Exhibit 99.2
Franchise Management Agreement
X X X X X X X X XXXXXXXX CHANCE LLP
C H A N C E
GREAT NORTH EASTERN RAILWAY LIMITED
AND
THE SECRETARY OF STATE FOR TRANSPORT
-------------------------------------------------------
FRANCHISE MANAGEMENT AGREEMENT
-------------------------------------------------------
CONTENTS
Clause Page
1. Interpretation..................................................................................2
2. Barclays Waiver Deed............................................................................4
3. Continuation And Amendment Of Franchise Agreement...............................................4
4. Amendments To Franchise Agreement...............................................................5
5. Restrictions....................................................................................5
6. Management Period Budget........................................................................7
7. Additional Event Of Default.....................................................................8
8. Costs Contribution; Settlement..................................................................8
9. Performance Bond................................................................................8
10. Term And Termination............................................................................9
11. Provisions Applying On And After Termination....................................................9
12. Confidentiality................................................................................10
13. Announcements..................................................................................10
14. Entire Agreement...............................................................................10
15. Governing Law..................................................................................11
16. Jurisdiction...................................................................................11
Schedule 1 AMENDMENTS TO THE FRANCHISE AGREEMENT......................................................13
Schedule 2 AMENDMENT OF PERFORMANCE BOND AMOUNT.......................................................17
Schedule 3 AGREEMENT OF MANAGEMENT PERIOD BUDGET......................................................18
Schedule 4 AMENDMENTS TO FRANCHISE PAYMENTS...........................................................20
Schedule 5 INCENTIVE PAYMENT..........................................................................22
Part A Revenue Incentives...............................................................22
Part B Cost Incentives..................................................................22
Schedule 6 MANAGER RESTRICTIONS.......................................................................23
Schedule 7 PAYMENTS ON TERMINATION OF THE MANAGEMENT AGREEMENT........................................25
-1-
THIS AGREEMENT is made on 14 December, 2006
BETWEEN:
(1) GREAT NORTH EASTERN RAILWAY LIMITED, whose registered office is at Sea
Xxxxxxxxxx Xxxxx, 00 Xxxxx Xxxxxx, Xxxxxx XX0 0XX (the "Manager"); and
(2) THE SECRETARY OF STATE FOR TRANSPORT, whose principal place of business
is at 00 Xxxxxxx Xxxxxx, Xxxxxx XX0X 0XX (the "Secretary of State").
INTRODUCTION:
(A) The Manager has been providing certain services for the carriage of
passengers by railway and operating certain stations and light
maintenance depots pursuant to a franchise agreement dated 18 March 2005
between the Authority and the Manager, as such franchise agreement has
been amended from time to time (the "Franchise Agreement").
(B) Pursuant to a transfer scheme made under section 1(2) and Schedule 2 of
the Railways Xxx 0000 dated 22 July 2005 the rights and obligations of
the Authority under the Franchise Agreement have transferred to the
Secretary of State.
(C) The Secretary of State and the Manager have agreed to terminate the
Franchise Agreement early but have agreed that the Manager will continue
to provide the Franchise Services under the Franchise Agreement as
amended by this Agreement until such termination takes effect.
THE PARTIES AGREE as follows:
1. INTERPRETATION
1.1 In this Agreement:
"Actual Costs" means the cost (excluding corporation tax) actually
incurred in the operation of the Franchise Services during the
Management Period as shown in the Management Accounts;
"Auditor's Confirmation" means a certificate from the Manager's auditor
in the agreed form;
"Authority" means the Strategic Rail Authority, a body corporate
established under section 201 of the Transport Xxx 0000;
"Barclays Waiver Deed" means a deed entered into between the Manager,
the Secretary of State and Barclays Bank plc on the date hereof in the
agreed form;
"Budgeted Costs" means the costs (excluding corporation tax) anticipated
to be incurred in the operation of the Franchise Services during the
Management Period as set out in the Management Period Budget;
-2-
"Budgeted Revenue" means the Revenue anticipated to be generated from
the operation of the Franchise Services during the Management Period as
set out in the Management Period Budget;
"Cash at Bank balance" means the cash at bank balance shown in the
relevant Cash Flow Statement excluding cash in respect of season ticket
obligations;
"Cash Flow Statement" means the cash flow statement in the form included
in the Management Period Budget and prepared in the manner consistent
with Generally Accepted Accounting Practices;
"Cash Payment" means each cash payment to be paid to the Secretary of
State pursuant to Schedule 4;
"Cost Saving Incentive Payment" means the cost saving incentive payment
calculated and made in accordance with Part B of Schedule 5;
"Cost Saving Proposal" has the meaning set out in clause 5.4.2;
"Costs Contribution Amount" means the amount of [omitted, see clause
12.2];
"Enhancement Facility" means the letter agreement dated on 12 December
2005 between the Secretary of State, the Manager and Barclays Bank Plc
and the (GBP)32,500,000 Facility Agreement dated on 12 December 2005
between the Manager and Barclays Bank Plc;
"Franchise Agreement" has the meaning given to it in Recital A;
"Management Period Budget" means the budget for the operation of the
Franchise Services during the Management Period in the agreed form and,
for any extension to the Management Period beyond the Initial Expiry
Date to be prepared and agreed or determined in accordance with clause
6;
"Management Period" means the period from the Management Period
Commencement Date to the Expiry Date;
"Management Period Commencement Date" means 10 December 2006;
"Net Fixed Asset Value" means the value of the Transferred Fixed Assets
as determined under the Supplemental Agreement;
"Revenue Incentive Payment" means the revenue incentive payment
calculated and made in accordance with part A of Schedule 5;
"Transferred Fixed Assets" means the fixed assets transferred by the
Manager to the Successor Operator which have not been funded by the
Secretary of State during the Management Period or under the Enhancement
Facility;
"Uncontrollable Costs" means costs outside the control of the Manager
including without limitation costs in respect of rolling stock leases,
and leases of infrastructure entered into with Network Rail.
