Shareholder Activism in M&A

Presenting a live 90-minute webinar with interactive Q&A

Shareholder Activism in M&A: Anticipating and Responding to Shareholder Challenges Planning for Activist Objections to Board Representation, Deal Price and Appraisal Rights When Negotiating Deals

THURSDAY, OCTOBER 30, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today’s faculty features:

Kai Haakon E. Liekefett, Esq., Vinson & Elkins, Houston William P. Mills, Partner, Cadwalader Wickersham & Taft, New York Gary Finger, Director, Houlihan Lokey, New York Darren Novak, Senior Vice President, Houlihan Lokey, New York

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Shareholder Activism in M&A: Anticipating and Responding to Shareholder Challenges

Strafford Live Webinar October 30, 2014

Shareholder Activism in M&A

Program Agenda

I. Current Trends in Shareholder Activism in M&A (Houlihan Lokey)

II. Forms of Shareholder Activism in M&A A. Proxy Fights and Vote No Campaigns (Vinson & Elkins) B. Appraisal Rights (Cadwalader) C. Hostile Takeover Bids and Activists (Vinson & Elkins)

III. Responding and Preparing for Shareholder Activism in M&A A. Identifying Vulnerabilities in a Transaction (Vinson & Elkins) B. Addressing Activism in Deal Preparation and Negotiation (Cadwalader) C. Communicating with Shareholders (Houlihan Lokey)

Appendix: Presenter Bios

6 I. Current Trends in Shareholder Activism in M&A

Gary Finger

Activists an Ever-Increasing Threat for Public Companies

Increasing Institutional Increased Dry Powder and Influence Investor Interest

Activists waged 90 proxy fights in 2013, and many Over $100 billion in assets under management, not more campaigns launched by activists owning less including campaign-specific “side cars” than a 5% position

Firepower enhanced through leverage, derivatives and Accelerated investments into activist funds in first special purpose vehicles half of 2014 Activism's Success Driving Increased Pension funds and other institutional investors willing Activist funds now an “accepted asset class” to “pile on” Investment and Influence Increasingly significant influence with ISS and Glass Returns strongly uncorrelated with market and Lewis generate “alpha,” with an average annualized return of approximately 24% since 2006 on “13D positions” ISS and Glass Lewis make recommendations in favor of Despite being classified as long/short by equity activists over half the time managers, activists placed by institutional investors in long-only allocation where “alpha” scarce New activists continue to enter the market Significant investments by high profile pension funds, including CalSTERS, Florida State, New York State Common Retirement Fund and the New Jersey New activists, often acting in “wolf packs,” focus on Division of Investment small- to mid-cap targets

Activists’ success over the last decade has made activism an accepted asset class, providing activists with ever-increasing dry powder and ensuring that they remain an ever-increasing threat to public companies 8 Trends in Shareholder Activism and M&A

A Look at Activist Activity Broadly Activist Campaigns1  Number of Campaigns (Market Cap Greater than $500 million, July 2012 – July 2014 140 120 100 80 60 40 20 0

Selected Activist Activity2  Activists Target a Myriad of Companies Across All Industries 2009 2010 2011 2012 2013

87 Campaigns 112 Campaigns 129 Campaigns 148 Campaigns 180 Campaigns Source: SharkRepellent Notes: 1. Defined as all US publicly disclosed activism excluding 13D filers with no publicly disclosed activism and targets with a market capitalization more than $500 million; Illustrative annual rolling last twelve months 2. Yearly campaign totals reflect companies with market capitalization greater than $500 million 9 Trends in Shareholder Activism and M&A

U.S. Targets by Market Cap  In 2014, half of all companies targeted by activist investors were mid-cap companies  The median market cap of targets in 1H 2014 grew to $260 million versus the median of $141 million for the same period in 2013 Market Capitalization of Companies Targeted by Activists in 2013 and 2014 60%

50% 50% 50%

40% 33% 32% 30%

20% 17% 18%

10%

0% >$1 billion <$1 billion - $100 million <$100 million 2013 2014

Source: Institutional Investor Services 10 Trends in Shareholder Activism and M&A

Increased Level of Activism Number of Proxy Fights  Activism has been on the rise since 2004 140 133 126  Compromise and settlement frequently reached 120 109 100 100 prior to launch of proxy contest or shareholder vote 95 100 93 90  Activists’ success rates have continued to trend 77 80 upward and reached a record approximately 71% 56 60 through 2014 42 40  The vast majority of proxy fights continue to be focused on board representation rather than board 20 control 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Percentage of Proxy Fights by Campaign Type Success Rates (1) 80% 75% 71% 69% 70% 70% 58% 60% 57% 55% 65% 50% 59% 60% 60% 38% 39% 55% 40% 33% 54% 55% 52% 30% 51% 49% 18% 50% 20% 13% 12% 45% 10% 4% 4% 0% 40% 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 (1) Calculated as the number of outright victories, partial victories or settlements by the Board Representation Board Control Other dissident as a percentage of all proxy fights where an outcome has been reached Source: SharkRepellent (FactSet Research) as of August 30, 2014 11 Trends in Shareholder Activism and M&A

2014 – M&A as a Weapon

Starboard, unhappy with Red Darden facing pressure from Darden announces Lobster transaction currently Barington Capital sale of Red Lobster pursuing a campaign to replace the entire board

Strategic Hotels sells Hotel del Orange Capital announces Strategic Hotels faces rumors Coronado for $180 million campaign and calls upon the which was considered one of of sale of the Company Board to sell the Company the company’s crown-jewel assets

Jos A Bank announces defensive Jos. A. Bank receives an Men’s Wearhouse receives an acquisition of Eddie Bauer but unsolicited bid from Men’s eventually agreed to be acquired unsolicited bid from Jos A. Wearhouse in revived pac-man by Men’s Wearhouse, with Banks defense $100-150 million in projected annual synergies

Companies have used transformative transactions to attempt to thwart activist advances 12 Trends in Shareholder Activism and M&A

Market Overview – Evolution of Key Themes 2008 & 2009 2010 – 1H ‘13 2H ‘13 & 2014 Outlook

 Economic crisis  Muted return of corporate  Recent mega-deal activity suggests confidence due to uncertain a return of corporate confidence  Liquidity constraints and lack of macroeconomic and political and participation by strategic confidence outlook buyers, but continued political and economic stability will be required  Improved liquidity, with “fits and for a sustained comeback  Corporate focus on retrenchment starts” in the capital markets rather than expansion  Managements also continue to  Substantial corporate cash drive growth via smaller, tuck-in balances  Sharp decline in global M&A acquisitions activity  Managements refocus on growth in  Shareholder support for selected areas transactions (particularly those with  Scarce financing for transactions  Narrower valuation gap between demonstrable synergies) is buyers and sellers; periodic increasing  Wide valuation gap between volatility in the equity markets  Substantial corporate cash buyers and sellers stems deal-making momentum balances remain  Increased activity by private equity  Legislative and regulatory  Monetary policies, investor demand buyers, but strategics dominate uncertainty and relatively low volatility continue  Renewed shareholder activism to support the capital markets  Availability of capital supports leverage and higher valuations  Structural drivers such as low defensive barriers, high support for activists and tax considerations are shaping activity levels

