Biome Tech Regulatory News (BIOM)

9 Oct 2006 11:13

Stanelco PLC09 October 2006 Stanelco plc 9 October 2006 NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THEUNITED STATES OF AMERICA, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA ORJAPAN. Stanelco plc ("Stanelco" or the "Company") Proposed Firm Placing of 1,375,000,000 New Ordinary Shares and Open Offer of 600,992,559 New Ordinary Shares at 0.8 pence per New Ordinary Share, of which 148,278,000 New Ordinary Shares are being placed subject to clawback to satisfy valid acceptances under the Open Offer Notice of Extraordinary General Meeting Change of accounting reference date to 31 December The Board of Stanelco announces that, in order to enable the Group to move intothe next phase of the commercialisation of its intellectual property portfolioand to meet its working capital requirements, it is proposing to raise up to£15.8m (before expenses) by way of a Firm Placing, Placing and Open Offer at 0.8pence per New Ordinary Share (the "Issue"). Key Highlights • Firm Placing of 1,375,000,000 New Ordinary Shares at 0.8 pence each; • Placing of 148,278,000 New Ordinary Shares at 0.8 pence each; • Open Offer of 600,992,559 New Ordinary Shares at 0.8 pence each, of which 148,278,000 New Ordinary Shares are being placed subject to clawback to satisfy valid acceptances under the Open Offer; and • Issue not underwritten. Principal terms and timing of the issue The Company is proposing to raise up to £14.4m (net of expenses) by way of theIssue. Under the Open Offer, Qualifying Shareholders may subscribe at a price of 0.8pence per New Ordinary Share for: 3 Open Offer Shares for every 5 Existing Ordinary Shares held on the Record Date and so in proportion for any other number of ExistingOrdinary Shares then held by them. Fractional entitlements will not be allottedto Qualifying Shareholders but will be aggregated with the Open Offer Sharesattributable to certain Overseas Shareholders not eligible to participate in theOpen Offer and included in the Placing, with the proceeds being retained for thebenefit of the Company. The New Ordinary Shares will rank pari passu in all respects with ExistingOrdinary Shares. Applications will be made to the FSA and to the London Stock Exchange for theNew Ordinary Shares to be admitted to the Official List and to trading on theLondon Stock Exchange and Admission is expected to occur and dealings tocommence in the New Ordinary Shares on 7 November 2006. The latest time and datefor payment in full under the Open Offer is 11.00 am on 1 November 2006. Use of Proceeds The proceeds from the Issue will be used to move the business on from itsdevelopment and acquisition phases into the commercialisation phase of theintellectual property portfolio. The proceeds will provide the Group with theworking capital to enable management to convert opportunities into commercialcontracts whilst allowing the Group to meet its existing financial obligations.Specifically, funds raised will be used for the following: - to ensure successful completion by either Biotec, or in accordance withthe provisions of the Joint Venture Agreement, Stanelco of at least the firsttwo manufacturing facilities in the USA, which will cost approximately £2.8meach, for the production of starch-based resins, including Starpol materials,developed by Biotec; - to meet the final stage payment of £1.6m due in June 2007 to EKI forthe Biotec Acquisition; and - to provide further working capital for the Group to fund the next stageof commercial development of the Group's existing and new products and toprovide the Company with funds to back up any negotiations with customers andpartners. The Issue is conditional, inter alia, upon the approval of shareholders which isto be sought at the EGM. Teather & Greenwood is Sponsor, Financial Adviser and Stockbroker to theCompany. Commenting on the announcement today, Philip Lovegrove, Chairman of Stanelco,said: "The Board is delighted to announce the proposed fundraising and recommend thatShareholders vote in favour of the Resolutions." Teather & Greenwood Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting exclusively for theCompany as sponsor, financial adviser and stockbroker in relation to the Issueand no-one else in connection with the arrangements described in thisannouncement and will not be responsible to anyone other than the Company forproviding the protections afforded to customers of Teather & Greenwood or foradvising any other person in connection with the arrangements described in thisannouncement. For further information please contact: Stanelco Martin Wagner, Chief Executive Sylvia Leavey, Investor Relations Tel: 44 (0) 2380 867 100 Press: Financial Dynamics Jonathon Brill/Billy Clegg Tel: 44 (0) 20 7831 3113 This announcement is for information only and does not constitute an offer orinvitation to acquire or dispose of any securities or investment advice in anyjurisdiction. Past performance is no guide to future performance and persons needing adviceshould consult an independent financial advisor. The information contained in this announcement is not for release, publicationor distribution, directly or indirectly, to persons in the United States,Canada, Australia, Japan or the Republic of South Africa. This announcement isnot an offer of securities for sale into the United States. The New OrdinaryShares have not and will not be registered under the US Securities Act of 1933,as amended and may not be offered or sold directly or indirectly, in the UnitedStates absent registration or an exemption from registration. There will be nopublic offering of securities in the United States. The New Ordinary Shares havenot and will not be registered with any regulatory authority of any state withinthe United States. This announcement has been issued by Stanelco and is the sole responsibility ofStanelco. Defined terms used in this announcement can be found at the end of theannouncement. INTRODUCTION In order to enable the Group to move into the next phase of thecommercialisation of its intellectual property portfolio and to meet its workingcapital requirements, the Company is proposing to raise up to £15.8m (up to£14.4m net of expenses) by way of the Issue of, in aggregate, up to1,975,992,559 New Ordinary Shares at 0.8 pence per New Ordinary Share. TheProspectus, the purpose of which is to provide Shareholders with details of theIssue and to explain why the Board considers it is in the best interests of theCompany and its Shareholders as a whole, will be posted to Shareholders as soonas practicable. In a trading update on 17 August 2006, the Company estimated that its currentcash balance of £0.9m, together with projected receivables and working capitalneeds, was sufficient to meet its cash requirements for a further three monthsin the absence of further funding or new revenue streams commencing in thatperiod. It also stated that with a cash balance of £0.9m and an unused overdraftfacility of £0.2m that the Company was exploring all financing options includinga public equity issue. Having explored all financing options, the Board has resolved to seek furtherfunding by way of the Issue. The Issue involves: - the Firm Placing in respect of 1,375,000,000 New Ordinary Shares atthe Issue Price; - the Placing in respect of 148,278,000 New Ordinary Shares at the IssuePrice; and - the Open Offer in respect of 600,992,559 New Ordinary Shares at theIssue Price to be offered to Qualifying Shareholders pursuant to the Open Offer.These New Ordinary Shares include the 148,278,000 New Ordinary Shares placedunder the Placing which are subject to clawback to satisfy valid applicationsfrom Qualifying Shareholders under the Open Offer. The Issue Price represents an effective discount of approximately 16.67 percent. to the middle market price of 0.96 pence per Existing Ordinary Share atthe time of the release of this announcement. The Directors have been advised byTeather & Greenwood that an equity fundraising could only be carried outsuccessfully if priced at a significant discount and therefore the Companyproposes to seek specific approval of the Issue Price and the discount fromShareholders at the EGM in accordance with the Listing Rules. The Issue is conditional inter alia on the passing of the Resolutions to beproposed at the EGM. The Issue is not underwritten, in whole or in part, by Teather & Greenwood, andis subject to the terms and conditions set out in the Placing and Open OfferAgreement. Shareholders should be aware that if the Resolutions to be proposed at the EGMare not passed and Admission does not take place, the net proceeds of the Issuewill not be received by the Company. If Admission does not take place, theCompany's cash requirements would be likely to exceed the amount available underits existing overdraft facility with Barclays Bank PLC by the end of November2006 and, in any event, this facility would be subject to immediate review andpotential withdrawal. In addition, under the terms of the current fundinggranted to the Company, certain lenders have the right to demand immediaterepayment of outstanding amounts of £0.9m due by the end of November 2006, whichthe Company would not be in a position to repay. The Board considers that, in this scenario, they would seek to agree newfacilities with an appropriate lender and/or seek alternative means of funding,such as convertible loans, asset-based finance or supplier financing. However,the Board believes that any such facilities or loans, on the assumption thatsuch facilities or loans could be agreed, would be on significantly