10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to

Commission File Number 1-7560

SEA CONTAINERS LTD.
(Exact name of registrant as specified in its charter)

Bermuda (State or other jurisdiction of incorporation or organization)	98-0038412 (I.R.S. Employer Identification No.)
22 Victoria Street, P.O. Box HM 1179 Hamilton HM EX, Bermuda (Address of principal executive offices)
Registrant's telephone number, including area code: (441) 295-2244

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class	Name of each exchange on which registered
103/4% Senior Notes Due 2006	New York Stock Exchange
13% Senior Notes Due 2006	New York Stock Exchange
77/8% Senior Notes Due 2008	New York Stock Exchange
121/2% Senior Notes Due 2009	New York Stock Exchange
101/2% Senior Notes Due 2012	New York Stock Exchange
Class A and Class B Common Shares, $0.01 par value each	New York Stock Exchange Pacific Exchange
Preferred Share Purchase Rights	New York Stock Exchange Pacific Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable. See third paragraph under Item 1—Business on page 3.)

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

        The aggregate market value of the Class A and B common shares held by nonaffiliates of the registrant computed according to the closing prices on June 30, 2004 (the last business day of the registrant's second fiscal quarter in 2004) was approximately $470,000,000.

        As of March 21, 2005, 26,098,705 Class A common shares and 14,365,895 Class B common shares of the registrant were outstanding (including 12,900,000 Class B shares owned by a subsidiary of the registrant (see Note 17(e) to the Financial Statements (Item 8)).

DOCUMENTS INCORPORATED BY REFERENCE: None.

        Preliminary Note:    Forward-looking statements concerning the operations, performance, financial condition, plans and prospects of Sea Containers Ltd. and its subsidiaries are based on management's current expectations and are subject to various risks and uncertainties. Actual results could differ materially from those anticipated in the statements due to a number of factors, including those described in Item 1—Business, Item 3—Legal Proceedings, Item 7—Management's Discussion and Analysis, Item 7A—Quantitative and Qualitative Disclosures about Market Risk, and Item 12—Security Ownership of Certain Beneficial Owners and Management below. Sea Containers Ltd. undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

ITEM 1.    Business

        Sea Containers Ltd. (the "Company" and, together with its subsidiaries, "SCL") is incorporated in the Islands of Bermuda and is a "foreign private issuer" as defined in Rule 3b-4 of the U.S. Securities and Exchange Commission ("SEC") under the U.S. Securities Exchange Act of 1934 (the "1934 Act") and in SEC Rule 405 under the Securities Act of 1933. As a result, it is eligible to file its annual report on Form 20-F (in lieu of Form 10-K) and to file its interim reports on Form 6-K (in lieu of Forms 10-Q and 8-K). However, the Company elects to file its annual and interim reports on Forms 10-K, 10-Q and 8-K, including any instructions that relate specifically to foreign private issuers.

        These reports and amendments to them are available free of charge on the internet website of the Company as soon as reasonably practicable after they are filed electronically with the SEC. The internet website address is www.seacontainers.com. Unless specifically noted, information included in the website is not incorporated by reference in this Form 10-K report.

        Pursuant to SEC Rule 3a12-3 regarding foreign private issuers, the proxy solicitations of the Company are not subject to the disclosure and procedural requirements of SEC Regulation 14A under the 1934 Act, and transactions in the Company's equity securities by its officers, directors and significant shareholders are exempt from the reporting and liability provisions of Section 16 of the 1934 Act.

Introduction

        SCL is engaged in four main businesses. The first is ferry operations mainly involving passenger and vehicle ferry services in the Baltic Sea and English Channel. The second is passenger rail services in Britain between London and Scotland. The third is the leasing of cargo containers, principally through SCL's unconsolidated 50%/50% GE SeaCo SRL joint venture ("GE SeaCo") with General Electric Capital Corporation, to a diversified customer base of liner ship operators and others throughout the world, and the manufacture and repair of container equipment. The fourth business is ownership of and/or investment in hotels, restaurants, tourist trains and river cruise businesses located throughout the world through Orient-Express Hotels Ltd., an unconsolidated company in which SCL owns a 25% equity interest ("OEH"). In addition, SCL engages in property development, perishable commodity production and sales, and publishing.

        Revenue, operating earnings and identifiable assets of SCL in 2002, 2003 and 2004 for its business segments and (to the extent possible) for its geographic areas are presented in Note 22 to the Financial Statements (Item 8 below).

        SCL employed a total of approximately 8,700 persons in its various activities at December 31, 2004, plus another 5,800 persons employed by GE SeaCo, OEH and their respective subsidiaries.

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FERRY OPERATIONS

        SCL provides passenger and freight ferry services in the Baltic Sea between Finland and Sweden, Estonia, Germany and Russia, in the English Channel between England and France and, until late 2004, in the northern Irish Sea between Scotland and Northern Ireland. It also owns a commuter ferry service operating in New York harbor, and a 50% interest in seasonal ferry services in the Adriatic Sea and the Aegean Sea. SCL's ferry operations are shown on the map on the following page.

        In Europe and Scandinavia, these operations primarily involve the deployment of roll-on, roll-off ("ro-ro") vessels carrying passengers and accompanied vehicles (cars, buses and trucks) and the provision of catering, retail and other services both on board and in the terminals. SCL transports cars, small buses and light trucks on all of its routes and heavier freight traffic including rail cars in the Baltic Sea. Linkspans at the ports connect to the ships and allow drive-through loading and unloading. Passengers travel with their vehicles or on foot, some connecting by rail or bus service. The New York ferries transport only passengers. In 2004, SCL operated on a total of 15 regularly scheduled routes using 25 active vessels, and transported approximately 7.7 million passengers and 1.0 million vehicles.

Fast Ferries

        Many of SCL's ferries travel at high speed, faster than conventional ferries. SCL owns four 74-meter catamarans called "SeaCats" built in 1990 and 1991 and two larger 81-meter SeaCats built in 1996. These six vessels are similar to conventional catamarans except that the hulls are designed to pierce the waves, rather than ride over them, and have normal operating speeds of about 35 knots. Each of the four smaller ones carries up to 600 passengers and 70 cars, while the two larger ones carry 650 passengers and 140 cars. They feature spacious passenger areas, shopping on board, an aft passenger deck and lounge with buffet serving light meals, and an observation deck behind the bridge. The SeaCats have relatively low capital cost, operate with fuel efficient waterjets and require smaller crews compared to conventional ferries of similar capacity.

        SCL also owns four 100-meter monohull fast ferries built in 1997 and 1999. Each transports 700 passengers and 160 cars at an operating speed of 38 knots propelled by steering waterjets. Because of their larger size and capacity, these ships are called "SuperSeaCats" and have more extensive passenger seating on two decks, a business class lounge, separate shops and larger food service and bar areas than the SeaCats.

Baltic Sea Services

        In 1999, SCL acquired 50% of the shares in Silja Oy Ab ("Silja"), formerly a Finnish public company listed on the Helsinki Exchanges, and in 2002, acquired the other 50%. See Note 5 to the Financial Statements. Silja operates five large cruise ferries, three combined ro-ro freight and passenger ("ro-pax") ferries, two SuperSeaCats and a cruiseship, all in the Baltic Sea, and charters out a second cruiseship.

        Four of Silja's cruise ferries are deployed on routes between both Helsinki and Turku, Finland and Stockholm, Sweden offering daily departures from each port. One of the Turku ships calls at Kapellskar, Sweden in the fall, winter and spring instead of Stockholm. The fifth cruise ferry operated in 2004 on round trips in the summer between Rostock, Germany, Tallinn, Estonia and St. Petersburg, Russia.

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        Trading as "Silja Line", these five ships are all spacious, high quality multipurpose vessels built or substantially upgraded in the 1990s to cruiseship standards with passenger capacity of 1,700 to 3,100 persons and car and ro-ro freight capacity of 700 to 900 lane-meters. Passenger amenities include many on board restaurants and bars ranging from self-service cafeterias and pubs to gourmet restaurants, wine bars and night clubs, numerous shops ranging from specialized boutiques to duty-free supermarkets, a total of 4,200 cabins ranging from comfortable single bedrooms to luxury suites, and extensive business meeting and conference facilities. Duty-free shopping is available on the routes these five ships sail, an important component of Silja revenue.

        In addition, Silja deploys three ro-pax ships with limited accommodation for 200 to 400 passengers between Turku and Stockholm and between Helsinki and Tallinn trading as "SeaWind Line". Two of these ships were built in the 1970s and the third in 1986. They carry between 850 and 1,700 lane-meters of freight including rail cars.

        Silja operates two of SCL's SuperSeaCats in the spring, summer and fall on the Helsinki–Tallinn route when ice conditions permit, each making between three or four daily round trips in 90 minutes each way.

        Silja also owns two modern medium-sized cruiseships built in the 1990s with passenger capacity of 600 and 1,400. The smaller one is on long-term charter to a third party expiring in mid-2005. Silja operates the larger ship on Baltic Sea cruises out of Helsinki to Tallinn, St. Petersburg, Visby, Sweden, and Riga, Latvia.

        All 12 of the Silja ships are owned by SCL. Silja owns its terminal at Turku and either leases the terminals or has operating agreements at the other ports it serves.

English Channel Services

        Through its Hoverspeed Ltd. subsidiary ("Hoverspeed"), SCL operates two or three SeaCats on the shortest route to France across the English Channel between Dover and Calais during the spring, summer and fall. Frequency ranges up to 15 round trips daily in the high season. Crossings take as little as 50 minutes compared to approximately 75 minutes for the conventional ferry competition. Hoverspeed has exclusive use of its terminals and berths at Dover and Calais which it occupies under lease or operating agreement with the local port authority. These offer passengers extensive shopping, cafes and bars and other travel amenities. Hoverspeed also provided through summer 2004 a seasonal service with one SuperSeaCat between Newhaven in England and Dieppe, France, with up to three daily round trips and a crossing time of two hours.

        Beginning in 2003, Hoverspeed restructured its English Channel operations by discontinuing a former service between Dover and Ostend, Belgium which was insufficiently profitable and by changing the Dover–Calais service from a year-round to a seasonal basis in order to save costs in the low winter period. Early in 2005, Hoverspeed discontinued its seasonal Newhaven-Dieppe service after negotiations to charter the vessel manned by Hoverspeed crew to the third party conventional ferry operator on the route could not be concluded. SCL will lay-up the vessel or deploy it elsewhere on charter or on another of SCL's ferry routes.

        In 2002, a U.K. judicial review determined that British Customs & Excise ("Customs") had acted unlawfully in detaining many Hoverspeed passengers and their goods and cars in Dover as they returned with duty-paid merchandise bought in other European Union countries and intended for personal use by the passengers in Britain. Based on this ruling, Hoverspeed instituted a claim for substantial damages against Customs in the U.K. High Court in London in 2004. See Item 3—Legal Proceedings below.

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Northern Irish Sea Service

        SCL operated through early fall 2004 a seasonal service with one of the larger SeaCats between Troon, Scotland (near Glasgow) and Belfast, Northern Ireland up to three daily round trips. As with the Dover–Calais service of Hoverspeed, SCL changed Troon–Belfast service from a year-round to a seasonal basis beginning in March 2004, but early in 2005, determined to discontinue the service altogether because of low profitability. SCL plans to redeploy the SeaCat to Hoverspeed's Dover–Calais route.

        In July 2003, SCL sold to a third party its principal ferry subsidiary in the Irish Sea, the Isle of Man Steam Packet Co. Ltd. ("Steam Packet") serving Douglas on the Isle of Man from four locations in Britain and Ireland as well as operating a service directly between Liverpool and Dublin. The sale included one of SCL's SeaCats and the purchaser has chartered on a long-term basis one of SCL's SuperSeaCats.

Other Ferry and Related Activities

        SCL's New York harbor commuter ferry service, called "SeaStreak", originates from two locations near Sandy Hook, New Jersey and from a third location in South Amboy, New Jersey to public piers in Manhattan. Six high speed passenger-only catamarans, four built in 2001–2004 each transporting 400 passengers and two built in 1989 each transporting 300 passengers, make the crossings in 45 minutes. A 150-passenger monohull craft built in 1980 and formerly operated on a discontinued route is now used for charters. SeaStreak timecharters in its present seven vessels from unaffiliated parties under long-term agreements. It owns one of its New Jersey berths and leases the others, each having extensive car parking space for commuters. Between rush hours and on weekends, SeaStreak operates special excursions and private charters with the vessels.

        In a 50%/50% joint venture with a third party, SCL operates a daily round trip service in the summer between Ancona, Italy and Split, Croatia and between Pescara, Italy and Split across the Adriatic Sea with crossing times of about four hours each way. The joint venture owns a high speed catamaran ferry for the service, built in 1996 and carrying 675 passengers and 150 cars, or 60 cars and ten buses, and operates a SeaCat on charter from SCL. In 2005, the joint venture plans to charter an additional fast ferry from SCL's joint venture partner and to operate on a third route between Ancona and Zadar, Croatia.

        Also in a 50%/50% joint venture with a third party, SCL plans to start in 2005 a summer service from Piraeus, Greece to ports in the western Cyclades Islands in the Aegean Sea including Serifos, Sifnos and Milos. The joint venture will charter a SeaCat from SCL, and crossing times will vary from one to three hours.

        Related to its ferry activities, SCL owns a small firm of naval architects and marine engineers called Hart, Fenton & Co. Ltd. who work on a contract basis for SCL and other shipowners. Another subsidiary called Sea Containers Chartering Ltd. acts as chartering and sales agents for shipowners including any surplus vessels of SCL not currently employed in its ferry services.

Sales and Marketing

        Ferry fares vary depending on the route, type of traffic, degree of competition and seasonality of demand. For fast ferry services, SCL generally seeks to charge at least a small premium over competing conventional ferry operators. The cheapest fares usually apply during seasonally low operating periods to encourage demand. Special promotional fares are available throughout the year on certain sailings even during peak travel periods. Fares are not government regulated. Computerized yield management systems seek to maximize revenue on each sailing based on existing bookings, planned capacity and forecast demand.

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        Tickets for passengers and cars are sold through the services' websites (for example, www.silja.com and www.hoverspeed.com) and local sales offices, by telephone and mail order, at the ports and certain railway stations, and through commercial travel agents. Marketing staffs work closely with sales agents, bus and rail operators, hotel groups, tour operators and government tourist authorities to promote the ferry services. Brochures distributed widely in the local travel industry describe the services, schedules, fares and inclusive holiday packages. Silja and Hoverspeed also offer frequent traveller programs to encourage repeat customer loyalty.

        Promotional activities consist principally of local television, radio and print advertising. Each of the ferry services (other than SeaStreak) targets motorist traffic, and foot passengers connecting by train or bus service. Compared to conventional ferry operators, SCL projects the benefits of its fast ferries offering high speed, frequent departures, fast connection times, exclusive terminal facilities, and superior customer care at booking, check-in and on board. On routes where SCL's fast ferries compete directly with conventional ferries, market share has been established in part by creating new demand in the form of day trips and business travel by sea. Silja emphasizes the mini-cruise atmosphere of its sailings during which passengers enjoy shopping, dining, entertainment and hotel services, including passengers on board attending one or two day business conferences at sea.

        Silja's freight services are marketed through its own sales personnel who regularly call on major customers. These are principally trucking companies and freight forwarders which transport goods door-to-door. Most sales are on a volume discount basis. Silja also transports rail cars through a joint venture, in which it has a one-third interest, with the state-owned railways in Finland and Sweden.

Competition

        The ferry industry is highly competitive. Silja competes with eight ferry companies in the Baltic Sea. Hoverspeed competes with five ferry companies between southern Britain and France, four of which cross the Dover Strait, and also with Eurotunnel under the English Channel. In the Adriatic Sea and Aegean Sea, SCL's joint ventures compete with several other ferry operators. SeaStreak competes with another commuter ferry service from eastern New Jersey to Manhattan as well as road and rail commuter services. Silja's modern cruise ferries and the high quality and variety of its on board services, and SCL's high speed car ferries, short crossing times and superior customer service, are important factors in this competitive environment. Airlines, especially budget airlines, compete for passenger traffic on routes between Britain and France.

        The principal effect of all this competition is to limit pricing power on the various routes. An increase in competition on any of the routes could adversely affect pricing or passenger traffic volume, thereby reducing revenues. In 2004, for example, price cutting by competitors adversely affected the results of SCL's English Channel services and Silja's traffic originating from Sweden. Also, some competitors have lower labor costs giving them an operating cost advantage.

Certain Trading Factors

        SCL owns 20 active ships which are financed under mortgage loans or lease financings. See Note 11 to the Financial Statements. SCL owns a 50% interest in the Adriatic ferry, and the seven SeaStreak ferries are timechartered in. The ships are maintained in good condition in compliance with regulatory requirements, are operated in compliance with applicable safety/environmental laws and regulations, and are insured against usual risks for such amounts as management deems adequate. Their operating certificates and licenses are renewed periodically during each vessel's required annual survey. Maintenance costs of the older fast ferries have risen in recent years to correct instances of metal corrosion and cracking, and these costs are expected to remain high as the fast ferry fleet ages.

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        The operation of ships at sea is inherently risky, and the consequences of accidents may exceed the insurance coverage in place or result in a fall in passenger volume because of a possible adverse impact on the public's perception of ferry safety. Also, government regulation of ships particularly in the areas of safety and environmental impact may change in the future and require significant capital expenditure to keep the ships in SCL's fleet in compliance.

        Retail sales to passengers of wine, spirits, perfume, tobacco and other products are an important component of ferry revenue on many of the routes. Duty-free shopping by passengers travelling between European Union countries ended in 1999, and the profitability of affected routes fell because margins are less on duty-paid merchandise. Also, passenger and car volumes declined particularly on SCL's cross-Channel routes below 1999 levels because of the absence of duty-free shopping and because fares were increased to try to maintain profitability. Silja's margins on retail sales have also declined, and these may continue to do so, but Silja has been less affected by the abolition of duty-free sales because all of its sailings to and from Sweden call at the nearby Åland Islands of Finland where the duty-free exemption continues due to the islands' fiscal status outside the European Union. This status may change in the future, however, and the duty-free exemption may be withdrawn. Also, Silja's sailings to St. Petersburg remain duty-free.

        Retail prices of alcoholic beverages in the state monopoly shops in Finland and Sweden, including excise taxes, are high compared to retail prices in other European Union countries. The import of lower cost duty-paid alcoholic beverages bought by private individuals in other EU countries, consequent upon the Baltic states joining the EU in 2004 and the harmonization of national import quantity restrictions within the EU, is expected to result gradually in a reduction of prices in Finland and Sweden. In addition, Finland has reduced its taxes on alcohol and Sweden may do the same. Lower retail prices in the shops on land are requiring duty-free shops on board ferries to lower their prices to maintain their competitive advantage and, therefore, are leading to lower profit margins. This trend could continue until prices stabilize and could adversely affect Silja's financial results because a large part of Silja's revenue is generated by sales made in shops on board, about half of which is attributable to liquor, wine and beer.

        A particular characteristic of the ferry market in North Europe and Scandinavia is the seasonality of demand, principally because volumes are linked to tourism. Approximately half of the passengers using ferry services to and from Britain, for example, travel during the June-September period. The freight market tends not to be seasonal. The historical and expected pattern of operating results from the collective ferry activities of SCL is a loss in the first quarter each year and either a loss or breakeven result in the fourth quarter. Peak seasonal periods of tourist travel may be adversely affected by factors outside SCL's control such as threats of terrorism.

        Fuel is a significant expense of ferry operations, so that rising fuel prices may adversely affect profitability as occurred in 2004. SCL may purchase fuel forward at predetermined prices, as it did for part of 2003, and may introduce fuel surcharges on passenger and vehicle fares in an effort to mitigate increased costs, but these measures may not prevent a fall in profits. In 2004, for example, Silja introduced fuel surcharges on some of its freight traffic but was unable to do so in the case of fares for passengers and their cars because of competitive considerations.

        Fuel price protests, as occurred in 2000 at French and British ports served by the ferries, may disrupt traffic flow for short periods and result in cancellations. Road and port blockades in the future, arising from fuel protests or other reasons, such as third party strike activity, may have similar effects resulting in loss of carryings.

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        Other important factors affecting the performance of SCL's ferry operations are competitive pressure on ticket prices, travel convenience of departure timings, adverse weather conditions disrupting service schedules and increasing fuel consumption, regional economic and political conditions (including recessions, or acts or threatened acts of terrorism), foreign exchange rate fluctuations in countries served by the ferries, fluctuating prices in the ship sale and purchase market, lower labor costs of certain competitors, industrial relations mainly with Silja's unionized personnel, and civil unrest at the ports and regions served by the ferries. The impact of these factors differs on each route, and the profitability of individual routes may change from year to year because of these factors. Also, the opening of new routes by SCL can be unprofitable in early years because of the need to build up traffic over time while incurring added marketing, administration and other start-up costs. This occurred in 2004, for example, when Silja started a new service between Germany, Estonia and Russia.

        Silja employs about 3,500 staff on board ship and on shore, most of whom are unionized. The shipping industry in Finland and Sweden is susceptible to industrial action due to the strong influence of maritime trade unions, resulting both from direct employer/employee disputes and from sympathetic third party industrial action which legislation in those countries currently permits. While management believes Silja has satisfactory relations with its work force, Silja may be adversely affected by future industrial action against efforts to reduce labor costs, restrain wage increases or modify work practices.

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RAIL OPERATIONS

        Under a franchise agreement awarded by the predecessor of the Strategic Rail Authority ("SRA") of the British government in 1996, SCL operates high-speed passenger trains between London and Scotland along the east coast main line of Britain through its subsidiary called Great North Eastern Railway Ltd. ("GNER"). This was one of 25 franchises originally established out of the former British Rail passenger operations privatized by the government. By improving service, increasing ridership and imposing cost controls, GNER has enhanced profitability and funded capital expenditure largely from cash flow. GNER's current franchise from the SRA expires at the end of April 2005. On March 22, 2005 the SRA and GNER announced the award of a renewed franchise to GNER until 2015. See "Franchise Extension and Other Franchises" below.

        GNER's customers are mainly long-distance leisure and business passengers, with a limited but growing number of commuters, travelling between London (Kings Cross station), parts of the East Midlands and East Anglia, Yorkshire, northeast England and Scotland. Covering about 920 route miles and calling at 52 stations, in 2004 GNER achieved 16.9 million passenger journeys, a substantial increase over annual ridership prior to GNER's acquisition of the franchise in 1996. The map on the following page indicates the principal destinations. Some of the core routes are as follows, including typical departures and journey times in summer 2004:

Route	Distance (miles)	No. of One-Way Weekday Departures	Journey Time (hours)
London—Leeds	186	27	2–21/2
London—Newcastle	268	30	23/4–3
London—Edinburgh	393	17	4–41/2
London—Glasgow	450	6	51/2

        Connections with other passenger trains are available at many stations. Timetables vary between weekdays, weekends and holidays to meet different patterns of demand and to allow track engineering works. Frequency in summer 2004 was up to 122 services each weekday, 86 Saturday services and 80 Sunday services, of which 95% originated or terminated at Kings Cross in London.

Rolling Stock

        GNER currently operates a fleet of 42 trainsets totalling 488 cars and locomotives that travel at speeds up to 125 mph. Thirty-two are electric, drawing power from overhead lines, comprising 29 built between 1987 and 1990 and three originally built for Eurostar between 1993 and 1995 but surplus to its cross-Channel service. These provide about 83% of GNER's timetabled services. A typical electric train is two first class and six standard class coaches and a kitchen/catering car, having total capacity of 530 to 550 passengers. The Eurostar trainsets are five coaches longer with 560 passenger capacity. On board catering is by over-the-counter buffet, supplemented by at-seat trolley service, with full restaurant service on selected trains. The 29 older trainsets are being completely refurbished in 2003–2005.

        The rest of GNER's fleet consists of ten diesel trainsets, substantially all of which were built between 1975 and 1980. These operate approximately 17% of GNER's timetabled services, principally to Aberdeen, Inverness, Harrogate, Skipton and Hull because the routes are not electrified. A typical diesel train carries up to 540 passengers in two first class and six standard class coaches and a kitchen/catering car. All of these trainsets were also completely refurbished in 1997-1998 and lengthened by one coach in 2003.

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        GNER leases nearly all its rolling stock from two leasing companies for the term of its franchise. The Eurostar trains are leased from that company. Rental charges include heavy maintenance provided by the lessor and are largely fixed. GNER operates and maintains its rolling stock in compliance with government-supervised safety standards and the lease requirements. Maintenance work is performed at three depots leased by GNER in London, Edinburgh and Aberdeen where GNER also performs maintenance for other train operators. In addition, GNER contracts for regular maintenance at five other depots. Consistent with these safety and maintenance requirements, GNER carries insurance in amounts which management believes are adequate.

Track and Station Access

        The railway infrastructure in Britain, such as track, signalling, stations and depots, is owned and maintained by subsidiaries of Network Rail Ltd. (collectively, "Network Rail"). This is a private company with credit support provided by the British government. GNER has contracted with Network Rail for track access based on the level of services GNER provides. Other train operators run on parts of GNER's routes, requiring Network Rail's coordination of timetables and train paths. Track access charges are largely fixed but include variable components for actual track utilization and electric power consumption.

        To encourage train punctuality and reliability, the track access agreement includes a system of variable payments between GNER and Network Rail under which each party must compensate the other if prescribed performance standards are exceeded or are not achieved. Payments by or to GNER vary under this performance regime and may be significant in amount if unforeseen events occur affecting either party. In 2003, the net payments to GNER were substantial because of poor performance by Network Rail disrupting GNER services and the high contractual rates of compensation in effect until April 2004. In 2004, net payments to GNER declined significantly because of better performance by Network Rail and lower rates of compensation starting in April. See also "Hatfield and Selby Accidents" below. The SRA may also impose fines on GNER under its franchise agreement if GNER has high numbers of train cancellations or late trains, but fines incurred to date have been immaterial.

        Of the 52 stations along its routes, GNER shares access with other train operators to four central stations owned and managed by Network Rail (London Kings Cross, Leeds, Edinburgh and Glasgow). GNER leases 12 other main stations from Network Rail, including Newcastle and York, and provides access and common station services to other train operators calling at these stations, such as ticket sales, train arrival/departure information, car parking, and station cleaning and maintenance. The remaining 36 stations where GNER stops are leased from Network Rail by other train operators which provide GNER with similar services at these stations.

Sales and Marketing

        Passengers may purchase tickets on GNER at all major train stations in Britain, including self-service machines at GNER stations, and through GNER's www.gner.co.uk internet website and its telephone sales, enquiry and business travel center in Newcastle. Most remaining sales are made by other train operators and independent agents and travel services in Britain and abroad.

        Network Rail publishes the national system timetables, and a trade association of train operators in Britain publishes basic fares and provides telephone information about all operators' services. GNER is the lead ticket seller at London Kings Cross, Edinburgh and the 12 stations it leases, obligating GNER to sell tickets on a commission basis for other operators as well as itself. Similarly at GNER's other 37 stations, the lead ticket seller must sell tickets on behalf of GNER.

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        Since the beginning of the franchise in 1996, GNER has implemented a marketing program based on its own brand identity, distinct from the old government-owned British Rail. Print and other media advertising and promotions project the high speed and comfort of GNER's trains. To attract ridership, GNER has upgraded the interior comfort and technical reliability of its rolling stock (part of which has been funded by the leasing companies) and upgraded station services and car parking (part of which has been funded by Network Rail). High standards of on board service, catering, appearance and cleanliness are maintained. For example, GNER has introduced internet access on board many of its electric trains enabling passengers to use their travel time more productively than travel by car or airline. A yield management system provides flexible fare structures to attract passengers through price incentives in peak and off-peak times, and GNER offers a customer loyalty program for frequent travellers. As evidenced by many awards from British travel and rail industry publications and organizations in recent years, GNER is regarded as one of the best passenger train operators in Britain.

Competition

        Nine other passenger train operators run on parts of GNER's routes. In principle, an operator may negotiate with Network Rail for additional train paths and times to add services, but all awards are regulated by the SRA to ensure passenger benefits are achieved, to avoid congestion of the infrastructure network and to avoid interference with each operator's minimum service requirements under its franchise. GNER has experienced limited new rail competition since its franchise began.

        GNER also competes with cars, buses and airlines in Britain as well as other train operators with parallel or intersecting routes. Budget airlines in recent years have made inroads into GNER's share of the long-distance markets between Scotland and London and, to a lesser extent, between Newcastle and London. The choice of transport mode is governed by many factors including price, frequency of departures, travel time, reliability, convenience and comfort. The relative importance of these depends on the leisure or business purpose of the journey. GNER believes its fast, frequent and high quality services directly into city centers are an important competitive advantage.

Franchise Extension and Other Franchises

        Early in 2004, the SRA invited all interested persons to qualify to bid to operate GNER's franchise after it expires in April 2005. GNER qualified to bid along with three others and submitted its final proposal on time in December 2004. On March 22, 2005, the SRA and GNER announced that GNER had been awarded a renewed franchise with an initial term to April 2012, automatically extendable to April 2015 if GNER meets prescribed performance targets. Some important parts of the new franchise are as follows:

•

GNER will pay more franchise fees to the SRA than under the expiring franchise, based on a sharing of GNER's planned revenue, although after the fourth year of the new franchise a formula applies to mitigate the amounts GNER must pay if revenue falls below specified levels of planned revenue.



•

SCL must contribute $9,000,000 of additional equity capital to GNER at the start of the new franchise, and provide a $55,000,000 standby credit facility to GNER during the term of the new franchise.



•

GNER will lease-in three additional diesel trainsets and continue a program to refurbish and upgrade all of its rolling stock.



•

Additional departures will be provided between London and Leeds, subject to regulatory approval.



•

GNER must achieve prescribed punctuality targets for its train services.

14

•

GNER will invest about $40 million in station improvements, and establish an integrated control center at York with Network Rail to improve operational coordination between train operator and infrastructure provider.

        While the terms of the new franchise are different compared to GNER's existing franchise, SCL believes the profitability of GNER will remain satisfactory. See Note 22 to the Financial Statements regarding past earnings before net finance costs from SCL's rail operations.

        To capitalize on its experience and excellent reputation in operating the GNER franchise, GNER plans to bid on other passenger rail franchises in Britain. In December 2003, the SRA shortlisted GNER and three other train companies to bid for the Integrated Kent franchise operating mainly London commuter rail services in the southeast of England with potential to develop a high speed domestic service on the new track being built across Kent for Eurostar trains travelling to the European Continent. Bids are currently expected to be due by mid-2005 for a franchise beginning in late 2005. GNER has formed with MTR Corporation, operator of the mass transit rail network in Hong Kong transporting 2.4 million passengers each day, a joint venture company called Great South Eastern Railway Ltd. to bid for the Integrated Kent franchise. MTR has a 29% interest in the joint venture and GNER owns the rest.

        Similarly, GNER and the current operator of the Chiltern passenger rail franchise, a subsidiary of John Laing Plc in Britain, have formed a 50%/50% joint venture company called London & Western Railway Company Ltd. which applied in February 2005 to qualify to bid for the Greater Western franchise providing commuter and intercity services to London from the west of England and southern Wales. If successful in qualifying, final bids are expected to be due in late 2005 for award of the franchise in early 2006.

Hatfield and Selby Accidents

        Due to insufficient track maintenance by Network Rail's predecessor with no speed restriction in place, in October 2000, a GNER train traveling at high speed derailed at Hatfield north of London when the track broke resulting in the death or injury of some passengers. GNER was completely exonerated from any responsibility for the accident. Following this derailment, however, hundreds of speed restrictions on the British rail network were implemented for many months while track inspections and emergency maintenance were carried out. Train services were severely disrupted from resulting delays and cancellations.

        In February 2001, a GNER train was involved in an unrelated accident at Selby south of York when it collided with a road vehicle stopped on the track, causing a further collision with an oncoming freight train on the adjoining track. Some passengers were killed or injured but, as in the Hatfield derailment, GNER was found free of any fault.

        Following the Hatfield and Selby accidents and the resulting disruption, GNER experienced a drop in passenger carryings and suffered lost earnings which it has substantially recovered from Network Rail under the performance regime and other provisions of the track access agreement and through insurance claims. Arbitrated claims against Network Rail were all settled by agreement in December 2003 and a separate claim by the SRA reached final settlement in July 2004. The longer-term effect of the accidents up until 2003 had been a fall in ridership or a slowdown in ridership growth among long-distance train operators generally, including GNER. As the travelling public has regained confidence in the rail mode of transport, GNER's ridership and the frequency and punctuality of its services have returned to pre-Hatfield levels.

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Certain Trading Factors

        As noted above, GNER services may be disrupted, with consequent loss of revenue, because of infrastructure problems for which Network Rail is responsible. Payments to GNER under the performance regime in the track access agreement with Network Rail may not fully compensate GNER for this disruption, however. Alternatively, there may be problems disrupting Network Rail's scheduling or other operation of the rail infrastructure caused by GNER, such as breakdowns of its rolling stock, for which GNER is responsible. GNER's payments to Network Rail have varied in the past and may be substantial in the future.

        GNER is contractually obligated under its present franchise agreement not to raise ticket prices more than one percent above the rate of inflation on ticket types currently representing about 20% of GNER's fare revenue. Other fares are not regulated but are subject to the competitive pricing of alternative rail, airline and other transport services. In addition, GNER must pay passenger rebates of varying percentages of its fares if GNER's train services fail to meet prescribed punctuality and reliability standards. Thus, if GNER's expenses increase, it may be unable to raise revenue to absorb the increase.

        Of GNER's variable costs, the largest component is labor. GNER has approximately 3,200 employees, about two-thirds of whom are unionized. Since 1992 there has been no dispute resulting in labor stoppage solely related to GNER, although nationwide strikes against British Rail disrupted services for short periods in 1994 and 1995. Consistent with upgrading service standards and continued safe operation, GNER management is working with the unions gradually to increase efficiency by changing work practices, mutual decision-making and ongoing training. These measures, however, may result in labor disruption of GNER's services. Also, there is the continuing risk that larger labor disputes broadly involving the British rail industry may adversely affect GNER.

        Following the Hatfield and Selby accidents described above, as well as accidents involving other passenger train operators in Britain and the bankruptcy of one of the larger insurers writing business interruption insurance for the U.K. rail industry, this class of coverage is not currently available to passenger rail franchisees in the U.K. GNER and other franchisees are relying primarily on their rights against Network Rail under track access agreements for reimbursement of losses from future accidents involving moving train operations. There can be no assurance, however, that Network Rail or other responsible parties will provide sufficient reimbursement to make GNER whole.

        Other factors affecting GNER's financial performance including loss of revenue are adverse weather conditions disrupting services such as by track flooding, actual or threatened terrorist acts halting services, and changing government safety regulations which impose additional compliance costs on train operators. While GNER management believes, as noted above under "Rolling Stock", that GNER's trains operate in compliance with relevant safety standards and that it carries adequate insurance against loss, there can be no assurance that accidents involving GNER will not occur in the future or that a serious incident would not have a material adverse effect on GNER's operations or financial condition.

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CONTAINER LEASING

        SCL conducts its container leasing activities principally through GE SeaCo, a joint venture company established in 1998 with General Electric Capital Corporation ("GE Capital") on effectively a 50%/50% basis. GE SeaCo was formed to combine the separate marine container leasing activities of SCL and GE Capital and thereby to save costs and to acquire new equipment jointly. SCL and GE Capital have each appointed four persons to the governing board of GE SeaCo, and SCL personnel serve as some of GE SeaCo's officers including President and Chief Financial Officer. GE SeaCo is not consolidated in SCL's financial statements.

        Substantially all of the container fleets of SCL and GE Capital remaining since 1998 have been leased to GE SeaCo on an operating basis, and GE SeaCo in turn leases the units out to customers. Profits from the existing fleets after lease payments to the owners and other GE SeaCo charges are distributed about 70% to GE Capital and about 30% to SCL, reflecting the larger size of GE Capital's original fleet. Once a container reaches a certain age or condition, it drops out of the leased-in fleet and is thereafter managed by GE SeaCo for the owners for a fee or sold or otherwise disposed of at the owner's request. GE SeaCo itself purchases new additions to the combined fleet. Profits from the containers owned by GE SeaCo and management fees are divided 50%/50% in proportion to each participant's interest in GE SeaCo.

GE SeaCo Container Activities

        At December 31, 2004, GE SeaCo had approximately 907,000 TEU of containers in its fleet, comprising 166,000 TEU leased from SCL or managed on its behalf, 345,000 TEU leased from GE Capital or managed on its behalf, and 396,000 TEU owned by GE SeaCo. "TEU" means Twenty-foot Equivalent Unit and is the standard measurement in the container industry; thus, a 40-foot container constitutes two TEU. Generally increasing with growth in world trade in containerizable goods, cargo containers number approximately 18,600,000 TEU worldwide, about 46% of which are owned by leasing companies. In fleet size, GE SeaCo is one of the four largest container lessors in the world, and management believes GE SeaCo offers the widest variety of containers for lease, more than 50 different types.

        GE SeaCo's containers freely interchange among different modes of transport. The same container, without intransit repacking of its contents, may be carried successively on ships, railroad cars and road trailers. Containers are registered with government authorities to permit crossing international frontiers with minimum customs formalities. They are constructed primarily of steel and are built to the recommendations of the International Standardization Organization ("ISO") and other regulatory bodies. Substantially all of GE SeaCo's containers have been built to comply with the 1972 International Convention for Safe Containers ("CSC") which requires container owners to obtain type approvals of their equipment from independent agencies. Since the terrorist attacks in the U.S. in 2001, government-sponsored studies have been undertaken regarding possible new measures to detect tampering with sealed containers carrying cargo, but none has been adopted to date. Containers may also be leased for use in static storage applications.

        The basic container type is the standard dry freight cargo container having dimensions of 20ft. or 40ft. in length × 8ft. in width × 8ft. 6in. or 9ft. 6in. in height. Refrigerated containers carrying perishables, tank containers for liquid, powder or gaseous substances, and platforms and flatracks for oversized, awkward or heavy cargoes are examples of containers built for specialized uses. GE SeaCo also leases non-ISO intermodal containers principally to inland transport operators such as railroads and truckers, as well as wheeled chassis for road haulage of containers. GE SeaCo routinely sells older containers no longer suitable for its leasing activities.

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Leasing Terms

        Equipment is leased for periods ranging from a few months to several years. Substantially all of the leases are operating leases where the owner retains the residual value of the containers at the end of the term. GE SeaCo also engages to a limited degree in finance leasing where the lessee pays the full cost of the equipment during the term and obtains title at the end of the lease.

        Operating leases are in three basic forms: long-term leases, short-term leases and master agreements. These require customers to pay rent monthly and to return the equipment at agreed locations. The first two types cover specified containers for a definite term. Master agreements set forth the rental rate and other basic terms and permit lessees to pick up and return equipment at their option and in minimum or maximum quantities up to the end of the lease. Master agreements impose handling, pick-up and drop-off charges for each delivery and return, and generally require a higher degree of customer service by GE SeaCo than term leasing.

Purchasing

        Most of the containers in GE SeaCo's fleet were purchased new from manufacturers. GE SeaCo also acquires existing containers from customers or other lessors from time to time. The cost of equipment is typically financed by banks or other financial institutions. GE SeaCo has arranged its own finance facilities to fund its container purchases, of which $694,553,000 was borrowed at December 31, 2004. Neither SCL nor GE Capital provides credit support for these facilities.

        During 2004, GE SeaCo took delivery of newly manufactured containers and related equipment at an aggregate cost of approximately $304,000,000. At year end, GE SeaCo had approximately $44,000,000 of outstanding purchase orders for container equipment, substantially all of which was available for delivery in 2005. It is GE SeaCo's practice to order equipment when appropriate financing is in place and indicative lease rates and other terms justify purchase. Most new containers are sourced from third-party factories in China.

Maintenance and Engineering

        GE SeaCo's leases require customers to maintain equipment properly while on lease, including periodic inspection and safety maintenance in compliance with CSC, and upon return to pay the cost of repairs to GE SeaCo's "SeaWorthy" repair standard. GE SeaCo offers a container damage program (called "SeaCover") under which a lessee pays a supplemental charge in return for GE SeaCo assuming repair responsibility to an agreed upper limit at the end of the lease term. GE SeaCo contracts with approximately 160 third-party depots worldwide for significant container repair and storage services, as well as many smaller depots.

        GE SeaCo's engineers oversee the repair and storage depots and the factories from which new containers are sourced. They are also responsible for developing new container designs, including the "SeaCell", a dry cargo container with innovative patented features in which palletized cargo can be loaded side by side unlike conventional containers. GE SeaCo's engineers consult regularly with lessees on equipment matters and have produced many operating and technical manuals regarding the specialized containers in GE SeaCo's fleet.

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Customers and Marketing

        GE SeaCo equipment was on lease to about 690 customers at December 31, 2004, mainly ocean carriers based outside the United States which also own large parts of their container fleets. Substantially all of GE SeaCo's container leasing revenue and operating profit is derived from non-U.S. operations. See Note 22 to the Financial Statements. No customer accounted for more than 10% of SCL's consolidated revenue in 2004, although the top 25 lessees accounted for about 58% of container leasing revenue.

        GE SeaCo markets its equipment for lease or sale through a network of 31 agents covering customers in more than 80 countries. GE SeaCo owns 13 of these agents located in primary areas of container activity worldwide. Agents are compensated through commissions based on rental or sale revenue they generate and are guided by central GE SeaCo marketing staff.

        GE SeaCo maintains computerized records of every unit, whether on lease or off hire. Equipment on lease is checked regularly through rent billing and collection procedures. Agents and repair/storage depots are responsible for the safekeeping and maintenance of equipment when off hire. Customers are able to access GE SeaCo's computerized records directly through its www.geseaco.com website to check container specifications and inventories, schedule containers for drop-off, report lost units, transfer containers to other approved lessees, obtain technical advice and other functions.

Competition

        The container leasing business is highly competitive. GE SeaCo competes with about ten major leasing companies and several other smaller lessors, as well as manufacturers of container equipment, companies offering finance leases (as distinct from operating leases), promoters of container ownership and leasing as a tax shelter investment, container shipping lines (which sometimes lease out their excess stocks of containers) and suppliers of alternative types of equipment for freight transport. Competition among container lessors depends upon several factors, including lease rates, the availability, quality and individual characteristics of equipment, and customer service. See "Certain Trading Factors" below. GE SeaCo considers its ability to offer a wide range of standard and specialized container equipment, its technical expertise in tailoring specialized containers to customers' needs, and its strong container management controls to be important advantages in this competitive environment.

Other Container Activities

        SCL manufactures, assembles and refurbishes containers at its own factories in Yorkshire, England, Charleston, South Carolina, and Santos, Brazil. Collectively, SCL built approximately 5,800 TEU of containers in 2004.

        SCL owns and operates depots for repairing, servicing and storing idle containers in Santos and Singapore and, in July 2004, acquired three depots (in one of which it previously owned a minority interest) in Melbourne, Australia. SCL also owns small refrigerated and tank container servicing and spare parts businesses in the U.S., Brazil, Australia and New Zealand. Each of these facilities conducts business with both GE SeaCo and third parties on arm's length terms.

        In July 2004, SCL acquired an existing perishable freight forwarding and logistics business called Cooltainer based in Christchurch, New Zealand. Cooltainer operates about 1,000 refrigerated containers, including ones owned by GE SeaCo and SCL, as a non-vessel operating common carrier providing door-to-door freight delivery services between New Zealand and Australia, Papua New Guinea and South Pacific islands.

        In addition, SCL owns a small number of containers (63,000 TEU at December 31, 2004) which are not part of the GE SeaCo joint venture but which SCL continues to lease out directly to customers. During 2004, SCL took delivery of $21,000,000 of equipment added to this small fleet.

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Certain Trading Factors

        Demand for leased containers depends largely on levels of international trade and economic growth, both global and regional. Cyclical recessions can negatively affect lessors' operating results because, during economic downturns or periods of reduced trade, such as occurred in 2001, ocean carriers may lease fewer containers and rely more on their owned fleets to satisfy their container requirements, or may lease containers only at reduced rates. Thus, a slowdown in economic growth or trade may adversely affect the results of GE SeaCo's and SCL's container activities. GE SeaCo and SCL may be unable to predict the occurrence and duration of these cyclical downturns.

        Other factors affecting demand for leased containers include the available supply and prices of new and used containers (including the market acceptance of new container types and overbuying by competitors and customers), economic conditions and competitive pressures in the shipping industry (including fluctuating ship charter and freight rates, containership fleet overcapacity or undercapacity, and expansion, consolidation or withdrawal of individual customers in the industry), shifting trends and patterns of cargo traffic, congestion at container ports, the availability and terms of equipment financing, fluctuations in interest rates and foreign currency values, import/export tariffs and restrictions, foreign exchange controls, cargo security and inspection measures, other governmental regulations and political or economic factors that are inherently unpredictable and may be beyond GE SeaCo's and SCL's control.

        Defaults by lessees may result in containers being lost or returned at locations where GE SeaCo or SCL cannot efficiently re-lease or sell the equipment. In that event, GE SeaCo or SCL may lose lease revenue and incur additional operating expenses in repossessing, repairing and repositioning the equipment. In recent years, defaults by lessees as measured by allowances for specific doubtful accounts have not been material as a percentage of annual container leasing revenue. Future defaults may be materially costly, however.

        If lessees return equipment to locations where supply exceeds demand, GE SeaCo and SCL routinely reposition containers to higher demand areas. Repositioning expenses vary depending on geographic location, distance, freight rates and other factors, and may not be fully covered by drop-off charges collected from the last lessees of the equipment or pick-up charges paid by the new lessees. Nor may demand be as great as anticipated after repositioning has occurred so that the equipment remains idle.

        Container leasing revenue is variable and largely depends on lease rates, equipment utilization and equipment availability. Rates depend on the type and length of lease, the type and age of containers, and the application of the SeaWorthy and SeaCover programs to equipment maintenance obligations under the lease. Lease rates rise or fall depending on demand, competition, interest rates, new container prices, economic conditions and the other factors described above. In recent years, rates generally declined until 2003, as did new container prices and interest rates until 2004. Lease rates may decline again in the future thereby detracting from the economic returns on higher valued equipment in the fleet.

        Utilization is the ratio of containers on lease to the total container fleet and may also fluctuate due to these same factors. In recent years, for example, overall fleet utilization declined principally because of consolidations among shipping lines, a trade imbalance with Asia resulting in high equipment returns in North America and Europe, and overproduction of some types of new containers by factories and overbuying by shipping lines and leasing competitors. While utilization has improved since 2002 because of greater demand and because SCL and GE Capital have disposed of idle, older equipment in their original fleets, there may again be a decline in utilization in the future.

20

        In order to meet anticipated demand promptly, GE SeaCo maintains inventories of available containers at various depots and factories worldwide. Because demand is difficult to estimate, however, these inventories may be too large or small, and repositioning equipment in a timely manner may not be economically feasible. Also, container supply from manufacturers involves a time delay between order placement and equipment delivery, as a result of which revenue may be restrained when demand is strong or may not be realized by the time equipment is delivered.

        From time to time, GE SeaCo, SCL and GE Capital sell existing equipment, both units on lease to the lessee and idle equipment. The decision whether to sell depends on the equipment's book value, physical condition, location, remaining useful life and suitability for continued leasing or for other uses, as well as prevailing local market sale prices and an assessment of the economic benefits of repairing and continuing to lease compared to those of selling. Because these factors vary, gains or losses on sale of equipment will also fluctuate and may be significant if the decision is made to sell large quantities of units. In recent years, GE SeaCo has stepped up its sale program on behalf of GE Capital and SCL to dispose of older containers.

        In certain countries like the United States, the owner of a leased container may be liable for the costs of environmental damage from discharge of container contents even though the owner is not at fault. GE SeaCo and SCL maintain insurance against property damage and third party liability and require lessees to obtain similar insurance and to provide indemnity against loss. Insurance and indemnity may not protect GE SeaCo or SCL fully against damage stemming from this risk, however.

        Countries impose limitations on the production of chlorofluorocarbon ("CFC") refrigerants because of their ozone depleting and global warming effects. All refrigerated containers in the GE SeaCo-owned fleet have been charged with non-CFC refrigerant gas, and most of the older SCL units have been converted or disposed of. Future government regulation of refrigerants and synthetic insulation materials, however, might require refrigerated containers using non-conforming substances to be retrofitted with conforming ones such as non-CFC refrigerants. In that event, GE SeaCo or SCL would have to bear all or a large portion of the cost to convert their units.

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ORIENT-EXPRESS HOTELS

        OEH, in which SCL currently holds a 25% equity interest, owns or part owns and/or invests in 38 highly individual deluxe hotels worldwide, three restaurants, six tourist trains and two river cruise businesses. OEH is focused on the luxury end of the leisure market, and acquires or manages only very distinctive properties in areas of outstanding cultural, historic or recreational interest in order to provide luxury lifestyle experiences for the upscale leisure traveler. The names and locations of OEH's various properties and the number of hotel rooms or train/cruise passenger capacity are shown in the table below:

Property	Location	Number of Rooms or Passenger Capacity
Hotels
Hotel Cipriani and Palazzo Vendramin	Venice, Italy	104
Hotel Splendido and Splendido Mare	Portofino, Italy	81
Villa San Michele	Florence, Italy	45
Hotel Caruso	Ravello, Italy	54
Reid's Palace Hotel	Madeira, Portugal	164
Lapa Palace Hotel	Lisbon, Portugal	109
Hotel de la Cité	Carcassonne, France	61
Hotel Ritz	Madrid, Spain	167
La Residencia	Mallorca, Spain	59
La Manoir aux Quat' Saisons	Oxfordshire, England	32
Grand Hotel Europe	St. Petersburg, Russia	301
Windsor Court Hotel	New Orleans, Louisiana	324
Charleston Place	Charleston, South Carolina	442
Keswick Hall	Charlottesville, Virginia	48
Inn at Perry Cabin	St. Michaels, Maryland	81
El Encanto Hotel	Santa Barbara, California	88
La Samanna	St. Martin, French West Indies	81
Maroma Resort and Spa	Riviera Maya, Mexico	64
Copacabana Palace Hotel	Rio de Janeiro, Brazil	222
Miraflores Park Hotel	Lima, Peru	82
Hotel Monasterio	Cusco, Peru	126
Machu Picchu Sanctuary Lodge	Machu Picchu, Peru	31
Mount Nelson Hotel	Cape Town, South Africa	226
Westcliff Hotel	Johannesburg, South Africa	119
Orient-Express Safaris (three camps)	Botswana	39
Observatory Hotel	Sydney, Australia	96
Lilianfels Hotel	Katoomba, Australia	85
Bora Bora Lagoon Resort	Tahiti, French Polynesia	79
Pansea Hotels (six hotels)	Southeast Asia	233
Restaurants
'21' Club	New York, New York	—
Harry's Bar	London, England	—
La Cabana	Buenos Aires, Argentina	—

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Tourist Trains
Venice Simplon-Orient- Express	Continental Europe	180
British Pullman	Southern England	250
Northern Belle	Northern England	250
Royal Scotsman	Scotland	36
Eastern & Oriental Express	Southeast Asia	125
PeruRail	Peru	Various
River Cruises
Road to Mandalay	Burma (Myanmar)	126
Afloat in France	France	40

        These properties provide a high quality of service, cuisine, furnishings and décor, appealing to the premium traveler market which is less apt to be influenced by pricing considerations. The principal markets for guests are the United States, Europe and Asia. Substantially all of the properties have won prestigious travel and leisure industry awards over the years which have enhanced their public recognition and reputation for excellence.

        OEH benefits from trends and developments favorably impacting the global hotel, travel and leisure markets, including strong demand growth trends in the luxury hotel market in many parts of the world, increased travel and leisure spending by consumers, favorable demographic trends in relevant age and income brackets of U.S. and European populations, and increased online travel bookings. These trends suffered a setback beginning in 2001 due to slowing national economies, the shock of terrorist attacks, the build-up and aftermath of the wars in Afghanistan and Iraq and the SARS epidemic. Based on OEH's improved results in 2004, OEH management believes that the public's confidence in international travel and demand for luxury hotel and tourist products is returning.

        For the future, OEH plans to grow its business by increasing occupancy and earnings at its established properties and newer acquisitions, by expanding existing hotel and restaurant properties where land or space is already available, by increasing the utilization of its tourist trains and cruises to add trips, and by acquiring additional distinctive luxury properties throughout the world. Factors in OEH's evaluation of a potential acquisition include the uniqueness of the property, attractions for guests in the vicinity, acceptability of initial investment returns, visible upside potential such as by pricing, expansion or improved marketing, limitations on nearby competition, and convenient access.

        Using the "Orient-Express Hotels" name, OEH promotes and sells its properties through its own staff in offices around the world and independent sales representatives and organizations worldwide (including membership of many of the hotels in The Leading Hotels of the World). Repeat customers are an important source of business which OEH attracts through various cross-selling efforts. OEH also relies on public relations as a cost-effective marketing tool through travel publications and other media. Because of the unique nature of the properties, guests are more likely to hear about them through word-of-mouth or magazine or newspaper articles rather than direct advertising. In addition, OEH relies on its www.orient-express.com website to enhance distribution and reduce sales and marketing expenses.

        For more information about OEH, including its 2004 consolidated financial statements, see OEH's Form 10-K annual report for the year ended December 31, 2004 on file at the SEC. Item 1—Business from that Form 10-K report is filed as Exhibit 99(b) to this report.

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SCL's Relationship with Orient-Express Hotels Ltd.

        OEH was wholly-owned by SCL until August 2000 when the Company successfully completed an initial public offering of Class A common shares of OEH and the listing of those shares on the New York Stock Exchange under the trading symbol "OEH". OEH has two classes of common shares similar to the share structure of the Company, including higher voting Class B common shares.

        At the time of the initial public offering, the Company, certain of its subsidiaries and OEH entered into agreements providing for the separation of their business operations and various ongoing relationships between the companies such as shared services and offices, tax matters and noncompetition. See Item 13—Certain Relationships and Related Transactions below.

        As a result of sales of OEH shares by the Company and OEH since the initial public offering, the Company currently owns about 25% of the equity shares in OEH (disregarding the shares owned by OEH's subsidiary) having about 13% of the combined voting power of OEH's Class A and B common shares for most matters submitted to a vote of OEH shareholders (including the shares owned by OEH's subsidiary). Accordingly, the Company no longer has power to elect OEH's Board of Directors or otherwise to control OEH's business direction and policies. Of the seven directors on OEH's Board, only two are also directors or an officer of the Company. OEH has ceased to be a consolidated subsidiary of the Company and is accounted for in SCL's financial statements using the equity method of accounting. See also Note 2 to the Financial Statements. SCL intends to dispose of its remaining shares in OEH from time to time in one or more transactions and depending on market conditions and, for this purpose, OEH has on file with the SEC an effective registration statement.

OTHER SCL ACTIVITIES

        SCL holds a concession until 2041 from the Greek government to operate the Corinth Canal across the four-mile isthmus between mainland Greece and Peloponnisos and linking the Adriatic and Aegean Seas. About 12,000 vessels transit the canal each year with capacity for substantially more. The concession includes 130 acres of development land. At the eastern end, because the canal is already a popular tourist attraction in Greece, SCL plans to build a mixed tourism and leisure facility. At the western end, a yacht marina and support facilities are planned. SCL has committed to spend $3,000,000 on canal improvements by 2006. SCL pays an annual rent and, in cooperation with the Greek government, is free to set canal transit fees.

        SCL owns parcels of development land and a yacht marina which it plans to sell in the port of Newhaven on the south coast of England. SCL previously owned most of the port but has sold parts to third parties since 2001. SCL also owned the port of Folkestone on the south coast of England which it sold in August 2004.

        SCL manages a 420,000 net square foot office building in London, England called Sea Containers House fronting the south bank of the Thames opposite the City of London. SCL formerly owned and developed the building before selling it in 1988. SCL retains a long-term lease expiring 2011 of part of the space for occupancy by London-based employees of SCL subsidiaries.

        SCL owns undeveloped commercial land in Houston, Texas zoned for light industrial use. Having sold lots to developers in past years, SCL retains approximately 43 acres of the original 172-acre tract which remain for sale.

24

        In fruit farming, SCL owns a 70% interest in a 750-acre banana plantation located near Abidjan, Ivory Coast which produces about 9,000 tons annually for export principally to Europe. The present political unrest in the Ivory Coast has affected SCL's production and export to some degree although the situation could deteriorate if civil war broke out. SCL also owns a 1,000-acre table grape farm in northeastern Brazil near Petrolina that produces two crops each year for sale on the domestic and export markets. Current output is about 2,000 tons annually and the farm includes substantial unused acreage for future cultivation.

        SCL owns a British magazine called "The Illustrated London News" ("ILN") which has been published continuously since 1842. At present, only occasional editions are produced with about one-half of the circulation in Britain and one-half abroad. In addition, ILN publishes the on board magazines for SCL's ferries and GNER and the guest magazines for OEH, as well as a small number of other limited circulation lifestyle magazines for third parties under contract, and ILN maintains a substantial picture library dating back over 160 years to the founding of the publication. ILN staff also provides design support to the various SCL businesses such as internet website development.

        SCL owns Fairways and Swinford Travel Ltd., a small licensed travel agency and tour operator based in London, which arranges corporate travel for SCL and third party customers.

ITEM 2.    Properties

        The ship and terminal facilities of SCL used in its Ferry Operations are described in Item 1—Business above. The subsidiaries engaged in these activities own or lease operating offices and sales outlets at various locations in the British Isles, Finland, Sweden and elsewhere in Europe.

        SCL leases substantially all of the rolling stock, stations and depots used by GNER in its Rail Operations as described in Item 1.

        SCL owns containers and container factories and depots (except the Singapore facilities and the Charleston, South Carolina factory which are located in leased premises) as described under Container Leasing in Item 1. In addition, SCL leases regional offices in the following locations in connection with its container and other business activities: New York, New York; Baltimore, Maryland; London, England; Genoa, Italy; Bangkok, Thailand; and Sydney, Australia.

        OEH owns 28 hotels, two restaurants, three European tourist trains, a cruiseship and five small French canalboats, and owns interests of 50% or less in ten hotels, its Scottish and Southeast Asian tourist trains and PeruRail, and a third restaurant, all as described in Item 1. The small regional sales and marketing offices of the hotels, tourist trains and cruise business are occupied under operating leases.

        SCL also owns two fruit farms and development land as described in Item 1. The Corinth Canal is occupied under government concession.

25

ITEM 3.    Legal Proceedings

General Electric Capital Corporation

        There are a number of pending disputes between SCL and GE Capital relating to the management and operation of GE SeaCo, the outcome of which might affect SCL's financial results. In particular, these disputes relate to: (i) the level of funding required in one of SCL's pension plans, as of May 1, 1998, when certain employees of SCL's container division became employees of GE SeaCo; (ii) whether the charges by SCL to GE SeaCo for office space have been correctly computed; and (iii) whether GE SeaCo is obligated to pay for certain container equipment purchased from or through SCL's subsidiary, Yorkshire Marine Containers Ltd. With respect to the dispute relating to the funding of the pension plan, GE Capital seeks to have SCL indemnify GE SeaCo for any amounts which might be required to be contributed in the future, as a result of any underfunding which might be found to have existed in 1998. In the case of the other disputes, GE Capital seeks compensation from SCL. SCL believes that the aggregate net effect on SCL of the disputes as to which compensation is sought would not exceed approximately $5,000,000.

        If SCL and GE Capital are unable to resolve these disputes between themselves, either of them has the right to submit any or all of the disputes to arbitration, as contemplated by the dispute resolution provisions of the 1998 joint venture agreements establishing GE SeaCo. The outcome of these disputes is not determinable and, therefore, no provision has been recorded at December 31, 2004.

        GE Capital, acting on behalf of GE SeaCo, has taken steps purporting to terminate the 1998 Services Agreement, pursuant to which SCL provides corporate and administrative services and office space to GE SeaCo, and certain related agreements. Unless agreement can be reached as to the terms of the termination of these agreements, the purported termination by GE Capital is likely to be contested by SCL in arbitration.

U.K. Customs & Excise

        As previously reported, on October 1, 2004 the Company's Hoverspeed Ltd. subsidiary commenced a substantial damage claim in the London High Court against British Customs & Excise arising from Customs' unlawfully detaining many Hoverspeed passengers in Dover when they returned with duty-paid merchandise bought in other European countries and intended for personal use. Customs answered the claim on January 21, 2005 denying liability and alleging, among other defenses, that Customs officers acted lawfully because they had reasonable grounds to believe the goods were being imported for a commercial purpose, thus subjecting them to British tax, and not personal use. Hoverspeed filed its reply on March 4, 2005. A pre-trial scheduling conference took place on March 21, 2005, at which a deadline of June 30, 2005 was established for the parties to produce relevant evidence for discovery by each side. There is no assurance that Hoverspeed will recover substantial damages, if any, in these proceedings.

        Other than the foregoing, there are no material legal proceedings, other than ordinary routine litigation incidental to its businesses, to which the Company or any of its subsidiaries is party or to which any of their property is subject.

ITEM 4.    Submission of Matters to a Vote of Security Holders

        The Company submitted no matter to a vote of its security holders during the fourth quarter of 2004.

26

PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity
                   Securities

        The principal market on which the Class A and B common shares of the Company are traded is the New York Stock Exchange. Their trading symbols are SCRA and SCRB, respectively. Both classes are also listed on the Pacific Exchange. The following table presents the quarterly high and low sales price of a common share in 2004 and 2003 as reported for New York Stock Exchange composite transactions:

		2004				2003
		High		Low		High		Low
Class A Common Shares
	First quarter	$	21.79	$	17.75	$	9.30	$	5.51
	Second quarter		20.60		14.67		12.55		6.80
	Third quarter		17.89		15.01		16.35		10.76
	Fourth quarter		19.69		14.25		18.70		14.30
Class B Common Shares
	First quarter		21.75		18.50		9.15		5.92
	Second quarter		20.50		15.00		12.50		7.05
	Third quarter		17.50		14.80		16.25		10.75
	Fourth quarter		19.50		14.30		18.50		14.55

        The Company paid cash dividends on its Class A and B common shares in the third and fourth quarters of 2003 and in all four quarters of 2004 at the quarterly rates of $0.025 per Class A share and $0.0225 per Class B share.

        The Company is party to certain credit facilities which restrict the Company's ability to pay dividends on its Class A and B common shares and which also impose debt/equity ratio, minimum shareholders' equity and other financial requirements which may restrict payment of dividends. The Company is in compliance with all of these restrictions. See Note 17(g) to the Financial Statements (Item 8 below), and "Certain Financial Requirements" in Item 7—Management's Discussion and Analysis below.

        In addition, the terms of the Company's $7.25 convertible cumulative preferred shares contain restrictions on the payment of dividends on its Class A and B common shares if accrued dividends or the mandatory redemption price of the preferred shares have not been paid. The Company is current in the payment of all amounts due on these preferred shares, which will be redeemed in full by the Company on May 6, 2005. See Note 17(a) to the Financial Statements.

        The Islands of Bermuda where the Company is incorporated have no applicable governmental laws, decrees or regulations which restrict the export or import of capital or affect the payment of dividends or other distributions to nonresident holders of the Class A and B common shares of the Company or which subject United States holders to taxes.

        At March 21, 2005, the number of record holders of the Class A and B common shares of the Company was approximately 1,100 and 300, respectively.

        During 2004, all securities of the Company sold by it were registered under the U.S. Securities Act of 1933. Also during the fourth quarter of 2004, no purchase of the Company's Class A and B shares was made by or on behalf of the Company or any affiliated person.

27

ITEM 6.    Selected Financial Data

Sea Containers Ltd. and Subsidiaries

			Year ended December 31,
			2004		2003		2002	2001	2000
			$000		$000		$000	$000	$000
Revenue			1,742,717		1,646,099		1,610,447	1,215,828	1,296,143
Net (losses)/earnings on Class A and Class B common shares			(5,368	)	111,370	*	41,928	4,546	44,873
Net earnings per common share:			$		$		$	$	$
	Class A:
		Basic	(0.23	)	5.32	*	2.10	0.25	2.45
		Diluted	(0.23	)	5.25	*	2.10	0.25	2.45
	Class B:
		Basic	(0.23	)	4.79	*	1.90	0.22	2.21
		Diluted	(0.23	)	4.72	*	1.90	0.22	2.21
Cash dividends per class A common share			0.10		0.05		0.225	0.30	0.975
Cash dividends per class B common share			0.09		0.045		0.204	0.272	0.878
			$000		$000		$000	$000	$000
Total assets			2,736,100		2,752,876		2,807,121	2,653,569	2,610,113
Debt and capital lease obligations			1,530,575		1,596,282		1,790,930	1,674,926	1,629,227
Shareholders' equity			773,763		712,116		569,994	477,905	509,557

*

Year ended December 31, 2003 includes a gain on sale of ferry assets of $100,000,000 and non-recurring charges of $46,000,000.

See notes to consolidated financial statements (Item 8 below).

28

ITEM 7.    Management's Discussion and Analysis of Results of Operations and Financial Condition

        The following analysis of the consolidated results of operations and financial condition of SCL should be read in conjunction with the consolidated financial statements and related notes thereto in Item 8 below. Dollar amounts in this analysis are rounded to millions, but per share calculations and percentages are calculated based on thousands. Accordingly, a recalculation of some per-share amounts and percentages, if based on the rounded data, may be slightly different than the more precise amounts included herein.

I)     RESULTS OF OPERATIONS

        In the following tables and commentaries, SG&A expenses means selling, general and administrative expenses. The commentaries on variances refer to net variances after adjustment for the effect of foreign exchange where appropriate, unless otherwise stated.

I-A) Summary of Consolidated Earnings / (Losses)

        Net losses in 2004 were $4.3 million compared to net earnings of $112.5 million in 2003, although 2003 included approximately $54.0 million of gains on asset sales and non-recurring items related to the sale of the Steam Packet. Fully diluted losses were $0.23 per class A share and $0.21 per class B share. In addition to the absence of the gain on sale of ferry assets, the main reasons for the decline in earnings were the start-up losses of Silja incurred in 2004 on a new ferry service in the Baltic Sea, a reduction in compensation received by GNER from Network Rail and one-off charges for settlements with the U.K. Strategic Rail Authority ("SRA"). However, the underlying performance of the container and rail operations remained strong, SCL has successfully bid for a renewal of the GNER rail franchise and management has undertaken programs to address the decline in ferry earnings.

29

        The consolidated results of operations are summarized below:

								Year 2004 compared with 2003
		2004		2003		2002		Variance		Effect of foreign exchange		Net variance
		$m		$m		$m		$m		$m		$m
Total revenue		1,742.7		1,646.1		1,610.4		96.6		135.1		(38.5	)
Earnings/(losses) before net finance costs:
	Ferry operations	(12.9	)	29.9		52.1		(42.8	)	0.8		(43.6	)
	Rail operations	42.9		84.1		68.9		(41.2	)	9.4		(50.6	)
	Container operations	45.4		35.8		23.4		9.6		—		9.6
	Leisure operations	—		—		39.0		—		—		—
	Other SCL activities	(1.6	)	1.5		1.5		(3.1	)	—		(3.1	)
	Corporate costs	(19.0	)	(15.8	)	(15.0	)	(3.2	)	(0.9	)	(2.3	)
Gains on asset sales and non-recurring charges		6.3		59.0		2.9		(52.7	)	—		(52.7	)
Earnings before net finance costs		61.1		194.5		172.8		(133.4	)	9.3		(142.7	)
Net finance costs		(80.9	)	(85.3	)	(114.6	)	4.4		—		4.4
Minority interest		—		—		(10.9	)			—		—
Benefit from/(provision for) income taxes		2.6		(8.2	)	(5.9	)	10.8		—		10.8
Earnings from investment in OEH, net of tax		11.8		10.9		2.2		0.9				0.9
Earnings/(Losses) from other equity investments, net of tax		1.1		0.6		(0.6	)	0.5				0.5
Net (losses)/earnings before preferred share dividends		(4.3	)	112.5		43.0		(116.8	)	9.3		(126.1	)

Net Earnings/(Losses): 2004 compared to 2003

        The net losses in 2004 represented a decrease in earnings of $116.8 million from 2003. Earnings before net finance costs (adjusted for the effect of foreign exchange) decreased by $142.7 million. Of this decrease, $52.7 million related to a reduction in net gains on asset sales and non-recurring charges and $7.9 million to the absence of the Steam Packet's earnings in ferry operations in 2004, while in 2003 six months of earnings were included in these operations, resulting in a comparative decrease of $82.1 million.

        The decrease of $82.1 million consisted of reduced earnings from ferry operations of $35.7 million, rail operations of $50.6 million, and other SCL activities of $3.1 million and increased corporate costs of $2.3 million, partly offset by increased earnings from container operations of $9.6 million, including earnings from the investment in GE SeaCo.

        The reduction in ferry operations profits of $35.7 million related to Silja operations $22.1 million, Hoverspeed's cross-Channel services $3.8 million, the Belfast-Troon service $2.4 million, and charter and other ferry activities $7.4 million.

        The decline in Silja's earnings was due to increased capacity provided by competitors on a number of routes and start-up losses of a new route to Russia which performed below management's expectations. SCL is taking a number of actions to address the earnings decline including:

•

systems development to enhance revenue growth and promote cost reductions,



•

redeployment, chartering or sale of underperforming vessels, and

30

•

refurbishing the core vessels on the Helsinki-Stockholm route.

        The losses on other ferry operations were mainly due to increased competition and higher operating costs. In order to reduce the losses, SCL is redeploying capacity from loss-making U.K. routes and increasing its presence in the Mediterranean, especially the Greek market. A decision to cease operating the Belfast-Troon service was made in January 2005. An impairment charge of $2.9 million in respect of assets used for this service is included in the loss on other ferry activities in 2004.

        Rail operations had another excellent year operationally with revenue up $50.9 million but recorded reduced profits because of adverse changes in Network Rail's compensation regime from April 2004, the absence of a gain in 2003 from a settlement with Network Rail and charges of $19.4 million relating to the July 2004 SRA settlement and other contractual payments agreed with the SRA during 2004 that relate to the current franchise agreement expiring in April 2005.

        GNER has been successful in its bid to renew its franchise to operate InterCity East Coast main line rail services. A new ten-year franchise with the SRA was signed in March 2005. SCL is optimistic about its possible bids to win two further rail franchises.

        The increase in container operations profits of $9.6 million reflected strong demand worldwide for container leasing and was mainly due to SCL's equity-accounted investment in GE SeaCo.

        Net finance costs decreased in 2004 by $4.4 million reflecting a lower net interest expense of $11.0 million offset in part by reduced foreign exchange gains of $6.6 million. The reduction in interest expense was largely due to a lower debt level and the redemption of relatively expensive debt.

        The tax charge decreased in 2004 by $10.8 million. A change in law in Finland allowed Silja to claim a one-off tax deduction in 2004 in respect of previously non-deductible costs. The tax benefit related to this deduction amounted to $15.1 million.

Net Earnings: 2003 compared to 2002

        Net earnings in 2003 were $69.5 million higher than in 2002 and earnings before net finance costs increased by $21.7 million. Within the increase in earnings before net finance costs, $56.1 million related to an increase in net gains on asset sales and non-recurring charges and $15.9 million arose from the strengthening of sterling and the euro against the dollar. 2002 also included $11.4 million of earnings in the second half of the year in ferry operations from Steam Packet, which was sold in July 2003, and $39.0 million relating to leisure operations (reflecting the effect of SCL's reduced share of OEH results following the deconsolidation of OEH in the fourth quarter of 2002).

        After adjusting for these items, SCL's earnings before net finance costs were materially consistent with 2002. Rail operations increased by $8.8 million and container operations improved by $12.4 million but these were largely offset by a decline in ferry operations of $20.3 million and corporate costs of $0.8 million. Container operations included a $6.7 million improvement from SCL's share in earnings of GE SeaCo and a $5.8 million improvement in other container operations.

        Net finance costs decreased in 2003 by $29.3 million (or by $33.6 million if adjusted for the adverse effect of the strengthening of the euro against the U.S. dollar amounting to $4.2 million). The decrease was mainly due to a reduction in outstanding senior notes and lower interest rates.

        There was no minority interest charge in 2003 compared with a charge of $10.9 million in 2002, relating to OEH ($8.6 million) and Silja ($2.3 million).

31

I-B) Segment Analysis of Earnings/(Losses) Before Net Finance Costs

Ferry Operations

(i) Silja

	Year ended December 31,			Year 2004 compared with 2003
	2004	2003	2002	Variance		Effect of foreign exchange	Net variance
	$m	$m	$m	$m		$m	$m
Revenue	638.1	619.0	361.6	19.1		38.1	(19.0	)
Operating costs	478.8	456.0	244.9	22.8		28.1	(5.3	)
SG&A expenses	93.5	83.8	42.7	9.7		5.1	4.6
Depreciation and amortization	42.4	36.4	19.3	6.0		2.2	3.8
Earnings before net finance costs	23.4	42.8	54.7	(19.4	)	2.7	(22.1	)

Silja: 2004 compared to 2003

        Silja's earnings declined due to increased capacity of the competition on a number of its routes, and the redeployment of the Finnjet on a new route to Russia which performed below expectations. This start-up had a negative earnings impact of $17.0 million. Silja's earnings before net finance costs fell by $22.1 million to $23.4 million.

        SCL is taking a number of steps to address the fall in earnings as described above and benefits from these actions can be expected to begin to be realized in 2005.

        The revenue decrease of $19.0 million (3%) reflected an overall net reduction in passenger volumes of 5%, caused by the transfer of the Finnjet from the Helsinki-Tallin-Rostock service in 2003 to Rostock-Tallin-St. Petersburg for the summer months of 2004. The effect of this redeployment was to reduce Silja's total passenger carryings by 7% and revenue by $37.0 million.

        Retail yields declined due to the absence of duty-free sales on routes to Estonia after its entry into the European Union. This effect was compounded by the reduction of on-shore Finnish alcohol duties which meant that retail prices on-board had to be further reduced to maintain the price differential sufficient to encourage passengers to buy on board. However, the decline in retail yield was offset by an increase in ticket yield and on-board food and beverage spend.

        There was a 29% increase in passenger volumes on the SuperSeaCat services to Tallinn due to day traffic generated by Estonia's entry into the E.U. The extra volumes included higher numbers of both business travelers (commuters) and leisure travelers (tourists and shoppers). Revenue on Helsinki-Tallinn was up $10.0 million. The main Helsinki-Stockholm route performed well as did freight business with revenue up by $5.0 million and $3.0 million, respectively. The Turku-Stockholm/Kapellskar routes suffered from slightly lower passenger volumes but revenue remained steady.

        Silja's operating costs reflected a reduction of $5.3 million mainly due to the lay-up of Finnjet in the fourth quarter.

        Depreciation and amortization expense increased by $3.8 million in 2004 which reflected capital expenditure for the year of $41.5 million.

32

Silja: 2003 compared to 2002

        Silja was acquired in April 2002 from which date SCL has consolidated its operating results. Therefore, the year 2002 reflects the consolidation of Silja's results for the eight months to December 31, 2002, and SCL's 50% share in Silja in the first four months of 2002 is shown as a loss on equity investments of $0.7 million. As a result of this, increases in revenues and costs for 2002 and 2003 are not comparable on a consistent basis.

        Before adjustment for the effect of foreign exchange, Silja earnings before net finance costs of $54.7 million in 2002 compared with $42.8 million in 2003, a reduction of $11.9 million. This reduction is explained by non-recurring items in 2002 of $17.0 million, comprising income received from a charter termination and from a settlement of a dispute under another charter. After adjusting for the impact of these items and the losses of the first four months of 2002, underlying earnings rose by $2.3 million.

(ii) Other Ferry Operations

	Year ended December 31,						Year 2004 compared with 2003
	2004		2003		2002		Variance		Effect of foreign exchange		Net variance
	$m		$m		$m		$m		$m		$m
Revenue	96.9		167.6		215.0		(70.7	)	13.2		(83.9	)
Operating costs	94.2		140.0		171.1		(45.8	)	12.5		(58.3	)
SG&A expenses	25.1		25.5		30.4		(0.4	)	1.9		(2.3	)
Depreciation and amortization	13.9		15.1		16.1		(1.2	)	0.6		(1.8	)
Losses before net finance costs	(36.3	)	(13.0	)	(2.6	)	(23.3	)	(1.8	)	(21.5	)
Earnings/(losses) by operation:
U.K. Ferries (excluding Steam Packet)	(20.0	)	(12.4	)	(18.9	)	(7.6	)	(1.4	)	(6.2	)
Steam Packet	—		7.9		19.7		(7.9	)	—		(7.9	)
Charters/other ferry operations	(16.3	)	(8.5	)	(3.4	)	(7.8	)	(0.4	)	(7.4	)
Losses before net finance costs	(36.3	)	(13.0	)	(2.6	)	(23.3	)	(1.8	)	(21.5	)

        U.K. ferry operations included English Channel routes (Dover-Calais and Newhaven-Dieppe) and the Irish Sea route (Belfast-Troon). Charter and other ferry operations included New York harbor services, charter operations, equity investments and central ferry division costs. The Steam Packet ferry business was sold in July 2003.

Other Ferries: 2004 compared to 2003

        Excluding Steam Packet and foreign exchange effects, losses increased by $13.6 million to $36.3 million. Losses on U.K. ferry routes increased by $6.2 million consisting of $1.1 million on Dover-Calais, $2.8 million on Newhaven-Dieppe and $2.3 million on Belfast-Troon. Losses from charters and other ferry operations increased by $7.4 million, largely as a result of increased expenditure on the refitting of vessels.

        The decrease in both revenues and operating costs was mainly due to the absence of the Steam Packet and the implementation of a seasonal operation on U.K. routes in 2004.

        SCL is reviewing the deployment of its ferry fleet to assess profitable opportunities for 2005 and beyond. A decision was taken in January 2005 to cease operating the Belfast-Troon route and in March 2005 the Newhaven-Dieppe route. A new charter has been signed for one of the vessels in Greece and negotiations are in progress for further charters in the Mediterranean.

33

UK Ferries

Dover-Calais route

        This route moved to a seasonal operation at the end of 2003 to avoid the losses that have been incurred historically during the winter months. In 2004 operations did not commence until March, while in 2003 the service operated throughout the first quarter. The route recorded a loss of $10.9 million in 2004 compared to a loss of $9.8 million in 2003.

        Other factors which impacted revenue on this route were the late delivery from refit of a third craft in the peak third quarter period and price competition from Eurotunnel and a new operator providing services between Dover and Boulogne.

        Additionally, there was a decline in passenger spend yields reflecting the increase in French tobacco duties which impacted on-board sales.

        The reduction in operating costs from the move to a seasonal operation was partly offset by an increase in fuel costs which rose by $1.4 million over the equivalent period in 2003.

Newhaven-Dieppe route

        This route reported a loss of $3.5 million in 2004 compared to a loss of $0.7 million in 2003. Revenue decreased by $5.1 million, partly the result of adverse weather conditions in the second quarter and partly the effect of reduced passenger volumes due to increased competition from other operators and budget airlines. Costs were controlled effectively, and decreased by $2.3 million notwithstanding the adverse effect of an increase in fuel costs. In March 2005, SCL decided to terminate the service and is seeking to redeploy the affected ship.

Belfast-Troon route

        After a poor year in 2004 and the prospect of insufficient profitability, SCL has discontinued this route in 2005. As a result of this decision, an impairment charge relating to associated operational assets of $2.9 million has been recognized in 2004. The route made a loss of $2.6 million (excluding the impairment charge) in 2004 following a loss of $3.2 million in 2003.

        It is estimated that the closure of the Belfast-Troon route will result in a further charge of approximately $3.0 million in the first quarter of 2005 to comprise of staff redundancy and facility exit costs.

Steam Packet routes

        The absence of the Steam Packet business which was sold in July 2003 resulted in a revenue decrease of $40.8 million and reductions in operating costs, SG&A expenses and depreciation of $25.6 million, $4.8 million and $2.5 million, respectively.

Charter/Other Ferry Operations

New York harbor routes

        There was an increase in SeaStreak's revenue of $1.8 million which included the benefit of two new vessels being added in October 2003 and February 2004. This was partly offset by the effect of sailings lost in February due to ice conditions in the harbor.

        Seastreak's earnings decreased from a $0.3 million profit in 2003 to a $1.9 million loss in 2004 due to a combination of insufficient passenger volumes on the new vessels, higher fuel costs and poor weather conditions. Management is taking steps to align capacity with demand and is in negotiations to charter out one of the vessels.

Charter operations and central costs

        Charter operations and divisional costs suffered from increased costs of $5.2 million as a result of increased refit costs on the fast ferry fleet. A revenue increase of $3.6 million reflected a new charter of a vessel.

34

Other Ferries: 2003 compared to 2002

        Other ferry operations recorded reduced losses in 2003 from $22.3 million to $21.2 million, excluding the discontinued Steam Packet ferry business and after adjusting for foreign exchange movements.

        Excluding the effects of the absence of the Steam Packet's revenues for the last six months of 2003 (for the same period in 2002 this amounted to $43.8 million) and foreign exchange movements, revenue decreased by $22.3 million. This decrease mainly related to reduced revenue from Hoverspeed's cross-Channel services due to the cessation of the Dover-Ostend route at the end of 2002.

        Excluding the Steam Packet, the decline in revenue was offset by cost savings of $24.6 million mainly due to the closure of the Dover-Ostend route.

Rail Operations

	Year ended December 31,			Year 2004 compared with 2003
	2004	2003	2002	Variance		Effect of foreign exchange	Net variance
	$m	$m	$m	$m		$m	$m
Revenue	857.9	723.2	695.8	134.7		83.8	50.9
Operating costs	700.4	541.7	544.3	158.7		62.3	96.4
SG&A expenses	93.1	84.1	73.4	9.0		10.9	(1.9	)
Depreciation and amortization	21.5	13.3	9.2	8.2		1.2	7.0
Earnings before net finance costs	42.9	84.1	68.9	(41.2	)	9.4	(50.6	)

Rail: 2004 compared to 2003

        GNER had an excellent year operationally, but was adversely affected by changes in the compensation regime with Network Rail and charges arising from contractual settlements with the SRA.

        In March 2005, GNER was awarded a new ten-year franchise to operate the InterCity East Coast main line rail service. The new franchise will be in direct continuation of GNER's existing franchise which terminates on April 30, 2005. The new franchise has a break clause after seven years if GNER fails to meet certain performance criteria. GNER is currently bidding for the Integrated Kent commuter franchise and intends to bid for the Greater Western franchise in 2006.

        Rail revenue increased by $50.9 million (7%) in 2004 mainly due to an increase in passenger volumes of 9%, both peak and off-peak.

        A revenue management system was implemented during the year, to ensure that ticket quotas are allocated to optimize revenue. This particularly lifted off-peak volume and helped to improve capacity utilization. There was small slippage in yield (1%) as a result.

        The year 2004 has seen a shift in sales channels, with internet and self-service channels proving particularly popular. Website revenue increased by 45% on 2003, and use of self-service ticket machines increased by 50%.

        GNER also benefited from rolling stock refurbishment funded by the lessor of the equipment.

        The improvements in revenue were partly offset by the effect of $15 million received from Network Rail in the first quarter of 2003 in settlement negotiations for disruption to GNER's rail services following the U.K. Rail Regulator's ruling in GNER's favor.

35

        Operating expenses increased by $96.4 million in 2004 mainly due to a reduction of $75.2 million in compensation payments received from Network Rail in 2004 through a combination of reduced compensation rates in the performance regime and improvements in Network Rail's operational performance.

        In July 2004, a $14.6 million settlement was agreed with the SRA, payable in 2005. The terms of the settlement applied to the period from April 1, 2004 to the end of the current franchise on April 30, 2005. As a result the settlement cost is being spread evenly over this 13 month period. A charge of $10.1 million was recognized in operating expenses in 2004 with the remaining $4.5 million to be recognized in 2005.

        Concurrent with discussions with the SRA on the new franchise, certain amounts were agreed to be paid to the SRA relating to existing franchise matters. These included amounts that had previously been expected to be used to fund capital improvements. A charge of $9.3 million has been included in 2004 in respect of these payments.

        The depreciation and amortization increase of $7.0 million included the effect of GNER's increased capital expenditure on systems infrastructure, including spend required under its franchise agreement. This mainly related to improved management information, revenue management and mobile communications systems.

Rail: 2003 compared to 2002

        After adjustment for the strengthening of the British pound against the U.S. dollar revenue decreased by $37.5 million. This decrease was mainly due to reduced compensation from Network Rail and other claims for disruption to GNER's rail services, partly offset by an improvement in ticket revenues from increased passenger volumes.

        Operating expenses decreased by $54.1 million due largely to reduced track access charges, including the effect of higher contractual compensation payments received from Network Rail. An increase in rail SG&A expenses of $3.8 million mainly related to staff costs, including redundancy costs and insurance charges.

Container Operations

(i) Equity Investment in GE SeaCo

	Year ended December 31,
	2004	2003	2002
	$m	$m	$m
Earnings from investment in GE SeaCo	32.8	22.1	15.4

GE SeaCo: 2004 compared to 2003

        GE SeaCo profits in 2004 were up 48% over 2003, reflecting the continued strong growth in container leasing operations. The growth mainly derived from the expansion of the container fleet with utilization rates remaining high. GE SeaCo took delivery of $304.0 million of new containers in 2004, following delivery of $204.0 million in 2003.

        The GE SeaCo owned fleet had 99% utilization at the end of 2004 compared to 98% at the end of 2003, while the containers owned by SCL and GE Capital and managed by GE SeaCo had 91% utilization (83% in 2003).

        New container prices rose in 2004 and lease rates also strengthened.

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        SCL's 50% share of earnings from GE SeaCo is sensitive to fluctuations in interest rates as the costs of financing are included. GE SeaCo's outstanding debt at December 31, 2004 was $694.0 million at a weighted average interest rate of 3.38%, of which $70.0 million has been fixed at 3.89% for five years with effect from July 2004. At December 31, 2003, the outstanding debt was $511.0 million at a weighted average interest rate of 2.52%, none of which was at fixed rate.

        Pursuant to Rule 3-09 of SEC Regulation S-X, SCL in this Form 10-K report is required for the first time to file as an exhibit the audited combined and consolidated financial statements for the year ended December 31, 2004 of GE SeaCo and its subsidiaries including its affiliated company GE SeaCo America LLC. As a result of disputes between SCL and GE Capital (see Note 19(b) to the Financial Statements), the Board of GE SeaCo has been unable to complete these financial statements and, therefore, they are not being filed as a Form 10-K exhibit at this time.

GE SeaCo: 2003 compared to 2002

        The $6.7 million increase in earnings from SCL's investment in GE SeaCo in 2003 was mainly due to leasing out the new ontake of container units ($204.0 million during 2003) and the beneficial effect of reduced interest rates on the financing of its existing fleet rates. Weighted average interest rates went down to 2.52% at the end of 2003 from 2.72% at the end of 2002.

(ii) Other Container Operations

	Year ended December 31,
	2004	2003		2002
	$m	$m		$m
Revenue	125.6	110.6		107.5
Operating costs	65.2	50.0		48.3
SG&A expenses	3.0	(0.5	)	(2.4	)
Depreciation and amortization	44.8	47.4		53.6
Earnings before net finance costs	12.6	13.7		8.0

Other Containers: 2004 compared to 2003

        Container revenue (excluding GE SeaCo) increased by $15.0 million (14%) in 2004. This included $19.9 million from the container depot, service and logistics operations acquired from the Owens Group in July 2004. This increase was partially offset by a reduction of $4.8 million on leasing operations which mainly reflected the reduced size of SCL's owned fleet.

        The acquisition of operations from the Owens Group contributed additional earnings of $1.1 million in the second half of 2004.

Other Containers: 2003 compared to 2002

        Container revenue (excluding GE SeaCo) increased by $3.1 million in 2003 of which $5.8 million related to disposal gains/losses. The remaining decrease of $2.7 million included a decrease of $3.4 million on leasing operations (reflecting the reduced size of SCL's owned fleet partly offset by improved utilization).

        The decrease in depreciation and amortization of $6.2 million related to leasing operations ($5.2 million) and cargoship operations ($1.0 million). The reduction in leasing operations mainly related to disposal of container units during 2003 and 2002.

37

Property, Plantations and Publishing

	Year ended December 31,
	2004		2003	2002
	$m		$m	$m
Revenue	24.2		25.7	21.6
Operating costs	11.9		11.8	9.1
SG&A expenses	12.5		11.1	9.7
Depreciation and amortization	1.4		1.2	1.2
(Loss)/earnings before net finance costs	(1.6	)	1.6	1.6

PPP Operations: 2004 compared to 2003

        These operations reported a small loss in 2004. This reflected the weather-affected growing season for the grape farm in Brazil where revenue halved and a loss of $1.0 million was generated, following a profitable year in 2003. The poor weather of early 2004 is not expected to affect 2005 performance. Capital expenditure has been incurred in 2004 to protect crops from the effects of similar bad weather on future harvests.

PPP Operations: 2003 compared to 2002

        Revenue increased by $4.0 million in 2003 mainly due to publishing ($2.0 million), the Corinth Canal concession ($0.9 million) and fruit farming ($0.7 million) but earnings remained steady.

Corporate costs

	Year ended December 31,						Year 2004 compared with 2003
	2004		2003		2002		Variance		Effect of foreign exchange		Net variance
	$m		$m		$m		$m		$m		$m
SG&A expenses	(19.0	)	(15.8	)	(15.0	)	(3.2	)	(0.9	)	(2.3	)

Corporate: 2004 compared to 2003

        Corporate costs increased by $2.3 million in 2004 mainly due to increases in compensation and travel expense ($0.8 million), audit and public company costs ($1.2 million) and legal fees ($0.3 million).

Corporate: 2003 compared to 2002

        Corporate costs increased by $0.8 million in 2003 mainly due to increases in compensation expense ($1.5 million) partly offset by reductions in public company expenses ($0.5 million).

Gains on Sale of Assets and Non-Recurring Charges

        The gains on sale of assets in 2004, 2003 and 2002 and the non-recurring charges in 2003 are explained in Notes 3 and 4 to the Financial Statements.

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Net Finance Costs

	Year ended December 31,
	2004		2003		2002
	$m		$m		$m
Interest expense	(89.6	)	(100.1	)	(129.6	)
Interest income	7.2		6.7		7.8
Foreign exchange gain	1.5		8.1		7.2
Net Finance Costs	(80.9	)	(85.3	)	(114.6	)

Net Finance Costs: 2004 compared to 2003

        Interest expense decreased by $10.5 million from 2003 to 2004 primarily from the repayment of public debt and Steam Packet debt. These large debt repayments yielded total savings of $16.9 million in the year but were partly offset by interest of $9.9 million from new public debt issuance. A further reduction in interest expense of $3.5 million arose from interest rate changes and other debt movements. This included the effect of a reduction in average bank debt outstanding of $73.5 million.

        The table below reconciles the reduction of $10.5 million in interest expense from 2003 to 2004:

	$m
Interest expense for the year ended December 31, 2003	100.1
Less savings from:
91/2% and 101/2% senior notes (repaid July 2003)	(6.7	)
Steam Packet debt (repaid July 2003)	(4.5	)
121/2% senior subordinated debentures (repaid June 2004)	(5.7	)
Add issue of new public debt :
13% senior notes due 2006 (issued June 2003)	1.5
121/2% senior notes due 2009 (issued July 2003)	1.1
101/2% senior notes due 2012 (issued May 2004)	7.3
Net effect of debt re-structuring	(7.0	)
Balance, reflecting interest rate changes, syndicated bridging finance and additional debt to finance acquisitions and investments	(3.5	)
Interest expense for the year ended December 31, 2004	89.6

        There was a decrease in foreign exchange gains of $6.6 million. This was due to gains made in 2003 which arose from the benefit obtained on foreign exchange contracts associated with the sale of the Steam Packet.

Net Finance Costs: 2003 compared to 2002

        Net finance costs in 2003 decreased by $29.3 million. Finance costs were reduced by $14.7 million due to the deconsolidation of OEH, but increased by $11.8 million by the consolidation of Silja operations from May 1, 2002.

        The repayment of $136.3 million of public debt in July 2003 and repayment of the loan of $101.5 million secured on the assets of the Steam Packet business in July 2003 resulted in a $10.9 million decrease in interest expense from 2002. These decreases were partly offset by $2.6 million of interest on the issue of public debt in June and July 2003.

        The balance mainly reflected reduced interest rates on floating-rate debt.

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Taxes on Income

        The income tax credit in 2004 and charges in 2003 and 2002 related to subsidiaries in taxpaying jurisdictions. No income taxes are levied in Bermuda, which is the Company's place of incorporation. The tax credit in 2004 of $2.6 million included a deferred tax credit of $15.1 million in Silja. A change of law in Finland allowed Silja to claim a one-off tax deduction in 2004 in respect of previously non-deductible costs

        SCL's tax costs largely relate to ferry and rail operations, which are mainly carried out in high tax jurisdictions. Available tax shelter, which has kept taxes to a minimum, is diminishing so that the tax charge is likely to increase in future years.

Earnings from investment in Orient-Express Hotels Ltd.

        SCL owned 42% of OEH at December 31, 2004 and 2003 and 47% at December 31, 2002 (see Note 2 to the Financial Statements). OEH's earnings for the year ended 2004 were $28.2 million compared with $23.6 million in 2003 (an increase of $4.6 million), and $25.3 million in 2002 (a decrease of $1.7 million compared to 2003). Excluding the gain on the sale of a hotel in 2003, earnings were up 46% from 2003 to 2004. OEH commenced payment of dividends in January 2004 and has paid dividends of $1.4 million to SCL in 2004.

Earnings from other equity investments

        Earnings from SCL's joint venture in the Adriatic Sea increased by $0.5 million as a result of a successful first season on the Pescara-Split route.

II)   LIQUIDITY AND CAPITAL RESOURCES

II-A) Analysis of Changes in Cash Position 2004, 2003 and 2002

        At December 31, 2004, SCL's cash balances totalled $129.1 million. Additionally, there were undrawn working capital bank lines amounting to approximately $111.9 million.

        In the first quarter of 2005, the Company sold 2,400,000 newly-issued class A common shares at an average price of $17.10 per share realizing net cash proceeds of approximately $41.0 million and sold 4,500,000 existing class A common shares in OEH at a net price of $24.20 per share yielding net cash proceeds of approximately $108.0 million.

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        Changes in the cash position over the last three years can be summarized as follows:

	2004		2003		2002
	$m		$m		$m
Net cash provided by operating activities	74.4		105.4		193.7
Proceeds from sale of fixed assets and other	30.4		228.6		8.8
Issuance of long-term debt	39.1		52.7		202.2
Issuance of senior notes	96.1		—		—
Issuance of common shares	45.4		24.6		0.1
Sale of OEH shares by SCL	—		—		68.7
	285.4		411.3		473.5
Capital expenditures	(86.5	)	(37.6	)	(123.7	)
Acquisitions and investments, net of cash acquired	(7.3	)	—		(85.5	)
Cash reduction from deconsolidation of OEH	—		—		(56.4	)
Principal payments under long-term debt	(190.8	)	(123.7	)	(163.3	)
Payments of loans upon disposal of assets	(5.1	)	(109.7	)	—
Debentures and senior notes retired	(79.7	)	(136.3	)	(9.7	)
Dividends on shares	(3.4	)	(2.1	)	(5.4	)
Working capital facilities and redrawable loans drawn/(repaid)	1.9		(18.5	)	(41.8	)
	(85.5	)	(16.6	)	(12.3	)
Effect of exchange rate on cash and cash equivalents	9.3		18.9		13.4
(Decrease)/increase in cash and cash equivalents	(76.2	)	2.3		1.1

Cash Flows: 2004

Operating Activities

        The cash inflow from operations was $74.4 million. Net losses of $4.3 million included net non-cash items of $70.9 million including depreciation of $124.0 million partly offset by undistributed earnings of affiliates of $44.1 million. The undistributed earnings of affiliates related mainly to the investments in GE SeaCo ($32.8 million) and OEH ($10.5 million). Dividends of $1.4 million were received from OEH but no dividends were paid to SCL by GE SeaCo.

        There was a favorable movement of $7.8 million in working capital including decreases in receivables of $43.1 million and inventories of $7.3 million. The decrease in receivables mainly reflected a reduction from container operations of $19.4 million, including proceeds from deferred sales of $11.9 million, rail operations of $14.6 million, including early receipt of VAT of $7.1 million, and Silja operations of $5.3 million.

        There was a reduction in payables of $42.6 million. This included reductions of $17.3 million from rail operations, including SRA and Network Rail settlements and tax payments, $5.8 million from Silja operations, $9.1 million from other ferry operations, and $5.1 million from container operations.

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Investing Activities

        In 2004, SCL made capital expenditures totalling approximately $86.5 million. Silja operations incurred capital expenditure of $41.5 million which included the refurbishment of Finnjet for $19.0 million. Other ferry operations spent $5.4 million, mainly on overhauls of vessels. Rail operations incurred $21.2 million which included $10.7 million on station improvements as committed in the GNER franchise agreement. Container operations spent $13.4 million, principally on new container units. Other capital incurred of $5.0 million included $3.0 million of central systems equipment and $1.0 million on development and expansion of the grape farm.

        The investment expenditure of $7.3 million related to the acquisition of container depot, service and logistics operations from the Owens Group.

        Proceeds from the sale of fixed assets and other assets of $30.4 million included $18.3 million from the sale of Folkestone port and $9.5 million from the disposal of containers.

Financing Activities

        In January 2004, the Company completed the registered public offering of 2,000,000 newly-issued class A common shares, selling 576,200 shares for net proceeds of $10.8 million. During the year, a second registered public offering of 2,220,00 newly-issued class A common shares was completed for net proceeds of $34.6 million. A third offering was registered for 2,400,000 million class A common shares in December 2004 and was completed in January and February 2005 for net proceeds of $41.0 million.

        Proceeds from bank borrowings in 2004 amounted to approximately $39.1 million, of which $5.3 million was drawn under loans secured by containers and related factory and depot assets, $19.8 million was drawn under loans secured by ferry-related assets, $7.1 million was drawn under loans secured by rail assets, and $6.9 million was drawn under loans mainly secured by other assets and investments.

        In May 2004, the Company issued $103.0 million principal amount of new 10¹/2% senior notes due 2012 but these were sold at a discounted price of $100.3 million to yield 11% per annum. The Company used the proceeds in June 2004 to redeem all of the outstanding $79.7 million principal amount of 12¹/2% senior subordinated debentures that were due to mature on December 1, 2004.

        In December 2003, SCL established a revolving credit loan facility with a syndicate of banks in the amount of $100.0 million, of which $32.0 million was drawn at year end. In November 2004, the facility was increased to $120.0 million. At December 31, 2004 $20.0 million was drawn on this facility.

Cash Flows: 2003

Operating Activities

        Cash flow from operations was $105.4 million and included net earnings of $112.5 million which, after adjustments to reconcile net earnings to cash provided by operations, translated into a cash inflow of $125.3 million. Included in net earnings were gains on sale of assets and non-recurring charges of $59.0 million and undistributed earnings of affiliates of $33.2 million which related mainly to the earnings of investments in GE SeaCo ($22.1 million) and OEH ($10.9 million). No dividends were received from GE SeaCo or OEH in 2003.

        Offsetting the inflow from operations was a $19.9 million working capital outflow including a reduction in payables of $17.2 million. The payables decrease reflected mainly reductions in ferry and other operations liabilities offset by increases on rail operations.

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Investing Activities

        In 2003, SCL made capital expenditures totalling $37.6 million. This included $13.0m on container operations, $10.0 million on Silja operations, $7.0 million on other ferry operations, $3.0 million on rail operations and $4.6 million on other operations.

        Proceeds from the sale of fixed assets and other of $228.6 million included $203.4 million from the sale of Steam Packet, $8.6 million from the sale of Newhaven land and $9.8 million from the disposal of containers.

Financing Activities

        In December 2003, SCL sold 1,423,800 newly-issued class A common shares in a registered public offering raising net proceeds of approximately $24.7 million. This offering was completed in January 2004.

        Proceeds from bank borrowings in 2003 amounted to approximately $52.7 million, of which $3.6 million was drawn under loans secured by containers and related factory and depot assets, $14.1 million was drawn under loans secured by ferry-related assets, $2.5 million was drawn under loans secured by rail assets, and $32.5 million was drawn under loans mainly secured by other assets and investments.

        In 2003, the Company made an exchange offer of 13% senior notes due 2006 for its outstanding $158.8 million principal amount of 9¹/2% and 10¹/2% senior notes that matured on July 1, 2003, and a separate exchange offer of 12¹/2% senior notes due 2009 for its outstanding $98.9 million principal amount of 12¹/2% senior subordinated debentures due 2004. The offer of 13% senior notes expired in late June, and the Company accepted for exchange $22.5 million of 9¹/2% and 10¹/2% senior notes into an equal principal amount of new 13% senior notes. The offer of 12¹/2% senior notes expired in late July, and the Company accepted for exchange $19.2 million of 12¹/2% debentures into an equal principal amount of new 12¹/2% senior notes. The balance of the 9¹/2% and 10¹/2% senior notes were repaid on July 1, 2003.

        Later in July 2003, SCL completed the sale of Steam Packet. Part of the sale proceeds was used to repay $101.5 million of outstanding debt of Steam Packet.

        In November 2003, SCL refinanced the main loan facility of its Silja subsidiary as well as SCL borrowings used to fund in part its Silja investments since 1999. Silja entered into a $430.0 million term loan and revolving credit facility with a syndicate of banks, and the Company entered into a related $68.0 million loan facility with the same syndicate. The primary security for both facilities are mortgages on certain of Silja's ships with the Company loan subordinated to the Silja loan.

Cash Flows: 2002

Operating Activities

        Cash flow from operations was $193.7 million and included net earnings of $43.0 million which, after adjustments to reconcile net earnings to cash provided by operations, translated into a cash inflow of $149.3 million. Included in net earnings were undistributed earnings of affiliates of $18.6 million which related mainly to the investments in GE SeaCo ($15.4 million) and OEH ($2.2 million). No dividends were received from GE SeaCo or OEH in 2002.

43

        In addition to the inflow from operations, there was a $44.4 million working capital inflow including an increase in payables of $8.6 million and decreases in receivables of $35.3 million and inventories of $0.5 million. The payables increase reflected mainly increases on rail operations of $18.2 million and container operations of $10.3 million offset by reductions on ferry and other operations together with the effect of deconsolidating OEH in the fourth quarter of 2002. The receivables decrease mainly reflected reductions on property operations of $20.9 million and other ferry operations of $18.5 million offset by increased container receivables of $10.0 million.

Investing Activities

        In 2002, SCL made capital expenditures totalling approximately $123.7 million. This included $32.0 million for a Silja vessel and $45.0 million for OEH (which was consolidated at that time). Additionally there was capital expenditure of $16.0 million in container operations, $22.0 million on other ferry operations, $5.0 million in rail operations and $3.7 million in other operations.

        Proceeds from the sale of fixed assets and other of $8.8 million included $4.6 million from the sale of containers, $1.7 million from the sale of property and $2.5 million from the sale of other assets.

Financing Activities

        Proceeds from bank borrowings in 2002 amounted to approximately $202.2 million, of which $112.5 million was drawn under loans secured by ferry-related assets, $2.2 million was drawn under loans secured by rail assets, and $87.5 million was drawn under loans mainly secured by other assets and investments, mainly by OEH.

        In 2002, SCL sold in an SEC-registered public offering a total of 4,921,500 SCL-owned shares of OEH realizing net proceeds of $68.7 million. This included the sale on November 14, 2002 of 3,100,000 OEH shares that reduced SCL's holding to under 50%, resulting in the deconsolidation of OEH.

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II-B) Contractual Obligations Summary

        The following table provides a summary of the Company's contractual obligations as of December 31, 2004.

	Payments due by period
Contractual Obligations
	2005	2006-07	2008-09	Thereafter	Total
	$m	$m	$m	$m	$m
Credit facilities(1)	0.3	—	—	—	0.3
Long-term debt(1)	165.8	385.3	222.0	351.0	1,124.1
Capital leases	5.7	5.6	—	—	11.3
Senior notes(1)	—	137.1	168.9	100.5	406.5
Redeemable preferred shares	15.0	—	—	—	15.0
Interest payments(2)	77.1	114.8	59.1	34.3	285.3
Operating leases(3)	129.9	19.1	16.8	67.0	232.8
Rail franchise commitments(4)	37.1	—	—	—	37.1
Purchase commitments(5)	16.4	—	—	—	16.4
	447.3	661.9	466.8	552.8	2,128.8

Notes to table:

(1)

These amounts represent the principal repayments of SCL's debt and are included in the consolidated balance sheets. See Notes 10, 11 and 12 to the Financial Statements.

(2)

Interest payments are estimated based on the scheduled debt repayments shown above and using the interest rates as at December 31, 2004.

(3)

Operating lease payments include a total of $119.7 million in 2005 relating to GNER rental payments in respect of rolling stock and access charges for railway infrastructure. These commitments represent payments under the existing franchise which expires in April 2005. Commitments for the new franchise which starts on May 1, 2005 are still under negotiation but rental payments and access charges are expected to be on similar terms to the current franchise.

(4)

This amount represents payments to be made by GNER under its existing franchise agreement with the SRA which expires in April 2005.

(5)

Purchase commitments include $10.4 million as an approximation of SCL's contributions to its defined benefit pension plans in 2005.

II-C) Off-Balance Sheet Arrangements

        SCL has no material off-balance sheet arrangements at December 31, 2004 other than those involving its equity investees reported in Notes 6 and 23 to the Financial Statements, and commitments and contingencies and derivative financial instruments reported in Notes 19 and 20.

II-D) Certain Financial Requirements

        SCL is party to material credit/financing agreements described in Notes 11 and 12 to the Financial Statements which impose certain financial requirements.

45

        At December 31, 2004, the Company and its subsidiaries were in compliance with their credit/financing agreements described below, as well as less significant ones to which they are party. Although management believes that SCL's current operating plans will not be restricted by the various financial covenants described below, changes in economic or business conditions, results of operations or other factors may in the future result in circumstances in which the covenants restrict SCL's plans or business operations.

i) $85 million revolving credit facility

        This facility provided by a syndicate of banks is secured by container equipment and imposes financial covenants on SCL, including (i) a requirement not to exceed a specified leverage ratio, (ii) requirements to maintain a minimum debt service coverage ratio and a minimum interest coverage ratio, and (iii) limitations on the payment of dividends, redemption of capital stock or subordinated indebtedness, and investments in third parties. The facility amortizes in line with the depreciation of the secured containers and is otherwise repayable on final maturity in October 2007.

ii) $19.2 million principal amount of 12¹/2% senior notes due 2009

        These notes are unsecured and contain covenants restricting (i) the incurrence by SCL of indebtedness unless SCL meets a minimum cash flow coverage ratio, as defined, (ii) the payment of dividends, redemption of capital stock or subordinated indebtedness, and investments in third parties, (iii) transactions between SCL and its affiliates unless they are on arm's-length terms, (iv) limitations on the ability of certain material subsidiaries of the Company to restrict payments to the Company, (v) the disposition of proceeds of asset sales by SCL, (vi) any lines of business that are not similar or related to SCL's existing businesses, and (vii) the ability of SCL to amalgamate, consolidate or merge with or into another entity or to dispose of its assets substantially as an entirety. If SCL fails to maintain a specified amount of consolidated tangible net worth, or if a change of control of SCL occurs, the Company is obligated to make an offer to purchase 10% of the notes at par in the case of the net worth test and 100% of the notes at 101% of the principal amount in the case of a change of control.

iii) $22.5 million principal amount 13% senior notes due 2006, $115.0 million principal amount of 10³/4% senior notes due 2006, $149.8 million principal amount of 7⁷/8% senior notes due 2008, and $103.0 million principal amount of 10¹/2% senior notes due 2012

        These notes are unsecured and contain substantially the same restrictive covenants as those in the 12¹/2% notes described above, and additionally contain covenants restricting (i) incurrence by SCL of liens on its assets or property unless the notes are secured equally, subject to certain exceptions, and (ii) sale and leaseback transactions by SCL, subject also to certain exceptions. The 10¹/2% notes also specifically limit the disposition of proceeds of OEH shares by SCL.

iv) $168.4 million container securitization facility

        Under this facility, a bankruptcy-remote SCL subsidiary formed to facilitate asset securitization of containers, issued a senior note and the Company issued an effectively subordinated note. The senior note is non-recourse to the Company and its other subsidiaries and is amortizing using the subsidiary's net cash flow. Upon a change of control of the Company, the senior note would come due. The subordinated note began its five-year amortization period in October 2001. The subordinated note requires that SCL (i) not exceed a specified leverage ratio and (ii) maintain a minimum interest coverage ratio. The overall interest rate of the facility is approximately 1.10% to 1.31% over LIBOR. A significant proportion of the interest cost of the securitized facility has been hedged at a rate of 5.45%. The debt is included in SCL's consolidated balance sheet at December 31, 2004, and no further amount can be borrowed.