-3-
1.2 In this Agreement, a reference to:
1.2.1 words and expressions defined in the Franchise Agreement shall
have the same meanings in this Agreement;
1.2.2 any enactment includes any subordinate legislation made from time
to time under it and is to be construed as a reference to that
enactment or subordinate legislation as for the time being
amended or modified or to any enactment or subordinate
legislation for the time being replacing it or amending it;
1.2.3 a document is a reference to that document as modified or
replaced from time to time;
1.2.4 a person includes a reference to a corporation, body corporate,
association or partnership;
1.2.5 a person includes a reference to that person's legal personal
representatives, successors and permitted assigns;
1.2.6 the singular includes the plural and vice versa (unless the
context otherwise requires);
1.2.7 a clause or schedule, unless the context otherwise requires, is a
reference to a clause of or schedule to this Agreement; and
1.2.8 a reference to a document in the agreed form is to a document
identified as such and initialled for the purposes of
identification by or on behalf of the parties hereto.
1.3 References to the Franchise Agreement shall hereafter be read and
construed as references to the Franchise Agreement as amended and
construed by and in accordance with this Agreement.
1.4 Paragraphs and clauses of the Franchise Agreement amended or restated in
this Agreement may refer to "the Authority" for the sake of consistency
with the drafting in that document. This shall not derogate from the
fact that the rights and obligations of the Authority under the
Franchise Agreement have transferred to the Secretary of State and all
such references shall be deemed to be references to the Secretary of
State.
1.5 The headings in this Agreement do not affect its interpretation.
2. BARCLAYS WAIVER DEED
2.1 The Manager shall provide to the Secretary of State simultaneously with
signature of this Agreement a duly executed original version of the
Barclays Waiver Deed.
3. CONTINUATION AND AMENDMENT OF FRANCHISE AGREEMENT
3.1 The Manager agrees to continue to provide Franchise Services and
otherwise be bound by and comply with his obligations under the terms of
the Franchise Agreement, and the Secretary of State agrees to be bound
by and comply with its obligations under the
-4-
Franchise Agreement, save in either case to the extent that the rights
and obligations of the parties are modified by this Agreement.
3.2 Save as otherwise set out in this Agreement, the amendments made to the
Franchise Agreement pursuant to this Agreement shall be effective from
the Management Period Commencement Date provided that:
3.2.1 no such amendments shall take effect so as to create any
liability for a party for failing to perform an obligation or
discharge a liability under the Franchise Agreement prior to the
Management Period Commencement Date to the extent that the
relevant party did not have that obligation or liability under
the Franchise Agreement prior to the Management Period
Commencement Date; and
3.2.2 the accrued rights and obligations of the parties as at the date
of the Management Period Commencement Date shall not be affected
by this Agreement.
3.3 For the avoidance of doubt, the only cash available to be earned by the
Manager in consideration for the operation of this Agreement shall be
the Revenue Incentive and Cost Saving Incentive earned during the
Management Period and, following the expiry of the Franchise Term, the
amount of the Net Fixed Asset Value to be paid to the Manager pursuant
to Schedule 7.
3.4 The closing balance sheet at 09 December 2006 and the profit and loss
account for Reporting Period 07/10 will be reviewed as part of the year
end audit pursuant to paragraph 3.9 of Schedule 13.2 of the Franchise
Agreement and the Manager's auditors will provide an Auditor's
Confirmation in relation to these.
4. AMENDMENTS TO FRANCHISE AGREEMENT
4.1 The amendments to the Franchise Agreement set out in Schedule 1 shall
have effect.
5. RESTRICTIONS
5.1 The Manager acknowledges that, by virtue of a letter dated 29 September
2006 on behalf of the Secretary of State, Schedule 15.2 (Last 12 or 13
months of Franchise Period) of the Franchise Agreement has been deemed
to apply as if the franchise was in the last 12 or 13 months of the
Franchise Period.
5.2 With effect from the Management Period Commencement Date, the Franchisee
shall be deemed to be in a Lock-Up Period for the purposes of paragraph
3.2 of Schedule 12 (Financial Obligations and Covenants) of the
Franchise Agreement, notwithstanding the deletion of paragraph 2 of
Schedule 12.
5.3 The Manager shall not enter into any new contract which has a total
value in excess of [omitted, see clause 12.2] or with an expiry date
after 30 September 2007 without the prior written consent of the
Secretary of State. Two or more contracts relating to the same or
related subject matter shall be treated as a single contract for the
purposes of determining whether this threshold has been exceeded. The
Manager agrees to inform the Secretary of State sufficiently in advance
of the intended date of signature of any
-5-
such contracts to enable the Secretary of State, through his officials,
to discuss the terms of such contracts with the Manager and, if
necessary, with the counterparty. The consent of the Secretary of State
is not required to enter into any contract which is safety related.
