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1RolloveRandIncentIveequItyteRmsInmIddlemaRketPRIvateequIty2013suRvey AboutThisSurvey..........................................................................................................1ExecutiveSummaryofFindings......................................................................................21-ScopeandNatureofRolloverInterests.......................................................................3PercentageRangeoRolloverDriversoPercentageRangeoRolloverIstheRolloverPariPassuVestingRequirements2-CharacteristicsofBuyerSecurities..............................................................................5TypesoSecuritiesTimingoDividendPaymentsReturnoCapitalinanIPO3-TermsofSellersRolloverSecurities............................................................................6RestrictionsandLimitationsRolloverRights4-ManagementEquityIncentivePools..........................................................................7AverageSizeAveragePoolGrantSizebyPositionAverageVestingPerormanceMetricsOptionsandProftsInterestsProftInterestsasanEquityIncentiveToolRepurchaseoVestedManagementEquity5-RestrictionsonSellerConduct...................................................................................9TypesoPost-ClosingCovenantsLengthoRestrictionsPlacedontheConductoRolloverSecurityHoldersCoverageoNon-Solicitation6-MiscellaneousFundCharacteristics.........................................................................10LimitationsonFundInvestmentsObservations.................................................................................................................11tableofcontentsGoodwinProcterRolloverSurvey 1Inanyprivateequitytransactionthearchitectureorolloverequityandmanagementincentiveequityiscriticallyimportant.Whileexhaustivestudiesexistonothermatterssuchastransactiontermsintheacquisitioncontextorthecontoursomanage-mentequityinpubliccompaniesthereislittlepubliclyavailabledataconcerningrolloversandmanagementincentiveequityinprivateequitytransactions.HowwediditWesentoursurveytoournetworkoprivateequityclientsandriendsprincipallyinthemiddlemarket.Respondentswerepromisedconfdentialityastoboththeiridentitiesandtheirspecifcresponses.Ourinquirywaslimitedtotransactionsinvolv-ingacquisitionsoacontrollinginterest.Therewasnoocusonanyparticularindustrysegmentorgeography.Wereceivedcompletedresponsesromover50frms.HowitcanbehelpfulBeingabletociteastudyonaparticularpointrarelyieverwinsapointoryourside.Howevertheuseosuchstudiescanquicklyandefcientlyconvincetheothersidethatyourpositionisnotnovelnorunheardoorthecommonlyusednotmarket.Thisstudyisintendedtobeatooltohelpacilitatediscussionowhattermsareappropriateinthecontextoaparticulartransactionandmorebroadlytoprovideinsightintoanimportantaspectomiddlemarkettransactions.Moresignifcantlygettingrolloverandmanagementincentiveequitytermsrightisoneotheprincipalwaysafnancialspon-sorcanwinoveraounderormanagementteam.Fromtheirperspectiverolloverandincentiveequityareamongthemostimportanteconomicaspectsoabuy-outtransaction.Knowinghowtostructurewin-winsolutionsisthereorecritical.ThefutureofthisstudyWeintendtomakethisstudyalivingdocumentthatwillbeupdatedandexpandedperiodicallyovertime.Weplantocapturetheevolutionotrendsandalongthewayaddareasosubjectmatterthatwillbeointeresttotheparticipantsinandreadersothisstudy.TothatendiyouhavenotyetparticipatedandwouldliketodosoiyouwerenotontheoriginalmailinglistandwouldliketobeoriyouhavesuggestionsoradditionalquestionsortopicspleasecontacteitherJohnLeClairejleclairegoodwinprocter.comorJonHerzogjherzoggoodwinprocter.com.aboutthIssuRveyGoodwinProcterRolloverSurvey 