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

24 Group balance sheet 31 March Note Fixed assets Intangible assets goodwill 10 13,012 14,398 Tangible assets 11 1,584 2,372 Investments 12 2,453 2,486 17,049 19,256 Current assets Debtors 13 12,935 10,919 Cash at bank and in hand 14 1,680 3,891 14,615 14,810 Creditors: amounts falling due within one year 15 (15,048) (9,947) Net current (liabilities)/assets (433) 4,863 Total assets less current liabilities 16,616 24,119 Creditors: amounts falling due after more than one year 16 (3,898) (7,071) Provision for liabilities and charges 17 (1,695) (782) Net assets 2 11,023 16,266 Capital and reserves Called up share capital Share premium account 21 11,701 10,497 Merger reserve 21 10,170 10,170 ESOP reserve 21, 22 (397) (397) Profit and loss account 21 (11,412) (4,918) Shareholders funds Equity Interests 11,023 16,266 The accounts on pages 23 to 43 were approved by the Board of Directors on 11 July 2005 and signed on its behalf by: David SP Firth Finance Director The accompanying notes are an integral part of this Balance Sheet. 24

25 Company balance sheet 31 March Note Fixed assets Investments 12 18,225 17,986 Current assets Debtors 13 12,903 8,592 Cash at bank and in hand 14 3,394 5,665 16,297 14,257 Creditors: amounts falling due within one year 15 (8,305) (1,836) Net current assets 7,992 12,421 Total assets less current liabilities 26,217 30,407 Creditors: amounts falling due after more than one year 16 (2,374) (6,910) Provision for liabilities and charges 17 (371) (256) Net assets 23,472 23,241 Capital and reserves Called up share capital Share premium account 21 11,701 10,497 ESOP reserve 21, 22 (397) (397) Profit and loss account 21 11,207 12,227 Shareholders funds Equity Interests 23,472 23,241 The accounts on pages 23 to 43 were approved by the Board of Directors on 11 July 2005 and signed on its behalf by: David SP Firth Finance Director The accompanying notes are an integral part of this Balance Sheet. 25

26 Group cash flow statement for the year ended 31 March Note Net cash inflow/(outflow) from operating activities 25a 889 (1,141) Returns on investments and servicing of finance Interest received Interest paid Finance lease (51) (107) Other (296) Net cash outflow from returns on investments and servicing of finance (308) (96) Taxation paid (177) (430) Capital expenditure and financial investment Purchase of tangible fixed assets (680) (1,148) Sale of tangible fixed assets Net cash outflow from capital expenditure and financial investment (390) (1,104) Acquisitions and disposals Payment of deferred acquisition consideration (300) (51) Net cash outflow from acquisitions and disposals (300) (51) Equity dividends paid (384) (654) Cash outflow before management of liquid resources and financing (670) (3,476) Management of liquid resources Cash withdrawn from/(placed on) short-term deposit 200 (200) Cash received from restricted deposit 2, Cash placed on restricted deposit (1,195) (333) Net cash inflow from management of liquid resources 1,271 7 Financing Issue of ordinary share capital 1,221 Repayment of loan notes (3,004) (540) Net proceeds from finance leases 342 (Repayment of loan)/new borrowings (2,500) 2,500 Net cash (outflow)/inflow from financing (3,941) 1,960 Decrease in cash in the year 25b (3,340) (1,509) The accompanying notes are an integral part of this Group Cash Flow Statement. 26

27 Reconciliation of movements in shareholders funds for the year ended 31 March Loss for the financial year (6,531) (3,598) Dividends (654) Shares issued during the year 1, Profit on foreign currency translation Net reduction to shareholders funds (5,243) (3,957) Opening shareholders funds 16,266 20,223 Closing shareholders funds 11,023 16,266 27

28 Notes forming part of the accounts for the year ended 31 March Accounting Policies The accounts have been prepared under the historical cost convention and in accordance with applicable United Kingdom law and accounting standards. The following principal accounting policies have been consistently applied throughout the year and the preceding year. Basis of Consolidation The consolidated accounts incorporate the accounts of Penna Consulting Plc and all its subsidiary undertakings made up to 31 March Acquisitions are included from the date of acquisition. Acquisitions, for which the consideration includes an issue of shares which are eligible for merger relief, are stated in the Company s balance sheet at the nominal value of the shares issued together with the fair value of any other consideration given, plus the costs of the relevant acquisitions. The Group accounts include the appropriate share of associated undertakings results and net assets based on the latest available accounts. Associated undertakings are those in which the Group has a long-term investment in the voting equity and over which it exerts significant influence. Goodwill When the fair value of the consideration for an acquired undertaking exceeds the fair value of its separable net assets, the difference is treated as goodwill on acquisition. Goodwill in respect of acquisitions made prior to 1 April 1998 has been eliminated against reserves. Goodwill in respect of acquisitions since that date has been capitalised and shown as an intangible asset in accordance with FRS10 and is written off on a straight-line basis over its useful economic life (10-20 years). Provision is made for any impairment. On disposal or closure of a previously acquired business, the attributable amount of goodwill previously written off to reserves is included in determining the profit or loss on disposal. Turnover Turnover represents fees net of trade discounts, excluding VAT, earned during the period for services provided in the ordinary course of business. That element of income estimated by the Directors as relating to services to be provided in future periods is deferred to that period. Depreciation Depreciation is provided to write off the cost, less estimated residual values, of all fixed assets over their expected useful lives. It is calculated at the following rates: Leasehold premises and improvements The lesser of the remaining life of the lease or 10 years Furniture, equipment and motor vehicles 20-25% straight-line Computer equipment % straight-line Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when 28

29 they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Leased Assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at the fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Benefits received andreceivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term, except where the period to the review date on which the rent is first expected to be adjusted to the prevailing market rate, is shorter than the full lease term, in which case the shorter period is used. Pension Costs Contributions to the Company s defined contribution pension scheme are charged to the profit and loss account in the year in which they become payable. Investments Investments held as fixed assets are stated at cost less any provision for impairment. The Group s share of the profits less losses of associated undertakings is included in the consolidated profit and loss account and the investments are shown in the consolidated balance sheet as the Group s share of the net assets. Foreign Currency Transactions denominated in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the profit and loss account. The results of overseas branches and subsidiaries are translated at the rates of exchange prevailing during the period and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt with through reserves. Other exchange differences are taken to the profit and loss account. 29

30 2. Segmental Analysis The Group s turnover and operating profits were attributable to the following activities: Turnover Turnover Career Transition 18,866 25,297 Resourcing 7,758 7,777 Interim 10,288 3,873 Leadership Services 2,413 2,148 HR Consulting 2,698 4,190 Intercompany sales (192) (325) 41,831 42,960 Included in turnover are recharged expenses at 9,753,000 (2004: 5,346,000) on which no profit is made. Since combining its operations, the Group s operating (loss)/profit and net assets are not separately distinguishable by activity. The Group s turnover, operating loss and net assets/(liabilities) are derived from the following geographical segments: Operating Turnover (Loss)/Profit Net Assets/ (Liabilities) 2005 UK 38, ,372 Rest of World 2,847 (53) (1,349) Amortisation of goodwill and exceptional items (6,492) 41,831 (6,480) 11, UK 40,067 2,456 17,393 Rest of World 2,893 (303) (1,127) Amortisation of goodwill and exceptional items (5,178) 42,960 (3,025) 16, Employees Staff costs (including Directors) consist of: wages and salaries 14,190 13,620 social security costs 1,481 1,659 pension costs ,163 15,868 Number Number The average number of employees (including Directors) during the year was

31 4. Net interest payable Interest receivable: Bank interest Other interest 28 Less: interest payable: on loan notes (94) (128) on bank overdraft (175) (93) on finance leases (51) associated undertaking (12) (16) other interest (27) (320) (226) 5. Loss on ordinary activities before taxation (a) This is arrived at after charging/(crediting): Distribution costs 14,981 10,441 Other administrative costs 9,544 13,684 Depreciation Auditors remuneration audit fees Operating leases: land and buildings 3,191 3,242 Other 9 rental income (891) (1,144) Loss on disposal of fixed assets Amortisation of goodwill Amortisation charge 1,057 1,115 Goodwill impairment charge 508 2,768 (b) Exceptional items People costs 1,443 1,227 Property costs 2,925 Restructuring costs 890 In the year ended 31 March 2005 the Auditors were paid nil for non-audit services (2004: 65,793). 6. Taxation on loss on ordinary activities The tax (credit)/charge is based on the loss for the year and comprises: Current taxation UK corporation tax at 30 per cent. (2004: 30 per cent.) 280 Adjustments in respect of prior periods (320) (56) (320) 224 Overseas tax Deferred tax (400) Tax (credit)/charge on loss on ordinary activities (668)

32 The standard rate of tax for the year, based on the UK rate of corporation tax is 30 per cent. (2004: 30 per cent.). The actual tax (credit)/charge for the current and the previous year differs from the standard rate for the reasons set out in the following reconciliation. The effect of the exceptional items of 5,258,000 (2004: 1,227,000) is a tax credit of 1,406,000 (2004: 366,000) Loss on ordinary activities (7,199) (3,341) Tax on loss on ordinary activities at standard rate (2,160) (1,002) Factors affecting charge for the period: Depreciation in excess of capital allowances Amortisation of goodwill 490 1,185 Expenses not deductible for tax purposes Unprovided UK tax assets 1,071 (7) Unprovided overseas tax charge due to losses brought forward (48) Movement in short term timing differences 127 Carry back of UK losses 295 Adjustments in respect of prior periods (320) (56) Lower tax rates on overseas earnings (29) Total actual amount of current tax (320) Profit of Penna Consulting Plc As permitted by Section 230(3) of the Companies Act 1985, the profit and loss account of the parent company is not presented as part of these financial statements. The parent company s result after taxation includes a loss of 1,020,000 (2004: 4,760,000). Included in the loss for 2004 is the write off of investments of 5,158, Equity dividends paid and proposed Interim dividend paid of nil p per share (2004: 1.5p) 270 Final proposed dividend of nil p per share (2004: 2.1p) Earnings per share Earnings per share have been calculated by dividing the profit attributable to shareholders for the financial year by the weighted average number of ordinary shares in issue during the year: Number Number Weighted average number of shares in issue per basic earnings 18,517,363 18,084,458 Dilutive effect of Share options 361, ,140 Weighted average number of shares in issue per diluted earnings 18,879,115 18,311,598 32

33 2005 Basic EPS (pence) 2005 Diluted EPS (pence) Loss attributable to shareholders (6,531) (35.3) (6,531) (35.3)* 2004 Basic EPS (pence) 2004 Diluted EPS (pence) Loss attributable to shareholders (3,598) (19.9) (3,598) (19.9)* *FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally, and there are no other diluting future share issues, diluted EPS equals basic EPS. 10. Intangible Assets goodwill Group Cost At 1 April ,542 Acquisitions Fairchild International GmbH adjustment to earnout (55) Penna Consulting (NI) Limited adjustment to earnout 239 Foreign exchange difference (5) At 31 March ,721 Amortisation At 1 April ,144 Impairment charge 508 Charge for the year 1,057 At 31 March ,709 Net Book value At 31 March ,012 At 31 March ,398 In accordance with the Group s accounting policy, the company has reviewed the carrying value of goodwill for impairment. The impairment review was undertaken at 31 March This resulted in an impairment charge of 508,000 attributed to Target Holding AS ( 490,000) and Fairchild International GmbH ( 18,000). The review assessed whether the carrying value of goodwill was supported by the net present value of future cash flows derived from assets using the cash flow projections of up to three years for each subsidiary entity. Post the forecast period, growth rates of nominal GDP have been assumed for each subsidiary entity. The discount rate used was based on the Group s pre-tax weighted average cost of capital, which was 9.0 per cent. 33

34 11. Tangible Assets Group Short leasehold premises and improvements Computer equipment Furniture, equipment and vehicles Total Cost At 1 April ,106 4,358 1,232 7,696 Additions Transfers (30) Disposals (408) (2,213) (201) (2,822) Movements in foreign exchange At 31 March ,113 2,369 1,083 5,565 Depreciation At 1 April ,009 3,204 1,111 5,324 Charge for the year Transfers (28) Disposals (357) (1,582) (194) (2,133) Movements in foreign exchange At 31 March , ,981 Net book value At 31 March , ,584 At 31 March ,097 1, ,372 Included in short leasehold premises and improvements at 31 March 2005 are leased assets with a cost of 420,000 (2004: Nil), accumulated depreciation of 43,000 (2004: nil) and a net book value of 377,000 (2004: Nil). Capital Commitments Capital commitments contracted for at the year-end amounted to nil (2004: nil). 12. Investments Group Company Cost At 1 April ,486 28,744 Share of loss of associate after amortisation: Knightsbridge Human Capital Management Inc. (33) Addition: Increase in earnout provision: Penna Consulting (NI) Limited 239 At 31 March ,453 28,983 Provisions for impairment At 1 April 2004 and 31 March ,758 Net book value At 31 March ,453 18,225 At 31 March ,486 17,986 34

35 Investment in associate The Group s investment at year end represents a 15 per cent. holding in the ordinary share capital of Knightsbridge Human Capital Management Inc., a Human Capital Management consultancy incorporated in Canada. Since 1 October 2002, this has been accounted for as an associate under FRS 9. Goodwill is amortised in accordance with Group policy. The initial cost of goodwill amounted to 1,350,000. Goodwill Share of net assets Total At 1 April ,248 1,238 2,486 Profits retained for the year Amortisation for the year (68) (68) At 31 March ,180 1,273 2,453 Profit comprises an interest charge of 12,000 and operating profit of 47,000. Principal Investments The parent Company and the Group have investments in the following undertakings. All but Target Holdings AS, Penna Consulting GmBH and Penna Human Capital Management AB (which are incorporated in Norway, Germany and Sweden respectively) are incorporated within the UK. Subsidiary Undertakings Principal Activity % Holding Penna Plc Human Capital Management 100 Penna BBM Limited* Resourcing 100 Penna Change Consulting Limited* Change Consulting 100 Penna Consulting Germany GmBH Resourcing 100 Penna Executive Coaching Limited Executive Coaching 100 Penna Human Capital Management AB Resourcing 100 Penna Executive Search Limited* Resourcing 100 Penna Management Services Plc* Holding Company 100 Penna Sanders & Sidney Limited* Career Management 100 Penna International Limited* Holding Company 100 Penna Consulting (NI) Limited Change and Career Management 100 Meridian Consulting Limited* Career Management 100 Century Resources Limited Resourcing 100 *Held directly by Penna Consulting Plc 13. Debtors Group Company Trade debtors 10,513 9,221 Amounts owed by subsidiary undertakings 12,736 7,910 Other debtors 839 1, Recoverable taxation Prepayments and accrued income ,935 10,919 12,903 8,592 35

36 14. Cash at Bank and in Hand The purchase consideration for certain acquisitions included the issue of loan notes. The balance of unredeemed loan notes at the year end amounted to 1.7 million (2004: 3.4million). Cash has been transferred into a restricted deposit account to guarantee the payment of these loan notes. This is included within cash at bank and in hand for the Company and the Group. 15. Creditors: amounts falling due within one year Group Company Bank loan (see note 16) Bank overdraft (see note 16) 2,400 Deferred acquisition consideration Trade creditors 1,842 1,467 Amounts due to subsidiary undertakings 8,205 Other creditors, accruals and deferred income 8,853 5, Finance leases 75 Other taxes and social security 1,878 1,229 Dividends payable ,048 9,947 8,305 1,836 The movement in the Group s deferred consideration of 176,000 was the result of the repayment of an amount outstanding relating to the BBM Associates Limited acquisition in Creditors: amounts falling due after more than one year Group Company Bank loan 1,600 1,600 Loan notes 2,467 5,471 2,374 5,310 Finance leases 267 Other creditors 1,164 3,898 7,071 2,374 6,910 The loan from the Royal Bank of Scotland Plc ( RBS ) of 2,500,000 was granted on 26 January It was repayable in instalments of 225,000 payable quarterlyfrom June 2004 incurring interest at the RBS base rate plus 1.25 per cent. (base rate at 31 March 2004: 4.0 per cent.). On 2 June 2004 the Company elected to combine its loan and overdraft facility with RBS. The new facility provides an overdraft of 5,000,000 to the Group, incurring interest at the RBS base rate plus 1.5 per cent. 36

37 17. Provisions for Liabilities and Charges Group Deferred Dilapidations Consideration Total At 1 April Deferred Penna Consulting (NI) Paid (124) (124) consideration: Limited: Adjustment to earnout (see note 10) Fairchild International Released (see note 10) (55) (55) GmbH: Dilapidations: Paid (19) (19) Provided At 31 March , ,695 Company Deferred Consideration Total At 1 April Deferred Penna Consulting (NI) Paid (124) (124) consideration: Limited: Adjustment to earnout (see note 10) At 31 March The provision for deferred consideration relates to the acquisition of subsidiaries where part of the purchase consideration is based on the future profitability of the acquired company. The actual amount payable will be determined by reference to the profits of the acquired companies for the financial periods to 31 March Obligations under Finance Leases Group Amounts due for settlement within one year 75 (shown under current liabilities) Amounts due for settlement in the second to fifth years 267 (shown under creditors falling due in more than one year) Total capital amount outstanding 342 Annual repayment (including finance charges) 110 Total outstanding repayments (including finance charges) 440 It is Group policy to lease certain of its leasehold improvements under finance leases. The average lease term is 5 years. For the year ended 31 March 2005, the average effective interest rate was 11.3 per cent. (2004: Nil). The Group s obligations are secured by the lessor s charges over the leased assets. 19. Financial Instruments Treasury policy and significant treasury transactions are approved by the Board. The Group s policies in respect of UK treasury management are as follows: Interest rates on deposits are linked to UK deposit rates. Deposits are made for no longer than three months duration. The Group does not currently enter into any derivative instruments to hedge interest rate or currency risk. Interest rates on deposits belonging to the Group s European subsidiaries are linked to the bank rates prevailing in each respective country. Deposits are all short-term and do not exceed three months. 37

38 The Group s financial instruments comprise cash and liquid resources, bank overdrafts, a bank loan, finance leases and trade debtors and liabilities arising directly from its operations. The main purpose of holding these financial instruments is to finance the Group s operations and acquisitions. The main risks arising from the Group s financial instruments are liquidity risk, interest rate risk and credit risk. Currently the Group s exposure to currency risk is low given the relative size of its non Sterling based operations. Liquidity risk: The Group invests its surplus funds in financial instruments with maturity profiles necessary to ensure the availability of the funds as required. The Group currently makes use of an overdraft provided by the Royal Bank of Scotland (see note 16). Interest rate risk: The Group is exposed to interest rate risk on its deposits, bank overdraft, bank loan and other liquid financial instruments. Its loan notes and financial assets and liabilities are at both fixed and floating rates as set out below. Currency risk: The Group has one significant overseas subsidiary Penna Human Capital Management AB which operates in Scandinavia and also operates in Ireland, Spain and France. Revenues and expenses are denominated in their prevailing currencies. The Group does not consider it necessary to hedge against the effect of movements in these currencies. Credit risk: The Group controls credit risk by entering into financial instruments only with highly credit-rated and authorised counter parties. Counter party authorisations and positions are monitored on a regular basis. The numerical disclosures in this note deal with financial assets and liabilities as defined by Financial Reporting Standard 13 Derivatives and other financial instruments: Disclosure (FRS13). Certain financial assets such as investments in subsidiary and associated undertakings are excluded from the scope of these disclosures. As permitted by FRS13, short-term debtors and creditors have been excluded from these disclosures. The interest rate profile of the Group s financial assets and liabilities (excluding short-term debtors and creditors) is as follows: 38 Total Financial Assets Floating Rate Fixed Rate 2005 Sterling 1,510 1,510 Euro US Dollar 6 6 Swedish Krona Norwegian Krona ,680 1, Sterling 3,730 3,730 Euro US Dollar 4 4 Swedish Krona Norwegian Krona ,891 3,891

39 39 Total Financial Liabilities Floating Rate Fixed Rate 2005 Sterling Bank overdraft 2,400 2,400 Finance leases Other loan notes 2,467 2,467 5,209 5, Sterling Loan Royal Bank of Scotland 2,500 2,500 Other loan notes 5,471 5,471 7,971 7,971 Disclosures relating to the interest and repayment terms of the loan are set out in note 16. At the year-end, the Group had consolidated its loan and overdraft facility. The current overdraft facility is 5.0 million and incurs interest of 1.5 per cent. above the Royal Bank of Scotland s base rate. The loan notes incur interest at variable rates ranging between 3 per cent. and 6 per cent. The floating rate financial assets and liabilities are linked to LIBOR. The finance leases incur interest at 11.3 per cent. per annum. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and are denominated in sterling. The fair value of the Group s lease obligations approximates their carrying amount. The Directors do not consider that there is a material difference between the book and fair values of the Group s financial assets and liabilities. Bank overdraft, finance leases and loan notes repayment terms are analysed as follows: Group Company Amounts payable by instalment: within one year 5, , between one and two years 7,071 6,910 between two and five years 342 5,382 7,971 2,374 7, Share Capital Group and Company Authorised 26,000,000 (2004: 26,000,000) ordinary shares of 5p each 1,300 1,300 Allotted, called up and fully paid 19,215,327 (2004: 18,276,994) ordinary shares of 5p each During the year, the Company issued 20,000 shares in respect of payment in lieu of bonus and 4,333 shares in respect of the savings related options scheme. On 30 December 2004 Penna Consulting Plc placed a further 914,000 new ordinary shares of 5p each at a price of 135p per share in order to raise additional funding. Stephen Rowlinson, a director of the Company, acquired 600,000 of these shares bringing his total shareholding at that date to 5,617,500 or 29.2 per cent. of the issued share capital of the Company.

40 Options have been granted under the Penna Executive Share Option Scheme and Sharesave Scheme to subscribe for ordinary shares of the Company as follows: Year Options Granted No. of Shares Under Scheme Subscription Price per Share Exercise Period 1997/ , p / , p-295p / , p-550p / , p-446p / ,255 61p-293p / ,441 86p-125p / , p Reserves Group Share Premium Merger Reserve ESOP reserve Profit and Loss Total At 1 April ,497 10,170 (397) (4,918) 15,352 Gain on foreign currency translation Premium on shares issued 1,204 1,204 Retained loss for the year (6,531) (6,531) At 31 March ,701 10,170 (397) (11,412) 10,062 The cumulative amount of goodwill written off to the profit and loss account relating to acquisitions prior to 1 April 1998 amounts to 10,597,000. Company Share Premium ESOP reserve Profit and Loss Total At 1 April ,497 (397) 12,227 22,327 Premium on shares issued during the year 1,204 1,204 Retained loss for the year (1,020) (1,020) At 31 March ,701 (397) 11,207 22, ESOP Scheme Penna Consulting Plc established an ESOP scheme as an incentive scheme for employees. The Trustee, Ogier a Le Masurier (Jersey) purchased the Company s shares in the open market with finance provided by the Company. Costs in respect of the scheme are written off as incurred. The original cost of the shares of 396,640 represents the purchase of 100,000 shares at This value is held in reserves in accordance with UITF 38. The market value of the shares at the balance sheet date was 132,500. The right to dividends has not been waived and at balance sheet date, no shares had been allocated to employees. Allocation is at the discretion of the Remuneration Committee. 23. Pensions A defined contribution scheme is operated on behalf of the employees of three of the subsidiary undertakings. The assets are held separately from those of the Company in an independently administered fund. There were no outstanding contributions at the year-end (2004: nil). 24. Commitments Under Operating Leases As at 31 March 2005, the Group had annual commitments in respect of land and buildings and IT equipment under non-cancellable operating leases as set out below: 40

41 Operating leases which expire: in less than one year in two to five years 644 1,060 after five years 1,966 2,086 2,847 3,368 Per note 18 the Group also has an annual commitment in respect of finance leases over leasehold improvements of 110,000 (2004: nil) which is due to expire in two to five years. 25. Supplementary Cash Flow Information (a) Reconciliation of operating loss to operating cash flows Operating loss (6,459) (3,010) Loss on disposal of fixed assets (shown as exceptional) (339) (90) (6,858) (3,100) Depreciation charges Amortisation and impairment of goodwill 1,565 3,883 Loss on disposal of tangible fixed assets (Increase)/decrease in debtors (1,171) 2,337 Increase/(decrease) in creditors 6,194 (5,308) Utilisation of provision (19) Net cash inflow/(outflow) from operating activities 889 (1,141) (b) Analysis and reconciliation of net debt 1 April 2004 Cash flow 31 March 2005 Cash at bank and in hand/(bank overdraft) 270 (3,340) (3,070) Liquid resources 200 (200) Cash on restricted deposit 3,421 (1,741) 1,680 3,891 (5,281) (1,390) Loan notes (5,471) 3,004 (2,467) Loan (2,500) 2,500 Finance leases Net debt (4,080) 565 (3,515) Decrease in cash in the year (3,340) (1,509) (Decrease)/increase in liquid resources in the year (200) 200 Cash placed on restricted deposit (1,741) (207) Decrease in net funds resulting from cash flows (5,281) (1,516) Loan notes redeemed 3, Loan repaid/(received) 2,500 (2,500) Net proceeds from finance leases 342 Loan notes issued (2,322) Increase/(decrease) in net funds in the year 565 (5,798) Net (debt)/funds at 1 April 2004 (4,080) 1,718 Net debt at 31 March 2005 (3,515) (4,080) 41

42 Section C: Material changes since the Accounting Date Save as disclosed in paragraphs 1 and 2 below, no significant changes have taken place in the financial or trading position of the Group since the date of the Company s most recent interim results for the six months ended 30 September 2005: 1. on 6 June 2006 the Company published its preliminary results for the year ended 31 March As set out in Part II paragraph 2 note 1 on page 18 the Directors were finalising arrangements with the Group s bankers to convert the current 4.25 million overdraft facility into a term loan and a secured invoice discounting facility to establish medium term funding arrangements. 2. On 4 July 2006 and as set out in Part 1, paragraph 4 on page 7, the Company made the following trading statement, setting out how trading in the Company s career transition business had experienced lower levels of trading than market expectation in the first quarter of the financial year to 31 March 2007: 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. 42

43 PART III Additional Information 1. Responsibility for information in this document 1.1 Stephen Rowlinson accepts responsibility for the information contained in this document and for his recommendation in respect of the Proposals (other than his subscription for New Ordinary Shares and the waiver of Rule 9). To the best of the knowledge and belief of Stephen Rowlinson, who has taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. 1.2 The Independent Directors accept responsibility for the views and opinions contained in this document, including their recommendations in respect of the Proposals, the Related Party Directors subscription for New Ordinary Shares and the waiver of Rule 9. To the best of the knowledge and belief of the Independent Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. 1.3 The Board (other than Stephen Rowlinson) accept responsibility for the information contained in this document other than that relating to Stephen Rowlinson his immediate family and related trusts, for which Stephen Rowlinson is responsible; and any views and opinions of the Board (other than Stephen Rowlinson) including their recommendations in respect of the Proposals (other than the Related Parties subscription for New Ordinary Shares for which the Independent Directors are responsible). To the best of the knowledge and belief of the Board (other than Stephen Rowlinson), who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. 2. Details of Major Shareholders As at 17 August 2006, the persons other than members of the administrative, management or supervisory bodies of the Company who, directly or indirectly, have an interest in the Company s share capital and/or voting rights notifiable under the Companies Act, were as follows: Percentage of Ordinary Shares in which the Shareholder Shareholder has an interest Stephen Rowlinson Susan Mumme Jeremy Hosking Henderson Global Investors 5.13 Aberdeen Asset Mangers 4.89 Invesco Asset Management

44 3. Disclosure of interests, short positions and dealings in relevant securities 3.1 As at 17 August 2006 (being the latest practicable date prior to the publication of this document), the interests and short positions in relevant securities of Stephen Rowlinson or of persons acting in concert with Stephen Rowlinson (in addition to those referred to elsewhere in this Part III were as follows): Name Productive Nominees Limited Stephen Rowlinson and Kathleen Rowlinson Kathleen Rowlinson and Stephen Rowlinson Teawood Nominees Limited Total Details of relevant securities 5,306,222 Ordinary Shares 473,500 Ordinary Shares 60,000 Ordinary Shares 23,500 Ordinary Shares 5,863,222 Ordinary shares 3.2 As at 17 August 2006 (being the latest practicable date prior to the publication of this document), there were no persons with whom Stephen Rowlinson, or any associate of Stephen Rowlinson or any person acting in concert with Stephen Rowlinson, has an arrangement having any interest and/or short position in relevant securities. 3.3 As at 17 August 2006 (being the latest practicable date prior to the publication of this document), Stephen Rowlinson and persons acting in concert with Stephen Rowlinson had not borrowed or lent any relevant securities. 3.4 Dealings in relevant securities during the disclosure period, by Stephen Rowlinson or persons acting in concert with Stephen Rowlinson (in addition to those referred to elsewhere in this Part III) were as follows: Name Date 44 Nature of Transaction Number of relevant securities Price per Ordinary Share Productive Nominees Limited 2 March 2006 acquisition 94, pence Kathleen Rowlinson and Stephen Rowlinson 11 July 2005 acquisition 60, pence 3.5 Dealings in relevant securities during the disclosure period, by Stephen Rowlinson, his immediate family, related trusts and (so far as Stephen Rowlinson is aware, having made due and careful enquiry) connected persons (within the meaning of section 346 of the Companies Act) were as follows: Name Date Nature of Transaction Number of relevant securities Price per Ordinary Share Productive Nominees Limited 2 March 2006 acquisition 94, pence Kathleen Rowlinson and Stephen Rowlinson 11 July 2005 acquisition 60, pence 3.6 There were no dealings in relevant securities during the disclosure period, by persons with whom Stephen Rowlinson, any associate of Stephen Rowlinson or any person acting in concert with Stephen Rowlinson, has an arrangement in respect of relevant securities.

45 3.7 As at 17 August 2006 (being the latest practicable date prior to the publication of this document), the interests and short positions in Penna Consulting securities of the Directors (other than Stephen Rowlinson), their immediate families, related trusts and (so far as Directors (other than Stephen Rowlinson) are aware having made due and careful enquiry) connected persons (within the meaning of section 346 of the Companies Act), all of which are beneficial unless otherwise stated, which have been notified to Penna Consulting pursuant to sections 324 and 328 of the Companies Act or which were required to be entered in the register of directors interests maintained under section 325 of the Companies Act, were as follows: Details of relevant Name securities David Banks 501,724 Gary Browning 10,000 David Firth 5,000 Sir James Harvie-Watt 66,251 Richard Stillwell 3, As at 17 August 2006 (being the latest practicable date prior to the publication of this document), the interests and options over relevant securities (all of which are beneficial unless otherwise stated) of the Directors (other than Stephen Rowlinson), their immediate families, related trusts and (so far as the Directors (other than Stephen Rowlinson) are aware having made due and careful enquiry) connected persons (within the meaning of section 346 of the Companies Act) were as follows: Name of option holder Exercise price per relevant security (pence) Period during which option normally exercisable Number of relevant securities over which options exercisable Gary Browning August 2006 to 2 August ,000 Gary Browning August 2007 to 14 August ,000 Gary Browning July 2008 to 19 July ,000 David Firth November 2002 to 1 November ,000 David Firth June 2004 to 4 June ,407 David Firth December 2004 to 18 December ,272 David Firth July 2005 to 11 July ,121 David Firth December 2005 to 20 December ,000 David Firth August 2006 to 15 August ,000 David Firth August 2007 to 14 August ,000 David Firth July 2008 to 19 July , As at the last day of the disclosure period, the interests and short positions in relevant securities of an associated company of Penna Consulting or by a pension fund of Penna Consulting or of any of its associated companies or by an employee benefit trust of Penna Consulting or of any of its associated companies, were as follows: Details of relevant Name securities Ogier Employee Benefit Trust 100,000 Talisman Information Trustees Limited 57,156 45

46 3.10 As at 17 August 2006 (being the last practicable date prior to the publication of this document), there were no persons with whom Penna has an arrangement, or any associate of Penna or any person acting on concert with Penna or any director of Penna having an interest and/or short position in relevant securities As at 17 August 2006 (being the last practicable date prior to the publication of this document), other than already disclosed, there were no pension funds of Penna or of a company which is an associate of Penna, no employee benefits trust of Penna or of a company which is an associate of Penna, no adviser to Penna or to a company which is an associate of Penna or company which is controlled by an adviser to Penna having any interest and/or short position in relevant securities As at 17 August 2006 (being the last practicable date prior to the publication of this document), Penna or any persons acting in concert with Penna had not borrowed or lent any relevant securities. 4. General and Definitions 4.1 As at 17 August 2006 (being the latest practicable date prior to the publication of this document), save as disclosed in this Part III, neither Stephen Rowlinson, nor his immediate families, related trusts or (so far as Stephen Rowlinson is aware having made due and careful enquiry) connected persons (within the meaning of section 346 of the Companies Act) nor any persons acting in concert with Stephen Rowlinson, was interested, directly or indirectly, in relevant securities nor had any right to subscribe for, or any short position in relation to, relevant securities, nor has any such person dealt in any relevant securities during the disclosure period. 4.2 No arrangement exists between any person and Stephen Rowlinson or any associate of Stephen Rowlinson or any person acting in concert with Stephen Rowlinson in relation to relevant securities. 4.3 For the purposes of this Part III: arrangement includes any indemnity or option arrangement and any agreement or understanding, formal or informal, of whatever nature which may be an inducement to deal or refrain from dealing; associate means: any associated company of Stephen Rowlinson and any company of which any such associated company is an associated company ( relevant companies ) or any parent, subsidiary, fellow subsidiary and associated company of Penna Consulting and any company of which any such parent, subsidiary, fellow subsidiary or associated company is an associated company ( relevant companies ); connected advisers and persons controlling, controlled by or under the same control as such connected advisers; the directors of any relevant company (together in each case with any member of their immediate families or related trusts) or the Directors (other than Stephen Rowlinson); and the pension funds of Stephen Rowlinson or Penna Consulting or of any relevant company; an investment company, unit trust or other person whose investments an associate manages on a discretionary basis, in respect of the relevant investment accounts; an employee benefit trust of Penna Consulting or any relevant company; a company having a material trading arrangement with Stephen Rowlinson or Penna Consulting. 46

47 4.3.3 connected adviser means a corporate broker to Stephen Rowlinson or Penna Consulting (unless unable to act in connection with the Rule 9 Offer because of conflict of interest) or to an adviser, in relation to the Rule 9 Offer, to Stephen Rowlinson, Penna Consulting or an associated company of Stephen Rowlinson or Penna Consulting or, in relation to a person acting in concert with the Directors, to an adviser in relation to the matter which is the reason for that person being a member of the relevant concert party; ownership or control of 20 per cent. or more of the equity share capital of a company is regarded as the test of associated company status and control means a holding, or aggregate holdings, of shares carrying 30 per cent. or more of the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting, irrespective of whether the holding or holdings gives de facto control; disclosure period means the period which began on 17 August 2005 and ending on 17 August 2006 (being the latest practicable date prior to the publication of this document); and securities means shares and securities convertible into, or rights to subscribe for, shares, options (including traded options) in respect thereof and derivatives referenced thereto relevant securities means Penna Consulting securities; dealing means: the acquisition or disposal of securities; the taking, granting, acquisition, disposal, entering into, closing out, termination, exercise (by Stephen Rowlinson) or variation of an option (including a traded option contract) in respect of any securities; subscribing or agreeing to subscribe for securities; the exercise or conversion, whether in respect of new or existing securities, or any securities carrying conversion or subscription rights; the acquisition of, disposal of, entering into, closing out, exercise (by Stephen Rowlinson) of any rights under, or variation of, a derivative referenced, directly or indirectly, to securities; entering into, terminating or varying the terms of any agreement to purchase or sell securities; and any other action resulting, or which may result, in an increase or decrease in the number of securities in which a person is interested or in respect of which he has a short position; a person has an interest in securities if he has a long economic exposure, whether absolute or conditional, to changes in the price of securities (but not if he only has a short position in such securities) and in particular if: he owns them; he has the right (whether conditional or absolute) to exercise or direct the exercise of the voting rights attaching to them or has general control of them; by virtue of any agreement to purchase, option or derivative he: (a) has the right or option to acquire them or call for their delivery; or 47

48 (b) is under an obligation to take delivery of them; whether the right, option or obligation is conditional or absolute and whether it is in the money or otherwise or he is party to any derivative: (a) whose value is determined by reference to the price; and (b) which results, or may result, in his having a long position in them. 5. Market Quotations The following table shows the closing price for an Existing Ordinary Share on the first dealing day of each month from 1 March 2006 (being six months prior to the date of this document) to 1 July 2006 and on 17 August 2006 (being the latest practicable date prior to the publication of this document): Closing price per Existing Ordinary Share Date (2006) (pence) 1 March April May June July August August Material Contracts A summary of each material contract, other than contracts entered into in the ordinary course of business, to which the Company or any member of the Group is a party for the two years immediately preceding the publication of this document or which contain a provision under which any member of the Group has any obligation which is material to the Group as at the date of this document are set out below. 6.1 Placing agreement between Bridgewell, the Directors and Penna Consulting dated 18 August 2006 The Placing Agreement is conditional, inter alia, upon the passing of the Resolutions, the Placing Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms and Admission occurring by 8.00 am on 10 October 2006 (or such later date as may be agreed between the Company and Bridgewell, not being later than 8.00 am on 20 October 2006). Under the Placing Agreement, Bridgewell conditionally agrees to use its reasonable endeavours to procure subscribers for the New Ordinary Shares. In consideration of its services in connection with the Placing, the Company will pay to Bridgewell a corporate finance fee of 150,000 together with all expenses incidental to the Placing. The Placing Agreement contains customary warranties given by the Company with respect to its business and certain matters connected with the Placing. In addition, the Company has given customary indemnities to Bridgewell in connection with the Placing and Bridgewell s performance of services in relation to the Placing. Bridgewell is entitled to terminate the Placing Agreement in specified circumstances prior to Admission principally if it comes to the knowledge of Bridgewell that any of the warranties was untrue or inaccurate or misleading in any material respect when made, any of the warranties have ceased to be true or accurate before Admission, as the case may be, the Company fails to comply in any material respect with any of its obligations under the Placing Agreement and has failed to comply within a reasonable time with any request made by Bridgewell or there is 48

49 any change in national or international financial, economic, political, military or market conditions or other events, which in the opinion of Bridgewell (acting in good faith) is likely to materially and adversely to affect the financial or trading position or prospects of the Group (as defined therein) or to have a materially prejudicial effect on the Placing or make the success of the Placing doubtful or makes it impracticable or inadvisable to proceed with the Placing. 6.2 Invoice Discounting/Term Loan Facilities On 4 July 2006 the Company entered into an invoice discounting agreement (and related documentation) with RBSIF. These agreements provide the Company with a 1 million secured invoice discounting facility for an initial period of 24 months (although either party can terminate early on 6 months notice). Under the invoice discounting agreement the Company is obliged to pay RBSIF a discounting charge of 1.5 per cent. above bank base rate, a service charge of 1,000 per month and an arrangement fee of 5,000. The invoice discounting agreement includes various warranties and undertakings from the Company, certain information that must be provided to RBSIF and specifies certain events following which the invoice discounting arrangements can be terminated. The invoice discounting arrangements are guaranteed by a corporate guarantee and indemnity from the Company and secured by a fixed floating charge over all the Company s assets. On 17 August 2006 the Company entered into a 2.25 million term loan facilities with RBS. The borrowers will be the Company and its UK subsidiaries facilities will have the benefit of the existing security granted to RBS in connection with the existing 4.25 million overdraft facility. The term loan facilities may be used for general corporate purposes and to repay existing borrowings under the historic 4.25 million overdraft facility. The term loan facilities will be repayable on 30 June 2008 and will be available for drawing up to and including the week falling one week prior to such date. A margin of 1.5 per cent. over LIBOR and mandatory costs will be payable. An arrangement fee of 56,250 (together with fees outstanding to RBS prior to the date of the facility agreement) will be payable on the date the term loan facilities are drawn. The facility agreement evidencing the term loan facilities will contain commercial terms typical for a facility of this nature including representations and warranties, financial covenants, information undertakings, general undertakings and events of default. RBS may request immediate repayment of the term loan by the Company if the Placing does not proceed for any reason or if Stephen Rowlinsons additional loan of 724,873 is not received by the Company by 1 September The term loan facility is conditional upon an initial deposit of 1.2 million by Stephen Rowlinson (which has already been made) and on receipt of confirmation from the Company committing to a capital raising by 16 October 2006 of a minimum amount of 4 million. 7. Directors Service Contracts 7.1 Letter of appointment as a non-executive director from (1) the Company to (2) David Banks dated 25 June 1998 The services of David Banks as a non-executive director are provided under the terms of a letter of agreement dated 25 June 2001 for an annual fee of 15,000. David Banks is required to attend meetings of the main board of the Company whenever possible. The appointment is subject to re-election at each annual general meeting. 7.2 Letter of Appointment as a non-executive director from (1) the Company to (2) Richard Stillwell dated 23 October 2001 The services of Richard Stillwell as a non-executive director are provided under the terms of a letter of agreement dated 23 October 2001 for an annual fee of 49

50 15,000. Richard Stillwell is required to attend board meetings of the Company, Remuneration Committee meetings and Audit Committee meetings. The appointment is reviewed annually. 7.3 Service Agreement between (1) the Company and (2) Gary Browning dated 21 February 2005 The services of Gary Browning as chief executive officer are provided under terms of a service contract dated 21 February The agreement provides for a rate of remuneration of 175,000 per annum, membership of a private medical scheme, permanent health insurance, life assurance cover, membership of the Company s share option scheme and participation in the Company s bonus and pension schemes. At the discretion of the Board, Gary Browning is entitled to receive a bonus of up to 100 per cent. of his total remuneration. It can be terminated by one year s written notice by either party. If the Company gives notice to terminate the service contract within six months of a change of control, the employment will terminate immediately and the Company is obliged to pay 150 per cent. of annual remuneration applicable at the termination date. If the Company does not give notice to terminate within this six month period and within 14 days from the end of the period Gary Browning gives the Company three months written notice to terminate the service contract, Gary Browning is entitled to receive the same amounts from the Company. 7.4 Service Agreement between (1) the Company and (2) David Firth dated 14 February 2003 The services of David Firth as finance director are provided under the terms of a service agreement dated 14 February The agreement provides for membership of a private medical scheme, permanent health insurance, life assurance cover, membership of the Company s share option scheme and participation in the Company s bonus and pension schemes. The total fixed remuneration for the current financial year is 160,000, including a notional salary of 129,477 and company benefits. At the discretion of the Board, David Firth is entitled to receive a bonus of up to 50 per cent. of the total remuneration. Payment of the bonus is subject to the performance targets and criteria determined by the Remuneration Committee. It can be terminated by one year s written notice by either party. Alternatively, the Company may elect to terminate the agreement with immediate effect by written notice and paying David Firth 85 per cent. of the total remuneration. If the Company gives notice to terminate the service contract within six months of a change of control, the employment will terminate immediately and the Company is obliged to pay 12 months total remuneration and an amount in lieu of the target bonus for the relevant financial year. If the Company does not give a notice to terminate in this period and, within 14 days from the end of the period, David Firth gives the Company three months written notice to terminate the service contract, David Firth is entitled to receive the same amounts from the Company. 7.5 Appointment of Sir James Harvie Watt as a non-executive director There is no formal written agreement providing for the appointment of Sir James Harvie Watt as a non-executive director. Sir James Harvie Watt is required to attend board meetings of the Company, Remuneration Committee meetings and Audit Committee meetings for an annual fee of 15,000. The appointment is reviewed annually. 7.6 Appointment of Stephen Rowlinson as a non-executive director and chairman There is no formal written agreement providing for the appointment of Stephen Rowlinson as a non-executive director and chairman of the Company. Stephen 50

51 Rowlinson is required to attend board meetings of the Company, for an annual fee of 21,960. The appointment is reviewed annually. 7.7 No Director service contracts have been entered into, or amended, within the six months of the date of this document. 7.8 Save as otherwise detailed in this paragraph 7, there are no arrangements in place for the providing of any benefits upon termination of the appointment or employment of the Directors. 8. Information on Stephen Rowlinson Stephen Rowlinson (aged 66) is currently Chairman of Penna Consulting, being appointed to the position in February 2005 after joining the board in December He has many years of experience of the human capital management sector from his work with McKinsey & Company, Korn/Ferry International, Bartlett Scott Edgar Limited (now Monster Worldwide) and during his time as Chief Executive of Penna Consulting, Sanders & Sidney in the early 1990 s. 9. General 9.1 Bridgewell has given and not withdrawn its written consent to the issue of this document with the inclusion herein of the reference to its name in the form and context in which they are included. 9.2 There are no agreements, arrangements or understandings (including compensation arrangements) which exist between Stephen Rowlinson and any of the Directors, recent directors, shareholders or recent shareholders of Penna Consulting, or any person interested in, or recently interested in shares of Penna Consulting, having any connection with or dependence upon the Rule 9 Offer. 9.3 There are no agreements, arrangements or understandings which exist between Stephen Rowlinson and any other person to transfer New Ordinary Shares acquired by Stephen Rowlinson in the Placing to any person. 9.4 The only related party transaction that the Company has entered into during the period covered by financial information for 2003, 2004 and 2005 and up to the date of this document, was the unsecured loan from Stephen Rowlinson of 1.2 million in June Other than as disclosed in paragraph 6.2 above, there are no financing arrangements in place in connection with the offer. 9.6 Following the Placing, Cancellation and Admission the Directors intend to maintain the Company s current strategic plan. The Directors believe that there will be no repercussions on current employment, location of business or deployment of fixed assets. The long term justifications for the Placing, Cancellation and Admission are outlined in paragraphs 2 and 6 of Part I. 10. Documents available for Inspection Copies of the following documents will be available for inspection at the offices of Eversheds LLP at Senator House, 85 Queen Victoria Street, London EC4V 4JL during normal business hours on any day (Saturdays, Sundays and public holidays excepted) until the date of Admission: 10.1 this document; 10.2 the memorandum and articles of association of Penna Consulting; 10.3 the audited financial statements of Penna Consulting for the periods ended 31 March 2004 and 31 December 2005; 10.4 the material contracts referred to in paragraph 7 above; 10.5 the service and other contracts of the Directors referred to in paragraph 8 above; and 10.6 the written consent of Bridgewell to the inclusion in this document of its name in the form and context in which it appears. 51

52 NOTICE OF EXTRAORDINARY GENERAL MEETING PENNA CONSULTING PLC (incorporated and registered in England and Wales registered no ) Notice is hereby given that an Extraordinary General Meeting of Penna Consulting plc (the Company ) will be held at a.m. on 11 September 2006 (or so soon thereafter as the extraordinary general meeting convened to be held at a.m. on such day shall have concluded or been adjourned) at 1st Floor, 55 Gracechurch Street, London EC3R 0EE for the purposes of considering, and if thought fit, passing the following resolutions of which resolution 1 will be proposed as a special resolution and resolution 2 will be proposed as an ordinary resolution and taken on a poll: SPECIAL RESOLUTION 1. THAT conditional upon Admission (as defined in the circular to shareholders of the Company dated 18 August 2006 to which the notice of this meeting was attached) (the Circular ): 1.1 the authorised share capital of the Company be increased from 1,300,000 to 1,500,000 through the creation of 4,000,000 ordinary shares of 5 pence each in the capital of the Company; 1.2 the Directors be and they are hereby generally and unconditionally authorised for the purposes of section 80 of the Companies Act 1985 ( Companies Act ) to exercise all the powers of the Company to allot relevant securities (as defined in section 80(2) of the Companies Act) (in substitution for any existing authority to allot relevant securities) up to a maximum of 285, in connection with the placing of and subscription for 5,714,286 new ordinary shares of 5 pence each pursuant to the Placing as defined in the Circular provided that such authority shall expire at the conclusion of the Annual General Meeting of the Company in September 2006, but so that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry, and the directors may allot relevant securities in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired; 1.3 the Directors be and they are hereby empowered, pursuant to section 95 of the Companies Act, to allot equity securities (within the meaning of section 94 Companies Act) up to a maximum of 285, (in substitution for any existing authority to allot equity securities) for cash pursuant to the authority given by the said resolution 1.1 as if section 89(1) of the Companies Act did not apply to any such allotments, provided that: (i) this power shall be limited to the allotment of equity securities for the purposes of the Placing; and (ii) such power shall expire at the conclusion of the Annual General Meeting of the Company in September 2006, but so that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry, and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred by this resolution had not expired; 1.4 the terms of the Placing at the issue price per ordinary share of 70 pence (representing a discount of per cent. to the closing price for an Existing Ordinary Share (as defined in the Circular) on 17 August (being the latest practicable date prior to the publication of the Circular) be and are hereby approved pursuant to paragraph of the Listing Rules (as defined in the Circular); 1.5 the cancellation of the issued ordinary shares of 5 pence each in the capital of the Company to the Official List of the Financial Services Authority (acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 (as amended)) (the UKLA ) be and is hereby approved and that the directors be and are hereby authorised and directed to make application to the UKLA and to do all acts and things which they consider necessary or expedient to effect such cancellation; and 52

53 1.6 the subscription for 218,009 New Ordinary Shares (as defined in the Circular) by David Banks at 70 pence per New Ordinary Share be and is hereby approved; 1.7 the subscription for 2,921 New Ordinary Shares (as defined in the Circular) by Gary Browning at 70 pence per New Ordinary Share be and is hereby approved; 1.8 the subscription for 1,460 New Ordinary Shares (as defined in the Circular) by David Firth at 70 pence per New Ordinary Share be and is hereby approved; 1.9 the subscription for 2,749,818 New Ordinary Shares (as defined in the Circular) by Stephen Rowlinson at 70 pence per New Ordinary Share including the capitalisation of the unsecured loan of 1.2 million from Stephen Rowlinson and the capitalisation of the additional unsecured loan of 724,873 to be made by Stephen Rowlinson on or prior to 1 September 2006 by the allotment of New Ordinary Shares at the Issue Price (as defined in the Circular) be and is hereby approved; and 1.10 the subscription for 956,365 New Ordinary Shares (as defined in the Circular) by Jeremy Hosking at 70 pence per New Ordinary Share be and is hereby approved. ORDINARY RESOLUTION 2. THAT, conditional upon the passing of resolution 1 above, the waiver by The Panel of Takeovers and Mergers of any obligation which might otherwise fall on Stephen Rowlinson to make a general offer to the shareholders of the Company under rule 9 of the City Code on Takeovers and Mergers as a result of the placing described in the Circular be approved. Dated: 18 August 2006 Registered Office: 3rd Floor St Mary s Court 20 St Mary at Hill London EC3R 8EE By Order of the Board, David Firth Company Secretary Notes: 1. A proxy need not be a member of the Company. A member may appoint a proxy of his own choice. If such an appointment is made, delete the words the chairman of the Meeting and insert the name of the person appointed proxy in the space provided. The chairman of the Meeting will act as your proxy whether or not such deletion is made, if no other name is inserted. 2. Unless otherwise instructed, your proxy may vote or abstain on the resolutions, and in respect of any other business which may properly be conducted at the Meeting including (without limitation) any resolution to adjourn the meeting or to amend a resolution, at his discretion. 3. In the case of joint holders, the signature of any one holder will be sufficient, but the names of the joint holders should be stated. The vote of the senior joint holder (according to the order in which the names stand in the register in respect of the holding) who tenders a vote in person or by proxy shall be accepted to the exclusion of the vote of the other joint holder(s). 4. In the case of an individual, the form or proxy must be signed by the appointor or his/her attorney. In the case of a corporation this form should be executed under its common seal or signed on its behalf by an attorney or duly authorised officer of the corporation. 5. To be valid, a completed and signed proxy form, together with any letter or power of attorney under which it is signed or a duly certified copy thereof, must be lodged at Capita Registrars, PO Box 25, Beckenham, Kent BR3 4BR not later than 48 hours before the time appointed for the holding of the Meeting or the adjourned Meeting. 6. Completion and return of this form of proxy will not preclude a member from attending and voting at the Meeting or any adjourned Meeting in person. 7. Every holder of ordinary shares present in person is entitled, on a show of hands, to one vote and on a poll to one votes for each fully paid share of which he is a holder. Every holder of ordinary shares present by proxy is entitled to vote on a poll only and shall be entitled to one vote for each fully paid up share which he represents. 8. Any alteration to the proxy form should be initialled. 9. If two or more valid forms of proxy are delivered in respect of the same share, the one which was delivered last (regardless of its date or the date of its execution) will be valid. 53

54 Millnet Financial ( )