CIN.L Regulatory News (CIN)

City of London Group plc (COLG)

Shareholders' Agreement - Therium Capital

COLG has today entered into a supplemental deed ("Supplemental Deed"), conditional upon obtaining shareholder consent, varying the terms of a shareholders' agreement, governing Therium Capital Management Limited ("Therium"), entered into between COLG, Therium, John Byrne and Neil Purslow, dated 17 February 2010 ("Shareholders' Agreement").

Therium provides third party litigation funding for individuals, trustees and companies wishing to pursue substantial claims through litigation in the UK. COLG is a 50 per cent. shareholder of Therium and supports it through various debt and equity arrangements and has provided loans for working capital purposes.

The Shareholders' Agreement ensures Therium's working capital requirements are met for a period of two years from the date of that agreement (17 February 2010) and, accordingly, COLG and Therium have agreed, subject to approval by the shareholders of COLG and Therium, to restructure Therium's current debt and equity arrangements. John Byrne and Neil Purslow are directors of Therium (Relevant Directors) and each are regarded as a related party pursuant to Listing Rule 11.1.4. The amendments to the Shareholders' Agreement are regarded as a related party transaction pursuant to Listing Rule 11.1.5 and, accordingly, require approval of the shareholders of COLG in a general meeting.

Debt and Equity Arrangements

The following funding arrangements are set out in the Shareholders' Agreement:

a) COLG's shareholding in Therium, representing 50 per cent. of its issued ordinary share capital, may be adjusted pursuant to a ratchet mechanism, summarised as follows:

(i) if there is less than £10 million of additional funding (excluding the seed monies provided by COLG) in the Therium Litigation Fund as at 31 December 2011 then Therium may convert 40 per cent. of COLG's holding of ordinary shares in Therium (with COLG's resulting shareholding reducing to 37.5 per cent.) into Deferred Shares; and

(ii) if there is more than £10 million but less than £20 million of additional funding (excluding the seed monies provided by COLG) in the Therium Litigation Fund as at 31 December 2011, then Therium may convert 20 per cent. of COLG's holding of ordinary shares in Therium (with COLG's resulting shareholding reducing to 44.4 per cent.) into Deferred Shares,

(the "Ratchet").

The Deferred Shares (as defined in the Shareholders' Agreement) have no right to participate in the income or capital of Therium and in the event of any reduction in COLG's shareholding, COLG is entitled to receive a loan note from Therium up to an amount equal to the fair value of the ordinary share capital forgone.

b) The Shareholders' Agreement permits Therium to levy a management charge on its funds of 2 per cent. of their asset value, which sums may be used by Therium for working capital purposes. No management charge has been levied as at the date of this announcement. In the event there are insufficient funds available to Therium, COLG can be called to provide further working capital loans to cover any shortfall. The Shareholders' Agreement limits this support to £700,000 per annum.

c) In the event Therium makes any dividend payments to the current holders of preference shares, COLG is entitled to charge a management fee to Therium equal to the aggregate dividend paid to the preference shareholders.

Excluding monies loaned for seed funding, £720,000 has been provided by COLG to Therium for working capital purposes ("Working Capital Loans").

In addition to the Shareholders' Agreement, COLG is party to a loan agreement, whereby Therium Litigation Funding LLP has agreed to loan £420,000 to Therium, dated 24 June 2010. COLG has agreed to advance loans to Therium to enable it to meet its obligations under this loan agreement.

Proposed amendments to the Shareholders' Agreement

As at 31 December 2011, more than £10 million but less than £20 million of additional funding (excluding the seed monies provided by COLG) has been raised and therefore the Ratchet is capable of exercise, although Therium is obliged not to serve notice to convert any ordinary shares before 31 January 2012 or after 31 March 2012.

In order to preserve both COLG's ongoing shareholding of 50 per cent. and Therium's future funding arrangements, it is now proposed that the Shareholders' Agreement be amended to reflect the following:

a) Further to paragraph (a) above, COLG's shareholding of ordinary shares in Therium will remain at 50 per cent. and the Ratchet will be removed from the Shareholders' Agreement.

b) Further to paragraph (b) above, the Shareholders' Agreement will now include a minimum levy of £30,000 per annum on the existing management fee of 2 per cent. per annum of the asset value of COLG funded cases, which Therium is permitted to charge COLG. Any previous management charges not levied upon COLG will fall away.

c) Further to paragraph (c) above, COLG shall continue to be permitted to charge a management fee and the Shareholders' Agreement will now provide that the fee shall be equal to the aggregate dividend paid to the preference shareholders, less the amount of any dividend paid to COLG on any preference shares it has subscribed for in accordance with paragraph (e) below.

d) COLG waives the right to receive the repayment of £720,000 loaned to Therium pursuant to the Working Capital Loans.

e) COLG shall subscribe for preference shares in Therium, or provide a working capital loan, in tranches of up to £60,000 per month for 12 months (up to a total of £720,000) to 28 February 2013 to meet Therium's operational expenditure.

f) Until such time as the preference shares have been redeemed, COLG agrees not to exercise any rights of pre-emption to acquire further ordinary shares where such acquisition would result in its holding of ordinary shares exceeding 50 per cent. COLG shall be entitled to acquire any further shares where ordinary shareholders of Therium have not exercised their rights of pre-emption under the articles of association.

The Supplemental Deed provides that any changes to the Shareholders' Agreement are conditional upon approval in general meeting of the shareholders of COLG and Therium. The Supplemental Deed will terminate if both shareholder approvals have not been obtained by 28 March 2012.

Additional Information

As at 31 March 2011 (being the last audited accounts of Therium), the gross assets of Therium were £777,439 and the losses attributed to Therium were £729,176.

COLG and the Relevant Directors hold, in aggregate, 90.9 per cent. of the ordinary share capital in Therium and both intend to vote in favour of the proposed resolution to be put to Therium shareholders to approve the Supplemental Deed.

COLG will be issuing a circular including a notice of general meeting to COLG shareholders to approve the terms of the Supplement Deed in due course.

2 February 2012

Enquiries: