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1GrowthEquityindEmnityStudy013 IntroductionPurposeCriteria.........................................................................................................................1MethodologyNotes.........................................................................................................................2KeyTakeaways...............................................................................................................................3DealSampleOverview...................................................................................................................4DealPointsIndemnityStructure.......................................................................................................................5PartyResponsibleorCashIndemnity...........................................................................................5ReceiptoProceeds.......................................................................................................................6CorrelationsReceiptoProceedstoResponsibilityorIndemnifcation.........................................7CorrelationsResponsibilityorIndemnifcationtoReceiptoProceeds.........................................8IndemnityPaymentGross-ups.......................................................................................................9SurvivalTimetoAssertClaims..................................................................................................10Baskets........................................................................................................................................12EligibleClaimThresholds............................................................................................................15Caps............................................................................................................................................16EscrowsHoldbacks....................................................................................................................19InternationalTakeawaysEligibleClaimThresholds.......................................................................................................20Caps.......................................................................................................................................20EscrowsHoldbacks...............................................................................................................20tablEofcontEntS 1PurPoSEcritEriaPurposeWepreparedthisStudytohelpadvancethediscussionowhatismarketorcertaindealtermsingrowthequityinvestmenttransactions.WhiletherearenumerouspubliclyavailablestudiesomarkettermsinbuyoutsandstrategicMAtransactionswebelievethisistherststudyreportingonthetermsominoritygrowthequitydeals.TisStudyocusesonindemnicationtermsbecauseinourexperienceitisinthisareathatgrowthequitydealsdierthemostromventurecapitaltransactionsontheonehandandbuyoutsandotherMAdealsontheotherhand.TisStudywasintendedinparttotesttwoprincipalhypotheseswehavedevelopedbasedonourdealexperienceMonetaryindemnicationlimitsexpressedasapercentageothedealvalueinminoritygrowthequitydealswherethepurchasepriceissubstantiallylessthanthevalueothewholecompanydonotcorrelatewithsimilarlimitsinMAtransactions.Tereisastrongcorrelationbetweenwhoreceivestheproceedsinthedealtargetcompanyshareholdersorbothandwhoisresponsibleortheindemnity.LikeothersurveysotransactiontermsthisStudywasnotintendedtodictatetheresultoanyparticularnegotiation.Ratheritwasdesignedtoguidethedebatetoarangeoreasonableoutcomesandavoidoutlierclaimsowhatismarketthatarenotsupportedbyactualtransactionexperience.CriteriaOurgoalinestablishingourdealdatasetwastoidentiytransactionsthatmostpractitionerswouldagreetintothecategoryogrowthequityinvestmentsnotwithstandingthatthereisnogenerallyaccepteddenitioninthemarketplace.TekeycriteriaweusedtodeneourStudysamplewereMinorityinvestmentsProtabletargetshavingpositivecash-fowonatrailing12-monthbasisatthetimeoinvestmentargetshavingequityvaluesinexcesso15millionAkeyactorinestablishingourcriteriawasadesiretoexcludesmallerearly-stagetransactionslikelytobemoreproperlycharacterizedasventurecapitaldealsthevastmajorityowhichdonothaveexpressindemnicationprovisions.WedidnotlimitourStudyonlytotransactionswithexpressindemnifcation.Tepresenceodealsotherwisemeetingourcriteriathatlackindemnifcationprovisionsisanimportantaspectothegrowthequitymarket.Controltransactionswereexcludedbecausetheytypicallydierromminoritydealsinthatthesizeotheinvestorstaketendstopushtheindemnitytermsclosertothoseoundinbuyoutsorstrategicacquisitiontransactions. 