Operational Update

RNS Number : 7392X
Powerhouse Energy Group PLC
20 February 2012
 



20 February 2012

 

PowerHouse Energy Group plc

("the Company", "PowerHouse")

 

 

THIRD COMMERCIAL CONTRACT

 AND RESTRUCTURING OF US OPERATIONS

 

PowerHouse Energy Group plc, (AIM: PHE) an alternative energy business specialising in the sale of waste to energy systems, announces an operational update on the activities of Pyromex Holding AG ("Pyromex") and the Company.

 

Highlights

 

·     Pyromex announces a third commercial contract (initial payment pending)

 

·     Pyromex continues manufacturing on two commercial contracts for previously-announced 5tpd UHTG reactors

 

·     Conditional agreement to restructure PowerHouse's US operations

 

·     Elimination of duplicated operational overheads from restructuring estimated to provide savings of US$1,500,000 per year

 

Ross Lyndon-James, Executive Chairman of PowerHouse, said:

 

"PowerHouse is pleased with the increasing market interest for 5tpd Pyromex reactors, evidenced by a third commercial sale by Pyromex which effectively showcases the technology for larger scale opportunities. We have also restructured US operations to maintain a presence in that market whilst maximizing the concentration of our resources primarily on strategic European markets following the intended acquisition of Pyromex. This change will save the enlarged Group approximately US$1,500,000 per year in operational costs with no loss of opportunity."

 

For additional information please contact:

PowerHouse Energy Group plc

Ross Lyndon-James

+44 (0) 20 7887 1362

 

Merchant Securities Limited (NOMAD and Broker)

David Worlidge/Simon Clements

+44 (0) 20 7628 2200

 

Pelham Bell Pottinger

Nick Lambert / Charles Stewart

+44 (0) 20 7861 3232

 



 

Update on trading activities of Pyromex

 

Pyromex has signed a third commercial sales contract (initial payment pending) for a 5 ton per day ("tpd") ultra-high temperature, zero emission gasification reactor for the conversion of biomass to electricity. Further details will be announced by PowerHouse following receipt of the initial payment.

 

Pyromex continues manufacturing the ultra-high temperature, zero emission gasification ("UHTG") reactors for its two recently announced commercial contracts. This manufacturing phase brings with it the first commercial revenues, with payments to be made progressively over the manufacturing period.

 

Testing on the Pyromex 25 tpd reactor in Munich has been intermittent while Pyromex focuses on gearing up manufacturing for the completion of the current and future 5 tpd sales in its pipeline. PowerHouse intends on accelerating testing activity once the acquisition has been finalised.

 

Restructuring of PowerHouse's US operations

 

PowerHouse has entered into a binding heads of agreement with David Moard, an executive director of the Company, and Thomas McMahon, a director of PowerHouse Energy, Inc ("PHEI")("the Founders"), a wholly owned subsidiary of the Company, conditional upon completion of the acquisition of the remaining 70 per cent. interest in Pyromex not already held by the Company, to restructure its US operations.

 

Under the terms of the agreement:

 

-           David Moard, Thomas McMahon and the rest of the US-based management team will leave the employment of PowerHouse Energy, Inc ("PHE, Inc");

 

-           David Moard, Thomas McMahon and others intend forming a new company which will be granted a non-exclusive licence ("Licence") to make, use and sell Pyromex UHTG reactors in North America, including US territories and protectorates ("Territory").  In addition, the new company will have a limited exclusive right to manufacture reactors incorporating the Pyromex Technology in the Territory until 31 March 2013. The Licence, whose terms shall be as set out in PHE, Inc's existing Pyromex licence agreement with a 5 per cent. royalty and will exclude the licence maintenance payment, shall not conflict or impair in any way with the rights over the Pyromex Technology granted to other licensees or Linc Energy Ltd and accordingly the Licence is subject to those licensees' existing rights;

 

-           As compensation for the granting of the Licence, the Founders will grant a Call Option to the Company on the following terms:

 

•          the Call Option will be in respect of 50,623,204 shares in the capital of the Company held by the Founders (being 60 per cent. of each Founder's holding)("the Option Shares");

•          the Call Option shall be exercisable for a period of 18 months from Closing (Option Period);

•          the exercise price for the Call Option shall be 25 per cent. of market price, being the average closing mid-market price for the 10 business days prior to the date  at the time of exercise of the option;

•          the Call Option shall be assignable by the Company in whole or in part to any third party;

•          the Call Option may be exercised in whole or in part and on any number of occasions during the Option Period;

 

The first US$400,000 of profit (surplus above exercise cost) on disposal of any Option Shares by the Company is to be paid to the Founders ("Profit Payment"). In the event that the Company exercises the option over any or all of the Option Shares then the Company will pay to the Founders a sum equal to US$400,000 less any prior Profit Payment already paid at such date;

 

-           At Closing, the Company will pay US$350,000 to the Founders as directed in satisfaction of all liabilities owed by PHE, Inc to its employees, including the loans and historical amounts repayable to the Founders, of which $200,000 is repayable to the Company in certain circumstances.  All existing, non-personnel related, PHE, Inc. assets and liabilities remain with PHE, Inc.;

 

-           With the exception of the Australian sales and sales prospects, all PHE, Inc. sales in process and sales prospects are transferred to the Founders and the Founders indemnify the Company against any claims in respect of such matters;

 

-           The agreement is conditional upon completion of the acquisition of the remaining 70 per cent. of Pyromex and shall expire on 12 March 2012 unless extended by mutual agreement of the parties. In the agreement, Closing shall mean the date on which the Company completes the acquisition of 70 per cent. of Pyromex; and

 

-           On completion of this agreement, David Moard will resign as a director of the Company.

 

Under the AIM Rules, the US Restructuring is classified as a related party transaction for the purposes of Rule 13 of the AIM Rules.

 

The Independent Directors, having consulted with the Company's Nominated Adviser, Merchant Securities Limited, consider the terms of the US Restructuring to be fair and reasonable insofar as the Company's shareholders are concerned.  In advising the Independent Directors, Merchant Securities Limited has taken into account the commercial judgement of the Independent Directors.

 

Reasons for the US Restructuring

 

The Independent Directors consider that the US Restructuring will enable the enlarged Group to eliminate duplicated operational overheads between Pyromex in Switzerland and the Company's US operations and estimate that this could result in cost savings of approximately US$1,500,000 per year.  This will allow the enlarged Group to focus its resources on the European operations, existing and pending Pyromex orders and the considerable near term European sales opportunities.

 

In addition, the granting of a non-exclusive license in return for the Call Option Shares does not limit the Company's future opportunities in the Territory. In the event of any sales of Pyromex UHTG reactors that are sold in North America by the Licensee, the enlarged Group will receive a royalty payment.

 

<ends>

 

 


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