AOR.L Regulatory News (AOR)

21 May 2018

AorTech International plc

("AorTech" or the "Company")

CONDITIONAL PLACING AND SUBSCRIPTION TO RAISE £2.1 MILLION

ANDPROPOSED OPEN OFFER TO RAISE £0.5 MILLION

AorTech International plc (AIM: AOR), the biomaterials and medical device IP company, announces a conditional placing, subscription and open offer.

 Transaction Highlights

· Conditional Placing and conditional Subscription to raise, in aggregate, approximately £2.1 million through the issue of a total of 7,000,271 New Ordinary Shares to new and existing investors at 30 pence per share

· New Ordinary Shares to be issued at 30 pence per New Ordinary Share which represents a discount of approximately 32 per cent. to the Company's Closing Price of 44 pence on 18 May 2018

· Proposal to raise a further £0.5 million by way of a conditional Open Offer subject to Shareholder approval

The above transaction highlights and the summary announcement below should be read in conjunction with the full appendix at the bottom of this announcement.

This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.

AorTech International plc (AIM: AOR), the biomaterials and medical device IP company, announces that it has raised, in aggregate, approximately £2.1 million, before expenses, by way of a conditional placing of 5,740,267 new Ordinary Shares (the "Placing Shares") and a conditional subscription of 1,260,004 new Ordinary Shares at the Issue Price. The issue of both the Placing Shares and the Subscription Shares is subject to, inter alia, the passing of the Resolutions at a general meeting.

The Company also announces that it proposes to raise a further £0.5 million by way of a conditional Open Offer to Qualifying Shareholders, subject to Shareholder approval.

The Issue Price represents a discount of approximately 32 per cent. to the Closing Price of 44 pence on 18 May 2018, the last trading day prior to the date of this announcement.

The net proceeds of the Placing and the Subscription, along with those funds raised pursuant to the Open Offer, will be used over a two year period to fund the development of textile substrate products (patches and grafts); stage one of heart valve development; investment in capital equipment for heart valve manufacturing and testing and for general working capital purposes.

Application will be made to the London Stock Exchange for the admission of the New Ordinary Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 11 June 2018 at which time it is also expected that the New Ordinary Shares will be enabled for settlement in CREST.

Bill Brown, Chairman of AorTech, commented: "I am pleased to announce a successful fundraising and wish to thank the investors, new and existing, for their support. We now look forward to working with our new colleagues and partners to execute our exciting business plan."

For further information contact:

AorTech International plc Tel: +44 (0)7730 718296 

Bill Brown, Chairman

Stockdale Securities Limited Tel: +44 20 7601 6100 

Tom Griffiths/David Coaten

About AorTech:

AorTech has developed biostable, implantable polymers, including Elast-Eon™ and ECSil™ the world's leading long-term implantable co-polymers, now manufactured on their behalf by Biomerics LLC in Utah, USA. With several million implants and seven years of successful clinical use, AorTech polymers are being developed and used in cardiology and urological applications, including pacing leads, cardiac cannulae, stents and neuro stimulation devices. Devices manufactured from AorTech polymers have numerous US FDA PMA approvals, 510ks, CE Marks, Australian TGA and Japanese Ministry of Health approvals.

Elast-Eon™ and ECSil™'s biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. These polymers can be processed using conventional thermoplastic extrusion and moulding techniques. A range of materials in a variety of application-specific formulations for use in medical devices and components are available.

APPENDIX

A circular containing details of the Transaction is expected to be posted shortly to Shareholders along with a Form of Proxy to vote at a general meeting of the Company expected to be convened at 11.00 a.m. on 8 June 2018. Capitalised terms in this announcement are defined as set out at the end of this announcement.

Introduction

The Company announces that it is raising, in aggregate, approximately £2.1 million before expenses, by way of a conditional placing of 5,740,267 new Ordinary Shares and a conditional subscription of 1,260,004 new Ordinary Shares at the Issue Price. The issue of both the Placing Shares and the Subscription Shares is subject to, inter alia, the passing of the Resolutions at the General Meeting.

