Diamond Datascram Inc. is well-funded by private equity and considering going public and global. The company has caught on like fire and competition for top talent is becoming fierce! Polsinelli’s Labor and Employment attorneys will be joined by colleagues in the Securities & Corporate Finance and Employee Benefits & Executive Compensation practices to address issues common to companies in a strategic growth stage.

1. Eric E. Packel, Andrew Douglass, Gillian Bidgood,
Robert E. Entin, Kevin L. Vold
Diamond Datascram Diaries:
Diamond Datascram Dominance

2. Diamond Datascram

3. Diamond Datascram
 Datascram is a new Tech Company that
created “Datascram”, software which mines
and eliminates useless data.
 First installment of series – overview of
privacy issues; protecting the program;
Human Resources system; Employment
Agreements and Restrictive Covenant
Drafting.

4. Today
 Datascram expanding
 Considering I.P.O.
 Executive Compensation/Incentives
 Hiring from Competitors
 Staffing Arrangements

5. Press Release
Skokie, IL, May 9, 2017 /PRNewswire/ -- Diamond Datascram Inc. (“Datascram") announced today that it has confidentially
submitted a draft registration statement on Form S-1 to the U.S. Securities and Exchange Commission (the "SEC") relating to its
proposed initial public offering of common stock. Datascram intends to apply to list its shares on the Nasdaq Global Market. The
number of shares to be offered and the price range for the proposed offering have not yet been determined. The initial public
offering is expected to commence after the SEC completes its review process, subject to market and other conditions.
This press release is being made pursuant to and in accordance with Rule 135 under the Securities Act of 1933 and shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities
laws of any such state or jurisdiction.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements. All of these statements are based on
management’s expectations as well as estimates and assumptions prepared by management that, although they believe to be
reasonable, are inherently uncertain. These statements involve risks and uncertainties, including, but not limited to, economic,
competitive, governmental and technological factors outside of Datascram’s control that may cause its business, industry,
strategy, financing activities or actual results to differ materially. Datascram undertakes no obligation to update or revise any of
the forward-looking statements contained herein, whether as a result of new information, future events or otherwise.
Diamond Datascram, Inc.
Art Vandalay
President of Investor Relations
vandalay@diamonddatascram.com

7. What is an I.P.O.?
 Historically, raising capital and listing the company’s shares on
a national securities exchange (NYSE or Nasdaq) in an initial
public offering registered with the U.S. Securities and
Exchange Commission has been viewed as a transformative
event in the corporate life cycle.
 In exchange for the privilege of obtaining liquidity from
appreciation in a company’s value, an IPO often comes at
significant costs in terms of loss of control by the founder, the
need to subject to company’s performance to quarterly
scrutiny from investors and the rise in influence of the
investing public on basic governance matters.

8. Consider IPO Alternatives
 Since the adoption of the JOBS Act, however, IPOs have lost
their luster to some extent
 Many alternatives to an IPO exist if the primary objective is
additional funding
– VC Financing
– Private Equity
 Public companies must be sufficiently mature to hold up to
analyst and investor scrutiny
– Maintaining an even keel over the long term is important;
must withstand quarterly fluctuations
 Cost/benefit analysis is critical

9. Advantages
 Raise capital. A company that completes a
traditional IPO will raise a significant amount of
capital that it can use in its business operations or
for other disclosed purposes.
 Provide liquidity to current stockholders. The
listing of the company’s stock will create an active
trading market and provide an avenue to liquidity
for current stockholders, who may have been
invested in the company for a substantial period
of time.

10. Advantages
 Future access to capital markets. Having an established
market for its stock will provide a company with name
recognition, as well as a readily ascertainable market value
for its stock. This will often make it easier to raise
additional capital in the future as needs arise.
 Acquisition currency. A liquid stock can also provide
currency for making acquisitions, thereby saving the
company’s cash for other purposes.
 Employee incentives. Companies with a market for their
stock have a greater ability to incentivize employees
through equity grants.