restrictiveterms and may necessitate the Group undertaking to effect certain actions andgrant certain rights to the lenders. In these circumstances, the Board believesthat the Group would not be able to continue the development of its intellectualproperty portfolio to commercialisation in a manner in which would allow theGroup to retain all of its key staff and intellectual property rights. The Boardconsequently believes that any such arrangements would not be in the bestinterests of Shareholders. Unless funds are received pursuant to the Issue orunless the Company obtains further funding, there is a material risk that theCompany will not be able to meet its debts as they fall due and will becomeinsolvent. DIRECTORS' INTENTION The Directors, who in aggregate are beneficially interested in 6,217,083Ordinary Shares, representing 0.63 per cent. of the existing issued ordinaryshare capital of the Company, have entitlements under the Open Offer to3,730,249 New Ordinary Shares. Philip Lovegrove and Ian Balchin intend to applyfor their entitlement in full. INFORMATION ON STANELCO History and background to the Group Stanelco's business was for many years based on the manufacture and supply ofhigh frequency thermal processing systems, including RF equipment. In the late1990s, Stanelco, utilising solid-state technologies and types of power supplybeing newly developed at that time, embarked on the production of RF furnacesfor use in the production of fibre optic cable. Stanelco became a leadingindependent supplier of solid-state furnaces to the fibre optics industry atthat time. During this period, Stanelco also developed a mobile solid-state machine forsealing bags containing potentially hazardous waste. This has become anestablished product that continues to sell in the UK, with some sales ininternational markets. Early in 2000, the Directors broadened the base of the business and Stanelcocommenced several research projects. One such project was a joint venture withCardinal Health relating to the RF welding of ingestible water solublepharmaceutical capsules. This project was intended to produce a substitute forgelatine enclosures and led to the decision to investigate substitute materials.Following this venture, project materials science became a priority for theGroup. In August 2003, Stanelco acquired Adept by the issue of 10 million OrdinaryShares at a mid-market price of 3.35 pence each. Adept brought considerableknowledge of the formulation of water soluble films into the Group, specificallyPolyvinyl Alcohol-based films ("PVOH") and the properties required to seal them,initially in capsule form. This capsule project led to the start of closeco-operation with Biotec in Germany. Combining the knowledge of all the partiesopened the way to developing into new areas of packaging and the pursuit of acost-comparable alternative to gelatine encapsulation. At the start of 2004,Stanelco carried out a 1 for 12 rights issue, raising £1.6m to provide workingcapital and to fund these developments. In June 2004, Stanelco acquired Aquasol, an intellectual property based companywith particular expertise in water-soluble packaging, by the issue of 10 millionOrdinary Shares of 0.1 pence each in Stanelco with a value of £0.5m and furtherdeferred consideration of up to a maximum of £2.6m subject to performance inaccordance with the terms of the Aquasol Agreement. This brought packagingdesign skills and patents into the Stanelco Group and also brought a portfolioof leading packaging products which are now, in certain cases, providing salesand royalty income to the Group. At the same time, Stanelco continued to invest in the development, patenting andcommercialisation of its RF technology for applications including ingestiblecapsules, food sachets, detergent capsules and packaging materials. During 2004,Stanelco developed a product which applied its RF sealing platform to thewelding of recyclable plastic mono materials for tray lidding and thermoforming,specifically in the food packaging area. This process was trademarked asGREENSEAL. Stanelco commenced fullscale commercial pack-house trials with asupplier to ASDA in November 2004, with the expectation from the Board that asuccessful conclusion to these trials would result in ASDA introducing the highintegrity sealing of microwaveable food trays into other parts of its supplierbase. A placing of 38 million Ordinary Shares raised £4.7m after expenses in February2005 to fund this new technology towards achieving commercialisation ofGREENSEAL. Following some successful initial in-house trials an exclusiveagreement was signed in March 2005 with ASDA, commencing in July 2005, whichgave an option for a year on the introduction of the GREENSEAL technology intothe manufacturing process of their suppliers. Similar discussions followed withASDA's parent company, Wal-Mart, in the US. In June 2005, the Group announced that it had agreed to supply its GREENSEALtechnology to Hitchen Foods for the first of up to four machines for use intheir ASDA salad production area, subject to successful trials. Discussions took place with a number of equipment manufacturers with regard tothe roll out of the Group's tray lidding technology. Stanelco announced it hadsigned non-binding heads of terms with Reiser for the use of RF sealingtechnology in Reiser's tray lidding machines in the USA and Canada. An annuallicence fee would be agreed for each machine. This agreement is currently onhold pending the outcome of ongoing discussions with potential customers. In June 2005, the Group acquired Biotec from EKI, providing the Group withadditional expertise in biodegradable materials and a considerable intellectualproperty portfolio, including many patents. A placing of 44 million OrdinaryShares in Stanelco, raising £9m, took place primarily to fund this acquisition.Shortly following the acquisition of Biotec, Stanelco entered into a jointventure by selling on 50 per cent. of Biotec to SPhere, a European manufacturerof household packaging products. In September 2005, an agreement with Carclo plc was announced under which theGroup developed a hard shell capsule which was ready for submission forregulatory approval and an announcement was also made of an agreement withElwood Packaging Inc. under which Elwood had entered into an exclusive agreementto manufacture Aquasol's FrogPack product in the US. In October 2005, the Group took the strategic decision to seek buyers for itstwo patents relating to biodegradable starch based cigarette filters, which itconsidered non-core to the business. By February 2006, full FDA approval for Starpol 2000 had been received and inMay 2006 FDA approval for WRAP 100 was also received. During February 2006,Stanelco also announced its involvement in Wal-Mart's Packaging SustainableValue Network. In June 2006, Stanelco raised a further £3.7m (net of expenses) by way of anequity placing to use as working capital and to meet a stage payment for theBiotec Acquisition and in July 2006, the Group announced that it was consideringits funding requirements and funding options for the next phase of itsdevelopment. In February 2006, the litigation which related to a dispute over patents onmethods for dialectric welding of materials with BioProgress plc was concluded,enabling both parties to exploit the disputed patents on a non-exclusive basisas part of the settlement. Stanelco issued approximately 7.2 million OrdinaryShares to BioProgress plc and approximately 1.3 million Ordinary Shares toIsracaps to release exclusivity clauses under a licence agreement associatedwith the patents. Overview of the current business The Stanelco Group comprises a number of autonomously managed businesses whichown and develop specialist technologies for use in the packaging industry. TheGroup's philosophy is that new products and processes must offer solutions andapplications which provide added value and environmental benefits and which aregreener and more environmentally sustainable than those that they replace.Stanelco's major businesses are set out below: Biotec Biotec is a subsidiary jointly-owned in equal shares with SPhere, a Europeanmanufacturer of household packaging products. Biotec is considered to be anestablished exponent of starch technology and has developed a number of productsthat represent an effective biodegradable alternative to plastics. It owns thepatents associated with the technology it has developed and is based inEmmerich, Germany. Under Stanelco's trade names Biotec's range of productsincludes: - Starpol 2000 - a plasticiser-free, biodegradable thermoplasticmaterial, which has been approved for food contact in the US and the EU. Starpol2000 is currently selling in the US and Europe for applications including foodtrays and food packaging. - Starpol 3000 - a family of multilayered thermoplastic materials withup to 100 per cent. biodegradability and sustainability. Starpol 3000 materialscan combine the properties of different biodegradable materials to give higherfunctionality and competitive overall cost. Formulations of Starpol 3000materials also provide gas and moisture barriers required for MAP matchingindustry standards. The product has completed initial stages of development andfood contact approval is being sought. - WRAP 100 - a biodegradable plasticiser-free thermoplastic materialwith paper-like properties that inhibit the passing of oil through it, whilstpermitting water vapour to permeate out. The product has been approved by theFDA in the US for food contact and is currently undergoing trials with a majorfast food company. - Starpol