Xeros Tech Regulatory News (XSG)

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12 November 2015

Xeros Technology Group plc

Proposed placing of new Ordinary Shares at a price of 225p per share to raise approximately £40 million

Xeros Technology Group plc (AIM: XSG), the innovative developer of patented polymer bead systems with multiple identified commercial applications, intends to raise gross proceeds of approximately £40 million, pursuant to a placing of new Ordinary Shares in the Company at a price of 225p per Placing Share with both new and existing institutional investors.

Highlights

· It is proposed that the Placing will raise approximately £40 million.

· Subject to Shareholder approval and completion, funds raised will enable the Group to maintain momentum seen since IPO over approximately the next two and a half years as it seeks:

o to accelerate Xeros' roll out strategy of the Commercial Laundry business in the Americas and Europe;

o to continue its development of technologies for the domestic laundry and leather processing markets; and

o to increase the scope and scale of its polymer science and engineering platforms in order to capitalise on additional opportunities to apply its polymer bead innovations.

The Group has also published results for the year ended 31 July 2015. These highlight the significant progress made in Xeros' Commercial Laundry business and the growing evidence that the Group's polymer bead science is a platform technology with multiple applications in scale markets (see separate statement).

A circular will be sent to shareholders on 12 November 2015, appending a notice of general meeting.

Enquiries:

Xeros Technology Group plc Via Instinctif Partners

Mark Nichols, Chief Executive

Chris Hanson, Chief Financial Officer

Jefferies International Limited (Nomad, broker and bookrunner) Tel: 020 7029 8000

Simon Hardy / Harry Nicholas / Lee Morton

Instinctif Partners (Financial PR) Tel: 020 7457 2020

Adrian Duffield / Helen Tarbet / James Gray

Information on the Company

XSG has developed a number of patented polymer bead systems for use in a range of commercial applications. The Group first targeted the commercial laundry market and has been supplying customers with 25kg (55lb) washing machines, employing XSG's patented polymer bead cleaning system, and long term service agreements, primarily in the US but also the UK and, more recently, in other countries.

In the commercial laundry market, the Xeros system has been shown to deliver superior cleaning performance whilst simultaneously achieving material reductions in water, energy, chemical usage and carbon footprint when compared to conventional laundry processes. Seven of the top ten largest hotel chains are now customers as are businesses in both the industrial and retail laundry industries.

In addition to the commercial laundry market, XSG's polymer bead technology has a range of further potential applications in other industries, which are currently in various stages of development, and the most advanced of which are in leather processing and domestic laundry.

The Company's ordinary shares were admitted to trading on AIM on 25 March 2014, at which point the Company also raised £27.6 million of gross proceeds via the issue of new ordinary shares to investors. On 14 September 2015, Mark Nichols was appointed CEO and Bill Westwater left the Company. Mark has more than 20 years' experience of senior business development, operational and financial roles in both large multi-national businesses and technology start-ups in the chemical, energy and infrastructure sectors. He spent 18 years with The BOC Group plc, including three years as CEO of the East Asia division before becoming BOC's Group Director of Strategy and Business Development. Following completion of the Placing, XSG will be granting options over 1,000,000 Ordinary Shares at the Placing Price to Mark under the terms of XSG's existing share option schemes.

Details of the Placing

Xeros announces its intention to raise gross proceeds of approximately £40 million pursuant to a placing of new Ordinary Shares in the Company at a price of 225p per Placing Share with both new and existing institutional investors. The Placing will enable the Company to maintain the momentum seen since the Company's IPO in March 2014 over approximately the next two and half years as it seeks to build on its progress within the Commercial Laundry business as well as to capitalise on opportunities for XSG's polymer bead innovation in other applications, including in the leather processing and domestic laundry markets.

The Placing has been conducted through a bookbuilding process carried out by Jefferies. Jefferies is acting as the sole bookrunner in connection with the Placing. 17,777,778 Placing Shares shall be allotted and issued pursuant to the Placing.

Participation in the Placing has been limited to institutional investors. Members of the general public have not been eligible to take part in the Placing.

For the Placing of 17,777,778 new Ordinary Shares to proceed, the Company requires shareholders' approval to authorise the directors to allot the Placing Shares and to disapply pre-emption rights in relation to the issue of the Placing Shares on a non pre-emptive basis. A general meeting of the Company is expected to be held at the offices of Squire Patton Boggs (UK) LLP at 7 Devonshire Square, London EC2M 4YH at 10.00 a.m. on 30 November 2015. A Circular containing details of the proposed Placing and the notice of the General Meeting will be sent to shareholders shortly.

The Directors have irrevocably undertaken to vote in favour of the Resolutions in respect of their own beneficial holdings amounting to 1,798,965 Ordinary Shares representing approximately 2.7 per cent. of the existing issued ordinary share capital of the Company.

In addition to the Directors, certain other Shareholders have undertaken to vote in favour of the Resolutions in respect of the Ordinary Shares in which they are interested, amounting, in aggregate to 47,634,379 Ordinary Shares (of which the undertakings in respect of 30,014,014 Ordinary Shares have been given irrevocably), representing 72.6 per cent. (45.7 per cent. in respect of the irrevocable undertakings) of the existing issued ordinary share capital of the Company.

In the event that the Resolutions are not passed, the Company, in consultation with Jefferies, may elect to proceed with the Placing of a smaller number of Ordinary Shares on the basis of the authority to allot Ordinary Shares and disapplication of pre-emption rights granted at the last annual general meeting of the Company.

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that, subject to, inter alia, the passing of the Resolutions at the General Meeting, admission to AIM will become effective in respect of, and that dealings on AIM will commence in, the Placing Shares, on or around 1 December 2015.

The Placing is conditional upon, amongst other things, the Resolutions being passed, the Admission becoming effective and the Placing Agreement between the Company and Jefferies becoming unconditional and not being terminated, in accordance with its terms.

Subject to approval at the General Meeting, following the issue of the Placing Shares, the Company will have 83,403,990 Ordinary Shares in issue.

The Placing Shares have been conditionally placed with new and existing shareholders, including the following director of the Company:

RELATED PARTY TRANSACTION

Invesco Asset Management Limited ("Invesco") is a substantial Shareholder in XSG, holding in aggregate 17,620,365 Ordinary Shares of the Company, representing 26.9% of the Existing issued ordinary share capital of the Company and, consequently, Invesco is considered to be a related party of the Company pursuant to Rule 13 of the AIM Rules.

Invesco is subscribing for 4,758,225 Placing Shares on behalf of its clients at the Placing Price, representing 26.8 per cent. of the Placing. This subscription by Invesco constitutes a Related Party Transaction for the purposes of the AIM Rules.

The Directors, consider, having consulted with the Company's nominated adviser, Jefferies, that the terms of Invesco Asset Management Limited's participation in the Placing are fair and reasonable insofar as the Company's Shareholders are concerned.

[1] acting as agent for and on behalf of its discretionary managed clients.

The Appendix to this announcement (which forms part of this announcement) sets out the terms and conditions of the Placing. By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, institutional investors will be deemed to have read and understood this announcement in its entirety, including the Appendix, and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in the Appendix to this announcement.

background to and reasons for the placing

The Directors are of the view, given the opportunities available to the Group and its limited current cash resources, that this is the appropriate time for the Company to request shareholder approval in order to raise further funds through the Placing. The Placing will enable the Company to maintain the momentum seen since the Company's IPO in March 2014 over, approximately, the next two and half years as it seeks to build on its progress within the Commercial Laundry business as well as to capitalise on opportunities for XSG's polymer bead innovation in other applications, including in the leather processing and domestic laundry markets.

Use of Proceeds

As at 30 September 2015, the Company had existing cash resources of £14.9 million, which together with the gross proceeds of the Placing would result in a pro forma cash balance of £54.9 million.

The Company currently envisages applying its pro forma cash resources in the following areas:

Commercial laundry

- to fund the working capital required to successfully meet the growing demand for machine installations in the Americas and Europe;

- to invest in the design and procurement of new machine sizes to extend XSG's addressable market and to design and deliver product and service enhancements that accelerate the growth of the installed base; and

- to invest in Commercial Laundry to enable the business to address new segments of the commercial laundry market and additional international markets.

Domestic laundry

- to fund the continued development of prototypes initially to meet US market needs;

- to develop bead solutions and detergents suitable for the domestic market; and

- to provide the financial strength to support continued discussions with potential machine and detergent partners.

Leather processing

- to provide resources as XSG continues the JDA with LANXESS towards commercialisation;

- to enable delivery of accelerated deployment; and

- to enable XSG to expand its management and engineering capabilities in preparation for commercialisation in leather processing.

New business development

- to enable the prioritisation of opportunities available from XSG's platform technology and to expand its science and engineering capabilities to deliver those opportunities; and

- to provide the financial flexibility to facilitate partnership discussions with major corporations.

The Company intends to deploy approximately half of the total pro-forma cash available to it following the Placing within the Commercial Laundry business, allocating funds to meet incremental working capital requirements and to invest in SG&A supporting the growth of the business towards the Company's targets.

The balance of the Company's cash resources is to be applied to increasing the level and speed of development towards commercialisation of the domestic laundry and leather processing applications as well as the identification and development of further applications of XSG's polymer bead science.

The current levels of expenditure on applications development and SG&A run at the rate of approximately £1.1m per month. Following the Placing and application of proceeds described above, it is anticipated that this rate will increase to approximately £1.5m per month.

Current trading and outlook

The Company has today separately published its audited results for the year ended 31 July 2015. The Group achieved earned income of £480k for the year, which represents an increase of 52%. This income growth came mainly from the US business where 36 machines were installed and commissioned during the year. As at 31 July 2015, contracted future revenues amounted to £1.6m (2014: £0.8m) and the average remaining contract length was 74 months (2014: 76 months).

The Group's loss after tax for the year was £10.2m (2014: £6.4m). As noted below, the Group expects cash utilisation to increase over the coming years as it continues to invest in the development of the XSG polymer science platform and resultant applications alongside the roll-out in the Commercial Laundry business. The increase in net cash outflow from operations to £11.8m (2014: £7.2m) for the 12 months to 31 July 2015 reflects these activities and was in line with the Board's expectations. The Group had existing cash resources as at 31 July 2015 of £17.4m (2014: £29.5m).

By 30 September 2015, the Group had 123 machines installed with commercial laundry customers in the Americas and Europe with 54 further commitments for installations in the coming months. 103 installations were in the US where it is XSG's ambition for the Commercial Laundry business to achieve a c.20% market share by 2020 in its areas of focus within the US OPL machine replacement market. XSG anticipates taking measured growth steps towards this target which, whilst stretching, are predicated on the requirement to continually deliver high levels of customer service. The resultant customer satisfaction should help to broaden and deepen market acceptance as customers' positive experiences endorse the cost and performance benefits of the Commercial Laundry business' full service offering. The next phase of growth over the coming 12 months will be enabled by the continued training and accreditation of the first wave of FCPs, following their recruitment in April 2015. Over this period, an installation run rate of between 20 and 35 machines a month is being targeted. Once this step increase in installation rate has been achieved, alongside maintained customer service levels, the Commercial Laundry business will then seek to progressively recruit and train additional FCPs thereby enabling XSG to grow further.

The Company expects a modest contribution to gross profit from the Commercial Laundry business in the year ahead. With customers now able to sign up to either the Perform contract (outright machine sale) or the Complete contract (machine leased to customer), the Company anticipates demand will be split broadly equally between the two forms of contract, with Complete requiring Xeros to carry lease balances within its receivables until fully repaid by the customer. In due course, based on a longer customer history, it is anticipated that asset finance will be sought to enable cashflows to be spread more evenly over the term of the contract.

The step increase in the rate of installations, both over the last six months and anticipated in the year ahead, has been facilitated by ongoing investment in SG&A to develop direct sales and complementary service capabilities, whilst simultaneously signing up, training and certifying the first wave of FCPs, who will also increasingly fulfil these sales and service functions.

XSG strategy

XSG's strategy is to apply its owned and patented polymer bead technologies and systems across a number of industrial and domestic markets which face the challenges of water scarcity, effluent management and a rising cost of energy. XSG intends to have its polymer bead technologies broadly deployed across such markets, reducing operating costs whilst improving performance outcomes. XSG aims to derive long term, high margin revenues from the benefits it delivers.

The markets chosen for the first points of entry by XSG were the hospitality and dry cleaning segments of OPL, primarily in the US. XSG established its Commercial Laundry business to penetrate these areas and is now gaining strong customer traction in both of them, having recruited a highly experienced management team and a significant number of FCPs. In combination, these resources are now providing customers with Xeros machines and high quality Xeros Sbeadycare® service. The Commercial Laundry business is currently also developing a 15kg (35lb) machine as a complement to its 25kg (55lb) machine in order to broaden its offering within its chosen OPL segments. This smaller machine size is also widely used in the US laundromat (launderette) market, which is larger than OPL. The Commercial Laundry business is evaluating the potential of this market.

In addition to commercial laundry, XSG has developed its polymer bead technology for use in other identified applications, the most advanced of which are in leather processing and domestic laundry, with other markets to be evaluated in the first half of 2016. XSG aims to sustain its leadership in polymer bead technology through continued development of its in-house polymer science and engineering capabilities to optimise the performance of XSG's beads and design solutions to be deployed within targeted applications. XSG is currently working with strategic commercial partners such as BASF and LANXESS, as well as with leading academic institutions, to assist in bringing new, disruptive polymer-based solutions to market.

XSG's proprietary technology is protected by a library of patents. In 2015, the core process patent was granted in the US, strengthening XSG's competitive position in this key geography and completing this protection in all its major geographies. Continued innovation and new patents will enable XSG to remain at the forefront of applied polymer bead science in its targeted markets. The XSG patent portfolio currently comprises 39 patent filings which cover polymer bead technologies in applications from commercial and domestic laundry through to leather, metal surface treatments and information/communications technology. XSG intends to safeguard its technological advantage by continuing to broadly file patents for its polymer bead inventions and their methods of use.

Progress since IPO in March 2014

Commercial laundry

XSG has initially targeted the hospitality and dry cleaning segments of OPL in the US. The business model designed by the Commercial Laundry business for this market is founded on offering customers an integrated washing machine and service package. The service component of the package, marketed as Xeros Sbeadycare®, is provided to customers after their purchase or lease of a Xeros machine, under a multi-year contract encompassing detergent and bead supply and ongoing service and maintenance. To meet different customer preferences, Xeros machines can be purchased either under a lease arrangement, the "Complete" contract, or purchased outright, under the "Perform" contract.

