AFC Energy Regulatory News (AFC)

AFC Energy PLC

("AFC Energy" or "the Company")

Subscription to raise approximately £2.47 million ("the Subscription") and Shareholder Offer to raise up to approximately £1.13 million

17 December, 2015

AFC Energy plc (AIM: AFC), the industrial fuel cell power company, is pleased to announce that the Company has raised £2.47 million before expenses, by way of subscription for 12,368,449 new ordinary shares ("the Subscription Shares"), at an issue price of 20 pence per share ("the Issue Price"). In addition, the Company will offer up to 5,631,551 new ordinary shares (the "Offer Shares") for subscription by qualifying shareholders at the Issue Price potentially raising up to a further £1.13 million (the "Shareholder Offer").

Highlights

· Subscription for 12,368,449 new ordinary shares of the Company subscribed by existing and other investors to raise proceeds of £2.47 million before expenses

· The Issue Price represents a discount of 28.6 per cent. to the closing mid-market price of 28 pence on 16 December 2015

· Subscription arranged by the Company with the support of major shareholders and certain directors

· In addition, the Company will be making an offer for subscription to qualifying shareholders who will be entitled to subscribe for up to 5,631,551 Offer Shares. Details of the Shareholder Offer and application forms will be sent to qualifying shareholders on or around 21 December 2015

· The net proceeds of the Subscription will largely be deployed to enable AFC Energy to complete pre-commissioning activities in relation to Milestone 11, as well as supporting the short-term working capital requirements of the Company, in advance of the receipt of EU grant funds by way of reimbursement of expenditure for the POWER-UP project, at Stade, Germany

· The Subscription and the Shareholder Offer are not underwritten. The Subscription is conditional only upon admission of the Subscription Shares to trading on AIM. Subscription Shares will not be issued to subscribers who do not fund prior to Admission. If this were to happen the Subscription would proceed but would raise less money. The Shareholder Offer is subject to take up by Qualifying Shareholders and, to the extent taken up, the issue of any Offer Shares will be conditional upon admission of such Offer Shares to trading on AIM.

The Subscription and the Shareholder Offer will be undertaken pursuant to the general authorities granted to the board of directors at the annual general meeting on 15 April 2015 and therefore no further shareholder approval is required.

Application is being made for the admission of the Subscription Shares to trade on AIM and it is expected that this will occur on 22 December 2015. The Subscription Shares and any Offer Shares will rank pari passu in all respects with the Company's existing issued ordinary shares.

Mr Adam Bond, AFC's Chief Executive Officer, said: "We welcome the continued support of our major shareholders. Our accelerated timetable, towards achieving Milestone 11 and the first commercial scale operability of the KORE module, has subsequently resulted in AFC incurring a large number of project-related invoicing commitments in advance of funding being received from the EU's grant agency under the POWER-UP agreement which we now need to fulfil. This fundraising therefore addresses any potential shortfall during this period as well as supports AFC Energy's short-term working capital requirements. We look forward to providing a further update announcement to the market with the results of commissioning, prior to the end of January 2016."

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Additional details of the fundraising

Background to the fundraising

Due to the accelerated timetable towards achieving Milestone 11 and the first commercial scale operability of the KORE module, the Company has incurred a large number of project-related invoicing commitments in advance of funding being received from the EU's grant agency under the POWER-UP agreement. The Subscription therefore addresses any potential shortfall during this period as well as supports AFC Energy's short-term working capital requirements.

Subscription

The Subscription will result in the issue of 12,368,449 Subscription Shares (representing, in aggregate, approximately 4.27 per cent. of the existing share capital). The Subscription Shares are being issued at a price of 20 pence per share. This price represents a discount of 28.6 per cent. to the closing mid-market price of 28 pence on 16 December 2015, being latest practicable date before the announcement of the Subscription. The Subscription 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 Subscription Shares. No temporary documents of title will be issued. The Subscription is not underwritten and is conditional only upon admission of the Subscription Shares to trading on AIM. Subscription Shares will not be issued to subscribers who do not fund prior to Admission. If this were to happen the Subscription would proceed but would raise less money.