46

v) $430.0 million term loan and revolving credit facility agreement of Silja and a related $68.0 million loan facility of the Company

        The non-revolving credit portion of the Silja loan is repayable in installments with interest on both portions at EURIBOR plus 1.625% and a final maturity in October 2010. The Company loan is also repayable in installments with interest at EURIBOR plus 2.125% maturing in October 2008. The Silja loan requires Silja on a consolidated basis with its subsidiaries (i) to maintain a minimum net book value and minimum debt service coverage ratio (both as defined) and (ii) to maintain minimum seasonal liquidity levels. The Company loan requires SCL (i) to maintain a minimum consolidated tangible net worth (as defined), (ii) not to exceed a specified leverage ratio and (ii) to meet certain cash maintenance requirements. Both facilities are provided by the same syndicate of banks and are largely secured by Silja ships.

vi) $120.0 million revolving credit facility

        This facility, provided by a bank syndicate and principally secured by the pledge of a portion of the Company's shares in OEH, is available for general corporate purposes and carries an interest rate of 2.5% above LIBOR. The final maturity of any amounts borrowed is July 2007, and $20.0 million was outstanding at December 31, 2004. The facility has covenants which require SCL (i) to maintain a minimum consolidated tangible net worth (as defined), (ii) not to exceed a specified leverage ratio and (iii) to meet certain cash maintenance requirements.

II-E) Leverage; Foreign Currency Fluctuations

        At December 31, 2004, SCL's consolidated long-term indebtedness was $1,531 million (2003—$1,596 million), its consolidated shareholders' equity totalled $773.8 million (2003—$712.1 million) and it had redeemable preferred shares amounting to $15 million (2003—$15 million). The terms of SCL's indebtedness described above permit SCL to incur substantial additional indebtedness from time to time. The degree to which SCL is leveraged may affect its ability to obtain additional financing in the future for working capital, capital expenditures, product and service development and general corporate purposes, to utilize cash flow from operations for purposes other than debt service, and to overcome seasonal or cyclical variations in its business. The ability of SCL to satisfy its obligations and to reduce its debt is dependent upon the future performance of SCL, which will be subject to prevailing economic conditions and to financial, business and other factors, including factors beyond the control of SCL.

        The acquisition by SCL of new assets, both for growth as well as for replacement, is capital intensive. The availability of new capital to finance these expenditures depends on prevailing market conditions and the acceptability of financing terms offered to SCL. Management believes that capital expected to be available to SCL under various lines of credit, financing agreements, equity offerings and other sources, and from dispositions of existing assets and properties, as well as cash generated from operations, should be sufficient to meet SCL's capital requirements in 2005 and for the foreseeable future. No assurance, however, can be given that financing will continue to be available, or available on acceptable terms.

        Approximately 73% of SCL's consolidated long-term indebtedness at December 31, 2004 (2003 - 72%) accrued interest at rates that fluctuate with prevailing interest rates and, accordingly, increases in such rates may increase SCL's interest payment obligations. At December 31, 2004, SCL had two interest rate swaps in place with financial institutions in order to manage its floating interest rate exposure, thereby reducing the proportion of fluctuating interest rate indebtedness to 63%. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk.

47

        Substantial portions of SCL's revenues and expenses are denominated in foreign currencies, especially sterling and euro. A large part of SCL's rail and ferry businesses operates in and around Great Britain and certain corporate costs and SG&A expenses of SCL relate to its London offices. Fluctuations in the values of these currencies in U.S. dollar terms may affect SCL's financial condition and results of operations. The impact of these fluctuations is mitigated to the extent that SCL has both revenue and expenses denominated in the same currencies. If revenue and expense items become imbalanced, SCL may enter into forward foreign exchange contracts from time to time in order to hedge the imbalance. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk, and Note 20 to the Financial Statements.

III)  CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        This discussion of SCL's financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of those financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

        Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. Management believes the following are SCL's most critical accounting policies.

Carrying values of long-lived assets and goodwill

        Management evaluates the recoverability of long-lived assets, including containers, ships, property and finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. These evaluations include analyses based on the undiscounted cash flows generated by the underlying assets, profitability information including estimated future operating results, trends or other determinants. If the value of the asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future.

        In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", indefinite-lived intangible assets and goodwill must be evaluated at least annually for impairment. Goodwill impairment testing under SFAS No. 142 is performed in two steps, first, the determination of impairment based upon the fair value of a reporting unit as compared with its carrying value and, second, if there is an impairment, the measurement of the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. As of December 31, 2004 and 2003, SCL determined the carrying value of all its operating goodwill and its indefinite-lived intangible asset had not been impaired. To determine fair value, SCL relied on valuation models utilizing discounted cash flows.

48

Depreciation

        Containers and ships are recorded at cost and, after allowance for salvage value, are depreciated over their estimated useful lives by the straight-line method. The estimated useful lives and salvage values for containers are generally 20 years and 20%, respectively, and for ships generally 30 to 35 years and 15% to 5%, respectively. Real estate and other fixed assets are recorded at cost and are depreciated over their estimated useful lives by the straight-line method. The depreciation rates on freehold buildings range from 25 to 50 years and on machinery and other remaining assets from 5 to 25 years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the respective lease terms.

Pensions

        SCL employees participate in a number of defined benefit pension plans. SCL's pension plans are accounted for using actuarial valuations required by SFAS No. 87, "Employers' Accounting for Pensions". Management is required to make significant subjective judgments about a number of actuarial assumptions, which include discount rates, health care cost trends and rates, salary growth, long-term return on plan assets and mortality rates.

        Management believes that a 6.8% long-term return on plan assets in 2004 is reasonable despite the recent market volatility in which SCL's plan assets had investment returns of approximately 8% for the year ended December 31, 2004 and investment returns of approximately 13% for the year ended December 31, 2003. In determining the expected long-term rate of return on assets, management has evaluated input from SCL's actuaries and financial advisors, including their review of anticipated future long-term performance of individual asset classes and the consideration of the appropriate asset allocation strategy given the anticipated requirements of the respective plans to determine the average rate of earnings expected on the funds invested. The projected returns by these consultants are based on broad equity and bond indices, including fixed interest rate gilts of long-term duration since the plans are predominantly in the U.K. SCL's expected long-term rate of return is based on a planned asset allocation of 57% in equity investments, with an expected long-term rate of return of 8.2%, and 43% in fixed income investments, with an expected long-term rate of return of 4.8%. SCL's actual asset allocation as of December 31, 2004 was in line with planned allocations. Management regularly reviews SCL's actual asset allocation and periodically rebalances investments to targeted allocations when considered appropriate. While the analysis gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate. Management will continue to evaluate the expected rate of return at least annually, and will adjust as necessary.

        Depending on the assumptions and estimates used, pension expense could vary within a range of outcomes and have a material effect on SCL's consolidated financial statements. Lowering the expected long-term rate of return on SCL's pension plans by 0.5% (from 6.8% to 6.3%) would have increased pension expense for 2004 by approximately $0.9 million.

Tax assets

        SCL maintains a valuation allowance to reduce its gross deferred tax assets to reflect the amount that would likely be realized based upon SCL's estimates of income. If SCL's future operations differed from those in the estimates, SCL may need to increase or decrease the valuation allowance, which could affect its reported operations.

49

Contingencies

        SCL is subject to the possibility of various loss contingencies arising in the ordinary course of business. SCL considers the likelihood of a loss or impairment of an asset or the incurrence of a liability as well as its ability reasonably to estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. Management regularly evaluates current available information to determine whether such accruals should be adjusted.

IV)  RECENT ACCOUNTING PRONOUNCEMENTS

        SCL's adoption of recent accounting pronouncements is described in Note 1(r) to the Financial Statements.

ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk

        As noted under "Leverage; Foreign Currency Fluctuations" in Item 7—Management's Discussion and Analysis above, SCL is exposed to market risk from changes in interest rates and foreign currency exchange rates, as well as fuel price movements. These exposures are monitored and managed by SCL as part of its overall risk management program which recognizes the unpredictability of financial markets and seeks to mitigate potentially material adverse effects on SCL's consolidated earnings and cash flow. As part of this management, SCL enters into interest rate and foreign currency swap contracts, foreign currency forward exchange contracts and fuel price hedge agreements from time to time. See Note 20 to the Financial Statements (Item 8 below). SCL does not use market risk sensitive financial instruments for trading purposes.

        The following discussion includes sensitivity analyses for hypothetical changes in the interest rates, exchange rates or fuel commodity prices that SCL is exposed to. In all cases, the hypothetical change was calculated based on a parallel shift in the forward price curve existing at December 31, 2004. The forward curve takes into account the time value of money and the future expectations regarding the value of the underlying interest rate, currency and commodity.

        The market risk relating to interest rates arises mainly from SCL's financing activities. SCL's earnings are affected by changes in interest rates on borrowings, principally based on U.S. dollar LIBOR and EURIBOR, and on short-term cash investments. Management assesses SCL's market risk based on changes in interest rates utilizing a sensitivity analysis. If interest rates increased by 10%, with all other variables held constant, SCL's annual net finance costs, as reported on its Statements of Consolidated Operations, would have increased by approximately $4.5 million based on its variable rate borrowings and interest rate swap agreements outstanding at December 31, 2004 (2003—$4.3 million). Changes in interest rates also impact the fair value of SCL's fixed rate debt. If interest rates increased by 10%, with all other variables held constant, the fair value of SCL's fixed rate debt would have decreased by approximately $2.1 million based on amounts outstanding at December 31, 2004 (2003—$2.0 million).

50

        The market risk relating to foreign currencies arises from buying, selling and financing in currencies other than the U.S. dollar, principally U.K. sterling and euros. Management anticipates this foreign currency exchange rate risk will remain a market exposure for the foreseeable future. Certain non-U.S. subsidiaries of the Company borrow in local foreign currencies, and SCL may enter into forward exchange contracts relating to purchases denominated in foreign currencies in order to manage and mitigate exchange rate risk. SCL had no currency swap agreement in place at December 31, 2004. Management uses a sensitivity analysis to assess the changes in the values of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in these models is a hypothetical 10% weakening or strengthening of the U.S. dollar against SCL's currency exposure at December 31, 2004. As a result of this analysis, management determined that the impact on monetary assets and liabilities of a 10% change in foreign currency exchange rates in relation to the U.S. dollar would amount to approximately $77 million.

        SCL is also exposed to fluctuations in fuel prices, as an increase in the price of fuel would result in lower earnings and increased cash outflows. Management enters into fuel swap contracts from time to time to procure a portion of SCL's fuel requirements and to hedge its exposure to volatility in fuel market prices. Management uses a sensitivity analysis to assess the changes in fuel prices. The primary assumption used in this model is a hypothetical 10% increase in the price of fuel at December 31, 2004. As a result of this analysis, management determined that the impact on operations and cash flows of a hypothetical 10% increase in fuel prices would not be material to the operations and cash flows of SCL.

51

ITEM 8.    Financial Statements and Supplementary Data

Report Of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Sea Containers Ltd.
Hamilton, Bermuda

        We have audited the accompanying consolidated balance sheets of Sea Containers Ltd. and subsidiaries (the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed at Item 15. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sea Containers Ltd. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, and our report dated March 30, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and expressed an adverse opinion on the effectiveness of the Company's internal control over financial reporting because of a material weakness.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 30, 2005

52

Report Of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Sea Containers Ltd.
Hamilton, Bermuda

        We have audited management's assessment, in the accompanying Report on Internal Control over Financial Reporting that Sea Containers Ltd. and subsidiaries (the "Company") did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weakness identified in management's assessment based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

53

        A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management's assessment: The Company had insufficient personnel resources and technical accounting experience within the accounting function to resolve and report in a timely manner non-routine or complex accounting matters in accordance with accounting principles generally accepted in the United States of America. As a result, procedures and documentation to review and analyze elements of the financial statement closing process and to prepare the consolidated financial statements had not reduced to a less than remote likelihood that a material misstatement in those financial statements would not be prevented or detected within a timely period in the normal course of the financial statement closing process. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company, and this report does not affect our report on such consolidated financial statements and financial statement schedule.

        In our opinion, management's assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We do not express an opinion or any other form of assurance on management's statement regarding corrective action that management has begun related to this weakness as discussed in the fifth paragraph of management's Report on Internal Control over Financial Reporting.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 30, 2005 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 30, 2005

        [Management's Report on Internal Control over Financial Reporting appears in Item 9A—Controls and Procedures in this Form 10-K report (page 92).]

54

Sea Containers Ltd. and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2004		2003
	$000		$000
Assets
Cash and cash equivalents	129,079		205,313
Restricted cash	17,056		14,656
Accounts receivable, net of allowances of 4,942 and 9,790	117,531		129,669
Due from related parties	38,030		36,576
Prepaid expenses and other	27,604		42,930
Inventories	43,001		45,991
Current portion of equipment sale receivables, net	8,448		11,730
Total current assets	380,749		486,865
Long-term equipment sale receivables, net	7,641		15,397
Advances on asset purchase contracts	13,586		6,539
Property plant and equipment, net of accumulated depreciation of 793,153 and 748,736	1,815,527		1,796,496
Investments	397,755		356,024
Goodwill	18,725		12,054
Other intangible assets, net	57,351		64,347
Other assets	44,766		28,119
Total assets	2,736,100		2,765,841
Liabilities and Shareholders' Equity
Credit facilities	305		2,235
Accounts payable	145,733		125,799
Accrued liabilities	254,533		297,130
Deferred revenue	14,545		10,799
Current portion of long-term debt and capital leases	165,825		282,808
Total current liabilities	580,941		718,771
Long-term debt and obligations under capital leases	958,237		928,097
Senior notes	406,513		305,806
Senior subordinated debentures	—		79,571
Total liabilities	1,945,691		2,032,245
Minority interest	1,646		1,783
Preferred shares $.01 par value (15,000,000 shares authorized): Issued—150,000 $7.25 convertible cumulative preferred shares (liquidation value of $100 per share)	15,000		15,000
Shareholders' equity:
Class A common shares $.01 par value (60,000,000 shares authorized): Issued—23,655,054 shares (2003—20,932,548)	236		209
Class B common shares $.01 par value (60,000,000 shares authorized): Issued—14,388,295 shares (2003—14,413,595)	144		144
Paid-in capital	460,433		415,107
Retained earnings	863,983		871,691
Accumulated other comprehensive loss	(159,772	)	(179,077	)
Less: reduction due to class B common shares acquired with voting rights by a subsidiary—12,900,000 shares at cost	(391,261	)	(391,261	)
Total shareholders' equity	773,763		716,813
Commitments and contingencies	—		—
	2,736,100		2,765,841

See notes to consolidated financial statements.

55

Sea Containers Ltd. and Subsidiaries

Statements of Consolidated Operations

			Year ended December 31,
			2004		2003		2002
			$000		$000		$000
Revenue:
	Passenger transport		1,592,859		1,509,820		1,272,360
	Container operations		125,646		110,611		107,448
	Leisure operations		—		—		209,016
	Other operations		24,212		25,668		21,623
Total revenue			1,742,717		1,646,099		1,610,447
Expenses:
	Depreciation and amortization:
		Passenger transport	77,829		64,920		44,580
		Container operations	44,790		47,364		53,561
		Leisure operations	—		—		14,355
		Other operations	1,403		1,187		1,214
	Total depreciation and amortization		124,022		113,471		113,710
	Operating:
		Passenger transport	1,273,453		1,137,660		960,266
		Container operations	65,417		50,063		48,349
		Leisure operations	—		—		100,263
		Other operations	11,926		11,790		9,127
	Total operating		1,350,796		1,199,513		1,118,005
	Selling, general and administrative:
		Passenger transport	211,654		193,319		146,480
		Container operations	2,813		(506	)	(2,432	)
		Leisure operations	—		—		55,371
		Other operations	31,438		26,926		24,751
	Total selling, general and administrative		245,905		219,739		224,170
Non-recurring charges			—		46,000		—
Total expenses			1,720,723		1,578,723		1,455,885
Earnings from investment in GE SeaCo			32,803		22,093		15,434
Gains on asset sales			6,288		105,000		2,883
Earnings from operations before net finance costs			61,085		194,469		172,879
Interest expense, net of capitalized interest			(84,383	)	(95,319	)	(124,993	)
Interest and related income			3,441		10,026		10,323
Net finance costs			(80,942	)	(85,293	)	(114,670	)
(Losses)/earnings from operations before minority interest and income taxes			(19,857	)	109,176		58,209
Minority interest			—		—		(10,958	)
(Losses)/earnings from operations before income taxes			(19,857	)	109,176		47,251
Benefit from/(provision for) income taxes			2,622		(8,224	)	(5,860	)
(Losses)/earnings from operations before earnings from investment in Orient-Express Hotels Ltd. and other equity investments			(17,235	)	100,952		41,391
Earnings from investment in Orient-Express Hotels Ltd., net of tax			11,867		10,887		2,248
Earnings/(losses) from other equity investments, net of tax			1,088		619		(623	)
Net (losses)/earnings			(4,280	)	112,458		43,016
Preferred share dividends			(1,088	)	(1,088	)	(1,088	)
Net (losses)/earnings on class A and class B common shares			(5,368	)	111,370		41,928
(Losses)/earnings per class A common share:			$		$		$
	Basic		(0.23	)	5.32		2.10
	Diluted		(0.23	)	5.25		2.10
(Losses)/earnings per class B common share:
	Basic		(0.23	)	4.79		1.90
	Diluted		(0.23	)	4.72		1.90

See notes to consolidated financial statements.

56

Sea Containers Ltd. and Subsidiaries

Statements of Consolidated Cash Flows

				Year ended December 31,
				2004		2003		2002
				$000		$000		$000
Cash flows from operating activities:
	Net (losses)/earnings			(4,280	)	112,458		43,016
	Adjustments to reconcile net (losses)/earnings to net cash provided by operating activities:
		Depreciation and amortization		124,022		113,471		113,710
		(Gain)/loss on sale of assets		(5,820	)	(101,391	)	139
		Undistributed (earnings)/losses of affiliates		(44,060	)	(33,241	)	(18,612	)
		Non-cash items		(3,258	)	3,044		11,062
		Non-recurring charges relating to asset writedowns		—		31,000		—
		Change in assets and liabilities net of effects from acquisition of subsidiaries:
			Decrease in receivables	43,055		3,171		35,292
			Decrease/(increase) in inventories	7,341		(5,910	)	487
			(Decrease)/increase in accounts payable, accrued liabilities and other liabilities	(42,610	)	(17,178	)	8,638
		Total adjustments		78,670		(7,034	)	150,716
Net cash provided by operating activities				74,390		105,424		193,732
Cash flows from investing activities:
	Capital expenditures			(86,523	)	(37,625	)	(123,718	)
	Acquisitions and investments, net of cash acquired			(7,311	)	—		(85,503	)
	Net proceeds on sale of fixed assets and other			30,430		228,562		8,834
Net cash (used in)/provided by investing activities				(63,404	)	190,937		(200,387	)
Cash flows from financing activities:
	Issuance of common shares			45,353		24,655		127
	Issuance of long-term debt, net			39,052		52,701		202,201
	Issuance of senior notes, net			96,147		—		—
	Sale of OEH shares by SCL			—		—		68,650
	Cash reduction from deconsolidation of OEH			—		—		(56,355	)
	Principal payments under long-term debt			(190 759	)	(123,670	)	(163,345	)
	Payment of loans upon disposal of assets			(5,044	)	(109,698	)	—
	Purchase and retirement of notes and debentures			(79,729	)	(136,323	)	(9,700	)
	Payment of preferred share dividends			(1,088	)	(1,088	)	(1,088	)
	Payment of common share dividends			(2,340	)	(1,043	)	(4,326	)
	Net borrowings/(repayments) under credit facilities and revolving credit facilities			1,899		(18,542	)	(41,824	)
Net cash used in financing activities				(96,509	)	(313,008	)	(5,660	)
Effect of exchange rate changes on cash and cash equivalents				9,289		18,938		13,401
Net (decrease)/increase in cash and cash equivalents				(76,234	)	2,291		1,086
Cash and cash equivalents at beginning of year				205,313		203,022		201,936
Cash and cash equivalents at end of year				129,079		205,313		203,022

See notes to consolidated financial statements.

57

Sea Containers Ltd. and Subsidiaries

Statements of Consolidated Shareholders' Equity

		Class A Common Shares at Par Value	Class B Common Shares at Par Value		Paid-in Capital	Retained Earnings		Accumulated Other Comprehensive Loss		Common Shares Held by a Subsidiary		Total Comprehensive Income(Loss)
		$000	$000		$000	$000		$000		$000		$000
Balance, January 1, 2002		169	145		351,637	723,762		(206,547	)	(391,261	)
Issuance of class A common shares under dividend reinvestment plan		—	—		79	—		—		—
Issuance of common shares under employee stock option plan		—	—		48	—		—		—
Issuance of class A common shares to acquire a subsidiary		25	—		37,929	—		—		—
Conversion of class B common shares		1	(1	)	—	—		—		—
Dividends on common and preferred shares		—	—		—	(5,414	)	—		—
Comprehensive income:
	Net earnings	—	—		—	43,016		—		—		43,016
	Other comprehensive income/(loss) for the year	—	—		—	—		18,244		—		18,244
												61,260
Balance, December 31, 2002		195	144		389,693	761,364		(188,303	)	(391,261	)
Issuance of class A common shares under dividend reinvestment plan		—	—		18	—		—		—
Issuance of common shares under employee stock option plan		—	—		9	—		—		—
Issuance of class A common shares in public offering, net of issuance costs		14	—		24,614	—		—		—
Dividends on common and preferred shares		—	—		—	(2,131	)	—		—
Gain on sale of OEH common shares by OEH, net of costs		—	—		773	—		—		—
Comprehensive income:
	Net earnings	—	—		—	112,458		—		—		112,458
	Other comprehensive income/(loss) for the year	—	—		—	—		9,226		—		9,226
												121,684
Balance, December 31, 2003		209	144		415,107	871,691		(179,077	)	(391,261	)
Issuance of class A common shares under dividend reinvestment plan		—	—		21	—		—		—
Issuance of common shares under employee stock option plan		—	—		214	—		—		—
Issuance of class A common shares in public offering, net of issuance costs		27	—		45,091	—		—		—
Dividends on common and preferred shares		—	—		—	(3,428	)	—		—
Comprehensive income:
	Net losses	—	—		—	(4,280	)	—		—		(4,280	)
	Other comprehensive income/(loss) for the year	—	—		—	—		19,305		—		19,305
												15,025
Balance, December 31, 2004		236	144		460,433	863,983		(159,772	)	(391,261	)

58

Sea Containers Ltd. And Subsidiaries

Notes to Consolidated Financial Statements

1.     Business activities and summary of significant accounting policies

        SCL is engaged in four main businesses. The first is ferry operations mainly involving passenger and vehicle ferry services in the Baltic Sea and English Channel. The second is passenger rail services in Britain between London and Scotland. The third is the leasing of cargo containers, principally through SCL's unconsolidated 50%/50% GE SeaCo SRL joint venture with General Electric Capital Corporation, to a diversified customer base of liner ship operators and others throughout the world, and the manufacture and repair of container equipment. The fourth business is ownership of and/or investment in hotels, restaurants, tourist trains and river cruise businesses located throughout the world through Orient-Express Hotels Ltd., an unconsolidated company in which SCL owns a 25% equity interest. In addition, SCL engages in property development, perishable commodity production and sales, and publishing.

(a)    Principles of consolidation

        For purposes of these Notes, the "Company" refers to Sea Containers Ltd., and "SCL" refers to Sea Containers Ltd. and its subsidiaries. "OEH" refers to Orient-Express Hotels Ltd., an equity investment of the Company engaged in the hotel and leisure business (see Notes 2 and 6). "GE SeaCo" refers to GE SeaCo SRL, a container leasing joint venture company between the Company and General Electric Capital Corporation accounted for under the equity method (see Note 6). "GNER" refers to Great North Eastern Railway Ltd., a wholly-owned subsidiary of the Company and operator of SCL's passenger rail franchise in Great Britain. "Silja" refers to Silja Oy Ab, a wholly-owned subsidiary of the Company based in Finland engaged in ferry operations in the Baltic Sea (see Note 5).

        The consolidated financial statements include the accounts of Sea Containers Ltd. and all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Unconsolidated companies that are 20% to 50% owned are accounted for on an equity basis as these companies are not controlled by the Company.

        Certain items in 2003 and 2002 have been reclassified to conform with the current year's presentation.

        "FASB" means Financial Accounting Standards Board and "APB" means Accounting Principles Board, the FASB's predecessor. "SFAS" means Statement of Financial Accounting Standards of the FASB. "FIN" means an accounting interpretation of the FASB. "EITF" means Emerging Issues Task Force, of the FASB.

(b)    Cash and cash equivalents

        Cash and cash equivalents include all cash balances and highly-liquid investments having original maturities of three months or less.

        There are restricted deposits at GNER and in other subsidiaries of approximately $17,056,000 (2003—$14,656,000) that have been classified as restricted cash on the balance sheets.

(c)    Property, plant and equipment, net

        Containers and ships are recorded at cost and, after allowance for salvage value, are depreciated over their estimated useful lives by the straight-line method. The estimated useful life and salvage value for containers are generally 20 years and 20%, respectively, and for ships generally 30 to 35 years and 15% to 5%, respectively.

59

        Real estate and other fixed assets are recorded at cost and are depreciated over their estimated useful lives by the straight-line method. The depreciation rates on freehold buildings range from 25 to 50 years and on machinery and other remaining assets from 5 to 25 years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the respective lease term.

(d)    Foreign currency translation

        The functional currency for each of the Company's foreign subsidiaries is the applicable local currency. Foreign subsidiary income and expenses are translated into U.S. dollars, SCL's reporting currency, at the average rates of exchange prevailing during the year. The assets and liabilities are translated into U.S. dollars at the rates of exchange on the balance sheet date and the related translation adjustments are included in accumulated other comprehensive income/(loss). Foreign currency transaction gains and losses are recognized in operations as they occur.

(e)    Intangible assets and goodwill

        Intangible assets classified as goodwill and trademark with indefinite lives are not amortized. Intangible assets with finite lives, primarily rail operations franchise rights, are amortized using the straight-line method over their estimated useful lives. See Note 9.

(f)    Revenue recognition

        Significantly all of SCL's revenue is attributable to passenger transport services provided in the rail and ferry operations. Revenues are recognized when the transportation is provided rather than when a ticket is sold. Amounts paid by a customer prior to transportation are recorded on the balance sheet as deferred revenue. Retail sales and other customer services provided during transit are recognized at point of sale. SCL's container assets are revenue-earning under operating leases and, accordingly, the financial statements reflect such operating lease rentals as revenue. Revenues from container management contracts are recognized as earned pursuant to terms in the related contract.

(g)    Inventories

        Inventories include ship and container related items, food and beverages, and certain retail goods. Inventories are valued at the lower of cost or market value under the first-in, first-out method.

(h)    Earnings/(losses) per share

        The Company follows the provisions of SFAS No. 128, "Earnings Per Share", which requires companies with complex capital structures, common stock equivalents, or two classes of participating securities to present both basic and diluted earnings per share on the face of the statement of operations. Diluted earnings per share is calculated using the "if converted" and "treasury stock" methods for common stock equivalents. Basic and diluted earnings per share for the years ended December 31, 2003 and 2002, are allocated to each class of common shares according to dividends declared and participating rights on undistributed earnings in accordance with the two class method.

        Options to purchase 9,414 class A common shares at prices greater than the average market price of these shares were excluded from the computation of diluted earnings per share for the year ended December 31, 2004, because to do so would have been anti-dilutive for the period presented. In addition, for the years ended December 31, 2004 and 2002, 478,622 class B common shares issuable on conversion of convertible preferred shares were excluded from the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

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        The number of shares used in computing basic and diluted earnings per class A and per class B common share at year end was as follows:

	December 31,
	2004	2003	2002
	000	000	000
Class A shares:
Basic	22,082	19,564	18,633
Effect of dilution	—	77	23
Diluted	22,082	19,641	18,656
Class B shares:
Basic	1,511	1,517	1,566
Effect of dilution	—	479	—
Diluted	1,511	1,996	1,566

(i)    Interest expense, net

        SCL capitalizes interest during the construction of assets. Interest expense is net of capitalized interest of $nil in 2004 (2003—$nil, 2002—$1,168,000).

(j)    Marketing costs

        Marketing costs are expensed as incurred and are reported in selling, general and administrative expenses. Marketing costs include costs of advertising and other marketing activities. These costs were $83,130,000 in 2004 (2003—$74,454,000, 2002—$56,906,000).

(k)    Interest and related income

        Interest and related income in 2004 includes foreign exchange gains of $1,497,000 (2003—$8,099,000, 2002—$7,236,000). Also included is interest on receivables related to container leases of $1,944,000 (2003—$1,927,000, 2002—$1,977,000). In addition, interest and related income in 2002 included a gain of $1,000,000 on redemption of Silja convertible bonds.

(l)    Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

(m)    Income taxes

        Deferred income taxes result from temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred taxes are recorded at enacted statutory rates and are adjusted as enacted rates change. Classification of deferred tax assets and liabilities corresponds with the classification of the underlying assets and liabilities giving rise to the temporary differences or the period of expected reversal, as applicable. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized based on available evidence.

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(n)    Concentration of credit risk

        Concentration of credit risk with respect to trade receivables is limited to container operations. The Company does not believe there to be a concentration of credit risk because of the large number of customers comprising SCL's customer base and their dispersion across different businesses and geographic areas. Management routinely assesses the financial strength of SCL's container customers as part of its credit risk analysis.

(o)    Stock-based compensation

        SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment of FASB Statement No. 123", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees", as amended, and related interpretations. Accordingly, compensation cost for share options is measured as the excess, if any, of the quoted market price of the Company's shares at the date of the grant over the amount an employee must pay to acquire the shares.

        If compensation cost for the Company's stock-based compensation had been determined based on fair values as of the date of grant, SCL's net earnings and earnings per share would have been reported as follows:

					Year ended December 31,
					2004		2003		2002
					$000		$000		$000
Net (losses)/earnings on class A and class B common shares:
As reported					(5,368	)	111,370		41,928
Add:				Stock-based compensation expense included in reported net (losses)/earnings, net of related tax effects	—		—		—
Deduct:				Total stock-based employee compensation expense determined under fair value based method, net of related tax	(477	)	(323	)	(368	)
Pro forma					(5,845	)	111,047		41,560
Basic and diluted (losses)/earnings per share:
	As reported:				$		$		$
		Class A:
			Basic		(0.23	)	5.32		2.10
			Diluted		(0.23	)	5.25		2.10
		Class B:
			Basic		(0.21	)	4.79		1.90
			Diluted		(0.21	)	4.72		1.90
	Pro forma:
		Class A:
			Basic		(0.22	)	5.28		2.08
			Diluted		(0.22	)	5.23		2.08
		Class B:
			Basic		(0.20	)	4.75		1.89
			Diluted		(0.20	)	4.71		1.89

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        The pro forma figures in the preceding table may not be representative of amounts in future years.

(p)    Impairment of long-lived assets and goodwill

        In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company reviews its long-lived assets and finite- lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment would be recognized when expected future undiscounted operating cash flows are lower than the carrying value. In the event that an impairment occurs, the fair value of the related asset is estimated, and SCL records a charge to earnings calculated as the excess of the asset's carrying value over the estimated fair value.

        In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", indefinite-lived intangible assets and goodwill must be evaluated annually for impairment. The impairment testing under SFAS No. 142 is performed in two steps, first, the determination of impairment based upon the fair value of a reporting unit as compared with its carrying value and, second, if there is an impairment, the measurement of the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.

(q)    Derivative financial instruments

        If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in operating expense in the consolidated statement of operations. If a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive loss in shareholders' equity and are recognized in interest expense in the statement of consolidated operations when the hedged item affects earnings. The ineffective portion of a hedging derivative's change in the fair value will be immediately recognized in either operating or interest expense as appropriate in the consolidated statement of operations. If the derivative is not designated as a hedge for accounting purposes, the change in its fair value is recorded in either operating or interest expense as appropriate in the consolidated statement of operations.

        SCL management formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. SCL links all hedges that are designated as fair value hedges to specific assets or liabilities on the balance sheet or to specific firm commitments. SCL links all hedges that are designated as cash flow hedges to forecasted transactions or to floating rate liabilities on the balance sheet. Management also assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Should it be determined that a derivative is not highly effective as a hedge, SCL will discontinue hedge accounting prospectively.

(r)    Recent accounting pronouncements

        In December 2004, the FASB issued SFAS No 123R, "Share-Based Payment", requiring employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25 and allowed under the original provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service periods. The requirements of SFAS No. 123R are effective for fiscal periods beginning after June 15, 2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods in the year of adoption. The Company is currently evaluating these transition methods.

63

2.     Sales of OEH shares

        In November and December 2003, OEH sold 3,450,000 newly-issued OEH class A common shares in a public offering at $16.00 per share, thereby reducing the Company's economic interest in OEH to approximately 42%. As a result, SCL recognized a gain in 2003 of $773,000, which was recorded directly to shareholders' equity in respect of the offering in accordance with the provisions of SEC Staff Accounting Bulletin No. 51.

        During 2002, the Company sold 4,921,500 existing OEH class A common shares at an average price of $13.96 per share, including 3,100,000 shares on November 14, 2002. SCL recognized in 2002 a gain of $2,883,000 relating to its sale of the shares. Effective November 14, 2002, because the Company's economic interest in OEH dropped below 50% to approximately 47% and the Company does not otherwise have control over OEH, the Company began to account for its investment in OEH under the equity method of accounting.

3.     Sale of assets

        Included in gains on sale of assets in 2004 is a gain of $5,659,000 arising from the sale of property in the port of Folkestone, England in August. The sale price was approximately $20,000,000 paid in cash.

        The gain on sale of assets in 2003 included $5,000,000 from the sale of property in the port of Newhaven, England in September. The sale price was approximately $14,000,000 paid in cash.

        In July 2003, the Company completed the sale of its indirect wholly-owned subsidiary Sea Containers Isle of Man Ltd., which was the holding company of SCL's Isle of Man Steam Packet ferry business in the Irish Sea (collectively "Steam Packet"). The sale price was approximately $242,000,000, paid in cash, which resulted in a gain on sale of approximately $100,000,000. Under separate contractual agreements, SCL agreed to continue to charter a vessel and provide certain administrative services to Steam Packet.

        During 2002, the Company sold 4,921,500 shares of OEH realizing a gain of $2,883,000 (see Note 2).

4.     Non-recurring charges

        During 2003, as a result of the sale of Steam Packet and SCL's concurrent restructuring of its fast ferry business, an impairment evaluation was performed in accordance with the guidelines of SFAS No. 144. This indicated that the carrying value of certain ship and ship-related assets exceeded the expected future cash flows attributable to these assets, resulting in an impairment. The total impairment charge recognized during the third quarter of 2003 was approximately $15,000,000 determined by taking the excess of the carrying value over the estimated fair value. Fair value was determined using estimated future discounted cash flows and external valuations where applicable.

        In connection with the restructuring of some of SCL's ferry routes, SCL recorded a severance charge for approximately 400 employees of approximately $10,000,000, all of which was paid in 2003.

        Also in 2003, other non-recurring charges of approximately $5,000,000 were incurred including $3,700,000 relating to the Company's exchange offers for a portion of its publicly-traded debt (see Note 12). These costs consisted of legal and other professional fees.

        In addition, during the third quarter of 2003 management implemented a plan to sell certain specifically identified container assets and applied the provisions of SFAS No. 144. This indicated that the carrying value of certain container assets exceeded their realizable value resulting in an impairment. The total impairment charge recognized during 2003 was approximately $16,000,000. Fair value was determined by using estimated future discounted cash flows.

64

5.     Acquisitions

2004 Acquisition

        In July 2004, SCL acquired container depot and service operations and logistics operations (primarily refrigerated container forwarding) in Australia and New Zealand from the Owens Group for the purpose of expanding SCL's existing container activities in that region. The purchase price was approximately $9,179,000. The price was financed partly with a bank loan.

        This acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations". The purchase price has been allocated to the assets and liabilities using estimated fair values at the date of acquisition and goodwill of $6,353,000 has been recognized on a preliminary basis. Management is in the process of finalizing the allocation of the purchase price. As a result, certain amounts currently classified in goodwill could be reclassified as separately identifiable intangible assets that are finite in nature and subject to amortization. In addition, the preliminary amounts assigned to certain assets and liabilities may be adjusted upon final valuation. Management plans to finalize the allocation during the first half of 2005. The following table shows the allocation of the purchase price:

	December 31, 2004
	$000
Cash	176
Other current assets	2,497
Property, plant and equipment	1,759
Goodwill	6,353
	10,785
Purchase price, including the carrying value of the existing investments	9,179
Liabilities assumed	1,606

        Since the date of acquisition, the results of operations have been included in the consolidated results of SCL. The pro forma impact on results, had this acquisition occurred on January 1, 2004, is not material.

2002 Acquisition

        During 2002, SCL purchased additional shares in Silja at a total price of $37,954,000 paid in newly-issued class A common shares of the Company. Because this purchase raised SCL's shareholding above 66%, it was required under Finnish law to make a redemption offer for the remaining shares in Silja and for Silja's outstanding convertible subordinated bonds. Under SCL's offer, SCL acquired additional Silja shares, bringing its total shareholding to 97.2%, and a portion of the Silja bonds for an aggregate price of $42,654,000 paid in cash. Any shares not tendered in the offer have been compulsorily acquired as permitted by Finnish law.

        Prior to May 2002, SCL had accounted for its initial investment in Silja under the equity method. As a result of these acquisitions, the results of operations have been included in the consolidated financial results of SCL from May 1, 2002.

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6.     Investments

        Investments represent equity interests of 20% to 50% in any unconsolidated companies. SCL does not have effective control of these unconsolidated companies and, therefore, accounts for these investments using the equity method. SCL's principal equity investees are as follows:

GE SeaCo SRL

        GE SeaCo and its subsidiaries are engaged in the container leasing business. The Company and General Electric Capital Corporation each have a 50% interest in GE SeaCo. The retained earnings in GE SeaCo at December 31, 2004 is $155,949,000. See Note 23 regarding transactions between SCL and GE SeaCo.

Orient-Express Hotels Ltd.

        OEH and its subsidiaries are engaged in the hotel and leisure business. Effective November 14, 2002, because the Company's economic interest in OEH dropped below 50% and the Company does not otherwise have control over OEH, the Company began to account for its investment in OEH under the equity method of accounting (see Note 2). The value of SCL's investment based on the quoted market price of OEH shares at December 31, 2004 was $295,268,000 (2003—$236,214,000). The retained earnings in OEH at December 31, 2004 is $277,281,000. See Note 23 regarding transactions between SCL and OEH.

        SCL's interest income related to loans and advances to its equity investees amounted to $nil in 2004 (2003—$nil, 2002—$5,197,000).

        Summarized financial data of the companies for which SCL has equity-method investments for the periods during which the investments were held are as follows:

	December 31,
	2004	2003
	$000	$000
Current assets	285,555	252,339
Property, plant and equipment, net	1,903,775	1,527,154
Other assets	197,246	218,902
Total assets	2,386,576	1,998,395
Current liabilities	506,768	397,067
Long-term debt	1,037,050	877,267
Other liabilities	78,267	24,402
Total shareholders' equity	764,491	699,659
Total liabilities and shareholders' equity	2,386,576	1,998,395

	Year ended December 31,
	2004	2003	2002
	$000	$000	$000
Revenue	509,239	419,683	337,336
Earnings from operations before net finance costs	121,731	90,113	57,796
Net earnings	93,827	67,795	30,879

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7.     Property, plant and equipment, net

        The major classes of property, plant and equipment are as follows:

	December 31,
	2004		2003
	$000		$000
Containers	900,992		957,568
Ships	1,413,959		1,322,098
Freehold and leased land and buildings	91,315		103,299
Machinery and equipment	64,567		64,593
Fixtures, fittings and office equipment	137,847		97,674
	2,608,680		2,545,232
Less: accumulated depreciation	(793,153	)	(748,736	)
	1,815,527		1,796,496

        The major classes of assets under capital leases are as follows:

	December 31,
	2004		2003
	$000		$000
Leased land and buildings	18		18
Machinery and equipment	9,176		8,887
Fixtures, fittings and office equipment	36,798		22,758
	45,992		31,663
Less: accumulated depreciation	(28,011	)	(19,169	)
	17,981		12,494

        Depreciation expenses for the years ended December 31, 2004, 2003 and 2002 were $105,526,000, $99,618,000 and $102,998,000, respectively.

8.     Equipment sale receivables

        The components of equipment sale receivables are as follows at year end:

	December 31,
	2004		2003
	$000		$000
Gross asset sale receivable	17,582		30,320
Unearned income	(1,493	)	(3,193	)
Asset sale receivables	16,089		27,127

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        Contractual maturities of SCL's gross equipment sale receivables subsequent to December 31, 2004 are as follows:

	Year ending December 31,
	$000
2005	8,812
2006	5,431
2007	2,372
2008	936
2009	31
	17,582

9.     Intangible assets and goodwill

        As of December 31, 2004, SCL determined the carrying values of all its reporting units were less than their respective derived fair values, indicating that there was no impairment of the recorded goodwill.

        As of December 31, 2004, SCL determined the carrying value of its trademark which is not subject to amortization was less than its fair value, indicating that there was no impairment of the recorded trademark.

        Intangible assets and goodwill consist of the following:

		December 31,
		2004		2003
		$000		$000
Intangible assets and goodwill not subject to amortization:
	Goodwill	18,725		12,054
	Trademark	33,450		36,554
		52,175		48,608
Intangible assets subject to amortization:
	Other intangibles at cost	53,644		54,246
	Less: accumulated amortization	(29,743	)	(26,453	)
		23,901		27,793
Total		76,076		76,401

        During 2004, amortization expense was approximately $3,290,000 (2003—$3,473,000, 2002—$3,501,000). Amortization for the succeeding five years is expected to be approximately $3,500,000 annually.

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        The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 are as follows:

	Ferry Segment		Rail Segment	Container Segment	Other Segment	Total
	$000		$000	$000	$000	$000
Balance as of January 1, 2003	22,091		—	5,665	4,111	31,867
Sale of ferry assets	(20,145	)	—	—	—	(20,145	)
Foreign currency translation	—		—	—	332	332
Balance as of December 31, 2003	1,946		—	5,665	4,443	12,054
Acquisition of subsidiary companies	—		—	6,429	—	6,429
Foreign currency translation	—		—	—	242	242
Balance as of December 31, 2004	1,946		—	12,094	4,685	18,725

10.   Credit facilities

        Credit facilities at year end are comprised of the following, all repayable within one year:

	December 31,
	2004	2003
	$000	$000
Unsecured working capital facilities, with a weighted average interest rate of 4.25% and 6.04%, respectively	305	2,235

        At December 31, 2004, $2,394,000 (2003—$825,000) was undrawn under these facilities. Also, included in long-term debt are additional lines of credit in place but not drawn amounting to $109,000,000 (2003—$60,700,000) under secured revolving credit facilities (see Note 11). The credit facilities are issued by various financial institutions and have various expiration dates.

11.   Long-term debt and obligations under capital leases (other than senior notes and subordinated debentures)

(a)    Long-term debt

        Long-term debt at year end consists of the following:

	December 31,
	2004	2003
	$000	$000
Notes and loans on containers payable over periods of 1 to 8 years, with a weighted average interest rate of 5.30% and 3.39%, respectively	250,735	353,910
Mortgage loans on ships payable over periods of 1 to 13 years, with a weighted average interest rate of 3.69% and 3.40%, respectively	800,150	704,979
Bank loans on real estate and other fixed assets payable over periods of 1 to 9 years, with a weighted average interest rate of 5.74% and 5.39%, respectively	61,847	143,756
Obligations under capital leases (see Note 11(b))	11,330	8,260
	1,124,062	1,210,905
Less current portion	165,825	282,808
	958,237	928,097

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Notes and loans on containers

        Containers are secured to financial institutions as collateral for debt obligations.

        Included in long-term debt is a facility secured on container equipment. A bankruptcy-remote subsidiary of the Company formed to facilitate asset securitization issued a senior note which is non-recourse to the Company and its other subsidiaries. The senior note began its nine-year amortization schedule in October 2002 and, in January 2004, began early amortization requiring all net cash flow of the subsidiary to be used to pay down principal. In addition, the Company issued an effectively subordinated note which began its five-year amortization period in October 2001. The overall interest rate is approximately 1.10% to 1.31% over LIBOR, and a significant portion of the facility has been hedged at a rate of 5.45%. At December 31, 2004, $168,400,000 (2003—$223,200,000) was outstanding under this facility.

        In October 2004, SCL entered into a maximum $85,000,000 revolving credit facility with a group of banks secured by container equipment. The facility reduces as the container security depreciates. SCL may borrow on a revolving basis until October 2007, including with additions of new collateral, and must repay the balance outstanding at that date. Interest on the facility ranges from 2.25% to 2.75% over LIBOR. At December 31, 2004, $81,500,000 was outstanding under this facility.

Mortgage loans on ships

        Ship loans are secured by mortgages on the respective vessels.

        In November 2003, Silja entered into a $463,500,000 term loan and revolving credit facility agreement with a syndicate of banks, and the Company entered into a related $73,400,000 loan facility agreement with the same syndicate. The non-revolving credit portion of the Silja loan is repayable in installments with interest on both portions at EURIBOR plus 1.625% and a final maturity in October 2010. The Company loan is also repayable in installments with interest at EURIBOR plus 2.125% maturing in October 2008. The primary security for both facilities are mortgages on certain of Silja's ships, with the Company loan subordinated to the Silja loan. The loans are cross-guaranteed by Silja and SCL. At December 31, 2004, $511,077,000 (2003—$397,300,000) was outstanding under these credit facilities.

Bank loans on real estate and other fixed assets

        In November 2004, SCL entered into a $120,000,000 revolving credit facility with a syndicate of banks, principally secured by the Company's shares in OEH. This facility is available for general corporate purposes and carries an interest rate of 2.5% above LIBOR. The final maturity of any amounts borrowed is in July 2007, and $20,000,000 was outstanding at December 31, 2004.

        At December 31, 2004, SCL was in compliance with all credit and financing agreements evidencing its long-term debt. These requirements included financial covenants to maintain specified minimum debt service coverage, minimum interest coverage and minimum net worth and not to exceed specified leverage. The carrying value of the long-term debt approximated its fair value due to the variable-rate nature of the respective borrowings.

70

        The following is a summary of the aggregate maturities of long-term debt at December 31, 2004:

	Year ending December 31,
	$000
2005		165,825
2006		179,176
2007		206,090
2008		120,113
2009		101,912
2010 and thereafter		350,946
	$	1,124,062

        The Company has guaranteed through 2010 one half of a $7,777,000 bank loan of Speedinvest Ltd., owner of an Adriatic Sea fast ferry in which SCL has a 50% interest. This guarantee existed prior to December 31, 2002.

(b)    Obligations under capital leases

        The following is a schedule of future minimum lease payments under capital leases together with the present value of the minimum lease payments at December 31, 2004:

		Year ending December 31,
		$000
2005		6,225
2006		3,826
2007		1,965
2008		9
Minimum lease payments		12,025
Less:	amount of interest contained in above payments	695
Present value of minimum lease payments		11,330

        The amount of interest deducted from minimum lease payments to arrive at the present value is the interest contained in each of the leases. In the normal course of business, SCL has an option to purchase certain leases at a bargain purchase option. In other cases, the leases will be renewed upon expiration.

71

12.   Senior notes and subordinated debentures

        Publicly-traded unsecured senior notes and subordinated debentures at year end are comprised the following:

	Year ended December 31,
	2004	2003
	$000	$000
13% senior notes due 2006	22,475	22,475
103/4% senior notes due 2006	114,618	114,427
77/8% senior notes due 2008	149,750	149,750
121/2% senior notes due 2009	19,154	19,154
101/2% senior notes due 2012	100,516	—
121/2% senior subordinated debentures due 2004	—	79,571
	406,513	385,377

(a)    13% senior notes due 2006

        These notes were issued in June 2003 in exchange for an equal principal amount of 9¹/2% and 10¹/2% senior notes due 2003 of the Company. They bear interest at 13% per annum, payable semi-annually, and are redeemable, in whole or in part, at the option of the Company at a price of 100% of the principal amount on or after July 1, 2005. The notes may also be redeemed by the Company in the event of certain tax law changes. The notes have no sinking fund requirement and come due on July 1, 2006. In the event a change in control of the Company occurs, it is obligated to make an offer to purchase the notes at a price of 101% of the principal amount. The fair value of these notes as of December 31, 2004 was approximately $23,500,000 based on available market quotes.

(b)    10³/4% senior notes due 2006

        The aggregate principal amount of these notes is $115,000,000 (including approximately $400,000 of unamortized original issue discount). They bear interest at 10³/4% per annum, payable semi-annually, and were originally issued at a discount to yield 11% per annum. They are redeemable, in whole or in part, at the option of the Company, at a price of 102.688% of the principal amount on and after October 15, 2004, and 100% on and after October 15, 2005. The notes may also be redeemed by the Company in the event of certain tax law changes. The notes have no sinking fund requirement and come due on October 15, 2006. In the event a change in control of the Company occurs, it is obligated to make an offer to purchase the notes at a price of 101% of the principal amount. The fair value of these notes as of December 31, 2004 was approximately $120,500,000 based upon available market quotes.

(c)    7⁷/8% senior notes due 2008

        These notes bear interest at 7⁷/8% per annum, payable semi-annually. They are redeemable, in whole or in part, at the option of the Company at a price of 100% of the principal amount on and after February 15, 2005. The notes may also be redeemed by the Company in the event of certain tax law changes. The notes have no sinking fund requirement and come due on February 15, 2008. In the event a change in control of the Company occurs, it is obligated to make an offer to purchase the notes at a price of 101% of the principal amount. The fair value of these notes as of December 31, 2004 was approximately $149,900,000 based upon available market quotes.

72

(d)    12¹/2% senior notes due 2009

        These notes were issued in July 2003 in exchange for an equal principal amount of 12¹/2% senior subordinated debentures due 2004 of the Company. They bear interest at 12¹/2% per annum, payable semi-annually and are redeemable, in whole or in part, at the option of the Company at a price of 100% of the principal amount on or after July 1, 2005. The notes may also be redeemed by the Company in the event of certain tax law changes. The notes have no sinking fund requirement and come due on December 1, 2009. In the event a change in control of the Company occurs, it is obligated to make an offer to purchase the notes at a price of 101% of the principal amount. The fair value of these notes as of December 31, 2004 was approximately $21,500,000 based on available market quotes.

(e)    10¹/2% senior notes due 2012

        On May 4, 2004, the Company issued and sold $103,000,000 aggregate principal amount of these notes in an underwritten public offering. The notes bear interest at 10¹/2% per annum but were sold at a discounted price of $100,300,000 to yield 11% per annum. The $2,500,000 original issue discount is being amortized over the life of the notes, which have no sinking fund requirement and come due on May 15, 2012. The notes are redeemable, in whole or in part, at the option of the Company at a price of 105.25% of the principal amount on or after May 15, 2008, 102.625% on or after May 15, 2009, and 100% on or after May 15, 2010. The notes may also be redeemed by the Company in the event of certain tax law changes. In the event a change in control of the Company occurs, it is obligated to make an offer to purchase the notes at a price of 101% of the principal amount. The fair value of these notes as of December 31, 2004 was approximately $108,400,000 based on available market quotes

(f)    12¹/2% senior subordinated debentures due 2004

        These debentures were redeemed at a price of 100% of their principal amount on June 7, 2004.

        At December 31, 2004, SCL was in full compliance with all the requirements of the senior notes. The indentures under which the senior notes are issued include financial covenants restricting debt incurrence, dividend payments, affiliate transactions, material subsidiaries, asset sale proceeds, unrelated lines of business, amalgamations and mergers, incurrence of liens, and sale/leaseback transactions.

13.   Pension plans

        SCL sponsors defined contribution and defined benefit pension plans covering substantially all of its employees. There are five significant defined benefit plans which are all closed to new entrants. In addition, employees of GNER participate in the U.K. rail industry's defined benefit plan which includes a financially distinct sub-plan attributable to SCL employees. It is SCL's policy to fund its plans in accordance with applicable laws and income tax regulations. Plan assets consist primarily of common stocks, mutual funds, government securities and corporate debt securities held through separate trustee-administered funds.

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        The significant weighted-average assumptions used to determine net periodic costs are as follows:

	Year ended December 31,
	2004		2003		2002
Discount rate	5.4	%	5.4	%	5.6	%
Assumed rates of compensation increases	3.0	%	3.0	%	2.7	%
Expected long-term rate of return on plan assets	6.8	%	6.9	%	6.4	%

        The significant weighted-average assumptions used to determine benefit obligations at year end are as follows:

	December 31,
	2004		2003
Discount rate	5.3	%	5.4	%
Assumed rate of compensation increase	3.3	%	3.0	%

        The discount rate essentially represents the risk-free rate of return on high-quality corporate bonds at the end of the year in the country in which the assets are held.

        In determining the expected long-term rate of return on assets, management has evaluated input from SCL's actuaries and financial advisors, including their review of anticipated future long-term performance of individual asset classes and the consideration of the appropriate asset allocation strategy given the anticipated requirements of the respective plans to determine the average rate of earnings expected on the funds invested. The projected returns by these consultants are based on broad equity and bond indices, including fixed interest rate gilts of long-term duration since the plans are predominantly in the U.K. SCL's expected long-term rate of return is based on a planned asset allocation of 57% in equity investments, with an expected long-term rate of return of 8.2%, and 43% in fixed income investments, with an expected long-term rate of return of 4.8%.