13 Trends in Shareholder Activism and M&A

M&A Market Overview

M&A activity has improved significantly over the past three years  Although 2011 M&A activity increased over 2010 levels, results in 2012 and much of 2013 reflected a “cooling-off” as macroeconomic and political uncertainty dragged down confidence in the global economy  A more stable political and economic backdrop gave way to a pick-up in transactions announced in 2H ‘13, and deal activity through Q2 ‘14 points to a continued rebound

Historical Domestic M&A Activity

1,800 14,000

1,600 12,000 1,400 10,000 1,200

1,000 8,000

800

6,000 Deals of Number ($ billions) in 600 4,000 400 2,000 200

0 0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Value of Deals Number of Deals

Source: Thomson Reuters, as of 6/30/14. Note: 2014 data shown on an annualized basis, based on data through 6/30/14. 14 Trends in Shareholder Activism and M&A

M&A Market Overview: Average Domestic Transaction Size Average transaction values increased substantially in 1H ‘14 to $533 million, driven by several announced mega-deals

Average Size of Announced Domestic M&A Transactions

$600 $533

$500

$381 $400 $367 $370 10-year median: $301 $350 $310 $290 $285 $291 $300 $268 $234

$200

$100

$0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H '14

Source: Thomson Reuters, as of 6/30/14.

Notes: 10-year median based on 2004 – 2013. Includes transactions with estimated values. Excludes terminated transactions. Future terminations of pending transactions will reduce totals shown. Excludes minority stake acquisitions and most minority capital infusions into major financial institutions. 15 Trends in Shareholder Activism and M&A

M&A Market Overview: Acquisition Premiums

After decreasing in Q1 ‘14, average 1-day prior and 4-week prior acquisition premiums rebounded in Q2 ‘14

Average 1-Day Prior Acquisition Premiums 50%

36% 37% 40% 33% 34% 33% 31% 31% 28% 27% 28% 30% 27% 27% 25% 20%

10% Acquisition Premium Acquisition 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 '14 Q2 '14

Source: Thomson Reuters, as of 6/30/14.

Average 4-Week Prior Acquisition Premiums

50% 43% 39% 37% 36% 38% 40% 35% 35% 34% 29% 29% 30% 30% 30% 30%

20%

10% Acquisition Premium Acquisition 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 '14 Q2 '14 Source: Thomson Reuters, as of 6/30/14. Notes: Premiums are relative to target share prices one day and four weeks prior to announcement for deals with U.S. targets valued over $100 million. Excludes terminated transactions, ESOPs, self-tenders, spin-offs, share repurchases, minority interest transaction, exchange offers, recapitalizations, and restructurings. Excludes negative premiums and premiums over 100%. 16 Trends in Shareholder Activism and M&A

M&A Market Overview: Multiples by Transaction Size Although transactions in excess of $500 million have historically commanded higher multiples, a different pattern was evident in 2013 and thus far in 2014

Median EV/EBITDA Multiples

18.0x

16.0x 15.0x 15.3x

14.0x 12.8x 12.3x 12.5x 12.0x 12.0x 11.9x11.9x 11.5x 12.0x 11.2x 11.3x 11.4x 10.9x 10.9x10.7x 10.9x 10.4x 10.5x 10.3x 10.1x 9.8x 9.7x 9.9x 9.8x 9.7x 9.7x9.8x 10.0x 9.5x 9.4x 9.0x 9.2x 9.2x 8.8x 9.0x 8.1x 8.3x 8.0x 7.5x7.4x

6.0x

4.0x

2.0x

0.0x 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 '14 Q2 '14 Q3 '14

Under $250 million $250 to $500 million Over $500 million

Source: Thomson Reuters, as of 9/30/14. Note: Based on U.S. deals and excludes multiples below 0.0x and above 25.0x.

17 Trends in Shareholder Activism and M&A

M&A Market Overview: Unsolicited Bids Hostile and unsolicited bids have been driven by continued shareholder activism, inflows into activist funds and the importance of acquisitions to growth objectives  Unsolicited M&A bids in 2014 are on pace for a record year on an aggregate value basis, due to the $61.9 billion bid by Charter Communications for Time Warner Cable and the $56.3 billion bid by Valeant Pharmaceuticals for Allergan Value and Number of Domestic Unsolicited M&A Bids

Value $350 94 100 Count $300 $280.6 71 71 80 $243.1 $250 57 57 56 60 $200 51

$150 $134.0 37 $120.2 32 32 40

$102.1 Bids of Number Value ($ billions) in Value $99.3 $96.0 $100 $82.9 $78.7 26 $54.6 20 $50 $39.9

$0 0 2004 2005 2006 2007 2008* 2009 2010 2011 2012 2013 2014**

Value as a Percentage of 10.2% 10.4% 8.9% 6.6% 26.3% 5.3% 9.6% 9.8% 6.7% 9.5% 19.3% Overall Domestic M&A Activity Sources: FactSet Mergerstat and Thomson Reuters, as of 6/30/14. * 2008 includes InBev’s unsolicited bid for Anheuser-Busch and Microsoft’s unsolicited bid for Yahoo!. ** 2014 data has been annualized. Notes: The above chart includes both unsolicited and hostile bids. FactSet classifies unsolicited bids as offers in which there were no prior discussions between the target and the acquirer. FactSet classifies hostile bids as unsolicited bids that were rejected by the board of directors of the target. Domestic M&A includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values. 18 Trends in Shareholder Activism and M&A

Success of Activist Attacks on Announced M&A Deals  2013 saw a significant increase in the success of activists attacking announced M&A transactions

Successful includes: Percentage of Activism Attacks That Have Been Successful in Raising Deal Price or Stopping Deal  Metro PCS 70%  Plains Expl./Freeport-McMoran 60% 60% 58%  Spring/Softbank/DISH 6/10 11/19  Clearwire/Sprint/DISH 50%  Dell/Silver Lake 40% 29%  Outdoor 30% Channel/InterMedia/Kroenke 20% 2/7 20%  American Realty/Realty Income 4/20 10%  EnergySolutions/Energy Capital 0%  American Greetings/Weiss Family 2011 2012 2013 2014 (through July)  Atlantic Coast Financial/Bond Street

 Since 2011, ISS has recommended in favor of activists in the context of M&A transactions only 16.2% of the time

Source: FactSet 19 II. A. Proxy Fights and Vote No Campaigns

Kai Haakon E. Liekefett

Introduction

There is a New Sheriff in Town for M&A Transactions

• There has always been shareholder opposition to public M&A deals, but it used to take a different form: shareholder litigation – 94% of all public M&A deals in 2013 were subject to shareholder lawsuits, but most of them were settled for de minimis concessions

• Opposition to M&A deals in the form of proxy fights or “vote no” campaigns (“bumpitrage”) used to be rare events and rarely successful