The Company also announces that it proposes to raise a further £0.5 million by way of a conditional Open Offer to Qualifying Shareholders, subject to Shareholder approval, details of which will be set out in the Document.

The Issue Price represents a discount of approximately 32 per cent. to the Closing Price of 44 pence on 18 May 2018, the last trading day prior to the date of this announcement.

Background to and reasons for the Fundraising

AorTech owns, what the Board believes to be, a valuable IP portfolio covering a family of medical grade polymers (Elast-EonTM) and a number of medical devices. Its polymers are fully approved for long term human implants and over 4 million patients' lives are dependent on devices enabled by Elast-EonTM. To date, approximately £60 million, in aggregate, has been invested in developing the Company's polymer technology and in its heart valve designs and testing. The Board has identified 3 growth platforms (further details of which are set out below), each of which can potentially be independently exploited and the Directors believe that a relatively low cost/risk strategy has been developed for each one. The Company is seeking to raise, in aggregate, approximately £2.1 million by way of the Placing and the Subscription and a further £0.5 million by way of the Open Offer, along with grant funding of approximately £0.5 million, which the Company intends to apply for, and aims to use these additional resources to develop two CE marked medical devices and undertake development and testing work on a heart valve with the objective of generating data for advancing to human trials.

AorTech holds a number of patents, know-how and trade secrets relating to a family of bio-compatible materials. A large range of polymers has been developed within the Elast-EonTM family with different mechanical properties, such as hardness and elasticity. Previously, the Company sought licensees which would develop medical devices using the polymer. In addition, the Company licensed manufacturing rights to Biomerics which shares the profit margin with the Company on sales of polymer. By working with licensees, the Directors believe that the Company has gained knowledge of how to manufacture using Elast-EonTM. The Company intends to exploit its IP portfolio by developing medical devices in the fields of cardiac and vascular surgery.

The Board considers that Elast-EonTM is widely regarded as a bio-stable medical grade polyurethane material - the Elast-EonTM family of polymers is the enabling technology behind each of the Company's 3 identified growth platforms. Testing on Elast-EonTM indicates that it has the capacity to be:

· Non-inflammatory (release of fluid into tissue);

· Non-thrombogenic (produces coagulation in blood);

· Non-calcific (calcium build up);

· Biostable (chemically stable in body);

· Biocompatible (non-harmful to living tissue);

· Durable (maintains mechanical properties long term); and

· Abrasion resistant (wearing down of material).

These characteristics are highly desirable for all long term implants, particularly for blood contacting implants. Elast-EonTM's sweet spot is in the cardiovascular system where it has over 10 years' human use in blood contacting devices, including pacemakers and coronary artery stents. Elast-EonTM is approved for use in medical devices by the relevant regulatory authorities and has an FDA Master File; therefore, the polymer can be used by device manufacturers without having to conduct further biocompatibility testing (subject to relevant testing and regulatory compliance in respect of the medical devices).

The revenues generated by its licensing model cover the Company's current corporate costs. The Company is now seeking to maximise value from its IP portfolio by developing certain products while maintaining what the directors believe to be a low cost/risk business model. As part of this strategy, the Company intends to enter into a development and manufacturing agreement with RUA Medical, a medical textiles manufacturer, and a development contract with Vascular Flow Technologies, a medical device development company. If successfully developed and approved by the relevant regulatory authorities, the Company proposes to employ what the Directors believe to be a lean sales and marketing strategy for its products, a distribution model to provide access to hospital markets and OEM sales of devices to other medical device companies.

Initial product pipeline

a) Cardiovascular and soft tissue patches

The currently available technology comprises either animal tissue or textile (PTFE) material. In the Board's opinion, each may be compromised by either calcification or tissue ingrowth, potentially leading to adhesions. In 2014, the cardiovascular and soft tissue repair patches market was valued at $2.5 billion and estimated to reach nearly $5.8 billion by 2021 (Source: Grand View Research).

Patches are used by surgeons as a multi-functional repair kit, for example:

· General surgeons use PTFE patches in hernia repair operations to strengthen the repair;

· Vascular surgeons use animal tissue patches to repair blood vessels; and

· Cardiac surgeons use animal tissue and PTFE patches to reconstruct damaged tissue or paediatric malformations or in closing open heart surgery procedures.

