Put and Call Option Deed, dated July 2, 2018, among BT Pension Scheme Trustees Limited, in its capacity as trustee for and on behalf of the BT Pension Scheme, Federated Holdings (UK) II Limited, and Federated Investors, Inc

Signatories    22

THIS AGREEMENT is made on 2 July 2018

BETWEEN:

WHEREAS:

IT IS AGREED as follows:

Agreed Form means in relation to any documents, the form of that document which is initialled for the purposes of identification by or on behalf of each of the parties;

Business Day means a day (other than a Saturday or a Sunday) on which banks are generally open in London and New York for normal business;

Buyer Parties Trigger Event means a Change of Control or an uncured material or repeated breach by the Buyer Parties of the Shareholders’ Agreement;

Buyer Parties’ Warranties means the warranties set out in Part 2 of Schedule 3;

Call Exercise Notice means a notice given in accordance with clause 4 and substantially in the form of Schedule 1;

Call Option means the option granted by the Seller to the Buyer Parties under subclause 2.1;

Cap Value means 110% of the Transaction Multiple multiplied by Company EBITDA;

Change of Control means either the Buyer (or any Permitted Transferee to whom Ordinary Shares have been transferred) ceasing to be a Wholly Owned Subsidiary of FII or FII becoming a Subsidiary of another company;

Company EBITDA means the consolidated net income of the Group (including the Group's share of profits/losses of associates and joint ventures) plus any interest or financing costs, taxation and depreciation, amortisation, and the relevant expense of the New LTIP, less any interest income or investment gains, each as shown in the last audited group accounts of the Company prior to the Exercise Date;

Completion means completion of the sale and purchase of the Option Shares in accordance with subclause 11.1;

Completion Date means the end of the last calendar day of the month in which the Relevant Date occurs;

Consideration means the Equity Proportion multiplied by the Relevant Fair Value;

Drag/Tag Exercise Notice has the meaning given in clause 7;

Drag/Tag Exercise Date means the date on which either the Seller serves the Buyer Parties, or the Buyer Parties serve the Seller, with a Drag/Tag Exercise Notice;

Drag/Tag Exercise Period has the meaning given in clause 7;

Drag/Tag Notice has the meaning given in clause 7;

Drag/Tag Sale has the meaning given in clause 7;

Drag/Tag Sale Period has the meaning given in clause 7;

Encumbrance means any mortgage, charge (fixed or floating), pledge, lien, option, right to acquire, right of pre-emption, assignment by way of security or trust arrangement for the purpose of providing security or other security interest of any kind (including any retention arrangement);

Equity Proportion means the total number of Option Shares divided by the aggregate of: (i) the total number of Ordinary Shares in issue at the Exercise Date plus (ii) the aggregate number of Ordinary Shares in respect of which rights to subscribe, or otherwise acquire, have been granted or allocated

(whether conditionally or unconditionally, and inclusive of any unallocated shares related to the New LTIP) to or for the benefit of, or reserved for, employees of the Group as at the Exercise Date, provided that only the portion of Ordinary Shares under subclause (ii) (excluding any unallocated shares related to the New LTIP) that does not exceed 2% of the Ordinary Shares under subclause (i) shall be included in subclause (ii) for the purposes of this definition;

Exercise Date means a Put/Call Exercise Date, a ROFR Exercise Date or a Drag/Tag Exercise Date;

Exercise Notice means a Call Exercise Notice or a Put Exercise Notice (as the case may be);

Exercise Period means the 20 Business Days following any determination of Fair Value in accordance with Schedule 4 until and including the Last Exercise Period;

Fair Value means the fair value of the Ordinary Share equity of the Company determined under Schedule 4;

Group means the Company and its Subsidiaries;

Last Exercise Period means the Exercise Period following determination of Fair Value pursuant to clause 3.3, unless (a) there has been a deferral right exercised pursuant to clauses 5.1 or 5.2 and (b) the Completion has not occurred prior to the sixth anniversary of the SPA Date, in which case Last Exercise Period means the Exercise Period following the determination of Fair Value pursuant to clause 3.4;

New LTIP has the meaning given to it in the SPA;

Option means the Call Option or the Put Option;

Option Shares means any Ordinary Shares held by the Seller or its Permitted Transferees at the Exercise Date;

Ordinary Shares means the ordinary shares of £1 each in the capital of the Company;

Parties means the parties to this agreement;

Permitted Sale Period has the meaning given in clause 6;

Permitted Transferees has the meaning given in the Shareholders’ Agreement;  

Put Exercise Notice means a notice given in accordance with clause 4 and substantially in the form of Schedule 2;

Put Option means the option granted to the Seller by the Buyer Parties under subclause 2.2;

Put/Call Exercise Date means the date on which the Seller or the Buyer Parties are served an Exercise Notice;

Relevant Date means, with respect to an Option exercise, the date ten Business Days after the Exercise Date unless subclauses 5.1 or 5.2 could be triggered in which case it means the date ten Business Days after the last date on which that subclause could be triggered, or, with respect to a ROFR Sale, the date ten Business Days after the ROFR Exercise Date, or, with respect to a Drag/Tag Sale, the date ten Business Days after the Drag/Tag Exercise Date, as applicable;

Relevant Fair Value means the Fair Value, the determination of which commenced the Exercise Period during which the relevant Exercise Notice was served or, in the case of an ROFR Sale or Drag/Tag Sale, the Fair Value determined in accordance with clause 6 or 7 (as applicable);

Remaining Shares has the meaning given in Recital (B);

ROFR means right of first refusal;

ROFR Acceptance Notice has the meaning given in clause 6;

ROFR Exercise Date means the date on which the Buyer Parties serve the Seller with a ROFR Acceptance Notice;

ROFR Exercise Period has the meaning given in clause 6;

ROFR Notice has the meaning given in clause 6;

ROFR Offer has the meaning given in clause 6;

ROFR Sale has the meaning given in clause 6;

ROFR Sale Period has the meaning given in clause 6;

Seller’s Warranties means the warranties set out in Part 1 of Schedule 3;

Seller Trigger Event means an uncured material or repeated breach by the Seller of the Shareholders’ Agreement;

Shareholders’ Agreement means the shareholders’ agreement entered into on the same date as this agreement between the Seller, the Company and the Buyer Parties;

SPA means the agreement for the sale and purchase of shares in the Company between the Seller and the Buyer Parties;

SPA Date means the date of the SPA;

Subsidiary has the meaning given in the Shareholders’ Agreement;

Third Party Buyer Transaction means a bona fide, arm’s length negotiated, agreement or arrangement with an independent, non-affiliated third party that the Buyer desires to enter into for the sale by the Buyer, and purchase by such third party, of at least a majority of the Ordinary Shares held by the Buyer;

Third Party Seller Transaction means a bona fide, arm’s length negotiated, agreement or arrangement with an independent, non-affiliated third party that Seller desires to enter into for the sale by the Seller, and purchase by such third party, of all of the Option Shares;

Transaction Completion Date means the “Completion Date” under, and as defined in, the SPA;

Transaction Multiple means 12.8;

Transaction Value means £410,000,000;

Trough Value means 90% of the sum of (i) the Transaction Value and (ii) any amounts received by the Company in respect of subscriptions for Ordinary Shares after the Transaction Completion Date;  

Valuation Request Notice means a notice requesting determination of the Fair Value in accordance with Schedule 4;

Valuation Request Period means:

Wholly Owned Subsidiary has the meaning given in the Shareholders’ Agreement.

Parties intend to enter into a Third Party Buyer Transaction. The Drag/Tag Notice shall constitute a Valuation Request Notice for the purposes of this agreement. The Drag/Tag Notice also shall specify (i) the name of the independent, unaffiliated third party involved in the Third Party Buyer Transaction; and (ii) the proposed date, time and location of the completion of the sale of the Ordinary Shares to such third party, which shall not be less than 120 days from the date of the Drag/Tag Notice.

The consideration for the sale of the Option Shares (whether pursuant to the exercise of an Option, a ROFR Sale or a Drag/Tag Sale) shall be equal to the Consideration.

Until such time as Completion occurs, the Seller shall be entitled to exercise all voting and other rights attached to any Ordinary Shares and shall be entitled to receive and retain all dividends and other distributions in respect of any Ordinary Shares owned by the Seller payable by reference to a record date prior to the date at which the Fair Value is to be determined.

This agreement will terminate, and the Parties will cease to have any further obligations under this agreement, once the Seller has sold all the Ordinary Shares held by it and its Permitted Transferees either to the Buyer or pursuant to a Third Party Seller Transaction and Completion has taken place in accordance with this agreement.

IN WITNESS of which this agreement has been executed as a deed and has been delivered on the date stated at the beginning of this agreement.

To:    The Seller

Date:

Dear Sir or Madam,

We, the Buyer Parties refer to the Put and Call Option Deed dated 2 July 2018 and made between yourselves and ourselves (the Option Agreement) and to the Call Option granted by you to us under that Option Agreement.

We hereby give notice under and pursuant to clause 4 of the Option Agreement that we exercise the Call Option granted by you to us to require the Seller to sell all of the Option Shares to the Buyer in accordance with the Option Agreement.

Yours faithfully,

For and on behalf of

To:    The Buyer Parties

Date:

Dear Sir or Madam,

We refer to the Put and Call Option Deed dated 2 July 2018 and made between yourselves and ourselves (the Option Agreement) and to the Put Option granted by you to us under that Option Agreement.

We hereby give you notice under and pursuant to clause 4 of the Option Agreement that we exercise the Put Option granted by you to us to require the Buyer to purchase all of the Option Shares from the Seller in accordance with the Option Agreement.

Yours faithfully,

For and on behalf of

or the Adviser shall be such other firm as the Seller and the Buyer Parties may agree from time to time for this purpose.

or the Second Adviser shall be such other firm as the Seller and the Buyer Parties may agree from time to time for this purpose.

Relevant Adviser shall invite the Buyer Parties and the Seller to submit written materials regarding the Fair Value and shall, to the extent the Relevant Adviser considers appropriate, have regard to such written materials, and (subject to the appendix to this schedule) to such other matters as the Relevant Adviser considers appropriate.

BT Pension Scheme Trustees Limited as trustee for and on behalf of the BT Pension Scheme (Seller), Federated Holdings (UK) II Limited (Buyer), and Federated Investors, Inc. (FII, and, together with Buyer, as applicable, the Buyer Parties) wish to engage [name of firm] (the Adviser) to provide a valuation opinion in relation to the fair value of Hermes Fund Managers Limited (the Company).

The Adviser is hereby requested to provide within 30 days of its appointment, an opinion (the Opinion) as to the fair value of the ordinary share equity of the Company, as at the month end prior to the Adviser’s appointment, assuming:  

This Opinion is being provided for the purpose of a put and call option deed between the Seller and the Buyer Parties (the Put and Call Option Deed) and is not to be taken to be relevant for any other purpose.

The Adviser will also be provided with current business projections by the Company, which shall include projected assets under management/advisement (AUM), new business flows and net revenues by product or service, operating expenses, bonuses, EBITDA, post-tax earnings and planned capital expenditure, such projections having been approved by the Board. These projections should be reviewed by the Adviser in the context of other market participants to ensure that the projections have been prepared on a ‘normalised’ basis in line with a combination of historical performance and market based assumptions. The Adviser should deem the required regulatory capital to be equal to: (a) the requirements under the Company’s most recent Internal Capital Adequacy Assessment Process (ICAAP) submission to the UK Financial Conduct Authority (FCA) inclusive of any regulatory capital planning buffer required by the FCA plus (b) the lower of (i) a discretionary safe margin buffer of capital, as determined in good faith by the Company's board, or (ii) a discretionary safe margin buffer of capital equal to 30%, in each case (in the case of clause (a) and (b)(i)) that would be prevailing at the time of the exercise of the applicable option under the Put and Call Option Deed.

The Adviser shall invite the Buyer Parties and the Seller to submit written materials regarding the fair value of the Company and shall, to the extent the Adviser considers appropriate, have regard to such written materials, and to such other matters as the Adviser considers appropriate. The Adviser shall meet and have access to the chief executive officer of the Company to discuss the projections, business outlook, risks and any valuation views they may wish to express and shall consider such views. The Adviser shall also meet and have access to representatives of the Buyer Parties and the Seller to hear any views they may wish to express and shall consider such views. The Adviser shall be entitled to rely on the reasonableness and accuracy of all information provided and will not be expected to perform due diligence of any kind.

In addition, the Adviser shall take into account the circumstances of any recent or contractually (including by written notice) confirmed future leavers or joiners (whether clients, customers or employees), and the potential effect of such leavers or joiners on the fair value of the Company.

In forming its Opinion, the Adviser shall be entitled to place greater reliance on those valuation methodologies it deems to be more appropriate in light of the required assumptions set out above and the information provided by the Company. Such methodologies would be expected to include:

The Adviser’s deliverable should state its Opinion as to the fair value of the ordinary share equity of the Company and detail:

in forming its Opinion.

EXECUTED as a DEED and DELIVERED on the date set out at the head of this agreement.