Compensation on Termination

1.20.1 Compensation for Termination for a ProjectCo Event of Default

If the Project Agreement is terminated for a ProjectCo Event of Default (other than wilful refinancing breach), the Trust will determine the compensation payable by reference to the value of the Project Agreement, determined either by the Retendering Procedure or (as appropriate) the No Retendering Procedure. The Instalment Option is not available in the case of a ProjectCo Event of Default (other than for Refinancing, see section 1.20.4 (Compensation in the event of termination for Prohibited Acts or breach of Refinancing provisions)) or a Trust Event of Default.

(i) Retendering Procedure

The Trust is required to complete the Tender Process as soon as practicable, on the basis of a new project agreement with a Compliant Tenderer for the remaining term of the Project Agreement, but otherwise on the same terms, with the same Service Payment (as indexed) and with a “wipe clean” for Service Failure Points.

During the tender process the Trust will pay ProjectCo Post Termination Service Amounts (“PTSAs”) for each month. These will be equivalent to the Maximum Service Payment had the agreement not been terminated, less certain allowable costs including the Trust’s costs of procuring provision by others of the Services in the interim.

The compensation payable to ProjectCo following the termination will be the Adjusted Highest Compliant Tender Price (“AHCTP”), being the highest compliant tender price offered as a result of the retendering procedure adjusted upwards or downwards for cash balances held by or on behalf of ProjectCo and certain other items including, but not limited to, insurance proceeds owing to ProjectCo.

If in any month the PTSAs is less than zero, it will be carried forward and set-off against future months’ positive PTSAs (if any) or the AHCTP.

The AHCTP is not subject to any prescribed minimum and, depending on bids received from tenderers once the Retendering Procedure has been embarked upon, may be zero or a negative amount. Therefore the termination compensation amount payable by the Trust to ProjectCo may not be sufficient to enable ProjectCo fully to repay the Issuer under the PSLFA nor the Issuer fully to repay Bondholders (and instead of being entitled to receive compensation ProjectCo may be liable to pay sums to the Trust).

ProjectCo, at its own cost, may appoint a Tender Process Monitor to oversee the tender process.

The Trust is only entitled to retender the Project Agreement if:

(i) the Trust notifies ProjectCo on or before the date falling twenty (20) Business Days after the Termination Date;

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(ii) there is a Liquid Market; and either (iii) Senior Funders have not stepped-in; or

(iv) Senior Funders or ProjectCo have not sold the Project and have failed to use reasonable endeavours to do so.

(ii) No Retendering Procedure

If the Trust does not retender the Project Agreement, the No Retendering Procedure is followed. The Trust shall also follow the No Retendering Procedure if the retendering procedure has been commenced but has not resulted in the payment of compensation to ProjectCo within two years after termination of the Project Agreement.

During this process, the Trust will not pay any PTSAs unless it had previously elected to follow the Retendering Procedure.

The compensation payable to ProjectCo following the termination of the Project Agreement will be the Estimated Fair Value of the Project Agreement.

Under the No Retendering Procedure, the Estimated Fair Value of the Project Agreement is calculated on the basis of:

(i) the total of all forecast Service Payments (without deductions) from the Termination Date to the Expiry Date of the Project, discounted at the then current cost of capital;

(ii) the total costs reasonably forecast to be incurred by the Trust as a result of the termination, discounted at the then current cost of capital, including a reasonable risk assessment of cost overruns that will arise, costs of providing the Services reasonably forecast to be incurred by the Trust from Termination Date to the Expiry Date and any rectification costs to be incurred by the Trust required to deliver the Project Operations to the standard required and additional operating costs to restore standards of Service (less any insurance proceeds received and any amounts payable by the Trust in respect of Capital Expenditure which have not been paid).

Under the No Retendering Procedure it is also possible that the compensation payable by the Trust will not be sufficient to reimburse Bondholders fully (and instead of being entitled to receive compensation, ProjectCo may be liable to pay sums to the Trust).

1.20.2 Compensation in the event of termination for Trust Event of Default, Trust Voluntary Termination and No Reinstatement by the Trust

Where the Instalment Option has not been exercised, compensation has been structured so as to require the Trust to pay an amount of compensation sufficient to enable ProjectCo to meet its obligations to the Senior Funders under the Senior Funders Agreements (including the Issuer’s liabilities under the Bonds) and in respect of Permitted Borrowings (the “Base Senior Debt Amount”) and to cover Redundancy Payments. This compensation amount will then be adjusted downwards to account for cash balances held by ProjectCo, ProjectCo’s right to insurance proceeds and certain other items. This compensation is payable either as a lump sum within forty (40) Business Days of invoice and supporting evidence, with interest at the No Default Interest Rate from the Termination Date until the date of payment and thereafter with interest at the No Default Interest Date or by way of ongoing payments if the Instalment Option is exercised. In the event of a termination for a Trust Event of Default, the lump sum termination compensation will

include a full spens payment under the Bonds. In the event of a Trust Voluntary Termination, the lump sum termination compensation will include a modified spens payment under the Bonds.

Subject to a limit (the “Additional Permitted Borrowings Limit”) ProjectCo should be entitled to raise further borrowing if required without the consent of the Trust (“Additional Permitted Borrowings”). The Additional Permitted Borrowings is the amount of principal that exceeds the amount of principal scheduled to be outstanding at any time adjusted for actual indexation, and the Additional Permitted Borrowings Limit is initially 10 per cent. of the Original Senior Commitments at the Issue Date until outstanding principal is 50 per cent. or less of those Original Senior Commitments, when the limit reduces to 5 per cent. of those commitments (or the then outstanding Additional Permitted Borrowings if higher).

Additional borrowing invested in a Qualifying Variation is not treated as Additional Permitted Borrowings.

The amount of any Additional Permitted Borrowings (including interest and default interest) will be deducted from the Base Senior Debt Amount, and therefore not included in the compensation payable. If a Distribution is made whilst there are Additional Permitted Borrowings outstanding, then the Trust may deduct the value of the Distribution from the compensation amount. Also, whilst there are Additional Permitted Borrowings outstanding, Sub-Contract Losses will not be payable where ProjectCo has the right to terminate that Services Agreement. Therefore, the compensation amount may not enable ProjectCo to meet its obligations to the Issuer under the PSLFA should it take out such additional borrowing, such that the Issuer would not be able to meet its obligations under the Bonds in full.

This risk is mitigated by the inclusion, in the compensation amount, and the market value of Junior Debt and equity, in respect of which sums the Bondholders rank in priority to the Services Contractors, Junior Creditors and the Shareholder, and that the compensation sum cannot be below the Revised Senior Debt Termination Amount. The Project Agreement expressly states that where the initial calculation comes to an amount below the Revised Senior Debt Termination Amount, the compensation payment should be increased to the Revised Senior Debt Termination Amount. The Revised Senior Debt Termination Amount is an amount sufficient to enable ProjectCo to meet its obligations to the Senior Funders under the Senior Funders Agreements and in respect of Permitted Borrowings, such amounts to include interest and Default Interest and amounts of Additional Permitted Borrowings, however Default Interest on Additional Permitted Borrowing which is outstanding at the Termination Date is excluded. The Trust is entitled to exercise set-off against all of those components of the compensation amount; as a result, those components subject to set-off will not necessarily be available to the Bondholders. The risk of a distribution reducing the amount payable is further mitigated by the inclusion of a distributions lock-up event in the Collateral Deed, applicable whilst Additional Permitted Borrowings are outstanding.

While the Financial Guarantors are the Controlling Creditor, neither the Bond Trustee nor the Bondholders will have the right to control the making of additional borrowing by the Issuer and/or ProjectCo.

The Trust may elect to exercise the Instalment Option (within forty (40) Business Days from Termination Date) in a Trust Voluntary Termination scenario or where it has elected not to reinstate the Project, following receipt of insurance proceeds. The Instalment Option is not available in the case of Trust Event of Default.

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1.20.3 Compensation in the event of termination for a Force Majeure Event, Uninsurable Risks and Latent Defects

Where the Instalment Option has not been exercised, compensation has been structured so as to require the Trust to pay an amount of compensation equal to the aggregate of the Base Senior Debt Amount, Redundancy Payments, Sub-Contractor Losses, Junior Debt (less the aggregate of interest payments paid on Junior Debt) and an amount equal to the amounts paid to ProjectCo by way of subscription for shares in ProjectCo (less dividends and other distributions paid by ProjectCo). This compensation amount will then be adjusted downwards to account for cash balances held by ProjectCo, ProjectCo’s right to insurance proceeds and certain other items.

The compensation sum is payable either as a lump sum within forty (40) Business Days of invoice and supporting evidence, with interest at the No Default Interest Rate from Termination Date until the date of payment and thereafter with interest at the No Default Interest Rate, or (at the option of the Trust) by way of the Instalment Option. See the section entitled “Instalment Option”

below.

The provisions on Additional Permitted Borrowings follow that under section 1.20.2 (Compensation in the event of termination for Trust Event of Default, Trust Voluntary Termination and No Reinstatement by the Trust) above.

Similar considerations apply here as to those set out under the section 1.20.2 (Compensation in the event of termination for Trust Event of Default, Trust Voluntary Termination and No Reinstatement by the Trust) above in relation to the possible impact of additional borrowings on the ability of ProjectCo to meet its obligations to both the lender of the additional borrowing and to the Issuer under the PSLFA, and the ability of the Issuer to meet its obligations under the Bonds in full. The amounts of compensation paid in respect of Junior Debt and equity (and available to holders of the Bonds) will, however, be lower than in the case of Trust Event of Default/Trust Voluntary Termination.

