AFC Energy Regulatory News (AFC)

13 October 2014

This announcement and the information contained herein is restricted and is not for release, publication or distribution, directly or indirectly, in whole or in part, in or into the United States of America, Australia, Canada, Japan, New Zealand, Russia, the Republic of Ireland and the Republic of South Africa and any other jurisdiction where extension or availability of the subject matter of this announcement would breach any applicable law or regulations.

AFC Energy PLC

("AFC Energy" or the "Company")

Proposed Placing and Open Offer

and

Notice of General Meeting

Further to the announcement issued on 8 October 2014, AFC Energy (AIM: AFC), the industrial fuel cell power company, is pleased to announce that a circular dated today's date relating to the proposed Placing and Open Offer (the "Circular") will shortly be published and dispatched to Shareholders with a form of proxy for use in connection with the General Meeting. The Circular will shortly be available on the Company's website: www.afcenergy.com and will also be available at the Company's Registered Office.

Capitalised terms used in this announcement have the meanings given to them in the Circular.

For further information, please contact:

Indicative Timetable

Notes:

(1) References to times in this announcement are to London time (unless otherwise stated).

(2) The dates and timing of the events in the above timetable and in the rest of this announcement are indicative only and may be subject to change.

(3) Should any of the above times or dates change, the revised times and/or dates will be notified by a further announcement through an RNS.

1. Introduction and summary

On 8 October 2014, your board announced that it had provisionally arranged a funding package with a maximum aggregate value of £9 million (before expenses). This comprises of a Placing of 30,000,000 Placing Shares at 10 pence per share with institutional and other investors and an additional placing 22 million new Ordinary Shares at 10 pence per share with Lanstead, the latter being for an aggregate consideration of £2.2 million.

In addition, on 10 October 2014 the Company has entered into equity swap agreements with Lanstead which will allow the Company to retain much of the economic interest in the Lanstead Placing Shares. The Equity Swap Agreements will enable the Company to secure much of the potential upside of future potential share price appreciation arising from the Company's development. The Company has agreed to make a value payment to Lanstead of the Lanstead Value Shares (as so defined in paragraph 5.3 of Part V of the Circular) in consideration for the Equity Swap Agreements.

The Equity Swap Agreements will provide that the Company's economic interest will be determined and payable in 18 monthly settlement tranches as measured against a benchmark price of 13.33 pence per share. If the measured share price exceeds the Benchmark Price, for that month, the Company will receive more than 100 per cent. of the monthly settlement due on a pro rata basis. There is no upper limit placed on the additional proceeds receivable by the Company as part of the monthly settlements. Should the measured share price be below the Benchmark Price, the Company will receive less than 100 per cent of the expected monthly settlement on a pro rata basis. Of the aggregate proceeds of £2.2 million (before expenses) from the issue of the Lanstead Placing Shares, the Company will use approximately £330,000 (15 per cent.) for investment in its continuing operations and £1.87 million (85 per cent.) for investment in the Equity Swap Agreements as described above. In no event would a decline in the Company's share price result in any increase in the number of Ordinary Shares received by Lanstead or any other advantage accruing to Lanstead.

The Directors intend to issue the Lanstead Placing Shares and the Lanstead Value Shares pursuant to their existing authorities to allot shares which were granted to the Directors at the Company's last annual general meeting. The issuance of the Lanstead Placing Shares and the Lanstead Value Shares will not therefore be subject to Shareholder approval and it is anticipated that the Lanstead Placing Shares and the Lanstead Value Shares will be admitted to trading before the General Meeting.

In addition, the Company announced that up to a maximum of £3.88 million would be raised by way of the Open Offer to be made to Qualifying Shareholders of up to 38,847,810 Open Offer Shares. The Open Offer is being conducted on the basis of 4 Open Offer Shares at a price of 10 pence per share for each 23 Existing Ordinary Shares held as at the Record Date of 10 October 2014.

In addition, the Excess Application Facility will allow excess applications for the Open Offer Shares over and above Qualifying Shareholders' Open Offer Entitlements to be accepted from such holders to the extent that other Qualifying Shareholders do not take up their full Open Offer Entitlements.

The Open Offer is not underwritten.

As the allotment and issue of the New Ordinary Shares will exceed the existing authorities to allot shares for cash on a non pre-emptive basis, the General Meeting is being convened to seek Shareholders' approval to grant new authorities to enable the Directors, inter alia, to complete the Placing and the Open Offer.

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. The New Ordinary Shares are expected to be admitted to AIM and commence trading at 8.00 a.m. on 31 October 2014.

Each of the Placing and the Open Offer are conditional upon, inter alia, the approval by Shareholders of Resolution 1 which will be sought at the General Meeting to be held at 11.30 a.m. on 30 October 2014. If this Resolution is not passed at the General Meeting, the Capital Raising as currently envisaged will not proceed.