• Recent years have seen an unprecedented number of highly successful campaigns against M&A transactions. In the following high-profile transactions, the parties were forced to postpone the shareholder vote and improve the deal terms: – Sprint/Clearwire (Crest Financial Limited, Mount Kellett Capital Management) – Freeport-McMoRan Copper & Gold/Plains Exploration & Production (Paulson & Co.) – Energy Solutions/Energy Capital Partners (Carlson) – T-Mobile/MetroPCS (P. Schoenfeld Asset Management, Paulson & Co.) – Softbank/Sprint (Paulson & Co.) – Dell (Carl Icahn, Southeastern Asset Management)

Challenging the Transaction vs. Challenging the Board

Choosing a Strategy

Against the Transaction Against the Target Board

• Proxy contest to solicit proxies • Proxy contest to solicit proxies from the target’s shareholders to from the target’s shareholders to vote against the transaction replace the target company’s board of directors • Vote no campaign to encourage the target’s shareholders to vote against the transaction

Regulatory Framework

A Myriad of Rules Applies

• Federal Securities Laws – Regulation 13D: Reporting under the Securities Exchange Act of 1934 – Regulation 14A: Proxy rules under the Securities Exchange Act of 1934

• State Corporate Laws – Determined by jurisdiction of incorporation of the company (e.g., Delaware)

• Governing Documents – Charter and bylaws – Board and committee policies (e.g., nominating committee guidelines)

• Other Documents – Debt instruments (i.e., loan agreements and indentures) – Other agreements with change-of-control provisions

Proxy Fights: Sample Timeline

Days before Meeting

45 to 75 Days Demand for shareholder list

45 to 60 Days File preliminary proxy statement (10 day SEC review period; multiple rounds possible)

35 to 45 Days File definitive proxy statement, issue press release with 1st fight letter

nd 30 to 35 Days Mail 2 fight letter, issue press release

rd 25 to 30 Days Mail 3 fight letter, issue press release

15 to 20 Days Campaign ISS meeting/GL outreach; mail 4th fight letter, issue press release

• MeetingsProxy with major 7 to 15 Days Campaign ISS and GL decisions; issue press releases in response shareholders

5 to 10 Days • Media interviews Mail 5th fight letter, issue press release • Telephone campaign 2 to 5 Days Issue open shareholder letter as press release • Final calls or visits with major investors Day 0 Shareholder meeting

Demand for the Shareholder List

• The initial step of an activist is typically to make a demand for the shareholder list because an activist needs it to wage an effective proxy contest • The proxy rules require that the proxy statement be mailed to all shareholders – The shareholder list enables an activist to prepare a comprehensive shareholder profile

• Most activists make their demands for the shareholder list under state corporate law because typically the target company is required to comply with a books and records demand under state corporate law if the shareholder specifies a “proper purpose“ (e.g., DGCL Section 220) – Courts generally deem a proxy solicitation a “proper purpose” (unclear for vote no campaigns) – Most statutes give the company a certain time period (e.g., 5 business days) to comply and the company is well advised to wait out the statutory response period – Delaware courts have allowed companies to condition the access to the shareholder list on the execution of a reasonable confidentiality agreement by the shareholder

• Occasionally activists make their demand pursuant to Rule 14a-7 of the proxy rules – This rule gives the target company the choice to either provide the shareholder list or mail the activist’s proxy materials itself

Proxy Rules: Overview

• The proxy rules govern all “solicitations” of votes or proxies – The SEC and the courts have broadly interpreted “solicitation” to include any communication that appears to be designed to influence shareholders’ voting decisions – In practice, this means that almost all communications with shareholders (and employees) during the proxy season will be deemed to be governed by the proxy rules

• The proxy rules require the filing of a preliminary proxy statement and form of proxy card with the SEC – The proxy rules contain detailed disclosure requirements for these documents – The SEC reviews and provides comments on proxy materials within 10 calendar days – Sometimes, multiple rounds are necessary to obtain SEC clearance

• All written soliciting materials (in particular all “fight letters” setting forth campaign messages) must be filed by 5:30 pm ET on the first day of use with the SEC – Unlike proxy statements, there is no SEC pre-clearance – All soliciting materials need to include a legend advising investors to read the proxy statement – The SEC has adopted a broad view of what constitutes “written” (may include even informal email correspondence with a single shareholder)

Proxy Rules: Important Exemptions

• State Your Mind: The term “solicitation” does not include a “communication by a security holder who does not otherwise engage in a solicitation ... stating how the security holder intends to vote and the reasons therefor” (Rule 14a-1(l)(iv)) – Allows influential investors to publicly announce their voting intentions – Not available to the company

• No Seeking of Proxy: Any solicitation by a person who does not seek power to act as proxy and does not furnish or request a proxy is exempt (Rule 14a-2(b)(1)) – Used in “just vote no” campaigns against the election of incumbent directors – Written materials must be filed with the SEC within three days after the date of first use – Not available to the company and certain other persons, such as Schedule 13D filers who do not disclaim control intent

• Rule of Ten: Any solicitation where the total number of persons solicited is not more than ten is exempt from the proxy rules (Rule 14a-2(b)(2)) – At companies with extremely concentrated share ownership, it may be possible to obtain the votes or consents needed to prevail in a contest without soliciting more than ten holders – It is unclear whether “persons” is to be determined by record or beneficial ownership – Unfortunately, the SEC has provided no guidance and there is a very limited case law – Not available to the company

Proxy Fights: Means of Communication • Fight Letters – “Fight letters” are sent to shareholders multiple times, accompanied by proxy cards – Commonly issued as press releases and included in SEC filings – Sometimes sent only as private letters (but sent to reporters as well)

• Press Releases – Primary method to reach all audiences and directly communicate key messages

• Presentations – Used in meetings with investors and proxy advisory firms – Help educate media and other key constituencies

• Standby Statements – Respond to attacks by stating company’s platform and correcting inaccuracies

• SEC Filings – Proxy statement – Fight letters, press releases and other written proxy materials to be filed with the SEC

Legal Considerations for Shareholder Communications

No Confidentiality • Unless the shareholder signs a confidentiality agreement, there is no confidentiality obligation or legal privilege protecting the company against disclosure by the shareholder • Most shareholders will refuse to sign a confidentiality agreement with the company because it implies the sharing of material non-public information, which would impede their ability to trade

Reg FD/Insider Trading • Unless the shareholder signs a confidentiality agreement, the company must not disclose any “material non-public information” because it is restricted by Reg FD and the insider trading rules • Generally, any information about the activist is unlikely to constitute material non-public information but there is a risk that a court could view the company’s proxy fight strategy as material non-public information

Section 10b-5 • Section 10b-5 and Section 14a-9 of the proxy rules prohibit misleading, unsubstantiated and inflammatory language

Proxy Rules • A company should limit all communications with shareholders to telephone conversations and other oral communications because under the proxy rules it is required to file all written proxy soliciting material with the SEC on the same day (see “Proxy Rules: Overview”)

Role of Proxy Advisory Services

Institutional Shareholder Services (ISS) • ISS is the world’s largest proxy advisory firm and greatly influences voting decisions of institutional investors (up to 20-30% of the vote) • Meets with both sides in a proxy contest before releasing its recommendation • ISS frequently supports dissidents

Glass Lewis • Glass Lewis, while less influential than ISS, can still have a significant impact on the outcome of an election contest • It does not meet with parties but sometimes hosts a “Proxy Talk” • Glass Lewis supports dissidents less frequently than ISS

