Proposed Sale of Pst Shares in Portsmouth Community Football Club to the Tornante Company Llc

24th April 2017

PROPOSED SALE OF PST SHARES IN PORTSMOUTH COMMUNITY FOOTBALL CLUB TO THE TORNANTE COMPANY LLC.

INFORMATION PACK FOR PST MEMBERS

Registered Address Prepared by: The PST Board Fratton Park Frogmore Road Portsmouth Hampshire PO4 8RA

CONTENTS PAGE

Information Pack for PST members

Tornante Terms of Offer 5

PST Board Comments on the Terms of Offer and Tornante Responses 15

Advice Letter to PST Board from Gateley plc (PST Legal Advisors) 25

Presidents’ Advisory Board (Perspective on the Tornante offer) 33

PCFC Executive Statements 37

Key Points for Shareholders 39

Future Financial Forecasts 41

Stadium Strategy 47

Enclosed with Information Pack Letter to Community Shareholders and Members from the PST Chairman Ballot Paper Ballot Declaration Ballot Envelope Return Envelope

THE TORNANTE COMPANY LLC TERM SHEET (Non-binding and subject to contract)

ACQUISITION OF PORTSMOUTH COMMUNITY FOOTBALL CLUB LIMITED

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT

Acquisition of Portsmouth Community Football Club Limited

Term Sheet

This term sheet sets out certain key points in respect of the implementation of, and proposed terms for, the acquisition (the “Proposed Transaction”) of Portsmouth Community Football Club Limited (the “Club”) by a wholly owned subsidiary (the “Purchaser”) of The Tornante Company LLC (“Tornante”).

This term sheet is solely for discussion purposes only and does not constitute an intention, decision, offer, agreement, agreement to agree, or commitment to undertake the Proposed Transaction. No contract, agreement, obligation, commitment or liability with respect to the Proposed Transaction or any other transaction shall exist or be deemed to exist by virtue of this term sheet with respect to the Proposed Transaction or otherwise, unless and until the Purchaser and each Seller (as defined below) has completed negotiations and obtained corporate and other approvals and have executed and delivered definitive legal documentation to consummate the Proposed Transaction.

Part A: Background

1 Target • 100% of the issued and to be issued share capital of Portsmouth Community Football Club Limited.

2 Purchaser and • The Purchaser is expected to be an English limited company which is a source of funds wholly owned subsidiary of Tornante.

• The Purchaser will use its own cash resources to finance the Proposed Transaction and any payments to be made to the Club.

3 Sellers • Portsmouth Supporters Society Limited (known more generally as the “Pompey Supporters Trust”) (the “PST”) and the 16 other individual shareholders (the “Presidents”) as set forth in Annex A (each a “Seller” and together the “Sellers”).

• Each Seller will sell the number of shares in the Club that is set against their name in Annex A.

Part B: Transaction process

4 Stage 1 • The board of directors of the Club (the “Club Board”) agreed to enter into (reaching exclusive discussions with Tornante in respect of the Proposed exclusivity) Transaction on the basis of the terms described in this term sheet.

• Accordingly, on Wednesday 22 March 2017 an exclusivity agreement was entered into between Tornante and the Club granting Tornante a 70- day exclusivity period in relation to the implementation of the Proposed Transaction.

5 Stage 2 • All parties to negotiate in confidence and in good faith to agree the final (negotiation and terms of the Proposed Transaction on the basis of the terms described in PST approval) this term sheet.

• In particular:

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT • the Presidents represented in person on the Club Board will negotiate their position through the Club Board; and

• directors of the Club Board representing the Presidents and the PST will negotiate on behalf of the entities which appointed them.

• A meeting of the PST shareholders will be held to consider and vote upon the Proposed Transaction. Proxy forms in respect of the meeting will be able to be submitted by PST shareholders.

• Along with notice of such meeting, the PST will provide to its shareholders a copy of this term sheet as well as a letter concerning the Proposed Transaction from the Club.

• All PST shareholders will also be invited to an “open” Club meeting and presentation, which is intended to enable all PST shareholders to make the most fully-informed decision possible. At that meeting, among other things, Tornante will present to PST shareholders.

6 Stage 3 The following steps will be implemented should the PST shareholders (implementation) approve the Proposed Transaction: • Tornante will request, and the Club Board will grant, an extension of the exclusivity period until the end of the summer transfer window (which is due to close on 1 September 2017). All parties expect the Proposed Transaction to fully close before that time;

• to the extent not already provided, the Club will provide Tornante and/or its agents or advisers with all necessary information to enable Tornante to complete its due diligence in relation to the Club, including:

• historical and projected financial statements, accounting policies and procedures, and associated tax matters;

• all player contracts and associated player arrangements (including outstanding transfer fees and arrangements);

• all material contracts of the Club (including contractor and supplier contracts);

• all documentation and details of the acquisition from the prior owner and all documentation and details of the funding arrangements of the PST;

• all relevant information in respect of Fratton Park and any other real estate held by the Club;

• intellectual property, information technology and employment matters; and

• all football and non-football regulatory and compliance matters (including with the English Football League and The Football Association) and any other outstanding litigation or other legal issues;

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT • full form legal documentation will be agreed between the Club, each Seller and the Purchaser reflecting the terms set out in this term sheet; and

• all of the Presidents and the PST will then sign a sale and purchase agreement in respect of their shares in the Club (the “SPA”), but the transfer of such shares would be conditional on the requisite approval of the Purchaser by the English Football League. The SPA would contain certain customary undertakings given by the Club, the PST and the Presidents as to the operation of the Club in the ordinary course in the interim period between signing and completion.

Part C: Key terms

7 Consideration To each Seller: for the acquisition of • the assumption by the Purchaser of the obligation created when the shares in the current shareholders bought the Club out of administration in 2013 for the Club Club to pay up to £3,000,000 in the event the Club is promoted back to the Premier League before June 2024; and

• the choice of one of two forms of cash consideration described below (or a combination thereof) to be paid by the Purchaser.

Option A – All Cash Now • £1,000 for each share held by a Seller in the Club.

Option B – Double the Money, But Contingent on Performance: • a cash payment of £1 per share to be made at completion;

• a contractual right to a cash payment of £250 per share in the event that the Club is promoted to League 1 of the English Football League by 15 July 2027;

• a contractual right to a cash payment of £250 per share in the event that the Club is promoted to the Championship by 15 July 2027;

• a contractual right to a cash payment of £750 per share in the event that the Club is promoted to the Premier League by 15 July 2027; and

• a contractual right to a cash payment of £750 per share in the event that in the season immediately following the promotion to the Premier League which triggers the cash payment described above, the Club remains in Premier League (and provided that this occurs prior to 15 July 2028).

Accordingly, under Option B, a Seller may be paid in aggregate up to £2001 per share that it holds in the Club. A Seller with more than one share in the Club can pick a mix of Option A and Option B, but each share must be designated as one or the other. It is understood by Tornante that the PST will choose to take Option A on behalf of the PST. 8 Waiver of pre- • Each Seller will irrevocably and unconditionally waive any rights of emption rights pre-emption over the shares in the Club conferred on him or it or held by him or it either by virtue of the Club’s articles of association or by express

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT agreement (including in the shareholders’ agreement between the shareholders of the Club dated 19 April 2013) or otherwise.

9 Equity • In addition to the consideration outlined in paragraph 7 above, Tornante commitment will inject at least £10,000,000 of additional equity into the Club following completion of the Proposed Transaction.

10 Heritage & • Following completion of the Proposed Transaction, an advisory Advisory committee to the Club called “The Portsmouth FC Heritage & Advisory Board Board” will be established in accordance with the terms of reference described in Annex C (the “Heritage & Advisory Board”).

• The constituents of the Heritage & Advisory Board will be as follows:

• three individuals representing the Presidents;

• three individuals representing the PST;

• two individuals representing Tornante; and

• the CEO and CFO of the Club.

