EasyJet 2010 Annual Report Download - page 91

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Overview Business review Governance Accounts Other information
easyJet plc
Annual report and accounts 2010
89
27 Subsequent events
On 11 October 2010, easyJet announced that, subject to shareholder approval in an Extraordinary General Meeting (‘EGM’), agreement
had been reached to resolve its ongoing dispute with easyGroup IP Licensing Ltd (‘easyGroup’) and Sir Stelios Haji-Ioannou over the
terms and operation of the ‘easyJet’ brand licence.
Under the present brand licence terms, the Company pays easyGroup an annual fee of £1 for use of the ‘easyJet’ brand, but is subject to
certain limitations, for example, in relation to the extent of revenues to be derived from ancillary activities (the ‘75/25 rule’). In addition
easyJet has made contributions totalling £0.4 million in the last two years towards the costs incurred by easyGroup in protecting the ‘easy’
brand name.
In addition, easyGroup currently has the right to appoint up to two non-executive directors of the Company and Sir Stelios Haji-Ioannou
has the right to appoint himself Chairman of the Company. At the forthcoming EGM a special resolution will be proposed to amend the
Articles of Association of the Company to remove these rights. If this resolution is passed, easyGroup will have no rights beyond those
afforded to an equivalent shareholder by the general law.
The principal effects of the variations to the brand licence are as follows:
– The Company will continue to have exclusive worldwide rights to use the easyJet brand in relation to operating passenger carrying
flights using fixed wing aircraft under an AOC for a period of 50 years;
– The Company will commit to the brand for a minimum of ten years, with any earlier termination requiring a payment to easyGroup
of the residue of the 10-year royalty (based on a set formula);
– The Company will pay an annual royalty of 0.25% of total revenue, fixed at £3.9 million for the year ending 30 September 2011
and £4.95 million for the year ending 30 September 2012;
– The 75/25 Rule and other commercial and operational freedoms and limitations will be replaced by various new rights, freedoms and
limitations on the conduct its commercial operations to the mutual benefit of both the Company and easyGroup;
– The Company will adopt certain service level indices. The service levels will be reviewed annually and performance against these will be
reported to easyGroup on a monthly basis. Failure to meet service levels will entitle easyGroup to serve a cure notice and ultimately a
termination notice for continued failure to comply;
– There will be a new brand protection regime whereby enforcement costs to protect the ‘easy’ and ‘easyJet’ brands will be shared
between the Company and easyGroup in a ratio of 10:1 up to a combined cost contribution of £5.5 million per annum for any individual
action. All costs over this limit will be met by the Company, which will then have the right to conduct any such actions; and
– easyGroup will have greater freedom to license or use the ‘easy’ brand to provide tour operator, travel agency and flight price
comparison services potentially in competition with easyJet.
Sir Stelios Haji-Ioannou has entered into a separate agreement under which, in return for a fee of £300,000 per annum for a period
of five years from 1 October 2010, he has undertaken:
– To procure that easyGroup does not license the ‘easy’ brand to an ATOL holder on terms permitting the sale of airline seats for
a period of 12 months;
– Not to sell the shares in easyGroup or the easyJet brand or any part of it for a period of two years and not to any airline (or the owner
of any airline) licensed in the EEA or Switzerland for a period of three years;
– Not to acquire an interest in any other airline licensed in any EEA country (nor Switzerland) for a period of two years (unless the
interest is less than 10% and he is not involved in an executive capacity);
– Not to use his own name or a derivation of it to brand any other airline which flies to or from any country in Europe for a period
of five years; and
– To abide by the mutual brand respect provisions and certain public communication protocols agreed with easyJet.