5.4 Changes to Operations
5.4.1 The Manager will continue to provide the Franchise Services
during the Management Period in accordance with the Franchise
Agreement, as amended by this Agreement, but will not implement
any material changes to operations which are (a) outside the
ordinary course of business; or (b) contentious or controversial,
without the Secretary of State's prior written consent, such
consent not to be unreasonably withheld or delayed. Consent is
not required for material changes to operations which have been
commenced prior to the Management Period Commencement Date or
safety related initiatives which are required to be implemented
within a timescale which does not permit of prior approval.
5.4.2 The Manager will continue to make day to day improvements in the
operational cost base of running the business without the prior
consent of the Secretary of State provided no such individual
operational improvements will or are likely to result in Actual
Costs (net of any expenditure incurred in making such operational
improvements) being reduced below Budgeted Costs during the
Management Period by an amount of [omitted, see clause 12.2] or
more. For these purposes "expenditure incurred" includes any
depreciation or lease costs or other directly related costs
incurred in respect thereof referable to the Management Period.
5.4.3 The Manager shall notify the Secretary of State in writing in
advance of implementing any improvement in the operational cost
base which does not fall within clause 5.4.2 ("Cost Saving
Proposal") save to the extent that it is identified in the
Management Period Budget, together with sufficient information to
enable the Secretary of State to make the determination
contemplated in clause 5.4.4.
5.4.4 Within 7 working days of receipt of such written notification,
the Secretary of State shall inform the Manager in writing
whether or not the Cost Saving Proposal falls within paragraphs
(a) or (b) of clause 5.4.1; and
(a) if it does not, the Manager may proceed to implement the
Cost Saving Proposal; or
(b) if it does, and the Secretary of State further informs the
Manager that he has not received sufficient information to
make a decision, the Manager shall provide the Secretary of
State with such further information as the Secretary of
State may reasonably request; or
(c) if it does, and the Secretary of State approves the Cost
Saving Proposal, the Manager may proceed to implement the
Cost Saving Proposal subject to such conditions as the
Secretary of State may reasonably require.
-6-
5.4.5 If the Secretary of State requests further information pursuant
to clause 5.4.4(b), the Secretary of State shall make the
determination contemplated by clause 5.4.4 within 7 working days
of receiving the requested information, and if it does not, the
Manager may proceed to implement the Cost Saving Proposal.
5.4.6 If the Secretary of State considers that a Cost Saving Proposal
falls within paragraphs (a) or (b) of clause 5.4.1 and notifies
the Manager that he is withholding his approval, the Secretary of
State will at the same time provide reasonable details of his
reasons for such decision.
5.5 The Manager shall not terminate, amend or waive any of its rights under
its current agreements with Sea Containers Railway Services Limited,
whether oral or in writing, unless it replaces such agreements with the
provision of goods and/or services on terms at least as favourable to
the Manager as those of such agreements for a period to expire no
earlier than 31 March 2008. If the Management Period is extended beyond
the Initial Expiry Date, the Manager will not be in breach of its
obligations under the Franchise Agreement (as amended by this Agreement)
if it ceases to secure the provision of such goods and/or services after
the Initial Expiry Date.
5.6 The Secretary of State agrees to consider in good faith upon receipt of
all relevant information whether the telesales operation of Sea
Containers Railway Services Limited should be transferred to the Manager
during the Management Period. The parties acknowledge that if the
Secretary of State decides that there should be a transfer, the terms of
such transfer and consequential amendments to the Management Period
Budget will need to be agreed. The Secretary of State will make his
determination as soon as reasonably practicable.
5.7 For the purposes of this clause 5 the Secretary of State shall be deemed
to have consented to any matter expressly made known to him in the
assumptions comprised in any Management Period Budget prepared in
accordance with clause 6 below; or as set out in Schedule 1.
5.8 The provisions of Schedule 5 and 6 shall have effect.
5.9 The Manager shall not create or permit to subsist any new Security
Interest (over and above any existing on the Management Period
Commencement Date) over or otherwise encumber any of its bank accounts,
cash reserves or other assets in favour of Barclays Bank as security for
Barclays Bank Plc's obligations under the Performance Bond, except
pursuant to the Barclays Waiver Deed.
6. MANAGEMENT PERIOD BUDGET
6.1 The Franchisee shall operate the Franchise Services during the
Management Period in accordance with the Management Period Budget.
6.2 For the purposes of agreeing or determining the Management Period Budget
and Threshold Revenue for any extension of the Management Period beyond
the Initial Expiry Date the amendments to the Franchise Agreement set
out in Schedule 3 shall have effect.
-7-
7. ADDITIONAL EVENT OF DEFAULT
7.1 The following new Event of Default shall be added to paragraph 2 of
Schedule 10.3 (Events of Default and Termination Event) of the Franchise
Agreement as a new paragraph 2.16:
"2.16(a) If at any time during the Management Period the operating
result (calculated by deducting the Actual Costs from the
Actual Revenue) is less than the budgeted result
(calculated by deducting the Budgeted Costs from the
Budgeted Revenue) by an amount equal to or more than
[omitted, see clause 12.2] for the period from the
Management Period Commencement Date to the date of
calculation; and pro rata for any extension of the
Management Period beyond the Initial Expiry Date.
(b) In making the calculation under paragraph 2.16(a) the
Authority shall disregard increases and decreases in
Uncontrollable Costs, increases and decreases in costs due
to a Force Majeure Event or a Change, asset write downs
and impairment charges (net of depreciation in the
Management Period Budget relating to assets held at the
Management Period Commencement Date consequential upon the
arrangements under this Agreement), and increases and
reductions in revenues due to a Force Majeure Event or a
Change."
7.2 The amendments to the Franchise Agreement contained in this clause 7
shall become effective on the Management Period Commencement Date.
8. COSTS CONTRIBUTION; SETTLEMENT
8.1 In consideration of the Secretary of State entering into this Agreement:
8.1.1 the Manager shall pay the Costs Contribution Amount to the
Secretary of State. The Secretary of State hereby acknowledges
receipt of the Costs Contribution Amount; and
8.1.2 the Manager and the Secretary of State hereby waive and discharge
the other from all liability, costs, claims and expenses arising
out of or in connection with the Franchise Agreement claimed or
made prior to the date of this Agreement.
9. PERFORMANCE BOND
9.1 The obligation of the Manager under paragraph 4.1 of Schedule 12 of the
Franchise Agreement (Financial Obligations and Covenants) to procure a
valid and effective Performance Bond shall continue to apply to the
Franchise Agreement as amended by this Agreement.
9.2 The amendments to the amount of the Performance Bond set out in Schedule
2 of this Agreement shall have effect.
-8-
10. TERM AND TERMINATION
10.1 Subject to clause 10.3, the Franchise Agreement shall terminate on the
Expiry Date (as redefined in this Agreement).
10.2 The Secretary of State may extend the Franchise Term beyond the Initial
Expiry Date (as redefined in this Agreement) in accordance with
paragraph 1.5 of Schedule 18 of the Franchise Agreement (Franchise
Continuation Criteria).
10.3 The Secretary of State may terminate the Franchise Agreement by two
months written notice to the Manager to be given no earlier than 1
August 2007, so as to allow a Successor Operator to commence the
provision of the Franchise Services on or about the date of expiry of
such notice. Termination under this clause 10.3 shall be without further
liability to the Secretary of State arising purely by virtue of such
termination.
11. PROVISIONS APPLYING ON AND AFTER TERMINATION
11.1 The Secretary of State will procure that, insofar as they relate to that
part of the Manager's undertaking which consists of the provision of the
Franchise Services and is permitted under the Franchise Agreement, all
the Manager's assets and liabilities (excluding cash; corporation tax
liabilities; contingent liabilities; liabilities for breach of contract
or tort; liabilities in respect of loans other than under the
Enhancement Facility and liabilities in respect of any indemnity given
by the Manager to the Successor Operator in the Supplemental Agreement
in respect of employees), including its rights and obligations under any
contracts (except as excluded above), will be designated as a Primary
Franchise Asset and transferred to the Successor Operator. For the
avoidance of doubt, any finance leases or similar arrangements in
relation to the Manager's assets will be transferred to the Successor
Operator.
11.2 In respect of pension contributions, the Manager shall comply with its
obligations under the Railways Pension Scheme to make payment of
contributions to any relevant Franchise Section up to the date of the
end of the Management Period, the amount of such contributions being as
determined by the Trustee and:
11.2.1 provided the Manager has complied with such obligations, the
Manager shall have no further liabilities in respect of the
Railways Pension Scheme following the end of the Management
Period;
11.2.2 to the extent that the Manager has failed to make any such
contribution referred to in clause 11.2, the liability to make
such payment will remain with the Manager after the end of the
Management Period and shall not be designated as a Primary
Franchise Asset.
11.3 The Secretary of State will procure that Property Leases (including any
leases in respect of office accommodation in York) and Rolling Stock
Leases will be included in the Transfer Scheme to the Successor Operator
or otherwise assigned or transferred to the Successor Operator at the
end of the Management Agreement and that accordingly the dilapidation
obligations in the Property Leases (including any leases in respect of
office accommodation in York) and the redelivery requirements in the
Rolling Stock Leases will not be applied at the point of transfer.
-9-
11.4 The Manager shall continue to operate and maintain the rolling stock in
line with the arrangements detailed in its Safety Management System. In
addition, the Manager shall ensure that the rolling stock is maintained
in a condition consistent with their positions within both the heavy and
running maintenance programmes subject to normal wear and tear and
taking account of any accepted faults. The Manager shall comply with its
maintenance obligations in respect of leases of stations, depots and
other property.
12. CONFIDENTIALITY
12.1 The provisions of Schedule 17 (Confidentiality) of the Franchise
Agreement shall apply to this Agreement and to the Franchise Agreement
as amended by this Agreement, as they do to the Franchise Agreement.
