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25 October 2010
THE SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS
POST OFFICE LIMITED
ROYAL MAIL HOLDINGS PLC
ROYAL MAIL GROUP LIMITED
FUNDING AGREEME
POL-BSFF-0190617
CONTENTS
CLAUSE PAGE
1. INTERPRETATION.
CONDITIONS
DELAYED PAYMENT
STATE AID CLEARANCES...
GOVERNMENT FUNDING FOR SERVICES
ECONOMIC INTEREST
POL STRATEGIC PLAN...
MAILS’? ACKNOWLEDGMENT .......ccccsssessessessessessesseesessseesensersensessssneesesseesy 10
HOLDINGS’ ACKNOWLEDGMENT......cccscccsssssssessseesseeesessnessseesseesnecsseesnee 10
FINAL CONTRIBUTION
10. EMPLOYEE INCENTIVE ARRANGEMENTS
11. I SUB-POSTMASTER COMPENSATION CONDITION
12. ACCESS CRITERIA
13. JOINT VENTURES
14. I SEPARATION EVENTS
15. I PUBLIC CONSULTATION, COMMUNICATION AND EQUALITY........ 13
16. I CONSENTS
17... CONFIDENTIALITY.
wrk wn
ee INS
18. NOTICES...
19. ENTIRE AGREEMENT.........sscccessessesseessessesnesnessecseesssseesseensanssnssneenesseesenseanee 15
20. GENERAL
SCHEDULE I DELIVERABLES. ........cccecsesssssessssstesesseesesseessseesiestssncsissnssnesneeneenensnes 19
SCHEDULE 2
PART A FUNDAMENTAL CHANGE .........
PART B POTENTIAL FUNDAMENTAL CHANG!
SCHEDULE 3 CALCULATION OF SGEI PAYMENT. .......ccsessessessessssssesesseeseesersees 21
APPENDIX A POL ENTRUSTMENT LETTER ......csscssessessesseessesteseressseeneeseenessersees 22
APPENDIX B STRATEGIC PLAN... cesecsessessesssestessssessecseessesssssenvensssssssenssseeseeseesnee 23
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THIS AGREEMENT is made on 25 October 2010
BETWEEN:
qd) THE SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS of
1 Victoria Street, London SW1H OET (the Secretary of State);
(2) POST OFFICE LIMITED, a company incorporated in England and Wales
(registered number 2154540) and whose registered address is 148 Old Street, London
EC1V 9HQ (POL);
(3) ROYAL MAIL HOLDINGS PLC, a company incorporated in England and Wales
(registered number 4074919) and whose registered address is 100 Victoria
Embankment, London EC4Y 0HQ (Holdings); and
(4) ROYAL MAIL GROUP LIMITED, a company incorporated in England and Wales
(registered number 4138203) and whose registered address is 100 Victoria
Embankment, London EC4Y 0HQ (Mails).
WHEREAS:
(A) All of the issued share capital of Holdings is currently beneficially owned by the
Government, all of the issued share capital of Mails is currently beneficially owned by
Holdings and all of the issued share capital of POL is currently beneficially owned by Mails.
(B) The Secretary of State has requested POL to continue to provide a national network
of post office Branches across the United Kingdom and wishes to entrust to POL the
provision of certain services of general economic interest over that network.
(C) The Secretary of State has agreed to enter into this Agreement in order to provide
funding to POL to enable it to continue to provide services of general economic interest
across that national network.
(D) It is acknowledged by the Parties that POL will not have achieved a full conversion to
variable pay agency contracts in respect of all sub-postmasters before the conclusion of the
Funding Period, and as such, it is envisaged that further funding may be required to complete
this process for the Financial Years 2015/16 and 2016/17.
(E) It is acknowledged by the Parties that the Postal Services Bill (as introduced in the
House of Commons on 13 October 2010) contemplates the restructuring of the Royal Mail
Group, and in particular makes provision for the separation of POL from the Royal Mail
Group and potential move to mutual ownership of POL. Accordingly, the parties
acknowledge that certain obligations of Mails or Holdings pursuant to this Agreement shall
no longer have effect upon POL ceasing to be a wholly-owned subsidiary of that Party.
NOW THIS AGREEMENT WITNESSES as follows:
1. INTERPRETATION
Ll In this Agreement, including the recitals, Schedules and Appendices, unless the
context requires otherwise:
Act means the Postal Services Act 2000.
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Branch means any retail outlet of POL, including any post office counter at a retail outlet and
any other facility (including an “outreach” facility) designated for the transaction of business
with members of the public by or on behalf of POL.
Business Day means a day (not being a Saturday or a Sunday) on which banks are open for
general non-automated banking business in the City of London.
Code of Practice means the Code of Practice on Public Consultation and Communication
with respect to change in the post office network introduced on 1 April 2009 as amended,
varied, supplemented or substituted from time to time.
Cumulative SGEI Statement has the meaning given to it in clause 5.10 (Government
Funding for Services of General Economic Interest).
Deprived Urban Areas means:
(a) the most deprived fificen per cent. (15%) of super output areas in England;
(b) the most deprived fifteen per cent. (15% ) of data zones in Scotland; and
(c) the most deprived thirty per cent. (30%) of super output areas in Wales and Northern
Treland,
based upon each country’s then current index of multiple deprivation.
Entrustment Letter means the letter in the form set out at Appendix A (POL Entrustment
Letter) from the Secretary of State to POL and countersigned by POL.
Financial Year means an accounting period of POL commencing on or around I April in any
calendar year and ending on or around 31 March in the following calendar year.
Fundamental Change means the occurrence of any of the events listed in Part A of
Schedule 2 (Fundamental Change).
Funding Period means the period from 31 March 2012 until 29 March 2015.
