Faron Pharma Regulatory News (FARN)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, SINGAPORE, HONG KONG OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN FARON PHARMACEUTICALS OY ("FARON") OR ANY OTHER ENTITY IN ANY JURISDICTION IN WHICH ANY SUCH OFFER WOULD BE UNLAWFUL.

FARON HAS NOT TAKEN ANY ACTION, NOR WILL IT TAKE ANY ACTION, TO OFFER ANY OF THE SUBSCRIPTION SHARES OR ANY OTHER DOCUMENTS RELATING TO THE SUBSCRIPTION TO THE PUBLIC IN FINLAND, SWEDEN, NORWAY OR DENMARK, OR IN ANY OTHER JURISDICTION IN ANY FORM WHICH WOULD CONSTITUTE AN OFFER TO THE PUBLIC.

NEITHER THE SUBSCRIPTION SHARES NOR THE OPEN OFFER SHARES WILL BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. THERE IS NO PUBLIC OFFERING IN THE UNITED STATES, THE UNITED KINGDOM OR ELSEWHERE. NEITHER THE SUBSCRIPTION SHARES OR THE OPEN OFFER SHARES HAVE BEEN APPROVED OR DISAPPROVED BY THE US SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY IN THE UNITED STATES, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE SUBSCRIPTION OR THE OPEN OFFER OR THE ACCURACY OR ADEQUACY OF THIS ANNOUNCEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.

Faron Pharmaceuticals Oy

("Faron" or the "Company")

Issue of equity

Total Voting Rights

Publication of Open Offer Circular

TURKU - FINLAND, 6 August 2019 - Faron Pharmaceuticals Oy ("Faron") (AIM: FARN), the clinical stage biopharmaceutical company, is pleased to announce that further to the announcement on 5 August 2019 ("Capital Raising Announcement"), the Subscription Shares have been issued and registered with the Finnish Trade Register, resulting in the issue of 941,840  new ordinary shares in aggregate to raise in aggregate €1.12 million (£1.00 million) before expenses at the Euro Issue Price of €1.19 (£1.06) per share in respect of the Subscription.

Faron's enlarged issued number of shares following issue of the Subscription Shares is 38,175,734 Ordinary Shares with voting rights attached. The Company has no shares in treasury; therefore the total number of voting rights in Faron is 38,175,734 (the "Enlarged Number of Shares and Votes"). This figure may be used by shareholders as the denominator for the calculations by which they will determine whether they are required to notify an interest in, or a change to their interest in, the Enlarged Number of Shares and Votes of the Company.

Open Offer

Following completion of the Subscription, as noted in the Capital Raising Announcement, in order to provide Shareholders who have not taken part in the Subscription with an opportunity to participate in the proposed issue of New Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe for an aggregate of up to 1,696,699  Open Offer Shares, to raise up to approximately €2.0 million (£1.8 million) through the Open Offer, on the basis of 2 Open Offer Share for every 45 Existing Ordinary Shares, at the Issue Price (or the Euro Issue Price in respect of Qualifying non-DI Holders) each payable in full on acceptance. Any entitlements to Open Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. Qualifying Shareholders are those shareholders and DI Holders on the register of members of the Company at the Record Date (being 6 August 2019).

The net proceeds of the Open Offer will be used alongside the net proceeds of the Subscription to further the clinical development of Clevegen as outlined in the Capital Raising Announcement. The net proceeds of the Capital Raising (to the extent a significant proportion of the Open Offer Shares are subscribed for) are expected to provide the Company with working capital into early Q1 2020.

A Circular setting out the terms and conditions of the Open Offer and instructions for application under the Open Offer (including the Excess Application Facility) for Qualifying non-DI Holders and Qualifying DI Holders is available on the Company's website at www.faron.com/investors. Qualifying non-DI Holders are also instructed to refer to the Basic Information Document and Finnish Law Terms and Conditions which are also available on the Company's website in accordace with Finnish law requirements.

This summary should be read in conjunction with the full text shown below and in the Circular.

For more information please contact:

Faron Pharmaceuticals Oy

Dr Markku Jalkanen, Chief Executive Officer

investor.relations@faron.com 

Panmure Gordon (UK) Limited, Nomad and Broker

Emma Earl, Freddy Crossley (Corporate Finance)

James Stearns (Corporate Broking)

Phone: +44 207 886 2500

Consilium Strategic Communications

Mary-Jane Elliott

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com

Westwicke Partners, IR (US)

Chris Brinzey

Phone: 01 339 970 2843

E-Mail: chris.brinzey@westwicke.com

About Faron Pharmaceuticals Ltd

Faron (AIM:FARN) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline focusing on acute organ traumas, vascular damage and cancer immunotherapy. The Company's first candidate Traumakine, to prevent vascular leakage and organ failures, has completed a Phase III clinical trial in Acute Respiratory Distress Syndrome (ARDS). An additional European Phase II Traumakine trial is underway for the Rupture of Abdominal Aorta Aneurysm ("RAAA"). Faron's second candidate Clevegen is a ground breaking early clinical anti-Clever-1 antibody. Clevegen has the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. This novel macrophage-directed immuno-oncology switch called Turn-on-your-Immunity or Turn-It may be used alone or in combination with other immune checkpoint molecules for the treatment of cancer patients. Faron is based in Turku, Finland. Further information is available at www.faron.com

Caution regarding forward looking statements

Certain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ''believe'', ''could'', "should", "expect", "hope", "seek", ''envisage'', ''estimate'', ''intend'', ''may'', ''plan'', ''potentially'', ''will'' or the negative of those, variations or comparable expressions, including references to assumptions. These forward looking statements are not based on historical facts but rather on the Directors' current expectations and assumptions regarding the Company's future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors' current beliefs and assumptions and are based on information currently available to the Directors.

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward looking statements, many of which are beyond the control of the Company. In particular, the early data from initial patients in the MATINS trial may not be replicated in larger patient numbers and the outcome of clinical trials may not be favourable or clinical trials over and above those currently planned may be required before the Company is able to apply for marketing approval for a product. In addition, other factors which could cause actual results to differ materially include the ability of the Company to successfully licence its programmes within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors. Although any forward looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward looking statements. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise:

OPEN OFFER TIMETABLE

Notes

(1) References to times in this announcement are to London time (unless otherwise stated).

(2) The dates and timing of the events in the above timetable and in the rest of this announcement are indicative only and may be subject to change.

(3) If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement through RNS.

FURTHER INFORMATION

1. Introduction

On 5 August 2019, the Board announced the results of a Subscription of 941,840 Ordinary Shares at €1.19 (106 pence) per Ordinary Share to raise approximately €1.12 million (£1.0 million) in aggregate before expenses. The Issue Price is at a discount of 11.3 per cent. to the closing middle market price of 119.5 pence per existing Ordinary Share on 2 August 2019 (being the last practicable date prior to the Capital Raising Announcement).

In addition, in order to provide Shareholders who have not taken part in the Subscription with an opportunity to participate in the proposed issue of New Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe for an aggregate of up to 1,696,699 Open Offer Shares, to raise up to approximately £1.8 million (€2.0 million), on the basis of 2 Open Offer Shares for every 45 Existing Ordinary Shares, at the Issue Price each payable in full on acceptance. The Subscription was not conditional on the Open Offer.

First Admission in respect of the Subscription Shares occurred at 8.00 a.m. on 6 August 2019 and Second Admission in respect of Open Offer Shares validly subscribed for and issued is expected to occur no later than 8.00 a.m. on 28 August 2019 (or such later time and/or date, in each case, as Panmure Gordon and the Company may agree, being no later than 8.00 a.m. on 4 September 2019). The Open Offer is not underwritten and the Subscription is not subject to clawback under the Open Offer.

The Subscription Shares and Open Offer Shares are being issued pursuant to the Company's existing share authorities granted at the Annual General Meeting held on 28 May 2019.

The purpose of the Circular is to provide Qualifying Shareholders with background to the Capital Raising, the details of the Open Offer, and the terms and conditions applicable to it.

2. Description of Company

Faron is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. Faron's drug development is based on extensive knowledge of receptors involved in regulation of immune responses and vascular dysfunctions. The Company currently has two technology platforms (Clevegen® and Traumakine®) and a pipeline focusing on cancer immunotherapy, acute organ traumas and vascular damage.

The Company's drug candidate, Clevegen, is an early clinical anti-Clever-1 antibody. The Directors believe that Clevegen has the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. The other candidate is Traumakine, to prevent vascular leakage and organ failures.

Innovations for the business have primarily been sourced from academic institutions including, but not limited to Turku University, Finland. The inventions behind both Traumakine and Clevegen were sourced from scientists working at Turku University (Professor Sirpa Jalkanen, the wife of the Company's CEO Markku Jalkanen, and Professor Marko Salmi).

The Company is developing its drug candidates through research and discovery, drug development and clinical trials. Discovery and development are guided by top-tier scientists in Faron's network and the clinical development utilises Company's in-depth pharmacological knowledge of the drug candidates. The Company aims to accelerate time to market via focusing on rare diseases and/or high unmet medical indications based on its proprietary molecules and IPR. In market access and commercialisation the Company seeks to complementary partner to optimise the usage of resources and to create value. The aim is to gradually build-up integrated global pharma functions

PROGRESS OF CLEVEGEN

In 2019, the Company's focus has been on the development of Clevegen which is currently undergoing an open label phase I/II MATINS clinical trial. The MATINS study is the first-in-human open label Phase I/II clinical trial with an adaptive design to investigate the safety and efficacy of Clevegen in selected metastatic or inoperable solid tumours. The selected tumours under investigation are cutaneous melanoma, hepatobiliary/hepatocellular, pancreatic, ovarian and colorectal cancer, all known to host a significant number of Clever-1 positive tumour associated macrophages (TAM). All together these five target groups consist of approximately 2 million annual cases worldwide. Cancer patients with high Clever-1 expression are identified with a simple blood myeloid cell staining with Clevegen ("liquid biopsy").

Clevegen dosing reached its planned maximum of 10mg/kg in mid-June, which has continued to be well tolerated. No dose limiting toxicity (DLT) nor maximally tolerated dose (MTD) has been observed so far. The trial includes an option to administer a 20mg/kg dose, which the Company intends to propose to the trial's independent data monitoring board.

Of the nine subjects dosed so far in the Clevegen trial, across three clinical trial sites in Finland and the UK, two subjects have shown clinical anti-cancer responses. The first patient, a partial responder with colorectal cancer ("CRC") whose initial treatment progress was announced on 11 April 2019, showed a continuation of lung metastasis shrinkage according to the latest tumour imaging report at the end of May. The subject's tumour load marker CEA (carcinogenic embryonal antigen), which measures tumour mass of CRC, has also normalised. A second subject with CRC has shown an initial decrease in CEA (-40%) and tumour stabilization.

The Directors believe that all of the study subjects dosed in the trial have seen a switch in their immune cell profiles following treatment with Clevegen towards increased immune activation. Typically this has been observed by one or more of the following: increased CD8+ cells, an increased in the CD8+/CD4+ ratio, a decrease in regulatory T-cells (T-regs) and a substantial increase in mobile natural killer (NK) cells in the blood. These changes were measurable immediately post-dosing, indicating a dynamic response in the immunological switch to immune-activation after the immunotherapeutic blockade of Clever-1. Data indicates that dose escalation results in prolonged Clever-1 occupancy of the blood monocytes during the first two weeks of the three-week dosing cycle before a decrease to baseline levels prior to the next dosing cycle. 

The majority of patients in the trial have received 5-7 different treatment lines prior entering the MATINS study. Faron is investigating why the observed immune activation has not turned into anti-tumour activity in all study subjects but in part, the Company believes the patient's immune system receiving Clevegen as a last line of therapy could have been adversely affected by the underlying therapies they have received prior to taking part in the MATINS study, as previous chemotherapies can inactivate bone marrow, preventing revitalization of the immune system.

As the trial is an open label study, the Company expects to report findings as the dosing progresses. The planned cohort expansion during Part II of the study will focus on identification of patients who show an increased number of Clever-1 positive circulating monocytes and the safety and efficacy of the treatment. The Company has already announced that CRC has been selected as the first expansion cohort in Part II. Faron also intends, subject to regulatory approval, to amend the MATINS trial to allow inclusion of hormone receptor-positive breast cancer, gastric cancer and uveal melanoma, based on striking translational data on CLEVER-1 positive cancer types and current poor survival rates. Additionally, Faron has recently filed a pre-IND package to the FDA. If accepted, Faron plans to open new sites in the US and facilitate expansion of the CRC cohort as fast as possible. Similarly, Faron is planning to include top cancer centres in France and Spain as the next European countries to join the MATINS trial.

TRAUMAKINE UPDATE

Traumakine has previously undergone two phase III studies for the treatment of ARDS (one of these trials being conducted the Company's Japanese partner, Maruishi). Topline data from the Company's Phase III INTEREST trial was announced on 8 May 2018 showing that the trial did not meet its primary endpoint although reduced mortality was seen in a sub-group of patients with a biomarker response (MxA and CD73 induction). Further announcements have since been made (including but not limited to those made on 14 June 2018, 22 October 2018, 5 December 2018 and 14 June 2019) in respect of post-hoc analysis from the INTEREST trial and a follow-up pharmacokinetic/dynamic study in health volunteers (YODA). In particular, post-hoc findings from INTEREST and YODA suggest that concomitant use of corticosteroids and Traumakine appeared to adversely affect both the mortality and biomarker appearance among INTEREST trial patients, indicating corticosteroid interference with Traumakine action. Results from the Japanese Traumakine Phase III trial for ARDS, which also included high levels of concomitant corticosteroid use and which were announced on 29 April 2019, were in line with results from the INTEREST trial.

Interim results of the Company's Phase II study examining the effect of Traumakine on mortality (predominantly MOF) and pharmacodynamic biomarkers of surgically operated RAAA patients (INFORAAA trial) were announced 26 June 2019. Whilst biomarker (MxA and CD73) responses indicated a good interferon response from Traumakine, unexpectedly, concomitant corticosterone was recorded both in the active (28%) and placebo (30%) treatment arm. While the removal of corticosteroid-treated patients from statistical analysis reduced group sizes and made statistical interim mortality analysis meaningless, a trend toward reduction of mortality was seen in the Traumakine-treated patients who did not receive corticosteroids.

The Company is conducting a full review of all the Traumakine data with key opinion leaders in order to make decisions on Traumakine's future development (including continuance of the Company's INFORAAA trial given the unexpected levels of concomitant corticosteroid use seen in the trial to date). The Company is currently in the process of designing a new global Phase III trial for Traumakine treatment (CALIBER) for the treatment of ARDS taking into account the high levels of concomitant used as a standard of care for ARDs and some RAAA patients and is in the process of seeking regulatory feedback on the proposed trial. The Company envisages that further Traumakine trials are likely to be funded through a third party.

CURRENT TRADING

The Company prepares its financial statements in accordance with the International Financial Reporting Standards (IFRS). The Company's loss for the financial year ended 31 December 2018 was €20.1 million (2017: €21.1 million loss).

The Company's cash balances were €4.9 million on 31 March 2019, €4.1 million on 31 December 2018, and €9.3 million on 31 December 2017. The Company has implemented a cash preservation program to reduce cash burn and preserve existing resources in order to deliver value to shareholders. The Company's net assets were €0.7 million on 31 March 2019, €0.4 million on 31 December 2018 and €4.7 million on 31 December 2017.

The Company raised net €15.9 million in February 2018 intended to support preparations for the commercialisation of Traumakine and to advance the clinical development of Clevegen in several indications at the issue price of £8.05 per share. In January 2019, the Company received the fourth and last instalment of the Clevegen Tekes R&D loan of €0.31 million. In March 2019, the Company raised net €2.9 million through placing and subscription at the issue price of €0.702 (60 pence) per share and net €1.3 million in May 2019 at the issue price of €0.7598 (65 pence) per share.

3. Use of Proceeds

The net proceeds of the Capital Raising will primarily be used to fund further clinical development of Clevegen by:

·; completing part I of the MATINS trial to determine the maximum tolerated dose and optimal dose for part II, and to initiate cohort expansion in CRC in Q4 2019; and

·; providing working capital whilst Faron seeks to negotiate and enter into a licensing agreement in respect of Clevegen in H2 2019.

In addition, the net proceeds of the Capital Raising will be used to fund the commercialisation preparation of Traumakine by seeking scientific advice and regulatory approval for the CALIBER study in H2 2019.

Subject to a significant proportion of the Open Offer Shares being subscribed for (and/or receipt of alternative sources of funding), the Company plans to execute the Company's plan to include US study sites to MATINS trial for expansion of distinct cancer cohorts in Q4 2019.

The net proceeds of the Subscription are expected to extend the Company's working capital to the end of Q4 2019 while the proceeds of the Capital Raising (to the extent a significant proportion of the Open Offer Shares are subscribed for) are expected to provide the Company with working capital into early Q1 2020. The Company continues to seek to partner Clevegen (targeting an upfront payment) and while it cannot be guaranteed, the Company hopes to conclude a licencing agreement by the end of 2019. In the meantime, the Company will continue to explore other potential sources of funding.

4. Details of the Subscription

The Company has raised approximately £1.0 million before expenses by way of the issue of 941,840 Subscription Shares pursuant to the Subscription at the Euro Issue Price.

The Subscription Shares were issued and registered with the Finnish Trade Authority on 5 August 2019 and First Admission took place at 8.00 am on 6 August 2019.

The Subscription Shares have been 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 the date of their issue.

5. Details of the Open Offer

The Company is proposing to raise up to approximately £1.8 million before expenses by the issue of up to 1,696,699 Open Offer Shares under the Open Offer at the Issue Price, payable in full on acceptance. Any entitlements to Open Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility.

Qualifying Shareholders should note that the Open Offer is not a rights issue and therefore the Open Offer Shares which Qualifying Shareholders do not apply for will not be sold in the market for the benefit of Qualifying Shareholders who do not apply for Open Offer Shares.

Qualifying Shareholders may apply for Open Offer Shares under the Open Offer at the Issue Price pro rata to their holdings of Existing Ordinary Shares on the Record Date on the basis of:

2 Open Offer Shares for every 45 Existing Ordinary Shares

Entitlements of Qualifying Shareholders will be rounded down to the nearest whole number of Open Offer Shares. Fractional entitlements which would otherwise arise will not be issued to Qualifying Shareholders but will be aggregated and made available under the Excess Application Facility. Not all Shareholders will be Qualifying Shareholders. Shareholders who are located in, or are citizens of, or have a registered office in a Restricted Jurisdiction will not qualify to participate in the Open Offer. The attention of Overseas Shareholders is drawn to paragraph 6 of Part 3 of the Circular.

Subject to availability, the Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares up to the maximum number of Open Offer Shares available less their Open Offer Entitlement, subject to availability. Further details of the Open Offer and the Excess Application Facility are given in Part 3 of the Circular.

Valid applications by Qualifying Shareholders will be satisfied in full up to their Open Offer Entitlements. Applicants can apply for less or more than their entitlements under the Open Offer, but the Company cannot guarantee that any application for Excess Shares under the Excess Application Facility will be satisfied, as this will depend, in part, on the extent to which other Qualifying Shareholders apply for less than or more than their own Open Offer Entitlements. The Company may satisfy valid applications for Excess Shares in whole or in part but reserves the right not to satisfy any application above any Open Offer Entitlement. The Board may scale back applications made in excess of Open Offer Entitlements on such basis as it reasonably considers to be appropriate.

