Frustrated shareholders looking to play the blame game and even little Trumpo gets a mention.

Dear Fellow Shareholder.

Prestbury Holdings PLC

General meeting; 10.a.m. (or as soon as the AGM of the company called for that date shall have been concluded or adjourned) on 20th August 2008 at Barrington House, Heyes Lane, Alderley Edge, Cheshire, SK9 7LA

Re: Extraordinary General Meeting called by;

Armadillo Investments Ltd – 5,000,000 Shares (16.5% of the issued share capital)

Armadillo Investments Ltd is currently subject to a
Members Voluntary Liquidation

Arlington Special Situations Fund Ltd – 1,733,333 shares (5.7% of the issued share capital)

The above shareholders have called for a General Meeting which has been convened for 10 a.m. on 20 August 2008 at which the following resolutions will be put to shareholders.

That Lee James Birkett (Your CEO) and Lynne Patricia Birkett (Your Finance Director) be removed as Directors of the company.

Shareholders holding 44% of the entire issued share capital of the company have irrevocably undertaken to vote against the resolution. Major shareholders listed below.

Lee Birkett (Your CEO)             8,089,994 shares (26.7% of the issued share capital)
Stephen Keenan (Ex Director) 2,881,230 shares  (9.5% of the issued share capital)
Kevin Sample                             1,021,575 shares  (3.4% of the issued share capital)
(Your Sales Director)
Employee Benefit Trust            1,222,500 shares  (4% of the issued share capital)

Legal advice taken before voting the EBT shares with the company lawyer in regards to the EGM.  

It is important to note that your recent board appointed and FSA authorised Compliance Director - Maggie Cresswell, is also not in agreement with the requisition and resolution proposed.

This letter sets out the reason why we believe shareholders should VOTE AGAINST the resolution.

May I first of all say how shocked I was to receive calls from shareholders regarding the letter sent to you all on the 06th August, I was completely unaware of its existence and the content has understandably caused great concern to all at Prestbury and hence my immediate response.

The letter carries many inaccuracies and normal fair and reasonable protocol has not been shown to Lynne Birkett and I, to provide fair and reasonable representation for your consideration. I sincerely hope this letter finds you well and you are able to make an informed decision when voting at the EGM. I have attached a further Proxy if you so require to be sent to Capita Registrars.

May I first of all re-affirm my commitment to Prestbury Holdings PLC and you all as shareholders. As the largest shareholder and co-founder of the business since 1993 I vigorously object to the content and the tone of the letter.

Value Destruction?

Your Chairman reported to you in his statement 19 July 2007;
“This has again been a challenging period, with an industry still adjusting to the fluctuating requirements of regulation. It is good to be able to report that Prestbury has grown its gross profit and increased its gross margin. With a strengthened balance sheet following the placing in January 2007, Prestbury can look to the future with confidence. Prestbury is fortunate to have as its CEO one of the sector’s more far-seeing leaders, whose vision of where the industry needs to go has generally been vindicated. Lee Birkett leads a terrific team and I am confident the Prestbury is well-placed for the future”

Approximately 4 weeks after this statement the Credit Crunch took hold of our industry. The same, albeit smaller team are still terrific twelve months on and I thank them all for their loyal support. I take great exception to the statements in the letter you received, all parties in Prestbury are going beyond the call of duty.

It is a slight on all of the Executives and many years of hard work, and we take great exception to the inference that we dealt with the credit crunch without the “necessary business skills”. Every effort has always been to enhance value by the Prestbury team, not destroy it. After all we are the largest shareholders and are one of the most experienced teams in the industry!

Your Executives proposed to retain value in January 2008 of around 20p a share, as we had the foresight “Again” to see that the Credit Crunch was going to get worse. To protect the value within the business and to preserve value and save unaffordable costs we proposed to take the company private. This needed the independent directors support along with comfort that we would have more than 75% in favour of the de-list. We were led to believe that certain shareholders with a blocking number of shares i.e. up to 25%, would not support a paper bid to take the company private. We have since incurred approximately £100,000 in fees while remaining quoted.

Conflicts of Interest?

The PIM relationship is not of dubious benefit to the shareholders, it has been of huge benefit.

In July 05, Prestbury was losing approximately £50,000 per month as can be seen in our interim results. If PIM was not immediately transferred out of the PLC business, we would have breached our FSA capital adequacy ratios, as we would have continued as a loss making business and this was not sustainable. This transaction was managed with the full co-operation of all nominated advisers, company lawyers and the FSA. PIM has to this day provided services to Prestbury’s clients and we have a duty to ensure all Prestbury customers are treated fairly, and PIM is a required function of this.

Steve Keenan and I accepted that in the interests of the company we would take the overhead risk of this loss making business, to save the company and bring PLC into profit, hence the purchase price of PIM for £1. It is no coincidence that the overhead reduction for the year following the PIM disposal was approx £420,000, we absorbed the associated overheads for more than 2 years in PIM, which naturally led to the build up of the fully disclosed related party loan of £853,483. The board have made a full provision for the entire amount, as the activities of PIM and its American sub prime lenders have seen an 80% downturn since the credit crunch and it is prudent that this sub prime debt should be provided for.

It should also be noted that Steve Keenan and Lee Birkett took payment in lieu of remuneration in year end 2006 and 2007, and this is what the “additional monies” your letter refers to in the sum of £224,000. This naturally reduced the liabilities to PLC and was signed of by our auditors and board accordingly.

As a result of the full provision, PIM has approved a 100% purchase option to PLC for a £1, which is an extension of the embarrassment clause granted in July 2005 when PIM was taken out. So no conflict exists.

Trumpo Ltd.

Trumpo is a media business owned by myself and one other Director, it is operated and run full time by the other Director in another County. It is a sanctioned and board approved related party business since 2006. Trumpo has been disclosed in the accounts in the normal manner as a related party business, and provides value added services at normal market value to Prestbury advisers, and has been assessed by all non related directors and auditors as non conflicting.

Corporate Governance.

I am at a loss as to who the shareholders would propose to run the business and take on the challenging associated FSA controlling functions and personal responsibilities if their resolution were to be successful.

When the requisition for the EGM was received, Your CEO and Compliance Director naturally notified the Financial Services Authority, as the business does not function without these two critical roles. We of course advised that the requisition had been received, and made them aware that nobody else had been proposed to take on the F.D or CEO roles.

You need to be aware that the FSA have up to 3 months to consider the suitability of any candidate to take on these full time roles. We are in continual positive dialogue with the FSA and have confirmed to them that we will continue to honour our controlling function obligations and will not, as is our duty, take any steps that would lead to customers being disadvantaged.

I can confirm that your Non Executives, as part time, are not in a position to carry out these full time controlling function duties, which are required to run your business. This has lead to our objection of their completely unworkable proposal in this ever changing regulatory environment of the company being controlled by part time directors.
I am sure you can now understand why, from a regulatory perspective, why we as FSA controlling function Directors, objected to the Non Executives proposal to bring two further independent directors to form an independent and part time majority which would control your business.

We are not challenging or ignoring Corporate Governance, which has been alluded to in the letter you have received, quite the opposite, we are demonstrating our knowledge of treating customers fairly (TCF), the recent directive from the FSA. A solid demonstration of the Executives desire for improved Corporate Governance was the Executives insistence on the appointment of a qualified Compliance Director to the board to improve the knowledge, part time executives are not sufficiently informed on the fast changing regulatory framework – which is changing by the day.

The FSA requirement is that all Board Directors, including Non Executives, understand and implement the principles of TCF, and the directive is to be fully embraced by all parties from board level down.

Remuneration Levels.

The Prestbury remuneration committee is Chaired by your company Chairman Mr Maude and I have accepted a reducing level of remuneration proposed by the board for the next twelve months, I am currently waiting for this to be signed by one of the independent Directors.
 
Mrs Birkett as Finance Director has received a salary of £60,000, which I might add is way below here peers and without increase since 2003.

Conclusion.

Your company and the industry is currently at an extremely critical time, and your business is all about the people within it. We have a small loyal team and all at Prestbury are working night and day to weather this terrible storm. Your Executives have just spent the last two weeks touring the country rallying the adviser base and their loyalty to us humbling. Prestbury is nothing without it’s adviser base and I apologise to them that their Network has had to endure this public requisition.

I must also personally apologise to you as your CEO; the deliverance of separate representations would make anybody understandably nervous, and I give you my personal assurance to fight on to deliver shareholder value for ALL.

We urge you to VOTE AGAINST the resolution to remove your CEO and Finance Director for the reasons listed above.

Please feel free if you have any questions to email me @ lee.birkett@prestbury.com; I am travelling the country again this week seeing your advisers, so will be in and out of meetings and will come back to you at the earliest opportunity
Yours sincerely
Lee Birkett
CEO

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