Amendment to JV agreement

Formation Group Plc ("Formation")

Amendment to Joint Venture Agreement regarding Aldgate East Property Development

 and a Related Party Transaction

On 14 December 2009, Formation announced that a settlement had been reached by Julius Properties Limited ("JPL") with the Administrator of Heritable Bank plc regarding the property development above Aldgate East Station, London ("Aldgate").

Formation also announced that it, together with its joint venture partner JV Finance Limited, had each invested £5.5 million in JV Finance Ventures Limited, a special purpose vehicle, to discharge the amount owed to the Administrator. In return JPL, also party to the joint venture agreement, had agreed that the profit from the Aldgate development would belong solely to JV Finance Ventures Limited. A first debenture over Aldgate was subsequently established for the benefit of JV Finance Ventures Limited.

It was further announced that the provision of finance to develop Aldgate would be provided on such terms as the parties to the joint venture agreement agree or by loans from a bank or by both. It was expected that JV Finance Ventures Limited would require working capital during the development of Aldgate and if Formation was unable or decided not to contribute to the funding requirement, JV Finance Limited had agreed that it would make an excess contribution to make up the difference. If such an event in the future were to happen, JV Finance Ventures Limited would be offered an option by way of security over the profits which Formation is entitled to from the Whitechapel development, a development scheme at 52 - 58 Commercial Road, London E1, involving Formation and the Kennedy Family Trust.

To date £18.2 million has been invested in JV Finance Ventures Limited of which £11.5 million has been invested by JV Finance Limited and £6.7 million by Formation. The Board decided, bearing in mind Formation's other financial commitments and in particular the ongoing litigation previously announced to shareholders, not to invest further in JV Finance Ventures Limited at this stage. To reflect the additional investment by JV Finance Limited Formation has agreed to an amendment to the terms of its equity participation in JV Finance Ventures Limited from 50 per cent. to 36.88 per cent. Formation's equity interest in JV Finance Ventures Limited may vary in the future dependent upon the finalised cash inputs from each party. The funds have been invested for a 10 year period with interest calculated on the annual outstanding balances at 10 per cent. per annum and levied on redemption of the loan. JV Finance Ventures Limited has not been offered an option by way of security over the profits which Formation is entitled to from the Whitechapel development. Columbia Estates (CI) Limited will now conduct the day to day management of the development after consultation with both Formation and JV Finance Limited.

The remaining terms of the joint venture agreement are unaltered.

Formation also announces that it has received a loan from Aquarelle Limited, a company incorporated in Jersey and connected to the Kennedy Family Trust, of £197,000 for the purposes of additional working capital. The loan is repayable on demand and interest is payable on the loan at a rate of 15 per cent. per annum. As security for the loan Formation has provided Aquarelle Limited with a charge over its shareholding in JV Finance Ventures Limited.

The amendment to the joint venture agreement and the loan with Aquarelle Limited are both viewed as related party transactions given their relationship with the Kennedy Family Trust, which is also the majority shareholder in Formation. In accordance with the AIM Rules, the directors independent to the transaction are required to consider, having consulted with the Company's Nominated Adviser, that the terms of the transactions are fair and reasonable.

The independent directors consider, having consulted with Zeus Capital (who have taken into account the commercial considerations of the independent directors), that the terms of these transactions are fair and reasonable insofar as shareholders of Formation are concerned.

The Board are pleased to report that Formation is in discussions in relation to funding for the Aldgate development and we hope to make a further announcement in this regard to shareholders in the near future.

Enquiries:

Formation Group PLC

Tel: 020 7930 7590

David Kennedy (Chief Executive Officer)

Zeus Capital 

Tel: 0161 831 1512

Ross Andrews

Tom Rowley