NDINATIONAL DIRECTORSINSTITUTE

Executive Exchange

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IN-KIND SPONSORS

Preparing Your Board to Deal With Activist Shareholders

PREPARING YOUR BOARD TO DEAL WITH ACTIVIST SHAREHOLDERS

Panel: Phillip Goldberg, Foley & Lardner LLPBenjamin Garmer, Foley & Lardner LLPRick Grubaugh, D.F. King & Co.Mohammed Ali, CarboniteGreg Taxin, Spotlight AdvisorsRichard Lashley, PL Capital LLC

Activist Simulation Exercise

During the breakout session, the Panel will be separated into two teams.

Activist Team: Phillip Goldberg, Richard Lashley and Greg Taxin

Company Team: Mohammed Ali, Ben Garmer and Richard Grubaugh

The Panel and other participants are to assume that an initial 13D was filed by anactivist investor group.

The Panel and other participants are to assume that simultaneous with the filing of theinitial 13D, the activist group forwarded the attached letter (an actual letter prepared byan activist fund) to the Company announcing its share acquisition and views onCompany performance and direction.

The exercise will begin with the Company Team discussing first steps in reacting andresponding to the activist letter.

The Activist Team will then consider/discuss the Company Team’s response.

The teams will proceed to discuss how the activist engagement might progress, whatsteps would likely be taken and ultimately, how those steps might be viewed by the proxyadvisory firms and shareholders (both institutional and retail) asked to decide theoutcome.

Breakout participants are encouraged to interject at any time during the course of thisexercise to ask questions and weigh in on strategy.

Activism Preparation Presentation

October 21, 2015 © 2015 D.F. King & Co., Inc. Strictly Confidential

Table of Contents • Section 1 – Overview of Current Activism Landscape

• Section 2 – What to Do / What to Expect • Section 3 – Proxy Contest Stats

OVERVIEW OF CURRENT ACTIVISM LANDSCAPE Section 1:

2014 – 2015 Season Highlights

Carl Icahn

Corvex/Related Casablanca

Carl Icahn

Trian Partners

Trian Partners

Starboard Value LP

Large Companies Under Attack

Contests for Control

Glenview Capital Management TPG-Axon

4

Appaloosa Management LP, Taconic Capital Advisors LP,

Harry J. Wilson

Land & Buildings Investment Management LLC

Elaine Wynn

H Partners Management LLC

Elliott Management Groveland Capital, LLC Daniel and Nathan Milikowsky

Starboard Value LP

Pershing Square / Valeant Pharmaceuticals

2014 - 2015 Season Highlights

Pershing Square / Valeant Pharmaceuticals

TIG Advisors Alan Spachman Brandes Investment Partners

Unsolicited Offers

Starboard Value LP

Contested Mergers

Special Meetings

5

Jeffrey Moore

Land & Buildings Investment Management LLC, Orange Capital LLC

Engine Capital Management LLC BCG Partners,

Inc.

Starboard Value LP, Oliver Press Partners

LLC

Teva Pharmaceuticals Mylan N.V.

Who are the Activists?

6

• 3G Capital Partners

• Altai Capital

• Appaloosa Management

• Atticus Capital

• Barington Capital

• Becker Drapkin Management

• Biglari Capital

• Blue Harbour Group

• Breeden Partners

• B. Riley

• Bulldog Investors

• Cannell Capital

• Carlson Capital

• Casablanca Capital

• Chieftain Capital

• Citadel

• Clinton Group

• Coghill Capital

• Coppersmith Capital

• Corvex Management

• Crescendo Partners

• Davis Selected Advisers

• D.E. Shaw & Co.

• Dialectic Capital

• Discovery Group

• Dolphin Partners

• Elliott Associates

• Engaged Capital

• Engine Capital

• ESL Partners

• Farallon Capital Management

• First Manhattan

• Franklin Mutual Advisers

• GAMCO

• Glenview Capital

• Greenlight

• H Partners

• Harbinger Capital

• Hayman Capital

• Heng Ren Investments

• Highfields

• Highland Capital Management

• Icahn Capital

• Isaac Capital

• JANA Partners

• Jet Capital

• Jewelcor Management

• Karpus Investment Management

• Lawndale Capital Management

• LCV

• Lone Star Value Management

• Locksmith Capital Management

• Loeb Capital Management

• Lucas Advisors

• Marcato Capital Management

• Mason Capital

• MCM Management

• Mercury Real Estate Advisors

• Millennium Management

• MMI Investments

• Newcastle Partners

• Noonday Asset Management

• Oliver Press

• Pardus Capital Management

• Point72

• Pershing Square

• PL Capital

• Raging Capital

• Red Mountain Capital

• Roark, Rearden & Hamot

• Sachem Head

• Sandell Asset Management

• Sarissa Capital

• Scepter Holdings

• Seidman and Associates

• Seneca Capital

• Shamrock

• SMP Asset Management

• Soroban Capital

• SpringOwl Asset Management

• Stadium Capital

• Starboard Value (formerly Ramius)

• Steel Partners

• Stilwell Value

• Third Point

• TCI

• TPG-Axon

• Tracinda

• Trian

• Tudor Investment

• ValueAct Capital

• Vertex Capital

• Voce Capital

• Viking Capital

• Western Investment

• Wynnefield Capital

What’s Different in Current Activism Climate?