GCA Contract means the agreement dated 5 March 2009 between POL and the Secretary of
State for Work and Pensions for the provision of Government Card Account Services.
Government means Her Majesty’s Government.
Milestone means:
(a) in respect of the SGEI Payment payable on 1 April 2012 (or the first Business Day
thereafier), the requirements referred to as Milestone 1;
(b) in respect of the SGEI Payment payable on 1 April 2013 (or the first Business Day
thereafier), the requirements referred to as Milestone 2; and
(c) in respect of the SGEI Payment payable on I April 2014 (or the first Business Day
thereafter), the requirements referred to as Milestone 3,
in each case in Part 2 section 4A (Milestones and Milestone Test Dates) of the Strategic Plan.
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Milestone Test Date means, in respect of each SGEI Payment, the date specified in Part 2
section 4A (Milestones and Milestone Test Dates) of the Strategic Plan for the achievement of
the Milestone applicable to that SGEI Payment.
Order means the Post Office Network Subsidy Scheme Order 2007 (SI 2007/962) made
pursuant to section 103 of the Act as may be amended or replaced by any subsequent payment
order increasing the maximum amount payable under it in any twelve (12) month period.
Parties means the parties to this Agreement.
POL Working Capital Facility means the £1,150,000,000 working capital facility provided to
POL pursuant to the terms of the credit facilities agreement between the Secretary of State
and POL dated 17 October 2003, as amended and restated on 16 May 2007, amended on 18
April 2008 and further amended and restated on 24 March 2010.
Potential Fundamental Change has the meaning given to it in PartB of Schedule 2
(Potential Fundamental Change).
Relevant Payment has the meaning given to it in clause 3 (Delayed payment).
Remedy Period has the meaning given to it in clause 3 (Delayed payment).
Required Payment Date has the meaning given to it in clause 3 (Delaved payment).
Royal Mail Group means Holdings and each of its subsidiaries.
Rural Areas means those communities which are not Urban Areas.
Separation Event means any event by virtue of which POL ceases to be: (i) a wholly-owned
subsidiary of Mails; or (ii) a wholly-owned subsidiary of Holdings.
SGEI Payment means a payment by the Secretary of State in a Financial Year of an amount
calculated in accordance with Schedule 3 (Calculation of SGEI Payment) to compensate POL
for the net cost of: (i) maintaining a network of post offices in accordance with clause 12
(Access Criteria); and (ii) ensuring the provision of services of general economic interest over
that network, in each case during that Financial Year.
SGEI Statement has the meaning given to it in clause 5.10 (Government Funding for Services
of General Economic Interest).
SGEI Supporting Statement has the meaning given to it in clause 5.10 (Government Funding
for Services of General Economic Interest).
State Aid Clearance means, in respect of any payment to be made to POL under this
Agreement, confirmation by the European Commission that such payment is compatible with
the requirements on state aid of the Treaty on the functioning of the European Union.
Strategic Plan means POL’s strategic plan in relation to the provision of services of general
economic interest as set out in Appendix B (Strategic Plan);
Urban Areas means communities with ten thousand (10,000) or more inhabitants in a
continuous built up area.
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VAT Amount has the meaning given to it in clause 5.13 (Government Funding for Services of
General Economic Interest).
1.2 In this Agreement, except where the context otherwise requires:
(a) a reference to a person (which shall include any individual, firm, company,
corporation or other body corporate, government, state or agency or any association,
trust, fund or partnership (whether or not having separate legal personality) shall
include, as appropriate, its successors, permitted assignees or transferees;
(b) a reference to an enactment or statutory provision shall include a reference to any
subordinate legislation made under that enactment or statutory provision and is a
reference to that enactment, statutory provision or subordinate legislation as from
time to time amended, consolidated, modified, or re-enacted;
(c) words in the singular shall include the plural and vice versa;
(d) references to one gender include other genders;
(e) a reference to any agreement or other instrument (other than an enactment or statutory
provision) shall be deemed to be a reference to that agreement or instrument as from
time to time amended, varied, supplemented, substituted, novated, assigned or
restated;
(f) a reference to a clause or Schedule shall be a reference to a clause of, or Schedule to,
this Agreement;
(g) a reference to “includes” or “including” shall be construed without limitation to any
events, circumstances, conditions, acts or matters specified after those words;
(h) references to dates which do not fall on a Business Day shall be construed as
references to the immediately subsequent Business Day;
(i) the headings are for convenience only and shall not affect its interpretation; and
@ references to this Agreement include this Agreement as amended or supplemented.
1.3 The Schedules and Appendices form part of this Agreement and shall have the same
force and effect as if expressly set out in this Agreement, and any reference to this Agreement
shall include the Schedules and Appendices.
2. CONDITIONS
2.1 The obligation of the Secretary of State under this Agreement to make any SGEI
Payment is conditional on:
(a) all necessary State Aid Clearances having been obtained for the making of that
payment; and
(b) the Milestone having been achieved.
2.2 Each obligation of POL, Holdings and Mails under clauses 5 (Government Funding
for Services of General Economic Interest), 6 (POL Strategic Plan), 7 (Mails’
acknowledgement), 8 (Holdings’ acknowledgement), 12 (Access Criteria) and 15 (Public
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Consultation, Communication and Equality) of this Agreement, and the obligations of POL
under the Entrustment Letter, in each case in each of Financial Years 2012/13, 2013/14 and
2014/15 (respectively), is conditional on the conditions referred to in clause 2.1 having been
met in respect of the SGEI Payment for that Financial Year, save that to the extent the
condition in clause 2.1(b) is not met and (at the absolute discretion of the Secretary of State)
only part of the SGEI Payment for that Financial Year is paid, then POL shall perform such of
its obligations under this Agreement and the Entrustment Letter as shall be determined by
POL and the Secretary of State to be appropriate having regard to the funding constraints to
which POL will be subject and to POL’s obligations under clause 6.1 (POL Strategic Plan).
2.3 In the event that POL fails to achieve any Milestone by the Milestone Test Date, the
Secretary of State shall have no obligation to make the SGEI Payment until POL has achieved
the Milestone. Should POL not achieve the Milestone within 3 months following the
Milestone Test Date, any payment (or part thereof) by the Secretary of State of the SGEI
Payment shall be at the absolute discretion of the Secretary of State.
Deliverables
24 On the date of this Agreement, POL, Mails and Holdings shall deliver (or ensure that
there is delivered) all those documents listed in Schedule 1 (Deliverables) in a form and
substance satisfactory to the Secretary of State (acting reasonably).
Fundamental Change
2.5 Without prejudice to the accrued rights and remedies of the Parties, the obligations of
the Secretary of State to make or facilitate any payments in accordance with this Agreement,
the obligations of POL, Holdings and Mails under clauses 5 (Government Funding for
Services of General Economic Interest), 7 (Mails’ acknowledgement), 8 (Holdings’
acknowledgement), 12 (Access Criteria) and 15 (Public Consultation, Communication and
Equality) of this Agreement and the obligations of POL under the Entrustment Letter, shall
immediately terminate upon the occurrence of a Fundamental Change.
2.6 If on the date on which any payment is due to be made by the Secretary of State to
POL under this Agreement a Potential Fundamental Change exists, the Secretary of State
shall be entitled to withhold such payment until such time as:
(a) a Fundamental Change occurs, whereupon clause 2.5 shall apply and the Secretary of
State shall have no obligation to make that payment; or
(b) the Potential Fundamental Change ceases to exist, whereupon the payment shall
become immediately due and payable, together with interest from the due date until
the date of actual payment at a rate equivalent to the rate of interest then applicable to
drawings by POL under the POL Working Capital Facility (as amended from time to
time).
27 Until the date on which the last SGEI Payment is due to be made by the Secretary of
State to POL under this Agreement, POL shall promptly disclose to the Secretary of State any
matter or thing of which its board of directors becomes aware afier entering into this
Agreement which constitutes, or which in the reasonable opinion of its board of directors is
reasonably likely to give rise to, a Fundamental Change or a Potential Fundamental Change.
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3. DELAYED PAYMENT
If any SGEI Payment to be made by the Secretary of State to POL under this Agreement (a
Relevant Payment) is not made on or by the date on which it is required by clause 5.6
(Government Funding for Services of General Economic Interest) to be made (the Required
Payment Date), then during the period between the Required Payment Date and the end of the
tenth (10") Business Day thereafier (such period being the Remedy Period), the Parties shall
continue to comply with their respective obligations under this Agreement and the Secretary
of State shall make the Relevant Payment within the Remedy Period.
4, STATE AID CLEARANCES
41 The Secretary of State agrees to:
(a) prepare as soon as reasonably practicable, in consultation with Mails and POL, an
application for State Aid Clearance for all arrangements under this Agreement
requiring such State Aid Clearance, including any payments to POL under clause 5
(Government Funding for Services of General Economic Interest), in respect of each
of the Financial Years 2012/13, 2013/14 and 2014/15.
(b) pursue such State Aid Clearance application in good faith and expeditiously;
(c) keep Mails and POL informed as to the progress of such State Aid Clearance
application;
(d) permit representatives appointed by POL to attend meetings with the European
Commission in respect of such application, to the extent permitted by the European
Commission and deemed appropriate by the Secretary of State;
(ce) discuss with POL any written notifications to the European Commission in respect of
such State Aid Clearance application before they are submitted; and
( discuss with POL any written notifications from the European Commission in respect
of such State Aid Clearance application promptly upon their receipt.
42 As at the date of this Agreement the Secretary of State is targeting the obtaining of
the State Aid Clearance referred to in clause 4.1 by 31 March 2012 and the Parties shall use
their reasonable endeavours to obtain the State Aid Clearance by such date, it being
acknowledged that a mere failure to achieve that target is not of itself a breach of this clause
42.
5. GOVERNMENT FUNDING FOR SERVICES OF GENERAL ECONOMIC INTEREST
5.1 POL undertakes to the Secretary of State that it will for the duration of the Funding
Period: (i) maintain a network of post offices in accordance with clause 12 (Access Criteria);
and (ii) provide across that network the services of general economic interest entrusted to it
by the Entrustment Letter.
5.2 Subject to clause 2.1 (Conditions), the Secretary of State agrees to make to POL in
each of the Financial Years 2012/13, 2013/14 and 2014/15 a SGEI Payment in the amount
specified in clause 5.6 to enable POL to maintain the network and to provide services of
general economic interest over the network.
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53 The SGEI Payment for each of the Financial Years 2012/13, 2013/14 and 2014/15
shall be made in a manner or manners to be determined by the Secretary of State in his
absolute discretion (but having consulted with Holdings, Mails and POL as to the impact
thereof (if any) on their profit and loss accounts and the tax treatment of such payments).
54 The Secretary of State agrees:
(a) to submit for approval of both Houses of Parliament as soon as reasonably practicable
any order amending or replacing the Order to increase the maximum amount payable
under the Order in any period of twelve (12) months in order to make any payment
under this Agreement which it is determined by the Secretary of State in accordance
with clause 5.3 will be made pursuant to section 103 of the Act;
(b) to submit for approval of the House of Commons as soon as reasonably, practicable
any payment under this Agreement which it is determined by the Secretary of State in
accordance with clause 5.3 will be made pursuant to section 8 of the Industrial
Development Act 1982;
(c) to keep Mails and POL informed as to the progress of such approval(s); and
(d) to notify Mails and POL in writing as
approval(s) have been obtained.
soon as reasonably practicable afier such
5.5 If and to the extent that the Secretary of State determines to make any part of any
SGEI Payment by way of paying such amount to Holdings or Mails for the purpose of its
being applied in subscription for shares in POL, any such payment to Mails or Holdings shall
be held by Mails or Holdings, as applicable, upon trust to apply it immediately for the purpose
for which it was paid.
