Proposed grant of authority

Northern 2 VCT PLC
15 February 2006


Northern 2 VCT PLC (the 'Company')

Proposed grant of authority to issue new Ordinary Shares, amendment of the
Articles and adoption of new management fee and performance incentive scheme
arrangements

A copy of the above document has now been posted to shareholders. The full text
of the Chairman's letter is set out below.
Introduction
In my statement to Shareholders on pages 2 to 5 of Northern 2 VCT PLC's interim
report for the six months ended 31 July 2005, published on 26 September 2005, I
indicated that the Directors had the following matters under review:

   •the possibility of raising further funds through a share issue during the
    2005/06 tax year;
   •the requirement in the Articles for a continuation vote to be put to
    Shareholders at the annual general meeting in May 2006; and
   •the structure of Northern Venture Managers' management fees and
    performance incentive arrangements.

This letter gives you information on proposals to (i) launch an issue of up to
11 million new Ordinary Shares to existing Shareholders and new investors to
raise approximately £10.5 million (before expenses), (ii) amend the Articles so
that the resolution for the continuation of the Company is first considered at
the annual general meeting in 2011 instead of 2006, and (iii) introduce new
management fee and performance incentive arrangements, and asks for your support
for the enabling resolutions set out in the notice of Extraordinary General
Meeting on page 6.

Additional Capital
In the 2004 Budget the Government announced a temporary doubling of the rate of
income tax relief on subscriptions for new shares in VCTs to 40% for the 2004/05
and 2005/06 tax years. This has provided a stimulus to investment in VCTs, with
fundraising increasing to a record £520 million in the 2004/05 tax year. In his
Pre-Budget Report Statement delivered on 5 December 2005, the Chancellor of the
Exchequer said that the Government remained committed to ensuring the long-term
sustainability and success of the VCT market but that the future level of VCT
reliefs would not be announced until the 2006 Budget (whose date has yet to be
announced). As a result, with the end of the 2005/06 tax year less than two
months away, potential VCT investors have no way of knowing whether the 40% rate
of income tax relief will continue to be available. If the income tax relief is
reduced or abolished for the 2006/07 tax year, your Board believes it is
possible that investor interest will be significantly reduced after 5 April
2006.

Your Board has carefully considered the future prospects for the Company, having
regard to the fact that uncommitted liquid resources available for future
investment are now less than £7 million, and believes that given the market
uncertainty referred to above it is appropriate to seek to raise additional
capital in the 2005/06 tax year. Your Board and the Manager believe that market
conditions should, for the foreseeable future, remain conducive to the sourcing
of suitable, high quality new investment propositions for the Company. Your
Board is therefore seeking authority to issue up to 11 million new Ordinary
Shares for cash, representing approximately 25.7% of the current issued share
capital of the Company at the date of this letter. This authority will expire at
the conclusion of the next annual general meeting or, if earlier, fifteen months
from the date of the Extraordinary General Meeting.

Any new Ordinary Shares so issued will rank pari passu in all respects with the
existing Ordinary Shares and will rank for all dividends which are both declared
and paid following Admission. The new Ordinary Shares will not rank for the
final dividend in respect of the financial year ended 31 January 2006.
Application will be made for Admission of any new Ordinary Shares issued under
the authority and it is proposed that Admission will be effected at the earliest
practicable opportunity for each tranche of Ordinary Shares so issued. In each
case, it is envisaged that definitive share certificates in respect of any
Ordinary Shares issued under the proposed issues will be dispatched within 21
days of Admission. No temporary documents of title will be issued. Ordinary
Shares so issued may be dematerialised at the option of the recipients and
entered on the CREST system as the existing Ordinary Shares presently are.

Your Board's current intention, assuming Shareholders approve the necessary
resolution, is to issue a prospectus in connection with the issue of the new
Ordinary Shares as soon as practicable after the Extraordinary General Meeting.
It is intended that the issue price will be fixed at a level such that after
taking account of issue costs there should be no dilution of the net asset value
per share attributable to existing Shareholders.

Amendment to the Articles

The Articles require that a resolution for the continuation of the Company be
put to the annual general meeting of the Company in 2006 and, unless defeated,
at five-yearly intervals thereafter. This is reflected in the existing Article
27 of the Articles which is set out at page 5 of this Circular for your
reference. Your Board does not consider that it would be appropriate to launch
an issue of new Ordinary Shares shortly before a vote on continuation and it is
therefore proposed that the Articles be amended so as to require the
continuation resolution to be considered at the annual general meeting to be
held in 2011 and every five years thereafter. We consider that the postponement
of the continuation vote for five years will enable the future return on the
Company's investments to be maximised and will protect the position of those
Shareholders who have deferred capital gains by investing in the Company.

Resolution 1 in the notice of the Extraordinary General Meeting, which is a
special resolution requiring the support of 75% of Shareholders voting in person
or by proxy, substitutes the 2011 annual general meeting for the 2006 annual
general meeting for the purposes of the continuation vote.

Establishment of co-investment scheme

In my statement in the interim report I referred to an ongoing review of the
management fee and performance incentive arrangements for the Manager, during
which your Board considered how best to remunerate and incentivise the Manager
and its investment executives. As a result of this review the Board intends to
establish a co-investment scheme for executives of the Manager. Under the terms
of the scheme, investment executives employed by the Manager who have been
nominated by the Manager (in its absolute discretion) to participate in the
scheme and who agree to participate (the ''Co-Investors'') will be required to
invest directly (and on the same terms as the Company) in certain of the
securities of the companies in which the Company invests, as described below.
Co-Investors will be required to subscribe for:

   • where the investment comprises a mixture of ordinary shares and loans or
    redeemable preference shares, 5% of the aggregate amounts invested in
    ordinary shares at the same time by the Company; or


   • where the investment is structured entirely as ordinary shares
    (including investments quoted on AIM), 1% of the aggregate amount invested
    at the same time by the Company; or


   • where a further investment is made in an existing portfolio company, 1%
    of the entire investment ''strip'' (ie ordinary shares and any other
    instruments subscribed by the Company) invested at the same time by the
    Company.

All investments in unquoted entities made by Co-Investors will be realised at
the same time as, and on the same terms as, the corresponding investments made
by the Company in unquoted entities. In respect of those investments in quoted
entities, Co-Investors under the scheme will not necessarily be required to
realise investments at the same time as, or on the same terms as, the
corresponding investments made by the Company.

The Directors believe that the introduction of a co-investment scheme is in the
interests of Shareholders in the Company because it will enable the Manager to
recruit and retain high-calibre executives in a competitive market environment,
by providing an effective and tax-efficient incentive to Co-Investors at a
modest dilution to the Company's investment returns, whilst securing a
substantial personal financial commitment from each Co-Investor to the
investments made by the Company. The share option scheme established on 10
February 1999, pursuant to which specified executives of the Manager may in
certain circumstances become entitled to subscribe for new Ordinary Shares in
the Company, will be terminated. No options have been or will be issued under
the scheme.

Your Board has also reviewed the terms of the management agreement with the
Manager, under
which the Manager was entitled to receive an annual management fee at the fixed
rate of 2.5% of
the Company's net assets, calculated half-yearly. Following this review it has
been agreed with the Manager that with effect from 1 February 2006 the basic
rate of management fee will be reduced to 2% of net assets per annum, but that a
performance-related element of up to an additional 1% of net assets per annum
can be earned. Performance will be measured on a sliding scale by reference to
the Company's total return (net asset growth plus dividends paid) in each
financial year, with a performance-related fee payable at the maximum level of
1% if the total return is 14% or more and reducing to nil if the total return is
less than 3.5%. The Board considers that this change will align the Manager's
remuneration more closely with the financial performance of the Company.

Extraordinary General Meeting
Page 6 of this Circular contains a notice convening an Extraordinary General
Meeting of the Company to be held at 11.30am on Thursday 9 March 2006 at the
Company's registered office, Northumberland House, Princess Square, Newcastle
upon Tyne NE1 8ER, when the following resolutions will be proposed:

1. to amend Article 27 of the Articles so as to require Shareholders to vote on
the continuation of the Company at the 2011 annual general meeting of the
Company rather than at the 2006 annual general meeting; and

2. to authorise the Directors to allot up to 11 million new Ordinary Shares for
cash as if Section 89(1) of the Act did not apply.

Action to be taken by shareholders

It is important that you complete the Form of Proxy and return it to the
Company's registrars, Lloyds TSB Registrars, at The Causeway, Worthing BN99 6DA
by no later than 11.30am on Tuesday 7 March 2006. Completion and return of the
Form of Proxy will not preclude you from attending the Extraordinary General
Meeting and voting in person should you so wish.

Recommendation

The Directors consider that the Proposals are in the best interests of the
Company and its Shareholders as a whole and they unanimously recommend
Shareholders to vote in favour of the resolutions to be proposed at the
Extraordinary General Meeting, as they intend to do in respect of their own
beneficial holdings which, in aggregate, amount to 452,682 Ordinary Shares
representing approximately 1.1% of the issued Ordinary Share capital of the
Company.

Yours faithfully

Dr Matt Ridley
Chairman

In this Circular, unless the context otherwise requires, the following
expressions bear the following meanings:

''Act''            the Companies Act 1985 as amended
''Admission''      admission of Ordinary Shares to the Official List of the UK
                   Listing Authority and to trading on the London Stock
                   Exchange's market for listed securities
''AIM''            the Alternative Investment Market of the London Stock
                   Exchange
''Articles''       articles of association of the Company as amended
''Circular''       this document dated 14 February 2006, addressed to the
                   Shareholders
''Company''        Northern 2 VCT PLC
''CREST''          the computerised settlement system to facilitate the transfer
                   of title to securities in uncertified form operated by
                   CRESTCo Limited
''Directors'' or   the directors of the Company, whose names are set out on page
''Board''          1 of this document
''Extraordinary    the extraordinary general meeting of the Company to be held
General            at Northumberland House, Princess Square, Newcastle upon Tyne
Meeting''          NE1 8ER at 11.30am on Thursday 9 March 2006
''Form of          the form of proxy for use at the Extraordinary General
Proxy''            Meeting
''Manager''        Northern Venture Managers Limited, which is authorised and
                   regulated in the conduct of investment business by the
                   Financial Services Authority
''Offer''          the offer for subscription of new Ordinary Shares
''Ordinary         ordinary shares of 5p each in the capital of the
Shares''
                   Company
''Proposals''      the proposed issue of up to 11 million new Ordinary Shares
                   and the proposed amendment to the Articles
''Shareholders''   holders of Ordinary Shares
''UK Listing       the Financial Services Authority acting in its capacity as
Authority''        the competent authority for the purposes of Part VI of the
                   Financial Services and Markets Act 2000
''VCT''            a venture capital trust as defined in Section 842AA of the
                   Income and Corporation Taxes Act 1988 (as amended)







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