Active Energy Regulatory News (AEG)

31 October 2016

Active Energy Group Plc / EPIC: AEG / Sector: Alternative Energy

Active Energy Group plc ("Active Energy", "AEG" or the "Company")

Major investor and CoalSwitch JVA Partners convert into equity of Active Energy

Notice of General Meeting

Active Energy, the London quoted renewable energy, forestry management and timber processing business, is delighted to announce key corporate initiatives that the Board believes should positively impact both the Company's balance sheet and underlying business structure, whilst improving its ability to deliver on the defined growth strategy across its three operating divisions.

Highlights:

· Major shareholder and long-term supporter, Gravendonck Private Foundation ('Gravendonck'), has agreed to convert US$1.4 million of existing debt in the Company, into equity at 2.65p per share (the "Placing Price") increasing its holding to 29.9%;

· The Gravendonck Conversion highlights Gravendonck's continuing support for Active Energy's growth strategy, significantly strengthens the Company's balance sheet and reduces interest costs by approximately US$210,000 per annum;

· AEG's joint venture agreement with Biomass Energy Enhancements LLC (the 'JVA'), formed specifically to develop the revolutionary CoalSwitch Drop-In Coal Replacement Technology towards commercialisation, is to be consolidated within Active Energy. Key participants of the JVA have agreed to convert their holdings to equity of Active Energy Group plc. including:

o Sandy Munro - Founder of Munro & Associates (http://leandesign.com/); provider of key technical advice on the development process for CoalSwitch;

o Philip Scalzo - Inventor & founder of the CoalSwitch technology and all key members of the engineering and business development team; and

o Trident Limited - the operating company which introduced the CoalSwitch opportunity to AEG

· Philip Scalzo and all key members of the engineering and business development team have also entered into employment arrangements with the Company directly

· Conversion by key participants in the JVA underpins their belief, following over a year of collaboration in the former joint venture structure financed by Active Energy, that Active Energy is able to fully commercialise this revolutionary technology;

· Active Energy continues to implement its development strategy of commercialising CoalSwitch along with the development of the Company's other two divisions, as it is currently the Board's goal to have three operating and profitable divisions by the end of 2017.

Richard Spinks, Chief Executive Officer of Active Energy said: "I believe strongly that the Company is at a tipping point; something that has been recognised by our major shareholder and all of the key participants in the CoalSwitch JVA. Their desire to become more closely allied under these proposed agreements underpins the confidence that they have in our ability, together as one focussed team, to deliver significant value going forward."

"Sandy Munro is an entrepreneur who has been at the forefront of multiple key technological innovations, both as an individual and with his company, with global sector leaders ranging from Formula 1 to Smartphones. As an investor and adviser, he has been highly supportive of the JVA and the development of the ground breaking CoalSwitch technology, having recognised the potential for a biomass based drop-in coal replacement fuel that negates the need for coal fired power stations to carry out expensive retrofit programmes. The Company is delighted with his agreement to take equity in Active Energy and his on-going support of the CoalSwitch product, which the Board believes has the ability to transform a multi-billion dollar market place, in renewable technologies for the utility industry."

"The foundations laid over the last 18 months are starting to bear fruit, as highlighted in our interim results (released on 26 September 2016) and the institutional support received in our recent funding. With an improved balance sheet and CoalSwitch under Active Energy's control, we can continue our upward trajectory as we look to leverage our ability to source and commercialise underutilised forests, transforming their economics, be it through implementing modern management techniques or establishing off-take agreements for cash generative WoodFibre processing operations and, utilising their waste and poorer quality timber in a high margin exercise, through the production of our transformative CoalSwitch product.

"As the transactions (the Gravendonck Conversion and acquisition of the JVA and Trident interests) are subject to shareholder approval, I would encourage all shareholders, on reviewing the shareholders circular being made available today, to vote in favour of these transformational arrangements and join our supportive shareholders and partners in moving forward with us as we break new ground."

