30th Oct 2006 07:01
Biofutures International plc30 October 2006 Immediate Release 30 October 2006 Biofutures International plc Proposed acquisition of Zurex Corporation Sdn. Bhd. Placing of 44,200,000 Placing Shares at 25p per share Adoption of Long Term Incentive Plan Application for admission of Enlarged Share Capital to AIM Notice of Extraordinary General Meeting Biofutures International plc ("the Company"), a company established to invest inor acquire assets, businesses or companies in the renewable fuels industry,located in Asia and Europe, announces the proposed acquisition of ZurexCorporation Sdn. Bhd. ("Zurex"). •Proposed acquisition of Zurex, a Malaysian company founded in November 2005 which holds a licence to produce biodiesel derived from palm oil in Malaysia •Consideration for the acquisition is the allotment and issue by the Company to the vendors of 66,670,000 Ordinary Shares, which at a price of 25p per share, values Zurex at approximately £16.67 million •The size of the site on which, the plant is expected to commence operations with a capacity of 200,000 tonnes per annum, is large enough to provide sufficient suitable land to expand the Plant to 1,000,000 tonnes per annum capacity •Placing of 44,200,00 Placing Shares,which, at a price of 25p per share to raise £11,050,000 before expenses •Utilisation of placing proceeds to acquire the site and to commence construction of the plant •Acquisition constitutes a reverse takeover under AIM rules and is therefore conditional upon Shareholder approval •Reverse takeover requires cancellation of the Company's shares on AIM and an application for the enlarged share capital to be admitted to trading on AIM Commenting on the proposed acquisition and subsequent re-listing of theCompany's shares to trading on AIM, Nicholas Gee, Executive Chairman ofBiofutures International, said: "Biofutures International was founded and admitted to AIM earlier this year forthe purpose of establishing and investing in businesses within the Asian andEuropean renewable fuels industries. The acquisition of Zurex, less than sixmonths after listing on AIM, represents an excellent opportunity for the Companyto commence operating in the substantial renewable energies market and tofulfill the brief outlined to shareholders at the time of our flotation." For further information: Nicholas GeeBiofutures International plc 0207 4665000 Joseph MarffyRuegg & Co Limited 0207 584 3663 Buchanan CommunicationsMark Edwards/Suzanne Brocks 0207 466 5000 Copies of theAdmission document will be available to the public free of chargefrom the date of this document until the date which is one month afterAdmission, from the offices of DLA Piper, at 3 Noble Street, London EC2V 7EEduring normal business hours (Saturdays and Sundays excepted). ACQUISITION AND PLACING STATISTICS Consideration Shares to be issued 66,670,000 Gross proceeds raised by the Placing (assuming allthe Placing Shares are issued) £11,050,000 Estimated net proceeds of the Placing receivable by the Company £10,080,000 Placing Shares to be issued 44,200,000 Total number of New Ordinary Shares to be issued 110,870,000 Placing Price 25p Number of Ordinary Shares in issue immediately followingcompletion of the Acquisition and the Placing 147,730,000 Percentage of Enlarged Share Capital represented by theConsideration Shares 45.13% Percentage of Enlarged Share Capital represented by the Placing Shares 29.92% Existing Ordinary Shares as a percentage of the Enlarged Share Capital 24.95% Market capitalisation of the Company at thePlacing Price on Admission £36,932,500 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Publication of the admission document 30 October 2006 Latest time and date for receipt of completed Forms ofProxy for the EGM 11 a.m. on 21 November 2006 Extraordinary General Meeting 11 a.m. on 23 November 2006 Completion of the Acquisition 24 November€2006 Admission effective and expected commencementof dealings on AIM in the Ordinary Shares 24 November 2006 Expected date for CREST accounts to be credited 24 November 2006 Dispatch of definitive share certificates by no later than 8 December 2006 IntroductionThe Company's shares were suspended from trading on AIM on 1 June 2006 followingpress speculation concerning the possible acquisition of a biodiesel plant inMalaysia. On 28 July 2006, the Company announced that it had entered into aconditional agreement to acquire Zurex, a Malaysian company formed in November2005 which holds a license to produce biodiesel derived from palm oil inMalaysia. Zurex has also entered into a contract with Palm Oil IndustrialClutter Sabah Sdn. Bhd. ("POIC"), an entity set up to acquire the Site on whichit intends to construct a 200,000 tonnes per annum biodiesel plant. The Company today announces that it intends, by way of a placing of 44,200,000Placing Shares, at a price of 25p per share, to raise £11,050,000 beforeexpenses. The expected net proceeds of the Placing of £10,080,000 will beapplied to acquire the Site and to commence construction of the Plant. The consideration for the Acquisition is the allotment and issue by the Companyto the Vendors of 66,670,000 Ordinary Shares, credited as paid up at the PlacingPrice which values Zurex at approximately £16.67 million. The Acquisition will constitute a reverse takeover under the AIM Rules and istherefore conditional (inter alia) upon the approval of Shareholders in ageneral meeting. A reverse takeover also involves the cancellation of theCompany's shares from trading on AIM and a new application to be made for theEnlarged Share Capital to be admitted to trading on AIM. Following Completion, the Concert Party (all of the shareholders of Zurex) willbe the beneficial owners of 66,670,000 Ordinary Shares in the Company,representing approximately 45.13 per cent. of the Enlarged Share Capital(assuming that all of the Placing Shares are issued). Shareholders will alsotherefore be asked to vote on a resolution to approve a Waiver by the Panel ofany obligation on the part of members of the Concert Party to make a generaloffer to Shareholders under Rule 9 of the Takeover Code arising from the issueto members of the Concert Party of the Consideration Shares pursuant to theAcquisition Agreement. Information on BiofuturesBiofutures was incorporated on 17 February 2006 and admitted to trading on AIMon 5 May 2006. Biofutures is an investment company and has been seeking toestablish, invest in or acquire assets, businesses or companies in the Asian andEuropean renewable fuels industries. As at 29 September 2006 Biofutures had cashat bank of £2,403,407. Background to and reasons for the Acquisition and the PlacingSince IPO Admission the Directors have been reviewing various options in linewith the Company's investment and acquisition strategy. The Directors believethat the Acquisition will allow Shareholders to participate in the EnlargedGroup which combines Zurex's right to acquire the Site and licence tomanufacture palm oil biodiesel, with the Company's ability to access the capitalmarkets. The proceeds of the Placing together with the Company's existing cashresources will enable the construction of the Plant to commence. The Directorsbelieve that the Site can accommodate the construction of further plant takingthe total capacity of the Site up to a capacity of 1 million tonnes of palm oilbiodiesel per annum subject to any consent that may be