NS - a blend of plasticiser-free thermoplastic starch withbiodegradable aromatic/aliphatic or aliphatic co-polyesters suitable for a rangeof applications and in particular for those involving relatively thin, strongfilms. - TPS - a thermoplastic starch, biodegradable and compostible. Biotec's main customer is currently SPhere, whose orders account forapproximately 80 per cent. of all production. RF GREENSEAL RF GREENSEAL sealing technology is an application of RF which seals plastic andbiodegradable containers using RF energy. The technology is aimed at savingcosts for packaging companies by reducing waste and leakage, reducingelectricity usage and cutting staffing costs. Trials have been ongoing withseveral major packaging companies and a number of OEMs are closely monitoringthe progress of the trials and have expressed their interest in developingmachines incorporating GREENSEAL technology. Following initial trials in 2005 to prove the concepts, further trials have beenongoing to September 2006 to resolve various complexities to reaching a productfor commercialisation. Co-ordinating opportunities for prolonged trials withASDA's packaging processors have proved problematic. To overcome these, Stanelcohas had to obtain suitable equipment to which GREENSEAL can be fitted in advanceof full scale operation being possible. The exclusive agreement between ASDA and Stanelco for Stanelco's GREENSEALtechnology has been extended for another 12 months by verbal agreement as at 10August 2006. The exclusivity will be waived after the first machine has beeninstalled in an ASDA packaging supplier's factory. This will then allow Stanelcoto roll out GREENSEAL to non-exclusive ASDA sites. RF Traditional RF Traditional is a manufacturer and developer of high frequency thermalprocessing equipment and processes. This traditional business has given Stanelcoa presence, mainly in the UK, in markets such as mobile welders. Aquasol Aquasol invents and develops packaging applications and related products, with aparticular expertise in water soluble packaging. Once a product has beendeveloped and patented, Aquasol teams up with manufacturers and distributors tobring the product to market, subsequently receiving royalties from sales of theproducts. Aquasol's current product portfolio includes: - the packaging of Finish Quantum, Reckitt Benckiser's automaticdishwashing product; - FrogPack, a box designed to replace traditional packaging fortransporting delicate or valuable items that are vulnerable to damage intransit; - Pulsline, a security seal designed to reveal a personalised validationmessage; and - FrogMat, a biodegradable cushioning material which is subject tocontinuing product development. Royalty and commission agreements are in place for Finish Quantum with ReckittBenckiser, for FrogPack with Merlin Products and for Pulsline with BerkshireLabels. The FrogPack and Pulsline agreements are for the UK only. Adept Adept develops and manufactures a range of biodegradable plastics that combinewater soluble and non-toxic properties with much of the versatility andfunctionality of their traditional counterparts. Adept's products include sheet, film and bags, which either dissolve in water atpre-determined temperatures or compost naturally. Whilst stable in use, oncediscarded they will biodegrade without adverse environmental effect. Under apatent owned by Aquasol, under which Carclo plc has certain rights, Adept hasbeen involved in the development of a hard shell capsule, which is a starchbased polymer designed as a replacement for gelatine in the dietary andpharmaceutical markets. The capsules are currently being supplied by Carclo plcto a veterinary customer as a replacement for gelatine capsules in animal use.Development is ongoing for a number of versions for human ingestion, including aform of delayed release capsule. Discussions are being held between Stanelco andCarclo plc with regards to a joint development agreement. Other, non-core, activities of Stanelco include: Starch Filters Stanelco is in the process of manufacturing a number of sample starch basedcigarette filters, having invested in the appropriate equipment. Stanelco hasappointed advisers to seek suitable buyers for this technology and will becontinuing with their discussions once Stanelco has produced suitable samplefilters. InGel Project InGel is Stanelco's commercial application for RF technology in soft capsulewelding. The InGel project is not a current priority but the Board intend tocontinue development when sufficient resources become available. Group Strategy Since 2000, Stanelco's business model has transformed from a manufacturer andsupplier of capital goods into an intellectual property company, as can be seenby the acquisiton of Aquasol, with interests in markets with significant growthpotential, which include sustainable packaging and environmentally responsiblesealing solutions for the packaging industry. The next stage of development forthe Group is to convert its technology into a portfolio of commercially viableproducts. The Group will seek to generate revenue through licensing royalties and the saleof raw materials it has manufactured. Stanelco will continue to be run as a group of autonomous businesses overseen byMartin Wagner under the umbrella of the Stanelco Group, which continue to worktogether to achieve technology synergies and advance commercialisation. In July 2005, thirteen top grocery retailers demonstrated their commitment towaste minimisation by signing up to an agreement, known as the CourtauldCommitment. The aim is to reduce the amount of packaging and food waste that isthrown away by households in the UK. The retailers, who represent 92 per cent.of the UK grocery market, are ASDA, Boots, Budgens, The Co-operative Group,Londis, Iceland, Kwik Save, Marks & Spencer, Morrisons, Sainsbury's, Somerfield,Tesco and Waitrose. Over recent years, world opinion has advanced regarding energy consumption,biodegradeable products and sustainability. These factors have drivengovernments, major retailers and fast food chains to consider carefully theirrange of products. The retailers and fast food chains are reacting by movingaway from plastics into biodegradeable products. They have pledged their commitment at executive level to support the UKGovernment's 'Waste Resources Action Plan' in achieving its objectives whichare: - to design out packaging waste growth by 2008; - to deliver absolute reductions in packaging waste by March 2010; and - to identify ways to tackle the problem of food waste. ASDA's environmental policies are in line with its parent company, Wal-Mart's,strategy. In October 2005, Lee Scott, Wal-Mart's CEO declared the long-termenvironmental goals for the company: - to be supplied 100 per cent. by renewable energy; - to create zero waste; - to sell products that sustain our resources and our environment; - to help restore balance to climate systems; - to reduce greenhouse gas emissions; and - to reduce dependence on oil. With GREENSEAL, Stanelco has a product which reduces both packaging and foodwaste and its Starpol range of materials are made using sustainable materialsthat address all of the above aims and is not dependent on oil. The Board is aware of the need for registration and protection of theintellectual property around which the Group's core products are based. Part IVof the Prospectus will illustrate the depth of patent registration whichStanelco believes is key for maintaining the base of technology which it islooking to license and will protect intellectual property on thecommercialisation of the products, for example in its joint venture agreementsand licence agreements. The main focus of the Board's efforts to drive near term revenues reside with: Biotec - Biodegradable Materials The market for ridged and flexible plastic packaging is expected to grow fromUS$140 billion per annum in 2004 to a forecast of approximately US$190 billionper annum by 2009. With current oil prices and prevailing environmental concernsencouraging both the public and private sectors worldwide to look foralternatives to oil-based packaging materials the Board believe that Stanelcowill be able to offer solutions in this market. The interest in the number ofapplications offered by Stanelco's Starpol and WRAP products has beenencouraging. As part of the Wal-Mart Packaging Sustainable Value Network (the "Wal-Mart PSVN"), Stanelco has access to the Wal-Mart supply chain who have shownan interest in products such as meat trays, blister-packs and food film. TheWal-Mart PSVN is made up of a number of invited suppliers including suppliers ofglobal brands, leading global converters (tray makers etc.) and exponents of newand innovative technologies such as Stanelco. Membership of the Wal-Mart PSVNprovides Stanelco with the opportunity to network and build relationships withthese key suppliers. For the Biotec products to 'get to market' as quickly aspossible Stanelco intends to utilise available plant capacity at Biotec inGermany to manufacture resin which will be supplied to converters such as UZETWorld in the US. In order to move to the next level of high volume resin production to meet thedemands of global retailers and fast food companies as well as otheropportunities, the Directors believe it will be necessary to invest in plant andmachinery to manufacture resin, which is then supplied to joint venture partnersin the US, for use in their manufacturing plants. The Directors have identifiedsuitable joint venture partners and are in advanced negotiations with a numberof interested parties. Starpol 