74

        The changes in the benefit obligation, the plan assets and the funded status for the five plans were as follows:

	Year ended December 31,
	2004		2003
	$000		$000
Change in benefit obligation:
Benefit obligation at beginning of year	261,666		192,008
Benefit obligations transferred in	—		4,977
Service cost	5,040		4,363
Interest cost on projected benefit obligation	14,161		11,057
Plan participants' contributions	1,497		1,607
Actuarial gain/(loss)	8,507		31,197
Benefits paid	(9,368	)	(9,967	)
Curtailment gain	(154	)	341
Foreign currency translation	19,699		26,083
Benefit obligation at end of year	301,048		261,666
Change in plan assets:
Fair value of plan assets at beginning of year	181,166		138,410
Plan assets transferred in	—		4,165
Actual return on plan assets	14,800		19,579
Employer contributions	9,407		8,843
Plan participants' contributions	1,497		1,607
Benefits paid	(9,368	)	(9,967	)
Foreign currency translation	13,787		18,529
Fair value of plan assets at end of year	211,289		181,166
Funded status	(89,759	)	(80,500	)
Unrecognized net actuarial loss	101,655		94,103
Unrecognized prior service cost	(60	)	424
Unrecognized transition amount	890		985
Net amount recognized	12,726		15,012

        The amounts recognized in the consolidated balance sheets consist of the following:

	December 31,
	2004		2003
	$000		$000
Prepaid benefit cost	3,130		2,506
Accrued benefit cost	(61,040	)	(54,383	)
Intangible assets	830		1,409
Accumulated other comprehensive loss	69,806		65,480
Net amount recognized	12,726		15,012

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        The components of net periodic benefit cost consist of the following:

	Year ended December 31,
	2004		2003		2002
	$000		$000		$000
Service cost	5,040		4,363		4,507
Interest cost on projected benefit obligation	14,161		11,057		9,642
Expected return on assets	(12,573	)	(9,337	)	(9,386	)
Net amortization and deferrals	5,480		3,985		1,473
Net periodic benefit cost	12,108		10,068		6,236

        The weighted-average asset allocations of SCL's plans as of December 31, 2004 and 2003 by asset category as a percentage of plan assets are as follows:

	December 31,
	2004		2003
Equity investments	59.2	%	61.4	%
Fixed income investments	40.1	%	38.6	%
Other	0.7	%	—
	100.0	%	100.0	%

        Additional information about SCL's pension plans is as follows:

	Year ended December 31,
	2004	2003
	$000	$000
Increase in minimum pension liability	4,325	15,939

        SCL expects to contribute $10,406,000 to its pension plans in 2005.

        The following benefit payments, which reflect assumed future service, are expected to be paid:

	Year ending December 31,
	$000
2005	9,355
2006	10,346
2007	12,034
2008	12,960
2009	15,575
2010 to 2013	95,504
	155,774

        The accumulated benefit obligation for all pension plans was $269,469,000 as of December 31, 2004 (2003—$230,049,000).

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        Four pension plans included in 2004 and 2003 above had accumulated benefit obligations in excess of plan assets at December 31, 2004 and 2003. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans, in aggregate, were as follows:

	Year ended December 31,
	2004	2003
	$000	$000
Projected benefit obligation	284,649	247,101
Accumulated benefit obligation	253,932	219,816
Fair value of plan assets	192,893	165,433

        SCL is responsible for providing pension benefits for GNER employees who participate in a multi-employer plan covering many British rail franchises. SCL's net periodic benefit cost under this pension plan for 2004 was $8,702,000 (2003—$5,081,000, 2002—$2,088,000).

14.   Income taxes

        The benefit from/(provision for) income taxes consists of the following:

	Year ended December 31, 2004
	Current		Deferred		Total
	$000		$000		$000
United States	(80	)	(317	)	(397	)
Other foreign	(1,318	)	4,337		3,019
	(1,398	)	4,020		2,622

	Year ended December 31, 2003
	Current		Deferred		Total
	$000		$000		$000
United States	(469	)	721		252
Other foreign	(5,244	)	(3,232	)	(8,476	)
	(5,713	)	(2,511	)	(8,224	)

	Year ended December 31, 2002
	Current		Deferred	Total
	$000		$000	$000
United States	(1,006	)	1,648	642
Other foreign	(7,054	)	552	(6,502	)
	(8,060	)	2,200	(5,860	)

        The Company is incorporated in Bermuda which does not impose an income tax. SCL's effective tax rate is entirely due to income taxes imposed by jurisdictions in which SCL conducts business other than Bermuda.

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        The net deferred tax assets/liabilities recognized in the consolidated balance sheets at year end are comprised of the following:

	December 31,
	2004		2003
	$000		$000
Gross deferred tax assets	94,651		94,776
Less: Valuation allowance	(31,687	)	(58,834	)
Net deferred tax assets	62,964		35,942
Deferred tax liabilities	(53,913	)	(44,210	)
Net deferred tax assets/(liability)	9,051		(8,268	)

        The gross deferred tax assets consist primarily of tax loss carryforwards and future tax benefits of accrued pension costs.

        The gross amount of tax loss carryforwards is $261,865,000. Of this amount, $36,288,000 will expire in the five years ending December 31, 2009 and a further $121,517,000 will expire in the five years ending December 31, 2014. The remaining losses of $104,060,000 will expire after December 31, 2014 or have no expiry date.

        At December 31, 2004, deferred tax assets resulting from future tax benefits of accrued pension costs of $20,942,000 (2003—$19,663,000) are recognized in other comprehensive income pursuant to SFAS No. 87, "Employers Accounting for Pensions".

        A valuation allowance has been provided against gross deferred tax assets where it is thought more likely than not that the benefits associated with these assets will not be realized.

        The decrease in the valuation allowance from December 31, 2003 to December 31, 2004 is primarily due to the completion of a tax examination by the tax authorities in Finland during the fourth quarter of 2004. A portion of this reduction relates to valuation allowances established in a prior acquisition and accordingly no benefit is recognized in respect of this item.

        The deferred tax liabilities are temporary differences substantially caused by tax depreciation in excess of book depreciation.

        The net deferred tax assets at December 31, 2004 are included in other assets. The net deferred tax liability at December 31, 2003 is included in accrued liabilities.

15.   Supplemental cash flow information

	Year ended December 31,
	2004	2003	2002
	$000	$000	$000
Cash paid for:
Interest	86,447	104,477	117,692
Income taxes	9,397	2,610	5,534

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        Non-cash investing and financing activities:

        In conjunction with acquisitions (see Note 5), liabilities were assumed as follows:

	Year ended December 31,
	2004		2003	2002
	$000		$000	$000
Fair value of assets acquired	10,785		—	814,814
Cash paid and class A common shares issued	(7,311	)	—	(129,775	)
Carrying value of existing investments	(1,868	)	—	(137,061	)
Liabilities assumed	1,606		—	547,978

16.   Employee stock option plans and dividend reinvestment plan

(a)    Stock option plans

        Under the Company's 1997 stock option plan, options to purchase up to 500,000 class A or B common shares of the Company may be awarded to employees of SCL at fair market value at the date of grant. Options are exercisable three years after award and must be exercised ten years from the date of grant. At December 31, 2004, 335,300 class A common shares were reserved for issuance pursuant to options awarded to 76 persons. The 1986 stock option plan of the Company terminated in 1996 and the last outstanding options lapsed in 2004. In June 2004, shareholders of the Company approved a 2004 stock option plan under which options to purchase up to 500,000 class A or B common shares of the Company may be awarded, but no awards under that plan have been made.

        No charges or credits are made to income with respect to options awarded or exercised under the plans since all options to employees are awarded at market value at date of grant.

        Transactions under the Company's plans have been as follows:

	Year ended December 31, 2004
	Shares		Option Price
Outstanding at beginning of period	260,050		$6.30-$30.00
Granted	110,000		$15.70
Terminated	(9,000	)	$16.00
Exercised	(25,750	)	$6.30-$8.55
Outstanding at end of period	335,300		$6.30-$30.00
Exercisable at end of period	61,300		$8.55-$30.00

	Year ended December 31, 2003
	Shares		Option Price
Outstanding at beginning of period	252,300		$8.55-$30.00
Granted	172,250		$6.30-$15.60
Terminated	(163,500	)	$6.30-$30.00
Exercised	(1,000	)	$8.55
Outstanding at end of period	260,050		$6.30-$30.00
Exercisable at end of period	24,000		$16.00-$30.00

79

	Year ended December 31, 2002
	Shares		Option Price
Outstanding at beginning of period	218,900		$8.55-$30.00
Granted	49,000		$9.00-$16.20
Terminated	(10,000	)	$21.75-$30.00
Exercised	(5,600	)	$8.55
Outstanding at end of period	252,300		$8.55-$30.00
Exercisable at end of period	96,000		$16.00-$30.00

        The options outstanding under the Company's plans at December 31, 2004 were as follows:

		Number of Shares		Weighted Average of
Range of Exercise Prices		Outstanding at 12/31/2004	Exercisable at 12/31/2004	Remaining Contractual Lives	Exercise Prices for Outstanding Options		Exercise Prices for Exercisable Options
		000	000
$	6.30	129.0	—	8.1	$	6.30		—
$	8.55	26.3	26.3	6.8	$	8.55	$	8.55
$	9.00	10.0	10.0	6.7	$	9.00	$	9.00
$	11.00	10.0	10.0	7.8	$	11.00	$	11.00
$	15.60	35.0	—	8.8	$	15.60		—
$	15.70	110.0	—	9.6	$	15.70		—
$	25.125	5.0	5.0	3.8	$	25.125	$	25.125
$	30.00	10.0	10.0	4.6	$	30.00	$	30.00
		335.3	61.3

        As discussed in Note 1(o), these plans are accounted for under APB Opinion No. 25. Accordingly, no compensation cost has been recognized for the stock options with exercise prices equal to the market price of the shares on the date of grant. Estimates of fair values of stock options on the grant dates in the Black-Scholes option-pricing model were based on the following assumptions:

	Year ended December 31,
	2004			2003			2002
Expected price volatility range		45.0	%		39.53	%		39.69	%
Risk-free interest rate range		3.96	%		3.05	%		2.78	%
Expected dividends		0.45	%		0.42	%		1.76	%
Expected life of stock options		5 years			5 years			5 years
Weighted average fair value	$	4.25		$	2.47		$	3.92

(b)    Dividend reinvestment plan

        SCL offers a dividend reinvestment and share purhase plan to owners of its common shares as a convenient and economical method of investing their cash dividends in class A common shares at a 3% discount from the market price and without payment of any brokerage commission or service charge. A common shareholder under the plan may also make optional cash deposits to purchase class A common shares at market price without payment of commissions or other charges. During the years ended December 31, 2004, 2003 and 2002, the Company issued 1,300, 1,600 and 6,500 class A common shares, respectively, under the plan for aggregate cash amounts of $20,800, $17,900 and $77,900, respectively.

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17.   Shareholders' equity

(a)    Redeemable preferred shares

        The $7.25 convertible cumulative preferred shares are convertible at the option of the holder at any time, unless previously redeemed, into class B common shares of the Company at a conversion price of $31.34 per share (equivalent to a conversion rate of approximately 3.19 class B common shares for each preferred share), subject to adjustment under certain conditions. They provide for cumulative dividends at the annual rate of $7.25 per share payable quarterly and are redeemable at the option of the Company, in whole or in part, at a redemption price of $100.00 per share. Any preferred shares outstanding on May 6, 2005 must be redeemed at $100.00 per share plus any accrued and unpaid dividends. This redemption feature is contingent upon the holders not having previously exercised their conversion rights. Accordingly, these securities are not considered mandatorily redeemable securities in accordance with SFAS No. 150.

(b)    Dual common share capitalization

        Effective June 23, 1992, following shareholder approval, the existing common shares of the Company were classified as class B common shares, each of which is convertible at any time into one class A common share of the Company. Cash dividends on the class A common shares, if any, must be at least 10% higher than any cash dividends on the class B common shares. In general, holders of class A and class B common shares vote together as a single class, with holders of class B shares having one vote per share and holders of class A shares having one-tenth of one vote per share. In all other substantial respects, the class A and B shares are the same.

(c)    Shareholder rights agreement

        The Company has in place a shareholder rights agreement, as amended and restated as of June 1, 1998, which will be implemented not earlier than the tenth day following the first to occur of (i) the public announcement of the acquisition by a person (other than a subsidiary of the Company) of shares carrying 20% or more of the total voting rights which may be cast at any general meeting of the Company and (ii) the commencement or announcement of a tender offer or exchange offer by a person for shares carrying 30% or more of the total voting rights which may be cast at any general meeting of the Company. At that time, the rights will detach from the class A and class B common shares, and the holders of the rights will be entitled to purchase, for each right held, one two-hundredth of a series A junior participating preferred share of the Company at an exercise price of $180 (the "Purchase Price") for each one two-hundredth of such junior preferred share, subject to adjustment in certain events. From and after the date on which any person acquires beneficial ownership of shares carrying 20% or more of the total voting rights which may be cast at any general meeting of the Company, each holder of a right (other than the acquiring person) will be entitled upon exercise to receive, at the then current Purchase Price and in lieu of the junior preferred shares, that number of class A or class B common shares (depending on whether the right was previously attached to a class A or B share) having a market value of twice the Purchase Price. If the Company is acquired or 50% or more of its consolidated assets or earning power is sold, each holder of a right will be entitled to receive, upon exercise at the then current Purchase Price, that amount of common equity of the acquiring company which at the time of such transaction would have a market value of two times the Purchase Price. The rights will expire on June 19, 2008 but may be redeemed at a price of $0.025 per right at any time prior to the tenth day following the date on which a person acquires beneficial ownership of shares carrying 20% or more of the total voting rights which may be cast at any general meeting of the Company.

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(d)    Reserved shares

        At December 31, 2004, 1,000,000 common shares have been reserved for options granted or available under the 1997 and 2004 stock option plans of the Company (see Note 16(a)), 478,622 class B common shares have been reserved for issuance upon conversion of the $7.25 convertible cumulative preferred shares (see Note 17(a)), and 14,500,000 class A common shares have been reserved for conversions of class B common shares (see Note 17(b)). Out of authorized preferred shares, 300,000 have been reserved for issuance as series A junior participating preferred shares upon exercise of preferred share purchase rights held by class A and B common shareholders (see Note 17(c)).

(e)    Acquired shares

        A total of 12,900,000 class B common shares were owned by a subsidiary of the Company at December 31, 2004. Under applicable law, these shares are outstanding and may be voted by the subsidiary, although in computing earnings per share these shares are treated as a reduction to outstanding shares.

(f)    Dividends

        On January 20, April 20, July 20 and October 20, 2004, the Company declared a quarterly cash dividend of $0.025 per class A common share and $0.0225 per class B common share.

(g)    Certain restrictions on payment of dividends

        SCL is party to certain credit agreements which restrict the payment of dividends and the purchase of common shares. Under these agreements, approximately $101,000,000 was available at December 31, 2004 (2003—$199,000,000) for the payment of cash dividends and the purchase of shares.

(h)    Shares issued

        During 2004, the Company sold 2,776,200 newly-issued class A common shares in SEC-registered public shelf offerings raising net proceeds of about $45,500,000.

18.   Rental income under operating leases and charters

        The following are the minimum future rentals at December 31, 2004 due SCL under operating leases of containers and leases of property and other fixed assets:

	Year ending December 31,
	$000
2005	48,352
2006	32,395
2007	20,407
2008	11,501
2009	5,372
2010 and thereafter	6,206
	124,233

        Of the total above, related party rental payments due from GE SeaCo amounted to $74,579,000 (2003—$76,867,000).

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19.   Commitments and contingencies

(a)    Commitments

        Outstanding contracts to purchase fixed assets were approximately $6,000,000 at December 31, 2004 (2003—$16,000,000).

        Future rental payments under operating leases in respect of equipment rentals and leased premises are payable by SCL as follows:

	Year ending December 31,
	$000
2005		129,929
2006		9,813
2007		9,286
2008		8,554
2009		8,257
2010 and thereafter		66,977
	$	232,816

        Of the total above, $119,745,000 in 2005 relates to rental payments by GNER in respect of leases of rolling stock and access charges for railway infrastructure. These commitments represent payments under the current franchise which expires in April 2005. Commitments for the new franchise that commences on May 1, 2005 have not been finalized, but, rental payments and access charges are expected to be on similar terms to those in the current franchise. Accordingly, there will be future rental payments under operating leases for rolling stock and access charges for railway infrastructure in excess of the amounts presented above.

        Rental expense for the year ended December 31, 2004 amounted to $323,122,000 (2003—$215,664,000, 2002—$169,706,000).

(b)    Contingencies (including litigation)

Strategic Rail Authority

        GNER experienced disruption of its services following an accident in October 2000, for which Network Rail and its predecessor were required to pay compensation under the track access agreement. Network Rail owns and maintains substantially all of the railway infrastructure in Britain. GNER has contracted with Network Rail for track access based on the level of service GNER provides. Because of disputes, both GNER and Network Rail withheld contractual payments due during 2001 through March 2002, when payments resumed. As a result of separate arbitration awards under different parts of the track access agreement, Network Rail's liability to compensate GNER was confirmed and proceedings continued as to the amounts due. In December 2003, GNER and Network Rail reached agreement settling GNER's claims arising from the service disruption and relieving GNER from the obligation to repay certain amounts previously withheld. The Strategic Rail Authority ("SRA") which is the franchisor under GNER's passenger rail franchise agreement had also separately claimed a portion of the compensation recognized by GNER in its settlement with Network Rail. The SRA's claim amounted to about £25,000,000 ($45,000,000). SCL recorded a provision at December 31, 2003 based on its estimate of the settlement of this matter. For the year ended December 31, 2003, the settlement with Network Rail and GNER's provision for the separate SRA claim resulted in SCL's recognition of an approximate $6,000,000 gain, which was recorded as a reduction in operating expenses consistent with SCL's classification of contract payments with Network Rail and the SRA.

83

        During 2004, GNER and the SRA reached agreement to settle the claim by the SRA noted above. GNER paid to the SRA £17,000,000 (approximately $30,000,000), which was consistent with the amount provided for by SCL at December 31, 2003. As a result, the SRA withdrew its claim relating to GNER's December 2003 settlement with Network Rail. Also in 2004 GNER and the SRA separately amended GNER's existing franchise agreement, which resulted in GNER agreeing to pay the SRA an amount of £8,000,000 (approximately $14,000,000) in exchange for certain benefits to be realized over the remaining life of the existing franchise.

General Electric Capital Corporation

        There are a number of pending disputes between SCL and General Electric Capital Corporation ("GE Capital") relating to the management and operation of GE SeaCo, the outcome of which might affect SCL's financial results. In particular, these disputes relate to: (i) the level of funding required in one of SCL's pension plans, as of May 1, 1998, when certain employees of SCL's container division became employees of GE SeaCo; (ii) whether the charges by SCL to GE SeaCo for office space have been correctly computed; and (iii) whether GE SeaCo is obligated to pay for certain container equipment purchased from or through SCL's subsidiary, Yorkshire Marine Containers Ltd. With respect to the dispute relating to the funding of the pension plan, GE Capital seeks to have SCL indemnify GE SeaCo for any amounts which might be required to be contributed in the future, as a result of any underfunding which might be found to have existed in 1998. In the case of the other disputes, GE Capital seeks compensation from SCL. SCL believes that the aggregate net effect on SCL of the disputes as to which compensation is sought would not exceed approximately $5,000,000.

        If SCL and GE Capital are unable to resolve these disputes between themselves, either of them has the right to submit any or all of the disputes to arbitration, as contemplated by the dispute resolution provisions of the 1998 joint venture agreements establishing GE SeaCo. The outcome of these disputes is not determinable and, therefore, no provision has been recorded at December 31, 2004.

        GE Capital, acting on behalf of GE SeaCo, has taken steps purporting to terminate the 1998 Services Agreement, pursuant to which SCL provides corporate and administrative services and office space to GE SeaCo, and certain related agreements. Unless agreement can be reached as to the terms of the termination of these agreements, the purported termination by GE Capital is likely to be contested by SCL, in arbitration.

GNER Performance Bond

        GNER has undertaken since 1996 to reimburse the U.K. Strategic Rail Authority its costs in the event GNER breaches its franchise agreement to the extent that the authority must award the franchise to another operator. This undertaking at December 31, 2004 is covered by a surety bond issued by an insurance company in the amount of $34,000,000 which the Company has guaranteed.

84

20.   Derivative financial instruments

(a)    Interest rate swap agreements

        SCL is exposed to interest rate risk on its floating rate debt and tries to manages the impact of interest rate changes on earnings and cash flows. SCL's policy is to enter into interest rate swap agreements from time to time to hedge the variability in cash flows due to movements in interest rates At December 31, 2004 and 2003, SCL had interest rate swaps that had been designated as cash flow hedges. Since their designation as cash flow hedges, changes in fair value that represent the effective portion of the swaps are accumulated in other comprehensive income/(loss). Amounts accumulated in other comprehensive income/(loss) will be reclassified into earnings as the hedged interest cash flows are accrued. During the year ended December 31, 2004, approximately $900,000 was recognized in earnings as a result of ineffectiveness. The fair value of the swaps at December 31, 2004 was a $6,360,000 liability (2003—$12,570,000 liability).

(b)    Fuel swap agreements

        SCL uses commodity futures contracts from time to time to procure a portion of its fuel requirements and to hedge its exposure to volatility in fuel market prices. SCL has, when considered appropriate, entered into swap agreements to fix the price of fuel. At December 31, 2004, SCL had a fuel swap in place, which was entered on December 30, 2004, matures over the next two months and had an immaterial fair value at December 31, 2004. The hedge was against a portion of fuel requirements of Silja ships in January and February 2005. This swap has not been designated as a hedge. SCL had no other fuel swap agreements at December 31, 2004.

(c)    Foreign exchange risk management

        From time to time, SCL utilizes foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with SCL's international transactions. These contracts establish the exchange rates at which SCL will purchase or sell at a future date the contracted amount of currencies for specified foreign currencies. SCL utilizes forward contracts which are short-term in nature and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. No contracts were outstanding at December 31, 2004.

21.   Accumulated other comprehensive income/(loss)

        The accumulated balances for each component of other comprehensive income/(loss) are as follows:

	December 31,
	2004		2003
	$000		$000
Foreign currency translation adjustments	(111,624	)	(131,584	)
Derivative financial instruments	716		(1,614	)
Minimum pension liability, net of tax	(48,864	)	(45,879	)
	(159,772	)	(179,077	)

85

        The components of other comprehensive income/(loss) are as follows:

	Year ended December 31,
	2004		2003		2002
	$000		$000		$000
Net (losses)/earnings	(4,280	)	112,458		43,016
Foreign currency translation adjustments	19,960		21,014		46,082
Change in fair value of derivatives	2,330		(590	)	6,843
Additional minimum pension liability, net of tax	(2,985	)	(11,198	)	(34,681	)
Comprehensive income	15,025		121,684		61,260

        During 2004 the net amount of $3,880,000 (2003—$2,315,000 and 2002—$5,294,000) was reclassified from other comprehensive income to net (losses)/earnings related to derivative financial instruments (see Note 20).

22.   Information concerning financial reporting for segments and operations in different geographical areas

        SCL's business activities are managed through four main reporting segments. The first segment is the operation of ferry transport services primarily in the Baltic Sea, English Channel and New York harbor. This business is referred to as "Ferry operations". The second segment is the operation of passenger rail transport services through GNER in Great Britain. This business is referred to as "Rail operations". The third segment is leasing of cargo containers (principally through the GE SeaCo joint venture) to liner ship operators, road and rail operators, forwarders and exporters located throughout the world and the services which support these activities, including the manufacture and repair of container equipment. This business is referred to as "Container operations". The fourth segment was ownership and/or management of hotels, restaurants, tourist trains and cruises located worldwide through OEH. This business is referred to as "Leisure operations". During 2002, SCL's economic interest in OEH dropped below 50% and the Company began to account for its investment in OEH under the equity method of accounting (see Note 2). This change is reflected in the 2002 segment information from the date OEH was deconsolidated (November 14, 2002). "Other operations" include the Corinth Canal, real estate development, perishable commodity production and sales, and publishing activities. Transactions between reportable segments are not material.

        SCL's segment information has been prepared in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The main factor SCL uses to identify its four main segments is the similarity of the products and services provided. Segment performance is evaluated based upon net (losses)/earnings from operations before net finance costs, gains on asset sales, non-recurring charges, corporate costs and taxes. Segment information is presented in accordance with the accounting policies described in Note 1.

86

        Financial information regarding these business segments is as follows, with net finance costs being net of capitalized interest and interest and related income:

		Year ended December 31,
		2004		2003		2002
		$000		$000		$000
Revenue:
	Ferry operations	734,949		786,601		576,585
	Rail operations	857,910		723,219		695,775
	Container operations	125,646		110,611		107,448
	Leisure operations	—		—		209,016
	Other operations	24,212		25,668		21,623
		1,742,717		1,646,099		1,610,447
Depreciation and amortization:
	Ferry operations	56,288		51,568		35,337
	Rail operations	21,541		13,352		9,243
	Container operations	44,790		47,364		53,561
	Leisure operations	—		—		14,355
	Other operations	1,403		1,187		1,214
		124,022		113,471		113,710
(Losses)/earnings from operations before net finance costs:
	Ferry operations	(12,945	)	29,838		52,141
	Rail operations	42,868		84,083		68,893
	Container operations	45,429		35,783		23,404
	Leisure operations	—		—		39,027
	Other operations	(1,557	)	1,563		1,569
Non-recurring charges		—		(46,000	)	—
Gains from sale of assets		6,288		105,000		2,883
Corporate costs		(18,998	)	(15,798	)	(15,038	)
		61,085		194,469		172,879
Net finance costs		(80,942	)	(85,293	)	(114,670	)
(Losses)/earnings from operations before minority interest and income taxes		(19,857	)	109,176		58,209
Capital expenditure:
	Ferry operations	46,879		17,985		56,673
	Rail operations	21,243		2,654		2,971
	Container operations	13,450		13,445		18,540
	Leisure operations	—		—		45,008
	Other operations	4,951		3,541		526
		86,523		37,625		123,718

87

		December 31,
		2004	2003
		$000	$000
Identifiable assets:
	Ferry operations	1,477,879	1,420,807
	Rail operations	196,536	252,081
	Container operations	787,775	816,838
	Leisure operations	234,018	223,592
	Other operations	39,892	52,523
		2,736,100	2,765,841

        Non-U.S. domestic operations accounted for more than 97% of revenue and for 100% of earnings before net finance costs in 2004 (2003—97% and 100%, 2002—96% and 94%). Containers are regularly moving between countries in international commerce over hundreds of trade routes. SCL has no knowledge of, or control over, the movement of containers under lease or the location of leased containers at any moment in time. Based on container leases in force at December 31, 2004, containers may touch ports in more than 100 different countries worldwide. It is therefore impossible to assign revenues or assets of container operations by geographical areas.

        Ferry operations and identifiable assets are mainly carried on and held in north Europe and Scandinavia. Rail operations and assets are based in Britain. Leisure operations are spread throughout the world with no one country representing more than 10% of the revenue or identifiable assets in 2002.

23.   Related party transactions

        For the year ended December 31, 2004, SCL earned revenue in connection with the lease and management agreements relating to SCL-owned containers provided to the GE SeaCo joint venture of $26,646,000 (2003—$26,213,000, 2002—$33,101,000). Also in 2004, SCL incurred expenses under the services agreement with GE SeaCo by which SCL provides management and administration services to the joint venture and for which GE SeaCo recognized and paid to SCL net amounts of $31,813,000 (2003—$32,936,000, 2002—$30,690,000). For the year ended December 31, 2004, SCL sold containers from its factories and provided use of SCL's depots for container repair and storage services, for which GE SeaCo paid $11,569,000 (2003—$17,434,000, 2002—$23,713,000). In addition, in 2004, GE SeaCo paid interest of $nil on loans from SCL (2003—$nil, 2002—$50,000) and at year end, SCL had a loan balance of $[nil] due from GE SeaCo (2003—$3,000,000). At December 31, 2004, a receivable of $30,718,000 (2003—a receivable of $30,342,000) remains outstanding for GE SeaCo in respect of all the above, which is included in accounts receivable on SCL's consolidated balance sheet and most of which is settled in the following quarter.

        For the year ended December 31, 2004, SCL received from OEH $5,330,000 (2003—$4,631,000, 2002—$5,899,000) for the provision of various services, including financial, legal, accounting, corporate executive, public company, human resources administration, insurance, office facilities, and system and computer services. These were provided under a services agreement between SCL and OEH on the basis of a fee plus reimbursements equivalent to the direct and indirect costs of providing the services. The agreement had an initial term of one year and is automatically renewed annually unless it is terminated by SCL or OEH.

88

        SCL received from Silja, prior to its acquisition in May 2002, fees for the provision of various services which amounted to $400,000 in 2002. These services were provided on the basis of reimbursement of SCL's costs as approved by the board of directors of Silja. SCL also charters a SuperSeaCat to Silja to operate on the Helsinki-Tallin route for which $1,260,000 was paid to SCL in 2002, and SCL charters from Silja a floating passenger terminal located at Liverpool for which $56,000 was paid to Silja in 2002. The amounts paid in 2002 relate to the period prior to acquisition.

24.   Subsequent events (unaudited)

        On January 20, 2005, the Company declared a quarterly dividend of $0.025 per class A common share and $0.0225 per class B common share.

        In January and February 2005, the Company issued and sold in the U.S. in a registered public offering 2,400,000 newly-issue class A common shares in the Company, realizing net proceeds of approximately $40,960,000.

        In March 2005, the Company sold in the U.S. in a registered public offering 4,500,000 existing OEH class A common shares owned by the Company, realizing net proceeds of approximately $108,500,000. After this sale, the Company's remaining equity interest in OEH is approximately 25%.

        Also in March 2005, the U.K. Strategic Rail Authority awarded GNER a renewal of its passenger rail franchise in Britain with an initial term to April 2012, automatically extendable to April 2015 if GNER meets prescribed performance targets.

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Summary of quarterly earnings (unaudited)

			Quarter ended
			December 31		September 30		June 30		March 31
			$000		$000		$000		$000
2004
Revenue:
	Ferry operations		175,480		225,880		191,623		141,966
	Rail operations		224,499		224,945		208,261		200,205
	Container operations		37,625		35,475		26,580		25,966
	Other operations		7,839		5,307		5,925		5,141
			445,443		491,607		432,389		373,278
(Losses)/earnings before net finance costs:
	Ferry operations		(19,149	)	17,720		3,659		(14,168	)
	Rail operations		8,847		10,588		12,450		10,983
	Container operations		12,673		12,319		11,025		9,493
	Other operations		50		(630	)	41		(1,018	)
Gains from sale of assets			(73	)	6,361		—		—
Corporate costs			(5,527	)	(5,102	)	(4,668	)	(3,701	)
Net finance costs			(21,036	)	(19,303	)	(19,873	)	(20,730	)
(Losses)/earnings before income taxes			(24,215	)	21,953		2,634		(19,141	)
Benefit from/(provision for) income taxes			7,515		(8,393	)	(1,000	)	4,500
(Losses)/earnings before earnings/ (losses) from investment in Orient-Express Hotels Ltd			(16,700	)	13,560		1,634		(14,641	)
Earnings/(losses) from investment in Orient-Express Hotels Ltd			3,541		4,834		5,429		(1,937	)
Net (losses)/earnings			(13,159	)	18,394		7,063		(16,578	)
Preferred share dividends			(272	)	(272	)	(272	)	(272	)
Net (losses)/earnings on class A and class B common shares			(13,431	)	18,122		6,791		(16,850	)
(Losses)/earnings per common share:			$		$		$		$
	Class A:
		Basic	(0.54	)	0.78		0.30		(0.73	)
		Diluted	(0.54	)	0.77		0.30		(0.73	)
	Class B:
		Basic	(0.54	)	0.70		0.27		(0.73	)
		Diluted	(0.54	)	0.69		0.27		(0.73	)
Dividends per class A common share			0.025		0.025		0.025		0.025
Dividends per class B common share			0.0225		0.0225		0.0225		0.0225

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Summary of quarterly earnings (unaudited)

			Quarter ended
			December 31		September 30		June 30		March 31
			$000		$000		$000		$000
2003
Revenue:
	Ferry operations		192,184		236,606		216,007		141,804
	Rail operations		196,272		197,364		156,933		172,650
	Container operations		25,587		25,922		30,601		28,501
	Other operations		8,550		5,126		6,718		5,274
			422,593		465,018		410,259		348,229
Earnings/(losses) before net finance costs:
	Ferry operations		6,113		28,874		7,902		(12,634	)
	Rail operations		20,864		28,757		13,759		20,703
	Container operations		9,289		8,734		9,396		8,566
	Other operations		784		(229	)	835		173
Non-recurring charges			(6,000	)	(40,000	)	—		—
Gains from sale of assets			—		105,000		—		—
Corporate costs			(4,039	)	(4,067	)	(3,604	)	(4,088	)
Net finance costs			(17,792	)	(19,577	)	(21,339	)	(26,585	)
Earnings/(losses) before income taxes			9,219		107,492		6,949		(13,865	)
(Provision for)/benefit from income taxes			(1,192	)	(10,300	)	(1,767	)	5,035
Earnings/(losses) before earnings/ (losses) from investment in Orient-Express Hotels Ltd			8,027		97,192		5,182		(8,830	)
Earnings/(losses) from investment in Orient-Express Hotels Ltd			3,877		3,824		4,412		(1,226	)
Net earnings/(losses)			11,904		101,016		9,594		(10,056	)
Preferred share dividends			272		272		272		272
Net earnings/(losses) on class A and class B common shares			11,632		100,744		9,322		(10,328	)
Earnings/(losses) per common share:			$		$		$		$
	Class A:
		Basic	0.55		4.83		0.44		(0.49	)
		Diluted	0.55		4.72		0.44		(0.49	)
	Class B:
		Basic	0.50		4.34		0.44		(0.49	)
		Diluted	0.50		4.25		0.44		(0.49
Dividends per class A common share			0.025		0.0250		—		—
Dividends per class B common share			0.0225		0.0225		—		—

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ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

ITEM 9A.    Controls and Procedures

Disclosure Controls and Procedures

        The Company's chief executive and financial officers have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of December 31, 2004. As described below in the Report on Internal Control over Financial Reporting, SCL management identified a material weakness in SCL's internal control over financial reporting. While the Company received an unqualified audit report from Deloitte & Touche LLP, SCL's independent auditor (a registered public accounting firm), on the 2004 consolidated financial statements, the Company's chief executive and financial officers have concluded that, as a result of this material weakness, SCL's disclosure controls and procedures were not effective as of December 31, 2004.

Report on Internal Control over Financial Reporting

        SCL management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in SEC Rule 13a-15(f)). SCL's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

        A material weakness is a significant deficiency (within the meaning of Auditing Standard No. 2 of the Public Company Accounting Oversight Board (United States)), or combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of their assigned functions.

        Management assessed the effectiveness of SCL's internal control over financial reporting as of December 31, 2004 and identified the following material weakness in SCL's internal control over financial reporting:

        In the course of preparing SCL's consolidated financial statements for the year ended December 31, 2004, SCL management concluded that SCL had insufficient personnel resources and technical accounting expertise within the accounting function to resolve and report in a timely manner non-routine or complex accounting matters in accordance with U.S. generally accepted accounting principles. As a result, procedures and documentation to review and analyze elements of the financial statement closing process and to prepare the consolidated financial statements had not reduced to a less than remote likelihood that a material misstatement in those financial statements would not be prevented or detected within a timely period in the normal course of the financial statement closing process.

        Senior management of SCL began to address this weakness during the completion of the audit of the 2004 consolidated financial statements. SCL management has a plan to remediate this material weakness which it has reviewed with the Audit Committee of the Board of Directors of the Company. Important elements include reorganization of existing accounting staff and additional training as well as recruiting new staff with the necessary skills.

92

        In making its assessment of internal control over financial reporting, SCL management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Because of the material weakness described above, management concluded that, as of December 31, 2004, SCL did not maintain effective internal control over financial reporting based on those criteria.

        Deloitte & Touche LLP, SCL's independent auditor (a registered public accounting firm), issued an attestation report on management's assessment of SCL's internal control over financial reporting, which appears in Item 8—Financial Statements above.

Change in Internal Control

        There have been no changes in SCL's internal control over financial reporting during the fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, SCL's internal control over financial reporting.

        It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met such as prevention and detection of misstatements. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate, for example. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

ITEM 9B.    Other Information

        None.

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PART III

ITEM 10.    Directors and Executive Officers of the Registrant

Directors

        The directors of the Company are as follows:

Name, Age	Principal Occupation and Other Major Affiliations	Year First Became Director
John D. Campbell, 62	Senior Counsel (retired) of Appleby Spurling Hunter (attorneys)	1980
W. Murray Grindrod, 69	Chairman of Grindrod Ltd. (a shipping, transport and financial services company)	1986
Robert M. Riggs, 71	Senior Counsel of Carter Ledyard & Milburn LLP (attorneys)	1976
Charles N.C. Sherwood, 45	Partner of Permira Advisers Ltd. (a private equity investment firm)	1996
James B. Sherwood, 71	President of the Company	1974
Michael J.L. Stracey, 72	Executive Vice President-Finance (retired) of the Company	1986

        The principal occupation of each director during the last five years is that shown in the table, except that Mr. Campbell was a member of Appleby Spurling Hunter until March 1999 and retired as Senior Counsel in July 2003, Mr. Riggs retired as a member of Carter Ledyard & Milburn LLP in December 2003, and Mr. Stracey was Executive Vice President—Finance of the Company until his retirement in 1997. Mr. Campbell is also a non-executive director and Chairman of the Risk and Audit Committee of The Bank of Bermuda Ltd., a subsidiary of HSBC Holdings plc, and a non-executive director and Chairman of the Nominations and Governance Committee of Argus Insurance Company Ltd., a public company listed on the Bermuda Stock Exchange.

        Mr. Sherwood is also a director and Chairman of OEH, and Mr. Campbell is a director of OEH.

        Mr. Charles Sherwood is the stepson of Mr. Sherwood.

        In early March 2005, Philip J.R. Schlee, Chairman of Robert Anderson & Co. Ltd., a private investment firm, resigned as a director of the Company due to health reasons.

Corporate Governance

        The Board of Directors of the Company has established corporate governance measures substantially in compliance with requirements of the New Your Stock Exchange ("NYSE"). These include a set of Corporate Governance Guidelines, Charters for each of the Audit Committee, Compensation Committee, and Nominating and Governance Committee of the full Board, and a Code of Business Conduct for Directors, Officers and Employees. The Board of Directors has also adopted a Code of Business Practices for the Company's Principal Executive, Financial and Accounting Officers, which is filed as an exhibit to this report. These documents are published on the Company's website (www.seacontainers.com) or may be obtained by writing to the Company's Secretary at its registered office address (Sea Containers Ltd., 22 Victoria Street, P.O. Box HM1179, Hamilton HM EX, Bermuda).

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        Because the Company is a foreign private issuer as defined in SEC rules, it is not required to comply with all NYSE corporate governance requirements as they apply to U.S. domestic companies listed on the NYSE. The Company's corporate governance measures differ in three significant ways. First, the Charter of the Company's Nominating and Governance Committee generally mandates the same responsibilities as NYSE rules require but authorizes the Committee to act only upon the Board's request and in an advisory capacity. Second, the Charter of the Company's Compensation Committee authorizes the Committee to recommend to the Board the compensation of the Company's chief executive officers but does not empower the Committee itself to determine, approve or modify that compensation. Third, in addition to NYSE standards for determining when a director is not deemed independent, a director of the Company is not deemed independent under its Corporate Governance Guidelines if the director works for a law firm paying compensation to the director (other than normal retirement benefits) and the law firm provides professional services in the current year to SCL amounting to more than $1,000,000 or 2% of the law firm's gross revenue.

        Regarding the independence of directors from SCL's management, the Board has reviewed the materiality of any relationship that each of the six directors of the Company has with SCL either directly or indirectly through another organization. The criteria applied included the director independence requirements set forth in the Company's Corporate Governance Guidelines, any other managerial, familial, professional, commercial or affiliated relationship between a director and the Company, a subsidiary or another director and, with respect to the Company's Audit Committee, the SEC's independence rules. Based on this review, the Board has determined that Messrs. Campbell, Grindrod, Riggs and Stracey are independent directors. The Company's Corporate Governance Guidelines are filed as an exhibit to this report.

        Interested persons may communicate directly with any of the independent directors by writing to him at the Company's registered office address (Sea Containers Ltd., 22 Victoria Street, P.O. Box HM1179, Hamilton HM EX, Bermuda).

        The present members of the Company's Audit Committee, Compensation Committee, and Nominating and Governance Committee are Messrs. Grindrod, Riggs and Stracey. The Board has designated Mr. Stracey as the audit committee financial expert as defined by SEC rules.

Executive Officers

        The executive officers of the Company are as follows:

Name, Age	Position
James B. Sherwood, 71	President since 1974
David G. Benson, 61	Senior Vice President—Ferries since 1997
Ian C. Durant, 46	Senior Vice President—Finance and Chief Financial Officer since 2004
Angus R. Frew, 46	Senior Vice President—Containers since 2002
Christopher W.M. Garnett, 59	Senior Vice President—Rail since 1997
James A. Beveridge, 56	Vice President—Administration and Property since 1997
Edwin S. Hetherington, 55	Vice President, General Counsel and Secretary since 1997
Nicholas J. Novasic, 53	Vice President—Corporate Finance, North America since 2003
Guy N. Sanders, 45	Vice President—Funding since 2001
Duncan J.C. Scott, 44	Vice President—Information Services since 2003

        The principal occupation of each person during the last five years is shown in the table supplemented by the following information.

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        Mr. Sherwood was the founder of the Company's container leasing predecessor company, Sea Containers Inc., in 1965. As noted above under "Directors", Mr. Sherwood is also a director and officer of OEH.

        Mr. Benson was a Vice President in the Ferry Operations division of the Company from 1992.

        Mr. Durant is a chartered accountant and, before joining SCL, was Group Finance Director of Thistle Hotels plc in the U.K. and Finance Director of two U.K.-listed affiliates of the Jardine Matheson Group, Hongkong Land Holdings and Dairy Farm International. He was a Vice President of the Company until February 2005.

        Mr. Frew is a chartered accountant and held senior management positions in Europe with Seagram Spirits & Wine Group and in Europe and Asia with United Distillers & Vintners, the spirits and wine division of Diageo plc. He was a Vice President of the Company until February 2005.

        Mr. Garnett, before joining the Company in 1995, was Commercial Director of Eurotunnel plc in charge of sales and marketing. He was a Vice President of the Company until October 2004.

        Before joining the Company, Mr. Beveridge was Group Finance Director of MEPC plc, a property company listed on the London Stock Exchange.

        Mr. Hetherington was General Counsel and Secretary of the Company from 1984. He is also Secretary of OEH.

        Mr. Novasic in 2000–2002 was Executive Vice President and Chief Financial Officer of Willis Lease Finance Corp., an aviation services company listed on NASDAQ, where he also served as a capital markets consultant in 2002 and 2003. He joined Willis after being Vice President—Funding, North America of the Company from 1987.

        Mr. Sanders, a chartered accountant, has worked most of his career in the treasury function of various U.K. companies including as Assistant Treasurer of Allied Domecq plc, a multinational beverage and restaurant company.

        Mr. Scott has worked his entire career in information technology. He headed the IT function of the London, England law firm of Allen & Overy when he left in 1998 after eight years to become Chief Information Officer of Regus plc, a publicly owned provider of business centers worldwide. He joined SCL in 2001.

        Daniel J. O'Sullivan was Senior Vice President—Finance and Chief Financial Officer of the Company until his retirement in December 2004 when Mr. Durant succeeded him as chief financial and accounting officer of the Company.

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ITEM 11.    Executive Compensation

        Because the Company is a foreign private issuer, it is replying to this Item 11 pursuant to Item 402(a)(1)(ii) of SEC Regulation S-K.

        The following table shows the salary and bonus of the five highest compensated executive officers of the Company paid in cash during 2004 (including Mr. O'Sullivan who retired at the end of the year), and of all executive officers as a group (including Mr. O'Sullivan), for services to SCL in all capacities:

Name of Individual or Group	Principal Capacities in Which Served	Cash Compensation
James B. Sherwood	President and Director	$	951,500
Daniel J. O'Sullivan	Senior Vice President—Finance and Chief Financial Officer	$	674,800
David G. Benson	Senior Vice President—Ferries	$	545,000
Christopher W.M. Garnett	Senior Vice President—Rail	$	510,000
Angus R. Frew	Senior Vice President—Containers	$	475,800
All executive officers as a group (11 persons)		$	4,902,300

        The salary and bonus of Mr. Sherwood paid by OEH ($453,800) is excluded from the table above. Under the services agreement between SCL and OEH described in Item 13—Certain Relationships and Related Transactions below, part of the salaries and bonuses of Messrs. O'Sullivan and Hetherington paid by SCL have been charged to OEH. See also Note 23 to the Financial Statements (Item 8 above).

        SCL has entered into agreements with Messrs. Sherwood, Beveridge and Hetherington entitling them to terminate employment in certain circumstances constituting a change in control of the Company and to receive an amount equal to three times each officer's annual compensation (five times in the case of Mr. Sherwood). Mr. Sherwood's agreement also requires the Company to pay the excise tax on his severance payment imposed pursuant to section 4999 of the U.S. Internal Revenue Code.

        In 2004, each of the directors other than Mr. James Sherwood received a fee of $2,750 for each meeting of the Board of Directors or a committee thereof which he attended, and was also paid an annual director retainer fee of $17,500. Aggregate attendance and retainer fees amounted to $217,800 in 2004.

Pensions

        Most executive officers of the Company located in the United Kingdom participate in a contributory defined benefit pension plan maintained by SCL for its British employees. The amount of contribution to the plan in respect of a specific person cannot readily be separated or individually calculated. Participants in the plan are eligible to receive at their normal retirement date an annual pension based on the number of years of permanent employment and their final pensionable compensation, up to a maximum pension of two-thirds of the final pensionable compensation for service of up to 33 years, reduced by pension benefits paid by the British government. A participant's pensionable compensation upon which benefits are based is the greater of (i) the average of the participant's highest three consecutive pensionable salaries during the ten years preceding retirement or (ii) the participant's pensionable salary for the year immediately preceding retirement.

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        Prior to 1997, SCL maintained a non-contributory defined benefit pension plan for United States employees, including U.S. citizen officers. Participants in the plan are eligible to receive at their normal retirement date an annual pension based on the number of years of permanent employment, up to 21 credited years of service, and 44% of their average annual compensation (i.e., compensation averaged over the five highest consecutive years), plus 13% of the excess of average annual compensation over the amount of Social Security covered compensation. In 1997, SCL froze this defined benefit plan, so that the benefit payable to employees at their normal retirement date will be equal to the benefit that they had earned under the plan as of December 31, 1996. For 1997 and later years, SCL established a defined contribution pension plan for U.S. employees, including officers. This plan has a non-contributory feature under which the amount that SCL contributes to the plan, for each year, is allocated among participating employees in proportion to the amount of their compensation for that year. The amount of the annual contribution is determined by SCL in its discretion. The defined contribution plan also includes a 401(k) feature that permits employees to contribute amounts out of their compensation (up to $13,000 per employee in 2004).

        Under the defined benefit plans in the U.K. and U.S., currently estimated accrued annual benefits payable to executive officers amounted to approximately $867,000 in the aggregate at December 31, 2004, and under the defined contribution plan in the U.S., their account balances totalled $321,000 in the aggregate at the same date. See Note 13 to the Financial Statements.

1997 Stock Option Plan

        Options to purchase Class A common shares of the Company have been granted to directors and selected executive officers and employees under the Company's 1997 Stock Option Plan, which is administered by the Compensation Committee of the Board of Directors. The plan provides for the award of options to purchase up to 500,000 Class A and B common shares at market value at the time of the award. In general, options become exercisable three years after the date of grant and expire ten years from date of grant. In certain circumstances constituting a change in control of the Company, outstanding options become immediately exercisable, and optionees may thereafter surrender their options instead of exercising them and receive directly from the Company in cash the difference between the option exercise price and the value of the underlying shares determined according to the plan.

        During 2004, options on an aggregate 60,000 Class A shares were granted to directors and executive officers under the plan at an exercise price of $15.70 per share. Stock options were exercised by one officer during the year on 20,000 Class A shares at an aggregate gain of $204,000. At December 31, 2004, directors and executive officers held an aggregate of 167,000 options to purchase Class A shares under the plan. See Note 16(a) to the Financial Statements.

1986 and 2004 Stock Option Plans

        The 1986 Stock Option Plan of the Company expired by its terms in 1996, and the last options on an aggregate of 9,000 Class A common shares held by three directors expired during 2004. See Note 16(a) to the Financial Statements. As provided in the plan, the Company has made loans since 1990 and 1992 to Mr. Hetherington in the aggregate principal amount of $106,800 which enabled him to exercise stock options in those years and pay the option prices. These loans are secured by pledges of the shares acquired, and bear interest at 4% per annum.

        Shareholders of the Company approved its 2004 Stock Option Plan in June 2004. The plan provides for the award of options to purchase up to 500,000 Class A and B common shares. The terms and manner of administration of the plan are substantially the same as the 1997 Stock Option Plan. No options have been granted under the 2004 plan.

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1991 Stock Appreciation Rights Plan

        The Company's 1991 Stock Appreciation Rights Plan expired by its terms in June 2001, but outstanding rights continue in effect. Under the plan, stock appreciation rights have been granted to selected executive officers and employees. The plan is administered by the Compensation Committee of the Board of Directors and provided for the award of rights equivalent in value to the market value of the Company's Class A common shares at the time of the award. In general, the rights became exercisable three years after the date of grant and expire ten years from date of grant. All outstanding rights are currently exercisable. At the time of exercise, the Company will pay to the rightholder the difference between the value of the right and the market value of the Company's Class A common shares at the time of exercise.

        During 2004, rights on 5,000 shares were exercised by one executive officer under the plan at an aggregate gain of $7,900. At December 31, 2004, executive officers held an aggregate of 12,000 rights under the plan.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Five Percent Shareholders

        The following table contains information concerning the beneficial ownership of the Company's Class A common shares and Class B common shares by the only persons known to SCL to own beneficially more than 5% of the outstanding shares of either class.

        Contender 2 Ltd. ("Contender") listed in the table below is a subsidiary of the Company which owns only Class B shares. Under Bermuda law, the shares owned by Contender are outstanding and may be voted. In a takeover of SCL, this structure may assist in maximizing the value that shareholders of the Company receive in the takeover transaction. Each Class B share is convertible at any time into one Class A share and, therefore, the shares listed as owned by Contender represent Class B shares and the Class A shares into which those shares are convertible.

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        Voting and dispositive power with respect to the Class B shares owned by Contender is exercised by its Board of Directors. Messrs. Sherwood, Campbell and three other persons who are not directors or officers of the Company are the directors of Contender. Each of these persons may be deemed to share beneficial ownership of the Class B shares owned by Contender for which he serves as a director, as well as the Class A shares into which those Class B shares are convertible, but is not shown in the table below, other than Mr. Sherwood who directly owns more than 5%.

Name and Address	No. of Class A and Class B Shares	Percent of Class A Shares(1)	Percent of Class B Shares
Contender 2 Ltd. 22 Victoria Street Hamilton HM 12 Bermuda	12,900,000	33.1%	89.8%
James B. Sherwood(2) Sea Containers Services Ltd. 20 Upper Ground London SE1 9PF England	1,024,096	3.8%	6.8%
Donald Smith & Co. Inc.(3) 152 West 57th Street New York, New York 10019	2,222,900	8.5%	—
Reed Conner & Birdwell LLC et al.(4) 11111 Santa Monica Boulevard Suite 1700 Los Angeles, California 90025	2,121,544	8.1%	—
Rutabaga Capital Management(5) 64 Broad Street, 3rd Floor Boston, Massachusetts 02109	1,407,600	5.4%	—

(1)

The percentages of Class A shares shown are based on the 26,098,705 Class A shares outstanding on March 21, 2005, plus the Class A shares issuable upon conversion of the Class B shares beneficially owned by that person, if any, or upon exercise of stock options held by that person, if any.

(2)

Comprised of 30,500 Class A shares plus 978,596 Class A shares issuable upon conversion of a like number of Class B shares, over all of which Mr. Sherwood has sole voting and dispositive power, and currently exercisable stock options on 15,000 Class A shares under the Company's 1997 Stock Option Plan.

(3)

The information with respect to Donald Smith & Co. Inc. ("Smith") relates only to Class A shares and is derived from its Schedule 13G report as of December 31, 2004 filed with the SEC on February 11, 2005. The report states that Smith is a registered investment advisor and that it has sole voting power with respect to 1,789,254 Class A shares and sole dispositive power with respect to 2,222,900 Class A shares.

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(4)

The information with respect to Reed Conner & Birdwell LLC ("Reed Conner"), its President and Chief Executive Officer Donn B. Conner, and its Chief Information Officer Jeffrey Bronchik, relates only to Class A shares and is derived from their joint Schedule 13G report filed with the SEC on February 15, 2005. The report states that Reed Conner is a registered investment advisor and that Reed Conner, Mr. Conner and Mr. Bronchik together have sole voting and dispositive power with respect to 2,121,544 Class A shares.

(5)

The information with respect to Rutabaga Capital Management ("Rutabaga") relates only to Class A shares and is derived from its Schedule 13G report amended as of December 31, 2004 and filed with the SEC on January 18, 2005. The report states that Rutabaga is a registered investment advisor and that it has sole voting power with respect to 834,300 Class A shares, shared voting power with respect to 573,300 Class A shares, and sole dispositive power with respect to 1,407,600 Class A shares.

Directors and Executive Officers

        The following table and the footnotes below it contain information concerning the beneficial ownership of Class A common shares and Class B common shares of the Company by each director and executive officer of the Company and by all directors and executive officers of the Company as a group (including exercisable stock options). As noted above, certain of these directors and executive officers of the Company may be deemed to share beneficial ownership of the Class B shares held by Contender because they are also directors of that subsidiary, but those shares are not included in the following table.

Name	No. of Class A Shares(1)		Percent of Class A Shares(2)
David G. Benson	—		—
James A. Beveridge	—		—
John D. Campbell	2,000	(3)	—
Ian C. Durant	—		—
Angus R. Frew	—		—
Christopher W.M. Garnett	325		—
W. Murray Grindrod	—		—
Edwin S. Hetherington	16,588	(4)	—
Nicholas J. Novasic	3,690	(5)	—
Robert M. Riggs	16,106	(6)	—
Guy N. Sanders	—		—
Duncan J.C. Scott	—		—
Charles N.C. Sherwood	40,000		—
James B. Sherwood	1,024,096	(7)	3.8	%
Michael J.L. Stracey	—		—
All directors and executive officers as a group (15 persons)	1,102,805	(8)	4.1	%

(1)

Comprised of Class A shares over which the director or executive officer has sole voting and dispositive power, unless otherwise indicated.

(2)

The percentage of Class A shares for each person and the group shown in this table is based on the 26,098,705 Class A shares outstanding on March 21, 2005, plus the Class A shares issuable upon exercise of stock options on Class A shares held by that person or group and Class A shares issuable upon conversion of the Class B shares beneficially owned by that person or the group. Each shareholding is less than 1% except as indicated.

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(3)

Comprised of 2,000 Class A shares over which Mr. Campbell has shared voting and dispositive power.

(4)

Comprised of 11,538 Class A shares plus 50 Class A shares issuable upon conversion of a like number of Class B shares, over all of which Mr. Hetherington has sole voting and dispositive power, and options on 5,000 Class A shares under the Company's 1997 Stock Option Plan.