Experienced management team now in place to grow the Commercial Laundry business

In April 2015, the Group established its global Commercial Laundry business led by Jonathan Benjamin, based in the US. Jonathan has responsibility for product development, sales, marketing, and operations on a worldwide basis. Recent senior appointments include a General Manager for North America, a Vice President of Operational Excellence and a North American Director of Sales. These appointments, when combined with the balance of senior management, result in a leadership team with an average of 20 years of relevant experience with which to implement the Commercial Laundry business plan. In addition, the business has grown its sales team with the recruitment of regional sales heads for the West Coast, South East and Mid-Atlantic. A Senior Vice President of Information Technology has also joined to lead initiatives including the development and commercialisation of a remote monitoring system, Xeros Sbeadycare® Pulse. The Commercial Laundry business now has a total number of 41 employees worldwide with 30 based in the US.

Strong customer traction and installations progress

XSG identified OPL as an attractive target market for a number of reasons, including: the maturity of the market, which meant only limited potential for incremental efficiency in the absence of a disruptive technology such as Xeros' polymer bead cleaning system; the fragmented nature of the market, which represented an opportunity to more rapidly establish a market presence; the sensitivity of customers to the cost and availability of water, consumables and energy, all of which XSG's technology seeks to address; and the nature of the market where customers typically source machines and consumables from different vendors. All of these, in combination, presented an attractive backdrop against which to market Xeros machines and the Xeros Sbeadycare® service package.

The Commercial Laundry business has shown strong momentum in installations since the IPO of XSG. When the Group announced its results for the year ended 31 July 2014, the Commercial Laundry business had 37 installed and committed machines in the US and counted four out of the five largest hotel groups as customers. In addition to hotel chains, the Commercial Laundry business had sold machines to customers in retail dry cleaning, fitness centres and the US military.

As at the end of September 2015, there were 103 machines installed at US customers' premises with commitments to install a further 39. In addition, there were a further 20 machines installed with European customers with a further 15 commitments to install. In the US, 46% of sales of Xeros machines have been from repeat or affiliated buyers and seven out of the ten largest hotel groups are now customers. The current US customer base comprises Hotel and Lodging (59% of sales), Retail Laundry (35%), Industrial Laundry (3%) and others (3%).

Forward Channel Partners recruited to increasingly deliver sales and service in the US

Following XSG's participation in the biennial Clean Show in 2015, the Commercial Laundry business signed up 61 FCPs as the initial members of a North American network through which to sell and deliver the Xeros Sbeadycare® offering. The network, which comprises established laundry industry participants, greatly extends the Commercial Laundry business' sales and service capabilities in the US and is the principle means by which compound sales growth is intended to be achieved over time.

As part of the FCP programme, partners are accredited based upon certified levels of capability, with the Blue level covering sales lead generation and participation in machine installation only; Silver covering machine sales and basic monthly servicing under the Xeros Sbeadycare® package; Gold covering machine sales, routine servicing and repair capabilities under the Xeros Sbeadycare® package; and Black covering machine sales, advanced servicing and repair under the Xeros Sbeadycare® package as well as, into the future, the commissioning of Xeros machines and training of customer operatives. The first wave of FCPs are progressing through accreditation. Once these FCPs are certified to their appropriate level and consistently delivering assured levels of customer service, additional FCPs will be progressively recruited and put through the same development and accreditation process, thereby further increasing the ability to grow the Commercial Laundry business.

As at 30 September, the Commercial Laundry business has 48 FCP's accredited in the US to sell Xeros machines: 18 FCP's are certified Gold (5) or Silver (13), and are able to provide servicing capabilities under the Xeros Sbeadycare® package, with a further 30 certified as Blue.

Development of simplified contracts and pricing to suit customers' requirements

The Commercial Laundry business has structured its offering such that its US customers subscribe to the Xeros Sbeadycare® service covering consumables and maintenance once a Xeros machine has been purchased, installed and commissioned. In order to meet customer preferences, Xeros machines can now be purchased either under a lease arrangement (Complete) or purchased outright (Perform). Xeros Sbeadycare® contracts are typically for a five year term. Whilst on a cumulative basis, customers taking up the Perform contract comprise 37% of all US Commercial Laundry agreements with Complete customers comprising the remaining 63%, Perform is growing in popularity with 50% of all new agreements in the last 6 months ended September 2015 now taking up this type of agreement.

Xeros machines are sold at prices equivalent to conventional machines of the same load size. The current cost to XSG on a machine sale of the increased functionality in a Xeros machine over and above that within a conventional machine is $7,500. This increased functionality includes the machine management, monitoring and communication systems, the Xeros polymer beads and their management systems. This additional functionality enables the c. 80% reduction in water consumption and effluent volumes and the c.50% reductions in energy and detergent/chemical consumption over the lifetime of the machine. The Xeros Sbeadycare® service contract includes all service, repairs, beads and detergent/chemical requirements and is priced at $975 per month, a level substantially below the actual savings experienced by customers. In addition to these savings, customers benefit from significantly enhanced wash outcomes. The Company's net target margin, including the straight line amortisation over the life of the Xeros Sbeadycare® contract of the $7,500 for increased machine functionality, is c. 25%.

US utility company incentives providing a helpful backdrop in the US

Water scarcity and energy conservation are an increasing focus for government, municipal authorities and utility companies in the US. As a result, a number of utility companies are currently offering financial incentives to install washing machines that reduce utilities consumption. The Commercial Laundry business in the US supports customers in their applications for such incentives and to date has seen an attachment rate of 30% to its installations. The sharing of the financial incentive between the Commercial Laundry business and its customers is determined on a case by case basis dependent upon a number of factors including the quantum of incentive and the cost of installation. As of the Company's Interim Results on 28 April 2015, the number of utility companies offering incentives for XSG machines had reached 13. Currently, 19 utility companies offer incentives to customers in 24 states and one province in Canada.

Development of Xeros' machine technology and its supply chain

In June 2013, the Group signed an OEM agreement with Jiangsu Sea-lion Machinery Group ("Sea-lion") in China for the manufacture of a 25kg (55lb) Xeros commercial laundry washing machine. In June 2015, Sea-lion opened a new 300,000 sq. ft. facility, in Zhangjiagang City which is being used to manufacture the increasing machine numbers required by the Commercial Laundry business. XSG maintains its own on-site engineering and inspection presence within Sea-lion's operations to undertake quality assurance procedures.

The Commercial Laundry business signed a further JDA with Sea-lion in September 2015 to develop and then produce a 15kg (35lb) commercial laundry machine, subject to satisfactory commercial agreement being reached. This machine, which is based on the design for the Company's existing 25kg (55lb) machine plus planned enhancements thereto, will be used to supplement the range on offer to the Commercial Laundry business' focus areas in OPL. This smaller machine size is also widely used in the US laundromat market, which is larger than the OPL market. The Commercial Laundry business is evaluating the potential for it to access this market.

As part of its risk management approach, the Group contracted with Image Laundry Systems of Thailand, in August 2015, to also supply machines to provide XSG with dual-supply capacity.

The Commercial Laundry business has continued to develop its "Global Controller" washing machine control and operating system installed within Xeros machines in conjunction with its signal processing and transmission technology, Xeros Sbeadycare® Pulse. The two technologies, which work together in an integrated manner, enable remote monitoring, analysis and diagnostics with the resultant information used to improve the customer's laundry performance as well as to schedule maintenance and validate savings.