required. Biodiesel marketBiodiesel has been in commercial production in Europe since 1991 and in theUnited States since 1998. In this time, it has emerged as a "clean" and"renewable" alternate fuel that boasts a number of advantages over conventionalmineral diesel and other fuel options: • renewable fuel, non-toxic and rapidly biodegradable• produces almost 80 per cent. less lifecycle CO2 emissions than mineral diesel• helps toward lower particulate exhaust emissions and reduces carcinogenicimpact• improves lubricity, even in blends with low-sulphur diesel• higher cetane number than mineral diesel, thus ensuring quick engine start-upin cold climates• can be used without modification to the engine• in a low percentage blend, it can be supplied using the existing fuel supplyinfrastructure through standard diesel pump equipment• Its high flashpoint makes it a safer fuel to handle than any conventional fuel Major MarketsThe European market is currently the most well developed biodiesel market due tothe legislative environment for use of renewable fuels in road transport and theimplied growth this legislation demands. It also has distributor support andconsumer acceptance. Germany, France and Italy are the largest consumer marketsamong the Member States of the EU. As such Europe is currently the main targetmarket. An EU directive of 5.75 per cent. biofuels consumption by 2010 shouldpush demand from 6 million tonnes to nearly 14 million tonnes per annum inEurope. The Directors believe the rapid development of other geographical markets,including those in Asia and the USA (the latter intends to raise biofuels use to4 per cent. by 2012) will continue over the next 18 months. The location of thePlant in Malaysia offers the Enlarged Group significant advantages in accessingthese alternative markets. Malaysia is the world's largest palm oil producer andis geographically well-placed for all biodiesel markets in Europe, the USA andAsia. Based on the legislative targets of various countries, global biodiesel demandis expected by the Directors to at least treble by 2010. FeedstockBiodiesel can be produced from a variety of feedstocks including vegetable oilssuch as rapeseed oil, sunflower oil, palm oil, soybean oil, coconut oil,jatropha, tallow and waste cooking oil. In Europe, over 75 per cent. ofbiodiesel production volume utilises rapeseed oil as a feedstock. The EnlargedGroup intends to use palm oil which has a far higher yield per acre than anyother current vegetable oil and which is abundant in its proposed area ofoperation. However, the Plant will be capable of using other feedstocks, subjectto the Enlarged Group obtaining a variation to the terms of the manufacturinglicence which currently only permits biodiesel to be manufactured from palm oil.There can be no assurances that such licence will be granted. Despite the EU 6.5 per cent. import tariff and recent tax changes in Germany,the European market is still the most commercially attractive due to therelative prices of palm oil feedstock compared with domestic EU feedstock ofrapeseed oil. BlendingBiodiesel may be utilised in a pure form (B100) or blended with mineral dieselin a variety of proportions. B5 (a blend containing 5 per cent. biodiesel and 95per cent. mineral diesel) is commonly supplied in Europe. The Directors andProposed Directors anticipate that as the European renewable fuels targets areraised, the commonly supplied blend ratio is also likely to rise. It is alsoanticipated that the end market for most of the palm oil biodiesel produced bythe Plant in the early stage will be sold into the B5 (distribution to allmotorists through high street filling stations) and B5+ (usually fordistribution to centrally fuelled fleets) markets. In some market segments there is a requirement to deliver biodiesel to Europeanstandard EN14214. Biofutures intends to produce palm oil biodiesel to EN14214specification with the exception of the cold filter plugging point (CFPP). Forretail blends of B5 biodiesel or below, the CFPP properties of the blend becomeindistinguishable from those of the petroleum diesel fuel in the blend. Thus theblend meets the required diesel specification. In practice most biodiesel issold blended with petroleum diesel, typically in B5 and B20 proportions. Suchbiodiesel blends have been used in a variety of climates, including extremecold, without cold flow problems. By-productThe production of palm oil biodiesel yields glycerine as a by-product equivalentto approximately 11.7 percent. by volume of biodiesel produced. Glycerine is abulk commodity chemical with a wide variety of end uses, primarily in the food,healthcare and pharmaceutical industries. Historically the glycerine market hasbeen volatile and is currently experiencing over-supply. The Directors believethat the demand for glycerine will grow as supply becomes more stable, marketprices fall and it becomes accepted as a substitute for other products such assorbitol. However, in view of the currently uncertain nature of the glycerinemarket, the Company does not intend to construct a pharmaceutical gradeglycerine distillation unit before the Plant becomes operational. The Companyintends periodically to review the position and will commission a pharmaceuticalgrade glycerine distillation unit when it is considered economically justifiedto do so. Bank FinanceThe net proceeds of the Placing of approximately £10,080,000 and together withthe existing cash resources of £2.4 million will provide sufficient workingcapital to the Company for the twelve months following Admission. However, theDirectors and Proposed Directors have estimated that the total cost ofconstruction of the Plant is £40 million and therefore the Company will need toobtain additional finance in order to complete the construction of the Plant.The Directors and Proposed Directors have been in discussions with variousbanks. The Directors and Proposed Directors believe that the Company will obtainbank finance on acceptable terms and they aim to achieve this by early 2007. TheCompany will not commit to expenditure beyond its cash resources unless anduntil sufficient bank funding is in place to fund fully the construction of thePlant and working capital requirements during the construction period. If sufficient bank facilities are not entered into, and other forms of financingare not found, the Company may decide not to proceed further with theconstruction of the Plant and instead to seek, subject to obtaining POIC'spermission, to sell its rights to the development of the Plant to a third partyand to return its remaining cash resources to Shareholders or obtain Shareholderconsent to make an alternative investment. Estimated project costs including use of proceeds of the PlacingIn combination with bank finance and the Company's existing cash reserves, it isthe Directors' current intention to use the proceeds of the Placing as follows: £mPurchase of the Site 4.0Construction contract 6.2Site buildings and IT 4.0Process infrastructure 6.0Construction, engineering and commissioning 1.5Additional infrastructure relating to POIC 2.3Working capital 12.0Contingency 4.0 40.0 Strategy Biofutures' commercial strategy is to process palm oil (being the lowest costpure feedstock) for the production of biodiesel. By selecting a production sitein Malaysia the Directors believe this will achieve both security of palm oilsupplies and geographical accessibility to a choice of key sales markets, namelythe Far East, Europe and the USA. The Site has also been selected for itslocation within a developing key palm oil logistic hub with a deep water port. The Company intends to sell 100 per cent. palm methyl ester (B100 biodiesel) towholesalers, blenders or petroleum refiners who will then blend the Company'sbiodiesel (and possible other biodiesels) with petroleum diesel to produceblends such as B5 to the relevant market fuel standard. The Directors have been in discussions with Lurgi, one of the world's marketleaders in the construction of biodiesel plants, and will deploy proventechnology in the Company's Plant. Regarding construction, commission andexpansion of the Plant, the Company will call on the skills of its experiencedoil industry capital project management team, whilst concurrently buildingoperations and marketing teams. The size of the Site, on which the Plant is expected to commence operations witha capacity of 200,000 tonnes per annum, is large enough to provide sufficientsuitable land to expand the Plant to 1,000,000 tonnes per annum capacity shoulddemand and economics dictate and subject to obtaining any necessary regulatoryconsents. Following Admission, the Company will seek to put in place feedstock supply andproduct off-take agreements as market conditions and the approaching Plantcommissioning date dictate. As at the date of Admission, the Company has assumedno revenue from by-product streams given the recent decline in glycerine pricesand has no current intention to construct a pharmaceutical grade glycerinedistillation unit. Principal Terms of the AcquisitionOn 28 July 2006, the Company entered into the Acquisition Agreement with theVendors whereby the Company conditionally agreed to acquire the entire issuedshare capital of Zurex. Under the terms of the Acquisition Agreement the Companyhas agreed to issue and allot, on Completion, the Consideration Shares to theVendors credited fully paid at the Placing Price which values Zurex atapproximately £16.67 million. No cash consideration will be paid. The Vendorshave given certain commercial warranties relating to Zurex. The Acquisition isconditional, inter alia, on the passing of the Resolutions. Upon Completion, the Proposed Directors (being two of the Vendors) will beappointed as non-executive directors of the Company. The Consideration Shares will represent 45.13 per cent. of the Enlarged ShareCapital and will, when issued, rank pari passu in all respects with the otherOrdinary Shares then in issue, including all rights to all dividends and otherdistributions declared, made or paid following Admission. Directors, Proposed Directors and Senior ManagementBrief biographical details of the Directors and Proposed Directors are set outbelow. DirectorsNicholas Wilding Gee, (aged 43), Executive ChairmanNicholas Gee graduated with a 1st class honours degree in chemical engineeringfrom the University of Birmingham, and holds an MBA with distinction fromWarwick Business School. He established Cobalt Blue in June 2004 to pursueinvestment opportunities in the oil and gas exploration and production sector,and in this regard has worked internationally with large and small oil and gasoperating and service companies. Prior to this he held a number of senior rolesin the oil and gas service sector. Between 2000 and 2004 he was Vice Presidentof Weatherford International, driving substantial growth in their internationalsales. He began his career as a petroleum engineer with BP working in oil andgas exploration and production. Julie Patricia Pomeroy, (aged 51), Finance DirectorJulie Pomeroy graduated with an honours degree in Physics from BirminghamUniversity. She is a Chartered Accountant and in addition holds tax and treasuryqualifications. Julie was Group Finance Director of Carter & Carter Group plcuntil October 2005 having joined in 2002 to help grow and float the business.She had previously been Chief Financial Officer of Weston Medical Group plc andprior to this, Julie worked at East Midlands Electricity plc as Director ofCorporate Finance. Since leaving Carter & Carter she has been following aportfolio finance director career working with growing businesses. Phillip John Carter, (aged 44), Non-executive DirectorPhillip Carter graduated with an honours degree in chemistry from SouthamptonUniversity. He founded Carter & Carter Limited in 1992, since which time he hasdriven the group's substantial growth, both in the UK and overseas, and hasoverseen a number of successful acquisitions and their successful integration.Carter & Carter Group plc was floated on the Official List of the London StockExchange in February 2005. Prior to establishing Carter & Carter Limited, heworked in a number of sales and marketing roles at ICI before becoming EuropeanBusiness Development Manager of the Paints Division of ICI. Christopher Ronald Price, (aged 45), Non-executive Director and SeniorIndependent DirectorChristopher Price graduated with an honours degree in accounting and economicsfrom Southampton University. He qualified as a Chartered Accountant in 1986. Hehas considerable experience of managing financial matters within SME's. Morerecently, he has worked in senior financial roles within multinationalcorporations operating in the IT industry, embracing wide-ranging generalmanagement responsibilities on a pan-European basis. He has occupied his currentposition, Finance Director of Epson UK Limited, since 2001, during which timethat company has enjoyed growth in both its home and export markets. Proposed DirectorsWong Kai Fatt (aged 41), Non-executive DirectorKai Fatt holds a degree in computer science and a doctorate in pharmacy andhealthcare administration from the University of Louisiana. He is currently onthe board of eAssetManagement SB, Fullerton Investment Ltd, Ethical PlantationsSB, Medi-Flex Ltd and a number of inactive private companies. Prior to this, heheld a number of senior roles in the financial services sector and has publishedworks in the area of healthcare and equity investment research. No fee is payable to Wong Kai Fatt for his services as a non-executive director Wong Kai Fatt is engaged as an executive director of Zurex and is required todevote all his time and attention to the business of the Company. Mr Kai Fatt isentitled to an annual gross salary of £30,000. Lim Kwee Gee (aged 33), Non-executive DirectorKwee Gee holds a degree in computer science from The National University ofSingapore. He is currently on the board of ANC Group Pte Ltd, I-Invest Pte Ltdand Medi-Flex Ltd. His previous directorships include ECO Water Ltd, LabisResources SB and Tropical Interest SB among others. Prior to this, he held anumber of senior analytical roles in the financial services sector. No fee is payable to Lim Kwee Gee for his services as a non-executive director. Senior ManagementWayne Rudd (aged 40), Projects ManagerWayne Rudd is a professional business manager who is currently chief executiveofficer and board member of TubeFuse Applications, a Shell Technology Venturescompany. Wayne joined Weatherford International as Vice President in 1999, aposition he held for six years, operating various multi national business unitsthat underwent growth both organically and via acquisition. Wayne has strongcapital project management experience having previously worked in variouslocations around the world on