2ProcessTedatainthisStudywerederivedromthedenitiveinvestmentagreementsortransactionsclosedbyourrmandmeetingtheeligibilitycriteriaorthisStudy.Teagreementswereanalyzedbyattorneysatourrmandthereviewoeachagreementwasqualitycheckedbyasecondattorneyreviewer.Acommitteeolawyersresolvedalldiscrepanciesinthedataandcompletedanalqualitycontrolreview.DealSampleTe66dealsinthisStudyallinvolvedlawyersatourrmrepresentingclientsoourrmandnecessarilyreectthenegotiatingperspectivesandbiasesotheselawyersandclients.HoweverbecausewerepresentedtheinvestorinsomedealsandthetargetcompanyinothersandbecauseintheaggregatethedealsinthisStudyinvolveddozensodierentinvestorsanddozensoopposinglawrmswebelievetheresultingdataarerepresentativeoasignicantportionothegrowthequitymarket.EquityversusEnterpriseValueMostacquisitionindemnitystudiesuseenterprisevaluei.e.equityvalueplusindebtednessandcashastherelevantcompanyvaluemetricorpurposesocalculatingindemnitycapsandbasketsasapercentageocompanyvalue.Howevergiventhenatureoaminoritygrowthequitydealitisotendifculttoaccuratelydetermineromtheinvestmentdocumentswhattheenterprisevalueothetargetcompanywasatthetimeoinvestment.AccordinglywhencalculatingcapsandbasketsasapercentageocompanyvalueinthisStudyweinsteadusedequityvaluewhichweconsiderareasonableproxytocompareagainstpercentagesoenterprisevaluereportedoracquisitiontransactions.ABAStudyComparisonsWecomparedseveraloourdealpointstothecorrespondingdatainthe2011PrivateargetMergersAcquisitionsDealPointsStudypublishedbytheAmericanBarAssociationtheABAStudy.WeendeavoredineachcaseexceptasspecicallynotedhereintomatchourmethodologytothatotheABAStudy.Notethatwecomparedourdataonlytothedatareportedor2010dealsintheABAStudyandnottoanyprioryears.DataPresentationAllmonetarydataarereportedinU.S.dollars.InvestmentsinvolvingoreigncurrencieswereconvertedintoU.S.dollarsbasedontheprevailingexchangerateontherelevantclosingdate.Tepercentagesinsomeothechartsdonotaddto100duetorounding.mEthodoloGynotES 3uTisStudyvalidatedourinitialhypothesisthatindemnitycapsasapercentageoinvestmentamountwouldbesignicantlyhigheronaveragethanindemnitycapsasapercentageocompanyvalueintheacquisitioncontext.Forexample69othedealsinourStudythatincludedanindemnicationcaphadcapsgreaterthan15otheinvestmentamountwith36odealswithcapshavingcapsequaltotheullinvestmentamount.Bycontrastonly27odealsintheABAStudyhadcapsinexcesso15othepurchasepricewithonly9havingacapequaltothepurchaseprice.Inourexperiencethesedataresultfromthefactthatmostgrowthequityinvestorsviewacquisitionindemnitypercentagesasinappositewhenappliedtotheinvestmentamountinagrowthequitydealbecausetheydonotrelatetheriskoflosstothesizeofthecompany.uWeanalyzedthecorrelationbetweenreceiptoproceedsandresponsibilityorpaymentoindemnicationclaimsandoundthestrongcorrelationweanticipatedIndealsinwhichallotheproceedswerereceivedbyshareholders86othetimetheshareholderswereresponsibleortheindemnityeitherexclusively57ortogetherwiththecompany29.Indealsinwhichallotheproceedswereretainedbythecompanyorcorporateusesthecompanywasexclusivelyresponsibleorpaymentoindemnicationclaims71othetime.Indealsinwhichportionsotheproceedswerereceivedbyshareholdersandretainedbythecompanyorcorporateusesthecompanyandshareholderssharedresponsibilityorpaymentoindemnicationclaims57othetime.uAmeaningulpercentageodeals17includedanownershipadjustmentinavorotheinvestorasanindemnicationremedyeitherinsteadocashorasanalternativeremedyavailableattheelectionothecompanyortheinvestor.uIndealsinwhichthecompanyprovidedacashindemnity23expresslylimitedtheinvestorsindemnityrecoverytotheinvestorsproratashareotheapplicablelossbythecompany.Inapproximately63othosedealstheinvestornegotiatedoragross-upotheindemnitypaymenttoaccountortheactthataportionoeachdollarpaidbythetargettotheinvestorisinefectundedbytheinvestorbyvirtueoitsownershipinterest.u35odealsinourStudydidnotplacealimitonthesurvivalperiodorepresentationsandwarrantiesand41didnotincludeanyindemnicationcap.uWestudiedanumberointernationaldealsandoundthemtobeverysimilartoU.S.dealsonmostdatapoints.Wenotedaewrespectshoweverinwhichtheinternationaldealstendedtodifer.SeeInternationalakeawaysPage20.kEytakEawayS 4ThisStudyanalyzedinvestmentagreementsortransactionscompletedrom2008throughthefrsthalo2012.ThefnalStudysampleconsistedo66investmentagreements73owhichinvolvedU.S.targetsand27owhichinvolvednon-U.S.targets.500000-10M1711M-25M2026M-50M2951M-100M18101M-250M10501M-1.3B3251M-500M315M-50M1051M-100M20101M-200M24201M-300M17301M-400M6501M-27B20401M-500M3EquityValuEoftarGEtinVEStmEntamountdEalSamPlEoVErViEwMeanMedianMinimumMaximum1.75billion181million15.9million27.6billionMeanMedianMinimumMaximum86.4million36.0million0.6million1.3billion 5SubsetDealsIncludingaCashIndemnityPartyrESPonSiblEforcaShindEmnityAscomparedtoventurecapitalinvestmentsandacquisitiontransactionstheabsenceofuniformityingrowthequityindemnitystructuresmakesthesedealsunique.indEmnityStructurE1Indemnityclaimsarepayableincash.2Indemnityclaimsaresatisfedbyincreasingtheinvestorsownershippercentagetocompensatetheinvestorortheimpactotheclaimonthevalueothecompany.CashIndemnity163Silent20CombinationCashIndemnityandConversionShareAdjustment13ConversionPriceShareAdjustment24Shareholders29Company33Combination38 6Aprincipalactorthatdrivesindemnifcationtermsingrowthequitydealsiswhoreceivestheproceeds.rEcEiPtofProcEEdS1Transactionsinwhichaportionoftheproceedsisreceivedbythecompanyandretainedforworkingcapitalorothercorporateuses.2Transactionsinwhichoneormoreshareholdersreceivedaportionoftheproceedswhetherthroughadirectsecondarysaleofsharestotheinvestoraredemptionoftheirsharesbythecompanyorreceiptofadividendordistribution.Shareholders221Combination46Company133 