8 September 2008
Dear Mr Caldwell,
The Northern Rock plc Compensation Scheme: Appointment as independent valuer
1. I refer to your application for appointment as independent valuer pursuant to the invitation to potential candidates dated 5 June 2008 (the "Invitation"). This letter adopts the definitions used in the Invitation.
2. I am pleased to inform you that your application has been successful and that you are hereby appointed as independent valuer pursuant to paragraph 7 of the Compensation Scheme set out in the Schedule to the Northern Rock plc Compensation Scheme Order 2008.
Basis of appointment
3. Save where the contrary appears in this letter, your appointment as independent valuer is made on the basis of the Invitation.
Duties
4. You are required to discharge the functions of independent valuer in accordance with the terms of the Compensation Scheme and the provisions of Part 9 of the Financial Services and Markets Act 2000 and the Financial Services and Markets Tribunal Rules 2001 (both as modified by the Compensation Scheme Order). You will be expected at all times to act impartially, independently and fairly in the discharge of your functions as independent valuer.
Period of appointment
5. Your appointment will commence on 8 September 2008 and, subject to paragraphs 22 to 24 below, will continue until you have issued the last assessment notice under paragraph 11 of the Compensation Scheme and all challenges to the assessment notices, whether by the revised assessment notice procedure under paragraph 12 of the Compensation Scheme, or referral to the Tribunal under paragraph 13 of the Compensation Scheme or otherwise have been finally disposed of, unconditionally withdrawn or the time limit for making any such challenges has expired, whichever is the later.
Remuneration and reimbursement of expenses
6. We will pay you an amount of £4,541,375 (including VAT) being the fixed fee for all work undertaken, and all expenses incurred, during the period from the date of your appointment until you have issued your last assessment notice in accordance with paragraph 11 of the Compensation Scheme. In this letter this amount is referred to as the "assessment amount" and the period in question as the "assessment period".
7. The assessment amount will be paid as set out in Annex 1 to this letter.
8. The assessment amount has been agreed on the basis of the following assumptions:
(i) Availability of requested information and access to management
You will have timely access to the current management of Northern Rock (which will co-operate and assist you) and to relevant financial and other business information from Northern Rock. The majority of such data is available electronically. Should you require time on-site, Northern Rock will provide access to office space.
(ii) Information provided
Historical and forward looking financial information from Northern Rock will not require any substantial processing in the form of, for example consolidation, de-consolidation or reconciliation.
9. If those assumptions are not met in practice, or other circumstances arise which could not have been reasonably foreseen by the date of this letter, then the assessment amount may be varied to take account of any resulting additional work reasonably undertaken by you or reasonable expenses incurred. We will appoint an independent third party to assess whether a variation is justified and, if so, the amount of any further payment, calculated in accordance with the rates for remuneration and expenses set out at Annex 2 to this letter. The third party will notify you and us of his or her decision within a reasonable period of time, but in any event not exceeding the later of 60 days from the date of receipt of a record of the additional hours/days worked and additional expenses incurred or 28 days from the date of receipt by the third party of all further information requested by him or her from you.
10. Remuneration for work reasonably undertaken and reimbursement for reasonable expenses which is incurred additional to the work undertaken and expenses incurred during the assessment period, will be calculated in accordance with the rates set out at Annex 2 to this letter and made on the following basis.
(i) We will appoint an independent third party to confirm that such work has been reasonably undertaken and expenses have been reasonably incurred in the discharge of your duties. The third party will notify you and us of his or her decision within a reasonable period of time, but in any event, not exceeding the later of 60 days from the date of receipt of a record of the hours/days worked or expenses incurred in the previous month or 28 days from the date of receipt by the third party of all further information requested by him or her from you.
(ii) Payment in respect of remuneration for your work will be made within 30 days of the later of receipt of a record of the hours/days worked in the previous month and the confirmation at (i) above.
(iii) You may invoice us for any expenses reasonably incurred by you in undertaking the role of independent valuer after the expiry of the assessment period on a monthly basis. Such invoices will be paid within 30 days of the later of receipt and the confirmation at (i) above.