5.6 The amount of the SGEI Payment payable in each of the Financial Years 2012/13,
2013/14 and 2014/15 shall be calculated in accordance with Schedule 3 (Calculation of SGEI
Payment), but subject always to the aggregate amount of all SGEI Payments during the
Funding Period not exceeding one billion one hundred and fifty-five million pounds
(£1,155,000,000). Each SGEI Payment shall be made by way of payment on I April (or the
first Business Day thereafter) of the relevant Financial Year of the amount specified in clause
5.7 (subject to adjustment in accordance with clause 5.11).
5.7 The amount payable on account of the SGEI Payment (subject to reconciliation in
accordance with clause 5.10) in:
(a) the Financial Year 2012/13 shall be four hundred and ten million pounds
(£410,000,000);
(b) the Financial Year 2013/14 shall be four hundred and fifteen million pounds
(£415,000,000); and
(c) the Financial Year 2014/15 shall be three hundred and thirty million pounds
(£330,000,000).
In ascertaining for any purpose of this clause 5 the amount or maximum amount of any SGEI
Payment no account shall be taken of: (i) any VAT Amount which may be payable under
clause 5.13; or (ii) the benefit of any interest receivable on any amount held by POL prior to
its expenditure.
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5.8 The Secretary of State acknowledges that, without prejudicing his discretion to
determine the method of payment of the SGEI Payment referred to in clause 5.3 above, it is
his current expectation that:
(a) two hundred and ten million pounds (£210,000,000) of the SGEI Payment for
Financial Year 2012/13;
(b) two hundred million pounds (£200,000,000) of the SGEI Payment for Financial Year
2013/14; and
(c) one hundred and sixty million pounds (£160,000,000) of the SGEI Payment for
Financial Year 2014/15
will be made by way of a payment under a network subsidy scheme introduced under the
Order provided that: (i) the necessary statutory instrument to permit such payment has been
approved by an affirmative resolution of each House of Parliament; and (ii) any necessary
consent to the making of such statutory instrument has been given by the Lords
Commissioners of Her Majesty’s Treasury.
5.9 It is acknowledged by the Parties that any part of the SGEI Payments received by
POL under a network subsidy scheme pursuant to section 103 of the Act (currently expected
to be the amounts specified in clause 5.8 above) would be treated as revenue in POL’s
accounts, which has an impact on POL’s operating profit. Should any SGEI Payment (or part
thereof) be made in any Financial Year in any manner which would result in it not being
treated as revenue in POL’s accounts then any target operating profit applicable for any
purpose to POL or, prior to a Separation Event, the Royal Mail Group as a whole in such
Financial Year shall be reduced by the amount of any SGEI Payment (or part thereof)
received in any such manner in that Financial Year.
5.10 I Within three months following the signature of POL’s accounts in respect of each of
the Financial Years 2012/13, 2013/14 and 2014/15, POL shall provide to the Secretary of
State a statement (the SGEI Statement) setting out in writing the actual amount of the SGEI
Payment for that Financial Year and a cumulative statement (the Cumulative SGEI
Statement) setting out the cumulative amount of the SGEI Payments from the commencement
of the Funding Period, together with supporting calculations and a clear explanation of how
the actual amount of the SGEI Payment has been calculated. Each SGEI Statement shall be
accompanied by a statement (the SGEI Supporting Statement) from an independent firm of
financial advisers confirming:
(a) that the SGEI Statement has been properly prepared in accordance with the
requirements of Schedule 3 (Calculation of SGEI Payment) and any additional
conditions imposed by any relevant State Aid Clearance; and
(b) that while carrying out its financial analysis for the purposes of providing the
statement referred to in paragraph (a) above, they did not discover any inconsistency
of POL’s use of the SGEI Payments as against the terms of this Agreement or of any
applicable State Aid Clearance.
For the avoidance of doubt, the independent firm of financial advisers will not be responsible
for determining whether the allocation of costs in paragraph 3 of Schedule 3 (Calculation of
SGEI Payment) is appropriate or whether the profit in paragraph 4 of Schedule 3 (Calculation
of SGEI Payment) is reasonable. POL agrees to use reasonable endeavours to engage such
independent firm of financial advisers on the basis that, if requested by the Secretary of State
and on such terms as the financial advisers may agree:
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(c) an accountancy firm nominated by the Secretary of State shall be entitled to discuss
directly with the financial advisers the manner in which the SGEI Supporting
Statement has been prepared; and
(d) the financial advisers shall provide to the Secretary of State all notes and other work
products produced by them in the preparation of the SGEI Supporting Statement.
5.11 If following the end of the Funding Period the Cumulative SGEI Statement in respect
of Financial Years 2012/13, 2013/14 and 2014/15 shows that the aggregate actual amount of
the SGEI Payments over the Funding Period is less than one billion one hundred and fifty-five
million pounds (£1,155,000,000) POL shall, within ten (10) Business Days of receipt by the
Secretary of State of the Cumulative SGEI Statement referred to in clause 5.10, reimburse to
the Secretary of State, without deduction, an amount equal to the difference.
5.12 POL shall use each SGEI Payment only to meet the direct and indirect costs
associated with: (i) maintaining a network of post offices in accordance with clause 12
(Access Criteria); and (ii) ensuring the provision of services of general economic interest over
that network (as entrusted to it pursuant to the Entrustment Letter), as described in Schedule 3
(Calculation of SGEI Payment) (or to make any reimbursement required to be made by POL
pursuant to clause 5.11) and only for purposes permitted by any State Aid Clearance
applicable to it.
5.13 It is the mutual opinion of the Parties that the SGEI Payments received by POL will
not (and POL agrees not to take any steps with the intention of procuring that they will)
constitute, for VAT purposes, the consideration for any taxable supply and that, accordingly,
the receipt by POL of such SGEI Payments should not give rise to any liability of POL (or
any other member of the Royal Mail Group) to account for VAT in respect of any such
receipt. Notwithstanding the foregoing opinion, if it should, at any time (whether or not a time
falling within the duration of this Agreement), be determined by Her Majesty’s Revenue and
Customs that such SGEI Payments (or any of them) must be treated as the consideration for
taxable supplies made by POL (or, as the case may be, by any other member of the Royal
Mail Group) and that in consequence POL (or such other member of the Royal Mail Group) is
liable to account for VAT in respect of the receipt of any of such SGEI Payments (the VAT
Amount), POL shall notify the Secretary of State of that determination within five (5)
Business Days of being so advised by Her Majesty’s Revenue and Customs and the Secretary
of State shall, as soon as reasonably practicable following notification of such determination,
make a payment to POL, in addition to all amounts otherwise payable by the Secretary of
State to POL under this Agreement, of a sum equal to the VAT Amount, against production of
a valid VAT invoice.
5.14 If Her Majesty’s Revenue and Customs issues a determination as referred to in clause
5.13, the Parties shall (acting reasonably) consult as to what action to take regarding such
determination. If the Secretary of State disagrees with the determination he may, within ten
(10) Business Days of being notified by POL of such determination, give written notice to
POL that he requires POL (or any other Party) to obtain a review by Her Majesty’s Revenue
and Customs of that determination; and POL (or such other Party, as the case may be) shall
promptly request (the form of that request being subject to reasonable review by the Secretary
of State) Her Majesty’s Revenue and Customs to undertake such review. In the event that the
review results in POL obtaining a refund of any VAT Amount, or not being required to pay a
VAT Amount, in each case in respect of which the Secretary of State shall have made a
corresponding payment under clause 5.13, POL shall promptly refund to the Secretary of
State the amount of such corresponding payment.
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5.15. The Secretary of State acknowledges the expectation of the Parties that ongoing SGEI
Payments will be required to be made to POL following the end of the Funding Period to the
extent that POL may be requested to continue to provide services of general economic interest
following the Funding Period.
6. POL STRATEGIC PLAN
6.1 POL shall from 1 April 2011 use its best endeavours to procure the delivery of the
Strategic Plan within the financial parameters of the SGEI Payments provided pursuant to this
Agreement and (unless otherwise agreed by the Secretary of State or required by the terms of
any State Aid Clearance) POL shall not apply any SGEI Payment for a purpose inconsistent
with the Strategic Plan or make any material deviation from the Strategic Plan.
6.2 Until the occurrence of a Separation Event, unless POL and the Secretary of State
agree otherwise, POL undertakes in favour of the Secretary of State to apply in the normal
course any funds representing an aggregate out-performance of POL’s net cashflow over the
Funding Period relative to the net cashflow envisaged in POL’s financial forecasts within the
Strategic Plan to reduce POL's borrowings under the POL Working Capital Facility, subject
only to the fiduciary duties of the directors of POL. The Parties acknowledge that following
any Separation Event the method of reimbursement will need to be reviewed and potentially
amended.
7. MAILS’ ACKNOWLEDGMENT
71 For so long as POL remains a wholly-owned subsidiary of Mails and Mails remains
wholly-owned by the Crown, Mails agrees that it shall (insofar as is lawful and consistent
with the fiduciary duties of the directors of Mails in the context of Mails’ insolvency and
appropriate for a parent company in its position) take all necessary steps, including
minimising any downside for POL, and take responsibility for requiring that POL takes all
necessary steps, to execute the strategy agreed upon for POL wholly within the financial
resources made available to POL by this Agreement.
7.2 For so long as POL remains a wholly-owned subsidiary of Mails and Mails remains
wholly-owned by the Crown, in the context of this clause 7, Mails agrees that it will consider
in good faith any request to make available to POL inter-company debt facilities, where such
request is received from POL or the Secretary of State during the Funding Period.
8. HOLDINGS’ ACKNOWLEDGMENT
For so long as POL and Mails remain wholly-owned subsidiaries of Holdings, Holdings
acknowledges the steps required to be taken by Mails under clause 7 (Mails’
acknowledgement) and agrees to take all necessary steps appropriate for a parent company in
its position (and acknowledging that Mails is the principal material asset of Holdings) to
procure that Mails takes those steps.
9. FINAL CONTRIBUTION
9.1 Mails and POL acknowledge that the SGEI Payments to be provided by the Secretary
of State pursuant to this Agreement represent the Secretary of State’s final funding
contribution in respect of POL’s obligations over the Funding Period to: (i) maintain a
network of post offices in accordance with clause 12 (Access Criteria); and (ii) ensure the
provision of services of general economic interest over that network in accordance with the
Strategic Plan as entrusted to it by the Entrustment Letter.
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10. EMPLOYEE INCENTIVE ARRANGEMENTS
10.1 POL shall develop and implement an incentive scheme, to be approved by the
Secretary of State, for its senior executive team in a manner which is designed to ensure, and
is consistent with ensuring, the delivery of the Strategic Plan.
