Annex A
DIRECT AGREEMENTS
Agreements have been entered into between the
Franchising Director and Porterbrook relating to all the units
of New Rolling Stock to be delivered under new Supply Contracts.
Each Direct Agreement has a term of 35 years, although certain
provisions described below apply for shorter periods and each
Direct Agreement applies not only to the New Leases for that New
Rolling Stock already entered into but also to certain further
leases of the New Rolling Stock entered into during the term of
the Direct Agreement. Whilst the Direct Agreement affords some
comfort to Porterbrook in the event of the failure of a Lessee,
its primary purpose is to enable the SRA in such circumstances
to ensure that Porterbrook is obligated for a period to allow
existing passenger services to be maintained by SRA or its nominee.
The Direct Agreements require Porterbrook to
notify the Franchising Director before terminating a New Lease.
Porterbrook agrees not to terminate any New Lease for a period
of at least one month following such notification without the
Franchising Director's prior written consent. Unless the Franchising
Director gives consent to termination within three business days
after the date of receipt of Porterbrook's notice, the Franchising
Director must indemnify Porterbrook in respect of any liabilities
accruing or arising under the New Lease during the period from
the date of notification to the Franchising Director until:
(i) the expiry of one month; or
(ii) if Porterbrook agrees not to terminate
the relevant New Lease by reason of a default in relation to which
Porterbrook has been provided with assurances on terms satisfactory
to it that such default would be cured, the date on which it has
been agreed such default will be cured; or
(iii) if a railway administration order is
presented in relation to the relevant TOC, the day on which the
court grants or refuses the petition.
If the Franchising Director procures that any
default by a TOC is cured within the one month period or provides
assurance on terms satisfactory to Porterbrook that such default
will be cured by an agreed later date, then Porterbrook has agreed
not to terminate the New Lease by reason of such default unless
the default is not cured within the relevant period.
Under the Direct Agreements, Porterbrook has
granted the Franchising Director the option, where Porterbrook
intends to proceed with a permitted termination of the New Leases
in relation to a particular TOC in the above circumstances, to
require Porterbrook to grant a new lease to the Franchising Director
or its nominee in relation to all (but not some only before 2010)
of the Rolling Stock previously the subject of such terminated
New Leases.
The Franchising Director is required to exercise
the above option to take new leases in relation to all items of
Rolling Stock used to operate passenger services under a single
Franchise Agreement, if, within the previous month, the Franchising
Director has exercised any option contained in the OPRAF/ROSCO
Agreements (whether or not the one to which Porterbrook is a party)
to take a new lease of Rolling Stock used to operate passenger
services under the same Franchise Agreement. This requirement
applies for a period the length of which differs according to
the relevant Direct Agreement and which is less than the 35 year
term of each Direct Agreement but which expires no earlier than
the expiry date of the relevant New Leases.
Porterbrook may not terminate any relevant New
Lease during the period of a railway administration order without
the consent of the Franchising Director, except if a default continues
for more than two business days after written notice of the default
has been given to the Railway Administrator. In such a case, so
far as the Direct Agreement is concerned, the New Lease may be
terminated. However, the Direct Agreement expressly states that
this right of termination is subject to any further legal requirements
for the consent of the railway administrator or the court (as
to which, see "Special Considerations—Railway Administration
Orders").
If the Franchising Director serves a notice
on Porterbrook that it is terminating a TOC's franchise agreement,
Porterbrook has agreed that it will, at the request of the Franchising
Director, terminate all of the New Leases of that TOC in relation
to New Rolling Stock used to operate passenger services under
such franchise agreement. In turn, the Franchising Director, as
a condition of termination of such New Leases, has agreed to take
new leases of all (but not some only before 2010) of such New
Rolling Stock.
The Franchising Director must exercise the above
option to require Porterbrook to terminate the New Leases in relation
to all New Rolling Stock used to operate passenger services under
a Franchise Agreement if he has exercised any corresponding option
under the OPRAF/ROSCO Agreements (whether or not the one to which
Porterbrook is a party) to require termination of any lease of
rolling stock used to operate passenger services under that same
Franchise Agreement. This requirement applies for the period referred
to above.
Any new lease between Porterbrook and the Franchising
Director or its nominee entered into in any of the above circumstances
will commence on the date of termination of the terminated New
Lease and will itself terminate on (i) the date of the next timetable
change applicable to the British Railways Industry which falls
at least 12 months after the date of termination of the terminated
New Lease or (ii), if earlier, the date on which the New Lease
would have expired by effluxion of time or (iii) such other date
as the Franchising Director and Porterbrook may agree. The Scheduled
Rent will not change by virtue of the new lease being entered
into.
The Franchising Director will have the option
at any time, on three months' notice to Porterbrook, to extend
the term of the new lease so that the extended term expires on
the date on which the terminated New Lease would have expired
by effluxion of time. For the period referred to above, any such
extension must be in relation to all of the New Rolling Stock
comprised in the new lease. Thereafter, the Franchising Director
may exercise the option to extend the term of the new lease in
relation to any, but not necessarily all, of the relevant New
Rolling Stock.
Where the Franchising Director has entered into
a new lease of New Rolling Stock, he may subsequently terminate
it in relation to specific items of Rolling Stock which constitute
"Failed Rolling Stock" (being Rolling Stock which is
not in a condition consistent with its position in its maintenance
cycle, considering normal wear and tear) and in respect of which
Porterbrook's proposals to bring the Failed Rolling Stock into
the required condition are unacceptable to the Franchising Director.
No termination payment will be due from the Franchising Director
to Porterbrook upon any such termination.
The Franchising Director will be primarily liable
under any new lease, whether or not it is a party to the new lease.
However, the Franchising Director may be released from his primary
liability under a new lease if his obligations are undertaken
or guaranteed by a bank with a home state supervisory authority
within the Organisation for Economic Co-operation and Development
with a credit rating of AA by Standard and Poor's Corporation
in respect of its long term senior debt and an equivalent credit
rating by Moody's.
Any new lease entered into in any of the above
circumstances shall include only New Rolling Stock which has been
delivered and brought into revenue earning service on or before
the date on which the relevant option is exercised by the Franchising
Director.
Where a relevant Franchise Agreement expires
by effluxion of time, except in the case of one Direct Agreement,
the Franchising Director has the option to require Porterbrook
to grant a new lease to the Franchising Director or its nominee
of all of the relevant New Rolling Stock. The new lease will be
for a period of three years from the expiry of the Franchise Agreement.
Porterbrook is required to adjust the Scheduled Rent payable under
the new lease upwards or downwards to maintain its "net of
tax rate of return" under the new lease in the event of changes
in interest rates or corporation taxes.
Porterbrook has also agreed, in each Direct
Agreement, to offer terms for the leasing of relevant New Rolling
Stock to any person who is bidding to become the replacement franchisee,
if so requested by such bidder. If such bidder is awarded the
replacement franchise, Porterbrook will be required to use reasonable
endeavours to enter into a lease of the relevant New Rolling Stock
on such terms.
Under each Direct Agreement, Porterbrook has
agreed with the Franchising Director that it will not, inter alia,
create any security over the relevant New Rolling Stock or any
of the relevant New Leases without the prior written consent of
the Franchising Director or the entry into of a Deed of Accession
in the form set out in the Direct Agreement which provides that
such security holder shall be bound by provisions equivalent to
those contained in the Direct Agreement. The Security Trustee
will enter into Deeds of Accession as set out above on the Closing
Date.
The Direct Agreements are governed by English
law.
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