2016 SRS Acquiom

M&A Deal Terms
Study

An analysis of deal terms in private-target
M&A transactions that closed in 2012–2015

March 2016
Please direct inquiries to: dts@srsacquiom.com

© 2016 SRS Acquiom Inc. All rights reserved.

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© 2016 SRS Acquiom Inc. All rights reserved. Slide 2

About this Study and the Data

> This study analyzes 735 private-target acquisitions ($137 billion) that closed in 2012
through 2015 in which SRS Acquiom provided professional and financial services. The vast
majority of these deals are not required to be publicly reported. Data is presented on a
calendar-year basis and is tied to the deal closing date. Medians are presented rather than
averages to eliminate distortion from outliers. Data on deals that closed in 2012–2013 may
differ from data on such deals published in prior studies because we have restated it to
include deals in which we have been engaged since publication. Sample sizes are larger in
more recent years as a result of our growth.

> Unique Data Points:
- Transaction values as multiples of equity capital invested
- Years from founding to exit
- Management carveout frequency and size
- Termination fees
- Correlations among deal terms such as:
- Buyer type (public, private, financial, foreign)
- Transaction values
- Multiples of return
- Number of equity investment rounds
- Indemnification terms

© 2016 SRS Acquiom Inc. All rights reserved. Slide 3

All rights reserved.Representative Deals © 2016 SRS Acquiom Inc. Slide 4 .

.................................... 58 Post-Closing Purchase Price Adjustments ........... 96 > Closing Conditions .... 14 Materiality Scrape ........ 70 > Pervasive Qualifiers .. Waivers ........... 50 Transaction Values ........................................................................................................ 79 Knowledge Standards ................................................ 59 Baskets .................Table of Contents > Key Findings..... 9 Buyer Types ............................................................... 11 “Sandbagging” ...................................................... 55 Management Carveouts.............. 86 “Non-Reliance” Reps .............................................................. 38 Covenants ............................. 33 Alternative Dispute Resolution ...... 26 Escrows/Holdbacks ............................................ 53 Exit Timing ........................... 36 > Termination Fees ............................. Warranties........................................................................ 42 Accuracy of Seller’s Representations .......................................................................................................... 48 Legal Opinions (Non-Tax) ........................................................................... 12 Types of Losses Covered ........................................... 75 Definition of Material Adverse Effect ......................................................... 35 “Compliance with Laws” Representation ...... 52 Transaction Values as Multiples of Return on Equity Capital Invested ........ 9 > Indemnification....................................................... 22 Survival/Time to Assert Claims .................................................................... 10 Stand-Alone Indemnities ...................... 54 Closing Consideration Trends.................................... 82 “No Undisclosed Liabilities” Representation . 6 No Legal Proceedings Challenging the Transaction ................................... 49 > Financial Provisions .................. 47 © 2016 SRS Acquiom Inc........... 27 Indemnification as Exclusive Remedy .............................................................................. 32 > Dispute Resolution . 80 > Seller’s Representations... 84 “10b-5” and “Full Disclosure” Representations .............................................................................. 39 > Glossary ................ 17 Earn-outs (Non-Life Sciences) ................................................................................................................................................................................................................................................. 43 “Material Adverse Change” Condition .......... 8 Appraisal Rights .............................................................. Slide 5 ...................................................................................................................... 64 Caps .............. 36 “No Other Representations” and > Correlations ......................................................................... 81 and Covenants ................. 56 Treatment of Options (Non-Life Sciences)......................... All rights reserved.............................. 16 Reductions Against Buyer’s Indemnification Claims......

> Indemnification terms: . Deductible basket sizes are trending larger: the median was 0. The median general survival period for representations and warranties is 18 months. Slide 6 . down from 89% of such deals in 2013 (slide 15). having risen from 0. However. however. Its effect on caps is less pronounced (slide 73). consistent with past years (slide 59). * Provided by S&P Capital IQ™ and other databases.Key Findings (1 of 2) > Financial terms: . The median basket size across all baskets in 2015 was 0.61% in 2013 (slide 65). This compares to a median of 8 years in 2013 and 7 years in 2012. © 2016 SRS Acquiom Inc. All rights reserved. deals valued at $50 million or less tend to have larger escrows as a percentage of transaction value than deals exceeding $50 million (slide 94). The median amount of equity capital invested* remained largely flat at $24 million in 2015 ($23 million in 2013). Audax. . .0% of transaction value since 2013 (slide 76). . may be causing parties to forego indefinite survival for certain representations and warranties (slide 62). The median general escrow size has remained at 10. . The median time from founding to exit increased to 9 years in 2015 (slide 11). However. the median number of equity financing rounds at exit decreased from 3 to 2 over the same period (slide 11).71% of transaction value in 2015.56% (slide 66).0% of transaction value (slide 14). 65% of 2015 deals in which transaction value didn’t exceed equity capital invested had a management carveout. The median management carveout in 2015 increased to 10. Cigna v. decided in Delaware in late 2014.

has gradually eased for Sellers since 2013 (slide 43). > Dispute resolution: . Slide 7 . as a condition to closing.Key Findings (2 of 2) > Closing conditions: . . . All rights reserved. from 68% in 2011 (slide 49). Over a quarter of deals in 2015 shifted arbitration rules away from JAMS and AAA to other forums (slide 83). Satisfaction of the “Appraisal Rights” closing condition has shifted largely toward requiring only a minimum percentage of shareholders to vote for the deal—from 16% of deals in 2013 to 40% of deals in 2015 (slide 50). Conflict waivers allowing the Seller’s law firm to represent the Seller’s former shareholders post- closing are now included in over half of deals (slide 81). The timing of the “bring down” of Seller’s representations and warranties. The need to obtain a legal opinion from Seller’s counsel as a condition to closing has declined dramatically to 15% of deals in 2015. © 2016 SRS Acquiom Inc. .

Slide 8 . All rights reserved.Financial Terms and Provisions © 2016 SRS Acquiom Inc.

© 2016 SRS Acquiom Inc. 23% Financial 11% >$100MM U. Slide 9 .S. All rights reserved.Transaction Values* and Buyer Types Subset: 2012–2015 deals Transaction values Buyer types Foreign (public or More than private) $750MM 12% >$250MM 2% to $750MM $25MM or 13% less U. Public to $250MM 55% 22% >$25MM to $50MM U.S.S. 19% Private 22% >$50MM to $100MM 20% * “Transaction values” includes escrowed amounts but does not include potential earnout consideration.

Transaction Values* as Multiples of Equity Capital Invested** 2015 Deals 30 27 Multiples of return on equity capital invested 24 21 18 15 12 9 Average return: 6. © 2016 SRS Acquiom Inc. All rights reserved.9x 6 Median return: 3. ** Provided by S&P Capital IQ™ and other databases.9x 3 0 Deal by deal * Transaction values include escrowed amounts but do not include potential earnout consideration. Slide 10 .

All rights reserved. Slide 11 . © 2016 SRS Acquiom Inc.Exit Timing 2015 Deals Cumulative % of deal set % of deal set 12% 100% Cumulative % of deal set (gray) 10% % of deal set (blue) 75% 8% 6% 50% 4% 25% 2% 0% 0% 0 2 4 6 8 10 12 14 16 18 20 22 24 Years from founding to exit Years to exit Equity financing rounds at exit Equity capital invested* Median: 9 Median: 2 Median: $24MM Average: 10 Average: 3 Average: $38MM * Provided by S&P Capital IQ™ and other databases.

Slide 12 . All rights reserved.Closing Consideration Trends Consideration type All cash All stock Cash/stock combo 13% 15% 16% 21% 2% 85% 6% 5% 4% 79% 79% 75% 2012 2013 2014 2015 © 2016 SRS Acquiom Inc.

All rights reserved.00% 0% 0 2012 2013 2014 2015 2012 2013 2014 2015 * The Long-term Real Rate (Average) is the unweighted average of bid real yields on all outstanding TIPS with remaining maturities of more than 10 years and is intended as a proxy for long-term real rates.81% 4.85% 85% 0. Slide 13 . © 2016 SRS Acquiom Inc.000 85% 0.000 0.966 2. Nasdaq average closing price All-cash deals Long-term Real Rate (average) All-cash deals Nasdaq (IXIC) average closing price 100% 1. Data provided by US Treasury.66% 3.22% 1.375 75% 4.946 79% 79% 79% 5.000 25% 0.75% 75% 75% 4.000 2.25% 25% 0.00% 100% 6.000 0% 0.50% 50% 3. long-term interest rates* All-cash deals vs.541 50% 0.Closing Consideration Trends All-cash deals vs.000 75% 79% 0.