3000 is the next product from Biotec and is nearing completion. Thematerial is expected to provide barrier properties that are equal or better thantraditional non-biodegradable plastics. Biotec is a subsidiary of Stanelco jointly-owned in equal shares with SPhere.The intellectual property in Biotec's products is owned by Biotec and itssubsidiaries. Under the terms of the Joint Venture Agreement Stanelco and SPhereagreed that Biotec would manufacture all products to be manufactured pursuant toBiotec's IP and processes ("Biotec Materials"), but that the parties would beentitled to manufacture Biotec Materials themselves should the capacity of thejoint venture be insufficient to meet their respective needs. In such event,Stanelco has the exclusive right to manufacture Biotec Materials relating toMAP. Stanelco has developed various opportunities for the sale of Biotec products inthe US which require the building of micro-manufacturing facilities in the US.Stanelco intends to exploit these opportunities in accordance with theprovisions of the Joint Venture Agreement. As such, in the first instance theseopportunities would be available to Biotec to the extent that Biotec, with theagreement of Stanelco and SPhere, is willing and able to construct facilities inthe US to meet such demand. To the extent that Biotec is not able or willing tocreate sufficient capacity to meet this demand, Stanelco intends to do so itselfin accordance with the provisions of the Joint Venture Agreement. In order to exploit opportunities in the US relating to the manufacture ofBiotec Materials relating to MAP, it will be necessary for Stanelco to make useof Biotec's intellectual property. The Joint Venture Agreement does not,however, explicitly create a licence for Stanelco to use Biotec's intellectualproperty nor does it expressly provide for SPhere to co-operate with Stanelco inorder to procure that Biotec grants Stanelco the appropriate licence to useBiotec's intellectual property. Having taken confirmatory legal advice on theinterpretation of the Joint Venture Agreement (on the basis, inter alia, thatBiotec has insufficient capacity to meet Stanelco's requirements for BiotecMaterials relating to MAP, particularly in the US, that it is unable orunwilling to build the facilities in the US to meet such requirements and theparties have or will have unsuccessfully tried to find alternative solutions tominimise the impact on Biotec's business in accordance with the provisions ofthe Joint Venture Agreement), Stanelco believes that there is an implicitobligation on SPhere to co-operate with Stanelco to pass a shareholderresolution directing Biotec Holding GmbH to grant the appropriate licence toStanelco or to procure that the relevant Biotec entity does so. There is, however, a risk that in such event SPhere will not co-operate withStanelco in which case Stanelco would need to refer the matter to arbitrationunder the terms of the Joint Venture Agreement. In such event, there is also arisk that the arbitrator would find against Stanelco and would not oblige SPhereto co-operate in procuring that Biotec grants Stanelco the appropriate licence.In addition, unless and until such time as Stanelco obtains the appropriatelicence from Biotec, there is a risk that the relevant Biotec entity will seekto bring an action against Stanelco for infringement of its intellectualproperty rights and that the German courts will uphold any such action. GREENSEAL RF Sealing Technology The Board acknowledges that Stanelco has encountered delays in rolling outGREENSEAL to the market. The delays have primarily resulted from the limitedcapacity of the food packaging industry to facilitate the conversion ofmachines. The potential customers (namely, Hitchen Foods, Geest and Kanes Foods)and OEMs (namely Reiser and Multivac) are all co-operating with Stanelco toimplement the technology. A number of OEMs continue to monitor the progress ofthe tray lidding application trials closely and are expected to open discussionson offering the GREENSEAL technology on their machines to packaging companiesonce the retrofits are proven in the factory environment. The Directors believethis again illustrates Stanelco's ability to operate at each level of the supplychain to achieve the retailer's objectives. The Directors believe the cost benefit case presented to the packaging companiesclearly demonstrates that savings are achievable. The savings come mainly fromlower product wastage by reducing the number of rejections and packages thatleak as a result of poor sealing. Stanelco has extended GREENSEAL into vertical form fill machines, which areused, for example, for salad bags, sealed both horizontally and vertically. TheDirectors believe the wastage problem in this market is much greater than withthe tray lidding application and represents another significant opportunity forStanelco and that GREENSEAL in vertical form fill machines will, if adopted bythe market, significantly reduce food packaging wastage. The Directors believe that the GREENSEAL technology will be successfullycommercialised and it remains an important part of the Company's strategy.However, the Board anticipates the retrofit roll out will be slower thanoriginally anticipated mainly because each machine type may require differentengineering approaches. The long term strategy is to license the technology forOEMs to incorporate into their equipment. The historical Stanelco RF business continues in the UK and the Company isassessing the potential of expanding into overseas markets and in particular theUSA, where nuclear electricity generation exceeds that in the UK by more thanten-fold. Aquasol Aquasol has a strong track record, with three products currently commerciallyavailable, being FrogPack, Pulsline and technology for dishwasher capsules(Electrasol Gelpacs in the USA and Finish Quantum in Europe) currentlygenerating revenue for the Group under their various royalty and commissionagreements. The Directors are confident that Aquasol will continue to introducerevenue generating products. Management Structure To deliver the strategy, the key management structure and their remits will beas follows: Martin Wagner (Chief Executive Officer) Martin was Head of Packaging Development at ASDA where he spent five yearsheading up a number of different commercial teams delivering both significantsavings to the business and leading groundbreaking strategic initiatives.Martin's primary function within Stanelco is to set strategic direction andutilise an understanding of "retail routes to market" particularly in the USA.He is also responsible for ensuring organisational structure is in place todeliver profitable commercialisation for all Stanelco's technologies as well asdelivering executive level strategic commercial relationships. Clive Warner (Finance Director) Clive leads the corporate planning, budget and forecasting processes to ensurethat credible and achievable plans are created. He is responsible for enforcingstrong cost controls, for ensuring that all major expenditure is properlyevaluated, for managing the cash and treasury requirements of the business, andfor implementing a robust system for the collection of royalties. Clive is alsoresponsible for the management of IT and administration. Howard White (Executive Managing Director) Howard is responsible for developing major client relationships and exploringbusiness development opportunities nationally and internationally. Ian Balchin (Executive Vice Chairman) Ian is responsible for a number of key projects in the Group and chairsexecutive management meetings and three subsidiary boards, including Biotec. Robert Duggan (Company Secretary and Financial Controller) As Company Secretary, Robert is responsible for supporting and advising theBoard on regulatory and compliance matters. As Financial Controller he supportsthe Finance Director and the Management Team with financial reporting anddecision making and is responsible for the financial reporting of the Group. Harald Schmidt (Managing Director - Biotec) Harald is responsible for research and development of the biodegradable range ofproducts and the resin manufacturing facility at Emmerich. Mike Feast (Technical Director) Mike's primary function is to continue to lead the development (to includetechnical and sales support) in the areas of RF tray lidding, RF VFFS and RFTraditional. Mike is also responsible for ensuring the RF Traditional businessis rekindled wherever possible by outsourcing or licensing and for encouragingand supporting growth in this area, particularly in the US and Japanese markets. Bruce Drew (Managing Director - Aquasol) Bruce's main focus is to continue fostering development of new technologies, toutilise his understanding of and contacts in the pharmaceutical and medicalmarkets, focusing on licensing opportunities for the Aquasol portfolio. Bruce isalso responsible for supporting the protection of the Company's intellectualproperty portfolio. Graham Whitchurch (Managing Director - Group Commercialisation) Graham is responsible for matching the Group's intellectual property tocommercial markets. He also develops relationships within the UK and Europeanpackaging communities to ensure Stanelco has access to machinery and developmentpartners as required. Additionally, Graham supports Starpol and other resindevelopment within the US. Stanelco intends to incorporate into the structure a permanent Sales Directorand Programme Director to replace the two interim staff members currently inthese positions. The Sales Director will take global responsibility for allsales, including a US sales team. The Programme Director will manage all of theGroup's major projects including taking each GREENSEAL customer fromintroduction through to commercialisation. The management team, through the CEO, will report to the Board on a periodicbasis. The Board is responsible for setting the strategy and performance targetsof the Group and monitoring the performance. The Board is also responsible forthe financial management of the Group and regulatory compliance. FINANCIAL REVIEW, CURRENT TRADING AND PROSPECTS In the year to 31 October 2005, the Group's balance sheet was strengthened viafundraisings and the acquisition of Biotec with an increase in net assets of£12.8m and a cash inflow of £3.5m for the year. The accounts for the year showed a pre-tax loss for the Group of £3.2m on aturnover of £1.45m. Turnover was primarily related to sales of traditional RFequipment, the receipt of royalties from Aquasol products and two months ofsales of materials from Biotec which had been acquired in September 2005. Theoperating loss of £3.3m was principally due to substantial further investment inresearch and development and management involvement in procuring joint venturepartners and building the Group's capabilities to grow the business. Anadditional £0.7m charge in the year related to the settlement of the legaldispute with Bioprogress plc in regard to defence of patents. The Group's balance sheet was strengthened as funds were raised on two occasionsduring the year. In addition to obtaining funding in the form of a governmentgrant for a proposed facility in Wales, £14.3m of equity funding (net ofexpenses) was raised in order to continue the Group's investment in technology.£7.1m of this was utilised in relation to the first instalment of the purchaseof Biotec. A further investment of €1.5m was made in Biotec in order to fundexpansion of Biotec's research and production facilities. The Group announced its unaudited interim results for the six months to 30 April2006 on 14 July 2006. The Group announced it had increased revenue from £0.6m to£2.6m for the period ended 30 April 2006 compared to the corresponding periodlast year. The increase was due to inclusion of six months sales by Biotec whichhad not been acquired by the Group until the second half of the previousfinancial year. This compared favourably with full year sales of £1.45m for theyear to 31 October 2005. The Group made a loss of £2.3m for the six month periodcompared with £1m for the corresponding period last year. The Group started the period with a cash balance of £4.4m and made investmentsin research and development of £0.6m and increased its levels of stock from£2.6m at the year end to £3.1m. The Group also invested £1.2m in capitalexpenditure in the period. Closing cash was £0.3m at 30 April 2006. Since the half year end, the Group raised £3.7m (net of expenses) by way of anequity placing in June 2006, of which £1.6m was used to meet a stage payment forthe Biotec Acquisition and £2.1m was utilised as working capital. Of that £2.1m,£2m was used for the ongoing commercialisation of the Group's technologies andmeeting the Group's operational running expenses since 1 May 2006, and £0.1m wasused for capital expenditure. The Group also announced at the time of theinterim results that it was considering its funding requirements and fundingoptions for the next phase of its development. In a trading update on 17 August 2006, the Company estimated that its currentcash balance of £0.9m, together with projected receivables and working capitalneeds, was sufficient to meet its cash requirements for a further 3 months inthe absence of further funding or new revenue streams commencing in that period.It also stated that with a cash balance of £0.9m and an unused overdraftfacility of £0.2m that the Company was exploring all financing options includinga public equity issue. In a further trading update on 8 September 2006, the Company announced that thecosts involved in commercialising its portfolio of products had increasedrelative to those in the first half of the current financial year. As a result,the Company stated that it expected the loss for the six months to 31 October2006 moderately to exceed that of the first half. Since 30 April 2006, it has become clear that significant further funding isrequired to convert its technology into a portfolio of commercially viableproducts and, in addition, to meet its ongoing obligations, including furtherinstalments due under the terms of the acquisition agreement governing theBiotec Acquisition. The Group has an unused overdraft facility with BarclaysBank with a limit of £0.2m. The Board is concentrating on converting opportunities into commercial contractsand believe that the current management team bring expertise, energy andcommitment to meet these challenges. The Group has developed strong partnershipsand key relationships over the last two years and is confident that itsintellectual property portfolio will in time bring environmental benefits toboth the packaging industry and the consumer and as a result enhance shareholdervalue. However, in order to achieve its goals and ensure the commercial successof its product portfolio, the Group needs significant further investment. TheGroup is therefore proposing to raise the required funding by means of theIssue, details of which are set out below. The proceeds will provide the Group with the working capital to enablemanagement to convert opportunities into commercial contracts whilst allowingthe Group to meet its existing financial obligations. Specifically, funds raisedwill be used for the following: - to ensure successful completion by either Biotec, or in accordance withthe provisions of the Joint Venture Agreement, Stanelco of at least the firsttwo manufacturing facilities in the USA, which will cost approximately £2.8meach, for the production of starch-based resins, including Starpol materials,developed by Biotec; - to meet the final stage payment of £1.6m due in June 2007 to EKI forthe Biotec Acquisition; and - to provide further working capital for the Group to fund the next stageof commercial development of the Group's existing and new products and toprovide the Company with funds to back up any negotiations with customers andpartners. DETAILS OF THE ISSUE The Company is proposing to raise up to £15.8m (up to £14.4m net of expenses) byway of: - the Firm Placing in respect of 1,375,000,000 New Ordinary Shares atthe Issue Price; - the Placing in respect of 148,278,000 New Ordinary Shares at the IssuePrice; and - the Open Offer in respect of 600,992,559 New Ordinary Shares at theIssue Price to be offered to Qualifying Shareholders pursuant to the Open Offer.These New Ordinary Shares include the 148,278,000 New Ordinary Shares placedunder the Placing which are subject to clawback to satisfy valid applicationsfrom Qualifying Shareholders under the Open Offer. Under the terms of the Placing and Open Offer Agreement, Teather & Greenwood isnot underwriting the Placing and has agreed to use its reasonable endeavours toplace the Firm Placing Shares and the Placing Shares at the Issue Price. Subject to the fulfilment of the conditions below, Qualifying Shareholders arebeing given the opportunity to subscribe for the Open Offer Shares at the IssuePrice free from expenses, pro rata to their existing shareholdings, on the basisof: 3 Open Offer Shares for every 5 Existing Ordinary Shares held on the Record Date and so in proportion for any other number of ExistingOrdinary Shares then held. Entitlements to Open Offer Shares will be roundeddown to the nearest whole number of Open Offer Shares. Fractional entitlementswill not be allotted to Qualifying Shareholders but will be aggregated with theOpen Offer Shares attributable to Overseas Shareholders not eligible toparticipate in the Open Offer and included in the Placing, with such proceedsbeing retained for the benefit of the Company. Qualifying Shareholders may applyfor any whole number of Open Offer Shares up to their maximum entitlement which,in the case of Qualifying non-CREST Shareholders, is equal to the number of OpenOffer Shares as shown on their Application Form or, in the case of QualifyingCREST Shareholders, is equal to the number of Open Offer Entitlements standingto the credit of their stock account in CREST. No application in excess of aQualifying Shareholder's maximum entitlement will be met and any QualifyingShareholder so applying will be deemed to have applied for his or her maximumentitlement only. Qualifying Shareholders with holdings of Existing OrdinaryShares in both certificated and uncertificated form, or under different accountdesignations, will be treated as having separate holdings for the purposes ofcalculating their pro rata entitlements under the Open Offer. The New Ordinary Shares will rank pari passu in all respects with ExistingOrdinary Shares and assuming that the Issue is fully subscribed will representapproximately 66 per cent. of the Company's Enlarged Share Capital at Admission. If a Qualifying Shareholder does not take up his Open Offer Entitlement hisinterest will be diluted by 66 per cent. Furthermore, even if a QualifyingShareholder does take up his Open Offer Entitlement his interest will be dilutedby 46 per cent. Application will be made for the Open Offer Entitlements to be admitted toCREST. It is expected that the Open Offer Entitlements will be admitted to CRESTon 12 October 2006. The Open Offer Entitlements will also be enabled forsettlement in CREST on 12 October 2006. Applications through the CREST systemmay