Application has been made for the Open Offer Entitlements and Excess CREST Open Offer Entitlements to be admitted to CREST. It is expected that such Open Offer Entitlements and Excess CREST Open Offer Entitlements will be credited to CREST on 8 August 2019. The Open Offer Entitlements and Excess CREST Open Offer Entitlements will be enabled for settlement in CREST until 11.00 a.m. on 22 August 2019. Applications through the CREST system may only be made by the Qualifying DI Holders originally entitled or by a person entitled by virtue of bona fide market claims. The Open Offer Shares must be paid in full on application. The latest time and date for receipt of CREST applications by DI Holders and payment in respect of the Open Offer is 11.00 a.m. on 22 August 2019.

The Open Offer Shares must be paid for in full on application.

Qualifying DI Holders will receive a credit of Open Offer Entitlements and Excess CREST Open Offer Entitlements to your CREST stock account. Please refer to paragraph 3.4 and paragraphs 3 to 11 of Part 3 of the Circular and also to the CREST Manual for further information on the CREST procedures referred to below. Further details of the Open Offer to Qualifying DI Holders and the terms and conditions on which it is being made, including the procedure for application and payment, are contained in Part 3 of the Circular (DI Holder Terms and Conditions). The Circular sets out the terms and conditions of the Open Offer to Qualifying DI Holders. Qualifying non-DI Holders are instructed to also refer to the Basic Information Document and Finnish Law Terms and Conditions available on the Company's website at www.faron.com/investors which contain instructions for how Qualifying non-DI Holders can subscribe for Open Offer Shares pursuant to the Open Offer.

If you are electing for EIS Relief or VCT Relief in respect of your application for Open Offer Shares please refer to paragraph 3.4 of Part 3 of the Circular and if your existing Ordinary Shares are registered in a single name, then the Company will use the same information to supply to HMRC. If your Ordinary Shares are registered in joint names or a nominee name, you or the nominee, will need to notify the Company at EIS.investors@faron.com by no later than 11 September 2019 of the registration details required for all of the underlying beneficial holders who wish to receive the EIS tax certificate for use in their tax return along with your contact details. Failure to supply the EIS registration information by the cut-off date will result in no application being made to HMRC for Tax relief on your subscription.

Under the relevant legislation, the maximum amount the Company may raise in any 12-month period by issuing shares to EIS and VCT investors is £10 million. The Company expects all of the Open Offer Shares to be eligible for EIS Relief and VCT Relief to the extent validly subscribed for and subject to the circumstances of individual investors as described in paragraph 6 below. Accordingly, all Open Offer Shares are deemed to be EIS/VCT Open Offer Shares.

EIS income tax relief will only be available to Qualifying DI Holders who hold Existing Ordinary Shares which were acquired pursuant to an EIS compliant issue of shares by the Company. EIS income tax relief is not available for Qualifying DI Holders who subscribe for Open Offer Shares at a time when they hold Existing Ordinary Shares for which EIS Relief has not been claimed.

Qualifying DI Holders must not seek EIS Relief on any Open Offer Shares that are not EIS/VCT Open Offer Shares.

Following Second Admission, the Company will notify Qualifying DI Holders who are VCTs or who stated that they would seek EIS Relief on the number of EIS/VCT Open Offer Shares allocated to them and accordingly upon which Open Offer Shares they may seek such relief.

The Open Offer 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 the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Open Offer Shares to trading on AIM. It is expected that Second Admission will occur, and that dealings in the Open Offer Shares subscribed for pursuant to the Open Offer will commence, at 8.00 a.m. on 28 August 2019, at which time it is also expected that the Open Offer Shares will be enabled for settlement in CREST.

6. Enterprise Investment Scheme and Venture Capital Trust

As of 2 January 2018, HMRC can no longer consider VCT advance assurance applications where the details of the potential qualifying holding are not given.

