49  Compensation On Termination For Authority Default/Voluntary Termination164

49.1  On termination of this Agreement pursuant to clauses 41.1 (Voluntary Termination by the Authority) or 41.2 (Termination on Authority Default) [or in the circumstances set out in clause 84 (Local Government (Contracts) Act 1997)], the Authority shall pay the Contractor the "Authority Default Termination Sum" in accordance with clauses 55 (Miscellaneous Compensation Provisions) and 56 (Method of Payment) [on the Termination Date]. Subject to clauses 49.3 to 49.5 below, the Authority Default Termination Sum shall be an amount equal to the aggregate of:

49.1.1  the Base Senior Debt Termination Amount;

49.1.2  redundancy payments for employees of the Contractor that have been or will be reasonably incurred by the Contractor as a direct result of termination of this Agreement and any Sub-Contractor Breakage Costs; and165

either:

49.1.3  [an amount which when taken together with:

(a)  dividends (or other distributions) paid by the Contractor on its share capital on or before the Termination Date; and

(b)  interest paid and principal repaid by the Contractor under the Subordinated Financing Agreements on or before the Termination Date,

taking account of the actual timing of all such payments, gives a real internal rate of return on the share capital subscribed and amounts advanced under the Subordinated Financing Agreements equal to the Base Case Equity IRR;]

OR

49.1.4  [the aggregate amount for which the share capital of the Contractor and the amounts outstanding under the Subordinated Financing Agreements could have been sold on an open market basis based on the Relevant Assumptions];

OR

49.1.5  [all amounts shown in the Base Case as payable by the Contractor from the Termination Date, either in dividends or other distributions on the share capital of the Contractor or as payments of interest or repayments of principal made by the Contractor under the Subordinated Financing Agreements, each amount discounted back at the Base Case Equity IRR from the date on which it is shown to be payable in the Base Case to the Termination Date].

49.2  On payment of the amount referred to in clause 49.1 above, the Authority shall have the option to require the Contractor to transfer its right, title and interest in and to the Assets to the Authority or as directed by the Authority.

49.3  If the aggregate of the amounts referred to in clause 49.1.1 and clause 49.1.3 is less than the Revised Senior Debt Termination Amount, then the Authority Default Termination Sum shall be increased so that it is equal to the aggregate of the Revised Senior Debt Termination Amount and the amount referred to in clause 49.1.2 provided always that:

49.3.1  the amount referred to in clause 49.1.2 shall only be paid to the extent that the Contractor has demonstrated to the reasonable satisfaction of the Authority that the amount will not be paid in payment (in whole or in part) of any Distribution; and

49.3.2  if, at the time of termination, there are any Additional Permitted Borrowings outstanding, no Sub-Contractor Breakage Costs shall be paid in respect of any Sub-Contract in circumstances where there is an event of default under such Sub-Contract which would entitle the Contractor to terminate such Sub-Contract.

49.4  If a Distribution is made whilst any Additional Permitted Borrowing is outstanding and the Contractor has wilfully, or through gross negligence, failed to comply with its obligations under the Direct Agreement then in addition to the deduction of the Distribution referred to in paragraph (v) of the definition of Revised Senior Debt Termination Amount, the Authority shall be entitled to set off the value of that Distribution a second time against the Authority Default Termination Sum, provided that the amount of the Authority Default Termination Sum will never be less than the Revised Senior Debt Termination Amount.

49.5  If the Contractor has wilfully or through gross negligence failed to comply with its obligations under clause [  ] of the Direct Agreement and there has been an overstatement of the cash balances by the Contractor as at that date which has caused the Authority to reasonably believe that it would be required to pay a lesser sum at the Termination Date than it actually is required to pay under the terms of this clause 49 (Compensation for Termination on Authority Default), then the Authority Default Termination Sum shall be reduced by the amount of such overstatement (to the extent such overstatement is still applicable at the Termination Date), provided that the amount of the Authority Default Termination Sum will never be less than the Revised Senior Debt Termination Amount.

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164 See Section 21.1.3.4 of SoPC4 for further guidance on the principles which apply to compensation for the loss of equity return.

165 Bidders to nominate which one of the options should apply.