The Shareholder Offer

The Company considers it important that qualifying shareholders have an opportunity to participate in the fundraising at the same price as the Subscription and qualifying shareholders will shortly be sent a letter setting out the terms and conditions of the Shareholder Offer and an application form. "Qualifying Shareholders" are those shareholders on the register of members of the Company on 14 December 2015 who are in any jurisdiction in which an offer to sell or invitation to subscribe for the Offer Shares is not unlawful and does not require the Shareholder Offer or Offer Shares to be approved by, or registered with, any regulatory body. Qualifying Shareholders can subscribe for Offer Shares, in aggregate, for up to approximately £1.13 million. The Directors will have the discretion to scale back applications to the extent that aggregate applications exceed this amount.

The maximum proceeds of the Subscription and the Shareholder Offer are £3.6 million. At current exchange rates, £3.6 million equates to approximately €4.97 million, which avoids the requirement for the Company to produce a prospectus which would be time consuming and costly.

The Shareholder Offer is not underwritten and the Shareholder Offer is subject to take up by the Qualifying Shareholders. Therefore there is no certainty that it will be taken up in full or at all.

Dilution

Following the issue of the Subscription Shares pursuant to the Subscription, Qualifying Shareholders who do not take up any Offer Shares in the Shareholder Offer will be subject to a dilution of 4.09 per cent. to their interests in the Company because of the Subscription.

Use of funds and working capital

The funds raised by the Subscription (not including any funds to be raised under the Shareholder Offer) will provide the Company with working capital at least to complete the pre-commissioning activities in relation to Milestone 11. In addition, the Company expects to continue to receive additional funds during the first part of next year from its European Union grants and pursuant to the equity swap entered into by the Company with Lanstead, the final receipt in relation to which is due in April 2016, which will extend its working capital position. Full commercialisation of our technology may need additional funds in due course. If that turns out to be the case the board will consider at the appropriate time how those funds should best be raised in the interests of all shareholders.

Related Party Transactions

Mitchell Field and Eugene Shvidler are non-executive directors of the Company and currently have the following holdings of 2,644,810 and 13,853,633 Ordinary Shares respectively (representing 0.91 per cent. and 4.78 per cent. of the Company's existing ordinary shares respectively). Mr Field and Mr Shvidler have agreed with the Company to subscribe for 250,000 and 579,104 Subscription Shares in the Subscription and following completion of the Subscription they would hold 2,894,810 and 14,432,737 shares respectively. As Directors of the Company, their participation in the Subscription constitutes a "related party transaction" under the AIM Rules.

Yady Worldwide S.A. is a company that is wholly owned by Ben White, son of Howard White, and his relations and their investment vehicles, the Age of Reason Foundation and Eturab who in aggregate currently hold 46,879,402 Ordinary Shares (representing 16.17 per cent. of the Company's existing Ordinary Shares) and has agreed with the Company to subscribe for 2,750,000 Subscription Shares in the Subscription, and, following completion of the Subscription, would hold 49,629,402 Ordinary Shares in aggregate. As Yady Worldwide S.A. is treated as a "substantial shareholder" of the Company, its participation in the Subscription constitutes a "related party transaction" under the AIM Rules.

Ervington Investments is a company that currently holds 38,021,149 Ordinary Shares (representing 13.12 per cent. of the Company's existing Ordinary Shares) and has agreed with the Company to subscribe for 1,589,345 Subscription Shares in the Subscription, and, following completion of the Subscription, would hold 39,610,494 Ordinary Shares in aggregate. As Ervington Investments is treated as a "substantial shareholder" of the Company, its participation in the Subscription constitutes a "related party transaction" under the AIM Rules.

Together, Mitchell Field, Eugene Shvidler, Yady Worldwide S.A. and Ervington Investments are the "Related Parties". The Directors other than Mitchell Field and Eugene Shvidler (the "Independent Directors") consider, having consulted with the Company's nominated adviser, Zeus Capital, that the terms on which the Related Parties are participating in the Subscription are fair and reasonable insofar as the Company's Shareholders are concerned.

Total Voting Rights

Subsequent to the issuance of these Subscription Shares (but not including the Shareholder Offer), the Company will have 302,272,392 Ordinary Shares in issue. The Company does not hold any shares in treasury. Accordingly, following admission of the Subscription Shares, the total number of Ordinary Shares and voting rights in the Company is 302,272,392. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Disclosure and Transparency Rules of the UK Financial Conduct Authority.