11 Heritage Share • In addition to the consideration outlined in paragraph 7 above, the Club will issue a single share which will exist for 50 years and which will give the Heritage & Advisory Board (excluding the Tornante and Club representatives) a veto right in respect of certain matters of great importance to the heritage of the Club (the “Heritage Share”).

• Further detail in relation to the Heritage Share is set out at Annex B.

• 12 CEO Meetings • Tornante will ensure that the CEO of the Club holds four “open door” / general meetings concerning the Club each year.

13 Match day • Tornante is working with the CEO and CFO of the Club to establish a privileges suitable proposal in respect of match day privileges of each Seller (e.g. ticket and hospitality rights).

14 Warranties • Each Seller will give warranties on a several basis in relation to their title to their shares in the Club and their capacity to sell such shares.

Part D: Other

15 Governing Law • This term sheet, the exclusivity agreement and the definitive agreements will be governed, interpreted and construed in accordance with the laws of England.

16 Legal Cost and • Other than as set out below, Tornante, the Club and the Sellers will be Other Expenses solely responsible for their own legal costs and expenses that they may each incur with regards to the preparation, review and negotiation of this term sheet and the Proposed Transaction.

• If the Proposed Transaction completes, the Purchaser will agree to contribute up to 75% of the PST’s actual, third-party legal costs in relation to the Proposed Transaction to a maximum amount of £60,000.

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT Annex A

Shareholders of the Club

Name Number of shares Estimated percentage ownership Portsmouth Supporters Society 2,750 48.48% Limited Christopher Moth 600 10.58%

John Kirk 600 10.58%

Ian Silvester 450 7.93%

Iain McInnes 218 3.84%

John Partridge 215 3.79%

John Crossley 140 2.47%

Kenneth Terry 100 1.76%

Martin Price 100 1.76%

Eric Coleborn 100 1.76%

Stuart Robinson 100 1.76%

Michael Williams 50 0.88%

Martin Moyse 50 0.88%

Michael Hall 50 0.88%

Virginia Silvester 50 0.88%

Peter Lee 50 0.88%

David Willan 50 0.88%

TOTAL 5,673 100%

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT Annex B

The Heritage Share

The Heritage Share will provide that the written consent of the Heritage & Advisory Board would be required in the event that the Club proposes to implement any of the following:

1 A change to the name of the club from “Portsmouth Football Club”.

2 A material change to the then principal colours (currently blue and white) of the 1st team home strip of Portsmouth Football Club, other than a change to a principal colour or colours that are generally consistent with those which have previously been used as the principal colour or colours of the 1st team home strip of Portsmouth Football Club.

3 The relocation of the principal home stadium of Portsmouth Football Club from the football ground currently known as Fratton Park to a location which is more than 15 miles from the football ground currently known as Fratton Park (as measured on a straight line basis from the existing centre spot of the football ground currently known as Fratton Park).

The Heritage Share will provide that in the event that the Heritage & Advisory Board is notified of a change which would require consent to be provided by the Heritage & Advisory Board in accordance with terms described above, and such change is not rejected in writing by the Heritage & Advisory Board within 15 business days of the Heritage & Advisory Board being informed of such proposed change, the Heritage & Advisory Board shall be deemed to have automatically given their consent to such change.

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT Annex C

The Heritage & Advisory Board

1 The Heritage & Advisory Board will be established as a forum to perform two key functions:

1.1 to encourage engagement between the Club, Tornante, the PST and the Presidents, in order to promote and reflect the interests of the fans, other stakeholders and the wider community associated with the Club (the “Engagement Function”); and

1.2 to exercise rights in relation to the Heritage Share issued by the Club and held for the benefit of the Heritage & Advisory Board (the “Heritage Share Function”).

2 The Engagement Function will be implemented through engagement and discussion by the different groups represented on the Heritage & Advisory Board. The Heritage & Advisory Board will provide a forum for these groups to come together and exchange views on matters which are pertinent to the running of the Club.

3 The specific areas for discussion and consideration by the Heritage & Advisory Board (the “Recommendation Areas”) are:

• ticket pricing (including season ticket, membership and individual ticket prices);

• the appropriateness of sponsors of Portsmouth Football Club;

• on-field performance of Portsmouth Football Club;

• any plans for the development of Fratton Park or any future stadium of Portsmouth Football Club;

• appropriate perks for the former holders of Community Shares of the PST;

• any proposed material change or redesign of the crest of Portsmouth Football Club; and

• the manner in which broader engagement with all the stakeholders of Portsmouth Football Club is conducted.

4 Members of the Heritage & Advisory Board will be provided with appropriate financial information in respect of each area for discussion prior to each meeting. Each member of the Heritage & Advisory Board will undertake to keep such financial information confidential.

5 The Heritage & Advisory Board shall make recommendations to the Club Board in respect of the Recommendation Areas. Notwithstanding any recommendation of the Heritage & Advisory Board, the Club Board shall retain the full power, right and discretion to make (or not make) any decision in respect of the Recommendation Areas and in respect of all other matters in relation to the operation of the Club.

6 The Heritage Share Function will be implemented through the Heritage & Advisory Board exercising its rights in relation to the Heritage Share. All Tornante and Club representatives on the Heritage & Advisory Board shall be excluded from voting in respect of any matter that requires consent pursuant to the terms of the Heritage Share (a “Consent Matter”).

7 A veto under the Heritage Share will be exercised if either (i) the three PST representatives unanimously vote in favour of withholding their consent in respect of a Consent Matter or (ii) a majority of the six voters (i.e. the three PST members plus the three President members) vote in favour of withholding their consent in respect of a Consent Matter.

8 Generally, the individuals representing the Presidents and PST will serve a 3-year term on the Heritage & Advisory Board, which will ensure broad and diverse representation from both

TORNANTE TERMS SHEET NON-BINDING AND SUBJECT TO CONTRACT bodies over time. To further ensure that there are no abrupt transitions of the Heritage & Advisory Board, at the outset one President and one PST member will be selected to serve only a 2-year term and one President and one PST member will be selected to serve only a 1-year term. As a result, one representative on the Heritage & Advisory Board nominated by each of the Presidents and the PST will be replaced every year on an ongoing basis.

9 The Heritage & Advisory Board will meet at least four times each year.

PST BOARD STATEMENT ON THE TERMS OF THE TORNANTE OFFER

ACQUISITION OF PORTSMOUTH COMMUNITY FOOTBALL CLUB LIMITED

PST Board Statement on the proposed sale Introduction In considering the takeover offer from Tornante and Michael Eisner, the PST Board has considered three issues:

1. Does the Club require investment at this time? 2. Are Michael Eisner and Tornante suitable owners for Portsmouth Football Club? 3. Are the terms of the offer from Tornante acceptable? Since the PST Board was officially notified of the identities of Tornante and Michael Eisner we have conducted extensive negotiations, with the invaluable assistance of Trevor Birch, with the aim of receiving an offer from Tornante that we felt would be acceptable to all our Community Shareholders and members.

In carrying out these negotiations, we have met with Tornante in both the US and UK, and also taken advice from our legal advisors Gateley plc.

All PST negotiations were based on the agreed objectives of the PST (stated below), historic input from our members, and results of a consultation questionnaire (results available at http://pompeytrust.com/news/pst-shareholders-and-members-survey-results).

PST Objects The Society ’s objects are to benefit the community by;

4.1 enhancing the social, cultural and economic value of the Club to its Communities and by acting as a responsible custodian of the Club for future generations;

4.2 promoting the mutual ownership of the Club operating democratically, fairly and transparently;

4.3 encouraging the Club to play at the highest level with financial responsibility and prudence enabling the Club to be run for the long term interest of the Community;

4.4 providing sporting and other facilities and opportunities regardless of age, income, ethnicity, gender, disability, sexuality, religious or moral belief;

4.5 working in partnership with supporters, directors, staff, players, Portsmouth City Council, other statutory bodies and other official and independent supporters’ associations related to the Club, in order to further the footballing and financial success of the Club;

4.6 enhancing the Club’s benefit to the community it serves. Does the Club require investment at this time? You will find within this information pack a summary from the Club Executives Mark Catlin (CEO) and Tony Brown (FD) of the financial challenges facing the club both in the short term in relation to the stadium and also in the longer term if we aspire to play at Championship level.

