Exhibit 99.2
Franchise Management Agreement
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C L I F F O R D
CLIFFORD CHANCE LLP
C H A N C E
GREAT NORTH EASTERN RAILWAY LIMITED
AND
THE SECRETARY OF STATE FOR TRANSPORT
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FRANCHISE MANAGEMENT AGREEMENT
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CONTENTS
Clause
Page
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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
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THIS AGREEMENT is made on 14 December, 2006
BETWEEN:
(1) GREAT NORTH
EASTERN RAILWAY LIMITED, whose registered office is at Sea
Containers
House, 20 Upper Ground, London SE1 9PF (the "Manager"); and
(2) THE
SECRETARY OF STATE FOR TRANSPORT, whose principal place of
business
is at 76
Marsham Street, London SW1P 4DR (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 Act 2005 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 Act 2000;
"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;
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"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.
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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
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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
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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.
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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.
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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 t