only be made by the Qualifying CREST Shareholder originally entitled or by aperson entitled by virtue of a legitimate market claim. Qualifying non-CREST Shareholders will receive an Application Form with theProspectus which sets out their maximum entitlement to Open Offer Shares asshown by the number of Open Offer Shares allocated to them. Qualifying CRESTShareholders will receive a credit to their appropriate stock accounts in CRESTin respect of their Open Offer Entitlements on 12 October 2006. The latest timeand date for payment in full under the Open Offer is 11.00 a.m. on 1 November2006. Applications will be made to the FSA and to the London Stock Exchange for theNew Ordinary Shares to be admitted to the Official List and to trading on theLondon Stock Exchange. Admission is expected to occur and dealings to commencein the New Ordinary Shares on 7 November 2006. The Issue is conditional, upon the following: (i) the passing of the Resolutions; (ii) the Placing and Open Offer Agreement becoming unconditional and nothaving been terminated in accordance with its terms; and (iii) Admission becoming effective on or before 8.00 a.m. on 7 November 2006(or such later date and/or time as the Company and Teather & Greenwood mayagree, being no later than 8.00 a.m. on 30 November 2006). If such conditions are not fulfilled or (where capable of waiver) waived on orbefore 8.00 a.m. on 7 November 2006 (or such later time and dates as Teather &Greenwood may, in its absolute discretion, elect being no later than 8.00 a.m.on 30 November 2006) application monies will be returned to applicants, withoutinterest, as soon as practicable thereafter and any Open Offer Entitlementsadmitted to CREST will be disabled. The Open Offer is not a rights issue. Qualifying CREST Shareholders should notethat although the Open Offer Entitlements will be admitted to CREST and beenabled for settlement, applications in respect of entitlements under the OpenOffer may only be made by the Qualifying CREST Shareholders originally entitledor by a person entitled by virtue of a legitimate market claim raised byCRESTCo's Claims Processing Unit. Qualifying non-CREST Shareholders should notethat the Application Form is not a negotiable document and cannot be traded.Qualifying Shareholders should also be aware that in the Open Offer, unlike in arights issue, any Open Offer Shares not applied for will not be sold in themarket or placed for the benefit of Qualifying Shareholders who do not applyunder the Open Offer, but will be placed under the Placing for the benefit ofthe Company at the Issue Price. For Qualifying non-CREST Shareholders, to be valid, Application Forms should becompleted and returned, accompanied by the appropriate remittance so as to reachCapita Registrars, Corporate Actions, The Registry, 34 Beckenham Road,Beckenham, Kent, BR3 4TU as soon as possible, but in any event by no later than11.00 a.m. on 1 November 2006. For Qualifying CREST Shareholders the relevantCREST instructions must have been settled as will be explained in the Prospectusby no later than 11.00 a.m. on 1 November 2006. It is expected the definitive documents of title in respect of the New OrdinaryShares, which will be in registered form, will be delivered in uncertificatedform in CREST by 7 November 2006 and in certificated form by 21 November 2006. Temporary documents of title will not be issued pending the despatch by post ofdefinitive certificates for the New Ordinary Shares (other than in respect ofthose shares held through CREST). Pending the despatch of definitivecertificates for the New Ordinary Shares (other than in respect of those sharesheld through CREST), transfers will be certified against the register held bythe Registrars. Further details of the Open Offer (including the conditions to which it issubject) are to be set out in Part II of the Prospectus and, where relevant, inthe Application Form accompanying the Prospectus. USE OF PROCEEDS The proceeds from the Issue will be used to move the business on from itsdevelopment and acquisition phases into the commercialisation phase of theintellectual property portfolio. The proceeds will provide the Group with theworking capital to enable management to convert opportunities into commercialcontracts whilst allowing the Group to meet its existing financial obligations.Specifically, funds raised will be used for the following: - to ensure successful completion by either Biotec, or in accordance withthe provisions of the Joint Venture Agreement, Stanelco of at least the firsttwo manufacturing facilities in the USA, which will cost approximately £2.8meach, for the production of starch-based resins, including Starpol materials,developed by Biotec; - to meet the final stage payment of £1.6m due in June 2007 to EKI forthe Biotec Acquisition; and - to provide further working capital for the Group to fund the next stageof commercial development of the Group's existing and new products and toprovide the Company with funds to back up any negotiations with customers andpartners. LONG TERM INCENTIVE PLAN ("LTIP") The Directors believe that it would be in the best interests of Shareholders toset up an LTIP to ensure that Martin Wagner and Clive Warner are appropriatelyrewarded if the Company achieves certain goals. The Company is thereforeintending to prepare such a scheme which it aims to put in place at the earliestpossible opportunity. A further announcement will be made by the Company at theappropriate time. OUTSTANDING OPTIONS Some of the Outstanding Options are not subject to a provision which would allowan adjustment to be made to the exercise price and/or the number of Shares overwhich such Outstanding Options have been granted to take into account the effectof the Issue. If an adjustment was not made in relation to such OutstandingOptions to take into account the effect of the Issue the option holdersconcerned would be prejudiced. In order to overcome this technical issue theDirectors are seeking Shareholders' authority pursuant to resolution number 5set out in the notice of EGM to enable them to make such adjustments to theOutstanding Options concerned. This would put the option holders in no betterposition than would have been the case had the Issue not occurred. CHANGE OF ACCOUNTING REFERENCE DATE The Company is changing its accounting reference date from 31 October to 31December. This will bring the Group's accounting period into line with Biotec'saccounting period. The Directors believe that the change of accounting referencedate is in the best interests of the Company as it will save on unnecessaryadditional auditing costs. The next report and accounts of the Company willtherefore be in respect of the 14 month period to 31 December 2006. DIVIDENDS The current objective of the Company is to obtain sufficient working capital toenable it to fund its goals as set out in the Prospectus. The ability of the Company to pay any dividend in the future (and the amount) isdependent on many factors including the outcome of its research and development,its future capital and research and development requirements and the financialposition generally of the Company at the time. Many of the factors that affectthe ability of the Company to pay dividends, and the timing of such dividends,will be outside the control of the Company. The Directors cannot give anyassurance regarding the payment of dividends in the future. EXTRAORDINARY GENERAL MEETING Set out at the end of the Prospectus will be a notice convening an ExtraordinaryGeneral Meeting of the Company to be held at the offices of Teather & GreenwoodLimited, Beaufort House, 15 St. Botolph Street, London, EC3A 7QR at 11.00 a.m.on 6 November 2006 at which the resolutions set out in the notice of EGM will beproposed: (i) to increase the authorised share capital of theCompany from £1.3m divided into 1,300,000,000 Ordinary Shares to £4m dividedinto 4,000,000,000 Ordinary Shares (an increase of approximately 208 per cent.of the authorised share capital of the Company as at the date of thisannouncement) by the creation of 2,700,000,000 Ordinary Shares. (ii) to authorise the Directors, pursuant to section 80 of theCompanies Act, to allot relevant securities up to a maximum aggregate nominalamount of £2,998,345.74, representing the following: - £1,975,992.56, being the nominal amount of the issued share capitalrequired for the Issue; - £296,165.78, being the nominal amount of the issued share capitalrequired for the commitments to share options and deferred consideration for theAquasol Agreement; and - £726,187.40 being the balance between the authorised but unissuedshare capital and the Enlarged Share Capital and commitments to share optionsand deferred consideration for the Aquasol Agreement and which represents 24.38%of the Enlarged Share Capital such authority to expire at the next annualgeneral meeting of the Company. (iii) subject to the resolutions at (i) and (ii) being passed, todisapply the statutory pre-emption rights contained in section 89 of theCompanies Act in relation to the allotment of equity securities for cash, forthe purposes of the Issue and otherwise up to an aggregate nominal amount of£148,882.34 (representing approximately 5 per cent. of the Enlarged ShareCapital and 14.86 per cent. of the Company's issued share capital on the date ofthis announcement), such authority to expire at the conclusion of the nextannual general meeting of the Company; (iv) to approve the Issue at the Issue Price which represents adiscount of approximately 16.67 per cent. to the middlemarket price of theExisting Ordinary Shares