Eversheds LLP EXECUTION COPY One Wood Street London EC2V 7WS United Kingdom T: +44 20 7497 9797 F: +44 20 7919 4919 DX 154280 Cheapside 8 eversheds.com Dated: 2015 (1) The Secretary of State for Transport (2) First TransPennine Express Limited FRANCHISE AGREEMENT – TRANSPENNINE EXPRESS lon_lib1\13239423\11 CONTENTS Clause Page 1 INTERPRETATION ...................................................................................... 5 2 DEFINITIONS............................................................................................ 8 3 COMMENCEMENT ..................................................................................... 80 4 TERM ...................................................................................................... 81 5 GENERAL OBLIGATIONS ........................................................................... 81 6 COMPLIANCE WITH LAWS ......................................................................... 81 7 ENTIRE AGREEMENT ................................................................................. 81 8 GOVERNING LAW ..................................................................................... 81 Schedules 1 Passenger Service Obligations ................................................................... 84 SCHEDULE 1.1 ......................................................................................... 85 Service Development ................................................................................ 85 SCHEDULE 1.2 ......................................................................................... 97 Operating Obligations ............................................................................... 97 SCHEDULE 1.3 ....................................................................................... 104 Not Used ............................................................................................... 104 SCHEDULE 1.4 ....................................................................................... 105 Passenger Facing Obligations ................................................................... 105 SCHEDULE 1.5 ....................................................................................... 112 Information about Passengers ................................................................. 112 SCHEDULE 1.6 ....................................................................................... 121 Franchise Services.................................................................................. 121 SCHEDULE 1.7 ....................................................................................... 126 The Train Fleet ....................................................................................... 126 2 Assets, Leases, Third Parties, Other Franchise Operations and Schemes ........ 130 SCHEDULE 2.1 ....................................................................................... 131 Asset Vesting and Transfer ...................................................................... 131 SCHEDULE 2.2 ....................................................................................... 132 Security of Access Agreements, Rolling Stock Leases, Station and Depot Leases .................................................................................................. 132 SCHEDULE 2.3 ....................................................................................... 138 Third Party Delivery of Passenger Services and Other Franchisees ................ 138 SCHEDULE 2.4 ....................................................................................... 140 Other Franchise Operations ..................................................................... 140 SCHEDULE 2.5 ....................................................................................... 142 Transport, Travel and Other Schemes ....................................................... 142 APPENDIX TO SCHEDULE 2.5 ................................................................... 146 List of Transport, Travel and Other Schemes ............................................. 146 3 Not Used ............................................................................................... 148 4 Persons with Disabilities and Disability Discrimination ................................. 149 APPENDIX 1 TO SCHEDULE 4 ................................................................... 155 Minor Works .......................................................................................... 155 APPENDIX 2 TO SCHEDULE 4 ................................................................... 156 Alternative Transport .............................................................................. 156 5 Fares .................................................................................................... 157 SCHEDULE 5.1 ....................................................................................... 158 Purpose, Structure and Construction ......................................................... 158 lon_lib1\13239423\11 1 SCHEDULE 5.2 ....................................................................................... 161 Franchisee's Obligation to Create Fares ..................................................... 161 SCHEDULE 5.3 ....................................................................................... 162 Allocation of Fares to the Protected Fares Basket ....................................... 162 SCHEDULE 5.4 ....................................................................................... 163 Regulation of Protected Fares Basket Values .............................................. 163 SCHEDULE 5.5 ....................................................................................... 165 Regulation of Individual Fares .................................................................. 165 SCHEDULE 5.6 ....................................................................................... 167 Exceeding the Regulated Value, Regulated Price or Regulated Child Price ...... 167 SCHEDULE 5.7 ....................................................................................... 169 Changes to Fares and Fares Regulation ..................................................... 