The purpose of this announcement is to explain to Shareholders the background to, and reasons for, the Capital Raising. To enable the Company, inter alia, to implement the Placing and the Open Offer, the Company is seeking the approval by Shareholders of Resolution 1 of the Resolutions which are to be put to the General Meeting of the Company to be held at the Clarke Suite, Chelsea Football Club, Stamford Bridge, Fulham Road, London SW6 1HS at 11.30 a.m. on 30 October 2014.

2. Background to and reasons for the Capital Raising

AFC Energy has made considerable technical progress in the development of its fuel cell in the last two years. The key developments can be summarised as follows:

· in September 2012 the Company opened its pilot production plant for in-house production of up to 20,000 fuel cell electrodes per annum;

· in July 2013 the Company extended the electrode life in its laboratory to over twelve months; and

· the Company has subsequently migrated its Beta+ test system into its first commercial operating system ("Kore"), which is due to be installed and tested at Stade, Germany in 2015 as part of the "Power Up" project.

Throughout this period, the Company's progress has been aided by associating itself with and engaging global partners, as follows:

· Akzo Nobel N.V. - the Company has utilised their Chlor-Alkali facility at Bitterfeld, Germany for testing its systems in an industrial setting;

· Air Products Inc. - the Company's partner for its Power Up project; and

· Foster Wheeler AG - undertook the HAZOP review of AFC Energy's Kore system.

The Company has also pursued patent protection diligently since inception. The Company's patents demonstrate the novelty and uniqueness of the Company's fuel cell system as a whole. To date AFC Energy has 30 patent families with further growth expected by the Directors as it refines and optimises its offering.

In tandem with its technological progress, the Company has increasingly pursued the development of a commercial pipeline:

· in November 2013, under the Fuel Cells and Hydrogen Joint Undertaking ("FCH-JU"), through the EU's Seventh Framework Programme (FP7), the Company and its partners were awarded a European Union grant of up to €6.1 million (£4.9 million) for the installation of the world's largest alkaline fuel cell energy generation system at a Chlor-Alkali chemical plant in Essex, UK. AFC Energy's partner in this project was subsequently changed to Air Products and the project - Power Up - was moved to Stade in Germany;

· in April 2013, under the same EU aegis, the Company and its partners were awarded a European Union grant of up to €1.96 million (£1.53 million) for the launch of its Alkammonia project to develop ammonia fed alkaline fuel cell systems;

· in February 2014 the Company signed a non-binding memorandum of understanding with Allied New Technologies Inc., a US chemicals manufacturer, to undertake a feasibility study for a fuel cell system to generate clean energy from surplus hydrogen produced at Allied's plant in Florida;

· in April 2014, the Company announced that the first order for its Beta+ fuel cell test system from AIM listed PowerHouse Energy Group plc for a sum of £150,000;

· in July 2014, the Company signed a memorandum of understanding with Chang Shin Chemical Co., Ltd a leading South Korean hydrogen supplier, for multiple fuel cell systems with a total potential generating capacity of up to 5MW. This is the first commercial agreement signed by the Company in South Korea, one of the world's fastest growing markets for large scale, stationary fuel cell power generating systems; and

· also in July 2014, the Company announced that it has entered into a heads of agreement with Daniel Inc., a fuel cell focused power plant owner and development company in South Korea, for an initial 1MW fuel cell system with a follow-on option for a further 3MW project making a total potential sales value of approximately $15 million.

Since its inception, AFC Energy has utilised under £29 million of equity funding through a combination of cost control and grant-based funding for certain projects in order to minimize annual cash burn. Whilst its production costs are being reduced, the Directors believe that the output will increase year on year as the Company now has a significant global prospect list in a growing market and is in the process of closing its first commercial deals. Accordingly, funding is being sought to scale up output and finalise the delivery of product to market. Further details of the proposed use of the proceeds of the Capital Raising are set out in paragraph 5 of this announcement.

3. Current trading and prospects

The Company continues to make strong progress in optimising the operation and automation of production of its fuel cells, whilst also preparing for the deployment of its initial KORE system via the EU funded Power-Up Programme to a site in northern Germany. This is expected to take place in mid-2015 and the Company has engaged a global project management services provider to deliver the planning, permitting and construction phase of the project. The clearing of the Stade site was completed in July 2014 and applications for planning permission and operation have been submitted.

AFC Energy will continue to seek to identify and obtain appropriate grants and financial support to allow it to maximise the use of its capital reserves.

