The Rail Merger. The Merger Agreements (as defined on page 75), together with the Rail Merger Ordinance, provide the legal framework and specific terms and conditions for the implementation of the Rail Merger and the continued operation of the MTR and KCR railways. The Rail Merger was principally structured as a service concession (the “Service Concession”). The Service Concession, which was granted by KCRC to the Company under the Service Concession Agreement dated 9th August 2007 (“Existing Service Concession Agreement”), provides the necessary legal framework to enable the Company to access, use and operate the assets required to run the KCR railway. The assets which are the subject of the Service Concession include assets such as railway infrastructure, rolling stock, railway systems, station equipment, office facilities and other railway and non-railway related assets. Together with the grant of the Service Concession, the Company purchased certain other assets from KCRC which were needed to operate KCRC’s business after the Rail Merger. These assets included certain properties, shares, business plant and machinery, tools and equipment, business stocks, stores and spares and intellectual property rights. The Company also acquired the economic benefit of the majority of KCRC’s property-related interests. The payments made, or to be made by the Company to KCRC in relation to the Rail Merger were, or are as follows: • Initial payments: (i) HK$4.25 billion being the upfront fee for the right to operate the Service Concession and the consideration for the purchase of certain assets; and (ii) HK$7.79 billion payable in consideration for the execution of the Property Package Agreements and the sale of the shares in certain of KCRC’s subsidiaries under the Sale and Purchase Agreement, in each case, paid on the Merger Date;
