Presentation from Georgeson and Skadden on preparing for the growing trend of shareholder activism.

1. V1DIS
Corporate Board Member
West Coast Boardroom Summit
& Peer Exchange
Topic Breakout:
Preparing for Shareholder Activism
March 5, 2014
William P. Fiske
Senior Managing Director
Georgeson Inc.
Kenton J. King
Partner
Skadden, Arps, Slate Meagher & Flom LLP

2. Topic Breakout: Preparing for Shareholder Activism
2
AGENDA
 Shareholder Activism
• Trends and Drivers
• What Makes an Activist a Target?
 M&A Activism
• “Bumpitrage”
• Spin-offs and Break-ups
 Governance Activism
• Director Elections
• Shareholder Proposals
 Responding to Activism
• Advance Preparation
• Investor Engagement and Dialogue

3. 3
Shareholder Activism
RECENT TRENDS
 Increasing frequency of overall activism against companies
• Many situations “settle” before a proxy fight
• Activists do not always seek board seats
 Larger-cap companies increasingly being targeted
 Sympathetic media attention on activists
 More sophisticated approach by activists
• Detailed economic theses
• Hiring experienced financial, legal and proxy advisors
• Nominating highly qualified director candidates
• Willing to lay groundwork early – well in advance of a contest – including reaching out to
shareholders for public support early in the process
 Emergence of new, next -generation activist funds
o Keith Meister – Corvex Management
o Jeffrey Eberwein – Lone Star Value Funds
o Scott Ferguson – Sachem Head Capital Management
o Richard “Mick” McGuire – Marcato Capital Management
 Traditional long-term institutional investors increasingly willing to support an activist if dissatisfied
• Some are even encouraging activists to initiate campaigns in their portfolio companies

4. Shareholder Activism
 In fights that “go the distance,” dissidents are winning more frequently
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013
35%
44% 46%
60%
65%
56% 54%
40%
Dissident (or split) Victory Mgmt Victory
Fights That Went The Distance
Source: Sharkrepellent.net

5. Shareholder Activism
ACTIVISM DRIVERS
 Often M&A driven
• Restructurings – sale of all/parts of companies and spin-offs
 Increasingly focused on perceived financial weaknesses/vulnerabilities in companies
• Operational underperformance vs peers
• Recapitalization – leveraging up and buying back shares
• Underperforming CEO/management teams
 Emphasis on governance weaknesses
• Board composition
• Executive compensation
• Corporate governance structures that are deemed to not be in the best interests of
shareholders
5

6. Each situation requires specific analysis and an understanding of the temperament, tactics and capabilities of
the relevant activist or bidder – all activists are not the same
Notable Activist Campaigns
6
Carl Icahn
1/22/2014 8/13/2013 3/6/2013 2/14/2013 1/25/2013 10/31/2012 5/25/2012
Greenlight
Capital 10/17/2011 5/26/2011 3/31/2011
Elliott
Management
5/16/2013 1/28/2013 11/26/2012 11/23/2012 5/14/2012
JANA
Partners 9/71/2013 4/29/2013 4/11/2012 8/14/2012
Marcato
2/8/2013 11/28/2012 4/5/2012
Pershing
Square
7/31/2013 5/16//2013 12/19/2012 7/12/2012 10/28/2011 10/8/2010
Corvex
12/3/2013 12/19/2012 11/28/2012 4/5/2012
Starboard
Value 4/29/2013 1/22/2013 11/26/2012 11/1/2012 9/17/2012
Third Point
5/14/2013 10/2/2012 9/8/2011
Trian
8/15/2013 3/22/2013 11/7/2012 6/18/2012 5/9/2012
ValueAct
4/22/2013 3/12/2013 11/28/2012 7/6/2012
.

7. Types of Activism
7
Investment Thesis Goal Select Recent Examples
M&A
Operational
Capital
Structure
Potential M&A
Target
Sale of
Company
Underperforming
Companies
Change in
Management /
Board / Structure
Change in
Operations /
Business Strategy
Businesses with
Divestible or Non-
Core Assets
Divestitures /
Break-Up
Balance Sheet
Capacity / Cash-
Rich
Situations
Return Cash to
Stockholders
• Carl Icahn / Oshkosh Corp.
• Carl Icahn / CVR Energy
• Elliott / BMC Software
• Carl Icahn / Clorox
• Elliott / Actelion
• Carl Icahn / Mentor Graphics
• Carl Icahn / Genzyme
• Carl Icahn / Biogen Idec
• Trian / Family Dollar
• Ramius / Luby’s
• Elliott / Compuware
• Value Act / Gardner Denver
• Pershing Square / Procter &
Gamble
• Third Point / Yahoo!
• Pershing Square / Canadian
Pacific
• Carl Icahn / Forest Labs
• Ramius / CPI
• Starboard / Regis Corporation
• Carl Icahn / Genzyme
• Carl Icahn / Nuance
• Clinton Group / Stillwater
• Starboard / Progress
Software
• Elliott / Iron Mountain
• Trian / Heinz
• Ramius / Zoran
• Starboard / AOL
• Carl Icahn / Oshkosh Corp.
• JANA / McGraw Hill
• Relational / L-3
• JANA / El Paso
• ValueAct / Sara Lee
• Pershing Square / Fortune
Brands
• Relational / ITT
• Carl Icahn / Motorola
• Ramius / SeaChange
• Pershing Square / Target
• Third Point / Sony
• Barington Capital / Darden
Restaurants
• Carl Icahn / eBay
• Elliott / Iron Mountain
• Relational + JANA / Charles
River Labs
• Carl Icahn / Transocean
• Relational / Home Depot
• Carl Icahn / JANA / SAC /
Time Warner
• Carl Icahn / Apple

8. 8
What Makes a Company a Target?
The following might make a company more susceptible to being the target of a
shareholder activist campaign:
 Financial Vulnerabilities
• A P/E ratio that is lower than industry peers
• Capital allocation
• Poor stock performance relative to peers
• Underperformance of specific business segments
• Overcapitalized (i.e., excess cash on the balance sheet) or underleveraged companies
• Non-core businesses or assets that can be divested
• Parts are worth more than the whole
• Pursuing significant capital investment plans
 Governance Vulnerabilities
• Perceived management/board “chaos”; long-tenured board
• A board that lacks either independence or certain competencies (e.g., no directors with
significant experience in the company's industry, the lack of an independent chairperson,
a board with significantly higher average length of service than peers)
• Corporate governance concerns / governance that favors management and the board
(e.g., supermajority voting to amend bylaws, classified board membership, restrictions
against shareholders calling special meetings or acting by written consent)
• Executive and/or director compensation significantly higher than peers, or pay-for-
performance disconnect

9. M&A Activism
9
 Increasing trend of activist attacks on announced deals
 More than 2/3 of activist attacks in 2013 were successful in raising the deal price or
terminating the transaction
• “Bumpitrage”
 Successful Activist Campaigns – 2013
• MetroPCS / T-Mobile
• Plains Exploration / Freeport-McMoRan
• Sprint / Softbank / DISH
• Clearwire / Sprint / DISH
• Dell / Silver Lake
• Outdoor Channell / InterMedia / Kroenke
• American Realty / Realty Income
• Energy Solutions / Energy Capital
• American Greetings / Weiss Family
• Atlantic Coast Financial / Bond Street

10. M&A Activism
10
 Increasing trend of activists seeking to break companies apart
 Major theme – Push to split up companies and divest businesses that don’t fit or are under-
performing
 2013 was very busy in this context
 2014 – Already there are at least five companies being targeted
• Dow Chemical – Dan Loeb pressuring to split into two companies
• eBay – Carl Icahn pressuring company to spin-off PayPal unit
 Even when companies are in the process of shrinking, activists pushing for more
• Darden (2013)
o Barington Capital Group pressured to shed both Red Lobster and Olive Garden
o Starboard Value not happy after Darden announced plans to spin off Red
Lobster, pressuring to shed Long Horn Steakhouse
 Arguments activists use FOR break-ups:
• Executives perform better in a more narrowly focused company
• Empire building for the glory and prestige is not shareholder value driven
 Counter arguments companies use AGAINST break-ups:
• Significant cost savings in a bigger, broader revenue stream
• Customer benefits
• Creates less volatile earnings

11. Governance Activism
11
 Not just a nuisance.
 Frequently portends more difficult situations – increases vulnerability.
 Board elections that have significant level of against/withhold votes.
• May signal a lack of support
• Public vote-no campaign
 What causes low support for director re-elections?
• Perceived lack of board responsiveness to majority backed SHPs
• Poor attendance
• Poison pill adoption without shareholder approval
• Failure to act on past director concerns
• Service on too many boards
• Non-independents on key committees
 Specific governance provisions of note
• Classified board
• Majority vs plurality voting in director elections
• Combined vs split roles of CEO and Chairman (lead director duties)
• Shareholder right to call special meetings / act by written consent
• Proxy access?

12. Governance Activism
12
THE PROXY ADVISORY FIRMS – ISS AND GLASS LEWIS
 Election of Directors - ISS issued negative recommendations for approximately 10% of directors
in 2013 in uncontested circumstances
 At Russell 3,000 companies, regarding board elections:
• 44 directors failed to receive majority support in 2013 through June 30, 2013
• 46 directors failed to receive majority support in 2012
• 45 directors failed to receive majority support in 2011
 Board composition and independence increasingly a focus
• Tenure: Greater focus on director tenure, refreshment and succession planning
o ISS Quick Score recently adopted director tenure as a weighted factor
• Director skill sets and industry experience
• Gender
o “Thirty Percent Coalition” – has organized institutional investors / money managers
representing >$1 trillion in assets to co-sign letters to 168 companies to increase
gender diversity on their boards

13. Trend of Shareholder Proposals (for S&P 1500 Companies)
13
33 44 24
77%
81%
79%
70.00%
72.00%
74.00%
76.00%
78.00%
80.00%
82.00%
84.00%
0
5
10
15
20
25
30
35
40
45
50
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Repeal Classified Board
29 14 11
40% 41%
44%
30%
32%
34%
36%
38%
40%
42%
44%
0
5
10
15
20
25
30
35
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Shareholder Right to Call Special Meeting
13 14 16
62%
69%
72%
60%
62%
64%
66%
68%
70%
72%
74%
0
2
4
6
8
10
12
14
16
18
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Eliminate Supermajority Vote Requirements
32 20 27
48%
45%
40%
36%
38%
40%
42%
44%
46%
48%
50%
0
5
10
15
20
25
30
35
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Shareholder Right to Act by Written Consent

14. Trend of Shareholder Proposals (for S&P 1500 Companies)
14
30 28 22
57%
61%
59%
50%
52%
54%
56%
58%
60%
62%
64%
0
5
10
15
20
25
30
35
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Majority Vote Standard for Director Election
6 13
42%
32%
30%
32%
34%
36%
38%
40%
42%
44%
0
2
4
6
8
10
12
14
2012 2013
# of Proposals Average % Support of Votes Cast
Adopt Proxy Access
22 46 58
32%
36%
32%
25.00%
27.00%
29.00%
31.00%
33.00%
35.00%
37.00%
39.00%
0
10
20
30
40
50
60
70
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Independent Board Chairman
7 27 36
23.8%
24.5%
23.6%
15%
17%
19%
21%
23%
25%
27%
29%
0
5
10
15
20
25
30
35
40
2011 2012 2013
# of Proposals Average % Support of Votes Cast
Stock Retention/Holding Period

15. Responding to Activism
15
OVERVIEW
 Assemble team early (counsel, investment bank, PR firm, proxy solicitor)
 Engage early and often
• Critical for company to clearly communicate strategic plan early to shareholders
o Imperative to do this before an activist surfaces
o Include corporate governance contacts in addition to IR contacts
 If activist approaches, may request a meeting with management
• TAKE THE MEETING
o Sets the record of engagement
o Opportunity to learn more about who you are dealing with and what their agenda is
o Do more listening than talking
 As things play out…
• Company should take the “high road” in responding to attacks
• Must maintain consistent messaging
• Not every argument requires a rebuttal
 Board involvement
• Lead director and chairs of governance/finance/nomination have special roles
 Everything should be looked at through the lens of “What will win or lose votes?”