The Directors believe that all of the Open Offer Shares should be eligible (subject to the circumstances of investors) for tax reliefs under EIS and as a qualifying holder for VCTs (and accordingly all Open Offer Shares are deemed to be "EIS/VCT Open Offer Shares"). The Directors are not aware of any subsequent change in the qualifying conditions or the Company's circumstances that would prevent the EIS/VCT Open Offer Shares from being eligible VCT and EIS investments on this occasion. However, neither the Directors nor the Company gives any warranty or undertaking that relief will be available in respect of any investment in EIS/VCT Open Offer Shares pursuant to the Circular or the Capital Raising, nor do they warrant or undertake that the Company will conduct its activities in a way that qualifies for or preserves its status.

The Company will, following Second Admission, make an application to HMRC to authorise the Company to deliver certificates under section 204, ITA 2007 in respect of those Open Offer Shares which Qualifying Shareholders have indicated in their USE instruction that they wish to seek EIS Relief on and which have been duly allocated such relief by the Board. Assuming that HMRC gives authorisation to the Company, it will deliver such certificates in respect of such allocations of EIS/VCT Open Offer Shares.

Provided that Qualifying DI Holders and the Company comply with the EIS legislation (Part V, ITA 2007 and sections 150A-C and Schedule 5B of the Taxation of Chargeable Gains Act 1992), which includes a requirement that the EIS Open Offer Shares are held by investors for not less than three years, UK taxpayers should qualify for EIS Relief on their investment in the EIS Open Offer Shares.

As the rules governing EIS Relief and VCT Relief are complex and interrelated with other legislation, if Shareholders or any potential investors are in any doubt as to their tax position, require more detailed information than the general outline above, or are subject to tax in a jurisdiction other than the United Kingdom, they should consult their professional adviser.

7. Overseas Shareholders

The attention of Qualifying Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of countries other than the United Kingdom, or who are holding Existing Ordinary Shares for the benefit of such persons (including, without limitation, custodians, nominees, trustees and agents) or who have a contractual or other legal obligation to forward the Circular to such persons, is drawn to the information which appears in paragraph 6 of Part 3 of the Circular.

Qualifying DI Holders who have registered addresses in or who are resident in, or who are citizens of, countries other than the United Kingdom (including without limitation the United States), should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their entitlements under the Open Offer.

8. Effect of the Subscription and Open Offer

Upon Second Admission, and assuming full take up of all the Open Offer Shares offered under the Open Offer, the Enlarged Share Capital is expected to be 39,872,433 Ordinary Shares. On this basis, the Open Offer Shares will represent approximately 4.3 per cent. of the Enlarged Share Capital.

9. Risk Factors and Additional Information

The attention of Shareholders is drawn to the risk factors set out in Part 2 and the information contained in Parts 3 to 4 (inclusive) of the Circular, which provide additional information on the Subscription and the Open Offer.

10. Action to be taken

In respect of the Open Offer

Qualifying DI Holder

If you are a Qualifying DI Holder you will receive a credit to your appropriate stock account in CREST in respect of the Open Offer Entitlements representing your entitlement under the Open Offer and Excess CREST Open Offer Entitlements. You should refer to the procedure for application and payment set out in paragraph 3.4 of Part 3 of the Circular.

The relevant CREST instructions must have settled in accordance with the instructions in paragraph 3.4 of Part 3 of the Ciruclar by no later than 11.00 a.m. on 22 August 2019.

EIS Relief will only be available to Qualifying DI Holders who hold Existing Ordinary Shares which were acquired pursuant to an EIS compliant issue of shares by the Company. Qualifying Shareholders who obtained Existing Ordinary Shares on the secondary markets will not be eligible to claim EIS Relief.

Qualifying DI Holders should refer to their CREST sponsors regarding the action to be taken in connection with the Circular and the Open Offer.

Qualifying non-DI Holder

Qualifying non-DI Holders are instructed to also refer to the Basic Information Document and the Finnish Law Terms and Conditions available on the Company's website at www.faron.com/investors and contain the instructions for how Qualifying non-DI Holders can subscribe for Open Offer Shares pursuant to the Open Offer.