Commercially the Company continues to hold discussions with a number of potential end users for its fuel cell technology, including several Korean companies and chlor-alkali facilities based in the United States and around the world. The Company appointed Foster Wheeler to carry out a feasibility study to consider the technical and financial viability of installing an AFC fuel cell system in the US at a site operated by Allied New Technologies in Florida. Having considered the findings, the Company is confident that such companies represent an attractive opportunity for its technology. In order for the Company to capitalise on this market, AFC Energy intends to establish a US presence by the end of this year.

4. Details of the Placing and the Open Offer

4.1 Details of the Placing

Zeus Capital and Peat have jointly raised approximately £3 million (before expenses) for the Company by way of a conditional placing of 30,000,000 Placing Shares at 10 pence per Placing Share with institutional and other investors and which, for the avoidance of doubt, are separate from the LansteadPlacing Shares.

The Issue Price of 10 pence is equal to the middle market closing price of the Company's shares on

10 October 2014 (being the latest practicable date before publication of this announcement).

The Placing is conditional upon, inter alia, the passing of Resolution 1 at the General Meeting and the Placing and Open Offer Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

The Placing Shares will, upon issue, rank pari passu with the Open Offer Shares and the Existing

Ordinary Shares.

4.2 Principal terms of the Open Offer

Subject to the fulfilment of the conditions set out below and in the Circular, QualifyingShareholders are being given the opportunity to subscribe for the Open Offer Shares at a price of 10 pence per Open Offer Share, pro rata to their holdings of Existing Ordinary Shares on the Record Date on the basis of:

4 Open Offer Shares for every 23 Existing Ordinary Shares

Open Offer Entitlements will be rounded down to the nearest whole number of Open Offer Shares.

Qualifying Shareholders are also being given the opportunity, provided that they take up their Open

Offer Entitlements in full, to apply for Excess Shares through the Excess Application Facility.

The Open Offer Shares will be allotted and issued following and conditional upon, inter alia, the passing of Resolution 1 at the General Meeting and the Placing and Open Offer Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

The Open Offer is not underwritten.

Assuming full take-up under the Open Offer, the issue of the Open Offer Shares will raise further gross proceeds of approximately £3.88 million for the Company.

The Open Offer Shares will, upon issue, rank pari passu with the Placing Shares and the Existing

Ordinary Shares. Qualifying Shareholders with holdings of Existing Ordinary Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating the Open Offer Entitlements.

It should be noted that the Open Offer is not a rights issue. Accordingly, the Application Form is not a document of title and cannot be traded. Any Open Offer Shares not applied for under the Open Offer will not be sold in the market or placed for the benefit of Qualifying Shareholders who do not take up their rights to subscribe under the Open Offer.

4.3 Excess Application Facility

The Excess Application Facility will enable Qualifying Shareholders, provided that they take up their Open Offer Entitlement in full, to apply for Excess Shares. Qualifying Non-CREST Shareholders who wish to apply to acquire more than their Open Offer Entitlements should complete the relevant sections of the Application Form. Qualifying CREST Shareholders will have Excess CREST Open Offer Entitlements credited to their stock account in CREST and should refer to paragraph 3.1(f) of Part IV of the Circular for information on how to apply for Excess Shares pursuant to the Excess Application Facility. Open Offer Shares will be available to satisfy Excess Open Offer Entitlements only and to the extent that applications by other Qualifying Shareholders are not made or are made for less than their Open Offer Entitlements. Once applications by Qualifying Shareholders for their respective Open Offer Entitlements have been satisfied, the Company shall, in its absolute discretion, determine whether to meet any applications under the Excess Application Facility in full or in part and no assurance can be given that applications by Qualifying Shareholders under the Excess Application Facility will be met in full, in part or at all.

Application will be made for the Open Offer Entitlements and Excess Open Offer Entitlements in respect of Qualifying CREST Shareholders to be admitted to CREST. It is expected that such Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST at 8.00 a.m. on

14 October 2014. Such Open Offer Entitlements and Excess Open Offer Entitlements will also be enabled for settlement in CREST at 8.00 a.m. on 14 October 2014. Applications through the means of the CREST system may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.

Qualifying Non-CREST Shareholders will receive an Application Form with the Circular which sets out their entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements allocated to them. Qualifying Non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded.

Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements as soon as possible after 8.00 a.m. on 14 October 2014. Qualifying CREST Shareholders should note that although the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.

If applications are made for less than all of the Open Offer Shares available, then the lower number of Open Offer Shares will be issued and any outstanding Open Offer Entitlements will lapse.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in Part IV of the Circular.

