MTP Midatech Pharma PLC

PART 1

LETTER FROM THE CHAIRMAN

MIDATECH PHARMA PLC

(incorporated and registered in England and Wales with registered number 09216368)

To the holders of Existing Ordinary Shares and for information purposes only to the holders of Existing
Options and Existing Warrants

5 January 2023

Dear Shareholder,

Proposed Acquisition of Bioasis Technologies Inc.
Conditional Private Placement to raise US$9.6 million
Authority to allot up to 1,600,000,000 New Ordinary Shares
Dis-application of pre-emption rights
Change of Name to Biodexa Pharmaceuticals PLC
and
Notice of General Meeting

1. INTRODUCTION

As previously announced, most recently on 19 December 2022, the Company has sufficient funding until mid-March 2023. Accordingly, the Board has for some time actively sought and assessed potential opportunities for raising finance to both extend the Company’s cash runway and progress its key development assets. These included opportunities which would have likely resulted in winddown of the Company’s operations with no meaningful value placed on the Company’s assets other than its listings on NASDAQ and AIM, and transactions that, due to their size, would require re-admission to AIM, a re-listing on NASDAQ and filing of a new Registration Statement with the SEC which would have exhausted the Company’s remaining cash resources.

Therefore, having considered the actionable options available to the Company, especially including consideration of the impact of dilution on existing investors, the Board has concluded that an acquisition of Bioasis, a company which it believes has a promising development pipeline, along with a US$10 million aggregate financing offers a compelling strategic opportunity for Shareholders, including:

On 13 December 2022, the Company announced that it had conditionally agreed to acquire the entire issued and to be issued share capital of Bioasis, a biopharmaceutical company focused on research and development of products for the treatment of rare and orphan neurodegenerative diseases of the nervous system, for consideration of, in aggregate, approximately C$7.4 million (c.£4.4 million), to be satisfied by the issue of new Ordinary Shares (to be converted to ADS form) in Midatech on the basis of 0.9556 Ordinary Shares for every outstanding Bioasis Share. Based on the middle market closing price of an Ordinary Share on AIM on 12 December 2022 of US$0.0718 (£0.0585 based on the exchange rate of £1:US$1.23 recorded on 12 December 2022), being the last trading day prior to the announcement of the Transactions, this represents a price of US$0.0686 (£0.0559 based on the exchange rate of £1:US$1.23 recorded on 12 December 2022) for every Bioasis Share. The Acquisition will be implemented by way of a statutory Plan of Arrangement in accordance with the laws of the Province of British Columbia, Canada.

Also on 13 December 2022, Midatech announced a two-stage fundraising of approximately US$10 million (c.£8.2 million) comprising (i) gross proceeds of approximately US$0.4 million (c.£0.3 million) raised pursuant to the Registered Direct Offering in the United States utilising the Company’s existing share authorities, and (ii) gross proceeds of approximately US$9.6 million (c.£7.9 million) pursuant to a Private Placement in order to provide the Enlarged Group with additional working capital and to repay certain of the Bioasis indebtedness. The Registered Direct Offering closed on 16 December 2022 and 9,849,325 new Ordinary Shares were admitted to trading on AIM on 19 December 2022. The Private Placement is conditional upon, inter alia, completion of the Acquisition and the Private Placement, the Shareholders approving the Resolutions, as well as the Bioasis Shareholders approving the Acquisition Resolutions, and the Final Order.

The Acquisition is conditional, inter alia, upon the Arrangement being approved by the Court and the Bioasis Securityholders, the Private Placement and the approval by Existing Shareholders of the Resolutions at the Company’s General Meeting to be held on 23 January 2023, notice of which is set out at the end of this Document. Completion is expected to occur by the end of February 2023.

Bioasis is a corporation existing under the laws of British Columbia and its shares are traded on the TSX-V under the stock symbol “BTI”. As required by the Bioasis Articles, the Interim Order and the BCBCA, the Acquisition is also subject to approval by the Bioasis Securityholders at a special meeting. Bioasis will shortly publish a circular in connection with the Acquisition and is planning to call its special meeting for 1.00 p.m. (Vancouver time) on or around 3 February 2023. In connection with the statutory Plan of Arrangement for the implementation of the Acquisition, the Acquisition is also subject to approval by the Supreme Court of British Columbia.

The Company will, subject to certain conditions including, inter alia, Shareholder approval, issue in aggregate, 141,517,771 new Ordinary Shares (the “Transaction Shares”) comprising: (i) 75,884,553 new Ordinary Shares to be allotted and issued to Bioasis Shareholders as consideration in connection with the Acquisition (the “Consideration Shares”); (ii) 14,846,550 new Ordinary Shares to be allotted and issued to the Placee pursuant to the Private Placement (the “Placing Shares”); (iii) 22,922,812 new Ordinary Shares to be allotted and issued to Lind in consideration of the repayment of certain of the Lind indebtedness pursuant to the Bioasis Convertible Security Agreement (the “Lind Shares”); and (iv) 27,863,856 new Ordinary Shares to be allotted and issued to Ladenburg in consideration for fees of US$2.0 million owed by Bioasis to Ladenburg pursuant to the Bioasis Investment Banking Agreement (the “Ladenburg Fee Shares”). The Transaction Shares will, following Completion, be deposited with the Depositary Bank in order to issue ADSs based on a ratio of one ADS for every 25 Transaction Shares issued. Each issued Transaction Share held immediately prior to Completion will be converted into the right to receive ADSs pursuant to the Exchange Ratio. This is set out in more detail below in the Company Capital Table set out on page 29 of this Circular.¹

At Completion, Existing Shareholders will own approximately 43.4 per cent., and Bioasis Shareholders will own approximately 30.4 per cent., of the Enlarged Issued Share Capital of the Enlarged Group based on the current issued share capital of Midatech and Bioasis.²

Based on a price of £0.0585 per Ordinary Share (being the closing price of the Ordinary Shares on AIM on 12 December 2022, the last trading day prior to the announcement of the Transactions), the Consideration Shares underlying the ADSs to be issued in exchange for the Bioasis Shares in the Acquisition represented (on 12 December 2022) an aggregate value of approximately £4.4 million and an offer price per Bioasis Share of US$ 0.0686.

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The issuance of the Consideration Shares to Bioasis Shareholders in exchange for their Bioasis Shares has not been and will not be registered under the Securities Act or any US state securities laws, and will be issued to Bioasis Shareholders in reliance on the Section 3(a)(10) Exemption. The Section 3(a)(10) Exemption exempts the issuance of any securities issued in exchange for one or more bona tide outstanding securities from the general requirement of registration where the terms of the issuance and exchange of such securities have been determined by a court of competent jurisdiction, expressly authorised by Legal Requirements to grant such an approval, to be substantively and procedurally fair to the recipient of the securities, after a hearing upon fairness of the terms and conditions of such issuance and exchange at which all persons to whom it is proposed to issue the securities have the right to appear and receive timely and adequate notice thereof.

The Consideration Shares issued to Bioasis Shareholders pursuant to the Arrangement will not be registered under the Securities Act, but will be freely tradeable under the Securities Act, except by persons who are “affiliates” (as defined in Rule 144 of the Securities Act) of Midatech after the completion of the Arrangement or who were affiliates of Midatech within 90 days prior to completion of the Arrangement. The Consideration Shares issued to Bioasis Shareholders who are such affiliates (or former affiliates) will be subject to certain restrictions on resale imposed by the Securities Act.

The Consideration Shares issued to Bioasis Shareholders pursuant to the Arrangement will be issued in reliance upon exemptions from the prospectus requirements of securities legislation in all of the provinces and territories in Canada. Subject to certain disclosure and regulatory requirements and to customary restrictions applicable to distributions of shares that constitute “control distributions”, ADSs issued pursuant to the Arrangement may be resold in the provinces and territories of Canada, as applicable, subject in certain circumstances to the usual conditions that no unusual effort has been made to prepare the market or create demand and that the other conditions set out at Section 2.6 of National Instrument 45-102 – Resale of Securities of the Canadian Securities Administrators are met.

Bioasis is a reporting issuer (or the equivalent) in the provinces of British Columbia and Alberta. The Bioasis Shares currently trade on the TSX-V. Bioasis will apply to have the Bioasis Shares de-listed from the TSX-V, subject to the completion of the Arrangement. After the Acquisition, Bioasis will apply to the applicable Canadian securities regulators to have Bioasis cease to be a reporting issuer.