(5)

Comprised of 3,000 Class A shares over which Mr. Novasic has sole voting and dispositive power and 690 Class A shares, including 490 Class A shares issuable upon conversion of a like number of Class B shares, over which he has shared voting and dispositive power.

(6)

Comprised of 15,040 Class A shares over which Mr. Riggs has sole voting and dispositive power and 1,066 Class A shares over which Mr. Riggs has shared voting and dispositive power.

(7)

Comprised of 30,500 Class A shares plus 978,596 Class A shares issuable upon conversion of a like number of Class B shares, over all of which Mr. Sherwood has sole voting and dispositive power, and options on 15,000 Class A shares under the Company's 1997 Stock Option Plan.

(8)

Includes 978,596, 490 and 50 Class A shares issuable upon conversion of a like number of Class B shares owned by Messrs. Sherwood, Novasic and Hetherington, respectively, and 20,000 Class A shares optioned under the Company's 1997 Stock Option Plan held by Messrs. Sherwood and Hetherington.

Voting Control of the Company

        The following table lists the voting power held by the known beneficial owners of more than 5% of the outstanding Class A or Class B common shares and all directors and executive officers as a group. Those directors and executive officers of the Company who are deemed to be beneficial owners solely because they are directors of Contender are not listed individually but are included in the group.

Name	No. of Class A Shares		No. of Class B Shares	Combined Voting Power
Contender	—		12,900,000	76.0	%
J.B. Sherwood	45,500	(1)	978,596	5.8	%
Smith	2,222,900		—	1.3	%
Reed Conner	2,121,544		—	1.2	%
Rutabaga	1,407,600		—	0.8	%
All directors and executives as a group (15 persons)	123,669	(2)	13,879,136	81.8	%

(1)

Comprised of 30,500 Class A shares plus 15,000 Class A shares optioned under the Company's 1997 Stock Option Plan.

(2)

Includes 20,000 Class A shares optioned under the Company's 1997 Stock Option Plan.

        In general, matters subject to approval of shareholders require a majority vote of the Class A and Class B shares voting together as a single class. Holders of Class B shares have one vote per share for most matters submitted to a vote of shareholders, and holders of Class A shares have one-tenth of one vote.

        Contender and the Company's directors and executive officers hold in total approximately 35% in number of the outstanding Class A and Class B shares having approximately 82% of the combined voting power of the outstanding common shares of the Company for most matters submitted to a vote of the Company's shareholders. Other shareholders, accordingly, hold approximately 65% in number of the common shares having about 18% of combined voting power in the Company.

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        Under Bermuda law, the Class B shares owned by Contender (representing approximately 76% of the combined voting power) are outstanding and may be voted by that subsidiary. The investment by Contender in Class B shares and the manner in which it votes those shares are determined by the members of its Board of Directors (two of whom are also directors and an officer of the Company) consistently with the exercise by those directors of their fiduciary duties to the subsidiary. Contender, therefore, has the ability to elect at least a majority of the members of the Board of Directors of the Company and to control the outcome of most matters submitted to a vote of the Company's shareholders.

        With respect to a number of matters which would tend to change control of the Company, its memorandum of association and bye-laws contain provisions that could make it harder for a third party to acquire SCL without the consent of the Company's Board of Directors. These provisions include supermajority shareholder voting provisions for the removal of directors and for "business combination" transactions with beneficial owners of shares carrying 15% or more of the votes which may be cast at any general meeting of shareholders, and limitations on the voting rights of such 15% beneficial owners. Also, the Company's Board of Directors has the right under Bermuda law to issue preferred shares without shareholder approval, which could be done to dilute the share ownership of a potential hostile acquirer. Also, the rights to purchase series A junior preferred shares, one of which is attached to each Class A and Class B common share of the Company, may have antitakeover effects. See Note 17(c) to the Financial Statements. Although SCL management believes these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with the Company's Board of Directors, these provisions apply even if the offer may be considered beneficial by many shareholders.

        Information responding to Item 201(d) of SEC Regulation S-K is omitted because the Company is a foreign private issuer.

ITEM 13.    Certain Relationships and Related Transactions

        See Note 23 to the Financial Statements (Item 8 above) regarding related party transactions.

Agreements with Orient-Express Hotels Ltd.

        In connection with the initial public offering of OEH shares in August 2000 and in anticipation of the separation of the two companies, SCL and OEH entered into the following agreements which remain relevant:

Services Agreement

        SCL and OEH entered into a services agreement covering the provision to OEH of various services, including financial, legal, accounting, corporate executive, public company, human resources administration, insurance, and information technology. OEH also occupies space in offices leased by various subsidiaries of the Company in London and overseas. For these services, OEH pays a fee plus reimbursements approximating the costs of SCL in providing the services. OEH may terminate these arrangements on one year's notice.

Tax Sharing Agreement

        OEH entered into a tax sharing agreement with SCL that allocates responsibilities for tax matters between the two companies for periods prior to the separation of SCL and OEH. In general, OEH will continue to be responsible for taxes of itself and its subsidiaries after the separation from SCL, and SCL has agreed to indemnify OEH for all taxes attributable to the separation itself.

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Noncompete Agreement

        SCL has undertaken to OEH not to own an interest in or manage any luxury hotel or luxury restaurant, other than any luxury hotel or luxury restaurant operated in conjunction with SCL's passenger ferry and rail services, until August 2005.

Agreements with GE SeaCo SRL

        Pursuant to an Omnibus Agreement dated March 19, 1998, SCL, GE SeaCo, Genstar Container Corporation and GE Capital Container SRL established the GE SeaCo joint venture described under "Container Leasing" in Item 1—Business above. The latter two companies party to the Omnibus Agreement are subsidiaries of General Electric Capital Corporation. Under the agreement, SCL and GE SeaCo entered into a number of further agreements, the principal remaining ones being the following:

Master Lease and Equipment Management Agreements

        Most of SCL's containers owned at the time of establishment of GE SeaCo that have not since been disposed of are being leased to GE SeaCo on an operating lease basis. GE SeaCo, in turn, leases these units out to customers along with its own containers and those belonging to GE Capital that are leased to GE SeaCo on the same basis. Among other terms under the master lease agreement, GE SeaCo pays rent to SCL, is responsible for maintenance of the equipment and pays specified amounts if containers are lost or destroyed. When individual containers reach a certain age, they are managed by GE SeaCo for the account of SCL or sold at SCL's request under the equipment management agreement. GE SeaCo earns a fee for managing the equipment and sales commissions when units are sold.

Services Agreement

        Like the services agreement between SCL and OEH described above, SCL provides GE SeaCo with accounting, human resources, insurance, legal, information technology, pension benefit and other administrative services and shares office space with GE SeaCo personnel, all under a services agreement. GE SeaCo pays a fee plus reimbursements approximating the costs of SCL in providing the services. The agreement has an indefinite term until SCL's interest in GE SeaCo falls below 20%.

Members Agreement

        GE SeaCo is organized in Barbados and governed by its articles of organization and by-laws, many provisions of which are from the members agreement between SCL and GE Capital Container SRL. These concern the share capital structure of GE SeaCo, voting of shares, composition of the board, appointment of officers, financial reporting, transferability of shares and other matters.

ITEM 14.    Principal Accountant Fees and Services

        The following table presents the fees of Deloitte & Touche LLP, SCL's independent auditor (a registered public accounting firm), for audit and permitted non-audit services in 2004 and 2003:

	2004		2003
Audit fees	$	3,200,000	$	2,110,000
Audit-related fees		275,000		275,000
Tax fees		741,000		665,000
All other fees		—		—
Total	$	4,216,000	$	3,050,000

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        Audit services consist of work performed in connection with the audited financial statements for each fiscal year and in the review of financial statements included in quarterly reports during the year, as well as work normally done by the independent auditor in connection with statutory and regulatory filings, such as statutory audits of non-U.S. subsidiaries, and consents and comfort letters for SEC registration statements.

        Audit-related services consist of assurance and related services that are normally performed by the independent auditor and that are reasonably related to the audit or review of financial statements but are not reported under audit services, including due diligence review in potential transactions and audits of benefit plans.

        Tax services consist of all services performed by the independent auditor's tax personnel, except those services specifically related to the audit or review of financial statements, and include fees in the areas of tax return preparation and compliance and tax planning and advice.

        Other services consist of those services permitted to be provided by the independent auditor but not included in the other three categories. There were none provided in 2003 and 2004.

        The Audit Committee of the Company's Board of Directors has established a policy to pre-approve all audit and permitted non-audit services provided by the independent auditor. Prior to engagement of the auditor for the next year's audit, management and the auditor submit to the Committee a description of the audit and permitted non-audit services expected to be provided during that year in each of four categories of services described above, together with a fee proposal for those services. Prior to the engagement of the independent auditor, the Audit Committee considers with management and the auditor and approves (or revises) both the description of audit and permitted non-audit services proposed and the budget for those services. If circumstances arise during the year when it becomes necessary to engage the independent auditor for additional services not contemplated in the original pre-approval, the Audit Committee at its regularly scheduled meetings requires separate pre-approval before engaging the independent auditor. For 2004 and 2003, all of the audit and permitted non-audit services described above were pre-approved under the policy.

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PART IV

ITEM 15.    Exhibits and Financial Statement Schedules

		Page Number
1.	Financial Statements
	Reports of independent registered public accounting firm	52
	Consolidated financial statements—years ended December 31, 2004, 2003 and 2002:
	Balance sheets (December 31, 2004 and 2003)	55
	Statements of operations	56
	Statements of cash flow	57
	Statements of shareholders' equity	58
	Notes to financial statements	59
2.	Financial Statement Schedule
	Schedule II—Valuation and qualifying accounts (years ended December 31, 2004, 2003 and 2002)	107
3.	Exhibits. The index to exhibits appears below, on the pages immediately following the signature pages to this report.

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Sea Containers Ltd. and Subsidiaries

Schedule II—Valuation and Qualifying Accounts

Column A	Column B		Column C Additions					Column D			Column E
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts			Deductions			Balance at end of period
Year ended December 31, 2004: Allowance for doubtful accounts	$	9,790,000	$	1,043,000	$	172,000	(2)	$	5,838,000	(1)	$	4,942,000
					$	(237,000	)(3)
					$	12,000	(5)
Year ended December 31, 2003: Allowance for doubtful accounts	$	9,365,000	$	2,242,000	$	305,000	(2)	$	2,959,000	(1)	$	9,790,000
					$	842,000	(3)
					$	(5,000	)(4)
Year ended December 31, 2002: Allowance for doubtful accounts	$	8,037,000	$	1,482,000	$	246,000	(2)	$	1,535,000	(1)	$	9,365,000
					$	1,572,000	(3)
					$	58,000	(5)
					$	(495,000	)(6)

(1)

Bad debts written off, net of recoveries.

(2)

Foreign currency translation adjustments.

(3)

Reclassification from other balance sheet category.

(4)

Sale of subsidiary.

(5)

Acquisition of subsidiary companies.

(6)

Deconsolidation of OEH.

107

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 31, 2005	SEA CONTAINERS LTD.
	By:	/s/  JAMES B. SHERWOOD James B. Sherwood President (Principal Executive Officer)

108

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Dated: March 31, 2005

Name	Title
/s/  JOHN D. CAMPBELL John D. Campbell	Director
/s/  IAN C. DURANT Ian C. Durant	Senior Vice President-Finance and Chief Financial Officer (Principal Accounting Officer)
/s/  W. MURRAY GRINDROD W. Murray Grindrod	Director
/s/  ROBERT M. RIGGS Robert M. Riggs	Director
/s/  CHARLES N.C. SHERWOOD Charles N.C. Sherwood	Director
/s/  JAMES B. SHERWOOD James B. Sherwood	President and Director (Principal Executive Officer)
/s/  MICHAEL J.L. STRACEY Michael J.L. Stracey	Director

109

EXHIBIT INDEX

Exhibit No.	Incorporated by Reference to	Description
2	Exhibit 2 to July 18, 2003 Form 8-K Current Report (File No. 1-7560).	Agreement for Sale and Purchase of Sea Containers Isle of Man Ltd. dated July 14, 2003 among Sea Containers Ltd., Sea Containers Ports and Ferries Ltd. and Windwood Ltd.
3(a)	Exhibit 3(a) to June 30, 1992 Form 10-Q Quarterly Report (File No. 1-7560).	Memorandum of Association, Certificate of Incorporation and Memoranda of Increase of Share Capital, as amended through June 24, 1992.
3(b)	Exhibit 3(b) to 2003 Form 10-K Annual Report (File No. 1-7560).	Bye-Laws, as amended through June 6, 2001.
4(a)	Exhibit 6 to Amendment No. 3 dated June 5, 1998 to Form 8-A Registration Statement (File No. 1-7560).	Rights Agreement between Sea Containers Ltd. and BankBoston N.A., as Rights Agent, dated as of May 9, 1988 and amended and restated as of June 1, 1998.
4(b)	Exhibit 4(b) to June 30, 1998 Form 10-Q Quarterly Report (File No. 1-7560).	Certificate of Designation of Terms of $7.25 Convertible Cumulative Preferred Shares.
4(c)	Exhibit 4.2 to Form S-4 Registration Statement No. 333-8458.	Indenture dated February 1, 1998 between Sea Containers Ltd. and United States Trust Company of New York, Trustee, relating to 77/8% Senior Notes Due 2008.
4(d)	Exhibit 4.2 to Form S-4 Registration Statement No. 333-11040.	Indenture dated October 1, 1999 between Sea Containers Ltd. and United States Trust Company of New York, Trustee, relating to 103/4% Senior Notes Due 2006.
4(e)	Exhibit 4.1 to April 28, 2004 Form 8-K Current Report (File No. 1-7560).	Indenture dated May 1, 2004 between Sea Containers Ltd. and The Bank of New York, Trustee, relating to Debt Securities issuable from time to time.
4(f)	Exhibit 4.2 to April 28, 2004 Form 8-K Current Report (File No. 1-7560).	Officers' Certificate dated May 3, 2004 relating to 101/2% Senior Notes Due 2012 pursuant to Exhibit 4(e).
4(g)	Exhibit 4.1 to September 30, 2001 Form 10-Q Quarterly Report (File No. 1-7560).	Amended and Restated Indenture dated July 16, 2001 between Sea Containers SPC Ltd. and The Bank of New York, Trustee.
4(h)	Exhibit 4.2 to Form S-4 Registration Statement No. 333-103995.	Indenture dated June 1, 2003 between Sea Containers Ltd. and The Bank of New York, Trustee, relating to 13% Senior Notes Due 2006.

110

4(i)	Exhibit 4.2 to Form S-4 Registration Statement No. 333-103999.	Indenture dated July 1, 2003 between Sea Containers Ltd. and The Bank of New York, Trustee, relating to 121/2% Senior Notes Due 2009.
4(j)	Exhibit 10.1 to September 30, 2003 Form 10-Q Quarterly Report (File No. 1-7560).	Term Loan and Revolving Credit Facility Agreement dated November 5, 2003 among Silja Oy Ab, certain Silja subsidiaries and a syndicate of lending banks.
4(k)	Exhibit 10.2 to September 30, 2003 Form 10-Q Quarterly Report (File No. 1-7560).	Loan Facility Agreement dated November 5, 2003 among Sea Containers Ltd., Silja Oy Ab, certain Silja subsidiaries and a syndicate of lending banks.
SCL has no instrument with respect to long-term debt not listed above under which the total amount of securities authorized exceeds 10% of the total assets of SCL on a consolidated basis. The Company agrees to furnish to the SEC upon request a copy of each instrument with respect to long-term debt not filed as an exhibit to this report.
10(a)	Exhibit 10(a) to 1988 Form 10-K Annual Report (File No. 1-7560).	Supplement to Terms of Employment of James B. Sherwood and Edwin S. Hetherington.
10(b)	Exhibit 10(b) to 1997 Form 10-K Annual Report (File No. 1-7560).	Supplement to Terms of Employment of James A. Beveridge.
10(c)	Exhibit 10(h) to 1991 Form 10-K Annual Report (File No. 1-7560).	Sea Containers Ltd. 1991 Stock Appreciation Rights Plan.
10(d)	Exhibit 10(a) to September 30, 1998 Form 10-Q Quarterly Report (File No. 1-7560).	Sea Containers Ltd. 1997 Stock Option Plan.
10(e)		Sea Containers Ltd. 2004 Stock Option Plan.
10(f)	Exhibit 10(i) to 1997 Form 10-K Annual Report (File No. 1-7560).	Omnibus Agreement dated March 19, 1998 among Sea Containers Ltd., GE SeaCo SRL, Genstar Container Corp. and GE Capital Container SRL (without Attachments).
10(g)	Exhibit 2.1 to Form S-1 Registration Statement No. 333-12030.	Services Agreement dated August 1, 2000 among Sea Containers Ltd., Sea Containers Services Ltd. and Orient-Express Hotels Ltd.
10(h)	Exhibit 10.6 to 2001 Form 10-K Annual Report of Orient-Express Hotels Ltd. (File No. 1-16017).	Amendment of Services Agreement dated January 1, 2001 (Exhibit 10(g) above).
10(i)	Exhibit 2.3 to Form S-1 Registration Statement No. 333-12030.	Tax Sharing Agreement dated August 1, 2000 between Sea Containers Ltd. and Orient-Express Hotels Ltd.

111

10(j)	Exhibit 2.5 to Form S-1 Registration Statement No. 333-12030.	Noncompete Agreement dated August 1, 2000 between Sea Containers Ltd. and Orient-Express Hotels Ltd.
10(k)		InterCity East Coast Franchise Agreement dated March 18, 2005 between Strategic Rail Authority and Great North Eastern Railway Ltd.
10(l)		Conditions Precedent Agreement dated March 18, 2005 between Strategic Rail Authority and Great North Eastern Railway Ltd.
10(m)		Definitions Agreement dated March 18, 2005 between Strategic Rail Authority and Great North Eastern Railway Ltd.
11		Statement of computation of per share earnings.
12		Statement of computation of ratios.
14	Exhibit 14 to 2003 Form 10-K Annual Report (File No. 1-7560).	Code of Business Practices for Principal Executive, Financial and Accounting Officers.
21		Subsidiaries of Sea Containers Ltd.
23		Consents of Deloitte & Touche LLP relating to Form S-3 Registration Statement No. 33-76840 and Form S-8 Registration Statement No. 333-13356.
31		Rule 13a-14(a)/15d-14(a) Certifications.
32		Section 1350 Certification.
99(a)	Exhibit 28 to 1987 Form 10-K Annual Report (File No. 1-7560).	Undertakings to be incorporated by reference into Form S-8 Registration Statement No. 33-29576.
99(b)		Item 1-Business from 2004 Form 10-K Annual Report of Orient-Express Hotels Ltd. (File No. 1-16017).
99(c)		Corporate Governance Guidelines of Sea Containers Ltd.

112

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PART I

ITEM 1. Business

FERRY OPERATIONS
RAIL OPERATIONS
CONTAINER LEASING
ORIENT-EXPRESS HOTELS
OTHER SCL ACTIVITIES

ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders

PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

Sea Containers Ltd. and Subsidiaries Consolidated Balance Sheets
Sea Containers Ltd. and Subsidiaries Statements of Consolidated Operations
Sea Containers Ltd. and Subsidiaries Statements of Consolidated Cash Flows
Sea Containers Ltd. and Subsidiaries Statements of Consolidated Shareholders' Equity
Sea Containers Ltd. And Subsidiaries Notes to Consolidated Financial Statements

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information

PART III

ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

ITEM 13. Certain Relationships and Related Transactions
ITEM 14. Principal Accountant Fees and Services

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

Sea Containers Ltd. and Subsidiaries Schedule II—Valuation and Qualifying Accounts
SIGNATURES
EXHIBIT INDEX

EX-10.(E)

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Exhibit 10(e)

SEA CONTAINERS LTD.
2004 STOCK OPTION PLAN
(As adopted by the Board of Directors on February 9, 2004,
and approved by shareholders on June 7, 2004.)

1. The Plan

        Sea Containers Ltd. (the "Company") may grant, in the manner and upon the terms and conditions set forth herein, options to purchase not in excess of an aggregate of 500,000 *Class A or Class B common shares of the Company (adjusted, if necessary, in accordance with Section 12) to eligible directors, officers and employees of the Company and its subsidiaries (as determined in accordance with Section 3). Shares may be either authorized but unissued shares or acquired shares.

2. Administration of the Plan

        The Plan shall be administered, and the options hereunder shall be granted, by the Board of Directors of the Company or a committee thereof from time to time constituted pursuant to the Bye-Laws of the Company. Any decision of the Board or the committee shall be final and conclusive in all matters relating to the Plan. The Board or the committee may make or vary regulations for the administration and operation of the Plan not inconsistent with the provisions hereof. The Board or the committee may act only by a majority of its members in office, except that the members may authorize any one or more of their number or the Secretary of the Company to execute and deliver documents on their behalf. No member of the Board or the committee shall be liable for anything done or omitted to be done by him or by any other member in connection with the Plan, except for his own willful misconduct or as expressly provided by statute.

        The Board or the committee shall have authority to (a) adopt a subsidiary plan (the "U.K. Plan") under the Plan which provides for the grant of options on shares reserved under the Plan to eligible United Kingdom resident directors, officers and employees and complies with the requirements imposed by the United Kingdom Board of Inland Revenue, and (b) prescribe the form of options granted under the Plan; provided, however, in each case that the terms and conditions of the U.K. Plan and the form of the option are not more favorable to optionees than the terms and conditions of the Plan. Any option granted under the U.K. Plan shall be deemed to be outstanding also under the Plan.

        The Board or the committee is authorized, in its discretion exercised at the time of grant, to designate options as "United States incentive stock options" within the meaning of Section 422 of the United States Internal Revenue Code.

3. To Whom Options May Be Granted

        Options may be granted to those directors, officers and employees of the Company or any subsidiary who, in the opinion of the Board or the committee, have contributed significantly to the growth and progress of the Company or any subsidiary or to persons who, in the opinion of the Board or the committee, hold promise of contributing to the growth and progress of the Company or any subsidiary and who can be attracted to directorship, officership or employment through the grant of options under the Plan. The Board or the committee is hereby given the authority to determine which of the eligible directors, officers and employees are to be granted options and the number of shares to be allocated to each.

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        No United States incentive stock option shall be granted to a person who is not an employee or (except as provided in Sections 4 and 7) to an employee who owns (or would be regarded as owning) shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company or its subsidiaries at the time the option is granted. In addition, in the case of United States incentive stock options, the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under all United States incentive stock option plans of the Company and its subsidiaries) shall not exceed U.S.$100,000.

        The term "subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company, each of which owns at the time such option is granted (except in the case of the last such corporation in the chain) shares possessing 50 percent or more of the total combined voting power of all classes of shares in one of the other corporations in such chain.

4. Option Price

        The option price per share shall be not less than the fair market value of the shares subject to the option at the time it is granted, as determined in good faith by the Board or the committee. If a United States incentive stock option is granted to an employee who at the time the option is granted owns (or would be regarded as owning) shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company or its subsidiaries, the option price shall be at least 110 percent of the fair market value of the shares subject to the option at the time it is granted. The option price shall be subject to adjustment in accordance with Section 12.

5. Circumstances Under Which Options May Be Granted

        Options may be granted at any time and from time to time on or after the date on which the Plan is adopted by the Board of Directors of the Company and before the expiration of ten years therefrom. If prior to the expiration of ten years from the date on which the Plan is adopted, an option shall expire or otherwise terminate without having been exercised in full, the unexercised shares shall thereupon become available for the granting of options to other eligible directors, officers and employees. No option shall be granted unless, at the time such option is granted, the Company shall have available at least the number of shares covered by such option and by all other options then outstanding under the Plan.

6. Options Not Assignable

        Every option granted under the Plan shall provide that it is not transferable by the person to whom it is granted, otherwise than by will or the laws of descent and distribution, and that it is exercisable, during his lifetime, only by him.

7. Manner of Exercise of Options

        Any person to whom an option has been granted may exercise the same, subject to the provisions of Section 10, at any time and from time to time before the expiration of not more than ten years (or, in the case of any United States incentive stock option granted to an employee subject to the second sentence of Section 4, not more than five years) from the date the option was granted. Any such exercise shall be effected by giving written notice to the Company, in a form satisfactory to the Board or the committee, specifying the number of shares with respect to which the option is being exercised. Any person to whom an option has been granted under the U.K. Plan may exercise the same under the Plan, subject to all the provisions hereof and provided that in the written notice of exercise the person states that he is exercising under the Plan and not under the U.K. Plan.

2

8. Manner of Payment on Exercise of Options

        At the time of giving such notice, such person shall pay or cause to be paid to the Company the full option price of the shares as to which the option is exercised. As soon as practicable thereafter, the Company shall cause a certificate or certificates for such shares to be registered in the name of such person, in such denominations as such person may direct, and shall deliver said certificate or certificates to or upon the order of such person.

        Notwithstanding the foregoing, on concurrence by the Board or the committee (which concurrence may be granted or withheld in its sole discretion) the person exercising an option may elect to defer, for a term not to exceed five years from the date of exercise, payment of all or a portion of the option price of the shares as to which the option is exercised, provided, however that:

(a)

in the case of an optionee who is a "United States person" within the meaning of Regulation X of the Board of Governors of the Federal Reserve System of the United States of America, the portion of the option price so deferred for future payment shall not exceed the "good faith loan value" of the shares, within the meaning of the applicable provisions of Regulation G of such Board and as may be in effect on the date of exercise if such deferral is then subject to such regulation;



(b)

the shares for which the option is exercised shall be issued to and registered in the name of the person exercising the option but shall be endorsed by the person in blank (either on the certificate or on a separate stock power) and held by the Company as collateral for the deferred portion of the option price;



(c)

the person exercising the option shall execute a promissory note or other instrument of like effect in favor of the Company in a principal amount equal to the deferred portion of the option price, which instrument shall provide for the payment of interest at the rate, determined by the Board or the committee, of at least four percent per annum, payable quarterly;



(d)

the person exercising the option shall have the right at any time and from time to time to withdraw part or all of the option shares from the collateral so held by the Company upon payment of a corresponding portion of the deferred option price, together with any accrued interest thereon, and that upon such payment the person exercising the option shall be discharged under the promissory note or other instrument, pro tanto, and shall then be free to dispose of the shares in any manner he may deem appropriate, subject to the relevant conditions and restrictions of the Plan; and



(e)

the deferred payment arrangement shall be subject to such further terms and conditions as may be prescribed by the Board or the committee upon the exercise of options.

        The person exercising an option shall be entitled, from the date of exercise, to all the rights of a shareholder as to the shares covered by the exercise, including the right to vote the shares and to receive and retain all dividends paid thereon.

3

9. Exercise After Death of Person to Whom Granted

        In the event the person to whom an option is granted shall die owning but without having fully exercised the option, his estate or any person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the optionee may, subject to the provisions of Section 10 (except subsection 10(b) and (d)), exercise the option at any time and from time to time before the expiration of the period of one year after the date of death, notwithstanding that the exercise may occur less than three years or more than ten years after the date of grant thereof, but only if the person so exercising the option shall have furnished the Company with evidence satisfactory to the Company of the person's right to exercise the option and of payment or provision for the payment of any estate, transfer, inheritance or death taxes payable with respect to the option or the shares to which it relates. Any such exercise shall be effected in the manner described in Sections 7 and 8. Any such exercise, however, shall not be permitted in the case of a United States incentive stock option after the expiration of ten years from the date the option was granted.

10. Circumstances Under Which Options May Not Be Exercised

        Every option under the Plan shall provide that it may not be exercised (except as may be otherwise provided in Sections 9 and 11):

(a)

until the shares reserved for issuance upon the exercise thereof have been listed upon any national securities exchange in the United States of America on which the Company's Class A or B common shares are then listed;



(b)

until the expiration of a period of three years from the date the option was granted, and in any event not after (i) the expiration of a period of three months from the date a person ceases to be a director, officer or employee of the Company or a subsidiary thereof under circumstances not involving misconduct, impropriety or inefficiency on his part or (ii) the termination of the directorship, officership or employment of a person by the Company or a subsidiary thereof or the shareholders for reasons involving misconduct, impropriety or inefficiency on his part; provided, however, that a person ceasing to be a director, officer or employee of the Company or a subsidiary thereof on account of (i) retirement at or after the normal retirement date, (ii) early retirement not earlier than five years before the normal retirement date, (iii) injury or disability, (iv) dismissal for redundancy or (v) on concurrence of the Board or the committee (which concurrence may be granted or withheld in its sole discretion), the sale or other disposition of the subsidiary for which the person acts as director or officer or which employs the employee or the operating division of the Company or a subsidiary for which the employee performs his employment, shall be entitled to exercise an option at any time prior to the expiration of a period of three months from the date he ceases to be a director, officer or employee of the Company or a subsidiary thereof notwithstanding that such exercise is made prior to the expiration of a period of three years from the date such option was granted (and for purposes of this Section 10 hereof, the directorship, officership or employment of any person with the Company or a subsidiary thereof shall not be deemed to have ceased or terminated so long as such person shall continuously since the date of grant of the option be a director, officer or employee either of the Company or a subsidiary thereof or of Orient-Express Hotels Ltd. or a subsidiary thereof);



(c)

unless the Board or the committee shall be satisfied that the issuance of shares upon exercise will be in compliance with all relevant rules and regulations of the United States Securities and Exchange Commission; or



(d)

after the expiration of ten years from the date the option is granted.

4

11. Change in Control

        For purposes of this Section 11, "Change in Control" means any of the following events:

(a)

any "person" (as that term is defined for the purposes of Section 13(d) or 14(d) of the U.S. Securities Exchange Act of 1934), other than James B. Sherwood or a group including James B. Sherwood or any subsidiary of the Company, shall directly or indirectly acquire more than 40% of the voting shares of the Company then outstanding and then entitled to vote generally in the election of directors of the Company; or



(b)

individuals who, on the date of adoption of the Plan, constitute the Company's Board of Directors (or the successors of such individuals nominated by such Board of Directors or a committee thereof on which such individuals or their successors constitute a majority) shall cease to constitute a majority of the Company's Board of Directors; or



(c)

the Company amalgamates, merges or consolidates with or into any other corporation, other than a corporation which directly, or indirectly through one or more intermediaries, is controlled by James B. Sherwood or a group including James B. Sherwood, without the approval of its Board of Directors constituted as provided in clause (b) above; or



(d)

the Company sells, leases, exchanges or otherwise disposes of all or substantially all of its assets and business without the approval of its Board of Directors constituted as provided in clause (b) above.

        In the event of a Change in Control, and notwithstanding anything to the contrary in Section 3, any outstanding option granted under the Plan which an optionee shall not then have been entitled to exercise shall become exercisable immediately prior to or concurrently with the occurrence of the Change in Control and the optionee shall have the right to exercise all such options.

        Notwithstanding anything in the Plan to the contrary, in the event of exercise of an option following a Change in Control, the optionee may elect, in the written notice provided for in Sections 7 and 8, (i) to pay or cause to be paid to the Company the full option price of the shares as to which the option is exercised, or (ii) to surrender to the Company all or any part of an option and receive from the Company upon such surrender an amount in cash equal to the excess, if any, of the determined value of the shares subject to the option or portion thereof so surrendered over the aggregate exercise price of such shares as set forth in the applicable option grant letter. The term "determined value" as used herein means the higher of (A) the highest sale price per Class A or B common share of the Company on the New York Stock Exchange (or, if any of such shares are not listed on that exchange at that time, then the highest sale price of the shares on the principal stock exchange on which such shares are listed, or if such shares are not listed, then the over-the-counter market) during the 12 months immediately preceding the date of the Change in Control, or (B) the highest price per share actually paid in connection with any Change in Control (including, without limitation, prices paid in any subsequent amalgamation, merger or combination with any entity that acquires control of the Company), in either case multiplied by the number of shares subject to the option or portion thereof so surrendered. In the event of a surrender of all or a portion of an option pursuant to this Section, the number of shares as to which the option was surrendered shall not again become available for use under the Plan.

5

        The obligations of the Company under the Plan shall be binding upon any successor company, corporation or other organization resulting from any amalgamation, merger, consolidation or other reorganization of the Company, or upon any successor company, corporation or organization succeeding to all or substantially all of the assets and business of the Company, in any such case which would constitute a Change in Control. The Company agrees that it will make appropriate provisions for the preservation of all optionees' rights under the Plan in any agreement or plan that it may enter into or adopt to effect any such amalgamation, merger, consolidation, reorganization or transfer of assets constituting a Change in Control.

12. Adjustment of Number or Kind of Shares

        If the Company shall effect one or more share splits, share dividends, combinations of shares, exchanges of shares or similar capital adjustments, the Board or the committee shall appropriately adjust the aggregate number and kind of shares with respect to which options have been granted or may be granted under the Plan. Every option granted under the Plan shall provide that, in the event of any such capital adjustments, the number and kind of the shares with respect to which it may be exercised, and the option price, shall be appropriately adjusted.

13. Amendment

        The Plan may be amended from time to time by the Board of Directors of the Company. No amendment shall alter or impair any of the rights or obligations of any person, without his consent, under any option theretofore granted under the Plan.

14. Termination

        The Plan shall terminate upon the first of the following dates or events to occur:

(a)

if the Company is a participant in any corporate amalgamation, merger, consolidation or other transaction and no provision is made at the time of the transaction to continue the Plan, except as provided in Section 11;



(b)

resolution of the Board of Directors of the Company terminating the Plan; or



(c)

on February 8, 2014.

        In the event of termination of the Plan in any of the ways provided hereinabove, the provisions of the Plan shall continue in full force and effect as regards any options granted prior to such termination.

15. Effect of Options Upon Employment

        Nothing in the Plan shall be construed as giving any person acting as a director or officer of or employed by the Company or any subsidiary thereof the right to be retained in such directorship, officership or employment. The Company and any subsidiary thereof and the shareholders shall have the right to dismiss any director, officer or employee at any time with or without cause and without liability for the effect which such dismissal might have upon him as a participant under the Plan, and under no circumstances shall a person ceasing to be a director, officer or employee by reason of dismissal or otherwise be entitled to or claim against the Company or any subsidiary thereof any compensation for or in respect of any consequent reduction or loss of his rights or benefits (actual or prospective) under any option held by him in connection with the Plan.

16. Construction

        In all respects the Plan shall be governed by, and be construed in accordance with, the laws of the Islands of Bermuda.

* * * * *

6

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SEA CONTAINERS LTD. 2004 STOCK OPTION PLAN (As adopted by the Board of Directors on February 9, 2004, and approved by shareholders on June 7, 2004.)

1. The Plan
2. Administration of the Plan
3. To Whom Options May Be Granted
4. Option Price
5. Circumstances Under Which Options May Be Granted
6. Options Not Assignable
7. Manner of Exercise of Options
8. Manner of Payment on Exercise of Options
9. Exercise After Death of Person to Whom Granted
10. Circumstances Under Which Options May Not Be Exercised
11. Change in Control
12. Adjustment of Number or Kind of Shares
13. Amendment
14. Termination
15. Effect of Options Upon Employment
16. Construction

EX-10.(K)

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Exhibit 10(k)

18 March 2005

STRATEGIC RAIL AUTHORITY

and

GREAT NORTH EASTERN RAILWAY LIMITED

INTERCITY EAST COAST
FRANCHISE AGREEMENT

Contents

CLAUSE		PAGE
1.    Interpretation and Definitions		1
2.    Commencement		1
3.    Term		2
4.    Franchisee's Obligations		2
5.    Arm's Length Dealings		2
6.    Compliance with Laws		2
7.    Entire Agreement		3
8.    Governing Law		3
SCHEDULE 1		6
	Passenger Service Obligations	6
SCHEDULE 1.1		8
	Service Development	8
APPENDIX 1 TO SCHEDULE 1.1		20
	The Train Fleet	20
APPENDIX 2 TO SCHEDULE 1.1		24
	Service Development Additional Factors	24
SCHEDULE 1.2		26
	Operating Obligations	26
SCHEDULE 1.3		34
	Additional Service Specifications	34
SCHEDULE 1.4		38
	Passenger Facing Obligations	38
APPENDIX 1 TO SCHEDULE 1.4		48
	Form of Passenger's Charter	48
APPENDIX 2 TO SCHEDULE 1.4		66
	Alternative Transport	66
SCHEDULE 1.5		68
	Information about Passengers	68
SCHEDULE 1.6		70
	Committed Obligations	70
APPENDIX 1 TO SCHEDULE 1.6		98
	Programme of Committed Obligations	98
APPENDIX 2 TO SCHEDULE 1.6		102
	Liquidated Damages for Late Completion of Committed Obligations	102
APPENDIX 3 TO SCHEDULE 1.6		106
GNER HST Refurbishment		106

i

SCHEDULE 1.7		110
	Franchise Services	110
SCHEDULE 1.8		116
	Major Projects	116
SCHEDULE 2		118
	Assets, Leases, Third Parties, Other Franchise Operations and Schemes	118
SCHEDULE 2.1		119
	Asset Vesting and Transfer	119
SCHEDULE 2.2		121
	Security of Access Assets, Rolling Stock Leases, Station and Depot Leases	121
SCHEDULE 2.3		125
	Third Party Delivery of Passenger Services and Other Franchisees	125
SCHEDULE 2.4		127
	Other Franchise Operations	127
SCHEDULE 2.5		129
	Transport, Travel and Other Schemes	129
APPENDIX TO SCHEDULE 2.5		133
	List of Transport, Travel and Other Schemes	133
SCHEDULE 3		136
	Priced Options	136
SCHEDULE 4		138
	Maintaining and Enhancing Stations, Depots and Trains	138
SCHEDULE 4.1		140
	Franchise Facilities	140
APPENDIX TO SCHEDULE 4.1		146
	Station Surveys	146
SCHEDULE 4.2		148
	Persons with Disabilities and Disability Discrimination	148
APPENDIX TO SCHEDULE 4.2		154
	Minor Works	154
SCHEDULE 5		156
	Fares	156
SCHEDULE 5.1		158
	Purpose, Structure and Construction	158
SCHEDULE 5.2		162
	Franchisee's Obligation to Create Fares	162
SCHEDULE 5.3		164
	Allocation of Fares to Fares Baskets	164
SCHEDULE 5.4		166
	Regulation of Fares Basket Values	166

ii

SCHEDULE 5.5		168
	Regulation of Individual Fares	168
SCHEDULE 5.6		170
	Exceeding the Regulated Value, Regulated Price or Regulated Child Price	170
SCHEDULE 5.7		172
	Changes to Fares and Fares Regulation	172
SCHEDULE 5.8		176
	Fares Regulation Information and Monitoring	176
SCHEDULE 6		178
	Farebox Securitisation	178
SCHEDULE 7		180
	Performance Benchmarks/Key Performance Indicators	180
SCHEDULE 7.1		182
	Performance Benchmarks	182
APPENDIX 1 TO SCHEDULE 7.1		190
	Cancellations Benchmark Table	190
APPENDIX 2 TO SCHEDULE 7.1		192
	Capacity Benchmark Table	192
APPENDIX 3 TO SCHEDULE 7.1		194
	Network Rail Benchmark Table	194
APPENDIX 4 TO SCHEDULE 7.1		197
	Service Delivery Benchmark Table	197
SCHEDULE 7.2		200
	Key Performance Indicators	200
APPENDIX TO SCHEDULE 7.2		218
	Average Profit Table	218
SCHEDULE 8		223
	Payments	223
SCHEDULE 8.1		225
	Franchise Payments	225
SCHEDULE 8.2		233
	Annual Franchise Payments	233
APPENDIX 1 TO SCHEDULE 8.2		236
	Target Revenue (expressed in real terms)	236
APPENDIX 2 TO SCHEDULE 8.2		239
	Figures for Calculation of Annual Franchise Payments	239
APPENDIX 3 TO SCHEDULE 8.2		241
	(HRO scheme 1 only)	241
SCHEDULE 8.3		244
	Miscellaneous Payment Provisions	244

iii

SCHEDULE 8.4		246
	Track Access Adjustments and Station Charge Adjustments	246
SCHEDULE 9		250
	Changes	250
SCHEDULE 9.1		252
	Financial Consequences of Change	252
SCHEDULE 9.2		256
	Identity of the Financial Model etc.	256
SCHEDULE 9.3		258
	Runs of the Financial Model	258
APPENDIX TO SCHEDULE 9.3		264
	Incentivising Long-Term Investment	264
SCHEDULE 9.4		266
	Authority Risk Assumptions	266
SCHEDULE 10		268
	Remedies, Termination and Expiry	268
SCHEDULE 10.1		270
	Remedial Plans and Remedial Agreements	270
SCHEDULE 10.2		272
	Termination and Expiry	272
SCHEDULE 10.3		274
	Events of Default and Termination Event	274
SCHEDULE 10.4		280
	Force Majeure	280
SCHEDULE 10.5		285
	Liability	285
SCHEDULE 11		287
	Agreement Management Provisions	287
SCHEDULE 12		291
	Financial Obligations and Covenants	291
APPENDIX 1 TO SCHEDULE 12		299
	Form of Performance Bond	299
APPENDIX 2 TO SCHEDULE 12		305
	Form of Season Ticket Bond	305
SCHEDULE 13		314
	Franchise Management and Information Obligations	314
SCHEDULE 13.1		316
	Franchise Management	316
SCHEDULE 13.2		320
	Information	320

iv

APPENDIX 1 TO SCHEDULE 13.2		332
	Efficient Franchisee	332
APPENDIX 2 TO SCHEDULE 13.2		240
	Key Assets	340
APPENDIX 3 TO SCHEDULE 13.2		342
	Operational Information	342
APPENDIX 4 TO SCHEDULE 13.2		348
	Passenger Journeys, Miles and Earnings Information	348
SCHEDULE 14		350
	Preservation of Assets	350
SCHEDULE 14.1		352
	Maintenance of Franchise	352
SCHEDULE 14.2		354
	Maintenance of Operating Assets	354
SCHEDULE 14.3		358
	Key Contracts	358
APPENDIX TO SCHEDULE 14.3		362
	List of Key Contracts	362
SCHEDULE 14.4		364
	Designation of Franchise Assets	364
APPENDIX TO SCHEDULE 14.4		368
	List of Primary Franchise Assets	368
SCHEDULE 14.5		370
	Dealing with Franchise Assets	370
SCHEDULE 15		372
	Obligations Associated with Termination	372
SCHEDULE 15.1		374
	Reletting Provisions	374
SCHEDULE 15.2		376
	Last 12 or 13 Months of Franchise Period	376
SCHEDULE 15.3		382
	Handover Package	382
APPENDIX TO SCHEDULE 15.3		384
	Form of Handover Package	384
SCHEDULE 15.4		386
	Provisions Applying on and after Termination	386
APPENDIX 1 TO SCHEDULE 15.4		392
	Form of Transfer Scheme	392
APPENDIX 2 TO SCHEDULE 15.4		396
	Form of Supplemental Agreement	396

v

SCHEDULE 16		410
	Pensions	410
SCHEDULE 17		414
	Confidentiality	414
SCHEDULE 18		418
	Franchise Continuation Criteria	418
SCHEDULE 19		420
	Other Provisions	420

[Schedules omitted from this copy]

vi

THIS AGREEMENT is dated eighteenth March 2005

BETWEEN

(1)

STRATEGIC RAIL AUTHORITY, whose principal place of business is at 55 Victoria Street, London, SW1H 0EU (the Authority); and

(2)

GREAT NORTH EASTERN RAILWAY LIMITED, whose registered office is at Sea Containers House, 20 Upper Ground, London SE1 9PF (the Franchisee).

WHEREAS

        (A)  The Authority wishes to appoint a franchisee to provide railway passenger services within its InterCity East Coast franchise and expects its franchisee, on the terms of this Agreement, actively to seek, in all reasonable business ways, greatly improved performance over the Franchise Term from its employees, its Train Fleet and other assets, and from Network Rail and its other suppliers, so as to deliver to the passenger the best railway passenger service that can be obtained from the resources that are available to it.

        (B)  The Franchisee wishes to be appointed as the Authority's franchisee for its InterCity East Coast franchise and intends, on the terms of this Agreement, actively to seek, in all reasonable business ways, greatly improved performance over the Franchise Term from its employees, its Train Fleet and other assets, and from Network Rail and its other suppliers, so as to deliver to the passenger the best railway passenger service that can be obtained from the resources that are available to it.

        (C)  The following provisions of this Agreement are intended to reflect and give effect to the matters referred to in Recitals (A) and (B).

1.     INTERPRETATION AND DEFINITIONS

        1.1   In this Agreement:

Conditions Precedent Agreement means the agreement between the Authority and the Franchisee of even date herewith specifying certain conditions to be satisfied prior to issue of a Franchise Commencement Certificate.

Definitions Agreement means the agreement between the Authority and the Franchisee of even date herewith relating to the interpretation of this Agreement and the Conditions Precedent Agreement.

        1.2   This Agreement, the Conditions Precedent Agreement and the Definitions Agreement together constitute a single agreement, which is a "franchise agreement" for the purposes of the Act, and shall be interpreted in accordance with the Definitions Agreement.

2.     COMMENCEMENT

        2.1   The clauses of this Agreement and the provisions listed in clauses 2.1(a) to 2.1(r) (inclusive) shall take effect and be binding upon each of the Authority and the Franchisee immediately upon signature of this Agreement:

(a)

paragraph 5.3 of Schedule 1.4 (Passenger Facing Obligations);



(b)

appropriate provisions (if any) of Schedule 1.6 (Committed Obligations);



(c)

paragraph 1 of Schedule 2.1 (Asset Vesting and Transfer);



(d)

paragraph 2 of Schedule 2.2 (Security of Access Assets, Rolling Stock Leases, Station and Depot Leases);

1

(e)

paragraph 2 of Schedule 2.3 (Third Party Delivery of Passenger Services and Other Franchisees);



(f)

paragraphs 1 and 2 of Schedule 4.1 (Franchise Facilities);



(g)

Schedule 5.1 (Purpose, Structure and Construction);



(h)

Schedule 5.3 (Allocation of Fares to Fares Baskets);



(i)

Schedule 5.7 (Changes to Fares and Fares Regulation);



(j)

Schedule 9 (Changes);



(k)

Schedule 10 (Remedies, Termination and Expiry);



(l)

paragraphs 1 to 3 (inclusive) of Schedule 11 (Agreement Management Provisions);



(m)

paragraph 4 of Schedule 12 (Financial Obligations and Covenants);



(n)

Schedule 13.1 (Franchise Management);



(o)

paragraphs 1, 2, 5, 6, 7 and 8 of Schedule 13.2 (Information);



(p)

Schedule 14.3 (Key Contracts);



(q)

Schedule 17 (Confidentiality); and



(r)

Schedule 19 (Other Provisions).

        2.2   The other provisions of this Agreement shall take effect and become binding upon the parties on the Franchise Commencement Date.

3.     TERM

        This Agreement shall terminate on the Expiry Date or on the date of any earlier termination pursuant to clause 2.2(a) of the Conditions Precedent Agreement or pursuant to Schedule 10 (Remedies and Termination).

4.     FRANCHISEE'S OBLIGATIONS

        4.1   The Franchisee shall perform its obligations under this Agreement in accordance with their terms and with that degree of skill, diligence, prudence and foresight which would be exercised by a skilled and experienced Train Operator of the InterCity East Coast franchise.

        4.2   Any obligation on the part of the Franchisee to use all reasonable endeavours shall extend to consequent obligations adequately to plan and resource its activities, and to implement those plans and resources, with all due efficiency and economy.

        4.3   The Franchisee shall co-operate with the Authority and act reasonably and in good faith in and about the performance of its obligations and the exercise of its rights pursuant to this Agreement.

5.     ARM'S LENGTH DEALINGS

        The Franchisee shall ensure that every contract or other arrangement or transaction to which it may become party in connection with this Agreement with any person is on bona fide arm's length terms.

6.     COMPLIANCE WITH LAWS

        The Franchisee shall at all times during the Franchise Term perform the Franchise Services and all its other obligations under this Agreement in accordance with all applicable Laws.

2

7.     ENTIRE AGREEMENT

        7.1   This Agreement, the Definitions Agreement and the Conditions Precedent Agreement contain the entire agreement between the parties in relation to the subject matter of this Agreement and supersede all prior agreements and arrangements between the parties other than any confidentiality agreements or undertakings which the Franchisee may have entered into with the Authority in connection with its proposal to secure the provision of the Passenger Services under this Agreement.

        7.2   The Franchisee hereby acknowledges that it is not entering into this Agreement in reliance on any warranties, representations or undertakings howsoever or to whomsoever made except in so far as such are:

(a)

contained in this Agreement; or



(b)

embodied in any warranties, representations or undertakings contained in the long form report provided by the Reporting Accountants in respect of Great North Eastern Railway, dated 22 July 2004.

        7.3   The Franchisee hereby acknowledges and agrees with the Authority (for itself and as trustee for each of the other persons referred to therein) to the disclaimer of liability which is contained in the section entitled "Important Notice" contained in any document supplied by or on behalf of the Authority in connection with this Agreement, the process leading to the entering into of this Agreement, or the Franchise Services (including any "Invitation to Tender" issued in connection therewith).

        7.4   The Franchisee irrevocably and unconditionally waives any right which it may otherwise have to claim damages in respect of and/or to rescind this Agreement on the basis of any warranty, representation (whether negligent or otherwise, and whether made prior to and/or in this Agreement) or undertaking howsoever or to whomsoever made unless and to the extent that such warranty, representation or undertaking was made fraudulently.

8.     GOVERNING LAW

        This Agreement shall be governed by and construed in accordance with the Laws of England and Wales and the parties irrevocably agree that the courts of England and Wales are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement, except as expressly set out in this Agreement.

3

IN WITNESS whereof the parties hereto have executed this Agreement the day and year first before written.

THE CORPORATE SEAL OF THE STRATEGIC RAIL AUTHORITY HEREUNTO AFFIXED IS AUTHENTICATED BY: ROBERT PLAMPLIN	}
SIGNED FOR AND ON BEHALF OF THE FRANCHISEE DIRECTOR: DIRECTOR:	}	CHRISTOPHER GARNETT SHAUN MILLS

4

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EX-10.(L)

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Exhibit 10(l)

18 March 2005

STRATEGIC RAIL AUTHORITY

and

GREAT NORTH EASTERN RAILWAY LIMITED

CONDITIONS PRECEDENT AGREEMENT

relating to

THE INTERCITY EAST COAST
FRANCHISE AGREEMENT

CONTENTS

CLAUSE		PAGE
1. INTERPRETATION AND DEFINITIONS		1
2. SATISFACTION OF CONDITIONS PRECEDENT		1
3. REPRESENTATIONS AND WARRANTIES		2
APPENDIX 1		4
	Conditions Precedent	4
APPENDIX 2		8
	List of Conditions Precedent Documents	8

THIS AGREEMENT is dated 18 March 2005

BETWEEN

(1)

STRATEGIC RAIL AUTHORITY, whose principal place of business is at 55 Victoria Street, London, SW1H 0EU (the Authority); and

(2)

GREAT NORTH EASTERN RAILWAY LIMITED, whose registered office is at Sea Containers House, 20 Upper Ground, London SE1 9PF (the Franchisee).

WHEREAS

        (A)  The Authority and the Franchisee have entered into the Franchise Agreement which sets out the terms on which the Franchisee will provide the Franchise Services.

        (B)  The parties wish to record in this Agreement certain conditions to be satisfied prior to the issue of the Certificate of Commencement.

        (C)  The Franchisee wishes to make certain representations and warranties to the Authority.

1.     INTERPRETATION AND DEFINITIONS

        1.1   In this Agreement:

Definitions Agreement means the Agreement between the Authority and the Franchisee of the date hereof relating to the interpretation of this Agreement and the Franchise Agreement.

        1.2   This Agreement, the Franchise Agreement and the Definitions Agreement together constitute a single agreement, which is a "franchise agreement" for the purposes of the Act, and shall be interpreted in accordance with the Definitions Agreement.

2.     SATISFACTION OF CONDITIONS PRECEDENT

2.1(a)

On or prior to the Long Stop Date, the Franchisee shall satisfy or procure the satisfaction of the conditions precedent set out in Appendix 1 (Conditions Precedent) to this Agreement.

(b)

Subject to clause 2.1(d) of this Agreement, as soon as the Authority is satisfied that each of the conditions precedent in this Agreement has been satisfied (except to the extent waived by the Authority, subject to such conditions as the Authority shall impose to any such waiver) it shall issue to the Franchisee a Certificate of Commencement, which shall specify the Franchise Commencement Date.

(c)

If the Authority waives the satisfaction of any conditions precedent pursuant to clause 2.1(b) of this Agreement, the Franchisee shall procure that such conditions precedent, together with any conditions attaching to such waiver, are satisfied as soon as reasonably practicable thereafter, or at such other later time as the Authority may stipulate.

(d)

The Authority may take such actions or steps as it considers appropriate to ensure that the Franchise Commencement Date occurs on a day which is, in its opinion, convenient or desirable, bearing in mind the interests of the Authority, the Franchisee (5) and other persons likely to be affected by the day on which such Franchise Commencement Date occurs. To achieve this, the Authority may, in its discretion, permit the Franchisee to delay satisfaction of some or all of the conditions precedent until such day as the Authority may notify the Franchisee.

1

(e)

Where agreements or deeds are required to be entered into or executed and delivered or any steps required to be taken under this clause 2.1 by the Franchisee or the Bond Providers, the Authority may require, as an additional condition precedent, further documentation (including legal opinions) or evidence of the power and authorisation of the relevant person to enter into, execute or deliver any such agreement or deed or take any such steps, and the Franchisee shall promptly supply such additional evidence.

(f)

Where the Franchisee is required to enter into any agreement in satisfaction of the conditions precedent set out in Appendix 1 to this Agreement and such agreement contains a condition precedent requiring the Franchise Agreement to be unconditional, provided the Franchisee has satisfied all the other conditions precedent set out in such agreement, the requirement to enter into such agreement will be deemed to be satisfied.

Consequences of non-fulfilment

2.2(a)

The Authority may give notice to the Franchisee terminating the Franchise Agreement if the Certificate of Commencement has not been issued on or before the Long Stop Date or if the Authority reasonably considers that any condition precedent in this Agreement will not be satisfied before the Long Stop Date. If such notice is given, the Franchise Agreement shall terminate on the Long Stop Date or such earlier date as the Authority may specify.

(b)

On termination of the Franchise Agreement pursuant to clause 2.2(a) of this Agreement, neither party shall have any liability to the other party, save in respect of:

(i)

their respective obligations as to confidentiality under Schedule 17 (Confidentiality) of the Franchise Agreement;

(ii)

any other obligations which, by their nature, survive the termination of the Franchise Agreement; and

(iii)

any breach of their respective obligations hereunder or under the Franchise Agreement arising in respect of the period prior to the Long Stop Date.