For Qualifying Non-CREST Shareholders, completed Application Forms, accompanied by full payment, should be returned by post or by hand (during normal business hours only) to Computershare Investor Services PLC, Corporate Actions Projects, Bristol BS99 6AH so as to arrive as soon as possible and in any event so as to be received no later than 11.00 a.m. on 29 October 2014. For Qualifying CREST Shareholders the relevant CREST instructions must have been settled as explained in this announcement by no later than 11.00 a.m. on 29 October 2014.

4.4 Conditions and other information relating to the Capital Raising

The Placing and the Open Offer are both conditional, inter alia, upon:

(a) the passing of Resolution 1 at the General Meeting; and

(b) the Placing and Open Offer Agreement becoming unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

The Open Offer is also conditional upon:

(a) the Placing having become unconditional in all respects (save for the condition relating to Admission); and

(b) Admission of the New Ordinary Shares becoming effective by no later than 8.00 a.m. on 31 October 2014 (or such later time and/or date as Zeus Capital and Peat may agree, being not later than 30 November 2014).

The Placing is conditional upon Admission of the Placing Shares becoming effective by not later than 8.00 a.m. on 31 October 2014 (or such later time and/or date as Zeus Capital and Peat may agree, being not later than 30 November 2014).

Accordingly, if such conditions are not satisfied, or, if applicable, waived, the respective part or parts of the Capital Raising will not proceed. If the Open Offer does not proceed, any applications made by Qualifying Shareholders will be rejected and application monies will be returned without payment of interest as soon as practicable.

A summary of the principal terms of the Placing and Open Offer Agreement is set out in paragraph 9 of this announcement.

The Capital Raising will result in the issue of 68,847,810 New Ordinary Shares in total, assuming full take up under the Open Offer (representing, in aggregate, approximately 21.83 per cent. of the Enlarged Share Capital, assuming full take up under the Open Offer). The New Ordinary Shares will be issued credited as fully paid, and will rank pari passu in all respects with the Existing Ordinary Shares and therefore rank equally for all dividends or other distributions declared, made or paid after the date of issue of the New Ordinary Shares. No temporary documents of title will be issued.

Following the issue of the New Ordinary Shares pursuant to the Capital Raising (and assuming that the Open Offer is taken up in full), Qualifying Shareholders who take up their full Open Offer Entitlements (excluding, for the avoidance of doubt, any New Ordinary Shares acquired through the Excess Application Facility) in respect of the Open Offer will undergo a dilution of up to 16.55 per cent. to their interests in the Company because of the Placing. Qualifying Shareholders who do not take up any of their Open Offer Entitlements in respect of the Open Offer will experience a more substantial dilution to their interests in the Company because of the Capital Raising.

5. Use of proceeds

The Company considers the principal areas of focus, in relation to which it proposes to utilise the proceeds of the Capital Raising, to be:

· the delivery of the Power Up commercial demonstration by mid 2015;

· the full automation of production with a doubling of the speed of electrode production and a doubling of fuel cell production output in the next 6 months;

· establishing a US presence by the end of 2014 and rapidly developing and delivering initial US market opportunities;

· continuing the delivery of initial commercial opportunities; and

· undertaking an independent review of the Company's structure.

6. Directors' participation in the Placing

The Directors listed in the table below have conditionally agreed to subscribe for a total of £78,500 in the Placing, representing 785,000 New Ordinary Shares, in the amounts set out next to their names.

* Gene Lewis' participation in the Placing was funded in part by the withdrawal of certain funds retained in the Company's SAYE scheme. As a result, certain share options granted under that scheme have been cancelled. Further details of Directors holding share options are set out in section 3.3 of Part V of the Circular.

Further details of the Directors' interests in the share capital of the Company are set out in paragraph 3.2 of Part V of the Circular.

In addition, the major Shareholders listed in the table below conditionally agreed to subscribe for a total of 1,519,000 in the Placing, representing 15,190,000 New Ordinary Shares, in the amounts set out next to their names.

Further details of the major Shareholders' interests in the share capital of the Company are set out in

paragraph 4 of Part Vof the Circular.

7. General Meeting

A notice convening the General Meeting of the Company, to be held at the Clarke Suite, Chelsea Football Club, Stamford Bridge, Fulham Road, London SW6 1HS at 11.30 a.m. on 30 October 2014 is set out at the end of the Circular.The General Meeting will be held to consider and, if thought appropriate, pass the Resolutions summarised below.

Shareholders should be aware that if Resolution 1 is not approved by Shareholders at the General Meeting, the Capital Raising will not proceed as currently envisaged. The anticipated net proceeds of the Capital Raising will not become available to fund the proposed upcoming expenditure and achieve the objectives set by the Board. Accordingly, the Company's business plans and growth prospects may be materially adversely affected as a result.

It is therefore important that Shareholders vote in favour of Resolution 1, in order that the Capital Raising can proceed.