Egan-Jones • Egan-Jones does not wield much influence but receives media reaction

Case Study: Sprint-Clearwire

Case Study: Crest Financial vs. Sprint–Clearwire

Case Study: Sprint-Clearwire

The Merger Parties: • Clearwire Corporation was a public company listed on the NASDAQ • Sprint Nextel owned a 48% stake in Clearwire (later increased to 50.2%)

Important Shareholders: • Comcast, Intel and BHN Spectrum owned collectively 13% of Clearwire and were parties to a shareholder agreement with Sprint (the “Group of 13%”) • Mount Kellett Capital, Glenview Capital, Chesapeake Partners and Highside Capital owned collectively 9% of Clearwire (the “Mount Kellett Group”) • Crest Financial Limited was a long-term shareholder since 2009 and owned approximately 4% of Clearwire

Case Study: Sprint-Clearwire

2012

JUNE OCTOBER – DECEMBER

Case Study: Sprint-Clearwire

January – March 2013

JANUARY – MARCH

Case Study: Sprint-Clearwire

April 2013

APRIL

Case Study: Sprint-Clearwire

May 2013

MAY

Case Study: Sprint-Clearwire

June – July 2013

JUNE – JULY

William P. Mills

Appraisal Rights Generally

What Are Appraisal Rights?

• Definition o An appraisal right allows for a stockholder to elect not to accept consideration offered in the transaction, and instead seek a fair value appraisal of its shares as determined by a court

• Delaware Law o Found in DGCL § 262 o Appraisal rights are available in all transactions in which the consideration to be received is other than all stock

• According to various data sources, the number of transactions in which appraisal proceedings have been filed or threatened has increased significantly in recent years

Appraisal Rights Generally (Cont’d)

Appraisal Arbitrage

• Increased activity can be traced to “appraisal arbitrage”

• Stockholder activists and hedge funds focused on appraisal as an investment or an activist tool

• Appraisal claims, or the threat of a claim, can be used to challenge a deal and affect the certainty of closing and potentially the price of the transaction

Appraisal Rights Generally (Cont’d)

The Threat of Appraisal Creates Deal Uncertainty

• Creates potential for significant payments to dissenting stockholder post closing

• Dissenters do not vote which could upset the required stockholder vote to approve the deal

• Dissenters have the option to withdraw their claim post closing and not follow through on a threat

Appraisal Rights Generally (Cont’d)

Case Study: Dell & Carl Icahn

Background Result • In February 2013, Dell announced a going • Initially, the transaction was not able to private transaction with Silver Lake obtain the majority of the minority vote Partners and Michael Dell for $13.65 per required to approve the transaction share • The parties agreed to raise the • Because Michael Dell was part of the transaction price to $13.75 per share in buying group, the Dell board appointed an exchange for a modification to the independent committee to negotiate the majority of the minority requirement transaction terms • The Dell Special Committee negotiated a majority of the minority voting requirement Takeaway for the transaction • A no vote and appraisal rights campaign • An activist campaign against the contributed to the increased offer price. transaction was launched by Southeastern Asset Management and Carl Icahn • One of the tools that Icahn used in the campaign was a call for investors to not vote in favor of the transaction and exercise

Factors that Influence the Increase in Appraisal Claims

Stockholders can Purchase Shares after the Record Date

Salomon Bros. v. Interstate Bakers Corp., 576 A.2d 650 (Del. Ch. 1989) • As long as all other statutory requirements are met, if the shares are purchased after the merger announcement date, they are not disqualified from appraisal rights

Transkaryotic Therapies Inc., C.A. No. 1554-CC (Del. Ch. May 2, 2007) • Appraisal rights attach on the date of the merger vote and not on the record date • In addition, shares held in street name should be treated as voted in the aggregate without allocating the votes to each beneficial owner • Beneficial holders of the shares held in street name are entitled to appraisal so long as the total number of shares seeking appraisal does not exceed the number of shares that voted against the transaction • Stockholders therefore can delay, until the meeting date, a decision on whether to buy target stock and pursue an appraisal

Factors that Influence the Increase in Appraisal Claims (Cont’d)

Stockholders Who Elect Appraisal have a 60 Day Option

• DGCL Section 262(e) allows stockholders to withdraw an appraisal demand and accept merger consideration at any time within 60 days of the effective date of the merger so long as the stockholder has not commenced appraisal proceedings

• Provides investors with a timing advantage: The investor can weigh factors that go to the valuation of the shares including trends in the company’s business, and market and industry factors at a date closer to the closing date

Factors that Influence the Increase in Appraisal Claims (Cont’d) Delaware Courts have Generally Awarded a Value That is a Premium to the Transaction Value

• From 2010 until June 2014, only one appraisal case came out with a lower fair value determination, and one case with equal consideration. All others had a premium

• But the entire appraisal process can be lengthy; final rulings rarely occur earlier than 2 years after the date of the appraisal petition and can occur significantly later

• Appraisal proceedings can result in significant expenses

Factors that Influence the Increase in Appraisal Claims (Cont’d)

Case Study: Orchard Enterprises

Background Result • In October 2009, Dimensional Associates, a • The minority investor shares were controlling stockholder, offered outstanding appraised at $4.67 per share, stockholders $1.68 per share significantly higher than the original offer • Dimensional owned 42% of the outstanding price and the deal price common stock and 99% of the Series A • The court took issue with Orchard’s use preferred stock, with approximately 53% of the total voting power of an inflated discount rate to calculate the stock value • A third party bidder, offered a price per share significantly higher than Dimensional’s original offer Takeaway • The transaction was approved by a special • Courts will apply their own valuation committee and included a majority of the analysis which can lead to significant minority voting provision increase in share valuation • In July 2010, Orchard Enterprises was acquired by Dimensional Associates for $2.05 per share • Minority investors brought an appraisal proceeding

Factors that Influence the Increase in Appraisal Claims (Cont’d) Stockholders are Entitled to a Favorable Interest Rate on Their Shares

The Interest Rate Advantage • Compounded quarterly interest from the date of merger • Set by statute in Delaware; DGCL § 262(h) • Rate: federal reserve discount rate + 5%

Appraisal Settlements Are Less Attractive To Investors • The value of pursuing the claim, as opposed to settling the claim, is more attractive to investors because interest continues to accrue while the case is pending

Many managed funds have become interested in taking advantage of this arbitrage • Hedge funds (e.g., Merion LP) have started to specialize in this investment area and have raised funds in excess of $1 billion ©2014 Cadwalader, Wickersham & Taft LLP 47 Appraisal Rights

Factors that Influence the Increase in Appraisal Claims (Cont’d) Delaware Courts Use Discretion in Determining Fair Value of the Shares

• Delaware courts have consistently held that the consideration negotiated in a merger need not be given any presumptive weight in the determination of fair value

• The court will determine the valuation methodology

• The Delaware courts have generally used the Discounted Cash Flow Method (DCF) which often leads to a calculated value excess of the merger price

Factors that Influence the Increase in Appraisal Claims (Cont’d)

Shares are Appraised as of the Merger Date

• Valuation is determined at the merger date and not announcement date

• Any increase in the underlying business performance occurring between the announcement date and closing date could increase the appraised value of the shares

• The share value could also decrease between the offer date and the merger date

Factors that Influence the Increase in Appraisal Claims (Cont’d)

Investors Do Not Need To Prove Liability

• While other stockholder challenges to a transaction such as a derivative claim or class action require that a plaintiff prove wrongdoing by the board or the company, wrongdoing or flawed sale process does not need to be proven in an appraisal proceeding

Current Issues

Case Study: Dole

Background Result • In June 2013, Dole announced a • In August 2013, the transaction was management buyout by its chief executive approved by the stockholders but only David H. Murdock for $12 per share by a very slim majority (50.9%) • Mr. Murdock owned approximately 39% of • Approximately 25% of Dole stockholders Dole. He had previously taken Dole private decided to exercise their appraisal rights in 2003 and then public again in 2009 • Stockholders are seeking appraisal for • The price was raised to $13.50 per share up to $190 million • The price was not considered to be fair in the market Takeaway • Even when a transaction is approved by stockholders the threat of appraisal proceeding can leave a company open to significant additional financial liability • Risk of large appraisal awards is especially problematic if financing is not sufficient

Current Issues (Cont’d)

The Transkaryotic Holding Has Left Open Some Issues

• Transkaryotic held that stockholders holding shares in street name are entitled to seek appraisal

• Open issues from this holding: o In the Ancestry.com transaction, a group of investors led by Pemira, paid $32 per share to buy Ancestry.com ̶ Merion acquired its shares after the record date and was unsure of how the shares were voted because they were held in street name ̶ Ancestry is arguing that this disqualified Merion from seeking appraisal because those shares must have not voted for the transaction o In the Dole transaction, more shares are seeking appraisal than the number of shares that voted against the merger ̶ The Delaware court must determine how to award appraisal in such a situation, when tracing share ownership is difficult

Current Issues (Cont’d) The Delaware Legislature Could Reduce the Advantage That Appraisal Rights Offers to Activists

• Reduce the statutory interest rate prescribed in Delaware for appraisal rights

• Limit the types of transactions where appraisal rights are available

• Restrict the timing that someone could file for appraisal rights

Kai Haakon E. Liekefett

Introduction

“Hostile” Activists

• Historically, a hostile takeover was the greatest threat to the ability of the board and management to set a company’s strategy

• In the last couple of years, the number of hostile takeovers has declined significantly

• Today, the greatest threat to the control of a public company’s strategy is from activists who acquire a small stake and threaten to launch a proxy fight to push for change

• Recently, activists have become increasingly involved in hostile takeover activity

The new confluence of activism and hostile bids may breathe new life into the hostile takeover

Hostile Takeover Bids and Activists

Unsolicited and Hostile Takeover Offers 2003 – 2014 YTD

The Hostile Takeover has been on the Wane… 80

70 72 66 60 57 50

46 47 40 43 42 39 30 34 29

20 22

10 13

10 9 8 18 15 18 18 15 15 12 5 7 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Source: FactSet Mergers (through October 20, 2014) Unsolicited Takeover Bids Hostile Takeover Bids

The New Page in the Activist’s Playbook

Forms of Activist Involvement in Hostile Takeovers

Activist Supports Activist Launches Activist and Strategic Hostile Bid of Strategic Hostile Bid Acquiror are Co-Bidders Acquiror in a Hostile Bid

Ricky Sandler Carl Icahn Bill Ackman (Eminence Capital) (Pershing Square)

The Parties

The Target: Allergan • Large cap multi-specialty health care company with a $44.7 billion market cap when the bid was announced, traded on the NYSE • Allergan has 9 directors, all of whom are up for election at the 2014 annual meeting • Chairman and CEO is David Pot (since 2001)

The Bidder: Valeant Pharmaceuticals International • Large cap pharmaceutical and medical device company with a $44.5 billion market cap, traded on the NYSE and TSX • Manufactures and markets generic pharmaceuticals, over-the-counter products and medical devices, in the eye health, dermatology, and neurology therapeutic classes

The Activist: Pershing Square Capital • Led by Bill Ackman, Pershing Square is a hedge fund that manages approximately $13 billion in capital and invests in North American equity securities • Launched activist campaigns against McDonalds, Wendy’s, Target, JC Penney, Air Products & Chemicals and Canadian Pacific Railway • Shown a willingness to launch proxy fights and acquire the entire company at the right price (i.e., Plains Resources) ©2014 Vinson & Elkins LLP 58

Hostile Takeover Bids and Activists

Timeline of Initial Events

February – May 2014

PRIVATE PUBLIC

Valeant’s Offer

The Terms of Valeant’s Takeover Bid

• Valeant issued its public “bear hug” letter the day after the filing of the Schedule 13Ds and sent Allergan a draft merger agreement

• Initially, Valeant offered Allergan shareholders $48.30 in cash and 0.83 Valeant shares for each Allergan share, valuing the target at $152.89 a share at the time of the offer (a 38% premium over Allergan’s unaffected stock price) – Subsequently, Allergan increased its offer several times – On October 27, it stated “Valeant is prepared to improve its offer and provide value to your shareholders of at least $200 a share”

• Valeant offered to assume the entire antitrust risk (“hell or high water”)

• There is no financing contingency; Valeant has committed financing

Hostile Takeover Bids and Activists

Terms of the Pershing Square/Valeant Partnership

The Relationship Agreement

• Valeant and Pershing Square form a jointly owned entity (the “Co-Bidder Entity”) as the exclusive entity for the stake accumulation in Allergan

• Valeant is not required to pursue a business combination with Allergan and Pershing Square is not required to acquire Allergan equity

• Valeant contributes $75.9 million to the Co-Bidder Entity and Pershing Square contributes additional amounts in its discretion

• Profits and losses of the Co-Bidder Entity on $75.9 million in value of Allergan equity are allocated to Valeant and the remainder is allocated to Pershing Square o Exception: Valeant receives 15% of the net profits otherwise allocable to Pershing Square in the event Allergan enters into a business combination with a third party

Hostile Takeover Bids and Activists

Terms of the Pershing Square/Valeant Partnership (Cont’d)

• Pershing Square directs the management of the Co-Bidder Entity

• The Co-Bidder Entity may not sell any Allergan equity after the filing of a Schedule 13D by Pershing Square o However, this covenant terminates under certain circumstances (described on the next slide)

• Pershing Square will cause the Co-Bidder Entity to vote in favor of any Valeant-Allergan business combination with Allergan and against any other transactions or conflicting proposals

• Valeant will consult with Pershing Square before making any material decisions relating to a business combination with Allergan and requires Pershing Square’s consent for launching any tender offer

Terms of the Pershing Square/Valeant Partnership (Cont’d)

• If Valeant and Allergan consummate a business combination: o Pershing Square will purchase Valeant common stock for $400 million at a 15% discount to the then current market price o Pershing Square will cause the Co-Bidder Entity to elect to receive Valeant common stock o Pershing Square will hold at least $1.5 billion of Valeant common stock and continue to hold at least $1.5 billion for at least one year

