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Virgin Consortium Submits Formal Proposal

A Virgin-led consortium (the “Consortium”) has today submitted to the Tripartite Authorities a formal proposal to recapitalise and refinance Northern Rock plc (the “Company”).

The Consortium’s intention is that the Company continues as a going concern and a listed entity – rebranded as Virgin Bank.

Sir Brian Pitman, proposed Executive Chairman of Virgin Bank, said: “We have made a proposal that seeks to stabilise the Company and rebuild it as a trusted and thriving institution under the Virgin brand with a long-term future. The proposal is a sound public-private solution for Northern Rock that will see taxpayers’ interests protected and give existing shareholders the opportunity to invest alongside and at the same subscription price as the Virgin Consortium.”

The Consortium believes that its proposal meets all of the Tripartite Authorities’ objectives. A clear strategy is envisaged for full repayment of the financing package arranged by HM Treasury and the Bank of England and for the release of HM Treasury’s guarantees. In recognition of the proposed support of the Company’s near term financing, HM Treasury will also receive a warrant over part of the Company’s share capital.

The Consortium believes that the Company must be strongly capitalised to withstand the full effects of potential adverse market conditions. Therefore the Consortium proposes to lead a substantial injection of £1.25bn of new equity capital into the Company. This will be structured as £500m cash injection from the Consortium partners, contribution of the complementary Virgin Money business for £250m, and a rights issue of £500m priced at 25p per share. The rights issue – under which existing shareholders are expected to receive rights to subscribe for 4.7 new shares for every share that they currently own – will allow existing shareholders to subscribe capital at the same price as the Consortium.

An experienced executive management team has been assembled, including Sir Brian Pitman as Executive Chairman and Jayne-Anne Gadhia as CEO. New and experienced candidates for Finance Director, Treasury Director and Risk Director have also agreed to join the Company if the Consortium’s proposal proceeds.

The full details of the proposal remain confidential.

Any issue of new equity by the Company would be conditional on the approval of its shareholders, including their approving a "whitewash" of the provisions of Rule 9 of the City Code on Takeovers and Mergers (“Takeover Code”), which would otherwise require the Consortium to make a takeover offer for the Company's existing share capital.

This announcement does not constitute a commitment to proceed with the proposal or any other transaction in respect of Northern Rock and, in particular, it does not constitute an offer for Northern Rock or an announcement of a firm intention to make an offer under Rule 2.5 of the Takeover Code. Accordingly there can be no certainty that the proposal will result in any transaction or offer.

Greenhill & Co. International LLP (“Greenhill”) is acting exclusively for Virgin Management Limited (“Virgin”) and for no-one else in connection with the Proposal and will not be responsible to anyone other than Virgin for providing the protections afforded to clients of Greenhill or for providing advice in relation to the Proposal or any other matters referred to in this announcement.

Quayle Munro Group (“QMG”) is acting exclusively for Virgin and for no-one else in connection with the Proposal and will not be responsible to anyone other than Virgin for providing the protections afforded to clients of QMG or for providing advice in relation to the Proposal or any other matters referred to in this announcement.

Contact:

Nick Miles - M:Communications 020 7153 1530

Dealing Disclosure Requirements

Under the provisions of Rule 8.3 of the Takeover Code, if any person is, or becomes, “interested” (directly or indirectly) in 1% or more of any class of “relevant securities” of Northern Rock plc, all “dealings” in any “relevant securities” of that company (including by means of an option in respect of, or a derivative referenced to, any such “relevant securities”) must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the “offer period” otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an “interest” in “relevant securities” of Northern Rock plc, they will be deemed to be a single person for the purpose of Rule 8.3.

Under the provisions of Rule 8.1 of the Takeover Code, all “dealings” in “relevant securities” of Northern Rock plc by Virgin Group Holdings Limited, or by any of their respective “associates”, must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.

A disclosure table, giving details of the companies in whose “relevant securities” “dealings” should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel’s website at www.thetakeoverpanel.org.uk.

“Interests in securities” arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an “interest” by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.