A spokesperson for Gravendonck said, "We believe these are truly exciting times and that by raising our equity stake in Active Energy, we will gain further exposure to its huge upside potential. We are and remain long-term supporters of the Company and look forward with the management to targeting profitability across all three divisions by the end of 2017 and the generation of value for all stake holders."

Philip Scalzo the inventor & founder of CoalSwitch said, "Since working with Active Energy and with their financial and more recently technical input and assistance, we have taken our original technology to a new place, proving the concept developed by the technical team over the past seven years. With the assistance of the Active Energy team, we are now in a position to roll out commercial plants across a number of industry sectors and many geographical locations. We are excited at joining the core of the Active Energy business and for the future."

The aforementioned Transactions are subject to shareholder approval and the Company has today posted a circular to shareholders (the "Circular") and forms of proxy and instruction (the "Forms") in relation to a general meeting ("GM") of the Company. The Circular contains notice of the GM, which will be held at 11.00am on 16 November 2016 at the offices of Northland Capital Partners, 60 Gresham Street, 4th Floor, London EC2V 7BB.

A copy of the Circular, will also be available shortly on the Company's website www.active-energy.com. Key extracts from the Circular are set out below.

Unless otherwise indicated, all defined terms in this announcement shall have the same meaning as described in the Circular.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

Purpose of the GM

The purpose of the meeting is to grant the Board the authority to issue shares in order to further strengthen the balance sheet of the Company, to restructure its short-term debts and to consolidate its ownership of AEG CoalSwitch as that division enters the commercialisation phase of its development. The Company's interim results, announced on 26 September 2016, show a strong performance for the first half of 2016 and set out exciting challenges ahead as AEG develops its new divisions to support the core business. The objective of the Board is to achieve profitability across all divisions of the business before the end of 2017. To achieve this objective it needs to reposition its working capital arrangements, reduce its debts and provide the Board with flexibility in any future funding requirements. The authorities sought in this document will allow the Board to undertake this.

Growth Strategy

Key aspects of the Company's growth strategy include expansion into new markets such as Canada, the US and the Far East and the development of AEG's three divisions as it is currently the Board's goal to have three operating and profitable divisions by the end of 2017. In particular AEG is excited by the increasing commercial interest in the CoalSwitch Business and its commercial development. In recent months, the CoalSwitch Business has had various prospective commercial partners from the US, Canada, Japan, Malaysia and Europe visit the R&D facility in Utah. All have been impressed with the facilities and the proprietary knowledge demonstrated by the AEG team. The Company expects that once a prototype plant is complete this will encourage greater interest from these partners and from other industries. AEG believes that the CoalSwitch Business will be an increasingly important component of its revenues moving forward and compliments the strategies for growth in both the WoodFibre and Timberland divisions.

Share Capital Authorities

At the Annual General Meeting on 21 July 2016, the Company obtained authority from the Company's shareholders to allot Ordinary Shares with an aggregate nominal value of £1,677,190.71 (equivalent to 167,719,071 Ordinary Shares) and to disapply pre-emption rights over such securities up to an aggregate nominal value of £838,595,355 (equivalent to 83,859,536 Ordinary Shares).

Following the Annual General Meeting, on 3 August 2016 the Company announced that it had raised £2,050,000 (before expenses) via the issue of 77,358,491 new Ordinary Shares at a price of 2.65p per share (the "Placing" and the "Placing Price" respectively). The net proceeds of the Placing are being used to increase capacity at its woodchip processing operations in Ukraine by approximately 33%, and will also provide the Company with additional working capital.

Following the Placing, the Company has authority remaining to issue and allot 6,501,045 Ordinary Shares on a non-preemptive basis. The Board considers this to be insufficient in view of the Company's growth strategy and plans for the future. Consequently, the Board is seeking authority to issue and allot additional Ordinary Shares up to an aggregate nominal value of £4,223,580.14 and to disapply pre-emption rights over Ordinary Shares up to that aggregate nominal value of £4,223,580.14.

The Board intends to use the additional authority for the following proposed transactions (the "Transactions"):

1. Partial Conversion of the Loan given by Gravendonck Private Foundation

As at 31 October 2016 the Company has outstanding loans of US$3,000,000 with its major shareholder, the Gravendonck Private Foundation ("Gravendonck"), which currently carry an interest rate of 15% per annum. Following the Placing, the Board and Gravendonck have negotiated an agreement whereby Gravendonck will convert US$1,400,000 (£1,076,923 when translated at the Exchange Rate) of the outstanding loans into 40,638,606 Ordinary Shares at the Placing Price (the "Gravendonck Conversion"). This will increase Gravendonck's shareholding in the Company, taking it back to its original percentage holding prior to the Placing of 29.9% and will leave an outstanding loan to Gravendonck of US$1,600,000.

The Gravendonck Conversion will further increase the net assets of the Company following the Placing, reduce its dependence on short term debt finance and reduce the interest charge which the Company currently has to bear by approximately US$210,000 per annum. Furthermore, the Gravendonck Conversion reaffirms the continued support of the Company's long-term major shareholder.

Pursuant to the terms of an agreement to effect the Gravendonck Conversion, Gravendonck has provided a confirmation to the Company that its shareholding in the Company, along with any persons acting in concert with it (as defined in Rule 9 of the Code), will not exceed 30% at any time.

Related Party Transaction

Gravendonck is a substantial shareholder in the Company. Therefore, the Gravendonck Conversion constitutes a related party transaction in accordance with AIM Rule 13. The Board considers, after consultation with the Company's Nominated Adviser, that the terms of the Gravendonck Conversion are fair and reasonable, in so far as its shareholders are concerned.

2. CoalSwitch JVA and proposed issue of shares to Biomass Energy Enhancements LLC Stockholders

On 14 September 2015, the Company announced that it had entered into a 51:49 joint venture agreement ("JVA") with Biomass Energy Enhancements LLC ("BEE") regarding its CoalSwitch project's business ("CoalSwitch Business"). Following recent discussions the Company has reached agreement with the majority of the stockholders in BEE to sell their BEE shares to Active Energy Group plc in return for shares in the Company ("BEE Share Exchange"). This exciting development will result in the termination of the JVA and bring the CoalSwitch Business wholly into the Company. In future, key personnel from BEE will operate the assets of the CoalSwitch Business, secured under an intellectual property license to commercialise the CoalSwitch project.

In order to execute this transaction, the Company requires additional authorities to issue new Ordinary Shares to the BEE shareholders. The BEE shareholders that are participating in the BEE Share Exchange include Sandy Munro, Founder of Munro & Associates (http://leandesign.com/) who has provided key technical advice on the development process for CoalSwitch, Philip Scalzo the inventor & founder of the CoalSwitch technology and Trident Limited. Based on the agreement, the Company proposes to issue up to 26,996,892 Ordinary Shares to the majority shareholders in BEE (assuming an issue price which is consistent with the Gravendonck Conversion as set out above, although the actual issue price will be the higher of the Placing Price or the 15 day weighted average share price prior to the execution of the BEE Share Exchange) as well as utilising the 62,500,000 Ordinary Shares the Company currently holds in treasury.

3. CoalSwitch JVA and proposed issue of shares to Trident Limited ("Trident")

Following the formalisation of the JVA outlined at paragraph 2 above, the Company agreed terms with Trident (the operating company which introduced the opportunity to AEG) whereby Trident was transferred 15% of AEG's 51% interest in the JVA. Trident has subsequently supported AEG with the development of and the commercialisation strategy for the CoalSwitch Business.