Resolution 1

Resolution 1 will be proposed as a special resolution of the Company. The Directors will be seeking authority to (i) allot up to 68,847,810 New Ordinary Shares pursuant to section 551 of the 2006 Act, being up to an aggregate nominal amount of £68,847.81; and (ii) disapply the statutory pre-emption rights contained in section 561(1) of the 2006 Act in respect of the allotment for cash of up to 68,847,810 New Ordinary Shares with an aggregate nominal amount of up to £68,847.81.

The authority and disapplication will be limited to the allotment of New Ordinary Shares pursuant to the Placing and the Open Offer and both will expire on the date of the next annual general meeting of the Company to be held in 2015 or, if earlier, on 30 April 2015.

Resolution 2

Resolution 2 will be proposed as an ordinary resolution of the Company. It is conditional on the Placing and Open Offer Agreement becoming wholly unconditional. This resolution is proposed to enable the Directors to allot further equity securities up to an aggregate nominal amount of £118,209.09 (such amount equating to 40 per cent. of the aggregate nominal value of the Enlarged Share Capital, assuming full take-up of the Open Offer).

This amount is in line with the ABI Guidelines which recommend that the directors' authority to allot share capital be limited to a sum equal to two-thirds of the issued ordinary share capital on condition that half of this amount (representing one third of the Enlarged Share Capital, assuming full take-up of the Open Offer) can only be allotted pursuant to a fully pre-emptive rights issue.

This authority will expire at the conclusion of the next annual general meeting of the Company to be held in 2015 or, if earlier, on 30 April 2015.

Resolution 3

The provisions of section 561(1) of the 2006 Act, to the extent that they are not disapplied, confer on

Shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be paid up, wholly in cash. It is proposed that the level of the general disapplication of statutory pre-emption rights previously available to the Directors (approximately 20 per cent. of the Company's existing issued share capital) be maintained following the Open Offer.

Resolution 3 will be proposed as a special resolution of the Company. The Directors will be seeking authority to allot equity securities for cash subject to statutory pre-emption rights in favour of Shareholders and to disapplystatutory pre-emption rights on the allotment of a limited number of those equity securities. In the light of the ABI Guidelines described in connection with Resolution 2 above, this authority will permit the Directors to:

(i) allot shares up to approximately four tenths of the Company's issued ordinary share capital on a pre-emptive offer to existing shareholders (subject to such adjustments or exclusions as are described in the Notice of General Meeting);

(ii) grant or issue and allot up to 2,500,000 equity securities pursuant to the Company's EMI and/or SAYE share option schemes; and

(iii) allot shares up to a maximum nominal amount of £59,104.54such amount equating to 20 per cent. of the aggregate nominal value of the Enlarged Share Capital (assuming full take-up of the Open Offer).

The authorities under Resolutions 2 and 3 will not come into effect unless the Placing and Open Offer Agreement becomes wholly unconditional. If the Placing and Open Offer Agreement does not become wholly unconditional, the subsisting authorities granted at the last annual general meeting of the Company held on 4 April 2014 will continue.

8. Placing and Open Offer Agreement

Pursuant to the Placing and Open Offer Agreement dated 13 October 2014 between (1) the Company, (2) the Directors, (3) Zeus Capital and (4) Peat, Zeus Capital and Peat have agreed to use their respective reasonable endeavours to procure placees for the Placing Shares at the Issue Price, as the Company's agents.

The Placing and Open Offer Agreement contains certain warranties and indemnities from the Company in favour of Zeus Capital and Peat and is conditional, inter alia, on:

(a) the Placing and Open Offer Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission;

(b) Admission occurring by not later than 8.00 a.m. on 31 October 2014 (or such other time and/or date as Zeus Capital and Peat may agree, being not later than 30 November 2014).

Zeus Capital and Peat may terminate the agreement in certain circumstances prior to Admission including, inter alia, if there shall have been a material adverse change, or a development involving a prospective material adverse change, in national or international political, military, diplomatic, terrorist, monetary, industrial, economic, financial or stock market conditions, or affecting the business, management, financial or trading position or prospects, shareholders' funds or results of the Company which in the opinion of Zeus Capital and Peat would be likely to prejudice materially the success of the Placing and/or the Open Offer or which would make it impracticable or inadvisable to proceed with the Placing, the Open Offer and/or with Admission, or if any of the Directors or the Company fail to comply in any material respect with any of their respective obligations under the Placing and Open Offer Agreement.