as at the time of the release of this announcement);and (v) to authorise the Directors to make certain adjustmentsto the Outstanding Options to take into account the effect of the Issue upon theOutstanding Options. The increase in share capital contemplated by the notice of EGM set out at theend of the Prospectus will leave the Company, following completion of the Issueand assuming full subscription under the Open Offer, with a balance ofauthorised but unissued share capital of £1.02m (representing 25.6 per cent. ofthe issued share capital as enlarged by the Issue). Your Directors believe thisis an appropriate level of authorised but unissued share capital to maintain following the Issue in orderto meet commitments to issue further shares pursuant to the Share Schemes andthe Aquasol Agreement. The authority under section 80 of the Companies Act is required to implement theIssue and to provide an appropriate level of authorised but unissued sharecapital following completion of the Issue in respect of which the Directors haveauthority to allot, subject always to the statutory rights of pre-emptioncontained in section 89 of the Companies Act. The authority under section 95 ofthe Companies Act is also required to implement the Issue and to provide limitedauthority to allot shares for cash thereafter otherwise than pro rata toShareholders. The Board has no present intention to use the authorities referred to above toissue any of the Company's share capital other than pursuant to the Issue or forthe issue of Ordinary Shares following the exercise of options pursuant to theShare Schemes. As the Issue Price represents a discount of more than 10 per cent. to themiddle-market price of the Existing Ordinary Shares at the time of the releaseof this announcement, the discount requires the approval of Shareholders. ACTION TO BE TAKEN In respect of the Extraordinary General Meeting You will find enclosed with the Prospectus a Form of Proxy for use at the EGM.Whether or not you propose to attend the EGM in person, you are asked tocomplete and return it to the Company's registrars, Capita Registrars, ProxyDepartment, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU inaccordance with the instructions printed thereon so as to arrive as soon aspossible, but in any event so as to arrive not later than 11.00 a.m. on 4November 2006. Completion and return of a Form of Proxy will not preclude aShareholder from attending and voting in person at the EGM. In respect of the Placing and Open Offer If you are a Qualifying non-CREST Shareholder you will find an Application Formaccompanying the Prospectus which gives details of your maximum entitlementunder the Open Offer (as shown by the number of Open Offer Entitlementsallocated to you). If you wish to apply for Open Offer Shares under the OpenOffer, you should complete the Application Form in accordance with the procedureto be set out in Part II of the Prospectus and on the Application Form itselfand post it in the accompanying prepaid envelope, together with any payment infull in respect of the number of Open Offer Shares applied for to CapitaRegistrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, KentBR3 4TU so as to arrive as soon as possible and in any event so as to bereceived no later than 11.00 a.m. on 1 November 2006 having first read carefullythe letter from Teather and Greenwood in Part II of the Prospectus and thecontents of the Application Form. If you are a Qualifying CREST Shareholder no Application Form will be enclosedwith the Prospectus and you will receive a credit to your appropriate stockaccount in CREST in respect of the Open Offer Entitlements representing yourmaximum entitlement under the Open Offer. You should refer to the procedure tobe set out in Part II of the Prospectus. The latest time for applications under the Open Offer to be received is 11.00a.m. on 1 November 2006. The procedure for application and payment depends onwhether, at the time at which application and payment is made, you have anApplication Form in respect of your entitlement under the Open Offer or haveOpen Offer Entitlements credited to your stock account in CREST in respect ofsuch entitlement. The procedures for application and payment will be set out inPart II of the Prospectus. Further details also appear on the Application Formswhich have been sent to Qualifying non-CREST Shareholders. Qualifying CRESTShareholders who are CREST sponsored members should refer to their CRESTsponsors regarding the action to be taken in connection with the Prospectus andthe Open Offer. IRREVOCABLE UNDERTAKINGS Irrevocable undertakings to vote in favour of the Resolutions have currentlybeen received by Stanelco in respect of a total of 6,217,083 Ordinary Shares,representing approximately 0.63 per cent. of Stanelco's issued share capital. OVERSEAS SHAREHOLDERS The attention of Shareholders who are citizens or residents of countries otherthan the United Kingdom or have a registered address outside the United Kingdomis drawn to the information set out in the Overseas Shareholders section of theletter from Teather & Greenwood in Part II of the Prospectus. Such Shareholdersmust satisfy themselves as to the laws applicable to them and ensure theirobservance thereof. ADDITIONAL INFORMATION Shareholders should be aware that if the Resolutions to be proposed at the EGMare not passed and Admission does not take place, the net proceeds of the Issuewill not be received by the Company. If Admission does not take place, theCompany's cash requirements would be likely to exceed the amount available underits existing overdraft facility with Barclays Bank by the end of November 2006and, in any event, this facility would be subject to immediate review andpotential withdrawal. The Board considers that, in this scenario they would seek to agree newfacilities with an appropriate lender and/or seek alternative means of funding.However, the Board believes that any such facilities or loans, on the assumptionthat such facilities or loans could be agreed, would be on significantlyrestrictive terms and may necessitate the Group undertaking to effect certainactions and grant certain rights to the lenders. In these circumstances, theBoard believes that the Group would not be able to continue the development ofits intellectual property portfolio to commercialisation in a manner in whichwould allow the Group to retain all of its key staff and intellectual propertyrights. The Board consequently believes that any such arrangements would not bein the best interests of the Shareholders. In addition, under the terms of the current funding granted to the Company,certain lenders have the right to demand immediate repayment of outstandingamounts of £0.9m due by the end of November 2006, which the Company would not bein a position to repay. Unless funds are received pursuant to the Issue orunless the Company obtains further funding, there is a material risk that theCompany will not be able to meet its debts as they fall due and will becomeinsolvent. RECOMMENDATION Your Board, which has been so advised by Teather & Greenwood, considers theIssue and approval of the Resolutions to be in the best interests of the Companyand its Shareholders as a whole. In providing advice to the Board, Teather &Greenwood has relied on the Directors' commercial assessment of the Issue. Accordingly, your Board recommends that Shareholders vote in favour of theResolutions as they intend to do in respect of their own respective beneficialholdings which in aggregate amount to 6,217,083 Ordinary Shares (representing0.63 per cent. of the existing issued ordinary share capital of the Company). EXPECTED TIMETABLE 2006 Record Date for the Open Offer close of dealings on 6 October Prospectus and Application Forms despatched 11 October Open Offer Entitlements credited to CREST stock accounts of 12 OctoberQualifying CREST Shareholders Recommended latest time for requesting withdrawal of Open Offer 4.30 p.m. on 25 OctoberEntitlements from CREST Latest time for depositing Open Offer Entitlements into CREST 3.00 p.m. on 27 October Latest time and date for splitting Application Forms (to satisfy bona 3.00 p.m. on 30 Octoberfide market claims) Latest time and date for receipt of completed Application Forms and 11.00am on 1 Novemberpayment in full under the Open Offer or settlement of relevant CRESTInstruction (as appropriate) Latest time and date for receipt of completed Forms of Proxy 11.00am on 4 November Extraordinary General Meeting 11.00am on 6 November Admission and commencement of dealings in the New Ordinary Shares 7 November Expected date for crediting of New Ordinary Shares to CREST stock 7 Novemberaccounts in uncertificated form Expected date of despatch of definitive certificates for New Ordinary by 21 NovemberShares in certificated form DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: "Adept" Adept Polymers Limited, a company registered in England and Wales under number 04590414 and a wholly owned subsidiary of the Company "Admission" admission to listing together with admission to trading "Admission Standards" the Admission and Disclosure Standards issued by the London Stock Exchange "admission to listing" the admission of the New Ordinary Shares to the Official List becoming effective in accordance with the Listing Rules "admission to trading" the admission of the New Ordinary Shares to trading on the London Stock Exchange's market for listed securities becoming effective in accordance with the Admission Standards "Application Form" the application form issued to Qualifying non-CREST Shareholders in