169 SCHEDULE 5.8 ....................................................................................... 173 Fares Regulation Information and Monitoring ............................................. 173 SCHEDULE 5.9 ....................................................................................... 174 Smart Ticketing ..................................................................................... 174 6 Committed Obligations and Franchise Specific Obligations ........................... 176 PART 1 TO SCHEDULE 6.1 ....................................................................... 177 List of Committed Obligations .................................................................. 177 PART 2 TO SCHEDULE 6.1 ....................................................................... 253 Miscellaneous Provisions ......................................................................... 253 SCHEDULE 6.2 ....................................................................................... 257 TransPennine Express Franchise Specific Provisions .................................... 257 7 Performance Benchmarks ........................................................................ 282 SCHEDULE 7.1 ....................................................................................... 283 Performance Benchmarks ........................................................................ 283 APPENDIX 1 TO SCHEDULE 7.1 ................................................................ 307 Cancellations Benchmarks and Annual Cancellations Benchmarks ................. 307 Part 1 – Cancellations Benchmark Table .................................................... 307 Part 2 – Annual Cancellations Benchmark Table ......................................... 310 Part 3 – Annual Cancellations Payment Table ............................................. 311 APPENDIX 2 TO SCHEDULE 7.1 ................................................................ 312 TOC Minute Delay Benchmarks and Annual TOC Minute Delay Benchmarks ... 312 Part 1 – TOC Minute Delay Benchmark Table ............................................. 312 Part 2 – Annual TOC Minute Delay Benchmark Table ................................... 317 Part 3 – Annual TOC Minute Delay Payment Table ...................................... 318 APPENDIX 3 TO SCHEDULE 7.1 ................................................................ 319 Short Formation Benchmark and Annual Short Formation Benchmark Table .. 319 Part 1 – Short Formation Benchmark Table ............................................... 319 Part 2 – Annual Short Formation Benchmark Table ..................................... 322 Part 3 – Annual Short Formation Payment Table ........................................ 323 SCHEDULE 7.2 ....................................................................................... 324 National Rail Passenger Surveys and Customer and Communities Improvement Fund ..................................................................................................... 324 APPENDIX 1 TO SCHEDULE 7.2 ................................................................ 331 NRPS Benchmark Table ........................................................................... 331 8 Payments .............................................................................................. 332 SCHEDULE 8.1 ....................................................................................... 333 Franchise Payments ................................................................................ 333 APPENDIX 1 TO SCHEDULE 8.1 ................................................................ 341 lon_lib1\13239423\11 2 Profit Share Thresholds ........................................................................... 341 APPENDIX 2 TO SCHEDULE 8.1 ................................................................ 343 Components of AFA and DFR ................................................................... 343 SCHEDULE 8.2 ....................................................................................... 345 Annual Franchise Payments ..................................................................... 345 APPENDIX TO SCHEDULE 8.2 ................................................................... 346 Figures for Calculation of Annual Franchise Payments ................................. 346 SCHEDULE 8.3 ....................................................................................... 347 Miscellaneous Payment Provisions ............................................................ 347 SCHEDULE 8.4 ....................................................................................... 348 Track Access Adjustments and Station Charge Adjustments ........................ 348 9 Changes................................................................................................ 351 SCHEDULE 9.1 ....................................................................................... 352 Financial and Other Consequences of Change ............................................ 352 APPENDIX 1 TO SCHEDULE 9.1 ................................................................ 360 Summary Flow Chart .............................................................................. 360 APPENDIX 2 TO SCHEDULE 9.1 ................................................................ 362 Agreement or Determination of Revised Inputs .......................................... 362 SCHEDULE 9.2 ....................................................................................... 368 Identity of the Financial Model etc. ........................................................... 368 SCHEDULE 9.3 ....................................................................................... 371 Secretary of State Risk Assumptions ......................................................... 371 SCHEDULE 9.4 ....................................................................................... 373 Specified Infrastructure Related Change.................................................... 373 SCHEDULE 9.5 ....................................................................................... 380 Variations to the Franchise Agreement and Incentivising Beneficial Changes .. 380 10 Remedies, Termination and Expiry ........................................................... 