several large capital petroleum projects. Heworked in this capacity for Halliburton, Statoil and Shell having started hiscareer with NEI Parsons. Wayne acts as a consultant to the Company. Iain Stewart Anderson Young (aged 47), Commercial ManagerIain Young graduated with an honours degree in civil engineering from theUniversity of Glasgow, and holds an MBA from Warwick Business School. Since2003, he has been investigating biofuels, biodiesel technology, biofuelsfeedstock and transport fuel markets. Prior to this he was consultant to the oil& gas exploration sector in project management and project commercial riskmanagement. Prior to this he was Managing Director of Allomax Limited, anengineering consultancy started up to provide oil field development support tooil companies large and small. He began his career as a petroleum engineer withBP working in oil and gas exploration and production. Iain has historicallyacted as a consultant to the Company, but following Admission, will become anemployee. Yong Khai Weng (aged 35), Operations ManagerJack Yong graduated with an honours degree in chemical engineering from theUniversity of Malaya in 1997 and has worked in the palm phytochemicals industryin Malaysia since. From 2003, he worked as Factory Manager for Supervitamins SdnBhd managing both a phytonutrients extraction plant and a biodiesel plant. Priorto this he worked as Assistant Production Manager for Carotech Sdn Bhd in theproduction, R&D and marketing of phytonutrients and biodiesel. See Keat Tatt (aged 42) Project Financial ControllerSee Keat Tatt graduated from the University of Melbourne, Australia in 1984 andqualified as a Chartered Accountant in 1988. He has considerable experiencemanaging financial affairs in the Asia Pacific Region. Most recently he hasworked in senior finance roles within US multinationals in the oilfield servicesindustry, including Sperry Sun and Weatherford International. His work embracedwide ranging general and financial management responsibilities on an AsiaPacific regional basis. Lock-ins and Orderly Market ArrangementsImmediately following Admission, the Directors and Proposed Directors will beinterested in, in aggregate, 64,487,380 Ordinary Shares, representingapproximately 43.65 per cent. of the Enlarged Share Capital. The Directors have each undertaken to the Company and Hichens, Harrison, subjectto certain exceptions in accordance with the AIM Rules (including the ability toaccept a take-over offer for the Company or to give irrevocable undertakings toaccept the same), not to and to procure that their persons connected with themdo not dispose or agree to dispose of any Ordinary Shares in which they areinterested at any time before the first anniversary of Admission. The Lock-In Persons other than the Directors have each undertaken to the Companyand Hichens, Harrison that they will not and shall procure that personsconnected with them will not dispose of or agree to dispose of any interest inthe Ordinary Shares held by them immediately following Admission for a periodending on the later of 24 months from the date of Admission, or the date onwhich the Plant produces not less than 15,000 tonnes of biodiesel per month fora period of three consecutive months except with the consent of Hichens,Harrison (which can be withheld at the absolute discretion of Hichens, Harrison)or in certain limited circumstances (including the ability to accept a take-overoffer for the Company or give an irrevocable undertakings to accept the same). In addition to the restrictions on the sale of Ordinary Shares described above,each Lock-In Person has undertaken for the 12 months immediately following theexpiry of their respective lock-in periods to effect and to procure that personsconnected with them effect sales or disposals only through Hichens, Harrisonwith a view to maintaining an orderly market in the Ordinary Shares. Current Trading and ProspectsSince IPO Admission, Biofutures has sought an appropriate acquisition target inline with its investment strategy,whilst minimising operating expenses. TheCompany's strategy is to establish, invest in or acquire assets, businesses orcompanies in the Asian and European renewable fuels industries. The Company at IPO Admission raised £2.9 million net of expenses and since thenhas incurred costs of approximately £215,000 in evaluating the project to buildand operate the Plant and has made an interest free loan of £382,000 to Zurexunder the terms of the Acquisition Agreement so that Zurex can make the firstpayment under the terms of the Land Acquisition Agreement. In addition, theCompany has made a first payment of 418,200 Euros to Lurgi for materialsrequired to build the Plant. Zurex has completed important work in establishing the feasibility of theproject to build, commission and operate the Plant on the Site. The Directorsbelieve that Zurex is a suitable acquisition for the Company and falls withinthe Company's strategy. The Directors and Proposed Directors expect that the construction of the Plantwill be completed by October 2008. Subject to obtaining the necessary finance,it is their intention to increase the plant capacity from 200,000 tonnes to 1million tonnes per annum on the Site but not before the Plant has beenconstructed and become fully operational. CompetitionGiven the potential for growth in the biodiesel and biofuels markets, it islikely that the market will become increasingly competitive. The Directorsanticipate that the number of biodiesel projects coming to fruition over thenext few years will be substantial. The main competitive factors in the international biodiesel market are largelydetermined by the legislative environment in each geographical market, inparticular, whether the relevant country has implemented a transport fuel taxregime or imposes production quotas. The key competitive factors are: •Quality management: consistent product quality and satisfaction of EN 14214 specifications (being the European biofuels quality specifications set by the European Committee for Standardisation); and •Production and delivery costs. For blended biodiesel, it is not yet clear at what volume of biodieselproduction demand will become saturated, but when that is reached, the Directorsbelieve that competition will move towards a price based system, given that itis essentially a commodity product. In 2008 the UK will introduce its Renewable Transport Fuels Obligations (RTFO)scheme which the Directors believe will boost European demand as UK refineriesseek to meet their obligations. The Company will also be affected by local competition at the Lahad Datu site inMalaysia, as there are other biodiesel producers establishing plants on the POICsite. Initially the Directors and Proposed Directors believe that the onlycompetition with these companies will be for certain supplies and trained localstaff. However, as the Company and each of these producers develop theiroperations they will be in direct competition with each other and otherparticipants in the biodiesel production market in Asia, Europe and the USA. While the Directors and Proposed Directors believe that the anticipated size andgrowth of the biodiesel market is sufficient to accommodate a large number ofnew producers, they are conscious of the need to exploit the Company's firstmover advantage by securing firm commitments for delivery of biodiesel well inadvance of first production. Dividend PolicyThe Company intends to use future cash generated from the sale of palm oilbiodiesel, after the Plant has been built and is operational, to expandproduction capacity at the Site. Thereafter the Directors and Proposed Directorsintend to commence the payment of dividends when it becomes commercially prudentto do so, subject to the availability of sufficient distributable profits andhaving regard to the need to retain sufficient funds to finance development ofthe Enlarged Group's activities. The City Code on Takeovers and MergersThe issue of the Consideration Shares to members of the Concert Party gives riseto certain considerations under the Takeover Code. Brief details of the TakeoverCode and the protections this affords Shareholders are described below. The Takeover Code is issued and administered by the Panel. The Takeover Codeapplies to all takeovers and merger transactions, however effected, where theofferee company is, inter alia, a listed or unlisted public company resident inthe UK, the Channel Islands or the Isle of Man or falls within certaincategories of private limited companies. Biofutures is such a company and itsShareholders are entitled to the protection afforded by the Takeover Code. Under Rule 9 of the Takeover Code ("Rule 9"), where any person acquires, whetherby a series of transactions over a period of time or by one specifictransaction, an interest in shares which (taken together with shares in whichpersons acting in concert with him are interested) carry 30 per cent. or more ofthe voting rights of a company that is subject to the Takeover Code, that personis normally required by the Panel to make a general offer in cash to theshareholders of that company to acquire the balance of the equity share capitalof the company at the highest price paid by him or any person acting in concertwith him in the previous 12 months. The Panel, which has been consulted by Ruegg & Co on behalf of the Company, hasdeemed that the six individual shareholders of Zurex, as vendors of a privatecompany, to be acting in concert for the purposes of the Takeover Code. Immediately following Admission and Completion, the members of the Concert Partywill be interested in 66,670,000 Ordinary Shares, representing a maximum of45.13 per cent. of the Enlarged Share Capital. Following completion of the Acquisition, the members of the Concert Party willbetween them be interested in Ordinary Shares carrying 30 per cent. or more ofthe Company's voting share capital but will not hold shares carrying more than50 per cent. of such voting rights and for so long as they continue to betreated as acting in concert any further increase in that aggregate interest inOrdinary Shares will be subject to the provisions of Rule 9 of the TakeoverCode. The Directors believe that it is appropriate for the Company to carry out theAcquisition and the Placing and to issue the Consideration Shares to members ofthe Concert Party. However, the Directors would not be prepared to approve theAcquisition or the Placing in circumstances that would lead to the Concert Partyor any member of it becoming obliged to make a general offer to acquire all ofthe Ordinary Shares not held by the Concert Party or such member. It is for thisreason that the Directors have decided to seek the Waiver from the Panel fromthe obligation on the Concert Party (or any member of it) to make a generaloffer to Shareholders under Rule 9 as a result of the issue to them of theConsideration Shares. The Panel has agreed, subject to the Waiver Resolution being passed on a poll bythe Shareholders, to grant the Waiver. The Waiver is conditional upon the Waiver Resolution being approved by theholders of the Existing Ordinary Shares, all of whom are independent of theConcert Party, voting on a poll at the EGM. Unless the Waiver is approved by Shareholders, the issue to members of theConcert Party of Consideration Shares would give rise to an obligation on theConcert Party to make a general offer to all Shareholders under Rule 9 of theTakeover Code. Intentions of the Concert PartySave for the appointment of the Proposed Directors on Admission, no member ofthe Concert Party is proposing any changes to the Board and the members of theConcert Party have confirmed their intention that, following the issue to themof the Consideration Shares, the business of the Company would be allowed tocontinue in substantially the same manner, with no major changes to the businessand no likely repercussions on employment and locations of the Enlarged Group'splaces of business. The members of the Concert Party have also confirmed thatthe existing employment rights, including pension rights (where relevant), ofall employees of the Enlarged Group would be maintained. The PlacingThe Company has conditionally placed a total of 44,200,000 Placing Shares at thePlacing Price, to raise £11,050,000 before expenses of approximately £970,000,for the Company. The Placing is conditional, inter alia, upon: (a) the passing of the Resolutions; (b) the Placing Agreement becoming unconditional (save for Admission) and nothaving been terminated in accordance with its terms prior to Admission; and (c) Admission having become effective on or before 8.00 a.m. on 24 November 2006(or such later date as Hichens, Harrison and the Company may agree, not beinglater than 7 December 2006). The Placing is not being underwritten in whole or in part by Hichens, Harrisonor any other party. The Placing Shares will represent 29.92 per cent.of the Enlarged Share Capitaland will, when issued, rank pari passu in all respects with the other OrdinaryShares then in issue, including all rights to all dividends and otherdistributions declared, made or paid following Admission. Application will be made for the Enlarged Share Capital to be admitted totrading on AIM. It is expected that trading in the Enlarged Share Capital willcommence on 24 November 2006. Long Term Incentive PlanThe Directors propose, subject to Shareholder approval, that the Company adoptsthe LTIP to incentivise the Company's Directors and senior management. Corporate GovernanceThe Directors and Proposed Directors recognise the importance of sound corporategovernance and intend to observe the requirements of the Code of Best Practice,as published by the Committee on Corporate Governance (commonly known as the"Combined Code") to the extent they consider appropriate in light of theCompany's size, stage of development and resources. Due to the size and natureof the Company it does not currently comply with all the provisions of theCombined Code. The Company has an audit committee and a remuneration committee. The members ofthe audit committee and the remuneration committee as at the date of thisdocument are the non-executive directors of the Company namely Phillip Carterand Christopher Price. Phillip Carter is the chairman of the remunerationcommittee and Christopher Price is the chairman of the audit committee. Theconstitutions of these committees will remain unchanged post Admission. In the light of the size of the Board, the Directors and Proposed Directors donot consider it necessary to establish a nomination committee, however this willbe kept under regular review. The Company has adopted a model code for dealings in shares by directors andsenior employees which is appropriate for an AIM company. The Directors andProposed Directors will comply with Rule 21 of the AIM Rules relating todirectors' dealings and will take all reasonable steps to ensure compliance bythe Enlarged Group's applicable employees. CRESTCREST is a paperless settlement procedure enabling securities to be evidencedotherwise than by a certificate and transferred otherwise than by writteninstrument. The Articles contain certain provisions concerning the transfer ofshares which are consistent with the transfer of shares in dematerialised formin CREST under the CREST Regulations. The existing Ordinary Shares are currentlyenabled for settlement through CREST. Accordingly, settlement of transactions inthe Ordinary Shares following Admission may take place within the CREST systemif relevant Shareholders so wish. CREST is a voluntary system and holders ofOrdinary Shares who wish to receive and retain share certificates will be ableto do so. Extraordinary General MeetingSet out at the end of this document is a notice convening the ExtraordinaryGeneral Meeting of the Company to be held at the offices of DLA Piper UK LLP at3 Noble Street, London EC2V 7EE on 23 November 2006 at which the followingresolutions will be proposed: • Resolution 1 is an ordinary resolution to increase the authorised sharecapital of the Company; • Resolution 2 is an ordinary resolution to approve the Acquisition for thepurposes of the AIM rules; • Resolution 3 is an ordinary resolution to approve the waiver of the obligationunder Rule 9 of the Takeover Code by the Panel in respect of the issue of theConsideration Shares to members of the Concert Party; • Resolution 4 is an ordinary resolution to authorise the Directors to allot thePlacing Shares, Consideration Shares and a limited number of Ordinary Shares; • Resolution 5 is an ordinary resolution to approve the Long Term IncentivePlan; and • Resolution 6 is a special resolution to authorise the Directors to issue thePlacing Shares and a limited number of Ordinary Shares otherwise than on apre-emptive basis. Resolution 3 will be voted on by a poll of Shareholders. The attention of Shareholders is also drawn to the voting intentions of theDirectors set out in paragraph titled Recommendation below. RecommendationThe Directors, having been so advised by Ruegg & Co, believe that the Proposalsand the Resolutions are fair and reasonable and in the best interests of theCompany and its Shareholders. Consequently the Directors recommend thatShareholders vote in favour of the Resolutions to be proposed at theExtraordinary General Meeting as those Directors, who are also Shareholders,intend to do in respect of their own beneficial holdings of Ordinary Shares andthose of their connected persons which amount, in aggregate, to 16,685,000Ordinary Shares representing 45.3 per cent. of the Existing Ordinary Shares. Inproviding advice to the Directors, Ruegg & Co has taken into account theDirectors' commercial assessments. INFORMATION ON ZUREX AND THE SITE IntroductionZurex was incorporated on 29 November 2005 to establish a large scale 200,000tonnes per annum palm oil biodiesel plant at POIC Lahad Datu, Sabah, Malaysia.Zurex's strategy is to produce palm oil biodiesel from the abundant feedstock ofrefined and crude palm oil in Malaysia and on the sale of palm oil biodiesel toregional (Asia Pacific) and EU markets. The Enlarged Group anticipatescontinuous production of palm oil biodiesel by October 2008. Location of the PlantZurex has paid a non-refundable deposit of RM 2,613,600 (approximately £382,000)to acquire a 50 acre plot within Phase 1 of POIC's Lahad Datu site. This depositwas funded through an interest free loan from Biofutures pursuant to the termsof the Acquisition Agreement. POIC is developing the Lahad Datu site as part of a federal and local governmentlong-term initiative which commenced in 2005 to ensure Malaysia retains thedownstream economic value derived from its palm oil crop. Phase 1 of thedevelopment is for the preparation of a 500 acre site planned to be ready foroperations by 2007. Lahad Datu has been designated as the country's third portof delivery for palm oil futures and is currently the centre of the palm oilindustry in the Sabah province, Borneo. Sabah produces 30 per cent. of Malaysianpalm oil and there are palm oil refineries close to the site. The site isadjacent to a designated oleo-chemicals handling deep water port, is surroundedby more than 100 palm oil mills and is home to companies which produce more than5 million tonnes of palm and palm kernel oil per annum. POIC's remit is todevelop the Lahad Datu site and the surrounding infrastructure to ensure theestablishment and long-term growth of Lahad Datu as the principal palm oilindustrial cluster within the ASEAN region. The Directors and the Proposed Directors believe that the location of the Plantat Lahad Datu affords a strong competitive advantage due to its close proximityto an existing supply of palm oil and a deep water port that can facilitatefurther supply as well as large volume export. The Site affords sufficient space to increase the proposed plant capacity from200,000 tonnes per year to at least 1 million tonnes per year. Construction of the PlantOn completion of the Placing and Acquisition Agreement, Zurex aims to completeits contract negotiations with JJ-Lurgi Engineering Sdn. Bhd. (a 50.0 per cent.associate company of Lurgi AG) to supply the components for construction of thePlant. Lurgi has indicated that it expects to be able to commence delivery ofcomponents within 12 months of signing the contract. The Directors and ProposedDirectors believe that Lurgi's quotation for carrying out the works will beapproximately £6.2 million. It is expected that construction of the Plant willbe completed by October 2008. Lurgi has been building biodiesel plants for over 15 years and is one of theworld's market leaders. It has constructed over 20 plants in Europe, mainlyGermany and more than 25 of its plants are in operation worldwide. Lurgi hasalso constructed a plant in Batam Indonesia which uses palm oil. Licences and approvalsZurex has obtained the following consents and licences to enable theconstruction of the Plant: (a) a manufacturing licence from the Ministry of International Trade andIndustry, Malaysia (b) a 100 per cent. five year tax exemption from the Malaysian IndustrialDevelopment Authority. Zurex is currently carrying out a compulsory environmental impact assessment forsubmission to and approval by the Department of Environment. Immediately prior to commencement of the construction of the Plant, Zurex willalso be applying to the local authorities for approval for the Plant's buildingplan, certificate of fitness for occupation and for other business relatedlicences which are inappropriate for application at this time. There can be noassurance that these approvals will be granted. Infrastructure, energy, water supply and drainageThe Lahad Datu site is expected to be ready for operations in 2007 by which timethe adjacent Lahad Datu port, which has a sheltered harbour of depth reaching inexcess of 12.5 metres, will have been expanded to have more jetty, bulking andstevedoring facilities. Although there is currently an adequate electricity supply in the region,interruptions to power supply are not uncommon. Sabah Electricity is in theprocess of increasing the power supply to the region, partly in anticipation ofthe development of the Lahad Datu site. The Company intends to have its ownpower