Growing the Commercial Laundry business

As at 30 September 2015, the Commercial Laundry business had 123 machines installed with OPL customers in the US and Europe. The progress to date in the US is against a potential addressable replacement market of circa 10,000 machines per annum with an estimated useful machine life of 10 years. In the US, Xeros machines are installed with customers in 26 of the 50 states with multiple installations in a number of states including Georgia, Rhode Island, Missouri and California. The Commercial Laundry business strategy is now underpinned by an experienced management team and infrastructure that leaves it well-placed to accelerate the roll-out of Xeros machines and Xeros Sbeadycare® packages with customers via direct sales and the growing FCP network. By way of example, one of the Commercial Laundry business' areas of focus is California; a high opportunity area in which the business is running targeted promotions, marketing campaigns and direct selling efforts that demonstrate the Xeros machine's ability to help address the water scarcity and energy concerns in that State. As a consequence, eight of the Commercial Laundry business' US FCPs are based there and four utility companies now offer incentives for the use of XSG's technology.

Following the announcement in August 2015 of the recruitment of FCPs serving Canada, Mexico and the Caribbean, the Commercial Laundry business intends to extend its model into additional countries during 2016 focusing on those with market structures and requirements which make entry attractive.

As previously stated, the Group is broadening its machine size range with the 25kg (55lb) machine to be supplemented in 2016 by a 15kg (35lb) machine. This smaller size is widely used within the laundromat market, which is the largest commercial laundry segment in the US. It is intended that this addition, combined with Xeros-branded dryers added to the range during 2015, will position the Commercial Laundry business to be capable of addressing a larger share of the commercial laundry market as a whole. This extension to the Company's market reach will be supported by the opening of a Xeros-branded laundromat concept store in Boston planned for mid-2016. In addition, XSG anticipates that the development and introduction of beads with active chemistry for enhanced effects will further increase the appeal and demand for XSG's technology.

XSG also sees further opportunities in the development and commercialisation of its remote monitoring technology, Xeros Sbeadycare® Pulse. A key benefit of this system is that it monitors water, chemical and energy consumption and the operating costs of XSG's customers. The information received is used, amongst other things, to demonstrate the savings achieved through operating a Xeros machine compared to a conventional type. The ability to provide this evidence of cost savings to customers is expected to further enhance adoption rates.

Domestic laundry

XSG continues to review its strategic options for entering the domestic laundry market. In preparation, XSG has developed a beta prototype "matched pair" laundry washer and separate drying machine suitable for the US domestic laundry market. It has also carried out its own independent research amongst US consumers nationwide, yielding positive results when comparing the Xeros machine and technology to a leading US brand of conventional washing machines.

In the US, the Commercial Laundry business is also currently in the process of developing a laundromat concept store, expected to be launched in Boston in mid-2016, which is being specifically designed to help stimulate demand in the significant laundromat market as well as to demonstrate how the Xeros system can work in a domestic laundry environment.

Discussions continue with major domestic machine manufacturers in the US, Asia and Europe. XSG intends to determine a suitable business model through which to generate an appropriate return on its intellectual property.

XSG intends to engage more widely with major global domestic washing machine manufacturers, detergent suppliers and large national appliance retailers to develop options for the adoption of XSG's technology in the domestic laundry market. The laundromat concept store in the US, noted above, will allow XSG to carry out consumer trials on its smaller size commercial machines and latest domestic prototypes and to receive feedback on the Xeros machines, their performance, control systems and operability. The Commercial Laundry business also intends to use the store as a marketing tool to broaden consumer awareness and generate interest in XSG's polymer bead cleaning technology for washing machines generally. This direct consumer exposure is expected to help facilitate discussions with machine manufacturers, retailers and distributors, as well as inform other stakeholders such as regional and national governments.

Leather processing

Since the establishment by XSG of a facility at The Institute of Creative Leather Technologies ("ICLT") at The University of Northampton in November 2013, XSG has successfully completed a number of feasibility studies using polymer bead technology instead of conventional processes in the preparation, tanning and dyeing of leather. These tests demonstrated that XSG's polymer bead technology could produce a more intense colouring for bovine hide, using less dye, in a shorter time, and using up to 60% less water than the conventional process. XSG has filed six patents covering the use of its polymer bead technology in leather processing; a market estimated to have an annual chemical demand in the region of $2.5 billion.

On 28 April 2015, XSG entered into a multi-phase JDA with LANXESS which aimed to demonstrate that the Group's patented technology could be viably deployed in large scale tanneries. LANXESS is a DAX listed specialty chemicals business headquartered in Germany with sales of €8.3bn and is a leading supplier of specialty chemicals to the leather industry on worldwide basis. Smaller scale trials were successfully completed under Phase 1 of the JDA one month ahead of schedule in July 2015. The Phase 2 scale-up validation stage of the JDA was signed in September 2015, covering progressive scale production trials in a tannery with completion planned for the end of the first half of 2016.

XSG intends to expand its engineering capabilities to support the changes required to incorporate its beads into pre-existing tannery batch processes. In addition, the Company is in the process of hiring a commercial leader for its leather processing business as part of its implementation of a commercial strategy that allows XSG to benefit from the value its technology is expected to create.

Polymer bead development

XSG continues to develop and enhance its polymer bead technology for use across a range of applications. The physical design of "Gen 1" beads (i.e. their shape, size and density) for application in laundry has enabled excellent cleaning outcomes and a very high bead recovery rate. Further development work on "Gen 2" beads is being undertaken pursuant to XSG's ongoing JDA with BASF as well as research conducted independently within XSG or in collaboration with academic institutions. The physical design of "Gen 2" beads is intended to enable very near full bead recovery whilst permitting the incorporation of chemistry to further greatly improve laundry outcomes.

In conjunction with ICLT, XSG has finalised the physical design of a bead for application in leather processing. The Phase 2 scale-up validation stage of the JDA with LANXESS will allow the testing of the bead design within a scale production environment.

Intellectual property protection

XSG's proprietary technologies are protected by a library of patents, which in aggregate, form a comprehensive intellectual property portfolio and present a substantial barrier to entry for potential competitors. As at 31 January 2014, ahead of the Company's IPO, the patent portfolio comprised 27 patent families 'pending' and 'granted'. XSG has since expanded its patent portfolio and it now comprises 39 patent families 'pending' and 'granted', whose coverage includes bead technologies in commercial and domestic laundry, leather processing, metal surface treatment and garment finishing. The grant of two patents in the US covering XSG's core process in March/April 2015 now means that coverage has been achieved for the core process in each of XSG's currently targeted major geographies. Furthermore, XSG has also expanded its brand protection through trademark registration, with the Xeros name now trademarked in 11 countries including the US, UK and China, as well as registration of the Xeros logo, Xeros Sbeadycare® logo, and "Xeros The Power of Polymer Cleaning" slogan in a number of jurisdictions.

Further applications development

In addition to laundry and leather processing, XSG sees further significant opportunities for the beneficial application of its technology within other industrial and domestic aqueous processes. XSG plans to carry out a full review of all potential polymer bead applications in the first half of 2016 and select particularly attractive applications for further development, such as garment finishing, which have physical production processes analogous with those found in commercial laundry.

XSG continues to develop its polymer science and engineering capabilities, with these teams growing, in aggregate, from 18 at the time of the IPO to 29 today. These teams are now housed in the Xeros Technology Centre, a specially designed 11,000 sq. ft. facility in the Advanced Manufacturing Park in Sheffield in the UK, opened in August 2015.

Investment in XSG's polymer science and applications engineering teams will be used to finalise the current commercial laundry product range, support potential entry into the domestic laundry market and to accelerate the commercialisation of the technology in leather processing. The assessment and determination of additional potential applications in water-intensive domestic and industrial processes, such as garment finishing, will, also be undertaken in the first half of 2016 with the resultant choices then developed to a point of commercialisation.

 Important Notice

This announcement has been issued by, and is the sole responsibility of, the Company. This announcement is for information only and does not constitute an offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or investment advice in any jurisdiction in which such an offer or solicitation is unlawful, including without limitation, the United States, Australia, Canada, the Republic of South Africa or Japan.

No prospectus or admission document will be made available in connection with the matters contained in this announcement.

Jefferies which is authorised and regulated in the United Kingdom by the FCA, is acting for the Company and for no-one else in relation to the Placing, and will not be responsible to any other person for providing the protections afforded to its clients nor for providing advice in connection with the matters contained in this announcement. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Jefferies, or by any of its affiliates or agents, as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

The distribution of this announcement and the placing of the Placing Shares as set out in this announcement may be restricted by law in certain jurisdictions. No action has been taken by the Company or Jefferies that would permit an offering of the Placing Shares or possession or distribution of this announcement or any other offering or publicity material relating to the Placing Shares in any jurisdiction where action for that purpose is required persons into whose possession this announcement comes are required by the Company and Jefferies to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

Members of the public are not eligible to take part in the Placing.

This announcement (including the Appendix and the terms and conditions set out therein) is directed only at persons (i) having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) who are high net worth entities falling within Article 49(2)(a) to (d) of the Order, and other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons"). This announcement must not be acted on or relied on in the United Kingdom by persons who are not relevant persons.

In member states of the European Economic Area ("EEA"), this announcement is only addressed to and directed at persons who are 'qualified investors' within the meaning of Article 2(1 )(e) of the Prospectus Directive (Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State) (the "Prospectus Directive") ("Qualified Investors").

This announcement is not for distribution, directly or indirectly, in or into the United States (including its territories and possessions, any State of the United States and the District of Columbia).

This announcement does not constitute or form part of an offer of, or solicitation to purchase or subscribe for, securities in the United States. The Placing Shares may not be offered, sold or transferred, directly or indirectly, within the United States absent registration under the US Securities Act of 1933 (the "Securities Act") or an exemption therefrom. The Company has not registered and does not intend to register any of the Placing Shares under the Securities Act. No money, securities or other consideration is being solicited from any person inside the United States and, if sent in response to the information herein, will not be accepted. The Placing Shares will not be offered or sold to the public in the United States

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that the earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

The price of Ordinary Shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the Placing Shares.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Forward-Looking Statements

Certain statements included in this announcement contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. Nothing in this announcement should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company, and must not be relied upon in any way in connection with any investment decision. Any forward-looking statements made herein by or on behalf of the Company speak only as of the date they are made. Except as required by the FCA, AIM Rules or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

APPENDIX

TERMS AND CONDITIONS OF THE PLACING

IMPORTANT INFORMATION FOR PLACEES ONLY REGARDING THE PLACING

1. Details of the Placing

1.1 Jefferies has entered into an agreement with the Company (the "Placing Agreement") under which, subject to the conditions set out in that agreement, Jefferies has agreed, as agent and on behalf of the Company, to use reasonable endeavours to procure placees (the "Placees") for the Placing Shares at a price of 225p per Placing Share (the "Placing Price"), where the 17,777,778 Placing Shares shall be allocated and issued to the Placees pursuant to such allocation determined by Jefferies pursuant to a bookbuilding process (the "Bookbuild"), described in this announcement and set out in the Placing Agreement (the "Placing"). The Placing is not underwritten.

1.2 The Placing will be in respect of 17,777,778 Placing Shares. The Placing Shares will be issued conditional on, amongst other things, the approval by Shareholders of a special resolution seeking to disapply pre-emption rights in respect of the Placing Shares, at a General Meeting of the Company. The Circular containing details of the proposed Placing and the notice of the General Meeting will be sent to shareholders shortly following the publication of this announcement. To the extent one or both of the Resolutions are not approved by the requisite majority of shareholders at the General Meeting, Jefferies and the Company may agree to waive the condition in the Placing Agreement that the Resolutions are approved and, in such circumstances, they will also agree to reduce the number of Placing Shares to 3,333,333 (being the number of Ordinary Shares in respect of which the Company has existing authorities to allot on a non-pre-emptive basis) and proceed with the Placing.

1.3 The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares of the Company including the right to receive all dividends and other distributions declared, made or paid on or in respect of such Ordinary Shares after the date of issue of the Placing Shares.

1.4 As a term of the Placing, the Company has agreed that it will not issue or sell any Ordinary Shares (other than the Placing Shares) for a period ending three months after Admission, without Jefferies' prior consent. This agreement does not however prevent the Company from granting or satisfying exercises of options granted pursuant to existing share schemes of the Company.

2. Application for admission to trading

2.1 Application will be made to the London Stock Exchange for the Admission of the Placing Shares to trading on AIM. It is expected that Admission will become effective on or around 1 December 2015 and that dealings in the Placing Shares will commence at that time.

3. Bookbuild

3.1 This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the Placing. No commissions will be paid to Placees or by Placees in respect of any Placing Shares.

3.2 Jefferies shall be entitled to effect the Placing by such alternative method to the Bookbuild as it may, in its absolute discretion following consultation with the Company, determine.

4. Participation in, and principal terms of, the Placing

4.1 Jefferies is acting as bookrunner and agent of the Company in respect of the Placing.

4.2 Participation in the Placing will only be available to persons who may lawfully be, and are, invited to participate by Jefferies. Jefferies and each of its affiliates are entitled to enter bids in the Bookbuild as principal. 

4.3 The Bookbuild has been carried out on the basis of the Placing Price of 225p per Placing Share payable to Jefferies by all Placees whose bids are successful. The number of the Placing Shares to be allocated and issued to each Placee will be determined by Jefferies following completion of the Bookbuild. 

4.4 The Bookbuild has now closed. Jefferies may, in agreement with the Company, accept bids that are received after the Bookbuild has closed. The Company reserves the right (upon the agreement of Jefferies) to reduce or seek to increase the amount to be raised pursuant to the Placing, in its absolute discretion.

4.5 Each prospective Placee's allocation will be determined by Jefferies and will be confirmed orally by Jefferies as agent of the Company. That oral confirmation will constitute an irrevocable legally binding commitment upon that person (who will at that point become a Placee) in favour of Jefferies and the Company to subscribe for the number of Placing Shares allocated to it at the Placing Price on the terms and conditions set out in this Appendix and in accordance with the Company's articles of association. 

4.6 Each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to Jefferies as agent of the Company, to pay Jefferies (or as it may direct) in cleared funds, an amount equal to the product of the Placing Price and the number of Placing Shares that such Placee has agreed to subscribe for and the Company has agreed to allot and issue to that Placee.

4.7 Jefferies may choose to accept bids, either in whole or in part and may scale down any bids for this purpose on such basis as it determines. Jefferies may also, notwithstanding paragraphs 4.5 and 4.6 above, subject to the prior consent of the Company (i) allocate Placing Shares after the time of any initial allocation to any person submitting a bid after that time and (ii) allocate Placing Shares after the Bookbuild has closed to any person submitting a bid after that time.

4.8 A bid in the Bookbuild will be made on the terms and subject to the conditions in this announcement and will be legally binding on the Placee on behalf of which it is made and except with Jefferies' consent will not be capable of variation or revocation after the time at which it is submitted.

4.9 Irrespective of the time at which a Placee's allocation pursuant to the Placing is confirmed, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made at the same time on the basis explained below under "Registration and Settlement".

4.10 All obligations under the Bookbuild and Placing will be subject to fulfilment of the conditions referred to below under "Conditions of the Placing" and to the Placing not being terminated on the basis referred to below under "Termination of the Placing Agreement".

4.11 By participating in the Bookbuild, each Placee will agree that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.

4.12 To the fullest extent permissible by law, neither Jefferies nor any of its affiliates shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither Jefferies nor any of its affiliates shall have any liability (including to the fullest extent permissible by law, any fiduciary duties) in respect of their conduct of the Bookbuild or of such alternative method of effecting the Placing as Jefferies may determine.

5. Conditions of the Placing

5.1 The obligations of Jefferies under the Placing Agreement in respect of the Placing are conditional on, amongst other things:

5.1.1 the Resolutions being approved by the requisite majority of Shareholders attending and voting at the General Meeting;

5.1.2 the warranties contained in the Placing Agreement being true and accurate in every respect and not misleading on the date of the Placing Agreement and at Admission, as though they had been given and made on such date by reference to the facts and circumstances then subsisting;

5.1.3 the Company complying with all of its obligations under the Placing Agreement to the extent the same fall to be performed or satisfied prior to Admission;

5.1.4 Admission taking place by 8.00 a.m. (London time) on 1 December 2015 (or such later date as the Company and Jefferies may otherwise agree) (the "Admission Date"); and

5.1.5 in the sole opinion of Jefferies, there shall not have been a material adverse change, or any development involving a prospective material adverse change, in or affecting the condition (financial, operational, legal or otherwise) or the earnings, management, business affairs, solvency, credit ratings or prospects of the Company or of the Group (taken as a whole), whether or not arising in the ordinary course of business (a "Material Adverse Change") since the date of the Placing Agreement.

5.2 If any of the conditions contained in the Placing Agreement in relation to the Placing are not fulfilled or waived by Jefferies, by the time or date where specified (or, in each case, such later time and/or date as the Company and Jefferies may agree), the Placing will not proceed and the Placee's rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee in respect thereof. 

5.3 Jefferies may, at its absolute discretion and upon such terms as it thinks fit, waive compliance by the Company with the whole or any part of any of the Company's obligations in relation to the conditions in the Placing Agreement save that the condition in the Placing Agreement relating to Admission taking place may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this announcement.

5.4 None of Jefferies, the Company or any other person shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision they may make as to whether or not to waive or to extend the time and/or the date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally, and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of Jefferies.

6. Termination of the Placing Agreement

6.1 Jefferies may at any time prior to Admission terminate the Placing Agreement by giving notice in writing to the Company, if, amongst other things:

6.1.1 the Company's application for Admission has been refused by the London Stock Exchange or, in the judgement of Jefferies acting in good faith in pursuance of its duties under the Placing Agreement, will not be granted; or

6.1.2 there has been a Material Adverse Change and, in the good faith opinion of Jefferies, the effect of such change is such that it would materially prejudice the success of the Placing or the distribution of Placing Shares; or

6.1.3 Jefferies not having received confirmation in a form acceptable to it confirming irrevocable acceptance of the offer contained in this announcement from proposed placees reasonably acceptable to Jefferies in respect of all the Placing Shares; or

6.1.4 there has occurred:

(a) any government regulation or other occurrence of any nature whatsoever which, in the reasonable opinion of Jefferies, materially and adversely affects or will or is reasonably likely materially and adversely to affect the business of the Group taken as a whole; or

(b) a suspension or material limitation in trading in securities generally on the London Stock Exchange's market for listed securities, a general moratorium on commercial banking activities in London or New York or a material disruption in commercial banking or securities settlement or clearance services in the United Kingdom or United States of America, an incident of terrorism or the outbreak or escalation of hostilities involving the UK, any other EU Member State or the USA or the declaration by the UK, any other EU Member State or the USA of a national emergency or war or the occurrence of any other calamity or crisis resulting in a change in financial, political, market or economic conditions or currency exchange rates in the UK or US, which, in Jefferies' reasonable opinion, makes it impractical or inadvisable to continue with the Placing.

6.2 Upon such termination, the parties to the Placing Agreement shall be released and discharged (except for any liability arising before or in relation to such termination) from their respective obligations under or pursuant to the Placing Agreement subject to certain exceptions. For the avoidance of doubt, the Placing cannot be terminated after Admission has occurred.

6.3 By participating in the Placing, Placees agree that the exercise by Jefferies of any right of termination or other discretion under the Placing Agreement shall be within Jefferies absolute discretion and that Jefferies need not make any reference to Placees and that it shall have no liability to Placees whatsoever in connection with any such exercise or failure so to exercise.

7. No prospectus

7.1 The Placing Shares are being offered to a limited number of specifically invited persons only and will not be offered in such a way as to require a prospectus in the UK. No offering document, prospectus or admission document has been or will be submitted to be approved by the FCA or submitted to the London Stock Exchange in relation to the Placing and Placees' commitments will be made solely on the basis of their own assessment of the Company, the Placing Shares and the Placing based on the Company's publicly available information taken together with the information contained in this announcement (including this Appendix), and subject to the further terms set forth in the contract note to be provided to individual prospective Placees. 

7.2 Each Placee, by accepting a participation in the Placing, agrees that the content of this announcement (including this Appendix) is exclusively the responsibility of the Company and confirms that it has neither received nor relied on any other information, representation, warranty, or statement made by or on behalf of the Company or Jefferies or any other person and none of Jefferies or the Company nor any other person will be liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement which the Placees may have obtained or received. Each Placee acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in accepting a participation in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.

8. Registration and Settlement

8.1 Settlement of transactions in the Placing Shares following Admission will take place within the system administered by Euroclear UK & Ireland Limited ("CREST"), subject to certain exceptions. Jefferies and the Company reserves the right to require settlement for and delivery of the Placing Shares (or a portion thereof) to Placees in certificated form if, in their opinion, delivery or settlement is not possible or practicable within the CREST system or would not be consistent with the regulatory requirements in the Placee's jurisdiction.

8.2 Following the close of the Bookbuild for the Placing, each Placee to be allocated Placing Shares in the Placing will be sent a contract note stating the number of Placing Shares allocated to it at the Placing Price and settlement instructions. The number of Placing Shares allocated to each Placee will be allocated in a manner determined by Jefferies in its absolute discretion and Placees will be notified of the relevant allocation in the contract note.

8.3 Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with the standing CREST or certificated settlement instructions that it has in place with Jefferies.

8.4 The Company will deliver the Placing Shares to a CREST account operated by Jefferies as agent for the Company and Jefferies will enter its delivery (DEL) instruction into the CREST system. The input to CREST by a Placee of a matching or acceptance instruction will then allow delivery of the relevant Placing Shares to that Placee against payment.

8.5 It is expected that settlement in respect of the Placing Shares will take place on 1 December 2015 on a delivery versus payment basis.

8.6 Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above at the rate of two percentage points above LIBOR as determined by Jefferies.

8.7 Each Placee is deemed to agree that, if it does not comply with these obligations, Jefferies may sell any or all of the Placing Shares allocated to that Placee on such Placee's behalf and retain from the proceeds, for Jefferies' account and benefit, an amount equal to the aggregate amount owed by the Placee plus any interest due. The relevant Placee will, however, remain liable for any shortfall below the aggregate amount owed by it and may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of such Placing Shares on such Placee's behalf.

8.8 If Placing Shares are to be delivered to a custodian or settlement agent, Placees should ensure that the trade confirmation is copied and delivered immediately to the relevant person within that organisation. Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. Placees will not be entitled to receive any fee or commission in connection with the Placing.

