Corporate Venture Capital Essentials Insights on venture capital (VC) investing by corporations October 20, 2015

2 TABLE OF CONTENTS Panel Why Establish a Corporate VC Unit? Challenges in Establishing a Corporate VC Unit How Does a Corporate VC Attract Potential Companies? Current Market Practice, Terms and Conditions For VC Transactions Unique Rights a Corporate VC Unit Requests (Requires) What is Expected From a Corporate VC Unit After the Closing? Corporate VC Unit Timeline For Exit/Liquidity How Does a Corporate VC Unit Measure Success? Ethical Issues to Consider Sample Term Sheet

PANEL: Ziv Glickman, Senior Legal Counsel, SanDisk Corporation Kate Merrill, Deputy General Counsel, Intel Corporation Gregory Mulligan, General Counsel, Evonik Corporation Todd Finger (moderator), Partner, McDermott Will & Emery LLP 3

WHY ESTABLISH A CORPORATE VC UNIT? To partner with potential acquisition candidates Seeking a commercial advantage Return on investment (ROI) Accessing new technology, patents or know-how Accessing and analyzing market data and trends Promoting and maintaining a reputation as a leader of innovation Preventing competitors from obtaining a business or technological advantage 4

CHALLENGES IN ESTABLISHING A CORPORATE VC UNIT Establishing a “vision” Getting internal “buy-in”, including from C-level personnel Hiring/finding internally the proper personnel Establishing a large enough “fund” to do multiple transactions (with sufficient reserves for follow-on investments) Getting transactional support from within the corporation – e.g., diligence, expertise, etc. 5

CHALLENGES IN ESTABLISHING A CORPORATE VC UNIT (cont’d) Compensating the corporate VC unit team competitively Ensuring a corporate VC unit will enhance the corporation’s reputation Familiarizing corporation with the industry, issuers, the management/ technology team(s), the identity and strategy of competing investors, the competition, etc. 6

HOW DOES A CORPORATE VC ATTRACT POTENTIAL COMPANIES How do you position yourself, and your corporation? Will you co-invest with other investors? What are the basic minimum rights that a corporate VC must get - i.e. are there any deal breakers? Is entering into a commercial agreement a condition precedent to a closing (which could slow down a deal, and increase transaction expenses)? 7

CURRENT MARKET PRACTICE, TERMS AND CONDITIONS FOR VC TRANSACTIONS Preferred Stock: senior vs. pari passu; participation rights, etc. Dividend: accruing dividend vs. if and when declared (which they rarely are) Anti-Dilution Rights: weighted average Redemption Rights: often have it, rarely exercised Protective Provisions: how extensive are the protective provisions, and do they run to all of the preferred stock, or specific series of preferred stock 8

CURRENT MARKET PRACTICE, TERMS AND CONDITIONS FOR VC TRANSACTIONS (cont’d) Preemptive Rights: subject to customary exceptions First Offer and Co-Sale Rights: subject to customary exceptions Bring-Along Right: who can exercise the bring- along, and what protections, if any, are there for shareholders 9

CURRENT MARKET PRACTICE, TERMS AND CONDITIONS FOR VC TRANSACTIONS (cont’d) Information Rights: annual and quarterly, but sometimes monthly; right to see budget before finalized Board/Observer Rights: director (with fiduciary duties) or observer (who is your director/observer?) Registration Rights: can holders of preferred cause the issuer to file an IPO? Expense Reimbursement: typical, and most often subject to a cap 10

CURRENT MARKET PRACTICE, TERMS AND CONDITIONS FOR VC TRANSACTIONS (cont’d) Other Types of Securities: convertible debt, warrants, etc. Consider using the form National Venture Capital Association (NVCA) documents to save time and money when investing in an early stage company – Securities Purchase Agreement, Certificate of Incorporation, Right of First Refusal & Co-Sale Agreement, Voting Agreement and Investor Rights Agreement 11

UNIQUE RIGHTS A CORPORATE VC UNIT REQUEST (REQUIRES)? “Right of First Offer” (or similar right) for an acquisition transaction “Right of First Offer” (or similar right) for a commercial transaction Contemporaneous license agreement Ability to exit investment without complying with transfer restrictions if it later presents legal, regulatory or reputational issues 12

UNIQUE RIGHTS A CORPORATE VC UNIT REQUEST (REQUIRES) (cont’d) Rights to receive data or information outside of customary information rights Protection against later pay-to-play (P2P) rounds; corporate VC units often do not have the same reserves as traditional VC firms Rights to provide future financing to the issuer, to the exclusion of other potential financiers (such as competitors) 13

WHAT IS EXPECTED FROM A CORPORATE VC UNIT AFTER THE CLOSING? The expected role is more than a mere financier Ability to guide and advise the issuer on relevant business issues, based on the corporation’s experience and knowledge of the market Joint development agreement (JDA), purchase or supply agreement, marketing and sales agreement, etc. 14

WHAT IS EXPECTED FROM A CORPORATE VC UNIT AFTER THE CLOSING? (cont’d) Ability to open doors and make introductions to potential partners and clients Introductions to potential clients Facilitate the testing of their technology Market check 15

CORPORATE VC UNIT TIMELINE FOR EXIT/LIQUIDITY Strategic transactions, timeline may be dictated by internal reasons For a pure investment (focused on ROI), timeline may be three to five years 16

HOW DOES A CORPORATE VC UNIT MEASURE SUCCESS? ROI Access to new technology and personnel Acquisitions or commercial transactions 17

ETHICAL ISSUES TO CONSIDER Information sharing within the corporation Corporate VC unit directors duties and obligations if issuer enters into commercial relationship with the corporation, or a competitor Issues that arise when the issuer raises money from a competitor or is collaborating with a competitor 18

19 Sample Term Sheet