HYD.L Regulatory News (HYD)

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction.

FOR IMMEDIATE RELEASE 17 June 2016

Recommended £28 million Acquisition

of

Hydro International plc ("Hydro")

by

Ely Acquisition Limited ("Hanover Bidco")

(an investment vehicle ultimately owned by the Hanover Active Equity Fund LP)

Summary

· The Boards of Hanover Bidco and Hydro are pleased to announce that they have reached agreement on the terms of a recommended acquisition of the entire issued and to be issued share capital of Hydro not already owned by Hanover Bidco or the Hanover Bidco Group.

· Hanover Bidco is a wholly owned indirect subsidiary of the Hanover Active Equity Fund LP.

· As at the date of this announcement, the Hanover Bidco Group and its concert parties own Hydro Shares representing approximately 17.7 per cent. of the issued ordinary share capital of Hydro.

· Under the terms of the Acquisition, each Scheme Shareholder will be entitled to receive 194 pence in cash per Hydro Share or, for every £1 of Cash Consideration, £1 nominal value of Loan Notes.

· The Acquisition values the entire issued share capital of Hydro at approximately £28 million.

· The Loan Note Alternative consists of an unsecured loan note alternative to the Cash Consideration pursuant to which Scheme Shareholders (other than certain overseas shareholders) may elect to receive some or all of their Cash Consideration in the form of Loan Notes.

· It is intended that the Acquisition will be implemented by means of a scheme of arrangement under Part 26 of the Companies Act.

· The Hydro Board, which has been so advised by Arden Partners, considers the terms of the Acquisition to be fair and reasonable. In providing its advice to the Hydro Board, Arden Partners has taken into account the commercial assessments of the Hydro Board.

· The Hydro Board believes that the terms of the Acquisition are in the best interests of Scheme Shareholders as a whole and intends unanimously to recommend that Scheme Shareholders vote in favour of the resolutions to be proposed at the Court Meeting and the General Meeting which are to be convened to approve the Acquisition.

· Tony Hollox, being the only Hydro Director who holds Hydro Shares, has irrevocably undertaken to vote in favour of the resolutions to be proposed at the Court Meeting and the General Meeting which are to be convened to approve the Acquisition in respect of his entire beneficial holdings of Hydro Shares amounting to 23,463 Hydro Shares, representing approximately 0.2 per cent. of the issued share capital of Hydro.

· In addition, Hanover Bidco has received irrevocable undertakings to vote in favour of the resolutions to be proposed at the Court Meeting and the General Meeting which are to be convened to approve the Acquisition from certain other Hydro Shareholders, in respect of a total of 5,353,816 Hydro Shares representing approximately 37.1 per cent. of the issued share capital of Hydro.

· In aggregate, Hanover Bidco has therefore received irrevocable undertakings to vote in favour of the resolutions to be proposed at the Court Meeting and the General Meeting, which are to be convened to approve the Acquisition, in respect of a total of 5,377,279 Hydro Shares, representing approximately 37.3 per cent. of the issued share capital of Hydro.

Commenting on the Acquisition, Ian Griffiths, Chairman of Hydro said:

"Whilst Hydro is well placed to continue to deliver on its stated strategy, the proposed acquisition by Hanover announced today will enable shareholders to crystallise an immediate and certain value in cash. It represents a significant premium to historic share price trading levels and the Board of Hydro has unanimously recommended Hanover's offer."

Commenting on the Acquisition, Matthew Peacock, founding partner of Hanover Investors and a director of Hanover Bidco said:

"We are delighted to be announcing this recommended cash offer for Hydro. We believe that Hydro is a great company with significant potential, but that given its size it would fare better as a private company. Our proposal provides Hydro Shareholders with an opportunity to realise a significant premium over the value of their shares prior to Hanover Investors acquiring a stake in the Company."

This summary should be read in conjunction with the full text of the following announcement including the Appendices. The Conditions and certain further terms of the Acquisition are set out in Appendix I to this announcement. Appendix II contains bases and sources of certain information contained within this announcement. Appendix III contains details of the irrevocable undertakings given to Hanover Bidco. Appendix IV contains the definitions of certain terms used in this announcement.

Enquiries:

Hanover Investors Management LLP

Matthew Peacock Tel: +44(0)20 7766 8400

Tom Russell

Fred Lundqvist

Panmure Gordon (UK) Limited (Financial adviser to Hanover Bidco)

Dominic Morley Tel: +44(0)20 7886 2500

Charles Leigh-Pemberton

Hydro International plc

Michael Jennings, Chief Executive Tel: +44(0)12 7587 8371

Tony Hollox, Chief Financial Officer

Arden Partners plc (Financial adviser to Hydro)

Steven Douglas Tel: +44(0)20 7614 5900

Further information

This announcement is not intended to and does not constitute, or form part of, any offer to sell or subscribe for or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Acquisition or otherwise, nor shall there be any sale, issuance or transfer of securities of Hydro in any jurisdiction in contravention of applicable law.

Any vote in respect of the Acquisition should only be made on the basis of the information contained in the Scheme Circular, which will contain the full terms and conditions of the Acquisition and the Scheme (including details of how to vote). Hydro Shareholders are advised to read the formal documentation in relation to the Acquisition carefully once it has been dispatched.

Please be aware that addresses, electronic addresses and certain other information provided by Hydro Shareholders, persons with information rights and other relevant persons in connection with the receipt of communications from Hydro may be provided to Hanover Bidco during the offer period as required under Section 4 of Appendix 4 of the Code.

Panmure Gordon, which is authorised and regulated by the FCA in the United Kingdom, is acting for Hanover Bidco and no-one else in connection with the Acquisition and will not be responsible to anyone other than Hanover Bidco for providing the protections afforded to clients of Panmure Gordon nor for providing advice in relation to the Acquisition.

Arden Partners, which is authorised and regulated by the FCA in the United Kingdom, is acting for Hydro and no-one else in connection with the Acquisition and will not be responsible to anyone other than Hydro for providing the protections afforded to clients of Arden Partners nor for providing advice in relation to the Acquisition.

Overseas jurisdictions

The availability of the Loan Notes in, and the release, publication or distribution of this announcement in or into, jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes who are not resident in the United Kingdom should inform themselves about, and observe, any applicable restrictions. Hydro Shareholders who are in any doubt regarding such matters should consult an appropriate independent adviser in the relevant jurisdiction without delay. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Acquisition disclaim any responsibility or liability for the violation of such restrictions by any person.

This announcement has been prepared for the purposes of complying with English law and the Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.

Notes to US investors in Hydro

Shareholders of Hydro in the United States should note that the Acquisition relates to the shares of an English company and is proposed to be made by means of a scheme of arrangement provided for under, and governed by, English law. Neither the proxy solicitation nor the tender offer rules under the US Securities Exchange Act of 1934, as amended, will apply to the Scheme. US shareholders of Hydro will only receive Cash Consideration in connection with the Acquisition and may not elect to receive any Loan Notes.

The Scheme will be subject to the disclosure requirements and practices applicable in the UK to schemes of arrangement, which differ from the disclosure requirements of the US proxy solicitation rules and tender offer rules. Financial information included in this announcement and the Scheme Circular has been or will be prepared in accordance with, where relevant, International Financial Reporting Standards as adopted by the European Union and accounting standards applicable in the UK and may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

Hydro and Hanover Bidco are each organised under the laws of England. All of the officers and directors of Hydro and Hanover Bidco are residents of countries other than the United States. It may not be possible to sue Hydro or Hanover Bidco in a non-US court for violations of US securities laws. Furthermore, it may be difficult to compel Hydro, Hanover Bidco and their respective affiliates to subject themselves to the jurisdiction and judgment of a US court.

Notes regarding Loan Notes

The Loan Notes to be issued pursuant to the Scheme have not been and will not be registered under the US Securities Act of 1933, as amended, or under the relevant securities laws of any state or territory or other jurisdiction of the United States or the relevant securities laws of Japan and the relevant clearances have not been, and will not be, obtained from the securities commission of any province of Canada. No prospectus in relation to the Loan Notes has been, or will be, lodged with, or registered by, the Australian Securities and Investments Commission. Accordingly, the Loan Notes are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly in or into the United States, Canada, Australia or Japan or any other jurisdiction if to do so would constitute a violation of relevant laws of, or require registration thereof in, such jurisdiction (except pursuant to an exemption, if available, from any applicable registration requirements or otherwise in compliance with all applicable laws).

Disclosure requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1%. or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Forward-looking statements

This announcement contains certain forward-looking statements, including statements regarding Hanover Bidco's and Hydro's plans, objectives and expected performance. Such statements relate to events and depend on circumstances that will occur in the future and are subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the water services industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this announcement.

Publication of this announcement

A copy of this announcement will be available subject to certain restrictions relating to persons resident in Restricted Jurisdictions on www.hanoverinvestors.com and www.hydro-int.com.

The contents of Hydro's website and the Hanover Investors website are not incorporated into and do not form part of this announcement.

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction.

FOR IMMEDIATE RELEASE 17 June 2016

Recommended £28 million acquisition

of

Hydro International plc ("Hydro")

by

Ely Acquisition Limited ("Hanover Bidco")

(an investment vehicle ultimately owned by the Hanover Active Equity Fund LP)

SCHEME OF ARRANGEMENT OF HYDRO INTERNATIONAL PLC IN CONNECTION WITH ITS RECOMMENDED ACQUISITION BY HANOVER BIDCO

1. Introduction

The boards of Hydro and Hanover Bidco are pleased to announce that they have reached agreement on the terms of a recommended acquisition of the entire issued and to be issued share capital of Hydro by Hanover Bidco not already owned by Hanover Bidco or the Hanover Bidco Group.

The terms of the Acquisition value each Hydro Share at 194 pence and the entire issued share capital of Hydro at approximately £28 million.

The Acquisition represents a premium of approximately:

o 45.3 per cent. over the closing middle market price of 133.5 pence per Hydro Share on 31 December 2015;

o 28.5 per cent. over the closing middle market price of 151.0 pence per Hydro Share on 20 January 2016, the Business Day immediately prior to the first announcement of the Fund's shareholding of Hydro Shares; and

o 8.1 per cent. over the closing middle market price of 179.5 pence per Hydro Share on 19 May 2016, the Business Day immediately prior to the Possible Offer Announcement.

2. Summary of terms

It is intended that the Acquisition will be implemented by means of a court-sanctioned scheme of arrangement of the Company under Part 26 of the Companies Act, further details of which are contained in section 11 below.

Under the terms of the Acquisition, Scheme Shareholders will be entitled to receive:

For each Scheme Share 194 pence in cash ("Cash Consideration")

3. Loan Note Alternative

As an alternative to receiving some or all of the Cash Consideration, Scheme Shareholders (other than certain overseas shareholders) will, subject to certain conditions and terms, be able to elect to receive Loan Notes to be issued by Hanover Bidco on the following basis:

for each £1 of Cash Consideration £1 nominal of Loan Notes

The Loan Notes will be issued, credited as fully paid, in amounts and integral multiples of £1 nominal value. Any fractional entitlements will be disregarded.

The Loan Notes will bear interest (from the date of issue to the relevant holder of Loan Notes) payable six months in arrears at the rate of the higher of 0.25 per cent. below LIBOR and 0 per cent. Interest will be payable (less any tax required by law to be deducted) in arrears on 1 January and 1 July in each year. The first payment will be made on 1 January 2017 in respect of the period from and including the date of issue of the Loan Notes.

Holders of the Loan Notes will have the right (subject to certain restrictions) to redeem them for cash at par on 1 July 2017 or on any subsequent interest payment dates. The Loan Notes may be redeemed by Hanover Bidco on or after 1 July 2017, if (i) more than 50 per cent. of the nominal amount of all of the Loan Notes has been redeemed or the aggregate nominal amount of the Loan Notes outstanding is less than £1.5 million; or (ii) if there has been a change of control of Hanover Bidco. Unless previously redeemed or repurchased, the Loan Notes will be repaid at par on 1 July 2019. The Loan Notes will not be transferable other than to certain permitted transferees. No application is intended to be made for the Loan Notes to be listed or dealt in on any stock exchange.

No Loan Notes will be issued unless valid elections for the Loan Note Alternative will result in the issue of at least £1.5 million in nominal value of Loan Notes, or such smaller amount as Hanover Bidco may decide. If the Loan Notes are not issued for this reason, Hydro Shareholders who elect for the Loan Note Alternative will instead receive cash in accordance with the terms of the Scheme.

The Loan Note Alternative is conditional upon the Scheme becoming Effective.

4. Background to and reasons for the Acquisition

Hanover Investors is confident in the long term prospects for Hydro and the water services sector it operates in. Hanover Investors also recognises the recent achievements of the Hydro management team in its plans to grow and diversify the business through acquisitions and the expansion of the geographic and service scope of the Hydro Group.

However, Hanover Investors believes that, as a relatively small UK quoted company, Hydro will find it difficult to obtain the necessary investment to grow successfully and to increase stock liquidity and that the Acquisition presents Hydro Shareholders with a liquidity opportunity now at an attractive premium over the share price prior to Hanover Investors' acquisition of its stake in the Company.

Hanover Investors intends to seek to continue to grow Hydro's customer base and contracted revenue base, whilst ensuring control of costs and eliminating the expense associated with a UK public listing.

5. Recommendation

The Hydro Board, which has been so advised by Arden Partners, considers the terms of the Acquisition to be fair and reasonable. In providing its advice, Arden Partners has taken into account the commercial assessments of the Hydro Board.

The Hydro Board believes that the terms of the Acquisition are in the best interests of Hydro Shareholders as a whole and intends unanimously to recommend that Scheme Shareholders vote in favour of the resolutions to be proposed at the Court Meeting and that Hydro Shareholders vote in favour of the resolutions to be proposed at the General Meeting which are to be convened to approve the Acquisition, as Tony Hollox, being the only Hydro Director who is a Hydro Shareholder, has irrevocably undertaken to do in respect of his own beneficial shareholding in the Company of 23,463 Hydro Shares, representing approximately 0.2 per cent. of the existing issued share capital of Hydro.

6. Information on the Hanover Funds, Hanover Holdco and Hanover Bidco

The Hanover Funds

Hanover AEF General Partner LP (the "General Partner") is the general partner of the two limited partnerships constituting the Hanover Funds. The Hanover Active Equity Fund LP (the "Fund") is a Cayman Islands exempted limited partnership formed to invest in small-cap public companies and private equity situations, primarily in the UK, and currently has a total of approximately £61 million in committed capital.

Hanover Investors Management (Cayman) Limited (the "Manager") has been appointed by the General Partner as the manager of the Hanover Funds and in turn Hanover Investors Management LLP ("Hanover Investors") provides certain investment advisory services to the Manager in respect of the Hanover Funds.

Hanover Investors was incorporated on 7 January 2005 and is authorised and regulated by the FCA. Matthew Peacock is the founding partner of Hanover Investors.

Hanover Holdco

Hanover Holdco is a newly incorporated company formed at the direction of Hanover Investors (on behalf of the Hanover Funds) for the purpose of implementing the Acquisition. Hanover Holdco is currently owned as to 100 per cent. by the Fund and will, as at the Effective Date, be owned as to 100 per cent. by the Funds.

Hanover Holdco is an exempted company incorporated under the laws of the Cayman Islands on 9 June 2016 with registered number MC-312255. It has its registered office at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands.

The Directors of Hanover Holdco are Martin Laidlaw, Fred Lundqvist and Matthew Peacock.

Save for activities in connection with the implementation and financing of the Acquisition, Hanover Holdco has not carried on any business prior to the date of this announcement.

Hanover Bidco

Hanover Bidco is a newly incorporated company formed at the direction of Hanover Investors (on behalf of the Hanover Funds) for the purpose of implementing the Acquisition. Hanover Bidco is currently owned as to 100 per cent. by Hanover Holdco and will, as at the Effective Date, be owned as to 100 per cent. by Hanover Holdco.

Hanover Bidco is a private limited company incorporated in England and Wales on 10 May 2016 under the Companies Act with registered number 10172715. It has its registered office at 32 Wigmore Street, London, United Kingdom, W1U 2RP.

The Directors of Hanover Bidco are Matthew Peacock and Tom Russell.

Save for activities in connection with the implementation and financing of the Acquisition, Hanover Bidco has not carried on any business prior to the date of this announcement.

7. Information on Hydro

Hydro is a global supplier of environmentally sustainable products and innovative solutions for the control and treatment of stormwater, wastewater and combined sewer overflows. Hydro has developed a range of technologies to control urban runoff and treat stormwater, combined sewage overflows and municipal wastewater with the aim of providing cost-effective solutions for controlling quantity and improving quality of water. Hydro's products use a range of advanced technologies including award-winning advanced vortex technology.

Wastewater

Hydro provides technologies and supporting services to municipal and industrial customers in applications including screening, grit removal, and primary, secondary and tertiary treatment of water and wastewater. Where necessary third party products are supplied alongside Hydro's proprietary products, to provide a comprehensive solution to the customer.

Major customers include the water utility companies in the UK and municipal wastewater plant owners and operators across North America.

Stormwater

Hydro provides low-energy solutions for the control of stormwater flows and the removal of pollutants from these flows for application in urban drainage systems.

Market demand is created largely by regulation governing the requirements for stormwater management in new-build construction, although retro-fit applications to solve existing problems such as flooding or stormwater pollution are becoming increasingly important.

End customers are typically accessed through a range of distribution partners operating in the wider construction market.

Headquartered and with offices in the UK, Hydro also operates from offices in Ireland, USA, Dubai, Singapore and China.

For the year ended 31 December 2015, Hydro reported revenue of £37.9 million and adjusted profit before tax of £2.4 million (excluding amortisation of acquired intangible assets). As at 31 December 2015, Hydro had gross assets of £29.7 million and net cash of £2.3 million.

8. Interests in Hydro Shares and irrevocable undertakings

8.1 Hanover Investors

As at the close of business on 16 June 2016, being the last practicable date before this announcement, the Fund, being a fund advised by Hanover Investors, owned 2,553,209 Hydro Shares, and Tom Russell, being a Hanover Bidco Director, owned 3,733 Hydro Shares, representing in aggregate approximately 17.7 per cent. of the existing issued share capital of Hydro.

8.2 Hydro Directors

An irrevocable undertaking to vote, or procure the vote, in favour of all of the resolutions to be proposed at the Court Meeting and the General Meeting which are to be convened to approve the Acquisition (or, in the event that the Acquisition is implemented by way of a takeover offer, to accept, or procure the acceptance of such offer) have been received from Tony Hollox (being the only Hydro Director who holds Hydro Shares) in respect of his entire beneficial holding of Hydro Shares of 23,463 Hydro Shares, which represent approximately 0.2 per cent. of the existing issued share capital of the Company. In addition, Michael Jennings and Tony Hollox, being the only Hydro Directors who have interests in Hydro Shares via the Hydro Share Schemes (being interests in 460,702 and 111,508 Hydro Shares respectively), have irrevocably undertaken to accept appropriate proposals to be made in due course in accordance with Rule 15 of the Code in respect of such interests in Hydro Shares.

8.3 Other shareholders

Irrevocable undertakings to vote, or procure the vote, in favour of all of the resolutions to be proposed at the Court Meeting and the General Meeting which are to be convened to approve the Acquisition (or, in the event that the Acquisition is implemented by way of a takeover offer, to accept, or procure the acceptance of such offer) have been received from (i) Rathbone Nominees Limited in respect of 2,155,095 Hydro Shares; (ii) Impax Asset Management Limited in respect of 1,868,845 Hydro Shares; and (iii) Jonathan Hart in respect of 1,329,876 Hydro Shares, which in aggregate represent approximately 37.1 per cent. of the existing issued share capital of the Company.

9. Management, employees and locations

Hanover Bidco confirms that, following implementation of the Acquisition, the existing contractual and statutory employment rights, including in relation to pensions, of all Hydro employees will be honoured.

The Hanover Bidco Board anticipates that in order to achieve some of the expected benefits of the Acquisition, it will be necessary to generate cost-savings, including via some headcount reductions and managerial changes.

Hanover Bidco intends to undertake a detailed review of the fixed assets and locations of Hydro and its subsidiaries and businesses within 3 months after the Effective Date. Pending the completion of that review, Hanover Bidco has no current intentions to make any change to Hydro's principal place of business or fixed assets.

Following the Effective Date, Hanover Bidco intends to implement management arrangements more suited to a private company. Therefore, upon the Scheme becoming effective it is proposed that the non-executive Directors will resign from the board of the Company and will be replaced by directors appointed by Hanover Bidco.

In accordance with Rule 16.2(a) of the Code, Hanover Bidco confirms that no incentivisation arrangements are proposed for Hydro's management.

10. Hydro Share Schemes

Hanover Bidco will make appropriate proposals to participants in the Hydro Share Schemes in due course. Participants in the Hydro Share Schemes will be contacted separately regarding the effect of the Acquisition on their rights under the Hydro Share Schemes and with the details of Hanover Bidco's proposals.

The Scheme will extend to any Hydro Shares which are unconditionally allotted or issued before the Scheme Record Time, including those allotted or issued as a result of the exercise of options or vesting of awards under the Hydro Share Schemes.

The Scheme will not extend to Hydro Shares issued after the Scheme Record Time. However, it is proposed to amend the Company's articles of association at the General Meeting to provide that, if the Scheme becomes effective pursuant to its terms, any Hydro Shares issued to any person after the Scheme Record Time (including in satisfaction of an option exercised under one of the Hydro Share Schemes) will be automatically transferred to Hanover Bidco in consideration for the payment by Hanover Bidco to such persons of 194 pence in cash for each Hydro Share so transferred.

11. Structure of the Acquisition

It is intended that the Acquisition will be implemented by means of a court-sanctioned scheme of arrangement of the Company under Part 26 of the Companies Act.

The purpose of the Scheme is to provide for Hanover Bidco to become the owner of the entire issued and to be issued share capital of Hydro not already owned by it or the Hanover Bidco Group. In order to achieve this, the Scheme Shares will be transferred to Hanover Bidco under the Scheme. In consideration for this transfer, the Scheme Shareholders will receive cash and/or Loan Notes on the basis set out in sections 2 and 3 of this announcement. The transfer to Hanover Bidco of the Scheme Shares will result in Hydro becoming a wholly owned subsidiary of Hanover Bidco.