10.2 POL confirms that:
(a) the terms of any bonus arrangements specific to POL (or those parts of any group-
wide arrangements which are related to the performance of POL) are designed to
incentivise and reward the performance of POL;
(b) the terms of such bonus arrangements are robust, subject to annual review and
designed not to provide rewards where POL’s business has not performed
satisfactorily against the relevant target; and
(c) accordingly, no such bonus arrangements will pay out in respect of any Financial
Year during the Funding Period in which POL seeks and obtains new funding from
the Secretary of State, over and above that anticipated in this Agreement, as a result
of a failure by POL to perform in accordance with the requirements of the Strategic
Plan (other than as a result of a change in Government policy or other reasons beyond
POL's control). Any future bonus arrangements following any such Financial Year
will be discussed with the Secretary of State at the time.
il. SuB-POSTMASTER COMPENSATION CONDITIONS
11.1 As part of its obligations to deliver the Strategic Plan, POL shall ensure that it
complies with the provisions of clause 12 (Access Criteria) and confirms that the Strategic
Plan has been developed on the basis that no community loses access to services of the type
contemplated in clause 12 (Access Criteria) other than due to circumstances beyond POL’s
control.
11.2 POL shall ensure that as of 1 April 2012 (or such earlier date as may be agreed
between the Secretary of State and POL), all new agency contracts entered into between POL.
and any sub-postmaster shall be on such terms as to ensure that such sub-postmaster has no
right to receive: (i) fixed pay; or (ii) any compensation payment for termination of such
agency contract (other than in respect of a breach by POL of the terms of such agency
contract or applicable law).
11.3. POL shall ensure that (save as required by law or contractual requirements) following
1 April 2012, no compensation payments may be paid to any sub-postmaster upon
replacement of such sub-postmaster’s existing agency contract, unless such replacement
agency contract complies with the provisions of clause 11.2.
12. ACCESS CRITERIA
12.1 Without prejudice to its obligations pursuant to clause 5.1 (Government Funding for
Services of General Economic Interest), POL shall throughout the Funding Period provide a
network of at least eleven thousand, five hundred (11,500) Branches which:
(a) provide access to all of the following services:
(i) postal services;
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(ii) basic cash and banking facilities and services offered in accordance with the
GCA Contract;
(iii) bill payment facilities; and
(iv) information about other services which may be available from POL outlets
from time to time,
provided that a maximum of five hundred (500) Branches (such Branches to be determined by
POL in its absolute discretion) shall not be required to provide the service contemplated in
clause 12.1(a)(ii) (Access Criteria) above; and
(b) enables the following criteria to be met:
(i) Nationally:
(A) ninety per cent. (90%) of the UK population are within one (1) mile
of the nearest Branch;
(B) ninety nine per cent. (99%) of the UK population are within three (3)
miles of the nearest Branch;
(ii) In Urban Areas:
(A) ninety five per cent. (95%) of the total population within Urban
Areas across the UK are within one (1) mile of the nearest Branch;
(B) ninety nine per cent. (99%) of the total population within Deprived
Urban Areas across the UK are within one (1) mile of the nearest
Branch;
(iii) In Rural Areas: ninety five per cent. (95%) of the total population within
Rural Areas across the UK are within three (3) miles of the nearest Branch;
(iv) In each postcode district: ninety five per cent. (95%) of the population in
each individual postcode district are within six (6) miles of the nearest
Branch.
12.2 In applying the above criteria POL shall in addition take account of geographical
constraints such as rivers, mountains and valleys, motorways and sea crossings to islands so
as not to impose undue hardship when considering the appropriate Branch network.
12.3. Reference to “Branch” in this clause 12 shall mean a Branch providing the services
described in clause 12.1(a).
13. JOINT VENTURES
13.1 POL agrees that it shall only enter into joint ventures with third parties for purposes
consistent with the delivery of the Strategic Plan and provided that the joint venture is
structured on the basis that it would not (according to Government advice) be classified as
part of the public sector under relevant Treasury rules.
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14. SEPARATION EVENTS
14.1 The Secretary of State commits to considering, prior to effecting a Separation Event,
the potential impact of such Separation Event on the deliverability of the Strategic Plan.
14.2. No Party (other than the Secretary of State) shall be liable for any breach of this
Agreement if such breach would not have occurred but for the occurrence of a Separation
Event.
15. PUBLIC CONSULTATION, COMMUNICATION AND EQUALITY
15.1 POL shall at all times comply with the Code of Practice.
15.2 POL acknowledges the commitment recorded in the resolutions made during its board
meeting of 21 January 2008 that any individuals taking any decision or exercising any other
function on POL’s behalf should do so having due regard to the need to observe factors which
comprise the statutory equality duties and that appropriate steps be taken to inform all people
making decisions or exercising functions on POL’s behalf of these equality duties. POL shall
ensure that this commitment is maintained in the performance of its obligations under this
Agreement.
16. CONSENTS
The Secretary of State hereby consents, for all purposes of the articles of association of
Holdings and any other document or arrangement under which its consent or approval is
required, and Holdings hereby consents, for all purposes of the articles of association of
Mails, to the execution and performance by Holdings, Mails and POL of this Agreement and
the documents and arrangements to be entered into pursuant to, or otherwise contemplated by,
this Agreement (other than any agreement contemplated in clause 13). Each of the Secretary
of State and Holdings agrees that such consents will take effect notwithstanding any failure to
comply with any procedural requirements of such articles or other documents in connection
with the obtaining of such consents.
17. CONFIDENTIALITY
17.1 Each Party undertakes to each other Party that, subject to clause 17.2, it shall treat as
strictly confidential all confidential information. For the purposes of this clause 17,
confidential information shall mean:
(a) the provisions of this Agreement, the Entrustment Letter and the Strategic Plan; and
(b) the negotiations relating to this Agreement, the Entrustment Letter and the Strategic
Plan.
