NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE. THERE CAN BE NO CERTAINTY THAT ANY FIRM OFFER WILL BE MADE NOR AS TO THE TERMS ON WHICH ANY FIRM OFFER MIGHT BE MADE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014 (WHICH FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018). UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

FOR IMMEDIATE RELEASE

20 November 2023

Velocys plc

("Velocys" or the "Company")

Funding update and statement regarding possible offer

Velocys plc (VLS.L), the sustainable fuels technology company, provides the following update.

On 31 October 2023, the Company announced that, whilst the long stop date for the proposed conditional issue of convertible loan note transaction with Carbon Direct Capital Management LLC would not be extended, active discussions remained ongoing with potential strategic investors who have been undertaking due diligence on the Company for some months with a view to obtaining long-term funding for the business (the "Funding Update"). As part of these ongoing funding discussions, the Company has received a non-binding indicative all-cash offer for the entire issued and to be issued ordinary share capital of the Company (the "Possible Offer") by a consortium led by Lightrock LLP ("Lightrock") and Carbon Direct Capital Management LLC ("Carbon Direct") (together the "Consortium"), the details of which are outlined below. The Possible Offer includes the intention for the Consortium to provide significant funding for the Company to meet its long-term growth capital needs. In addition, the Company is in discussions with the Consortium regarding near-term funding. There can be no certainty that an offer will be made for the Company, nor as to the final terms of any offer, if made.

As previously announced in the Funding Update, the Company currently expects to require funding before the end of this calendar year and, notwithstanding the Possible Offer (including discussions on near-term funding in connection with the Possible Offer), there are currently no binding arrangements in place for near-term funding. The Company continues to explore cost control and other measures to extend the cash runway, however, at present, in the event that the Possible Offer (including near-term funding) does not progress shortly, and in the absence of other meaningful sources of funding or strategic options, it is currently unlikely that the Company will be able to continue as a going concern beyond the end of December. Accordingly, the Company continues to explore its options including the possible sale of the Company ("Strategic Review"). The Company notes that the timing for significant progression of the development capital fundraises for Velocys' reference projects is expected to be dependent on the resolution of the Company's funding challenges.

Possible Offer

As referred to above, as a component of the possible funding for the Company, it has received a non-binding indicative all-cash offer from the Consortium for the entire issued and to-be-issued share capital of the Company at a price of 0.25 pence per ordinary share, valuing the issued share capital of the Company at approximately £4.1 million representing a substantial discount to the Company's current share price.  

In addition to the very near-term funding necessary to allow completion of the Possible Offer (which is expected to be in the form of a debt instrument), and subject to completion of the Possible Offer, the Consortium has indicated its intention to provide the Company with significant additional funding (which would be available to the Company following completion of the Possible Offer) to meet its growth capital needs (the Possible Offer and funding together the "Proposal"). Completion of the Possible Offer would result in the admission to trading on AIM of the shares of the Company being cancelled. The Board of Velocys (the "Board") understands that the Consortium currently intends to effect the Possible Offer by way of a scheme of arrangement, but that the Consortium reserves the right to implement the Possible Offer, instead, by way of contractual offer.

The evaluation of the Proposal by the Board and its advisers is ongoing and the Board recognises that it should assess the Proposal as a whole in light of the Company's very near-term funding requirements and significant long-term funding needs. The Board also notes the challenging equity capital market environment, particularly for small public companies with limited revenue, and that it has been unable to secure the additional funding it has been seeking since completion of its last placing of new ordinary shares in June 2023. Furthermore, the Board notes that, in the event that it were to be able to secure funding prior to the end of December 2023 to satisfy its funding requirements, existing shareholders would suffer significant dilution in the unlikely event that the Company was able to raise sufficient funds through the issue of new ordinary shares. Accordingly, the Board is continuing engagement and discussions with the Consortium and its advisers with a view to progressing and recommending the Proposal.

The Board understands that the Proposal remains subject to customary pre-conditions in respect of final diligence access and other matters. Even in the event that these pre-conditions are satisfied or waived, there can be no certainty that any firm offer will be made nor as to the final terms of any offer, including the conditions to which that offer would be subject. A further announcement will be made if and when appropriate.

In accordance with Rule 2.6(a) of the Code, the Consortium will have until 5.00pm on 18 December 2023, being 28 days after the date of this announcement, to either announce a firm intention to make an offer for Velocys in accordance with Rule 2.7 of the Code or announce that it does not intend to make such an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline may be extended with the consent of the Panel on Takeovers and Mergers (the "Takeover Panel") in accordance with Rule 2.6(c) of the Code.

Details on the Consortium

Lightrock is a global private equity firm and "impact investor" with a focus on growth capital. Lightrock's investment philosophy targets companies that pursue scalable and tech-driven business models around the key impact themes of people, planet, and productivity-tech for good.

Carbon Direct is a global growth investment firm that partners with carbon management technology companies. The firm believes that investing with a science-focused approach maximizes both climate impact and financial returns.

Background to the Company's funding requirements

As previously announced, the Company has for some time been seeking significant long-term funding for the business. The funding targeted is intended to allow the Company to significantly scale the business and allow for acceleration of delivery of its technology to clients, including the Company's reference projects. This funding is expected to unlock recurring sales revenues to initially reach positive sustainable cashflow, and subsequently to full revenue recognition and profitability.

The Company has a capital light, scalable licensing model with revenues expected in due course from technology licencing, engineering services, and Company reactor and catalyst supply over the lifetime of biofuel refineries. However, the provision of this integrated technology and service model requires significant engineering and project resources alongside a robust balance sheet to support the business whilst its revenue pipeline develops (including the two reference projects in development) and to provide performance guarantees to future clients. In addition, the Company requires funding for its recently commissioned manufacturing facility including production start-up and strengthening of catalysis service delivery to clients. Commercial progress of the Company and in turn the timing of significant revenues and income for the Company, is dependent on external factors such as favourable government policies relating to sustainable aviation fuel and the construction funding of biorefineries by third parties. The potential for delays to the Company's revenue potential means that significant working capital continues to be required to support the business during the growth phase.

This announcement has been made by Velocys without the consent of the Consortium.

The person responsible for arranging the release of this information on behalf of Velocys is David Bate, General Counsel, Senior Vice President and Head of Compliance for Velocys plc.

The attention of shareholders is drawn to the disclosure requirements of Rule 8 of the Code, which are summarised below.

For further information, please contact:

--Ends--

Notes to Editors

Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing customers with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. Synthetic fuel is the only commercially available, permanent alternative to fossil aviation fuels. The Velocys technology is IP-protected in all major jurisdictions.

Two reference projects (Bayou Fuels, US, and Altalto Immingham, UK) are designed to accelerate the adoption and standardise the Velocys proprietary Fischer Tropsch (FT) technology with an integrated end to end solution, including renewable power and carbon sequestration.

Velocys is enabling commercial scale synthetic fuel production in response to the clean energy transition, with significant additional positive air quality impacts.

www.velocys.com

Disclaimer

A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in restricted jurisdictions, on Velocys' website at www.velocys.com promptly and in any event by no later than 12 noon (London time) on 21 November 2023. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction, whether pursuant to this announcement or otherwise.

The release, publication or distribution of this announcement in whole or in part, directly or indirectly, in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Panmure Gordon (UK) Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as financial adviser to Velocys and no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Velocys for providing the protections offered to clients of Panmure Gordon or for providing advice in connection with any matter referred to in this announcement. 

Shore Capital and Corporate Limited ("Shore Capital"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as an adviser to Velocys and no one else in connection with the matters described in this announcement, and will not be responsible to anyone other than Velocys for providing the protections afforded to clients of Shore Capital nor for providing advice in connection with any matter referred to in this announcement.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified.

An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on
+44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Rule 2.9 of the Code

In accordance with Rule 2.9 of the Code, Velocys confirms that, as at close of business on 17 November 2023 (being the business day prior to the date of this announcement), it had 1,651,798,992 shares in issue. Velocys holds no shares in treasury. Accordingly, the total number of voting rights in Velocys is 1,651,798,992. The International Securities Identification Number ("ISIN") of Velocys shares is GB00B11SZ269.

Rule 2.11 of the Code

Please be aware that addresses, electronic addresses and certain other information provided by the Company's shareholders, persons with information rights and other relevant persons for the receipt of communications from the Company may be provided to the Consortium during an offer period as required under Section 4 of Appendix 4 of the Code to comply with Rule 2.11.