Following recent discussions, the Company has reached an agreement in principle with Trident in order to effect a share exchange transaction by which Trident would relinquish its interest in the JVA, and leave AEG with the controlling interest ("Trident Share Exchange"). The Trident Share Exchange is subject to a formal contract but in order to execute the transaction, the Company requires additional authorities to issue new Ordinary Shares to Trident. Based on the agreement in principle, the Company proposes to issue up to 44,400,813 Ordinary Shares to Trident (assuming an issue price which is consistent with the Gravendonck Conversion as set out above), although the actual issue price will be the higher of the Placing Price or the 15 day weighted average share price prior to the execution of the Trident Share Exchange.

Further information relating to the Trident Share Exchange will be announced as soon as practicable. The Board expects the Trident Share Exchange to occur, but cannot give a precise indication of timing. It remains possible that the transaction may not take place.

4. General Authority to Issue Shares

In order to meet the challenges that the Company faces as it develops its three divisions, the directors are mindful that they may need to raise further equity to meet the Company's funding needs from time to time. Accordingly the directors are seeking authority to allot up to another 10% of the company's shares, or 72,165,872 Ordinary Shares on a non-preemptive basis.

Dilution of Existing Shareholders

In carrying out the Transactions and related share allotments proposed above, the directors are mindful of the need to minimise the dilutive effect of these proposals and accordingly shall utilise the 62,500,000 Ordinary Shares which the Company currently holds in treasury for the issue of shares to BEE pursuant to the BEE Share Exchange as described above. Nevertheless, the total number of Ordinary Shares in the capital of the Company could be increased by 26% upon completion of the Transactions and up to a total of 59% should all the outstanding Options and Warrants (see below) also be exercised.

The directors acknowledge that any further issue of shares will result in dilution to existing shareholders and they wish to keep any such dilution to a minimum. The directors may consider an open offer to all shareholders if appropriate.

The Board believes that the proposed Transactions are in the best interests of the Company and its shareholders, as it seeks to introduce a more efficient level of gearing and execute its growth strategy across each division. The Board therefore recommends that you grant the authority to allot up to 184,202,183 Ordinary Shares.

Renewing of Authorities

Pursuant to the authority obtained at the Annual General Meeting held on 27 June 2013, the Company issued Warrants to investors. The Board wishes to renew the authority to allot Ordinary Shares in satisfaction of such Warrants. If exercised in full the Warrants would result in the issue of 121,705,831 Ordinary Shares.

The Company has also granted Options which if exercised in full would result in the issue of 116,450,000 Ordinary Shares. The Board wishes to renew the authority to allot Ordinary Shares in satisfaction of such Options.

Recommendation

The Board considers that the resolutions are in the best interests of the Company and recommend that the Company's shareholders vote in favour of the resolutions as they intend to do so in respect of their aggregate interest in 77,873,250 Ordinary Shares, representing 10.79% of the issued ordinary share capital of the Company on 31 October 2016.

**ENDS**

Enquiries & Further Information

About Active Energy Group

Active Energy Group Plc ("Active Energy" or "AEG") is an AIM quoted company operating internationally across the entire timber supply chain - from forest to factory and fuel.

Active Energy's vertically-integrated business units provide timberland development services for forestry owners, industrial wood fibre for MDF manufacturers, and second-generation biomass coal replacement fuels for industrial power generators.

Active Energy has three divisions:

· AEG TimberLands: Forestry Asset Management and Development

· AEG WoodFibre: Industrial Wood Fibre for Medium-Density Fibreboard (MDF) Manufacturing

· AEG CoalSwitch: Advanced Biomass Coal Replacement Fuels and Fuel Processing Systems

Active Energy's relationships with forestry owners through its AEG TimberLands operation allows the Company to maximise the value of its standing timber assets, converting low-grade material - primarily non-saw logs/technical lumber and forestry thinnings - into industrial wood fibre for MDF manufacturing via Active Energy's AEG WoodFibre division. This vertically integrated model also provides feedstock for the Company's AEG CoalSwitch joint venture, which generates green energy power generation from biomass.