2Rolloverinterestsrangedfromapproximately8tonearly40inoursurveyrespondentstransactions.Rolloverinterestsrankparipassuwithsponsorequitymoreoftenthannot.Sponsorsecuritiesintransactionsinvolvingrolloversarepredominantlyintheformofparticipatingorstraightpreferredstock.Rolloversecuritiesarealmostalwayssubjecttodrag-alongprovisionsandsometimesaresubjecttocallrightsinfavorofthecompanyondepartureoftheholderorinothercircumstances.Over80ofsponsorssurveyedrequirerolloverinvestorstoagreetonon-competenon-solicitationprovisions.Theaveragesizeofmanagementequitypoolsofferedbythesponsorsrespondingtooursurveyis12.57.Managementincentivepoolsmostcommonlyinvolveablendofperformancevestingandtime-basedvesting.Returnoninvestedcapitalisthemostcommonperformancevestingmetric.Protinterestsareusedinlieuofoptionswithincreasingfrequency.executIvesummaRyoffIndIngs 3PercentageRangeofRolloverWhatisthetypicalpercentagerangeoftherolloverinyourfundsmajoritytransactionsDriversofPercentageRangeofRolloverWhatdrivesthedeterminationofpercentrangeoftherolloverinyourfundsmajoritytransactionsFundpolicyNegotiatingleverageinthetransactionsValuationTaxconsiderationsOther162422726AverageMin8.75Max39.20scoPeandnatuReofRolloveRInteRests1NoteThisquestionallowedparticipantstochooseallanswersthatapplied. IstheRolloverPariPassuDoSellersrolloversecuritiesrankparipassuwithsecuritiespurchasedbyyourfundVestingRequirementsArerolloversecuritiestypicallysubjecttovestingrequirementsYesalmostalwaysNoalmostalwaysjuniortousDependsonunderlyingeconomicsofthetransactione.g.purchaseprice41.321.737YesalmostalwaysOccasionallyRarelyNo8.322.964.64.24 5TimingofDividendPaymentsWhenaredividendspaidsubsetofdealswithaccumulatingdividendsReturnofCapitalinanIPOIfyourfundacquiresaParticipatingPreferredStockdoyougetyourpreferencecapitalreturneduponIPOAccumulatedandpaidattimeofliquidityPaidcurrently928YesNostockconvertstocommoninIPO5446chaRacteRIstIcsofbuyeRsecuRItIes2TypesofSecuritiesTypicalSecuritiesPurchasedbyBuyoutSponsorsParticipatingPreferredStockorsimilarLLCinterestsentitledtobothreturnofcapitalwithorwithoutaccumulateddividendsandapro-ratashareoftheresidualequityinterestPreferredStockorsimilarLLCinterestsentitledtothegreaterofreturnofcapitalwithorwithoutaccumulateddividendsorapro-ratashareoftheresidualequityinterestAstripofRedeemablePreferredStockandCommonStockCommonStockOther6.339.629.210.414.5 RestrictionsandLimitationsArerolloversecuritiessubjecttodrag-alongforcedsaleinfavorofthefundssecuritiesRolloverRightsWhatrightsdoyoutypicallyofferholdersofrolloversecuritiesYesalmostalwaysYeswheninvestmentisatleast85ofcompanyRarelyornever95.74.30204060801007527.122.981.312.581.358.3PreemptiveRightstopurchasenewissuancesofsecuritiesRegistrationRightsS-1DemandRightsRegistrationRightsS-3RightsRegistrationRightsPiggybackregistrationrightsRightofFirstRefusalFirstOfferRightofTag-AlongCo-SaleBoardrepresentationexceptseatreservedforCEOpresidentteRmsofselleRsRolloveRsecuRItIes3NoteThisquestionallowedparticipantstochooseallanswersthatapplied.6 7AverageSizeAverageSizeofManagementIncentiveEquityPoolsAveragePoolGrantSizebyPositionAverageEquityPercentageSetAsideforManagementPerformanceMetricsPerformance-basedvestingisbasedonAverage12.57ManagementLevelAverageCEO7.45CFO2.97OtherC-Levels4.95OutsideDirectors1.0901020304050607080458022.5IRRReturnoninvestmentcapitalOthermanagementIncentIveequItyPools4NoteThistopicisparticularlydependentonindustrylocaleandsituation.NoteThisquestionallowedparticipantstochooseallanswersthatapplied.AverageVestingAverageVestingTermsfortheManagementIncentiveEquityPoolsVestingMethodAverageTime-basedvesting55.1Performance-basedvesting44.9 OptionsandProftsInterestsHowisthemanagementequityincentivepoolstructuredRepurchaseoVestedManagementEquityWhencanthecompanyrepurchasevestedmanagementincentiveequityProftsInterestsasanEquityIncentiveToolDoyouuseproftsinterestsasanequityincentivetoolormanagementOptionsProfitsinterestsRestrictedstockactualstocksubjecttorepurchaserightifnotpurchasedRestrictedstockunitspromisetoissuestockatlaterdateeventOther38.634.118.26.82.3TerminationofemployeeforanyreasonTerminationofemployeeforbadleaverreasonse.g.quittingfiredforcause47.752.3RarelyFrequentlyNever5038.611.48 