Merger Update

RNS Number:4705T
British SmallerTechCompaniesVCT2PLC
01 November 2005


                                     ANNOUNCEMENT

                  BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC
                AND BRITISH SMALLER TECHNOLOGY COMPANIES VCT PLC

                                                                 1 November 2005

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO
AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF IRELAND, SOUTH AFRICA OR THE UNITED
STATES OF AMERICA OR TO U.S. PERSONS. THIS ANNOUNCEMENT DOES NOT CONSTITUTE OR
FORM PART OF AN OFFER TO SELL, PURCHASE, EXCHANGE OR SUBSCRIBE FOR ANY
SECURITIES OR SOLICITATION OF SUCH AN OFFER IN THE UNITED STATES OF AMERICA OR
ANY OTHER JURISDICTION. THE SECURITIES REFERRED TO IN THIS ANNOUNCEMENT HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, AND WILL NOT BE OFFERED OR SOLD IN THE UNITED STATES EXCEPT PURSUANT
TO AN APPLICABLE EXEMPTION FROM REGISTRATION.

                   RECOMMENDED PROPOSALS FOR A MERGER BETWEEN

                 BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC

                AND BRITISH SMALLER TECHNOLOGY COMPANIES VCT PLC


Summary

The boards of British Smaller Technology Companies VCT 2 plc ("BSTC2") and
British Smaller Technology Companies VCT plc ("BSTC") announce agreement on
recommended proposals for the merger of BSTC2 and BSTC on a formula asset value
basis (the "Merger"). The boards of BSTC2 and BSTC further announce that they
are today writing to their respective shareholders with full details of the
proposed Merger.

The Merger will be effected by means of a scheme of reconstruction ("Scheme")
under Section 110 of the Insolvency Act 1986 pursuant to which it is proposed
that BSTC will be placed into members voluntary liquidation and the assets and
liabilities of BSTC will be transferred to BSTC2 in exchange for new shares in
BSTC2, which will be issued to shareholders of BSTC.

The Scheme is conditional, among other things, on the approval of BSTC2
shareholders and BSTC shareholders and dissent not having been expressed by
shareholders of BSTC holding more than 10 per cent in nominal value of the
issued BSTC share capital under Section 111 of the Insolvency Act 1986.

BSTC has today posted a circular to shareholders in relation to the recommended
Scheme for the reconstruction of BSTC. The BSTC circular to shareholders also
contains details of a deferred fee payment in relation to the termination
arrangements with YFM Private Equity Limited ("YFM") as part of the Scheme
arrangements. BSTC2's circular to its shareholders also contains details of
proposed amendments to the current management, performance incentive and
administrative arrangements.

Introduction

Since the flotation of BSTC2 and BSTC, the respective boards have endeavoured to
provide shareholders with a satisfactory investment return whilst maintaining an
appropriate level of corporate governance and a full flow of information. For
some time the boards have been aware of the desirability of achieving larger
scale of operations so as to mitigate the impact of the costs of investment
management and administration and to diversify risk to a greater extent. In the
light of recent changes to the legislation governing VCTs, which are intended to
facilitate the consolidation of the VCT sector into larger units, the boards
have taken the opportunity to consider the scope for strengthening each
company's position for the longer term.

The boards of BSTC2 and BSTC are pleased to advise their respective shareholders
that, following detailed consideration of the portfolio and financial position
of the other company, both being part of the British Smaller Technology
Companies family of VCT funds, which have substantially similar investment
objectives and a number of common investments, they have reached an agreement to
merge which the boards consider brings significant benefits to both groups of
shareholders. Either company could have acquired the assets and liabilities of
the other under such a scheme, however, BSTC2 was selected as the acquirer due
to its higher overall return and greater liquidity.

Philip Cammerman, a director of BSTC2, is also a director of YFM, the investment
adviser of BSTC2 and BSTC, and further, is a director and shareholder of YFM's
ultimate parent company, YFM Group (Holdings) Limited. Philip Cammerman, as a
director of YFM is interested in the revised management, performance incentive
and administration arrangements with YFM (see details below) and has not
participated in the BSTC2 board's consideration of these proposals. He has
agreed to abstain from voting on the resolutions to be proposed at the
Extraordinary General Meeting of BSTC2 and undertaken to take all reasonable
steps to ensure that his associates will not vote on the resolutions.

YFM, as a related party to these arrangements, as well as the arrangements
relating to the proposed acquisition of the assets and liabilities of BSTC, has
also agreed not to vote on the resolutions and undertaken to take all reasonable
steps to ensure that any employees or directors of YFM and any other associates
who hold shares in BSTC2 will not vote on these resolutions.

In addition to the above, Philip Cammerman, as a director of YFM, is interested
in the termination arrangements with YFM in relation to BSTC and has not
participated in the BSTC board's consideration of this proposal. He has agreed
to abstain from voting on the resolutions to be proposed at the meetings of
BSTC.

YFM, as a related party to the termination arrangements relating to BSTC and the
proposed transfer of the assets and liabilities of BSTC to BSTC2, has also
agreed to abstain from voting on the resolutions and has undertaken to take all
reasonable steps to ensure that any employees or directors of YFM and any other
associates of YFM who hold shares in BSTC will not vote on the resolutions to be
proposed at the meetings of BSTC.


Expected Timetable

EXPECTED TIMETABLE FOR BSTC2

Extraordinary General Meeting                     10.30 a.m. on 30 November 2005

Effective Date for transfer of assets and                        8 December 2005
liabilities of BSTC to BSTC2 and the issue of
BSTC2 shares

Special Interim Ex-Dividend date                              on 11 January 2005

EXPECTED TIMETABLE FOR THE SCHEME OF RECONSTRUCTION OF BSTC

BSTC First Extraordinary General Meeting          10.00 a.m. on 30 November 2005

Record Date for BSTC shareholders' entitlements under the        5.00 p.m. on 30
Scheme                                                           November 2005

Dealings in BSTC shares suspended                  5.00 p.m. on 30 November 2005

Calculation Date                              after 5.00 p.m. on 7 December 2005

BSTC Second Extraordinary General Meeting          10.00 a.m. on 8 December 2005

Effective Date for transfer of the assets and liabilities of     8 December 2005
BSTC to BSTC2 and the issue of shares in BSTC2

Announcement of results of Second Extraordinary General Meeting        Noon on 9
and Completion of Scheme                                           December 2005
(if applicable)

Cancellation of listing of BSTC shares                           9 December 2005

Admission of and dealings in the BSTC2 shares to commence       14 December 2005


Background to BSTC2

BSTC2 was launched in November 2000 to offer investors a tax efficient method by
which to participate in a listed investment fund offering exposure to smaller,
earlier stage unquoted companies where innovation, technology or intellectual
property is evident. BSTC2 raised #7.8 million and has to date invested #5.5
million in 18 companies. The net asset value of BSTC2 was 83.8 pence per share
as at 30 June 2005 and the total return was 88.8 pence per share (as extracted
from the unaudited interim results of BSTC2 for the six months ended 30 June
2005).

The view of BSTC2's board is that it is a relatively small fund which has
suffered some erosion of its investment return as a result of the level of
management and administration costs being incurred by BSTC2.

As at 30 June 2005, BSTC2 had #2.7 million of liquid or near liquid funds (as
extracted from the unaudited interim results of BSTC2 for the six months ended
30 June 2005). In the opinion of BSTC2, the working capital available to it is
sufficient for its present requirements, that is for at least the next 12 months
and sufficient to make a limited number of investments to support existing
portfolio companies, but sufficient cash for only a limited number of new
investments.

Following the Venture Capital Trusts (Winding Up and Mergers) (Tax) Regulations
2004 coming into force last year, VCTs can now be merged without prejudicing the
tax reliefs obtained by shareholders on their original investment. With this in
mind, the board of BSTC2 has considered the position of BSTC, a VCT with the
same board of directors and managed by the same investment adviser as BSTC2,
with a view to merging the two companies and creating a VCT of a more
economically efficient size.

The Merger will result in significant cost savings and enhanced administrative
efficiency. Due to their common features, this is achievable without major
additional costs in terms of rearranging the existing board constitution,
investment and administrative arrangements of the two companies.

Overall risk should be reduced as the portfolio is spread across a larger number
of investments and industry sectors. The combined entity will have additional
funds available to support further investment in both new and existing companies
which require additional investment.

After receiving specialist advice and giving the matter full consideration, the
board of BSTC2 believe that the financial reconstruction of the company by way
of the proposed scheme offers an increased level of certainty together with a
more acceptable level of cost. Either BSTC2 or BSTC could have acquired the
assets and liabilities of the other under such a scheme and neither group of
shareholders would be disadvantaged. However, BSTC2 was selected as the acquirer
due to its higher overall return and greater liquidity.

For the audited 12 month period ended on 31 December 2004, total expenditure for
BSTC2 was #375,000 (5.2 per cent of BSTC2's net asset value at that date) and
for both entities was #873,000 (approximately 5.9 per cent of their combined net
asset value). Savings in operational expenditure have been made during the
current year and the directors of BSTC2 believe that further significant savings
will be achieved by combining the companies and removing certain fixed costs.


Background to BSTC

BSTC was launched in January 1999 to offer investors a tax efficient method by
which to participate in a listed investment fund offering exposure to smaller,
earlier stage, unquoted companies where innovation, technology or intellectual
property is evident. BSTC raised #13.9 million and to date has invested #11.4
million in 27 companies. The net asset value was 54.7 pence per share as at 30
June 2005 with a total return of 58.1 pence per share (as extracted from the
unaudited interim results of BSTC for the six months ended on 30 June 2005).

The view of the board of BSTC is that it is a relatively small fund which has
suffered erosion of its investment return as a result of weaker investor and
market sentiment following the late 90's technology "boom" period. Despite an
improvement in performance in the last 18 months the level of management and
administration costs being incurred by BSTC is still high relative to the size
of the fund.

As at 30 June 2005, BSTC had #1.47 million of liquid or near liquid funds (as
extracted from the unaudited interim results of BSTC for the six months ended on
30 June 2005). The directors of BSTC consider that this amount is sufficient to
meet the foreseeable needs of BSTC and to make a limited number of investments
to support existing portfolio companies, but leaves very limited scope for new
investments.

With the Venture Capital Trusts (Winding Up and Mergers) (Tax) Regulations 2004
coming into force last year, the board of BSTC has considered the position of
BSTC2 with a view to merging the two companies and creating a VCT of a more
economically efficient size.

After receiving independent and specialist advice and giving the matter full
consideration, the board of BSTC believe that the financial reconstruction of
BSTC by way of the proposed Scheme offers an increased level of certainty
together with a more acceptable level of costs. Either company could have
acquired the assets and liabilities of the other under such a Scheme and neither
group of shareholders would be disadvantaged. However, BSTC2 was selected as the
acquirer due to its higher overall return and greater liquidity.

For the audited 12 month period ended on 31 December 2004, total expenditure for
BSTC was #498,000 (6.6 per cent of BSTC's net asset value at that date) and for
both entities was #873,000 (approximately 5.9 per cent of their combined net
asset value). Savings in operational expenditure have been made during the
current year and the directors of BSTC believe that further significant savings
will be achieved by combining the companies and removing certain fixed costs.


The Scheme

The Scheme provides for BSTC to be put into members' voluntary liquidation and
for the assets and liabilities of BSTC to be transferred to BSTC2 in
consideration for new shares in BSTC2 of an equivalent value (which would be
issued to shareholders in BSTC). These new BSTC2 shares will rank pari passu
with the existing BSTC2 shares. Following the transfer BSTC will be wound up and
the BSTC shares cancelled.

The number of new shares in BSTC2 to be issued to the shareholders of BSTC will
be calculated by reference to the relative net asset values of the companies as
at the effective date, i.e. 8 December 2005 (the "Roll-Over Value" of BSTC and
the "Merger Value" of BSTC2). These relative net asset values will be based on
the net asset value of each company as at 30 June 2005 adjusted to take into
account movements in the valuations of the each company's portfolio and the
costs of implementing the Scheme allocated pro-rata to the relative net asset
values of each company. Details of the calculation of the Roll-Over Value,
Merger Value and the issue of BSTC2 shares is set out in Annex I below.

