Transaction Liability Insurance A Strategic Approach to Deal

Transaction Liability Insurance: A Strategic Approach to Deal Risk Management Prepared by Aon Strategic Advisors and Transaction Solutions Aon Transaction Solutions

The Challenge of Deal Risk… Unknown risks can prevent a deal from closing quickly and leave buyers without certainty. Changing tax and environmental regulations Post-closing liabilities and holdbacks Seller Concerns Ability to attract buyers Claw-back exposure Extended time to closing Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Adequate deal protection Buyer Concerns Competing bidders’ terms Deal-breaker issues 2

Deal Risk Challenges…Meet Transaction Liability Insurance Solutions The strategic use of Transaction Liability Insurance can help buyers and sellers reach their goals. Post-closing liabilities and holdbacks Seller Concerns Representations & Warranties Insurance Ability to attract buyers Claw-back exposure Tax Insurance Extended time to closing Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Changing tax and environmental regulations Adequate deal protection Buyer Concerns Competing bidders’ terms Litigation & Specialty Insurance Deal-breaker issues 3

Advantages to Sellers Transaction Liability Insurance helps sellers Post-closing liabilities and holdbacks § Expedite the sale process § Exit deal with increased funds § Attract best offers Seller Concerns Ability to attract buyers § Reduce or eliminate post-closing indemnity obligations § Reduce contingent liabilities § Protect passive sellers Claw-back exposure Extended time to closing Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 4

Advantages to Buyers Transaction Liability Insurance helps buyers § Increase maximum indemnity and extend survival period Changing tax and environmental regulations Adequate deal protection § Be viewed as a more attractive bidder § Protect key relationships § Ease collection concerns from distressed or un-creditworthy seller Buyer Concerns Competing bidders’ terms § Provide recourse for unidentified issues Deal-breaker issues Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 5

A Mainstay of the M&A Industry $14. 00 350 $12. 00 300 $10. 00 250 $8. 00 200 $6. 00 150 100 $4. 00 50 $2. 00 0 $0. 00 2014 2015 Corporate Policies* Corporate Limit What this means for your deals Policy Limits Placed 400 Limit (in Billions) Number of Policy Increased use and policy limits by Aon clients 2016 All Policies** All Limit § Insurance is a strategic part of the bid process for both buyers and sellers § Buyers without insurance are at a disadvantage § Not all deals are created equal § A sophisticated approach to insurance is now a requirement *Data based on Aon's placement of R&W policies. **Data based on Aon's placement of all policies (i. e. , R&W, tax, litigation buyout, CFIUS) Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 6

Transaction Liability Insurance Carriers in 2014…. Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 7

…. Fast Forward to 2017 Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 8

Representations & Warranties Insurance Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 9

Representations and Warranties Insurance Representations and Warranties insurance allows sellers to close a deal with limited or no indemnity while providing buyer protection for unknown breaches. Traditional Deal Structure Representations & Warranties Policy $0. 5 MM Proceeds at Risk $10 MM Proceeds at Risk $90 MM Net Proceeds at Closing $99. 5 MM Net Proceeds at Closing *Seller may cover a share of policy premium Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 10

Representations and Warranties Insurance: Enhanced Indemnity A buyer-side representation & warranties insurance policy may enhance a buyer’s potential for recovery rather than simply replace the typical seller’s indemnity. Survival Period Limits Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Materiality Scrape Definition of Loss 11

Representations and Warranties Insurance: Process and Timing Partnering with a team that deeply understands the sensitivity and timing of a deal is paramount to your success. Day 1 1 Day 4 Engage Broker 2 3 Day 2 -4 2 - 4 4 5 Obtain insurance quotes Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Bind Coverage Select Insurer 6 7 Day 2 -4 8 5 -10 9 Day 10 10 Insurer Underwriting and Policy Negotiation 12

Representations and Warranties Insurance: Important Considerations Required Information Cost & Policy Retention Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Breadth of Coverage Deal Confidentiality Deal Team and Service 13

Tax Insurance Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 14

Advantages of Tax Insurance Tax Liability or Tax Opinion Insurance protects buyers against a successful challenge by the IRS or other foreign, state or local tax authority and can help sellers close their deal more quickly. Key Benefits Achieves economic certainty Eliminates the need for escrow Manages counterparty exposure What is Covered Streamlines negotiations by eliminating dealbreaking issues Protect tax positions from challenges Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions Reduces uncertainty in cross-border deals Failure to achieve expected tax treatment Retroactive change in tax law Challenges from U. S. , state, local or foreign tax authorities 15 Recovery for tax, contest costs, interest, penalties and gross-up

Tax Insurance When to Consider Tax Insurance USA UK/Europe § § § S corporations Tax-free reorganizations/mergers Section 355 spin-offs REITs/real estate acquisition/sales Partnership issues Employee benefits issues NOLs Federal and State Tax credits (e. g. , solar ITC, low income housing) § § Tax neutral reorganizations Availability of degrouping relief Debt for equity tax relief Substantial shareholdings exemption (SSE) Offshore and residency issues REITs *Tax Shelters (listed transactions) are not insurable Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 16

Litigation and Specialty Insurances Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 17

Litigation Insurance Pending or potential litigation can expose buyers to significant risks and financial liability. Litigation insurance can offset that risk or limit the liability buyers will be responsible for once the deal is complete. When to consider Litigation Insurance M&A Deals § Helps sellers avoid substantial escrow requirements § Allows buyers to ring fence the cost of damages from an adverse judgement Ongoing Business Risk Management § Protects companies from catastrophic loss from an adverse judgement Possibility of a catastrophic outcome Pending litigation is preventing a deal from closing Likely attachment point or retention due to potentially large range of damages Litigation arguments are well developed Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 18

Transaction Liability: Claims Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 19

Representations & Warranties Insurance: Global Claims Source: AIG Global M&A Claims Study 2017 Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 20

Transaction Liability Insurance & Claims: Aon Policies Percent of Aon policies that resulted in claims When to consider Litigation Insurance 14 Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 21 6 6 gat ion 5 Liti *More claims for policies that incepted in 2015 and 2016 are likely forthcoming 7 ers 12. 6% 17. 6% 8 oth 2014 9 All 2015* 11 Tax 3. 9% F Sta inanc tem ial ent s Co ntra cts Co mp lian ce Inte lle Pro ctual per ty Em plo yee 2016*

Transaction Liability Insurance Questions? Aon Strategic Advisors and Transaction Solutions | Aon Transaction Solutions 22