1. 1Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Pay Ratio Rule Brian V. Breheny Presentation to Society of Corporate Secretaries and Governance Professionals, Southeastern Chapter Skadden

2. 2Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates SEC Pay Ratio Disclosure Rule - Adoption Mandated by Congress pursuant to Section 953(b) of the Dodd-Frank Act. Proposed in 2013. Adopted on August 5, 2015, in a 3-2 vote. Pay ratio disclosures will be required for the first fiscal year commencing on or after January 1, 2017. − Pay ratio disclosures will be required in proxy statements for the 2018 annual meeting. − These disclosures must be included in any filing that requires executive compensation disclosure: » Annual reports; » Proxy and information statements; and » Registration statements that otherwise require such disclosure. Emerging growth companies, smaller reporting companies and foreign private issuers are exempt from the pay ratio disclosure requirements. Transition periods for IPOs and business combinations or acquisitions.

3. 3Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates New Item 402(u) of Regulation S-K Pay Ratio Disclosure: − The median annual total compensation of all employees of the company (except CEO); − The total compensation of the CEO; and − The ratio of those two amounts (as a ratio or a multiple). Narrative Disclosure: − The methodology used to identify the median employee; − Material assumptions, adjustments or estimates used to determine the median employee or annual total compensation. Supplemental disclosure (e.g., additional discussion or ratios) is permitted, as long as they are clearly identified, not misleading and not presented with greater prominence than the required pay ratio. XBRL tagging of pay ratio.

4. 4Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Determining the Pay Ratio The pay ratio is based on the annual total compensation of all employees. “Employee” is defined as an individual employed by the company or any of its consolidated subsidiaries. − Excludes contractors. − Can be based on any date within the last three months of its last completed fiscal year. “Median Employee” can be identified through the company’s own methodology based on its own facts and circumstances. − For example, a company could use its total employee population; a statistical sampling of that population; and/or other reasonable methods. − A company may apply a cost-of-living adjustment to the compensation measure used to identify the median employee. » If applied, the company would need to use the same cost-of-living adjustment in calculating the median employee’s annual total compensation and to disclose the median employee’s annual total compensation and the pay ratio without the cost-of-living adjustment. » Adjustments are for cost of living in the jurisdiction where the CEO resides. − A company is permitted to perform the median employee calculation once every three years, unless it reasonably believes that a change in its employee population or compensation arrangements would result in a significant change to its pay ratio disclosure. » If the median employee’s compensation changes within those three years, the company may use another employee with substantially similar compensation as its median employee.

5. 5Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Determining the Pay Ratio (continued) Annual Total Compensation. Reasonable estimates may be used in determining any elements of the employee’s total compensation for the last completed fiscal year. − Excludes amounts relating to a government-mandated pension plan. − Companies are permitted to include in the employee’s annual total compensation perquisites that aggregate less than $10,000 and/or compensation under nondiscriminatory benefit plans. » Including those amounts may lower the ratio. » Companies that adopt this approach would be required to use the same approach in determining the CEO’s total compensation for pay ratio purposes and also explain any difference between the CEO’s total compensation for pay ratio purposes and the total compensation amount reflected in the summary compensation table. » The standard executive compensation rules will apply in valuing any perquisites, such that the perquisite value will be based on the aggregate incremental cost to the company.

6. 6Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Added Flexibility from Proposed Rules Count employees of consolidated subsidiaries, not all subsidiaries. Pay ratio disclosure required annually, but median employee calculation only needs to be performed once every three years, unless there is a change in employee population or employee compensation arrangements that could significantly skew the pay ratio. Companies may select any date within the last three months of their last competed fiscal year to determine their employee population for purposes of identifying median employees. Companies may annualize total compensation for a permanent employee who did not work for the entire fiscal year. − No full-time equivalent adjustments for part-time workers. − No annualizing adjustments for temporary and seasonal workers. Certain non-U.S. employees may be excluded pursuant to foreign data privacy law exemption and/or a 5% de minimis exemption. − Reliance on either exemption requires additional disclosure. Compensation of employees may be adjusted to the cost of living in the jurisdiction where the CEO resides.

7. 7Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Legal Challenge? “When engaging in informal rulemaking, the Securities and Exchange Commission (the “Commission”) must satisfy three procedural requirements under the Administrative Procedure Act (“APA”): general notice of the proposed rulemaking, an opportunity for interested persons to participate in the rulemaking, and a concise statement of the basis and purpose of the rules adopted after consideration of the relevant matter presented.” Commissioner Piwowar, Additional Dissenting Comments on Pay Ratio Disclosure, August 7, 2015 Impact on compliance date?

