SUMMARY

This summary highlights information contained elsewhere in this proxy statement/prospectus. It does not contain all of the information that may be important to you. You are urged to read carefully this entire proxy statement/prospectus, including the attached annexes, and the other documents to which this proxy statement/prospectus refers you in order for you to understand fully the proposed merger. See “Where You Can Find More Information” beginning on page 313. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

The Companies

Midatech Pharma PLC

65 Innovation Drive

Milton Park, Abingdon

Oxfordshire OX14 4RQ

United Kingdom

+44 (0)1235 841 575

Midatech Pharma PLC, a public limited company organized under the laws of England and Wales under registered number 09216368, referred to as Midatech, is a specialty pharmaceutical company focused on the development and commercialization of multiple therapeutic products, using its nanomedicine and sustained release technologies, to enhance the delivery of medicines in major diseases with unmet medical need. These diseases include diabetes, certain cancers such as liver, pancreatic, ovarian and brain (glioblastoma), and neurological/ophthalmologic conditions. Midatech’s strategy is to develop its products in-house in rare cancers and with partners in other indications, and to accelerate growth of its business through strategic acquisition of complementary products and technologies.

As of and for the six months ended June 30, 2015, Midatech had total assets of £42.3 million, total revenues of £324,000, total liabilities of £5.1 million, and total equity of £37.1 million. Midatech’s ordinary shares are quoted on AIM under the symbol “MTPH.”

Merlin Acquisition Sub, Inc.

A wholly owned subsidiary of Midatech, Merlin Acquisition Sub, Inc., a Delaware corporation, referred to as Merger Sub, was formed exclusively for the purpose of completing the merger. Merger Sub’s separate corporate existence will cease upon completion of the merger and DARA will continue as the surviving corporation.

The address and telephone number for Merger Sub’s principal executive office is the same as for Midatech.

Duke Acquisition Sub, Inc.

A wholly owned subsidiary of Midatech, Duke Acquisition Sub, Inc., a Delaware corporation, referred to as Secondary Merger Sub, was formed exclusively for the purpose of completing the secondary merger. Following completion of the secondary merger, Secondary Merger Sub will change its name to “DARA BioSciences, Inc.”

The address and telephone number for Secondary Merger Sub’s principal executive office is the same as for Midatech.

 

DARA BioSciences, Inc.

8601 Six Forks Road, Suite 160

Raleigh, North Carolina 27615

(919) 872-5578

DARA BioSciences, Inc., a Delaware corporation, referred to as DARA, is an oncology supportive care specialty pharmaceutical company dedicated to providing healthcare professionals a synergistic portfolio of medicines to help cancer patients adhere to their therapy and manage side effects arising from their cancer treatments.

As of and for the six months ended June 30, 2015, DARA had total assets of $11.9 million, net revenues of $1.6 million, total liabilities of $3.2 million and total stockholder equity of $8.7 million. DARA’s common stock is listed on the NASDAQ Capital Market under the symbol “DARA.”

Implications of Being an Emerging Growth Company and a Foreign Private Issuer (page 130)

Midatech will qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, referred to as the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements otherwise applicable generally to public companies, including, but not limited to:

 

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a requirement to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial conditions and results of operations disclosure;

 

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exemption from the auditor attestation requirement on effectiveness of Midatech’s internal controls over financial reporting;

 

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reduced disclosure about Midatech’s executive compensation arrangements; and

 

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no requirement for non-binding advisory votes on executive compensation or golden parachute arrangements.

Midatech may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock or other interests. Midatech will be eligible to take advantage of these exemptions until it is no longer an emerging growth company. Midatech will remain an emerging growth company until the earliest of (i) the last day of the first fiscal year in which its annual gross revenues exceed $1.0 billion, (ii) the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of its shares that are held by non-affiliates exceeds $700 million as of the last business day of Midatech’s completed second fiscal quarter, (iii) the date on which it has issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period and (iv) the last day of Midatech’s fiscal year containing the fifth anniversary of the date on which its ordinary shares (and the Midatech Depositary Shares represented thereby) are offered in connection with completion of the merger.

Further, following completion of the merger, Midatech will be subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. The content and timing of reports and notices that Midatech files with and furnishes to the SEC differ in several respects from the reports and notices that DARA, and other United States domestic issuers, currently file. Midatech will be required to file an annual report on Form 20-F with the SEC within four months after the end of each fiscal year, but will not be required to issue quarterly reports, proxy statements that comply with the requirements applicable to United States domestic reporting companies, or individual executive compensation information that is as detailed as that required of United States domestic reporting companies. In addition, Midatech will not be required to file Current Reports on Form 8-K as frequently or as promptly as United States domestic reporting companies, but it will be required to furnish reports on Form 6-K to the SEC regarding certain information required to be publicly disclosed by

 

Midatech by way of a Regulatory News Service, referred to as RNS, in the United Kingdom or filed with AIM, or regarding information distributed or required to be distributed by Midatech to its stockholders under the AIM Rules. Midatech may also, and intends to, present financial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, referred to as IFRS, instead of pursuant to accounting principles generally accepted in the United States, referred to as GAAP.

Midatech will be exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act, and will not be required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information. In addition, among other matters, Midatech’s officers, directors and principal stockholders will be exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Midatech ordinary shares. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a United States domestic reporting companies. Midatech intends to take advantage of the exemptions available to it as a foreign private issuer after it no longer qualifies as an emerging growth company.

Although Midatech, as a foreign private issuer, is exempt from the rules under the Exchange Act regarding the furnishing of annual reports, the rules of NASDAQ require Midatech to distribute to the holders of its Midatech Depositary Shares an annual report containing audited financial statements a reasonable period of time before Midatech’s annual meeting of share owners. Midatech currently furnishes holders of its ordinary shares with its Annual Report and Accounts which contain audited financial statements prepared in conformity with IFRS, and a discussion of Midatech’s financial results similar to the management’s discussion and analysis contained in DARA’s Annual Reports on Form 10-K. Midatech also furnishes those holders with semi-annual interim reports, which include unaudited interim financial information prepared in conformity with IFRS, and notices of meetings of share owners and related documents in accordance with the AIM Rules and United Kingdom corporate governance principals.

For more information, and certain risks related to Midatech’s status as an emerging growth company and a foreign private issuer, see “ Risk Factors ” beginning on page 35, “ The Merger—Implications of Being an Emerging Growth Company ” on page 130, “ The Merger—Midatech’s Status as a Foreign Private Issuer Under the Exchange Act ” beginning on page 130 and “ Midatech’s Operating and Financial Review and Prospects ” beginning on page 177.

The Merger

The Agreement and Plan of Merger, dated as of June 3, 2015, referred to as the merger agreement, by and among Midatech, Merger Sub, Secondary Merger Sub, DARA and Shareholder Representative Services, LLC, a Colorado limited liability corporation, solely as representative of the DARA stockholders, referred to as the Shareholder Representative, is included as Annex A to this proxy statement/prospectus. You are encouraged to carefully read the merger agreement in its entirety because it is the principle legal agreement that governs the merger.

Structure of the Merger (page 94)

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, Merger Sub, a wholly owned subsidiary of Midatech, will be merged with and into DARA, with DARA continuing as the surviving corporation, referred to as the merger. The effective time of the merger is referred to as the Effective Time. Immediately after the Effective Time, DARA, as the surviving corporation in the merger, will be merged with and into Secondary Merger Sub, a wholly owned subsidiary of Midatech, with Secondary Merger Sub surviving and continuing as a wholly owned subsidiary of Midatech, referred to as the secondary merger. In this proxy statement/prospectus, the merger and secondary merger are sometimes collectively referred to as the

 

transaction or the mergers, and Secondary Merger Sub, which is the surviving entity following the secondary merger, is sometimes referred to as the surviving entity. It is intended that the secondary merger will be effected immediately after the Effective Time without further approval, authorization or direction from or by any of the parties to the merger agreement.

Immediately following the secondary merger, the name of the surviving entity will be changed to “DARA BioSciences, Inc.”

Merger Consideration (page 94)

Common Stock. Other than excluded shares, as a result of the transaction, DARA common stockholders will have the right, with respect to each of their outstanding shares of DARA common stock, par value $0.01 per share, referred to as common stock, to receive, without interest, (i) 0.272 ordinary shares, nominal value 0.005p per share, referred to as ordinary shares, of Midatech, subject to adjustment in accordance with the terms of the merger agreement, referred to as the Per Share Stock Consideration, plus (ii) one contingent value right, referred to as CVRs, which represents the right to receive contingent payments if specified milestones are achieved within agreed time periods, subject to and in accordance with the terms and conditions of the Contingent Value Rights Agreement, in substantially the form included as Annex C to this proxy statement/prospectus referred to as the CVR Agreement, to be entered into prior to the effective time of the merger, referred to as the Effective Time, by Midatech, DARA, the Shareholder Representative and a rights agent selected by Midatech with DARA’s approval, plus (iii) cash in lieu of fractional Midatech Depositary Shares (as defined herein). The CVR Agreement was approved by DARA’s Board of Directors in connection with its approval of the merger agreement. All Midatech ordinary shares to be issued in connection with the merger will be delivered to the holders of DARA common stock in the form of American Depositary Receipts, each representing the right to receive two Midatech ordinary shares, referred to as Midatech Depositary Shares. The Per Share Stock Consideration and one CVR, together with any cash to be paid in lieu of fractional shares of Midatech Depositary Shares to be issued, are referred to collectively as the Per Share Merger Consideration.

In lieu of receiving any fractional shares of Midatech Depositary Shares, holders of common stock will receive from Midatech an amount of cash, without interest, less the amount of any withholding taxes, equal to the product of (x) such fraction, multiplied by (y) the U.S. dollar equivalent of the closing price of a Midatech ordinary share underlying the Midatech Depositary Shares on the AIM Market on the last trading day preceding the day the merger is consummated, referred to as the Closing Date.

The merger agreement includes a collar provision under which the initial exchange ratio of 0.272 is subject to adjustment in the event the Exchange Ratio Market Value (as defined herein) determined one business day prior to closing of the merger, referred to as the Closing, is less than $1.08 or greater than $1.32. This ratio, as adjusted if necessary, is referred to as the Exchange Ratio. In such event, the Exchange Ratio shall be determined as follows: (i) if the Exchange Ratio Market Value is an amount less than $1.08, then the Exchange Ratio shall be equal to the quotient obtained by dividing $1.08 by the Exchange Ratio Market Value (subject to a maximum Exchange Ratio of 0.306) and (ii) if the Exchange Ratio Market Value is an amount greater than $1.32, then the Exchange Ratio shall be equal to the quotient obtained by dividing $1.32 by the Exchange Ratio Market Value (subject to a minimum Exchange Ratio of 0.249).

As used herein, Exchange Ratio Market Value means 0.272, the initial Exchange Ratio, multiplied by a figure that represents the average of the weighted average mid-market trading price of Midatech ordinary shares on AIM (as calculated by Bloomberg Screen AQR) for each of the 15 trading days ending on the day which is the business day immediately prior to the Effective Time, and then translated into U.S. dollars using the Bank of England’s daily spot exchange rate for the day which is the business day immediately prior to the Effective Time.

 

As used herein, “ excluded shares ” mean all shares held by DARA as treasury stock or any shares held by Midatech, Merger Sub, Secondary Merger Sub or any wholly owned subsidiary of Midatech or DARA, which will be cancelled, and any shares authorized but unissued, and shares owned by DARA stockholders who have perfected and not withdrawn a demand for, or lost their right to, appraisal with respect to such shares.

Preferred Stock. At the Effective Time, each share (other than excluded shares) of DARA’s issued and outstanding Series A Convertible Preferred Stock, Series B-2 Convertible Preferred Stock and Series C-1 Convertible Preferred Stock will be converted into the right to receive, without interest, $1,000 in cash, plus an amount equal to any declared but unpaid dividends (if any).

The CVRs (page 167)

The CVRs will be governed by the terms of the CVR Agreement, which will be entered prior to the Effective Time.

The CVRs represent the non-transferable contractual right to receive a cash payment from Midatech of up to $5.7 million in the aggregate. The contingent payments become payable to the rights agent, for deposit into a fund established by the rights agent for subsequent distribution to the holders of the CVRs, upon the achievement of the milestones as follows:

 

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A payment will be made in 2017 if the following milestones are achieved:

 

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CVR holders will receive $0.07 per CVR if Gross Sales (as defined below) of Oravig and Gelclair (two drugs licensed by DARA) equal or exceed $15.0 million but are less than $16.5 million, in the aggregate, for the fiscal year ending December 31, 2016;

 

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$0.09 per CVR if Gross Sales of Gelclair and Oravig equal or exceed $16.5 million but are less than $18.0 million, in the aggregate, for the fiscal year ending December 31, 2016; or

 

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or $0.11 per CVR if Gross Sales of Gelclair and Oravig equal or exceed $18.0 million, in the aggregate, for the fiscal year ending December 31, 2016; and

 

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A payment will be made in 2018 if the following milestones are achieved:

 

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CVR holders will receive $0.11 per CVR if Gross Sales of Gelclair and Oravig equal or exceed $26.0 million but are less than $28.6 million, in the aggregate, for the fiscal year ending December 31, 2017;

 

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$0.13 per CVR if Gross Sales of Gelclair and Oravig equal or exceed $28.6 million but are less than $31.2 million, in the aggregate, for the fiscal year ending December 31, 2017; or

 

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or $0.16 per CVR if Gross Sales of Gelclair and Oravig equal or exceed $31.2 million, in the aggregate, for the fiscal year ending December 31, 2017.

If the minimum sales target in each of fiscal 2016 ($15 million in Gross Sales) or fiscal 2017 ($26 million in Gross Sales) is not met, then the holders of CVRs will not be entitled to receive payment for that year. The payment amounts per CVR shown above assume that none of DARA’s outstanding warrants for DARA common stock will be exercised. Currently none of DARA’s outstanding warrants are vested and in-the-money. If any of DARA’s warrants for common stock are exercised, the payments amounts per CVR will be less than the amounts shown above.

In no event will payment be made with respect to more than a single milestone in fiscal year 2016 or 2017, as applicable. All of the milestone payments are subject to offset by Midatech with respect to indemnification claims made pursuant to the merger agreement.

 

As used herein, the terms:

 

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“ Gross Sales ” means those aggregate sales of Gelclair and Oravig by DARA’s successor, Midatech, their respective affiliates and certain other authorized sellers for fiscal year 2016 or fiscal year 2017 computed by, for each product, multiplying (i) the number of units of such product shipped and recognized in the final audited consolidated financial statements maintained in accordance with revenue recognition standards of accounting principles generally accepted in the United States, referred to as GAAP, or such other successor standard by (ii) the WAC for such product; and

 

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“ WAC ” means Wholesaler Acquisition Cost, which is the approved and published amount at which a product is sold to wholesalers and other customers in the pharmaceutical industry, as reported by the applicable manufacturer to First Databank.

Oravig is an orally dissolving buccal tablet product acquired from Onxeo S.A. and owned by DARA, the contents of which include miconazale, and which is currently sold under the registered trademark “ORAVIG” and licensed by DARA pursuant to a commercialization agreement with Onxeo S.A. Gelclair is a bioadherent gel currently indicated for the management and relief of pain associated with oral mucositis (a condition characterized by erythema and oral lesions) and is a product that DARA has exclusive license rights in the United States, the contents of which include polyvinlypyrolidone and sodium hyaluronate, and which is currently sold under the registered trademark “GELCLAIR” and licensed by DARA pursuant to a license agreement with Helsinn Healthcare SA.

Midatech has agreed to use commercially reasonable efforts to achieve the milestones, subject to certain limitations agreed to in the CVR Agreement.

The CVRs may not be sold, assigned, transferred, pledged, encumbered or disposed of in any other manner, in whole or in part, other than in the limited circumstances specified in the CVR Agreement. In addition, the CVRs (i) will not be evidenced by a certificate or other instrument, (ii) will not have any voting or dividend rights and (iii) will not represent any equity or ownership interest in Midatech, any constituent company to the merger or any of their respective affiliates. No interest will accrue on any amounts payable in respect of the CVRs.

The CVR payment is neither secured nor guaranteed. The CVR payment, if any becomes due, is an unsecured general obligation of Midatech and is not guaranteed by Midatech or any of its affiliates.

A copy of the form of CVR Agreement is included as Annex C to this proxy statement/prospectus. For a more detailed description of the CVRs and the CVR Agreement, see “ Description of the CVRs ” beginning on page 167.

Treatment of Stock Options and Warrants (page 144); Oncogenerix Contingent Consideration Shares (page 145)

Stock Options . Subject to certain exceptions, each outstanding and unexercised option to acquire DARA common stock, referred to as Stock Options, will become fully vested and exercisable immediately prior to the Effective Time. Stock Options that remain outstanding and unexercised at the Effective Time will be assumed by Midatech and will vest in accordance with their vesting schedule pursuant to the same material terms and conditions as set forth in the applicable agreement under which such Stock Option was granted immediately prior to the Effective Time, provided that at the Effective Time, (i) each Stock Option will be exercisable for that number of whole Midatech ordinary shares equal to the product of (A) the number of shares of DARA common stock that were issuable upon exercise of such Stock Option immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio, rounded down to the nearest whole number of Midatech ordinary shares, and (ii) the per share exercise price for each Midatech ordinary share issuable upon exercise of each Stock Option so

 

converted will be equal to the quotient determined by dividing the exercise price per share of DARA common stock at which such Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. All Midatech ordinary shares delivered to the holders of Stock Options will be delivered in the appropriate amount of Midatech Depositary Shares.

Warrants . Each outstanding and unexercised warrant to purchase shares of DARA common stock, referred to as Warrants, as of immediately prior to the Effective Time will be assumed or substituted by Midatech in accordance with the terms of such Warrant and, as of the Effective Time, (i) will be exercisable for (A) the number of whole Midatech ordinary shares equal to the product of the number of shares of DARA common stock that were issuable upon exercise of such Warrant immediately prior to the Effective Time, multiplied by the Exchange Ratio, rounded down to the nearest whole number of Midatech ordinary shares and (B) one CVR multiplied by the total number of shares of DARA common stock that were issuable upon exercise of such Warrants immediately prior to the Effective Time, and (ii) the per share exercise price for each Midatech ordinary share issuable upon exercise of Warrants so converted will be equal to the quotient determined by dividing the exercise price per share of DARA common stock at which such Warrant was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. All Midatech ordinary shares delivered to the holders of Warrants in connection with the merger will be delivered in the appropriate amount of Midatech Depositary Shares.

Oncogenerix Contingent Consideration Shares. Pursuant to the terms of that certain Agreement and Plan of Merger, dated as of January 17, 2012, referred to as the Oncogenerix Merger Agreement, by and among Oncogenerix, Inc., referred to as Oncogenerix, certain stockholders of Oncogenerix, Christopher Clement, in his capacity as stockholder representative, DARA and Oncogenerix Acquisition Corporation, on January 17, 2012, DARA acquired Oncogenerix, referred to as the Oncogenerix Merger. In addition to the merger consideration payable by DARA upon the closing of the Oncogenerix Merger, the former stockholders of Oncogenerix are entitled to receive up to 1,114,560 shares of DARA common stock, referred to as the Oncogenerix Contingent Consideration Shares, based upon, among other things, DARA’s achievement of certain revenue milestones, ranging from $5 million to $20 million of customer revenue, or market capitalization milestones, ranging from a market capitalization of $75 million to at least $200 million, during the 60 months following the closing of the Oncogenerix Merger. In addition, if a change of control of DARA were to occur during the 60 months following the closing of the Oncogenerix Merger, and DARA were to have a marketed product (as such term is defined the Oncogenerix Merger Agreement) at such time, which it currently has, then all of the Oncogenerix Contingent Consideration Shares would become payable. The occurrence of the Effective Time will constitute a change in control under the Oncogonerix Merger Agreement.

At the Effective Time, pursuant to the terms of the merger agreement, each right to receive an Oncogenerix Contingent Consideration Share reserved for issuance pursuant to the terms of the Oncogenerix Merger Agreement, will become payable to the holder of such right, and each such Oncogenerix Contingent Consideration Share will be converted into the right to receive the Per Share Merger Consideration. Each of Mr. Clement and David Benharris, each an executive officer of DARA, will be entitled to 34,507 Oncogenerix Contingent Consideration Shares. See “ The Merger—Interests of DARA’s Executive Officers and Directors in the Merger ” beginning on page 119.

 

Comparative Per Share Market Price and Share Information (page 32)

Midatech ordinary shares are quoted on AIM under the symbol “MTPH.” DARA common stock is listed on the NASDAQ Capital Market under the symbol “DARA.” The following table sets forth the closing sales prices of a Midatech ordinary share (as reported on AIM) and of DARA common stock (as reported on the NASDAQ Capital Market), each on June 3, 2015, the last trading day before the day on which Midatech and DARA announced the execution of the merger agreement, and on [●], 2015, the last practicable trading day before the date of this proxy statement/prospectus.

 

		Midatech Ordinary Share Price per Share (1)				DARA Common Stock Price per Share				DARA Equivalent Stock Price Per Share (2)
June 3, 2015		$	4.50			$	0.81			$	1.22
[●], 2015		$	[●]			$	[●]			$	[●]

 

(1)

Midatech ordinary share price (rounded to the nearest whole cent) as at the close of trading on June 3, 2015 and [●], 2015 of £2.93 and £[●], respectively, converted into U.S. dollars at the daily noon buying rates, as published by the Federal Reserve Bank of New York, on June 3, 2015 and [●], 2015, respectively.

(2)	The DARA equivalent stock prices were calculated by multiplying the share price of each Midatech ordinary share on each date by the initial Exchange Ratio of 0.272.

The market prices of Midatech ordinary shares and DARA common stock will fluctuate before the special meeting and before the merger is completed. You should obtain current market quotations from a newspaper, the Internet or your broker or banker.

Recommendation of DARA’s Board of Directors (page 103)

The Board of Directors of DARA has determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of DARA and its stockholders. The Board of Directors of DARA unanimously recommends that the DARA stockholders vote:

 

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“ FOR ” the adoption of the merger agreement, referred to as the merger proposal;

 

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“ FOR ” the approval, on an advisory, non-binding basis, of the compensatory arrangements between DARA and its named executive officers providing for compensation in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, referred to as the Potential Payments Under Compensation Arrangements; and

 

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“ FOR ” approval of adjournments of the special meeting, if necessary, for the purpose of soliciting additional proxies in favor of the foregoing proposals.

For additional information see “ The Merger Agreement—Board Recommendation ” beginning on page 153.

In making its recommendation, the DARA Board of Directors considered those matters set forth under the heading “ The Merger —DARA’s Reasons for the Merger and Recommendation of DARA’s Board of Directors ” beginning on page 103.

Opinion of DARA’s Financial Advisor (page 106)

In connection with the merger, the DARA Board of Directors received an oral opinion, subsequently confirmed by delivery of a written opinion dated June 3, 2015, from DARA’s financial advisor, Aquilo Partners, LP, referred to as Aquilo Partners, as to the fairness, from a financial point of view and as of the date of such opinion, to the DARA stockholders of the Per Share Merger Consideration to be received by the DARA stockholders pursuant to the merger agreement. The full text of Aquilo Partners’ written opinion is attached to this proxy statement/prospectus as Annex D . DARA stockholders are encouraged to read Aquilo Partners’

 

opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken by Aquilo Partners. Aquilo Partners’ opinion was provided for the benefit of the DARA Board of Directors in connection with, and for the purpose of, its evaluation of the Per Share Merger Consideration to be received by DARA from a financial point of view and does not address any other aspect of the merger. The opinion does not address the relative merits of the merger as compared to other business strategies or transactions that might be available with respect to DARA or DARA’s underlying business decision to effect the merger. The opinion does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger.

Interests of DARA’s Executive Officers and Directors in the Merger (page 119)

When you consider the DARA Board of Directors recommendation that DARA common stockholders vote in favor of the proposals described in this proxy statement/prospectus, you should be aware that some DARA directors and executive officers may have interests that may be different from, or in addition to, DARA stockholders’ interests, including their receipt of change in control benefits under existing DARA employment arrangements and accelerated vesting of DARA equity-based awards.

Employee Bonus Plan (page 160)

In connection with the consummation of the merger, Midatech will set aside an aggregate of $300,000 to establish an employee bonus plan to be offered to employees of DARA who become employees of Midatech following the Closing.

For more information on the employee bonus plan, see “ The Merger Agreement—Employee Bonus Plan ” on page 160.

Appraisal Rights (page 124)

Under Delaware law, record holders of DARA common stock and preferred stock who do not vote in favor of the adoption of the merger agreement and who properly demand and perfect appraisal rights and hold their shares continuously from the date of making the demand through the Effective Time will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of DARA capital stock if the merger is completed in lieu of receiving the merger consideration. This value could be more than, the same as, or less than the value of the merger consideration. The relevant provisions of the General Corporation Law of the State of Delaware, referred to as the DGCL, are included as Annex E to this proxy statement/prospectus. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, DARA stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with these provisions will result in loss of the right of appraisal. STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE OR BANK ACCOUNTS OR OTHER NOMINEE FORMS, AND WHO WISH TO EXERCISE APPRAISAL RIGHTS, SHOULD CONSULT WITH THEIR BROKERS, BANKS AND NOMINEES, AS APPLICABLE, TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BROKER, BANK OR OTHER NOMINEE HOLDER TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER, BANK OR OTHER NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.

For additional information, please see the section titled “ The Merger—Appraisal Rights ” beginning on page 124.

 

Accounting Treatment (page 128)

In accordance with IFRS, and in particular, with IFRS 3, Business Combinations , the combination qualifies as the acquisition of DARA by Midatech. In particular, on the date at which control over DARA is acquired, the identifiable assets acquired and liabilities assumed will be recognized in Midatech’s consolidated balance sheet at fair value. The difference between the acquisition consideration and the net fair value at the acquisition date of the identifiable assets acquired and liabilities assumed, net of any non-controlling interest in the DARA group, if positive will be recognized as goodwill, or if negative will be recognized in the consolidated statement of comprehensive income. The acquisition consideration is defined as the sum of the acquisition date fair values of the assets transferred, the liabilities assumed on acquisition and any equity instruments issued. The shares that will be issued by Midatech as part of the merger will be recognized at fair value on the acquisition date.

Certain Material U.S. Federal Income Tax Consequences of the Mergers (page 133)

It is a condition to the completion of the mergers that DARA and Midatech each receive an opinion that, for U.S. federal income tax purposes, the mergers should qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is expected that mergers should qualify as a “reorganization” within the meaning of Section 368(a) of the Code, although the conditions for reorganization treatment will not be known until the time of the mergers. If the mergers qualify as a “reorganization,” then a U.S. holder (as defined herein) of DARA common stock that exchanges shares of DARA common stock for Midatech depositary shares, cash in lieu of fractional Midatech depositary shares, and CVRs would recognize gain (but not loss) in an amount equal to the lesser of (1) the sum of the fair market value of the CVRs received and cash received in lieu of fractional shares and (2) the amount by which the aggregate fair market value of the merger consideration received by the U.S. holder exceeds such U.S. holder’s adjusted tax basis in the DARA common stock exchanged.

If the mergers do not qualify as a “reorganization” under Section 368(a) of the Code, then a U.S. holder of DARA common stock would recognize gain or loss in an amount equal to the difference, if any, between (1) the amount realized and (2) such holder’s tax basis in the DARA common stock exchanged.

You should read the section entitled “ Taxation—Material U.S. Federal Income Tax Consequences ” beginning on page 133 for a more complete discussion of the U.S. federal income tax consequences of the mergers. Tax matters can be complicated, and the tax consequences of the mergers to a particular holder will depend on your particular tax situation.

You should consult your tax advisor to determine the specific consequences of the mergers to you.

Certain Material United Kingdom Tax Consequences of the Mergers (page 140)

Dividends . Midatech will not be required to withhold tax at source in the United Kingdom from any dividend payments made in respect of Midatech Depositary Shares.

A holder of Midatech Depositary Shares who is resident outside the United Kingdom for tax purposes and who holds the Midatech Depositary Shares by way of investment will not generally be liable to tax in the United Kingdom with respect to any dividends received from Midatech but would also not be able to claim payment from Her Majesty’s Revenue and Customs, referred to as HM Revenue and Customs, of any part of any tax credit attaching to such dividend (save to the extent provided for under the terms of any double taxation convention between the United Kingdom and the country in which such shareholder is resident).

Stamp Duty and Stamp Duty Reserve Tax. No United Kingdom stamp duty or stamp duty reserve tax will be payable on (i) the transfer of the Midatech ordinary shares underlying the Midatech Depositary Shares to the depositary, or (ii) the issue of the Midatech Depositary Shares or their delivery into Euroclear or other electronic systems for holding of securities. This is provided that, at the date such transfer or issue takes effect, the

 

Midatech ordinary shares are admitted to trading on the AIM Market but not listed on the Official List of the United Kingdom Listing Authority or any other market.

No United Kingdom stamp duty or stamp duty reserve tax will be payable on the transfer of the Midatech ordinary shares underlying the Midatech Depositary Shares once they are issued into Euroclear or other electronic systems for holding of securities where such transfer is effected in electronic book entry form in accordance with the provisions of Euroclear or other electronic systems for holding of securities.

Voting Agreement (page 166)

On June 3, 2015, Midatech entered into voting agreements with the named executive officers and directors of DARA, pursuant to which such officers and directors, among other things and subject to the terms and conditions thereof, agreed to vote in favor of the approval of all proposals submitted by DARA in connection with the merger and against any alternative business combination transaction, provided, however, that the agreement to vote terminates should the DARA Board of Directors change its recommendation with respect to the merger or terminates the merger agreement. As of October 16, 2015, the record date, the officers and directors subject to the voting agreements beneficially owned, in the aggregate, [●] shares of common stock, which represented approximately [●]% of the issued and outstanding shares of common stock on such date. See “ Voting Agreement ” on page 166.

Listing of Midatech Ordinary Shares and Delisting of DARA Common Stock (page 160)

Midatech has applied to have the Midatech Depositary Shares to be issued in the merger approved for listing on NASDAQ under the symbol “MTP.” If the merger is completed, DARA common stock will no longer be listed on the NASDAQ Capital Market and will be deregistered under the Exchange Act and DARA will no longer file periodic reports with the SEC.

Conditions to Completion of the Merger (page 161)

Each party’s obligations to effect the merger is subject to the satisfaction or waiver of mutual conditions, including the following:

 

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receipt of the DARA stockholder approval in accordance with Delaware law;

 

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all regulatory approvals required to consummate the transactions contemplated by the merger agreement having been obtained and in full force and effect;

 

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the effectiveness of, and the absence of any stop order with respect to, the registration statement on Form F-4 (of which this proxy statement/prospectus forms a part) and the registration statement on Form F-6;

 

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the absence of any law, injunction, judgment or ruling prohibiting the consummation of the merger or making consummation of the merger illegal; and

 

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the approval for listing on NASDAQ, subject to official notice of issuance, of the Midatech Depositary Shares issuable in connection with the merger.

The obligations of Midatech and Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

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the representations and warranties of DARA being true and correct, subject to certain de minimis inaccuracies and certain materiality thresholds, as of the date of the merger agreement and as of the Closing Date;

 

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DARA having performed in all material respects all covenants and agreements required to be performed by it under the merger agreement or prior to the Closing Date;

 

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each non-employee director of DARA and, if requested in writing by Midatech, of each subsidiary of DARA, in each case must have resigned or been removed in his or her capacity as a director, effective as of, or prior to, the Closing;

 

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the absence of a material adverse effect on DARA since the date of the merger agreement;

 

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less than 10.0% of the total shares of DARA common stock and preferred stock, taken as a whole, outstanding as of the record date, shall have properly exercised appraisal rights pursuant to Section 262 of the DGCL;

 

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DARA shall have delivered a certificate signed by officers of DARA that it is not, nor has been within five years of the date of the certification, a “United States real property holding corporation,” as such term is defined under the Code; and

 

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DARA must have received the opinion of its own counsel or Brown Rudnick LLP that the transaction should qualify as a reorganization within the meaning of Section 368(a) of the Code for United States federal income tax purposes.

The obligations of DARA to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

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the representations and warranties of Midatech being true and correct, subject to certain de minimis inaccuracies and certain materiality thresholds, as of the date of the merger agreement and as of the Closing Date;

 

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Midatech having performed in all material respects all covenants and agreements required to be performed by it under the merger agreement or prior to the Closing Date;

 

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the absence of a material adverse effect on Midatech since the date of the merger agreement; and

 

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Midatech must have received the opinion of its own counsel or K&L Gates LLP that the transaction should qualify as a reorganization within the meaning of Section 368(a) of the Code for United States federal income tax purposes.

Termination of the Merger Agreement (page 163)

The merger agreement may be terminated any time before the Effective Time by the written consent of Midatech and DARA.

The merger agreement may also be terminated prior to the Effective Time by either Midatech or DARA if:

 

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the Closing has not been consummated on or before December 31, 2015 (which date is referred to as the Termination Date and was extended in accordance with certain conditions set forth in the merger agreement from November 15, 2015);

 

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any governmental authority issues an order, decree or ruling, enacts a law or takes any other action (that is final and non-appealable) having the effect of permanently enjoining, restraining or otherwise prohibiting the merger or making the merger illegal in the United Kingdom or the United States; or

 

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the DARA stockholders fail to give the necessary approvals at the special meeting or adjournments thereof.

The merger agreement may also be terminated prior to the Effective Time by Midatech if:

 

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DARA has materially breached any of its representations, warranties, covenants or obligations, which breach would result in the failure to satisfy by the Termination Date one or more of conditions of DARA to the merger, and such breach cannot be or has not been cured within 30 days of written notice thereof having been received by Midatech, subject to certain restrictions; or

 

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if DARA experiences a material adverse effect (as such term is defined herein).

Further, the merger agreement may also be terminated by Midatech under any of the following circumstances, collectively referred to as a DARA Termination:

 

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DARA effects a Change in Recommendation (as such term is defined herein) to the DARA stockholders to adopt the merger agreement;

 

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DARA fails to include in the proxy statement/prospectus its recommendation to the DARA stockholders to adopt the merger agreement;

 

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the DARA Board of Directors approves, endorses or recommends any acquisition proposal (as such term is defined herein);

 

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DARA fails to publicly reaffirm its recommendation to DARA stockholders to adopt the merger agreement upon request of Midatech; or

 

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DARA or any of its subsidiaries or representatives breaches, in any material respect, its non-solicitation covenant or board recommendation covenant.

The merger agreement may be terminated prior to the Effective Time by DARA if:

 

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Midatech has materially breached any of its representations, warranties, covenants or obligations, which breach would result in the failure to satisfy by the Termination Date one or more conditions of Midatech to the merger, and such breach cannot be or has not been cured within 30 days of written notice thereof having been received by DARA, subject to certain restrictions; or

 

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DARA changes its recommendation to the DARA stockholders to adopt the merger agreement in order to accept an acquisition proposal, in compliance with the terms of the merger agreement, and its pays to Midatech a termination fee of $1.05 million within the timeframe provided.

Termination Fee and Expenses (page 164)

Fee and Expenses. All costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expense, whether or not the merger is consummated.

Notwithstanding the foregoing, DARA has agreed to reimburse Midatech up to $525,000 of Midatech’s reasonable and documented costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby in the event the merger agreement is terminated by Midatech due to the occurrence of material adverse effect on DARA, but only to the extent that such material adverse effect pertains to (i) the termination of DARA’s license with respect to Oravig, or Gelclair, or (ii) the occurrence of certain other specified actions related to Oravig and Gelclair.

Termination Fee . DARA has agreed to pay to Midatech a termination fee of $1.05 million under any of the following circumstances:

 

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if the merger agreement is terminated pursuant to a DARA Termination;

 

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if DARA terminates the merger agreement and changes its recommendation to the DARA stockholders to adopt the merger agreement in order to accept an acquisition proposal, in compliance with the terms of the merger agreement, and its pays to Midatech the termination fee; or

 

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(A) if the merger agreement is terminated (i) by Midatech, if there shall have been a material breach of any of DARA’s representations, warranties, covenants or obligations, which breach would result in the failure to satisfy by the Termination Date one or more conditions of DARA to the merger, and such breach cannot be or has not been cured within 30 days of written notice thereof having been received

 

by Midatech; (ii) by either party, if DARA stockholders fail to approve the merger proposal at the special meeting or any adjournments thereof; or (iii) by either party, if the merger shall not have been consummated by the Termination Date (subject to certain exceptions), and in any such case, an acquisition proposal (including a previously communicated acquisition proposal) has been publicly announced or otherwise communicated to a member of the senior management or the Board of Directors of DARA (or any person shall have publicly announced or communicated a bona fide intention, whether or not conditional, to make any acquisition proposal) at any time after the date of the merger agreement and prior to receipt of the approval of merger proposal by DARA’s stockholders at the special meeting, in the case of clause (ii), or the Terminate Date, in the case of clauses (i) and (iii) above; and (B) within 12 months after the date of such termination, DARA enters into a definitive agreement to consummate, or consummates, any acquisition transaction (as such term is defined herein).

No Solicitation of Transactions (page 156)

The merger agreement contains detailed provisions that prohibit DARA and its subsidiaries, directors, officers, employees and representatives from, directly or indirectly, soliciting, initiating or knowingly encouraging, inducing or facilitating an alternative acquisition proposal from a third party or engaging in discussions or negotiations with a third party with respect to proposals to acquire significant interests in DARA. The merger agreement does not, however, prohibit DARA’s Board of Directors from considering and recommending to DARA stockholders an alternative acquisition proposal from a third party if specified conditions are met, including the payment of a termination fee as required under the merger agreement.

Indemnification of Midatech (page 158)

All representations and warranties made by DARA in the merger agreement will survive until the termination of the CVR Agreement in accordance with its terms, and all covenants, obligations and agreements of DARA to be performed after the Effective Time will survive until the termination of the CVR Agreement in accordance with its terms or for the period specified in the merger agreement.

From and after the Closing Date and until the expiration of the CVR Agreement, and subject to the terms, conditions and limitations set forth in the merger agreement, DARA stockholders will indemnify, hold harmless and defend Midatech and its officers, directors and affiliates against any adverse consequences (as defined herein) resulting from or arising out of (i) any misrepresentation or breach of DARA’s representation or warranties (as of the date made or as of the Closing Date, as applicable, except such representation or warranty that expressly relates to a specified date, the misrepresentation or breach of which will be determined with reference to such specified date) or (ii) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by DARA prior to the Closing pursuant to the merger agreement. DARA stockholders will not, however, be liable for any adverse consequences unless and until the aggregate amount of adverse consequences exceed $225,000, whereupon DARA stockholders will only be liable for the portion of adverse consequences exceeding such amount. In this case, Midatech and its officers, directors and affiliates will be entitled to indemnification for all losses incurred by them that are in excess of this amount, subject to a limit on DARA’s stockholders maximum aggregate liability of the aggregate amount of unpaid payments otherwise payable by Midatech pursuant to the CVR Agreement to holders of the CVRs from time to time. Any adverse consequences payable to Midatech pursuant to the merger agreement will be satisfied solely by an offset against payments otherwise payable by Midatech pursuant to the CVR Agreement, if any, to holders of the CVRs, severally and not jointly and on a pro-rata basis. The indemnification discussed herein is the sole and exclusive remedy of Midatech and its officers, directors and affiliates, other than for claims for or based on willful material misconduct or intentional fraud by DARA. For more information see “The Merger Agreement—Indemnification of Midatech ” beginning on page 158.

 

Comparison of Stockholder Rights (page 264)

As a result of the merger, the holders of DARA common stock will become holders of Midatech Depositary Shares. Following the merger, DARA stockholders will have different rights as holders of Midatech Depositary Shares than they had as DARA stockholders due to the differences between the laws of the jurisdiction of incorporation, which, in the case of DARA is the State of Delaware, and the certificate of incorporation and bylaws of DARA, and that of the jurisdiction of incorporation of Midatech, which is England and Wales, and the articles of association of Midatech. See “ Comparison of Stockholder Rights ” beginning on page 264. For a copy of DARA’s current certificate of incorporation or bylaws, see “ Where You Can Find More Information ” beginning on page 313. Midatech’s articles of association are included as an exhibit to the registration statement of which the proxy statement/prospectus is a part.

Stock Ownership of Directors and Executive Officers of DARA

At the close of business on the record date, directors and executive officers of DARA and their affiliates were entitled to vote [●] shares of DARA common stock, or approximately [●]% of the shares of DARA common stock outstanding and entitled to vote on that date. As noted previously, each of DARA’s directors and officers has entered into a voting agreement obligating them to vote in favor of the approval of all proposals submitted by DARA in connection with the merger and against any alternative business combination transaction unless the DARA Board of Directors has changed its recommendation with respect to the merger or terminated the merger agreement.

Litigation Related to the Merger (page 132)

DARA, its individual Board of Directors, Midatech, Merger Sub and Secondary Merger Sub are named as defendants in purported class action lawsuits, referred to as stockholder actions, brought by alleged DARA stockholders challenging DARA’s proposed merger with Midatech. The complaints allege, among other things, that (i) each member of DARA’s Board of Directors breached his or her fiduciary duties to DARA and its stockholders by authorizing the sale of DARA to Midatech; (ii) the merger does not maximize value to DARA stockholders; and (iii) Midatech, Merger Sub, Secondary Merger Sub and DARA aided and abetted the breaches of fiduciary duty allegedly committed by the members of the DARA Board of Directors. In addition, one amended complaint alleges that Midatech’s Registration Statement on Form F-4, as filed on August 11, 2015, omits or misstates certain material information. The stockholder actions seek class action certification and equitable relief, including judgments enjoining the defendants from consummating the merger on the agreed-upon terms.

DARA and Midatech believe the claims asserted by the plaintiffs to be without merit.

For more information, see “ Risk Factors—Lawsuits have been filed against DARA, members of the DARA Board of Directors, Merger Sub, Secondary Merger Sub, and Midatech challenging the merger, and an unfavorable judgment or ruling in these lawsuits could prevent or delay the consummation of the merger, and result in substantial costs ” on page 39.

The Special Meeting of DARA Stockholders

The Special Meeting (page 172)

The special meeting will be held on [●], 2015 at [●], local time, at [●].

Purpose of the Special Meeting (page 172)

At the special meeting, DARA stockholders will be asked to approve:

 

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the merger proposal;

 

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the Potential Payments Under Compensation Arrangement proposal; and

 

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a proposal to adjourn the special meeting, if necessary, for the purpose of soliciting additional proxies in favor of the foregoing proposals.

Record Date; Stockholders Entitled to Vote (page 172)

DARA has fixed the close of business on October 16, 2015 as the record date for determining the DARA stockholders entitled to receive notice of and to vote at the special meeting. Only holders of record of DARA common stock on the record date are entitled to receive notice of and vote at the special meeting, and any adjournment thereof.

Each share of DARA common stock is entitled to one vote on each matter brought before the special meeting. On the record date, there were [●] shares of DARA common stock issued and outstanding.

Quorum Requirement (page 172)

Under Delaware law and DARA’s bylaws, a quorum of DARA’s stockholders at the special meeting is necessary to transact business. The presence of holders representing a majority of the shares of DARA common stock issued and outstanding on the record date and entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting.

All of the shares of DARA common stock represented in person or by proxy at the special meeting, including abstentions, will be treated as present for purposes of determining the presence or absence of a quorum at the special meeting.

Votes Required to Approve the Proposals (page 173)

DARA’s proposals require different percentages of votes in order to approve them:

 

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In order to approve the merger proposal, the affirmative vote of the majority of outstanding shares of DARA common stock entitled to vote on the proposal must be obtained.

 

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In order to approve the Potential Payments Under Compensation Arrangements proposal, the affirmative vote of the majority of total votes cast by the holders of DARA common stock on the proposal must be obtained.

 

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In order to approve the proposal to permit the proxies to adjourn the special meeting, including for the purpose of soliciting additional proxies, the affirmative vote of the majority of shares of DARA common stock present in person or represented by proxy at the special meeting and entitled to vote on the record date must be obtained, regardless of whether a quorum is present.

The vote on the Potential Payments Under Compensation Arrangements is a vote separate and apart from the vote to adopt the merger agreement. Because the vote on Potential Payments Under Compensation Arrangements is advisory in nature only, it will not be binding on DARA. The approval of the merger proposal is a condition to the Closing.

Failure to Vote; Abstentions and Broker Non-Votes (page 173)

Subject to the foregoing, no vote will be cast on any proposal at the special meeting on behalf of any stockholder of record who does not cast a vote on such matter. However, if the stockholder properly submits a proxy prior to the special meeting, his or her shares of common stock will be voted as he or she directs. If he or she submits a proxy but no direction is otherwise made, the shares of common stock will be voted “ FOR ” the merger proposal, “ FOR ” the advisory, non-binding proposal on the Potential Payments Under Compensation Arrangements, and “ FOR ” the approval of any adjournments of the special meeting, if necessary, for the purpose of soliciting additional proxies in favor of the foregoing proposals.

 

Shares held by a stockholder who indicates on an executed proxy card that he or she wishes to abstain from voting will count toward determining whether a quorum is present and will have the same effect as a vote “ AGAINST ” the merger proposal and the proposal to permit proxies to adjourn the special meeting, but will have no effect on the advisory, non-binding proposal on the Potential Payments Under Compensation Arrangements.

Broker non-votes may occur when a person holding shares through a bank, broker or other nominee does not provide instructions as to how the shares should be voted, and the bank, broker or nominee lacks discretionary authority to vote on a particular proposal. If a broker non-vote occurs, the broker non-vote will count for purposes of determining a quorum. Any broker non-vote will have the same effect as a vote “ AGAINST ” the merger proposal and the proposal to permit the proxies to adjourn the special meeting, but will have no effect on the advisory, non-binding proposal on the Potential Payments Under Compensation Arrangements.