Issue of Equity

AIM: KLN

21 September 2012

The Kellan Group PLC

("Kellan", the "Company" or "Group")

Issue of equity, Conversion of Loan Notes and loan facility

Kellan (AIM:KLN.L), a leading IT, accountancy, hospitality, leisure and professional services recruitment group, announces it has conditionally raised £1.4 million by way of a Subscription, received notice of conversion of certain Loan Notes and entered into a Loan Facility. A summary of the key points are as follows:

Subscription

• Paul Bell, who currently holds 23.83 per cent. of the issued share capital of Kellan, has agreed to invest £1,260,000 via a conditional subscription for 63,000,000 new Ordinary Shares at 2p per share, which will result in him holding 42.46 per cent. of the Enlarged Issued Share Capital (following implementation of the Proposals).

• Rakesh Kirpalani, finance director of Kellan's operating subsidiaries, and Don Hanson, a 3.1 per cent. shareholder in the Company, have agreed to conditionally invest £20,000 and £100,000, respectively through subscriptions for 6,000,000 new Ordinary Shares at 2p per share.

• Additional investment amounting to £20,000 from senior management within Kellan through subscriptions for 1,000,000 new Ordinary Shares at 2p per share.

Conversion of Loan Notes

• Certain holders of Loan Notes, including Tony Reeves and Ross Eades, both directors of Kellan, have conditionally agreed to convert, in aggregate, £650,000 nominal of Loan Notes into 30,500,000 new Ordinary Shares pursuant to the terms of the Loan Notes.

• Paul Bell will have the right to appoint a non-executive director to the Board on completion of the Proposals.

Loan Facility

• Paul Bell has conditionally agreed to provide the Company with a £1.26 million secured loan facility for a five year term at an interest rate of 4 per cent. per annum.

• Loan facility to be drawn down as and when and to the extent that the Company repays existing bank debt.

• Loan of £310,000 advanced by Paul Bell on 11 July 2012 capitalised as part of subscription commitment above.

Board Changes

• Tony Reeves to become sole Chairman.

• John Bowmer steps down as Joint- chairman to become a non-executive director.

• Rakesh Kirpalani appointed Finance Director.

• Quentin Spratt appointed as a non-executive director with effect from Admission.

Current trading and use of funds

• Current trading shows encouraging signs in IT and the Hospitality and Leisure markets whilst conditions remain challenging in accounting, retail and manufacturing

• The financing package will strengthen the Group's balance sheet and enable the focus to turn positively towards growth

• Funds will be used to support assertive growth strategies defined in each of its brands

Tony Reeves, Chairman of Kellan, commented:

"This is an important and exciting step for Kellan which draws a line under our recent history and despite the difficult economic climate enables us to face the future with real optimism. We have the right teams in place at Executive and Senior management level with practical and assertive plans for growth which can now be implemented from a far stronger financial platform. I am grateful to our Board for their support to our strategy and am delighted to give a more positive outlook to our investors, customers and our hard-working and loyal staff."

ENQUIRIES:

NOTES:

Kellan is a market leading recruitment business operating across a wide range of functional disciplines and industry sectors.

Kellan operates through a portfolio of premium brands within the currently fragmented recruitment sector. Currently, through its three recruitment brands, Berkeley Scott, Quantica and RK, Kellan has the capability and resource to recruit professionals into finance & accounting, information technology, supply chain & procurement, legal, retail, manufacturing, catering, hospitality and leisure.

Kellan currently operates through 16 UK offices, seven businesses and three brands

http://www.kellangroup.co.uk/

Introduction

Kellan announces a number of proposals, which, if completed, will strengthen the Company's balance sheet and provide the funds to support the Group's future growth strategy. These include:

·; a subscription by Paul Bell for 63,000,000 new Ordinary Shares at 2p per share, to raise £1,260,000 before expenses. The loan of £310,000 advanced by Paul Bell on 11 July 2012 will be capitalised as part of his subscription commitment. Paul Bell will hold 88,991,840 new Ordinary Shares at Admission, representing 42.46 per cent. of the Enlarged Issued Share Capital (following the implementation of the Proposals);

·; additional subscription to raise £140,000 (before expenses), including £20,000 from Rakesh Kirpalani, Finance Director of Kellan's operating subsidiaries;

·; certain holders of Loan Notes have conditionally agreed to convert, in aggregate, £650,000 nominal into 30,500,000 Ordinary Shares; and

·; Paul Bell has conditionally agreed to provide a secured five year term loan facility of £1.26 million, which may be drawn down in order to repay the Company's existing bank debt.

The Subscription, the Loan Note Conversion and the Loan Facility are all inter-conditional, and are all also conditional upon the Subscription Shares and the Loan Note Conversion Shares being admitted to trading on AIM.

The Subscription

Under the terms of the Subscription Letters, Paul Bell, Rakesh Kirpalani, Don Hanson and certain senior members of the Kellan management team have agreed to subscribe for 70,000,000 new Ordinary Shares, in aggregate, at the Subscription Price, raising £1.4 million, before expenses, for the benefit of the Company.

The Subscription is conditional, inter alia, upon the Loan Facility coming into effect and the Admission of the Subscription Shares and the Loan Note Shares to trading on AIM.

Due to the fact that Paul Bell is a substantial shareholder under the AIM Rules his participation in the Subscription constitutes a related party transaction as defined by the AIM Rules. The Independent Directors, having consulted with Merchant Securities Limited, the Company's nominated adviser, consider that Paul Bell's participation in the Subscription is fair and reasonable insofar as Shareholders are concerned.

The Subscription Shares, when issued and fully paid, will rank equally in all respects with the issued Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after Admission.

It is expected that Admission will become effective and dealings in the Subscription Shares will commence on 26 September 2012.

Following the Proposals, the Company will have 209,610,297 Ordinary Shares in issue and admitted to trading on AIM.

Loan Note Conversion

Tony Reeves and Ross Eades, both directors of the Company, and Dr Gerald Bereika, who currently holds 5.5 per cent. of the issued share capital of the Company, have undertaken to convert, in aggregate, £650,000 nominal, into 30,500,000 new Ordinary Shares pursuant to the terms of the Loan Notes as follows:

The Loan Note Conversion is conditional upon the completion of the Subscription and admission of the Loan Note Shares to trading on AIM.

It is expected that Admission will become effective and dealings in the Loan Note Conversion Shares will commence at the same time as Admission of the Subscription Shares on 26 September 2012.

Following completion of the Loan Note Conversion, the Company will have £550,000 nominal of the 2010 Loan Notes outstanding and £811,000 nominal of the 2011 Loan Notes outstanding.

Loan Facility

Paul Bell has agreed to provide the Company with a loan facility in the principal sum of £1.26 million, which may be drawn down for the sole purpose of repaying amounts outstanding under its existing bank debt facility with Barclays Bank plc. At 30 June 2012, the Company had outstanding bank debt of £1.26 million and under the current terms of its existing facility agreement with Barclays Bank plc, the Company will pay £210,000 on each quarter date thereafter from 30 September 2012 to 30 June 2013 (inclusive), following which a final repayment of £420,000 will be made on 24 August 2013. The Directors currently intend to draw down on the Loan Facility in order to make these payments to the bank until such time as the bank debt is extinguished.

The Loan Facility carries a 4 per cent. per annum interest rate, payable six-monthly in arrears, and repayable on demand at any time on or after 20 September 2017. The Loan Facility is secured against the Group's assets, but is subordinated to the senior debt security held by Barclays Bank plc. The Loan Facility contains the usual termination clauses in the event of non-payment of interest or insolvency etc.

Due to the fact that Paul Bell is a substantial shareholder under the AIM Rules, the entering into the Loan Facility constitutes a related party transaction as defined by the AIM Rules. The Directors, having consulted with Merchant Securities Limited, the Company's nominated adviser, consider that the terms of the Loan Facility are fair and reasonable insofar as Shareholders are concerned.

Board Changes

Tony Reeves, currently Joint-Chairman of the Company, has been appointed the sole non-executive Chairman of the Company, following John Bowmer's decision to step down as Joint-Chairman of the Company. Mr Bowmer remains a non-executive director of the Company. In addition, Rakesh Kirpalani, who has been acting as Finance Director designate, has been appointed as Finance Director of the Company with immediate effect. Furthermore, Quentin Spratt has been appointed as a Non-executive director of the Company with effect from Admission.

Interests of the directors and substantial shareholders at Admission

The interests of the Directors and substantial shareholders at present and at Admission are and will be as follows:

* Directors of Kellan.

Following Admission, there will be 209,610,297 Ordinary Shares in issue.

Rule 9 considerations

As a result of the Subscription, Paul Bell will be interested in 88,991,840 Ordinary Shares, representing 42.46 per cent. of the Enlarged Issued Share Capital and accordingly would normally have been under an obligation under Rule 9 of the Code to make a general offer to all the remaining shareholders of Kellan to acquire their shares.

In addition, Don Hanson and Rakesh Kirpalani, who are participating in the Subscription, and Tony Reeves, Ross Eades and Dr Gerald Bereika, who are participating in the Loan Conversion, who, in aggregate, hold 25,411,620 Ordinary Shares, representing 23.29 per cent. of the Existing Shares, are not deemed to be independent for the purposes of waiving any obligation under Rule 9 of the Code.

However, John Bowmer, James McHugh, Michael Jackson, Peter Digby, Patrick De Maeseniere, Joost Schuijff and Raymond Miles who, in aggregate, hold 31.45 per cent. of the Existing Shares, (representing 59.46 per cent. of the Existing Shares held by independent Shareholders), have confirmed that they would vote in favour of a resolution of the Company's independent Shareholders to approve a waiver of the obligations under Rule 9 of the Code in relation to Paul Bell, were it put to a general meeting of the Company. As a result, the Panel has, conditional on Admission, agreed to waive the requirement for Paul Bell to make an offer for the entire issued share capital of the Company which would otherwise arise as a result of his subscription for 63,000,000 Subscription Shares. Accordingly, Shareholders will not be asked to approve a Rule 9 waiver.

On Admission, Paul Bell will hold 42.46 per cent. of the Enlarged Issued Share Capital and would not be able to acquire further shares, without incurring an obligation to make an offer to shareholders of the Company under Rule 9.

Trading in the Company's Ordinary Shares on AIM

Trading in the Ordinary Shares were suspended with effect from 29 June 2012 pending the publication of the audited accounts for the year ended 31 December 2011. The annual results for the year ended 31 December 2011 will be announced immediately following this announcement and the Annual Report for the year ended 31 December 2011 is expected to be published and sent to shareholders later today. Accordingly, the Directors expect that trading in the Company's ordinary shares will re-commence on 24 September 2012.

Further disclosure

Rakesh Kirpalani ACCA, aged 33, is currently a director of RK & PK Limited. He currently holds 60,000 Ordinary Shares, representing 0.05 per cent. of the Existing Shares.

Quentin Rodney Spratt, aged 64, is currently a director of QRS Northern Limited and Salitas Limited (which is in members' voluntary liquidation). In the last five years, he has been a director of Acceleris Limited.

Save as disclosed above, the Company confirms that there is no further information to disclose under paragraph (g) of Schedule Two of the AIM Rules.