generation facilities at the Site. Water production capacity in Lahad Datu is 56.0 million litres per day (MLD).Expansion plans are in place by the local water department to increase output tomeet the projected 2010 demand of 68.0 MLD. A centralised effluent treatment plant will be constructed by POIC to treatindustrial effluent. The Enlarged Group will build its own water treatment plantat the Site to meet the standards of the POIC plant. Transport arrangementsThe existing Lahad Datu Port adjacent to the Site is managed by Sabah PortsBerhad. It has one of the deepest harbours in Sabah with depths in excess of12.5 metres less than half a kilometre from shore. Port services includecontainer handling and dry and bulk cargo handling. While Sabah Ports Berhad hasplans to improve its capacity and facilities, POIC has plans to construct itsown jetty in anticipation of the needs of factories. Lahad Datu regional airport is serviced by Air Asia. The Site is accessible by paved internal roads that connect with the mainhighway network in Borneo. FeedstockZurex has obtained several letters of intent from suppliers of palm oil in Sabah, Malaysia and the Directors believe that sufficient palm oil feedstock for the Plant will be readily available. Palm oil is the lowest cost pure biodieselfeedstock and is significantly cheaper than rapeseed oil, the principalbiodiesel feedstock used in Europe. It is typically priced around US$200 a tonneless than rapeseed oil. Off-takeZurex has signed an off-take agreement with Gori & Partners Private Limited forup to 5,000 tonnes a month of its biodiesel production which equates to 30 percent. of planned production.The Directors expect to sign further off-takeagreements before construction of the Plant is completed. Tax incentivesZurex has been granted "Pioneer Status" offering it tax-free status for a periodof five years from the date of commercial production of palm oil biodiesel fromthe Plant. HISTORICAL FINANCIAL INFORMATION OF ZUREX CORPORATION SDN.BHD. IntroductionThe financial information on Zurex Corporation Sdn. Bhd. within this section hasbeen prepared solely for the purpose of the AIM Admission Document of BiofuturesInternational plc. ResponsibilityThe Directors and Proposed Directors of Biofutures International plc areresponsible for preparing the financial information and the contents of thedocument in which it is included. Principal activities and general informationThe company has the objective to engage in the manufacture of palm oilbiodiesel. The company did not commence its business activities during theperiod from incorporation to 30 June 2006. The company is a private limitedliability company, incorporated and domiciled in Malaysia. The registered officeof the Company is located at 23B, Room B, Jalan 52/1, 46200 Petaling Jaya,Selangor Darul Ehsan and the principal place of business is located at SuiteE-06-04, Plaza Mon't Kiara, 2, Jalan kiara, 50480 Kuala Lumpur. Principal accounting policies (a) Basis of preparationThe financial information on Zurex Corporation Sdn. Bhd. has been prepared inaccordance with International Financial Reporting Standards as issued by theInternational Accounting Standards Board. The financial information has been prepared on the historical cost basis. It should be noted that accounting estimates and assumptions are used in thepreparation of the financial information. Although these estimates are based onmanagement's best knowledge of current events and actions, actual results mayultimately differ from those estimates. (b) Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost less accumulated depreciationand impairment losses. Depreciation is computed on the straight line basis towrite off cost of property, plant and equipment over their estimated economiclives. The residual value and the useful life of an asset is reviewed at everybalance sheet date and, if expectations differ from previous estimates, thechange for current and future periods are adjusted. The principal annual depreciation rate used is as follows:- Office equipment 20% The policy for the recognition and measurement of impairment loss is inaccordance with note (d). (c) Income taxIncome tax on the profit or loss for the period comprises current and deferredtax. Current tax is the expected amount of income taxes payable in respect ofthe taxable profit for the period and is measured using the tax rates that havebeen enacted at the balance sheet date. Deferred tax is provided for, using the liability method, on temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts in the financial statements. Inprinciple, deferred tax liabilities are recognised for all taxable temporarydifferences and deferred tax assets are recognised for all deductible temporarydifferences, unused tax losses and unused tax credits to the extent that it isprobable that the taxable profit will be available against which the deductibletemporary differences and deferred tax asset are recognised for all deductibletemporary differences, unused tax losses and unused tax credits can be utilised.Deferred tax is not recognised if the temporary differences arise from goodwillor negative goodwill or from the initial recognition of an asset or liability ina transaction which is not a business combination and at the time of thetransaction, affects neither accounting profit nor taxable profit. Deferred tax is measured at the tax rates that are expected to apply in theperiod when the asset is realized or the liability is settled, based on taxrates that have been enacted or substantively enacted at the balance sheet date.Deferred tax is recognised in the income statement, except when it arises from atransaction which is recognised directly in equity, in which case the deferredtax is also charged or credited directly in equity, or when it arises from abusiness combination that is an acquisition, in which case the deferred tax isincluded in the resulting goodwill or negative goodwill. (d) Impairment of assetsThe carrying value of assets are reviewed for impairment when there is anindication that the assets might be impaired. Impairment is measured bycomparing the carrying values of the assets with their recoverable amounts. Therecoverable amount is the higher of net realisable value and value in use, whichis measured by reference to discounted future cash flows. Recoverable amountsare estimated for individual assets, or if it is not possible, for thecash-generating unit. An impairment loss is charged to the income statement immediately, unless theasset is carried at revaluation amount in which case, the impairment loss istreated as a revaluation decrease to the extent of revaluation surpluspreviously recognised for the same assets. Subsequent increase in the recoverable amount of an asset is treated as reversalof the previous impairment loss and is recognised to the extent of the carryingamount of the asset that would have determined (net of amortisation anddepreciation) had no impairment loss been recognised. The reversal is recognisedin the income statement immediately. (e) Financial instrumentsFinancial instruments carried on the balance sheet include cash and bankbalances. The particular recognition methods adopted are disclosed in theindividual accounting policy statements associated with each item. Financial instruments are classified as liabilities or equity in accordance withthe substance of the contractual