17.2. Clause 17.1 shall not prevent the disclosure by a Party of any confidential
information:
(a) to those of its officers (including auditors), employees and agents as it considers have
a need for such information in the performance of their respective functions and who
shall in each case be made aware by such Party of its obligations under this
Agreement and shall be required by such Party to observe the same restrictions on the
use of the confidential information as are contained in this clause 17;
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(b) to its professional advisers who are bound to such Party by a duty of confidence
which applies to the confidential information disclosed;
(c) to the extent required by applicable law or by the regulations of any regulatory or
supervisory authority to which such Party is subject or pursuant to any order of court
or other competent authority or tribunal;
(d) which shall have entered the public domain or ceased to be confidential other than as
a result of a breach by such Party of its obligations under this clause 17;
(e) which was already known to such Party prior to its disclosure to such Party other than
as a result of a breach by such Party of an obligation of confidentiality;
( as such Party, acting reasonably, considers necessary in connection with any
investigations, inquiries, or actual or threatened proceedings in connection with
Holdings, Mails or POL or any of their respective directors;
(g) in the case of Holdings, Mails or POL, to the extent that its board of directors acting
reasonably, considers disclosure necessary from time to time in its statutory accounts;
(h) to the extent that the Secretary of State, acting reasonably, considers disclosure
necessary from time to time in the published accounts of the Department of Business,
Innovation & Skills or Her Majesty’s Treasury;
(i) to the extent required by any Parliamentary obligation;
(j) to the extent required for the purposes of any examination pursuant to section 6(1) of
the National Audit Act 1983 of the economy, efficiency and effectiveness with which
the Secretary of State has used his resources;
(kK) to the European Commission for the purposes of obtaining State Aid Clearance; or
(dy with the prior written consent of the other Parties.
17.3 Ifa Party becomes required, in circumstances contemplated by clause 17.2(c), (0) or
(g) to disclose any confidential information, such Party shall, to the extent permitted by law,
give to each other Party such notice of such disclosure as is practicable in the circumstances
and shall, to the extent permitted by law and practicable in the circumstances, consult with the
other Parties as to the extent of such disclosure.
18. NOTICES
18.1 A notice to be served pursuant to or in connection with this Agreement shall be in
writing and, unless otherwise stated, served in person or sent by pre-paid first class post, fax
or any electronic method of communication as agreed by the Parties to the relevant Party at its
address or fax number set out below, or such other address in England or Wales or fax
number notified by it to the other Parties and marked for the attention of the person or
department therein specified.
18.2 The address and addressee of each Party at the date of this Agreement are:
Secretary of I Legal Director for I 1 Victoria Street,
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State Postal Services London SW1H OET
Holdings Company Secretary I 100 Victoria
Embankment, London
EC4Y 0HQ
Mails Company Secretary 100 Victoria
Embankment, London
EC4Y 0HQ
POL Company Secretary I 148 Old Street, fC GRO
London EC1V 9HQ
18.3. A notice shall be deemed to be received on the date and time specified below (save
that where such notice would otherwise be deemed to be received after 17:00 London time on
a particular day, it shall be deemed to have been received at 9:00 London time on the next
Business Day):
(a) in the case of a notice served in person, upon delivery at the address of the addressee;
(b) in the case of a posted letter, on the second Business Day after posting:
(c) in the case of a fax, when received in legible form; and
(d) in the case of any other electronic method of communication agreed by the Parties,
when actually received in readable form.
18.4 Each Party undertakes to notify all of the other Parties by notice served in accordance
with this clause if the address specified for that Party herein is no longer an appropriate
address for the service of notice or if it is desired to substitute any individual addressee of that
Party named in clause 18.2.
18.5 In proving service of any notice under or in connection with this Agreement it will be
sufficient to prove:
(a) in the case of a letter, that such letter was properly stamped or franked, addressed and
placed in the post or in the case of personal delivery, was left at the correct address;
and
(b) in the case of a fax transmission, that fax was duly transmitted to the fax number, as
appropriate, of the addressee referred to in clause 18.2.
19. ENTIRE AGREEMENT
19.1 This Agreement and any documents referred to in it or annexed to it constitute the
whole and only agreement among the Parties or any of them relating to its subject matter and,
for the avoidance of doubt, supersedes any other prior arrangement, understanding or
agreement between the Parties or any of them relating to the subject matter of this Agreement.
19.2 Each Party acknowledges that in entering into this Agreement, it is not relying on any
pre-contractual statement which is not set out in this Agreement.
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19.3 Except in the case of fraud, no Party shall have any right of action against any other
Party arising out of or in connection with any pre-contractual statement except to the extent
that it is expressly provided for in this Agreement.
19.4 For the purposes of this clause 19, pre-contractual statement means any draft,
agreement, undertaking, representation, warranty, promise, assurance, forecast, estimate or
arrangement of any nature whatsoever, whether or not in writing, relating to the subject matter
of this Agreement made or given by any person at any time prior to the date of this
Agreement.
20. GENERAL
Secretary of State
20.1 Nothing in this Agreement fetters the powers conferred on the Sceretary of State by
the Act.
Costs
20.2 Save as expressly provided for elsewhere in this Agreement, each of the Parties shall
at its own expense do all such things as shall be necessary to give full effect to the obligations
imposed on it under this Agreement.
Third parties
20.3. For the purposes of the Contracts (Rights of Third Parties) Act 1999, no person other
than a Party shall have any rights in respect of this Agreement.
Counterparts
20.4 This Agreement may be executed in any number of counterparts and by the Parties on
separate counterparts, each of which when so executed and delivered shall be an original, but
all the counterparts shall together constitute one and the same instrument.
Partial invalidity
20.5 If any term or provision in this Agreement is held to be illegal or unenforceable in
whole or in part under any enactment or rule of law, such term or provision or part shall to
that extent be deemed not to form part of this Agreement but the enforceability of the
remainder of this Agreement shall not be affected.
Rights, variations and waivers
20.6 The rights and remedies of the Parties shall not be affected by any failure to exercise
or delay in exercising any right or remedy or by the giving of any indulgence by any other
Party or by anything whatsoever except a specific waiver or release in writing and any such
waiver or release shall not prejudice or affect any other rights or remedies of the Parties. No
single or partial exercise of any right or remedy prevents any further or other exercise thereof
or the exercise of any other right or remedy.
20.7 No variation of this Agreement shall be of any effect unless it is agreed in writing by
or on behalf of each Party.
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20.8 Any waiver of any right, power or remedy under this Agreement must be in writing
and may be given subject to any conditions thought fit by the grantor. The person seeking the
waiver shall disclose to the grantor all material facts then in that person’s knowledge relevant
to the subject matter of the waiver. Unless otherwise expressly stated, any waiver shall be
effective only in the instance and only for the purpose for which it is given.
Remedies
20.9 Without prejudice to any other rights or remedies that any Party may have, each Party
acknowledges and agrees that damages alone would not be an adequate remedy for any
breach by a Party of the provisions of this Agreement, and that the remedies of injunction and
specific performance as well as any other equitable relief for any threatened or actual breach
of the provisions of this Agreement by a Party may be more appropriate remedies and that no
proof of special damages shall be necessary for the enforcement of this Agreement.
Governing law and jurisdiction
20.10 This Agreement and any non-contractual obligations arising out of or in relation to
this Agreement shall be governed by and construed in accordance with English law.
20.11 Each Party hereby submits to the exclusive jurisdiction of the courts of England.
EXECUTED by the Parties on the date first written above.
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SIGNED by
for and on behalf of
THE SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS
Signature}
Name: Oliver Griffiths
Title: Deputy Director, Shareholder Executive
SIGNED by
for and on behalf of
POST OFFICE LIMITED
Title: Chief Customer Officer Company Secretary
SIGNED by
for and on behalf of
ROYAL MAIL HOLDINGS PLC
Signature._ L
Name: David Smith Jon Millidge
Title: Chief Customer Officer Company Secretary
SIGNED by
for and on behalf of
ROYAL MAIL GROUP LIMITED
Signature
Name: David Smith Jon Millidge
Title: Chief Customer Officer Company Secretary
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SCHEDULE 1
DELIVERABLES
A certified copy of a resolution of the board of POL:
(a) approving the terms of, and the transactions contemplated by, this Agreement and
resolving that it execute and perform this Agreement;
(b) authorising a specific person or persons to execute this Agreement on its behalf; and
(c) authorising a specified person or persons, on its behalf, to sign and/or dispatch all
documents and notices to be signed and/or dispatched by it under or in connection
with this Agreement.
2. Certified copies of resolutions of the boards of Mails and Holdings:
(a) approving the terms of, and the transactions contemplated by, this Agreement and
resolving that it execute and perform this Agreement;
(b) authorising a specific person or persons to execute this Agreement on its behalf; and
(c) authorising a specified person or persons, on its behalf, to sign and/or dispatch all
documents and notices to be signed and/or dispatched by it under or in connection
with this Agreement.
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SCHEDULE 2
Part A
Fundamental Change
A Fundamental Change will have occurred if:
1.
an order has been made or resolution has been passed for the winding-up of, or a
provisional liquidator to be appointed in respect of, POL;
an administrator has been appointed in respect of POL:
a receiver (which expression shall include an administrative receiver) has been
appointed in respect of POL;
POL has stopped paying its debts as they fall due;
a moratorium is declared in respect of the indebtedness of POL or POL enters into a
moratorium or a composition, assignment or similar arrangement with its creditors
generally;
a scheme of arrangement is approved, or proposed by POL, under Part 26 of the
Companies Act 2006 with a view to rescheduling or restructuring POL’s
indebtedness;
a voluntary arrangement has been proposed by POL under section 1 of the Insolvency
Act 1986 in respect of POL; or
an event analogous to the foregoing has occurred in relation to POL in any
jurisdiction outside England.
Part B
Potential Fundamental Change
A Potential Fundamental Change exists at any time if at that time a Fundamental Change shall
not have occurred but:
1.
a petition has been presented or a meeting has been convened for the purpose of
winding-up POL or appointing a provisional liquidator in respect of POL and such
petition has not been discharged or such meeting has not been held; or
2. POL is currently taking steps with a view to appointing an administrator or agreeing a
moratorium, composition, assignment or similar arrangement with its creditors
generally.
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SCHEDULE 3
CALCULATION OF SGEI PAYMENT
The amount of the SGEI Payment shall (subject to clause 5.7 (Government Funding for
Services of General Economic Interest)) be equal to all the direct and indirect costs associated
with the provision by POL of services of general economic interest (SGEJ) including:
1. all variable costs incurred in providing the SGEI; plus
2. all fixed costs incurred in providing the SGEI; plus
3. such proportion of fixed costs common to both the SGEI and other activities of POL
as is appropriate to be allocated to the SGEI (based on generally accepted cost
accounting principles); plus
4. a reasonable profit in providing the SGEI; less.
5. the revenues received by POL from the SGEI.
For the purposes of paragraph 3 of this definition the fixed costs common to both the SGEI
and other activities of POL shall include, without limitation, contributions to pension funds,
interest costs, group central cost allocations, capital expenditure, contributions to the cost of
any employee incentivisation arrangements and the costs of rationalising the network to
maintain a network with optimal coverage for delivery of SGEI at minimum cost within the
funding envelope, in each case whether such costs are recurring or exceptional.
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APPENDIX A
POL ENTRUSTMENT LETTER
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APPENDIX B
STRATEGIC PLAN
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