As at 30 June 2005, the unaudited net asset value of BSTC was 54.7 pence per
share and its Roll-Over Value, if BSTC had been wound up on that date, would
have been approximately 51.8 pence per BSTC share (assuming no dissenting BSTC
shareholders). The Roll-Over Value cannot finally be determined until after the
close of business on 7 December 2005, this being the last dealing day
immediately prior to the effective date.

The unaudited net asset value of BSTC2 was 83.8 pence per share as at 30 June
2005 and the Merger Value of BSTC2 if the Scheme had been implemented on that
date would have been approximately 82.1 pence per share. BSTC2's Merger Value
also cannot be finally determined until after the close of business on 7
December 2005, this being the last dealing day immediately prior to the
effective date.

If the two companies had been merged as at 30 June 2005, by reference to the
unaudited estimated Roll-Over Value of BSTC and Merger Value of BSTC2 under the
Scheme, shareholders in BSTC would have received 0.63 shares in BSTC2 for every
BSTC share held.


Benefits of the Merger

The boards of BSTC and BSTC2 consider that a merged entity would provide a
number of benefits:

   * participation in a larger VCT with a more diversified portfolio - this
    will disperse the portfolio risk across a broader range of investments,
    technologies, markets and industry sectors;

   * a VCT of a more economically efficient size with a greater capital base
    over which to spread administration and management costs;

   * a significant reduction in management and administrative costs for the
    combined entity (including a lower management fee for the merged entity
    compared to those currently being paid in aggregate by the two companies to
    the investment adviser);

   * merger with a VCT which has a substantially similar investment policy,
    structure and manager without prejudicing existing tax reliefs obtained;

   * a larger pool of investment funds providing the opportunity for improved
    liquidity and flexibility to provide further support for those investments
    offering the highest potential rewards; and

   * increased flexibility in meeting the various requirements for qualifying
    VCT status.



Cancellation of Listing of BSTC

It is the intention of BSTC to apply for cancellation of its listing upon the
successful completion of the Scheme, which is anticipated to be on 8 December
2005.


Costs of the Scheme

The anticipated cost of undertaking the Scheme is #280,000 including legal,
professional and other fees including the winding up of BSTC. Following
completion of the Scheme, annual cost savings for the merged entity of at least
20 per cent per annum will be achieved. On this basis, the directors of BSTC and
BSTC2 believe the transaction costs would be recovered within 18-20 months. In
addition, the Merger is expected to deliver important operational benefits.

Special Interim Dividend Payment

Following the Merger, BSTC2 intends to continue its existing policy of seeking
to pay regular dividends when practicable. BSTC2 and BSTC both paid dividends in
the last 12 months reflecting their strengthened performance. The ability of the
enlarged company to pay dividends should be improved by having a larger, more
diverse portfolio from which income and capital gains can be generated.

In accordance with the above policy, BSTC2 intends to pay a special interim
dividend of 2.0 pence per share to all shareholders (including in respect of the
new BSTC2 shares to be issued pursuant to the Scheme to shareholders of BSTC) on
or about 10 February 2006. The payment of this dividend is conditional on the
completion of the Scheme. The dividend will be payable out of BSTC2's then
available cash resources.



Management, administrative and performance incentive arrangements in BSTC2

YFM has been appointed to provide certain investment advisory and administrative
services to both BSTC2 and BSTC. The directors of BSTC2 have entered into a new
investment advisory agreement, conditional on shareholder approval at the
Extraordinary General Meeting and implementation of the Scheme, under which YFM
will continue to act in their current role and in light of the enlarged entity
the management fee payable to YFM in terms of a proportion of the net assets of
both companies will be reduced.