connection with the Open Offer "Aquasol" Aquasol Limited, a company registered in England and Wales under number 02765778, and a wholly owned subsidiary of the Company "Aquasol Agreement" the sale and purchase agreement dated 3 June 2004 whereby the Company agreed to purchase the entire issued share capital of Aquasol "ASDA" ASDA Stores Limited "Biotec" Biotec Holding GmbH "Biotec Acquisition" the acquisition of Biotec pursuant to the acquisition agreement dated 4 June 2005 "Board" or "Directors" the board of directors of the Company whose names are to be set out in Part I of the Prospectus "Capita Registrars" a trading division of Capita IRG Plc "Cardinal Health" Cardinal Health 409, Inc. "certificated" or "in certificated form an Ordinary Share which is not in uncertificated form (that is," not in CREST) "Companies Act" the Companies Act 1985, as amended "Company" or "Stanelco" Stanelco plc, a public limited company registered in England and Wales with Company number 01873702 "CREST" the relevant system (as defined in the CREST Regulations) to facilitate the transfer of title to shares in uncertificated form in respect of which CRESTCo Limited is the Operator (as defined in the CREST Regulations) "CRESTCo Limited" CRESTCo Limited, the operator of CREST "CREST Regulations" the Uncertificated Securities Regulations 2001(SI 2001/3755) as amended from time to timeor "Regulations" "EBT" the Stanelco plc Employee Benefit Trust "EKI" E. Kashoggi Industries LLC "EMI" the Stanelco plc Enterprise Management Incentive Scheme and all outstanding options granted by the Company under stand alone enterprise management incentive option agreements entered into either before, on or after the adoption by the Company of the Stanelco plc Enterprise Management Incentive Scheme "Enlarged Share Capital" the issued share capital of the Company, as enlarged by the allotment and issue of the New Ordinary Shares (assuming full subscription under the Open Offer) "EU" the European Union "Existing Ordinary Shares" the 1,001,654,265 Ordinary Shares in issue at the date of the Prospectus "Extraordinary General Meeting" or "EGM the extraordinary general meeting of the Company (or any" adjournment thereof) to be held at 11.00 a.m. on 6 November 2006, notice of which will be set out at the end of the Prospectus "Firm Placing" the conditional placing by Teather & Greenwood of the Firm Placing Shares on behalf of the Company pursuant to the Placing and Open Offer Agreement "Firm Placing Shares" the 1,375,000,000 New Ordinary Shares which have been conditionally subscribed for by institutions and certain other investors which are not subject to any clawback to satisfy valid applications from Qualifying Shareholders under the Open Offer "Form of Proxy" the form of proxy to accompany the Prospectus for use by Shareholders at the EGM "FSA" Financial Services Authority of the United Kingdom "FSMA" the Financial Services and Markets Act 2000, as amended, including any regulations made pursuant thereto "Group" or the "Stanelco Group" the Company and its subsidiaries from time to time "Issue" the Firm Placing, Placing and Open Offer "Issue Price" 0.8 pence per New Ordinary Share "Joint Venture Agreement" the joint venture agreement dated 1 September 2005 between SP Metal S.A. (now SPhere) and the Company, relating to Biotec "Listing Rules" the rules for listing issued by the UKLA "London Stock Exchange" London Stock Exchange plc "Management Committee" the Group's management committee comprising of Martin Wagner, Clive Warner, Ian Balchin, Howard White, Graham Whitchurch, Robert Duggan, Mike Feast, Bruce Drew and Harald Schmidt "New Ordinary Shares" up to 1,975,992,559 Ordinary Shares to be issued pursuant to the Issue "Official List" the Official List of the UKLA "Open Offer" the conditional invitation to Qualifying Shareholders, on the terms and subject to the conditions to be set out in Part II of the Prospectus and, where relevant, in the Application Form, to subscribe for Open Offer Shares at the Issue Price "Open Offer Entitlements" an entitlement to subscribe for Open Offer Shares, allocated to a Qualifying Shareholder pursuant to the Open Offer "Open Offer Shares" the 600,992,559 New Ordinary Shares which are the subject of the Open Offer "Ordinary Shares" ordinary shares of 0.1 pence each in the capital of the Company "Outstanding Options" any option to acquire ordinary shares in the capital of the Company which subsists and was granted pursuant to the Share Schemes "Overseas Shareholders" the holders of Ordinary Shares who are resident in, or citizens of, or which are corporations, partnerships or other entities created or organised under laws of countries outside the United Kingdom "Placees" the various institutions which have conditionally agreed to subscribe for Open Offer Shares at the Issue Price subject to the rights of Qualifying Shareholders pursuant to the Open Offer "Placing" the conditional placing by Teather & Greenwood at the Issue Price of the Placing Shares pursuant to the terms and conditions of the Placing and Open Offer Agreement subject to clawback to satisfy valid applications from Qualifying Shareholders under the Open Offer "Placing and Open Offer Agreement" the conditional agreement dated 6 October 2006 between (1) the Company (2) Teather & Greenwood and (3) the Directors relating to the Issue, details of which are to be set out in Part V of the Prospectus "Placing Shares" the 148,278,000 New Ordinary Shares which are subject to clawback to satisfy valid applications from Qualifying Shareholders under the Open Offer "Prospectus" the document to be published by the Company to be dated on or around 11 October 2006, and to be posted to Shareholders as soon as practicable thereafter "Prospectus Rules" the Prospectus Rules issued by the FSA "Qualifying CREST Shareholders" Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are in uncertificated form "Qualifying non-CREST Shareholders" Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are in certificated form "Qualifying Shareholders" holders of Existing Ordinary Shares on the register of members of the Company on the Record Date (other than Overseas Shareholders) "Receiving Agents" Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU "Record Date" the record date for the Open Offer, being the close of business on 6 October 2006 "Registrars" Capita Registrars "Reiser" Robert Reiser & Co., Inc. "Resolutions" the resolutions to be proposed at the EGM, as set out in the notice of EGM to be included at the end of the Prospectus "RF Traditional" the traditional RF equipment such as mobile welders for sealing contaminated waste and RF furnaces for the production of optical fibre "Shareholders" holders of Ordinary Shares "Share Option Plan" the Stanelco plc 2005 Unapproved Share Option Plan "Share Schemes" the EMI, the Share Option Plan, the EBT and the Stand Alone Unapproved Share Option Schemes "SPhere" SPhere S.A., formerly known as S.P. Metal S.A., a company with which Stanelco jointly owns Biotec in equal share under the Joint Venture Agreement, whose registered office is 3 Rue Scheffer, Paris, France "Stand Alone Unapproved Share Option the share option agreements between the Company and each ofSchemes" Graham Whitchurch, Terry Robins, Barrie Hozier and Audrey Shepherd "Teather & Greenwood" Teather & Greenwood Limited which is authorised and regulated by the FSA "UKLA" the FSA acting in its capacity as the competent authority for the purposes of Part VI of FSMA "uncertificated" or recorded on the Company's register as an Ordinary Share being held in uncertificated form in CREST and title to which, by"in uncertificated form" virtue of the CREST Regulations, may be transferred by means of CREST "United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland "United States" or "US" or "USA" the United States of America, its territories and possessions, any state of the United States and the District of Columbia "US Securities Act" US Securities Act of 1933, as amended GLOSSARY The following glossary terms apply throughout this announcement unless thecontext requires otherwise: "biodegradable" a material that will degrade without additives "compostable" a material that meets regulatory requirements to degrade within 180 days in an industrial compost environment "converters" operators in the supply chain who convert resin into products, such as food trays, wraps, cups etc. "FDA" the Food and Drug Administration, a US agency responsible for regulation of biotechnology food products "MAP" modified atmosphere packaging, which enables a product's shelf-life to be extended "OEM" original equipment manufacturer "plasticiser" any of various substances added to plastics or other materials to make or keep them soft or pliable "PVC" poly vinyl chloride, a plastic material "RF" radio frequency, the application of a rapidly fluctuating electric field, which can be applied to the heating of materials by agitating the molecules "sustainable" a material which has been made using only renewable resources "thermoforming" the formation of containers by means of heat and vacuum "thermoplastic" a type of plastic that will repeatedly soften when heated and harden when cooled. The plastic can be moulded and shaped when heated, and will then keep its shape when cooled "tray lidding" the sealing of a film lid on food containers "VFFS" vertical form fill and seal, the process of forming bags, filling them with produce and sealing them (e.g. bags of salad) This information is provided by RNS The company news service from the London Stock Exchange