Northern Rock Shareholder Action Group

The following note was issued prior to the EGM on the 15th January 2008.

Northern Rock Shareholders Action Group – Recommendation on How to Vote at the Extraordinary General Meeting (EGM)

If you are a shareholder in Northern Rock you should have received a notice of an Extraordinary General Meeting (EGM) of the company to consider and vote on a number of resolutions. These basically comprise two groups of resolutions: 

A. Resolutions that restrict the Board of directors from issuing new shares, disposing of assets, buying assets or restructuring subsidiaries without the prior approval of shareholders (Resolutions 1,2,3 and 4). 

B. Resolutions that approve the reappointment of the five new directors who have been    co-opted to the Board since the last General Meeting (Resolutions 5,6,7,8 and 9). 

The last five resolutions are routine business, but the first four resolutions have been requisitioned by SRM Global and RAB Capital, two major shareholders in the company. The Board has recommended you vote against the first four resolutions and you can read their justification in the EGM notice. However, we believe that those resolutions are in the best interests of shareholders in that they ensure that you will have a vote on any proposed major changes to the business which might affect the value of your shares.  

Note that although the Listing Rules normally ensure that shareholders do get to vote on major corporate changes such as substantial disposals, those rules can be waived by application to the Takeover Panel where circumstances justify it – and it is not difficult to see what justifications might be put forward in the case of Northern Rock. Therefore there is good reason to have some additional restrictions added to the Articles of Northern Rock to protect the interests of shareholders, and to ensure that the Board does not come under undue pressure from third parties to make disposals that are unwise. The Board has argued that it might be inconvenient to require the obtaining of shareholder consent in advance and that they undermine the authority of the board, but we do not agree with those points. The minor disadvantages are outweighed by the benefits in protecting shareholders interests.

In addition they have said that Resolution 3 lacks clarity and may be difficult to interpret but we do not agree with that either – in our view the proposed new Article is reasonably clear if somewhat complex, but there should be no great difficulty in interpreting it. Therefore our first recommendation is: 

Recommendation 1: Vote in favour of Resolutions 1, 2, 3 and 4.   

As regards the reappointment of the five directors which includes Bryan Sanderson, the Chairman, we have no objection to those appointments at this time. It would not be impossible for the Board to continue if these directors were not reappointed as the remaining directors could immediately co-opt others. But there would clearly be some disruption and without other directors ready to stand this appears unwise. In addition although we have some concerns about the speed of progress on the “strategic review” we do support the directors at this time. We therefore recommend you vote in favour of their reappointment. 

However some shareholders may be unhappy that Virgin Group was made the preferred bidder, although on a non-exclusive basis, with a proposal that we do not consider to be worthy of consideration. In that case we suggest you may wish to show your displeasure by abstaining (ie. ticking the “vote withheld” box on the proxy voting form) rather than voting against. 

Therefore our second recommendation is: 

Recommendation 2: Vote in favour of or abstain on Resolutions 5, 6, 7, 8 and 9.  

However you choose to vote, please do ensure you vote. So our third recommendation is: 

Recommendation 3: Make sure you return the proxy voting form as soon as possible whether you plan to attend the meeting or not.  

We also suggest it is a good idea for shareholders to attend the meeting and ask questions of the directors so you get a clear understanding of what the directors have been doing and why they have taken the steps they have in the last few weeks. This is a golden opportunity to get more open debate on the problems facing the company and how to deal with them. You would also be able to question them on the particular issues in the EGM resolutions. So our fourth recommendation is: 

Recommendation 4: Attend the EGM Meeting if possible. 

Shareholders in nominee accounts 

If your shares are held in a nominee account (ie. you do not hold a paper share certificate and are not a Personal Crest member), then you will not receive a proxy voting form or a notice of the EGM from the company (these documents are present in the following files: EGM_Notice and EGM_Proxy_Form ). You will need to contact your nominee operator (ie. your stockbroker or whoever you purchased the shares through) to ask them to vote on your behalf. If you have any difficulty in voting then please contact UKSA for advice.