The Trust may elect to exercise the Instalment Option (within forty (40) Business Days from Termination Date) in the event of termination for a Force Majeure Event, Uninsurable Risk and Latent Defects.

1.20.4 Compensation in the event of termination for Prohibited Acts or breach of Refinancing provisions

Where the Instalment Option has not been exercised or is not available in case of a ProjectCo Event of Default or a Trust Event of Default, compensation has been structured so as to require the Trust to pay an amount of compensation equal to the Revised Senior Debt Termination Amount less cash balances held by ProjectCo, ProjectCo’s right to insurance proceeds and certain other items. The Revised Senior Debt Termination Amount is an amount sufficient to enable ProjectCo to meet its obligations to the Senior Funders under the Senior Funders Agreements and in respect of Permitted Borrowings, such amounts to include interest and Default Interest and amounts of Additional Permitted Borrowings, however Default Interest on Additional Permitted Borrowing which is outstanding at the Termination Date is excluded.

The Trust may elect to exercise the Instalment Option (within forty (40) Business Days from Termination Date) in event of termination for Prohibited Acts and Refinancing. See the section entitled “Risk Factors – Risks relating to the Bonds and the Market - Potential Termination of Bond Financial Guarantees and Loan Financial Guarantees without Bondholder Consent”.

1.20.5 UK Tax Gross-Up

This is payable by the Trust in case of compensation payments for Trust Event of Default, Trust Voluntary Termination, a Force Majeure Event and Prohibited Acts. There is no provision for tax gross-up for compensation for ProjectCo Event of Default.

1.20.6 Set-off Against Termination Compensation

The Trust is not entitled to exercise any right of set-off against termination compensation payable following termination for Trust Event of Default, Voluntary Termination, a Force Majeure Event or Prohibited Acts, to the extent such set-off would reduce the amount of the compensation below whichever of the Revised Senior Debt Termination Amount and the Base Senior Debt Amount applies in calculating termination compensation. There is no restriction on the Trust’s rights of set-off against termination compensation payable following termination for a ProjectCo Event of Default. The right to set-off is also not applicable once the Trust has elected to exercise the Instalment Option.

1.20.7 Netting off of amounts against the Termination Compensation

All amounts standing to the credit of ProjectCo’s bank accounts and the value of the other assets of ProjectCo will be netted off against whichever of the Revised Senior Debt Termination Amount and the Base Senior Debt Amount applies in calculating termination compensation, before the relevant termination compensation payable by the Trust is calculated.

1.20.8 Instalment Option

The Project Agreement permits the Trust to exercise an option (within forty (40) Business Days from Termination Date) to pay the amounts set out in the repayment schedule to the PSLFA for payment of the scheduled principal and interest of the loan under the PSLFA (the “Senior Debt Ongoing Amounts”) instead of paying the Base Senior Debt Amount or Revised Senior Debt Termination Amount as a lump sum in all termination scenarios, save in the case of a ProjectCo Event of Default (other than for Refinancing) or a Trust Event of Default (the “Instalment Option”). Any other termination sum due and payable must be paid by the Trust to ProjectCo at the outset, rather than as part of the instalment payments. If the Trust elects to exercise the Instalment Option, it is required to pay the Senior Debt Ongoing Amounts directly to a bank account of the Issuer as specified in the Project Agreement on the dates that ProjectCo would have been required to make repayments under the repayment schedule under the PSLFA. The Trust retains the option (on 28 days’ prior written notice to ProjectCo) to pay out the Base Senior Debt Amount or Revised Senior Debt Termination Amount in full on any instalment payment date after having elected to exercise the Instalment Option. A payment default by the Trust in respect of the instalment payments or an assignment or otherwise disposal of the Project Agreement by the Trust in breach of the Project Agreement will result in the unpaid and outstanding element of the Base Senior Debt Amount or the Revised Senior Debt Termination Amount becoming immediately due and payable on receipt of notice from ProjectCo.

The downward adjustments to compensation termination that would be applicable in case of a lump sum payment for cash balances held by ProjectCo, insurance proceeds payable to ProjectCo and certain other items will be swept into a deductions account held by the Trust upon the election of the Instalment Option. The Trust shall also retain control of ProjectCo pursuant to the terms of the Security Trust and Intercreditor Deed but subject to the Senior Creditors security.

The Trust is also liable for keeping ProjectCo and ProjectHoldCo whole against reasonable costs properly incurred by each.

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However, if the Trust exercises the Instalment Option, the Bond Financial Guarantees and the Loan Financial Guarantees will terminate unless AGUK and AGM provide notice that it will not do so. If the Bond Financial Guarantees and the Loan Financial Guarantees are terminated, the Bondholders will only be able to rely on payments made by the Trust to the Issuer in respect of Senior Debt Ongoing Amounts (which it is obliged to do irrespective of the termination of the Bond Financial Guarantees and the Loan Financial Guarantees).