11. Disadvantages
 Deal costs can be high, and execution is uncertain. An IPO issuer in
an offering raising under $250 million of proceeds can expect:
– U/Ws’ Discount ≈ 7% in most deals
– SEC Filing Fees = $115.90 per $1MM of proceeds sought
– Auditors ≈ $0.5 - $1.0MM
– Legal ≈ $1.0 - $1.5MM, excluding costs for pre-IPO reorg
– Printing ≈ $0.25MM
– Misc. ≈ $0.25MM - $0.5MM
 Not all deals close. While some of these expenses may be netted
versus proceeds in a successful deal, all of those incurred must be
charged against earnings if the deal is abandoned. The “IPO
window” opens and closes sporadically, and market conditions
cannot be accurately predicted. Timing is critical to success.

12. Disadvantages
 Public company costs. Upon completion of a traditional IPO, a company will incur all of the
current and ongoing costs of being a publicly reporting company, including the costs of
complying with its Exchange Act reporting obligations and with applicable provisions of
Sarbanes-Oxley. It will also need to comply with the listing standards of its chosen exchange.
 Additional Staffing Requirements. Post-closing, these all hit the G&A line on the income
statement as incurred, so it is important to assess whether your business has these functions
in place at an appropriate level:
– Corp Strategy/Dev.
– Accounting & Financial Reporting
– Internal Audit
– Media/IR
– Treasury
– Risk Management
– Legal/Compliance
– Tax
– HR/Benefits Administration

13. Disadvantages
 Disclosure obligations. As part of its Exchange Act reporting obligations,
the company will be required to make extensive disclosures about its
business and operations, and provide detailed information about the
compensation of its directors and officers, related-party transactions, and
other matters. In addition, a company’s directors, officers and affiliates
will become subject to complex filing obligations and trading restrictions
under Section 13 and 16 of the Exchange Act.
 Increased risk of legal exposure. The company and its directors and
officers will be subject to potential liability under the federal securities
laws for material misstatements or omissions in its SEC filings and other
public disclosures. In addition, the duties and other obligations of the
company’s board of directors and officers, and their susceptibility to
claims for breaches of such duties, will increase substantially.

14. Planning for Post-IPO
Compensation
 Potentially, one of the most distracting items in an already complicated
process
 Requires a delicate, multi-party negotiation involving keenly interested
management teams, lead investors, prospective board members and, to a
lesser extent, managing underwriters, who are interested in maximizing
marketability by pushing for comparable “market” programs
 Tricky issue for prospective compensation committee members to handle,
since it is fairly rare for them to have a seat at the table or a neutral
advisor/consultant on which to rely for advice at the time of the deal
 ISS, other proxy advisory firms, the plaintiffs’ bar and shareholder activists
pay close attention to compensation issues, and will hold the committee
members responsible if they do not like the compensation program
adopted at the time of the IPO.

15. Incentive Compensation

16. Incentive Compensation
Considerations
 Pre-IPO planning is critical for incentive plans and executive
compensation arrangements
 Introducing new employee incentive compensation plans
prior to going public can be advantageous
– Establishing new plans with the flexibility to grant a variety
of incentive vehicles
• “Omnibus” equity plan gives newly public companies
the ability to adapt to evolving market practices
– Easier and less costly to implement a new plan while still a
private company
• Shareholder approval usually only requires support of
small group of founders and venture capital investors
16

17. Corporate Governance

18. Corporate Governance
 Public companies have increased
requirements for processes governing
compensation decisions
 Compensation Committee of two or more
independent directors is generally required
– Development of formal committee charter,
membership composition
– Selection and monitoring of independent
compensation consultant and other advisors
18

19. Post-IPO Compensation Practices
 Recognition that some employees may have
opportunities for large payouts from past
equity/incentive grants
 Company also needs to ensure that the
compensation program will be effective in
retaining top talent following IPO
 Compensation programs must be designed
and operated with all shareholder interests in
mind
19

20. Post-IPO Compensation Practices
 Establish a compensation strategy and pay
philosophy to address:
– Aligning executives with shareholders’ interests
– Achievement of business strategies
– Pay-for-performance to attract, motivate and
retain required talent
 Identification of peer group of similar
companies for setting target pay levels
20

21. Considerations for
Post-IPO Incentive Awards
 Establish both short-term and long-term goals
– How much equity-based vs. cash-based?
– Performance-based vesting vs. time-based?
– Tie incentives to income statement performance?
• Revenue, profitability goals, financial metrics, etc.
– Tie to attainment of strategic objectives?
• Government approvals, new product launches, etc.
 Additional restrictive covenants as conditions for
future awards?
– Any other HR objectives that can be supported
through future awards?
21

22. Hiring from Competitors

23. Hiring From Competitors
 “Do it yourself” or Retain Search Firm?
“Do it yourself”
– Greater awareness of where company has been
and where it wants to go.
– Budget concerns
– Awareness of culture
 Search Firm
– Provides a buffer from perception of poaching
– Firm’s database/resources
23

24. Hiring From Competitors
24
 Does Person Have Restrictive Covenant/Scope
– Non-Compete
– Non-Solicit
• Clients and Customers
• Vendors and Suppliers
• Employees and Contractors
 Geographic and Temporal Scope
– Where and for how long?
– Consider job duties.
 Scope of the Restriction(s)
– What cannot be done?
– Who can it not be done with?

25. Hiring From Competitors
 Non-Disclosure/Confidentiality Agreements
with prior employer?
 Trade Secrets of prior employer?
 Statement Datascram not interested in
C.I./T.S. of prior employer.
 Acknowledgement by New Hire – does not
possess/will not divulge C.I./T.S. of prior
employer.
25

26. Datascram Hires R&D Person
 Datascram wants to hire R&D person from
another company.
 Restrictive covenant only applies in Missouri.
 Datascram hiring for Illinois.
 Candidate was involved in creating program
for competitor.

27. Trade Secrets
“Trade Secret”
 Form of intellectual property (different from patents, copyright and
trademarks)
 Focus is on proprietary, commercially valuable, information
 Examples:
– Confidential manufacturing processes
– Formulae
– Customer lists
– Business plans/strategies
– Certain technologies

28. “Trade Secret”
 DTSA definition of “trade secret” is substantially similar to UTSA
– UTSA - Trade secret is “. . . information . . . that: (i) derives independent
economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.”
– DTSA - Trade secret is “. . . information . . . , whether tangible or intangible,
and whether or how stored, compiled, or memorialized physically,
electronically, graphically, photographically, or in writing if— (A) the owner
thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable
through proper means by, the public.”
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29.  “Misappropriation”:
– (i) Acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret was acquired by improper means;
– (ii) Disclosure or use of a trade secret of another without express or implied
consent by a person who:
• used improper means to acquire knowledge of the trade secret; or
• at the time of disclosure or use, knew or had reason to know that his knowledge of the
trade secret was
– derived from or through a person who had utilized improper means to acquire it;
– acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
– derived from or through a person who owed a duty to the person seeking relief to maintain
its secrecy or limit its use; or
• before a material change of his [or her] position, knew or had reason to know that it was
a trade secret and that knowledge of it had been acquired by accident or mistake.

30. Staffing/Joint Employment

31. Staffing Arrangements
 With its decision to go public, Diamond
Datascram has decided to provide 24/7
customer service support for Datascram.
 Instead of directly hiring an overnight shift of
employees, it decides to contract with a
Staffing Agency to supply ten consultants.
 What must it do to avoid joint employer
liability?
31

32. Why BFI? Why?
 New Standard – Browning-Ferris Industries of
California, Inc., 362 NLRB No. 186 (2015)
– Joint Employer if:
• There is a common-law relationship with employees;
and
• The putative joint employer possesses sufficient control
over the direct employer’s employees’ essential terms
and conditions of employment
• Direct or indirect control, even if it does not exercise
that right

33. Joint Employment Issues
 Indicators:
– Who supervises?
– Who has authority to hire/fire/discipline?
– Who trains the direct employees?
– Who has possession and responsibility over employment
records, including payroll, insurance, taxes?
– Are direct employees subject to same
handbook/personnel policies?
– Do they have the same job description/duties as putative
employer’s employees?
33

34. Joint Employer
 Joint Employer Liability Exposure
– Fair Labor Standards Act
– National Labor Relations Act
• Unfair labor practices
• Representation Elections
• Obligation to allow union activity
– Discrimination statutes
34

35. But what about labor unions?
 Under BFI and NLRB’s complementary ruling in Miller &
Anderson, Inc., 364 NLRB No. 39 (2016), Unions DO NOT need
consent of both direct and putative employers to organize a
bargaining unit.
 And per Specialty Healthcare & Rehabilitation Center of
Mobile, 357 NLRB 934 (2011), a Union can represent a micro-
units, including one consisting solely of the overnight
customer service representatives who are employed by the
staffing agency
 Unless Diamond Datascram can show that those employees
share an “overwhelming community of interests” with other
customer service reps…hello Union representation.

36. Datascram Use of Independent
Contractors
36

37. Datascram Use of Independent
Contractors
 Datascram hires Independent Contractors:
1) During expansion phase to get systems
in order – establish guidelines and procedures;
and
2) To install Datascram for clients.
 Are they really Independent Contractors?
37

38. Are Individuals Independent
Contractors or Employees?
IRS 20-Factor Test / “Right to Control” Test: Behavioral Control, Financial Control, Type of
Relationship
1. Level of Instruction. If the company directs when, where, and how work is done, this control indicates a possible
employment relationship.
2. Amount of Training. Training workers suggests an employment relationship since the company is directing the
methods by which work is accomplished.
3. Degree of Business Integration. Workers whose services are integrated into business operations or significantly
affect business success are likely to be considered employees.
4. Extent of Personal Services. Companies that insist on a particular person performing the work assert a degree of
control that suggests an employment relationship. In contrast, independent contractors are free to assign work to
anyone.
5. Control of assistants. If a company hires, supervises and pays a worker’s assistants, this control suggests a
possible employment relationship.
6. Continuing relationships. A continuous relationship between workers and companies indicate that employer-
employee relationships exist. However, a contractor arrangement can involve an ongoing relationship for multiple,
sequential projects.
7. Set hours of work. The establishment of set hours of work by a company indicates control typical for employees.
8. Full-time required. If workers must devote full time to company’s’ business, the company has control over the
worker’s time. Independent contractors are free to work when and for whom they choose.
9. Need for On-Site Services. Control is indicated if the work is required to be performed on the company’s
premises, especially when it can be performed elsewhere.
10. Order or sequences set. Control is indicated if workers are not free to choose their own patterns of work but must
perform services in the sequences set by the company.
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39. IRS 20-Factor Test / “Right to Control” Test:
11. Requirements of reports. Control is suggested if workers must submit regular oral or written reports to company.
12. Method of payment. Hourly, weekly or monthly pay schedules points to an employer-employee relationship,
provided that this method of payment is not just a convenient way of paying a lump sum agreed on as the cost of a
job. Independent contractors are usually paid by the job or on straight commission.
13. Payment of business and/or traveling expense. Companies paying workers’ expenses of this nature suggests
an employer-employee relationship.
14. Providing tools and materials. If a company furnishes significant tools, materials, and other equipment, it
suggests an employer-employee relationship.
15. Significant investments. Contractors typically invest in and maintain their own work facilities. In contrast, most
employees rely on their employer to provide work facilities.
16. Realization of profit or loss. Workers who receive predetermined earnings and have little chance to realize
significant profit or loss through their work generally are employees.
17. Working for multiple companies. If workers perform services for a number of unrelated persons at the same
time, they are usually independent contractors.
18. Availability to public. Workers are usually independent contractors if they make their services available to the
general public on a regular and consistent basis.
19. Control over discharge. A company’s unilateral right to discharge workers indicates that the workers are
employees. In contrast, a company’s ability to terminate a worker generally depends on contract terms.
20. Right to terminate. Workers are employees if they have the right to end their relationships with a company at any
time without incurring liability. Contractors cannot terminate services without liability, except as provided in their
contract.
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40. U.S. Department of Labor: “Economic Realities” Test:
A multi-factored “economic realities” test is commonly applied to determine whether an
employer “suffers or permits” work creating an employment relationship triggering the FLSA.
The July 15, 2015 Administrator’s Interpretation discusses six factors:
1. Is the work an integral part of the employer’s business?
2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
3. How does the worker’s relative investment compare to the employer’s investment?
4. Does the work performed require special skill and initiative?
5. Is the relationship between the worker permanent or indefinite?
6. What is the nature and degree of an employer’s control?
Many state laws, such as state overtime laws, unemployment insurance, worker’s
compensation, implicate different tests for classifying independent contractors and employees.
Thus, an independent contractor relationship should be assessed on a state-by-state and law-
by-law and basis.
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41. Next Time!
 Datascram Decline
 Whistleblower Protections
 Reductions in Force
 Restrictive Covenant Enforcement
 Retention Agreements
August 8, 2017

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