7corrElationSrEcEiPtofProcEEdStorESPonSibilityforindEmnificationShareholders57Shareholders24Combination29Combination29Company71Company19Company14Combination57IndealsinwhichallproceedswerereceivedbytheshareholderswhoprovidedacashindemnityIndealsinwhichproceedswerepartiallyretainedbythecompanyandpartiallydistributedtoshareholderswhoprovidedacashindemnityIndealsinwhichallproceedswereretainedbythecompanyforworkingcapitalorothercorporateuseswhoprovidedacashindemnity 8Combination44Company39Shareholders17Combination29Combination60Company20Shareholders20Shareholders57Company14IndealsinwhichtheshareholdersprovidedacashindemnitywhoreceivedtheproceedsIndealsinwhichboththecompanyandtheshareholdersprovidedacashindemnitywhoreceivedtheproceedsIndealsinwhichthecompanyprovidedacashindemnitywhoreceivedtheproceedscorrElationSrESPonSibilityforindEmnificationtorEcEiPtofProcEEdS 9SubsetDealsIncludingaCashIndemnityPaidbytheCompanyIntheeventthatindemnicationisclaimedbyanyInvestorIndemniedPartyunderSection6.2aiduetoanybreachorallegedbreachoanyrepresentationorwarrantymadebytheCompanyandtheStockholdersandtheLossesclaimedbysuchInvestorIndemniedPartyrelatetoorariseoutoliabilitieslossesassessmentsjudgmentsTaxesnespenaltiesorotherdamagespaidorsuferedbytheCompanyindirectout-o-pocketexpendituresinconnectionwithsuchbreachorallegedbreachanysuchout-o-pocketexpendituresCompanyLossestheamountoindemniableLossesthatmaybesoughtbytheInvestorIndemniedPartiesrelatingtheretoshallbelimitedtoandshallnotexceedanamountequaltothequotiento1theamountosuchCompanyLossesmultipliedby301dividedby270.21EqualtotheinvestorsprorataownershipoftheCompany.2EqualtooneminustheinvestorsprorataownershipoftheCompany.indEmnityPaymEntGroSS-uPSSilent37Yes63Yes14No86IfthecompanyprovidesacashindemnityistheinvestorsrecoveryexpresslylimitedtoitsproratashareIndealswheretheinvestorsrecoveryisexpresslylimitedtoitsproratashareisthereagross-upSampleProvision 10ExpressSurvivalwithNoTimeLimitationTerepresentationsandwarrantiesoftheCompanyandtheInvestorscontainedinormadepursuanttothisAgreementshallsurvivetheexecutionanddeliveryofthisAgreementandtheClosing.ExpressSurvivalwithTimeLimitationAlloftherepresentationsandwarrantiescontainedinthisAgreementshallcontinueuntiltheeighteen18monthanniversaryoftheClosingsucheighteen18monthsarereferredtoastheperiodofsurvivalexceptfortherepresentationsandwarrantiescontainedinSection2.1OrganizationandCorporatePowerSection2.2aAuthoritySection2.4CapitalizationandSection2.12axMatterswhichineachcaseshallcontinueuntilsixty60daysfollowingtheexpirationoftheapplicablestatuteoflimitationsincludinganyextensionstheretoSurViValtimEtoaSSErtclaimSSurvivalPeriod11Teseperiodsapplytomostrepresentationsandwarranties.Certainrepresentationsandwarrantiesmaybecarvedoutromtheseperiodsinordertosurviveorotherspeciedperiods.2Reerstodealsinwhichthesurvivalperiodwastiedtothedeliveryoauditednancialstatementsothetargetcompanyoroneormoreauditcycles.3Includesorexampledealsthatprovideorsurvivaluntiltheconsummationoaqualiedinitialpublicoferingorsaleothecompany.SilentExpressNoSurvivalExpressSurvivalNoTimeLimitLessthan12months12months12to18months18months24monthsGreaterthan24monthsAuditCycle2Other3531302311252141234312841514GoodwinProcterStudyABAStudySampleProvisions 11Weanalyzedthe35ofdealsthatdidnotincludealimitonthesurvivalperiodoftherepresentationsandwarrantiestodetermine1weretheyconcentratedwithinacertainbandofequityvaluesofthetargetcompanyand2whoreceivedtheproceedsinthosedeals.15M-50M2251M-100M26101M-200M22201M-300M9401M-500M4501M-27B17SPotliGhtdEalSwithnoSurViValPEriodlimitSCompany48Combination43Shareholders9ReceiptofProceedsEquityValueoftheTargetCompany 12DeductibleCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds300000theDeductibleinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleonlyorLossesexceedingtheDeductible.FirstDollarCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds500000theTresholdinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleortheaggregateamountoallLossesregardlessotheTreshold.CombinationCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds500000theTresholdinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleonlyorLossesinexcesso300000theDeductible.SubsetDealswithSurvivalProvisionsbaSkEtStyPEbaSkEtSFirstDollar35Deductible19NoBasket41FirstDollar31NoBasket5Combination5Combination5Deductible59SampleProvisionsGoodwinProcterStudyABAStudy 13baSkEtSaSofEquityValuE11NotethattheABAStudydatapresentedhererepresentpercentagesofacquisitiontransactionvaluesforcomparisonwithourdatabasedonpercentagesofequityvalues.SubsetDealswithBasketsbaSkEtSaSofEquityValuEStatiSticalSummary21-20.5-10.5orless3031213478241GoodwinProcterStudyABAStudyBasketTypeMeanMedianMinimum0MaximumDeductible0.6380.3200.0845.080FirstDollar0.3380.2000.0021.090AllBasketsotherthanCombination0.4500.230----SubsetDealswithBaskets 14baSkEtSaSofinVEStmEntamountStatiSticalSummarySubsetDealswithBasketsbaSkEtSaSofinVEStmEntamount11NotethattheABAStudydatapresentedhererepresentpercentagesofacquisitiontransactionvaluesforcomparisonwithourdatabasedonpercentagesofinvestmentamounts.21-210.5-10.5orless130291232411601147GoodwinProcterStudyABAStudyBasketTypeMeanMedianMinimum0MaximumDeductible1.7471.0000.55610.930FirstDollar2.4831.0000.13526.590AllBasketsotherthanCombination2.2101.000----SubsetDealswithBaskets 