9. Lanstead Placing Agreement

Pursuant to the Lanstead Placing Agreement dated 13 October 2014 between (1) the Company, (2) the Directors, (3) Zeus Capital and (4) Peat, Zeus Capital and Peat have agreed to use their respective reasonable endeavours to procure placees for the 22,000,000 new Ordinary Shares at the Issue Price, as the Company's agents. The Lanstead Placing Agreementcontains certain warranties and indemnities from the Company in favour of Zeus Capital and Peat and is conditional, inter alia, on:

(a) the Lanstead Placing Agreement having become unconditional in all respects (save for the condition relating to admission of the 22,000,000 new Ordinary Shares to trading on AIM) and not having been terminated in accordance with its terms prior to such admission;

(b) admission of the 22,000,000 new Ordinary Shares to trading on AIM occurring by not later than 8.00 a.m. on or around 15 October 2014 (or such other time and/or date as Zeus Capital and Peat may agree).

Zeus Capital and Peat may terminate the Lanstead Placing Agreement in certain circumstances prior to admission of the 22,000,000 new Ordinary Shares to trading on AIM including, inter alia, if there shall have been a material adverse change, or a development involving a prospective material adverse change, in national or international political, military, diplomatic, terrorist, monetary, industrial, economic, financial or stock market conditions, or affecting the business, management, financial or trading position or prospects, shareholders' funds or results of the Company which in the opinion of Zeus Capital and Peat would be likely to prejudice materially the success of the placing of the 22,000,000 new Ordinary Shares, the Placing and/or the Open Offer or which would make it impracticable or inadvisable to proceed with the placing of the 22,000,000 new Ordinary Shares, the Placing, the Open Offer and/or with admission of the 22,000,000 new Ordinary Shares to trading on AIM, or if any of the Directors or the Company fail to comply in any material respect with any of their respective obligations under the Lanstead Placing Agreement.

10. Related party transaction

A number of Related Parties (as defined in the AIM Rules for Companies) will be participating in the Placing.

Adam Bond, who is not participating in the Placing and is therefore independent, considers, having consulted with the Company's nominated adviser, Zeus Capital, that the terms of these parties' participation in the Placing are fair and reasonable insofar as the Company's Shareholders are concerned.

Definitions

Extracted from the Circular.

2006 Act the Companies Act 2006 (as amended)

Admission the admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules for Companies

AIM a market operated by the London Stock Exchange

AIM Rules for Companies the AIM rules for companies and guidance notes, as published and amended from time to time by the London Stock Exchange

AIM Rules for Nominated the rules for nominated advisers to AIM companies, as published

Advisers and amended from time to time by the London Stock Exchange

applicant a Qualifying Shareholder or a person entitled by virtue of a bona fide market claim who lodges an Application Form in connection with the Open Offer

Application Form the application form which accompanies this document to be used by Qualifying Non-CREST Shareholders in connection with the Open Offer

Benchmark Price 13.33 pence per share

Board or Directors the directors of the Company as at the date of this document, whose names are set out on page 12 of this document

Business Day any day (other than a Saturday, Sunday or public holiday) on which commercial banks are open in London, UK for normal banking business

Capital Raising the Placing and the Open Offer, taken together

Chlor-Alkali a facility where chlorine and sodium or potassium hydroxide are produced as co-products and hydrogen is produced as a by-product in an electrolytic process

Company or AFC Energy AFC Energy plc

Computershare or Registrars Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY

CREST the computerised settlement system (as defined in the CREST Regulations) operated by Euroclear in accordance with the CREST Regulations which facilitates the transfer of title to shares in uncertificated form

Enlarged Share Capital the entire issued share capital of the Company immediately following Admission (assuming the Open Offer is fully subscribed)

Equity Swap Agreements the equity swap agreements between Lanstead and the Company described in section 5.4 of Part V of this document

Euroclear Euroclear UK & Ireland Limited, the operator of CREST

Excess Application Facility the arrangement pursuant to which Qualifying Shareholders may apply for additional Open Offer Shares in excess of their Open Offer Entitlements in accordance with the terms and conditions of the Open Offer

Excess CREST Open Offer in respect of each Qualifying CREST Shareholder, the entitlement to apply for Open Entitlements  Offer Shares in addition to his Open Offer Entitlement credited to his stock account in

CREST, pursuant to the Excess Application Facility, which is conditional on him taking up his Open Offer Entitlement in full and which may be subject to scaling back in accordance with the provisions of this document

Excess Open Offer in respect of each Qualifying Shareholder, the entitlement to apply for Entitlement Open Offer Shares in addition to his Open Offer Entitlement pursuant to the Excess Application Facility, which is conditional on him taking up his Open Offer Entitlement in full and which may be subject to scaling back in accordance with the provisions of this document

Excess Shares the Open Offer Shares for which Qualifying Shareholders may apply under the Excess Application Facility in addition to their Open Offer Entitlement

Ex-entitlement Date the date on which the Existing Ordinary Shares are marked "ex" for entitlement under the Open Offer, being 13 October 2014

