Planning for an IPO D&O Insurance Considerations

March 2014

IPO D&O Underwriting Profile / Risk Factors

Size of offering / Projected Market Capitalization / Public Float

Selling Shareholders

Regulatory Compliance

Experience of management with IPOs and public company experience

Use of funds from the offering

Address Risk Factors identified in S-1

Earnings Guidance

Profitability of the Company / Projected financials post offering

Managing Growth

Industry / Barriers to Entry / Innovation

Debt levels and liquidity positions

Corporate Governance Policies – board composition, audit and compensation committee, SOX procedures, financial reporting protocols, evaluation of key accounting measures, insider trading protocols, etc.

Go-Forward Strategy Plans for a secondary offering M&A Activity

Litigation

22

Private to Public Coverage Considerations

Road Show Coverage (Private company policy) Claims made by security holders for failure to undertake / complete IPO Includes the preparation for any public offering including presentations

Properly address SEC exposures Coverage for SEC exposures (‘33 Act and ‘34 Act) will be included in public program. Public form to incept the date of the pricing.

Scope of Entity Coverage – How coverage will change Private Form – entity coverage for all claims alleging wrongful acts. Public Form – entity coverage only applies to security claims.

Transition Option #1 - Private form cancelled at pricing date and public form incepts with full

continuity Lose non-securities entity coverage. Unearned premium credited against public form premiums. More cost efficient.

Option #2 – Private form, six year run-off (tail) purchased and new public form incepts at pricing date. Maintains entity coverage for non-securities claims. Potential issues with claims that bridge the pricing date. Can be mitigated with properly crafted policy

language. Public companies generally carry higher limits and use market capitalization as a key

metric when benchmarking limits. Potential damages (loss of shareholder value) will drive estimated damages and settlements. Encourage securities claim loss modeling.

3

JOBS Act IPOs – D&O Insurance Market Conditions D&O Underwriters view JOBS Act IPOs as having more risk.

Reduced disclosure requirements No immediate requirement of SOX 404 auditor attestation

Underwriters Will Offer Less Capacity Typical IPO has little trouble securing $10M in primary layer capacity. JOBS Act Companies will receive fewer options for $10M (many carriers will only offer

$5M).

Higher Retentions 2 years ago – “typical” small IPO or public company renewal would have a securities

retention as low as $250K. Now – smaller public companies are seeing pressure on retentions, and separate M&A

retentions of $1M or above. JOBS Act IPOs – likely to see retentions starting at $750K - $1M for all claims.

Pricing – smaller IPOs generally see primary layer pricing in the high teens per $million of limit. JOBS Act IPOs generally fall between $20K and $30K per $million.

Terms and Conditions – generally the same as other public companies / IPOs. Market evolving.

IPO Players: AIG, AXIS, XL – Lockton has had the most success with these carriers. Others: ACE, Chubb, CNA, Zurich, Beazley, Hiscox, Great American, AWAC, ARCH, and Travelers.

IPO Timeline and Company Risk Profile

120 Days

60 – 45 Days 30 Days 15 Days

10 – 1 Days Pricing Day

IPO PreparationsOrganizational Meeting/

Management Due Diligence Presentations

Underwriter chosen and other key planning completed

D&O Insurance Program

Planning / Preparations

BeginTimeline drafted

Implementation and

Completion of Marketing.Insurance

underwriting meetings.

Lockton alerted as to the potential

offering date

Coverage incepts 12:01

AM to cover all past acts and those actions

within the policy period

Pre-Filing Period Waiting Period Quiet Period

IPO Filing Process – Securities Act of 1933 Exposure

Lockton to provide an overview of the IPO and Insurance

process, submission information required by underwriters and initial

consultation.

95 Days

Work on the registration statement commences. Due

diligence meeting; underwriting agreement drafted; audit

completed; board meetings; legal matters resolved; first

draft of prospectus completed.

Initial filings done; SEC review and “cooling off” period begins;

red herring distributed; sales effort and road show

undertaken; meetings on due diligence; Blue Sky filings

completed.

SEC comment letter received and

response to; pricing amendment filed;

acceleration requested.

Public offering begins; underwriting agreements signed; comfort letter given to underwriter; press release distributed and tombstone ad

run.

Closing proceeds received; final

documents and certificates exchanged;

accountant provides underwriter final

comfort letter

Exposure to SEC Laws

1933/1934 Exposure

Ongoing advice, claims

service/support. Delivery of policies

within 60 days.

1 – 10Days

5

Quotes Received and terms/pricing

finalized.