     research and development

''Resolutions''                             the resolutions to be proposed at the Extraordinary General Meeting set out 
                                            in the notice of Extraordinary General Meeting on pages 12 to 14 of the     
                                            Circular

''Shareholders''                            the persons who are registered as holders of Ordinary Shares from time to   
                                            time

''Short Term Loans''                        the loans totalling €375,000 being provided to PMFC by the Lenders

''Subscription Agreements''                 the conditional agreements to be entered into between the Company and       
                                            certain of its Shareholders and other subscribers 
                                            relating to the Placing at the Placing Price

''UK''                                      the United Kingdom of Great Britain and Northern Ireland




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