Existing Ordinary Shares the 223,374,907 Ordinary Shares in issue on the date of this document

FCA the Financial Conduct Authority of the United Kingdom

Form of Proxy the form of proxy which accompanies this document for use in connection with the General Meeting

FSMA the Financial Services and Markets Act 2000 (as amended)

General Meeting the general meeting of the Company to be held at the Clarke Suite, Chelsea Football Club, Stamford Bridge, Fulham Road, London SW6 1HS at 11.30 a.m. on 30 October 2014 (or any adjournment thereof), notice of which is set out at the end of this document

Group the Company and its subsidiaries and subsidiary and associated undertakings at the date of this document

HAZOP Hazard and Operability Study

ISIN International Securities Identification Number

Issue Price 10 pence per New Ordinary Share

London Stock Exchange London Stock Exchange plc

Lanstead Lanstead Capital LP

Lanstead Placing Agreement the conditional agreement entered into between the Company, the Directors, Zeus Capital and Peat in respect of the Lanstead Placing Shares dated 13 October 2014, further details of which are contained in paragraph 10 of Part I of this document

Lanstead Placing Shares the 22 million new Ordinary Shares to be placed at an issue price of 10 pence per share with Lanstead

New Ordinary Shares the Placing Shares and the Open Offer Shares, or any part thereof

Notice of General Meeting the notice convening the General Meeting which is set out at the end of this document

Open Offer the conditional invitation made to Qualifying Shareholders to apply to subscribe for the Open Offer Shares at the Issue Price on the terms and subject to the conditions set out in Part IV of this document and, where relevant, in the Application Form

Open Offer Entitlement the entitlement for Qualifying Shareholders to subscribe for Open Offer Shares on the basis set out in this document allocated to Qualifying Shareholders on the Record Date pursuant to the Open Offer

Open Offer Shares up to 38,847,810 New Ordinary Shares being made available to Qualifying Shareholders pursuant to the Open Offer

Ordinary Shares the ordinary shares of 0.1 pence each in the capital of the Company

Overseas Shareholder a Shareholder who is resident, or who is a citizen of, or who has a registered address in a jurisdiction outside the United Kingdom

Peat M C Peat & Co LLP, the Company's joint broker

Placees the persons who have conditionally agreed to subscribe for the Placing Shares

Placing the conditional placing of the Placing Shares, otherwise than on pre-emptive basis, at the Issue Price by Zeus Capital and Peat, as described in this document

Placing and Open Offer the conditional agreement entered into between the Company, the Directors, Zeus Agreement Capital and Peat in respect of the Placing and the Open Offer dated 13 October 2014, further details of which are contained in paragraph 10 of Part I of the Circular

Placing Shares the 30,000,000 New Ordinary Shares to be issued pursuant to the Placing which have conditionally been placed firm with institutional and other investors by Zeus Capital and Peat

Qualifying CREST Qualifying Shareholders whose Existing Ordinary Shares on the register of members Shareholders of the Company at the close of business on the Record Date were held in a CREST account (but excluding any Overseas Shareholders who are resident in, or who are citizens of, or who have a registered address in a Restricted Jurisdiction)

Qualifying Non-CREST Qualifying Shareholders whose Existing Ordinary Shares on the register of members Shareholders of the Company at the close of business on the Record Date were held in certificated form (but excluding any Overseas Shareholders who are resident in, or who are citizens of, or who have a registered address in a Restricted Jurisdiction)

Qualifying Shareholders holders of Existing Ordinary Shares on the register of members of the Company at the Record Date (but excluding any Overseas Shareholders who are resident in, or who are citizens of, or who have a registered address in a Restricted Jurisdiction)

Record Date 6.00 p.m. on 10 October 2014

Resolutions the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting

Restricted Jurisdiction each and any of the United States of America, Australia, Canada, Japan, New Zealand, Russia, the Republic of Ireland and the Republic of South Africa and any other jurisdiction where extension or availability of the Placing and/or the Open Offer would breach any applicable law or regulations

Shareholders the holders of Existing Ordinary Shares

sterling, pounds sterling, £, the lawful currency of the United Kingdom

pence or p

stock account an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited

UK Listing Authority the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA

US Person a US person as defined in Regulation S promulgated under the Securities Act

Zeus Capital Zeus Capital Limited, the Company's Nominated Adviser and joint broker

Zeus Capital Limited (''Zeus Capital"), which is authorised by the FCA, is acting solely for the Company and no-one else in connection with the Placing or the Open Offer (together, the "Capital Raising") and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Capital Raising and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Capital Raising or any other matter referred to herein. Its responsibilities as the Company's nominated adviser and joint broker under the AIM Rules for Companies and the AIM Rules for Nominated Advisers are owed to the London Stock Exchange and the Company and not to any other person including, without limitation, in respect of any decision to acquire New Ordinary Shares in reliance on any part of this announcement. Zeus Capital has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by Zeus Capital nor does it make any representation or warranty, express or implied, for the accuracy or completeness of any information or opinion contained in this announcement or for the omission of any information. Nothing in this announcement shall be relied upon as a promise or representation in this respect, whether as to the past or the future (without limiting the statutory rights of any person to whom this announcement is issued). Zeus Capital expressly disclaims all and any responsibility or liability, whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement.

M C Peat & Co LLP (''Peat"), which is authorised by the FCA, is acting exclusively for the Company and no-one else in connection with the Capital Raising and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Capital Raising and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Capital Raising or any other matter referred to herein. Its responsibilities as joint broker to the Company are owed to the London Stock Exchange and the Company and not to any other person including, without limitation, in respect of any decision to acquire New Ordinary Shares in reliance on any part of this announcement. Peat has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by Peat nor does it make any representation or warranty, express or implied, for the accuracy or completeness of any information or opinion contained in this announcement or for the omission of any information. Nothing in this announcement shall be relied upon as a promise or representation in this respect, whether as to the past or the future (without limiting the statutory rights of any person to whom this announcement is issued). Peat expressly disclaims all and any responsibility or liability, whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement.

Important information

None of this announcement should be distributed, forwarded, or transmitted in, or into, any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the Restricted Jurisdictions. In addition, the transfer of Open Offer Entitlements or Excess Open Offer Entitlements through CREST in jurisdictions other than the UK, including the Restricted Jurisdictions, may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about and observe any of those restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute, and may not be used for the purposes of, any offer or invitation to sell or issue or the solicitation of any offer to purchase or subscribe for New Ordinary Shares to or by anyone in any jurisdiction in which such offer, invitation or solicitation is unlawful or to any person to whom it is unlawful to make such offer or invitation or undertake such solicitation.

This announcement is not being sent, and does not constitute an offer of the New Ordinary Shares to any person with a registered address, or who is resident or located, in any of the Restricted Jurisdictions.

None of the New Ordinary Shares, the Open Offer Entitlements or the Excess Open Offer Entitlements has been or will be registered under the Securities Act or under the applicable state securities laws of the United States or any other Restricted Jurisdiction. Subject to certain exceptions, the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements may not be offered, sold, taken up, delivered or transferred in or into any of the Restricted Jurisdictions. In particular, none of the New Ordinary Shares, the Open Offer Entitlements or the Excess Open Offer Entitlements may be, directly or indirectly, offered, sold, taken up, delivered, renounced or transferred in or into the United States, except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offering of any of the New Ordinary Shares, the Open Offer Entitlements or the Excess Open Offer Entitlements in the United States.

Neither the SEC nor any state securities commission or other US regulatory authority has approved or disapproved of the New Ordinary Shares, the Open Offer Entitlements or the Excess Open Offer Entitlements or endorsed the merits of the Capital Raising or the adequacy or accuracy of this announcement. Any representation to the contrary is a criminal offence in the United States.

In addition, subject to certain exceptions, Application Forms are not being posted to and no Open Offer Entitlements or the Excess Open Offer Entitlements will be credited to a stock account of any person in any of the Restricted Jurisdictions. The attention of Overseas Shareholders and other recipients of this announcement who are residents or citizens of any country other than the United Kingdom is drawn to the section entitled ''Overseas Shareholders'' at paragraph 6 of Part IV of the Circular. This announcement and the New Ordinary Shares may not be redistributed or forwarded, directly or indirectly, into any Restricted Jurisdiction.

Forward-looking statements

This announcement contains statements that are, or may be deemed to be, ''forward-looking statements''. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''anticipates'', ''believes'', ''could'', ''envisages'', ''estimates'', ''expects'', ''intends'', ''may'', ''plans'', ''projects'', ''should'', ''will'' or, in each case, their negative or other variations or comparable terminology. These forward-looking statements relate to matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs and current expectations of the Company or the Directors concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth and strategies of the Company and the industry in which the Group operates.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The actual results, performance or achievements of the Company or developments in the industry in which the Group operates may differ materially from the future results, performance or achievements or industry developments expressed or implied by the forward-looking statements contained in this announcement.

The forward-looking statements contained in this announcement speak only as at the date of this announcement. The Company undertakes no obligation to update or revise publicly the forward-looking statements contained in this announcement to reflect any change in expectations or to reflect events or circumstances occurring or arising after the date of this announcement, except as required in order to comply with its legal and regulatory obligations (including under the AIM Rules for Companies).