0% 10. “Transaction value” includes escrowed amounts but does not include potential earnout consideration. © 2016 SRS Acquiom Inc.0% 10% 9.3% 21% 21% 21% 18% 8% 20% 17% 6% 6. disregarding consideration received by Seller management in respect of equity ownership (if any).0% 10.2% 8. Slide 14 .8% 10% 4% 2% 0% 0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 * Measures size of carveout only. Deals including a management carveout Median size as a percentage of transaction value* 40% 14% 12% 30% 27% 10. All rights reserved.Management Carveouts: Frequency and Size A “management carveout” in this study is a portion of deal proceeds guaranteed to Seller’s management when management would otherwise receive little or nothing for their equity ownership due to liquidation preferences. Transaction bonuses. which often differ materially from management carveouts in size and timing of adoption. are not included below.

Management Carveouts: Frequency and Size
A “management carveout” in this study is a portion of deal proceeds guaranteed to Seller’s management
when management would otherwise receive little or nothing for their equity ownership due to liquidation
preferences. Transaction bonuses, which often differ materially from management carveouts in size and
timing of adoption, are not included below.

Deals including a management carveout Carveout sizes* as % of transaction value** (2015)

2015 2013 Each point is a deal
25%

89%
20%
management carveout

Carveout size
Deals including a

65%
15%

41% 10%
34%

5%

0% 0%
0%
<1x 1–3x >3x 0 1 2 3
Transaction value as return on equity capital Transaction value as return on equity capital
invested*** invested***

* Measures size of carveout only, disregarding consideration received by Seller management in respect of equity ownership.
** “Transaction value” includes escrowed amounts but does not include potential earnout consideration.
*** Equity capital data provided by S&P Capital IQ™ and other databases.

© 2016 SRS Acquiom Inc. All rights reserved. Slide 15

Treatment of Options:
Contribution, Acceleration and Assumption
Subset: Non-life sciences deals*

Contribution and acceleration** Assumption of options by Buyer

Full acceleration of vesting Options assumed Options not assumed
Optionholders contribute to escrow
73% 72% 78% 74%
100%

71%
75% 66% 66%

54%

50%

44% 45%
37% 37%
25% 27% 28% 26%
23%

0%
2012 2013 2014 2015 2012 2013 2014 2015

* For a detailed analysis of SRS Acquiom's life sciences deals, please see the 2015 SRS Acquiom Life Sciences M&A Update.
** Excludes deals where option-holders received no consideration.

© 2016 SRS Acquiom Inc. All rights reserved. Slide 16

Post-Closing Purchase Price Adjustments

Example adjustment provision

“The ‘Adjustment Amount’ (which may be a positive or negative number) will be
equal to the amount determined by subtracting the Closing Working Capital from the
Initial Working Capital. If the Adjustment Amount is positive, the Adjustment Amount
shall be paid by wire transfer by Seller to an account specified by Buyer. If the
Adjustment Amount is negative, the difference between the Closing Working Capital
and the Initial Working Capital shall be paid by wire transfer by Buyer to an account
specified by Seller.”

“‘Working Capital’ as of a given date shall mean the amount calculated by
subtracting the current liabilities of Seller as of that date from the current assets of
Seller as of that date. The Working Capital of Seller as of the date of the Balance
Sheet (the ‘Initial Working Capital’) shall be deemed Two Million Dollars
($2,000,000).”

© 2016 SRS Acquiom Inc. All rights reserved. Slide 17

Slide 18 .Post-Closing Purchase Price Adjustments Adjustment provision included Adjustment metrics* Included in indemnification section of agreement 2015 2014 Included in consideration mechanics section of agreement 100% 79% Working capital 78% 52% Cash 75% 15% 9% 15% 43% 15% 72% 66% 63% 64% Debt 53% 59% 50% 25% Other** 36% 25% 9% Net assets (liabilities) 9% 1% Earnings 0% 0% 2012 2013 2014 2015 * 73% of post-closing purchase price adjustments in 2015 deals were based on more than one metric. All rights reserved. © 2016 SRS Acquiom Inc. ** Does not include post-closing adjustments for transaction expenses.

” No 45% Yes 55% © 2016 SRS Acquiom Inc. Slide 19 . All rights reserved. provided.Post-Closing Purchase Price Adjustments: Working Capital Excludes Tax-Related Items Subset: 2015 deals with a Working Capital adjustment Tax exclusion example Adjustment excludes tax-related items “’Adjusted Working Capital’ means current assets minus current liabilities. that ‘Adjusted Working Capital’ excludes from current assets all [deferred] tax assets and excludes from current liabilities all [deferred] tax liabilities. however.

Post-Closing Purchase Price Adjustments: Methodology for Preparation of Closing Balance Sheet Subset: Deals with post-closing purchase price adjustments 2013 2014 2015 71% 70% 66% 20% 19% 14% 11% 9% 6% 7% 3% 3% GAAP GAAP consistent with past Other* Silent practices * “Other” methodology most commonly used was GAAP as modified by the principles and changes set forth on a schedule. All rights reserved. Slide 20 . © 2016 SRS Acquiom Inc.

Slide 21 . © 2016 SRS Acquiom Inc. payment out-of-pocket from securityholders. All rights reserved.Post-Closing Purchase Price Adjustments: Thresholds and Separate Escrows Subset: 2015 deals with post-closing purchase price adjustments Adjustment only if threshold exceeded Source of payment if buyer-favorable adjustment Payment Yes not from 13% indemnity escrow* 7% No Payment Separate from separate escrow indemnity escrow 27% escrow 73% 93% No 87% * Generally.

such as revenue and earnings. please see the 2015 SRS Acquiom Life Sciences M&A Update. product launches. Slide 22 . divestiture of assets.Earnouts (Non-Life Sciences*) Earnout included Earnout metrics** 25% 2015 2014 2013 19% 20% 70% 14% Revenue 62% 15% 13% 12% 67% 10% 35% 5% Earnings/EBITDA 22% 27% 0% 2012 2013 2014 2015 Earnouts are much more common in SRS Acquiom's life 13% sciences deals than other types of deals Other*** 22% > 71% of biopharmaceutical deals in 2012–2015 27% > 68% of medical device deals in 2012–2015 > 15% of all other deals in 2012–2015 * For a more detailed analysis of SRS Acquiom's life sciences deals. *** Examples: unit sales. ** Earnouts can include more than one metric. © 2016 SRS Acquiom Inc. All rights reserved.

please see the 2015 SRS Acquiom Life Sciences M&A Update. *** Measured by the date the latest earnout period ends. © 2016 SRS Acquiom Inc. ** Calculated as the sum of potential earnout payments over the amount paid at closing (including escrowed amounts). Slide 23 .Earnouts (Non-Life Sciences*) Median earnout potential as % of closing payment** Earnout length*** (2015 median: 24 months) 70% 2015 2014 60% 26% 53% 1 year or less 22% 50% 46% 47% >1 to 2 years 33% 40% 5% >2 to 3 years 33% 30% 33% 0% >3 to 4 years 8% 20% 25% 21% >4 to 5 years 10% 3% 0% >5 years 0% 0% 2012 2013 2014 2015 * For a more detailed analysis of SRS Acquiom's life sciences deals. All rights reserved.

Acceleration and Offsets Subset: 2015 deals with earnouts. ** Generally subject to exceptions. such as if the subsequent buyer assumes the earnout obligations. © 2016 SRS Acquiom Inc. please see the 2015 SRS Acquiom Life Sciences M&A Update. excluding life sciences deals Silent 18% Express no 6% Not included 76% Not included Not included 95% 100% Express yes 76% Included Included 5% 24% 0% Covenant to run business in Covenant to run business to Earn-out accelerates (fully or Buyer can offset indemnity accordance with Seller's past maximize earn-out payments partially) on change in control claims against future earn-out practices of earn-out assets** payments * For a more detailed analysis of SRS Acquiom's life sciences deals. Slide 24 .Earnouts (Non-Life Sciences*): Covenants. All rights reserved.

© 2016 SRS Acquiom Inc. shall not represent an ownership interest in Buyer or the Business and shall not entitle Seller to any rights common to any holder of any equity security of Buyer.” * For a more detailed analysis of SRS Acquiom's life sciences deals. excluding life sciences deals “Earnout is not a security” provision included Disclaimer of fiduciary relationship 100% Included 18% 75% 50% 27% 25% 11% 11% 7% Not included 0% 82% 2012 2013 2014 2015 Example provision intended to ensure earnout Example disclaimer of fiduciary relationship is not treated as a security “Nothing in this Agreement creates a fiduciary duty “The right of Seller to a portion of the Earnout on the part of Buyer to Seller in respect of the Amount. All rights reserved.Earnouts (Non-Life Sciences*): Additional Provisions Subset: Deals with earnouts. please see the 2015 SRS Acquiom Life Sciences M&A Update. Slide 25 . if any. shall not be represented by a Earnout.” certificate or other instrument.

Pervasive Qualifiers © 2016 SRS Acquiom Inc. Slide 26 . All rights reserved.

fact. All rights reserved. liabilities. occurrence. condition (financial or other). Slide 27 . capitalization. © 2016 SRS Acquiom Inc. event or effect that has a materially adverse 76% 85% 89% 89% 87% 83% effect on the business.Definition of Material Adverse Effect: “Prospects” Included Subset: Deals with MAE defined* Example term Use of “prospects” “’Material Adverse Effect’ means any Included Not included result. or results of operations of Seller. prospects. assets. change.” 24% 15% 17% 11% 11% 13% 2010 2011 2012 2013 2014 2015 * “Material Adverse Effect” or “Material Adverse Change” was defined in 95% of deals.

All rights reserved. event or effect that has. occurrence. Slide 28 . ** Definitions in the “Other” category used a combination of “could” and “would” or some other forward-looking standard.Definition of Material Adverse Effect: Forward-Looking Language Subset: 2015 deals with an MAE definition that included forward-looking language Example term Forward-looking MAE details “‘Material Adverse Effect’ means any result. condition (financial or other). a materially 20% adverse effect on the business. but forward-looking language was predominantly used in conjunction with the use of the defined term in the body of the agreement. change. results of operations or prospects of Seller. fact. capitalization. or Other** 13% "Could be" could reasonably be expected to have. © 2016 SRS Acquiom Inc.” 87% of 2015 deals had forward-looking language* "Would be" 67% * Includes deals where the MAE definition did not include forward-looking language. assets. liabilities.

Slide 29 . (D) any changes in applicable laws or accounting rules or principles. (C) acts of war. including changes in GAAP. . or international 6% economic conditions.” Definition includes carveouts 94% © 2016 SRS Acquiom Inc. . sabotage or terrorism. (B) changes affecting generally the industries or markets in which Company operates. (E) any other action required by this Agreement. domestic.Definition of Material Adverse Effect: Carveouts Subset: 2015 deals with MAE defined Example term Deals with carveouts “‘Material Adverse Effect’ means any change . All rights reserved. except to the extent resulting from (A) changes in No carveouts general local. foreign. military actions or the escalation thereof. or (F) the announcement of the Transactions.

Definition of Material Adverse Effect: Carveouts Subset: MAE definition has carveouts Carveout frequency 2013 2014 2015 97% 95% 96% 85% 87% 85% 88% 86% 89% 86%85% 87% 83% 78% 79% 79% 67% 68% 66% 64% 60% 54% 56% 48% Actions required Announcement Changes in Changes in law Economic Financial market Industry War or terrorism by agreement of deal accounting conditions downturn conditions standards © 2016 SRS Acquiom Inc. Slide 30 . All rights reserved.

or action does not affect Seller in a substantially disproportionate manner). (E) any other action required by this Agreement. Slide 31 . domestic. No carveouts except to the extent resulting from (A) changes in qualified by general local. military actions or the escalation thereof. All rights reserved. (B) changes affecting effect generally the industries or markets in which 5% Company operates. or international disproportionate economic conditions. or (F) the announcement of the Transactions (provided that such event. . including changes in GAAP. . (C) acts of war. sabotage or terrorism.Definition of Material Adverse Effect: Carveouts Qualified by Disproportionate Effect Subset: 2015 deals with an MAE definition with carveouts Example term Disproportionate effect details “‘Material Adverse Effect’ means any change . (D) any changes in applicable laws or accounting rules or principles.” At least one carveout qualified by disproportionate effect 95% © 2016 SRS Acquiom Inc. foreign. change.

Slide 32 . All rights reserved. © 2016 SRS Acquiom Inc. e.” Constructive knowledge Constructive 81% “‘Knowledge’ means the actual knowledge of the directors and officers of Seller and the knowledge that such directors and officers would have after Subset: Constructive* reasonable or due inquiry. a due inquiry requirement as well as role-based deemed knowledge.Knowledge Standards Formulations Knowledge definition details (2015 deals) Not defined Actual Actual knowledge 4% 15% “‘Knowledge’ means the actual knowledge of the directors and officers of Seller.g.” Reasonable or due inquiry 89% Reasonable or due inquiry of 33% knowledgeable persons Role-based constructive 17% knowledge Other form of constructive 14% knowledge Other form of reasonable or 6% due inquiry "Constructive knowledge" not 0% defined (silent) * 42% of 2015 deals include more than one constructive knowledge element..

Seller’s Representations. Slide 33 . Warranties and Covenants © 2016 SRS Acquiom Inc. All rights reserved.

a Material Adverse Effect].” 2013 2014 2015 * 96% of 2015 deals included this rep. All rights reserved.” Seller-favorable formulation 2012 2013 2014 2015 “Seller has no liability of the nature required to be disclosed in a balance sheet prepared in Representation is knowledge-qualified accordance with GAAP [or which could not reasonably be expected to have.“No Undisclosed Liabilities” Representation* Examples Party favored by definition Buyer Seller Buyer-favorable formulation 39% 32% 43% 34% “Seller has no liability except for liabilities reflected or reserved against in the Balance Sheet or the 68% 66% Interim Balance Sheet and current liabilities 61% 57% incurred in Seller’s ordinary course of business since the date of the Interim Balance Sheet. Slide 34 . © 2016 SRS Acquiom Inc. except 6% for liabilities reflected or reserved against in the 5% 5% Balance Sheet or the Interim Balance Sheet and current liabilities incurred in Seller’s ordinary course of business since the date of the Interim Balance Sheet. individually or in the aggregate.

“Compliance with Laws” Representation* Example representation: “To the Seller’s knowledge. the Business has been and is being conducted in compliance with all applicable laws.” “Compliance with laws” representation details (2015 deals) 95% 83% 27% 7% Complete rep is knowledge Covers past and present Includes notice of investigation Includes notice of violation qualified compliance * 100% of 2015 deals included this rep. Slide 35 . All rights reserved. © 2016 SRS Acquiom Inc.

not misleading. All rights reserved. Both "10b- prospects.7(a) or otherwise in connection with the Contemplated "10b-5" rep Transactions contains any untrue statement or only* omits to state a material fact necessary to make any 41% of them. business. any supplement to the Disclosure Letter. the certificates delivered pursuant to Section 2. Slide 36 .“10b–5” and “Full Disclosure” Representations Example formulations Inclusion of reps (2015 deals) “10b–5” representation "Full disclosure" “No representation or warranty or other statement rep only made by Seller in this Agreement. the Disclosure 1% Letter. financial condition or results of 5" and "full operations of Seller that has not been set forth in disclosure" this Agreement or the Disclosure Letter. in light of the circumstances in which it was made. © 2016 SRS Acquiom Inc.” reps* 3% * Does not include reps that apply only to the shareholder information statement (and not the acquisition agreement).” Neither rep “Full disclosure” representation 55% “Seller does not have Knowledge of any fact that has specific application to Seller (other than general economic or industry conditions) and that may materially adversely affect the assets.

Slide 37 .“10b–5” and “Full Disclosure” Representations: Knowledge Qualifiers Subset: Deals in 2012–2015 Subset: “10b–5” rep only Subset: both “10b–5” and “full disclosure” reps Knowledge Only "full qualified disclosure" rep 18% knowledge qualified 28% Only "10b- 5" rep knowledge qualified 3% Neither rep Not knowledge Both reps knowledge qualified knowledge qualified 59% qualified 82% 10% © 2016 SRS Acquiom Inc. All rights reserved.

except as provided "No other reps" only in this Article III. Slide 38 . except for the representations and 31% warranties provided in this Article III.“No Other Representations” and “Non-Reliance” Reps Examples Inclusion of reps (2015 deals) No other representations “Buyer acknowledges that Seller has not made and is not making any representations or warranties whatsoever regarding the subject matter of this Agreement.” 26% Neither 39% Non-reliance "Non- “Buyer is not relying and has not relied on any reliance" only representations or warranties whatsoever regarding 4% the subject matter of this Agreement. express or Both implied. express or implied. All rights reserved.” © 2016 SRS Acquiom Inc.

All rights reserved. Slide 39 .Covenants: Seller’s Duty to Notify Buyer of Pre-Closing Breaches* Subset: 2015 deals Breaches of representations and warranties Breaches of covenants Seller permitted to update Buyer 3% No express No express duty to notify duty to notify Buyer Buyer 34% 24% Express duty Express duty to notify to notify Buyer Buyer 66% 73% * Sample excludes “sign-and-close” deals. © 2016 SRS Acquiom Inc.

. conversation. initiate. withdraw. facilitate or encourage the submission of. the Seller Board may withhold. after consultation with outside legal counsel. Seller shall not . . Slide 40 . that it is required to do so in order to comply with its fiduciary duties to the Selling Shareholders under applicable law. or furnish to any other Person any information with respect to.” © 2016 SRS Acquiom Inc. any proposal that constitutes. amend or modify its recommendation to the Selling Shareholders if it determines in good faith by resolution duly adopted. or otherwise cooperate in any way. (i) solicit. encourage or accept any proposal or offer that constitutes an Acquisition Proposal or (ii) participate in any discussion. . All rights reserved. or could reasonably be expected to lead to. assist or participate in.” Example fiduciary exception to the No-Shop/No-Talk covenant “Notwithstanding the foregoing . .Covenants: No-Shop/No-Talk Example No-Shop/No-Talk covenant “Between the date of this Agreement and the Closing Date. consider. an Acquisition Proposal. negotiation or other communication regarding.

Covenants: No-Shop/No-Talk* No-Shop/No-Talk covenant inclusion** (2015 deals) Covenant includes fiduciary exception 6% Covenant not Covenant No fiduciary included included exception 10% 90% 94% * Sample excludes “sign-and-close” deals. © 2016 SRS Acquiom Inc. Slide 41 . ** Fiduciary exception subset excludes stock-purchase deals. All rights reserved.

© 2016 SRS Acquiom Inc. All rights reserved.Closing Conditions* * This section’s analyses exclude “sign-and-close” deals. Slide 42 .

” At signing only At closing only Both © 2016 SRS Acquiom Inc.” At closing only “Each of the representations and warranties made by Seller in this Agreement shall have been accurate in all respects as of the Closing Date as if made on the Closing Date.Accuracy of Seller’s Representations (Timing): When Must They Be Accurate? Timing formulations Accuracy: Timing At signing only 2013 2014 2015 “Each of the representations and warranties made 83% by Seller in this Agreement shall have been 76%75% accurate in all respects as of the date made.” At signing and closing 23%25% 16% “Each of the representations and warranties made by Seller in this Agreement shall have been accurate in all respects as of the date made and as 1% 1% 0% of the Closing Date as if made on the Closing Date. All rights reserved. Slide 43 .

except for inaccuracies of representations or warranties the circumstances At signing At closing giving rise to which.” © 2016 SRS Acquiom Inc.” Accurate “in all material respects” 64% “Each of the representations and warranties made 63% by Seller in this Agreement shall have been accurate in all material respects as of the Closing Date as if made on the Closing Date. do not have and could not reasonably be expected to have a Material Adverse Effect. All rights reserved. Slide 44 .” MAE qualification “Each of the representations and warranties made by Seller in this Agreement shall be accurate in all 28% 31% respects as of the Closing Date as if made on the Closing Date. individually or in the aggregate.Accuracy of Seller’s Representations (Materiality): How Accurate Must They Be? Accuracy formulations Accuracy: Materiality (2015 deals) Accurate “in all respects” MAE "In all material respects" "In all respects" “Each of the representations and warranties made by Seller in this Agreement shall have been 9% 5% accurate in all respects as of the Closing Date as if made on the Closing Date.

except for inaccuracies of 70% representations or warranties the circumstances giving rise to which. Slide 45 .” 54% At signing At closing © 2016 SRS Acquiom Inc. 62% do not have and could not reasonably be expected to have a Material Adverse Effect.Accuracy of Seller’s Representations (Materiality): MAE Qualifier with Capitalization Representation Carveout Subset: Deals with MAE qualifiers in the “accuracy of reps” condition Example capitalization carveout Carveout applies “The representations and warranties set forth in 2013 2014 2015 Section 3. All rights reserved. Each of the other representations and 82% warranties made by Seller in this Agreement shall be accurate as of the Closing Date as if made on 75% 73% the Closing Date. individually or in the aggregate.3 (Capitalization) shall be accurate in all respects as of the Closing Date as if made on the Closing Date.

” Included as of signing Included as of closing © 2016 SRS Acquiom Inc. for purposes of determining the accuracy of such representations and warranties. except for inaccuracies of 87% 85% 85% 85% representations or warranties the circumstances giving rise to which. all materiality. individually or in the aggregate. All rights reserved.Accuracy of Seller’s Representations (Materiality): Materiality Scrape Subset: Deals with materiality or MAE qualifiers in the “accuracy of reps” condition Example materiality scrape Frequency “Each of the representations and warranties made 2013 2014 2015 by Seller in this Agreement shall be accurate in all respects as of the Closing Date as if made on the Closing Date. do not have and could not reasonably be expected 72% to have a Material Adverse Effect (it being 67% understood that. Slide 46 . “Material Adverse Effect” and similar qualifications contained in such representations and warranties shall be disregarded).

Slide 47 .” Stand- “Back-door” MAC alone condition only The Agreement includes an “Absence of Changes” 35% representation: > “Section 3. there has not been any Both Seller Material Adverse Change.6 Absence of Changes.” © 2016 SRS Acquiom Inc. (i) Since the Balance Sheet Date. All rights reserved. there has not been any Seller Material Adverse Change.“Material Adverse Change” Condition Condition MAC condition details (2015 deals) “Stand-alone” MAC Neither 3% “Since the date of this Agreement.” 52% and includes a condition “bringing down” the accuracy of Seller’s representations and warranties: Back-door condition > “The representations and warranties made by only Seller in this Agreement shall be true and 10% correct in all respects when made and at the Closing Date as if made on the Closing Date.

“No Legal Proceedings” Condition Example formulation 2015 Deals “There will not be pending [or threatened] any Governmental action.” 29% 71% Any legal proceeding 68% 2014 Deals Governmental legal proceedings only Not Condition 34% included included 18% 82% Any legal proceeding 64% © 2016 SRS Acquiom Inc. suit. or similar legal proceeding brought by legal any Governmental Entity [or any Person] proceedings only challenging or seeking to restrain or prohibit the Condition 32% Not consummation of the transactions contemplated included included herein. Slide 48 . All rights reserved.

Slide 49 .Legal Opinions (Non-Tax) from Seller’s Counsel Opinion required as a condition to closing Yes* No** 32% 51% 62% 70% 84% 68% 49% 38% 30% 16% 2011 2012 2013 2014 2015 * Includes opinions delivered pursuant to both stand-alone and “closing deliverables” conditions. ** Does not account for opinions that may have been required or delivered outside of the express terms of the agreement. © 2016 SRS Acquiom Inc. All rights reserved.

Appraisal Rights Condition Subset: Mergers Appraisal rights condition included Drafting details (2015 deals including condition) Yes* No Appraisal rights "not available" to 38% 42% 51% 40% percentage of Minimum shareholders shareholder 26% approval only* 40% 62% 60% 58% 49% Appraisal rights "not exercised" by percentage of shareholders 15% Appraisal rights "neither available to nor exercised by" percentage of shareholders 19% 2012 2013 2014 2015 * Includes deals without an express appraisal rights condition but with a condition specifying a minimum percentage of shareholder votes (on a fully-diluted basis) approving the merger. effectively waiving appraisal rights. Slide 50 . © 2016 SRS Acquiom Inc. All rights reserved.