3.     REPRESENTATIONS AND WARRANTIES

Franchise replacement process

        3.1   The Franchisee represents and warrants to the Authority, subject only to any matter fully and fairly disclosed to the Authority in writing (and accepted by it) or expressly referred to in the audited accounts of the Franchisee or expressly provided for under the terms of this Agreement:

(a)

that it has not acted in breach of any of the terms of the Franchise Letting Process Agreement; and



(b)

that all of the information, representations and other matters of fact communicated in writing to the Authority and/or its advisers by the Franchisee, its directors, officers, employees, servants or agents in connection with or arising out of the Franchisee's proposal to secure the provision and operation of the Franchise Services were (at the dates submitted to the Authority or such advisers) and remain as at the Franchise Commencement Date, in all material respects, true, accurate and not misleading.

2

Updating of warranties

        3.2   The Franchisee further undertakes to the Authority, subject to clause 3.3 of this Agreement, that:

(a)

the representations and warranties contained in clause 3.1 will be true and accurate in all material respects and not misleading in any material respect at, the Franchise Commencement Date as if they had been given on the Franchise Commencement Date with reference to the facts and circumstances then subsisting; and



(b)

if after the signing of the Franchise Agreement and before the Franchise Commencement Date any event shall occur or matter arise which results or may result in any of the representations and warranties in clause 3.1 being unfulfilled, untrue, misleading or incorrect in any material respect at the Franchise Commencement Date, the Franchisee shall immediately notify the Authority in writing thereof and the Franchisee shall provide such information concerning the event or matter as the Authority may require.

Exceptions

        3.3   No right to damages or compensation shall arise in favour of the Authority under clause 3.2 in consequence only of:

(a)

an event occurring or matter arising after the signing of the Franchise Agreement but before the Franchise Commencement Date; or



(b)

if the Authority gives notice terminating the Franchise Agreement in accordance with clause 2.2(a), the effective date of termination specified in such notice,

which constitutes a breach or non-fulfilment of any of the representations and warranties in clause 3.1 (whether or not the Franchise Agreement is terminated in consequence thereof) if:

(i)

the event or matter could not reasonably have been avoided or prevented by the Franchisee; and



(ii)

the event or matter was duly notified to the Authority in accordance with clause 3.2(b).

IN WITNESS whereof the parties hereto have executed this Agreement the day and year first before written.

THE CORPORATE SEAL OF THE STRATEGIC RAIL AUTHORITY HEREUNTO AFFIXED IS AUTHENTICATED BY: ROBERT PLAMPLIN	}
SIGNED FOR AND ON BEHALF OF THE FRANCHISEE DIRECTOR: DIRECTOR:	}	CHRISTOPHER GARNETT SHAUN MILLS

3

APPENDIX 1

Conditions Precedent

1.     LICENCES

        1.1   The Authority has received, on or before the Franchise Commencement Date, written notice from the ORR, addressed to the Authority and in a form satisfactory to the Authority, which confirms that:

(a)

the Franchisee has been granted or will be granted the Licences;



(b)

the Licences will take effect no later than the Franchise Commencement Date; and



(c)

the ORR is not aware of any reason why any of the Licences should be revoked.

        1.2   The Authority shall, in addition, where the Licences are not in existence at the date of signature of the Franchise Agreement, have received evidence on or before the Franchise Commencement Date in form and substance satisfactory to it, that:

(a)

any of the Licences are not subject to any conditions which, if they had been known to the Authority before the signature of the Franchise Agreement, would, in its reasonable opinion, have resulted in the Authority not entering into the Franchise Agreement, or entering into the Franchise Agreement on materially different terms; and



(b)

any conditions imposed by the ORR on any of the Licences are reasonably likely to be satisfied.

2.     SAFETY CASE

        The Authority has received, on or before the Franchise Commencement Date, written notice from the HSE, addressed to the Authority and in a form satisfactory to the Authority, which confirms that:

(a)

the Franchisee's Safety Case has been accepted;



(b)

the HSE has not directed any review or revision of the Safety Case; and



(c)

that no such review will be required as a result of the Franchise Agreement having been entered into or the commencement of the Franchise Services.

3.     ACCESS AGREEMENTS/PROPERTY LEASES

        3.1   The Franchisee has entered into the following agreements with the relevant counterparties in terms acceptable to the Authority on or before the Franchise Commencement Date:

(a)

the Track Access Agreement listed in paragraph 2.1 of Appendix 2 (List of Conditions Precedent Documents) to this Agreement;



(b)

the Access Agreements (and associated Collateral Agreements) in respect of the stations, depots and Major Stations listed in paragraphs 2.2 to 2.6 (inclusive) of Appendix 2 to this Agreement; and



(c)

the Connection Agreements (if any) in respect of the Depots.

        3.2   The Franchisee has entered into the following leases (and/or (in the case of (c)) agreements for lease) with Network Rail on or before the Franchise Commencement Date:

(a)

in respect of the Stations listed in paragraph 4.1 of Appendix 2 to this Agreement;



(b)

in respect of the Depots listed in paragraph 4.2 of Appendix 2 to this Agreement; and

4

(c)

in respect of Major Station Areas listed in paragraph 4.3 of Appendix 2 to this Agreement or such other form as agreed by the Authority,

with the intent that, for the purposes of Section 31 of the Act, the properties comprised in such leases will be used for or in connection with the provision of the Franchise Services.

4.     ROLLING STOCK LEASES

        The Franchisee is at the Franchise Commencement Date a party to the Rolling Stock Leases in respect of the Train Fleet listed in Table 1 of Appendix 1 (The Train Fleet) to Schedule 1.1 (Service Development) of the Franchise Agreement, such Rolling Stock Leases to be on terms approved by the Authority.

5.     OTHER KEY CONTRACTS

        The Franchisee is at the Franchise Commencement Date a party to the Key Contracts listed in paragraphs 4 to 8 of the Appendix (List of Key Contracts) to Schedule 14.3 (Key Contracts) of the Franchise Agreement to the extent that such Key Contracts are required by the Franchisee for the provision of the Franchise Services, such Key Contracts to be on terms approved by the Authority.

6.     DIRECT AGREEMENTS

        6.1   Subject to paragraph 6.2, the counterparty of any contract which will, as at the Franchise Commencement Date, be a Key Contract (including any such contract to which the Franchisee is required under this Agreement to be a party or have vested in it as at the Franchise Commencement Date), has entered into a Direct Agreement with the Authority in respect of such Key Contract on terms acceptable to the Authority.

        6.2   No Direct Agreement need be entered into by the counterparty to any Key Contract referred to in paragraph 6.1 where:

(a)

such counterparty is a Train Operator; and



(b)

such Train Operator is the provider of the services under such Key Contract which the Authority considers are reasonably necessary for securing the continued provision of the Franchise Services or the provision of services similar to the Franchise Services by a Successor Operator; or



(c)

in relation to the contracts listed at paragraphs 7 and 8 in the Appendix (List of Key Contracts) to Schedule 14.3 (Key Contracts).

7.     TRANSPORT, TRAVEL AND OTHER SCHEMES

        The Franchise is at the Franchise Commencement Date a party to the schemes listed in the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes) of the Franchise Agreement.

9.     PERFORMANCE BOND AND SEASON TICKET BOND

        The Authority has received on or before the Franchise Commencement Date the Performance Bond and the Season Ticket Bond duly executed and delivered by the relevant Bond Providers.

10.   POWER OF ATTORNEY

        The Authority has received on or before the Franchise Commencement Date the Power of Attorney (in agreed terms marked POA) duly executed and delivered by the Franchisee.

5

11.   PENSIONS

        The Franchisee has at the Franchise Commencement Date:

(a)

entered into the deeds of establishment, participation or adherence with the trustees of the Railways Pension Scheme and/or the Closed Schemes (as defined in Schedule 16 (Pensions) of the Franchise Agreement); and



(b)

taken such other steps (if any) as are required to secure compliance with the terms of paragraphs 1 to 3 (inclusive) of Schedule 16 of the Franchise Agreement (such compliance to also be from the Franchise Commencement Date).

12.   CONTINUING REPRESENTATIONS AND WARRANTIES

        The Authority is satisfied that no event has occurred which has or ought to have been notified to the Authority by the Franchisee under clause 3.2(b) of this Agreement (including, a change in identity of any 1 person, or 2 or more persons acting by agreement, who may Control the Franchisee as at the Franchise Commencement Date, other than as agreed with the Authority prior to the date of the Franchise Agreement) and which, if it had been known to the Authority before the signature of the Franchise Agreement, would, in its reasonable opinion, have resulted in:

(a)

it not entering into the Franchise Agreement with the Franchisee; or



(b)

it entering into this Franchise Agreement with the Franchisee on materially different terms.

13.   LONDON 2012 OLYMPIC GAMES

        The Franchisee has at Franchise Commencement Date entered into an Option Agreement for Advertising with London 2012.

14.   STATION IMPROVEMENT PROGRAMME

        The Authority has received, on or before the Franchise Commencement Date, the Franchisee's initial plan for the delivery of enhancement works at stations and associated car parks in terms complying with paragraph 10.1 of Schedule 1.6.

15.   CYCLE RACK SURVEY

        The Authority has received on or before the Franchise Commencement Date, the Franchisee's covered cycle storage space allocation to some or all of the Stations in the Station Improvement Plan, in terms complying with paragraph 12.2 of Schedule 1.6.

16.   COACH SERVICES

        The Authority has received, on or before the Franchise Commencement Date, written details of possible routes for two new coach services (together with advantages and disadvantages of each route), in terms complying with paragraph 25.2 of Schedule 1.6.

17.   TROLLEY REFURBISHMENT FOR THE HST FLEET

        The Authority has received, on or before the Franchise Commencement Date, a written plan setting out details of proposed trolley refurbishment for the HST fleet, in terms complying with paragraph 32.5 of Schedule 1.6.

6

18.   BASE CASE FINANCIAL MODEL—WHITE ROSE CLEARANCE

        The Authority has received, on or before the Franchise Commencement Date, an amended Base Case Financial Model with the White Rose Clearance removed from the infra-structure upgrade line and its costs replaced by an additional Class 67 locomotive, in a form satisfactory to the Authority.

19.   ROLLING STOCK

        The Authority has received, on or before the Franchise Commencement Date, a preliminary plan to determine the process and parties involved and the timescales for the presentation of a detailed plan for solving the problems relating to the correct operation of sliding door controls and air conditioning sets on all coaches at all times in terms complying with paragraph 32.13 of Schedule 1.6.

20.   NEVILLE HILL

        The Authority has received, on or before the Franchise Commencement Date, the Franchisee's preliminary plan to determine the processes and parties involved and the timescales for the presentation of a detailed plan for solving the problems relating to the improvement of maintenance standards out of Neville Hill including toilet availability and general exterior and interior conditions of sets that come into and out of Neville Hill in terms complying with paragraph 32.14 of Schedule 1.6.

21.   ENVIRONMENT

        The Authority has received, on or before the Franchise Commencement Date, the Franchisee's outline plans to produce a detailed plan on its policy on the disposal of lubricating oil in terms complying with paragraph 35.3 of Schedule 1.6.

22.   DIVERSIONS

        The Authority has received, on or before the Franchise Commencement Date, a structured diversionary strategy for all key locations along the East Coast Main Line in order to deal with pre-planned engineering blockades and emergency route blockades, in terms complying with paragraph 36.4 of Schedule 1.6.

23.   £30 MILLION UNSECURED SUBORDINATED LOAN FACILITIES AND DEED OF SUBORDINATION

        The Authority has received, on or before the Franchise Commencement Date, a copy of the finally executed version of the £30 million unsecured subordinated loan facility contemplated by paragraph 39.3 of Schedule 1.6, in terms complying with paragraph 39.3; and a deed of subordination as contemplated by paragraph 39.4 of schedule 1.6, in terms complying with paragraph 39.4.

24.   MINIMUM INITIAL CAPITAL REQUIREMENT

        Receipt by the Authority of evidence, satisfactory in form and substance, that:

(a)

GNER Holdings Limited has subscribed for £5 million ordinary shares of £1 each in the capital of the Franchisee in full at par; and



(b)

the Franchisee has validly issued and allotted such shares to GNER Holdings Limited.

25.   INITIAL BUSINESS PLAN

        The Authority has received, not less than five business days prior to the Franchise Commencement Date, the Initial Business Plan, as described in paragraph 2.1 of Schedule 13.2 (Information).

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APPENDIX 2

List of Conditions Precedent Documents

1.     Licences

        1.1   Passenger Train Operator's Licence granted to the Franchisee;

        1.2   Station Operator's Licence granted to the Franchisee;

        1.3   Depot Operator's Licence granted to the Franchisee; and

        1.4   Non-Passenger Train Operator's Licence granted to the Franchisee.

2.     ACCESS AGREEMENTS

        2.1    Track Access Agreement(s)

        Track Access Agreement(s) to which the Franchisee is currently a party.

        2.2    Station Access Agreements in Favour of Franchisee

        Station Access Agreements to which the Franchisee is currently a party for the following stations:

Berwick Upon Tweed; Darlington; Doncaster; Dunbar; Durham; Grantham; Newark Northgate; Newcastle; Peterborough; Retford; Wakefield Westgate; York.

        2.3    Depot Access Agreements in Favour of Franchisee

        Depot Access Agreements to which the Franchisee is currently a party for the following depots:

Aberdeen Clayhills; Edinburgh Craigentinny; London Bounds Green; London Ferme Park.

        2.4    Major Station Access Agreements in Favour of Franchisee

        Major Station Access Agreements with Network Rail to which the Franchisee is currently a party for the following stations:

London King's Cross; Edinburgh; Leeds.

        2.5    Station Access Agreements in Favour of Third Parties

        Station Access Agreements with the relevant beneficiaries to which the Franchisee is currently a party.

        2.6    Depot Access Agreements in Favour of Third Parties

        Depot Access Agreements with the relevant third parties to which the Franchisee is currently a party.

3.     SCHEMES

        3.1   The Discount Fares Schemes listed in paragraph 4 of the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes) of the Franchise Agreement.

        3.2   The Inter-Operator Schemes listed in paragraph 5 of the Appendix to Schedule 2.5 of the Franchise Agreement.

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4.     PROPERTY LEASES

        4.1    Stations

        Station Leases with Network Rail to which the Franchisee is currently a party for the following Stations:

Berwick Upon Tweed; Darlington; Doncaster; Dunbar; Durham; Grantham; Newark Northgate; Newcastle; Peterborough; Retford; Wakefield Westgate; York.

        4.2    Depots

        Depot Leases with Network Rail to which the Franchisee is currently a party for the following Depots:

Aberdeen Clayhills; Edinburgh Craigentinny; London Bounds Green; London Ferme Park.

        4.3    Major Station Areas

        Leases with Network Rail to which the Franchisee is currently a party for the following areas within the named Major Stations:

London King's Cross; Edinburgh; Leeds.

5.     BRAND LICENCES

        5.1   Exclusive Trade Mark Licence Agreement dated 10 December 1995 between the Franchising Director and the Franchisee in respect of certain trademarks relating exclusively to the Franchisee.

        5.2   Non-exclusive Trade Mark Licence Agreement dated 10 December 1995 between the Franchising Director and the Franchisee in respect of certain other trademarks not relating exclusively to the Franchisee.

6.     ANY OTHER CONDITIONS PRECEDENT DOCUMENTS

        6.1   Option Agreement for Advertising between London 2012 Limited and the Franchisee.

        6.2   Station Improvement Programme

        6.3   Cycle Rack Survey

        6.4   Coach Services Plan

        6.5   Trolley Refurbishment Plan for the HST fleet

        6.6   Base Case Financial Model—White Rose Clearance

        6.7   Rolling Stock Plan

        6.8   Neville Hill Maintenance Plan

        6.9   Fuel Oil Policy

        6.10 Diversionary Strategy along ECML

        6.11 Third Party Contracts

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QuickLinks

CONTENTS
APPENDIX 1 Conditions Precedent
APPENDIX 2 List of Conditions Precedent Documents

EX-10.(M)

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10(m)

18 March 2005

STRATEGIC RAIL AUTHORITY

and

GREAT NORTH EASTERN RAILWAY LIMITED

DEFINITIONS AGREEMENT

relating to

THE INTERCITY EAST COAST FRANCHISE AGREEMENT

Contents

CLAUSE		PAGE
1.	INTERPRETATION AND DEFINITIONS	1
2.	CONSTRUCTION AND INTERPRETATION	1
3.	DEFINITIONS	3
4.	GOVERNING LAW	38

THIS AGREEMENT IS DATED 18 MARCH 2005

BETWEEN

(1)

STRATEGIC RAIL AUTHORITY, whose principal place of business is at 55 Victoria Street, London, SW1H 0EU (the Authority); and

(2)

GREAT NORTH EASTERN RAILWAY LIMITED, whose registered office is at Sea Containers House, 20 Upper Ground, London SE1 9PF (the Franchisee).

WHEREAS

(A)

The Authority and the Franchisee have entered into the Franchise Agreement, relating to the designation by the Authority on 1 May 2005, pursuant to Section 23(1)(c) of the Act, of certain services for the carriage of passengers by railway as eligible for provision under franchise agreements.

(B)

The Authority and the Franchisee wish to set out in this Agreement definitions of the terms used in the Franchise Agreement.

1.     INTERPRETATION AND DEFINITIONS

        This Agreement, the Franchise Agreement and the Conditions Precedent Agreement together constitute a single agreement, which is a "franchise agreement" for the purposes of the Act, and shall be interpreted in accordance with this Agreement.

2.     CONSTRUCTION AND INTERPRETATION

        In the Franchise Agreement, except to the extent the context otherwise requires:

(a)

words and expressions defined in Part I of the Act have the same meanings when used therein provided that, except to the extent expressly stated, "railway" shall not have the wider meaning attributed to it by Section 81(2) of the Act;



(b)

words and expressions defined in the Interpretation Act 1978 have the same meanings when used in the Franchise Agreement;



(c)

the words "include", "including" and "in particular" are to be construed without limitation;



(d)

references to any person include its successors, transferees or assignees;



(e)

the words "subsidiary", "wholly owned subsidiary" and "parent undertaking" have the same meaning in the Franchise Agreement as in Sections 258 and 736 of the Companies Act 1985;



(f)

references to documents "in the agreed terms" are references to documents initialled by or on behalf of the Authority and the Franchisee;



(g)

references in any of the agreements comprising the Franchise Agreement to Recitals, clauses, Schedules, Parts, paragraphs and Appendices are to Recitals, clauses, Schedules, Parts of Schedules, paragraphs of Schedules and Appendices of Schedules of that agreement, unless expressly specified to the contrary, and the Schedules and Appendices form part of the agreement in which they appear;



(h)

references in any Schedule in any of the agreements comprising the Franchise Agreement to a Part, paragraph or Appendix are references to a Part, paragraph or Appendix of that Schedule (or the relevant Part of a Schedule), unless expressly specified to the contrary;



(i)

headings and references to headings shall be disregarded in construing the Franchise Agreement;

1

(j)

references to any enactment include any subordinate legislation made from time to time under such enactment and are to be construed as references to that enactment as for the time being amended or modified or to any enactment for the time being replacing or amending it and references to any subordinate legislation are to be construed as references to that legislation as for the time being amended or modified or to any legislation for the time being replacing or amending it;



(k)

references to an agreement or any other document shall be construed as referring to that agreement or document as from time to time supplemented, varied, replaced, amended, assigned or novated;



(l)

words importing the masculine gender include the feminine and vice-versa, and words in the singular include the plural and vice-versa;



(m)

wherever provision is made for the giving or issuing of any notice, endorsement, consent, approval, waiver, certificate or determination by any person, unless otherwise specified, such notice, endorsement, consent, approval, waiver, certificate or determination shall be in writing and the words "notify", "consent", "endorse", "approve", "waive", "certify" or "determine" and other cognate expressions shall be construed accordingly;



(n)

references to materials, information, data and other records shall be to materials, information, data and other records whether stored in electronic, written or other form;



(o)

references to the period of validity of any Fare are references to its period of validity excluding any rights of any purchaser thereof to extend such period under the Passenger's Charter, any equivalent document, or the terms and conditions attaching to such Fare (including any applicable conditions of carriage) in the event of the cancellation or delay of any of the railway passenger services for which such Fare is valid;



(p)

references to stations at which any train calls include stations at which such train commences or terminates its journey;



(q)

references to "railway passenger services" are to be construed subject to Section 214 of the Transport Act;



(r)

references to the provision of railway passenger services include the organisation of the relevant train movements and making the necessary arrangements with Network Rail or any other relevant Facility Owner;



(s)

references in lower case letters to terms defined in clause 3 of this Agreement shall be construed, where relevant, as being references to the terms defined as such in the franchise agreement or relevant agreement made under Section 30 of the Act or Section 211 or 213 of the Transport Act with any other Train Operator;



(t)

references to amendments or variations of contracts or arrangements include assignments, novations or other transfers of rights or obligations (in whole or in part) under such contracts or arrangements;



(u)

references to sums of money being expended by the Franchisee shall be to such sums exclusive of Value Added Tax;



(v)

references to the words "shall not be liable" are to be construed as meaning that no contravention of the Franchise Agreement and no Event of Default shall arise as a result of the matter to which such words relate; and



(w)

references to a "contravention of this Agreement" (and cognate expressions) are to be construed as meaning a breach of the Franchise Agreement.

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3.     DEFINITIONS

        In the Franchise Agreement, except to the extent the context otherwise requires, the following words and expressions have the following meanings:

2003 Nominal Ticket Sales has the meaning given to it in paragraph 3 of Schedule 5.4 (Regulation of Fares Basket Values);

2003 Ticket Price has the meaning given to it in paragraph 6.3 of Schedule 5.7 (Changes to Fares and Fares Regulation);

2003 Ticket Revenue has the meaning given to it in paragraph 4.1 of Schedule 5.4 (Regulation of Fares Basket Values);

Access Agreement has the meaning given to the term "access agreement" in Section 83(1) of the Act;

Act means the Railways Act 1993 (as modified, amended or replaced by the Transport Act 2000) and any regulations or orders made thereunder;

Actual Operating Costs means:

(a)

the Franchisee's total operating expenses for the period being reviewed as stated in its profit and loss account (including all amounts paid or payable to the Authority and taxation and dividends paid or payable, but excluding depreciation, amortisation and other non-cash items); and



(b)

either:



(i)

plus any reduction in total creditors over such period; or



(ii)

less any increase in total creditors over such period (where total creditors include rolling stock vehicle-related creditors due within one year, but exclude season ticket liabilities and capital borrowings);

Actual Passenger Demand has the meaning given to it in paragraph 1 of Schedule 1.5 (Information about Passengers);

Actuary has the meaning given to it in the Pension Trust;

Affiliate means, in respect of any person, any person by which that person is Controlled or which is Controlled by that person, or any person which is Controlled by any other Affiliate of that person;

Ancillary Service means any service specified in paragraph 5 of Schedule 1.7 (Franchise Services);

Annual Audited Accounts means the accounts of the Franchisee which:

(a)

comply with paragraph 3.11 of Schedule 13.2 (Information); and



(b)

are delivered to the Authority by the Franchisee in accordance with paragraph 3.9 of Schedule 13.2 (Information) and certified by its auditors as fair and true;

Annual Financial Statements means the final draft financial statements of the Franchisee which:

(a)

comply with paragraph 3.11 of Schedule 13.2 (Information);



(b)

give a fair and true view of the amount of Revenue earned by the Franchisee during any Franchisee Year (or part thereof), excluding:

(i)

any Revenue Share Adjustments paid or payable by the Franchisee to the Authority in respect of that Franchisee Year; and

3

(ii)

any Revenue Support Adjustments received or receivable from the Authority by the Franchisee in respect of that Franchisee Year;

(c)

contain:

(i)

a breakdown of the amount of Revenue referred to in paragraph (b), identifying the amount earned of each revenue flow specified in the definition of Revenue; and



(ii)

any explanatory notes which the Franchisee reasonably believes would assist the Authority in fulfilling the purpose referred to in paragraph (d); and



(d)

are delivered to the Authority by the Franchisee in accordance with paragraph 3.7 of Schedule 13.2 (Information) for the sole purpose of calculating any Revenue Share Reconciliation Amount or any Revenue Support Reconciliation Amount;

Annual Franchise Payment means, in relation to any Franchisee Year, the amount determined in accordance with Schedule 8.2 (Annual Franchise Payments);

Annual Management Accounts means the management accounts of the Franchisee which:

(a)

comply with paragraph 3.10 of Schedule 13.2 (Information); and



(b)

are delivered to the Authority by the Franchisee in accordance with paragraph 3.6 of Schedule 13.2 (Information);

Annual Season Ticket means a Season Ticket Fare which is valid in Standard Class Accommodation from (and including) the day on which it first comes into effect until (but excluding) the day which falls 12 months after such day;

ATOC means the Association of Train Operating Companies;

Authority Risk Assumptions means those assumptions set out in Schedule 9.4 (Authority Risk Assumptions);

Average Earnings Index means the average earnings index:

(a)

for the whole economy of the United Kingdom;



(b)

seasonally adjusted; and



(c)

excluding bonuses,

as published from time to time by the Office for National Statistics or, if such index shall cease to be published or if there is a material change in the basis of the index, such other average earnings index as the Authority may, after consultation with the Franchisee, determine to be appropriate in the circumstances;

Bank means a person which has a permission under Part IV of the Financial Services and Markets Act 2000 to carry on one or more of the regulated activities provided thereunder and which is reasonably acceptable to the Authority;

Bank Holiday means a Weekday on which banks in the City of London are not open for business;

Benchmark means any of the Cancellations Benchmark, Capacity Benchmark, Network Rail Benchmark and Service Delivery Benchmark;

Benchmark Table means, in relation to:

(a)

the Cancellations Benchmark, the table set out in Appendix 1 (Cancellations Benchmark Table) to Schedule 7.1 (Performance Benchmarks);



(b)

the Capacity Benchmark, the table set out in Appendix 2 (Capacity Benchmark Table) to Schedule 7.1;

4

(c)

the Network Rail Benchmark, the table set out in Appendix 3 (Network Rail Benchmark Table) to Schedule 7.1; and



(d)

the Service Delivery Benchmark, the table set out in Appendix 4 (Service Delivery Benchmark Table) to Schedule 7.1;

Bond Provider means any person or persons who may provide or be an obligor under a Performance Bond or Season Ticket Bond from time to time and who shall, unless the Authority otherwise agrees, be a Bank;

Bond Year means the period beginning on the Franchise Commencement Date and ending on 31 March 2006 and any subsequent period of 13 Reporting Periods beginning on the day after the end of the preceding Bond Year provided that:

(a)

the Franchisee and the Authority may agree to vary the Reporting Period in which a Bond Year ends from time to time; and



(b)

the last Bond Year shall expire on the expiry of the Franchise Period and may be a period of less than 13 Reporting Periods unless otherwise agreed;

Brand Licence means a licence between the Authority (or any company wholly owned by the Authority) and the Franchisee in respect of any registered or unregistered trade marks, including the licences set out in paragraph 5 of Appendix 2 (List of Conditions Precedent Documents) to the Conditions Precedent Agreement;

Breach Performance Level means, in relation to a Benchmark for any Reporting Period, the number set out in column 4 of the Benchmark Table relating to that Benchmark and in the row of that table for that Reporting Period;

Business Action Plan means an action plan produced by the Franchisee in relation to the delivery of any outcome anticipated by its Business Plan, in accordance with paragraph 2.7 of Schedule 13.2 (Information);

Business Plan means the Initial Business Plan or any Updated Business Plan, as the context requires, to be delivered in accordance with paragraphs 2.1 to 2.4 of Schedule 13.2 (Information);

Cancellation means a Passenger Service:

(a)

which is included in the Plan of the Day and which is cancelled and attributed to the Franchisee pursuant to its Track Access Agreement;



(b)

which is included in the Plan of the Day and which operates less than 50 per cent. of its scheduled mileage for reasons attributed to the Franchisee pursuant to its Track Access Agreement; or



(c)

which is omitted from the Plan of the Day, or included in it in a modified form that does not enable the Franchisee to operate more than 50 per cent. of such Passenger Service's scheduled mileage, without the Franchisee discharging its obligations under Schedule 1.2 (Operating Obligations) in relation thereto;

Cancellations Benchmark means any of the performance levels in respect of Cancellations and Partial Cancellations set out in the Cancellations Benchmark Table;

Cancellations Benchmark Table means the table set out in Appendix 1 (Cancellations Benchmark Table) to Schedule 7.1 (Performance Benchmarks);

Capacity Benchmark means any of the performance levels in respect of the capacity operated in delivering the Passenger Services set out in the Capacity Benchmark Table;

5

Capacity Benchmark Table means the table set out in Appendix 2 (Capacity Benchmark Table) to Schedule 7.1 (Performance Benchmarks);

Capacity Monitoring Point means any point that the Authority reasonably determines from time to time for measuring passenger carrying capacity on the Passenger Services;

Capital Expenditure has the meaning given to it in paragraph 2.4 of Schedule 19 (Other Provisions);

Centre for Rail Skills means the organisation of that name to improve training and development of railway employees;

Certificate of Commencement means the certificate to be issued by the Authority pursuant to the Conditions Precedent Agreement;

Change means:

(a)

a change to the Service Level Commitment previously in force pursuant to the issue of a new Service Level Commitment in accordance with paragraph 9 of Schedule 1.1 (Service Development);



(b)

the occurrence of a change to the railway passenger services required to be operated by another franchisee or franchise operator by the Authority which may reasonably be expected to have a material effect on the cost and revenues of providing the Passenger Services;



(c)

any action that the Franchisee is required to take pursuant to paragraph 14.1(a) and/or 14.1(b) of Schedule 1.1;



(d)

a change effected pursuant to paragraph 6 of Schedule 1.2 (Operating Obligations), including as a result of any action that the Franchisee is required to take pursuant to paragraph 8.1(a) of Schedule 1.2 in respect of any Strategy or plan referred to in paragraph 8.1(a) of Schedule 1.2 published, endorsed or varied by the Authority after the Franchise Commencement Date;



(e)

a change to the Authority's standards in respect of alternative transport arrangements, as referred to in paragraph 8.2(b) of Schedule 1.2, from the Authority's standards which are current as at the date of signature of this Agreement;



(f)

any amendments that the Authority may make to any Service Quality Standard pursuant to paragraph 1 of Schedule 1.3 (Additional Service Specifications);



(g)

the implementation by the Franchisee of the Olympic Services Delivery Plan pursuant to paragraph 3 of Schedule 1.3 insofar as such implementation results in the imposition of costs on and the receipt of revenue by the Franchisee;



(h)

the imposition of any costs associated with Traveline attributed to the Franchisee in accordance with a national settlement plan approved by the Authority;



(j)

if and whenever the Authority approves an amendment or proposed amendment to an Inter-Operator Scheme, as referred to in paragraph 5 of Schedule 2.5 (Transport, Travel and Other Schemes), to the extent and only to the extent that the Franchisee makes a saving as a consequence of such amendment or proposed amendment;



(k)

if and to the extent that the Authority and the Franchisee agree or the Authority serves written notice on the Franchisee, exercising its right to call any Priced Option:



(i)

informing the Franchisee that such Priced Option is to be exercised on different terms from those specified in respect of that Priced Option in Schedule 3 (Priced Options); and/or

6

(ii)

at any time after the last date for exercise of such Priced Option;



(l)

the imposition, subject to the provisions of paragraph 2.6 of Schedule 4.2 (Persons with Disabilities and Disability Discrimination), of any increased access charges in respect of DDA Requirements at stations at which the Passenger Services call, other than stations where the Franchisee is Facility Owner;



(m)

if and whenever the Authority exercises its power pursuant to paragraph 5 of Schedule 5.7 (Changes to Fares and Fares Regulation) to alter the obligations of and restrictions on the Franchisee under Schedule 5 (Fares);



(n)

if and whenever the Franchisee is obliged to charge Value Added Tax on a Fare or there is an increase or decrease in the rate of Value Added Tax which it must charge on such Fare, in either case due to a change in the Value Added Tax treatment of the provision of Passenger Services;



(o)

if there is a Charge Variation;



(p)

if and whenever there is a Change of Law (excluding any Change of Law to the extent that results in an adjustment to the Franchise Payments pursuant to Schedule 8.4 (Track Access Adjustments and Station Charge Adjustments));



(q)

if and whenever an event occurs which represents a change from the Authority Risk Assumptions described in Schedule 9.4 (Authority Risk Assumptions);



(r)

if and whenever the Authority requests the Franchisee to take any action under paragraph 9.4 of Schedule 13.2 (Information) in accordance with its terms, save that any adjustment to the Franchise Payments under Schedule 9 (Changes) in respect of any maintenance or support costs incurred pursuant to such paragraph 9.4 shall only be made to the extent that such maintenance and support costs are over and above the maintenance and support costs of any Computer System that is replaced;



(s)

if and whenever the Franchisee is required to take any action under paragraph 9.4 of Schedule 13.2 in accordance with its terms;



(t)

a Variation to the terms of the Franchise Agreement pursuant to paragraph 1 of Schedule 19 (Other Provisions); or



(u)

any 2 or more of the foregoing that the Authority groups together in accordance with any procedures issued by it pursuant to paragraph 1.5 of Schedule 19 (Other Provisions);

Change of Law means the coming into effect after the date of the Franchise Agreement of:

(a)

Legislation; or



(b)

any applicable judgment of a court of Law which changes a binding precedent,

the terms of which apply only to the railway industry, a particular section of the railway industry or the provision of services to the railway industry and not to other transport modes or to industries other than the railway industry, and without limitation:

(i)

excluding any changes in Taxation;



(ii)

excluding any changes which were foreseeable at the date of the Franchise Agreement, and for this purpose, but without limitation, there shall be regarded as foreseeable any Legislation which on the date of the Franchise Agreement has been published:



(A)

in a draft parliamentary bill as part of a government departmental consultation paper;

7

(B)

in a parliamentary bill;



(C)

in a draft statutory instrument; or



(D)

as a proposal in the Official Journal of the European Communities except to the extent that such proposal is intended to apply solely within member states other than the United Kingdom,

to the extent that the same is subsequently enacted in substantially the same form as the form in which it was previously so published. In relation to the application of this sub-paragraph (ii), each TSI shall be considered separately.

        Change of Law (1) includes any Legislation, which only applies to the railway industry, which is made under the Health and Safety at Work etc. Act 1974 and which is not excluded under (i) and (ii) (a Specifically Included Change of Law), but (2) excludes any Legislation (other than a Specifically Included Change of Law) which is made with the intention or effect of specifically applying to (or disapplying in relation to) the railway industry any other Legislation which does not apply only to the railway industry;

Charge Variation means a variation:

(a)

to a Relevant Agreement; and



(b)

which is effected as a result of a Charging Review (including any variation effected in connection with an Incremental Output Statement Charge);

Charging Review means:

(a)

the exercise by the Regulator of his powers under:



(i)

Part 7 of Schedule 7 of the Track Access Agreement or any Replacement Agreement which is deemed to be a Relevant Agreement in accordance with the definition of that term;



(ii)

Condition F11.5 of the Franchise Station Access Conditions in relation to any station which is not an Independent Station; and



(iii)

Condition 42.5 of the Independent Station Access Conditions in relation to any station which is an Independent Station;



(b)

the following by the Regulator of the procedure in Schedule 4A of the Act;



(c)

the exercise by the Regulator of any powers of the Regulator or the following of any other procedure, which, in the Authority's reasonable opinion:



(i)

has an equivalent effect to; or



(ii)

is intended to fulfil the same function as,

any of the powers referred to in paragraphs (a) or (b) in relation to any Relevant Agreement. For this purpose, Relevant Agreement includes any Relevant Agreement which is not the subject of any previous Charging Review); or

(d)

any amendment to a Relevant Agreement, or entry into a new Relevant Agreement which is approved by the Regulator to the extent that it relates to an Incremental Output Statement Charge or a scheme to which that charge relates;

Charter Service means a railway passenger service, whether operated on the same routes as the Passenger Services or not:

(a)

which is not reflected in the Timetable;

8

(b)

which does not conform to the pattern of railway passenger services normally provided by the Franchisee;



(c)

for which the advance booking or booking arrangements for seats on the relevant service are materially different from those generally applicable to the Passenger Services;



(d)

for which tickets are available on a restricted basis or on terms and conditions materially different from those generally applicable to the Passenger Services; and/or



(e)

for which the departure time, journey time and calling pattern are materially different from those of the Passenger Services,

and which, in the opinion of the Authority, is not a railway passenger service provided by the Franchisee as part of the Passenger Services;

Child Price means, in relation to any Fare, the amount charged or chargeable to a person under the age of 16 in respect of such Fare;

Closed Scheme Employees has the meaning given to it in paragraph 3(a) of Schedule 16 (Pensions);

Closed Schemes has the meaning given to it in paragraph 3(b) of Schedule 16 (Pensions);

Closure means a closure under Part I of the Act of any of the Passenger Services or of any network on which the Passenger Services may be operated or of any of the Stations or Depots or of any part of such network or Depot or Station;

Code of Practice means the code of practice for protecting the interests of users of railway passenger services or station services who have disabilities, as prepared, revised from time to time and published by the Authority pursuant to Section 71B of the Act;

Collateral Agreement means an agreement which is required to be entered into by the Franchisee with Network Rail or any other franchisee as a condition to any Access Agreement of which the Franchisee is the beneficiary;

Commencement Transfer Scheme has the meaning given to it in clause 4.1 of the Conditions Precedent Agreement;

Committed Obligations means any of the Franchisee's obligations listed in Schedule 1.6 (Committed Obligations);

Commuter Fare means any:

(a)

Weekly Season Ticket;



(b)

Monthly Season Ticket;



(c)

Quarterly Season Ticket;



(d)

Annual Season Ticket;



(e)

unrestricted Single Fare; and



(f)

unrestricted Return Fare,

in each case between any Station and any other station where the Passenger Services call;

Commuter Fares Basket means the grouping of Commuter Fares:

(a)

determined by the Authority pursuant to Schedule 5.3 (Allocation of Fares to Fares Baskets);



(b)

for the purposes of regulating their aggregate Prices or Child Prices, as the case may be, in accordance with Schedule 5.4 (Regulation of Fares Basket Values);

9

(c)

amended by the Authority from time to time in accordance with Schedule 5.7 (Changes to Fares and Fares Regulation); and



(d)

set out in the Commuter Fares Document;

Commuter Fares Document means the document in the agreed terms marked CFD as the same may be amended from time to time in accordance with Schedule 5.7 (Changes to Fares and Fares Regulation);

Compulsory Inter-available Flow has the meaning given to it in the Ticketing and Settlement Agreement;

Computer System means computer hardware and computer software, including licensed third party software and data protocols;

Conditions Precedent Agreement means the agreement between the Authority and the Franchisee dated the date hereof, specifying the conditions precedent effecting the Franchise Agreement;

Connection means a connection (however described) between any of the Passenger Services provided by the Franchisee and any other railway passenger service provided by it or any other Train Operator or any bus, ferry or shipping service and cognate phrases shall be construed accordingly;

Connection Agreement means any agreement entered into by the Franchisee and Network Rail on or before the Franchise Commencement Date relating to the connection of a Depot to the relevant part of the network;

Contingency Plan has the meaning given to it in paragraph 1(a)(iv) of Schedule 10.4 (Force Majeure);

Continuation Review Date means the date which occurs 18 Reporting Periods prior to the Initial Expiry Date;

Continuation Review Period means the 13 Reporting Periods prior to the Continuation Review Date;

Contract Manager means a person appointed by the Franchisee to undertake the responsibilities of such person set out in Schedule 11 (Agreement Management Provisions);

Control means, in respect of a person, that another person (whether alone or with others and whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise):

(a)

has the power to appoint and/or remove all or the majority of the members of the board of directors or other governing body of that person or of any other person which Controls that person;



(b)

controls or has the power to control the affairs and policies of that person or of any other person which Controls that person;



(c)

is the parent undertaking of that person or of any other person which Controls that person; or



(d)

possesses or is, or will be at a future date, entitled to acquire:



(i)

30 per cent. or more of the share capital or issued share capital of, or of the voting power in, that person or any other person which Controls that person;



(ii)

such part of the issued share capital of that person or any other person which Controls that person as would, if the whole of the income of such person were distributed, entitle him to receive 30 per cent. or more of the amount so distributed; or

10

(iii)

such rights as would, in the event of the winding-up of that person or any other person which Controls that person or in any other circumstances, entitle him to receive 30 per cent. or more of the assets of such person which would then be available for distribution;

Creating has the meaning given to it in the Ticketing and Settlement Agreement and cognate expressions shall be construed accordingly;

DDA means the Disability Discrimination Act 1995;

DDA Claim has the meaning given to it in paragraph 3.1 of Schedule 4.2 (Persons with Disabilities and Disability Discrimination);

DDA Requirements means the duties of a provider of services under Sections 21(2)(a), 21(2)(b) and 21(2)(c) of the DDA;

Default Performance Level means, in relation to a Benchmark for any Reporting Period, the numbers set out in column 5 of the Benchmark Table relating to that Benchmark and in the row of that table for that Reporting Period;

Defined Contribution Arrangement has the meaning given to it in the Railways Pensions Scheme;

Departure Stationhas the meaning given to it in paragraph 2(b) of Appendix 2 (Alternative Transport) to Schedule 1.4 (Passenger Facing Obligations);

Depot means a depot in respect of which the Franchisee has entered into a Depot Lease;

Depot Condition Maintenance Programme has the meaning given to it in paragraph 3.4 of Schedule 4.1 (Franchise Facilities);

Depot Lease means:

(a)

any lease of a depot set out in paragraph 4.2 of Appendix 2 (List of Conditions Precedent Documents) to the Conditions Precedent Agreement; or



(b)

or any other depot in relation to which the Franchisee becomes the Facility Owner at any time during the Franchise Period;

Designated Employer has the meaning given to it in the Pension Trust;

Destination Station has the meaning given to it in paragraph 2(b) of Appendix 2 (Alternative Transport) to Schedule 1.4 (Passenger Facing Obligations);

Direct Agreement means any agreement made, or to be made, from time to time between the Authority and the counterparty of a Key Contract in relation to such Key Contract, including any agreement entered into by the Authority under Schedule 14.3 (Key Contracts);

Disabled People's Protection Policy means the Franchisee's policy for the protection of persons with disabilities which the Franchisee is required to establish and review from time to time in accordance with the conditions of its Licences in respect of the operation of railway passenger services and/or stations;

Disabled Person has the meaning given to it in the DDA;

Disabled Person's Reporting System means the system known as the Disabled Person's Reporting System (forming part of the national rail "Computer Reservation System") as described in the Code of Practice as at the date of this Agreement;

Discount Card has the meaning given to it in the Ticketing and Settlement Agreement;

11

Discount Fare Scheme means:

(a)

a discount fares scheme set out in paragraph 4 of the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes); or



(b)

any other discount fare scheme approved from time to time by the Authority for the purposes of Section 28 of the Act,

in each case until such time as it may cease to be approved by the Authority for the purposes of Section 28 of the Act;

Dispute Resolution Rules means the procedures for the resolution of disputes known as "The Railway Industry Dispute Resolution Rules", as amended from time to time in accordance with the terms thereof;

Disputes Secretary means the person appointed as Disputes Secretary from time to time in accordance with the Dispute Resolution Rules;

Equivalent Fare has the meaning given to it in paragraph 6.1 of Schedule 5.7 (Changes to Fares and Fares Regulation);

Equivalent Flow has the meaning given to it in paragraph 6.1(b) of Schedule 5.7 (Changes to Fares and Fares Regulation);

Escrow Documents has the meaning given to it in paragraph 1.1 of Schedule 9.2 (Identity of the Financial Model etc.);

Estimated Revisions has the meaning given to it in paragraph 2.1 of Schedule 9.1 (Financial Consequences of Change);

Evening Peak means, in relation to any Passenger Service departing from King's Cross during the period between 1600 and 1859 during a Weekday or such continuous evening 3 hour period as the Authority may specify from time to time;

Event of Default means any of the events set out in paragraph 2 of Schedule 10.3 (Events of Default and Termination Event);

Excluded Liabilities has the meaning given to it in clause 4.2 of the Conditions Precedent Agreement;

Expiry Date means:

(a)

the Initial Expiry Date;



(b)

if the conditions in paragraph 1.2 of Schedule 18 (Franchise Continuation Criteria) are satisfied, 31 March 2015 (subject to paragraph 1.4 of Schedule 18); or



(c)

the date to which the Franchise Agreement is continued in accordance with paragraph 1.5 of Schedule 18;

Facility Owner has the meaning given to the term facility owner in Section 17(6) of the Act;

Fare means:

(a)

for the purposes of Schedules 5.3 (Allocation of Fares to Fares Baskets) to 5.8 (Fares Regulation Information and Monitoring) (inclusive) only, a Fare which is:



(i)

valid for a journey or journeys on the Passenger Services included in the Timetable or other railway passenger services which are required to be included in another relevant Train Operator's passenger timetable by the Authority;

12

(ii)

sold under the Travelcard Agreement; or



(iii)

a Cross-London Ticket (as defined in the Through Ticketing (Non-Travelcard) Agreement); and



(b)

for the purposes of paragraph 3 of Schedule 1.4 (Passenger Facing Obligations), Schedule 5.2 (Franchisee's Obligation to Create Fares) and for all other purposes, the right, exercisable against one or more Train Operators, subject to any applicable rights or restrictions and the payment of the relevant price, to make one or more journeys on the network or to carry on such a journey an item of luggage or an animal (where this right does not arise under the relevant conditions of carriage except on the(75) payment of a fee) and, where applicable, to obtain goods or services from a person;

Fare Year means the period from 1^st January in any year to 31^st December in the same year;

Fares Basket means either the Commuter Fares Basket or the Protected Fares Basket;

Fares Document means any of the Commuter Fares Document and the Protected Fares Document;

Fares Setting Round has the meaning given to it in the Ticketing and Settlement Agreement;

Financial Action Plan means any action plan produced by the Franchisee pursuant to paragraph 3.3(f) of Schedule 13.2 (Information), where the level of its financial performance specified in the Management Accounts is worse than forecast by the Franchisee in its current Business Plan;

Financial Model means the Franchisee's financial model deposited with the Authority on the date of this Agreement and as subsequently revised in each case in accordance with Schedule 9.2 (Identity of the Financial Model etc.);

Financial Services Authority means the independent non-governmental body given statutory powers by the Financial Services and Markets Act 2000;

Flow has the meaning given to it in the Ticketing and Settlement Agreement;

Force Majeure Event means any of the events described as such in paragraph 1 of Schedule 10.4 (Force Majeure) where the conditions specified in paragraph 2 of Schedule 10.4 are satisfied;

Forecast Modified Revenue means, in relation to any Reporting Period, the items specified in the definition of Modified Revenue, as most recently forecast for that Reporting Period pursuant to paragraph 3.4 of Schedule 13.2 (Information);

Forecast Operating Costs means, in relation to any Reporting Period, the items specified in the definition of Actual Operating Costs, as most recently forecast for that Reporting Period pursuant to paragraph 3.4 of Schedule 13.2 (Information);

Forecast Passenger Demand means the forecast by the Franchisee pursuant to paragraphs 6.1 of Schedule 1.1 (Service Development) and 1.4 of Schedule 1.5 (Information about Passengers) in respect of:

(a)

the number of passengers travelling in each class of accommodation:



(i)

on each Passenger Service;



(ii)

on each Route; and/or



(iii)

at any station or between any stations; and



(b)

the times of day, week or year at which passengers travel,

for the period in respect of which the next Timetable is to apply and for 5 years following the date of the forecast, even if such 5 year period extends beyond the Franchise Term;

13

Franchise Agreement means the agreement between the Authority and the Franchisee dated the date hereof, which constitutes a single agreement together with the Conditions Precedent Agreement and this Agreement and which is a "franchise agreement" for the purposes of the Act;

Franchise Assets means the property, rights and liabilities designated as such pursuant to paragraph 1 of Schedule 14.4 (Designation of Franchise Assets) but excluding such property, rights or liabilities as shall, in accordance with the terms of the Franchise Agreement, cease to be so designated;

Franchise Commencement Date means the date and, where relevant, the time stated in the Certificate of Commencement as being the date on which (and, where relevant, the time at which) the Franchisee is to commence operating the Franchise Services;

Franchise Employee means:

(a)

any employee of the Franchisee from time to time; and



(b)

any other person employed by the Franchisee or any of its Affiliates or any subcontractor or delegate of any of the Franchise Services whose contract of employment may be transferred to a Successor Operator following the expiry of the Franchise Period by virtue of the operation of Law (including the Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended, replaced or substituted from time to time)) or in respect of whom liabilities arising from a contract of employment or employment relationship may be so transferred;

Franchise Facilities means the facilities described in the Franchise Facilities Book;

Franchise Facilities Book has the meaning given to it in paragraph 2.2 of Schedule 4.1 (Franchise Facilities);

Franchise Letting Process Agreement means the agreement so entitled dated 17 March 2004 between the Authority and the Franchisee entered into by the Franchisee as part of its proposal to secure the provision and operation of the Franchise Services;

Franchise Manager means a person appointed by the Authority to undertake the responsibilities of such person set out in Schedule 11 (Agreement Management Provisions);

Franchise Payment means, in relation to any Reporting Period, the amount determined in accordance with paragraph 1.1 of Schedule 8.1 (Franchise Payments);

Franchise Performance Meeting means a meeting between the Authority and the Franchisee to be held in each Reporting Period in accordance with paragraph 4 of Schedule 11 (Agreement Management Provisions);

Franchise Period means the period commencing on the Franchise Commencement Date and ending on the Expiry Date or, if earlier, the date of termination of the Franchise Agreement pursuant to clause 2.2(a) of the Conditions Precedent Agreement or Schedule 10 (Remedies and Termination);

Franchise Sections has the meaning given to it in paragraph 1 of Schedule 16 (Pensions);

Franchise Services means such of the Passenger Services, the Light Maintenance Services, the Station Services and the Ancillary Services as the Franchisee may provide or operate from time to time, including any of such services as the Franchisee may delegate or subcontract or otherwise secure through any other person from time to time in accordance with the Franchise Agreement;

Franchise Station Access Conditions has the meaning given to it in the relevant Access Agreement to which it relates;

Franchise Term means the period commencing on the Franchise Commencement Date and expiring on the Expiry Date;

14

Franchisee Access Station means any station at which the Passenger Services call (other than any Station);

Franchisee Year means any period of 12 months during the Franchise Period beginning on 1 April in any year, except that the first and last such periods may be for a period of less than 12 months and the first such period shall begin on the Franchise Commencement Date and end on 31 March 2006 and the last such period shall end on the last day of the Franchise Period;

GAAP means UK GAAP as at the date of this Agreement which denotes the corpus of practices forming the basis for determining what constitutes a true and fair view of accounting standards and, where relevant, the accounting requirements of company law and the listing rules of the Financial Services Authority;

Games means the Olympic Games to be held in 2012, the Franchisee's obligations in respect of which are specified in paragraph 3 of Schedule 1.3 (Additional Service Specifications);

Gross Revenue means, in relation to any period and any Fare, the gross revenue (excluding any applicable Value Added Tax) to the Franchisee attributable to such Fare over the relevant period, excluding any costs, commissions or other expenses which may be paid or incurred in connection with such Fare;

Handover Package means a package containing the information and objects specified in the Appendix (Form of Handover Package) to Schedule 15.3 (Handover Package) and such other information and objects as the Authority may reasonably specify from time to time;

HMRI means Her Majesty's Railway Inspectorate, the operational division of the HSE with prime responsibility for the regulation of health and safety on the railway;

Hot Standby means any rolling stock vehicle specified in the Train Plan which:

(a)

is operationally ready to provide the Passenger Services in the Timetable;



(b)

is not already assigned to the delivery of any Passenger Service in the Timetable; and



(c)

will only be used to deliver such Passenger Services if:



(i)

a rolling stock vehicle scheduled to deliver such Passenger Services is unable to so deliver; and



(ii)

Actual Passenger Demand could only be met by the deployment in service of such rolling stock vehicle;

HR Strategy means the Franchisee's human resources strategy specified in paragraphs 1.2 and 1.3 of Schedule 13.1 (Franchise Management);

HSE means the Health and Safety Executive appointed under Section 10 of the Health and Safety at Work etc. Act 1974;

HST Fleet means the Franchisee's fleet of diesel high speed (InterCity 125) locomotives and associated passenger carriages existing at the Franchise Commencement Date;

IC225 Fleet means the Franchisee's fleet of electric high speed locomotives and associated passenger carriages existing at the Franchise Commencement Date;

ICC Implementation Plan has the meaning given to it in paragraph 18.4(e) of Part 2 of Schedule 1.6 (Committed Obligations);

Improvement Plan has the meaning given to it in paragraph 3.14(b) of Schedule 13.2 (Information);

15

Improvement Plan Performance Level means, in relation to a Benchmark for any Reporting Period, the number set out in column 3 of the Benchmark Table relating to that Benchmark and in the row of that table for that Reporting Period;

Incremental Output Statement Charge means the charge to which that description is commonly given, first introduced into Relevant Agreements in April 2001;

Independent Station has the meaning given to it in paragraph 2.6 of Schedule 8.4 (Track Access Adjustments and Station Charge Adjustments);

Independent Station Access Conditions has the meaning given to it in the Access Agreement to which it relates;

Individual Station Charge Adjustment has the meaning given to it in paragraph 2.1 of Schedule 8.4 (Track Access Adjustments and Station Charge Adjustments);

industrial action has the meaning given to it in paragraph 1(f) of Schedule 10.4 (Force Majeure);

Information Provision Specification Standard means the Service Quality Standard in respect of the provision of information to passengers by the Franchisee as at the date of the Franchise Agreement, or as amended by the Authority and notified to the Franchisee from time to time in accordance with paragraph 1 of Schedule 1.3 (Additional Service Specifications);

Initial Business Plan means the business plan (in the agreed terms and marked IBP) to be provided by the Franchisee to the Authority as soon as possible but, in any event, no later than five business days before the Franchise Commencement Date, as described in paragraph 2.1 of Schedule 13.2 (Information), including any adjusted version of such plan resubmitted to the Authority in accordance with paragraph 2.2 of that Schedule);

Initial Expiry Date means 31 March 2012;

Initial Permanent Fare has the meaning given to it in the Ticketing and Settlement Agreement;

Integrated Control Centre has the meaning given to it in paragraph 18.1 of Part 2 of Schedule 1.6 (Committed Obligations);

Integrated Transport Schemes means those schemes which relate to the integration of any other form of transport with the Franchise Services:

(a)

listed in the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes); or



(b)

designated as such in accordance with paragraph 1.1 of Schedule 2.5;

