Surface Transforms Regulatory News (SCE)

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Surface Transforms plc

Publication of Shareholder Circular and Open Offer

Introduction

Surface Transforms plc ("Surface Transforms or the Company") today announces that it has conditionally placed 6,317,000 new ordinary shares ("Placing Shares") of 1p each ("Ordinary Shares") at a price of 17p per share thereby raising gross proceeds of £1.074 million (the "Placing").

In order to provide shareholders who have not taken part in the Placing with an opportunity to invest in the Company, the Company is providing all qualifying shareholders with the opportunity to subscribe, also at 17p per share, for an aggregate of 3,043,416 new Ordinary Shares ("Open Offer Shares") on the basis of 1 new Ordinary Share for every 8 existing Ordinary Shares held. Shareholders are being offered the opportunity to apply for additional Open Offer Shares in excess of their pro rata entitlements to the extent that other shareholders do not take up their entitlements in full. In the event that applications are received for in excess of 3,043,416 Open Offer Shares, excess applications will be scaled back pro rata to existing shareholdings.

Reasons for the Placing and Open Offer

As announced in the Company's Final Results on 16 August 2010, the challenges and opportunities now facing management have begun to move away from technology based issues to operating matters relating to the management of product supply and working capital to manage the expected growth of the business.

The Company currently has a number of significant commercial opportunities in two of its four primary markets, namely (1) automotive brakes and clutches; and (2) aircraft brakes; and it is in various, advanced stages of negotiating development and supply agreements with major companies who operate in both of these markets. Within the automotive market, there are three global brake system suppliers who currently purchase the Company's ceramic brake and clutch discs and they have each commenced negotiations with Surface Transforms to increase supply volumes for the forthcoming year.

As announced on 4 October 2010, the Company has entered into a development agreement, which may lead to a supply agreement, with a major USA based manufacturer of aircraft wheels and brakes which represents a significant landmark in the development work that Surface Transforms has performed over the past two years.

To meet the expected growth in demand for brake and clutch discs over the forthcoming year, the Company will need to increase capacity by outsourcing some production. Outsourcing is both relatively expensive and slower than in-house production, and so the Company wants to commence a programme to increase its in-house production capacity by investing in additional plant and equipment for installation at the Ellesmere Port factory. This proposed capital expenditure programme will not only significantly increase in-house production capacity but will also reduce the direct cost of manufacturing carbon ceramic discs.

The proceeds of the Placing and Open Offer, which should total up to approximately £1.5 million after expenses (on the assumption that the Open Offer is taken up in full by Qualifying Shareholders), will allow the Company to make the necessary capital investments to continue to significantly expand in house production capacity as described above, but also to develop the knowledge and capability to build 'clonable' 10,000 disc capacity plants alongside dedicated customers and provide additional working capital to support the expected growth of the business.

Other details of the Placing and Open Offer

The record date for entitlement under the Open Offer is the close of business on 2 November 2010 and the ex-entitlement date of the Open Offer is 3 November 2010. The latest time and date for receipt of completed application forms and payment in full under the Open Offer and settlement of relevant CREST instructions (as appropriate) is 11.00 a.m. on 23 November 2010.

The Open Offer Shares have not been placed subject to clawback nor have they been underwritten. Consequently, there may be none or fewer than 3,043,416 new Ordinary Shares issued pursuant to the Open Offer.

Both the Placing and Open Offer are conditional upon, amongst other things, the approval by shareholders of the resolutions at the General Meeting of the Company on 25 November 2010 and upon the placing agreement becoming unconditional in all respects.

Kenneth Baker and Kevin D'Silva, both directors of the Company, together with a member of the senior management team have participated in the Placing and in total, have invested approximately £8,000 of the total £1.074m Placing proceeds.

The Directors believe that the Placing Shares and Open Offer Shares should be eligible (subject to the circumstances of investors) for tax reliefs under the Enterprise Investment Scheme ("EIS") and for investment by Venture Capital Trusts ("VCT"). Prior to a previous issue of shares on 12 July 2007, the Company obtained advance assurance from Her Majesty's Revenue and Customs that shares in the Company represented a qualifying investment for a VCT and were capable of qualifying for EIS tax reliefs. The Directors are not aware of any change in the qualifying conditions or the Company's circumstances that would prevent the Placing Shares and Open Offer Shares from being eligible VCT and EIS investments on this occasion.

Copies of the Circular will be available at the Company's registered office and principal place of business at Surface Transforms plc, Unit 4 Olympic Park, Poole Hall Road, Ellesmere Port, South Wirral, Merseyside CH66 1ST and at the offices of HBJ Gateley Wareing, Ship Canal House, 98 King Street, Manchester, M2 4WU up to and including the date of Admission and on Surface Transforms' website at www.surface-transforms.com.

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