Private Company M&A The Deal Doesn’t End at Closing Mark Vogel Managing Director

1. Private Company M&AThe Deal Doesn’t End at ClosingMark VogelManaging Director

2. Private Equity and Venture Capital Exits AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of today, by and among Company A, a Delaware corporation ("Parent"), Company B, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Company C, a Delaware company ("Company"), and _______________________________, as Shareholder Representative (the ”Shareholder Representative"). RECITALS WHEREAS, the Board of Directors of Parent has approved, and deems it advisable and in the best interests of its stockholders to consummate, the merger (the "Merger") of Merger Sub with and into the Company, upon the terms and subject to the conditions set forth herein; and WHEREAS, the Board of Directors of the Company (the "Company Board"), having carefully considered the long-term prospects and interests of the Company and its stockholders and determined that the Merger is advisable and that it is in the best interest of its stockholders to consummate the transactions contemplated hereby, has approved the transactions contemplated hereby and has resolved to recommend to its stockholders the adoption of this Agreement, upon the terms and subject to the conditions set forth herein; and WHEREAS, an irrevocable action by written consent of Company Stockholders sufficient to adopt this Agreement and to consummate the transactions contemplated hereby in accordance with the provisions of the Delaware General Corporation Law ("Delaware Law") Delaware Law and, if applicable, the California Corporations Code (the "Corporations Code

3. Post-closing purchase price adjustments Income and sales tax issues Indemnification claims Escrow management Employee compensation andmanagement carve-outs Earn-outs Administration and shareholder communications Post-Closing Challenges

4. Post-Closing Purchase Price Adjustments Adjustment Metrics* * 42% of the post-closing purchase price adjustments in this Study were based on more than one metric; for example, both a Working Capital and Debt adjustment, or both a Working Capital and Closing Cash adjustment.

5. Avoiding Working Capital Disputes • Information and Time Disadvantages • Required Specificity • Non-cash items • Taxes • Accounting principles • Second Bite at the Apple • OSI vs. Instrumentarium • Challenges to principles used should be brought as indemnification claim

6. Tax Obligations and Rights • Income Taxes • Treatment of Closing Costs • Disqualifying Dispositions of Options • Final year estimated taxes • NOLs – who gets the benefit • Impact on working capital • Obligations for tax return preparation • Buyer should be responsible with shareholder rep approval • Sales and use taxes • Easy for buyers to make claims

7. Post-Closing IndemnificationWhat do Buyers Claim? Average Claim Size as Percentage of Escrow * Note: Percentage drops to 5% if two large WC claims eliminated ** Buyers that brought fraud claims in sampling did not specify amounts of damages.

8. Timing of Claims • 20% of claims received during the last week of the escrow period • On average, third-party claims come early, direct claims come late • The average time from claim notification to resolution was 8 months • Methods of Resolution: • 44% of claims were settled individually • 50% of claims were part of global settlements • 6% of claims were eventually withdrawn by the buyer • No claims went to a verdict or arbitration decision (although several advanced to litigation or arbitration)

9. Deterrents to Indemnification Claims • Are you prepared to mount a defense if needed? • Establish a meaningful expense escrow • Select a responsible shareholder rep • Focus on limitations in contract – caps, baskets, time limits • Pre-closing preparation • Due diligence in order • Clean up issues before closing

10. Escrows/Holdbacks % of Transaction Value 12 to 24 Month Escrow Periods These periods apply to representations and warranties generally; specific representations and warranties are often carved out from these periods.

11. Escrow Releases • Fighting Frivolous Claims • Define what constitutes a claim (when dormant, accruals, etc.) • Assumption of defense, payment of fees • Expense fund • Automatic release of the escrow fund – pros and cons • Don’t run payments through any party other than Buyer or a Bank • Risk if money were to disappear • Risk if payer is insolvent or bankrupt • Be aware of administrative burden if you agree to make these payments as the shareholder representative • Escrow Economics • Pay attention to the fees. The banks will often waive them. • Consider no disbursements under $X. It costs more to send them than the amount. • Tax treatment of interest (if you’re earning any)

12. Exposure of the Shareholders Post-Closing • Is your liability capped at the escrow amount? • Risk of clawbacks • If not, consider tradeoffs • More escrow in exchange for a cap • Representation and warranty insurance • Establish a meaningful expense fund • Deter indemnification claims • Ensure all shareholders are contributing their pro rata Liability CapCarve Outs

13. Employee Compensation andManagement Carve-outs • Merger Consideration as Compensation • Escrow release may be compensation, too. • Often need to run through Buyer’s payroll • Taxable at closing or when paid? • Employment tax issues post-closing • Make clear who pays matching contributions • Effect on Working Capital and Taxes • Expensed or Capitalized? • Disqualifying Dispositions of ISOs

14. Earnouts – What’s the big deal? Earnout Metrics Period of Earnout

15. Mitigation of Earnout Disputes • Avoid earnouts, if possible • Most heavily litigated area of M&A • If this can’t be avoided, have an objective measurement of triggering event • Make it hard to manipulate • Avoid financial measurements, if possible • Keep it as simple as possible • Easy to measure (e.g. Phase II FDA approval is better than $10M in net revenue)

16. Administrative Tasks • Ensure shareholders have received correct merger consideration • Track all dates • Missing a response deadline – the biggest risk! • Escrow statement reconciliation • Banks regularly make mistakes • Investment oversight • Circumstances do change over 18-24 months • Shareholder inquiries • When, how much, claims status, audit confirmations • Amendments

17. Should You Take on the Role of Shareholder Rep? • Advantage – control • Disadvantages • Time commitment can be overwhelming • Tedious admin work • Limited access to qualified staff and info • Rep can’t focus on core business • You’re usually an island (contrast with serving on the Board pre-close) • Issues to be considered by potential Rep • Acceptable risk? • D&O – are you covered? • Conflicts & independence – for whom do you work?

18. ...Or Use an Outside Professional? • Professional independent management • Diverse expertise • Allows for best use of time • Avoid risk & conflicts • Transparency • Improved shareholder communication • Rep can’t easily quit

19. The SRS Process • Review Documents and Submit Proposal • Fee based on anticipated amount of work required and perceived risk • Deal size, no. of shareholders, working capital, earn outs, etc. • Typically 2-10 basis points on deal size (minimum fee of $35k) • Submission of limited comments • Negotiation of engagement agreement including contractual rights of significant shareholders to oversight and direction • Execution of merger documents • Serve as Rep until nothing left to be done • Everything we do is included in our fee, but not 3rd party expenses • SRS serves as agent but we always make clear we are NOT a law firm and do NOT provide legal advice

20. SRS at a Glance Organized in 2007 to address pain point in M&A deals VCs repeatedly complaining about shareholder rep role Since formation, over 100 M&A deals with over $10B in value More experience than anyone else, even large funds Represent over 10k shareholders including 400 of the largest VCs Shareholders in 44 countries Professional Independent Experienced

21. Menlo Ventures Meritech Capital Partners Mobius Venture Capital Mohr, Davidow Ventures Norwest Venture Partners Oak Investment Partners Redpoint Ventures Saints Capital Sequoia Capital Silicon Valley Bank SOFTBANK Capital Steamboat Ventures Summit Partners TPG Capital Trident Capital U.S. Venture Partners Venrock Versant Venture Management Worldview Technology Partners Accel Partners ARCH Venture Partners August Capital Austin Ventures Bessemer Venture Partners Boulder Ventures Charles River Ventures CMEA Ventures CW Ventures First Round Capital Foundation Capital Granite Ventures Greylock Partners H&Q Healthcare Investors Highland Capital Partners Institutional Venture Partners Integra Ventures Kleiner Perkins Caufield & Byers Mayfield Fund Representative Clients

22. Representative Transactions + + + + + + + + + + + +

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