The Board believes that there is a shortage of suitable animal tissue, in particular bovine pericardium, and much of that is being diverted to the much higher margin markets of tissue heart valves and TAVI devices in particular. As a result, there is currently a shortage of cardiac patches in the market which the Company proposes to address by encapsulating a textile scaffold within a sheet of Elast-EonTM which should reduce calcification problems.

b) Large bore grafts

Aortic grafts are used to treat dissections and aneurysms of the aorta, particularly of the ascending aorta, but also the aortic arch, which are not suitable for minimally invasive endovascular procedures. Surgeons typically undertake one of the following procedures: -

· An endovascular repair of the descending aorta which replaces aneurysms or dissections with a graft;

· A David procedure where part of the ascending aorta is removed and replaced with a graft; or

· A Bentall procedure where both the valve and the aorta are replaced at the same time with a valved conduit, a ready-made product of valve and graft.

The market was valued at $1.8 billion in 2015 and is estimated to grow at 5 per cent. annually (Source: www.alliedmarketresearch.com/abdominal-aortic-aneurysm-repair-devices-market).

The Company proposes to replicate current graft technology but to replace animal sourced sealants with a coating of Elast-EonTM on the graft to provide the following benefits: -

· The graft will maintain its tactile properties whilst still exhibiting the natural self-healing/coating properties of the internal surface or lumen;

· The graft will also be able to be both wet and dry sterilised, allowing use with both tissue and mechanical heart valves as a valved conduit for Bentall procedures; and

· Wet sterilisation will allow tissue valves to be sold as part of valved conduits, increasing the potential market size.

c) Synthetic heart valve

AorTech has the opportunity to complete testing on a heart valve project which has had approximately £30 million invested to date. AorTech's valve, if successfully developed, should have the following principal advantages over current surgical valve technology: -

· Unlike mechanical valves, a synthetic valve should not require life-long blood thinning treatment for the patient;

· It should be more durable than a tissue valve and is therefore available to younger patients and/or reduces the need for further valve replacement; and

· The manufacturing costs of synthetic valves should be a fraction of the cost of competing valves - typically, 10 per cent. of the cost of tissue valves.

Manufacture of an animal product sealed vascular graft connected to a conventional tissue aortic valve is currently not possible due to the required storage fluid washing out the sealant.

The global prosthetic market was valued at $4.8 billion in 2017 and is forecast to reach $8.8 billion in 2022, representing a CAGR of 12.9 per cent (Source: www.marketsandmarkets.com).

The synthetic valve has been tested previously for durability and in animal trials. The Company proposes to undertake a two year programme comprising: -

· The review and finalisation of the valve design using FEA and CFD tools;

· Re-establishing the manufacturing process and validating the repeatability of manufacture; and

· Undertaking in vivo and in vitro clinical trials.

Risk management strategy

The Company proposes to leverage Elast-EONTM's properties and work with identified partners to reduce costs and achieve market/regulatory approval of its products, thereby accelerating their commercialisation and the generation of revenue. These products have, in the Board's opinion, significant potential as Elast-EonTM's blood contacting properties have the potential to change the way medical devices react with the body.

The Board believes that patches and grafts represent relatively low risk developments as they incorporate currently approved devices which are technically simple, have been used and accepted for many years and have seen little recent innovation. The Company proposes to work with RUA Medical, a proven manufacturer of implantable textile substrates, which will use AorTech's polymer technology to coat products. The Directors consider that this proposed approach reduces risk, minimises establishment costs and reduces the time to commercialise the Company's products.

While the Board considers that development of the heart valve represents a higher risk than the patches and grafts as it involves a change in technology, approximately £30 million has been invested to date in its development and the potential value of success in both surgical and trans-catheter versions is, in the Board's opinion, substantial. The Board has identified a number of milestones to ensure that value will have been added at each stage of the process and prior to any further investment being made. In addition, by using a proven polymer technology and partnering with other device companies, the roadmap to commercialisation could potentially be significantly shortened.