Midatech is not currently a reporting issuer in any jurisdiction in Canada. Upon completion of the Arrangement, Midatech will become a reporting issuer in the provinces of British Columbia and Alberta by virtue of the completion of the Arrangement and anticipates that it will be an “SEC foreign issuer” pursuant to National Instrument 71-102 – Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (“NI 71-102”) of the Canadian Securities Administrators. As a result, Midatech expects to be able to satisfy the timely and continuous disclosure requirements of Canadian securities legislation as permitted under NI 71-102, provided Midatech complies with the requirements of U.S. securities laws and U.S. market requirements in respect thereof and Midatech files with the relevant provincial securities regulatory authorities copies of the applicable documents filed with or furnished to the SEC.

The Placee has committed to subscribe for the Units and the Pre-Funded Warrants at the Placing Price prior to Completion raising gross proceeds of approximately US$9.6 million (c.£7.9 million). These funds (less certain existing indebtedness in Bioasis repayable on Completion and the costs associated with the Transaction) will be available to the Enlarged Group as new capital following Completion, giving the Enlarged Group an operational cash runway to the beginning of the fourth quarter of 2023, following which further funding will be required.

The Company also announced on 13 December 2022 that it had undertaken a Registered Direct Offering. Midatech has used the net proceeds raised in the Registered Direct Offering to fund part of the loan of US$750,000 (approx. £620,000) to Bioasis pursuant to the terms of the Bioasis Promissory Note, to assist in the short term with Bioasis’ working capital requirements. The Plan of Arrangement is a complex process which is expected to complete by the end of February 2023. Consequently, to ensure that Bioasis and Midatech each have sufficient working capital during this period Midatech agreed to undertake the Registered Direct Offering in order to raise sufficient funds so as to loan the same to Bioasis in the short term whilst the parties seek to complete the Transactions.

Following the Registered Direct Offering, the Existing Directors currently have minimal existing authorities to allot shares and disapply pre-emption rights under section 551 and section 570 of the Act which were obtained at the Company’s annual general meeting held on 20 June 2022. However, these would be insufficient to enable the Company to allot and issue the maximum amount of the Transaction Shares and the Warrant Shares to the extent that the New Warrants are exercised. Accordingly, the Proposals are conditional upon, inter alia, the Company obtaining appropriate Shareholder authorities at the General Meeting to allot the Transaction Shares and the Warrant Shares and to disapply statutory pre-emption rights which would otherwise apply to such allotment.

The Transaction Shares will be deposited with the Depositary Bank which will issue a proportionate number of New ADSs. The New ADSs are expected to be admitted to trading on NASDAQ on or soon after Completion.

At Completion the Company will, subject to Shareholder approval, issue the New Warrants convertible into new Ordinary Shares in connection with the Private Placement to purchase up to 917,601,024³ Ordinary Shares, which will be payable in ADSs.

Following Completion, the interests of the Bioasis Shareholders, the Placee and Lind in the securities of the Company are set out in the Company Capital Table below:

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If all of the New Warrants are exercised for cash, the Enlarged Group will receive up to approximately US$26.7 million in gross proceeds.

In addition, each Bioasis Option that is outstanding and unexercised immediately prior to the Effective Time, whether or not vested, shall be exchanged for a New Option (fully vested) issued pursuant to the New Option Plan to acquire the number of Ordinary Shares (in the form of ADSs) which shall be equal to (i) the Exchange Ratio multiplied by (ii) the number of Bioasis Shares subject to such Bioasis Option immediately prior to Completion, with an exercise price per Ordinary Share (rounded to the nearest whole cent) equal to (A) the exercise price per Bioasis Share purchasable pursuant to such Bioasis Option divided by (B) the Exchange Ratio (subject to applicable laws and regulations and any market value adjustments). Following the exchange of Bioasis Options for New Options, each holder of New Options will cease to have any rights as a holder of Bioasis Options (other than the right to receive the appropriate number of New Options) and the name of each holder of New Options will be removed as the registered holder of Bioasis Options and added as a registered holder of New Options under the New Option Plan.

Furthermore, in connection with the Transactions, the Company has agreed to assume the rights and obligations of the Bioasis Warrants pursuant to and in accordance with the Plan of Arrangement. All rights with respect to Bioasis Shares under the Bioasis Warrants assumed by Midatech shall be satisfied by affording the holders of such Bioasis Warrants rights in respect of Ordinary Shares. Accordingly, from and after the Effective Time: (i) each Bioasis Warrant assumed by Midatech may be exercised solely for Ordinary Shares; (ii) the number of Ordinary Shares subject to each Bioasis Warrant assumed by Midatech shall be determined by multiplying (A) the number of Bioasis Shares that were subject to such Bioasis Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of Ordinary Shares; (iii) the per share exercise price for the Ordinary Shares issuable upon exercise of each Bioasis Warrant assumed by Midatech shall be determined by dividing (A) the per share exercise price of Bioasis Shares subject to such Bioasis Warrant, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Bioasis Warrant assumed by Midatech shall continue in full force and effect and shall otherwise remain unchanged. All Ordinary Shares deliverable to a holder of Bioasis Warrants upon the exercise of Bioasis Warrants shall be delivered in the form of ADSs.

To better reflect the strategy of the Enlarged Group going forwards, the Company is also proposing a change of name to “Biodexa Pharmaceuticals PLC” which is described in more detail below.

The purpose of this Document is for the Existing Directors to explain the background to and reasons for the Transactions and the Proposals, why they are seeking authority from Existing Shareholders to approve the Acquisition, issue the Transaction Shares and New Warrants, change the Company’s name and to explain why the Board considers the Proposals set out in this Document to be in the best interests of the Company and its Existing Shareholders as a whole, and why the Existing Directors unanimously recommend that you vote in favour of the Resolutions.

For a summary of the Company’s current financial position, including the potential consequences of the Transactions not proceeding, please refer to section 4 of Part 1 of this Document below.

2.       BACKGROUND TO AND REASONS FOR THE TRANSACTIONS

The Existing Directors regularly evaluate the Company’s business and operations, long-term strategic goals, capital needs, and options to maximise shareholder value and prospects. The Board also regularly reviews strategic alternatives available to the Company, including acquisition and financing opportunities.

Midatech has been working to identify sources of non-dilutive financing, including grant applications, R&D collaborations and licensing opportunities, to enable the Midatech Group to progress its programmes and to meet the Midatech Group’s working capital needs, in order to take it through to the next phase of value creation for its key clinical R&D pipeline programmes.

In March 2020, the Company announced a realigned strategy based on two key themes: “multiple shots on goal” and “time and cost to partnerability”. In line with this strategy, the Company has sought to broaden its R&D pipeline by initiating internal programmes, collaborating with third party pharmaceutical companies

on their proprietary active pharmaceutical ingredients, or APIs, and adding new indications to MTX110, the Company’s novel formulation and delivery system of panobinostat for intractable brain cancers.

Since March 2020, the Company has announced progress as follows:

Notwithstanding this substantial progress, the Board is disappointed by the stock market reaction to these developments and the resultant share price performance. With a current market capitalisation of £6.3 million (as at the latest practicable date), opportunities for raising finance to extend the Company’s cash runway and progress its key development assets are, in the Board’s opinion, limited.

The Board continues to believe there is substantial value to be unlocked from MTX110, particularly in GBM, and there are opportunities to leverage its Q-Sphera technology through the targeted, intratumoral delivery of chemotherapeutic agents either in monotherapy or in novel combinations. Such an approach could have the combined benefits of sustained therapeutic impact, improved efficacy and lower systemic side effects and, depending upon the combination of drugs, potential to overcome drug resistance. The Company’s experiments in intratumoral delivery, while promising, are at an early stage and will require considerably more time, effort and cost before validation.

The Company’s most recent fundraise, prior to the Registered Direct Offering, was a UK placing in July 2021 at £0.285 per share, raising £10.0 million before expenses. While the Company has sufficient cash resources to fund operations until mid-March 2023, the Board has considered the available options for financing the Company and progressing its pipeline beyond that date.

Having considered the options available to the Company, including the impact of dilution on existing investors, the Board has concluded that an acquisition of Bioasis, a company with a promising development pipeline, along with the Private Placement offers the opportunity for the Enlarged Group to be repositioned as an emerging biotech company focused on the development of therapeutics for rare diseases supported by enabling drug delivery platforms. Further details on the rationale for the Acquisition, and the likely consequences should the Transactions not proceed, are described below under the heading “Rationale for the Acquisition and strategic plans for the Enlarged Group”.

The Board believes that the proposed Acquisition of Bioasis and the attendant Private Placement will serve as a “fresh start” for Midatech and its Existing Shareholders. To that end, it is proposed that there will be a number of structural changes to accompany the Transactions, including:

The net proceeds of the Private Placement will be approximately £7.16 million after costs and expenses associated with the Private Placement and is intended to be utilised to: (i) pay off a portion of the Lind Debt; (ii) support the Enlarged Group’s business plan; and (iii) for general working capital purposes.