12.2 The parties acknowledge that the following provisions of this Agreement
contain commercially sensitive confidential information the public
disclosure of which would be prejudicial to the parties:
12.2.1 the amount of the Costs Contribution Amount;
12.2.2 paragraphs 1 and 2 of Schedule 2;
12.2.3 parts A and B of Schedule 5;
12.2.4 the monetary amounts in clauses 5.3, 5.4.2 and 7.1; paragraphs 2
and 3 of Schedule 4; paragraphs 1.5 and 1.6 of Schedule 6; and
12.2.5 all of Schedule 7 apart from paragraphs 1, 1.1, 4, 5, 6, 10, 11
and 11.2.
13. ANNOUNCEMENTS
13.1 No announcement or information concerning the amendments made to the
Franchise Agreement by this Agreement, this Agreement or any matter
ancillary to its implementation will be made or released or authorised
to be made or released publicly by the Manager without the prior written
consent of the Secretary of State other than:
13.1.1 to any Affiliate, upon obtaining from such Affiliate an
undertaking equivalent to that in this clause 13.1; or
13.1.2 to any outside consultants or professional advisers acting in
relation to the negotiation or implementation of this Agreement
upon obtaining an undertaking from such consultants or
professional advisers an undertaking equivalent to that in this
clause 13.1; or
13.1.3 to the extent required by law or pursuant to an order of any
court of competent jurisdiction or under the Dispute Resolution
Rules or the rules of a recognised stock exchange or a formal or
informal request of any taxation authority; or
13.1.4 to any employee or officer of the Manager to the extent required
to enable such party to enforce or perform its rights and
obligations under the Franchise Agreement and/or this Agreement.
14. ENTIRE AGREEMENT
-10-
14.1 This Agreement, the Franchise Agreement and any documents referred to
herein constitute the entire agreement, and supersede any previous
agreements between the parties relating to the subject matter of this
Agreement.
14.2 Each party acknowledges that it has not relied on or been induced to
enter this Agreement by a representation other than those expressly set
out in this Agreement.
14.3 A party is not liable to the other party for a representation that is
not set out in this Agreement.
14.4 Clause 14 does not affect a party's liability in respect of a fraudulent
misrepresentation.
15. GOVERNING LAW
This Agreement and all matters arising from or connected with it are
governed by English law.
16. JURISDICTION
16.1 Either party may refer any dispute arising out of this Agreement for
resolution in accordance with the Dispute Resolution Rules, and the
provisions of paragraph 4 of Schedule 19 (Other Provisions) of the
Franchise Agreement shall apply to disputes so referred under this
Agreement, as they do to disputes so referred under the Franchise
Agreement.
-11-
THE CORPORATE SEAL }
OF THE SECRETARY OF }
STATE FOR TRANSPORT } [SEAL]
IS HEREUNTO AFFIXED: } [Seal ref. no. DfT/3008]
/s/ Xxxxx Xxxxx
Authenticated by authority of the
Secretary of State for Transport
SIGNED FOR AND ON
BEHALF OF GREAT NORTH }
EASTERN RAILWAY LIMITED }
|
DIRECTOR: } /s/ Xxxxxx X. XxxXxxxxx
}
}
}
DIRECTOR/SECRETARY: /s/ Xxxxxxxx Xxxxxxxx
-12-
SCHEDULE 1
AMENDMENTS TO THE FRANCHISE AGREEMENT
1. Interpretation
1.1 Unless otherwise specified, references to Schedules in this Schedule 1
are references to Schedules of the Franchise Agreement.
2. Definitions Agreement:
2.1 Definitions in the Definitions Agreement which have no further
application shall be disregarded in the interpretation of the Franchise
Agreement.
2.2 The following definitions shall be deleted from the Definitions
Agreement and restated as follows:
2.2.1 "Expiry Date" means:
(a) the Initial Expiry Date; or
(b) the date to which the Franchise Agreement is continued
in accordance with paragraph 1.5 of Schedule 18 (Franchise
Continuation Criteria)
2.2.2 "Initial Expiry Date" means 31 March 2008
3. Schedule 1.6 (Committed Obligations):
3.1 The obligations on the Franchisee in Schedule 1.6 of the Franchise
Agreement to deliver the following Committed Obligations will cease to
apply with effect from the Management Period Commencement Date
(references are to paragraphs of Part 2 of schedule 1.6 to the Franchise
Agreement):
3.1.1 Spend (GBP)25,000,000 on the Station Improvement Programme -
paragraph 10.1
3.1.2 900 additional car parking spaces - paragraphs 10.1(a)
3.1.3 Darlington car park expansion - paragraph 11.1
3.1.4 York car park - paragraph 11.1
3.1.5 Peterborough station - paragraph 10
3.1.6 Replacement of internal signage but not customer information
systems - paragraph 10.1(c)
3.1.7 Station seating - paragraphs 10.1(f) and (g)
3.1.8 Provision of additional covered cycle storage spaces -
paragraphs 10.1(b) and 12.1
3.1.9 Enterprise Asset Management System - paragraph 7
3.1.10 Newcastle station - paragraph 10
-13-
3.1.11 Automatic ticket barriers at Peterborough, Durham and Newcastle
- paragraph 14
3.1.12 Initiatives agreed by the East Coast Joint Board - paragraph
15.3
3.1.13 Contribution towards bus schemes - paragraph 21.3(b)
3.1.14 Branded Coach links - paragraph 25
3.1.15 Train crew sub-depots - paragraph 31.8
3.1.16 Spending (GBP)3,000,000 on security measures - paragraph 32.6
3.1.17 Replacement of Class 08 shunters - paragraph 32.9
3.1.18 (GBP)10 million working capital facility - paragraph 39.1
3.1.19 (GBP)30 million facility - paragraphs 39.3 to 39.5
3.2 In respect of York station, the Franchisee will proceed with the scheme
to convert the goods subway and associated lifts and access to passenger
use, but all other Committed Obligations relating to York station will
cease to apply.
3.3 The Franchisee will work with the Authority to introduce the Leeds
half-hourly service in accordance with paragraph 38.2 of Part 2 of
Schedule 1.6 of the Franchise Agreement with effect from the Passenger
Change Date (as defined in the Network Code) in May 2007. Paragraphs
31.3, 38.2A and 39.6 of Part 2 of Schedule 1.6 of the Franchise
Agreement will not apply. The Franchisee will ensure that so far as
possible rolling stock costs incurred in relation to the introduction of
the Leeds half-hourly service shall be charged through lease rentals.
Any reduction in the costs incurred through such a mechanism, or through
a reduction in the number of staff budgeted at the Management Period
Commencement Date to be employed in the operation of the service, shall
be disregarded in calculating the Cost Saving Incentive Payment.
3.4 Notwithstanding paragraphs 3.1.3, 3.1.4 and 3.1.10 above, the Franchisee
will provide a business case to the Authority to proceed with the
Committed Obligations in respect of the Darlington car park expansion,
York car park and Newcastle station. If the Authority decides that the
Committed Obligations should proceed:
3.4.1 the Authority will reinstate the relevant Committed Obligation
and instruct the Franchisee to proceed to implement it; and
3.4.2 the Authority and the Franchisee will work together to agree
appropriate amendments to the Management Period Budget and the
Threshold Revenue in Schedule 5 of this Agreement, and in
default of agreement the matter shall be referred by either
party for resolution pursuant to the Dispute Resolution Rules.
3.5 Notwithstanding paragraph 3.1.9 above, the Authority acknowledges that
the Franchisee is developing proposals to implement the Enterprise Asset
Management System during the Management Period, as well as two other
overlay projects, being the relocation of the York headquarters and the
implementation of the core business system. The Franchisee
-14-
and the Authority will work together in good faith in relation to each
of these overlay projects. If such projects are agreed to be
implemented, costs incurred in implementing such projects shall be
disregarded for the purposes of determining whether there has been an
Event of Default under paragraph 2.16 of Schedule 10.3; and for the
purposes of the calculation of a Cost Saving Incentive Payment.
3.6 The Manager shall procure that Xxxxxx XxxXxxxxx shall continue as a
director of the Manager for the duration of the Management Period and
that he shall devote an appropriate proportion of his time to the
operation of the Manager (subject to holidays, death, illness or
resignation from employment within the Sea Containers Group). The
Manager shall be entitled to pay to an Affiliate or Xxxxxx XxxXxxxxx
such proportion of his salary and emoluments as is equal to the
proportion of Xxxxxx XxxXxxxxx'x working hours which are spent in
relation to the management of the Manager in an amount disclosed by the
Manager to the Authority prior to the Management Period Commencement
Date.
4. Schedule 7.2 (Key Performance Indicators)
4.1 The SQ audit regime in Schedule 7.2 is no longer being operated in the
manner specified in Schedule 7.2, and the Authority will not enforce its
terms against the Manager until the replacement to Schedule 7.2 has been
implemented.
5. Schedule 8 (Franchise Payments)
5.1 Delete Schedules 8.1 to 8.4 and replace with Schedule 4.
6. Schedule 9 (Changes)
6.1 Schedules 9.1 to 9.4 shall be deleted in their entirety.
7. Schedule 12 (Financial Obligations and Covenants)
7.1 Paragraphs 2 and 3.3 of Schedule 12 (Financial Ratios) shall be deleted.
8. Schedule 15.4, Appendix 2 (Form of Supplemental Agreement)
8.1 Add a new clause 2A:
"Payments of the price in so far as referable to the Transferred Fixed
Assets (as defined in the Franchise Agreement, as amended), shall be
made by the Transferee to the Secretary of State".
8.2 In the Schedule, add the following new paragraph 7:
"7. The value of any fixed assets or fixed asset enhancements fully or
partially funded by the Secretary of State during the Management Period
(whether directly or indirectly through funding debt repayments) shall
be reduced by the amount of such funding by the Secretary of State
during the Management Period."
9. Schedule 18 (Franchise Continuation Criteria)
9.1 Paragraphs 1.1 to 1.4 inclusive shall be deleted.
-15-
9.2 Paragraph 1.5 shall be deleted and restated as follows:
"1.5 If the Authority gives notice to the Franchisee not less than 3
months before the Initial Expiry Date this Agreement shall continue
after such date on the terms set out in this Agreement for not less than
1 and not more than 7 Reporting Periods, as the Authority may
stipulate".
10. Schedule 19 (Other Provisions)
10.1 Paragraph 2 of Schedule 19 (Capital Expenditure) shall be deleted.
-16-
SCHEDULE 2
AMENDMENT OF PERFORMANCE BOND AMOUNT
1. [omitted, see clause 12.2]
2. [omitted, see clause 12.2]
-17-
SCHEDULE 3
AGREEMENT OF MANAGEMENT PERIOD BUDGET
1. Paragraph 2.4 of Schedule 13.2 (Information) of the Franchise Agreement
shall be deleted and restated as follows:
2.4 (a) If the Authority exercises its rights to extend the
Management Period beyond the Initial Expiry Date under
paragraph 1.5 of Schedule 18, the Franchisee and the
Authority shall seek to agree the Management Period Budget
and Threshold Revenue in respect of the period beyond the
Initial Expiry Date by no later than the business day next
following the Initial Expiry Date ("Extension Commencement
Date").
(b) In the event that the Management Period Budget and the
Threshold Revenue in respect of the period beyond the
Initial Expiry Date has not been agreed by the Extension
Commencement Date then:
(i) the Threshold Revenue and amounts for the revenue in
the Management Period Budget for each Reporting Period
after the Initial Expiry Date shall be the same as
applied in respect of the corresponding Reporting
Period in the year before the Initial Expiry Date,
adjusted for RPI, GDP and the demand elasticity (as
applied in the Management Period Budget), and to
reflect any change in Passenger Services;
(ii) the costs in Management Period Budget for each
Reporting Period after the Initial Expiry Date shall
be the same as applied in respect of the corresponding
Reporting Period in the year before the Initial Expiry
Date, and each category of costs shall be indexed, as
appropriate, in accordance with the relevant index
shown in the Management Period Budget and to reflect
any change in Passenger Services.
(c) The following process will be applied at Franchise
Performance Meetings in addition to the matters prescribed
at paragraph 4 of Schedule 11 to the Franchise Agreement:
(i) the nominated representatives of the Authority and the
Franchisee will review the actual financial results,
the latest available outturn financial results in
relation to the agreed or determined Management Period
Budget; and
(ii) at the Franchise Performance Meeting the parties shall
discuss as a minimum:
(aa) any material differences between the agreed or
determined Management Period Budget and the
latest available outturn financial results;
-18-
(bb) any reasons and explanations as to why such
differences have occurred;
(cc) any issues relating to the efficient operation
of the business and any evidence produced by
either party relating to those issues; and
(dd) cash flow projections.
-19-
SCHEDULE 4
AMENDMENTS TO FRANCHISE PAYMENTS
Cash at Bank Balance and Cash Payments, Miscellaneous Payment Provisions
1. Cash Payments
1.1 The Secretary of State shall receive a Cash Payment in place of a
Franchise Payment, such Cash Payment to be made from surplus cash
available from the Manager's trading, as calculated in accordance with
this Schedule 4.
1.2 The Cash Payment shall be calculated with reference to the Cash Flow
Statement included in the Management Accounts prepared following the end
of each Reporting Period (the "Period End Management Accounts")
submitted by the Manager to the Secretary of State in the normal course
of business. The cash surplus shown in the Cash Flow Statements shall
provide the basis for the calculation of the Cash Payment to be paid to
the Secretary of State by the Manager in respect of each Reporting
Period.
2. If the Period End Management Accounts for a Reporting Period show that
the Cash at Bank balance at the close of the final day of the relevant
Reporting Period is greater than [omitted, see clause 12.2] then,
subject to paragraph 3, the excess cash (if any) above [omitted, see
clause 12.2] will be paid by the Manager to the Secretary of State on
the final business day of the following Reporting Period.
3. Should the Cash at Bank balance be forecast to fall below [omitted, see
clause 12.2] at any time during the next two Reporting Periods (to be
discussed, without limitation, at each Franchise Performance Meeting),
then the Secretary of State will increase the Cash at Bank balance, to
be paid by the Secretary of State to the Manager or made by adjustment
to the amount to be paid by the Manager to the Secretary of State under
paragraph 2, to ensure that Cash at Bank balance forecast shall remain
at least [omitted, see clause 12.2] throughout the relevant Reporting
Periods.
4. Subject to the provisions of Schedule 7 each Cash Payment shall be made:
(a) by automatic electronic funds transfer in pounds sterling to such
bank account in the United Kingdom as the payee of such payment
may have previously specified to the payer in writing; and
(b) so that cleared funds are received in that account on or before
the due date for payment.
5. If either party disputes the amount of a Cash Payment, the dispute shall
be resolved in accordance with the Dispute Resolution Rules but shall
not affect the obligation of either party to pay a Cash Payment notified
in accordance with paragraph 2 above.
6. If either party fails to pay any amount to the other party on its due
date, it shall in addition pay interest on such amount at the Interest
Rate, calculated on a daily basis, from the due date for payment to the
date on which payment is made.
7. If the amount of any Cash Payment is agreed or determined to be
incorrect and:
-20-
(a) either party has made a payment to the other party which is
greater than it would have made if the amount of the Cash Payment
had been correct, then the recipient shall repay the excess within
three business days of the agreement or determination; or
(b) either party has made a payment to the other party which is less
than it would have made if the amount of the Cash Payment had been
correct, then the payer shall pay the amount of any shortfall to
the payee within three business days of the agreement or
determination,
together, in each case, with interest on the amount payable at the
Interest Rate, calculated on a daily basis from the date on which the
Cash Payment was paid until the date on which such excess amount or
shortfall is paid.