• The rights and obligations under the Relationship Agreement terminate if: o Valeant informs Pershing Square that it is no longer interested in a business combination with Allergan o Valeant does not make a proposal for a business combination with Allergan within 10 days after the filing of a Schedule 13D or withdraws such a proposal o No definitive agreement has been reached with Allergan within 12 months o Valeant does not make a superior proposal within a specified time period following a third party proposal, agreement or tender offer for Allergan ©2014 Vinson & Elkins LLP 63

Hostile Takeover Bids and Activists

Terms of the Pershing Square/Valeant Partnership (Cont’d)

• The Co-Bidder Entity will be dissolved upon: o Mutual agreement of Pershing Square and Valeant o Consummation of a business combination of Allergan with Valeant o Consummation of a business combination of Allergan with a third party (would not include a minority stake or other “white squire” investment) o Sale of all Allergan equity by the Co-Bidder Entity o Valeant informs Pershing Square that it is no longer interested in a business combination with Allergan o Valeant does not make a proposal for a business combination with Allergan within 10 days after the filing of a Schedule 13D or withdraws such a proposal o No definitive agreement has been reached with Allergan within 12 months

• Each party will bear its own costs and expenses

Hostile Takeover Bids and Activists

Pershing Square’s Stakebuilding

Note: Chart shows Allergan’s share price, volume, and the number of shares, options, and forwards purchased by Pershing Square beginning February 25, 2014, the day Pershing Square began its purchases, through April 21, 2814. Data are from Capital IQ.

Source: Pershing Square, Definitive Additional Proxy Materials, filed with the SEC on April 22, 2014

Legal Issues of Pershing Square’s Stakebuilding

Schedule 13D Filing

• Federal securities laws require the filing of a Schedule 13D within 10 days of crossing 5% beneficial ownership in a public company

• Pershing Square used this 10-day window to increase its ownership stake from 5% to 9.7%

• This 10-day window dates back to 1968 with the adoption of the Williams Act and Congress has been urged to shorten the window for many years, as almost every other developed market has a much shorter period

• The Dodd-Frank Act (adopted in 2010) authorized the SEC to close the 10-day window but the SEC has not yet exercised its authority

• Ongoing policy debate between corporate lobbyists and hedge fund supporters

Hostile Takeover Bids and Activists

Legal Issues of Pershing Square’s Stakebuilding (Cont’d)

Hart-Scott Rodino Act (HSR)

• The HSR Act requires the filing of a notification upon acquiring shares with a market value exceeding $75.9 million

• Valeant avoided this requirement by limiting its investment in the Co- Bidder Entity to exactly $75.9 million

• Pershing Square invested $3.2 billion in Allergan equity but the Co-Bidder Entity primarily acquired options and forward purchase contracts, which do not count towards the HSR threshold until exercised and settled

• Pershing Square filed its HSR notification after the filing of its Schedule 13D and was granted early termination of the 30-day waiting period on May 1st o This enabled Pershing Square to obtain actual voting power quickly o By contrast, Valeant filed for HSR clearance on July 14th and received a second request from the FTC on August 11th ©2014 Vinson & Elkins LLP 67

Hostile Takeover Bids and Activists

Legal Issues of Pershing Square’s Stakebuilding (Cont’d)

Insider Trading

• Many have wondered whether this stake accumulation constituted illegal insider trading because Pershing Square possessed material non-public information about Valeant’s interest in bidding for Allergan

• The U.S. Court of Appeals for the 2nd Circuit held in 1968 in SEC v. Texas Gulf Sulphur Co. that “anyone in possession of material inside information must either disclose it or … abstain from trading” (“possession theory”)

• However, the Supreme Court rejected this theory in 1980 in Chiarella v. United States when it required a breach of a confidentiality obligation

• Pershing Square did not breach any confidentiality obligation to Allergan (not the source of the information) or Valeant (consented to the stake accumulation)

Hostile Takeover Bids and Activists

Legal Issues of Pershing Square’s Stakebuilding (Cont’d)

Tender Offer Rules

• There is a special SEC insider trading rule that deals with tender offers

• Rule 14e-3 provides that once a prospective bidder has “taken a substantial step or steps to commence a tender offer,” then any person other than the bidder who is in possession of material non-public information is prohibited from acquiring shares in the target

• In the Relationship Agreement, Pershing Square and Valeant expressly state that “no steps have been taken towards a tender for securities of Allergan and the parties agree that the consent of both Pershing Square and [Valeant] shall be required for launching such a tender offer”

• Furthermore, the Relationship Agreement provides that Pershing Square and Valeant will be “co-bidders” in any tender offer and that Pershing Square will be a significant shareholder (and even affiliate) of “New Valeant”

Benefits of the Pershing Square/Valeant Partnership

The Structure Facilitates Hostile Takeovers …

• A hostile bidder usually takes a significant amount of risk, but the arrangement with Pershing Square substantially lowers Valeant’s risk: o In the event Allergan remains independent, Valeant takes little economic risk because 98% of the funds for the Allergan stake came from Pershing Square o In the event Allergan is rescued by a “white knight,” Pershing Square compensates Valeant with a 15% break-up fee o Valeant can utilize Pershing Square’s expertise and experience in secret stake accumulations and proxy contests o Allows a strategic bidder to quickly obtain HSR clearance for the toehold stake

• The structure also lowers Pershing Square’s risk because it received: o Advance knowledge of Valeant’s hostile bid, which guaranteed Pershing Square a significant lift in Allergan’s stock price o 15% discount on $400 million of Valeant stock

Risks of the Pershing Square/Valeant Partnership

… But There are Also Risks

• In the event Allergan remains independent, it is likely that its stock price will drop back to pre-bid levels (and possibly lower), and Pershing Square stands to incur significant losses

• Activists and corporations may team up on hostile takeovers, but companies that join with activists may soon discover they are targets themselves o If the hostile bid succeeds, Pershing Square will own approximately 6% of the combined company

• There is a legal risk that a court will come to the conclusion that Pershing Square’s stake accumulation violated the federal securities laws (in particular Rule 14e-3)

• Lastly, there is a legislative risk: The high-profile hostile bid for Allergan may put pressure on the SEC (and Congress) to close various legal loopholes

The Fight for Allergan

Pershing Square and Valeant’s Choices

• Allergan’s poison pill effectively limits Valeant and Pershing Square to a 10% stake

• This forced Valeant and Pershing Square to either: o abandon the pursuit of a transaction or o try to negotiate a friendly transaction with Allergan’s board of directors or o run a proxy contest to replace the incumbent directors of Allergan in the hope that a new board will redeem the poison pill

• An insurgent’s ability to replace the incumbent’s board through a proxy contest depends on a target company’s structural defenses

