Proposed Placing

RNS Number:5207O
Aquilo PLC
22 December 2006



For embargoed release at 7 a.m.                                 22 December 2006


                                   Aquilo plc
                          ("Aquilo" or the "Company")

                 Proposed Placing to raise up to #2.61 million

               Proposed consolidation of Existing Ordinary Shares

             Issue of Warrants to subscribe for new ordinary shares

               Conversion of loan notes into new ordinary shares

                                      and

                    Notice of Extraordinary General Meeting


The Company today announces a series of interlinked proposals to effect a broad
based restructuring and recapitalisation of the Company. These proposals include
the raising of new equity, amounting to up to #2.61 million (before expenses),
from a group of existing and new investors. The objective of the proposals is to
put the Company onto a more solid base for developing its successful operations
in claims handling and, specifically, the ITS, ABS and AIRS operations and to
alleviate short term working capital constraints.



The implementation of the Placing requires the approval of the Company's
shareholders at an extraordinary general meeting of the Company to be held at 11
a.m. on 15 January 2007 at the offices of Aquilo, 117 Fenchurch Street, London,
EC3M 5DY.



For further information please contact:



Clive Nicholls, Chief Executive Officer, Aquilo plc          Tel: [phone]

Crispin Burdett, Company Secretary, Aquilo plc               Tel: [phone]

Alasdair Robinson, Noble & Company Limited                   Tel: [phone]


The following information is an extract from the circular which will be posted
to shareholders today.



Introduction

The Company announced today, a series of interlinked proposals to effect a broad
based restructuring and recapitalisation of the Company, which requires
Shareholders' approval at an Extraordinary General Meeting. The objective of the
proposals is to put the Company onto a more solid base for developing its
successful operations in claims handling and, specifically, the ITS, ABS and
AIRS operations and to alleviate short term working capital constraints.

In summary the proposals comprise:

*         The consolidation of the Company's ordinary share capital on the basis
of 1 New Share and 240 Deferred Shares for every 250 Existing Ordinary Shares

*         The raising of new equity, amounting to #2.61 million before expenses,
from a group of existing and new investors through the placing of Subscription
Shares at a substantial discount to the current share price

*         The raising of new debt facilities and the part repayment of the
Company's existing facilities, which since 19 July 2006 have been provided by
Impact Funding (UK) Limited

*         The conversion of the majority of the existing convertible loan notes
in the Company into New Shares at the Issue Price and the repayment of the
remaining convertible loan notes

*         The creation of Warrants with an exercise price equal to the Issue
Price to satisfy certain obligations linked to the above arrangements,
including, inter alia, the provision of debt facilities and the payment of fees
and commissions relating to the restructuring

The Company requires Shareholder approval for several aspects of these proposals
including:

*         The consolidation of the share capital;

*         The creation of a sufficient number of New Shares to carry out the
Placing and loan note conversion at the Issue Price;

*         Authorising the Directors to allot shares; and

*         The provision of authority from Shareholders to disapply their
pre-emption rights so that the Placing Shares can then be placed with the
Investors.

The purpose of the circular being sent to shareholders today is to provide
further information on the Placing and the consolidation of the Ordinary Shares
and to explain why the Board considers the proposals to be in the best interests
of the Company and Shareholders as a whole. If the Resolutions are passed, the
allotment of the Placing Shares will be carried out on a non-pre-emptive basis,
and pre-emption rights will be disapplied.

An Extraordinary General Meeting of the Company is being convened to be held at
11 a.m. on 15 January 2007 at the offices of Aquilo plc, 117 Fenchurch Street,
London, EC3M 5DY, at which Shareholders will be asked to consider the
Resolutions necessary to approve and implement the Placing.

Shareholders should be aware that the Placing will not take place if the
Resolutions are not approved by the Shareholders. The Directors believe that, if
the Placing is not effected, the Company will experience immediate liquidity and
cashflow problems, as a result of it having insufficient finances to meet its
obligations, unless an alternative fundraising can be undertaken within this
time frame. It is the Board's view that any alternative fundraising would result
in minimal, if any, value remaining with Shareholders.

Application will be made to the London Stock Exchange for the Placing Shares to
be admitted to trading on AIM once the Resolutions have been approved at the
Extraordinary General Meeting and the Investors have each returned their
completed placing letters. The Directors expect Admission of the Placing Shares
to occur before 31 January 2007. The Placing Shares will rank, pari passu, with
the Existing Ordinary Shares in the Company following the proposed
consolidation.



Background

The Interim Results for the period ended 30 June 2006 were below the
expectations of the Directors. This was mainly due to the reduction in volume
through the motor services business caused by the Group's largest client taking
more claims in-house and a delay in bringing on new clients. New client start
ups in the property services business were also slower than anticipated. As was
disclosed at the time, the Group was focusing strongly on improving cash
management controls and cost reduction in order to deal with the reduced volumes
and operating losses.

Since the announcement of the Interim Results on 29 September 2006, there has
been a significant increase in the revenues of ITS, the Group's IT supply chain
management business, and its new household repair management offering, AIRS, has
successfully started up, with a major UK insurance group as its first client,
and several others expressing interest in using its services. However, the motor
services operation has continued to trade poorly and make losses.

Moreover, the financing of the working capital required by the motor services
operations, which, since 19 July 2006, has been provided by Impact (UK) Limited
through an invoice purchasing facility and a term loan, came under strain. This
led to the raising by the Company of #450,000 for working capital purposes
through the issue of Existing Ordinary Shares and fixed rate unsecured loan
notes to a group of existing Shareholders, which was announced on 16 November
2006.

During October 2006, the Company received a number of approaches from various
potential bona fide offerors. Whilst none of these ultimately led to an offer
being made to the Company's Shareholders, a number of other expressions of
interest were received relating to the motor services operations. Given the
difficulties being experienced by the subsidiary in its highly competitive
sector, the Board decided these should be pursued with a view to the potential
sale of the business and on 27 November 2006, the Company announced that it had
entered into exclusive negotiations with a major UK PLC in relation to a
disposal of the business of Aquilo Motor Services Limited. The Company announced
on 13 December 2006 that it accepted an offer from Nationwide Accident Repair
Services plc to purchase all of the assets of Aquilo Motor Services Limited for
consideration of #1.275m, comprising #750,000 in cash and #750,000 of net
assets, adjusted for creditors and a rent free period. The Directors believe
that this represented an enhancement of shareholder value in the remainder of
the Company's business and therefore agreed to the sale of the assets of Aquilo
Motor Services Limited.

As a result of the disposal, the requirement for the Impact facilities to the
motor services business has been ended and Impact have indicated to the Board
that in the light of this, they wish some of their facilities to be repaid.

The Directors believe it is in the best interests of Shareholders to repay some
of the debt and working capital facilities provided by Impact.

In order to facilitate this and to improve the continuing working capital
position, which continues to give the Directors cause for concern, the Directors
believe a share issue is imperative for the short term working capital position
of the Group. Shareholders should note that no formal verified working capital
exercise has been undertaken in relation to the Placing.

The proceeds of the sale will be used, along with the proceeds of the Placing,
to repay the Company's invoice discounting facility and reduce the term loan
facility.



Terms of the Placing

The Company is proposing to raise #2.61 million (before expenses) by way of the
Placing of 3,163,636 New Shares at the Issue Price of 82.5 pence per
Subscription Share. The Company has been approached by the Investors who are
prepared to invest into the business. The funds raised will be used to reduce
its existing debt and working capital facilities, repay some of the existing
convertible loan notes and to improve the working capital position.

As part of these proposals, the Company is proposing to undertake a share
consolidation which will enable the shares to be traded at a more appropriate
price for a publicly quoted company. The Placing price of 82.5 pence reflects
this share consolidation occurring immediately prior to the Placing. Had the
Placing occurred before the share consolidation, the equivalent placing price
would be 0.33 pence.

The Subscription Shares will, when issued, be equivalent to approximately 53.7
per cent. of the Company's enlarged ordinary share capital following Admission
and conversion of loan notes. The Issue Price, pre consolidation, is at a
discount of approximately 53 per cent. to the closing mid-market price of an
Existing Ordinary Share of 0.70 pence on 21 December 2006, the latest
practicable date prior to the production of this document. The Placing Shares
will, when issued, rank pari passu in all respects with the Existing Ordinary
Shares following the proposed consolidation.

The Directors believe that there is an opportunity to raise funds from a small
number of institutional and other investors at the present time. The
Subscription Shares are not being offered generally to Shareholders, whether on
a pre-emptive basis or otherwise. Your Board has therefore decided to effect the
fundraising by way of the Placing following a limited and targeted marketing
exercise, rather than by offering all Shareholders the opportunity to acquire
further shares. This will bring in significant institutional investors to
support the Company alongside the current Shareholders. The Directors believe
that the additional cost and delay incurred in the production of a prospectus
(which would have to comply with detailed contents requirements and require
review by and the approval of the UK Listing Authority) in connection with any
such offer would not have been in the best interests of the Company.

On 5 December 2006, the Company and the Directors appointed Noble and Key IP
Limited to use their reasonable endeavours to procure placees for the
Subscription Shares at the Issue Price. The Placing is not being underwritten.
In consideration of their services in connection with the Placing, Noble and Key
IP Limited will be entitled to a commission of 5 per cent. of the value, at the
Issue Price, of the Subscription Shares. Noble will also be entitled to a
corporate finance fee of #75,000 payable by the issue of Warrants.

Due to the size of the Placing relative to the Company's existing authorities to
allot shares, the Placing is conditional (amongst other things) upon the passing
of certain Resolutions by the Company's Shareholders at an Extraordinary General
Meeting of the Company. A summary of these Resolutions is set out below and the
text of the Resolutions is set out in full in the Notice of EGM at the end of
the circular. For this reason, your Directors have convened the EGM at which
Shareholders will be asked to consider and, if thought fit, pass the Resolutions
set out in the Notice of EGM. The Placing is also conditional on Admission of
the Placing Shares to trading on AIM, a market operated by London Stock Exchange
plc (and which is the market on which the Company's Existing Ordinary Shares are
trading), occurring by 31 January 2007 (or such later date as the Company and
Noble may agree).

The Company intends to apply for clearance from HM Revenue and Customs that the
investment in New Shares in the Company will be a qualifying investment under
the Enterprise Investment Scheme and for an investment by Venture Capital
Trusts. Shareholders should note that should this clearance not be received then
certain placees may have a right to withdraw from the Placing. It is the
Directors' intention that the Placing would proceed for an amount excluding
those placees which have withdrawn.



Information on the Investors

The Placing is being undertaken to existing and new investors in the Company.
The existing investors are: Calculus Capital Limited; Singer & Friedlander
Investment Management Limited; JM Finn & Co Ltd, VPV and Noble Fund Managers
Limited. The new investors are Artemis Investment Management Limited and Key IP
Limited. The Placing is subject to the passing of the Resolutions to be proposed
at the EGM.



New debt facilities

The Company has entered into a facility agreement with VPV dated 21 December
2006 pursuant to which VPV is committed to providing a loan of #1,500,000 on
certain terms. In addition, the Company has entered into a facility agreement
with Impact dated 21 December 2006 pursuant to which Impact is committed to
providing a loan of #1,000,000 on certain terms. Further particulars of the
terms and conditions of the new debt facilities are set out in the circular
being sent to shareholders today. Reasons for the Placing and use of proceeds

The net proceeds of the Placing will amount to approximately #2.36 million and
the Directors believe that the proposed Placing will provide Aquilo with a more
attractive and appropriate means of funding the business than the Company
currently benefits from with its existing debt providers.

The Placing will allow the Company to:

*         repay its current invoice discounting facility with Impact;

*         part repay its term loan facility with Impact;

*         repay some of the existing convertible loan notes; and

*         provide further resources to strengthen the working capital position
          of the business going forward.



Conversion of loan notes

The Company has issued convertible loan notes with an aggregate nominal value of
#402,438 which are repayable on 31 January 2007. This, together with the accrued
interest will be repaid.

The Company has also issued a further #1,227,500 of convertible loan notes with
coupons varying from 5 per cent. to 8 per cent. and with repayment dates from 31
January 2007 to 6 November 2011. The Company has reached agreement with VPV that
the #500,000 in nominal amount of loan notes held by it shall be deemed to have
been repaid on Admission and treated as having been provided under the new debt
facility it is providing as noted above. The note holders holding the balance of
the loan notes have agreed that the loan notes held by them will convert into
New Shares at the Issue Price on Admission.

Particulars of terms and conditions of the Warrants

The Warrant Instrument constitutes 551,155 Warrants and each Warrant entitles
the holder of the Warrant to subscribe for one New Share at a price of 82.5
pence at any time prior to fifth anniversary of Admission. The subscription
price and the number and nominal value of shares to which each Warrant relates
is subject to adjustment in the event of a capitalisation, consolidation or
sub-division of the share capital of the Company so as to maintain the
equivalent cost of exercising the subscription rights of each holder of
Warrants.

The Warrants shall be issued to the Investors on Admission as follows:

*         VPV - 181,818 Warrants

*         Noble - 90,909 Warrants in lieu of fees in respect of the Placing

*         Singer & Friedlander Investment Management Limited - 36,364 Warrants

*         Noble Fund Managers Limited - 36,364 Warrants

*         Calculus Capital Limited - 36,364 Warrants

*         Key IP Limited - 169,697 Warrants



Share consolidation

It is proposed to reorganise the Company's share capital by way of a share
consolidation so that the Company's share price is more suitable for a publicly
traded company which is expected to benefit all of the shareholders.

The Board has resolved to effect this by consolidating the Existing Ordinary
Shares on the following basis:

For every 250 Existing Ordinary Shares held       1 New Share and 240 Deferred Shares

The Company currently has 451,130,615 Existing Ordinary Shares in issue
(ignoring any exercise of options). Following the share consolidation, the
Company will have 1,804,406 New Shares in issue (before the Placing, and any
exercise of options). Fractional entitlements to the New Shares shall be
satisfied by the issue of Deferred Shares instead.

The Deferred Shares carry no rights and are being issued solely to comply with
the legal requirement not to reduce the Company's share capital. Deferred shares
will not be admitted to trading on AIM and will not be marketable.



Current prospects

The Company is faced with an immediate funding shortfall and deteriorating
trading relationships with suppliers and customers. The Interim Results for the
period ended 30 June 2006 showed reduced turnover and increased operating
losses.

The acquisition of IT Solutions (GB) Limited on 19 June 2006 has increased
revenues. In the last full year of trading, ITS had a turnover of #11.7m and a
gross profit of #2.0m. At the time of the acquisition the Company stated that
ITS would contribute immediately to the return to profitability of the Company.
Trading since the acquisition has been in line with expectations.

The disposal of the business of the motor services subsidiary will reduce losses
going forward.

The Directors believe that the proposed strengthening of the balance sheet, by
this Placing coupled with a drive to significantly reduce costs will allow the
Company to concentrate on growing both the ABS and ITS subsidiaries which are
profitable and to exploit the major potential of the AIRS business. The Company
will then be in a position to increase revenues, return to profitability and
produce returns to Shareholders.



Extraordinary General Meeting

At the end of the circular is a notice convening the EGM of the Company to be
held at the offices of offices of Aquilo plc, 117 Fenchurch Street, London, EC3M
5DY at 11 a.m. on 15 January 2007 at which the Resolutions set out in such
notice will be proposed:

Resolution 1 to be considered at the EGM proposes the reorganisation of the
Company's share capital by way of a consolidation on the basis of one New Share
and 240 Deferred Shares for every 250 Ordinary Shares. Any fractional
entitlements of New Shares will be satisfied by the issue of Deferred Shares.

Resolution 2 to be considered at the EGM proposes to increase the authorised
share capital of the Company from #7,000,000 to #7,600,000 by the creation of
6,000,000 New Shares.

Resolution 3 to be considered at the EGM proposes to grant the Directors the
requisite authority to allot the Subscription Shares and to issue the Warrants
pursuant to section 80 of the Companies Act 1985.

Resolution 4 to be considered at the EGM proposes to empower the Directors to
allot for cash or the right to subscribe for cash new Ordinary Shares without
first offering them to existing Shareholders. This will, inter alia, allow the
Placing Shares to be allotted and the Warrants to be issued pursuant to the
Placing.



Irrevocable undertakings

The Company has received irrevocable undertakings from the Directors and Company
Secretary of the Company to vote, or to procure votes, in favour of the
Resolutions to be proposed at the EGM in respect of a total of 38,888,505
Existing Ordinary Shares representing approximately 8.6 per cent. of the
Existing Ordinary Shares.



Recommendation

The Directors and Company Secretary consider that the proposals set out in the
circular are in the best interests of the Company and its Shareholders as a
whole and therefore recommend Shareholders to vote in favour of the Resolutions,
as they intend to do so in respect of their own beneficial holdings of Existing
Ordinary Shares amounting to, in aggregate, 38,888,505 Existing Ordinary Shares
representing approximately 8.6 per cent. of the Existing Ordinary Shares.



END


                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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