KEY CONTRACTUAL FEATURES

•  Four principal documents defined the legal and regulatory framework within which sponsors were to operate:

-The 407 Act

-The Share Purchase Agreement

-The Restriction on Transfer Agreement

-The Concession and Ground Lease Agreement

•  Under the concession agreements, the concessionaire is free to raise the toll rate while achieving traffic levels above the traffic threshold. If traffic levels fall below the traffic threshold and the toll rate is above the toll threshold, a penalty applies. This arrangement is shown in Figure 1.

-The traffic thresholds are based on a "base year" for traffic. The nullification of the base year has been disputed by the Ontario government.

-These arrangements are aimed at dealing with congestion with the assumption that the penalty congestion payments will provide

Figure 1: Threshold

an incentive to improving the highway management and infrastructure to mitigate congestion. The structure does, however, set a minimum level of tolls regardless of traffic.