Proposed CVA, Disposal and Placing

25 September 2013

Avia Health Informatics PLC

("AHI" or the "Company")

Publication of Circular & Notice of General Meeting

The Company announces that it expects to publish today a circular to Shareholders (the "Circular") convening a general meeting to be held at 11:00 a.m. on 16 October 2013 at the offices of Peterhouse Corporate Finance Limited, 31 Lombard Street EC3V 9BQ, to consider the Proposals detailed in this announcement, including a proposed Disposal of Plain Healthcare, a Company Voluntary Arrangement and a placing of new Ordinary Shares.

The Circular will be available on the Company's website at www.ahi-plc.com. A summary of the material parts of the letter from the Chairman of AHI contained within the Circular is set out below.

Enquiries:

Proposals for:

Company Voluntary Arrangement

Disposal of Plain Healthcare

Approval of Investing Policy

Change of Name

Placing of new Ordinary Shares

and

Notice of General Meeting

Introduction

On 24 June 2013, the Company announced the suspension of trading of its securities on AIM pending clarification of its financial position. Subsequently, AHI announced on 19 September 2013 that it proposed to enter into a CVA, dispose of its operating subsidiary, Plain Healthcare and adopt a new Investing Policy pursuant to Rule 15 of the AIM Rules. Further details are being announced today including the proposed change of name to Cientifica Plc and the Placing.

Consequently, the Company is issuing a Circular to Shareholders setting out the background to and the reasons for the Proposals and seeking Shareholders' approval of them. A notice convening a General Meeting for 11:00 a.m. on 16 October 2013, at the offices of Peterhouse Corporate Finance Limited, 31 Lombard Street, London EC3V 9BQ, to consider the Resolution, is set out at the end of the Circular to be despatched to Shareholders later today.

To date, the Initial Capital (which amounts to £55,900) has been conditionally raised pursuant to the Placing at £0.02 per Placing Share. The Placing is conditional on the passing of the Resolution, completion of the CVA, the raising of the Minimum Funds and Readmission. Should the Minimum Funds, not be raised, then Readmission will not occur, as the Company will have insufficient working capital to continue trading.

In order for the Placing to complete, it is a requirement that the Minimum Funds are raised prior to the General Meeting. The Company, with the assistance of the Proposed Directors, intends to raise between £300,000 and £500,000 at the Placing Price including the Initial Capital. However, there is no guarantee that such sums will be raised.

The Initial Capital will be applied to pay a £50,000 novation fee to Plain Healthcare (from which ACS will benefit on completion of the Disposal) and to settle amounts due to outstanding creditors under the CVA. The remaining Minimum Funds will be applied towards paying the expenses of the Placing, settling the costs of the CVA, providing the Company with sufficient working capital to allow Readmission to occur and to allow the Company to continue to trade as an investing company on AIM and, as far as is possible, to pursue its proposed Investing Policy, further details of which are set out below.

It is proposed that, should the Minimum Funds be raised, the Proposals be approved at the General Meeting and conditional on Readmission, the Proposed Directors will join the Board on Readmission, and immediately thereafter, Roger Lane-Smith, Jeremy Dale and Tim Morris will resign as Directors.

Shareholders should be aware that the Placing is conditional upon the raising of the Minimum Funds, completion of the CVA, the passing of the Resolution and Readmission. If any of the above conditions are not satisfied, then the Placing will not proceed as the Company would then have insufficient working capital to continue to trade as a going concern and, in the absence of any other source of funding, the Directors may have no alternative but to place the Company into creditors' voluntary liquidation or receivership, or seek the appointment of an administrator.  

Information on AHI

2012/13 was a very challenging year for AHI with sales failing to meet the Board's expectations, due to substantial changes and the re-structuring in its principal market (the National Health Service) leading to delays in purchasing decision-making and the loss of opportunities.