8. Miscellaneous Payment Provisions
8.1 The Authority, in its discretion may at any time decide to reimburse or
ameliorate net losses of the Franchisee arising from industrial action
(however caused and of whatever nature) in circumstances where the
Franchisee has demonstrated to the satisfaction of the Authority that it
has taken all reasonable steps to avoid the industrial action and that,
industrial action having nevertheless occurred, the Franchisee has taken
all reasonable steps to mitigate its effects.
8.2 All sums payable by either party under the Franchise Agreement shall be
paid free and clear of any deductions, withholdings, set-offs or
counter-claims, save only as may be required by Law or as expressly
permitted or required under the Franchise Agreement.
-21-
SCHEDULE 5
INCENTIVE PAYMENT
Part A
Revenue incentives
[omitted, see clause 12.2]
Part B
Cost Incentives
[omitted, see clause 12.2]
-22-
SCHEDULE 6
MANAGER RESTRICTIONS
1. In addition to the restrictions contained in paragraph 1 of Schedule 12
(Financial Obligations and Covenants) of the Franchise Agreement, the
Manager agrees that during the Management Period it will not without the
written consent of the Secretary of State (not to be unreasonably
withheld or delayed):-
1.1 alter its Memorandum and Articles of Association or equivalent
constitutional document;
1.2 pay any sum to any of its Affiliates in respect of management fees in
addition or as a variation to the sums so paid immediately prior to the
Management Period Commencement Date, always provided that to the extent
that the Management Period is extended beyond the Initial Expiry Date
and any Revenue Incentive or Cost Saving Incentive is payable to the
Manager pursuant to Schedule 5, the Manager shall be entitled to pay
that amount to an Affiliate as a management fee or other similar payment
at any time after the Initial Expiry Date;
1.3 factor or securitise or otherwise sell or assign any debts due to it
other than pursuant to the Ticketing and Settlement Agreement;
1.4 make any change in its accounting policies (both published accounting
policies and methodologies) applied in practice;
1.5 dispose of any of its assets other than:
(a) disposals of any assets not exceeding [omitted, see clause 12.2]
in book value in aggregate (such aggregate applying to the Manager
and its subsidiaries as a whole);
(b) disposal on normal commercial terms of damaged, obsolete or
redundant assets or assets which need replacing in the normal
course of trading;
(c) disposals in the normal course of trading; or
1.6 enter into any new or increased capital commitments with an aggregate
value in excess of [omitted, see clause 12.2] save to the extent
provided for in the Management Period Budget or enter into any other
long term financial commitment calling for aggregate payments by the
Manager of more than [omitted, see clause 12.2].
2. The Manager shall, during the Management Period:
2.1 take all reasonable steps to ensure that positive cash balances are
efficiently managed;
2.2 retain any and all income derived from the investment of any cash
balances wholly and exclusively within its business.
3. In addition to the information required to be delivered to the Secretary
of State under paragraphs 3.1 to 3.9 of Schedule 13.2 (Information) of
the Franchise Agreement the Manager shall, at the times and frequencies
specified in those paragraphs:
-23-
3.1 make full disclosure in writing to the Secretary of State of all
material movements in provisions and reserves.
-24-
SCHEDULE 7
PAYMENTS ON TERMINATION OF THE MANAGEMENT AGREEMENT
1. Not less than 14 days prior to the end of the Management Period, the
Manager shall supply to the Secretary of State its estimate of:
1.1 the Cash at Bank balance at the end of the Management Period;
[omitted, see clause 12.2]
4. The provisions of Schedule 4 shall continue to apply in respect of T
plus 28, save that paragraphs 2 and 3 thereof shall be applied to ensure
that the Cash at Bank balance is no more than necessary to meet the
liabilities of the Manager detailed in paragraph 5.2.1 shown in the
relevant forecast produced pursuant to paragraph 3 of Schedule 4.
5. At the end of T plus 28, the Manager shall supply to the Secretary of
State:
[omitted, see clause 12.2]
6. The Secretary of State shall pay to the Manager in accordance with the
provisions of Schedule 4 the amount submitted pursuant to paragraph 5.1
and, if the Secretary of State agrees with that figure, the amount
proposed pursuant to paragraph 5.2. If the Secretary of State does not
agree with that figure, and the Manager and the Secretary of State are
unable to agree that figure within a period of 28 days from the date of
receipt of the proposal made pursuant to paragraph 5.2, the provisions
of paragraph 10 shall apply.
[omitted, see clause 12.2]
10. In the event of any dispute that arises in respect of payments due to
the Manager under this Schedule 7 which parties fail to resolve, either
party may refer the dispute for resolution under the Dispute Resolution
Rules.
11. Upon agreement or determination of the amounts claimed pursuant to
paragraphs 5.2 and 7 above, the Secretary of State shall pay to the
Manager:
[omitted, see clause 12.2];
11.2 the amount of the provision in respect of the liabilities referred to in
paragraph 5.2 less amounts already paid to the Manager pursuant to
paragraphs 3 and 6 above; or if the determination or agreement of such
amounts results in identification of an amount due to the Secretary of
State, the Manager shall pay such amount to the Secretary of State; and
[omitted, see clause 12.2]
-25-