Acquisition

RNS Number:7806T
Oxeco PLC
27 March 2007


Oxeco Plc ("Oxeco" or the "Company")


Acquisition of Oxray Limited



Oxeco is pleased to announce that the Company is proposing to acquire the entire
issued share capital of Oxray Limited ("Oxray"). Oxray is currently a start up
business with the objective of becoming a provider of molecular structure
determination services to both industry and academic institutions. This is to be
achieved by developing novel molecular structure determination software in house
as well as in-licensing IP and potentially also making acquisitions in this
field.



The total consideration will be #2 million by the issue of 200,000,000 new
ordinary shares at 1 penny per share ("Consideration Shares") at a 4.5 pence
discount to the mid-market closing price of 5.5 pence per Ordinary Share on 26
March 2007. This will give the shareholders of Oxray a holding of 33.3 per cent
in the enlarged group. The proposed acquisition of Oxray falls within the ambit
of Rule 9 of the City Code on Takeover and Mergers the City Code.



The Consideration Shares will rank pari passu with the existing Ordinary Shares.

This transaction does not constitute a reverse takeover under the AIM rules.



The acquisition is subject to:



1. The granting of the rule 9 waiver by the Panel on Takeover and Mergers; and



2. The approval of all resolutions at the EGM.



EGM



At the EGM the following resolutions will be proposed:



*        as an ordinary resolution, to approve the Acquisition;

*        as an ordinary resolution, to approve, for the purposes of section 320
of the Act, the entry by the Company into the Norwood Agreement (everybody
except David Norwood and Michael Bretherton may vote);

*        as an ordinary resolution on a poll, to approve the Rule 9 waiver as
mentioned above ;and

*        as an ordinary resolution, to approve the ongoing investment strategy.





Shareholders will receive further information regarding the date of the EGM,
issue of the related circular and information in relation to the granting of the
rule 9 waiver in further announcements without delay.





Information on Oxray



Oxray was incorporated on 31 August 2006 with the objective of becoming a
provider of molecular structure determination services to both industry and
academic institutions. This is to be achieved by developing novel molecular
structure determination software in house as well as in-licensing IP and
potentially also making acquisitions in this field.



Determining or verifying the molecular structure of a compound is a fundamental
research activity that underpins some of the most commercially important areas
of science being drug discovery, synthetic chemistry and materials science.
Oxray's initial focus is a structure determination technique known as X-ray
crystallography.



Oxray's shareholders include Professor Stephen Davies, who is currently chairman
of the Department of Chemistry at the University of Oxford and founder of both
Oxford Asymmetry International plc and VASTox plc, and Dr David Watkin, the
leader of the Chemical Crystallography Laboratory at the University of Oxford.



The Technology

The process of determining a molecular structure using X-ray crystallography
involves two main processes:



1. X-ray diffraction

X-ray diffraction uses a specialist X-ray source, a diffractometer, to generate
a diffraction pattern that occurs when the X-rays encounter a crystal (i.e. a
molecular structure in crystalline form). The basic physics behind the technique
has been understood for nearly 100 years.



2. Interpretation of the X-ray data

Currently the interpretation of the data generated by the X-ray diffraction
process typically requires a mixture of software tools and human intervention.
Evolved versions of these programmes are used widely in current molecular
structure analysis but because they are written in old programming languages
they are becoming increasingly difficult to maintain and develop.



Oxray's R&D objective is to develop novel structure determination software that:



*        is designed to industrial standards and written in modern maintainable
programming languages;

*        offers improved reliability; and

*        enables improved performance by minimising the requirement for human
intervention.



The Market

The market for X-ray crystallography is currently relatively informal in nature,
comprising a mixture of in-house laboratory work within large companies,
academic and public-sector institutes and some specialist commercial providers.



Since X-ray crystallography is largely performed within industrial and academic
institutions the market value is difficult to measure as such information is not
widely reported by those Institutions. Therefore, it is estimated that the total
market value for molecule and protein structure determination is $2.55billion
per annum which is made up of $1.2billon for small molecule structure
determination and $1.35billion for large structures/proteins. These figures
include X-ray crystallography, mass spectrometry and nuclear magnetic resonance
techniques. The market for small molecule X-ray crystallography is estimated at
$200million per annum.



Commercial Objectives of Oxray

Oxray's primary objectives are the development of novel X-ray crystallography
structure determination software and the provision of a small molecule X-ray
crystallography structure service. The service will use a web portal behind
which the company will work to maximise the extent to which the service can be
automated. The company intends to offer standardised response times to its
customers but will also market premium services such as a fast-response and
extended scientific reporting suitable to support customers'patent applications.



Future Opportunities

In addition to the objectives described above, the directors of Oxray believe
that there are a number of other opportunities which it will be able to pursue
as it builds its reputation in the small molecule X-ray crystallography market:



*        Large molecules/proteins

The resolution of large molecule/protein structures is generally regarded as a
more technically challenging field but an area of growing demand.

*        Structure determination techniques other than X-ray crystallography

The directors of Oxray plan to extend Oxray's service provision to include
structure determination techniques such as mass spectroscopy and NMR.

*        Powder diffraction

Powder diffraction is a method for verifying the structure of molecules which
are available as microcrystalline powders. The Directors and Proposed Directors
(as defined below) believe there is an opportunity to improve the accuracy of
the interpretation of the data generated by powder diffraction techniques in
order to extend the technique's utility.





Trading

Oxray has no trading history but has prepared financial statements, for purposes
of the Acquisition, for the period from incorporation to 31 December 2006 where
it recorded audited net assets of #92,105. The Directors and Proposed Directors
aim to generate revenues during the short term and continue to maintain a low
cost structure for the company. Oxray has recently employed three members of
staff to implement the business plan and rents premises in Oxford.



Related Party Transaction

David Norwood, a director of Oxeco, also holds 28 per cent of the issued share
capital of Oxray. and so before he can agree to sell his shares in Oxray to the
Company, that arrangement must be approved by shareholders in general meeting
pursuant to section 320 of the Act. A resolution will therefore be proposed at
the EGM to approve, for the purposes of section 320 of the Act, the entry by the
Company into an agreement with David Norwood whereby the Company will acquire
Oxray shares from David Norwood. The acquisition of Oxray is also a related
party transaction for the purposes of the AIM Rules for Companies.





The Acquisition Agreement

Under the terms of an agreement dated 23 March 2007 made between the Company (1)
Professor Stephen Davies, IPX Global Limited, Dr David Watkin, and

John Montgomery (together "the Vendors") (2), Jussi Westergren (3), and David
Norwood (4) ("the Acquisition Agreement") the Company conditionally agreed to
purchase 72 per cent of the entire issued share capital of Oxray. The
consideration, which is payable on admission, is #1,440,000 (which will be
satisfied by the allotment by the Company of 144,000,000 new Ordinary Shares to
the Vendors credited as fully paid at 1 penny per share).



The Acquisition Agreement is conditional upon, inter alia, (i) the Resolutions
being passed; (ii) the agreement with David Norwood having been entered into by
both parties thereto; (iii) and admission of the Consideration shares to AIM ("
Admission").



The Company has a right to rescind the agreement if a material adverse change
occurs in relation to the assets or financial position of Oxray prior to
Admission. The Vendors have a right to rescind the agreement if a material
adverse change occurs in relation to the Company prior to Admission.



The Acquisition Agreement contains restrictive covenants from the Vendors, Jussi
Westergren and David Norwood. The Acquisition Agreement contains certain
warranties and indemnities from the Vendors and David Norwood (together "the
Warrantors") to the Company ("the Seller Warranties"). Such warranties are given
on a several basis. The Acquisition Agreement contains certain warranties and
indemnities from the Company to the Warrantors ("the Buyer Warranties"). The
Acquisition Agreement contains a maximum liability of the Warrantors for breach
of the Seller Warranties and a maximum liability of the Company for breach of
the Buyer Warranties. The liability of the Warrantors under the Seller
Warranties and of the Buyer under the Buyer Warranties shall cease three months
after the publication of the audited accounts of the Group for a period ending
not earlier than 30 September 2007.



The Norwood Agreement

It is proposed that immediately following the EGM assuming that the relevant
resolution is passed the agreement with David Norwood ("the Norwood Agreement")
will be entered into between David Norwood (1) and the Company (2) whereby the
Company conditionally agrees to purchase 28 per cent of the entire issued share
capital of Oxray. The consideration, which is payable on Admission, will be
#560,000 (and will be satisfied by the allotment by the Company of 56,000,000
new Ordinary Shares to David Norwood credited as fully paid at 1 pence per
share).



The Norwood Agreement is conditional only upon Admission. As David Norwood gave
warranties and restrictive covenants under the Acquisition Agreement, there will
be no similar provisions in the Norwood Agreement.



The entry by the Company into the Norwood Agreement will be a related party
transaction for the purposes of the AIM Rules. The Directors (other than David
Norwood and Michael Bretherton) confirm that, having consulted with Zimmerman
Adams International Limited, the Company's nominated adviser, they consider the
terms of the Norwood Agreement to be fair and reasonable insofar as the
Shareholders are concerned.





Ongoing Investment Strategy

The Directors and Proposed Directors intend to continue to identify
opportunities they believe fulfil the Company's original objectives of investing
in the technology and science sectors and especially those which are
complementary to the Company's enlarged business. Acquisitions and investments
may be funded with a combination of equity and cash, although the Company may
also utilise debt under certain conditions.



It is still anticipated that any further acquisitions, other than pure
intellectual property transactions, will be structured through limited liability
vehicles. The Directors will continue to be active investors and monitor any
investments and/or acquisitions made by the Company.



It is not the current intention of the Directors or Proposed Directors that the
Company will seek further funds from Shareholders.



A resolution will be proposed at the EGM to approve the ongoing investment
strategy.



Proposed Directors

On completion of the Acquisition, the following directors are proposed to join
the board of the Company.



Jussi Westergren, aged 36 (Proposed Executive Chairman)



Jussi Westergren's academic background lies in theoretical physics and
mathematics. He studied at McGill University, Canada, the University of Helsinki
and The University of Oxford respectively. In 1994 he founded his first company,
Lateral Logic, in Montreal to develop complex simulation software primarily for
specialised engineering and gaming applications. In 1998, Jussi sold Lateral
Logic and in 2000 he set up a second company, GameCluster, Oy, a distributed
computing company based in Helsinki. GameCluster, Oy was sold in 2003 to
Softbank. In 2001, Jussi launched Capacity Networks, based in the UK and
Helsinki, which focuses on providing technology solutions to the leading games
companies. Jussi is a founder shareholder of SRC Holdings (BVI) Limited, a
holding company with diverse technology and research interests which owns all of
the share capital of IPX Global Limited, a company that focuses on the
commercialisation of IP in the field of molecular physics and shareholder in
Oxray.



Professor Stephen Davies, aged 56 (Proposed Non-executive Director)



Steve is currently chairman of the Department of Chemistry at the University of
Oxford. He has published over 420 research papers, and has been the recipient of
a numerous awards for his contribution to organic synthesis, including the
Hickinbottom Fellowship (1984), the Pfizer Award for Chemistry (both 1985 and
1988), the Royal Society of Chemistry Award for Organometallic Chemistry (1987).



In 1992 Steve founded the spin-out chemistry service company Oxford Asymmetry,
followed in 1995 by the combinatorial chemistry company Oxford Diversity. These
were combined in 1998 for the floatation of Oxford Asymmetry International which
was subsequently merged in 2000 with Evotec (to form Evotec-OAI). In 2003, Steve
became a founding shareholder of VASTox Limited, the holding company of which
floated on AIM in 2004.



David Norwood will continue to act as non-executive director albeit
non-independent and Graham Richards will change roles from Non-executive
Chairman to a Non-executive Director if Shareholders approve the Proposals.



Lock-Ins and Orderly Market Arrangements

At Admission, the Vendors and David Norwood will, in aggregate, be interested in
200,500,000 new Ordinary Shares, representing approximately 33.33 per cent. of
the Enlarged Share Capital. The Vendors and David Norwood have agreed to
undertake to the Company, ZAI and Hichens Harrison that they will not sell or
dispose of, except in certain limited circumstances (as permitted by the AIM
Rules), any interest in Ordinary Shares held by them at any time before the
second anniversary of Admission, save in certain limited circumstances.



In addition:



*        Ora Capital partner plc ("Ora") Ora has agreed to undertake to the
Company, ZAI and Hichens Harrison that it will not sell or dispose of, except in
certain limited circumstances (as permitted by the AIM Rules), any of its
interest in Ordinary Shares at any time before the second anniversary of
Admission;



*        Bainunah Trading Limited has agreed to undertake to the Company, ZAI
and Hichens Harrison that it will not sell or dispose of, except in certain
limited circumstances (as permitted by the AIM Rules), any of its interest in
Ordinary Shares at any time before the first anniversary of Admission and, for
the 12 months immediately following, will effect a sale only through the brokers
for the time being of the Company with a view to maintaining an orderly market
in the Ordinary Shares;





*        Graham Richards and Michael Bretherton have each agreed to undertake to
the Company, ZAI and Hichens Harrison that they will not sell or dispose of,
except in certain limited circumstances (as permitted by the AIM Rules), any of
their respective interests in Ordinary Shares at any time before 21 December
2007 (being the first anniversary of the admission of the existing Ordinary
Shares to trading on AIM) and, for the 12 months immediately following, will
effect a sale only through the brokers for the time being of the Company with a
view to maintaining an orderly market in the Ordinary Shares.



Controlling Shareholder

On completion of the Acquisition, Ora will hold Ordinary Shares representing
approximately 45.53 per cent. of the enlarged issued share capital of the
Company. The Directors are satisfied that the Company is capable of carrying on
its business independently of Ora and that all transactions and relationships
between Ora and the Company are and will continue to be at arm's length and on
commercial terms.



To ensure that Shareholders continue to be adequately protected in this regard,
the Company and Ora have entered into a new relationship agreement which,
conditional on Admission taking place before 30 April 2007, will replace the
relationship agreement entered into with Ora on 12 December 2006) to reflect the
fact that, following completion of the Acquisition, the Company will have new
investment interests following its first acquisition. Pursuant to the
Relationship Agreement, Ora has given certain undertakings to the Company to the
effect that the Board can amongst other things operate on an independent basis.
In considering any proposed arrangements or contracts between Ora and the
Company, David Norwood and Michael Bretherton are not considered to be
independent of Ora and will abstain from voting on any such arrangements or
contracts at any Board meeting of the Company.



The Relationship Agreement is effective for so long as Ora, together with its
associates, hold (whether directly or indirectly) in aggregate, shares in the
capital of the Company representing 25 per cent. or more of the Company's entire
issued ordinary share capital.










CONTACT
Oxeco Plc - Michael Bretherton                              020 7099 7260


Zimmerman Adams International - Nominated Adviser           020 7060 1760

Ray Zimmerman/Jonathan Evans





                      This information is provided by RNS
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