9. Representations and warranties

9.1 By participating in the Placing each Placee (and any person acting on such Placee's behalf) irrevocably acknowledges, confirms, undertakes, represents, warrants and agrees (as the case may be) with Jefferies (in its capacity as bookrunner and agent of the Company, in each case as a fundamental term of their application for Placing Shares), the following:

9.1.1 it has read and understood this announcement in its entirety and that its subscription of Placing Shares is subject to and based upon all the terms, conditions, representations, warranties, acknowledgements, agreements and undertakings and other information contained herein;

9.1.2 that no offering document, listing particulars, prospectus or admission document has been or will be prepared in connection with the Placing and it has not received a prospectus, admission document or other offering document in connection with the Placing or the Placing Shares;

9.1.3 that the existing Ordinary Shares in the capital of the Company are admitted to trading on AIM, and that the Company is therefore required to publish certain business and financial information in accordance with the rules and practices of AIM, which includes a description of the nature of the Company's business and its most recent balance sheet and profit and loss account, and that it is able to obtain or access such information and such information or comparable information concerning any other publicly traded company, in each case without undue difficulty;

9.1.4 that neither Jefferies nor the Company nor any of their respective affiliates nor any person acting on behalf of any of them has provided, and none of them will provide it, with any material regarding the Placing Shares or the Company or any other person other than this announcement; nor has it requested Jefferies, the Company, any of their respective affiliates or any person acting on behalf of any of them to provide it with any such information;

9.1.5 unless otherwise specifically agreed with Jefferies, that neither it nor the beneficial owner of the Placing Shares is, or at the time the Placing Shares are acquired, neither it nor the beneficial owner of the Placing Shares will be, a resident of, or otherwise located in, the United States, Australia, Canada, Japan or the Republic of South Africa and it further acknowledges that the Placing Shares have not been and will not be registered under the securities legislation of the United States, Australia, Canada, Japan or the Republic of South Africa and, subject to certain exceptions, may not be offered, sold, transferred, delivered or distributed, directly or indirectly, in or into those jurisdictions;

9.1.6 that (i) it is not within the United States, (ii) it is not within Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction in which it is unlawful to make or accept an offer to acquire the Placing Shares, (iii) it is not acquiring the Placing Shares for the account of any person who is located in the United States, unless the instruction to acquire was received from a person outside the United States and the person giving such instruction has confirmed that it has the authority to give such instruction, and that either (a) it has investment discretion over such account or (b) it is an investment manager or investment company and, in the case of each of (a) and (b), that it is acquiring the Placing Shares in an "offshore transaction" (within the meaning of Regulation S under the US Securities Act of 1933, as amended (the "Securities Act")); and (iv) it is not acquiring the Placing Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Placing Shares into the United States or any other jurisdiction referred to in (ii) above;

9.1.7 that the content of this announcement is exclusively the responsibility of the Company and that neither Jefferies nor any person acting on its behalf have or shall have any liability for any information, representation or statement contained in this announcement or any information previously or subsequently published by or on behalf of the Company, including, without limitation, any information required to be published by the Company pursuant to applicable laws (the "Exchange Information") and will not be liable for its decision to participate in the Placing based on any information, representation or statement contained in this announcement or otherwise. It further represents, warrants and agrees that the only information on which it is entitled to rely and on which it has relied in committing itself to subscribe for the Placing Shares is contained in this announcement and any information previously published by the Company by notification to regulatory information service (an "RIS"), such information being all that it deems necessary to make an investment decision in respect of the Placing Shares and that it has neither received nor relied on any other information given or representations, warranties or statements made by Jefferies or the Company and neither Jefferies nor the Company will be liable for its decision to accept an invitation to participate in the Placing based on any other information, representation, warranty or statement. It further acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in deciding to participate in the Placing. None of Jefferies, the Company or any of their respective affiliates has made any representations to it, express or implied, with respect to the Company, the Placing and the Placing Shares or the accuracy, completeness or adequacy of the Exchange Information, and each of them expressly disclaims any liability in respect thereof. Nothing in this paragraph or otherwise in this announcement excludes the liability of any person for fraudulent misrepresentation made by that person;

9.1.8 that it has complied with its obligations under the Criminal Justice Act 1993, section 118 of FSMA and in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002 (as amended), the Terrorism Act 2000, the Terrorism Act 2006, the Money Laundering Regulations 2007 and the Money Laundering Sourcebook of the FCA (the "Money Laundering Regulations") and, if making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations;

9.1.9 that it is acting as principal only in respect of the Placing or, if it is acting for any other person; (i) it is duly authorised to do so and has full power to make the acknowledgments, representations and agreements herein on behalf of each such person; and (ii) it is and will remain liable to the Company and/or Jefferies for the performance of all its obligations as a Placee in respect of the Placing (regardless of the fact that it is acting for another person);

9.1.10 if it is a financial intermediary, as that term is used in Article 3(2) of the EU Prospectus Directive (which shall mean Directive 2003/71/EC and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), that the Placing Shares subscribed by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in a member state of the EEA other than qualified investors, or in circumstances in which the prior consent of Jefferies has been given to the proposed offer or resale;

9.1.11 that it has not offered or sold and will not offer or sell any Placing Shares to the public in any member state of the EEA except in circumstances falling within Article 3(2) of the Prospectus Directive which do not result in any requirement for the publication of a prospectus pursuant to Article 3 of that Directive;

9.1.12 that it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;

9.1.13 that it has complied with and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving, the United Kingdom;

9.1.14 if in a member state of the EEA, unless otherwise specifically agreed with Jefferies in writing, that it is a "qualified investor" within the meaning of Article 2(1)(e) of the Prospectus Directive;

9.1.15 if in the United Kingdom, that it is a person (i) having professional experience in matters relating to investments who falls within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) who falls within Article 49(2) (a) to (d) ("High Net Worth Companies, Unincorporated Associations, etc") of the Order, or (iii) to whom this announcement may otherwise lawfully be communicated;

9.1.16 that no action has been or will be taken by either the Company or Jefferies or any person acting on behalf of the Company or Jefferies that would, or is intended to, permit a public offer of the Placing Shares in any country or jurisdiction where any such action for that purpose is required;

9.1.17 that it and any person acting on its behalf is entitled to acquire the Placing Shares under the laws of all relevant jurisdictions which apply to it and that it has fully observed such laws and obtained all such governmental and other guarantees, permits, authorisations, approvals and consents which may be required thereunder and complied with all necessary formalities and that it has not taken any action or omitted to take any action which will or may result in Jefferies, the Company or any of their respective directors, officers, agents, employees or advisers acting in breach of the legal or regulatory requirements of any jurisdiction in connection with the Placing;

9.1.18 that it has all necessary capacity and has obtained all necessary consents and authorities to enable it to commit to its Placing Participation and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in this announcement) and will honour such obligations;

9.1.19 that it and any person acting on its behalf will make payment for the Placing Shares allocated to it in accordance with this announcement on the due time and date set out herein, failing which the relevant Placing Shares may be placed with other subscribers or sold as Jefferies may in its absolute discretion determine and without liability to it;

9.1.20 that its allocation (if any) of Placing Shares will represent a maximum number of Placing Shares to which it will be entitled, and required, to subscribe for, and that Jefferies or the Company may call upon it to subscribe for a lower number of Placing Shares (if any) (including in circumstances where the Company and Jefferies agree to reduce the number of Placing Shares where the Resolutions are not approved and the Placing proceeds with a reduced number of Placing Shares), but in no event in aggregate more than the aforementioned maximum;