You will also find a statement from the Presidents’ Advisory Board on their views of this as well.

The key funding issue facing the club at the current time relates to Fratton Park.

Summary of issues relating to the stadium Portsmouth FC has commissioned various reports regarding the condition of Fratton Park in the last 18 months assessing the structure of the stands and structures as well as where the ground fails to comply with current regulation guidance.

PST Board Statement on the proposed sale From the point of view of structure, the Fratton End is largely deemed to be in good order given that it is only 20 years old and complies with modern standards. However the other three sides of the ground have issues which need resolving to maintain their current capacity and ensure safety of fans at all times. Given their age, the steel structures of the North and South Stands require exploratory tests to be carried out to check for corrosion and rectifying this where necessary. Likewise areas of the concrete steps to the North Lower and Milton End require on-going replacement having been exposed to all weathers for years.

The access stairs within the North Stand and accessing the Milton End currently don't comply with current regulations, which would be applied on any new build stand. Whilst such regulation is only guidance, the Club along with the Local Authority Safety Advisory Group which issues the Stadium Safety Certificate are of the view such stairways should be adapted to comply. In some areas this simply means new hand rails, in other areas it requires a complete re-profiling of the steps.

Given the size of Fratton Park, lots of little issues soon adds up, but the Club in conjunction with the safety authorities has been devising a programme of works to be carried out over a number of years with a view to remedying these issues, obviously starting with the most pressing. As is often the case with existing old structures, the cost of making good can only really be known once the extent of the issues are determined and so estimates of cost are currently just that, estimates although it should be noted that almost £2m of works has been carried out already since the Club has been in community ownership.

In some areas it may be better to no longer put 'good money after bad' and instead aim to spend more than patching up by rebuilding a stand from scratch. A case in point is the Milton End. Although not having any major structural issues, its configuration as a former earth bank terrace with only access from either side coupled with non-compliant access/egress steps means it would require a considerable sum to 'make good'. The Club needs to decide if this is the best approach or whether it would be better to put that money towards a new stand which could not only provide vastly better match day facilities in a concourse under the stand, it could also vastly improve facilities for the disabled which is another key area Fratton Park is currently lacking in.

Funding requirements for the future The PST Board have examined the likely funding levels required in the various levels of the Football League and believe the following to be the case.

• As evidenced by the last 2 years, the current facilities at Fratton Park are sufficient to maintain a top 3 player budget in League 2 and a team that is capable of challenging for promotion.

• The overall club wage bill for all staff currently paid by the club is approximately equal to the average amount paid by League 1 clubs. Therefore, the club is capable of maintaining an average League 1 budget based on current income levels. An increase in the standard season ticket price of £50 and standard match day price of £5 with proportion increases in concession prices, would likely increase income by circa £500k.

• The income levels at both League 1 and League 2 are sufficient to maintain competitive playing squads and cover administrative costs. However, they do not provide sufficient profit to cover the cost of making significant transfer payments for players, replacing assets as they depreciate or to make improvements to the club’s infrastructure without generating additional income from cup runs or selling players.

PST Board Statement on the proposed sale • The maximum likely income for the club in the Championship with current facilities is £10-12m. This would probably allow a wage bill comparable to a bottom 6 team at the current time. However, as mentioned in the report from the Club Executives, the correlation between wage costs and league position is less strong in the Championship. We are also yet to see if the new Financial Fair Play rules will level the playing field of the Championship.

• As mentioned above, recent surveys indicate that Fratton Park itself requires some urgent maintenance to maintain safety levels as well as more general maintenance for the upkeep of the stadium. The total cost has been estimated to be circa £5m over the next five years. Although there is still money in the club from the Tesco payment, additional funding would be required to meet these costs without impacting on player budget. The schedule for when these works are required to be done is uncertain, but once available plans could be put in place to better understand how these costs would be covered

• The PST Board has received indications from members in the recent survey that 468 people would definitely buy a new community share if offered the chance to do so and 886 people would probably buy one. The PST Board also understands that some presidents are willing to contribute further. Between the Tesco monies remaining, a new PST share issue and president contributions, the PST Board believe that safety critical maintenance can be afforded as well as a significant amount of the general maintenance.

• A full rebuild of Fratton Park would cost at least £50m. This is likely to require significant investment from new investors at some point in the future. A phased programme of development would allow funds to be raised over time, but would extend the time taken to carry out any redevelopment significantly. There is no commitment from Tornante to carry out this work.

The conclusion of the PST Board is that there is a need for funding at this time to address immediate stadium maintenance issues, and that there will be a need for further funding at a future date to address the longer-term capacity and income restrictions of Fratton Park. We will better understand the requirements once the Club has held discussions with the Safety Advisory Group and Portsmouth City Council on the level of work required.

In our opinion, the short-term requirements could potentially be met by a fresh Community Share issue combined with contributions from existing and potentially new presidents. It is likely that having completed that work, the club would then be capable of maintaining a sustainable League 1 team. It is for this reason that the PST had announced in 2016 that it was developing plans to reopen its Community Share offer, which have been postponed during the discussions with Tornante.

Prior to the interest from Tornante, the Club or its shareholders have not explored the possibility of 3rd party investment. Should the proposed sale not complete, then a strategy for funding for the Club would include opening up PST Community Share purchases and inviting further funding from the Presidents. In the longer term it is likely that we would also investigate options for new 3rd party investment alongside existing shareholders. Furthermore, it is there remains the possibility that the club would see further interest from parties who might wish to pursue a 100% takeover.

In the event that Community Shareholders decide not to accept the offer as laid out in this document then Tornante have stated that they will respect this decision. The possibility of negotiating a revised offer to put to Community Shareholders will remain open, and in this event the PST Board will ask if Tornante wish to do so.

PST Board Statement on the proposed sale Are Michael Eisner and Tornante suitable owners for Portsmouth Football Club? Given the issues with a number of owners over the last 40 years, the PST Board felt that it should scrutinise the history and track record of any person offering to invest in or take over the club.

We are aware that over the last 4 years, a number of speculative approaches have taken place, which the club’s CEO Mark Catlin has vetted to reject people that are unwilling to provide reassurance on their identity or resources.

In the case of Michael Eisner and Tornante, the PST Board has identified that

• Michael Eisner has a track record as a successful businessman at the top levels of the US business world • Michael Eisner also has a track record of supporting communities through his philanthropic foundation • The combined resources of Michael Eisner and Tornante are sufficient to operate a sustainable football club at all levels of the Football League. Are the terms of the offer from Tornante acceptable? As explained earlier in this document, the PST Board’s aim in these negotiations was to arrive at a set of terms that would satisfy the wishes of the majority of our Community Shareholders.

We have explained the recent history of Pompey, the multitude of poor owners, the subsequent concerns that raises and the ways in which we feel Tornante could address those. The terms enclosed represent Tornante’s final offer in response to that.

We address specific areas of concern to our Community Shareholders below:

Ownership The PST Board explained that it believes that the best long term future for the Club is for the PST to retain some ownership of the club, however Tornante have made it very clear that they wish to acquire 100% of the club.

Tornante have however agreed that a “Heritage Share” can be issued which will be put in place as a means by which certain identified issues can be protected and vetoes exercised by the PST and this is explained further below.

Tornante have offered two options for the price of the shares. £1000 cash now, or £1 now followed by a series of payments that are conditional on future promotions.

The PST cannot distribute profits to its members and therefore the PST Board have decided that the only offer that we can present to our Community Shareholders is the option for £1000 immediate cash payment.