As a result of the poor performance in 2011/12 under the previous management, the Company had fallen behind in meeting its commitments to HMRC and other key creditors. This was exacerbated by continuing under-performance in sales during the first 6 months of 2012 and insufficient control over expenditure which led to a shortfall in working capital. Between June and August 2012, there was a failed attempt by the Company to raise equity and/or debt funding. When the current management team took over in August 2012, the Company had debts totalling approximately £500,000.

The Company announced on 4 September 2012 that ACS's subsidiary, Drury Lane, had made a zero coupon loan to the Company of £350,000, for a term of three years and convertible into 29.9 per cent. of the issued share capital immediately following such conversion. The Convertible Loan Note enabled the Company to mitigate financial risks and uncertainties that affected the Company at that time, and the Board anticipated additional benefit to be gained from the partnership that it now had with ACS. At the 2012 Annual General Meeting, Shareholders voted in favour of the terms of the Convertible Loan Note.

A programme of cost cutting measures was implemented which continued throughout the remainder of 2012 and into 2013, resulting in a considerable downsizing in the Company's headcount together with payroll costs and expenses being reduced by approximately 50 per cent. The Board, through Plain Healthcare's management team, re-organised all of the Company's development and operational activity into Plain Healthcare to maximise the focus on immediate to medium-term sales. The Board also completed a detailed review of the Company's processes, procedures and sales strategy.

Despite these attempts to improve efficiency, the Company continued to face difficulties with inadequate working capital. Sales revenue remained disappointing, in large part owing to the difficult conditions in its NHS market. Notably, the impact of the introduction of NHS111, the new NHS national help line for non-life threatening situations, led to a large loss of contract renewals from customers who in turn were no longer being commissioned to provide out of hours General Practitioner services. In addition, the extent of upheaval caused by the re-structuring from Primary Care Trusts to Clinical Commissioning Groups in the NHS resulted in very prolonged delays in purchasing decision-making, an issue that continues to affect the closure of sales.

Background to and reasons for the Disposal and the CVA

On 1 March 2013, AHI announced that performance in January 2013 was ahead of expectations and that the Company had traded profitably. Unfortunately this was not maintained and sales in February 2013 were behind the Directors' expectations due to ordering delays within the NHS, the Company's principal customer. It was announced that the Company's cash flow continued to be tight and that the Company was in discussions with the Group's principal creditor, HMRC, in relation to the deferral of amounts owed.

As a result of these discussions, HMRC agreed a stringent payment plan, whereby the Group had to cover all remaining outstanding payments in addition to maintaining payments for PAYE and VAT as they fell due. The Company's sales forecasts indicated that this should be affordable provided sales performance met expectations.

On 24 June 2013, AHI announced that the Company had experienced further ordering delays in the NHS which resulted in a deferral of expected revenues. In addition, the Company had experienced a delay in entering into an agreement to licence the Company's technology to a third party. This licence agreement was expected to be entered into by the end of June 2013 and the Board believed it would provide immediate substantial working capital for the Company. Following the failure to complete this agreement, the Company requested the suspension of the Ordinary Shares from trading on AIM pending clarification of its financial position.

On 25 June 2013, the Company announced that it had been informed by the third party that negotiations in relation to the licensing of technology had been terminated. As a result, AHI announced that the Directors were continuing to evaluate all available options regarding an injection of sufficient capital into the business, whether through equity, debt or a convertible instrument, in order to enable AHI to overcome the working capital shortfall and allow the Company to continue to trade. The announcement also made it clear that, should the required capital not be found, it was likely that the Company, or its principal creditors, would seek the appointment of an administrator.

All identified options were explored during the latter part of June and early July, and on 16 July 2013 the Company announced that in the absence of any other viable funding alternatives, the Company had entered into heads of agreement with a third party for a capital injection into the Company. Entry into these heads of agreement gave the third party a limited period of exclusivity to, inter alia; complete its due diligence on the Company. The Directors considered that the arrangements envisaged by the heads of agreement represented the most likely way for Shareholders to retain some value and potential for capital appreciation.

The Directors wish to avoid a liquidation of the Company and the consequent likely total loss in value for Shareholders and creditors. The Board has determined that the orderly disposal of Plain Healthcare on the terms of the SPA, would be most likely to realise some value for Shareholders and creditors. 

If the Minimum Funds are not raised and the Proposals are not approved, the Directors believe that the only alternative is likely to be for the Company to be placed into creditors' voluntary liquidation or receivership, or seek the appointment of an administrator. Having taken appropriate professional advice, the Directors believe it highly unlikely, in such circumstances, that Shareholders or creditors would be able to recover any value for their shares in or amounts owed to them by AHI.

The Board therefore considers it is now in the best interests of AHI's creditors and Shareholders to approve the Proposals and to seek a future for the Company with new management, an injection of new funds and a change of business activity.

Company Voluntary Arrangement

The Company currently has outstanding unsecured creditors of approximately £400,000, in addition to Secured Convertible Loan Notes. It is proposed that the Company will offer approximately 1p in every £1 of debt to unsecured creditors of AHI from the funds raised in the Placing, However, for the avoidance of doubt this is not guaranteed. ACS or Drury Lane will not receive any distribution pursuant to the CVA as a secured creditor. The CVA will eliminate the Company's indebtedness and liabilities and, together with the funds to be raised pursuant to the Placing, provide it with sufficient working capital to enable Readmission and for it, as an investing company, to pursue its proposed Investing Policy.

A CVA requires the approval of 75 per cent. or more by value of the creditors voting on the resolution in person or by proxy. If approved by such a majority, for such resolution to be valid, not more than half in value of creditors who are not "connected" with the Company shall have voted against the resolution. Once approved, the CVA binds all creditors who were entitled to vote whether or not they were present or represented at that meeting and so voted and whether or not they actually received notice of the meeting.

A CVA also requires Shareholder approval. The CVA must be approved by in excess of 50 per cent. by value of Shareholders, present in person or by proxy and voting on the resolution. The value of Shareholders is determined by reference to the number of votes conferred on each member by the Company's articles of association. Approval of the CVA is part of the Resolution, which is a special resolution and therefore requires 75 per cent. by value of Shareholders present in person or by proxy and voting on the Resolution.

The Directors expect that the CVA will be approved at meetings to be held at 10:30 a.m. (in the case of creditors) and 11:00 a.m. (in the case of Shareholders) on 16 October 2013. The CVA will not result in any distribution being made to Shareholders.

The Directors have requested that Antony Batty of Antony Batty & Company act as Nominee in respect of the proposal of the Directors for a Company Voluntary Arrangement. Mr Batty has provided his consent to act and his Nominee's Report has been filed at Court as required.

A copy of the Directors' proposal incorporating the Nominee's Report will be available for download from the following:

Website www.thecreditorgateway.co.uk/abc/login

Password: av42ue83vw

Any Shareholder wishing to receive a paper copy of the proposal, should contact Antony Batty & Company on 020 7831 1234, or email [email protected], or in writing to Antony Batty, 3 Field Court, London WC1R 5EF.

The CVA is conditional upon the approval of the Proposals, the Minimum Funds being raised and Readmission.

The Disposal

Plain Healthcare is the principal trading business of the Group and produces clinical decision support systems. The Company has not been able to raise funds to develop its trading business and accordingly the Company has entered into the SPA for the purposes of the proposed sale of Plain Healthcare to Drury Lane.

Following the Disposal, the Company will not have any trading entity. As Plain Healthcare is the Company's principal asset and only operating subsidiary, the sale of this company represents a fundamental change of business for the purposes of Rule 15 of the AIM Rules. Accordingly, it is a condition of the SPA that Shareholder approval be obtained for the Disposal. The Disposal will therefore be put to Shareholder vote at the General Meeting.

The key terms of the SPA are as follows:

· the agreement is conditional on:

o approval of the Disposal by Shareholders;

o Readmission; and

o the payment of £50,000 by AHI to Plain Healthcare as consideration for the novation of the Convertible Loan Note (as detailed below).

· pursuant to the Convertible Loan Note, the Company currently owes £350,000 to Drury Lane. The Convertible Loan Note is secured by a fixed and floating charge debenture against the assets of the Company. On completion of the SPA, the Company, Plain Healthcare and Drury Lane will simultaneously enter into a deed of novation providing for the release of the Company's obligation to repay the sum of £350,000 to Drury Lane and the release of all remaining intra group indebtedness between Plain Healthcare and AHI;

· having regard to this novation, the cash consideration payable by Drury Lane under the SPA is £1;

· AHI has provided certain warranties to Drury Lane. These warranties are however limited to title to the shares in Plain Healthcare, its capacity to enter into the SPA and confirmation of Plain Healthcare not being involved in any litigation;

· AHI has undertaken that it will not: (a) for a period of two years from completion of the Disposal ("Completion") carry on, be concerned or assist in any way, a business which is or would be in competition with the business of Plain Healthcare as it was carried on at Completion; or (b) for a period of two years from Completion employ or seek to employ any of Plain Healthcare's key staff and customers. The Directors and Proposed Directors are satisfied that the restrictions will not impact on the new Investing Policy which is proposed to be adopted by AHI; and

· the agreement contains customary provisions requiring AHI to ensure that, prior to Completion, Plain Healthcare carries on its business and activities in the ordinary and usual course. These provisions do not apply to the extent that Drury Lane has given its prior written consent to any action.

The Directors believe the Disposal is in the best interests of the Company. Faced with the level of outstanding creditors in AHI and Plain Healthcare, together with the Convertible Loan Note, and having considered all alternative options, the Disposal together with the CVA offers the only means of avoiding an administration process which would leave Shareholders and creditors with no value in the event of liquidation. The Disposal together with the CVA provides AHI with an opportunity to raise new investment and develop a new business for the benefit of Shareholders.

Failure to approve the Disposal will leave the Company still facing the loss of its assets as the Convertible Loan Note is secured against the Company's assets.

The Company will have no other ready realisable/material assets following the Disposal. Avia Inc. and and Avia Investments Limited are also part of the Group and are dormant companies and the Proposed Directors intend to dissolve both companies in due course.

The Placing

Peterhouse will be appointed as Broker to the Company, subject to the passing of the Resolution.

Pursuant to the Placing, 2,795,000 new Ordinary Shares in the capital of the Company, have been conditionally placed at £0.02 per Placing Share with a new investor, to raise gross proceeds of £55,900, which represents the Initial Capital. The issue of the Placing Shares (which it is intended will include further Placing Shares to be issued, at the Placing Price, in order to raise at least the Minimum Funds) is conditional on the approval of the Resolution by Shareholders at the General Meeting and Readmission. The Proposed Directors expect that the Maximum Funds to be raised pursuant to the Placing, gross of expenses and including the Initial Capital, will be £500,000. Following completion of the Placing, the Placing Shares, in respect of the Minimum Funds, will represent 69.7 per cent. of the Enlarged Share Capital. Should the Maximum Funds be raised, the Placing Shares would represent 79.3 per cent. of the Enlarged Share Capital. The net proceeds of the Placing will be used to meet the costs of the CVA, settling amounts due to outstanding creditors under the CVA, paying the expenses of the Placing and provide the Company with sufficient working capital to allow it to continue to trade as an investing company on AIM and, as far as is possible, pursue its Investing Policy, further details of which are set out below.

It is intended that the Placing Shares will be placed with independent, unconnected persons, whose individual holdings will not exceed 29.99 per cent. of the Enlarged Share Capital.

In consideration for the introduction to the Company of subscribers for the Placing Shares and conditional on the approval of the Resolution by Shareholders at the General Meeting and Readmission, Peterhouse will be issued with a warrant over 3 per cent. of the Company's issued share capital at the date of Readmission at the Placing Price, which is exercisable for a period of 3 years.

If the CVA is approved by Shareholders and creditors and the proposed Disposal is approved by Shareholders, then, conditional on Readmission, the Company's indebtedness and liabilities will be eliminated. If approval for the Placing is obtained and the Placing completes (with the Minimum Funds having been raised), the Proposed Directors believe that the Company will have sufficient working capital to allow Readmission to occur and to allow the Company, as an Investing Company on AIM, to pursue its proposed Investing Policy. In these circumstances, additional funds will need to be raised in due course.

Shareholders should be aware that the Placing is conditional upon the Minimum Funds being raised, the passing of the Resolution, completion of the CVA and Readmission. If any of the above conditions are not satisfied, then the Placing will not proceed, the Company would then have insufficient working capital to continue as a going concern and, in the absence of any other source of funding, the Directors may have no alternative but to place the Company into creditors' voluntary liquidation or seek the appointment of an administrator.

Readmission is not guaranteed. Following the General Meeting and publication of the 2013 Accounts, the Company's Nominated Adviser will liaise with AIM to confirm whether trading in the Enlarged Share Capital on AIM can commence.

Share capital

The Company is seeking authorisation to allot additional equity securities on a non pre-emptive basis up to a nominal amount of £500,000 to enable the Proposals to be implemented and further funds to be raised.

2013 Accounts

The Board intends to publish the Company's 2013 Accounts on 17 October 2013 and, with the approval of AIM, thereby, enabling trading in the Company's Ordinary Shares to be restored (assuming that the Proposals are otherwise complete, save for Readmission).

Change of Name

Subject to Shareholders' approval of the Proposals and Readmission, it is proposed that the name of the Company be changed to Cientifica Plc.

Proposed Directors

It is proposed that immediately following the General Meeting and conditional on the Resolution being passed, completion of the CVA and the Disposal and Readmission, the Proposed Directors, Timothy Baldwin, Timothy Harper and Rod Venables will join the Board. Immediately thereafter, the Directors, Roger Lane-Smith, Jeremy Dale and Tim Morris will resign from the Board and waive all rights to any compensation which then might be due.

Timothy Edward Baldwin, aged 49 - Proposed Non-Executive Chairman

Timothy is currently, amongst others, an Executive Chairman of TXO Plc, an AIM-listed oil & gas exploration and production company, a director of Alpha Prospects Plc and Hill Street Investments Plc, which are investment holding companies and a director of Equity For Growth (Securities) Limited, which is regulated by the Financial Conduct Authority. Timothy has experience of AIM companies as both an adviser and as a director. He has extensive knowledge of oil and gas and mining companies. By training, Timothy is an investment analyst having worked in the City with Canaccord Capital and Investec as a corporate broker.

There are no matters under paragraph (g) of Schedule 2 of the AIM Rules to be disclosed.

Timothy Ewing Harper, aged 51 - Proposed Non-Executive Director

Timothy Harper is a former European Space Agency engineer and entrepreneur. He has founded a number of materials based companies including nanotechnology, scientific instruments and sustainable construction. He has advised and chaired a number of national nanotechnology initiatives and was a founding member of the World Economic Forum's Global Agenda Council on Emerging Technologies.

There are no matters under paragraph (g) of Schedule 2 of the AIM Rules to be disclosed.

Rodney Guy Venables, aged 57 - Proposed Non-Executive Director

Rod Venables qualified as a solicitor in 1981 and worked for a number of years in private practice, specialising in company and commercial law, before moving to the financial services sector. Since 1987, he has worked in corporate finance and corporate broking with a number of stockbroking and advisory firms, including Greig Middleton & Co Limited, Old Mutual Securities Limited, Allenby Capital Limited and Northland Capital Partners Limited, focusing on equity capital markets and, in particular, the AIM market. Over the last 25 years, he has advised both private and public companies, based in the UK and overseas. He has experience across a wide range of sectors but, in recent years, he has focused on the resources, technology and support services sectors.

There are no matters under paragraph (g) of Schedule 2 of the AIM Rules to be disclosed.

Investing Policy

The Resolution to be proposed at the General Meeting proposes the adoption of the new Investing Policy, set out below.

