PENNA CONSULTING PLC

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the contents of this document and/or the action you should take, you should immediately seek your own independent financial advice from your stockbroker, solicitor or other independent financial adviser duly authorised under the Financial Services and Markets Act If you have sold or transferred all of your Ordinary Shares, you should forward this document, together with the accompanying form of proxy, immediately to the purchaser, or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. If you have sold or transferred only part of your holding of Ordinary Shares, you should retain this document and the accompanying form of proxy. However, such documents should not be forwarded or transmitted into the United States, Canada, Australia or Japan. Neither the Placing nor this document constitutes an offer of transferable securities to the public within the meaning of the Financial Services and Markets Act 2000 (as amended) and therefore no prospectus within the meaning of section 85 of pursuant to Part 6 of the Financial Services and Markets Act 2000 (as amended) is required. The New Ordinary Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and other distributions made or paid on or after Admission and will be in registered form. PENNA CONSULTING PLC (incorporated and registered in England and Wales with registered no ) Proposed placing by Bridgewell Limited of 5,714,286 new Ordinary Shares at 70 pence per share Transfer from Official List to AIM Proposed Waiver of obligations under Rule 9 of the City Code on Takeovers and Mergers Notice of Extraordinary General Meeting Application will be made to the London Stock Exchange for the Existing Ordinary Shares and the New Ordinary Shares to be admitted to trading on AIM, a market operated by the London Stock Exchange. It is emphasised that no application is being made for admission of the New Ordinary Shares to the Official List. The New Ordinary Shares will not be dealt with on a regulated market and no application will be made for the New Ordinary Shares to be admitted to any such market. It is expected that Admission will become effective and dealings will commence in the Ordinary Shares on AIM on or around 10 October Bridgewell Limited, which is regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Penna Consulting in relation to the Placing and other matters referred to in this document. Bridgewell Limited is not acting for any other person in connection with the matters referred to in this document and will not be responsible to anyone other than Penna Consulting for providing the protections afforded to the clients of Bridgewell Limited or for giving advice in relation to the matters referred to in this document. Notice of an Extraordinary General Meeting of the Company to be held at 1st Floor, 55 Gracechurch St, London EC3R 0EE at a.m. on 11 September 2006 is set out at the end of this document. Shareholders are requested to complete and return the enclosed form of proxy whether or not they intend to be present at the EGM. To be valid, forms of proxy should be completed and signed in accordance with the instructions printed thereon and returned by post or by hand so as to be received by the Company s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4BR, as soon as possible and, in any event, by no later than a.m. on 8 September Completion and return of a form of proxy will not preclude a Shareholder from attending and voting at the EGM in person, should they so wish.

2 CONTENTS Page Expected Timetable of Principal Events 2 Placing Statistics 3 Definitions 4 Part I Letter from Chairman 6 Part II Financial Information on Penna Consulting 13 Part III Additional Information 43 Notice of Extraordinary General Meeting 52 EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2006 Latest time for receipt of forms of proxy 8 September Extraordinary General Meeting 11 September Expected date of Admission, commencement of dealings on AIM and cancellation of listing of Existing Ordinary Shares on the Official List 8 a.m. on or around 10 October Delivery in CREST of New Ordinary Shares to be held in uncertificated form 10 October Despatch of definitive share certificates in respect of New Ordinary Shares to be held in certificated form 17 October 2

3 PLACING STATISTICS Issue Price 70p Net proceeds of the Placing 3.7m Number of Ordinary Shares in issue prior to the Placing 19,559,062 Number of Ordinary Shares being issued pursuant to the Placing 5,714,286 Number of Ordinary Shares in issue following the Placing 25,273,348 Market capitalisation of Penna Consulting at the Issue Price following completion of the Placing 17.7m 3

4 DEFINITIONS The following definitions apply throughout this document, and in the accompanying form of proxy, unless the context otherwise requires: Act the Companies Act 1985, as amended Admission the admission of the Existing Ordinary Shares and the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules AIM AIM, a market operated by the London Stock Exchange AIM Rules the rules of the London Stock Exchange governing the admission to, and the operation of, companies on AIM Board or Directors the board of directors of Penna Consulting Bridgewell Bridgewell Limited Cancellation the proposed cancellation of the listing of the issued Ordinary Shares from the Official List Code the City Code on Takeovers and Mergers Company or Penna Penna Consulting Plc Consulting CREST the relevant System (as defined in the Regulations) in respect of which CRESTCo Limited is the operator (as such is defined in the Regulations) in accordance with which quoted securities may be held and transferred in uncertificated form Directors the directors of Penna Consulting whose names are set out on page 6 of this document Existing Ordinary Shares the Ordinary Shares in issue prior to the Placing Extraordinary General Meeting or EGM FSMA Group Independent Directors Issue Price Listing Rules New Ordinary Shares Official List Ordinary Resolution Ordinary Shares the extraordinary general meeting of the Company which has been convened for a.m. on 11 September 2006, notice of which is set out at the end of this document the Financial Services and Markets Act 2000, as amended Penna Consulting and its subsidiaries Sir James Harvie-Watt and Richard Stillwell 70 pence per New Ordinary Share the rules made by the UK Listing Authority pursuant to Part VI of FSMA and set out in The Listing Rules 5,714,286 Ordinary Shares to be allotted pursuant to the Placing the Official List of the UK Listing Authority the resolution set out in the notice of Extraordinary General Meeting at the end of this document to be proposed as an ordinary resolution and described as resolution 2 ordinary shares of 5 pence each in the capital of the Company 4