16. Assembling your Team
16
Internal Team
 Assign responsibility among
Company’s top executives and the
Board to facilitate rapid action in
response to activists
 Preliminary list of internal team
members:
• Chairman of the Board & Chief
Executive Officer
• President
• Chief Financial Officer
• Senior Vice President and
General Counsel
• Vice President, Investor
Relations and Public Affairs
External Team
 Assemble a group of advisors and
other specialists who may be needed
in the event an activist surfaces
 Keep external team members fully
briefed on corporate developments to
reduce learning time involved in any
situation where prompt action might
be required
 Preliminary list of external team
members:
• Corporate Counsel
• Investment Banker
• Public Relations Firm
• Proxy Solicitor

17. Shareholder Analysis, Vote Projections and
Engagement
17
 Shareholder Composition Analysis
• Stock watch services can track ownership shifts and accumulations
• Consider influence of ISS and GL in broad terms
 Vote Projections and Voting Scenarios
• Predict the outcome of situations such as shareholder proposals, and contests for control
• Provides a blue print for the actual solicitation
• Helps to provide risk assessment and aids in board decision making
• In a proxy contest, must be constantly updated
 Shareholder Engagement
• Corporate governance engagement outside of the proxy season is increasingly used and
expected
• Corporate governance contacts are frequently different contacts than the IR contact
• Index funds actively manage their voting policies and are willing to engage
• Build relationships prior to an activist threat
• Communicating proactively shows confidence, transparency and a willingness to
understand investor views.
o Compensation (Say-on-Pay)
o Review last year’s annual meeting result
o Understand why an investor may have voted against a proposal
o Understand views on vulnerabilities regarding your corporate governance structure

18. Identify and Address Potential Vulnerabilities
 Conduct “vulnerability” test
• Review company’s structural provisions to assess vulnerability
• Conduct “economic vulnerability” test
o Analyze company as an activist would – if there are ways to increase value in
short-term, company is vulnerable – allowing the company to anticipate and
evaluate possible actions the activist might propose
• Develop strong strategic and business plans
o Company should review all alternatives to increase long- and short-term
shareholder value
• Proactively communicate company’s strategy to investors
o Commitment to build shareholder value through strategic and business plans
and specific initiatives
o Communicate directly with largest shareholders
o Build and maintain relationships with investors, including the governance teams
who influence the vote

19. Preparedness Actions Can Build Value
and Avoid Activist Threat Altogether
19
 Credibility is about establishing a public record BEFORE an activist surfaces
• Strong strategic plan should be in place
• Communicate that plan and accomplishments to shareholders frequently
 Responding publicly to an activist and how such a response is viewed
• A company is more persuasive when it has already considered proposed action, and
can describe its reasons for rejecting it in favor of company’s strategic plan
 Waiting to take action after an activist surfaces will put the company at disadvantage
• Enables activist to claim credit for seeking to increase shareholder value while making
company look reactive
• Conventional response – “just say no” to activist, using legal protections, such as
rights plan, staggered board, litigation – is not likely to work today

20. Shareholder Activism – Key Takeaways
 Recognize that no company is immune from the possibility of shareholder
activism
 Identify and address potential vulnerabilities – both financial and corporate
governance-related
 Stay in touch with investors frequently throughout the year for better
engagement – including corporate governance contacts
Questions?
William P. Fiske Kenton J. King
bfiske@georgeson.com kking@skadden.com