The Scheme requires approval by Hydro Shareholders (other than Excluded Shareholders) by the passing of a resolution at the Court Meeting. This resolution must be approved by a majority in number of the holders of Scheme Shares present and voting, either in person or by proxy, representing not less than 75 per cent. in value of the Scheme Shares held by such holders. In addition, a special resolution to deal with certain ancillary matters must be passed at the General Meeting to be held immediately after the Court Meeting.

The Scheme must also be sanctioned by the Court. Any Scheme Shareholder is entitled to attend the Scheme Court Hearing in person or through counsel to support or oppose the sanctioning of the Scheme. The Scheme will only become Effective upon delivery to the Registrar of Companies of a copy of the Court Order.

The Scheme is also subject to certain Conditions and certain further terms referred to in Appendix I of this announcement and to be set out in the Scheme Circular. The Conditions in Appendix I provide that the Acquisition will lapse if, amongst other things:

(a) the Court Meeting and General Meeting are not held on or before the 22nd day after the expected date of the meetings, which will be set out in the Scheme Circular in due course (or such later date as may be agreed by Hanover Bidco and Hydro);

(b) the Scheme Court Hearing is not held on or before the 22nd day after the expected date of the hearing, which will be set out in the Scheme Circular in due course (or such later date as may be agreed by Hanover Bidco and Hydro); or

(c) the Scheme does not become Effective by the Longstop Date (or such later date as may be agreed by Hanover Bidco and Hydro)

provided that these deadlines may be waived by Hanover Bidco with, if required, the consent of the Court.

Once the Scheme becomes Effective, it will be binding on all Scheme Shareholders, whether or not they voted at the Court Meeting and the General Meeting and, if they did vote, whether or not they voted in favour of or against the resolutions proposed at those meetings.

The terms of the Scheme will provide that the Scheme Shares will be acquired fully paid and free from all liens, equitable interests, charges, encumbrances, options, rights of pre-emption and any other third party rights or interests of any nature whatsoever and together with all rights attaching thereto, including the right to receive and retain all dividends and other distributions and returns of value declared, paid or made after the Effective Date.

If any dividend or other distribution or return of value is proposed, declared, made, paid or becomes payable by Hydro in respect of any Hydro Share on or after the date of this announcement and prior to the Scheme becoming Effective, Hanover Bidco will have the right to reduce the value of the consideration payable for each Hydro Share by up to the amount per Hydro Share of such dividend, distribution or return of value except where the Hydro Share is or will be acquired pursuant to the Scheme on a basis which entitles Hanover Bidco to receive the dividend, distribution or return of value and to retain it.

If any such dividend, distribution or return of value is paid or made after the date of this announcement and Hanover Bidco exercises its rights described above, any reference in this announcement to the consideration payable under the Scheme shall be deemed to be a reference to the consideration as so reduced. Any exercise by Hanover Bidco of its rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Scheme.

Hanover Bidco reserves the right, subject to the prior consent of the Panel, to elect to implement the acquisition of the Hydro Shares by way of a takeover offer (as such term is defined in section 974 of the Companies Act). In such event, such takeover offer will be implemented on the same terms (subject to appropriate amendments as described in Part 2 of Appendix I), so far as applicable, as those which would apply to the Scheme. Furthermore, if such offer is made and sufficient acceptances of such offer are received, when aggregated with Hydro Shares otherwise acquired by Hanover Bidco, it is the intention of Hanover Bidco to apply the provisions of section 979 of the Companies Act to acquire compulsorily any outstanding Hydro Shares to which such offer relates.

12. De-listing and re-registration

It is intended that the last day of dealings in, and for registration of transfers of, Hydro Shares (other than the registration of the transfer of the Scheme Shares to Hanover Bidco pursuant to the Scheme) will be the last Business Day prior to the Effective Date, following which all Hydro Shares will be suspended from trading on AIM, and Hydro Shares will be disabled in CREST.

After the Scheme Record Time and before the Scheme becomes Effective, entitlements to Hydro Shares in CREST will be cancelled and such entitlements rematerialised. On the Effective Date, all share certificates in respect of Hydro will cease to be valid and should be destroyed.

Upon completion of the Acquisition, the Company will become a wholly-owned subsidiary of Hanover Bidco and an application will be made to the London Stock Exchange for the cancellation of the admission to trading of Hydro Shares on AIM. It is expected that such cancellation of admission to trading would take effect on the Business Day after the Effective Date.

Hanover Bidco intends to re-register Hydro as a private company as soon as it is appropriate to do so under the provisions of the Companies Act.

13. Offer-related arrangements

Hanover Investors and Hydro entered into a confidentiality agreement on 8 June 2016, pursuant to which Hanover Investors has undertaken to keep confidential information relating to Hydro and not to disclose it to third parties (other than permitted recipients) unless required by applicable law or regulation (the "Confidentiality Agreement"). These confidentiality obligations will remain in force until completion of the Acquisition or for a period of 5 years from the date of the Confidentiality Agreement.

14. Financing of the Acquisition

The Cash Consideration due under the Acquisition will be funded by a combination of (i) cash from the equity subscription of Hanover Bidco Ordinary Shares by one or both of the Hanover Funds through Hanover Holdco; and (ii) loan note subscriptions pursuant to the Hanover Bidco Loan Note Instrument from one or both of the Hanover Funds to Hanover Bidco.

Pursuant to the Subscription Agreement, the General Partner has agreed, on behalf of the Fund, that it will subscribe for a sufficient number of Hanover Holdco Ordinary Shares at a price of £1 per Hanover Holdco Ordinary Share to ensure that Hanover Holdco receives an amount equal to the Cash Consideration and Hanover Holdco has agreed that it will subscribe for a sufficient number of Hanover Bidco Ordinary Shares at a price of £1 per Hanover Bidco Ordinary Share so as to provide Hanover Bidco with the amount required to satisfy the aggregate Cash Consideration payable in accordance with the Acquisition, in each case less any amount funded by the note subscriptions or the Co-Invest Fund. The obligations to subscribe for Hanover Holdco Ordinary Shares and Hanover Bidco Ordinary Shares are conditional upon the Acquisition becoming Effective.

As at the close of business on 16 June 2016, being the last practicable date before this announcement, the Fund, being a fund advised by Hanover Investors, owned 2,553,209 Hydro Shares, and Tom Russell, being a Hanover Bidco Director, owned 3,733 Hydro Shares, representing in aggregate approximately 17.7 per cent. of the existing issued share capital of Hydro.

Panmure Gordon is satisfied that Hanover Bidco has the necessary financial resources available to satisfy in full the Cash Consideration payable under the Acquisition.

15. Overseas shareholders

The availability of the Loan Note Alternative under the terms of the Acquisition to persons not resident in the United Kingdom may be affected by the laws and regulations of the relevant jurisdiction. Such persons should inform themselves about and observe any applicable requirements. In particular, US shareholders of Hydro will only receive Cash Consideration in connection with the Acquisition and may not elect to receive any Loan Notes. Further details in relation to overseas shareholders will be contained in the Scheme Circular.

This announcement does not constitute an offer or invitation to purchase any securities.