15SubsetDealswithBasketsEliGiblEclaimthrESholdSNoEligibleClaimThreshold79IncludesEligibleClaimThreshold21IncludesEligibleClaimThreshold17NoEligibleClaimThreshold83GoodwinProcterStudyABAStudyCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesoranyindividualitemwheretheLossrelatingtosuchclaimorseriesoclaimsarisingromthesameorsubstantiallysimilaractsorcircumstancesislessthan15000.SampleProvision 16caPS11Capsgenerallyapplicabletocontractualindemnicationobligationsdoesnottakeintoaccountdiferentcapsorspecicitems.Yes-LessThanPurchasePrice79Silent7Yes-ButNotDeterminable7Yes-EqualtoPurchasePrice7Yes-LessThanInvestmentAmount39Silent41Yes-EqualtoInvestmentAmount20GoodwinProcterStudyABAStudySubsetDealswithSurvivalProvisions 17caPSaSofinVEStmEntamount11NotethattheABAStudydatapresentedhererepresentpercentagesoacquisitiontransactionvaluesorcomparisonwithourdatabasedonpercentagesoinvestmentamounts.2Excludesthreedealswhichcontaineddiferentcapsorthetargetcompanyandtheshareholders.caPSaSofEquityValuE11NotethattheABAStudydatapresentedhererepresentpercentagesoacquisitiontransactionvaluesorcomparisonwithourdatabasedonpercentagesoequityvalues.2Excludesthreedealswhichcontaineddiferentcapsorthetargetcompanyandtheshareholders.101010-1515-2525-5050-10010061409001148173147243GoodwinProcterStudyABAStudy101010-1515-2525-5050-10010019143693011414173141443GoodwinProcterStudyABAStudySubsetDealswithDeterminableCaps2SubsetDealswithDeterminableCaps2MeanMedianMinimum0Maximum10.175.700.2446.50MeanMedianMinimum0Maximum48.7525.665.34100 18Weanalyzedthe36ofdealswithcapsthatwereequaltothefullinvestmentamounttodetermine1weretheyconcentratedwithinacertainbandofequityvaluesofthetargetcompanyand2whoreceivedtheproceedsinthosedeals.15M-50M851M-100M38101M-200M8201M-300M15301M-400M23501M-27B8SPotliGhtdEalSwithcaPSEqualtothEfullinVEStmEntamountCompany48Combination45Shareholders7ReceiptofProceedsEquityValueoftheTargetCompany 19EScrowaSofEquityValuEEScrowSholdbackSSubsetDealswithEscrowsHoldbacksSubsetDealswithSurvivalProvisionsYes-EscrowHoldback9No-EscrowHoldback91Yes-EscrowHoldback86No-EscrowHoldback140-22-55176717GoodwinProcterStudyABAStudyEScrowaSofinVEStmEntamountSubsetDealswithEscrowsHoldbacks0-55-1010-151517171750MeanMedianMinimum0Maximum3.563.740.865.71MeanMedianMinimum0Maximum9.208.332.6317.14 20intErnationaltakEawaySEligibleClaimThresholdsEscrowsHoldbacksCapsNo50Yes50No96Yes4Yes-EqualtoInvestmentAmount15Yes-LessthanInvestmentAmount35No17No50Yes-LessthanInvestmentAmount50Yes-EqualtoInvestmentAmount33No87Yes13No100U.S.TargetsNon-U.S.TargetsU.S.TargetsNon-U.S.TargetsU.S.TargetsNon-U.S.Targets AboutGrowthEquityPracticeGoodwinProctersindustry-leadingGrowthEquityPracticeoersablendosectorandstageexperienceorcompaniesandinvestors.Withthedynamicchangesaectingthecreditmarketsinrecentyearsinvestingactivityhasincreasinglyshitedtowardthegrowthequitysectorcapitalinusionsthatarelessreliantonleverageandthattendtostraddleaspectsobuyoutsandventurecapital.AsaresultoextensiveexperienceoverseveraldecadesGoodwinProcterisuniquelypositionedtoserveinvestorsandcompaniesinthisvariableandgrowingsector.Ourexperiencespanstheentirebreadthogrowthequitytransactionsincludingpass-throughsandlatestageliquidityeventsprimariesdirectsecondariesprivatetenderoersdividendrecapsandredemptionsacrossavarietyoindustriesandglobaljurisdictions.Moreexpertathandlingcomplexlarge-scaletransactionsthantypicalventurecapitallawrmsandmoreadeptatworkinginentrepreneurialgrowthsituationsthanbuyoutlawrmsGoodwinProcteroersuniqueexpertiseinthegrowthequitysector.GoodwinProcterisconsistentlynamedamongthenationstoplawrmsintheprivateequityandventurecapitalsectorsbyavarietyoleadingindustrypublicationsincludingPrivateEquityAnalystBuyoutsMagazineVentureSourceChambersUSAU.S.News-BestLawyersandLegal500.WeareoneothemostactivelawrmsintheUnitedStateshavinghandledover1600privateequitygrowthequityandventurecapitaltransactionsoverthepasttwoyears.AboutGoodwinProcterGoodwinProcterLLPisoneothenationsleadinglawrmswithofcesinBostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyandWashingtonD.C.TermprovidescorporatelawandlitigationserviceswithaocusonmattersinvolvingprivateequitytechnologycompaniesrealestateREIsandrealestatecapitalmarketsnancialinstitutionsintellectualpropertyproductsliabilityandmasstortsandsecuritieslitigationandwhitecollardeense.Formoreinormationvisitwww.goodwinprocter.com.FollowusonwitterGoodwinProcter. 22BostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyWashingtonDCwww.goodwinprocter.com2013GoodwinProcterLLP.Allrightsreserved.Thisinormationalpiecewhichmaybeconsideredadvertisingundertheethicalrulesocertainjurisdic-tionsisprovidedwiththeunderstandingthatitdoesnotconstitutetherenderingolegaladviceorotherproessionaladvicebyGoodwinProcterLLPGoodwinProcterUKLLPortheirattorneys.Priorresultsdonotguaranteesimilaroutcome.GoodwinProcterLLPisalimitedliabilitypartnershipwhichoperatesintheUnitedStatesandhasaprincipallawofcelocatedat53StateStreetBostonMA02109.GoodwinProcterUKLLPisaseparatelimitedliabilitypartnershipregisteredinEnglandandWaleswithregisterednumberOC362294.ItsregisteredofceisatTower4225OldBroadStreetLondonEC2N1HQ.AlistothenamesothemembersoGoodwinProcterUKLLPisavailableorinspectionattheregisteredofce.GoodwinProcterUKLLPisauthorizedandregulatedbytheSolicitorsRegulationAuthority.
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1GrowthEquityindEmnityStudy013 IntroductionPurposeCriteria.........................................................................................................................1MethodologyNotes.........................................................................................................................2KeyTakeaways...............................................................................................................................3DealSampleOverview...................................................................................................................4DealPointsIndemnityStructure.......................................................................................................................5PartyResponsibleorCashIndemnity...........................................................................................5ReceiptoProceeds.......................................................................................................................6CorrelationsReceiptoProceedstoResponsibilityorIndemnifcation.........................................7CorrelationsResponsibilityorIndemnifcationtoReceiptoProceeds.........................................8IndemnityPaymentGross-ups.......................................................................................................9SurvivalTimetoAssertClaims..................................................................................................10Baskets........................................................................................................................................12EligibleClaimThresholds............................................................................................................15Caps............................................................................................................................................16EscrowsHoldbacks....................................................................................................................19InternationalTakeawaysEligibleClaimThresholds.......................................................................................................20Caps.......................................................................................................................................20EscrowsHoldbacks...............................................................................................................20tablEofcontEntS 1PurPoSEcritEriaPurposeWepreparedthisStudytohelpadvancethediscussionowhatismarketorcertaindealtermsingrowthequityinvestmenttransactions.WhiletherearenumerouspubliclyavailablestudiesomarkettermsinbuyoutsandstrategicMAtransactionswebelievethisistherststudyreportingonthetermsominoritygrowthequitydeals.TisStudyocusesonindemnicationtermsbecauseinourexperienceitisinthisareathatgrowthequitydealsdierthemostromventurecapitaltransactionsontheonehandandbuyoutsandotherMAdealsontheotherhand.TisStudywasintendedinparttotesttwoprincipalhypotheseswehavedevelopedbasedonourdealexperienceMonetaryindemnicationlimitsexpressedasapercentageothedealvalueinminoritygrowthequitydealswherethepurchasepriceissubstantiallylessthanthevalueothewholecompanydonotcorrelatewithsimilarlimitsinMAtransactions.Tereisastrongcorrelationbetweenwhoreceivestheproceedsinthedealtargetcompanyshareholdersorbothandwhoisresponsibleortheindemnity.LikeothersurveysotransactiontermsthisStudywasnotintendedtodictatetheresultoanyparticularnegotiation.Ratheritwasdesignedtoguidethedebatetoarangeoreasonableoutcomesandavoidoutlierclaimsowhatismarketthatarenotsupportedbyactualtransactionexperience.CriteriaOurgoalinestablishingourdealdatasetwastoidentiytransactionsthatmostpractitionerswouldagreetintothecategoryogrowthequityinvestmentsnotwithstandingthatthereisnogenerallyaccepteddenitioninthemarketplace.TekeycriteriaweusedtodeneourStudysamplewereMinorityinvestmentsProtabletargetshavingpositivecash-fowonatrailing12-monthbasisatthetimeoinvestmentargetshavingequityvaluesinexcesso15millionAkeyactorinestablishingourcriteriawasadesiretoexcludesmallerearly-stagetransactionslikelytobemoreproperlycharacterizedasventurecapitaldealsthevastmajorityowhichdonothaveexpressindemnicationprovisions.WedidnotlimitourStudyonlytotransactionswithexpressindemnifcation.Tepresenceodealsotherwisemeetingourcriteriathatlackindemnifcationprovisionsisanimportantaspectothegrowthequitymarket.Controltransactionswereexcludedbecausetheytypicallydierromminoritydealsinthatthesizeotheinvestorstaketendstopushtheindemnitytermsclosertothoseoundinbuyoutsorstrategicacquisitiontransactions. 2ProcessTedatainthisStudywerederivedromthedenitiveinvestmentagreementsortransactionsclosedbyourrmandmeetingtheeligibilitycriteriaorthisStudy.Teagreementswereanalyzedbyattorneysatourrmandthereviewoeachagreementwasqualitycheckedbyasecondattorneyreviewer.Acommitteeolawyersresolvedalldiscrepanciesinthedataandcompletedanalqualitycontrolreview.DealSampleTe66dealsinthisStudyallinvolvedlawyersatourrmrepresentingclientsoourrmandnecessarilyreectthenegotiatingperspectivesandbiasesotheselawyersandclients.HoweverbecausewerepresentedtheinvestorinsomedealsandthetargetcompanyinothersandbecauseintheaggregatethedealsinthisStudyinvolveddozensodierentinvestorsanddozensoopposinglawrmswebelievetheresultingdataarerepresentativeoasignicantportionothegrowthequitymarket.EquityversusEnterpriseValueMostacquisitionindemnitystudiesuseenterprisevaluei.e.equityvalueplusindebtednessandcashastherelevantcompanyvaluemetricorpurposesocalculatingindemnitycapsandbasketsasapercentageocompanyvalue.Howevergiventhenatureoaminoritygrowthequitydealitisotendifculttoaccuratelydetermineromtheinvestmentdocumentswhattheenterprisevalueothetargetcompanywasatthetimeoinvestment.AccordinglywhencalculatingcapsandbasketsasapercentageocompanyvalueinthisStudyweinsteadusedequityvaluewhichweconsiderareasonableproxytocompareagainstpercentagesoenterprisevaluereportedoracquisitiontransactions.ABAStudyComparisonsWecomparedseveraloourdealpointstothecorrespondingdatainthe2011PrivateargetMergersAcquisitionsDealPointsStudypublishedbytheAmericanBarAssociationtheABAStudy.WeendeavoredineachcaseexceptasspecicallynotedhereintomatchourmethodologytothatotheABAStudy.Notethatwecomparedourdataonlytothedatareportedor2010dealsintheABAStudyandnottoanyprioryears.DataPresentationAllmonetarydataarereportedinU.S.dollars.InvestmentsinvolvingoreigncurrencieswereconvertedintoU.S.dollarsbasedontheprevailingexchangerateontherelevantclosingdate.Tepercentagesinsomeothechartsdonotaddto100duetorounding.mEthodoloGynotES 3uTisStudyvalidatedourinitialhypothesisthatindemnitycapsasapercentageoinvestmentamountwouldbesignicantlyhigheronaveragethanindemnitycapsasapercentageocompanyvalueintheacquisitioncontext.Forexample69othedealsinourStudythatincludedanindemnicationcaphadcapsgreaterthan15otheinvestmentamountwith36odealswithcapshavingcapsequaltotheullinvestmentamount.Bycontrastonly27odealsintheABAStudyhadcapsinexcesso15othepurchasepricewithonly9havingacapequaltothepurchaseprice.Inourexperiencethesedataresultfromthefactthatmostgrowthequityinvestorsviewacquisitionindemnitypercentagesasinappositewhenappliedtotheinvestmentamountinagrowthequitydealbecausetheydonotrelatetheriskoflosstothesizeofthecompany.uWeanalyzedthecorrelationbetweenreceiptoproceedsandresponsibilityorpaymentoindemnicationclaimsandoundthestrongcorrelationweanticipatedIndealsinwhichallotheproceedswerereceivedbyshareholders86othetimetheshareholderswereresponsibleortheindemnityeitherexclusively57ortogetherwiththecompany29.Indealsinwhichallotheproceedswereretainedbythecompanyorcorporateusesthecompanywasexclusivelyresponsibleorpaymentoindemnicationclaims71othetime.Indealsinwhichportionsotheproceedswerereceivedbyshareholdersandretainedbythecompanyorcorporateusesthecompanyandshareholderssharedresponsibilityorpaymentoindemnicationclaims57othetime.uAmeaningulpercentageodeals17includedanownershipadjustmentinavorotheinvestorasanindemnicationremedyeitherinsteadocashorasanalternativeremedyavailableattheelectionothecompanyortheinvestor.uIndealsinwhichthecompanyprovidedacashindemnity23expresslylimitedtheinvestorsindemnityrecoverytotheinvestorsproratashareotheapplicablelossbythecompany.Inapproximately63othosedealstheinvestornegotiatedoragross-upotheindemnitypaymenttoaccountortheactthataportionoeachdollarpaidbythetargettotheinvestorisinefectundedbytheinvestorbyvirtueoitsownershipinterest.u35odealsinourStudydidnotplacealimitonthesurvivalperiodorepresentationsandwarrantiesand41didnotincludeanyindemnicationcap.uWestudiedanumberointernationaldealsandoundthemtobeverysimilartoU.S.dealsonmostdatapoints.Wenotedaewrespectshoweverinwhichtheinternationaldealstendedtodifer.SeeInternationalakeawaysPage20.kEytakEawayS 4ThisStudyanalyzedinvestmentagreementsortransactionscompletedrom2008throughthefrsthalo2012.ThefnalStudysampleconsistedo66investmentagreements73owhichinvolvedU.S.targetsand27owhichinvolvednon-U.S.targets.500000-10M1711M-25M2026M-50M2951M-100M18101M-250M10501M-1.3B3251M-500M315M-50M1051M-100M20101M-200M24201M-300M17301M-400M6501M-27B20401M-500M3EquityValuEoftarGEtinVEStmEntamountdEalSamPlEoVErViEwMeanMedianMinimumMaximum1.75billion181million15.9million27.6billionMeanMedianMinimumMaximum86.4million36.0million0.6million1.3billion 5SubsetDealsIncludingaCashIndemnityPartyrESPonSiblEforcaShindEmnityAscomparedtoventurecapitalinvestmentsandacquisitiontransactionstheabsenceofuniformityingrowthequityindemnitystructuresmakesthesedealsunique.indEmnityStructurE1Indemnityclaimsarepayableincash.2Indemnityclaimsaresatisfedbyincreasingtheinvestorsownershippercentagetocompensatetheinvestorortheimpactotheclaimonthevalueothecompany.CashIndemnity163Silent20CombinationCashIndemnityandConversionShareAdjustment13ConversionPriceShareAdjustment24Shareholders29Company33Combination38 6Aprincipalactorthatdrivesindemnifcationtermsingrowthequitydealsiswhoreceivestheproceeds.rEcEiPtofProcEEdS1Transactionsinwhichaportionoftheproceedsisreceivedbythecompanyandretainedforworkingcapitalorothercorporateuses.2Transactionsinwhichoneormoreshareholdersreceivedaportionoftheproceedswhetherthroughadirectsecondarysaleofsharestotheinvestoraredemptionoftheirsharesbythecompanyorreceiptofadividendordistribution.Shareholders221Combination46Company133 7corrElationSrEcEiPtofProcEEdStorESPonSibilityforindEmnificationShareholders57Shareholders24Combination29Combination29Company71Company19Company14Combination57IndealsinwhichallproceedswerereceivedbytheshareholderswhoprovidedacashindemnityIndealsinwhichproceedswerepartiallyretainedbythecompanyandpartiallydistributedtoshareholderswhoprovidedacashindemnityIndealsinwhichallproceedswereretainedbythecompanyforworkingcapitalorothercorporateuseswhoprovidedacashindemnity 8Combination44Company39Shareholders17Combination29Combination60Company20Shareholders20Shareholders57Company14IndealsinwhichtheshareholdersprovidedacashindemnitywhoreceivedtheproceedsIndealsinwhichboththecompanyandtheshareholdersprovidedacashindemnitywhoreceivedtheproceedsIndealsinwhichthecompanyprovidedacashindemnitywhoreceivedtheproceedscorrElationSrESPonSibilityforindEmnificationtorEcEiPtofProcEEdS 9SubsetDealsIncludingaCashIndemnityPaidbytheCompanyIntheeventthatindemnicationisclaimedbyanyInvestorIndemniedPartyunderSection6.2aiduetoanybreachorallegedbreachoanyrepresentationorwarrantymadebytheCompanyandtheStockholdersandtheLossesclaimedbysuchInvestorIndemniedPartyrelatetoorariseoutoliabilitieslossesassessmentsjudgmentsTaxesnespenaltiesorotherdamagespaidorsuferedbytheCompanyindirectout-o-pocketexpendituresinconnectionwithsuchbreachorallegedbreachanysuchout-o-pocketexpendituresCompanyLossestheamountoindemniableLossesthatmaybesoughtbytheInvestorIndemniedPartiesrelatingtheretoshallbelimitedtoandshallnotexceedanamountequaltothequotiento1theamountosuchCompanyLossesmultipliedby301dividedby270.21EqualtotheinvestorsprorataownershipoftheCompany.2EqualtooneminustheinvestorsprorataownershipoftheCompany.indEmnityPaymEntGroSS-uPSSilent37Yes63Yes14No86IfthecompanyprovidesacashindemnityistheinvestorsrecoveryexpresslylimitedtoitsproratashareIndealswheretheinvestorsrecoveryisexpresslylimitedtoitsproratashareisthereagross-upSampleProvision 10ExpressSurvivalwithNoTimeLimitationTerepresentationsandwarrantiesoftheCompanyandtheInvestorscontainedinormadepursuanttothisAgreementshallsurvivetheexecutionanddeliveryofthisAgreementandtheClosing.ExpressSurvivalwithTimeLimitationAlloftherepresentationsandwarrantiescontainedinthisAgreementshallcontinueuntiltheeighteen18monthanniversaryoftheClosingsucheighteen18monthsarereferredtoastheperiodofsurvivalexceptfortherepresentationsandwarrantiescontainedinSection2.1OrganizationandCorporatePowerSection2.2aAuthoritySection2.4CapitalizationandSection2.12axMatterswhichineachcaseshallcontinueuntilsixty60daysfollowingtheexpirationoftheapplicablestatuteoflimitationsincludinganyextensionstheretoSurViValtimEtoaSSErtclaimSSurvivalPeriod11Teseperiodsapplytomostrepresentationsandwarranties.Certainrepresentationsandwarrantiesmaybecarvedoutromtheseperiodsinordertosurviveorotherspeciedperiods.2Reerstodealsinwhichthesurvivalperiodwastiedtothedeliveryoauditednancialstatementsothetargetcompanyoroneormoreauditcycles.3Includesorexampledealsthatprovideorsurvivaluntiltheconsummationoaqualiedinitialpublicoferingorsaleothecompany.SilentExpressNoSurvivalExpressSurvivalNoTimeLimitLessthan12months12months12to18months18months24monthsGreaterthan24monthsAuditCycle2Other3531302311252141234312841514GoodwinProcterStudyABAStudySampleProvisions 11Weanalyzedthe35ofdealsthatdidnotincludealimitonthesurvivalperiodoftherepresentationsandwarrantiestodetermine1weretheyconcentratedwithinacertainbandofequityvaluesofthetargetcompanyand2whoreceivedtheproceedsinthosedeals.15M-50M2251M-100M26101M-200M22201M-300M9401M-500M4501M-27B17SPotliGhtdEalSwithnoSurViValPEriodlimitSCompany48Combination43Shareholders9ReceiptofProceedsEquityValueoftheTargetCompany 12DeductibleCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds300000theDeductibleinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleonlyorLossesexceedingtheDeductible.FirstDollarCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds500000theTresholdinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleortheaggregateamountoallLossesregardlessotheTreshold.CombinationCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesorLossesuntiltheaggregateamountoallsuchLossesexceeds500000theTresholdinwhicheventtheCompanyIndemnifedPartiesshallberesponsibleonlyorLossesinexcesso300000theDeductible.SubsetDealswithSurvivalProvisionsbaSkEtStyPEbaSkEtSFirstDollar35Deductible19NoBasket41FirstDollar31NoBasket5Combination5Combination5Deductible59SampleProvisionsGoodwinProcterStudyABAStudy 13baSkEtSaSofEquityValuE11NotethattheABAStudydatapresentedhererepresentpercentagesofacquisitiontransactionvaluesforcomparisonwithourdatabasedonpercentagesofequityvalues.SubsetDealswithBasketsbaSkEtSaSofEquityValuEStatiSticalSummary21-20.5-10.5orless3031213478241GoodwinProcterStudyABAStudyBasketTypeMeanMedianMinimum0MaximumDeductible0.6380.3200.0845.080FirstDollar0.3380.2000.0021.090AllBasketsotherthanCombination0.4500.230----SubsetDealswithBaskets 14baSkEtSaSofinVEStmEntamountStatiSticalSummarySubsetDealswithBasketsbaSkEtSaSofinVEStmEntamount11NotethattheABAStudydatapresentedhererepresentpercentagesofacquisitiontransactionvaluesforcomparisonwithourdatabasedonpercentagesofinvestmentamounts.21-210.5-10.5orless130291232411601147GoodwinProcterStudyABAStudyBasketTypeMeanMedianMinimum0MaximumDeductible1.7471.0000.55610.930FirstDollar2.4831.0000.13526.590AllBasketsotherthanCombination2.2101.000----SubsetDealswithBaskets 15SubsetDealswithBasketsEliGiblEclaimthrESholdSNoEligibleClaimThreshold79IncludesEligibleClaimThreshold21IncludesEligibleClaimThreshold17NoEligibleClaimThreshold83GoodwinProcterStudyABAStudyCompanyIndemnifedPartiesshallnotberequiredtoindemniyInvestorIndemnifedPartiesoranyindividualitemwheretheLossrelatingtosuchclaimorseriesoclaimsarisingromthesameorsubstantiallysimilaractsorcircumstancesislessthan15000.SampleProvision 16caPS11Capsgenerallyapplicabletocontractualindemnicationobligationsdoesnottakeintoaccountdiferentcapsorspecicitems.Yes-LessThanPurchasePrice79Silent7Yes-ButNotDeterminable7Yes-EqualtoPurchasePrice7Yes-LessThanInvestmentAmount39Silent41Yes-EqualtoInvestmentAmount20GoodwinProcterStudyABAStudySubsetDealswithSurvivalProvisions 17caPSaSofinVEStmEntamount11NotethattheABAStudydatapresentedhererepresentpercentagesoacquisitiontransactionvaluesorcomparisonwithourdatabasedonpercentagesoinvestmentamounts.2Excludesthreedealswhichcontaineddiferentcapsorthetargetcompanyandtheshareholders.caPSaSofEquityValuE11NotethattheABAStudydatapresentedhererepresentpercentagesoacquisitiontransactionvaluesorcomparisonwithourdatabasedonpercentagesoequityvalues.2Excludesthreedealswhichcontaineddiferentcapsorthetargetcompanyandtheshareholders.101010-1515-2525-5050-10010061409001148173147243GoodwinProcterStudyABAStudy101010-1515-2525-5050-10010019143693011414173141443GoodwinProcterStudyABAStudySubsetDealswithDeterminableCaps2SubsetDealswithDeterminableCaps2MeanMedianMinimum0Maximum10.175.700.2446.50MeanMedianMinimum0Maximum48.7525.665.34100 18Weanalyzedthe36ofdealswithcapsthatwereequaltothefullinvestmentamounttodetermine1weretheyconcentratedwithinacertainbandofequityvaluesofthetargetcompanyand2whoreceivedtheproceedsinthosedeals.15M-50M851M-100M38101M-200M8201M-300M15301M-400M23501M-27B8SPotliGhtdEalSwithcaPSEqualtothEfullinVEStmEntamountCompany48Combination45Shareholders7ReceiptofProceedsEquityValueoftheTargetCompany 19EScrowaSofEquityValuEEScrowSholdbackSSubsetDealswithEscrowsHoldbacksSubsetDealswithSurvivalProvisionsYes-EscrowHoldback9No-EscrowHoldback91Yes-EscrowHoldback86No-EscrowHoldback140-22-55176717GoodwinProcterStudyABAStudyEScrowaSofinVEStmEntamountSubsetDealswithEscrowsHoldbacks0-55-1010-151517171750MeanMedianMinimum0Maximum3.563.740.865.71MeanMedianMinimum0Maximum9.208.332.6317.14 20intErnationaltakEawaySEligibleClaimThresholdsEscrowsHoldbacksCapsNo50Yes50No96Yes4Yes-EqualtoInvestmentAmount15Yes-LessthanInvestmentAmount35No17No50Yes-LessthanInvestmentAmount50Yes-EqualtoInvestmentAmount33No87Yes13No100U.S.TargetsNon-U.S.TargetsU.S.TargetsNon-U.S.TargetsU.S.TargetsNon-U.S.Targets AboutGrowthEquityPracticeGoodwinProctersindustry-leadingGrowthEquityPracticeoersablendosectorandstageexperienceorcompaniesandinvestors.Withthedynamicchangesaectingthecreditmarketsinrecentyearsinvestingactivityhasincreasinglyshitedtowardthegrowthequitysectorcapitalinusionsthatarelessreliantonleverageandthattendtostraddleaspectsobuyoutsandventurecapital.AsaresultoextensiveexperienceoverseveraldecadesGoodwinProcterisuniquelypositionedtoserveinvestorsandcompaniesinthisvariableandgrowingsector.Ourexperiencespanstheentirebreadthogrowthequitytransactionsincludingpass-throughsandlatestageliquidityeventsprimariesdirectsecondariesprivatetenderoersdividendrecapsandredemptionsacrossavarietyoindustriesandglobaljurisdictions.Moreexpertathandlingcomplexlarge-scaletransactionsthantypicalventurecapitallawrmsandmoreadeptatworkinginentrepreneurialgrowthsituationsthanbuyoutlawrmsGoodwinProcteroersuniqueexpertiseinthegrowthequitysector.GoodwinProcterisconsistentlynamedamongthenationstoplawrmsintheprivateequityandventurecapitalsectorsbyavarietyoleadingindustrypublicationsincludingPrivateEquityAnalystBuyoutsMagazineVentureSourceChambersUSAU.S.News-BestLawyersandLegal500.WeareoneothemostactivelawrmsintheUnitedStateshavinghandledover1600privateequitygrowthequityandventurecapitaltransactionsoverthepasttwoyears.AboutGoodwinProcterGoodwinProcterLLPisoneothenationsleadinglawrmswithofcesinBostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyandWashingtonD.C.TermprovidescorporatelawandlitigationserviceswithaocusonmattersinvolvingprivateequitytechnologycompaniesrealestateREIsandrealestatecapitalmarketsnancialinstitutionsintellectualpropertyproductsliabilityandmasstortsandsecuritieslitigationandwhitecollardeense.Formoreinormationvisitwww.goodwinprocter.com.FollowusonwitterGoodwinProcter. 22BostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyWashingtonDCwww.goodwinprocter.com2013GoodwinProcterLLP.Allrightsreserved.Thisinormationalpiecewhichmaybeconsideredadvertisingundertheethicalrulesocertainjurisdic-tionsisprovidedwiththeunderstandingthatitdoesnotconstitutetherenderingolegaladviceorotherproessionaladvicebyGoodwinProcterLLPGoodwinProcterUKLLPortheirattorneys.Priorresultsdonotguaranteesimilaroutcome.GoodwinProcterLLPisalimitedliabilitypartnershipwhichoperatesintheUnitedStatesandhasaprincipallawofcelocatedat53StateStreetBostonMA02109.GoodwinProcterUKLLPisaseparatelimitedliabilitypartnershipregisteredinEnglandandWaleswithregisterednumberOC362294.ItsregisteredofceisatTower4225OldBroadStreetLondonEC2N1HQ.AlistothenamesothemembersoGoodwinProcterUKLLPisavailableorinspectionattheregisteredofce.GoodwinProcterUKLLPisauthorizedandregulatedbytheSolicitorsRegulationAuthority.