Following the Registered Direct Offering, the Company agreed to loan to Bioasis the sum in aggregate of US$750,000 (the “Loan Amount”) pursuant to the terms of the Bioasis Promissory Note, to assist in the short term with Bioasis’ working capital requirements. The Company announced on 19 December 2022 that the Loan Amount payment schedule would be varied and now comprises (i) an advance of US$250,000 paid by Midatech to Bioasis on 19 December 2022, (ii) an advance of US$250,000 paid by Midatech to Bioasis on 3 January 2023, and (iii) an advance of US$250,000 to be paid by Midatech to Bioasis on 6 February 2023.

Pursuant to the terms of the Bioasis Promissory Note, Bioasis promises to pay the Company the Loan Amount on the earliest of (each, as applicable, the “Bioasis Maturity Date”) (a) the occurrence of an Event of Default (as defined in the Bioasis Promissory Note); (b) Completion; and (c) 30 June 2023. Interest is payable on the Loan Amount (including any overdue interest) at a rate of 2.00 per cent. per month or, from and after the Bioasis Maturity Date, at a default rate of 15.00 per cent. per annum.

The Plan of Arrangement is a complex process which is expected to complete by the end of February 2023. Consequently, to ensure that Bioasis has sufficient working capital during this period Midatech agreed to undertake the Registered Direct Offering in order to raise funds to fund part of the Loan whilst the parties seek to complete the Transactions. In the event that the Transactions do not complete, the Lind Debt shall remain outstanding and, consequently, the Loan is subordinated to the Lind Debt pursuant to the terms of the Bioasis Security Agreement and the Bioasis Promissory Note.

Key benefits of the Acquisition

The Board believes that the Acquisition is a compelling strategic opportunity to advance the Company’s repurposed strategy and is expected to deliver a number of key benefits to Midatech and Shareholders, including:

·     transition from a drug delivery platform-based company to a therapeutics company;

·     a focus on rare and orphan diseases, conferring advantage such as:

o       smaller, lower cost studies;

o       higher in-market prices; and

o       marketing exclusivity for seven years and 10 years in the US and Europe, respectively;

·     less reliance on R&D collaborations and licenses with third parties;

·     improved news flow including clinical data; and

·     lower combined overheads.

3.       DETAILS OF THE ACQUISITION

Details of the Acquisition

In order to effect the Acquisition, on 13 December 2022, the Company and Bioasis entered into the Arrangement Agreement, pursuant to which the Company agreed to acquire all of the issued and outstanding Bioasis Shares in return for the Consideration Shares on the basis of the Exchange Ratio and on the other terms and subject to the conditions set out in the Arrangement Agreement. In addition, Midatech agreed to issue ADSs upon exercise of the Bioasis Warrants and to the grant of the New Options in consideration of the cancellation of the Bioasis Options. The Acquisition will be implemented by way of a statutory Plan of Arrangement in accordance with the laws of the Province of British Columbia. The terms of the Arrangement Agreement provide that Completion is subject to a number of conditions including approval by Shareholders of the Resolutions to be proposed at the General Meeting (notice of which is set out at the end of this Document) and approval of Bioasis Securityholders of the Acquisition Resolutions at the Bioasis Special Meeting due to be held on 3 February 2023.

Details of Bioasis indebtedness

Immediately following Completion, Bioasis’ indebtedness will be assumed by Midatech pursuant to the Assumption Agreement. Although the Bioasis Convertible Security Agreement contains a change of control provision that will be triggered by the Acquisition, the Company has obtained a waiver in writing from Lind and therefore the Bioasis Convertible Security Agreement will continue in place immediately post Completion on the same terms as prior to Completion as described below in section 6 of Part 1 of this Document (Information on Bioasis).

Details of the Arrangement Agreement

Summary of the principal terms of the Acquisition

The Arrangement Agreement was entered into on 13 December 2022 between Midatech and Bioasis, and amended on 18 December 2022. Pursuant to the Arrangement Agreement, Midatech agreed to acquire, in consideration of the issue of the Consideration Shares in Midatech, all of the issued and outstanding Bioasis Shares in exchange for Consideration Shares (in the form of ADSs) on the basis of the Exchange Ratio and on the terms and subject to the conditions of the Arrangement Agreement. Based on a price of £0.0585 per Ordinary Share (being the closing price of the Ordinary Shares on AIM on 12 December 2022, the last trading day prior to the announcement of the Transactions), the Consideration Shares underlying the ADSs to be issued in exchange for the Bioasis Shares in the Acquisition represented (on 12 December 2022) an aggregate value of approximately £4.4 million and an offer price per Bioasis Share of US$0.0686.

Conditions

Completion under the Arrangement Agreement is subject to and conditional upon, and can only occur upon satisfaction or (to the extent permitted by law) waiver of, a number of outstanding conditions, including, but not limited to:

Under the Arrangement Agreement, Midatech is prohibited from soliciting from any third party an Acquisition Proposal or Takeover Offer and Bioasis is prohibited from soliciting from any third party an Acquisition Proposal. However, if prior to obtaining Midatech Shareholder Approval, Midatech receives a Midatech Superior Proposal or a Takeover Offer, it retains the ability to engage in discussions and to consider and respond to an Acquisition Proposal which is a Midatech Superior Proposal or Takeover Offer in accordance with the terms of the Arrangement Agreement. Similarly, if prior to obtaining Bioasis Securityholder Approval, Bioasis receives a Bioasis Superior Proposal, it may engage in discussions in relation to such proposal in accordance with the terms of the Arrangement Agreement.

Upon receipt by the Company (or its Shareholders directly) of a Takeover Offer prior to the Midatech Shareholder Approval the Board may change their recommendation in respect to such Midatech Superior Proposal and terminate the Arrangement Agreement; provided that, in each case, certain conditions are met, including that the Board has determined in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties and/or the Takeover Code. Under such circumstances, the Termination Payment, totaling US$330,000, would be payable to Bioasis pursuant to the Arrangement Agreement (other than in the context of a Takeover Offer in certain circumstances). Likewise, Bioasis will be required to pay the Termination Payment to Midatech if it were to recommend a Bioasis Superior Proposal to the Bioasis Shareholders.

Termination Payment and Expenses

The Arrangement Agreement requires that the Company pay the Termination Payment if the Arrangement Agreement is terminated under certain circumstances, including if the Arrangement Agreement is terminated because the Board withdraws or modifies its recommendation with respect to the Arrangement, the Company breaches its non-solicitation covenants under the Arrangement Agreement, or the Company elects to do so in order to enter into a definitive agreement. The Board considered that the amount of the Termination Payment payable by the Company to Bioasis in certain circumstances should not preclude a third party from making an unsolicited Midatech Superior Proposal.

Separately, the Termination Payment would be payable by Bioasis if the Arrangement Agreement is terminated under certain circumstances, including if the Arrangement Agreement is terminated by: (i) Midatech following a change in recommendation of the Acquisition by the Bioasis board of directors or a breach by Bioasis of the non-solicitation provisions set out in the Arrangement Agreement; or (ii) Bioasis following a change in recommendation of the Acquisition by the Bioasis board of directors or in connection with a Bioasis Superior Proposal.

In addition, if the Arrangement Agreement is terminated under certain circumstances, the parties may be required to reimburse the other party for costs and expenses incurred in the connection with the transaction in an aggregate amount not to exceed US$225,000; provided, however, that, should a Termination Payment be paid in connection with the termination of the Arrangement Agreement, in no event will any party be required to pay in the aggregate an amount in excess of US$330,000.

The Arrangement Agreement contains usual and customary covenants, representations and warranties and other protections given by each of Bioasis and Midatech for an agreement of this nature and type and having read for the facts and circumstances of Midatech and Bioasis.

Further details of the Arrangement Agreement, including the circumstances as to when the Termination Payment or expense reimbursement payments would be payable, are set out in Part 3 of this Document.

4.       CURRENT TRADING AND OUTLOOK

Midatech

Financial Highlights

On 14 September 2022, the Company announced its interim results for the six months ended 30 June 2022. Total revenue from R&D collaborations for 1H22 was £0.47 million (1H21: £0.40 million). Research and development costs in 1H22 increased by 20 per cent. to £2.41 million (1H21: £2.01 million) as a result of increased costs associated with MTX110 as the Company prepared for its Phase I study in recurrent GBM. Administrative expenses increased by 12 per cent. in 1H22 to £1.85 million (1H21: £1.66 million) primarily due to increased legal and professional fees. Net cash used in operating activities (after changes in working capital) in 1H22 was £3.54 million, compared with £3.11 million in 1H21. The Company’s cash balance at 30 June 2022 was £6.42 million and was expected to be sufficient to fund operations into the first quarter of 2023. Midatech's current cash balance is approximately £2.6 million. Following the Company’s receipt of the net proceeds from the Registered Direct Offering and the Company’s issue of the loan to Bioasis, the Company expects its cash resources to remain sufficient to fund operations, in the event that the Acquisition does not proceed, to mid-March 2023.

Accordingly, should the Private Placement not be expected to complete, the Company would urgently require alternative sources of funding. There can be no guarantee that the Company will be able to find alternative sources of potential funding, which may or may not be on similar commercial terms, and may not be obtainable on a timely basis, or at all. If the Private Placement is not capable of proceeding, it is likely that the Company would be unable to continue to develop and commercialise any of its assets and may not be able to continue as a going concern. If any alternative sources of potential funding are not available, the Directors believe that it is likely that the Company would be forced to enter into administration.

ACCORDINGLY, EXISTING SHAREHOLDERS ARE ENCOURAGED TO VOTE IN FAVOUR OF THE PROPOSALS AS THE DIRECTORS INTEND TO DO IN RESPECT OF THEIR SHAREHOLDINGS AT THE TIME OF THE GENERAL MEETING.

2023 Outlook

Continued execution of the Company’s strategy is dependent upon raising additional funds before the end of the first quarter of 2023. The Company has been active in promoting its technologies to potential R&D collaborators and licensees at partnering conferences since the announcement of the Strategic Review in April 2020. While there are several ongoing promising discussions with potential partners, none are at term sheet stage and therefore cannot be relied upon to provide additional funding within the required timeframe. The Board continues to believe in the merits of the Company’s technologies and the potential for MTX110 in intractable brain cancers and that, with compelling data in hand, partnerships can be secured in due course.

Bioasis

Financial Highlights

Through six months ended 31 August 2022, Bioasis reported C$0.12 million in research revenue from Bioasis’ Neuramedy and Janssen Biotech research collaborations. Revenue in the same period in the previous year was nil. Research and development costs for the six months ended 31 August 2022 were C$0.43 million which was a decrease of C$0.18 million from the comparable prior period. General and administrative expenses for the six months ended 31 August 2022 was C$1.22 million which was a C$0.15 milliondecrease from the prior year to date period.

On 15 June 2022, Bioasis entered into an asset purchase agreement (the “Cresence Agreement”) with the founders of Cresence AS of Oslo, Norway (the “Cresence Founders”). Under the terms of the Cresence Agreement, Bioasis purchased all the rights, title and interest in the intellectual property owned by the Cresence Founders in relation to their EGF platform. Bioasis believes that such EGF assets may be key in treatment of Guillain-Barré syndrome and Chronic Inflammatory Demyelinating Polyneuropathy, among other indications. In exchange for this intellectual property, Bioasis issued 6.5 million common shares in the capital of Bioasis to the Cresence Founders upon completion of the transaction and has agreed to issue up to an additional 6 million common shares in the capital of Bioasis subject to the achievement of additional milestones as follows: (i) 3 million shares are issuable upon Bioasis’ initiation of a pivotal clinical trial in the U.S. for the first product and (ii) 3 million shares are issuable upon the FDA approval of any Bioasis application for the first product. Milestone payments of US$1 million each will be made upon attaining the second and third FDA approved indications in neurology for a product. A running royalty of 1 per cent. of net sales is payable for any product until the expiration of a specified royalty period.

Bioasis has entered into licensing and co-development agreements with combined potential payments, should various performance conditions and milestones be met, totalling in excess of US$200 million plus royalties on net sales with Chiesi Farmaceutici SpA, Prothena Corporation plc and Neuramedy Co. Ltd. Further details of each of the licensing and co-development agreements are set out in section 6 of Part 1 of this Document below.

2023 Outlook

Bioasis continues to be engaged in the development of their xB3 TM platform for the transport of therapeutic agents, in particular biological products, across the BBB. xB3TM is a peptide-based technology which Bioasis believes has significant advantages over competing technologies for BBB drug delivery. Bioasis is focusing its efforts on the advancement of carefully selected, internal development programs for the treatment of specific CNS-related diseases, as well as potential strategic licensing of their xB3 platform technology to pharmaceutical and biotechnology companies for the advancement of their neuroscience programs. Bioasis’ internal development is focused on both orphan drug indications, including brain cancers, and rare genetic neurodegenerative diseases, and neuroinflammatory conditions where proof-of-concept for approved medications exist and where there is potential for more rapid development and approval.

The Cresence Agreement brings Phase 2 ready assets to Bioasis that are aligned with its focus on rare disease and orphan drug indications. EGF1-48 comes with a full IND package and clinical experience indicating that it is safe and well-tolerated in humans. The molecule has a unique dual mechanism of action, stimulating myelination and downregulating neuroinflammation, thus offering neuroprotective properties that support development in Guillain-Barré syndrome, Chronic Inflammatory Degenerative Polyneuropathy and certain clinical manifestations related to onset and/or progression of multiple sclerosis, including optic neuritis and relapses of the disease.

5.       INFORMATION ON THE COMPANY

The Company is focused on improving the bio delivery and biodistribution of drugs using its proprietary platform drug delivery technologies:

Following a strategic review in March 2020, the Company has reverted to a traditional biotech business model, aiming to deploy its proprietary technologies to develop products to proof-of-concept stage and then enter into licensing agreements with third party pharmaceutical companies under which they would continue the development through the clinical phase and commercialise the products.

Since then, the Company’s intention has been to build a balanced portfolio of Q-Sphera programmes employing a bi-fold strategy to create an:

The Company has applied its MidaSolve technology to panobinostat to create MTX110. The development strategy for MTX110 is to demonstrate its utility in a range of intractable brain cancers with a series of pilot proof of concept studies before seeking licensee partners.

Once a licensing partner has been secured, the Company would expect any future development costs to be reimbursed by that partner and for Midatech to receive milestone payments and, ultimately, royalties on sales of the product.

Manufacturing

To establish proof-of-concept in pre-clinical studies for potential licensees, the Company is able to manufacture non-GMP Q-Sphera products at pilot scale at its Cardiff facility. The Company’s intention is to technology transfer GMP manufacture of clinical trial supplies and ultimately full GMP commercial manufacture to a third party CMO. The Company would expect a licensee to assume the cost of manufacturing GMP product and commercial scale-up pursuant to a technology transfer agreement.

MTX110 is currently being manufactured to GMP standards at a CMO.

Commercialisation

Once proof-of-concept has been established, the Company intends to seek to license its products to a partner who would complete the clinical development and subsequently market and sell them in the licensed territory. In addition to reimbursement of development costs, the partner would be expected to make milestone payments based on sales targets and royalty payments.

Development pipeline

MTD211: a long-acting injectable formulation of brexpiprazole utilising Q-Sphera technology. Brexpiprazole, marketed as Rexulti®, is indicated for psychosis and as an adjunct in the treatment of Major Depressive Disorder, or MDD. MTD211 is available for licensing.

MTD219: a long-acting injectable formulation of tacrolimus utilising Q-Sphera technology. Tacrolimus, marketed as ProGraf®, is indicated for the prophylaxis of transplant rejection.

MTX213 and MTX223: two large molecules on which the Company is working to optimise drug loading and dissolution using Q-Sphera technology under collaboration agreements with the Company’s partner, Janssen Pharmaceutica NV.

MTX110: using MidaSolve technology in combination with panobinostat, an otherwise insoluble drug, MTX110 is designed for direct-to-tumour treatment of intractable brain cancers. Panobinostat is currently marketed outside the US under the brand Farydak® which is used orally in combination therapy for the treatment of multiple myeloma. MTX110 is currently being developed to proof of concept stage in three indications:

MTX114: Using MidaCore technology, the Company is developing a re-engineered version of methotrexate, an immuno-suppressant for topical application in psoriasis. If successful, MTX114 would be a topical formulation of methotrexate, thus avoiding the need for potentially toxic systemic administration. Pre-clinical data have shown that MTX114 normalises skin thickness in psoriatic skin models.

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6.       INFORMATION ON BIOASIS
Overview

BTI was founded in November 2006, as W.R. Partners Ltd, changing its name to Bioasis Technologies Inc. in March 2008. Originally, Bioasis licensed intellectual property from the University of British Columbia relating to the Company’s initial melanotransferrin technology platform. This technology was further refined to generate the Company’s current xB3 technology platform. Bioasis is listed on the TSX-V with a market capitalisation of approximately C$14.3 million (c.£8.8 million) as at 12 December 2022.