8. 8Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Proposed New Rules on Hedging Policy Disclosures On February 9, 2015, the SEC released proposed rules to implement Section 955 of the Dodd-Frank Act. Dodd-Frank amended Section 14 of the Exchange Act to add paragraph (j), which directs the SEC to issue rules requiring companies to disclose whether they permit employees and directors to hedge the company’s securities. The proposed rules would add the following new paragraph (i) to Item 407 of Regulation S-K: − (i) Employee, officer and director hedging. In proxy or information statements with respect to the election of directors, disclose whether the registrant permits any employees (including officers) or directors of the registrant, or any of their designees, to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engage in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities — (1) Granted to the employee or director by the registrant as part of the compensation of the employee or director; or (2) Held, directly or indirectly, by the employee or director.

9. 9Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Proposed New Rules on Hedging Policy Disclosures (continued) The proposed rules would require the hedging policy disclosure in any proxy statement or information statement with respect to the election of directors. The proposed rules would apply to all companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies and registered closed-end investment companies with shares listed and registered on a national securities exchange. The proposed rules largely parallel Section 14(j) of the Exchange Act, but include some “principles-based” expansions with respect to the types of transactions covered and the location of the disclosure, as well as some additional clarifications and instructions. Neither Section 14(j) of the Exchange Act nor the proposed rules require companies to prohibit hedging or to otherwise adopt practices or a policy addressing hedging by any category of individuals. Rather, as described in the proposing release, the proposed rules are aimed at disclosure and providing “transparency to shareholders... about whether employees or directors are permitted to engage in transactions that mitigate or avoid the incentive alignment associated with equity ownership.”

10. 10Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Proposed New Rules on Hedging Policy Disclosures (continued) Many companies already include proxy disclosure concerning their hedging policies in their Compensation Discussion & Analysis (CD&A) because Item 402(b) of Regulation S-K, which requires disclosure of material information necessary to an understanding of a company’s compensation policies, includes hedging policies as an example of the kind of information that should be provided, if material. The proposed rules however, would require broader and more specific disclosures and would apply to additional categories of companies. Companies should consider reviewing their hedging policies in light of the disclosure that may be required and identifying revisions to their current hedging policy disclosures that may be needed for future proxy statements.

11. 11Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Conflict Minerals Disclosure Requirement Confirmed Unconstitutional On August 18, 2015, the U.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 decision, confirmed its earlier decision in April 2014 by ruling that the SEC cannot require public companies to disclose whether their products may contain “conflict minerals” that “have not been found to be ‘DRC conflict free,’” because to do so violates their free speech rights. As adopted by the SEC, the conflict minerals rules require certain public companies to conduct due diligence on the source and chain of custody of its conflict minerals, as well as file with the SEC a more detailed Conflict Minerals Report, potentially including disclosure to the effect that the company’s conflict minerals have not been found to be DRC conflict free. Once adopted, the conflict minerals rules were quickly challenged, leading to the court’s April 2014 ruling that the conflict minerals disclosure requirement to label products as not DRC conflict free in SEC filings compels speech in violation of the First Amendment. In response to that ruling partially invalidating its rule, the SEC’s Division of Corporation Finance issued a statement with interim guidance that relieved companies of having to label their products as originally prescribed by the rules and, in some instances, having to obtain an independent private sector audit until the SEC or a court takes further action. The SEC staff also clarified that notwithstanding the pending litigation with respect to the First Amendment labeling issue, companies still were required to disclose the source of so- called conflict minerals contained in their products.

12. 12Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Conflict Minerals Disclosure Requirement Confirmed Unconstitutional (continued) In November 2014, the court granted the SEC’s request for a rehearing to reconsider the court’s April 2014 decision in light of subsequent case law developments regarding compelled speech, including the court’s July 2014 en banc decision upholding the U.S. Department of Agriculture’s meat country-of-origin labeling requirements. In its rehearing decision on August 18, 2015, the divided panel confirmed its earlier ruling that the conflict minerals rule violates the First Amendment to the extent that it requires public companies to state that any of their products have not been found to be DRC conflict free. Until the SEC or its staff takes further action or issues new guidance in response to this rehearing decision, the staff’s prior April 2014 statement continues to apply. Although companies still are required to disclose certain information concerning the source of their conflict minerals, they will not be required to report a conclusion that their conflict minerals have not been found to be DRC conflict free. While a company may voluntarily elect to describe its products as DRC conflict free in its Conflict Minerals Report, making that disclosure will require the company to obtain an independent private sector audit of the process underlying such determination. Other than for such voluntary disclosures, under the staff’s prior guidance, such audits are not required for companies filing Conflict Minerals Reports. Continue to monitor developments regarding conflict minerals disclosure requirements in the courts and at the SEC.

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