9.1.21 that the person whom it specifies for registration as holder of the Placing Shares will be (i) itself or (ii) its nominee, as the case may be. Neither Jefferies nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement. It and any person acting on its behalf agrees to indemnify the Company and Jefferies in respect of the same on the basis that the Placing Shares will be allotted to the CREST stock account of Jefferies who will hold them as nominee on its behalf until settlement in accordance with standing settlement instructions; 

9.1.22 that neither Jefferies, nor any of its affiliates, nor any person acting on its behalf, is making any recommendations to it or advising it regarding the suitability of any transactions it may enter into in connection with the Placing and that participation in the Placing is on the basis that it is not and will not be a client of Jefferies and that Jefferies does not have any duties or responsibilities to it for providing the protections afforded to its clients or customers or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement nor for the exercise or performance of any of its rights and obligations thereunder including any rights to waive or vary any conditions or exercise any termination right;

9.1.23 that in making any decision to subscribe for the Placing Shares, it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of subscribing for or purchasing the Placing Shares. It further confirms that it is experienced in investing in securities of this nature in this sector and is aware that it may be required to bear, and is able to bear, the economic risk of participating in, and is able to sustain a complete loss in connection with, the Placing. It further confirms that it relied on its own examination and due diligence of the Company and its associates taken as a whole, and the terms of the Placing, including the merits and risks involved, and not upon any view expressed or information provided by or on behalf of Jefferies;

9.1.24 that in connection with the Placing, Jefferies and any of its affiliates acting as an investor for its own account may take up Placing Shares in the Company and in that capacity may retain, purchase or sell for its own account such Placing Shares in the Company and any securities of the Company or related investments and may offer or sell such securities or other investments otherwise than in connection with the Placing. Jefferies does not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so;

9.1.25 that these terms and conditions and any agreements entered into by it pursuant to these terms and conditions and any non-contractual obligations arising out of or in connection with such agreements shall be governed by and construed in accordance with the laws of England and Wales and it submits, on its own behalf and on behalf of any person on whose behalf it is acting, to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by the Company or Jefferies in any jurisdiction in which it is incorporated or in which any of its securities have a quotation on a recognised stock exchange;

9.1.26 that the Company, Jefferies and their respective affiliates and others will rely upon the truth and accuracy of the representations, warranties and acknowledgements set forth herein and which are given to Jefferies on its own behalf and on behalf of the Company and are irrevocable and it irrevocably authorises the Company and Jefferies to produce this announcement, pursuant to, in connection with, or as may be required by any applicable law or regulation, administrative or legal proceeding or official inquiry with respect to the matters set forth herein; and

9.1.27 that it will indemnify and hold the Company and Jefferies and their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in this announcement and further agrees that the provisions of this announcement shall survive after completion of the Placing. 

9.2 By participating in the Placing, each Placee (and any person acting on the Placee's behalf) subscribing for Placing Shares acknowledges that: (i) the Placing Shares are being offered and sold only pursuant to Regulation S under the Securities Act, or another exemption from the registration requirements of the Securities Act, in a transaction not involving a public offering of securities in the United States and the Placing Shares have not been and will not be registered under the Securities Act; and (ii) the offer and sale of the Placing Shares to it has been made outside of the United States in an "offshore transaction" (as such term is defined in Regulation S under the Securities Act) and it is outside of the United States during any offer or sale of Placing Shares to it.

9.3 Please also note that the agreement to allot and issue Placing Shares to Placees (or the persons for whom Placees are contracting as agent) free of stamp duty and stamp duty reserve tax in the UK relates only to their allotment and issue to Placees, or such persons as they nominate as their agents, direct from the Company for the Placing Shares in question. The Company and Jefferies are not liable to bear any transfer taxes that arise on a sale of Placing Shares subsequent to their acquisition by Placees or for transfer taxes arising otherwise than under the laws of the United Kingdom. Each Placee should, therefore, take its own advice as to whether any such transfer tax liability arises. Furthermore, each Placee agrees to indemnify on an after-tax basis and hold Jefferies and/or the Company and their respective affiliates harmless from any and all interest, fines or penalties in relation to stamp duty, stamp duty reserve tax and all other similar duties or taxes to the extent that such interest, fines or penalties arise from the unreasonable default or delay of that Placee or its agent.

9.4 Each Placee and any person acting on behalf of each Placee acknowledges and agrees that Jefferies or any of its respective affiliates may, at their absolute discretion, agree to become a Placee in respect of some or all of the Placing Shares.

9.5 When a Placee or person acting on behalf of the Placee is dealing with Jefferies, any money held in an account with Jefferies on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the rules and regulations of the FCA made under FSMA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from Jefferies' money in accordance with the client money rules and will be used by Jefferies in the course of its own business; and the Placee will rank only as a general creditor of Jefferies.

9.6 All times and dates in this announcement may be subject to amendment. Jefferies shall notify the Placees and any person acting on behalf of the Placees of any changes.

9.7 The rights and remedies of Jefferies and the Company under these Terms and Conditions are in addition to any rights and remedies which would otherwise be available to each of them and the exercise or partial exercise of one will not prevent the exercise of others.

9.8 Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. 

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise:

"Admission" the admission of the Placing Shares to trading on AIM and such

admission becoming effective in accordance with the AIM Rules

"AIM" the AIM market of the London Stock Exchange

"AIM Rules" the AIM rules for companies published by the London Stock Exchange

"Circular" the circular to be published by the Company on 12 November 2015 in relation to the Placing which includes notice of convening the General Meeting at which the Resolutions will be proposed

"Commercial Laundry" the operational division of the Group focused on the commercial laundry market

"Company" or "Xeros" Xeros Technology Group plc , a company incorporated in England and Wales with registered number 8684474, with its registered office at Unit 2, Evolution, Advanced Manufacturing Park, Whittle Way, Catcliffe, Rotherham, South Yorkshire S60 5BL

"CREST" a relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the Operator (as defined in the CREST Regulations)

"Directors" or "Board" the board of directors of the Company

"EU" the European Union

"Enlarged Share Capital" the number of ordinary shares in issue assuming completion of the

Placing

"FCA" Financial Conduct Authority

"FSMA" Financial Services and Markets Act 2000

"FCP" Forward Channel Partner

"General Meeting" the general meeting of the Company convened for 10.00 a.m. on 30 November 2015 at Squire Patton Boggs (UK) LLP at 7 Devonshire Square, London EC2M 4YH;

"Group" or "XSG" the Company and its subsidiaries Xeros Limited and Xeros Inc.

"JDA" Joint Development Agreement

"Jefferies" Jefferies International Limited, the Company's nominated adviser

and broker

"London Stock Exchange" London Stock Exchange plc

"Notice of General Meeting" the notice of the General Meeting set out in the Circular

"OPL" the on-premise laundry market

"Ordinary Shares" ordinary shares of 0.15 pence each in the capital of the Company

"Placing" the proposed placing by Jefferies, as agent to the Company, of the

Placing Shares at the Placing Price on a non-pre-emptive basis, on the terms and conditions set out in the Placing Agreement

"Placing Agreement" the agreement between the Company and Jefferies dated 12 December 2015 in connection with the Placing

"Placing Price" 225p per Placing Share

"Placing Shares" the 17,777,778 new Ordinary Shares to be allotted and issued by

the Company pursuant to the Placing

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

"SG&A" selling, general and administrative expenses

"Shareholders" holders of Ordinary Shares

"United Kingdom" or "UK" United Kingdom

"United States" or "US" United States of America

All references in this announcement to "£", "pence" or "p" are to the lawful currency of the United Kingdom, all references to "US$" or "$" are to the lawful currency of the United States