In order to bring the management fee arrangements for the merged entity into
line with current market practice, it has been agreed by BSTC2 and YFM that,
subject to approval by the shareholders of BSTC2, the fees payable to YFM
following the merger will be an annual fee of 2.5 per cent of the net assets of
the enlarged company from time to time, calculated and payable quarterly in
advance (plus VAT thereon). Based upon the respective companies' unaudited net
asset value as at 30 June 2005 adjusted for the expected costs of the Scheme and
the payment of the proposed Special Interim Dividend, YFM would be paid an
annual fee of #331,000 (plus VAT). Currently, YFM is entitled to fees of
#420,000 (plus VAT) per annum, calculated as a percentage of the funds raised by
BSTC2 and a fixed fee in relation to BSTC. The current fees equate to 3.2 per
cent of the respective companies combined unaudited net asset value as at 30
June 2005 adjusted as above.

As the revised management, performance incentive and administrative arrangements
are being entered into with BSTC2's investment adviser, which is a party
"related" to BSTC2 under the Listing Rules, these arrangements will be regarded
as related party transactions under the Listing Rules and thus require the
approval of the shareholders of BSTC2.

The acquisition of the assets and liabilities from BSTC is also a related party
transaction as it is an arrangement with a company whose funds are also managed
by the BSTC2's investment adviser. The size of the transaction also necessitates
shareholders' approval.



Deferred Management Fees and Related Party Arrangements in BSTC

In its role as investment adviser to BSTC and pursuant to an agreement dated 26
August 2004 reflecting a significant reduction of #170,487 per annum in its
original investment advisory fee, YFM is currently entitled to a fee of #200,000
per annum (increased annually in line with RPI). YFM is also entitled to a
deferred fee arrangement (payable half in shares and half in cash) of an amount
equal to 15 per cent of the aggregate value of the cumulative cash proceeds
realised after 1 January 2004 on the sale or listing of BSTC's investments in
excess of the value of those investments as at 31 October 2003 (subject to a cap
of 110 per cent of the cumulative investment advisory fees foregone) ("Deferred
Fee Arrangement").

In light of the above new fee arrangements the existing management and
administration arrangements (including the Deferred Fee Arrangements) have
agreed to be settled and terminated prior to the transfer and YFM have agreed to
such termination for a one off payment of an amount equal to #199,750 (inclusive
of VAT) to be satisfied by the issue of 439,010 shares in BSTC (at an allotment
price of 45.5 pence per share, this being the average of the mid-market value of
BSTC's shares at close of business on the five business days up to and including
27 October 2005) ("Termination Arrangements"). These shares will be issued to
YFM immediately prior to the transfer on the effective date and will be included
in the transfer of BSTC2 under the Scheme as though such shares were on the
register of members of BSTC on the record date for entitlements under the
Scheme. The Termination Arrangements are conditional on the Scheme being
approved by shareholders and the shares in BSTC will be issued to YFM
immediately prior to the transfer. Had the underlying investments been realised
as at 30 September 2005 by reference to the valuations approved by the board of
BSTC as at that date, YFM would have been entitled to a payment (in cash and
shares) amounting to #284,916 (inclusive of VAT).

As the Termination Arrangements are an arrangement with BSTC's investment
adviser, which is a party 'related' to BSTC under the Listing Rules, the
Termination Arrangements will be regarded as a related party transaction under
the Listing Rules and thus require the approval of the shareholders of BSTC. The
proposed transfer of the assets and liabilities of BSTC to BSTC2 is also a
related party transaction under the Listing Rules, as it is a transaction with a
company which is also managed by BSTC's investment adviser and therefore also
requires shareholder approval. Approval is also required given the nature of the
transaction.

Transfer arrangements
On the effective date, i.e. 8 December 2005, the liquidators of BSTC, William
Duncan and Ian Schofield of PKF (UK) LLP (the "Liquidators") shall procure that
BSTC shall enter into a transfer agreement under which the Liquidators shall
procure the transfer of all the assets and liabilities of BSTC to BSTC2 in
exchange for the issue of shares in BSTC2 to the shareholders of BSTC.
In consideration of such transfer of assets and liabilities of BSTC to BSTC2,
BSTC2 will, pursuant to the transfer agreement, undertake to pay all liabilities
incurred by the Liquidators including but not limited to the implementation of
the Scheme, the winding up of BSTC and the purchase for cash of any holdings of
dissenting shareholders in BSTC.

Conditions of the Scheme

This Scheme is conditional upon:

   * the passing of the resolutions to be proposed at the Extraordinary
    General Meeting of BSTC2;


   * the passing of the resolutions to be proposed at the First and Second
    Extraordinary General Meeting of BSTC;

*   dissent not having been received from BSTC shareholders holding
    more than 10 per cent in nominal value of the issued BSTC share capital 
    under Section 111 Insolvency Act 1986 (this condition may be waived by the 
    board of directors of BSTC).

Documents and Approvals

BSTC2 shareholders, inter alia, will receive a copy of the prospectus together
with a circular convening an Extraordinary General Meeting to be held on 30
November 2005 at which BSTC2 shareholders will be invited to approve resolutions
in connection with the Merger proposals and the arrangements with YFM.

BSTC shareholders will also receive a circular in relation to the Scheme,
together with the prospectus in respect of the BSTC2 shares to be issued to BSTC
shareholders in connection with the Merger. The circular convenes the First and
Second Extraordinary General Meeting at which BSTC shareholders will be invited
to approve resolutions in connection with the Merger and the Termination
Arrangements with YFM.

Copies of the prospectus and the circulars for both BSTC2 and BSTC have been
submitted to the UK Listing Authority and will be shortly available for
inspection at the UK Listing Authority's Document Viewing Facility which is
situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS

Telephone number: 020 7066 1000

Enquiries:

British Smaller Technology Companies VCT 2 plc:
Jim Gervasio
Telephone number: 0113 244 3121

British Smaller Technology Companies VCT plc:
Jim Gervasio
Telephone number: 0113 244 3121


YFM Private Equity Limited
Peter Hindle or David Gee
Telephone number: 0113 294 5050

Nabarro Wells & Co Limited:
Robert Lo and Marc Cramsie
Telephone number: 020 7710 7400

Howard Kennedy:
Keith Lassman or Paul Miller
Telephone number: 020 7636 1616

Martineau Johnson:
Roger Blears or Kavita Patel
Telephone number: 0870 763 2000

The directors of BSTC2 accept responsibility for the information relating to 
BSTC2 and its directors contained in this announcement. To the best of the 
knowledge and belief of such directors (who have taken all reasonable care to 
ensure that such is the case), the information relating to BSTC2 and its 
directors contained in this announcement, for which they are solely responsible,
is in accordance with the facts and does not omit anything likely to affect the 
import of such information.

The directors of BSTC accept responsibility for the information relating to BSTC
and its directors contained in this announcement. To the best of the knowledge 
and belief of such directors (who have taken all reasonable care to ensure 
that such is the case), the information relating to BSTC and its directors 
contained in this document, for which they are solely responsible, is in 
accordance with the facts and does not omit anything likely to affect the import
of such information.

Howard Kennedy are acting exclusively for BSTC2 and for no one else in 
connection with the matters described herein and will not be responsible to 
anyone other than BSTC2 for providing the protections afforded to clients of 
Howard Kennedy for providing advice in relation to the matters described herein.

Nabarro Wells & Co. Limited are acting exclusively for BSTC and for no one else
in connection with the matters described herein and will not be responsible to 
anyone other than BSTC for providing the protections afforded to clients of 
Nabarro Wells & Co. Limited for providing advice in relation to the matters 
described herein.

Martineau Johnson are acting exclusively for BSTC2 and for no one else in 
connection with the matters described herein and will not be responsible to 
anyone other than BSTC2 for providing the protections afforded to clients of 
Martineau Johnson for providing advice in relation to the matters described 
herein.




                                    ANNEX I

                                   THE SCHEME

Definitions and interpretation

The defined terms set out below shall have the same meanings as those defined in
the BSTC2 circular and / or the BSTC circular.

On or immediately prior to the Effective Date, YFM, on the instruction of the
Liquidators, shall calculate the Roll-Over Value in relation to BSTC and the
Merger Value in relation to BSTC2.

Provision of information

On the Effective Date the Liquidators shall receive all the cash, undertakings
and other assets and liabilities of BSTC and shall deliver to BSTC2:

   * particulars of all of the assets and liabilities comprised in BSTC;


   * a list certified by the BSTC's registrars of the names and addresses of,
    and the number of BSTC shares held by, the shareholders on the register at
    5.00 p.m. on the Record Date;


   * an estimate of the costs to wind-up BSTC which will form part of the
    Scheme costs;


   * the amount estimated to purchase the holdings of dissenting
    shareholders; and


   * the Roll-Over Value of BSTC.

Calculations of value/issue of Shares

Except as otherwise provided in this Scheme, for the purposes of calculations of
value and the issue of shares in BSTC2, the following provisions shall apply:

Roll-Over Value of BSTC shall be calculated as:

A + (B + C + D) - (E + F)

where:

A = the unaudited net asset value of BSTC as at 30 June 2005;

B = any increase/decrease in the valuation of the investments of BSTC held in
securities listed on a recognised stock exchange (including AIM and OFEX) by
reference to their bid price as at the close of business from 30 June 2005 to 7
December 2005;

C = any increase/decrease in the valuations of unquoted investments held by BSTC
where there has been an event in the period between 1 July 2005 and 7 December
2005 which (i) requires a revaluation of the investment in accordance with
Financial Reporting Standard 26 'Financial Instruments: measurement (IAS 39)'
and using the International Private Equity and Venture Capital Valuation
Guidelines or (ii) in the opinion of the directors of BSTC has had a material
impact on the value of the investment;

D = changes in the working capital of BSTC including changes in cash balances
from 30 June 2005 to 7 December 2005;

E = an amount equal to the pro-rata allocation (such allocation to be based on
Roll Over Value / Merger Value of the companies as at 7 December 2005 excluding
E) of the costs of the Scheme which are payable by BSTC plus #10,000
representing an amount of contingency to cover any unforeseen additional costs
incurred by BSTC2 which will undertake to meet all costs of BSTC following the
transfer on the Effective Date; and

F = the amount estimated to purchase the shareholdings of dissenting
shareholders.

The Merger Value of BSTC2 shall be calculated as follows:

A + (B + C + D) - E
where:

A = the unaudited net asset value of BSTC2 as at 30 June 2005;

B = any increase/decrease in the valuation of the investments of BSTC2 held in
securities listed on a recognised stock exchange (including AIM and OFEX) by
reference to their bid price as at the close of business from 30 June 2005 to 7
December 2005;

C = any increase/decrease in the valuations of unquoted investments held by
BSTC2 where there has been an event in the period between 1 July 2005 and 7
December 2005 which (i) requires a revaluation of the investment in accordance
with Financial Reporting Standard 26 'Financial Instruments: measurement (IAS
39)' and using the International Private Equity and Venture Capital Valuation
Guidelines or (ii) in the opinion of the Directors has had a material impact on
the value of the investment;

D = changes in the working capital of BSTC2 including changes in cash balances
from 30 June 2005 to 7 December 2005; and

E = an amount equal to the pro-rata allocation (such allocation to be based on
the Roll-Over Value/Merger Value of the companies as at 7 December 2005
excluding E) of the costs of the Scheme which are payable by BSTC2.

The number of shares in BSTC2 to be issued to the shareholders of BSTC pursuant
to the Scheme shall be calculated as follows:

A x (B/C)

where:

A = the number of BSTC shares in issue (including the BSTC shares to be issued
to YFM in connection with the termination of a deferred fee arrangement with
BSTC);

B = the Roll-Over Value divided by the number of BSTC shares in issue (including
the BSTC shares to be issued to YFM referred to above); and

C = the Merger Value divided by the number of shares in issue in BSTC2.

The shares in BSTC2 will be issued to the shareholders of BSTC pro rata to their
holdings in BSTC on the Record Date (including the BSTC shares to be issued to
YFM in connection with the Termination Arrangements as though such shares were
on the register of members of BSTC on the Record Date). Entitlements will be
rounded down to the nearest whole number and any fractional entitlements not
exceeding #5 in value will be sold in the market for the benefit of BSTC2.




                      This information is provided by RNS
            The company news service from the London Stock Exchange

END
MERFSWFIFSISESF