384 SCHEDULE 10.1 ..................................................................................... 385 Remedial Plans and Remedial Agreements ................................................. 385 SCHEDULE 10.2 ..................................................................................... 387 Termination and Expiry ........................................................................... 387 SCHEDULE 10.3 ..................................................................................... 388 Events of Default and Termination Events ................................................. 388 SCHEDULE 10.4 ..................................................................................... 394 Force Majeure ........................................................................................ 394 SCHEDULE 10.5 ..................................................................................... 399 Liability ................................................................................................. 399 11 Agreement Management Provisions .......................................................... 400 12 Financial Obligations and Covenants ......................................................... 403 APPENDIX 1 TO SCHEDULE 12 ................................................................. 413 Form of Performance Bond ...................................................................... 413 APPENDIX 2 TO SCHEDULE 12 ................................................................. 418 Form of Season Ticket Bond .................................................................... 418 13 Information and Industry Initiatives ......................................................... 423 APPENDIX 1 TO SCHEDULE 13 ................................................................. 447 Environmental Impact Monitoring Dataset ................................................. 447 APPENDIX 2 TO SCHEDULE 13 ................................................................. 448 Key Assets ............................................................................................ 448 APPENDIX 3 TO SCHEDULE 13 ................................................................. 449 Operational Information .......................................................................... 449 lon_lib1\13239423\11 3 APPENDIX 4 TO SCHEDULE 13 ................................................................. 453 Estimated Turnover ................................................................................ 453 14 Preservation of Assets ............................................................................ 454 SCHEDULE 14.1 ..................................................................................... 455 Maintenance of Franchise ........................................................................ 455 SCHEDULE 14.2 ..................................................................................... 457 Maintenance of Operating Assets .............................................................. 457 SCHEDULE 14.3 ..................................................................................... 460 Key Contracts ........................................................................................ 460 APPENDIX TO SCHEDULE 14.3 ................................................................. 463 List of Key Contracts .............................................................................. 463 SCHEDULE 14.4 ..................................................................................... 465 Designation of Franchise Assets ............................................................... 465 APPENDIX TO SCHEDULE 14.4 ................................................................. 474 Part 1 ................................................................................................... 474 List of Primary Franchise Assets ............................................................... 474 Part 2 ................................................................................................... 475 List of the RV Assets ............................................................................... 475 SCHEDULE 14.5 ..................................................................................... 477 Dealing with Franchise Assets .................................................................. 477 15 Obligations Associated with Termination ................................................... 479 SCHEDULE 15.1 ..................................................................................... 480 Reletting Provisions ................................................................................ 480 SCHEDULE 15.2 ..................................................................................... 486 Last 12 or 13 Months of Franchise Period and other conduct of business provisions ........................................................................................................... 486 SCHEDULE 15.3 ..................................................................................... 491 Handover Package .................................................................................. 491 APPENDIX TO SCHEDULE 15.3 ................................................................. 492 Form of Handover Package ...................................................................... 492 SCHEDULE 15.4 ..................................................................................... 493 Provisions Applying on and after Termination ............................................. 493 APPENDIX 1 TO SCHEDULE 15.4 .............................................................. 500 Form of Transfer Scheme ........................................................................ 500 APPENDIX 2 TO SCHEDULE 15.4 .............................................................. 504 Form of Supplemental Agreement ............................................................ 504 16 Pensions ............................................................................................... 517 17 Confidentiality and Freedom of Information ............................................... 521 18 Additional Reporting Periods .................................................................... 527 19 Other Provisions ..................................................................................... 528 lon_lib1\13239423\11 4 THIS AGREEMENT is dated 2015 BETWEEN (1) THE SECRETARY OF STATE FOR TRANSPORT, whose principal address is at 33 Horseferry Road, London SW1P 4DR (the “Secretary of State”); and (2) FIRST TRANSPENNINE EXPRESS LIMITED (Company Number 09111801), whose registered office is at 50 Eastbourne Terrace, Paddington, London W2 6LG (the “Franchisee”). WHEREAS (A) The Secretary of State wishes to appoint a franchisee to provide railway passenger services within the Franchise and expects his franchisee, on the terms of the Franchise Agreement, actively to seek, in all reasonable business ways, greatly improved performance over the Franchise Term from its employees, its Train Fleet and other assets, and from Network Rail and its other suppliers, so as to deliver to the passenger the best railway passenger service that can be obtained from the resources that are available to it. (B) The Franchisee wishes to be appointed as the Secretary of State’s franchisee for the Franchise and intends, on the terms of this Agreement, actively to seek, in all reasonable business ways, greatly improved performance over the Franchise Term from its employees, its Train Fleet and other assets, and from Network Rail and its other suppliers, so as to deliver to the passenger the best railway passenger service that can be obtained from the resources that are available to it. (C) The following provisions of this Agreement are intended to reflect and give effect to the matters referred to in Recitals (A) and (B) inclusive. 1. INTERPRETATION 1.1 In the Franchise Agreement, except to the extent the context otherwise requires: (a) words and expressions defined in Part I of the Act have the same meanings when used therein provided that, except to the extent expressly stated, "railway" shall not have the wider meaning attributed to it by Section 81(2) of the Act; (b) words and expressions defined in the Interpretation Act 1978 have the same meanings when used in the Franchise Agreement; (c) the words "include", "including" and "in particular" are to be construed without limitation; (d) references to any person include its successors, transferees or assignees; (e) the words "subsidiary", "subsidiary undertaking" and "parent undertaking" each have the same meaning in the Franchise Agreement as in Section 1162 of the Companies Act 2006; (f) references to documents "in the agreed terms" are references to documents initialled by or on behalf of the Secretary of State and the Franchisee. As at the date of this Agreement the documents “in the agreed terms” are as follows: ABD Actual Benchmark Data; BRD May 2015 Rolling Stock Diagram; CSES Customer & Stakeholder Engagement Strategy; lon_lib1\13239423\11 5 DL Depot Lease; ERTMSP Proposed ERTMS Implementation Plan; FF Financial Formats; FM Financial Model; IAC Innovation Account Charge; IAD Infrastructure Assumptions Document; ISDP Initial Sustainable Development Plan; IS Innovation Strategy; OM Operational Model; PC Passenger’s Charter; PSM Passenger Survey Methodology; POA Power of Attorney; ROA Record of Assumptions; SCDP Social and Commercial Development Plan; SDS Sustainable Development Strategy; SL Station Lease; TCTSA(1) Train Crew Trading Services Agreement (Northern Buying); TCTSA(2) Train Crew Trading Services Agreement (TPE Buying); and TSR1, TSR2 Train Service Requirements. and TSR3 (comprising of TSR 3A and TSR 3B) (g) references in any of the agreements comprising the Franchise Agreement to Recitals, clauses, Schedules, Parts, paragraphs and Appendices are to Recitals, clauses, Schedules, Parts of Schedules, paragraphs of Schedules and Appendices of Schedules of that agreement, unless expressly specified to the contrary, and the Schedules and Appendices form part of the agreement in which they appear; (h) references in any Schedule in any of the agreements comprising the Franchise Agreement to a Part, paragraph or Appendix are references to a Part, paragraph or Appendix of that Schedule (or the relevant Part of a Schedule), unless expressly specified to the contrary; (i) headings and references to headings shall be disregarded in construing the Franchise Agreement; (j) references to any enactment include any subordinate legislation made from time to time under such enactment and are to be construed as references to that enactment as for the time being amended or modified or to any enactment for the time being replacing or amending it and references to any subordinate lon_lib1\13239423\11 6 legislation are to be construed as references to that legislation as for the time being amended or modified or to any legislation for the time being replacing or amending it; (k) references to an agreement or any other document shall be construed as referring to that agreement or document as from time to time supplemented, varied, replaced, amended, assigned or novated; (l) references to any particular provisions of any agreement or any other document shall be construed to include any other provisions of, or incorporated in, that agreement or other document which the Secretary of State reasonably considers have an equivalent effect or are intended to fulfil the same function; (m) words importing the masculine gender include the feminine and vice-versa, and words in the singular include the plural and vice-versa; (n) wherever provision is made for the giving or issuing of any notice, endorsement, consent, approval, waiver, certificate or determination by any person, unless otherwise specified, such notice, endorsement, consent, approval, waiver, certificate or determination shall be in writing and the words "notify", "endorse", "consent", "approve", "waive", "certify" or "determine" and other cognate expressions shall be construed accordingly; (o) references to materials, information, data and other records shall be to materials, information, data and other records whether stored in electronic, written or other form; (p) references to the Franchisee bidding for Train Slots or a Timetable shall mean the final action incumbent on the Franchisee under the Network Code to confirm to Network Rail its interests in the Train Slots to which that confirmation relates, and "bid" shall be construed accordingly; (q) references to the period of validity of any Fare are references to its period of validity excluding any rights of any purchaser thereof to extend such period under the Passenger's Charter, any equivalent document, or the terms and conditions attaching to such Fare (including any applicable conditions of carriage) in the event of the cancellation or delay of any of the railway passenger services for which such Fare is valid; (r) references to stations at which any train calls include stations at which such train commences or terminates its journey; (s) references to "railway passenger services" are to be construed subject to Section 40 of the Railways Act 2005; (t) references to the provision of railway passenger services include the organisation of the relevant train movements and making the necessary arrangements with Network Rail or any other relevant Facility Owner; (u) references in lower case letters to terms defined in clause 2 shall be construed, where relevant, as being references to the terms defined as such in the franchise agreement or relevant agreement made under Section 30 of the Act or Section 6 of the Railways Act 2005 with any other Train Operator; (v) amendments to or variations of contracts or arrangements include assignments, novations or other transfers of rights and/or obligations (in whole or in part) under such contracts or arrangements; (w) references to sums of money being expended by the Franchisee shall be to such sums exclusive of Value Added Tax; lon_lib1\13239423\11 7 (x) the words "shall not be liable" are to be construed as meaning that no contravention of the Franchise Agreement and no Event of Default shall arise as a result of the occurrence of the matter to which such words relate; (y) references to a "contravention of the Franchise Agreement" (and cognate expressions) are to be construed as meaning a breach of the Franchise Agreement; (z) wherever provision is made for the Franchisee to "procure" or "ensure" the delivery of an obligation under the Franchise Agreement, unless otherwise specified, that provision shall be construed as a primary obligation on the Franchisee to deliver that obligation; (aa) the Secretary of State is acting as part of the Crown; (bb) references to “profit” shall be construed as meaning profit before corporation tax, determined in accordance with GAAP; and (cc) where there is a requirement on the Franchisee to “fully and effectively cooperate” with one or more other parties with regard to an objective, that requirement relates to the quality of cooperation to be provided by the Franchisee taking into account and subject to the response of the other parties concerned. It does not indicate an obligation on the Franchisee beyond cooperation, relating to the funding of detailed design and development of an infrastructure project, actual delivery or subsequent operation (including in each case performance, cost and revenue effects). It does indicate that the Franchisee shall participate actively in relation to the relevant objective including through the application of management time and internal resources, correspondence and attendance at meetings, in each case as the Franchisee reasonably considers in all of the circumstances to be an appropriate use of its resources and effective to achieve the relevant objective. 1.2 This Agreement and the Conditions Precedent Agreement together constitute a single agreement, which is a “franchise agreement” for the purposes of the Act. 2. DEFINITIONS 2.1 In the Franchise Agreement, except to the extent the context otherwise requires, the following words and expressions have the following meanings: “16 to 25 Railcard” means a Discount Card issued under the Discount Fare Scheme referred to in paragraph (a)(ii) of the definition of Discount Fare Scheme; “2010 Nominal Ticket Sales” has the meaning given to it in paragraph 3 of Schedule 5.4 (Regulation of Protected Fares Basket Values); “2010 Ticket Revenue” has the meaning given to it in paragraph 4 of Schedule 5.4 (Regulation of Protected Fares Basket Values); “Access Agreement” has the meaning given to the term "access agreement" in Section 83(1) of the Act; “Account Balance” means, at any time, the amounts standing to the credit of the Innovation Account, including any interest accrued thereon; “ACoRP” means the Association of Community Rail Partnerships whose principle place of business is The Old Water Tower, Huddersfield Railway Station, St lon_lib1\13239423\11 8 Georges Square, Huddersfield, HD1 1JF or any successor body whose purpose is to support Community Rail Partnerships; “Act” means the Railways Act 1993 and any regulations or orders made thereunder; “Actual CaSL Performance means, in respect of a Franchisee Year, the moving Level” annual average CaSL Figures most recently published by Network Rail for that Franchisee Year in relation to the Franchisee; “Actual Consist Data” means information as to the type of individual vehicles of rolling stock in the Train Fleet which are actually used to form a train on any particular Passenger Service and the manner in which they are configured, which may or may not be the same as the Scheduled Consist Data for the same service; “Actual Innovation Cost” means, in respect of any Innovation Scheme, the total actual cost to the Franchisee of developing and implementing that Innovation Scheme calculated in accordance with paragraph 19.10 of Schedule 13 (Information and Industry Initiatives); “Actual Operating Costs” means: (a) the Franchisee's total operating expenses for the period being reviewed as stated in its profit and loss account, including any of the following operating expenses that are payable during that period: (i) amounts payable to the Secretary of State and Network Rail; (ii) taxation; (iii) shareholder distributions including dividends; (iv) interest; (v) capital expenditure (net of grants received); (vi) lease payments in relation to on- balance sheet leased assets; and (vii) the Annual Innovation Account Contribution to be set aside for the period, but excluding any of the following expenses that are payable in that period: (A) interest relating to on-balance sheet leased assets; lon_lib1\13239423\11 9