Club Directors The PST Board requested fan representative directors on the board of the Club. However, Tornante have made it clear they do not wish to have fan representative directors on the club board. Instead, the PST will have three members of the “Heritage and Advisory Board”, alongside the representatives of the Presidents, the Club executive and Tornante. Further details of which are set out below.

Heritage Protection The PST Board explained to Tornante that we felt that a veto should be provided over any

PST Board Statement on the proposed sale • Change to the name of the Club • Change to the primary playing colours of the Club • Change to the crest of the Club • Relocation of the Club Tornante have confirmed in their final offer that they will provide a Heritage Share that has a life of 50 years with a veto anticipated to be exercisable by the Heritage and Advisory Board, with PST votes on that board enabling the PST to exercise the vetoes on its own, over any

• Change to the name of the Club • Change to the primary playing colours of the Club from colours historically used by Pompey • Relocation of the Club further than 15 miles in a straight-line distance from Fratton Park We have subsequently sought amendments to these items to narrow the primary colours of the Club to the Blue, White and Red we traditionally play in, and also to remove SO postcode areas and the Isle of Wight from permissible stadium locations and stipulate that any new stadium should be so a suitable standard for league football with a minimum capacity of 25,000. At this time, these amendments have not been agreed to and the position stated above represents Tornante’s offer.

Tornante have stated that they will not give a veto on the crest of the Club. Instead this is one of a number of “Recommendation Matters” reserved for consultation at Heritage Board level

Tornante have proposed that the PST hold an enhanced power to enact the veto on their own authority without requiring the support of other members of the Heritage and Advisory Board, which the PST Board welcomes.

The PST Board requested that the Heritage Share be owned by the PST. Discussions are ongoing with the Presidents and Tornante on who should own the Heritage Share.

Additionally, the precise details of the Heritage Share, who owns it and the legal framework that will underpin the safeguards it offers have yet to be negotiated and would need to be encapsulated in the detail of the legal documents that would need to be signed as part of any deal.

Heritage and Advisory Board The PST Board note that the proposed Heritage and Advisory Board goes further than the minimum requirements stipulated by Football League rules on supporter engagement. We are aware however that further detail of the legal framework that will underpin its work and how Tornante intend it to function have yet to be negotiated.

The minimum requirements of the Football League as contained in the EFL rules are shown below:

111. Supporter Engagement 111.1. Clubs shall hold at least two meetings/fans forums per Season to which its supporters (or representatives) are to be invited in order to discuss significant issues relating to the Club. The framework for these meetings shall be documented in the Club’s customer charter, but are subject to the following minimum criteria: 111.2. Clubs must be represented by the Club’s majority owner, board director(s) or other senior executive(s); 111.3. where meetings are not open to all supporters wishing to attend, the supporter representatives must be elected, selected or invited in line with basic democratic principles; and

PST Board Statement on the proposed sale 111.4. individuals cannot be excluded by the Club without good reason (the Club acting reasonably). Investment and Debt The PST Board welcomes the statement that Tornante will make an investment of equity of at least £10m upon completion of the proposed sale. They have further stated that, in general, they anticipate equity funding for club operations.

We have requested further assurances regarding:

• the levels of future investment, • the securing of debt on the assets of the club • any intentions to separate assets, such as the stadium, from the company that operates the club. Tornante have stated that they wish to have full flexibility in these areas and will consider what mechanisms to use at the time according to a range of factors.

Future Sale of the Club The PST Board explained that it believes that a commitment to engagement with the PST and wider fan base in the event of a future sale of the club by Tornante would underpin the long-term sustainability of the club.

Tornante do not wish to give any specific right of negotiation in the circumstances of a future sale but have stated that they would be open to discussions with the PST on this subject. Conclusion In carrying out these negotiations the PST Board has sought to achieve the best possible terms that would be acceptable to our Community Shareholders and members, and provide Pompey with the best possible foundations for its long-term sustainability should the Community Shareholders decide to accept the offer.

To summarise our discussions, we focussed on the following:

• Continued minority ownership • Fan representative Directors on the Club Board • Protection over Heritage items – Name, Colours and Crest • Protection over relocation of the stadium • Reassurances over debt funding and separation of assets

Of those five areas, Tornante have agreed to the following:

• Protection over the Name • Protection over the Colours (but not the Crest) • Restricted protection over the relocation of the stadium The terms enclosed represent the formal offer from Tornante that our Community Shareholders should consider and decide upon.

We have highlighted some key terms in the paragraphs above because it is incumbent on the PST Board to seek to ensure that you can make your deliberations and cast any vote on an informed basis.

Ultimately, it is for you to decide how important each of these terms are to your overall decision and whether, having considered the comments of the PST Board, the Presidents and the Club Executive, you wish the PST to sell the shares it owns in Portsmouth Community Football Club Limited.

PST Board Statement on the proposed sale The Presidents and the Club Board have not made any specific recommendation on the offer. The PST Board have considered the offer in detail and could not arrive at a consensus on it. Accordingly, we also have no specific recommendation to make – one way or another – on how you should vote.

We recognise the importance of this decision and difficulty faced by those who have to make it, as many of us do as Community Shareholders ourselves.

The decision is for each Community Shareholder based on their assessment of the merit of the offer.

It has been and continues to be a privilege to serve the members as their Board, and we wish you all the best of luck in your deliberations.

PST BOARD

21/04/2017

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

ACQUISITION OF PORTSMOUTH COMMUNITY FOOTBALL CLUB LIMITED

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

Date 20 April 2017 Our ref: PJJM/AXSM Direct tel: +44 (0) 161 836 7818 The Directors E-mail: [email protected] Portsmouth Supporters Society Limited 6 Marlborough Place Brighton BN1 1UB

Dear Sirs Potential disposal of shares in Portsmouth Community Football Club Limited (the Club) As requested, I have set out below a summary of the offer currently put forward in respect of the acquisition (the “Proposed Transaction”) of 100% of the Club’s issued share capital by a subsidiary (the “Purchaser”) of The Tornante Company LLC (“Tornante”). The summary below is based on the termsheet communicated to me by Trevor Birch, acting on behalf of the Club, on 19 April 2017. 1. PURCHASE PRICE AND EQUITY COMMITMENT The purchase price proposed to be paid is one of two alternatives, either: (i) the sum £1,000 per share, payable in cash on completion of the Proposed Transaction; or (ii) the sum of up to £2,001 per share, payable in tranches as follows : • £1 per share payable in cash on completion; • £250 per share if the Club is promoted to League 1 by 15 July 2027; • £250 per share if the Club is promoted to the Championship by 15 July 2027; • £750 per share if the Club is promoted to the Premier League by 15 July 2027; • £750 per share if the Club remains in the Premier League the year following promotion; There are 5.673 shares in issue in total, so clearly under the first option the aggregate purchase price would be £5,673,000. Although it had been originally requested by you, no equity participation is offered, so Tornante will own 100% of the equity, subject only to the existence of the “Heritage Share” (see further below). Tornante have also offered to pick up and honour the current obligation of the Club to make a payment of £3,000,000 in respect of the 2013 administration if the Club is promoted back to the Premier League before June 2024. Tornante have also indicated an intention to commit an additional £10,000,000 of equity investment into the Club “following completion of the Proposed Transaction”, although there is no indication of timescale or the legal mechanism or binding nature of that commitment.