9TypesofPost-ClosingCovenantsDoyouseekpost-closingnon-competeornon-solicitationcovenantsLengthofRestrictionsPlacedontheConductofRolloverSecurityHoldersNon-competitionagreementslasthowmanyyearsfollowingthetransactionCoverageofNon-SolicitationNon-solicitationagreementscoverAverageNumberofyears3.7102040608010085.491.76.3YesNon-competeYesNon-solicitationnon-hireNA02040608010082.615.250EmployeesofthecompanyOnlysenioremployeesofthecompanyFormeremployeesofthecompanyCustomers21.7RestRIctIonsonselleRconduct5NoteThisquestionallowedparticipantstochooseallanswersthatapplied.NoteThisquestionallowedparticipantstochooseallanswersthatapplied. 10LimitationsonFundInvestmentsIsyourfundpermittedtoinvestdirectlyintoanLLCoperatingcompanyYesYessubjecttocompliancewithorwaiverofacovenantregardingUBTIunrelatedbusinesstaxableincomeandorECIeectivelyconnectedincomeOnlywithablockerstructureorstructurenotinvolvingpurchaseofequitysecuritiesNo3244204mIscellaneousfundchaRacteRIstIcs6 11RolloverTaxIssuesMostrolloverinvestorsseektorollovertheirequityinterestsonatax-deerredbasis.Atax-deerredrolloverwillreducethevalueoanytaxwrite-upoacquiredassetsinconnectionwithanacquisition.Rolloversomorethan20canraisetaxissuesorcertaincompaniesintransactionswhereataxwrite-upissought.ThroughtheuseoLLCsequity-likeinterestsintheormooptionsorphantomequitycanberolledoverintotrueequityinthebuyeronatax-ecientbasisalbeitwitheconomicrisktotheholderoequityvaluedoesnotincrease.Rolloverequityisusuallyullyvestedalthoughitissometimessubjecttorepurchaseorevenoreitureispeciedadverseeventsoccursuchasengagingincompetitiveactivities.Putrightsinavorotheholdersorolloverequityarerelativelyrareandareexceedinglyrareinthecaseomanagementincentiveequity.Forbothsellingstockholdersandsponsorsseekingtowoothemattentiontoestateplanningopportunitiesrelatingtorolloverinterestsisasmartwaytogenerateadditionalvalue.SecurityStructuringIssuesThedataandourviewowhatwemostrequentlyobserveinthecurrentmarketplacesuggestthatparipassutreatmentorrollovershasbecomeairlycommon.Tosomeextentthisrefectsanevolutionovertimeromaperiodwhenrolloverinterestsweremorecommonlysubordinatedtothesponsorsequitypresumablyrefectingincreasedcompetitionortrans-actions.ParticipatingpreerredstockenablesasponsorandrolloverinvestorstotheextenttheyholdsuchasecuritytoenhancetheirreturnsinasaleorinsomecasesanIPOwiththeeconomiceectbornebythemanagementincentiveequitypool.HistoricallymanysponsorspreerredstockstructuresespeciallyontheWestCoastprovidedorareturnocapitalplusaresidualequityinterestonasalebutnotinanIPO.InmorerecentyearssponsorsecuritystructurestendtotreattheseeventssimilarlyandsponsorslookorunderwriterswhocandeliverareturnotheircapitalasauseoproceedswhenselectingthemortheirIPOtransactions.PreerredsecuritiesthatreturncapitalonanIPOcancreatetaxissuesthatrequirestructuralattention.TheincreaseduseoLLCsinthepast15yearsorsohasundamentallyaectedthestructureoprivateequitydeals.ManysponsorsnowhavethefexibilitytoinvestdirectlyinLLCsnotwithstandingtheUBTIECIeectsandmanywhocannotinvestdirectlyareallowedundertheirundstructurestocreatealternativeinvestmentvehiclestoallowinvestorswhowishtodosotoinvestdirectlywhileretainingablockerstructureorUBTIECIsensitiveinvestors.obseRvatIonsGoodwinProcterRolloverSurvey 1213ManagementIncentiveEquityPotentialadverseandothertaxeectsresultingromtheuseoablockerstructurecanbeaddressedthroughvariousmea-suressuchascapitalizingtheblockerpartiallywithdebtrequiringexitsbysaleotheblockersstockandcreativeuseoamortizationinsidetheblocker.Principalinstrumentsusedormanagementincentiveequitypoolsincludeoptionsrestrictedstocksometimesacquiredwiththeproceedsoloansromthecompanyproftsinterestsandvariousormsophantomequitysometimesincombination.Timevestedequityinmanagementincentivepoolstypicallyvestsoverthreetofveyearswithmatterssuchastheinter-valsorvestingannualquarterlyormonthlysometimeswithinitialcliperiodstreatmentonsalenoaccelerationpartialaccelerationsocalleddoubletriggeraccelerationullaccelerationtreatmentovestedandunvestedawardsonterminationoemploymentlossounvestedsharespartialaccelerationorullaccelerationonafringwithoutcauseoraresignationorgoodreasonandcallprovisionsallsubjectsoleverageinnegotiationsandthecustomarypracticesotherelevantsponsor.Treatmentoincentiveequitythatissubjecttoperormancevestingonterminationotherelationshipcanalsobeasubjectonegotiationalthoughattainmentotherelevantperormancehurdlesisarequirementthatisalwaysapplicable.Manyperormancevestingarrangementsarestructuredsuchthatmanagementenjoyssuccessivelyhigherequitystakesasthesponsorsreturnrisese.g.10generallyata2xreturn15ata3xreturnetc.Thedetailsowaterallprovisionsinperormancevestingarrangementsareimportante.g.asponsorwillnotwanttoshareequitybasedon2xreturnisomeothatreturnisheldinescroworsubjecttoacontingencyorisintheormoilliquidsecuritiesthatcoulddeclineinvalue.Thedetailsowaterallprovisionsthatrelatetoincentiveequityarealsoimportantrommanagementsperspective.Forexamplemanagementtypicallyseekstoassurethatincentiveequitypaysoutwheneverthesponsorsbenchmarkreturniscrystalizedevenithisoccurssubsequenttoaliquidityeventandseekstoassurethattheullvalueotheirshareswillbepaidromincrementalproceedsoncethesponsorsbenchmarkreturnisrealizedbeoresharingincrementalvalueabovethebenchmark.Possiblechangestotaxlawsrelatingtoproftsinterestsinconnectionwiththelargernationaldebateoverbudgetandtaxpolicycouldundamentallyaectthestructuresomanagementincentiveequityarrangements.obseRvatIonscontInuedGoodwinProcterRolloverSurvey 13AboutPrivateEquityPracticeGoodwinProctersPrivateEquityPracticeocusesonbuyoutsrecapitalizationsgrowthequityinvestmentsandportoliocompanytransactionsrepresentingbothsingleinvestorsandclubs.Withateamoover100attorneyswerepresentclientsacrosstheglobeandcovertheullliecycleotheirinvestmentsromundormationtoexitandeverythinginbetween.Weareparticularlyknownorstructuringinnovativetax-advan-tagedsolutionsorourclientsandorourpracticalclient-orientedapproach.WeareconsistentlynamedamongthenationstoplawfrmsorbuyoutsventurecapitalinvestmentandundormationbyavarietyoleadingindustrypublicationsincludingPrivateEquityAnalystBuyoutsMagazineMergermarketChambersUSAU.S.News-BestLawyersandLegal500.FormoreinormationaboutourPrivateEquityPracticepleasevisitwww.goodwinprocter.compracticesprivate-equity.aspx.AboutGoodwinProcterGoodwinProcterLLPisoneothenationsleadinglawfrmswithofcesinBostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyandWashingtonD.C.ThefrmprovidescorporatelawandlitigationserviceswithaocusonmattersinvolvingprivateequityrealestateREITsandrealestatecapitalmarketstechnologycompaniesfnancialinstitutionsintellectualpropertyproductsliabilityandmasstortsandsecuritieslitigationandwhitecollardeense.Formoreinormationvisitwww.goodwinprocter.com.FollowusonTwitterGoodwinProcter. 16BostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyWashingtonDCwww.goodwinprocter.com2013GoodwinProcterLLP.Allrightsreserved.Thisinormationalpiecewhichmaybeconsideredadvertisingundertheethicalrulesocertainjurisdic-tionsisprovidedwiththeunderstandingthatitdoesnotconstitutetherenderingolegaladviceorotherproessionaladvicebyGoodwinProcterLLPGoodwinProcterUKLLPortheirattorneys.Priorresultsdonotguaranteesimilaroutcome.GoodwinProcterLLPisalimitedliabilitypartnershipwhichoperatesintheUnitedStatesandhasaprincipallawofcelocatedat53StateStreetBostonMA02109.GoodwinProcterUKLLPisaseparatelimitedliabilitypartnershipregisteredinEnglandandWaleswithregisterednumberOC362294.ItsregisteredofceisatTower4225OldBroadStreetLondonEC2N1HQ.AlistothenamesothemembersoGoodwinProcterUKLLPisavailableorinspectionattheregisteredofce.GoodwinProcterUKLLPisauthorizedandregulatedbytheSolicitorsRegulationAuthority.
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1RolloveRandIncentIveequItyteRmsInmIddlemaRketPRIvateequIty2013suRvey AboutThisSurvey..........................................................................................................1ExecutiveSummaryofFindings......................................................................................21-ScopeandNatureofRolloverInterests.......................................................................3PercentageRangeoRolloverDriversoPercentageRangeoRolloverIstheRolloverPariPassuVestingRequirements2-CharacteristicsofBuyerSecurities..............................................................................5TypesoSecuritiesTimingoDividendPaymentsReturnoCapitalinanIPO3-TermsofSellersRolloverSecurities............................................................................6RestrictionsandLimitationsRolloverRights4-ManagementEquityIncentivePools..........................................................................7AverageSizeAveragePoolGrantSizebyPositionAverageVestingPerormanceMetricsOptionsandProftsInterestsProftInterestsasanEquityIncentiveToolRepurchaseoVestedManagementEquity5-RestrictionsonSellerConduct...................................................................................9TypesoPost-ClosingCovenantsLengthoRestrictionsPlacedontheConductoRolloverSecurityHoldersCoverageoNon-Solicitation6-MiscellaneousFundCharacteristics.........................................................................10LimitationsonFundInvestmentsObservations.................................................................................................................11tableofcontentsGoodwinProcterRolloverSurvey 1Inanyprivateequitytransactionthearchitectureorolloverequityandmanagementincentiveequityiscriticallyimportant.Whileexhaustivestudiesexistonothermatterssuchastransactiontermsintheacquisitioncontextorthecontoursomanage-mentequityinpubliccompaniesthereislittlepubliclyavailabledataconcerningrolloversandmanagementincentiveequityinprivateequitytransactions.HowwediditWesentoursurveytoournetworkoprivateequityclientsandriendsprincipallyinthemiddlemarket.Respondentswerepromisedconfdentialityastoboththeiridentitiesandtheirspecifcresponses.Ourinquirywaslimitedtotransactionsinvolv-ingacquisitionsoacontrollinginterest.Therewasnoocusonanyparticularindustrysegmentorgeography.Wereceivedcompletedresponsesromover50frms.HowitcanbehelpfulBeingabletociteastudyonaparticularpointrarelyieverwinsapointoryourside.Howevertheuseosuchstudiescanquicklyandefcientlyconvincetheothersidethatyourpositionisnotnovelnorunheardoorthecommonlyusednotmarket.Thisstudyisintendedtobeatooltohelpacilitatediscussionowhattermsareappropriateinthecontextoaparticulartransactionandmorebroadlytoprovideinsightintoanimportantaspectomiddlemarkettransactions.Moresignifcantlygettingrolloverandmanagementincentiveequitytermsrightisoneotheprincipalwaysafnancialspon-sorcanwinoveraounderormanagementteam.Fromtheirperspectiverolloverandincentiveequityareamongthemostimportanteconomicaspectsoabuy-outtransaction.Knowinghowtostructurewin-winsolutionsisthereorecritical.ThefutureofthisstudyWeintendtomakethisstudyalivingdocumentthatwillbeupdatedandexpandedperiodicallyovertime.Weplantocapturetheevolutionotrendsandalongthewayaddareasosubjectmatterthatwillbeointeresttotheparticipantsinandreadersothisstudy.TothatendiyouhavenotyetparticipatedandwouldliketodosoiyouwerenotontheoriginalmailinglistandwouldliketobeoriyouhavesuggestionsoradditionalquestionsortopicspleasecontacteitherJohnLeClairejleclairegoodwinprocter.comorJonHerzogjherzoggoodwinprocter.com.aboutthIssuRveyGoodwinProcterRolloverSurvey 2Rolloverinterestsrangedfromapproximately8tonearly40inoursurveyrespondentstransactions.Rolloverinterestsrankparipassuwithsponsorequitymoreoftenthannot.Sponsorsecuritiesintransactionsinvolvingrolloversarepredominantlyintheformofparticipatingorstraightpreferredstock.Rolloversecuritiesarealmostalwayssubjecttodrag-alongprovisionsandsometimesaresubjecttocallrightsinfavorofthecompanyondepartureoftheholderorinothercircumstances.Over80ofsponsorssurveyedrequirerolloverinvestorstoagreetonon-competenon-solicitationprovisions.Theaveragesizeofmanagementequitypoolsofferedbythesponsorsrespondingtooursurveyis12.57.Managementincentivepoolsmostcommonlyinvolveablendofperformancevestingandtime-basedvesting.Returnoninvestedcapitalisthemostcommonperformancevestingmetric.Protinterestsareusedinlieuofoptionswithincreasingfrequency.executIvesummaRyoffIndIngs 3PercentageRangeofRolloverWhatisthetypicalpercentagerangeoftherolloverinyourfundsmajoritytransactionsDriversofPercentageRangeofRolloverWhatdrivesthedeterminationofpercentrangeoftherolloverinyourfundsmajoritytransactionsFundpolicyNegotiatingleverageinthetransactionsValuationTaxconsiderationsOther162422726AverageMin8.75Max39.20scoPeandnatuReofRolloveRInteRests1NoteThisquestionallowedparticipantstochooseallanswersthatapplied. IstheRolloverPariPassuDoSellersrolloversecuritiesrankparipassuwithsecuritiespurchasedbyyourfundVestingRequirementsArerolloversecuritiestypicallysubjecttovestingrequirementsYesalmostalwaysNoalmostalwaysjuniortousDependsonunderlyingeconomicsofthetransactione.g.purchaseprice41.321.737YesalmostalwaysOccasionallyRarelyNo8.322.964.64.24 5TimingofDividendPaymentsWhenaredividendspaidsubsetofdealswithaccumulatingdividendsReturnofCapitalinanIPOIfyourfundacquiresaParticipatingPreferredStockdoyougetyourpreferencecapitalreturneduponIPOAccumulatedandpaidattimeofliquidityPaidcurrently928YesNostockconvertstocommoninIPO5446chaRacteRIstIcsofbuyeRsecuRItIes2TypesofSecuritiesTypicalSecuritiesPurchasedbyBuyoutSponsorsParticipatingPreferredStockorsimilarLLCinterestsentitledtobothreturnofcapitalwithorwithoutaccumulateddividendsandapro-ratashareoftheresidualequityinterestPreferredStockorsimilarLLCinterestsentitledtothegreaterofreturnofcapitalwithorwithoutaccumulateddividendsorapro-ratashareoftheresidualequityinterestAstripofRedeemablePreferredStockandCommonStockCommonStockOther6.339.629.210.414.5 RestrictionsandLimitationsArerolloversecuritiessubjecttodrag-alongforcedsaleinfavorofthefundssecuritiesRolloverRightsWhatrightsdoyoutypicallyofferholdersofrolloversecuritiesYesalmostalwaysYeswheninvestmentisatleast85ofcompanyRarelyornever95.74.30204060801007527.122.981.312.581.358.3PreemptiveRightstopurchasenewissuancesofsecuritiesRegistrationRightsS-1DemandRightsRegistrationRightsS-3RightsRegistrationRightsPiggybackregistrationrightsRightofFirstRefusalFirstOfferRightofTag-AlongCo-SaleBoardrepresentationexceptseatreservedforCEOpresidentteRmsofselleRsRolloveRsecuRItIes3NoteThisquestionallowedparticipantstochooseallanswersthatapplied.6 7AverageSizeAverageSizeofManagementIncentiveEquityPoolsAveragePoolGrantSizebyPositionAverageEquityPercentageSetAsideforManagementPerformanceMetricsPerformance-basedvestingisbasedonAverage12.57ManagementLevelAverageCEO7.45CFO2.97OtherC-Levels4.95OutsideDirectors1.0901020304050607080458022.5IRRReturnoninvestmentcapitalOthermanagementIncentIveequItyPools4NoteThistopicisparticularlydependentonindustrylocaleandsituation.NoteThisquestionallowedparticipantstochooseallanswersthatapplied.AverageVestingAverageVestingTermsfortheManagementIncentiveEquityPoolsVestingMethodAverageTime-basedvesting55.1Performance-basedvesting44.9 OptionsandProftsInterestsHowisthemanagementequityincentivepoolstructuredRepurchaseoVestedManagementEquityWhencanthecompanyrepurchasevestedmanagementincentiveequityProftsInterestsasanEquityIncentiveToolDoyouuseproftsinterestsasanequityincentivetoolormanagementOptionsProfitsinterestsRestrictedstockactualstocksubjecttorepurchaserightifnotpurchasedRestrictedstockunitspromisetoissuestockatlaterdateeventOther38.634.118.26.82.3TerminationofemployeeforanyreasonTerminationofemployeeforbadleaverreasonse.g.quittingfiredforcause47.752.3RarelyFrequentlyNever5038.611.48 9TypesofPost-ClosingCovenantsDoyouseekpost-closingnon-competeornon-solicitationcovenantsLengthofRestrictionsPlacedontheConductofRolloverSecurityHoldersNon-competitionagreementslasthowmanyyearsfollowingthetransactionCoverageofNon-SolicitationNon-solicitationagreementscoverAverageNumberofyears3.7102040608010085.491.76.3YesNon-competeYesNon-solicitationnon-hireNA02040608010082.615.250EmployeesofthecompanyOnlysenioremployeesofthecompanyFormeremployeesofthecompanyCustomers21.7RestRIctIonsonselleRconduct5NoteThisquestionallowedparticipantstochooseallanswersthatapplied.NoteThisquestionallowedparticipantstochooseallanswersthatapplied. 10LimitationsonFundInvestmentsIsyourfundpermittedtoinvestdirectlyintoanLLCoperatingcompanyYesYessubjecttocompliancewithorwaiverofacovenantregardingUBTIunrelatedbusinesstaxableincomeandorECIeectivelyconnectedincomeOnlywithablockerstructureorstructurenotinvolvingpurchaseofequitysecuritiesNo3244204mIscellaneousfundchaRacteRIstIcs6 11RolloverTaxIssuesMostrolloverinvestorsseektorollovertheirequityinterestsonatax-deerredbasis.Atax-deerredrolloverwillreducethevalueoanytaxwrite-upoacquiredassetsinconnectionwithanacquisition.Rolloversomorethan20canraisetaxissuesorcertaincompaniesintransactionswhereataxwrite-upissought.ThroughtheuseoLLCsequity-likeinterestsintheormooptionsorphantomequitycanberolledoverintotrueequityinthebuyeronatax-ecientbasisalbeitwitheconomicrisktotheholderoequityvaluedoesnotincrease.Rolloverequityisusuallyullyvestedalthoughitissometimessubjecttorepurchaseorevenoreitureispeciedadverseeventsoccursuchasengagingincompetitiveactivities.Putrightsinavorotheholdersorolloverequityarerelativelyrareandareexceedinglyrareinthecaseomanagementincentiveequity.Forbothsellingstockholdersandsponsorsseekingtowoothemattentiontoestateplanningopportunitiesrelatingtorolloverinterestsisasmartwaytogenerateadditionalvalue.SecurityStructuringIssuesThedataandourviewowhatwemostrequentlyobserveinthecurrentmarketplacesuggestthatparipassutreatmentorrollovershasbecomeairlycommon.Tosomeextentthisrefectsanevolutionovertimeromaperiodwhenrolloverinterestsweremorecommonlysubordinatedtothesponsorsequitypresumablyrefectingincreasedcompetitionortrans-actions.ParticipatingpreerredstockenablesasponsorandrolloverinvestorstotheextenttheyholdsuchasecuritytoenhancetheirreturnsinasaleorinsomecasesanIPOwiththeeconomiceectbornebythemanagementincentiveequitypool.HistoricallymanysponsorspreerredstockstructuresespeciallyontheWestCoastprovidedorareturnocapitalplusaresidualequityinterestonasalebutnotinanIPO.InmorerecentyearssponsorsecuritystructurestendtotreattheseeventssimilarlyandsponsorslookorunderwriterswhocandeliverareturnotheircapitalasauseoproceedswhenselectingthemortheirIPOtransactions.PreerredsecuritiesthatreturncapitalonanIPOcancreatetaxissuesthatrequirestructuralattention.TheincreaseduseoLLCsinthepast15yearsorsohasundamentallyaectedthestructureoprivateequitydeals.ManysponsorsnowhavethefexibilitytoinvestdirectlyinLLCsnotwithstandingtheUBTIECIeectsandmanywhocannotinvestdirectlyareallowedundertheirundstructurestocreatealternativeinvestmentvehiclestoallowinvestorswhowishtodosotoinvestdirectlywhileretainingablockerstructureorUBTIECIsensitiveinvestors.obseRvatIonsGoodwinProcterRolloverSurvey 1213ManagementIncentiveEquityPotentialadverseandothertaxeectsresultingromtheuseoablockerstructurecanbeaddressedthroughvariousmea-suressuchascapitalizingtheblockerpartiallywithdebtrequiringexitsbysaleotheblockersstockandcreativeuseoamortizationinsidetheblocker.Principalinstrumentsusedormanagementincentiveequitypoolsincludeoptionsrestrictedstocksometimesacquiredwiththeproceedsoloansromthecompanyproftsinterestsandvariousormsophantomequitysometimesincombination.Timevestedequityinmanagementincentivepoolstypicallyvestsoverthreetofveyearswithmatterssuchastheinter-valsorvestingannualquarterlyormonthlysometimeswithinitialcliperiodstreatmentonsalenoaccelerationpartialaccelerationsocalleddoubletriggeraccelerationullaccelerationtreatmentovestedandunvestedawardsonterminationoemploymentlossounvestedsharespartialaccelerationorullaccelerationonafringwithoutcauseoraresignationorgoodreasonandcallprovisionsallsubjectsoleverageinnegotiationsandthecustomarypracticesotherelevantsponsor.Treatmentoincentiveequitythatissubjecttoperormancevestingonterminationotherelationshipcanalsobeasubjectonegotiationalthoughattainmentotherelevantperormancehurdlesisarequirementthatisalwaysapplicable.Manyperormancevestingarrangementsarestructuredsuchthatmanagementenjoyssuccessivelyhigherequitystakesasthesponsorsreturnrisese.g.10generallyata2xreturn15ata3xreturnetc.Thedetailsowaterallprovisionsinperormancevestingarrangementsareimportante.g.asponsorwillnotwanttoshareequitybasedon2xreturnisomeothatreturnisheldinescroworsubjecttoacontingencyorisintheormoilliquidsecuritiesthatcoulddeclineinvalue.Thedetailsowaterallprovisionsthatrelatetoincentiveequityarealsoimportantrommanagementsperspective.Forexamplemanagementtypicallyseekstoassurethatincentiveequitypaysoutwheneverthesponsorsbenchmarkreturniscrystalizedevenithisoccurssubsequenttoaliquidityeventandseekstoassurethattheullvalueotheirshareswillbepaidromincrementalproceedsoncethesponsorsbenchmarkreturnisrealizedbeoresharingincrementalvalueabovethebenchmark.Possiblechangestotaxlawsrelatingtoproftsinterestsinconnectionwiththelargernationaldebateoverbudgetandtaxpolicycouldundamentallyaectthestructuresomanagementincentiveequityarrangements.obseRvatIonscontInuedGoodwinProcterRolloverSurvey 13AboutPrivateEquityPracticeGoodwinProctersPrivateEquityPracticeocusesonbuyoutsrecapitalizationsgrowthequityinvestmentsandportoliocompanytransactionsrepresentingbothsingleinvestorsandclubs.Withateamoover100attorneyswerepresentclientsacrosstheglobeandcovertheullliecycleotheirinvestmentsromundormationtoexitandeverythinginbetween.Weareparticularlyknownorstructuringinnovativetax-advan-tagedsolutionsorourclientsandorourpracticalclient-orientedapproach.WeareconsistentlynamedamongthenationstoplawfrmsorbuyoutsventurecapitalinvestmentandundormationbyavarietyoleadingindustrypublicationsincludingPrivateEquityAnalystBuyoutsMagazineMergermarketChambersUSAU.S.News-BestLawyersandLegal500.FormoreinormationaboutourPrivateEquityPracticepleasevisitwww.goodwinprocter.compracticesprivate-equity.aspx.AboutGoodwinProcterGoodwinProcterLLPisoneothenationsleadinglawfrmswithofcesinBostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyandWashingtonD.C.ThefrmprovidescorporatelawandlitigationserviceswithaocusonmattersinvolvingprivateequityrealestateREITsandrealestatecapitalmarketstechnologycompaniesfnancialinstitutionsintellectualpropertyproductsliabilityandmasstortsandsecuritieslitigationandwhitecollardeense.Formoreinormationvisitwww.goodwinprocter.com.FollowusonTwitterGoodwinProcter. 16BostonHongKongLondonLosAngelesNewYorkSanDiegoSanFranciscoSiliconValleyWashingtonDCwww.goodwinprocter.com2013GoodwinProcterLLP.Allrightsreserved.Thisinormationalpiecewhichmaybeconsideredadvertisingundertheethicalrulesocertainjurisdic-tionsisprovidedwiththeunderstandingthatitdoesnotconstitutetherenderingolegaladviceorotherproessionaladvicebyGoodwinProcterLLPGoodwinProcterUKLLPortheirattorneys.Priorresultsdonotguaranteesimilaroutcome.GoodwinProcterLLPisalimitedliabilitypartnershipwhichoperatesintheUnitedStatesandhasaprincipallawofcelocatedat53StateStreetBostonMA02109.GoodwinProcterUKLLPisaseparatelimitedliabilitypartnershipregisteredinEnglandandWaleswithregisterednumberOC362294.ItsregisteredofceisatTower4225OldBroadStreetLondonEC2N1HQ.AlistothenamesothemembersoGoodwinProcterUKLLPisavailableorinspectionattheregisteredofce.GoodwinProcterUKLLPisauthorizedandregulatedbytheSolicitorsRegulationAuthority.