In June 2022, Bioasis acquired the intellectual property related to the EGF platform from the Cresence Founders pursuant to the Cresence Agreement. On 13 December 2022 pursuant to an amendment agreement, Bioasis and the Cresence Founders agreed that the consideration shares issuable, if any, will be paid in the form of new Ordinary Shares at the Exchange Ratio.

Today, Bioasis is a biopharmaceutical company focused on research and development of products for the treatment of rare and orphan diseases of the nervous system. Bioasis has over 150 U.S. and foreign patents/applications in its portfolio related to its technologies for delivering therapeutic agents across the BBB, including the xB3 peptide vectors, pharmaceutical compositions and methods of use.

Technology – xB3 platform

The xB3 platform uses a short peptide derived from the protein melanotransferrin (MTf) that can be coupled with antibodies, enzymes, oligonucleotides and small molecules. This peptide interacts with the low-density LRP-1 receptor located on the endothelial cells of the BBB and facilitates its entry into the brain via a process called receptor-mediated transcytosis. The value of the platform is both in the wide array of cargo that can be delivered as well as the rate of transfer, which is significantly higher than other methods that have been tried, at least in model systems. LRP-1 binds a wide range of ligands and is well known for its ability to mediate endocytosis. Given the distribution of LRP-1 on the BBB’s endothelial cell surfaces, neuronal LRP-1 localisation within the CNS, and the upregulation of LRP-1 in key target tissues in disease states, for some targets LRP-1 is likely involved in promoting dual targeting of both delivery across the BBB and target engagement of specific diseased areas, including in brain tumours and metastases, Alzheimer’s disease and Parkinson’s disease where overexpression of LRP-1 has been demonstrated. In other setting the xB3 payload determines the targeting of the therapeutic within the brain. Bioasis’ technology has been shown to deliver antibodies, small molecules, enzymes and small interfering ribonucleic acid, or siRNA, to the CNS, driving the anticipated pharmacodynamic changes in vivo.

xB3-008 for Hunter Syndrome

Hunter Syndrome, mucopolysaccharidosis II, is a rare lysosomal storage disorder caused by the deficit of the lysosomal enzyme IDS. The missing IDS enzyme results in cellular engorgement, organomegaly, tissue destruction, and organ system dysfunction. Symptoms range from hydrocephalus, enlarged liver and spleen, thick non-stretchy skin to mental impairment, which is seen in severe forms of the disease, often due to neurodegeneration or physical complications. Preliminary data acquired in collaboration with the University of Padova indicate that xB3 is able to deliver an active IDS enzyme to the lysosomal compartments within brain cells. The exogenously introduced IDS enzyme in turn can replace the missing/defective endogenous IDS enzyme in breaking down glycosaminoglycans within lysosomes.

Other xB3 preclinical programmes

In collaboration with Texas Tech University, Bioasis has demonstrated in a preclinical model of human HER2 breast cancer brain metastases. xB3-001 showed BBB penetration with brain/blood concentration ratios 10 to 225 times higher than trastuzumab alone, a preferential uptake into brain metastases and an overall reduction in metastatic lesions. In contrast, trastuzumab alone had minimal effect.

xB3-007 targets Gaucher’s disease, the most common of the lysosomal storage diseases, caused by a hereditary deficiency of the enzyme associated with mutation in the GBA-1 gene. GBA-1 gene mutations have been indicated as most common genetic mutations associated with other diseases such as Parkinson’s disease and Lewy body dementia (a progressive multi-system disease covering dementia with Lewy bodies and Parkinson’s disease dementia).

xB3-004 targets the treatment of conditions mediated by the cytokine interleukin 1, or IL-1, including neuropathic pain and pain associated with auto-inflammatory conditions, Fabry disease and brain inflammation in Multiple Sclerosis. In previously published work, recombinant fusion protein of xB3 peptide with interleukin-1 receptor antagonist, or IL-1RA, was independently validated to demonstrate efficient delivery of therapeutic concentrations of IL-1RA to the CNS, eliciting analgesia in neuropathic pain animal model after a single dose treatment. Systemic administration of IL-1RA itself did not elicit analgesia.

xB3-009 (Progranulin) targeting FTD, the lysosomal storage disorder neuronal ceroid lipofuscinoses and ALS or Lou Gehrig’s disease, through the delivery of xB3-Progranulin. One of the major attributes to these diseases is autosomal dominant mutations in the progranulin gene or GRN. To date, there are over 70 different pathogenic GRN mutations reported which result in haploinsufficiency or functionally null alleles, with low progranulin expression being indicated as a risk factor for AD, PD and ALS.

Technology – EGF platform

EGF is a human peptide widespread in many tissues and it participates to specific developmental processes. EGF stimulates oligodendrocyte and Schwann cells differentiation and maturation in vitro, necessary for these cells to start remyelination processes; it induces the in vitro and in vivo proliferation of NSC, their migration, and their differentiation towards the neuroglial cell line. EGF acts via the EGFR. EGF has pleiotropic differentiative and proliferative effects on the main central and peripheral nervous system cell types, particularly oligodendrocytes, astrocytes and Schwann cells. EGF mediates the in vivo myelin trophic effect of cobalamin on the central and peripheral nervous system and modulates the synthesis and levels of nervous system PrPCs, both of which are indispensable for myelin genesis and myelin maintenance and acts towards anti-inflammatory M2 polarisation of macrophages. This dual remyelination and anti-inflammatory potential is particularly interesting for the treatment of neurodegenerative disorders with inflammatory components.

Cres101 – 103: Optic Neuritis Associated with Multiple Sclerosis, Treatment of Guillain-Barré Syndrome, and Chronic Inflammatory Demyelinating Polyneuropathy

Cres candidates will be developed first in the following indications for which the available treatments are sub-optimal and associated with frequent absence of drug response: Optic Neuritis is an acute autoimmune demyelination of the retina often associated with multiple sclerosis for which the main treatment relies on corticosteroids; Guillain-Barré syndrome, which is an acute form of an inflammatory demyelinating polyneuropathy often observed after infections for which only IVIG and plasma exchange are the available treatments; CIDP is a chronic presentation of the Guillain-Barré syndrome with recurrent and progressive forms whose treatment is mainly based on IVIG, plasma exchange or corticosteroids. Both Guillain-Barré syndrome and CIDP are orphan diseases. A potential further development for Cres101, based on its positive action on the myelination process, is the treatment of chronic progressive multiple sclerosis (primary and secondary forms) where there is currently no adequate treatment to stop the progression of the disease associated with the progressive demyelination.

Licensing and R&D colaborations

Like Midatech, a key component of Bioasis’ strategy is to work with collaboration partners to proof of concept and seek licensees to undertake the more expensive clinical trials. Bioasis has a number of partnerships and licenses as follows:

Chiesi Farmaceutici SpA (“Chiesi”)

In 2020, Bioasis entered into a worldwide, non-exclusive research collaboration and licensing agreement with Chiesi for its xB3 technology for the treatment of rare diseases with a focus on four undisclosed lysosomal storage disorders. Under the terms of the agreement, Bioasis received an upfront payment of US$3.0 million and is eligible to receive additional success-based commercial license option payments and development, regulatory and commercial milestone payments of up to US$138 million, as well as royalty and assignment payments based on net sales of licensed products. Chiesi is responsible for all costs associated with development and commercialisation of the four programmes.

Neuramedy Co Ltd (“Neuramedy”)

In May 2022, Bioasis entered into a research collaboration and license agreement with Neuramedy, a company based in Seoul, South Korea. Under the terms of the agreement, Neuramedy has obtained worldwide rights to research, develop and commercialise an xB3 version of its antibody, tomaralimab, directed at the toll-like receptor. Tomaralimab is currently in development for the treatment of Parkinson’s disease and Multiple System Atrophy. Bioasis received an upfront payment of US$0.3 million and is eligible to receive an additional US$72 million in success-based milestone payments and a royalty on net sales.

Janssen Biotech, Inc. (“Janssen”)

In April 2022, Bioasis entered into a research collaboration with Janssen, one of the pharmaceutical subsidiaries of Johnson & Johnson. Under the terms of the agreement, Bioasis received an upfront payment of US$100,000 and is eligible to receive success-based milestone payments. Pursuant to the terms of the agreement, Janssen will have the option to research, develop and commercialise novel products based on Bioasis’ xB3 technology. The agreement is effective until the earlier of (i) completion of the research, or (ii) 31 January 2023. However, the parties are in discussions to extend the agreement given that the research is expected to extend beyond 31 January 2023.

Oxyrane UK Ltd (“Oxyrane”)

In June 2021, Bioasis announced the initiation of a research collaboration with Oxyrane, a company developing enhanced enzyme replacement therapies for lysosomal storage diseases using a proprietary, glycol-engineered yeast expression system for efficient targeting of enzyme to the lysosome. The research collaboration is focused on the development and evaluation of combining the xB3 technology and Oxyrane’s OxyCAT platform to deliver an undisclosed enhanced enzyme replacement therapy into the brain with anticipated greater efficacy.

Aposense Ltd (“Aposense”)

In March 2021, Bioasis announced the formation of a research collaboration with Aposense, an innovative Israeli bio-pharmaceutical company specialising in development of novel drugs, utilising membrane electrical forces. The research collaboration will be focused on the non-invasive delivery of genetic therapies, specifically siRNA therapeutics for CNS disorders to address devastating unmet medical needs.

Prothena Corporation PLC (“Prothena”)

In October 2018, Bioasis announced a world-wide technology licensing agreement with Prothena Corporation PLC. Under the terms of the agreement, Bioasis received a US$1 million upfront payment from Prothena with additional potential option exercise, regulatory and commercial milestone payments, plus additional royalties on net sales from licensed products payable on successful development.

Indebtedness

Bioasis Convertible Security Agreement

In June 2021, Bioasis entered into a convertible security funding agreement with Lind Global Macro Fund, LP, an entity managed by The Lind Partners, a New York based institutional investment management firm (together, “Lind”), which was amended on 13 December 2022 pursuant to a waiver and amendment agreement (the “Waiver and Amendment Agreement”) (as described below). Under the terms of the Bioasis Convertible Security Agreement, Bioasis may issue to Lind convertible securities in the principal amount of up to C$10,000,000. In June 2021, Lind made an initial investment of C$3.0 million less a commitment fee of C$90,000, in exchange for a convertible security (the “First Convertible Security”) with a face value of C$3.6 million, representing a principal amount of C$3.0 million (the “Principal Amount”) and a pre-paid interest amount of C$0.6 million (the “Pre-Paid Interest”). Commencing in the month 181 days from closing, Bioasis began repaying the First Convertible Security in C$125,000 monthly instalments. Bioasis has made payments of in aggregate C$750,000 but the repayment of the C$125,000 instalments thereafter was waived by Lind from 31 May 2022 until 31 January 2023 pursuant to the Waiver and Amendment Agreement (as described below). Pre-Paid Interest will accrue monthly at C$20,000 per month, and once accrued, Lind will have the option, once every 90 days, to convert accrued Pre-Paid Interest into common shares of Bioasis at 90 per cent. of its market closing price on the day immediately prior to the conversion. Lind will be restricted from selling any Bioasis Shares it receives in connection with the First Convertible Security for a period of four months and a day from the date of issuance of the First Convertible Security, and is prohibited from short selling any Bioasis Shares during the term of the Bioasis Convertible Security Agreement. Lind has the right to convert any portion of the Principal Amount into Bioasis Shares at a price per share of C$0.31 (the “Conversion Price”). The Bioasis Convertible Security Agreement also includes an option for Bioasis to receive additional investments from Lind of up to C$7,000,000, in exchange for a convertible security with similar terms to the First Convertible Security, subject to mutual agreement and TSX-V approval.

Bioasis has the option to buy back the outstanding convertible securities in cash at any time. If Bioasis exercises this buy back option, Lind will have the option to convert (i) up to 33.3 per cent. of the outstanding Principal Amount at the Conversion Price, and (ii) up to 100 per cent. of the then-accrued Pre-Paid Interest into common shares of Bioasis. Bioasis concluded that the conversion option was an embedded derivative that requires bifurcation as a derivative liability due to the contingency that Bioasis could be required to pay cash for the conversion.

As part of the First Convertible Security financing, Bioasis issued Lind 4,839,048 warrants exercisable for a term of 30 months at an exercise price of C$0.41 per Bioasis Share. Bioasis will have the right to accelerate the expiry date of a certain number of warrants, subject to certain conditions, including that no event of default has occurred, as follows: (i) if the Company’s shares trade above C$1.27 for 30 consecutive days, the Company can accelerate the expiry date of 50 per cent. of the warrants; and (ii) if Bioasis Shares trade above C$1.80 for 30 consecutive days and the First Convertible Security then outstanding (along with all outstanding accrued prepaid interest) has been fully repaid or converted, then the Company can accelerate the expiry of all of Lind’s remaining warrants. Any warrant exercise proceeds will be applied to the outstanding Principal Amount of the First Convertible Security. The exercise price is subject to adjustment if shares trade at a price of less than 95 per cent. of the market price, as a result, the warrants do not meet the criteria to be classified as equity and have been bifurcated and accounted for as a derivative liability.

Waiver and Amendment Agreement

On 13 December 2022 Bioasis entered into a Waiver and Amendment Agreement with Lind pursuant to which: (i) Lind agreed to waive Bioasis’ payment obligations under the Bioasis Convertible Security Agreement until 31 December 2022; (ii) Lind grants consent for the Acquisition pursuant to the Bioasis Convertible Security Agreement to permit Bioasis to (a) enter into the Arrangement Agreement, (b) complete the Acquisition in accordance with the Arrangement Agreement; and (c) complete the Private Placement; (iii) Lind agreed to advance a C$350,000 bridge loan to Bioasis (the “Lind Bridge Loan”), net of amounts payable to Lind in respect of its legal fees and expenses, (iv) Bioasis agreed to issue the Bridge Promissory Note and the Holiday Promissory Note (as referenced below); (v) Bioasis and Lind agreed to execute the Tripartite Agreement (as described below); (vi) Bioasis agreed to grant certain security interests to Lind to secure its obligations under the Bioasis Convertible Security Agreement, the Bridge Promissory Note and the Holiday Promissory Note; and (vii) certain amendments are made to the Bioasis Convertible Security Agreement to permit (i) to (vi) above.

Promissory Note (Bridge)

On 13 December 2022 in connection with its receipt of the Lind Bridge Loan, Bioasis issued a promissory note to Lind (the “Bridge Promissory Note”) pursuant to which Bioasis promises to pay Lind the principal amount of C$350,000 (the “Bridge Principal Amount”) on the earliest of (each, as applicable, the “Bridge Maturity Date”) (a) the occurrence of an Event of Default (as defined in the Bridge Promissory Note); (b) the date on which the closing of the Acquisition occurs; and (c) 30 June 2023. Interest is payable on the Bridge Principal Amount (including any overdue interest) at a rate of 2.00 per cent. per month or, from and after the Bridge Maturity Date, at a default rate of 15.00 per cent. per annum.

Bioasis makes positive covenants to Lind under the note including supplying it with Bioasis information on request. Bioasis also covenants to only use the proceeds under this note to pay third party professional service fees incurred by Bioasis in connection with the Acquisition unless Lind gives written consent.

Promissory Note (Holiday)

On 13 December 2022, in consideration of Lind’s agreement to enter into the Waiver and Amendment Agreement, Bioasis issued a promissory note to Lind (the “Holiday Promissory Note”) pursuant to which Bioasis promises to pay Lind the principal amount of C$510,000 on the earliest of (each, as applicable, the “Holiday Maturity Date”) (a) the occurrence of an Event of Default (as defined in the Holiday Promissory Note); (b) the date on which the closing of the Acquisition occurs; and (c) 30 June 2023.

This note is on substantially the same terms as the Bridge Promissory Note (described above) save that: (i) no interest accrues on this note until after the Holiday Maturity Date (at which time the interest rate is 15.00 per cent. per annum) and (ii) there is no use of proceeds restriction.

Tripartite Agreement

On 13 December 2022 Bioasis entered into a tripartite agreement (the “Tripartite Agreement”) with Lind and Midatech whereby Midatech agrees that, upon completion of the Acquisition, it will enter into the Assumption Agreement and repay or satisfy amounts Lind is owed under the Bioasis Convertible Security Agreement, the Bridge Promissory Note and the Holiday Promissory Note (the “Payment Obligations”). Following such repayment Lind shall procure, at the request and expense of Midatech and/or Bioasis, the release of the relevant security granted to Lind for the amounts owed to it. The Tripartite Agreement also documents the terms on which the Loan shall be advanced by the Company to Bioasis by way of a secured promissory note which is subordinated to the Payment Obligations.

Assumption Agreement

In connection with the completion of the Acquisition, Bioasis (as Assignor) shall enter into the Assumption Agreement with Midatech (as Assignee) and Lind whereby Midatech shall assume all the debt, obligations and liabilities of Bioasis, including the Lind Debt under the Waiver and Amendment Agreement in consideration for Bioasis recognising an intercompany debt due to Midatech.

Immediately after entry into the Assumption Agreement, Midatech shall make a cash payment to Lind of approximately C$2,393,851, using net proceeds of the Private Placement, in order to pay off a portion of the Lind Debt arising pursuant to the Bioasis Convertible Security Agreement (as amended by the Waiver and Amendment Agreement), the Holiday Promissory Note and the Bridge Promissory Note (the “Lind Cash Repayments”).

All payment obligations that remain outstanding under the Bioasis Convertible Security Agreement following the Lind Cash Repayments (C$1,125,000), shall be settled by way of issuance by Midatech to Lind (or its nominee) of units (comprising 25 new Ordinary Shares (which represents one New ADS), one A Warrant and one B Warrant) at a deemed price equal to the Placing Price pursuant to the terms of a subscription agreement to be entered into between Midatech and Lind, which Lind will be required to enter into as a condition of its receipt of such securities.

The parties to the Assumption Agreement acknowledge that following entry into the agreement, Lind shall not have released the Assignor from its debt, obligations and liabilities under the Waiver and Amendment Agreement and that Bioasis and Midatech shall be jointly and severally liable to Lind for any debt, obligations and liabilities owed to Lind under the Waiver and Amendment Agreement.

Facilities

Bioasis operates in a virtual model through contract research organisations which reduces overheads and provides the company with flexibility in its ability to prosecute both its internal pipeline programmes and its partnered collaborations.

Bioasis is headquartered in New Haven, Connecticut.

Summary of financial information on Bioasis

Bioasis is incorporated in British Columbia, Canada. Bioasis is a development stage biotechnology company and reports under the IFRS convention. Bioasis’ summary profit and loss for the three years ended 28 February 2022 and the six months ended 31 August 2021 and 31 August 2022 is as follows:

Bioasis’ balance sheet at 31 August 2022 is summarised as follows: 

Full financial statements for Bioasis are set out in Part 4 of this Document, which are also available by reference to Bioasis’ website (https://www.bioasis.us/).

Bioasis Special Meeting

Prior to Completion and as a condition of the Arrangement Agreement, Bioasis must obtain the Bioasis Securityholder Approval, in accordance with the Bioasis Articles, the Interim Order and the BCBCA.

Bioasis will give of the Bioasis Special Meeting to the Bioasis Securityholders on or around 9 January 2023 and the Bioasis Special Meeting will take place virtually on or around 3 February 2023.

7.       RATIONALE FOR THE ACQUISITION AND STRATEGIC PLANS FOR THE ENLARGED GROUP

The Board recognises that investor appeal of the biotech sector in general is cyclical and in 2020/2021 was largely driven by anticipation around vaccines, therapeutics and detection tools for COVID-19. With the advent of geo-political events such as the invasion of Ukraine, the recent surge in the cost of energy and inflation generally, the biotech sector as a whole has suffered with the NASDAQ Biotech Index (NASDAQ: NBI) falling 78 per cent. over the last two years. In the Board’s view, the environment for financing of biotechnology companies, in particular micro-cap companies such as Midatech, is challenging.

While the Company has signed two R&D collaboration agreements it has not concluded any licence agreements for its drug delivery technologies since 2019. The Board believes that, in the current climate, investors are unlikely to place significant value on drug delivery platforms unless those platforms have identifiable income streams of milestones and/or royalties from licensees.

Accordingly, the Board has been looking for opportunities to broaden the Company’s pipeline of clinical-stage therapeutics which currently only includes MTX110, albeit in three indications. Clinical stage assets are both closer to market than preclinical formulation assets and have the potential to generate news flow, including clinical data, which investors can evaluate on their merits.

Bioasis’ development pipeline includes three clinical assets based on its EGF proprietary platforms. Accordingly, Bioasis’ development programmes are targeted at neurological disorders, all of which qualify as rare diseases. When added to Midatech’s MTX110 which is also being developed for rare diseases, the combined company would have a total of four clinical assets of which one would be in Phase II and three in Phase I in addition to a number of programmes at preclinical stage. The preclinical assets could also provide news flow and licensing opportunities over time as additional data is generated. All programmes would be targeted at rare disease indications. The Enlarged Group’s development pipeline is set out in the following table:

The Company expects to engage with the FDA in a so-called Type C meeting in early 2023 to discuss the development programme for MTX110 in DIPG. The Company announced the enrollment of the first patient in its Phase I study in recurrent GBM on 14 November 2022 and preliminary data is expected from the first cohort of patients in the third quarter of 2023. Data from the second cohort of patients is expected in the first half of 2024. GMP manufacture of EGF is expected to commence in the first quarter of 2023 in anticipation of an IND filing in the fourth quarter of 2023 and recruitment for the first study in optic neuritis beginning in early 2024. In addition, the Board expects that the Enlarged Group will receive orphan drug designation for CRES102 and CRES103 during 2023. The Board expects that the Enlarged Group will also be working to secure additional R&D collaborations and licensees over the coming months.

In the US, orphan drug designation is assigned to drugs which treat rare diseases defined as those which affect less than 200,000 people in the US. In Europe, the definition of a rare disease is one that affects less than 0.05 per cent. of the population. Globally, approximately 300 million people suffer from a rare disease using these definitions. MTX110 has already received orphan drug designation for the treatment of gliomas in the US and in Europe. The Directors believe that all of Bioasis’ clinical assets would qualify for orphan drug status. Orphan drug designation confers several benefits including lower cost and more rapid response from regulators, generally smaller clinical studies due to small population sizes and, importantly, market exclusivity for seven years and 10 years from launch in the US and Europe, respectively.

The Board believes that the positioning of the Enlarged Group as a rare disease therapeutics company, as distinct from its current focus as a drug delivery company, with three enabling technologies will be attractive to investors seeking exposure to the rare disease subsector and who want to take advantage of currently depressed valuations across the biotech sector generally. There are a number of companies that have successfully pursued rare disease therapeutics strategies, particularly in the US, in the recent past.

Following Completion, the Board expects that the Enlarged Group will eliminate a number of duplicate headcount and administrative costs including executive positions, non-executive positions, investor relations costs, insurance and other costs.

8.       THE PRIVATE PLACEMENT AND FUTURE FUNDING REQUIREMENT

Details of the Private Placement 

As part of the Acquisition process, the Directors have considered the funding requirements for the execution of the Enlarged Group’s business plan following Completion. Taking account of Midatech’s existing resources and the Loan to be made to Bioasis (less existing indebtedness in Bioasis repayable on Completion and the costs associated with the Transactions), the Board expects that the Enlarged Group would have an operational cash runway into the beginning of the fourth quarter of 2023 taking account of the net proceeds of the Private Placement.

Therefore, the Enlarged Group will require additional external funding before the fourth quarter of 2023 in order to be able to continue as a going concern. Principally, this funding will be required to continue the clinical development of its lead assets, as detailed above, fund ongoing administrative costs and other general working capital and contractual financing requirements of the Enlarged Group.

Ladenburg has obtained conditional commitments from the Placee for the Placee to subscribe for up to 593,862 Units and 10,079,501 Pre-Funded Warrants at the Placing Price to raise approximately US$9.6 million before expenses and approximately US$8.6 million net of expenses¹⁰. The Private Placement is not underwritten. Under the terms of the Private Placement the Company will issue to the Placee: (i) 1.04 A Warrants and 1.04 B Warrants for every 25 Placing Shares (in the form of ADSs); and (ii) Pre-Funded Warrants in lieu of Placing Shares (in the form of ADSs), if the Placee so chooses, whereby the Placee will, on Completion, provide the Company with the funds to exercise the Pre-Funded Warrants, such that the exercise price of the Pre-Funded Warrants (other than a notional additional consideration of US$0.001) will be received by the Company at Completion, enabling the Placee to exercise the Pre-Funded Warrants and acquire ADSs for the nominal cost of US$0.001. Such a structure ensures that the Company receives the full proceeds (US$9.6 million gross) of the Private Placement immediately on Completion, whilst enabling the Placee to limit its shareholding in the Company to a maximum of 9.99 per cent. at all times.

The Placing Price in respect of each Unit and Pre-Funded Warrant (including the exercise price for each Pre-Funded Warrant) will be the lower of (i) US$1.00 and (ii) the 20-day VWAP, less 10 per cent. of such price. If the 20-day VWAP prior to Completion is less than US$0.90, the Company shall have the right to terminate the Private Placement in its sole discretion without penalty to the Placee. In addition, the Placee shall not, directly or indirectly, engage in short-selling prior to Completion.