The Company will seek to acquire and build businesses making use of emerging technologies and advanced materials. These are typically businesses at an early revenue stage where the technology has been proven but not scaled up to meet emerging market demand. The Company focus will be on applications of graphene, nanotechnology and industrial biotechnology, with markets ranging from chemicals, aerospace and microelectronics to smart and sustainable buildings. 

The Company may invest by way of purchasing quoted shares in appropriate companies, outright acquisition or by the acquisition of assets, including the intellectual property, of a relevant business, or by entering into partnerships or joint venture arrangements. Such investments may result in the Company acquiring the whole or part of a company, asset or project. The Company's investments may take the form of equity, debt and convertible instruments. The Company may make indirect investments via quoted companies, unquoted companies seeking a public quotation and candidates for reverse transactions into quoted investment companies. The Company may invest in these types of opportunities through acquisitions, partnerships, joint venture arrangements, as finance for management buy-outs or buy-ins, as finance for pre-IPO, seed and underwriting positions.  

The Company expects to be an active investor in situations where the Company can make a clear contribution to the progress and development of the investment. In respect of other, principally more substantial opportunities, the Company expects to be a passive investor.

The Company intends to invest for the medium to long-term. However, should an opportunity arise to realise its investments in the shorter term, the Company will consider these on a case-by-case basis and seek to maximise value for shareholders. The Company intends to utilise industry experts in the analysis of proposed investments, and it is intended that the decision making process will be a collegiate, team-based approach, driven by intrinsic value or informed opinion.

The Proposed Directors confirm that, as required by the AIM Rules, they will at each annual general meeting of the Company seek Shareholder approval of its Investing Policy.

Following on from adopting an Investing Policy, the Company will be required to make an acquisition or acquisitions which constitute a reverse takeover under the AIM Rules or otherwise implement its Investing Policy within 12 months of the General Meeting, failing which the Ordinary Shares would then be suspended from trading on AIM. If the Investing Policy has not been implemented within 18 months of the General Meeting trading in the Ordinary Shares on AIM will be cancelled and the Board will convene a general meeting of the Shareholders to consider whether to continue seeking investment opportunities or to wind up the Company and distribute any surplus cash back to Shareholders.

Share certificates

No new share certificates will be issued as a result of the Company's proposed name change.

General Meeting

If the Minimum Funds are not raised and the Resolution is not passed, the Proposals will not proceed and, since the Company would have insufficient working capital to continue as a going concern, the Directors may have no alternative but to place the Company into creditors' voluntary liquidation or receivership or administration. Having taken appropriate professional advice the Directors believe it highly unlikely, in such circumstances, that Shareholders or creditors would be able to recover any value for their Ordinary Shares in or amounts owed to them by AHI.

The Notice convening the General Meeting at which the Resolution will be proposed will be sent to Shareholders together with the Circular. A summary of the Resolution is set out below.

The Resolution

The Resolution, which will be proposed as special resolution, seeks:

a. approval for the CVA;

b. approval for the Disposal;

c. to grant the directors of the Company authority to allot new Ordinary Shares in the capital of the Company up to a nominal amount of £500,000 in connection with the Placing, the exercise of the Peterhouse Warrant and for subsequent share issues to raise further funds going forward;

d. to dis-apply the statutory pre-emption rights over new Ordinary Shares authorised for allotment pursuant to paragraph c. above;

e. approval for the proposed Investing Policy; and

f. approval to change the name of the Company to Cientifica Plc.

Recommendation

The Directors consider the Proposals to be in the best interests of the Company, its creditors and the Shareholders as a whole, as the only alternative, in the absence of any other source of funding, will be creditors voluntary liquidation, receivership or administration which the Directors believe would deliver very little or no value to the Company's creditors or Shareholders. The Directors therefore unanimously recommend that you vote in favour of the Resolution as they intend to do themselves in respect of their shareholdings which amount in aggregate to 850,466 Ordinary Shares representing approximately 13.0 per cent. of the existing issued ordinary share capital.

End

The Directors of the Company are responsible for the contents of this announcement.

DEFINITIONS

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