16. Disclosure of interests in Hydro Shares

Save for a total of 2,553,209 Hydro shares held by the Fund and 3,733 Hydro Shares held by Tom Russell, which represent in aggregate approximately 17.7 per cent. of Hydro's issued ordinary share capital, and the irrevocable undertakings, referred to in section 8 above, as at close of business on 16 June 2016, being the last practicable Business Day prior to this announcement, neither Hanover Bidco, Hanover Holdco, Hanover Investors, any of the Hanover Funds, nor any of the directors or members (as applicable) of Hanover Bidco, Hanover Holdco, Hanover Investors or any of the Hanover Funds nor, so far as Hanover Bidco, Hanover Holdco, Hanover Investors, the Hanover Funds and the directors of Hanover Bidco, Hanover Holdco, Hanover Investors and the Hanover Funds are aware, any person acting, or deemed to be acting in concert with Hanover Bidco for the purpose of the Acquisition has:

(i) any interest, or right to subscribe for, any relevant securities of Hydro;

(ii) any share positions in respect of any securities of Hydro (whether conditional or absolute and whether in the money or otherwise), including any share position under a derivative, any agreement to sell or any delivery obligation or right to require another person to take delivery of, relevant securities of Hydro;

(iii) borrowed or lent any relevant Hydro securities (save for borrowed shares which have either been or lent or sold);

(iv) procured an irrevocable commitment or letter of intent to vote in favour of the Scheme or accept a takeover offer in respect of any relevant Hydro securities; or

(v) any arrangement in relation to any relevant Hydro securities.

17. Expected timetable

Further details of the Scheme will be contained in the Scheme Circular which will be sent to Hydro Shareholders as soon as practicable and in any event within 28 days of this announcement unless otherwise agreed with the Panel.

Further details on the timetable for implementation of the Scheme will be set out in the Scheme Circular, which will also include the notices of the Court Meeting and the General Meeting and specify the necessary actions to be taken by Hydro Shareholders. It is expected that the Scheme Circular will be posted within 28 days of the date of this announcement (unless Hanover Bidco and Hydro otherwise agree, and the Panel consents, to a later date).

18. Documents available on website

Copies of the following documents will be available at www.hydro-int.com from no later than 12 noon on the Business Day following the date of this announcement and shall remain available there until the Scheme has become Effective or has lapsed or been withdrawn:

· the irrevocable undertakings listed in Appendix III to this announcement;

· the Subscription Agreement referred to in section 14 above;

· the Hanover Bidco Loan Note Instrument referred to in section 14 above;

· the Confidentiality Agreement referred to in section 13 above; and

· this announcement.

19. Market quotations

The following table shows the closing middle market price of Hydro Shares on the following dates, unless otherwise indicated:

· the first Business Day of each of the six months immediately before the date of this announcement;

· 31 December 2015;

· 20 January 2016; and

· 19 May 2016, being the last Business Day before the Possible Offer Announcement.

20. General

The Acquisition will be made subject to the Conditions and on the terms contained in Appendix I to this announcement and on the further terms and Conditions to be set out in the Scheme Circular. The Scheme will be governed by English law and subject to the applicable rules and regulations of the London Stock Exchange, the Panel and the FCA.

The Conditions and certain further terms of the Acquisition are set out in Appendix I to this announcement. Appendix II contains bases and sources of certain information contained within this announcement. Appendix III contains details of the irrevocable undertakings given to Hanover Bidco. Appendix IV contains the definitions of certain terms used in this announcement.

Enquiries:

Hanover Investors Management LLP

Matthew Peacock Tel: +44(0)20 7766 8400

Tom Russell

Fred Lundqvist

Panmure Gordon (UK) Limited (Financial adviser to Hanover Bidco)

Dominic Morley Tel: +44(0)20 7886 2500

Charles Leigh-Pemberton

Hydro International plc

Michael Jennings, Chief Executive Tel: +44(0)12 7587 8371

Tony Hollox, Chief Financial Officer

Arden Partners plc (Financial adviser to Hydro)

Steven Douglas Tel: +44(0)20 7614 5900

Further information

This announcement is not intended to and does not constitute, or form part of, any offer to sell or subscribe for or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Acquisition or otherwise, nor shall there be any sale, issuance or transfer of securities of Hydro in any jurisdiction in contravention of applicable law.

Any vote in respect of the Acquisition should only be made on the basis of the information contained in the Scheme Circular, which will contain the full terms and conditions of the Acquisition and the Scheme (including details of how to vote). Hydro Shareholders are advised to read the formal documentation in relation to the Acquisition carefully once it has been dispatched.

Please be aware that addresses, electronic addresses and certain other information provided by Hydro Shareholders, persons with information rights and other relevant persons in connection with the receipt of communications from Hydro may be provided to Hanover Bidco during the offer period as required under Section 4 of Appendix 4 of the Code.

Panmure Gordon, which is authorised and regulated by the FCA in the United Kingdom, is acting for Hanover Bidco and no-one else in connection with the Acquisition and will not be responsible to anyone other than Hanover Bidco for providing the protections afforded to clients of Panmure Gordon nor for providing advice in relation to the Acquisition.

Arden Partners, which is authorised and regulated by the FCA in the United Kingdom, is acting for Hydro and no-one else in connection with the Acquisition and will not be responsible to anyone other than Hydro for providing the protections afforded to clients of Arden Partners nor for providing advice in relation to the Acquisition.

Overseas jurisdictions

The availability of the Loan Notes in, and the release, publication or distribution of this announcement in or into, jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes who are not resident in the United Kingdom should inform themselves about, and observe, any applicable restrictions. Hydro Shareholders who are in any doubt regarding such matters should consult an appropriate independent adviser in the relevant jurisdiction without delay. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Acquisition disclaim any responsibility or liability for the violation of such restrictions by any person.

This announcement has been prepared for the purposes of complying with English law and the Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.

Notes to US investors in Hydro

Shareholders of Hydro in the United States should note that the Acquisition relates to the shares of an English company and is proposed to be made by means of a scheme of arrangement provided for under, and governed by, English law. Neither the proxy solicitation nor the tender offer rules under the US Securities Exchange Act of 1934, as amended, will apply to the Scheme. US shareholders of Hydro will only receive Cash Consideration in connection with the Acquisition and may not elect to receive any Loan Notes.

The Scheme will be subject to the disclosure requirements and practices applicable in the UK to schemes of arrangement, which differ from the disclosure requirements of the US proxy solicitation rules and tender offer rules. Financial information included in this announcement and the Scheme Circular has been or will be prepared in accordance with, where relevant, International Financial Reporting Standards as adopted by the European Union and accounting standards applicable in the UK and may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

Hydro and Hanover Bidco are each organised under the laws of England. All of the officers and directors of Hydro and Hanover Bidco are residents of countries other than the United States. It may not be possible to sue Hydro or Hanover Bidco in a non-US court for violations of US securities laws. Furthermore, it may be difficult to compel Hydro, Hanover Bidco and their respective affiliates to subject themselves to the jurisdiction and judgment of a US court.

Notes regarding Loan Notes

The Loan Notes to be issued pursuant to the Scheme have not been and will not be registered under the US Securities Act of 1933, as amended, or under the relevant securities laws of any state or territory or other jurisdiction of the United States or the relevant securities laws of Japan and the relevant clearances have not been, and will not be, obtained from the securities commission of any province of Canada. No prospectus in relation to the Loan Notes has been, or will be, lodged with, or registered by, the Australian Securities and Investments Commission. Accordingly, the Loan Notes are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly in or into the United States, Canada, Australia or Japan or any other jurisdiction if to do so would constitute a violation of relevant laws of, or require registration thereof in, such jurisdiction (except pursuant to an exemption, if available, from any applicable registration requirements or otherwise in compliance with all applicable laws).

Disclosure requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Forward-looking statements

This announcement contains certain forward-looking statements, including statements regarding Hanover Bidco's and Hydro's plans, objectives and expected performance. Such statements relate to events and depend on circumstances that will occur in the future and are subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the water services industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this announcement.

Publication of this announcement

A copy of this announcement will be available subject to certain restrictions relating to persons resident in Restricted Jurisdictions on www.hanoverinvestors.com and www.hydro-int.com.

The contents of Hydro's website and the Hanover Investors website are not incorporated into and do not form part of this announcement.

Appendix ICONDITIONS AND CERTAIN FURTHER TERMS OF THE ACQUISITION

Part 1 - Conditions of the Acquisition

1. The Acquisition will be conditional upon:

(a) the Scheme Meeting and General Meeting being held on or before the 22nd day after the expected date of the meetings to be set out in the Scheme Circular in due course or such later date (if any) as Hanover Bidco and Hydro may agree;

(b) the Scheme Court Hearing being held on or before the 22nd day after the expected date of the hearing date to be set out in the Scheme Circular in due course, or such later date (if any) as Hanover Bidco and Hydro may agree; and

(c) the Scheme becoming unconditional and becoming Effective by no later than the Longstop Date or such later date (if any) as Hanover Bidco and Hydro may agree and (if required) the Court may allow.

2. The Scheme will be conditional on:

(a) its approval by a majority in number of the holders of Scheme Shares present, entitled to vote and voting at the Court Meeting, or at any adjournment thereof, either in person or by proxy, representing not less than 75 per cent. in value of the Scheme Shares held by such holders;

(b) all resolutions required to approve and implement the Scheme (including, without limitation, to amend the Company's articles of association) being duly passed by the requisite majority of the Hydro Shareholders at the General Meeting, or at any adjournment thereof;

(c) the sanction of the Scheme by the Court (with or without modifications, on terms reasonably acceptable to Hydro and Hanover Bidco); and

(d) an office copy of the Court Order being delivered for registration to the Registrar of Companies.

3. The Acquisition is also conditional on the following conditions having been satisfied or, where applicable, waived and accordingly the necessary actions to make the Scheme Effective will not be taken unless such conditions have been so satisfied or waived:

(a) insofar as the Acquisition constitutes a relevant merger situation for the purpose of the Enterprise Act 2002 and is notified to, or otherwise investigated by, the CMA, the CMA issuing a decision in terms satisfactory to Hanover Bidco that it is not the CMA's intention to make a Phase 2 CMA Reference, such decision being either unconditional or conditional on the CMA's acceptance of undertakings in lieu under Section 73 Enterprise Act 2002 which are satisfactory to Hanover Bidco (or the applicable time period for the CMA to issue either decision having expired without it having done so and without it having made a Phase 2 CMA Reference);

(b) no government or governmental, quasi-governmental, supranational, statutory, administrative or regulatory body, authority, court, trade agency, association, institution, environmental body, Merger Control Authority or any other person or body in any jurisdiction (each a "Relevant Authority") having decided to take, instituted, implemented or threatened any action, proceedings, suit, investigation, enquiry or reference, or made, proposed or enacted any statute, regulation, order or decision or taken any other steps and there not continuing to be outstanding any statute, regulation, order or decision, which would or might:

(i) make the Acquisition or the acquisition of any Hydro Shares, or control of Hydro by Hanover Bidco void, illegal or unenforceable or otherwise restrict, restrain, prohibit, delay or interfere with the implementation thereof, or impose additional conditions or obligations with respect thereto, or require material amendment thereof or otherwise challenge or interfere therewith;

(ii) require or prevent the divestiture by any member of the Hydro Group or any company of which 20 per cent. or more of the voting capital is held by any member of the Hydro Group or any partnership, joint venture, firm or company in which any member of the Hydro Group may be interested (the "wider Hydro Group") or by any member of the Hanover Bidco Group or any associated undertaking or any company of which 20 per cent. or more of the voting capital is held by the Hanover Bidco Group or any partnership, joint venture, firm or company in which any member of the Hanover Bidco Group may be interested (the "wider Hanover Bidco Group") of all or any portion of their respective businesses, assets or property or impose any limitation on the ability of any of them to conduct their respective businesses or own any of their assets or property;

(iii) impose any limitation on or result in a delay in the ability of any member of the wider Hydro Group or the wider Hanover Bidco Group to acquire or to hold or to exercise effectively any rights of ownership of shares or loans or securities convertible into shares in any member of the wider Hydro Group or of the wider Hanover Bidco Group held or owned by it or to exercise management control over any member of the wider Hydro Group or of the wider Hanover Bidco Group to an extent which is material in the context of the Hydro Group taken as a whole or, as the case may be, the Hanover Bidco Group taken as a whole;

(iv) require any member of the wider Hanover Bidco Group or the wider Hydro Group to acquire or offer to acquire any shares or other securities in any member of the wider Hydro Group; or

(v) otherwise materially and adversely affect the assets, business, profits or prospects of any member of the wider Hanover Bidco Group or of any member of the wider Hydro Group;

and all applicable waiting and other time periods during which any such Relevant Authority could decide to take, institute, implement or threaten any such action, proceeding, suit, investigation, enquiry or reference having expired, lapsed or been terminated;

(c) all necessary notifications and filings having been made, all applicable waiting periods (including any extensions thereof) under any applicable legislation or regulations of any jurisdiction having expired, lapsed or been terminated, in each case in respect of the Acquisition and the acquisition of any Hydro Shares, or of control of Hydro, by Hanover Bidco, and all authorisations, orders, recognitions, grants, consents, licences, confirmations, clearances, permissions and approvals ("Authorisations") necessary or appropriate in any jurisdiction for, or in respect of, the Acquisition and the proposed acquisition of any Hydro Shares, or of control of Hydro, by Hanover Bidco and to carry on the business of any member of the wider Hanover Bidco Group or of the wider Hydro Group having been obtained, in terms and in a form satisfactory to Hanover Bidco, from all appropriate Relevant Authorities and from any persons or bodies with whom any member of the wider Hanover Bidco Group or the wider Hydro Group has entered into contractual arrangements and all such Authorisations remaining in full force and effect at the time at which the Acquisition becomes Effective and Hanover Bidco having no knowledge of an intention or proposal to revoke, suspend or modify or not to renew any of the same and all necessary statutory or regulatory obligations in any jurisdiction having been complied with;

(d) except as Disclosed by Hydro prior to the date of this announcement, there being no provision of any arrangement, agreement, licence, permit or other instrument to which any member of the wider Hydro Group is a party or by or to which any such member or any of their assets is or may be bound, entitled or be subject to and which, in consequence of the Acquisition or the acquisition or proposed acquisition of any Hydro Shares, or control of Hydro, by Hanover Bidco or otherwise, would or might, result in:

(i) any monies borrowed by, or other indebtedness actual or contingent of, any such member of the wider Hydro Group being or becoming repayable or being capable of being declared immediately or prior to its or their stated maturity or the ability of any such member to borrow monies or incur any indebtedness being inhibited or becoming capable of being withdrawn;

(ii) the creation or enforcement of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any such member or any such security (whenever arising or having arisen) being enforced or becoming enforceable;

(iii) any such arrangement, agreement, licence or instrument being terminated or adversely modified or any action being taken of an adverse nature or any obligation or liability arising thereunder;

(iv) any assets of any such member being disposed of or charged, or right arising under which any such asset could be required to be disposed of or charged, other than in the ordinary course of business;

(v) the interest or business of any such member of the wider Hydro Group in or with any firm or body or person, or any agreements or arrangements relating to such interest or business, being terminated or adversely modified or affected;

(vi) any such member ceasing to be able to carry on business under any name under which it presently does so;

(vii) the creation of liabilities (actual or contingent) by any such member; or

(viii) the financial or trading position of any such member being prejudiced or adversely affected,

and no event having occurred which, under any provision of any arrangement, agreement, licence or other instrument to which any member of the wider Hydro Group is a party, or to which any such member or any of its assets may be bound, entitled or subject, could result in any of the events or circumstances as are referred to in paragraphs (i) to (viii) of this condition (d);

(e) except as Disclosed by Hydro prior to the date of this announcement, no member of the wider Hydro Group having, since 31 December 2015:

(i) issued, agreed to issue or proposed the issue of additional shares or securities of any class, or securities convertible into, or exchangeable for or rights, warrants or options to subscribe for or acquire, any such shares, securities or convertible securities (save as between Hydro and wholly-owned subsidiaries of Hydro and save for options granted, and for any Hydro Shares allotted upon exercise of options granted under the Hydro Share Schemes before the date of this announcement), or redeemed, purchased or reduced any part of its share capital;

(ii) sold or transferred or agreed to sell or transfer any Treasury Shares;

(iii) recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus, dividend or other distribution other than to Hydro or a wholly-owned subsidiary of Hydro;

(iv) agreed, authorised, proposed or announced its intention to propose any merger or demerger or acquisition or disposal of assets or shares (other than in the ordinary course of trading) or to any material change in its share or loan capital;

(v) issued, authorised or proposed the issue of any debentures or incurred any indebtedness or contingent liability;

(vi) acquired or disposed of or transferred, mortgaged or encumbered any asset or any right, title or interest in any asset (other than in the ordinary course of trading);

(vii) entered into or varied or announced its intention to enter into or vary any contract, arrangement or commitment (whether in respect of capital expenditure or otherwise) which is of a long-term or unusual nature or involves or could involve an obligation of an unusual nature or magnitude;

(viii) entered into or proposed or announced its intention to enter into any reconstruction, amalgamation, transaction or arrangement (otherwise than in the ordinary course of business);

(ix) taken any action nor having had any steps taken or legal proceedings started or threatened against it for its winding-up or dissolution or for it to enter into any arrangement or composition for the benefit of its creditors, or for the appointment of a receiver, administrator, trustee or similar officer of it or any of its assets (or any analogous proceedings or appointment in any overseas jurisdiction);

(x) been unable, or admitted in writing that it is unable, to pay its debts or having stopped or suspended (or threatened to stop or suspend) payment of its debts generally or ceased or threatened to cease carrying on all or a substantial part of its business;

(xi) entered into or varied or made any offer to enter into or vary the terms of any service agreement or arrangement with any of the directors of Hydro;

(xii) waived, compromised or settled any claim which is material in the context of the wider Hydro Group; or

(xiii) entered into or made an offer (which remains open for acceptance) to enter into any agreement, arrangement or commitment or passed any resolution with respect to any of the transactions or events referred to in this paragraph (e);

(f) since 31 December 2015, except as Disclosed by Hydro prior to the date of this announcement:

(i) there having been no adverse change in the business, assets, financial or trading position or profits or prospects of any member of the wider Hydro Group;

(ii) no litigation, arbitration proceedings, prosecution or other legal proceedings having been instituted, announced or threatened by or against or remaining outstanding against any member of the wider Hydro Group and no enquiry or investigation by or complaint or reference to any Relevant Authority against or in respect of any member of the wider Hydro Group having been threatened, announced or instituted or remaining outstanding; and

(iii) no contingent or other liability having arisen or been incurred which might reasonably be expected to adversely affect any member of the Hydro Group;

(g) Hanover Bidco not having discovered that, save as Disclosed by Hydro prior to the date of this announcement:

(i) the financial, business or other information concerning the wider Hydro Group which has been disclosed at any time by or on behalf of any member of the wider Hydro Group whether publicly (by the delivery of an announcement to a Regulatory Information Service) or to Hanover Bidco or its professional advisers, either contains a misrepresentation of fact or omits to state a fact necessary to make the information contained therein not misleading; or

(ii) any member of the wider Hydro Group is subject to any liability, contingent or otherwise, which is not disclosed in the annual report and accounts of Hydro for the financial year ended 31 December 2015;

(iii) any past or present member of the wider Hydro Group has not complied with all applicable legislation or regulations of any jurisdiction or any notice or requirement of any Relevant Authority with regard to the storage, disposal, discharge, spillage, leak or emission of any waste or hazardous substance or any substance likely to impair the environment or harm human health which non-compliance would be likely to give rise to any liability (whether actual or contingent) on the part of any member of the wider Hydro Group;

(iv) there has been a disposal, spillage, emission, discharge or leak of waste or hazardous substance or any substance likely to impair the environment or harm human health on, or from, any land or other asset now or previously owned, occupied or made use of by any past or present member of the wider Hydro Group, or in which any such member may now or previously have had an interest, which would be likely to give rise to any liability (whether actual or contingent) on the part of any member of the wider Hydro Group;

(v) there is or is likely to be any obligation or liability (whether actual or contingent) to make good, repair, reinstate or clean up any property now or previously owned, occupied or made use of by any past or present member of the wider Hydro Group or in which any such member may now or previously have had an interest under any environmental legislation or regulation or notice, circular or order of any Relevant Authority in any jurisdiction; or

(vi) circumstances exist whereby a person or class of persons would be likely to have any claim or claims in respect of any product or process of manufacture, or materials used therein, now or previously manufactured, sold or carried out by any past or present member of the wider Hydro Group which claim or claims would be likely to affect adversely any member of the wider Hydro Group.

Conditions (a) to (g) inclusive must be fulfilled, be determined by Hanover Bidco to be or remain satisfied or (if capable of waiver) be waived by Hanover Bidco by 11.59 p.m. on the date immediately preceding the Scheme Court Hearing, failing which the Scheme shall lapse.

To the extent permitted by law and subject to the requirements of the Panel, Hanover Bidco reserves the right to waive all or any of Conditions 1 and 3(a) to (g) inclusive, in whole or in part. Hanover Bidco shall be under no obligation to waive or treat as fulfilled any of Conditions 3(a) to (g) inclusive by a date earlier than the date specified above in Condition 1 for the fulfilment thereof notwithstanding that the other Conditions of the Acquisition may at such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such Conditions may not be capable of fulfilment.

The Scheme will not proceed if the CMA makes a Phase 2 CMA Reference in respect of the Acquisition before the date of the Court Meeting. In such event neither Hydro, Hanover Bidco nor any Hydro Shareholder will be bound by any term of the Scheme.

Part 2 - Certain further terms of the Acquisition

1. Hanover Bidco reserves the right to elect to implement the Acquisition by way of a takeover offer (as defined in section 974 of the Companies Act). In such event, such offer will (unless otherwise determined by Hanover Bidco and subject to the consent of the Panel), be implemented on the same terms and conditions subject to appropriate amendments to reflect the change in method of effecting the Acquisition, which may include changing the consideration structure under the terms of the Acquisition and (without limitation and subject to the consent of the Panel) an acceptance condition set at 90 per cent. (or such lesser percentage, being more than 50 per cent., as Hanover Bidco may decide) of the voting rights then exercisable at a general meeting of Hydro, including, for this purpose, any such voting rights attaching to Hydro Shares that are unconditionally allotted or issued, and to any Treasury Shares which are unconditionally transferred or sold by Hydro, before the takeover offer becomes or is declared unconditional as to acceptances, whether pursuant to the exercise of any outstanding subscription or conversion rights or otherwise.

2. If Hanover Bidco is required by the Panel to make an offer for Hydro Shares under the provisions of Rule 9 of the Code, Hanover Bidco may make such alterations to any of the above conditions as are necessary to comply with the provisions of that Rule.

3. The Scheme and the Acquisition and any dispute or claim arising out of, or in connection with, them (whether contractual or non-contractual in nature) will be governed by English law and will be subject to the jurisdiction of the Courts of England.

4. The Hydro Shares will be acquired under the Acquisition fully paid and free from all liens, equitable interests, charges, encumbrances, options, rights of pre-emption and any other third party rights or interests of any nature whatsoever and together with all rights attaching thereto, including the right to receive and retain all dividends and other distributions and returns of value declared, paid or made after the Effective Date. If any dividend or other distribution or return of value is proposed, declared, made, paid or becomes payable by Hydro in respect of an Hydro Share on or after the date of this announcement and prior to the Effective Date, Hanover Bidco will have the right to reduce the value of the consideration payable for each Hydro Share by up to the amount per Hydro Share of such dividend, distribution or return of value except where the Hydro Share is or will be acquired pursuant to the Scheme on a basis which entitles Hanover Bidco to receive the dividend, distribution or return of value and to retain it. If any such dividend or distribution or return of value is paid or made after the date of this announcement and Hanover Bidco exercises its rights described above, any reference in this announcement to the consideration payable under the Scheme shall be deemed to be a reference to the consideration as so reduced. Any exercise by Hanover Bidco of its rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Scheme.

5. The availability of the Loan Notes to persons not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions. Persons who are not resident in the United Kingdom should inform themselves about and observe any applicable requirements.

6. Under Rule 13.5 of the Code, Hanover Bidco may not invoke a condition to the Acquisition so as to cause the Acquisition not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to invoke the condition are of material significance to Hanover Bidco in the context of the Acquisition. The Conditions contained in paragraphs 1, 2 and 3(a) of Part 1 of this Appendix are not subject to this provision of the Code.

Appendix IIbases and sources of information

Save as otherwise set out in this announcement, the following constitute the bases and sources of information referred to in this announcement:

1. Financial information relating to Hydro has been extracted from the Annual Report.

2. All information relating to Hanover Investors, the Hanover Funds, Hanover Holdco and Hanover Bidco has been provided by persons authorised by the Hanover Bidco Board.

3. References to the value of the Acquisition of the whole of the issued and to be issued share capital of Hydro assume the number of Hydro Shares currently in issue to be 14,429,089.

4. References to the availability to Hanover Bidco of the necessary resources to implement the Scheme also assume that there are currently options outstanding in respect of 804,808 unissued Hydro Shares.

Appendix IIIIRREVOCABLE UNDERTAKINGS

Hydro Directors

The following holder of Hydro Shares has given an irrevocable undertaking to vote in favour of all of the Resolutions to be proposed at the Court Meeting and the General Meeting:

The above irrevocable undertaking (and the irrevocable undertakings given by Michael Jennings and Tony Hollox in respect of their interests in Hydro Shares via the Hydro Shares Schemes) will cease to be binding only if:

(a) the Scheme Circular (or, in the event that the Acquisition is implemented by way of a takeover offer, the offer document setting out the terms of such takeover offer) is not despatched to Hydro Shareholders on or before the date which is 28 days after the date of this announcement or such later time as may be agreed between Hydro and Hanover Bidco with the consent of the Panel;

(b) the Acquisition does not become Effective on or before the date which is four months after the date of this announcement; or

(c) Hanover Bidco announces that it does not intend to make or proceed with the Acquisition, or the Acquisition has lapsed or been withdrawn otherwise than as a result of Hanover Bidco exercising its right to implement the Acquisition by way of a takeover offer rather than the Scheme) and no new replacement scheme or takeover offer is announced.

Rathbone Nominees Limited

The following holder of Hydro Shares has given irrevocable undertakings to vote in favour of all of the Resolutions to be proposed at the Court Meeting and the General Meeting:

The above irrevocable undertaking will cease to be binding only if:

(a) the Scheme Circular (or, in the event that the Acquisition is implemented by way of a takeover offer, the offer document setting out the terms of such takeover offer) is not despatched to Hydro Shareholders on or before 30 July 2016 or such later time as may be agreed by the Panel;

(b) the Acquisition does not become Effective on or before the date which is six months after the date of this announcement; or

(c) Hanover Bidco announces that it does not intend to make or proceed with the Acquisition, or the Acquisition has lapsed or been withdrawn otherwise than as a result of Hanover Bidco exercising its right to implement the Acquisition by way of a takeover offer rather than the Scheme) and no new replacement scheme or takeover offer is announced.

Impax Asset Management Limited

The following holder of Hydro Shares has given irrevocable undertakings to vote in favour of all of the Resolutions to be proposed at the Court Meeting and the General Meeting:

The above irrevocable undertaking will cease to be binding only if:

(a) the Scheme Circular (or, in the event that the Acquisition is implemented by way of a takeover offer, the offer document setting out the terms of such takeover offer) is not despatched to Hydro Shareholders on or before 30 July 2016 or such later time as may be agreed by the Panel;

(b) the Acquisition does not become Effective on or before the date which is four months after the date of this announcement;

(c) Hanover Bidco announces that it does not intend to make or proceed with the Acquisition, or the Acquisition has lapsed or been withdrawn otherwise than as a result of Hanover Bidco exercising its right to implement the Acquisition by way of a takeover offer rather than the Scheme) and no new replacement scheme or takeover offer is announced.;

(d) any person, other than Hanover Bidco or any person acting in concert with Hanover Bidco, announces prior to the Effective Date either (i) a firm intention (in accordance with Rule 2.7 of the Code) to make an offer (within the meaning of the Code) to acquire all the equity share capital of Hydro (other than that already owned by the person making such offer) or (ii) the terms of a "whitewash" transaction under which Hydro issues new shares as consideration for an acquisition (as described in Note 1 to the Notes on Dispensations from Rule 9 of the Code), at a price or in exchange for such number of shares (or other securities) that in the reasonable opinion of the Hydro Board having taken advice from Arden Partners, represents an increase in value for Hydro Shareholders when compared to the consideration under the Acquisition of at least 10 per cent. more than the consideration available under the Acquisition and is not subject to any pre-conditions; or

(e) the Hydro Board withdraws its recommendation of the Acquisition.

Jonathan Hart

The following holder of Hydro Shares has given irrevocable undertakings to vote in favour of all of the Resolutions to be proposed at the Court Meeting and the General Meeting:

The above irrevocable undertaking will cease to be binding only if:

(a) the Scheme Circular (or, in the event that the Acquisition is implemented by way of a takeover offer, the offer document setting out the terms of such takeover offer) is not despatched to Hydro Shareholders on or before 30 July 2016;

(b) the Acquisition does not become Effective on or before the date which is six months after the date of this announcement; or

(c) Hanover Bidco announces that it does not intend to make or proceed with the Acquisition, or the Acquisition has lapsed or been withdrawn otherwise than as a result of Hanover Bidco exercising its right to implement the Acquisition by way of a takeover offer rather than the Scheme) and no new replacement scheme or takeover offer (with an effective date of no later than 17 October 2016) is announced.

Appendix IVDEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise: