SCHEDULE [ ]

EARNOUT CONSIDERATION

Part I : Definitions relating to this Schedule

1.1For the purposes of this Schedule, the following expressions shall have the following meanings:

Cumulative Target 1 means the cumulative profit target in respect of the Second Earnout Period, being £●;

Cumulative Target 2 means the cumulative profit target in respect of the Third Earnout Period, being £●;

Earnout Consideration means any of the First Earnout Consideration, the Second Earnout Consideration or the Third Earnout Consideration;

Earnout Income Statements means the income statements for the relevant Earnout Period prepared for the purposes of calculating OP1, OP2 and OP3;

Earnout Loan Notes means the loan notes [in the agreed form] [substantially in the form of loan notes issued to satisfy initial consideration] to be issued to the Seller in accordance with paragraph 8 of Part II of this Schedule in satisfaction of the Earnout Consideration;1

Earnout Period means each of the twelve month periods comprised in the First Earnout Period, the Second Earnout Period and the Third Earnout Period respectively;

First Earnout Consideration means a maximum amount of £● calculated in accordance with paragraph 2 of Part II of this Schedule;

First Earnout Period means the [one year period] from [1 [month] [year 1] to 3[1] [month] [year 2] / Closing to year end];

Part II : Calculation of Earnout Consideration

1.1OP1, OP2 and OP3 shall each be determined in accordance with Part III of this Schedule.

1.2The Earnout Consideration shall, subject to paragraph 7 be paid in cash (or [Earnout Loan Notes] if so elected in accordance with paragraph 8) on the relevant Payment Date.

2. FIRST EARNOUT CONSIDERATION

If OP1 exceeds Profit Target 1, the First Earnout Consideration shall be [an amount equal to the excess].

3.SECOND EARNOUT CONSIDERATION

3.1The Second Earnout Consideration shall be [an amount equal to the amount by which OP2 exceeds Profit Target 2, provided that OP1 + OP2 exceeds Cumulative Target 1].

3.2[If OP1 + OP2 is less than Cumulative Target 1, the Second Earnout Consideration shall be reduced by £● for each amount of £[1.00] of the shortfall in achieving Cumulative Target 1.]

4.1The Third Earnout Consideration shall be [an amount equal to the amount by which OP3 exceeds Profit Target 3, provided that OP1 + OP2 + OP3 exceeds Cumulative Target 2].

4.2[If OP1 + OP2 + OP3 is less than Cumulative Target 2, the Second Earnout Consideration shall be reduced by £● for each amount of £[1.00] of the shortfall in achieving Cumulative Target 2.]

The Seller and the Purchaser agree that the business of the Company shall be conducted at all times during the Relevant Period in accordance with the principles set out in Part VI of this Schedule.

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[If drafting this schedule as a Seller friendly clause the clause should only consist of sub-clause 6.1: sub-clauses 6.2 to 6.4 should be included if acting for Purchaser]

6.1[If a Claim [(or a claim against the Seller under the [Tax Covenant])]4 is notified [in accordance with the applicable provisions of [this Agreement]] and is settled or otherwise determined in the Purchaser’s favour prior to the Payment Date, the Purchaser shall be entitled to set off an amount equal to the amount of the liability (as so settled or determined) by deducting it from the amount of the Earnout Consideration due to the Seller in or towards satisfaction of the relevant liability and where the amount set off is the full amount settled or determined, that amount shall be in full and final settlement of the Claim (or claim against the Seller under the [Tax Covenant]) in question.

6.2If a Claim (or claim against the Seller under the [Tax Covenant]) has been notified [in accordance with the applicable provisions of [this Agreement]], which is not settled or otherwise determined in accordance with sub-paragraph 6.1 above prior to a Payment Date (any such Claim, a Relevant Claim), then no later than [● Business Days before] the Payment Date, the Purchaser shall notify the Seller in writing (including all reasonable documentation and information to support such Relevant Claims) of its reasonable estimate of the amount of the Relevant Claim (the Purchaser’s Estimate) and the following provisions shall apply:

(a)the Purchaser shall appoint an escrow agent acceptable to the Seller, acting reasonably (the Escrow Agent), to hold an amount of the Earnout Consideration equal to the lower of: (a) the Purchaser’s Estimate; and (b) the Earnout Consideration due to the Seller (the Earnout Escrow Amount), such that the Earnout Escrow Amount is held by the Escrow Agent in an interest-bearing bank account in the joint names of the Purchaser and the Seller (the Escrow Account) until the Relevant Claim is settled or otherwise finally determined;

(b)if the Seller disputes the existence of and/or the estimated amount of any Relevant Claim for the purposes of determining if/ how much of the Earnout Consideration should be placed in escrow in accordance with sub-paragraph 6.2(a) above, the Seller shall notify the Purchaser in writing of such dispute no later than ten (10) Business Days after the receipt of the

Purchaser’s Estimate, and the matter in dispute shall be referred to such Queens Counsel as the Seller and the Purchaser may agree within [●] Business Days or, failing agreement, to such Queen’s Counsel as shall be nominated at the request of

3Where there are multiple sellers there may be an escrow portion attributable to each seller and claims may be possible against each seller’s escrow

portion (but not against all sellers) – see part 11 of the Private M&A Toolkit for precedents (eg Cinven / Premium Credit).

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either the Seller or the Purchaser by [the President for the time being of the Bar Council] (the Queens Counsel) to determine whether a bona fide claim exists and/or the Purchaser’s Estimate is reasonable and supported by the documentation and information accompanying the Purchaser’s Estimate. Both the appointment of and determination by

the Queens Counsel shall be in accordance with the provisions relating to the appointment of an Expert in Part III (sub- paragraphs 3 et seq.) of this Schedule which shall apply mutatis mutandis;

(c)if the Relevant Claim is disputed and the Queens Counsel has not provided his opinion by the relevant Payment Date, sub- paragraph 6.2(a) shall apply to the Purchaser’s Estimate until the determination by the Queens Counsel in accordance with this sub-paragraph 6.2 and, for the avoidance of doubt, the Purchaser shall pay the remainder (if any) of the Earnout Consideration due to the Seller on the Payment Date;

(d)if the Queens Counsel gives a written opinion that a bona fide cause of action does not exist in respect of any Relevant Claim then, immediately on receipt of the Queens Counsel opinion, the Escrow Agent shall pay an amount equal to the amount then retained in the Escrow Account in respect of the Relevant Claim to the Seller;

(e)if the Queens Counsel gives a written opinion that a bona fide Claim exists then the Queens Counsel shall confirm in that opinion either that:

(i)he considers the Purchaser’s Estimate of the amount of the Relevant Claim reasonable and supported by the documentation and information accompanying the Purchaser’s Estimate; or

(ii)he considers the Purchaser’s Estimate of the amount of the Relevant Claim unreasonable and not supported by the documentation and information accompanying the Purchaser’s Estimate, in which case he will provide an alternative estimate of the amount of the Relevant Claim which he considers reasonable, which may be higher or lower than the Purchaser’s Estimate (the Expert’s Estimate),

and, on receipt by the Escrow Agent of the Queens Counsel written opinion it shall continue to retain in the Escrow Account an amount equal to the lower of:

(i)the amount of the Purchaser’s estimate or, if applicable, the Expert’s Estimate; and

(ii)the aggregate amount then standing to the credit of the Escrow Account,

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in each case, in respect of the Relevant Claim and pending settlement or determination of the Claim. The Purchaser and the Seller shall issue joint written instructions to the Escrow Agent to pay any remaining balance on the Escrow Account to the Seller, provided that it is not otherwise required to cover any Relevant Claim which falls within this clause 6.2;

(f)on settlement or other determination of any Relevant Claim the Purchaser and Seller will issue joint written instructions to the Escrow Agent: (i) to pay to the Purchaser an amount equal to the amount of the liability (as so settled or determined) in or towards satisfaction of the relevant liability (if any) up to the amount of the balance in the Escrow Account; or (ii) otherwise (including if a Relevant Claim is deemed to be withdrawn under sub-paragraph 6.3) to pay the balance (if any) in the Escrow Account to the Seller;

(g)any bank or other charges arising in the Escrow Account shall be charged to the Escrow Account; and

(h)any interest or profit generated from the Escrow Account (subject to any deduction of tax at source or any bank or other charges properly charged to the Escrow Account), in each case from time to time, shall accrue to and form part of the Escrow Account.

6.3If any Relevant Claim is deemed to be withdrawn pursuant to clause [insert relevant clause] of [this Agreement] then any amount of the Earnout Consideration held in escrow under sub-paragraph 6.2 above (together with all interest accrued in relation thereto) shall be immediately released by the Escrow Agent to the Seller for payment or satisfaction in accordance with Part II of this Schedule.

6.4For the purposes of this Schedule settlement shall mean an agreement in writing signed by both the Seller and the Purchaser in respect of one or more Relevant Claims and a determination shall mean a final judgment of the Courts of England and Wales [which is not subject to appeal and has not been appealed within the relevant time] and settled and determined shall be construed accordingly.

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7.CONTINUED EMPLOYMENT5

7.1If the Seller is not employed as an employee of the Company on the last day of a particular Earnout Period he shall not be entitled to receive any Earnout Consideration which would otherwise have been payable to him in accordance with this Schedule unless:

(a)he has died; or

(b)as a result of permanent disability or illness he is not able to resume the performance of his duties within a period of twelve months from the diagnostic date determined by the independent medical expert referred to below; or

(c)he has been [Dismissed Without Cause].6

In which case, if the circumstances in sub-paragraphs 7.1(a) or 7.1(b) apply (subject to the Purchaser receiving medical evidence [in a form reasonably satisfactory to the Purchaser] from an independent medical expert as appointed by the Purchaser as to the diagnosis of such disability or illness and the related inability to perform such duties or resume such duties within a twelve (12) month period from the date that such expert diagnoses such disability or illness) he shall receive the full amount of his entitlement in accordance with the payment provisions of Part II of this Schedule (and not for the avoidance of doubt at the end of such twelve

(12) month period) and if the circumstances in sub-paragraph 7.1(c) apply, he shall receive such proportion of his entitlement as shall be determined by applying the principles set out in Part II of this Schedule.

7.2 [Consider inserting if there are multiple Sellers (N.B. throughout this Schedule the drafting assumes one Seller). In the event a Seller shall not be entitled to receive any part of the Earnout Consideration, that part shall be re-allocated amongst those other of the Sellers who remain entitled to receive Earnout Consideration, in proportion to their respective entitlements.]

5Consider tax implications of this paragraph. New rules apply following the Finance Act 2003, so that an individual seller may be subject to income tax and national insurance in respect of an earnout if it can be treated as remuneration for employment instead of further consideration for the shares.

In practical terms, this may mean a higher tax charge for the seller (see paragraph 6 of the notes).

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