Integrated Transport Smartcard Organisation means the organisation created by passenger transport executives, bus operators and Train Operators for the development and promotion of smartcards for use on transport;

Interest Rate means a rate equivalent to 2 per cent. per annum above the base lending rate published by Royal Bank of Scotland plc (or such other bank as the Authority may, after consultation with the Franchisee, determine from time to time) during any period in which an amount payable under the Franchise Agreement remains unpaid;

Inter-Operator Schemes means:

(a)

the schemes, agreements and/or contracts set out in paragraph 5 of the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes) which have been approved by the Authority and which relate to arrangements between the Franchisee and other participants in the railway industry;

16

(b)

any other scheme, agreement and/or contract of a similar or equivalent nature as may from time to time during the Franchise Period amend, replace or substitute, in whole or in part, any of such schemes, agreements and/or contracts; and



(c)

any Discount Fare Scheme;

Key Contract means:

(a)

each agreement and contract listed in the Appendix (List of Key Contracts) to Schedule 14.3 (Key Contracts) as at the date of the Franchise Agreement; and



(b)

any other agreement, contract, licence or other arrangement to which the Franchisee is a party or under which the Franchisee is the beneficiary from time to time which is designated as such pursuant to Schedule 14.3,

but excluding any such agreement, contract, licence or other arrangement which ceases, in accordance with the terms of the Franchise Agreement, to be designated as a Key Contract;

Key Personnel has the meaning given to it in paragraph 2.4 of Schedule 11 (Agreement Management Provisions);

KPI Audit means any independent audit of a SQ Audit conducted by the Authority or its agents pursuant to paragraphs 5.1(c), 11.2 or 11.8 of Schedule 7.2 (Key Performance Indicators);

KPI Audit Score Cards means the audit score cards in the agreed terms and marked KASC;

KPI Performance Ratio means the Station KPI Performance Ratio and the Train KPI Performance Ratio;

KPI Risk Element means the KPI risk element identified for each Reporting Period in columns 4 and 5 of the Table set out in the Appendix (Average Profit Table) to Schedule 7.2 (Key Performance Indicators);

KPIs means the key performance indicators of service quality specified in the KPI Audit Score Cards and audited pursuant to Schedule 7.2 (Key Performance Indicators);

Law includes any enactment, subordinate legislation, rule, regulation, order, directive or other provision, including those of the European Community, and any judicial or administrative interpretation or application thereof, which has, in each case, the force of Law in the United Kingdom or any part of it (including the Act and the Transport Act);

Lead Operator has the meaning given to it in the Ticketing and Settlement Agreement;

Legislation means any enactment or subordinate legislation, rule, regulation, order, directive or other provision including those of the European Community, which has, in each case, the force of Law in the United Kingdom or any part of it, but excluding:

(a)

any order under Section 1 of the Transport and Works Act 1992; and



(b)

any objectives, instructions, directions or guidance given from time to time to the Authority pursuant to the Act;

Licences means such licences granted or to be granted under Section 8 of the Act as the Franchisee may be required from time to time to hold under the Act in order to provide or operate the Franchise Services;

Light Maintenance Service means any service specified in paragraph 4 of Schedule 1.7 (Franchise Services) which may be provided by the Franchisee at the Depots and Stations;

17

Local Authority means:

(a)

in England, a county council, a district council, a unitary authority, a passenger transport executive, a London borough council, the common council of the City of London, or a council which is established under the Local Government Act 1992 and which is either an authority responsible for expenditure on public passenger transport services within the meaning of Section 88 of the Transport Act 1985 or a local authority for the purposes of Section 93 of the Transport Act 1985;



(b)

in Wales, a county council, a district council or a council which is established under the Local Government Act 1972 or the Local Government (Wales) Act 1994;



(c)

in Scotland, the Strathclyde Passenger Transport Executive, or a district council or a unitary authority which is established under the Local Government (Scotland) Act 1973 or the Local Government, etc. (Scotland) Act 1994;



(d)

in London, the Mayor of London and Transport for London established under the Greater London Authority Act 1999;



(e)

any other body or council replacing any of the above from time to time; and



(f)

any other body or instrument of local or regional government specified by the Authority from time to time;

Lock-up Period has the meaning given to it in paragraph 3.2 of Schedule 12 (Financial Obligations and Covenants);

London Station means any station served by the Railway Passenger Services in the Zones and any Zone to or from which a passenger may travel from or to such station;

Long Stop Date means 30 April 2005 or such other date:

(a)

on or before 30 April 2005 as may be determined by the Authority and notified to the Franchisee if any one or more of the conditions precedent set out in the Conditions Precedent Agreement are not satisfied by 30 April 2005; or



(b)

as is agreed between the parties in any circumstances other than those specified in paragraph (a);

Maintenance Contract means any contract or arrangement to which the Franchisee is a party, which includes the carrying out for the Franchisee of any maintenance work (including light maintenance services) or service provision in respect of rolling stock vehicles used by the Franchisee in the provision of the Passenger Services or for the enforcement of warranties or other rights against a manufacturer in respect of any such rolling stock vehicles;

Major Flow Operator has the meaning given to it in the Ticketing and Settlement Agreement;

Major Projects has the meaning given to it in the Network Code;

Major Station means King's Cross, Edinburgh and Leeds or any other station used in connection with the provision of the Franchise Services where Network Rail becomes the Facility Owner during the Franchise Period;

Major Station Area means any Station where Network Rail is Facility Owner listed in paragraph 4.3 of Appendix 2 of the Conditions Precedent Agreement;

Management Accounts means, in relation to any Reporting Period, the Franchisee's management accounts which:

(a)

comply with paragraph 3.10 of Schedule 13.2 (Information); and

18

(b)

are delivered to the Authority by the Franchisee in accordance with paragraphs 3.2 and 3.3 of Schedule 13.2;

Mandatory Modification means a modification or addition to any rolling stock vehicle which is required to be made under any applicable Law or any directive of the Rail Safety and Standards Board Limited or any government authority;

Marks means such trade marks as the Franchisee may apply to any Primary Franchise Asset or other asset used by it under a Key Contract, which are applied on the expiry of the Franchise Period and are not the subject of a Brand Licence;

Minor Works has the meaning given to it in paragraph 2.7(a) of Schedule 4.2 (Persons with Disabilities and Disability Discrimination);

Minor Works' Budget means, as set out in Schedule 1.6, £500,000 for each Franchisee Year allocated by the Franchisee for the purpose of facilitating Minor Works at Stations to improve accessibility of the Stations to persons with disabilities, save that:

(a)

for any Franchisee Year which is shorter than 12 months, the amount shall be reduced pro-rata; and



(b)

for each Franchisee Year after the first Franchisee Year, the amount specified in paragraph (a) shall be subject to adjustment as follows:

        Minor Works Budget × RPI

        where RPI has the meaning given to it in Schedule 8.2 (Annual Franchise Payments);

Minor Works' Programme means the Franchisee's programme of Minor Works at Stations to improve accessibility of the Stations to persons with disabilities, developed prior to the start of each Franchisee Year pursuant to paragraph 2.7(b) of Schedule 4.2 (Persons with Disabilities and Disability Discrimination);

Minutes Delay means the minutes of delay to the Passenger Services that are attributed to the Franchisee or Network Rail, as the case may be, in each case pursuant to the Track Access Agreement and disregarding any minutes of delay that are imputed to Passenger Services that were cancelled;

Model Changes has the meaning given to it in paragraph 2.2 of Schedule 9.3 (Runs of the Financial Model);

Modified Revenue means: [omitted]

19

Monthly Season Ticket means a Season Ticket Fare which is valid in Standard Class Accommodation from (and including) the day it first comes into effect until (but excluding) the day which falls 1 month after such day;

Morning Peak means, in relation to any Passenger Service arriving into King's Cross during the period between 0700 and 0959 during a Weekday, or such continuous morning 3 hour period as the Authority may specify from time to time;

National Passenger Survey means a passenger satisfaction survey which may be carried out by or on behalf of the Authority as described in paragraph 2 of Schedule 1.5 (Information about Passengers);

National Rail Timetable means the passenger timetable published by Network Rail (currently twice per annum) specifying the timings and stopping patterns of all passenger railway services in Great Britain;

Network Change has the meaning given to it in the Network Code;

Network Code means the document now known as the Network Code and formerly known as the Railtrack Track Access Conditions 1995 (as subsequently replaced or amended from time to time) or any equivalent code or agreement applying to any party referred to in the definition of "Network Rail" other than Network Rail Infrastructure Limited;

Network Rail means in respect of:

(a)

the network or any relevant facility:



(i)

Network Rail Infrastructure Limited, a company registered in England with registered number 02904587 whose registered office is at 40 Melton Street, London NW1 2EE; and



(ii)

any successor in title to the network or any relevant railway facility; or



(b)

any new or other sections of network or any relevant new or other railway facilities, the owner (if different);

Network Rail Benchmark means any of the performance levels in respect of Minutes Delay attributable to Network Rail set out in the Network Rail Benchmark Table;

Network Rail Benchmark Table means the table set out in Appendix 3 (Network Rail Benchmark Table) to Schedule 7.1 (Performance Benchmarks);

new insurance arrangements shall have the meaning given to it in paragraph 2.2(b) of Schedule 2.2 (Security of Access Assets, Rolling Stock Leases, Station and Depot Leases);

New Results means, in relation to any Change, the following, as restated following a Run of the Financial Model in relation to that Change:

(a)

the restated amounts of Target Revenue to be specified for each Franchisee Year in Appendix 1 (Target Revenue) to Schedule 8.2 (Annual Franchise Payments);



(b)

the restated values of FXD, VCRPI, VCAEI, PRPI and TRRPI to be specified for each Franchisee Year in Appendix 2 (Figures for Calculation of Annual Franchise Payments) and Appendix 3 (Figures to Support Appendix 2: Calculation of Annual Franchise Payments (HRO scheme 1 only)) to Schedule 8.2; and



(c)

the restated values of:



(i)

annual profit in column 2;



(ii)

average profit in column 3;



(iii)

Reporting Period KPI Risk Element (Trains) in column 4; and

20

(iv)

Reporting Period KPI Risk Element (Stations) in column 5,

to be specified for each Franchisee Year in the Appendix (Average Profit Table) to Schedule 7.2 (Key Performance Indicators);

New Station means:

(a)

a station not served by railway passenger services as at June 2003, but which has since that time been, or is subsequently, served by railway passenger services which have been, or are subsequently to be, included in the Timetable or in another relevant Train Operator's timetable; and/or



(b)

if the Authority requires, a station, other than a Station, at which, with the consent of the Authority (whether by amendment to this Agreement or otherwise) railway passenger services operated by the Franchisee call;

Non-Fares Basket Fare means a Fare that has been designated as such by the Authority pursuant to paragraph 2.1 of Schedule 5.3 (Allocation of Fares to Fares Baskets);

Old Results means, in relation to any Change, the following, as produced by the Run of the Financial Model in respect of the immediately preceding Change, or, in relation to the first Change only, the following as at the date hereof:

(a)

the amounts of Target Revenue to be specified for each Franchisee Year in Appendix 1 (Target Revenue) to Schedule 8.2 (Annual Franchise Payments);



(b)

the values of FXD, VCRPI, VCAEI, PRPI and TRRPI to be specified for each Franchisee Year in Appendix 2 (Figures for Calculation of Annual Franchise Payments) [and Appendix 3 (Figures to Support Appendix 2: Calculation of Annual Franchise Payments (HRO scheme 1 only))] to Schedule 8.2; and



(c)

the values of:



(i)

annual profit in column 2;



(ii)

average profit in column 3;



(iii)

Reporting Period KPI Risk Element (Trains) in column 4; and



(iv)

Reporting Period KPI Risk Element (Stations) in column 5,

specified for each Franchisee Year in the Appendix (Average Profit Table) to Schedule 7.2 (Key Performance Indicators);

Off-Peak means, in relation to any Passenger Service, the period of time outside of the Peak;

Off-Peak Passenger Services means Passenger Services other than Peak Passenger Services;

OLE Equipment has the meaning given to it in paragraph 15.3 of Part 2 of Schedule 1.6 (Committed Obligations);

Olympic Services Recovery Plan has the meaning given to it in paragraph 3.3(a) of Schedule 1.3 (Additional Service Obligations);

Operating Assets has the meaning given to it in paragraph 1.1 of Schedule 14.2 (Maintenance of Operating Assets);

Operational Model means the operational model in the agreed terms and marked OM of:

(a)

the revenue model;



(b)

the performance model;

21

(c)

all cost models; and



(d)

any other relevant models that have generated input to the Financial Model;

Parent means GNER Holdings Limited;

Partial Cancellation means a Passenger Service which is included in the Plan of the Day and in respect of which the Franchisee:

(a)

misses a stop;



(b)

completes 50 per cent. or more, but less than 100 per cent. of its scheduled journey; or



(c)

arrives at its final destination scheduled in the Timetable more than 120 minutes late,

in each case, for reasons which are attributed to the Franchisee pursuant to its Track Access Agreement;

Participating Employer has the meaning given to it in the Pension Trust;

passenger carrying capacity means, in relation to a Passenger Service, the capacity of the rolling stock vehicles (as stated in Appendix 1 (The Train Fleet) to Schedule 1.1 (Service Development)) from which the Passenger Service is formed;

Passenger Change Date means a date upon which significant changes may be made to the Timetable in accordance with or by virtue of the Network Code;

Passenger Information Plan has the meaning given to it in paragraph 7 of the Information Provision Specification Standard;

Passenger Services means the Franchisee's railway passenger services specified in any Timetable and/or in any Plan of the Day, including those railway passenger services which the Franchisee may delegate or subcontract or otherwise secure through any other person from time to time in accordance with the Franchise Agreement;

Passenger's Charter means the Franchisee's service commitments to its passengers in the agreed terms and marked PC, as amended or replaced from time to time with the prior written consent of the Authority in accordance with paragraph 4 of Schedule 1.4 (Passenger Facing Obligations);

Passenger's Charter Guidelines means the document of the same name issued by or on behalf of the Authority containing the methodology for compiling performance statistics and Passenger's Charter compensation, as amended or replaced from time to time by the Authority after consultation with the Franchisee and with other franchisees whose franchise agreements contain a similar or equivalent obligation for consultation;

Passenger's Charter Statistics means the record of the Franchisee's performance against the standards specified in the Passenger's Charter for each Reporting Period as published in accordance with paragraph 4.9 of Schedule 1.4 (Passenger Facing Obligations);

Payment Date means the date for the payment of Franchise Payments in accordance with paragraph 2.3 of Schedule 8.1 (Franchise Payments);

Peak means the Morning Peak and the Evening Peak;

Peak Passenger Service means any Passenger Service operated in the Peak;

Pension Trust means the pension trust governing the Railways Pension Scheme;

Pensions Committee has the meaning given to it in the Railways Pension Scheme;

22

Performance Bond means the performance bond to be provided to the Authority in the form set out in Appendix 1 (Form of Performance Bond) to Schedule 12 (Financial Obligations and Covenants), as replaced or amended from time to time in accordance with Schedule 12;

Performance Improvement Plan has the meaning given to it in paragraph 3.13(a) of Schedule 13.2 (Information);

Permitted Aggregate Increase has the meaning given to it in paragraph 4.2 of Schedule 5.4 (Regulation of Fares Basket Values);

Permitted Individual Increase has the meaning given to it in paragraph 2.2 of Schedule 5.5 (Regulation of Individual Fares);

Placed in Escrow means:

(a)

in respect of the Financial Model, delivery of the Financial Model:



(i)

dated the date hereof;



(ii)

adjusted to the extent necessary to reflect any time elapsed between the actual Franchise Commencement Date and the date assumed to be the Franchise Commencement Date in the Initial Business Plan; and



(iii)

audited following a Run of the Financial Model and updated with any Revised Inputs; and



(b)

in respect of the Operational Model, delivery of:



(i)

the Operational Model dated the date hereof;



(ii)

the Operational Model adjusted to the extent necessary to reflect any time elapsed between the actual Franchise Commencement Date and the date assumed to be the Franchise Commencement Date in the Initial Business Plan; and



(iii)

the inputs to the Financial Model derived therefrom following an audit of a Run of the Financial Model; and



(c)

in respect of the Record of Assumptions, delivery thereof,

each in accordance with Schedule 9.2 (Identity of the Financial Model etc.);

Plan of the Day means, in relation to each day during the Franchise Term, the Passenger Services specified in the Timetable or as notified to the Franchisee by Network Rail from time to time, scheduled to be operated on that day;

Power of Attorney means the power of attorney in favour of the Authority to be executed and delivered by the Franchisee in the agreed terms and marked POA;

PR Audit means any audit conducted by the Authority or its agents pursuant to paragraph 5.1(b) or 11.4(b) of Schedule 7.2 (Key Performance Indicators) of the consistency and accuracy of the results of a SQ Audit;

Preceding Year Ticket Price has the meaning given to it in paragraph 2.1 of Schedule 5.5 (Regulation of Individual Fares);

Preliminary Plans has the meaning given to it in paragraph 3.1 of Part 1 of Schedule 1.6 (Committed Obligations);

Previous Franchise Agreement means any franchise agreement which terminated on or about the day prior to the Franchise Commencement Date under which services equivalent to the Franchise Services (or a material proportion thereof) were provided by a Train Operator;

23

Price means, in respect of any Fare, the price of such Fare before the deduction of any applicable discount to which a purchaser may be entitled, as notified to RSP in accordance with Schedule 5 to the Ticketing and Settlement Agreement;

Priced Option means any of the options set out in Schedule 3 (Priced Options);

Primary Franchise Assets means:

(a)

the property, rights and liabilities of the Franchisee listed in the Appendix to Schedule 14.4 (Designation of Franchise Assets); and



(b)

any other property, rights and liabilities of the Franchisee which is or are designated as such pursuant to Schedule 14.4,

but excluding such property, rights or liabilities as may, in accordance with the terms of the Franchise Agreement, cease to be so designated;

profit means profit before corporation tax, determined in accordance with GAAP;

Project Mallard has the meaning given to it in paragraph 2.1 of Part 2 of Schedule 1.6 (Committed Obligations);

Projected Revenue means the revenue in any Fare Year which is projected to be attributable to any Fare, determined in accordance with paragraph 3 of Schedule 5.4 (Regulation of Fares Basket Values);

Property Lease means each lease of the facilities set out in paragraph 4 of Appendix 2 (List of Conditions Precedent Documents) to the Conditions Precedent Agreement and any agreement or lease of a similar or equivalent nature (whether in respect of any such facility or otherwise) which the Franchisee may enter into with a person who has an interest in a network or a railway facility which is to be used for or in connection with the provision or operation of the Franchise Services;

Protected Employees has the meaning given to it in the Railways Pension (Protection and Designation of Schemes) Order 1994;

Protected Fare means a Protected Return Fare or a Protected Weekly Season Ticket;

Protected Fares Basket means the grouping of Protected Fares:

(a)

determined by the Authority pursuant to Schedule 5.3 (Allocation of Fares to Fares Baskets);



(b)

for the purposes of regulating their aggregate Prices or Child Prices, as the case may be, in accordance with Schedule 5.4 (Regulation of Fares Basket Values);



(c)

amended by the Authority from time to time in accordance with Schedule 5.7 (Changes to Fares and Fares Regulation); and



(d)

set out in the Protected Fares Document;

Protected Fares Document means the document in the agreed terms marked PFD as the same may be amended from time to time in accordance with Schedule 5.7 (Changes to Fares and Fares Regulation);

Protected Proposal has the meaning given to it in paragraph 1.9 of Schedule 19 (Other Provisions);

24

Protected Return Fare means:

(a)

in respect of a Fare for a Flow for which there was a Saver Return Fare in June 2003, a Return Fare for each such Flow in respect of which the Franchisee is entitled from time to time to set the Price or Child Price under the Ticketing and Settlement Agreement, subject to the following additional rights and restrictions:



(i)

it shall be valid for no less than one month;



(ii)

it shall be valid all day on a Saturday or Sunday and from no later than 1030 on any other day;



(iii)

it need not be valid for any journey:



(A)

beginning between 1500 and 1900 on any day other than a Saturday or Sunday;



(B)

where such journey begins from a London Station or any station between London and Reading station, Watford station, Luton station, or Stevenage station (inclusively); and



(C)

which is in a direction away from London; or



(b)

in respect of a Fare for a Flow for which there was no Saver Return Fare in June 2003, a Return Fare for each such Flow in respect of which the Franchisee is entitled from time to time to set the Price or Child Price under the Ticketing and Settlement Agreement,

except in each case to the extent that a Return Fare for any such Flow is a Commuter Fare;

Protected Weekly Season Ticket means a Weekly Season Ticket for any Flow for which there was a weekly season ticket in the fares manuals and systems of the RSP in June 2003 and which the Franchisee is entitled to set the Price or Child Price of under the Ticketing and Settlement Agreement except to the extent that a Weekly Season Ticket for any such Flow is a Commuter Fare;

Public Performance Measure means the measure of the number of Passenger Services (expressed as a percentage of the number of Passenger Services which are scheduled to be provided under the Plan of the Day) which arrive punctually at their final scheduled destination in the Plan of the Day measured on the basis that:

(a)

for this purpose, "punctually" means within 9 minutes 59 seconds of the scheduled arrival time as shown in the Plan of the Day; and



(b)

any train which is a Cancellation will be regarded as not arriving punctually;

and as such measure is produced and/or published by the Authority from time to time;

Public Sector Operator means any person (other than a franchisee in relation to the services provided or operated under its franchise agreement) who provides railway passenger services or operates any station or light maintenance depot pursuant to or under Section 30 of the Act or Sections 211 or 213 of the Transport Act;

Qualifying Change means a Change which would (if it were subject to a Run of the Financial Model in accordance with Schedule 9 (Changes)) result in adjustments in Franchise Payments over the remaining life of the Franchise Agreement that have a net present value as at the date of the Change in excess of the Threshold Amount, and for the purposes of ascertaining a net present value of the amount of any adjustment in any Franchise Payment, it shall be discounted at the prevailing discount rate per annum (in real terms) stated in HM Treasury's "Green Book Appraisal Guidelines" (which discount rate is 3.5 per cent. per annum (in real terms) at the date of the Franchise Agreement) from the date of receipt of that adjusted Franchise Payment to the date of the Change;

25

Quality Plan means the plan specified in paragraph 2.1 of Schedule 13.1 (Franchise Management);

Quality Report means the report specified in paragraph 2.4 of Schedule 13.1 (Franchise Management);

Quarterly Season Ticket means a Season Ticket Fare which is valid in Standard Class Accommodation from (and including) the day it first comes into effect until (but excluding) the day which falls 3 months after such day;

Rail Industry Review means the review of the structure of Britain's railway system announced by the Secretary of State for Transport to the House of Commons on 19th January 2004;

Rail Passengers' Committee means a passengers' committee established under Section 2 of the Act;

railway industry standards has the meaning given to it in paragraph 10.1 of Schedule 13.2 (Information);

Railway Passenger Services means, for the purposes of Schedule 5 (Fares) only, services for the carriage of passengers by railway which are provided by a person who is bound by the Ticketing and Settlement Agreement, or any part of it, and including the Franchisee and any other Train Operator from time to time;

Railways Pension Scheme means the pension scheme established by the Railways Pension Scheme Order 1994 (No. 1433);

Record of Assumptions means a document prepared by the Franchisee in the agreed terms and marked ROA or revised in accordance with Schedule 9 (Changes) and Placed in Escrow providing:

(a)

detailed assumptions, explanations of assumptions and parameters underlying the Financial Model;



(b)

details of how Franchise Payments have been calculated (including by reference to a defined annual profit margin);



(c)

a description of the functionality, operation and structure of the Financial Model; and



(d)

a description of each input cell, its requirements and its inter-relationship with the Financial Model;

Reference Fare has the meaning given to it in paragraph 6.1(a) of Schedule 5.7 (Changes to Fares and Fares Regulation);

Reference Flow has the meaning given to it in paragraph 6.1(a) of Schedule 5.7 (Changes to Fares and Fares Regulation);

Reference Revenue means the aggregate Gross Revenue recorded by RSP as attributable to sales of all Commuter Fares or Protected Fares for the Financial Year which ended 31^st March 2003;

Regulated Child Price means the Child Price that is permitted to be charged by the Franchisee in respect of any Fare in any Fare Year, determined in accordance with paragraph 2.1 of Schedule 5.5 (Regulation of Individual Fares);

Regulated Price means the Price that is permitted to be charged by the Franchisee in respect of any Fare in any Fare Year, determined in accordance with paragraph 2.1 of Schedule 5.5 (Regulation of Individual Fares);

Regulated Value means the Value of any Fares Basket that is permitted in any Fare Year, determined in accordance with paragraph 4.1 of Schedule 5.4 (Regulation of Fares Basket Values);

26

Regulations has the meaning given to it in paragraph 2.1 of Schedule 2.5 (Transport, Travel and Other Schemes);

Relevant Agreement means any Property Lease or Access Agreement in relation to any stations or network which may be used from time to time by the Franchisee in connection with the Franchise Services, as replaced or amended from time to time. If and to the extent that:

(a)

following the effective date of any Charge Variation, the Franchisee enters into any Replacement Agreement;



(b)

the effect of that Charge Variation is reflected in the terms of the Replacement Agreement; and



(c)

the Authority has consented to such Replacement Agreement being entered into and constituting a Replacement Agreement for the purposes of this definition,

then the Replacement Agreement shall be deemed to be a Relevant Agreement;

Relevant Days has the meaning given to it in paragraph 2.2(a) of Schedule 15.2 (Last 12 or 13 Months of Franchise Period);

relevant Reporting Period has, for the purposes of paragraph 5.3 of Schedule 12 (Financial Obligations and Covenants) only, the meaning given to it in that paragraph;

Relevant Terms has the meaning given to it in paragraph 1.2 of Schedule 10.1 (Remedial Plans);

Remedial Agreement has the meaning given to it in paragraph 1.5 of Schedule 10.1 (Remedial Plans);

Remedial Plan has the meaning given to it in paragraph 1.2 of Schedule 10.1 (Remedial Plans);

Remedial Plan Notice has the meaning given to it in paragraph 1.1 of Schedule 10.1 (Remedial Plans);

Replacement Agreement means an agreement entered into as a replacement for any Relevant Agreement;

Reporting Accountants means KPMG;

Reporting Period means:

(a)

for the purposes of the Season Ticket Bond, any consecutive 7-day period or any other period, each within a Reporting Period (as defined in paragraph (b)) agreed in accordance with paragraph 5.12 of Schedule 12 (Financial Obligations and Covenants); or



(b)

for all other purposes, a period of 28 days, provided that:



(i)

the first such period during the Franchise Period shall exclude any days up to but not including the Franchise Commencement Date;



(ii)

the first and last such period in any Reporting Year may be varied by up to 7 days by notice from the Authority to the Franchisee;



(iii)

each such period shall start on the day following the last day of the preceding such period; and



(iv)

the last such period during the Franchise Period shall end on the end of the Franchise Period;

Reporting Year means a period normally commencing on 1^st April in each calendar year, comprising 13 consecutive Reporting Periods;

27

Required Commencement Agreements has the meaning given to it in clause 4.1 of the Conditions Precedent Agreement;

Retail Prices Index means the retail prices index for the whole economy of the United Kingdom and for all items as published from time to time by the Office for National Statistics or, if such index shall cease to be published or there is a material change in the basis of the index or if, at any relevant time, there is a delay in the publication of the index, such other retail prices index as the Authority may, after consultation with the Franchisee, determine to be appropriate in the circumstances;

Return Fare means a Fare which entitles the purchaser to make, without further restrictions as to the time of day for which the Fare is valid, a journey in each direction in Standard Class Accommodation between the stations and/or the zones for which such Fare is valid and which expires no earlier than 0200 on the day after the day of the outward journey or, if later, the time the relevant return journey may be completed if commenced before 0200;

Revenue means the gross revenue (without any deduction for operating costs or charges except for commission charged to revenue in the normal course of business) of the Franchisee, as stated in the audited or management accounts and statements submitted to the Authority in accordance with Schedule 13.2 (Information), relating to:

(a)

railway passenger services;



(b)

the provision of catering services on any Passenger Service;



(c)

charging for the use of station car parks;



(d)

other revenue directly related to passenger demand for railway passenger services;



(e)

payments to the Franchisee by Network Rail under Schedule 4 to the Track Access Agreement;



(f)

the "MRE" element of any payments to the Franchisee by Network Rail as provided for under Schedule 8 to the Track Access Agreement, net of MRE payments to Network Rail thereunder;



(g)

the revenue element of any paymnets to the Franchise by Network Rail under Condition G or the Network Code; and



(h)

retail commission,

but shall not include any Franchise Payment. References in paragraphs (e), (f) and (g) to Schedules to the Track Access Agreement, the Network Code and/or to particular provisions of those Schedules or the Network Code shall be deemed to include any other provisions of, or incorporated in, any Track Access Agreement which the Authority reasonably considers have an equivalent effect or are intended to fulfil the same function. "Target Revenue" defined below, shall be construed by reference to this definition of "Revenue";

28

Revenue Share Adjustment means the amount of an adjustment to a Franchise Payment determined in accordance with paragraph 3.2 of Schedule 8.1 (Franchise Payments);

Revenue Share Adjustment Date means the Payment Date for the 3^rd Reporting Period in any Franchisee Year, except in respect of any Revenue Share Adjustment falling due in the final Franchisee Year, for which the provisions of paragraph 5 of Schedule 8.1 (Franchise Payments) shall apply;

Revenue Share Reconciliation Amount means the amount determined in accordance with paragraph 3.5 of Schedule 8.1 (Franchise Payments);

Revenue Share Reconciliation Date means the first Payment Date falling no less than 7 days after a determination pursuant to paragraph 3.4 of Schedule 8.1 (Franchise Payments), except in respect of any Revenue Share Reconciliation Amount falling due in the final Franchisee Year, for which the provisions of paragraph 5 of Schedule 8.1 shall apply;

Revenue Support Adjustment means an adjustment to a Franchise Payment determined in accordance with paragraph 4.6 of Schedule 8.1 (Franchise Payments);

Revenue Support Adjustment Date means the first Payment Date falling no less than 7 days after either the Authority or the Franchisee claims revenue support pursuant to paragraph 4.1 of Schedule 8.1 (Franchise Payments), except in respect of any Revenue Support Adjustment falling due in the final Franchisee Year and which has not been made during the Franchise Period, for which the provisions of paragraph 5 of Schedule 8.1 shall apply;

Revenue Support Reconciliation Amount means an amount determined in accordance with paragraph 4.9 of Schedule 8.1 (Franchise Payments);

Revenue Support Reconciliation Date means the first Payment Date falling no less than 7 days after a determination pursuant to paragraph 4.8 of Schedule 8.1 (Franchise Payments), except in respect of any Revenue Support Reconciliation Amount falling due in the final Franchisee Year and which has not been made during the Franchise Period, for which the provisions of paragraph 5 of Schedule 8.1 shall apply;

Revised Inputs has the meaning given to it in paragraph 2.1 of Schedule 9.3 (Runs of the Financial Model);

Revised Reference Revenue Period has the meaning given to it in paragraph 3.1(a) of Schedule 5.7 (Changes to Fares and Fares Regulation);

Rolling Stock Lease means any agreement for the leasing of rolling stock vehicles listed in paragraph 4 of Appendix 1 to the Conditions Precedent Agreement and any agreement of a similar or equivalent nature (including, any agreement or arrangement for the subleasing, hiring, licensing or other use of rolling stock vehicles) to which the Franchisee is a party from time to time during the Franchise Term whether in addition to, or replacement or substitution for, in whole or in part, any such agreement;

Rolling Stock Related Contract means any Rolling Stock Lease, Maintenance Contract or Technical Support Contract;

Rolling Stock Unit means the smallest number of rolling stock vehicles which are normally comprised in a train used by the Franchisee in the provision of the Passenger Services;

Route means any route specified in the Service Level Commitment which the Franchisee has permission to operate the Passenger Services over pursuant to any Track Access Agreement;

Route Utilisation Strategy means any route utilisation strategy notified to the Franchisee by the Authority on or before the Franchise Commencement Date or as developed by the Authority from time to time and notified to the Franchisee for the purposes of the Franchise Agreement;

29

RSP means Rail Settlement Plan Limited;

Rules of the Plan has the meaning given to it in the Network Code;

Rules of the Route has the meaning given to it in the Network Code;

Run of the Financial Model means an operation of the Financial Model with the Revised Inputs and which complies with the requirements of Schedule 9.3 (Runs of the Financial Model);

RVAR means the Rail Vehicle Accessibility Regulations 1998 (SI 1998/2456), as amended from time to time;

Safety Case means the statement of procedures, standards and internal regulations designed to achieve the safe provision or operation of the Franchise Services prepared by the Franchisee and accepted by Network Rail (or any successor thereto) under The Railways (Safety Case) Regulations 1994 or by the HSE (or any successor thereto) under The Railways (Safety Case) Regulations 2000;

Saver Return Fare means a return fare which is shown as a saver fare in the fares manuals and systems of the RSP as at the date of such manuals;

Season Ticket Bond means the season ticket bond to be provided to the Authority in respect of the Franchisee's liabilities under certain Fares and Season Ticket Fares in the form set out in Appendix 2 (Form of the Season Ticket Bond) to Schedule 12 (Financial Obligations and Covenants) and such other bond as may replace it from time to time under Schedule 12;

Season Ticket Fare means:

(a)

for the purposes of Schedule 12 (Financial Obligations and Covenants) only, a Fare which entitles the purchaser to make, without further restriction except as to class of accommodation, an unlimited number of journeys in any direction during the period for which, and between the stations and/or the zones for which, such Fare is valid; and



(b)

for all other purposes, a Fare which entitles the purchaser to make an unlimited number of journeys in any direction during the period for which, and between the stations and/or the zones for which, such Fare is valid;

Security Interest means any mortgage, pledge, lien, hypothecation, security interest or other charge or encumbrance or any other agreement or arrangement having substantially the same economic effect;

Security Specification Standard means the Service Quality Standard in respect of the security of passengers and Franchise Employees when using or delivering the Franchise Services as at the date of the Franchise Agreement, or as amended by the Authority from time to time in accordance with paragraph 1 of Schedule 1.3 (Additional Service Specifications);

Service Delivery Benchmark means any of the performance levels in respect of Minutes Delay attributable to the Franchisee set out in the Service Delivery Benchmark Table;

Service Delivery Benchmark Table means the table set out in Appendix 4 (Service Delivery Benchmark Table) to Schedule 7.1 (Performance Benchmarks);

Service Group has the meaning given to it in the Passenger's Charter when used in relation to the Passenger's Charter, and when used in the Franchise Agreement it has the meaning given to it in the Track Access Agreement, or as specified by the Authority from time to time;

Service Level Commitment means the service level commitment more particularly described in paragraph 1 of Schedule 1.1 (Service Development) and the first such Service Level Commitment in the agreed terms SLC and any other service level commitment developed in accordance with Schedule 1.1;

30

Service Quality Manager means the service quality manager to be employed by the Franchisee to perform the responsibilities of such person specified in Schedule 7.2 (Key Performance Indicators);

Service Quality Standard means any of:

(a)

the Train Presentation Specification Standard;



(b)

the Station Environment Specification Standard;



(c)

the Information Provision Specification Standard;



(d)

the Security Specification Standard; and



(e)

the Ticket Selling Specification Standard,

in the agreed terms and marked SQS;

Service Recovery Plan means, in the event of a prevention or restriction of access to the track or a section of the track (howsoever caused) which results in any Cancellation, Partial Cancellation, and/or any Passenger Service being operated with less passenger carrying capacity than the passenger carrying capacity specified for such Passenger Service in the Train Plan, a plan implemented by the Franchisee:

(a)

to minimise the disruption arising from such prevention or restriction of access by operating during such period of disruption, the best possible level of service given such disruption, including by:



(i)

keeping service intervals to reasonable durations;



(ii)

keeping extended journey times to reasonable durations; and



(iii)

managing any resulting overcrowding;



(b)

to:



(i)

return the level of service to that level specified in the Timetable as soon as reasonably practicable; and



(ii)

prior to the attainment of the level of service specified in paragraph (b)(i), operate any reduced level of service agreed with Network Rail for the purpose of minimising such disruption pursuant to paragraph (a);



(c)

in accordance with the principles of service recovery set out in the ATOC "Approved Code of Practice: Contingency Planning for Train Service Recovery—Service Recovery 2003"; and



(d)

where the particulars of such plan in relation to the requirements of paragraphs (a) and (b) have been:



(i)

agreed at an initial and, where required, subsequent telephone conference between the Franchisee, Network Rail and any other affected Train Operator; and



(ii)

on each occasion, recorded in an official control log by the relevant Region Control Manager of Network Rail,

and prevention or restriction of access to the track or a section of the track shall have the meaning given to that term in paragraph 1.1(a)(i) of Schedule 10.4 (Force Majeure);

Settlement Proposal has the meaning given to it in paragraph 3.2 of Schedule 4.2 (Persons with Disabilities and Disability Discrimination);

Shared Cost Arrangement has the meaning given to it in the Railways Pension Scheme;

31

significant alterations shall, in relation to a Timetable, include alterations to the Timetable which result in:

(a)

the addition or removal of railway passenger services;



(b)

changes to stopping patterns or destinations or origin;



(c)

changes of timings for first/last trains by more than 10 minutes;



(d)

changes to clockface (or near clockface) service patterns (meaning the provision of railway passenger services at a specified time or times relative to the hour); and



(e)

significant changes to journey times and/or key connections at the Station or at other stations at which relevant railway passenger services call;

Single Fare means a Fare which entitles the purchaser to make, without further restrictions as to the time of day for which the Fare is valid, on any one day, one journey in Standard Class Accommodation between the stations and/or the zones for which the Fare is valid;

Spares means parts and components of rolling stock vehicles which are available for the purpose of carrying out maintenance services on rolling stock vehicles;

SQ Audit means any audit conducted by the Franchisee in accordance with Schedule 7.2 (Key Performance Indicators) of the quality of service provided by the Franchisee in the delivery of the Franchise Services;

SQ Audit Programme means the rolling 12-week forward programme of SQ Audits developed and implemented by the Franchisee in accordance with Schedule 7.2 (Key Performance Indicators);

Stakeholder means any relevant Rail Passenger's Committee and any relevant Local Authority;

Standard Class Accommodation means, in respect of any train or service, accommodation which is available to the purchaser of any Fare which, taking into account any rights or restrictions relating to that Fare (other than restrictions relating to accommodation on that train or service), entitles such purchaser to make a journey on that train or service (provided that any accommodation on such train which may have been reserved by such purchaser shall be deemed to have been made so available if, had it not been so reserved, it would have been available for use by such purchaser);

Station means:

(a)

any station in respect of which the Franchisee has entered into a Station Lease; or



(b)

any New Station;

Station Audit Population has the meaning given to it in paragraph 7.6 of Schedule 7.2 (Key Performance Indicators);

Station Audit Score has the meaning given to it in paragraph 7.7 of Schedule 7.2 (Key Performance Indicators);

Station Charge Adjustment means any adjustment to payments under an Access Agreement determined in accordance with paragraph 2 of Schedule 8.4 (Track Access Adjustments and Station Charge Adjustments);

Station Condition Maintenance Programme has the meaning given to it in paragraph 3.1 of Schedule 4.1 (Franchise Facilities);

32

Station Environment Specification Standard means the Service Quality Standard in respect of the environment of the Stations as at the date of the Franchise Agreement, or as amended by the Authority and notified to the Franchisee from time to time in accordance with paragraph 1 of Schedule 1.3 (Additional Service Specifications);

Station Improvement Programme has the meaning given to it in paragraph 10 of Part 2 of Schedule 1.6 (Committed Obligations), including any amendments to such programme from time to time pursuant to such paragraph 10.

Station KPI Performance Ratio means the ratio determined by the Franchisee for each Reporting Period pursuant to paragraph 8.2 of Schedule 7.2 (Key Performance Indicators) in respect of the results of SQ Audits of Stations in accordance with Part 2 (Station Environment Specification) and Scorecards B and C of Part 3 (Management Processes) to the KPI Audit Score Cards;

Station Lease means:

(a)

any lease of a station set out in paragraph 4.1 of Appendix 2 (List of Conditions Precedent Documents) to the Conditions Precedent Agreement; or



(b)

any other station to which the Franchisee becomes the Facility Owner at any time during the Franchise Period;

Station Service means any service specified in paragraph 3 of Schedule 1.7 (Franchise Services) which may be provided by the Franchisee at the Stations;

Station Sublease means a lease or sub-lease of premises comprising part or parts of a Station exclusively occupied by another Train Operator;

Strategy has the meaning given to it in Section 206 of the Transport Act;

Suburban Station means any station:

(a)

which is not a London Station; and



(b)

which is one of the following stations, or is closer to London than (and on the same line as) any of the following stations: Alton, Arlesey, Ashwell and Morden, Audley End (but not including origin Stansted Airport), Aylesbury, Bletchley (excluding Bedford branch), Brighton (excluding Coastway), Canterbury East, Christ's Hospital, Crowborough, Earley, East Grinstead, Fleet, Haddenham & Thame Parkway, Harlington, Maidstone East, Margate, Marks Tey (excluding Sudbury branch), Paddock Wood (including the line between Strood and Paddock Wood), Shoeburyness, Southend Victoria, Southminster, Twyford (including Henley branch), Wadhurst, Whitley and Windsor & Eton Riverside;

Successor Operator means a Train Operator succeeding the Franchisee in the provision or operation of all or any of the Franchise Services including, where the context so admits, the Franchisee where it is to continue to provide or operate the Franchise Services following termination of the Franchise Agreement;

Supplemental Agreement means a supplemental agreement between the Franchisee and a Successor Operator to be entered into pursuant to a Transfer Scheme, being substantially in the form of Appendix 2 (Form of Supplemental Agreement) to Schedule 15.4 (Provisions Applying on and after Termination), but subject to such amendments as the Authority may reasonably make thereto as a result of any change of law affecting such supplemental agreement or other change of circumstances between the date of the Franchise Agreement and the date on which the relevant Transfer Scheme is made and subject further to paragraph 3.2 of Schedule 15.4;

33

Target Passenger Demand means:

(a)

the greater of Actual Passenger Demand or Forecast Passenger Demand; or



(b)

as directed by the Authority, either:



(i)

the lower of such levels of passenger demand; or



(ii)

any intermediate level of passenger demand;

Target Performance Level means, in relation to a Benchmark for any Reporting Period, the number set out in column 2 of the Benchmark Table relating to that Benchmark and in the row of that table for that Reporting Period;

Target Revenue means, in relation to:

(a)

any Franchisee Year, an amount equal to:

TRxRPI

where:

TR

is the amount specified as Target Revenue in Appendix 1 (Target Revenue (expressed in real terms)) to Schedule 8.2 (Annual Franchise Payments) or as revised in accordance with Schedule 9 (Changes); and



RPI

has the meaning given to it in Schedule 8.2;



(b)

any Reporting Period wholly within a Franchisee Year other than the first and last Franchisee Years, one thirteenth of the amount determined pursuant to paragraph (a) for that Franchisee Year;



(c)

any Reporting Period wholly within the first or last Franchisee Year, the amount determined pursuant to paragraph (a) for that Franchisee Year divided by the number of Reporting Periods wholly within that Franchisee Year; and



(d)

any Reporting Period partly within 1 Franchisee Year and partly within the next Franchisee Year, an amount equal to:

A + B

where:

A

is the amount determined pursuant to paragraphs (b) or (c) (as the case may be) in respect of a Reporting Period wholly within the earlier Franchisee Year, multiplied by the following:

X/28

where:

X

is the number of days of the Reporting Period that is in the earlier Franchisee Year; and



B

is the amount determined pursuant to paragraphs (b) or (c) (as the case may be) in respect of a Reporting Period wholly within the later Franchisee Year, multiplied by the following:

Y/28

where:

Y

is the number of days of the Reporting Period that is in the later Franchisee Year;

34

Taxation means any kind of tax, duty, levy or other charge whether or not similar to any in force at the date of this Agreement and whether imposed by a local, governmental or other competent authority in the United Kingdom or elsewhere;

Technical Support Contract means a contract for technical support to which the Franchisee is a party, relating to the rolling stock vehicles used in the provision of the Passenger Services;

Termination Event has the meaning given to it in paragraph 3 of Schedule 10.3 (Events of Default and Termination Event);

Termination Notice means a notice from the Authority to the Franchisee terminating the Franchise Agreement following an Event of Default or a Termination Event in accordance with Schedule 10.2 (Termination);

Threshold Amount means an amount, whether positive or negative, which is determined in accordance with the following formula:

TA = ITA × RPI

where:

TA

is the Threshold Amount for any Franchisee Year;



ITA

is £426,090;



RPI

is ascertained as follows:

CRPI/ORPI

where:

CRPI

means the Retail Prices Index published in February immediately preceding the commencement of that Franchisee Year; and



ORPI

means the Retail Prices Index for February 2004,

provided that, for the first Franchisee Year RPI shall be 1;

Through Ticketing (Non-Travelcard) Agreement means the agreement of that name referred to in paragraph 5.5 of the Appendix to Schedule 2.5 (List of Transport, Travel and Other Schemes);

Ticket Selling Specification Standard means the Service Quality Standard in respect of the selling of tickets at stations by the Franchisee as at the date of the Franchise Agreement, or as amended by the Authority from time to time in accordance with paragraph 1 of Schedule 1.3 (Additional Service Specifications);

Ticketing and Settlement Agreement means the Ticketing and Settlement Agreement dated 23 July 1995 between RSP, the Franchisee and the other Train Operators named therein, as amended from time to time with the approval of the Authority;

Timetable means the timetable which reflects the working timetable issued by Network Rail at the conclusion of its timetable development process, published by the Franchisee at the Stations and at other stations in accordance with paragraphs 1 and 2 of Schedule 1.4 (Passenger Facing Obligations) containing the departure and arrival times of:

(a)

all Passenger Services which call at such Stations and such other stations; and



(b)

principal Connections at such other stations;

35

Timetable Development Rights means all or any of the rights of the Franchisee under any Track Access Agreement to:

(a)

operate Passenger Services and ancillary movements by virtue of that Track Access Agreement;



(b)

deliver any required notification and/or declaration to Network Rail in respect of its intention to exercise any rights;



(c)

make or refrain from making any bids for Train Slots, in each case before any relevant priority dates provided for in, and in accordance with, the Network Code;



(d)

surrender any Train Slots allocated to the Franchisee by Network Rail in accordance with the Network Code;



(e)

object to, make representations, appeal or withhold consent in respect of any actual or proposed act or omission by Network Rail; and



(f)

seek from Network Rail additional benefits as a condition to granting any consent to any actual or proposed act or omission by Network Rail;

Track Access Adjustment means any adjustment to payments under a Track Access Agreement determined in accordance with paragraph 1 of Schedule 8.4 (Track Access Adjustments and Station Charge Adjustments);

Track Access Agreement means each Access Agreement between Network Rail and the Franchisee which permits the Franchisee to provide the Passenger Services on track operated by Network Rail;

Train Audit Population has the meaning given to it in paragraph 7.4 of Schedule 7.2 (Key Performance Indicators);

Train Audit Score has the meaning given to it in paragraph 7.5 of Schedule 7.2 (Key Performance Indicators);

Train Fleet means the rolling stock vehicles specified in or required by Appendix 1 (The Train Fleet) to Schedule 1.1 (Service Development) and any other rolling stock vehicles the Authority consents to in accordance with paragraph 15 of Schedule 1.1 from time to time;

Train KPI Performance Ratio means the ratio determined by the Franchisee for each Reporting Period pursuant to paragraph 8.1 of Schedule 7.2 (Key Performance Indicators) in respect of the results of SQ Audits of trains in accordance with Part 1 (Train Presentation Specification) and Scorecard A of Part 3 (Management Processes) to the KPI Audit Score Cards;

Train Mileage means, in relation to any period, the aggregate train mileage covered during such period by each train used in the provision of the Passenger Services (excluding, any train mileage covered as a result of positioning or other movements of rolling stock vehicles outside the Timetable);

Train Operator means a franchisee or franchise operator, either of which operate railway passenger services pursuant to a franchise agreement or a Public Sector Operator;

Train Plan means the plan of the Franchisee for the operation of trains and train formations under the Timetable in the agreed terms marked TP and any other train plan developed in accordance with Schedule 1.1, except that when used in Schedule 7.1 (Performance Benchmarks), it shall have the meaning given to it in paragraph 2.15 of Schedule 7.1;

Train Presentation Specification Standard means the Service Quality Standard in respect of the condition of rolling stock vehicles when presented for railway passenger service as at the date of the Franchise Agreement, or as amended by the Authority and notified to the Franchisee from time to time in accordance with paragraph 1 of Schedule 1.3 (Additional Service Specifications);

36

Train Slots shall have the meaning given to it in the Network Code;

Transfer Scheme means a transfer scheme made by the Authority under Section 220 and Schedule 21 of the Transport Act (or equivalent statutory provision) pursuant to paragraph 3.1 of Schedule 15.4 (Provisions Applying on and after Termination), being substantially in the form of Appendix 1 (Form of Transfer Scheme) to Schedule 15.4, but subject to such amendments as the Authority may make thereto as a result of any change of Law affecting such transfer scheme or other change of circumstances between the date of the Franchise Agreement and the date on which such scheme is made;

Transport Act means the Transport Act 2000;

Travelcard Agreement means the agreement of that name referred to in paragraph 5.4 of the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes);

Traveline means the telephone enquiry service providing information on all public transport across the United Kingdom;

TSI means any Technical Standard for Interoperability with which the Franchisee is required to comply pursuant to Directives EU ⁹⁶/48 and EU 2001/16 and related legislation;

Turnaround Time means the time specified in the Train Plan between the completion of a Passenger Service in accordance with the Timetable and the commencement of the next Passenger Service in accordance with the Timetable on the same day using some or all of the same rolling stock vehicles;

Turnover means, in relation to any period, the aggregate revenue (excluding any applicable Value Added Tax) accruing to the Franchisee from the sale of Fares and the receipt of Franchise Payments during such period;

Updated Business Plan means the revised business plan to be provided prior to the start of each Franchisee Year (other than the first Franchisee Year) in accordance with paragraph 2.3 of Schedule 13.2 (Information);

Value means the Projected Revenue of a Fares Basket for any Fare Year;

Value Added Tax means value added tax as provided for in the Value Added Tax Act 1994;

Variation means a variation to the terms of the Franchise Agreement pursuant to paragraph 1 of Schedule 19 (Other Provisions);

Weekday means any day other than a Saturday, a Sunday or a Bank Holiday;

Weekly Season Ticket means a Season Ticket Fare which is valid in Standard Class Accommodation from (and including) the day it first comes into effect until (but excluding) the day which falls 7 days after such day;

Young Person's Railcard means a Discount Card issued under the Discount Fare Scheme referred to in paragraph 3.2 of the Appendix (List of Transport, Travel and Other Schemes) to Schedule 2.5 (Transport, Travel and Other Schemes); and

Zone means a zone set out in the map in Schedule 2 of the Travelcard Agreement on the date such agreement came into effect.

37

4.     GOVERNING LAW

        This Agreement shall be governed by and construed in accordance with the Laws of England and Wales and the parties irrevocably agree that the courts of England and Wales are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement, except as expressly set out in this Agreement.

38

IN WITNESS whereof the parties hereto have executed this Agreement the day and year first before written.

THE CORPORATE SEAL OF THE STRATEGIC RAIL AUTHORITY HEREUNTO AFFIXED IS AUTHENTICATED BY: ROBERT PLAMPLIN	}
SIGNED FOR AND ON BEHALF OF THE FRANCHISEE DIRECTOR: DIRECTOR:	}	CHRISTOPHER GARNETT SHAUN MILLS

39

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DEFINITIONS AGREEMENT relating to THE INTERCITY EAST COAST FRANCHISE AGREEMENT

EX-11

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Exhibit 11

Sea Containers Ltd. and Subsidiaries

Statements re Computation of Per Share (Losses)/Earnings

	Year ended December 31,
	2004		2003		2002
	$000		$000		$000
Net (losses)/earnings on common shares:
(Losses)/earnings on common shares—basic	(5,368	)	111,370		41,928
Common share dividends paid:
Class A	(2,204	)	(975	)	(4,003	)
Class B	(136	)	(68	)	(320	)
Undistributed (losses)/earnings on common shares	(7,708	)	110,327		37,605
Dividends on convertible cumulative preferred shares	—		(1,088	)	—
Adjusted undistributed (losses)/earnings on common shares — diluted	(7,708	)	109,239		37,605
	'000		'000		'000
Shares used to compute basic (losses)/earnings per common share (weighted average number of shares outstanding):
Class A common shares	22,082		19,564		18,656
Class B common shares	1,511		1,517		1,566
Shares used to compute diluted (losses)/earnings per common share (weighted average number of shares outstanding assuming conversion of convertible cumulative preferred shares and the effect of stock options, in sequencing order, assuming dilutive):
Class A common shares	22,082		19,641		18,656
Class B common shares	1,511		1,996		1,566
Undistributed net (losses)/earnings per common share:	$		$		$
Class A:
Basic	n/a		5.27		1.88
Diluted	n/a		5.20		1.88
Class B:
Basic	n/a		4.74		1.70
Diluted	n/a		4.68		1.70
Distributed earnings per common share:	$		$		$
Class A:	0.10		0.05		0.225
Class B:	0.09		0.045		0.204
Total (losses)/earnings per common share:	$		$		$
Class A:
Basic	(0.23	)	5.32		2.10
Diluted	(0.23	)	5.25		2.10
Class B:
Basic	(0.23	)	4.79		1.90
Diluted	(0.23	)	4.72		1.90

Dividends on convertible cumulative preferred shares were not included in the 2004 and 2002 computations of diluted earnings on common shares as it would have been anti-dilutive. The number of common shares, assuming conversion of preferred shares, excluded from the calculations was 478,622 for the years ended December 31, 2004 and 2002.

1

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Sea Containers Ltd. and Subsidiaries Statements re Computation of Per Share (Losses)/Earnings

EX-12

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Exhibit 12

Sea Containers Ltd. and Subsidiaries

Computation of Ratios of Earnings/(Losses) to Fixed Charges

		Year ended December 31,
		2000		2001		2002		2003		2004
		$000		$000		$000		$000		$000
Earnings/(losses) before minority interests and income taxes		59,146		22,656		59,834		120,682		(6,902	)
Equity in undistributed earnings of unconsolidated companies		(22,653	)	(26,565	)	(18,698	)	(33,599	)	(45,758	)
Add back dividends received		585		103		86		358		1,698
Total earnings / (losses) before income taxes		37,078		(3,806	)	41,222		87,441		(50,962	)
Fixed charges: Interest		141,959		128,923		130,831		100,067		89,669
	Amortization of finance costs	5,659		5,787		5,020		4,530		6,927
Total interest		147,618		134,710		135,851		104,597		96,596
Interest factor of rent expense		87,933		83,061		56,569		71,888		107,707
Total fixed charges		235,551		217,771		192,420		176,485		204,303
Capitalized interest		(1,365	)	(1,815	)	(1,168	)	—		—
Fixed charges (excluding capitalized interest)		234,186		215,956		191,252		176,485		204,303
Earnings before fixed charges (excluding capitalized interest) and income taxes		271,264		212,150		232,474		263,926		153,341
Ratio of earnings to fixed charges		1.2		1.0		1.2		1.5		- -*

*

Deficiency in earnings to cover fixed charges $50,962.