The Fight for Allergan: Allergan’s Structural Defense Profile

Strengths Weaknesses

(1) • Poison pill in effect • Annually elected directors • No shareholder action by written consent (2) • Shareholders holding at least 25% of the • No proxy contest at 2014 annual meeting outstanding stock can call special meetings possible under the advance notice provisions • Low insider ownership (approx. 1.6%) for nominations and shareholder proposals (3) • Directors may be removed without cause by a • Board is authorized to change the size of the majority of the shares entitled to vote Board without shareholder approval • No supermajority vote requirement to approve • Board fills all director vacancies (including mergers or amend charter due to removal) (4) • Board has proposed to allow shareholders to • No cumulative voting for election of directors act by written consent • Board may amend or repeal bylaws unilaterally ------(1) Poison pill was adopted April 22, 2014 • Blank check preferred stock (2) However, Allergen’s Board has proposed amending the Company’s certificate at the 2014 annual meeting to allow shareholders to act by written consent • Board approval or affirmative vote of holders (3) Advance notice for director nominations and shareholder proposals for the 2014 annual meeting had to be given by April 6, 2014 of a majority of disinterested shares required (4) However, if all directors are removed, any officer or any shareholder may call a (5) for transactions with 5% shareholders special meeting or may apply to the Delaware Court of Chancery for a decree summarily ordering an election (DGCL Section 223(a)) • Section 203 of the Delaware General (5) Majority of disinterested shares are required to approve a business combination with a 5% shareholder unless approved by majority of Corporation Law (DGCL) independent directors (6) In a contested election, shareholders are given the choice to cast “for” or • In contested elections, directors are elected by “withhold” votes for the election of directors; in a non-contested election, (6) shareholders have the choice to either cast votes “for” or “against” the election

plurality vote of directors and directors are elected by majority vote standard

Hostile Takeover Bids and Activists

The Fight for Allergan: Allergan’s Weaknesses

Allergan has Certain Achilles’ Heels

• Allergan had an annual meeting scheduled for May 6th and the deadline for director nominations had already passed

• However, Allergan’s structural defense profile has significant weaknesses: o Allergan allows shareholders holding 25% of the shares to call a special meeting o Allergan’s Board submitted a proposal for the May 6th annual meeting to allow 25% of the shareholders to demand an action by written consent o Directors may be removed without cause by a majority vote of the shareholders

• However, Allergan limits the shareholders’ ability to call special meetings (and act by written consent) by barring a “Similar Item” from being presented to shareholders within one year prior to the request

• Therefore, a key question was whether the removal and new election of Allergan’s directors would be a “Similar Item” to the annual director election

The Fight for Allergan: Allergan’s Weaknesses (Cont’d)

Allergan’s Own Interpretation Came to Haunt It

Source: Allergan, Definitive Additional Proxy Materials, filed with the SEC on April 22, 2014

The Fight for Allergan: History of Allergan’s Defenses

Allergan was Not Always Vulnerable

• Staggered Board Allergan’s board of directors proposed to eliminate the staggered board at the 2011 annual meeting and Allergan’s shareholders voted to approved the proposal

• Shareholder Power to Call Special Meetings Allergan’s board of directors proposed to introduce shareholder power to call special meetings at the 2013 annual meeting and Allergan’s shareholders voted to approved the proposal

• Shareholder Action by Written Consent Allergan’s board of directors has proposed to introduce shareholder action by written consent at the 2014 annual meeting and Allergan’s shareholders voted are expect to approve the proposal

Hostile Takeover Bids and Activists

The Fight for Allergan: Timeline of Subsequent Events

May – June 2014

MAY – JUNE

The Fight for Allergan: Timeline of Subsequent Events (Cont’d)

August – September 2014

AUGUST – SEPTEMBER

The Fight for Allergan: Timeline of Subsequent Events (Cont’d)

October – December 2014

OCTOBER DECEMBER

Kai Haakon E. Liekefett

Introduction

Activists are Looking at Every Deal

• Activists are looking at each and every announced deal: o Looking to either get a “bump” or derail the deal o Assessing vulnerabilities

• How activist investors become involved in an M&A transaction: o As an existing shareholder that was urging a review of strategic alternatives or sale process o As a new shareholder that acquires a position post-announcement of the deal

Deal Announcement

Initial Investor Reaction as Cue

A. Investors are in favor of the deal, but they think the terms could be sweetened o Believe that maybe some value was left on the table o Do not want to risk ‘deal in hand’

B. Investors are not necessarily against the deal, but they think that the proposed consideration undervalues the company on current terms o Believe that amount or form of consideration is unacceptable o Criticize lack of pre-signing market check or robust process

C. Investors oppose the deal for grossly undervaluing the company or lack of strategic sense o Believe that consideration is grossly inadequate o Argue that more attractive strategic alternatives would have been available

The Activist’s Analysis

Deal Terms Deal Process Governance Profile

• Financial terms • Review • Nomination deadline background to the for next annual • Shareholder vote merger section meeting requirements • Determine process • Ability to remove • Other closing deficiencies or directors prior to conditions conflicts of the next annual (including regulatory interest meeting at a special and appraisal meeting or through conditions) action by written

consent • Deal protection provisions

III. B. Addressing Activism in Deal Preparation and Negotiation

William P. Mills

©2014 Cadwalader, Wickersham & Taft LLP 84 Addressing Activism in Deal Preparation and Negotiation Advanced Planning • Analyze the potential vulnerabilities of the transaction o Valuation: Fully vet management’s model and forecast, including underlying assumptions o Is there a controlling stockholder? o Is there a conflict of Interest? o Would a special committee be required? o Is a shareholder vote required?

• Analyze stockholder base o Are activists in the stock? o What is the estimated cost basis for significant stockholders?

• Review company’s takeover defenses o Can shareholder remove directors? o When is the next annual meeting?

©2014 Cadwalader, Wickersham & Taft LLP 85 Addressing Activism in Deal Preparation and Negotiation Advanced Planning (Cont’d) • Prepare investor relations communication plan o “Black hat” review of transaction

• Put in stock monitoring o To alert parties to large share purchases and turnover in stockholder base

• Retain qualified investors

• Consider pre-signing market check

©2014 Cadwalader, Wickersham & Taft LLP 86 Addressing Activism in Deal Preparation and Negotiation Negotiating the Transaction Terms • Sellers should negotiate effectively and establish a record that they obtained the best available transaction terms, including price

• Evaluate and consider pre- announcement market check, and limited auction to qualified financial and strategic buyers

• Minority Protections o Special committee o Majority of the minority vote ̶ Pro: can provide business judgment protection for directors ̶ Con: could encourage activists/arbs to seek to establish a blocking position

©2014 Cadwalader, Wickersham & Taft LLP 87 Addressing Activism in Deal Preparation and Negotiation Negotiating the Transaction Terms (Cont’d) • Deal protection provisions o Go shop o Fiduciary out o Termination fees o Voting agreements with significant shareholders o Appraisal rights condition ̶ Parties can include a condition that shares seeking appraisal do not exceed a threshold (e.g. 5-10% of outstanding shares) ̶ These conditions have become less common but may be considered in light of the upward trend in appraisal proceedings ̶ Protects seller against risk of significant appraisal cost; could be required for financing ̶ Shifts to buyer risk of appraisal proceeding o Target’s adoption of a shareholder rights plan in conjunction with merger agreement

A conflict free transaction with a market check, a strong record of negotiation and reasonable deal protections is less likely to attract activist attention

©2014 Cadwalader, Wickersham & Taft LLP 88 Addressing Activism in Deal Preparation and Negotiation Respond to an Activist Approach or Public Campaign • Assume private approach could lead to a public campaign

• Investor relations plan in place to communicate compelling rationale for transaction

• Continue to focus on company performance

• Consider the activists position and recommendations and whether they are in the best interest of all the stockholders

• Determine when to engage and negotiate with the activist

• Negotiation and compromise should be considered when optimal for stockholders

Gary W. Finger

Important Factors Create Deal Team Monitor Shareholder Base and Trading  Senior management, financial advisor, legal counsel and possibly  Monitor changes in institutional and hedge fund holdings other advisors, including proxy soliciting firm and public relations  Trading activity, parallel trading and group activity (the activist “wolf advisors pack”)  Maintain war list of updated contacts  Proxy solicitation firms can analyze raw settlement data  Prepare Board with periodic updates by advisors from DTC  Prepare CEO  Schedule 13D/13(f)/HSR filings  Require coordinated and rapid response on all levels  Monitor peer groups, analysts, ISS, Glass Lewis, activist-like  Momentum established in first hours following public announcement institutions CalSTRS and TIAA-CREF, internet commentary and make  Delay may significantly lend air of credibility to activist campaign reports that may attract attention  Retain stock watch service Disclosure/Public Relations Communication of Transaction  Review investor presentations, analyst presentations and other  Create compelling investor presentation that provides rationale financial public relations matters  Basis for all shareholder communications  Be consistent with the Company’s basic strategic message  Proactively address reasons for any shortfall versus peer  Create plan to proactively communicate strategic plan (and company benchmarks proactively address activist concerns) with investment community  Anticipate key questions and challenges from analysts and activists –  Communicate directly with analyst community be prepared with answers  Maintain regular close contact with major institutional investor – CEO  Maintain ongoing dialogue with investors, including portfolio and CFO (and potentially lead independent director) participation managers and governance teams very important – first meeting should not be after activist surfaces  Investor relations team should know names of likely activists and identify and log all incoming calls  Should meet with ISS often, as activists likely will and send ISS favorable research reports as it relates to public information (and not specify tailored presentations) Avoid being put in play – psychological and optical factors may be more important than financial factors in outcome of activist campaign against M&A transaction Thank you

92 Presenter Bios

93 Presenter Bios

William P. Mills

Bill Mills concentrates his practice in the area of corporate law, with emphasis on mergers and acquisitions, securities law, corporate finance and corporate governance. Bill represents clients in a wide range of complex transactions, including mergers, acquisitions, divestitures, public and private securities offerings, proxy contests, spin-offs, restructurings, leveraged buyouts, tender offers, exchange offers, and joint ventures. He also represents investment banks as financial advisers on M&A and other transactions. Bill advises listed public companies in the areas of corporate governance, activist defense, crisis management, executive compensation, contractual negotiations, and general regulatory compliance.

Select Representative Experience • Forbes Media’s sale of a majority stake to a consortium of international investors • Towers Watson's acquisitions of Extend Health and Liazon Corporation and sale of its Reinsurance Brokerage Business • AngioDynamics' acquisitions of Navilyst Medical, Microsulis Medical, Vortex Medical and Clinical Data William P. Mills • Elan Corporation's $3.25 billion sale of Tysabri rights to Biogen Idec New York • Pfizer Inc.'s sale of its Capsugel business to KKR

212.504.6436 • DPL Inc.'s merger with AES Corp. [email protected] • Pfizer Inc.'s $3.2 billion acquisition of King Pharmaceuticals • Bear Stearns Companies Inc. acquisition by JPMorgan Chase • Pfizer Inc.'s $68 billion acquisition of Wyeth • Trian Fund Management in the $2.34 billion sale of Wendy's International to Triarc Companies • Pfizer Inc.'s $16 billion sale of its consumer health care division to Johnson & Johnson • Xstrata Plc's sale of its Noranda aluminum division to Apollo Management • Trian Partners’ successful proxy contest with H.J. Heinz Company 94 Presenter Bios

Gary W. Finger

Mr. Finger is a Director and member of Houlihan Lokey’s M&A Group and the M&A Committee. During an investment banking career spanning over three decades, he has been responsible for a variety of public and private M&A assignments in a broad range of industries. He has represented corporate clients and boards, hedge funds, and hostile raiders. Recent notable transactions during Mr. Finger’s career include the campaign by PSAM to amend the terms of the MetroPCS merger with T-Mobile, the going private transactions of Claxson Interactive and Virbac; the merger of Salton and Applica; the merger of IASG and Protection One; and the sale of Ameriserve to Wal-Mart. Mr. Finger is based in the firm’s New York office.

Before joining Houlihan Lokey, Mr. Finger was a Managing Director at Chemical Securities. His experience includes positions as an Associate Director at Bear, Stearns & Co., and earlier stints in M&A at E.F. Hutton and Morgan Stanley.

Mr. Finger received a B.S. and B.A., cum laude, from the University of Pennsylvania and an MBA from Stanford Graduate School of Business. He is registered with FINRA as a General Gary W. Finger Securities Principal (Series 24).

New York 212.497.4125 [email protected]

95 Presenter Bios

Kai Haakon E. Liekefett

Since 2000, Kai has advised domestic and international companies, as well as financial advisors, in connection with public and private M&A transactions, both hostile and friendly. Kai has significant experience with shareholder activism, advising both target companies and activists. Prior to joining V&E, Kai was an associate at Cravath, Swaine & Moore in New York (2006 to 2011) and a legal trainee at Linklaters in Düsseldorf, London, Hong Kong and Tokyo (2000- 2004). Kai holds a Ph.D., magna cum laude, from Freiburg University; an Executive MBA, summa cum laude (best of his class) from Münster Business School; an LL.M., James Kent Scholar, from Columbia Law School; and a J.D., summa cum laude (best of his class), from Osnabrück School of Law. He is admitted to practice in New York, Texas and Germany.

Select Representative Experience • Conn’s in connection with activist activity by Luxor Capital and Greenlight Capital • Endeavour International in its proxy contest defense against the Talisman Group • Miller Energy in its proxy contest defense against Bristol Capital and Lone Star Value Kai Haakon E. Liekefett • Gastar Exploration in connection with activist activity by Kleinheinz Capital Partners • Crest Financial in its proxy contest against the $6 billion Clearwire-Sprint merger, resulting in Houston an increase of the merger consideration by approximately 70% from $2.97 to $5.00 713.758.3839 • Oil States in connection with activist activity by JANA Partners [email protected] • Endeavor in connection with activist activity by Steelhead, O-Cap and Lone Star Value • C&J Energy in its $2.86 billion merger with Nabors’ completion and production businesses

• Energy XXI in its $2.3 billion acquisition of EPL Oil & Gas

• Inergy in its $8 billion merger with Crestwood (2nd largest 2013 energy deal) • Citigroup in LinnCo’s $4.9 billion acquisition of Berry Petroleum (5th largest 2013 energy deal) • Evercore in Kinder Morgan’s $38.5 billion acquisition of El Paso (largest 2011 M&A deal) • Westlake Chemical in its unsolicited $1.2 billion takeover offer for Georgia Gulf Corporation