• Activists more sophisticated in their analysis and communications

• Larger companies targeted

• Investors seeking appraisal rights

• Hedge funds interfering with announced transactions

• New types of alliances

− Among activists

− Corporations joining with hedge funds

• More funding; above average hedge fund returns

• Increase clout in board rooms

7

Trends in Shareholder Activism

8

• Growth of dedicated activist funds

− Publicly traded activist funds

• Increasing diversity of activists

− Dedicated activist funds

− Occasional / opportunistic activists

− Small holder activism

• Accelerating the pace of activism

− Companies being targeted after short periods of underperformance

− Activists using special meetings / other tactics to pursue campaigns outside annual meeting

window

− “Real-time” activism via CNN, Twitter, etc.

• Recurrent activism

− Companies can no longer count on being a one-time target

How Activists Pick Their Targets

• Potential takeover target

• Business units with no synergies

• Potential for spin off or divestiture

• Significant cash on balance sheet

• Compensation

• Performance

• Missed targets and/or earnings

• Underperforms compared to peers

• Shareholder profile

• Corporate governance structure

• Threshold to call special meeting

• Ability to act by written consent

• Staggered board

• Pay for performance concerns

• Director qualifications and tenure

• Previous years vote results

• Overall support

• Quorum

• Capital allocation (e.g., returning cash to shareholders)

9

Key Motivations for Shareholder Activism

10

Short-Term Gain Most shareholder activism is motivated by a single goal –

to make money, in a timeframe generally measured from a matter of

months to 1-2 years

Long-Term Frustration A substantial, long-term investor or

group that is disappointed by investment performance pursues activism, usually as a last resort

Internal Division A founder, current or former senior

manager or board member disagrees with the company’s strategy or

leadership and campaigns for change

Source: FactSet Shark Repellent

Activism Will Remain Part of the Landscape

• Expanded array of tactics

• Superior financial performance of some

activist funds

• Willingness of mainstream investors to

join the fray

Activists also benefit from…

• Excess cash

• Low borrowing costs

• Investor skepticism

Activists have been encouraged by their own success

Activist hedge fund assets under management has significantly increased: ($36B in 2009 to $200B+ in 2015)

11

WHAT TO DO / WHAT TO EXPECT Section 2:

Common Activist Themes

13

M&A Explore strategic alternatives

• Sale of the company or other strategic transaction

• Spin-off or sale of divisions or assets

Operational

Seek operational improvements • Reduce costs

• Eliminate business lines or products

• Pursue new business strategies

Balance Sheet

Return capital to shareholders • Share buyback program

• Special dividend

Corporate Governance

Improve corporate governance • Change management/board composition

• Separate chairman / CEO role

• Declassify board

• Compensation reform

• Other corporate governance changes (e.g., repeal poison pill)

Evolution of an Activist Campaign

14

Phase I Information Gathering

• Due diligence

• Attend public

presentations

• Speak to third

parties

• Meet with

management

Phase II Accumulation

• Toehold

• “Stealth”

accumulation

• Public

disclosure/13G/

Vanilla 13D

Phase III Escalation

• Aggressive 13D

• Letters to management

• Engagement with

shareholders

• “White Paper”/public

presentation

• Proxy contest

• Bid/value maximization

demand

Phase IV Exit

• Sell on appreciation

• Sell on transactional

event

Dealing with a Contested Situation – What Can the Board Expect

• Opposition – Company, Board and management team go under a microscope

– Greater scrutiny by investors and media

– No strategy or statement goes unchallenged

– Directors and management open to public criticism

• Similar to a Political Campaign – Battle for shareholder support / votes

– Rhetoric can often be heated

– Third party advocates needed

– Strategic, “ rapid response” communications required

• Critical to stay on message and control the forum for delivery

• Key strategic discussions to be made in close cooperation with the Board

• Necessary to screen phone calls (office and cell) – Dissidents may try to contact Board members directly, all conversations are “on the record” and any comments

may be used by dissidents in their proxy materials

– Preference is for all communications to be channeled through designated spokespeople

Everything you say can and will be used against you

15

Potential Steps to Avoid Becoming an Activist Target

16

While every situation is different, there are a number of guidelines for reducing activist vulnerability. Advance preparation is key to successful defense outcomes.