1

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Sea Containers Ltd. and Subsidiaries Computation of Ratios of Earnings/(Losses) to Fixed Charges

EX-21

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Exhibit 21

SUBSIDIARIES OF SEA CONTAINERS LTD.

			Jurrisdiction of Organization
Atlantic Maritime Services Ltd.			Bermuda
Contender 2 Ltd.			Bermuda
Maritime Container Insurance Co. Ltd.			Bermuda
Papenburg Shipping Oy			Finland
Paulista Containers Maritimos Ltda.			Brazil
SeaCat Ltd.			Bermuda
SeaCat 2 Ltd.			Bermuda
SeaCat 4 Ltd.			Bermuda
SeaCat 6 Ltd.			Bermuda
SeaCat 7 Ltd.			Bermuda
Sea Containers America Inc.			Delaware
	Subsidiaries of Sea Containers America Inc.
	Charleston Marine Containers Inc.		Delaware
	Highlands Landing Corp.		Delaware
	SeaCo Texas Properties Inc.		Delaware
	SeaStreak America Inc.		Delaware
Sea Containers Asia Pte. Ltd.			Singapore
Sea Containers Australia Ltd.			Australia
	Subsidiaries of Sea Containers Australia Ltd.
	Hyde Park Tank Depot Pty Ltd.		Australia
	Sea Containers Australia No 3 Pty Ltd.		Australia
	International Reefer Services Pty Ltd.		Australia
	(subsidiary of Sea Containers Australia No 3 Pty Ltd.)
	Cooltainer Australia Pty Ltd.		Australia
	Tabago Properties Ltd.		Australia
	Cooltainer New Zealand Ltd.		New Zealand
	(subsidiary of Tabago Properties Ltd.)
Sea Containers Brasil Ltda.			Brazil
	Brasiluvas Agricola Ltda.		Brazil
	(subsidiary of Sea Containers Brasil Ltda).
Sea Containers Finance Ireland Ltd.			Ireland
Sea Containers Holdings Ltd.			Bermuda
Sea Containers Ports and Ferries Ltd.			Bermuda
Sea Containers Properties Ltd.			Bermuda
Sea Containers SPC Ltd			Bermuda
Sea Containers U.K. Ltd.			U.K.
	Ferry and Port Holdings Ltd.		U.K.
	(subsidiary of Sea Containers U.K. Ltd.)
	Subsidiaries of Ferry and Port Holdings Ltd.
	Fast Ferries Ltd.		U.K.
	Illustrated London News and Sketch Ltd.		U.K.
	M.V. Skywind Ltd.		U.K.
	SeaCat Ltd.		U.K.
	Sea Containers Ferries Ltd.		U.K.
		Subsidiaries of Sea Containers Ferries Ltd.

1

			Hoverspeed GB Ltd.	U.K.
			Hoverspeed Ltd.	U.K.
			Subsidiaries of Hoverspeed Ltd.
			Hoverspeed (1981) Ltd.	U.K.
			Hoverspeed (Kent) Ltd.	U.K.
			Hoverspeed Holidays Ltd.	U.K.
			Hoverspeed Services Ltd.	U.K.
		Sea Containers Ferries Scotland Ltd.		U.K.
	Sea Containers Ports Ltd.			U.K.
	Sea Containers British Isles Ltd.			U.K.
	(subsidiary of Sea Containers U.K. Ltd.)
	Subsidiaries of Sea Containers British Isles Ltd.
	Fairways and Swinford (Travel) Ltd.			U.K.
	GNER Holdings Ltd.			U.K.
		Great North Eastern Railway Ltd.		U.K.
		(subsidiary of GNER Holdings Ltd.)		U.K.
	Hart Fenton & Co Ltd.			U.K.
	Sea Containers Chartering Ltd.			U.K.
	Sea Containers House Management Ltd.			U.K.
	Sea Containers Italia Holdings S.r.l.			Italy
		Hoverspeed Italia S.r.l.		Italy
		(subsidiary of Sea Containers Italia Holdings S.r.l.)
	Sea Containers Property Services Ltd.			U.K.
		Subsidiaries of Sea Containers Property Services Ltd.
		Newhaven Marina Ltd.		U.K.
		Riverside (Newhaven) Management Ltd.		U.K.
		Tortington Manor Management Ltd.		U.K.
	Sea Containers Services Ltd.			U.K.
		Periandros S.A.		Greece
		(subsidiary of Sea Containers Services Ltd.)
	Yorkshire Marine Containers Ltd.			U.K.
Silja Holdings Ltd.				U.K.
	Subsidiaries of Silja Holdings Ltd.
	Silja Services Ltd.			U.K.
	Silja Oy Ab			Finland
		Subsidiaries of Silja Oy Ab
		Crown Cruise Line Inc S.A.		Panama
		Sally AB		Finland
		Seawind Line AB		Sweden
		Seawind Cruise Line Oy Ab		Finland
		Silja Cruise AB		Sweden
		Silja Line AB		Sweden
		Silja Line Eesti A/S		Estonia
		Silja Line G.m.b.H		Germany
Societe Bananiere de Motobe S.A.				Ivory Coast
Superseacat 1 Ltd.				Bermuda
Superseacat 2 Ltd.				Bermuda
Superseacat 3 Ltd.				Bermuda
Superseacat 4 Ltd.				Bermuda

2

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SUBSIDIARIES OF SEA CONTAINERS LTD.

EX-23

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in:

•

Registration Statement No. 33-76840 and the related Prospectus (Dividend Reinvestment and Share Purchase Plan) of Sea Containers Ltd. on Form S-3, and



•

Registration Statement No. 333-13356 and the related Prospectus (1997 Stock Option Plan) of Sea Containers Ltd. on Form S-8,

of our report dated March 30, 2005, relating to the consolidated financial statements and financial statement schedule of Sea Containers Ltd. and of our report on internal control over financial reporting dated March 30, 2005 (which report expresses an adverse opinion and includes an explanatory paragraph relating to a material weakness identified), both appearing in this Form 10-K of Sea Containers Ltd. and subsidiaries for the year ended December 31, 2004.

/s/  DELOITTE & TOUCHE LLP

New York, New York
March 30, 2005

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31

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Exhibit 31

SEA CONTAINERS LTD.
Rule 13a-14(a)/15d-14(a) Certification

I, James B. Sherwood, certify that:

1.

I have reviewed this annual report on Form 10-K of Sea Containers Ltd. for the year ended December 31, 2004;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

1

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: March 31, 2005
	/s/  J.B. SHERWOOD James B. Sherwood President (Chief Executive Officer)

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SEA CONTAINERS LTD.
Rule 13a-14(a)/15d-14(a) Certification

I, Ian C. Durant, certify that:

1.

I have reviewed this annual report on Form 10-K of Sea Containers Ltd. for the year ended December 31, 2004;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

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b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: March 31, 2005
	/s/  I.C. DURANT Ian C. Durant Senior Vice President - Finance and Chief Financial Officer

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SEA CONTAINERS LTD. Rule 13a-14(a)/15d-14(a) Certification
SEA CONTAINERS LTD. Rule 13a-14(a)/15d-14(a) Certification

EX-32

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Exhibit 32

SEA CONTAINERS LTD.
Section 1350 Certification

        The undersigned hereby certify that this report of Sea Containers Ltd. for the periods presented fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the report.

Dated: March 31, 2005
	/s/  J.B. SHERWOOD James B. Sherwood President (Chief Executive Officer)

/s/  I.C. DURANT Ian C. Durant
Senior Vice President - Finance
and Chief Financial Officer

        [A signed original of this written certification has been provided to Sea Containers Ltd. and will be retained by Sea Containers Ltd. and furnished to the U.S. Securities and Exchange Commission or its staff upon request.]

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SEA CONTAINERS LTD. Section 1350 Certification

EX-99.(B)

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Exhibit 99(b)

SEA CONTAINERS LTD.
Excerpt from Form 10-K Annual Report of
Orient-Express Hotels Ltd. (File No. 1-16017)
for the year ended December 31, 2004

ITEM 1. Business

        Orient-Express Hotels Ltd. (the "Company" and, together with its subsidiaries, "OEH") is incorporated in the Islands of Bermuda and is a "foreign private issuer" as defined in Rule 3b-4 of the U.S. Securities and Exchange Commission ("SEC") under the U.S. Securities Exchange Act of 1934 (the "1934 Act") and in SEC Rule 405 under the U.S. Securities Act of 1933. As a result, it is eligible to file its annual reports pursuant to Section 13 of the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports on Form 6-K (in lieu of Forms 10-Q and 8-K). However, the Company elects to file its annual and interim reports on Forms 10-K, 10-Q and 8-K, including any instructions that relate specifically to foreign private issuers.

        These reports and amendments to them are available free of charge on the internet website of the Company as soon as reasonably practicable after they are filed electronically with the SEC. The internet website address is http://www.orient-express.com. Unless specifically noted, information on the website is not incorporated by reference into this Form 10-K annual report.

        Pursuant to SEC Rule 3a12-3 under the 1934 Act regarding foreign private issuers, the proxy solicitations of the Company are not subject to the disclosure and procedural requirements of SEC Regulation 14A under the 1934 Act, and transactions in the Company's equity securities by its officers, directors and significant shareholders are exempt from the reporting and liability provisions of Section 16 of the 1934 Act.

Introduction

        OEH is a hotel and leisure group focused on the luxury end of the leisure market. It currently owns and/or invests in 49 properties (41 of which it manages) consisting of 38 highly individual deluxe hotels, three restaurants, six tourist trains and two river cruise businesses. These are located in 25 countries worldwide. OEH acquires or manages only very distinctive properties in areas of outstanding cultural, historic or recreational interest in order to provide luxury lifestyle experiences for the elite traveller.

        The locations of OEH's various properties are shown in the map on the preceding page, where they number 45 because the Hotel Cipriani and Palazzo Vendramin are contiguous in Venice, the Hotel Splendido and Splendido Mare are both in Portofino, and three separate safari lodges operate as a unit in Botswana. These seven properties bring the total to 49.

        Hotels and restaurants represent the largest segment of OEH's business, contributing 84% of revenue in 2004, 85% in 2003 and 84% in 2002. Tourist trains and cruises accounted for the remaining revenue in each year. OEH's worldwide portfolio of hotels currently consists of 3,640 individual guest rooms and multiple-room suites, each known as a "key". This total includes Pansea Hotels described below which are not owned or managed by OEH. Hotels owned by OEH in 2004 achieved an average daily room rate ("ADR") of $366 and a revenue per available room ("RevPAR") of $214. Approximately two-thirds of OEH's customers are leisure travellers, with approximately 53% of guests in 2004 originating from the United States, 31% from Europe and the remaining 16% from elsewhere in the world.

        Revenue, operating earnings and identifiable assets of OEH in 2002, 2003 and 2004 for its business segments and geographic areas are presented in Note 15 to the Financial Statements (Item 8 below).

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        At the present time, Sea Containers Ltd. owns a 42% equity interest in OEH. See "OEH's Relationship with Sea Containers Ltd." below.

Owned Hotels—Europe

Italy

        The Hotel Cipriani and Palazzo Vendramin—104 keys—in Venice were built for the most part in the 1950s and are located on three acres on Giudecca Island across from the Piazza San Marco. Most of the rooms have views over the Venetian lagoon. Features include fine cuisine in three indoor and outdoor restaurants, gardens and terraces encompassing an Olympic-sized swimming pool, a tennis court and a free private boat service to the Piazza San Marco. OEH recently acquired an historic warehouse building adjacent to the hotel where, after refurbishment, large banquets and meetings are held. In 2004, a spa was added to the hotel and six more new keys are planned.

        The Hotel Splendido and Splendido Mare—81 keys—overlook picturesque Portofino harbor on the Italian Riviera. Set on four acres, the main hotel was built in 1901 and is surrounded by gardens and terraces which include a swimming pool and tennis court. There are two open-air and enclosed restaurants as well as banquet/meeting rooms, and a shuttle bus linking the main hotel with Splendido Mare on the harbor below. Several guest rooms were refurbished and enlarged in 2004.

        The Villa San Michele—45 keys—is located in Fiesole, a short distance from Florence. Originally built as a monastery in the 15th century with a façade attributed to Michelangelo, it has stunning views over historic Florence and the Arno River Valley. OEH has remodelled and expanded the guest accommodation to luxury standards, including a swimming pool. A shuttle bus service is provided into Florence. The property occupies ten acres. OEH has planning permission to add a further two keys and a spa. The Villa San Michele also operates for hotel guests the five-bedroom main house of the Capannelle vineyard in the Chianti region owned by James and Simon Sherwood. See Item 13—Certain Relationships and Related Transactions below.

        These Italian properties operate seasonally, closing for varying periods during the winter.

        OEH is rebuilding the Hotel Caruso—54 keys—in Ravello on three hill-top acres overlooking the Amalfi coast near Naples. Once a nobleman's palace, parts of the property date back to the 11th century. OEH has received grants from the European Union to help finance this redevelopment, which was delayed while local government planning permits were obtained. Management currently expects to re-open the hotel in mid-2005.

Portugal

Reid's Palace—164 keys—is the most famous hotel on the island of Madeira, situated on ten acres of semitropical gardens on a cliff top above the sea and the bay of Funchal, the main port city. Opened in 1891, the hotel has four restaurants and meeting facilities. Leisure and sports amenities include two fresh water swimming pools, a third tide-filled pool, tennis courts, ocean water sports and access to two championship golf courses. It has year-round appeal to European leisure travellers, serving both winter escapes to the sun and regular summer holidays. A new spa and reorganization of the meeting facilities as a conference center are planned in 2005.

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        The Lapa Palace—109 keys—is in the embassy district of Lisbon, near the city center and overlooking the Tagus River. The historic part of the hotel was originally built in the 1870s as the palace of a Portuguese noble family. It opened as a luxury hotel in 1992 after extensive conversion and expansion, including the addition of conference facilities and underground car parking. OEH recently completed a total room refurbishment and added a spa. The hotel is set amid gardens with ornamental fountains and both indoor and outdoor swimming pools, occupying a total of three acres. OEH owns an adjoining parcel of land suitable for development and has applied for planning permission to build up to 46 additional keys.

        OEH owned for many years the Hotel Quinta do Lago—141 keys—near Faro in the Algarve region, a popular golf destination, until the property was sold in November 2003. See Note 2(b) to the Financial Statements.

Elsewhere in Europe

Hôtel de la Cité—61 keys—is located in the central square of the beautiful walled medieval town of Carcassonne, France near Toulouse. Opened in 1909, the hotel incorporates one of the 50 watch towers in Carcassonne's ancient fortifications and features two restaurants, gardens, a swimming pool and a nearby conference center, altogether occupying two acres. One of the restaurants has been awarded one star for fine dining by the influential Michelin Guide. The hotel also operates a canal barge on the Canal du Midi providing day excursions for guests.

        In February 2002, OEH acquired La Residencia—59 keys—located in the charming village of Deià on the rugged northwest coast of the island of Mallorca, Spain in the Mediterranean. Mallorca is a popular European tourist destination throughout the year. The core of La Residencia was originally created from two adjoining 16th and 17th century country houses set on a hillside site of 30 acres. The hotel features three restaurants including the gourmet El Olivio, one of the foremost on the island, as well as two large outdoor swimming pools, tennis courts and a spa with an indoor pool. OEH has started a program to refurbish all of the guest rooms and build new keys including additional suites.

        Also in February 2002, OEH acquired Le Manoir aux Quat' Saisons—32 keys—in Oxfordshire, England about an hour's drive west of London. The main part of the hotel is a 16th century manor house set in 27 acres of gardens. The property was developed by Raymond Blanc, one of Britain's most famous chefs, and the hotel's restaurant has two stars in the Michelin Guide, placing it among the best in the British Isles. Mr. Blanc has given a long-term commitment to remain the chef at the hotel.

        In February 2005, OEH acquired a 93.5% interest in, and full management and operational control of, the deluxe Grand Hotel Europe—301 keys—in St. Petersburg, Russia. See Note 17 to the Financial Statements. Originally built in 1875, the hotel occupies one side of an entire city block on the fashionable Nevsky Prospect in the heart of the city near the Russian Museum, Shostakovich Philharmonia and other tourist and cultural attractions as well as the business center. There are six restaurants on the premises, popular with locals and visitors alike, as well as a grand ballroom, meeting facilities, a health club and seven retail shops. OEH plans significant refurbishment of the hotel including acquisition of the minority interest owned by the City of St. Petersburg.

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Owned Hotels—North America

United States

        The Windsor Court—324 keys—opened in 1984 and is located in the central business district of New Orleans near the French Quarter and the Mississippi riverfront. Harrah's operates the only land-based casino in Louisiana across the street from the hotel. Each room has panoramic views over the river or the city. Facilities include three restaurants and lounges, a roof-top ballroom, several other banquet and meeting rooms, an outdoor swimming pool and a health club. The hotel's interior décor features a collection of historic European art and antique furniture. The hotel has planning permission to build a conference center on an owned lot across the street from the hotel which would cater to small and medium sized business meetings.

Keswick Hall—48 keys—is located in the rolling countryside of central Virginia, near Charlottesville. Originally a private home dating from 1912, it is popular for weekend breaks and business meetings because of the natural beauty of the area and the adjacent Keswick Club which features a spa and fitness center, tennis courts, swimming pool and an Arnold Palmer-designed golf course. The total site occupies 600 acres including vacant land around the golf course being sold by OEH in parcels for residential development. OEH has planning permission to build 28 new keys in cottages on the grounds near the hotel.

        The Inn at Perry Cabin—81 keys—was built in 1812 as a country inn and is located in St. Michaels, Maryland on the eastern shore of Chesapeake Bay. Set on 25 waterfront acres that include a fitness center, indoor and outdoor swimming pools, and boating and fishing on the Bay, it is an attractive conference and vacation destination, particularly for guests from the Washington, D.C. area. OEH has completed a major renovation and expansion of the hotel, including a new conference facility, and plans to build a spa.

        In November 2004, OEH acquired the El Encanto Hotel and Garden Villas—88 keys—in Santa Barbara, California. See Note 2 to the Financial Statements. The hotel is located in the hills above the restored Santa Barbara Mission, with views out to the Pacific Ocean. Built in 1913 on a seven-acre site, the guestrooms are in cottages and low rise buildings spread throughout mature gardens with a swimming pool and tennis court. OEH plans a significant renovation and upgrade of the property and, while Santa Barbara has strict zoning requirements, has permission to add nine keys.

Caribbean

La Samanna—81 keys—is located on the island of St. Martin in the French West Indies. Built in 1973, the hotel comprises several buildings on ten acres of land along a 4,000-foot beach. Amenities include two restaurants, a freshwater swimming pool, a spa, tennis courts, fitness and conference centers, boating and ocean water sports. The hotel is open most of the year, seasonally closing during the autumn months. The hotel has also been closed for short periods in the past due to hurricane damage and is insured for this risk.

        OEH owns additional land adjoining La Samanna on both the French and Dutch sides of St. Martin. On the French side, it has begun construction of ten private villas on six acres which it intends to sell to third parties, and is applying for planning permission to build and sell 20 more units on about 30 additional acres. On the Dutch side, OEH has begun development of a marina and residential village which OEH would sell and manage. The village will be comprised of shops, restaurants and about 150 vacation condominiums on a parcel of 12 acres.

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Mexico

        In March 2002, OEH acquired a 75% interest in Maroma Resort and Spa—64 keys—on Mexico's Caribbean coast 25 miles south of Cancun's international airport. OEH manages the hotel with continuing support from the previous owner, who retains a 25% interest which OEH has a right of first refusal to acquire in certain circumstances. The resort opened in 1995 and has 25 acres of land, including some for future expansion or residential development, along a 750-foot beach with the Cozumel barrier reef offshore where guests may fish, snorkel and scuba-dive. Important Mayan archaeological sites are also nearby. Rooms are arranged in low-rise villas and there are extensive spa facilities.

Owned Hotels—Rest of the World

South America

        Built in the 1920s on a three-acre site facing Copacabana Beach near the central business district of Rio de Janeiro, Brazil, the Copacabana Palace—222 keys—is one of the most famous in South America and features two gourmet restaurants, a 500-seat theater, several spacious function and meeting rooms, a large swimming pool and fitness center, and a roof-top tennis court and pool. Future expansion is planned subject to government planning permission.

        The Miraflores Park Hotel—82 keys—is located in an exclusive residential district of Lima, Peru surrounded by parkland and looking out at the Pacific Ocean, yet near the commercial and cultural center of the city. Opened in 1997, the hotel has a large ballroom, rooftop outdoor pool, health and beauty facilities and a business center for guests, and occupies about one acre of land.

Southern Africa

        The Mount Nelson Hotel—226 keys—in Cape Town, South Africa is an historic property opened in 1899 with beautiful gardens and pools and has long enjoyed a reputation as one of the foremost hotels on the African continent. It stands just below Table Mountain and is within walking distance of the main business, civic and cultural center of the city. The hotel has a ballroom, two swimming pools, tennis courts, a spa and fitness center, all situated on ten acres of grounds and gardens. Expansion is planned through incorporation into the hotel of owned adjoining residential properties.

        The Westcliff Hotel—119 keys—is the only garden hotel in Johannesburg, South Africa, situated on six hillside acres with views over the city's zoo and parkland. Its resort amenities include two swimming pools, a tennis court and health club, and the hotel attracts business guests because of its proximity to the city center. OEH opened this hotel in 1998. OEH recently added a banquet and conference center on adjacent expansion land.

Orient-Express Safaris—39 keys total—consist of three separate game-viewing lodges in Botswana called Khwai River Lodge, Eagle Island Camp and Savute Elephant Camp. Established in 1971, OEH leases the lodge sites in the Okavango River delta and nearby game reserves, where some of the best wildlife in Africa can be observed from open safari vehicles or boats. Each camp has 12 or 15 twin-bedded deluxe tents, and guests travel between the camps by light aircraft. Boating, fishing, hiking and swimming are offered at the various sites.

Australia

        The Observatory Hotel—96 keys—is in Sydney within walking distance of the central business district of the city. This hotel opened in 1993 and has two restaurant and lounge areas, extensive meeting and banquet rooms, a spa and health club with indoor swimming pool, a tennis court and a large parking garage on a site of about one acre. OEH has planning permission to add keys in a new top floor to the hotel.

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        The Lilianfels Hotel—85 keys—is in the Blue Mountains National Park west of Sydney. It is named after the original estate house, dating from 1890, where the hotel's gourmet restaurant is located. The main hotel, built in 1992 and recently refurbished, has a second restaurant and conference facilities. The resort's four acres of grounds encompass an indoor swimming pool, health club and spa, tennis court and extensive gardens with views over the Blue Mountains. There is expansion land to add keys in the future.

French Polynesia

Bora Bora Lagoon Resort—79 keys—opened in 1993 and has bungalows situated over the lagoon water plus additional beach and garden bungalows, all built in traditional Tahitian style on a 12-acre site. Guests dine in two restaurants and enjoy extensive water sports and tennis. A recent renovation program included a new swimming pool, spa and conference facility. There is expansion land, possibly for residential development.

Hotel Management Interests

        In April 2003, through a 50%/50% joint venture with a Spanish investment company, OEH acquired the famous Hotel Ritz—167 keys—in central Madrid near the financial district, Spanish parliament and many of the city's well known tourist attractions. See Note 2 to the Financial Statements. Opened in 1910, the hotel has four spacious conference and banqueting suites, an indoor restaurant and the famous Ritz Terrace restaurant outdoors in the gardens. OEH manages the hotel under an exclusive long-term contract and plans extensive capital improvements with its 50% partner.

Charleston Place—442 keys—is located in the heart of historic Charleston, South Carolina, a popular destination for tourists and business meetings. Opened in 1986, the hotel has two restaurants, extensive banqueting and conference space including a grand ballroom, a health club with spa and swimming pool and roof-top tennis court, and a shopping arcade of 25 retail outlets leased to unaffiliated parties. The hotel also owns the adjacent historic Riviera Theater remodelled as additional conference space and retail shops. OEH has a 19.9% ownership interest in this hotel, manages the property under an exclusive long-term contract, and receives interest on partnership loans which it assumed at the time of its original investment and on other loans made since then.

        OEH has a 50%/50% joint venture with local investors in Peru which, under exclusive management of OEH, operates the following two hotels under 20-year renewable leases which commenced in 1995.

        The Hotel Monasterio—126 keys—is located in the ancient Inca capital of Cusco, the most important tourist destination in Peru. OEH is upgrading and expanding the property which includes a long-term lease of an adjoining convent for future development, a total site of about three acres. The hotel was originally built as a Spanish monastery in the 16th century and was converted to hotel use in 1995. The deluxe guest rooms and two restaurants are arranged around open-air cloisters. Because of Cusco's high altitude, specially oxygenated ventilation has been added to some of the refurbished rooms.

        The Machu Picchu Sanctuary Lodge—31 keys—is the only hotel at the famous mountaintop Inca ruins at Machu Picchu. All of the rooms have been refurbished to a high standard. The joint venture also has a lease on seven acres at the foot of the ruins, close to the town where tourists arrive by train, for possible future expansion.

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Restaurants

        OEH owns '21' Club, the famous landmark restaurant at 21 West 52^nd Street in mid-town Manhattan in New York City. Originally a speakeasy during Prohibition in the 1920s, this restaurant is open to the public, occupies three brownstone buildings and features gourmet American cuisine. It serves à la carte meals in the original bar restaurant and a separate dining room upstairs, and also has a number of banqueting rooms used for functions, including the famous secret wine cellar.

        OEH has a 49% interest in Harry's Bar, a private dining club in the Mayfair area of London. The majority partner manages the restaurant with assistance from OEH's Italian hotels. Its menu features gourmet Italian cuisine. OEH has a right of first refusal to acquire the remaining interest in this property under certain conditions.

        OEH has re-established the famous La Cabaña steak house in Buenos Aires dating from the 1930s. OEH bought the contents and name of the restaurant some years ago and, after relocating to the Recoleta area of the city, reopened in September 2003. The main dining room features a traditional open fire for searing meats, and three private dining rooms have regional Argentine themes.

Tourist Trains and Cruises

        OEH's principal European tourist trains, called the Venice Simplon-Orient-Express, operate in two parts in a regularly scheduled overnight service between London and Venice and on short excursions in southern England. OEH owns 30 railway cars originally used on historic "Orient-Express" and other famous European trains. All have been refurbished in original 1920s/1930s décor and meet modern safety standards. The services are marketed as a continuation of the Orient-Express trains of pre-World War II years. One train is based in Great Britain composed entirely of Pullman cars with a capacity for up to 250 passengers. The other on the Continent is made up of Compagnie Internationale des Wagons-Lits et du Tourisme sleeping cars and day coaches with capacity for up to 180 passengers. They operate once or twice weekly principally between London and Venice from March to November each year via Paris, Zurich and Innsbruck on a scenic route through the Alps. Passengers travel under the English Channel by bus on the Eurotunnel shuttle train. Occasional trips are also made from time to time to Rome, Prague and Istanbul and other European destinations.

        The British Pullman cars of Venice Simplon-Orient-Express operate all year, originating out of London on short excursions to places of historic or scenic interest in southern England, including some overnight trips when passengers stay at local hotels. Both the British and Continental trains are available for private charter.

        The Northern Belle tourist train offers day trips and charter service principally in the north of Britain. It builds on the success of OEH's British Pullman business, which focuses on the south of England around London. This train consists of six dining cars elegantly decorated to be reminiscent of old British "Belle" trains of the 1930s, plus related service cars, and can carry up to 250 passengers. Full course gourmet meals are served on board and passengers stay in local hotels on overnight itineraries.

        In November 2004, OEH entered into an agreement to acquire a 50% interest in the Royal Scotsman luxury tourist train in April 2005 and to acquire the balance on an earn-out basis in three years. See Note 2 to the Financial Statements. Founded in 1985, the Royal Scotsman is composed of nine Edwardian-style cars accommodating up to 36 passengers. Each compartment in the six sleeping cars has a private bathroom. Operating from April to November each year, the train travels on itineraries of up to seven nights through the Scottish countryside affording passengers the opportunity to visit clan castles, historic battlegrounds, famous Scotch whiskey distilleries and other points of interest. The sellers retain management of the Royal Scotsman until the end of the earn-out period, but the train has been fully integrated into OEH's sales and marketing network.

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PeruRail is a 50%/50% joint venture between OEH and Peruvian partners formed to operate part of the state-owned railways in Peru under a 30-year franchise acquired in 1999 and extendable every five years, upon the joint venture's application, up to 30 additional years. The joint venture pays the government a fee related to traffic levels which can be offset until 2009 against investment in track improvements. The 70-mile Cusco-Machu Picchu line carries mainly tourists visiting the famous Inca ruins, the principal means of access because there is no convenient road. A second rail line runs from Cusco to Matarani on the Pacific Ocean via Puno on Lake Titicaca and Arequipa and principally serves freight traffic at present. The Cusco-Machu Picchu line connects two of OEH's Peruvian hotels allowing creation of inclusive tours served by OEH's Hiram Bingham luxury tourist train. OEH also operates a deluxe daytime tourist train on the Cusco-Puno route through the High Andes mountains, and a 1920s steamer included in the franchise on day excursions for tourists on Lake Titicaca.

        The Eastern & Oriental Express in Southeast Asia travels up to one round trip each week between Singapore, Kuala Lumpur and Bangkok. The journey lasts about 48 hours each way and includes two nights on board and side trips to Penang in Malaysia and the River Kwai in Thailand. Some overnight trips are also made from Bangkok to Chiang Mai and elsewhere in Thailand. Originally built in 1970, the 24 cars were substantially rebuilt to an elegant oriental style of décor and fitted with modern facilities such as air-conditioning and private bathrooms. The train is made up of sleeping cars, three restaurant cars, a bar car and an open air observation car and can carry up to 125 passengers. The Eastern & Oriental Express is available for charter by private groups. OEH manages the train exclusively and has a 25% shareholding in the owning company.

        OEH owns and operates a deluxe river cruiseship on the Irrawaddy River in central Burma, or Myanmar, called the Road to Mandalay. The ship was a Rhine River cruiser built in 1964 which OEH bought and refurbished. It has 66-air-conditioned cabins with private bathrooms, spacious restaurant and lounge areas and a canopied sun deck with swimming pool. The ship travels between Mandalay and Pagan up to eight times each month and carries 126 passengers who enjoy sightseeing along the river and guided shore excursions to places of historic interest. Five to eight night itineraries are offered, including airfare to and from the ship and hotel accommodation in Rangoon. OEH also operates occasional cruises to different destinations, such as to Bhamo in the north of the country close to the China border. The ship does not operate in the hot summer season and occasionally when the water level of the Irrawaddy River falls below normal levels due to lack of rainfall.

        In May 2004, OEH acquired a 50% interest in the business of Afloat in France operating luxury river and canal boats in Burgundy, Provence and other rural regions of France. OEH also purchased the five boats of Afloat in France, and has the right to purchase the balance of the operating business in three to five years on an earn-out basis. See Note 2 to the Financial Statements. The boats each accommodate between six and 12 passengers each in double berth compartments with private bathrooms, and some have small plunge pools on deck. They operate seasonally between April and October on three to six night itineraries with guests dining on board or in nearby restaurants. Side trips are organized each day.

Pansea Hotels

        In February 2004, OEH entered into an agreement to invest up to $8,000,000 in the Pansea Hotel group of six deluxe hotels in Southeast Asia. The properties are La Residence Phou Vao in Luang Prabang, Laos; Napasai in Koh Samui, Thailand; The Governor's Residence in Rangoon, Burma; La Residence d'Angkor in Siem Reap, Cambodia; and Jimbaran Puri Bali and Ubud Hanging Gardens (opening in 2005) in Bali, Indonesia. They total 233 keys at present but all are capable of expansion. OEH does not manage these six hotels but markets them along with its other properties, in particular the Eastern & Oriental Express tourist train and the Road to Mandalay cruiseship, under the name "Pansea Orient-Express Hotels".

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        The investment has been structured as an $8,000,000 loan at 5% annual interest to the Pansea Hotel holding company, convertible after three years into about 25% of the company's shares. At that time OEH has an option to acquire all of the shares. OEH has a further option to acquire all of the shares after five years, at which time the existing shareholders have the right to sell their shares to OEH at the same price. OEH paid $1,400,000 for its option rights. The loan conversion price and option exercise prices are based on multiples of the holding company's net book value or its earnings before interest, tax, depreciation and amortization, less the holding company's debt. The loan proceeds are to be used primarily to expand the existing Pansea properties and to fund new properties in the region.

Management Strategies

        As the foregoing indicates, OEH has a mix of hotel and other deluxe travel products that are geographically diverse and appeal to the high-end leisure market, reflecting an important management strategy. As a result, about two-thirds of annual revenue derives from leisure customers while corporate/business travel accounts for the rest.

        OEH benefits from trends and developments favorably impacting the global hotel, travel and leisure markets, including strong demand growth trends in the luxury hotel market in many parts of the world, increased travel and leisure spending by consumers, favorable demographic trends in relevant age and income brackets of U.S. and European populations, and increased online travel bookings. These trends suffered a setback beginning in 2001 due to slowing national economies, the shock of terrorist attacks, the build-up and aftermath of the wars in Afghanistan and Iraq and the SARS epidemic. Based on OEH's improved results in 2004, management believes that the public's confidence in international travel and demand for luxury hotel and tourist products is returning.

        For the future, OEH plans to grow its business by increasing RevPAR and earnings at its established properties and newer acquisitions, by expanding existing hotel and restaurant properties where land or space is already available, by increasing the utilization of its tourist trains and cruises to add trips, and by acquiring additional distinctive luxury properties throughout the world. Factors in OEH's evaluation of a potential acquisition include the uniqueness of the property, attractions for guests in the vicinity, acceptability of initial investment returns, visible upside potential such as by pricing, expansion or improved marketing, limitations on nearby competition, and convenient access.

        OEH management plans to continue owning or part owning and managing most OEH properties. Ownership encourages OEH to develop the distinctive character of its properties and allows it to benefit from all of the current cash flow and future capital gains should it sell a property. Self-management has enabled OEH to capture the economic benefits otherwise shared with a third-party manager, to control the operations, quality and expansion of the hotels, and to use its experience with price changes, expansions and renovations to improve cash flow and enhance asset values.

        Many of OEH's individual properties, such as the Hotel Cipriani and '21' Club, have distinctive local character and brand identity. Management believes that discriminating travellers will choose a famous property in preference to a chain brand. OEH links its properties together under the umbrella "Orient-Express Hotels, Trains and Cruises" name which originated with the legendary luxury European train in the late 19th and early 20th centuries and which is recognizable worldwide and synonymous with sophisticated travel and refined elegance.

        OEH is expanding its property development activities, beginning at Keswick Hall with the sale of land around the golf course for residential development and at La Samanna with high-end vacation villa and apartment developments. Other hotels owned by OEH with available vacant land for development include Bora Bora Lagoon Resort, Maroma Resort and Spa, and Inn at Perry Cabin. Management anticipates future profits both from sales of land and completed units and from ongoing management of the units for the purchasers as integral parts of the adjacent hotels.

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Marketing, Sales and Public Relations

        OEH's sales and marketing function is primarily based upon direct sales, cross-selling to existing customers and public relations. OEH has a global sales force of about 250 persons in 50 locations including regional sales offices in New York, Paris, Cologne, Milan and London and reservations offices, mainly for tourist trains, cruises and tour products, in London, Paris, Cologne, Tokyo, Singapore, Cusco, Charleston, and Providence (Rhode Island). OEH also has sales representatives with responsibility for the hotels where they are based. The responsibilities of OEH's sales staff include working with the travel industry, contacting group and corporate account representatives and planning marketing such as direct mailings. OEH belongs to a number of international organizations, such as "The Leading Hotels of the World", to promote its properties.

        Internet usage is an important direct sales tool. Through OEH's website (www.orient-express.com), with its prize-winning design, OEH offers direct reservations services to customers. On-line sales have lower transaction costs by saving travel agent commissions and tour operator discounts. The internet also enhances marketing exposure and increases distribution.

        Because repeat customers appreciate the consistent quality of OEH's hotels, trains, cruises and restaurants, an important part of its strategy is to promote other OEH properties through various cross-selling efforts. These include direct mail to existing customers, in-house brochures and promotions, discounted special offers, and OEH's "Orient-Express Travel Club" website and in-house "Orient-Express Magazine". OEH sells luxury souvenir goods branded with the names of its travel products.

        OEH's marketing strategy also focuses on public relations, which it believes is a highly cost-effective marketing tool for luxury properties. Because of the unique nature of the OEH properties, guests are more likely to hear about OEH's hotels and tours through word-of-mouth or published articles rather than through direct advertising. OEH has an in-house public relations offices in London and representatives in 13 countries worldwide, including contracts with third-party public relations firms, to promote its properties through travel magazines, newspapers and other media. During 2004, OEH hosted about 1,400 journalists at its various properties. As a result, about 6,000 articles and stories were published or broadcast about OEH's properties, many in publications with large local, regional or international circulations.

Industry Awards

        OEH has gained a worldwide reputation for quality and service in the luxury segment of the leisure and business travel market. Over the years, OEH's properties have won numerous national and international awards given by trade or consumer publications such as Conde Nast Traveller, Gourmet, Travel & Leisure and Tatler, and private subscription newsletters such as Andrew Harper's Hideaway Report, or industry bodies such as the American Automobile Association. The awards are based on opinion polls of their readers or the professional opinion of journalists or panels of experts. The awards are believed to influence consumer choice and are therefore highly prized.

Competition

        OEH competes for hotel and restaurant acquisition opportunities with others, some of whom have substantially greater financial resources. Large competitors may be prepared to accept a higher level of financial risk than OEH can prudently manage. This competition may have the effect of reducing the number of suitable investment opportunities offered to OEH and increasing OEH's acquisition costs by enhancing the bargaining power of property owners seeking to sell or to enter into management agreements.

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        Some of OEH's properties are located in areas where there are numerous competitors. Competition for guests in the hospitality industry is based generally on the convenience of location, the quality of the property, room rates and menu prices, the range and quality of food services and amenities offered, types of cuisine, and name recognition. Demographic, geographic or other changes in one or more of OEH's markets could impact the convenience or desirability of OEH's hotels and restaurants, and so could adversely affect their profitability. Also, new or existing competitors could significantly lower prices or offer greater conveniences, services or amenities or significantly expand, improve or introduce new facilities in markets in which OEH's hotels and restaurants compete.

        OEH's strategy is to acquire only hotels which have special locations and distinctive character. Many are in areas with unique local history or high entry barriers because of zoning restrictions. OEH builds its competitive advantage further by offering high quality service and cuisine, often with a local flavor. Typically, therefore, OEH competes by providing a special combination of location, character, cuisine and service rather than relying on price competition.

        OEH's luxury tourist trains have no direct competitors. Other trains exist on similar routes, but management believes OEH's trains and onboard service are so unique and of such superior quality that guests consider an OEH train journey more as a luxury experience and an end in itself rather than as a means of transport.

Employees

        OEH currently employs about 5,500 persons, about 2,300 of whom are represented by labor unions. Approximately 4,700 persons are employed in the hotels and restaurants, 600 are employed in the trains and cruises business, and the balance are engaged in central administration and sales.

        Management believes that OEH's ongoing labor relations are satisfactory, but these could deteriorate at any time due to disputes over wage or benefit levels, working conditions or OEH's response to changes in government regulation of workers and the workplace. OEH's operations rely heavily on employees providing high-quality personal service, and any labor shortage or stoppage caused by poor relations with employees could adversely affect OEH's ability to provide those services.

Government Regulation

        OEH and its properties are subject to numerous laws and government regulations such as those relating to the preparation and sale of food and beverages, liquor service, and health and safety of premises. OEH properties are also subject to laws governing employee relationships such as minimum wages and maximum working hours, overtime, working conditions, hiring and firing employees and work permits.

        OEH is also subject to foreign and U.S. laws and regulations relating to the environment and the handling of hazardous substances that may impose or create significant environmental liabilities, even in situations where the environmental problem or violation occurred on a property before OEH acquired it.

        Management believes that OEH is in compliance in all material respects with relevant laws and regulations with respect to its business. Changes in these and in government tax rates or regimes, however, may adversely affect the results of OEH's various properties.

        The expansion of existing properties may be dependent upon obtaining necessary planning/building permits or zoning variances from local authorities. The failure or delay to obtain these could adversely affect OEH's strategy of increasing revenues and net income through expansion of existing properties.

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Certain Trading Factors

        OEH's business prospects, financial condition, results of operations or cash flow could be adversely affected by the following trading factors as well as others described in this report.

        OEH's operations are subject to factors generally encountered in the hospitality industry, such as

•

cyclical downturns arising from changes in general and local economic conditions,



•

political instability of the governments of some countries where properties are located,



•

falling disposable income of consumers and the travelling public,



•

dependence on varying levels of tourism, business travel and corporate entertainment,



•

changes in popular travel patterns,



•

competition from other hotels and leisure time activities,



•

periodic local oversupply of guest accommodation, which may adversely affect occupancy rates and actual room rates achieved,



•

increases in operating costs due to inflation and other factors which may not be offset by increased revenues,



•

regional and local economic and political conditions affecting market demand, including recessions, civil disorder and acts of terrorism,



•

foreign exchange rate movements,



•

adverse weather conditions or destructive forces like fire or flooding, and



•

seasonality, in that many of OEH's hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months.

        The effect of these factors varies among the hotels and other properties because of their geographic diversity. In 2003, the SARS epidemic in Asia, for example, caused a reduction in passenger bookings on OEH's tourist train operating between Bangkok and Singapore and had a negative impact on travel to Australia and Tahiti. Although the SARS outbreak was contained, it is possible that the disease could re-emerge or another potential epidemic could occur. The occurrence of this or a similar event may have a negative impact on OEH's operations.

        In particular, international, regional and even domestic travel was disrupted as a result of terrorist attacks in the U.S. on September 11, 2001 and the subsequent military action in Afghanistan and Iraq. Demand for most of OEH's properties declined substantially in the latter part of 2001, and the effects of the disruption are continuing to be felt. For example, American leisure travellers seem more reluctant than in the past to go abroad, and booking lead-times by guests, travel agents and tour operators have shortened since September 11. Further acts of terrorism or a military action could again reduce leisure and business travel.

        OEH's hotels and restaurants are subject to risk generally incident to the ownership of commercial real estate and often beyond its control. These include

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changes in national, regional and local economic and political conditions,



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changes in interest rates and in the availability, cost and terms of financing,



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the impact of present or future governmental legislation and regulations (including environmental laws),



•

the ongoing need for capital improvements to maintain or upgrade properties,

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•

changes in property taxes and operating expenses, and



•

the potential for uninsured or under insured losses.

        Local weather conditions such as storms and hurricanes, destructive forces like fire or flooding and, in the case of OEH's tourist trains, disruption of the railway networks on which they operate may adversely affect operations and revenue at individual OEH properties. OEH carries property and loss of earnings insurance in amounts management deems adequate, but damages may exceed the insurance limits or be outside the scope of coverage.

        Management intends to increase revenues and net income through acquisitions of new properties and expansion of existing ones. The success of this strategy depends on OEH's ability to identify suitable properties, to negotiate purchases or construction on satisfactory terms, to obtain the necessary financing and governmental permits, to build on schedule and with minimum disruption to guests, and to integrate new properties into OEH's operations. Also, the acquisition of properties in new geographic locations may present operating and marketing challenges that are different from those currently encountered in existing locations.

        OEH may develop new properties in the future. New project development is subject to such adverse factors as market or site deterioration after acquisition, inclement weather, construction delays, labor or materials shortages, work stoppages and the unavailability of construction and permanent financing. For example, the opening of the Westcliff Hotel was delayed by six months as actual construction took longer than planned.

        The acquisition and expansion of leisure properties, as well as the ongoing renovations, refurbishments and improvements required to maintain or upgrade existing properties, are capital intensive. Although actual amounts of capital expenditure could exceed estimates, current expansion plans call for the expenditure of up to an aggregate of $80,000,000 over the next few years to add keys or other facilities at existing properties, and current acquisition plans contemplate expenditure of about $50,000,000 per year for new properties which would be financed mainly by a suitable level of mortgage debt. The availability of future borrowings and access to the capital markets for equity financing to fund these acquisitions and expansions depend on prevailing market conditions and the acceptability of financing terms offered to OEH. There can be no assurance that future borrowings or equity financing will be available to OEH, or available on acceptable terms, in an amount sufficient to fund OEH's needs. Future equity financings may be dilutive to existing holders of OEH shares, and future debt financings may involve restrictive covenants limiting OEH's flexibility to operate its business.

        Currency fluctuations may materially adversely affect OEH's financial statements and operating margins because of the geographic diversity of its operations linked to foreign currencies. OEH financial statements are presented in U.S. dollars and can be impacted by foreign exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency of OEH's costs and liabilities fluctuates in relation to the currency of its revenue and assets, which fluctuation may adversely affect operating margins. With respect to translation risk, even though the fluctuations of currencies against the U.S. dollar can be substantial and therefore significantly impact comparisons with prior periods, the translation impact is a reporting consideration and does not affect the underlying results of operations, as transaction risk does. OEH tries to match foreign currency revenues and costs and assets and liabilities to provide a natural hedge against translation risks although this is not a perfect hedge. With respect to transaction risk, OEH may try to mitigate its exposure by entering into forward foreign exchange contracts from time to time. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk below.

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        OEH may incur a significant amount of debt from time to time which could require OEH to dedicate much of its cash flow from operations to payments on indebtedness, thus

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reducing the availability of cash flow to fund working capital, capital expenditures, product and service development and other general corporate purposes,



•

limiting OEH's ability to obtain additional financing,



•

increasing OEH's vulnerability to adverse economic and industry conditions and the seasonality of some OEH properties, or



•

limiting OEH's flexibility in planning for, or reacting to, changes in its business.

        Also, since substantially all of OEH's long-term debt accrues interest at rates that fluctuate with prevailing interest rates, any increases in prevailing interest rates may increase interest payment obligations. From time to time OEH enters into hedging transactions in order to manage its floating interest rate exposure. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk below.

OEH's Relationship with Sea Containers Ltd.

        Sea Containers Ltd. ("SCL"), a Bermuda company with shares listed on the New York Stock Exchange, currently owns about 42% of the Company's Class A and B common shares (excluding the Class B shares owned by a Company subsidiary) having about 15% of the combined voting power of all outstanding Class A and B common shares of the Company. See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters below. SCL engages in four main businesses, namely (i) ferry transport operations primarily in and around Scandinavia and Britain, (ii) high speed passenger rail services in Britain, (iii) worldwide marine cargo container leasing primarily through its GE SeaCo joint venture with General Electric Capital Corporation and (iv) hotel and leisure operations through OEH. Until the initial public offering of the Company's Class A shares in August 2000, OEH was a wholly-owned subsidiary of SCL.

        At the time of the initial public offering, the Company and certain of its subsidiaries and SCL entered into agreements providing for the separation of their business operations and various ongoing relationships between the companies such as shared services and offices, tax matters and noncompetition. See Item 13—Certain Relationships and Related Transactions below.

        As a result of sales by the Company and SCL of the Company's common shares since the initial public offering, SCL currently owns less than a majority of the equity shares in the Company (disregarding the Company shares owned by its subsidiary) and holds less than majority voting power for most matters submitted to a vote of Company shareholders. Accordingly, SCL no longer has power to elect the Company's Board of Directors or otherwise to control OEH's business direction and policies. Of the seven directors on the Company's Board, only two are also directors and an officer of SCL. OEH has ceased to be a consolidated subsidiary of SCL and is accounted for in SCL's financial statements using the equity method of accounting.

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        SCL has advised the Company that SCL plans to sell its remaining shares, depending on market conditions. The Company has filed a registration statement with the SEC, which was declared effective in February 2003, for sales by SCL from time to time, in one or more transactions, of any or all of its remaining common shares in the Company. In addition, on February 25, 2005, the Company filed a registration statement with the SEC for the sale by the Company of 4,000,000 newly-issued Class A common shares of the Company. See Note 17 to the Financial Statements. That registration statement also covers the secondary offering by SCL of 3,000,000 existing Class A shares of the Company that SCL owns. Future sales by SCL, or the perception these might occur, may adversely affect the market price of the Company's Class A shares, and the liquidity of the shares may be limited until SCL makes those sales.

        OEH has never guaranteed any debt of SCL. All former guarantees by SCL of OEH debt dating from before the Company's initial public offering have been terminated.

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SEA CONTAINERS LTD. Excerpt from Form 10-K Annual Report of Orient-Express Hotels Ltd. (File No. 1-16017) for the year ended December 31, 2004

ITEM 1. Business

EX-99.(C)

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Exhibit 99(c)

SEA CONTAINERS LTD.
(the "Company")
Corporate Governance Guidelines
(As adopted by the Board of Directors on October 5, 2004.)

        The Board of Directors (the "Board") of the Company has adopted the following Corporate Governance Guidelines to promote the effective functioning of the Board and its committees.

I. DIRECTOR QUALIFICATIONS AND INDEPENDENCE

        A majority of the members of the Board shall be "independent directors" as determined by the Board substantially in accordance with the listing standards of the New York Stock Exchange (the "NYSE") as described on Exhibit A attached to these Guidelines. The Company shall disclose the Board's determination of director independence in each year's Form 10-K annual report of the Company.

II. DIRECTOR RESPONSIBILITIES

        The Board is elected by the shareholders. The primary responsibility of the Board is to exercise its duty to act in the best interests of the Company as determined by the Board in the Directors' reasonable judgment.

        Board members are expected to attend Board meetings and meetings of committees on which they serve, and to meet as frequently as necessary to discharge properly their responsibilities. Materials and information that are important to the Board's understanding of the business to be conducted at a Board or committee meeting should generally be distributed to the Directors in advance of the meeting. Directors should review these materials prior to the meeting.

III. BOARD COMMITTEES

        The Board shall have an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. All of the members of these committees shall be "independent directors" in accordance with Exhibit A attached to these Guidelines.

IV. BOARD EXECUTIVE SESSIONS

        The nonexecutive Directors of the Board shall meet at regularly scheduled executive sessions without the executive Directors or other Company management present. The Company shall disclose the method by which interested parties may communicate directly with the Company's nonexecutive Directors in each year's Form 10-K annual report of the Company.

V. DIRECTOR ACCESS TO MANAGEMENT AND INDEPENDENT ADVISORS

        Directors shall have full and free access to the Company's senior management, officers and employees.

        The Board and the Audit Committee have the authority to consult with and hire independent legal, financial or other advisors as the Board or its committees deem appropriate.

VI. DIRECTOR COMPENSATION

        The form and amount of Director compensation will be determined by the Board. The Board shall conduct an annual review of Director compensation.

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        The Board should compare the Directors' compensation with that of other public companies of comparable size.

VII. DIRECTOR ORIENTATION AND CONTINUING EDUCATION

        The Company shall provide educational opportunities to Directors to be informed about the Company's activities and to perform their duties, as well as orientation materials and briefings for new Directors.

VIII. MANAGEMENT EVALUATION AND SUCCESSION

        The Compensation Committee shall conduct an annual performance review of the senior executives.

        The Board shall be responsible for considering and establishing policies and plans regarding the succession of the Company's senior management, and the policies and plans regarding succession in the event of emergency or the unexpected retirement of the Company's President or Chairman.

IX. REPORTING VIOLATIONS

        Any executive officer of the Company that becomes aware of any material non-compliance with any of the applicable provisions of the Corporate Governance listing standards of the NYSE must promptly notify the President, Chairman or the Board.

X. ANNUAL PERFORMANCE EVALUATION OF THE BOARD

        The Board will review the performance of the Board and its committees annually to determine whether it and its committees are functioning effectively. The Nominating and Governance Committee will oversee the evaluation of the Board and committee evaluation process.

XI. PUBLICATION

        The Company shall publish these Corporate Governance Guidelines on the Company's website, along with the Charters of the Board's Audit Committee, Nominating and Governance Committee and Compensation Committee and the Company's Code of Business Conduct, and disclose their availability either on the website or from the Company Secretary in each year's Form 10-K annual report of the Company.

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Exhibit A
Requirements for Director Independence

        A Director will be considered independent only if the Board of Directors (the "Board") has affirmatively determined that the Director has no material relationship with Sea Containers Ltd. or any subsidiary (the "Company") either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company. In addition, Directors with the following relationships will not be deemed independent:

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a Director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company;



•

a Director has received, or has an immediate family member who has received, during any 12-month period within the last three years more than $100,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);



•

a Director or an immediate family member is a current partner of a firm that is the Company's internal or external auditor, a Director is a current employee of such a firm, a Director has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice, or a Director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company's audit within that time;



•

a Director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company's present executive officers at the same time serves or served on that other company's compensation committee;



•

a Director is a current employee, or an immediate family member is a current executive officer, of a company (other than a law firm) that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company's consolidated gross revenues; or



•

a Director is a current partner or employee of, or consultant or counsel to, a law firm which is paying him or her compensation (other than compensation payable as a retired member, partner or employee under the firm's normal and standard retirement policy), if the law firm provided professional services to the Company in an amount which, in the current fiscal year, exceeds the greater of $1 million or 2% of the law firm's consolidated gross revenues.

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SEA CONTAINERS LTD. (the "Company") Corporate Governance Guidelines (As adopted by the Board of Directors on October 5, 2004.)

I. DIRECTOR QUALIFICATIONS AND INDEPENDENCE
II. DIRECTOR RESPONSIBILITIES
III. BOARD COMMITTEES
IV. BOARD EXECUTIVE SESSIONS
V. DIRECTOR ACCESS TO MANAGEMENT AND INDEPENDENT ADVISORS
VI. DIRECTOR COMPENSATION
VII. DIRECTOR ORIENTATION AND CONTINUING EDUCATION
VIII. MANAGEMENT EVALUATION AND SUCCESSION
IX. REPORTING VIOLATIONS
X. ANNUAL PERFORMANCE EVALUATION OF THE BOARD
XI. PUBLICATION

Exhibit A Requirements for Director Independence