arrangement. Interest, dividends, gains andlosses relating to a financial instrument classified as liability are reportedas expense or income. Distributions to holders of financial instrumentsclassified as equity are charged directly to equity. Financial instruments areoffset when the company has legally enforceable right to set off the recognisedamounts and intends either to settle on a net basis, or to realise the asset andsettle the liability simultaneously. (f) Cash and cash equivalentsCash and cash equivalents comprise of bank balances. Cash equivalents are highlyliquid investments which are readily convertible to known amounts of cash andare subject to an insignificant risk of changes in value. (g) EquityShare capital is determined using the nominal value of shares that have beenissued. Accumulated losses include all current results as disclosed in the incomestatement. (h) Financial liabilitiesThe company's financial liabilities include amounts due to a director. Financial liabilities are recognised when the company becomes a party to thecontractual agreements of the instrument. (i) Foreign currenciesTransactions in foreign currencies are translated into Malaysian Ringgits (RM),the currency in which the company normally reports, at the rates of exchangeruling at the dates of transactions. Monetary assets and liabilities denominatedin foreign currencies at the balance sheet date are translated into RM at therates of exchange ruling at that date. Gains and losses in the period arising onexchange are dealt with in the income statement. All amounts in the financial information have been converted into United Kingdompounds sterling (£) from Malaysian Ringgits (RM) at the fixed exchange rate ofRM6.68:£1, being the exchange rate at 30 June 2006. No losses or gains havetherefore been recognised on translation. Income statement for the period from incorporation, 29 November 2005, to 30 June2006 Period from 29 November 2005 Notes to 30 June 2006 £Continuing operationsRevenue -Other income 3 15Administrative expenses (372,046) _______Loss before taxation (372,031)Tax 4 -_______ Loss for the period from continuing operations (372,031)====== Balance sheet as at 30 June 2006 Notes 2006 £AssetsNon current assetsProperty, plant and equipment 5 105Current assetsCash and bank balance 3,173 ______Total assets 3,278===== Equity and liabilitiesCurrent liabilitiesAmount due to a director 6 1,159 _____Total liabilities 1,159 _____EquityShare capital 7 374,150Accumulated losses (372,031) _______ Total equity attributable to shareholders of the company 2,119 _____ Total equity and liabilities 3,278 ===== Statement of change in equity Share Accumulated capital losses Total £ £ £Changes in equity for period ended 30June 2006Loss for the period (372,031)(372,031) ________ ________ _______ Total recognised income and expenses forthe period - (372,031)(372,031)Issue of share capital 374,150 374,150 _______ _______ _______ Balance at 30 June 2006 carried forward 374,150 (372,031) 2,119 ====== ======= ====== Cash flow statement from incorporation, 29 November 2005, to 30 June 2006 Period from 29 November 2005 Notes to 30 June 2006 £Cash flow from operating activitiesLoss before taxation (372,031)Adjustments for:Interest income (15) ________ Operating cash flow before workingcapital changes (372,046)Increase in amounts due to a director 1,159 ________Net cash used in operating activities (370,887) ________ Cash flows from investing activitiesInterest received 15Purchase of property, plant and equipment (105) _______ Net cash used in investing activities (90) _______ Cash flows from financing activitiesProceeds from issue of ordinary shares 374,150 _______Net cash generated from financing activity 374,150 _______Net increase in cash and cash equivalents 3,173Cash and cash equivalents at 29 November 2005 - _______Cash and cash equivalents at 30 June 2006 3,173 ======= Notes to the financial information 1 Segmental Information(a) Primary reporting format - business segment: As defined under International Accounting Standard 14 (IAS14), the only materialbusiness segment the company has is the objective to engage in the manufactureof biodiesel. (b) Secondary reporting format - geographical segment:Under the definitions contained in IAS 14, the only material geographic segmentsthat the company has operated in during the period is Malaysia. 2 RevenueThere was no revenue generated by the company during the period. 3 Other incomeOther income in the period represents bank interest received. 4 Taxation Period from 29 November 2005 to 30 June 2006 £Current and deferred tax - ====== The charge for the period can be reconciled to the loss per the income statementas follows: Period from 29 November 2005 to 30 June 2006 £Loss before taxation (372,031) =======Tax on loss at UK corporation tax rate of 19% (111,609)Unrelieved tax losses carried forward 111,609 ________Total current tax - ======= 5 Property, plant and equipment Office equipment £CostAs at 29 November 2005 -Additions 105 _______As at 30 June 2006 105 _______Net book valueAs at 30 June 2006 105 _______ 6 Creditors: amounts falling due within one year Creditors: amounts falling due within one year represents an amount which is dueto a director which is unsecured, interest free and has no fixed term ofrepayment. 7 Share capital 2006 £Authorised:Ordinary shares of RM1 eachAt date 29 November 2005 14,966Created during the period 733,334 _______ At 30 June 2006 748,300 =======Issued and fully paid:Ordinary shares of RM1 eachAt 29 November 2005 -Issued during the period 374,150 ________At 30 June 2006 374,150 ======= At the date of incorporation the company's authorised share capital was RM100,000 divided into 100,000 ordinary shares of RM1 each. On 17 January 2006 the company increased its authorised share capital to RM5,000,000 by the creation of 4,900,000 ordinary shares of RM1 each. The fully paid up share capital of the company at its incorporation date was 2ordinary shares of RM1 each. On 17 January 2006 the fully paid up share capital was increased by issuing2,499,998 of RM1 each at par. 8 Employee informationThe company has not employed any staff since the date of its incorporation. 9 Financial instrumentsThe carrying amounts of financial assets and liabilities of the company at thebalance sheet date approximated their fair values. 10 Comparative informationThere is no comparative figure for the company as this is the first set of suchfinancial statements being prepared. 11 Risk management objectives and policiesThe company is exposed to a variety of financial risks which result from itsoperating. The company risk management is coordinated by the board of directors,and focuses on actively securing the companies short to medium term cash flowsby minimizing the exposure to financial markets. (a) Cash flow and fair value interest rate risksCash flow is managed by means of ensuring sufficient cash and cash equivalentsare held to support the trading activities of the company. The cash and cashequivalents are invested such that the maximum available interest rate isachieved with nominal rate. The company currently has no financial liabilities with floating interest rates. The fair value of cash and cash equivalents is considered to be not materiallydifferent to carrying amounts. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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