Assess Performance Against Peers

• Review share price performance and operational benchmarking compared to peers

• Assess any potential valuation gaps

Review Capital Allocation Policies

• Comparison of cash balance compared to peers – communication to street on liquidity needs

• Periodic review of potential for changes to buyback or dividend policy

• Provide investor roadmap on capital allocation targets

Review of Business Portfolio

• Review of potential underperforming business units or businesses frequently considered “non-core” by street

• Communications with street on turnaround plans and timing

• Periodic review of potential value creation from asset sales or spins

Investor Communication • Be mindful of investor sentiment regarding potential “hot button” issues • Careful communication around acquisition strategy

Preparing to Engage Activists

• Identify the most credible spokespeople on your team and regularly ascertain feedback • Important to know where you stand • Do not refuse or shy away from meetings with potential activists

− Meetings with activist early in process help with understanding of threat level and specific attacks • Important to hear activist feedback and agree to discuss activist ideas with working group • Open and candid communication early in the process can help in attaining support from investors

17

Maximize Likelihood of Favorable Shareholder Interaction

• Articulate company strategy consistently • Take investors’ calls whenever possible to gauge support for current board’s strategy • Take advantage of all opportunities to communicate • Get in front of any negative developments • Constantly update ownership reporting and vote projections based on feedback received

from investors

Seek to anticipate/defuse contentious situations

18

Top 10 “Do’s” for Staying Prepared

1) Be proactive – identify and address potential vulnerabilities

2) Keep the board informed and constructively engaged

3) Define core messages / positioning and set clear benchmarks

4) Keep shareholders close – be nimble and adjust approach as needed

5) Be open to engaging the dissident

6) Focus on your company’s strengths and business

7) Maintain tight team communications

8) Be measured in responses and prepared for rapid response escalation

9) Continually review defensive posture

10) Recognize that everything you say can and will be used against you

19

Organizational Checklist

• Organizational Considerations / Contingencies – Retain defense team (law firm, investment bank, PR firm, proxy solicitor)

– Decide whether to engage with the activist / protocol for engagement

– Role of investor relations / scheduling investor meetings

– Public relations / corporate communications

– Communications to employees

– Determine if additional external advisors will benefit process

• Board Considerations – Inform board of responsibilities

– Dissident may attempt to contact board members

– Decide whether situation warrants setting up a special committee

– Decision on hiring any outside consultants

• Tactical Strategy – Who will run the fight?

– How do we set the tone?

– Complete review of the company’s defenses

20

PROXY CONTEST STATS Section 3:

Number of Proxy Contests

22

42 56 100 109 126 133 100 93 77 90 92 95 1

52%

43%

37%35%

41% 38% 37%

27%

36%33%

35%

27%

0%

10%

20%

30%

40%

50%

60%

0

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of contests % Went to vote

*Data as of September 9, 2015 Source: FactSet Shark Repellent

Proxy Contest Results 2015

Proxy Contest Results 2013-2014

Proxy Contests Results for Minority Representation

Total: 43 Meetings Total: 60 Meetings

1 Includes proxy contests that went to a vote Data: Russell 3000 Index Members

23

21%

16%

47%

16% 20%

22%

46%

12%

ISS / GL Support at Proxy Contests for Minority Representation

ISS Support: 2013-2014 ISS Support: 2015

Glass Lewis Support: 2015 Glass Lewis Support: 2013-2014

1 Includes proxy contests that went to a vote Data: Russell 3000 Index Members

24

Published Recommendations : 16 Meetings Published Recommendations : 25 Meetings

38% 62%

Supported Board Supported at Least 1 Dissident

56% 44%

Supported Board Supported at Least 1 Dissident

40%

60%

Supported Board Supported at Least 1 Dissident

56%

44%

Supported Board Supported at Least 1 Dissident

Proxy Contest Results 2015

Proxy Contest Results 2013-2014

Proxy Contests Results for Board Control

Total: 17 Meetings Total: 26 Meetings

1 Includes proxy contests that went to a vote Data: Russell 3000 Index Members

25

12%

12%

64%

12% 4%

50% 38%

8%

Dissident obtained board control at 9 meetings Dissident obtained board control at 5 meeting

ISS / GL Support at Proxy Contests for Board Control

ISS Support: 2013-2014 ISS Support: 2015

Glass Lewis Support: 2015 Glass Lewis Support: 2013-2014

1 Includes proxy contests that went to a vote Data: Russell 3000 Index Members

26

Published Recommendations : 4 Meetings Published Recommendations : 14 Meetings

75%

25%

Supported Board Supported at Least 1 Dissident

50%

50%

Supported Board Supported at Least 1 Dissident

21%

79%

Supported Board Supported at Least 1 Dissident

29%

71%

Supported Board Supported at Least 1 Dissident

Both ISS and Glass Lewis supported Dissident control at 0 meetings Both ISS and Glass Lewis supported Dissident control at 4 meetings

Dissident Success in Proxy Contests

27

1Number of outright victories, partial victories or settlements by the dissident as a percentage of all proxy contests where an outcome has been reached, 2Includes proxy contests for board control or representation from January 1, 2013 to June 30, 2015, excluding funds

Source: FactSet Shark Repellent

Dissident Success Rate1 Proxy Contest Outcomes2

Total: 146 Proxy Contests