11. Subject to paragraph 12, remuneration for work reasonably done and reimbursement for expenses reasonably incurred by you (whether the work is done or expenses incurred during or after the assessment period) in connection with -
(a) any judicial review proceedings challenging any action, decision or opinion of yours or ours, or
(b) any other legal proceedings brought against you,
which relate to the discharge of your functions as independent valuer, will be provided in accordance with the assessment of an independent third party on the same basis as set out in paragraph 10. Reimbursement in respect of an award of damages or costs against you in such proceedings will be similarly provided.
12. There will be no entitlement to any payment in accordance with paragraph 11 where the alleged default or liability is admitted or otherwise accepted by you, or is determined by a Court, to have been caused by your wrongful act or negligence. You will repay within 30 days of such admission or acceptance or determination any such amounts paid to you.
Appointment of staff
13. The Compensation Scheme Order provides that the valuer may appoint such staff as the valuer may determine. The Compensation Scheme Order also provides that the valuer shall determine the remuneration and other conditions of service of the staff so appointed and pay such pensions, allowances or gratuities to or in respect of staff so appointed as the valuer may determine.
14. The determination of remuneration and other conditions of service of, and the payment of pensions, allowances and gratuities to, staff appointed by the valuer requires the approval of the Treasury. If you wish to appoint staff you must notify the contact name given to you by the Treasury for this purpose.
15. For the avoidance of doubt, for these purposes staff means persons who are your employees, whether on a temporary or permanent basis and does not include staff employed by your firm. Any charges incurred for the use of staff employed by, or other resources within, your firm will be considered to form part of your expenses and, if incurred during the assessment period, are included (subject to paragraph 9) in the assessment amount.
Time and expenses recording systems
16. The systems for recording time spent (both your time and that of your staff), and for verifying that any expenses for which you may seek reimbursement additional to those included in the assessment amount are incurred in the discharge of your duties as valuer, are as described in Annex 3 to this letter.
Capita
17. Capita Registrars will maintain and administer a register of persons who held shares in Northern Rock immediately before those shares were transferred to the Treasury pursuant to the Transfer Order. Capita Registrars is available to undertake mailings on behalf of the valuer to such persons.
18. Any costs incurred by you in relation to producing and undertaking mailings to former shareholders will be considered to form part of your expenses and, if incurred during the assessment period, are included (subject to paragraph 9) in the assessment amount.
Professional standards, conflicts of interest and indemnity
19. In accepting this appointment you confirm that -
(i) you will act in accordance with any relevant rules of conduct or code of ethics issued by any professional body of which you are a member;
(ii) you will maintain an appropriate level of professional indemnity insurance to carry out the appointment.
Conflicts of interest
20. In accepting this appointment you confirm that you will take such steps as are necessary to avoid any actual or potential conflict between any personal or business interests and your functions as valuer that could influence, or be reasonably perceived to influence, your judgement in performing your functions as valuer and, in particular -
(i) you will not appoint staff or obtain assistance from staff employed by your firm who, to the best of your knowledge having made reasonable enquiries, have any such actual or potential conflict;
(ii) you will take appropriate steps to ensure that you, your staff and staff assisting you employed by your firm are not placed in a position where there is any such actual or potential conflict;
(iii) you will disclose to former shareholders, the Treasury and other interested parties full particulars of any such actual or potential conflict of interest that may arise.
21. You will not consult, instruct, or obtain assistance from any party or person who, to the best of your knowledge having made reasonable enquiries, has any actual or potential conflict which could influence or be reasonably perceived to influence their or your judgement in relation to the performance of your functions as valuer.
Termination and vacation of office
22. The Treasury may terminate your appointment by notice in writing with immediate effect on the ground of incapacity or serious misbehaviour.
23. If your appointment is terminated or vacated (howsoever arising) you must provide (free of charge) such assistance as may reasonably be requested by any person appointed to take your place as independent valuer under the Compensation Scheme to facilitate an effective and timely handover of all work then in progress.
24. If you vacate office other than in circumstances outside your control you will reimburse the Treasury such amount as is reasonably required to provide for any additional costs arising out of the change of valuer. For the avoidance of doubt, your moving to another firm, the identity of which, by reason of its involvement with Northern Rock or otherwise, prevents your continuing as valuer, will not be treated as circumstances outside your control.
Yours sincerely,
Louise Tulett
Annex 1 (commercially confidential)
Annex 2 (commercially confidential)