5 Placing the proposed placing by Bridgewell of New Ordinary Shares on behalf of the Company at the Issue Price and on the terms of the Placing Agreement Placing Agreement the conditional agreement dated 18 August 2006 between the Company and Bridgewell relating to the Placing, further details of which are set out in paragraph 5 of the Chairman s letter Proposals RBS RBSIF Registrars the Placing, Cancellation, Admission and all the Resolutions being proposed at the EGM the Royal Bank of Scotland plc RBS Invoice Finance Limited Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4BR Regulations the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/3755) Related Parties Related Party Directors Jeremy Hosking and the Related Party Directors Stephen Rowlinson, Gary Browning, David Firth and David Banks Related Party Transaction a transaction or arrangement between the Company and a Related Party within the meaning of Listing Rule Resolutions Rule 9 Rule 9 Offer Share Option Schemes Shareholders Special Resolution Takeover Panel uncertificated or in uncertificated form UK Listing Authority or UKLA the resolutions set out in the notice of Extraordinary General Meeting at the end of this document Rule 9 of the Code a general offer under Rule 9 to all shareholders of a company to acquire their shares for cash the Penna Consulting approved share option scheme adopted on 15 November 1996, the Penna Consulting unapproved share option scheme adopted on 26 November 1996 and the Penna Consulting SAYE plan holders of Existing Ordinary Shares the resolution set out in the notice of Extraordinary General Meeting at the end of this document to be proposed as a special resolution and described as resolution 1 the Panel on Takeovers and Mergers an Ordinary Share recorded on the Company s share register as being held in uncertificated form in CREST and title to which, by virtue of the Regulations, may be transferred by means of CREST the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of FSMA 5

6 PART I Letter from the Chairman PENNA CONSULTING PLC (Registered in England and Wales registered no ) Directors Stephen Rowlinson Chairman Gary Browning Chief Executive Officer David Firth Finance Director Sir James Harvie-Watt Non-executive Director David Banks Non-executive Director Richard Stillwell Non-executive Director 6 Registered and Head Office 3rd Floor St Mary s Court 20 St Mary at Hill London EC3R 8EE 18 August 2006 To Shareholders and, for information purposes only, to holders of options under the Share Option Schemes Dear Shareholder 1. Introduction As announced earlier today, the Company proposes to raise 4 million by way of a placing of 5,714,286 New Ordinary Shares at a price of 70 pence per New Ordinary Share. In addition, the Company is seeking the cancellation of the listing of the Existing Ordinary Shares on the Official List and will apply for the Existing Ordinary Shares and New Ordinary Shares to be admitted to trading on AIM. The Proposals are subject to the approval of the Shareholders at an Extraordinary General Meeting convened for this purpose at a.m. on 11 September Details of the EGM are set out in the notice of EGM which is set out at the end of this document. The Placing, Cancellation and Admission are inter conditional on each other, such that none will be completed unless they all are. Accordingly, if the Resolutions are not approved by the Shareholders at the EGM: the Placing will not proceed and the New Ordinary Shares will not be allotted; the Cancellation will not proceed and the Existing Ordinary Shares will remain listed on the Official List; and no application will be made for the Existing Ordinary Shares to be admitted to trading on AIM. The purpose of this document is to provide you with an explanation of the background and reasons for the Proposals and to explain why the Board considers the Placing, Cancellation and Admission to be in the best interests of the Company and Shareholders as a whole and why it believes that you should vote in favour of the Resolutions relating to the Placing, Cancellation and Admission at the EGM. 2. Background to and reasons for the Placing As set out in the Company s preliminary results announcement on 6 June 2006, the Directors have been considering the optimum way to finance the Group and in particular, how to finance the expansion of the Company s recruitment communications and interim management businesses. Historically the Group has financed its working capital by way of a 4.25 million overdraft facility from RBS. However, the projected future working capital needs of

7 the business indicate that the Group will require additional funds. Accordingly, the Board has decided to extend the term of a portion of its current indebtedness and also to raise additional equity finance. Specifically, the Company has entered into new borrowing arrangements with RBS comprising a term loan of 2.25 million (repayable over the next two years) and an invoice discounting facility of 1 million. In addition, and as a condition precedent to the term loan, the Company has agreed to raise 4 million of new equity finance by 16 October 2006 which will be achieved by way of the Placing. Currently, the Company also has an unsecured loan of 1.2 million from Stephen Rowlinson which will be increased by an additional 724,873 on or prior to 1 September 2006 and the Company intends to capitalise such unsecured loans by the allotment to Stephen Rowlinson of New Ordinary Shares at the Issue Price as part of the Placing. RBS may request immediate repayment of the 2.25 million loan if the Company does not raise 4 million of new equity finance by 16 October 2006 and if Stephen Rowlinson s additional loan of 724,873 is not received by the Company on or prior to 1 September The Board considers that the Placing is the most appropriate form of fund raising and, in the circumstances, is in the best interests of the Company. The Directors believe that should the Shareholders not vote in favour of the Proposals or the Placing not proceed for any other reason this would result in uncertainty around the Company s ability to continue as a going concern unless the Directors were able to find alternative funding in the period between the Directors becoming aware of the fact that the Placing will not proceed and 16 October 2006 (which would be difficult as the Directors have not to date explored alternative funding arrangements). In the context of the Proposals, the Directors consider it highly likely that the conditions of the Placing (which are customary placing conditions described in detail in paragraph 6.1 of part III of this document) will be satisfied and consequently the only possible circumstance which they currently envisage as preventing the Placing from proceeding is if the Shareholders eligible to vote (which excludes the Related Parties) choose to vote against the Resolutions described in paragraph 9 below. Accordingly the Directors would refer Shareholders to paragraph 10 below and the Independent Directors recommendations as set out in paragraph 11 below. 3. Use of Proceeds After consultation with its principal Shareholders, the Independent Directors have decided to recommend that the Company proceeds with the Placing, the terms of which are set out in paragraph 5 of Part I of this document. In conjunction with the Placing, the Independent Directors have also decided to recommend to Shareholders that the Company should transfer the listing of the Existing Ordinary Shares to AIM, the reasons for which are, again, more fully set out in paragraph 6 of Part I of this document. As previously indicated, the Directors intend to use the proceeds of the Placing to fund the working capital requirements of the Group and in particular to finance the growth of the Company s recruitment communications and interim management businesses. 4. Current Trading and Prospects On 4 July 2006 the Company made the following trading statement: Trading in the first quarter of the financial year (April June) has been similar to the same period of last year for the majority of our service lines, with particularly strong performance being achieved by HR Consulting and Leadership Services. However, our largest division, Career Transition, has experienced subdued demand for its outplacement services particularly in the City, which historically accounts for a third of the division s revenue. This is a result of the current buoyant conditions in Financial Services and the absence of major rationalisation projects. Accordingly the Board is expecting that the profit outcome for the year as a whole will be marginally below that achieved in the last financial year. 7

8 5. Principal Terms of the Placing The Company announced today that it proposes, inter alia, to raise 4 million through the issue of 5,714,286 New Ordinary Shares at a price of 70 pence per New Ordinary Share. The New Ordinary Shares have been conditionally placed with certain Shareholders and new investors on a non pre-emptive basis. The Directors believe that the additional costs that would be incurred if the New Ordinary Shares were offered to Shareholders on a pre-emptive basis by way of a rights issue or open offer would not be in the best interests of Penna Consulting. The Issue Price represents a discount of approximately per cent. to the closing mid-market price of 85 pence per Ordinary Share as at 17 August 2006, being the latest practicable date prior to the announcement of the Proposals. As the Issue Price represents a discount exceeding 10 per cent., the terms of the Placing of New Ordinary Shares at the Issue Price must be approved by the Shareholders pursuant to Listing Rule Accordingly the resolution set out at paragraph 1.4 of the Special Resolution seeks such Shareholder approval. The New Ordinary Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and other distributions made or paid on or after Admission. The New Ordinary Shares may be held in certificated or uncertificated form. The New Ordinary Shares will represent approximately 22.6 per cent. of the issued share capital of the Company following completion of the Placing. The Placing is conditional, inter alia, upon: the passing of the Resolutions; the Placing Agreement becoming unconditional in all respects (save as to Admission) and not having been terminated in accordance with its terms; and Admission occurring by 8.00 a.m. on or around 10 October 2006 (or such later date as may be agreed between the Company and Bridgewell, not being later than 8.00 a.m. on 20 October 2006). 6. Cancellation of Listing and Admission to Trading on AIM The Directors believe that there are a number of benefits for the Company in transferring its listing to AIM from the Official List. AIM is more appropriate for a company of Penna Consulting s size and in particular the cost of administering the requirements of the Listing Rules and certain associated rules and Code provisions that apply to companies on the Official List is considerable and disproportionate for smaller companies. By contrast, AIM has proved to be an extremely supportive environment for companies such as Penna Consulting with a smaller capitalisation. The Directors believe that AIM provides a more flexible environment in which the Company will be better able: to achieve its business and strategic objectives; to reduce costs and formalities associated with maintaining a listing on a regulated market, whilst continuing to provide a platform for trading in its Ordinary Shares; to reduce costs and formalities associated with corporate transactions. In addition, there are possible beneficial tax consequences for individual Shareholders. However, the Board is also aware that there may be circumstances in which certain Shareholders may be prohibited from investing in AIM shares. AIM shares are not allowed to be held in a personal equity plan or an individual savings account. Such Shareholders are advised to review their position in this respect as soon as possible and take independent professional advice if necessary. 8

9 The AIM Rules are less demanding than those of the Official List. For example, in many cases, companies admitted to trading on AIM are not required to produce documentation: when effecting acquisitions and disposals; or in connection with the admission of securities to trading on AIM; and in any event, such documentation, if required to be produced, is not typically pre-vetted by the London Stock Exchange plc or the UKLA. The AIM Rules require that the Company appoints a nominated adviser and broker before its Ordinary Shares are admitted to trading on AIM. Bridgewell has agreed to act as nominated adviser and broker to Penna Consulting. The Cancellation is conditional on Admission. Admission will not affect the way in which Shareholders buy or sell Ordinary Shares and, following Admission, existing share certificates in issue in respect of Existing Ordinary Shares will remain valid. Subject to approval of the Resolutions by the Shareholders at the EGM, the Company intends to apply for the cancellation of the listing of its Ordinary Shares on the Official List. The prior approval of the Resolution for the Cancellation from a majority of not less than seventy-five per cent. of the Shareholders entitled to vote at the EGM is required under Listing Rule 5.2.5(2). Further, application will be made for the Ordinary Shares to be admitted to trading on AIM. Cancellation will take effect not less than 20 business days after the date of the EGM and it is expected that the Cancellation and Admission will occur on or around 10 October The New Ordinary Shares will not be dealt with on a regulated market and no application will be made for the New Ordinary Shares to be admitted to any such market. Following Cancellation and Admission the Ordinary Shares will be traded on AIM rather than the Official List. By virtue of AIM being less regulated than the Official List, an investment in shares traded on AIM carries a higher risk than those listed on the Official List. Admission to AIM should not be taken as implying that there will be a liquid market for the Ordinary Shares. 7. Directors Intentions and Related Party Transactions Stephen Rowlinson has agreed, conditional on the prior approval of the Resolutions, to subscribe 1,924, (partly by way of capitalisation of his existing unsecured loan of 1.20 million to the Company and the further loan of 724,873 to be made by him on or prior to 1 September 2006) for 2,749,818 New Ordinary Shares at the Issue Price. David Banks, Gary Browning and David Firth have also agreed to subscribe for an aggregate of 155, for 222,390 New Ordinary Shares at the Issue Price. Each of Stephen Rowlinson, David Banks, Gary Browning and David Firth are Directors and so are treated as Related Parties for the purposes of the Placing under the Listing Rules. In addition Jeremy Hosking, by virtue of the fact that he is entitled to exercise and control the exercise of per cent. of the votes able to be cast on matters at general meetings of the Company and because he has undertaken to subscribe for 669,455.5 for 956,365 New Ordinary Shares pursuant to the Placing, is also a Related Party for the purposes of the Placing under the Listing Rules. The beneficial and non-beneficial interests of the Related Party Directors who have agreed to subscribe in the Placing for New Ordinary Shares (not including unexercised options over the Ordinary Shares) and of Jeremy Hosking on the date of this document and following the Placing are set out below: 9

10 Current Interests Number of Ordinary Shares Percentage 10 Interests after Placing New Ordinary Shares Number of subscribed for Ordinary Shares Percentage David Banks 501, , , Gary Browning 10, ,921 12, David Firth 5, ,460 6, Stephen Rowlinson 5,863, ,749,818 8,613, Jeremy Hosking 2,232, ,365 3,188, The remaining 1,249,999 New Ordinary Shares, representing 4.95 per cent. of the ordinary share capital of the Company following the Placing, are being placed with other non-related parties. The Shareholders are being asked to vote on and approve the subscription of New Ordinary Shares as described because the arrangement is with Related Parties. Under the Listing Rules, the subscription of New Ordinary Shares by the Related Parties requires the prior approval of independent Shareholders at a general meeting. The Related Parties will not vote on the Special Resolution and have undertaken to take all reasonable steps to ensure that their associates will not vote on the Special Resolution at the EGM. In addition, the subscription by Stephen Rowlinson of the New Ordinary Shares as set out above will be conditional upon Shareholders approving the waiver of the obligation for Stephen Rowlinson to make a Rule 9 Offer under the Code as described in paragraph 8 of Part I of this document and as set out in the Ordinary Resolution. The Related Party Directors have, therefore, not taken part in the Board s consideration of the Related Party Transaction matters described in this paragraph. 8. The City Code on Takeovers and Mergers The terms of the Placing give rise to certain considerations under the Code. Brief details of the Takeover Panel, the Code and the protections they afford are described below. The Code is issued and administered by the Takeover Panel. Penna Consulting is a company to which the Code applies and Shareholders are accordingly entitled to the protections afforded by the Code. The Code and the Takeover Panel operate principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equal treatment by an offeror. The Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the financial markets. Pursuant to Rule 9 of the Code, any person, or group of persons acting in concert, who acquires interests in shares which, when taken together with interests in shares already held by him or persons acting in concert with him, carry 30 per cent. or more of the voting rights of a company which is subject to the Code, is normally required by the Takeover Panel to make a Rule 9 Offer. A Rule 9 Offer must be in cash and at the highest price paid, within the 12 months prior to announcement of the Rule 9 Offer, for any interest in shares of the company by the person required to make the Rule 9 Offer or any person acting in concert with him. Assuming completion of the Placing, Stephen Rowlinson will be interested in 8,613,040 Ordinary Shares, representing per cent. of the enlarged issued share capital of Penna Consulting. The Takeover Panel has agreed, however, to waive the obligation to make a Rule 9 Offer, subject to the approval of independent Shareholders at the Extraordinary General Meeting voting on a poll. To be passed, the Ordinary Resolution will require the approval of a simple majority of votes cast on a poll. Stephen Rowlinson will be disenfranchised from voting on the Ordinary Resolution at the EGM due to his involvement in the Proposals.

11 The Directors (excluding Stephen Rowlinson) consider the waiver of the obligation to make a Rule 9 Offer to be in the best interests of the Company and the Shareholders as a whole and that is why they recommend that you vote in favour of the Ordinary Resolution as set out in paragraph 10. Shareholders should note that if the Ordinary Resolution is passed, Stephen Rowlinson will be interested in Ordinary Shares carrying more than 30 per cent. of the Company s voting share capital and that any further increase in the number of Ordinary Shares in which Stephen Rowlinson is interested will be subject to the provisions of Rule Extraordinary General Meeting and Action to be Taken A notice convening the EGM to be held at 1st Floor, 55 Gracechurch Street, London EC3R 0EE at a.m. on 11 September 2006 is set out at the end of this document. At the EGM, the Resolutions will be proposed. The Special Resolution is proposed: to increase the authorised share capital of the Company from 1,300,000 to 1,500,000 by the creation of 4,000,000 Ordinary Shares in connection with the Placing (representing an increase of approximately per cent. required in order to allot New Ordinary Shares pursuant to the Placing); to empower the Directors to allot equity securities for cash in connection with the Placing otherwise than in accordance with the statutory pre-emption provisions set out in the Act up to 5,714,286 Ordinary Shares of 5 pence each in the share capital of the Company being up to a maximum of 285, (representing 29.2 per cent. of the existing issued ordinary share capital of 19,559,062 Ordinary Shares of 5 pence each of the Company as at 17 August 2006 (being the latest practicable date prior to the publication of this document)). This authority will expire on the conclusion of the Annual General Meeting of the Company in September 2006; to approve the terms of the discounted Issue Price; to approve the Cancellation; and to approve the subscription by the Related Parties for an aggregate of up to 3,928,573 New Ordinary Shares at 70 pence per New Ordinary Share. The Directors currently propose only to allot Ordinary Shares in connection with the Placing pursuant to the authority to be granted by the Special Resolution. The Ordinary Resolution is proposed, conditional upon the passing of the Special Resolution, to approve the waiver by the Takeover Panel of any obligation of Stephen Rowlinson to make a Rule 9 Offer. The increase in the authorised share capital of the Company and the authorities for the Directors to allot the New Ordinary Shares and disapply preemption rights require the prior authorisation of the Shareholders at a general meeting under sections 123, 80 and 89 of the Act respectively. The subscription for New Ordinary Shares by the Directors is a Related Party Transaction and requires the prior authorisation of the Shareholders under rule (3)b of the Listing Rules. The Ordinary Resolution is required pursuant to the Code. A form of proxy for use by Shareholders in connection with the EGM is attached at the end of this document. Whether or not you propose to attend the EGM in person, you are requested to complete the form of proxy in accordance with the instructions printed on it and to return it to the Registrars as soon as possible and in any event so as to arrive no later than a.m. on 8 September Completion and return of the form of proxy will not preclude you from attending the EGM and voting in person should you so wish. 11

12 10. Importance of Voting in favour of the Proposals As described in paragraph 2 on page 7, the Directors believe that should Shareholders not vote in favour of the Proposals or the Placing not proceed for any other reason, this would result in uncertainty around the Company s ability to continue as a going concern unless the Directors were able to find alternative funding in the period between the Directors becoming aware of the fact that the placing will not proceed and 16 October 2006 (which would be difficult as the Directors have not to date explored alternative funding arrangements) and therefore, the Directors would urge Shareholders to vote in favour of the Proposals. 11. Recommendation and Voting Intentions The Board believes that the Special Resolution is in the best interests of the Company and its Shareholders as a whole. Accordingly the Board recommend that you vote in favour of the Special Resolution to be proposed at the EGM. Stephen Rowlinson, David Banks, Gary Browning, David Firth and Jeremy Hosking will not vote on the Special Resolution at the EGM and have undertaken to take all reasonable steps to ensure that their associates will not vote on the Special Resolution at the EGM. The Board consider that the terms of Stephen Rowlinson s, David Banks, Gary Browning s, David Firth s and Jeremy Hosking s respective subscriptions for New Ordinary Shares, (including the discounted Issue Price and the capitalisation of Stephen Rowlinson s unsecured loan of 1.20 million and the additional unsecured loan of 724,873 which he will make on or prior to 1 September 2006), to be fair and reasonable as far as the Shareholders are concerned and have been so advised by Bridgewell. The Related Party Directors have not taken part in the Board s consideration of this matter. The Board (excluding Stephen Rowlinson), who has been so advised by Bridgewell, believes the waiver of Rule 9 so that Stephen Rowlinson can subscribe for the New Ordinary Shares as set out in paragraph 7, is in the best interests of Shareholders as a whole. In providing its advice, Bridgewell has taken into account the commercial assessment of the Board (excluding Stephen Rowlinson). Accordingly, the Board (excluding Stephen Rowlinson) recommend that you vote in favour of the Ordinary Resolution to be proposed at the EGM, as they intend to do in respect of their own holdings of Ordinary Shares, being in aggregate 585,975 Ordinary Shares (representing 3.0 per cent. of the existing issued ordinary share capital of the Company). Yours faithfully Stephen Rowlinson Chairman 12

13 PART II Financial Information on Penna Consulting Basis of Financial Information The financial information contained in this Part II does not constitute statutory accounts within the meaning of section 240 of the Companies Act. The financial information shown in Section A has been extracted, without adjustment, from the preliminary results announcement for the year ended 31 March 2006 which was released on 6 June The financial information in Section B has been extracted, without material adjustments, from the full audited consolidated accounts of Penna Consulting for the three years ended 31 March Copies of the accounts for each of the three years ended 31 March have been delivered to the Registrar of Companies in England and Wales. Deloitte & Touche LLP of Stonecutter Court, 1 Stonecutter Street, London EC4A 4TR have made a report under section 235 of the Companies Act in respect of the statutory consolidated accounts for each of the three years ended 31 March. Such reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Act. 13

14 Section A: Preliminary Results Announcement Set out below is the full text of Penna Consulting s preliminary results announcement for the year ended 31 March Consolidated income statement for the year ended 31 March 2006 (unaudited) Notes Year Ended 31 March 2006 Year Ended 31 March 2005 Continuing operations Turnover 44,602 41,831 Operating costs (43,177) (44,484) Goodwill impairment (508) Decrease/(increase) in surplus property provision 960 (2,925) Operating profit/(loss) 2,385 (6,086) Share of profit from associate Finance costs (288) (320) Profit on disposal of fixed asset investment 308 Profit/(loss) before tax 2,588 (6,359) Tax 3 (442) 668 Profit/(loss) for the year 2,146 (5,691) Attributable to: Equity holders of the parent 2,146 (5,691) Earnings/(loss) per share: 4 basic 11.2p (30.7p) diluted 11.0p (30.7p) 14

15 Consolidated balance sheet at 31 March 2006 (unaudited) Note 31 March March 2005 Non-current assets Tangibles Property, plant and equipment 2,270 1,507 Other intangible assets software Goodwill 14,036 14,070 Investments 6 2,521 16,381 18,175 Current assets Trade debtors 11,173 10,513 Other prepayments 2,432 1,518 Corporation tax Cash and cash equivalents 7b 2,117 1,680 15,757 14,615 Total assets 32,138 32,790 Current liabilities Trade creditors 2,824 1,842 Bank overdraft 4,386 2,400 Loan notes 2,462 2,467 Obligations under finance leases Provision for liabilities and charges Other creditors and accruals 7,691 10,908 17,657 18,363 Non-current liabilities Obligations under finance leases Provision for liabilities and charges 263 1,024 Other creditors and accruals 182 1, ,455 Total liabilities 18,285 20,818 Net assets 13,853 11,972 Capital and reserves Called up share capital Share premium account 11,899 11,701 Merger reserve 10,170 10,170 Employee Share Option Plan reserve (397) (397) Share option reserve Foreign currency translation reserve Retained loss (9,111) (10,715) Total equity 13,853 11,972 15

16 Consolidated statement of changes in equity at 31 March 2006 (unaudited) Called up share capital Share premium Merger reserve ESOP reserve Share option reserve Foreign currency translation Retained loss Total equity At 1 April ,497 10,170 (397) 84 (4,618) 16,650 Share issue 47 1,204 1,251 Currency translation differences 40 (22) 18 Loss (5,691) (5,691) Share option charge Equity dividends (384) (384) At 31 March ,701 10,170 (397) (10,715) 11,972 Impact of adoption of IAS 32 and IAS 39 on 1 April 2005 (542) (542) Share issue Currency translation differences 2 2 Profit 2,146 2,146 Share option charge At 31 March ,899 10,170 (397) (9,111) 13,853 16

17 Consolidated group cash flow statement for the year ended 31 March 2006 (unaudited) Note Year Ended 31 March 2006 Year Ended 31 March 2005 Cash flows from operating activities Cash (used)/generated by operations 7a (2,479) 889 Tax refunded/(paid) 428 (177) Interest paid bank overdraft (241) (257) Net cash (used)/generated by operating activities (2,292) 455 Cash flows from investing activities Net purchase of property, plant and equipment (1,265) (680) Sale of tangible fixed assets (1,265) (680) Sale of investment 290 Payment of deferred consideration (300) Net cash generated by/(used) in investing activities 985 (690) Cash flows from financing activities Interest paid finance leases (35) (51) Net proceeds from finance leases 342 Repayment of finance leases (75) Repayment of loan notes (342) (3,004) Issue of ordinary share capital 210 1,221 Repayment of loan (2,500) Dividends paid (384) Net cash used in financing activities (242) (4,376) Net decrease in cash and cash equivalents (1,549) (4,611) Cash and cash equivalents at start of period (720) 3,891 Cash and cash equivalents at end of period 7b (2,269) (720) 17

18 Notes to the preliminary announcement for the year ended 31 March 2006 (unaudited) 1. Basis of preparation The Directors are currently finalising arrangements with the Group s bankers to convert the current 4.25 million overdraft facility, which expires on 30 June 2006, into a term loan and a secured invoice discounting facility to establish appropriate medium term funding arrangements. The secured invoice discounting facility is expected to be linked to the growth of the Recruitment Communications and Interim Management businesses. The Directors are currently considering the optimum way to finance the Group and the expansion of the Recruitment Communications and Interim Management businesses and expect to have concluded these arrangements by the time the annual accounts are signed. As part of their considerations of going concern, the Directors have prepared working capital projections for the period to 31 December Based on the conditions existing at the date of this preliminary announcement the Directors recognise that in the absence of finalised funding arrangements, the audit opinion in respect of the year ended 31 March 2006 may contain an emphasis of matter paragraph in respect of a material uncertainty around the Company s ability to continue as a going concern. However the Directors are confident that the required funding will be obtained and that no material uncertainty will exist at the date the accounts are signed. 2. Accounting policies The unaudited preliminary consolidated financial statements are for the year ended 31 March They have been prepared under the historical cost convention using accounting polices that are consistent with current International Financial Reporting Standards (IFRS). IFRS 1, First-time Adoption of International Financial Reporting Standards, applies to these financial statements for the first time. The financial statements are unaudited. The Group s consolidated financial statements were prepared in accordance with the United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 March In preparing the 2006 financial statements, the directors have adopted IFRS and have restated comparative information accordingly. The adjustments to the Group s equity and its income are shown in Note 8. The Group has taken advantage of the exemption available under IFRS 1 where cumulative translation differences for all foreign operations are deemed to be zero at 1 April 2004, the date of transition. The Group has also elected to apply IFRS 2, Share-based Payment to all relevant share based payment transactions granted after 7 November 2002 that had not fully vested at 1 January Under IFRS 1, the Group has also taken advantage of the exemption to not apply IFRS 3 to business combinations occurring before the date of transition and to not restate comparative information for IAS 32 and IAS 39. The principal differences in the Group s accounting policies between IFRS and UK GAAP as they impact the Group for the year ended 31 March 2006 are as follows: IAS 1 Presentation of Financial statements and IAS 7 Cash Flow Statements have affected the overall presentation and certain disclosures; IFRS 2 Share-based Payment requires that the fair value of employee options at grant date be expensed and recognised over the vesting period; IAS 10 Events After the Balance Sheet Date has the effect of prohibiting the recognition of the final dividend until shareholder approval has been received. Previously a liability was recognised at the year end; 18

19 IAS 19 Employee Benefits has the effect of recognising a liability for unused accumulated employee holiday entitlement at the balance sheet date. Previously no accrual was made; IFRS 3 Business Combinations, IAS 36 Impairment of Assets and IAS 38 Intangible Assets have resulted in a change in the accounting policy for goodwill. In accordance with the provisions of IFRS 3, the Group ceased amortisation of goodwill from 1 April From 1 April 2004 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment; and IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement has led to an increase in financial liabilities on the balance sheet. The adjustments to the Group s equity and income as previously reported are set out in Note Taxation Taxation has been provided for at 30 per cent. (2005: 30 per cent.), for the UK and appropriate rates for overseas earnings. 4. Earnings/(loss) per share The calculation of basic and diluted earnings per share are based on the following amounts: Year ended 31 March 2006 Year ended 31 March 2005 Earnings Profit/(loss) from continuing operations () 2,146 (5,691) Profit/(loss) for the year () 2,146 (5,691) Number of shares Weighted average number of Shares 19,198,919 18,517,363 Dilution effect of share option Schemes 346, ,752 Diluted weighted average number of Shares 19,545,383 18,879,115 Earnings/(loss) per share: Basic 11.2p (30.7p) Diluted 11.0p (30.7p) 5. Dividends No dividend was proposed (2005: nil) for the year ended 31 March Investments The Group s investment represented a 30 per cent. holding in the ordinary share capital of Knightsbridge Human Capital Inc. During the year, the Group s investment in the associate was disposed of for a consideration of 3.0 million on 5 January

20 7a. Reconciliation of operating profit/(loss) to cash (used)/generated by operating activities Year Ended 31 March 2006 Year Ended 31 March 2005 Operating profit/(loss) 2,385 (6,086) Adjustments for: Depreciation Loss on disposal of fixed assets 399 Goodwill impairment 508 Share option expense Changes in working capital: Increase in trade and other receivables (826) (1,171) (Decrease)/increase in trade and other payables (3,642) 3,407 Property provision (reversed)/charged (960) 2,925 Cash (used)/generated by operations (2,479) 889 7b. Cash and cash equivalents At 31 March 2006 At 31 March 2005 Cash and cash equivalents are made up as follows: Bank overdraft (4,386) (2,400) Cash on restricted deposit 2,117 1,680 Cash and cash equivalents (2,269) (720) 8. IFRS restatement and prior period adjustments In preparing the 2006 financial statements, the directors have adopted IFRS for the first time and have restated comparative information accordingly. The transition to IFRS is accounted for in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards with 1 April 2004 as the date of transition. The changes in accounting policies are described below together with reconciliations of the restated shareholders equity and profit to that previously reported. The transition to IFRS resulted in the following changes in accounting policies: Cumulative translation differences are deemed to be zero at the date of transition, per IFRS 1. Share option costs were previously based on the intrinsic value of the option at the date of grant. These costs are now accounted for in accordance with IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to grants after 7 November 2002, which had not vested by 1 January The value of share-based payments is measured at the date of grant. The value determined is expensed on a straight-line basis over the vesting period, based on the Group s estimate of shares that will eventually vest. The value of the options is measured using the Black-Scholes model. Dividends to shareholders authorised after the balance sheet date are not recognised as a liability at the balance sheet date. Unused accumulated employee holiday entitlements at the balance sheet date are now recognised as a liability. 20

21 In accordance with IFRS 1, the goodwill that arose prior to 1 April 2004 was amortised until that date. From 1 April 2004 the goodwill was no longer amortised on an annual basis, but rather subjected to an impairment test on that date and all subsequent reporting periods. Accordingly, the goodwill that was reported as amortised in the year ended 31 March 2005 under UK GAAP has therefore been reversed. At 31 March 2006 the Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from this reassessment. Capitalised computer software previously included within tangible fixed assets has now been reclassified as intangible fixed assets. Under IAS 38, only computer software integral to the hardware operating system should be included as plant and equipment. All other computer software should be recorded as an intangible asset. Derecognition of financial liabilities In accordance with IAS 39, a financial liability of the Group is only released to the income statement when the underlying legal obligation is extinguished. Reconciliations of equity Called up share capital Share premium Merger reserve ESOP reserve Share option reserve Foreign currency translation Retained loss Total equity At 1 April 2004 Under UK GAAP ,497 10,170 (397) (4,918) 16,266 Share option charge 84 (84) Dividend not recognised as a liability until paid At 1 April 2004 (under IFRS) ,497 10,170 (397) 84 (4,618) 16,650 Called up share capital Share premium Merger reserve ESOP reserve Share option reserve Foreign currency translation Retained loss Total equity At 31 March 2005 Under UK GAAP ,701 10,170 (397) (11,412) 11,023 Share option charge 212 (212) Goodwill amortisation written back 1,125 1,125 Currency translation 40 (40) Employee benefit accrual (176) (176) At 31 March 2005 (under IFRS) ,701 10,170 (397) (10,715) 11,972 21

22 Reconciliation of previously stated loss under UK GAAP Year ended 31 March 2005 Loss after tax under UK GAAP (6,531) Currency translation 19 Goodwill amortisation written back 1,125 Accrual for holiday pay (176) Share option charges 128 Loss for the period after tax under IFRS (5,691) 9. Nature of the financial information The Board of Directors approved the Preliminary Results on 6 June The financial information set out in this document does not constitute statutory accounts within the meaning of Section 240 of the Companies Act The financial information in respect of the year to 31 March 2006 is unaudited. Statutory accounts for the year ended 31 March 2005, prepared under UK GAAP, on which the auditor s report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. Copies can be obtained from our Registered Office at 3rd Floor, St Mary s Court, 20 St Mary at Hill, London EC3R 8EE. The financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in July

23 Section B: Audited Financial Information As extracted from the 2005 Annual Report. Group profit and loss account for the year ended 31 March 2005 Results before Amortisation of Goodwill and Exceptional Items Amortisation of Goodwill and Exceptional Items Note Turnover 2 41,831 41,831 42,960 Operating costs Amortisation and impairment of goodwill 10 (1,565) (1,565) (3,883) Other operating costs (41,866) (4,859) (46,725) (42,087) Total operating costs (41,866) (6,424) (48,290) (45,970) Operating loss (35) (6,424) (6,459) (3,010) Share of operating profit/(loss) of associate (68) (21) (15) Group operating profit/(loss) 2 12 (6,492) (6,480) (3,025) Loss on disposal of fixed assets 5 (399) (399) (90) Net interest payable 4 (320) (320) (226) Loss on ordinary activities before taxation 5 (308) (6,891) (7,199) (3,341) Taxation on loss on ordinary activities (257) Loss on ordinary activities after taxation (6,531) (3,598) Equity dividends paid and proposed 8 (654) Retained loss for the year 21 (6,531) (4,252) Loss per share 9 Basic (35.3p) (19.9p) Diluted (35.3p) (19.9p) The accompanying notes are an integral part of this Group Profit and Loss Account. All results are from continuing activities. Consolidated statement of total recognised gains and losses for the year ended 31 March Loss for the financial year (6,531) (3,598) Gain on foreign currency translation Total recognised gains and losses relating to the year (6,494) (3,579) 23