The A Warrants and the B Warrants will become exercisable on the date that such warrants are granted and will each be exercisable at an exercise price of US$1.10 per ADS, subject to adjustments for certain future dilutive Company equity issuances. The A Warrants will expire one year from the date that such warrants are granted and may be exercised on a cashless basis if six months after issuance there is no effective registration statement registering the Ordinary Shares (in the form of ADSs) to be issued in connection with the A Warrants. The B Warrants will expire six years from the date that such warrants are granted and may be exercised on a cashless basis if six months after issuance there is no effective registration statement registering the Ordinary Shares (in the form of ADSs) to be issued in connection with the A Warrants. The A Warrants and the B Warrants will be subject in each case to the terms set out in the relevant underlying warrant instrument to be adopted by the Company.

The Pre-Funded Warrants will become exercisable on the date that the Pre-Funded Warrants are granted and will be exercisable at an exercise price of US$0.001 per ADS. The Pre-Funded Warrants shall remain exercisable until exercised in full and may be exercised on a cashless basis and will be subject to the terms set out in the Pre-Funded Warrant Instrument to be adopted by the Company. The Placee may not exercise the Placing Warrants if the Placee, together with its affiliates, would beneficially own more than 9.99 per cent. of the number of Ordinary Shares outstanding immediately after giving effect to such exercise. Furthermore, the Placee will be subject to certain restrictions pursuant to the Securities Purchase Agreement in relation to the number of Ordinary Shares (as represented by ADSs) meaning that the Placee, together with any affiliates or any person with whom it is acting in concert under the Takeover Code, cannot hold directly or indirectly in excess of 29.9 per cent. of the number of Ordinary Shares outstanding at any time.

Further, pursuant to the terms of the Securities Purchase Agreement, until the 18 month anniversary of Completion, upon any issuance by the Company or any of its subsidiaries of Ordinary Shares or Ordinary Share equivalents, for cash consideration, indebtedness, or a combination of units thereof (a “Subsequent Financing”), the Placee will have the right to participate in up to an amount of the Subsequent Financing equal to 25 per cent. of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing, subject to certain exceptions. 

Additionally, pursuant to the terms of the Securities Purchase Agreement, the Company agreed to reduce the exercise price of certain outstanding warrants previously issued to the Placee on 25 October 2019 and 20 May 2020 to US$1.00.

The Private Placement will close contemporaneously with the completion of the Acquisition.

The Board is therefore seeking approval at the General Meeting to issue the Placing Shares and the Placing Warrants (and the Warrant Shares associated with the Placing Warrants) on a non-pre-emptive basis for up to 268.9 per cent.¹¹ of the Company’s Enlarged Issued Share Capital (following Completion) in connection with the Private Placement.

Pursuant to the terms of the Securities Purchase Agreement, the Private Placement is conditional upon, amongst other things:

The Placing Shares upon Admission will be credited as fully paid and will rank pari passu in all respects with all other Ordinary Shares then in issue, including the right to receive all dividends or other distributions declared, paid or made on or after Completion.

The Placing Shares upon Admission will represent 13.7 per cent. of the Company’s current issued share capital and would represent 5.9 per cent. of the Enlarged Issued Share Capital of the Company (based on the Existing Ordinary Shares plus the Transaction Shares).¹²

The Placing Shares on Completion will be exchanged for ADSs.

There will be no offer to the public in the United Kingdom (including to the Company’s existing Shareholders generally) or the United States of ADSs or Ordinary Shares in connection with the Private Placement.

All Ordinary Shares issued in the Private Placement will not be registered under the Securities Act. Following the closing of the Private Placement the Company will be required to file a registration statement with the SEC to register such shares.

All of the Directors and officers of Midatech and Bioasis have agreed, subject to limited exceptions, with Ladenburg not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Company’s ADSs, Ordinary Shares or such other securities for a period of 90 days following the date of effectiveness of the Registration Statement without the prior written consent of Ladenburg.

If a Shareholder holding Ordinary Shares wishes to sell them on NASDAQ, such Shareholder would need to convert those Ordinary Shares into ADSs by depositing such shares with the Custodian for the Depositary Bank against the issuance of the corresponding number of ADSs before selling the ADSs through a broker on NASDAQ in compliance with US securities law. Any Shareholder considering converting Ordinary Shares into ADSs should consult their stockbroker. 

The Private Placement is subject to, among other things, the passing of the Resolutions. The Directors are requesting the authority to allot in aggregate up to 14,846,550 new Ordinary Shares and up to 917,601,024 new Warrant Shares (underlying the New Warrants) in connection with the Private Placement. In granting authority to the Directors to allot and issue the Placing Shares and the Placing Warrants, the Shareholders will be granting the Directors the flexibility to allot and issue the maximum number of Placing Shares and New Warrants at any time within the period specified by the authority.

The New Warrants will not be separately admitted to trading on AIM or NASDAQ, but the new Ordinary Shares which will be issued following any valid exercise of the New Warrants will be admitted to trading as part of the Company’s single class of shares admitted to trading on AIM and NASDAQ (in the form of ADSs) or the relevant exchange(s) on which the Company’s shares are traded at the time that the New Warrants are exercised.

Placement Agency Agreement

Pursuant to the Placement Agency Agreement, Ladenburg has agreed to use its reasonable best efforts as agent of the Company to procure subscribers for the Placing Shares and the Placing Warrants at the Placing Price.

The Placement Agency Agreement contains certain representations, warranties and indemnities from the Company in favour of Ladenburg and is conditional, inter alia, upon:

In accordance with the Placement Agency Agreement, the Company has agreed to pay Ladenburg a cash fee in an amount equal to 8 per cent. of the aggregate gross proceeds of the Private Placement and to issue to Ladenburg or its designees the Placement Agent Warrants equal to 4 per cent. of the total number of the New ADSs. The Company has also agreed to pay Ladenburg a management fee equal to 1 per cent. of the gross proceeds raised in the Private Placement and an expense allowance of up to US$85,000 for legal fees and other out-of-pocket expenses. The exercise price of the Placement Agent Warrants will be 125 per cent. of the Placing Price and shall terminate three years from the date of the offering of the Placement Agent Warrants.

The Placement Agency Agreement may be terminated without liability by Ladenburg by notice to the Company at any time on or prior to Completion if, inter alia, the Company fails to comply with its obligations under the Placement Agency Agreement, if there is a material adverse change on the results of operations, assets, business, or condition (financial or otherwise) of the Company and its subsidiaries or if there is a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any documents to be entered into in connection with the Private Placement.

A Warrant Instrument

Under the terms of the A Warrant Instrument, to be entered into by the Company at Completion, each A Warrant is capable of being exercised 12 months from the date that such warrants are granted, save that no new Ordinary Shares or ADSs will be issued on the exercise of the A Warrants which would result in any holder holding in excess of 9.99 per cent. of the aggregate voting rights in the Company as a result of the relevant exercise. This percentage limit may be increased or decreased by the holder in accordance with the provisions of the A Warrant Instrument up to a maximum of 9.99 per cent.

The A Warrant exercise price will be US$1.10 per ADS, subject to certain adjustments, including if the following events occur:

In certain circumstances, holders of A Warrants can require that the Company or any successor to the Company pays (to the extent lawful) to the holders, the value of the unexercised portion of the A Warrants as at the date of a Fundamental Transaction using the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of Ordinary Shares or ADSs of the Company in connection with such Fundamental Transaction. The value of the A Warrants will be determined in accordance with a Black-Scholes valuation provision.

B Warrant Instrument

The terms of the B Warrant Instrument, to be entered into by the Company at Completion, are materially the same as the terms of the A Warrant Instrument save that each B Warrant is capable of being exercised six years from the date that such warrants are granted.

Pre-Funded Warrant Instrument

The terms of the Pre-Funded Warrant Instrument, to be entered into by the Company at Completion, are materially the same as the terms of the A Warrant Instrument save that (i) each Pre-Funded Warrant, which may be issued to the Placee in lieu of Placing Shares (in the form of ADSs), if the Placee so chooses, pursuant to the Private Placement, is capable of being exercised at any time after the date of grant until the Pre-Funded Warrant Instrument is exercised in full, (ii) the Pre-Funded Warrant exercise price will be US$0.001 per ADS, subject to certain adjustments, and (iii) holders of Pre-Funded Warrants will not be able to require that the Company or any successor to the Company pays to the holders, the value of the unexercised portion of the Pre-Funded Warrants as at the date of a Fundamental Transaction.

Placement Agent Warrant Instrument

The terms of the Placement Agent Warrant Instrument, to be entered into by the Company at Completion, are materially the same as the terms of the A Warrant Instrument save that (i) each Placement Agent Warrant Instrument is capable of being exercised three years from the date that such warrants are granted and (ii) the Placement Agent Warrant exercise price will be 125 per cent. of the Placing Price per ADS, subject to certain adjustments.

Information on Armistice Capital, LLC, the Placee

The Placee is a global, long/short, value-oriented and event-driven hedge fund focused primarily on the health care and consumer sectors.