Capital Reorganisation

Pennant International Group PLC
11 February 2002



            CAPITAL REORGANISATION AND PLACING AND OPEN OFFER



Introduction



Pennant International Group plc is pleased to announce that it is proposing to
raise up to £1,648,100 (net of expenses) by means of a Placing and Open Offer of
up to 20,090,000 New Ordinary Shares at 9p per share.  Qualifying Shareholders
are invited to subscribe for New Ordinary Shares under the Open Offer on the
basis of 2.5 Open Offer Shares for every 1 Existing Ordinary Share held.



Background to and reasons for the Placing and Open Offer



As was stated in the Interim Report released on 28 September 2001 the first half
results were adversely affected by two significant factors.  First was the
on-going delays in the receipt of anticipated contract awards in Software
Services and Training Systems, which are estimated to have resulted in a
contribution loss of £475,000 in the period.  The second was the delayed
completion and delivery of a major Training Systems contract, which had resulted
in significant additional costs and a £500,000 loss provision to cover the
period to full acceptance.



It was expected when the Interim Report was published that a number of delayed
contract awards might have been received in the fourth quarter.  However, on 11
October 2001 the Company announced that, due to deteriorating world conditions,
the Group was anticipating further delays.  These delays combined with the
approaching completion of certain major contracts have led to an orders gap in
early 2002.



As a result of the above, Group results for the year ended 31 December 2001 are
expected to show a significant loss in line with market expectations.



The delay in the award of new orders means that the Group requires additional
working capital in order to bridge the orders gap.  The Group's bankers remain
supportive and have recently confirmed new enhanced facilities, conditional upon
the Placing and Open Offer proceeding, to include a loan to finance the purchase
of the Southampton property currently leased and occupied by Pennant Information
Services Limited.  To generate the necessary headroom in funding to support
future trading the Directors have decided to raise additional equity capital
through the Placing and Open Offer.  Of the gross £1.8 million being sought at
least £545,000 will come from the Directors themselves.



In the event that shareholders' approval is not obtained the Placing and Open
Offer will not proceed.  In such circumstances the Directors would be forced to
consider alternative courses of action.  These might include:



(i)             a sale of all or part of the Group's businesses; and

(ii)            the further rationalisation of the Group's operations in order
                to achieve additional cost savings.



The Directors believe that at present neither of these actions would be in the
best interests of shareholders as a whole.  In the current circumstances the
Directors believe it would be difficult to obtain valuations for the whole or
part of the business that would adequately reflect their true values while to
make significant cost savings over and above those already made would, the
Directors believe, adversely affect the Group's ability to tender competitively
for new work.



The Placing and Open Offer



The Open Offer is being made by Rowan Dartington on behalf of the Company.
Under the Open Offer 20,090,000 New Ordinary Shares are being offered to
Qualifying Shareholders at 9p per share, payable in full on application, on the
following basis:



   2.5 Open Offer Shares                 for every 1 Existing Ordinary Share



held at the close of business on the Record Date rounded down to the nearest
whole number of Open Offer Shares.



Rowan Dartington, as agent for the Company, has placed 18,466,666 Open Offer
Shares, subject to recall to the extent required to satisfy valid applications
under the Open Offer, with certain new investors and certain existing
shareholders.  Under this arrangement the Company is accordingly certain
(subject to the Placing Agreement becoming unconditional) that it will raise not
less than £1,662,000, before expenses.




Shareholders should be aware that the Open Offer is not a rights issue and that
new Ordinary Shares not applied for under the Open Offer will not be sold in the
market for the benefit of those who do not apply under the Open Offer but will
either form part of the Placing or will not be issued.



Qualifying shareholders wishing to participate in the Open Offer are notified
that it closes at 3 p.m. on 4 March 2002 and that the application form, together
with the remittance for payment in full in respect of the New Ordinary Shares
applied for, must be returned by that time.  Shareholders should note that
application forms are personal to shareholders and may not be transferred except
to satisfy bona fide market claims.



Shareholders should note that definitive share certificates in respect of the
new Ordinary Shares are expected to be despatched by 22 March 2002.



The Placing and Open Offer are conditional, inter alia, upon the granting of the
necessary authority and power to the Board to allot shares which is being sought
at an Extraordinary General Meeting to be held on 6 March 2002.  The Open Offer
Shares will rank pari passu in all respects with the New Ordinary Shares which
result from the Capital Reorganisation, including entitlements to all dividends
declared, made or paid hereafter.



Capital Reorganisation



The Offer Price of 9p per Open Offer Share is below the nominal value of the
Existing Ordinary Shares which is 20p per share.  Under the Act the Company is
not permitted to issue ordinary shares at less than their nominal value.
Therefore, in order to enable the Placing and Open Offer to proceed it is
necessary first to carry out a capital reorganisation.  It is proposed that each
Existing Ordinary Share of 20p should be subdivided into one New Ordinary Share
of 5p and one New Deferred Share of 15p.



In order to avoid the Company having two classes of deferred shares it is
proposed that the Existing Deferred Shares will be subdivided by every fifteen
Existing Deferred Shares being subdivided into one hundred Deferred Shares of
15p each.



The New Deferred Shares will rank pari passu in all respects with the Existing
Deferred Shares, as subdivided.  The resolution to be proposed at the
Extraordinary General Meeting will alter the Company's articles of association
by adopting a new article setting out the rights attaching to the New Deferred
Shares and the Existing Deferred Shares, as subdivided, as a single class.  The
rights attaching to the New Deferred Shares will have little, or no, economic
value and the Board does not intend to issue certificates to shareholders in
respect of the New Deferred Shares.



The New Ordinary Shares will have the same rights (including voting and dividend
rights and rights on a return of capital) as the Existing Ordinary Shares.
Following the subdivision of the Existing Ordinary Shares your existing
certificates for ordinary shares of 20p each will remain valid and will be
deemed to represent the same number of New Ordinary Shares of 5p each.



Directors' intentions



The Directors, other than Mr Powell, have applied in the Placing for an
aggregate of 499,999 Open Offer Shares with a value of £45,000.



Mr Powell wishes to participate in the fundraising but, wishes the proportions
of subscriptions by him, members of his immediate family and pension funds
established for his and his wife's benefit ('Mr Powell's Connected Persons') to
differ from the proportions in which his current shares are held.  For that
reason, Mr Powell's Connected Persons are participating in the Placing and have
given a commitment to take up to 5,555,556 New Ordinary Shares with a value of
£500,000 in the Placing.



The Placing commitment of Mr Powell's Connected Persons is however subject to
recall to the extent required to satisfy valid applications under the Open
Offer.  The commitment of Mr Powell's Connected Persons will be subject to
recall ahead of the commitments of other placees.  Depending on the level of
take-up of the Open Offer, the shareholdings of Mr Powell and persons connected
with him will be diluted.  In consequence, the Company is seeking at the
Extraordinary General Meeting, the authority to issue further New Ordinary
Shares at the Offer Price to Mr Powell's Connected Persons in order to allow the
current percentage holding in the Company of Mr Powell and persons connected
with him to be maintained.  If utilised, this authority will result in an
increase in the gross proceeds received by the Company.




Employee placing



Following the publication of a prospectus to shareholders expected to be posted
today, the Directors intend to utilise the Company's existing Section 89
authority to allot shares for cash free from pre-emption rights in favour of
existing shareholders, obtained at the annual general meeting held on 8 June
2001, to offer for subscription to employees up to 401,800 New Ordinary Shares
at 9p per share.  If fully subscribed this placing would raise an additional
gross £36,162 for the Company over and above the proceeds of the Placing and
Open Offer.



Current trading and prospects



Since the release of the trading statement on 11 October 2001 the following key
events have occurred:



Training Systems:

•          The third and fourth Generic Flying Control Trainers were delivered
to site and a major payment milestone was achieved.  A training course for
instructors was also successfully completed. All four units are expected to
enter training use in 2002 and final acceptance is now scheduled for mid-2002
following the Reliability, Maintainability and Testability phase.

•          The Lynx Mk 7/9 helicopter Cockpit Procedures Trainer and Computer
Based Training courseware, under contract to Thales Training & Simulation, were
delivered to site and final acceptance is scheduled for the second quarter of
2002.

•          Training Systems was selected as preferred supplier for a Lynx
Mechanical and Weapons Trainer and an Avionics and Electrical Systems Emulator
by Westland Helicopters Limited, an Augusta Westland company, for Royal Air
Force of Oman new buy of Lynx 300 helicopters.  The prime contract has been
awarded to Westland Helicopters Limited and current expectations are that the
contract award to Pennant Training Systems will occur in the first quarter of
2002.  These two programmes have a combined value in excess of £2.5 million over
a two-year period of work.

•          BAE SYSTEMS selected Training Systems as preferred supplier for the
South African Air Force Hawk Lead-In Fighter programme Computer Based Training
and Virtual Aircraft Training Systems ('CBT&VATS').  Following a period of
analysis and detailed product specification a full contract award is forecast
for the second half of 2002.  This programme has potentially a significant value
and follows on from two similar Hawk CBT&VATS programmes including that for the
Royal Australian Air Force that is in the final stages of delivery and
acceptance.

•          Further to the Training Management Information System ('TMIS')
ordered by Thales Training & Simulation for the Tornado GR4 PFI programme a
second TMIS was ordered for their Lynx Aircrew Training PFI programme.   Stage
one software has been delivered for both programmes with final stage two
software development and installation scheduled for completion during the first
half of 2002.



Software Services:

•         A major scheduled milestone was achieved in Canada on the Department
of National Defence programme.

•         The specification of requirement for the Australian Defence Force
software upgrade programme was completed in December 2001.  It was released for
final pricing in January 2002 to be followed immediately by detailed
negotiations and with contract award forecast for first quarter of 2002.

•         In December 2001 Strachan & Henshaw, an existing user of Pennant's
OmegaPS supportability engineering software product, became launch customer for
new products announced earlier in the year, OmegaPS'Publisher' and
OmegaPS'Analyzer'.



Data Services:

•         Based on preparatory work in the final quarter of 2001 Data Services
has in January 2002 been awarded contracts by existing customers and also been
selected as preferred supplier by a new customer for significant technical
publications work scheduled for the current year.



In looking ahead to 2002 and 2003 the Board has taken a conservative view of
sales prospects and budget going forward is based on firm orders and core
business, including medium to long term maintenance and support contracts for
Software Services and Training Systems, core business for Data Services and new
business prospects at the low end of expectations. This approach has been
adopted against a backdrop of increased prospects arising from 2001 potential
business carried forward and added to prospects for 2002.  Furthermore, the
forecast new business for 2002 and 2003 includes a significant element of sales
for which Training Systems and Software Services have already been selected as
preferred supplier subject only to contract award.




A broadening of Training Systems' customer base and business potential is being
seen with an increased level of enquiries for helicopter training systems.   As
mentioned above Training Systems has been selected by Westland Helicopters
Limited as preferred supplier for two training systems for helicopters.
Additionally, discussions have taken place with Atlantis Systems Corporation of
Canada relating to collaboration and work-share for a helicopter training system
for which they have been selected as preferred supplier and are forecasting
contract awards in the first quarter of 2002 and for other helicopter training
systems opportunities in the near term.   This growth in helicopter business is
a welcome development that builds on the company's already established Hawk
training systems business.



Deliberately not included in the Board's budget are a number of major tenders
pending that could, if Pennant is successful, transform the projections on which
the Board's budget is based.  Training Systems in particular, with its high
operational gearing, has the potential to generate significant profits once past
the break-even position.



The markets in which the Group operates, particularly defence and aerospace,
have significant potential requirements for its products and services.  Whilst
there have been delays in inviting tenders for new business and in the award of
contracts there is virtually no evidence of these requirements being cancelled.
Pennant companies have been working diligently and are well positioned to secure
new business from this pool of prospects as on-going delays come to an end.  The
Directors believe that the effects of these delays will impact on the Group's
performance in the first half of 2002 but expect the Group to be operating
profitably again from the third quarter.  The exceptional circumstances
experienced in 2001 are unlikely to be repeated and this gives your Board
confidence in the Group's future performance.



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