Slide 51 . effectively waiving appraisal rights. but did include a condition specifying a minimum percentage of shareholder votes (on a fully diluted basis) approving the merger. All rights reserved.Appraisal Rights Condition: Thresholds Subset: Mergers since 2012 with an appraisal rights condition Condition threshold details Up to 3% >3% to 8% >8% to 10% More than 10% Appraisal rights "not available" to percentage of shareholders 15% 51% 24% 10% Appraisal rights "not exercised" 30% 53% 14% 3% by percentage of shareholders Appraisal rights "neither available to nor exercised by" 33% 48% 15% 5% percentage of shareholders Minimum shareholder approval 11% 38% 29% 22% only* * These deals did not include an express appraisal rights condition. © 2016 SRS Acquiom Inc.

All rights reserved.Indemnification © 2016 SRS Acquiom Inc. Slide 52 .

© 2016 SRS Acquiom Inc. All rights reserved. Slide 53 .Stand-Alone Indemnities* Frequency (2015 deals) Taxes 78% Payments to dissenting shareholders 72% Accuracy of closing certificates 69% Transaction expenses 43% Litigation 35% Fraud and willful misrepresentation 33% Purchase price adjustments 33% Intellectual property matters 15% Fees and costs 13% Employee compensation 9% Excess parachute payments under 280G 7% Capitalization 5% Authority 4% Environmental 3% Employee benefits/ERISA 2% Regulatory matters 1% Third-party consents 0% Undisclosed contracts 0% * Line items for which indemnification is expressly provided beyond the standard line-item indemnities for Seller’s breaches of (i) representations and warranties and (ii) covenants.

” 2012 2013 2014 2015 * For purposes of this Study. with respect to the accuracy or inaccuracy of such representation warranty…” 1% 3% Anti-sandbagging 1% 45% 47% 45% “No party shall be liable under this Article for any 2% Losses resulting from or relating to any inaccuracy 34% in or breach of any representation or warranty in this Agreement if the party seeking indemnification for such Losses had Knowledge of such breach before Closing. All rights reserved. that Seller’s representations and warranties merely “survive Buyer’s investigation” unless they include an express statement that Buyer’s knowledge acquired outside of any investigation made pursuant to the agreement impacts Buyer’s post-closing indemnification rights. © 2016 SRS Acquiom Inc. Slide 54 . “pro-sandbagging” excludes clauses that state. for example.“Sandbagging” Examples Year-over-year trend Pro-sandbagging Pro-sandbagging provision included Anti-sandbagging provision included “The right to indemnification. reimbursement or Silent other remedies based upon any such representation or warranty will not be affected by any Knowledge 64% 54% 52% 52% acquired (or capable of being acquired) at any time. whether before or after the execution and delivery of this Agreement or the Closing Date.

Slide 55 .Types of Losses Covered Subset: 2015 deals Expressly included Expressly excluded Silent 27% 61% 70% 82% 69% 32% 12% 16% 4% 18% 2% 7% Punitive damages Incidental damages Consequential damages Diminution in value © 2016 SRS Acquiom Inc. All rights reserved.

the representations and warranties of Seller shall not be deemed qualified by any references to materiality or to Material Adverse Effect. Slide 56 .” Materiality qualifications in representations and warranties disregarded for calculation of losses only “For the sole purpose of determining Losses (and not for determining whether any breach of any representation or warranty has occurred).” © 2016 SRS Acquiom Inc. All rights reserved. the representations and warranties of Seller shall not be deemed qualified by any references to materiality or to Material Adverse Effect.“Materiality Scrape” Example Definitions Materiality qualifications in representations and warranties disregarded for all indemnification purposes (determining breaches and calculating losses) “For purposes of this Article X (Indemnification).

All rights reserved. Slide 57 .“Materiality Scrape” Inclusion 2015 Deals For determining breach only 23% Materiality Materiality qualifiers not qualifiers For determining disregarded disregarded damages only 58% 16% 84% For determining breach and damages 19% 2014 Deals For determining breach only 20% Materiality Materiality qualifiers not qualifiers For determining disregarded disregarded damages only 17% 83% 55% For determining breach and damages 25% © 2016 SRS Acquiom Inc.

Slide 58 .Reductions Against Buyer’s Indemnification Claims Provision included 2013 2014 2015 83% 81% 76% 43% 36% 34% 31% 23% 24% Reduction for insurance proceeds Reduction for tax benefits Buyer required to mitigate losses* * Includes agreements requiring the Buyer to seek payments under applicable insurance policies. All rights reserved. © 2016 SRS Acquiom Inc.

2015 2014 warranties and covenants in this Agreement and the Disclosure Schedules and any other certificate or Less than 12 months 2% document delivered pursuant to this Agreement will 1% survive the Closing for a period of 12 months. Slide 59 .5 Time Limitations. Seller will have no liability (for 12% indemnification or otherwise) with respect to any >12 to <18 months 15% representation or warranty unless on or before the 12-month anniversary of the Closing Buyer notifies 18 months 45% 45% Sellers of a Claim specifying the factual basis of such Claim in reasonable detail to the extent then 1% >18 to <24 months 1% known by Buyer.1 Survival.” 24 months 7% 8% >24 months 3% 2% © 2016 SRS Acquiom Inc. All representations. All rights reserved. If the Closing 28% occurs.General Survival Period/Time to Assert Claims Example survival provisions Survival frequency* (2015 median: 18 months) “Section 10.” 12 months 29% “Section 10.

© 2016 SRS Acquiom Inc.Survival/Time to Assert Claims: Carveouts to General Survival Period* Carveout frequency (2015 deals) Due authority 87% Capitalization 83% Taxes 82% Ownership of shares 78% Due organization 77% Fraud 56% Broker/finder fees 52% Intellectual property 39% No conflicts 36% Intentional misrepresentation 31% Employee benefits/ERISA 21% Title to/sufficiency of assets 17% Environmental 6% Undisclosed liabilities 3% Related-party transactions 2% Accounts receivable 1% Product liabilities 1% Solvency 0% * Matters subject to carveouts survive longer than the general survival period. All rights reserved. Slide 60 .

(other than taxes. 60 days. Group of “Fundamental Representations”* Tax representations** >3 to 4 >4 years years >4 years 18% >1 to 2 4% 10% years 2% >3 to 4 years 1 year or 6% less >2 to 3 2% years 1% Silent/unspecified Statute of 1% >1 to 2 limitations*** 50% Reps years survive 3% "indefinitely" 1 year or 2% less 2% Statute of Silent/unspecified limitations*** 1% Reps 77% survive "indefinitely" 19% * For example: due organization. Slide 61 . ** Usually including a tail period. e. All rights reserved. © 2016 SRS Acquiom Inc.2nd-Level Survival: “Fundamental” and Tax Reps Subset: 2015 deals that include the specified carveout. etc. intellectual property and fraud). due authority. Years below denote additional survival time after expiration of the general survival period.g. capitalization.

All rights reserved. Slide 62 .2nd-Level Survival: “Fundamental” Reps after Cigna v. 26. the Delaware Court of Chancery held that a merger agreement provision allowing a Buyer to claw back consideration from stockholders for breaches of certain representations and warranties (1) up to the purchase price and (2) “indefinitely” after closing violated Delaware law (see Cigna Health and Life Insurance Co.and stock-purchase agreements are not subject to the same requirement. Audax In late 2014. C. v. ** A survival period denominated in years or tied to a statute of limitations. Nov. This chart shows a decline in the proportion of mergers* with indefinite second-level survival periods in 2015.. Ch. No. © 2016 SRS Acquiom Inc. Audax Health Solutions Inc. 9405 (Del. 2014)).A. Survival of “fundamental” reps when carved out from the general survival period (mergers only) Reps survive Reps survive "indefinitely" "indefinitely" 17% 28% Finite survival Finite survival period** period** 83% 72% 2012–2014 (Pre-Audax) 2015 (Post-Audax) * Asset.

Years below denote additional survival time after expiration of the general survival period.g. e. or for “>2 to 3 years”. ** Usually including a tail period. All rights reserved. for “>1 to 2 years”.2nd-Level Survival: IP Reps and Fraud Subset: 2015 deals that include the specified carveout. Slide 63 . © 2016 SRS Acquiom Inc. Intellectual property representations Fraud/intentional misrepresentation* >4 years Statute of >3 to 4 1% limitations** Reps years >4 years 8% survive 6% 11% Statute of "indefinitely" >2 to 3 3% >3 to 4 limitations** years years 24% 3% Silent/unspecified 1% 1% >1 to 2 Silent/unspecified years 24% 27% 1 year or Carveouts less survive 51% "indefinitely" 40% * No fraud/intentional misrepresentation carveouts survived for “1 year or less”. 60 days.

” 56% 55% First dollar 56% 64% “Securityholders shall not be required to indemnify Buyer for Losses until the aggregate amount of all such Losses exceeds $500.Baskets: Definitions Basket formulations Basket frequency Deductible No basket Deductible First dollar Combination “Securityholders shall not be required to indemnify 3% 3% 2% 4% Buyer for Losses until the aggregate amount of all such Losses exceeds $300.000 (the ‘Threshold’) in which 1% 3% 2% 2% event the Securityholders shall be responsible only for Losses in excess of $300.000 (the ‘Threshold’) in which event the Securityholders shall be responsible for the amount of all Losses. All rights reserved. Slide 64 .” 2012 2013 2014 2015 © 2016 SRS Acquiom Inc.” Combination 40% 38% 41% “Securityholders shall not be required to indemnify 30% Buyer for Losses until the aggregate amount of all such Losses exceeds $500. regardless of the Threshold.000 (the ‘Deductible’) in which event Securityholders shall be responsible only for Losses exceeding the Deductible.000 (the ‘Deductible’).

Slide 65 .50% 11% >1% to 2% 8% 7% 0.54% 0.61% >0.50% 0.65% 49% 0.75% 0.00% 39% 0.00% 2012 2013 2014 2015 © 2016 SRS Acquiom Inc.5% to 1% 44% 40% 0. year-over-year 2015 2014 2013 Median deductible Median first dollar 1.71% 0.50% 0.Baskets as a Percentage of Transaction Value Subset: Deals with deductible and first-dollar baskets Basket sizes Median basket size.61% 0.50% 0.25% 1% >2% 1% 4% 0.5% or less 47% 49% 0. All rights reserved.

00% All baskets (other than 0.30% First dollar 0.71% 0. © 2016 SRS Acquiom Inc.64% 0.54% 0.74% 0.Baskets as a Percentage of Transaction Value Subset: 2015 deals with baskets Basket type Average Median Minimum Maximum Deductible 0. Slide 66 .04% 2.30% combination*) * Because combination baskets set different amounts for the threshold and deductible.07% 2.56% 0.67% 0. All rights reserved.04% 2.

Baskets: General Coverage* Subset: Deals with baskets Coverage details 2015 2014 2013 100% Breaches of Seller's representations and 100% warranties 100% 22% Breach of Seller's covenants 20% 20% 29% Other indemnity claims 25% 26% * Carveouts to general basket coverage are discussed on the next slide. Slide 67 . © 2016 SRS Acquiom Inc. All rights reserved.

Slide 68 . All rights reserved.Baskets: Carveouts Subset: 2015 deals with baskets Carveout frequency Fraud 81% Due authority 80% Capitalization 78% Due organization 74% Ownership of shares 74% Taxes 73% Broker/finder fees 53% Intentional misrepresentation 43% No conflicts 30% Intellectual property 27% Employee benefits/ERISA 17% Title to/sufficiency of assets 15% Environmental 3% Related-party transactions 2% Undisclosed liabilities 2% Product liabilities 1% Accounts receivable 0% Solvency 0% © 2016 SRS Acquiom Inc.

Slide 69 .” 29% 29% 30% 20% 21% 10% 0% 2013 2014 2015 © 2016 SRS Acquiom Inc.Baskets: Eligible Claim Threshold Claim threshold formulation Threshold included.000. All rights reserved. year-over-year “Securityholders shall not be required to indemnify 50% Buyer for any individual item where the Loss relating to such claim (or series of claims arising 40% from the same or substantially similar facts or circumstances) is less than $25.

Slide 70 .9% 10.Caps as a Percentage of Transaction Value* Subset: 2015 deals Average Median Minimum Maximum 13.50% 100% 2013 2014 2015 29% 22% 23% 21% 19% 19% 19% 16% 14% 13% 11% 10%10% 9% 8% 7% 7% 6% 5% 5% 4% 4% 3% 3% 3% 3% 2% 2% 2% 1% 1% 1% 0% 5% or less >5% to 7% >7% to 10% >10% to 15% >15% to 20% >20% to >50% to Purchase <10% <15% <20% 50% <100% price General cap amount as % of transaction value * In 2015 deals with escrows/holdbacks. © 2016 SRS Acquiom Inc.5% 0. All rights reserved. 79% of caps equaled the escrowed amount.

All rights reserved. Slide 71 .Caps: Carveouts Frequency (2015 deals) Fraud 89% Due authority 86% Capitalization 81% Due organization 76% Ownership of shares 76% Taxes 73% Broker/finder fees 53% Intentional misrepresentation 48% Intellectual property 38% No conflicts 34% Employee benefits/ERISA 20% Title to/sufficiency of assets 18% Environmental 5% Undisclosed liabilities 3% Related-party transactions 2% Product liabilities 1% Accounts receivable 0% Solvency 0% © 2016 SRS Acquiom Inc.

offsets against future earnouts above the general cap. capitalization. due authority. etc. (other than taxes.2nd-Level Caps: “Fundamental” and Tax Reps Subset: 2015 deals that include the specified carveout. Percentages below denote the second- level cap as a percentage of transaction value in absolute terms (not above the general cap). ** “Other” includes. Group of “Fundamental Representations”* Tax representations Up to 25% Up to 25% >25% to 50% 1% >25% to 50% 1% 3% 3% Silent/unspecified Silent/unspecified >50% to 75% 5% 1% >50% to 75% 5% 1% Other** >75% to Other** 6% <100% 8% >75% to 2% <100% 1% Purchase Purchase price price 82% 79% * For example: due organization. for example. © 2016 SRS Acquiom Inc. intellectual property and fraud). All rights reserved. Slide 72 .

9405 (Del. © 2016 SRS Acquiom Inc. Audax In late 2014. No. Audax Health Solutions Inc. All rights reserved.A.and stock-purchase agreements are not subject to the same requirement. v. the Delaware Court of Chancery held that a merger agreement provision allowing a Buyer to claw back consideration from stockholders for breaches of certain representations and warranties (1) up to the purchase price and (2) “indefinitely” after closing violated Delaware law (see Cigna Health and Life Insurance Co. This chart shows a slight increase in the proportion of mergers* with second-level caps below the purchase price in 2015. 26.. Second-level caps for “fundamental” reps when carved out from the general cap (mergers only) Less than Less than purchase price purchase price 6% 10% Purchase price or Purchase price or expressly unlimited expressly unlimited 94% 90% 2012–2014 (Pre-Audax) 2015 (Post-Audax) * Asset. C.2nd-Level Caps: “Fundamental” Reps after Cigna v. Slide 73 . 2014)). Ch. Nov.

Slide 74 .2nd-Level Caps: IP Reps and Fraud Subset: 2015 deals that include the specified carveout. All rights reserved. ** “Other” includes. © 2016 SRS Acquiom Inc. Percentages below denote the second- level cap as a percentage of transaction value in absolute terms (not above the general cap). for example. offsets against future earnouts above the general cap. Intellectual property representations Fraud/intentional misrepresentation* Silent/unspecified Other** >75% to <100% Other** 1% 4% 1% 10% Purchase Up to 25% Silent/unspecified price 29% 27% 15% >75% to Purchase <100% price 1% 34% >50% to 75% 4% Unlimited >25% to 50% liability 40% 34% * Measures liability for shareholders that did not participate in the fraud (liability for participating shareholders was typically unlimited).

0% 0. All rights reserved. Slide 75 .1% 10.3% 2013 2014 2015 28% 23% 23% 22% 20% 20% 17% 16%16% 15% 12% 11% 11% 11% 8% 7% 7% 6% 5% 5% 4% 4% 3% 2% 2% 1% 1% 0% 0%0% 5% or less >5% to 7% >7% to 10% >10% to 15% >15% to 20% >20% to >50% <10% <15% 20% 50% Escrow Size as % of Transaction Value © 2016 SRS Acquiom Inc.Escrows/Holdbacks as a Percentage of Transaction Value Subset: 2015 deals with escrows/holdbacks Average Median Minimum Maximum 11.50% 63.

6% 6% 1.0% 10.0% 3% 0.0% 10.8% 9% 1.0% 2012 2013 2014 2015 2012 2013 2014 2015 * Funds established at closing to fund post-closing expenses.3% 11. All rights reserved.20% 0.0% 1.4% 2.5% 2.Escrow/Holdback and Expense Fund Sizes Subset: Deals with escrows/holdbacks and/or expense funds Median indemnification escrow/holdback size Median post-closing expense fund size* As % of transaction value As % of indemnification escrow As % of transaction value 15% 2.0% 10.5% 1.25% 0. Slide 76 .5% 0.26% 0.22% 0% 0.8% 12% 2. © 2016 SRS Acquiom Inc.

In most deals these periods are the same. The survival period on slide 59 denotes the time available to the parties to make claims for breaches of the agreement. disregarding interim releases. © 2016 SRS Acquiom Inc. All rights reserved. Slide 77 .Escrow/Holdback Periods* Subset: Deals with escrows/holdbacks Escrow period frequency (2015 median: 18 months) 2013 2014 2015 49% 43% 37% 25% 26% 23% 18% 13% 13% 13% 8% 8% 6% 5% 6% 2% 2% 1% 2% 0% 1% Less than 12 12 months >12 to <18 18 months >18 to <24 24 months >24 months months months months * Denotes the number of months from closing until the scheduled final escrow release date. after which indemnification under the agreement will not be available. but in some deals the escrow period lasts longer for reasons unique to the deal.

00% SRS Acquiom Escrow Wilmington Trust Wells Fargo U.16% 0. ** Average observed on the escrow solutions distributed by SRS Acquiom.04% 0.03% 0.18% 0. encompassing SunTrust Bank.S.04% 0. and AXA Equitable Escrow Shield Plus SM. Slide 78 . Capital One. All rights reserved.Escrow Account Investment Yield Subset: Deals with escrows Average annual investment yield paid on escrow accounts in 2015* 0. Bank JP Morgan Solutions** * Observed on escrows in deals where SRS Acquiom provides services.05% 0. © 2016 SRS Acquiom Inc.06% 0.12% 0.

All rights reserved. Slide 79 .Indemnification as Exclusive Remedy for Breach Subset: 2015 deals Indemnification as exclusive remedy Carveouts to exclusive remedy Silent 7% Equitable remedies 92% Fraud 87% Intentional misrepresentation 42% "Willful" breach of covenants 8% Breach of covenants 3% Exclusive "Intentional" breach of 3% remedy covenants 93% © 2016 SRS Acquiom Inc.

Dispute Resolution © 2016 SRS Acquiom Inc. Slide 80 . All rights reserved.

© 2016 SRS Acquiom Inc. All rights reserved. Slide 81 .Waivers Legal representation conflict waiver* included Waiver of jury trial (2015 deals) 100% Not included 34% 57% 59% 50% 42% 23% Included 0% 66% 2012 2013 2014 2015 * A provision allowing Seller’s pre-closing counsel to represent the selling shareholders post-closing in matters relating to the acquisition.

All rights reserved. 2015) 50% Mediation then binding arbitration Mediation 4% 9% 31% 30% 28% 24% 25% 0% Binding 2012 2013 2014 2015 arbitration 87% * Sample includes ADR provisions that apply to all disputes arising out of the agreement. © 2016 SRS Acquiom Inc. Slide 82 .Alternative Dispute Resolution (“ADR”)* ADR inclusion Type of ADR (subset: general ADR included. and does not include ADR provisions limited to particular matters such as purchase price adjustments or earnouts.

Alternative Dispute Resolution (“ADR”) Subset: Deals with general ADR included Institution/rules governing arbitration Who pays arbitration expenses? (2015 deals) American Arbitration Association Judicial Arbitration & Mediation Services Other* Determined by arbitrator Silent 13% 49% 51% 44% 20% Evenly split 11% 29% 36% 25% Expenses apportioned 16% Loser pays 27% 40% 24% 15% 2013 2014 2015 * “Other” frequently includes the International Chamber of Commerce and the Delaware Court of Chancery. All rights reserved. © 2016 SRS Acquiom Inc. Slide 83 .

Slide 84 .Termination Fees © 2016 SRS Acquiom Inc. All rights reserved.

Termination Fees

Subset: All deals from 2012–2015

Fee paid by... Termination Fees

Seller The median termination fee paid by Buyer is 5.0%
Buyer
4% 3% (average 5.8%) of transaction value*
Two-way
3% The median termination fee paid by Seller is 3.5%
(average 3.7%) of transaction value*

No fee
90%

* “Transaction value” includes escrowed amounts but does not include potential earnout consideration.

© 2016 SRS Acquiom Inc. All rights reserved. Slide 85

Correlations

© 2016 SRS Acquiom Inc. All rights reserved. Slide 86

Correlations: Transaction Value and Equity Financing Rounds

Data set: All deals closing in 2012–2015

Transaction value vs. Equity financing rounds at exit (deals over $600MM hidden)

Each point is a deal; Transaction Value linear fit line in blue

$600

$500
Transaction value ($MM)

$400

$300

$200

$100

$0
1 2 3 4 5 6 7 8 9 10 11
Number of equity financing rounds at exit

© 2016 SRS Acquiom Inc. All rights reserved. Slide 87

Equity financing rounds at exit (deals over 30x return hidden) Each point is a deal. All rights reserved. Correlations: Multiples of Return and Equity Financing Rounds Data set: 2015 deals Transaction value as a multiple of return vs. Transaction Multiple linear fit line in blue 30 Transaction value as multiple of return on equity 25 20 capital invested* 15 10 5 0 1 2 3 4 5 6 7 8 9 10 Number of equity financing rounds at exit * Equity capital investment data provided by S&P Capital IQ™. © 2016 SRS Acquiom Inc. Slide 88 .

Equity financing rounds at exit vs. Equity Financing Rounds and Transaction Value Data set: 2015 deals Multiples of return vs. Slide 89 . © 2016 SRS Acquiom Inc. bubble size corresponds to transaction value 30 Transaction value as multiple of return on equity 25 20 capital invested* 15 10 5 0 1 2 3 4 5 6 7 8 9 10 Number of equity financing rounds at exit * Equity capital investment data provided by S&P Capital IQ™. Transaction value (deals over 30x return hidden) Each bubble is a deal. All rights reserved. Correlations: Multiples of Return.

Correlations: Multiples of Return. Equity Financing Rounds and Equity Capital Invested Data set: 2015 deals Multiples of return vs. © 2016 SRS Acquiom Inc. Equity capital invested (deals over 30x return hidden) Each bubble is a deal. Equity financing rounds at exit vs. All rights reserved. Slide 90 . bubble size corresponds to equity capital invested 30 Transaction value as multiple of return on equity 25 20 capital invested* 15 10 5 0 1 2 3 4 5 6 7 8 9 10 Number of equity financing rounds at exit * Equity capital investment data provided by S&P Capital IQ™.

9 7.2 $142. by Buyer Type Transaction value* vs.8 3.5 4 $80. Correlations: Transaction Value and Multiples.9 $200 8 $186. Buyer type (2012–2015 deals) Multiple of return** vs.0 $50 2 $0 0 Public Private Foreign Financial Public Private Foreign Financial * Excludes one multi-billion dollar deal that materially skewed results. All rights reserved.7 6 $100 4. © 2016 SRS Acquiom Inc. ** Equity capital investment data provided by S&P Capital IQ™ and other databases. Slide 91 . Buyer type (2015 deals) One standard deviation One standard deviation Average transaction value ($MM) Average multiple of return $400 16 Transaction value as multiple of return $350 14 on equity capital invested* $300 12 Transaction values ($MM) $250 10 8.7 $150 $158.

2 16. by Buyer Type Data set: All deals closing in 2012–2015 Escrow size vs.0% 11. Slide 92 . Buyer type Rep and warranty survival vs.6% 12.3% Average: 15 15.5 Escrow size 11.1% 10 4% 5 0% 0 Public Private Foreign Financial Public Private Foreign Financial © 2016 SRS Acquiom Inc.8 12% 12. Buyer type One standard deviation One standard deviation Average escrow size Average rep & warranty survival period 20% 25 16% 20 18.6% 8% 8. All rights reserved.2 Survival period (months) 16. Correlations: Escrow Size and Survival.9 Average: 16.

All rights reserved. Correlations: Transaction Value and Escrow Size Data set: All deals closing in 2012–2015 Transaction value vs. © 2016 SRS Acquiom Inc. Slide 93 . linear fit line in blue 50% 40% 30% Escrow size 20% 10% 0% $0 $100 $200 $300 $400 $500 $600 $700 $800 Transaction size ($MM) * Equity capital investment data provided by S&P Capital IQ™. Escrow size (deals over $800MM are hidden but factor into trend line) Each point is a deal.

All rights reserved. Escrow size (deals over $200MM are hidden but factor into blue trend line) Deals ≤$50MM: Each blue point is a deal. Correlations: Transaction Value and Escrow Size (Detail) Data set: All deals closing in 2012–2015 Transaction value vs. Slide 94 . linear fit line in blue 50% 40% 30% Escrow size 20% 10% 0% $0 $50 $100 $150 $200 Transaction size ($MM) * Equity capital investment data provided by S&P Capital IQ™. © 2016 SRS Acquiom Inc. linear fit line in red Deals >$50MM: Each red point is a deal.

All rights reserved.. Slide 95 . Transaction value Number of cap carveouts Transaction value Appraisal rights condition included Cap as % of transaction value Number of cap carveouts Basket size as % of transaction value Number of basket carveouts Basket size as % of transaction value Materiality scrape included for indemnification purposes General escrow size as % of transaction value Years to exit General escrow size as % of transaction value Seller industry General escrow size as % of transaction value Earnout included General escrow size as % of transaction value Number of special escrows General rep and warranty survival period Transaction value General rep and warranty survival period Years to exit General rep and warranty survival period Seller industry General rep and warranty survival period Earnout included General rep and warranty survival period Management carveout included General rep and warranty survival period Number of survival carveouts Indemnification as the exclusive remedy for breaches of the Post-closing purchase price adjustment included Agreement Indemnification as the exclusive remedy for breaches of the Earnout included Agreement © 2016 SRS Acquiom Inc..Correlations: Uncorrelated Terms We found no significant correlations between: And.

Glossary © 2016 SRS Acquiom Inc. Slide 96 . All rights reserved.

the date on which the purchase price is paid and the merger occurs. > Closing date The date on which the transaction is consummated.. is submitted to a neutral person or group for a decision. Many agreements include separate caps for different types of breaches. i. Slide 97 . Under a “deductible” basket.Glossary #–C > 10b-5 Rule 10b-5 is an SEC rule that prohibits any act or omission resulting in fraud or intentional deceit (scienter) and relied upon by the injured party in connection with the purchase or sale of a security. Usually includes a full evidentiary hearing and presentations by attorneys for the parties. A “combination” basket includes a threshold claim amount that is higher than its deductible amount. If the agreement includes a “first dollar” basket. expanding buyer’s ability to claim breach of the agreement. All rights reserved. A “10b-5 Representation” is a catch-all representation in the merger agreement modeled from the SEC rule but without the scienter or reliance requirement. > Basket The basket is the threshold claim amount that must be reached before the seller becomes liable for the buyer’s losses. > Arbitration A method of alternative dispute resolution whereby a dispute. > Appraisal rights The statutory right available in most states to a corporation’s minority shareholders who object to a merger to have a fair price of their stock determined in a judicial proceeding and to require the corporation to repurchase their stock at that price. it functions in one of three ways. © 2016 SRS Acquiom Inc. Appraisal rights are usually not available unless the shareholder meets certain requirements. with the consent of the parties. the seller is liable for all damages once the threshold amount has been reached. such as voting against the merger or abstaining from voting. > Cap The maximum recovery a buyer may obtain for indemnification claims.e. the seller is only liable for damages in excess of the threshold amount. The merger agreement may provide that the arbitrator’s decision be binding or non-binding.

and the costs associated with bringing the seller into compliance with applicable regulations. covenants may require the parties to take actions both before and after the closing. but a consequence of the initial act. > Incidental damages Damages that are awarded as compensation for the buyer’s commercially reasonable expenses resulting from a breach by the seller. > Escrow/holdback A portion of the merger consideration that is deposited with a neutral third party (in the case of an escrow) or withheld by the buyer (in the case of a holdback) to be applied towards potential future indemnification claims by the buyer. After a specified period of time (the survival period) any consideration remaining in the escrow or holdback account is released to the selling shareholders. © 2016 SRS Acquiom Inc. In a merger agreement. All rights reserved. Slide 98 . shipping. etc. > Indemnification Where one party (typically the seller) to an agreement reimburses the other (typically the buyer) for any losses they incur as a result of the transaction. To be awarded consequential damages. and replacing faulty inventory. Examples include revenue targets. it typically must be shown that the damages were a foreseeable result of the initial act. > Diminution in value Damages that result from the loss in value to an asset or enterprise. it typically refers to a loss that results from a decrease in value due to a breach of the merger agreement.Glossary C–I > Consequential damages Damages that are not a direct result of an act. > Covenant Covenants are actions that must be taken or not taken by the parties. receipt of regulatory approvals. In the context of a merger. costs associated with restatement of the seller’s financials. Examples include the costs of handling. > Earnout A provision stating that the selling shareholders will obtain additional consideration if the seller or surviving company reaches certain milestones.

covering virtually all aspects of the company. Warranties are the seller’s assurances to the buyer that the representations are true. and that if they are not. Closing typically. occurs on a later date. Unlike arbitration or litigation. > Mediation A form of alternative dispute resolution where the parties attempt to negotiate a settlement with the assistance of a neutral third party. the resulting agreement. but not always. > Sandbagging Where a party may seek indemnification for the other party’s breach of the merger agreement even if the non- breaching party had knowledge of the breach prior to closing. Slide 99 . > Survival The time period after closing during which the buyer may make a claim against the seller or selling shareholders for breach of their representations.Glossary M–S > Management carveout A plan put in place to incentivize the seller’s management team or employees to stay with the company until it is sold. © 2016 SRS Acquiom Inc. warranties and covenants. often by allocating a portion of the purchase price directly to such employees to be paid before satisfying liquidation-preference overhangs. > Signing date The date on which the merger agreement is signed by the principal parties. or lack thereof. All rights reserved. the buyer will be entitled to seek legal remedies. is wholly controlled by the parties. > Punitive damages Damages awarded to an injured party that go beyond what is necessary to compensate them for their losses and which are intended to punish the wrongdoing party. The time period is usually shorter than the applicable statute of limitations. > Representations and warranties Representations are statements of fact by the seller regarding the condition of its business.

Updates and Insights > 2015 M&A Claims Study > 2015 Life Sciences M&A Update > Newsletters and News Alerts JOIN OUR NEWSLETTER https://www.srsacquiom. Slide 100 .Subscribe for M&A Tips.com/newsletters/subscribe/ © 2016 SRS Acquiom Inc. All rights reserved.

com Prospective clients: sales@srsacquiom. or tax implications of the matters referred to herein. for any other purpose than as expressly authorized by SRS Acquiom. the accuracy and completeness of all information available from public sources or that was provided to us by or on behalf of our clients or that was otherwise reviewed by us. therefore the conclusions presented in this Study are subject to important qualifications that are not expressly articulated. Slide 101 . we have relied upon and assumed. The information herein may not be stripped of any copyright or trademark information or copied. in whole or in part. All rights reserved. Phone: 415-367-9400 Website: srsacquiom. employees or agents shall incur any responsibility or liability whatsoever to any party in respect of the contents of this study or any matters referred to in. regulatory. SRS Acquiom makes no representations as to.com Please note that we cannot provide data that can be used to ascertain confidential information about deals or clients. and no party shall be entitled to rely upon. The terms of the agreements surveyed for this Study vary widely and are subject to competing interpretations.com Existing clients: support@srsacquiom. this document. officers. published or used. the legal. © 2016 SRS Acquiom Inc. In preparing this study. without independent verification. or discussed as a result of.com Data inquiries: dts@srsacquiom. and neither SRS Acquiom nor any of its directors.