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

Unless incorporated into substantive legal documents to implement the Proposed Transaction, the risk is there is no way of compelling Tornante to make that further investment available nor any assurance when it will be subscribed, but nonetheless that remains their stated intention as per the termsheet. 2. EXCLUSIVITY OF DEALINGS The Club have granted Tornante a period of exclusivity for 70 days from 22 March 2017 (so expiring 31 May 2017). However, Tornante have requested an extension of that exclusivity period until the close of the summer transfer window (1 September 2017) in the event that their offer is accepted and legal process commences in earnest. The exclusivity is requested from the Club Board, which is consistent with how negotiations have been conducted to date. This means that if the additional period is granted it will be from the Club and will not bind the PST directly, as the owner of the shares, which is unusual but again consistent with the negotiation position to date. Of course, the risk is that any third party that may want to discuss a potential transaction would be discouraged from negotiating if that would place the Club in breach of the exclusivity obligations as Tornante would still be in an exclusive negotiating position until the end of the transfer window. 3. DEAL APPROVAL PROCESS In accordance with your constitution and current rules, there are two distinct approvals required from your membership, as follows: • firstly, the sale of the PST’s shares in the Club requires the approval of your Community Shareholders (by simple majority);

• secondly, you have agreed that the approval of any sale by the Presidents of their shares (which is a reserved matter under the Club’s current Shareholders’ Agreement) shall require approval (by simple majority) of all of the PST members.

The obtaining of those approvals by postal ballot is permissible under your rules and so the process you are currently proposing works from that perspective, with the ballot opening Saturday 6 May 2017 and closing Friday 19 May as currently anticipated.

In addition, the Shareholders’ Agreement relating to the Club contains pre-emption provisions which provide that before they can be transferred to a third party (such as Tornante) shares must be first be offered for sale to existing shareholders (ie: the PST and each of the Presidents), unless ALL shareholders agree otherwise.

Accordingly, Tornante will be seeking irrevocable undertakings from each shareholder (ie: PST and each President) waiving those pre-emptive rights, which is the sensible course of action and we should ask to see executed copies of those undertakings.

There is a risk in not obtaining those undertakings because, even though there is a “drag along” process that can be invoked, that only kicks in after pre-emption has been satisfied.

Therefore, a President who was not in favour of the Proposed Transaction would have to be offered the shares at the same price as Tornante propose acquiring them and could, in theory at least, “gazump” the deal – which would presumably not be in the PST or the Club’s best interests, not Tornante’s, so the proposal to obtain irrevocable waivers is prudent.

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

4. KEY PROTECTIONS You had requested comfort from Tornante in the areas detailed below, which have referred to throughout as “heritage matters” and we have sought assurances from Tornante as to the legally binding nature of those protections and the mechanism for policing them. The heritage matters that your requested be subject veto and the position proposed under Tornante’s latest offer are as follows: • no change to the name of the Club

Tornante have agreed the name shall remain “Portsmouth Football Club”.

• no change to the colours of the first team home kit

Tornante have agreed no change from blue & white – “…other than to a principal colour or colours that are generally consistent with those which have previously been used as the principal colour or colours of the 1st team”.

• no relocation of the ground

Tornante have only partially agreed -- they have agreed no relocation “…to a location which is more than 15 miles from the football ground currently known as Fratton Park”.

Tornante had previously suggested that we specify if there were postcodes within that 15 mile radius area which would be objectionable and we had confirmed (any “GU”, any “SO” or “PO30” to “PO41” (inclusive)), but this is not reflected in the current termsheet.

• no change to the Club crest

This has not been agreed.

Tornante have suggested that because of concerns they have over the ownership of the intellectual property in the crest, they need to reserve rights in this context as they may need to “augment” the crest, so this cannot be agreed by them as a veto matter, although it does fall under the Recommendation Matters to on which the Heritage Board is to be consulted (see further below). As noted, you had also requested an on-going equity participation post-completion of the Proposed Transaction and also some PST representation on the Club board, but neither of those positions has been accepted and they do not form part of the Tornante offer. We have also indicated that there will need to be additional protections in the substantive, legal documentation to ensure that these core protections cannot be “side-stepped”, but this is not addressed as yet and still needs to be picked up when we negotiate the legal documents. Tornante’s terms contemplate only a sale and purchase agreement but we have indicated - and it has been acknowledged in conversations with the Club’s lawyer – that there will likely also need to be a shareholders’ agreement and articles, otherwise the Heritage Share rights cannot be effectively enshrined. The mechanism for enforcing these heritage rights is considered the following section, entitled “Heritage Share and Heritage Board" (see below). Tornante have agreed to your request that they make a contribution to your legal costs, in the event of the Proposed Transaction completing, up to the aggregate amount of £60,000. 5. HERITAGE SHARE AND HERITAGE BOARD The suggestion is that the rights referred to above would be vested in the “Heritage Share”, which is to be held for the benefit of the members (or at least certain of them) of the “Heritage Board”.

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

As yet, precise ownership of the Heritage Share remains to be confirmed. There had been a suggestion from Tornante that it would be held by a subsidiary of the Club, but that does not work from an English company law perspective if nothing else, so the detail there remains to be confirmed, as does the mechanisms around the implementation of this principle in the documentation, as noted above. However, the current suggestion is that there will be PST representatives and Presidents’ representatives on the Heritage Board (x3 of each)…and if all 3 PST members vote to veto, then that is an effective veto, as would be the case if a majority of the PST and President members voted in that way. To that extent at least, there is an acceptance in the Tornante termsheet that there would be legally enforceable mechanisms for protection of the heritage matters, albeit the detail around this and the constitution and authority of the Heritage Board still needs to be enshrined in appropriate legal documentation. The other function of the Heritage Board is to act as a forum (at least four times annually) between the PST, the Presidents, the Club executive and Tornante. It is anticipated that the Heritage Board would also input on the debate around and be consulted on defined “Recommendation Matters”, which include: • ticket pricing;

• appropriate sponsors;

• proposed re-development of the ground;

• proposed re-design of the Club crest; and

• broader engagement with the Club’s various stakeholders. This is a forum for information and consultation on the above matters, rather than having specific legal powers or vetoes. 6. ON-GOING LEGAL PROCESS In the event of a vote to proceed with the Proposed Transaction (at both a PST and Presidents level) Tornante are to be granted a further period of exclusivity until the end of the summer transfer window, as noted above. Tornante expect selling shareholders top provide warranties in any sale contract as regards your title and capacity to sell, which his standard and is the minimum comfort you should expect to provide in any such transaction. During that period they will conduct/complete their legal due diligence exercise and be provided with additional information by the Club regarding its financials, commercial contracts and property interests. In this period full form legal documentation will be agreed between the Club, PST, the Presidents and Tornante reflecting the terms set out in this Tornante termsheet. Tornante have also said that they will liaise with Club’s executive (CEO and CFO) “to establish a suitable proposal in respect of match day privileges”, so as yet there are no detailed proposals or agreement to requests of that nature comprised in the offer. I trust that provides a decent summary of the offer terms, which are proposed by Tornante as their final position, on which there is no further room for negotiation.

ADVICE LETTER TO PST BOARD FROM GATELEY PLC

Effectively, this is the deal on which the PST members are requested to vote and the facts are as set out above and must be judged on their merits, noting the context of what was originally requested by the PST and what has been conceded, or not, as they case may be. Should you have any further queries on the offer terms, please feel free to call me, otherwise I expect this is pretty self-explanatory. Regards, Yours sincerely

Paul Jefferson Corporate Partner for Gateley Plc

PRESIDENTS’ ADVISORY BOARD PERSPECTIVE ON THE TORNANTE OFFER

ACQUISITION OF PORTSMOUTH COMMUNITY FOOTBALL CLUB LIMITED

THE PRESIDENTS ADVISORY BOARD’S PERSPECTIVE ON THE TORNANTE OFFER

A huge amount of credit is due to the many people who saved the club from extinction, stabilised the finances whilst securing the support of a large proportion of the fan base.

But having moved from a position of survival to one of consolidation (stabilising the finances and getting the club back on an even keel) we’ve now come to a crossroads in our journey.

We have to recognise that Portsmouth Football Club operates in an increasingly competitive footballing environment:

• There is a direct correlation between the size of the wage bill and league position- in simple terms, the more you spend on player wages the higher up you’re likely to finish in the league table

• Given the huge increase in TV revenue, the significant rise in parachute payments to relegated clubs and the possible trend in favour of TV contracts negotiated directly by the bigger clubs, there is likely to be even greater polarisation between the Premiership/Championship (the ‘elite’) and those in Leagues One and Two (the ‘rest’)

The decision that the shareholders now face is simply this- do we want to have a chance of becoming one of the ‘elite’ (albeit a club that is owned by someone else) or would we rather carry on as a fan- owned club with- by necessity- more modest ambitions?

We feel that this fundamentally boils down to two choices:

• Option One: carry on as a fan-owned club that is capable of competing reasonably effectively in Leagues One and Two (with the possibility of getting to -but not necessarily sustaining- a position in the championship)

• Option Two: accept an offer of 100% ownership from a third party that is more likely to lead to a faster progression through the leagues (with a possibility of returning to the Premiership) but where we will have only very limited influence on how the club is actually run

Option One will enable us to maintain our proud position as the largest fan owned club in the country and protect a situation where the fans have a direct say in how the club is run.

But this option will also require significant investment from existing and new shareholders: for example, three separate independent surveys have identified the need for at least £5 million to be spent in the next five years just to ensure that Fratton Park meets basic H&S requirements.

This expenditure is likely to be front-loaded (ie proportionately more will need to be spent in the first two or three years) and there is a possibility that the total spend will rise even more as the scope of the work required becomes more evident. Bearing in mind the magnitude of the fundraising task (both the PST and Presidents will be required to raise the same amount of money that was actually required to save the club) there is no guarantee that sufficient investment will actually be forthcoming from existing investors. If this is the case, one might expect a worsening of the club’s

THE PRESIDENTS ADVISORY BOARD’S PERSPECTIVE ON THE TORNANTE OFFER financial situation, a decline in the club’s performance on the pitch and a consequent need for outside investment.

Option two should provide the financial resources that are needed not just to make Fratton Park compliant, but also to significantly improve it (for example though building a new Milton End); it should provide much needed long term investment into the academy; and it should equip the football management with a budget that will help ensure success on the pitch and promotion through the divisions.

Bearing in mind that only very limited protection is currently provided in the current shareholders agreement, the proposed Heritage Share should give the necessary assurances about those heritage matters that are so important to many of the fans.

It might also be expected that Michael Eisner’s business experience and acumen– both generally and sports related- should contribute a valuable new dimension to help the club succeed. Pompey’s wider community projects might also benefit from the Eisners’ track record of charitable and philanthropic giving.

But there is of course a risk associated with this option. In particular and even with the best of intentions, there can be no cast iron certainty about the future once the club passes out of fan ownership.

On the other hand with option one, the uncertainty over future investment from existing and possible new shareholders may represent a much bigger risk to the long term future of the football club when compared with the guaranteed investment that the Eisner bid will provide.

As a group of Presidents we’re all fans and in all cases have supported Pompey for many years. Like you, we also understand the enormity of the decision that shareholders are being asked to make. In preparing this document we’ve tried to ensure that our own assessment of the situation is as accurate, fair and objective as possible.

It is now time for all shareholders to do the same by judging the offer on its merits; by taking account of all the facts; and by genuinely considering the best course of action that should be taken to secure the long term future of the football club that we all love.

THE PRESIDENTS ADVISORY BOARD

April 16th 2016

PCFC EXECUTIVE STATEMENTS ON FUTURE FINANCIAL FORECASTS

ACQUISITION OF PORTSMOUTH COMMUNITY FOOTBALL CLUB LIMITED

PCFC Executive Statement: Key Points for Shareholders

KEY POINTS FROM ATTACHED REPORTS FOR SHAREHOLDERS TO CONSIDER ❖ The Club’s financial results for the past four years have been underpinned by £3 million (three million pounds) of “Football Fortune Income” (a football term based on income which cannot be guaranteed in future years such as Player Sales, Cup Income, etc.).

❖ We have approximately £900,000 (nine hundred thousand pounds) remaining in the Escrow Account. All expert stadium safety reports commissioned point to a five-year contingency requirement of at least £5,000,000 (five million pounds) to address major stadium infrastructure issues. This results in a cash shortfall of £4,100,000 (four million one hundred thousand pounds) that will be required over the next five years. Due to ongoing investigative works we are currently unable to accurately predict the timing on when this funding requirement will be needed.

❖ In the event of stadium safety work being delayed and/or being unfunded, in the interest of fan safety and security there is a strong possibility the capacity at Fratton Park would have to be reduced by the Licensing Authority to allow the stadium to remain open.

❖ The stadium infrastructure requirements [which are clearly detailed and attached to this statement], will, if not funded externally, impact greatly at some point on the club’s operating budget in the future.

❖ Deloittes Annual Review of Football Finance 2016 (for season 2014/15) advised that average profit/losses in League One stood at a loss of £1,700,000 (one million seven hundred thousand pounds) per club, per season. This was covered in most cases by owner investment. We urge shareholders to read and digest this report.

❖ On the assumption that we can source sufficient internal investment to cover the stadium infrastructure requirements, and cover projected operating losses, in the absence of Football Fortune Income; the current club financial model can compete financially at the high end of League Two and mid-table League One.

❖ Football is not an exact science, in the short-term clubs can over-achieve versus player budget. It is important to appreciate that the correlation between wage costs and league position is less strong in the EFL Championship and League One than compared to the Premier League.

❖ Forecast losses for PCFC staying in League 1 results in a cash requirement of £2,760,000 (two million seven hundred and sixty thousand pounds) over the coming two seasons. It is important for shareholders to realise that this is based on us delivering a lower than the average player budget in this league.

❖ If the club was to gain promotion into the EFL Championship at the end of next season, current forecast EBITDA Operating Losses, assuming one year in League One 2017-18 and then a year in the Championship 2018-19, would result in £2,500,000 (two million five hundred thousand pounds) cash requirement. It is important for shareholders to realise that these losses would be based upon a less than average League One budget (as advised in the point above) and a Championship total wages budget of £11,300,000 (eleven million three hundred thousand pounds). The forecast 2018/19 average Championship total wages budget is approximately £26,000,000 (twenty six million pounds), this would result in our Championship player budget being approximately £14,700,000 (fourteen million seven hundred thousand pounds) below the current EFL Championship average.

PCFC Executive Statement: Key Points for Shareholders

❖ Finally; it is important to note that our budgets represent ‘Stand Still’ scenarios, with no significant additional investment in the following key areas of the club; o FOOTBALL SUPPORT OPERATIONS o ACADEMY o TRAINING GROUND o PITCH o STADIUM (INCREASED CAPACITY, ETC) o GENERAL CLUB INFRASTRUCTURE Produced by; Mark Catlin; Portsmouth Community Football Club Limited Chief Executive Officer Tony Brown; Portsmouth Community Football Club Limited Finance Director

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

This Executive Statement has been prepared for the shareholders of Portsmouth Community Football Club by the Executive Management team of the club, comprising Mark Catlin (Chief Executive Officer) and Tony Brown (Financial Director) working in conjunction with the club’s key Management Heads of Departments who have all endorsed its contents as a true reflection of the company’s past, current, and future operational requirements. FOOTBALL AS A BUSINESS & FINANCIAL REQUIREMENTS Although football is very much a business, it is not a ‘normal’ business in that the more successful you become, the more it costs to fulfil stakeholder expectations and compete at the higher level. The most significant step changes now take place between League One and Championship; and between the Championship and the Premier League. The inherent uncertainties of results and performances is the magic of sport – as with Leicester City winning the Premier League last year. However, in general the longer term statistics show that in each league, clubs with the higher playing budgets finish above those with lower ones. We all expect Manchester United, Manchester City, Liverpool, Arsenal, Chelsea and Tottenham Hotspur to perform well in the Premier League every season. Similar correlation between financial resources, player budgets, and success on the pitch has also passed down to Championship, League One and League Two as evidenced in the Deloitte’s Annual Review of Football Finance 2016 report. PORTSMOUTH FC - PAST FOUR YEARS FINANCIAL PERFORMANCE The club exited administration in 2013 and the Board mandated Mark Catlin (CEO), Tony Brown (FD) along with Heads of Departments to manage club business operations on a day to day basis. During this period; the club has repaid all post administration legacy debts, delivered three (and currently on course for four) years’ of consistent positive EBITDA Operating Profits (see below); established a modern training ground facility; restored stakeholders’ confidence in the honesty and transparency of club management; and has now secured promotion to EFL League One.

PORTSMOUTH FC 3 m AUDIT AUDIT AUDIT FORECAST FINANCIALS 2013 2013-14 2014-15 2015-16 2016-17

TURNOVER £370,078 £6,164,670 £5,742,254 £7,463,486 £6,807,282 OPERATING COSTS (£759,062) (£6,225,602) (£6,399,498) (£8,002,535) (£7,775,494) FORTUNE INCOME £421,511 £1,014,984 £625,000 £985,000 EBITDA OPERATING -£388,984 £360,579 £357,740 £85,951 £16,788

INTEREST CHARGE (£124,677) (£290,262) £1,470 £9,167 £0 DEPRECIATION (£241,603) (£357,092) (£587,332) (£674,000) PROFIT/(LOSS) (£513,661) (£171,286) £2,118 (£492,214) (£657,212)

However, shareholders should be clear that the club’s financial results have been underpinned by £3 million “Football Fortune Income” over the past four seasons. That is to say; income which cannot be guaranteed or budgeted for in future years, such as Player Sales, Cup Income, and Legacy Savings.

Fortune Income 2013-14 - £421,000 negotiated saving Legacy debts Fortune Income 2014-15 - £320,000 Legacy saving & Player Sales £695,000 Fortune Income 2015-16 - £625,000 FA Cup & League Cup revenue Fortune Income 2016-17 - £740,000 Player Sales & £245,000 crowd funding

TOTAL FORTUNE INCOME - £3,046,000

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

1. CROSSROADS ON WAY FORWARD FOR CLUB The club now stands at a crossroads in its ownership cycle after the heroic work done by all our supporters in saving the club in April 2013, and the subsequent last four years of business consolidation and restructuring. The advent of the Premier League and general influx of owners with their financial wealth and investment into English clubs at all levels has materially changed the face of English football, possibly forever. As a supporter-owned club we rely on a self-sustaining business model. We currently have no mechanism to generate the scale of regular investment we see at other clubs, and this issue will have an increasing impact on our future competitiveness both on and off the pitch.

2. COMPARISION WITH OTHER EFL CLUB FINANCIAL RESOURCES Portsmouth FC has spent the majority of its long history in the top two tiers of the English league pyramid, and we expect that the majority of stakeholders would agree that this is the club’s natural league ‘home’. Leaving the stadium investment issue to one side for a moment, what can the club realistically hope to achieve with its current supporter-led financial model, in each league? We offer below an overview of the financial impact on the Club’s current model, based on average League One player salaries and Championship Total Wages, financial profits & losses, and investment requirements in order to be competitive on the pitch both in League One in 2017-18 and potentially in EFL Championship in 2018-19 or thereafter. It is important also to recognise that EBITDA Operating Profit does not account for fixed assets costs required to support club operations including machinery for stadium and Training Ground, Player Transfers and Agents Fees. In addition; we have not included any provisions for contingencies for unbudgeted additional costs along the way. PORTSMOUTH FC LEAGUE ONE CHAMP 2017-18 BUDGETS 2017-18 2018-19

PFC L1 Budget Player Wages/PFC Champ Total Wages £3,000,000 £11,300,000 Average L1 Player Wages/ PFC Total Champ Wages £3,300,000 £26,000,000 Negative Variance -£300,000 -£14,700,000

Budget Attendance 16,700 17,500 Budget Loss 17-18 -£300,000 £0

Proposed Ticket Price Increase 15% 18%

Cash Required Operations -£760,000 -£500,000

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

EFL LEAGUE ONE: Reworking the finances on our current model suggests a mid-table League One playing budget can be achieved. However, this would require the club to assume an Operating Loss in the absence of equivalent ‘Football Fortune Income’ which would then need to be offset by new internal funding and/or investment. Key Points: Forecast 2017-18 League One Player Wages budget £3 million which would be below current average Player Wages of £3.3 million (Source: EFL reports to club Finance Directors dated March 2017)

EFL SCMP League One 2016-17 average £3.1 million excluding youth player wages which is forecast at £200,000 per annum per club which was the actual amount for ourselves this current season.

Forecast Operational Funding Requirement £760,000 in Season 2017-18.

The model cashflow includes increased budgeted ticket sales and some increased ticket pricing (subject to Board approval) of circa 15% to reflect higher league status and equivalent higher operating costs such as Policing costs & Government increases in casual wages; which is a material component for all football clubs.

EFL CHAMPIONSHIP: A ‘return to Championship’ forecast model has been consistently run by the executive management through the past four years to assist medium term strategic decision- making. Current model parameters and assumptions for the club if promotion to Championship was achieved in Season 2018-19 are as follows:-

Key Points: Total Club Championship Wages budget 2018-19 - £11.3 million Forecast Average Total Championship Wages 2018-19 - £26 million Actual Average Championship Total Wages budget 2014-15 £23 million (Source: Deloitte’s Annual Review of Football Finance 2016) The forecast increase in Club Total Championship wages is assumed due to increase in TV monies and Parachute payments of past two years as confirmed to the club by EFL and advised in emails to PFC Board. For example; Championship EFL Central Income was £4 million in 2014-15 and is now £6.4 million Current business model would support a payroll less than half the current forecast average in EFL Championship. Forecast Championship 2018-19 operational funding requirement - £500,000 which would primarily be used to pay for Promotion bonuses from EFL League one However, it is important to appreciate that the correlation between wage costs and league position is less strong in EFL Championship compared to Premier League (Source: Deloitte’s Annual Review of Football Finance 2016) ‘’In 2014-15 only two of the top eight highest wage payers in the Championship finished in the top third of the league. This demonstrates the opportunity that exists for Championship clubs to achieve success without necessarily incurring the highest wages costs’’

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

CHAMPIONSHIP FINANCIALS: The current Television deal and EFL Central Income emphasizes the growing gap between EFL League One and EFL Championship. TV income per club for the 2016-17 Season are as follows:- Championship - £6.4 million League One - £1.3 million League Two - £0.9 million

Whilst allowing for the related significant Premier League Parachute Payments as per above, average Championship Total Wages (as outlined in the 2016 Deloitte Football Finance Report) stood at £23 million per club in 2014-15 Season.

Average Championship club debt is now reported at almost £50 million per club by Deloitte’s and there is virtually no external funding now as Bank loans account for 1% of total net debt of £0.9 billion (or 76%) of the total net debt is in the form of interest free soft loans from shareholders.

The EFL is trying to address this predicament, but the new rules on Financial Fair Play give us little future comfort with the £13m limit for the 2015/16 season in line with the losses permitted under the new regulations which will permit a maximum loss of £39m (compared to an equivalent figure of £105m in the Premier League) over a rolling three season timeframe measured from March 2017. It’s important to note however; that in addition to the above new Championship allowable losses rule, owners are investing significantly more than these ‘allowable losses’ by continued investment in stadium infrastructure, sponsorship, and general capital investment projects.

In conclusion, it is highly unlikely that the Club’s current financial model can generate the required revenue to be able to offer a competitive Championship player budget. Shareholders should draw their own conclusions from the summary information above but the executive management believes that this club will require significant new investment of some type to be operationally sustainable in the EFL Championship.

ESCROW ACCOUNT & UNDERPINNING OF STADIUM INFRASTRUCTUR REQUIREMENTS Through a Council-led planning initiative in regard to the adjoining Tesco development back in 2013, a considerable fund was established to be used by the Club to upgrade and improve the stadium and its facilities at Fratton Park. The Council continues to monitor all funding through this ‘Escrow Account’ to ensure it is applied only to essential qualifying expenditure, and not applied, for instance, to the Player Budget.

Without the Escrow Account monies, there would have been an equivalent cash funding requirement, and/or reductions made elsewhere within the business. The only alternative in respect of spending on essential Health & Safety works is a reduction in stadium matchday capacity, which would have a resulting negative financial impact on the matchday receipts.

FUTURE STADIUM INFRASTRUCTURE REQUIREMENTS So far, this Statement has ignored the issue of the club’s stadium. Fratton Park embodies the history and character of the club, but is now outdated by most modern standards and has been starved of serious investment for many years. We can properly assume that our stakeholders will be aware of many of the big issues, and also small problems. It is irrefutable that big buildings of age will cost big money to maintain and improve.

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

The stadium infrastructure requirements [which are clearly detailed and attached to this statement], will impact greatly at some fast-approaching time on the club’s operating budget. The ‘£5 million contingency requirement over a five-year period’ does not simply mean that we can allocate £1million per year every year. Actual annual expenditure will depend on agreeing a Remedial Works pregame with the Council which improves compliance with all latest standards and endeavours to maintain matchday capacity so far as possible. However, addressing a ‘stand-wide access issue’ for instance may involve spending in excess of the £1 million, and the work could not be undertaken except in one continuous project. It is also important for stakeholders to understand that the budget estimate figure is to improve long-term compliance with latest standards in and around Fratton Park, and not specifically to increase facilities or improve the spectator experience.

As stated above, the notional £5million contingency requirement has been separated out from the attached financial forecasts. Its inclusion obviously has a severe negative impact on our operating budgets and projections, and has yet to be properly addressed. There is currently circa £900,000 remaining in the Escrow Account, and this sum should meet the majority of the expected cost for a first phase of remedial works commencing in early May 2017.

The bulk of ESCROW monies has been spent to date on new floodlights, PA system, CCTV system, replacement seats, new toilets, lounge upgrades, tarmac concourse, extensive work on Tudor frontage, external re-paint, upgrade to LED lighting, steelworks, stadium staircases & gantry repairs, kitchen repairs and various stadium repair work.

We have separated this £5million infrastructure contingency requirement in our financial forecasts below. We have estimated a notional £250,000 stadium infrastructure cash requirement in next season then rising to £1 million per annum – but stress again that we are not currently at a position to guarantee any timeline on stadium cash requirements

LEAGUE ONE -2 YEARS LEAGUE ONE LEAGUE ONE 2017-18 2018-19

Cash Required Operations -£760,000 -£750,000

Cash Required Stadium -£250,000 -£1,000,000

Investment Required -£1,010,000 -£1,750,000

TOTAL -£2,760,000

LEAGUE ONE & CHAMP - 2 YEARS LEAGUE ONE CHAMP

2017-18 2018-19

Cash Required Operations -£760,000 -£500,000 Cash Required Stadium -£250,000 -£1,000,000

Investment Required -£1,010,000 -£1,500,000

TOTAL -£2,510,000

Part of the cash required from operations in League One for Season 2017-18 is for player/team management bonuses on promotion to League One of £325,000 (equivalent would be £500,000 on promotion to Championship in Season 2018-19)

PCFC Executive Statement: Future Financial Forecasts (19.04.17)

SHAREHOLDERS DECISION As per our policy of being open and transparent with all club stakeholders, we believe it essential to fully update all shareholders on the key financial parameters appertaining to the club moving forward so that you are fully informed in deciding which future route YOU wish the club to adopt. This Management Team Statement is intended therefore to provide appropriate information in a neutral format to assist individual stakeholders to reach a decision on the current offer from Tornante. No recommendation is offered, and none should be construed.

In producing the budget forecasts, we have offered scenarios that enable the Club to financially ‘stand still’, nothing more. However, it is likely that additional investment in excess of those described here (such as in first team structure, Academy operations, Fratton Park pitch & spectator experience, and future training ground improvements) would improve the development of the Club in the short, medium and long term.

Stakeholders should also consider the current financial requirements of the club in relation to the other EFL clubs when weighing up the merits and disbenefits of the Tornante offer. Stakeholders can then make their decision based upon their own personal future vision for the club’s future.

We believe that this decision needs to be taken by shareholders, and we fully respect that each shareholder will have their own personal vision of the way forward for the club.

Good luck in your deliberations! Play Up Pompey!

Mark Catlin: Chief Executive Officer Tony Brown: Finance Director

PCFC Executive Statement: Stadium Strategy Document

Stadium Strategy It is widely acknowledged that PCFC accepted Fratton Park in 2013 in an extremely difficult operating condition following years of underfunding and uncertainty. The Club has since worked very hard with the Council to maintain the operating integrity of the facility on a matchday. A figure approaching approximately £2m has already been spent in the past three years on key safety systems and spectator amenity areas and, where immediate capital improvements have not been possible, the Club and Council have together agreed short-term operating arrangements that have mitigated potential problems, and broadly maintained matchday capacity. The PCFC Board commenced a Stadium & Property Strategy Review at the start of this Season with the assistance of external consultants. A meeting between the consultants and representatives of Portsmouth City Council reaffirmed the Council's support for the Club, but also highlighted the urgent need for the Club to take further active steps to improve its longer term physical compliance with rules and regulations in and around the stadium. It was advised it could not forever rely on temporary matchday operational arrangements. An initial high level review of likely works to achieve full compliance at Fratton Park at ‘around’ the current matchday capacity of 19,000 spectators, reported an indicative budget cost to the Board of “say, £5M over five years”. Other reports have, we believe, placed this figure to be on the conservative side. Shareholders should be aware that, even then, ‘full compliance’ is a relative term; it is, for instance, virtually impossible at any cost to provide full wheelchair access and related facilities throughout the whole of Fratton Park. Shareholders should also be aware that this indicative budget sum was not expected to provide significant improvements in facilities, capacity or spectator experience - but to achieve more robust 'structural' compliance with all relevant building standards and operating regulations, maintaining broadly the same matchday capacity. Detailed engineering investigations around the Stadium are close to completion and, following design/specification review, will result in a phased and costed programme of remedial works to be agreed in early course with Portsmouth City Council. Shareholders may well have seen recently various minor excavations and temporary precautionary supports. An initial phase of remedial works will then commence this summer. It cannot be confirmed if this can be funded through monies remaining in the escrow account that arose from the Tesco development scheme. It is unlikely that the initial compliance cost estimate, simply to maintain the status quo of ‘£5M over five years’, is substantially wrong. It could potentially be slightly lower, but there is a possibility it could be substantially higher. There is currently approximately less than £1M remaining in the escrow account able to be applied to remedial works - and therefore there is currently an expected, substantial unfunded capital deficit in excess of £4M. To put this figure into perspective, this sum is equivalent to ALL the matchday revenue (season tickets, matchday tickets, hospitality, etc.) for this 2016/17 season. In the event that the necessary funding for remedial works is not received, it can confidently be stated that the Club can expect the matchday operating capacity of Fratton Park to fall on a year-by-year basis, despite the ongoing support of Portsmouth City Council. Safety is obviously paramount and in the interest of public safety, there is no other alternative way to mitigate the increasing risk, except to reduce the number of spectators in any of the ‘at risk’ areas. Reducing capacity then has an immediate downward impact on the Club's revenues and, in all likelihood, significantly affect its ability to produce a competitive budget on the pitch. It is impossible to be more specific about likely capacity reductions over the course of the next few years in the event of no further substantial funding being available. However, Shareholders should bear in mind that the bulk of the remedial works programme is required to reach robust compliance with current standards, and one can expect those standards to continue to move upwards on an annual basis. Produced by; The Executive Management Team of Portsmouth Community Football Club Limited in conjunction with its specialist stadium safety and security advisor