Partner arrangements

As set out above, as part of its risk management strategy, the Company intends to work with identified partners in developing new devices. In particular, following Admission, it intends to enter into agreements with the following companies: -

RUA Medical

RUA Medical, the trading name of Culzean Medical Devices Limited, is an implantable fabric specialist and full service contract medical device developer and manufacturer. It provides contract design, development, manufacture, assembly, packing and consultancy services to the medical device and biotech industries from its two cleanroom facilities in Scotland. It is ISO 13485:2016 certified and both cleanroom manufacturing sites are FDA registered.

AorTech has agreed terms in principle with RUA Medical to undertake work on its Elast-Eon™ sealed patches and grafts. This includes conducting development work on each of the proposed patches and grafts products, collaborating on obtaining regulatory approval for the devices and manufacturing and supplying products.

Vascular Flow Technologies

If the Company was to restart the heart valve business, the Board considers that it would need to hire a team comprising a minimum of 5 people as well as incurring the costs of recruitment, property and to update its systems and technology. The Company has instead agreed terms in principle with VFT to provide the Company with: -

· Project management;

· Administrative and finance support;

· Engineering resource; and

· Computer aided engineering, comprising CAD, CFD and FEA.

VFT, which is based in Dundee, is an ISO 13485 certified medical device development company with capabilities in pre-clinical development and testing. It has developed and patented its novel SLF technology which restores the natural pattern of blood flow which has been shown to extend the effective life of implants, help prevent disease progression and generally improve patient outcomes.

Proposed Directors and Additional Team Members

The current Board comprises myself, as Chairman, John McKenna and Gordon Wright, both of whom serve as non-executive Directors. Immediately following Admission, it is proposed that the following join the Board: -

John Ely (NED - Heart Valve Expert) 

John is a recognised expert in cardiovascular devices and spent 7 years at the FDA, where he was responsible for a team that approved cardiovascular medical devices, including heart valves. In industry, he has successfully managed the process of obtaining pre-market approvals for 6 heart valves, including both tissue and mechanical valves. He has also led research and development, regulatory and quality assurance teams at Baxter International Inc., Edwards Lifesciences Corporation and On-X Life Technologies, Inc. He has authored over 25 scientific papers and is the named inventor on 3 US patents. He was previously engaged by AorTech as an expert witness in the area of heart valve design and development process, giving him an intimate knowledge of AorTech's heart valve project.

Geoffrey Berg (NED - Cardiovascular Expert) 

Geoffrey was formerly a consultant heart surgeon at the Golden Jubilee Hospital in Glasgow where he specialised in surgical treatment of valvular heart disease and was recognised as one of the leading surgeons in mitral valve repair and replacement. He has authored a number of scientific papers on the treatment of heart disease and conducted studies into the long term performance of replacement heart valves. He has been involved in the early stage development of a number of cardiovascular devices, including a stentless animal tissue heart valve, and the launch of the only biological valved conduit. He is a recognised authority on stentless aortic valve surgery and has co-authored papers on stentless versus stented aortic valve insertions.

David Richmond (NED - Product Development Expert)

David is the founder of Culzean Medical Devices Limited which trades as RUA Medical, which was re-acquired from Lombard Medical Technologies plc in December 2013 (having previously been sold to them in June 2007). RUA provides contract design, development, manufacture, assembly, retail packing and consultancy services to clients worldwide in the medical device and biotech industries from its two modern clean room facilities in Scotland. Further details on RUA Medical are set out above.

With effect from Admission, I will become Executive Chairman, on a full-time basis, and John McKenna will become Director of Clinical Marketing, on a part-time basis. Further details of the service agreements to be entered into with John McKenna and myself and of the letters of appointment to be entered into with each of the Proposed Directors are set out below.

In addition, the Company intends to call on the services of the following additional team members by way of agreements to be entered into with them or their respective companies following Admission:

Craig Dunlop & team at VFT (Consultant - Valve Engineering) 

Craig joined VFT as general manager in May 2014. He has over 20 years' industry experience as a medical device engineer and manager, most recently at Vascutek Ltd, a Terumo Corporation company, where he was OEM Technical Manager and as Development and Operations Manager of expanded polytetrafluoroethylene (ePTFE) products. He has a broad portfolio of successful new product developments and introductions within the cardiovascular arena and has worked in both Europe and USA. Further details on VFT are set out above.

Edwin Lindsay at Compliance Solutions (Regulatory Affairs) 

Edwin has an in-depth knowledge of developing and implementing quality, validation and regulatory systems for high growth companies. He has over 20 years' experience in preparing and executing new and amended submissions for class 1, 2 and 3 medical devices.

Details of the Placing and the Subscription

Details of the Placing

The Company has conditionally raised approximately £1.7 million (before expenses) by the Placing of 5,740,267 Placing Shares at the Issue Price to Placees.

The Placing is conditional, inter alia, upon:

(a) the passing of Resolutions 2 and 4 at the General Meeting;

(b) the Placing Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms; and

(c) Admission becoming effective by no later than 8.00 a.m. on 11 June 2018 or such later time and/or date (being no later than 8.00 a.m. on 30 June 2018) as Stockdale and the Company may agree.

The Placing Shares are not subject to clawback. The Placing is not being underwritten. The Placing Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after Admission.

Application will be made to the London Stock Exchange for the admission of the Placing Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 11 June 2018 at which time it is also expected that the Placing Shares will be enabled for settlement in CREST.

Details of the Subscription

The Company has conditionally raised approximately £0.4 million (before expenses) by the conditional subscription of 1,260,004 Subscription Shares at the Issue Price to Subscribers.

The Subscription is conditional, inter alia, upon:

(d) the passing of Resolutions 2 and 4 at the General Meeting; and

(e) Admission becoming effective by no later than 8.00 a.m. on 11 June 2018 or such later time and/or date (being no later than 8.00 a.m. on 30 June 2018) as Stockdale and the Company may agree.

The Subscription Shares are not part of the Placing and are not included in the Placing Shares. They are not subject to clawback. The Subscription is not being underwritten. The Subscription Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after Admission.

Application will be made to the London Stock Exchange for the admission of the Subscription Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 11 June 2018 at which time it is also expected that the Subscription Shares will be enabled for settlement in CREST.

Details of the Open Offer

The Company is proposing to raise £0.5 million before expenses pursuant to the Open Offer. The Issue Price of 30 pence per New Ordinary Share represents a discount of approximately 32 per cent. against the Closing Price of 44 pence on 18 May 2018, the last business day prior to the date of this announcement.

The Open Offer is being made on a pre-emptive basis, allowing Qualifying Shareholders on the register as at 6.00 p.m. on 18 May 2018 the opportunity to participate.

The Open Offer provides Qualifying Shareholders with the opportunity to apply to acquire Open Offer Shares at the Issue Price pro rata to their holdings of Qualifying Shares as at the Record Date on the following basis:

3 Open Offer Shares for every 10 Qualifying Shares

and so on in proportion to any other number of Qualifying Shares then held.

Entitlements to apply to acquire Open Offer Shares will be rounded down to the nearest whole number and any fractional entitlement to Open Offer Shares will be disregarded in calculating the Basic Entitlement.

Qualifying Shareholders should note that the Open Offer Shares have not been underwritten.

The Open Offer is subject to the satisfaction, amongst other matters, of the following conditions on or before 11 June 2018 (or such later date, being not later than 8.00 a.m. on 30 June 2018, as the Company and Stockdale may decide):

(a) the passing of Resolutions 2 and 4 at the General Meeting (or any adjournment thereof);

(b) Admission becoming effective by 8.00 a.m. on 11 June 2018 (or such later time or date not being later than 8.00 a.m. on 30 June 2018 as the Company and Stockdale may decide); and

(c) the Placing Agreement becoming unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after Admission.

Excess Applications

The Open Offer is structured to allow Qualifying Shareholders to subscribe for Open Offer Shares at the Issue Price pro rata to their holdings of Existing Ordinary Shares on the Record Date.

Qualifying Shareholders may also make applications in excess of their Basic Entitlements. To the extent that Basic Entitlements are not subscribed for by Qualifying Shareholders, such Open Offer Shares will be available to satisfy such excess applications, subject to a maximum of 1,667,309 Open Offer Shares in aggregate. To the extent that applications are received in respect of more than 1,667,309 Open Offer Shares in aggregate, excess applications will be scaled back accordingly.

Qualifying Shareholders should note that their applications under the Excess Application Facility will be allocated in such manner as the Directors may determine in their absolute discretion and no assurance can be given that an application for Excess Shares will be met in full or in part or at all. The Directors may determine in their absolute discretion not to accept any particular application under the Excess Application Facility.

Qualifying Shareholders should note that the Open Offer is not a rights issue. Qualifying non-CREST Holders should be aware that the Application Form is not a negotiable document and cannot be traded. Qualifying Shareholders should also be aware that in the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer.

Settlement and dealings

Application will be made to the London Stock Exchange for the Open Offer Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings will commence at 8.00 a.m. on 11 June 2018.

Overseas Shareholders

Certain Overseas Shareholders may not be permitted to subscribe for Open Offer Shares pursuant to the Open Offer and, in due course, should refer to paragraph 6 of Part III of the Document.

CREST instructions

Application has been made for the Basic Entitlements for Qualifying CREST Holders to be admitted to CREST. It is expected that the Basic Entitlements will be admitted to CREST on 23 May 2018.

The Excess CREST Open Offer Entitlements will also be admitted to CREST on 23 May 2018. Applications through the CREST system may only be made by the Qualifying Holder originally entitled or by a person entitled by virtue of a bona fide market claim.

For Qualifying non-CREST Holders, an Application Form which gives details of your Basic Entitlement under the Open Offer (as shown by the number of the Open Offer Shares allocated to them) will be enclosed with the Document. If they wish to apply for Open Offer Shares under the Open Offer, they should complete the Application Form in accordance with the procedure for application to be set out in paragraph 3 of Part III of the Document and on the Application Form itself. The completed Application Form, accompanied by full payment, should be returned by post or by hand (during normal business hours only) to Equiniti Limited, Corporate Actions, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA so as to arrive as soon as possible and in any event no later than 11.00 a.m. on 7 June 2018.

For Qualifying CREST Holders, no Application Form will be enclosed with the Document, but they will receive a credit to their appropriate stock account in CREST in respect of their Basic Entitlement and, if appropriate, their Excess Entitlement. They should refer to the procedure for application to be set out in paragraph 3 of Part III of the Document. The relevant CREST instruction must have settled in accordance with the instructions in paragraph 3 of Part III of the Document by no later than 11.00 a.m. on 7 June 2018.

Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with the Document and the Open Offer.

Use of net proceeds

It is proposed that the net proceeds of the Placing and the Subscription, amounting to approximately £1.9 million, along with the funds raised pursuant to the Open Offer, be used over a two year period to fund the development of textile substrate products (patches and grafts); stage one of heart valve development; investment in capital equipment for heart valve manufacturing and testing and for general working capital purposes.

In addition, the Company intends to apply for grant funding of approximately £0.5 million from Scottish Enterprise, although there can be no assurance that such application will be successful or, if the grant is received, that it will not require to be repaid in certain circumstances.

Placing Agreement

Under a placing agreement entered into with the Company, Stockdale has conditionally agreed to act as placing agent to the Company and to use reasonable endeavours to procure Placees to subscribe for the Placing Shares at the Issue Price. The Placing has not been underwritten.

The Placing Agreement sets out the conditions relating to the Placing.

The Placing is conditional upon (amongst other things) the satisfaction of the following conditions:

(a) the passing of the Resolutions at the General Meeting;

(b) Admission taking place no later than 11 June 2018 (or such later time and date as the Company and Stockdale may agree being no later than 30 June 2018);

(c) there being no breach of warranty under the Placing Agreement prior to Admission; and

(d) the performance by the Company of its obligations under the Placing Agreement and/or other terms of or conditions to the Placing prior to Admission.

The Placing Agreement contains certain customary warranties from the Company in favour of Stockdale in relation to, inter alia, the accuracy of the information contained in the Document and certain other matters relating to the Group and its business. In addition, the Company has given certain undertakings to Stockdale and has agreed to indemnify Stockdale in relation to certain customary liabilities they may incur in respect of the Transaction. Stockdale has the right to terminate the Placing Agreement in certain circumstances prior to Admission including inter alia: (i) for certain force majeure events or other events involving certain material adverse changes or prospective material adverse changes relating to the Group; or (ii) in the event of a breach of the warranties or other obligations of the Company set out in the Placing Agreement.

Under the Placing Agreement the Company has agreed to pay certain fees and commissions to Stockdale and certain other costs and expenses in connection with the Transaction and Admission. In addition, the Company has entered into a warrant agreement with Stockdale, pursuant to which Stockdale is granted the right to acquire 166,667 new Ordinary Shares at the Issue Price, exercisable at any time within the period of 5 years following Admission. The number of warrant shares and the exercise price is subject to adjustment in certain circumstances.

Proposed Acquisition of Cortech and Related Party Transaction

AorTech owes fees to William Brown, the Company's Chairman, in connection with managing and settling the litigation which was announced on 11 December 2017. Cortech, which is wholly owned by William Brown, has developed the business plan for the new medical devices and is the corporate vehicle through which William Brown's fees are charged. The Company has entered into the Acquisition Agreement whereby it is proposed that, subject to shareholder approval, and conditional on Admission, AorTech acquires Cortech for an amount equivalent to the outstanding fees payable in new Ordinary Shares at the Issue Price. The amount of outstanding fees is £138,400 and accordingly the Company will issue, by way of the consideration, 461,333 new Ordinary Shares. In terms of the Acquisition Agreement, the Company will be given the benefit of warranties and indemnities of the type normally found in agreements for the acquisition of the share capital of a private company.

William Brown has agreed with the Company and Stockdale not to dispose of any interests in the Consideration Shares for a period of two years from Admission, save in certain limited circumstances. Shareholder approval is required for the Acquisition pursuant to section 190 of the Companies Act and therefore Resolution 1 will be proposed at the General Meeting as an ordinary resolution.

The Acquisition is deemed a related party transaction under the AIM Rules by virtue of me being a Director of the Company. The Independent Directors, being John McKenna and Gordon Wright, consider, having consulted with the Company's nominated adviser, Stockdale, that the terms of the Acquisition are fair and reasonable insofar as the Shareholders are concerned.

Subscription by Directors

Each of Gordon Wright, John McKenna and William Brown has subscribed for 333,334 Subscription Shares, 10,000 Subscription Shares and 33,334 Subscription Shares respectively. Immediately following Admission, Gordon Wright, John McKenna and William Brown will hold 641,645 Ordinary Shares, representing approximately 4.37 per cent. of the Enlarged Share Capital, 18,785 Ordinary Shares, representing approximately 0.13 per cent. of the Enlarged Share Capital and 506,649 Ordinary Shares, representing approximately 3.45 per cent. of the Enlarged Share Capital respectively. The resultant shareholdings and percentages shown in this paragraph assume that none of the Directors takes up their Open Offer entitlements and full subscription under the Open Offer. The resultant shareholdings and percentages shown in this paragraph assume that none of the Directors takes up their Open Offer entitlements and full subscription under the Open Offer.

Service Agreements and Letters of Appointment

With effect from Admission, the Company will enter into service agreements with John McKenna and William Brown and Letters of Appointment with Gordon Wright and each of the Proposed Directors.

The service agreement between the Company and John McKenna will appoint him as Director of Clinical Marketing on a part time basis. His time commitment will be 67.5 days per year and the annual salary will be £50,000; in addition, the Company will make an annual pension contribution of 10 per cent. of the salary. The service agreement may be terminated by either party serving at least 12 months' notice in writing at any time after 31 May 2019.

The service agreement between the Company and William Brown will appoint him as Executive Chairman. This will be a full-time commitment and the annual salary will be £120,000; in addition, the Company will make an annual pension contribution of 10 per cent. of the salary and any bonus (subject to a maximum level of pensionable bonus of 100 per cent. of salary). The service agreement may be terminated by either party serving at least 12 months' notice in writing at any time after 31 May 2019.

The Letters of Appointment will appoint each of the Proposed Directors as a non-executive director of the Company and, in the case of Gordon Wright, will supersede his current terms of appointment. The basic annual fee payable to each individual will be £18,000. The appointment may be terminated by either party serving at least 3 months' notice in writing.

Share Option Plan

The Directors intend to incentivise and retain the key executive Directors, namely John McKenna and William Brown, by means of share options to be granted under the Share Option Plan. Resolution 3 to be proposed at the General Meeting is to approve the adoption of the Share Option Plan.

The Share Option Plan will be an Enterprise Management Incentive (EMI) Scheme and will be operated by the Company in accordance with the legislation applying to EMI schemes. The EU State Aid approval for EMI Schemes recently expired but as at the date of this announcement it has been announced that this is being renewed. Options will not be granted under the Share Option Plan until it can be confirmed that these will be EMI qualifying options.

The Directors intend that, subject to it being confirmed that EU State Aid approval has been renewed, options under the Share Option Plan will be granted on Admission over the number of Ordinary Shares which will represent approximately 10 per cent. of the Enlarged Share Capital at an exercise price equal to the Issue Price. Of these options, 3 per cent. will be granted to John McKenna and such number of options, which when aggregated with the Consideration Shares, equate to 10 per cent. of the Enlarged Share Capital will be granted to William Brown. Following the grant of such options, the Directors will have authority to grant further options over approximately 5 per cent. of the Enlarged Share Capital; the Directors have no current intentions to grant any further options.

Current trading

On 11 December 2017, the Company announced its interim results for the 6 months ended 30 September 2017, the contents of which are available on the Company's website https://www.AorTech.net/. Since 30 September 2017, the Company has continued to trade in line with management's expectations.

General Meeting

A notice convening the General Meeting which is expected to be held on 8 June 2018 will be set out in the Document. At the General Meeting, resolutions will be proposed as ordinary or special resolutions as indicated below:

(a) to approve the Acquisition (ordinary resolution);

(b) to authorise the Directors to allot Ordinary Shares for the purposes of the Acquisition, the Placing, the Subscription and the Open Offer, pursuant to an employee share scheme and for general corporate purposes up to one-third of the Company's issued ordinary share capital following completion of the Acquisition, the Placing and the Open Offer (ordinary resolution);

(c) to approve the adoption of the Share Option Plan for the benefit of Directors and employees of the Company (ordinary resolution); and

(d) to approve the waiver of the statutory pre-emption rights in respect of the allotment of equity securities

i. pursuant to the authority to allot in respect of the Placing, the Subscription and the Open Offer, a Share Option Plan for the benefit of Directors and employees of the Company and up to a maximum nominal amount of £36,716.50; and

ii. in connection with rights issues, open offers and other pre-emptive offers pursuant to the authority to allot referred to at (b) above and otherwise up to an aggregate nominal amount equal to 5 per cent. of the Company's issued share capital from time to time (special resolution).

The authorities to allot and to waive pre-emption rights are in substitution for the authorities given to the Directors at the 2017 annual general meeting of the Company and will fall to be renewed at the 2018 annual general meeting of the Company.

EIS and VCT Status

The Company has received advance assurance from HMRC that the Placing Shares and the Subscription Shares will be ''eligible shares'' for the purposes of investment by VCTs and that the Company is authorised to issue EIS Compliance Certificates in respect of Placing Shares and Subscription Shares issued following receipt of a completed Form EIS1. However, none of the Company, the Directors or any of the Company's advisers give any warranty or undertaking that any tax reliefs will continue to be available and not withdrawn at a later date.

FUNDRAISING STATISTICS

Note:

* Assuming the issue of the Placing Shares, the Subscription Shares and the Consideration Shares and full subscription under the Open Offer.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Notes:

(i) References to times are to London time (unless otherwise stated).

(ii) If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement to an RIS.

(iii) The timing of the events in the above timetable and in the rest of this announcement is indicative only.

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise or unless it is otherwise specifically provided:

GLOSSARY

The following glossary terms apply throughout this announcement, unless the context requires otherwise or unless it is otherwise specifically provided: