Proposed Merger


 
TIDMPND 
 
JOINT ANNOUNCEMENT 
PENNINE AIM VCT PLC 
PENNINE DOWNING AIM VCT 2 PLC 
 
PROPOSED MERGER 
 
7 April 2010 
 
RECOMMENDED  PROPOSALS  FOR  A  MERGER  ("Merger")  BETWEEN  PENNINE AIM VCT PLC 
("Pennine 1" or "the  Company") AND PENNINE DOWNING AIM VCT 2 PLC ("PDA2") TO BE 
COMPLETED  BY  PLACING  PDA2  INTO  MEMBERS'  VOLUNTARY  LIQUIDATION PURSUANT TO 
SECTION  110 OF THE INSOLVENCY ACT 1986 AND THE TRANSFER BY PDA2 OF ALL OF THEIR 
ASSETS  AND LIABILITIES TO PENNINE 1 CONSIDERATION FOR NEW ORDINARY SHARES OF 1 
PENCE  EACH IN  PENNINE 1 ("NEW  PENNINE 1 SHARES")  AND THE CANCELLATION OF THE 
LISTING  OF THE ORDINARY SHARES OF PDA2 AND AN OFFER FOR SUBSCRIPTION BY PENNINE 
1 TO RAISE UP TO  GBP15M 
 
SUMMARY 
The  boards of  Pennine 1 and  PDA2 announced  on 30 November 2009 that they had 
agreed,  in principle and subject to shareholder approval, terms with each other 
with  a view to merging the companies together to create one larger entity.  The 
board   of   PDA2  is  now  writing  to  its  shareholders  with  proposals  for 
consideration of the proposed merger ("the Scheme"). 
 
The  Scheme  will  be  effected  by  PDA2  being  placed into members' voluntary 
liquidation  pursuant  to  scheme  of  reconstruction  under  Section 110 of the 
Insolvency  Act  1986.  All  of  the  assets  and  liabilities  of  PDA2 will be 
transferred  to Pennine  1 in exchange  for New  Pennine 1 Shares (which will be 
issued  directly to the shareholders of PDA2). The merger will be completed on a 
relative net asset basis. 
 
The  effective date for the  transfer of the assets  and liabilities of PDA2 and 
the  issue of New Pennine 1 Shares pursuant to  the Schemes is expected to be 4 
May  April 2010 ("the Effective Date"), following  which the listing of the PDA2 
will be cancelled and PDA2 will be wound up. 
 
The  Scheme is  conditional, inter  alia, on  the approval  of resolutions to be 
proposed to shareholders of Pennine 1 and PDA2 at general meetings to be held on 
4 May  2010 (for Pennine  1 ("Pennine 1 GM")  and PDA2  ("PDA2 GM1")  and 12 May 
2010 (for   PDA2   ("PDA2  GM2")  and  dissent  not  having  been  expressed  by 
shareholders  of PDA2  holding more  than 5 per  cent. of  the issued PDA2 share 
capital. 
 
Along  with the  Merger proposals,  a number  of further  plans and proposals in 
respect  of Pennine  1 are set  out in  the documentation  sent to shareholders, 
which are summarised as follows: 
  * Adoption  of a revised investment policy  with a reduced focus on AIM-quoted 
    investments   and  appointment  of  Downing  Corporate  Finance  Limited  as 
    investment manager 
  * Change of name to "Downing Distribution VCT 2 plc" 
  * Consolidation  of Pennine 1 Shares  prior to completion  of the Schemes such 
    that the net asset value of each new Pennine 1 Share will be  GBP1.00. 
  * An  Offer for Subscription  in respect of  the tax year 2010/2011 seeking to 
    raise  up to  GBP15 million.   The Share Offer will  close for subscriptions on 
    30 June 2010. 
 
The  Pennine 1 D  Shares will  not be  within the  scope of  the Merger and will 
continue as a separate pool following completion of the Scheme. 
BACKGROUND 
The  Boards of each  of Pennine 1 and  PDA2 have been  reviewing options for the 
future of each VCT in view of the fact that each VCT is now quite small. 
 
The  Boards have now agreed proposals for the VCTs to merge to create one larger 
and more commercially viable fund and, at the same time, providing cost benefits 
to shareholders of each company. 
 
The key benefits of merging the three VCTs are as follows: 
  * the  creation of a single  VCT of a more  economically efficient size with a 
    greater  capital base  over which  to spread  administration, regulatory and 
    management  costs producing  a reduction in  the annual running costs of the 
    Enlarged  Company compared to the total annual running costs of the separate 
    companies; 
  * participation in a larger VCT which is able to build more significant stakes 
    in its investee companies; 
  * an  enhanced ability to  pay dividends and  the operation of  a strong share 
    buyback  policy due to the  increased size and the  reduced running costs of 
    the Enlarged Company; and 
  * an  increased flexibility in continuing to  meet the various requirements of 
    the VCT Rules. 
 
 
Shareholders  should note that the Mergers will be outside the provisions of the 
City Code on Takeovers and Mergers. 
 
EXPECTED TIMETABLE 
 
 Offer for Subscription open                      7 April 2010 
 
 Latest  time for  receipt of  forms of proxy for 2:30 pm on 30 April 2010 
 the General Meeting 
 
 Pennine 1 GM                                     2:30 pm on 30 April 2010 
 
 PDA2 GM1                                         2:45 pm on 30 April 2010 
 
 Record Date for the Share Consolidation          11 May 2010 
 
 Calculation Date                                 after 5.00 pm on 11 May 2010 
 
 PDA2 GM2                                         2:30 pm on 12 May 2010 
 
 Effective  Date for the  Share Consolidation and 12 May 2010 
 the  transfer of  the assets  and liabilities of 
 PDA2   to   the   Company   and   the  issue  of 
 Consideration Shares to PDA2 Shareholders* 
 
 Announcement of the results of the Schemes       12 May 2010 
 
 Admission  of and dealings in the New Shares (in 13 May 2010 
 respect  of the  Share Consolidation  and/or the 
 Schemes) to commence 
 
 CREST  accounts credited with the New Shares (in 13 May 2010 
 respect  of the  Share Consolidation  and/or the 
 Schemes) 
 
 Cancellation of the PDA2 Shares' listing         8.00 am on 13 May 2010 
 
 Certificates  for the New  Shares dispatched (in 19 May 2010 
 respect  of the  Share Consolidation  and/or the 
 Schemes) 
 
 Closing date for 20010/11 Offer for Subscription 30 June 2010 
 and allotment of shares 
 
 
(*this will, therefore, be the final expected date of trading of the ordinary 
shares of 5p each in the capital of the Company) 
 
BACKGROUND TO Pennine 1 AND PDA2 
Pennine   1 was   incorporated   in   January   1996 and,   during  1996, raised 
approximately   GBP4.4 million (after issue costs). During 2003, Pennine 1 raised a 
further   GBP5.9 million  (after issue  costs).  The  funds were  used to  build an 
investment  portfolio predominantly comprising  AIM-quoted investments.  In June 
2005, Pennine  1 acquired another VCT, Pennine AIM VCT II plc.  In 2007, Pennine 
1 raised a further  GBP2.7 million (net of issue costs) under a D Share issue. 
 
The  investments and other assets and liabilities of the Shares are managed as a 
separate  pool to those  of the D  Shares. The D  Share pool will continue to be 
managed separately after the proposed Merger. 
 
As  at 31 July 2009 (the date of Pennine 1's most recently published Half-Yearly 
Report),  Pennine  1's unaudited  NAV  was  39.5p per Share. Since incorporation 
Pennine 1 has paid a total of 88.05p per Share in dividends. 
 
PDA2  raised some  GBP12.5  million in 2001. In  2008, PDA2 acquired the assets and 
liabilities  of two other VCTs, Pennine Downing  AIM VCT plc and The Ethical AIM 
VCT  plc.   PDA2  now  holds  a  portfolio  comprising  investments  in some 39 
companies.  As at  31 August 2009 (the  date to  which the most recent unaudited 
half  yearly report on  PDA2 has been  drawn up), PDA2's  unaudited NAV was  GBP7.0 
million. As at 28 February 2010, the unaudited NAV of PDA2 was  GBP6.8 million. 
 
The  directors  of  each  of  Pennine  1 and  PDA2  have  considered the Board's 
requirements  following the proposed Merger. Nicholas  Lewis (who was a director 
of  Pennine 1 and PDA2) and Tony McGing (who was a director of PDA2) resigned as 
directors  of the respective  companies immediately prior  to the publication of 
the  documentation to avoid any potential  conflicts of interest.  Colin Macnab, 
John  Goldschmidt (directors of Pennine 1) and  Chad Murrin (a director of PDA2) 
have  agreed not to seek  a place on the  Board of the Enlarged Company.  Andrew 
Griffiths  and Andrew Davison,  both directors of  PDA2, will join  the Board on 
completion  of the  Scheme.  Michael  Cunningham (see  above) will also join the 
Board.   Following completion of  the Scheme, Hugh  Gillespie has agreed to step 
down as Chairman in favour of Andrew Griffiths. 
 
 
DOCUMENTS AND APPROVALS 
Pennine  1 shareholders will  also receive  a copy  of a  circular convening the 
Pennine  1 GM to be held on  4 May 2010 (together with the Pennine 1 prospectus) 
at  which  Pennine  1 shareholders  will  be  invited  to approve resolutions in 
connection  with the  Schemes, to  consolidate the  Company's share  capital, to 
authorise  the  directors  to  allot  shares,  to approve the acquisition of the 
assets  and liabilities of PDA2  pursuant to the Schemes,  to change the name of 
Pennine   1 to   "Downing  Distribution  VCT  2 plc",  to  amend  the  Company's 
 Investment  Policy, to adopt  new Articles of  Association, to cancel the share 
premium  account, to  cancel the  capital redemption  reserve and to renew share 
issue and share repurchase authorities. 
 
PDA2  shareholders will receive a circular convening the PDA2 GM1 on 4 May 2010 
and  PDA2 GM2 on  12 May 2010 (together with  the Pennine 1 prospectus) at which 
PDA2  shareholders will be invited to approve resolutions in connection with the 
Schemes. 
 
Copies  of the  prospectus and  the circulars  for Pennine  1 and PDA2 have been 
submitted  to  the  UK  Listing  Authority  and  will  be  shortly available for 
inspection  at the  UK Listing  Authority's Document  Viewing Facility  which is 
situated at: 
 
Financial Services Authority 
25 The North Colonnade 
Canary Wharf 
London E14 5HS 
Telephone: 0207 066 1000 
 
Company Secretary for Pennine 1 and PDA2 
Grant Whitehouse 
Telephone: 020 7416 7780 
 
Sponsor to Pennine 1 
Howard Kennedy 
Keith Lassman 
Telephone: 0207 636 1616 
 
The  directors and proposed director of  Pennine 1 accept responsibility for the 
information   relating   to  Pennine  1 and  its  directors  contained  in  this 
announcement.  To the best  of the knowledge  and belief of  such directors (who 
have taken all reasonable care to ensure that such is the case), the information 
relating  to Pennine  1 and its  directors contained  in this  announcement, for 
which  they are solely responsible, is in accordance with the facts and does not 
omit anything likely to affect the import of such information. 
 
The directors of PDA2 accept responsibility for the information relating to PDA2 
and  its directors contained in this announcement.  To the best of the knowledge 
and  belief of such directors (who have taken all reasonable care to ensure that 
such  is the case), the information relating to PDA2 and its directors contained 
in  this document, for which they are  solely responsible, is in accordance with 
the  facts  and  does  not  omit  anything  likely  to affect the import of such 
information. 
 
Howard  Kennedy, which is authorised and regulated  in the United Kingdom by the 
Financial Services Authority, is acting as sponsor for Pennine 1 and no-one else 
and  will not be responsible  to any other person  for providing the protections 
afforded  to customers  of Howard  Kennedy (subject  to the responsibilities and 
liabilities imposed by FSMA and the regulatory regime established thereunder) or 
for providing advice in relation to any matters referred to herein. 
 
 
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