1. Attorney Advertising SPEAKERS: MELINDA BRUNGER GEORGE VLAHAKOS PHILIP PEACOCK ANNUAL DISCLOSURES: ANTICIPATING QUESTIONS FROM THE BOARD JANUARY 13, 2015

2. SPEAKERS January 13, 20152 Vice President, General Counsel and Corporate Secretary Western Gas Partners, LP +1.832.636.2439 (The Woodlands) philip.peacock@anadarko.com MELINDA BRUNGER Partner Andrews Kurth LLP +1.713.220.4305 (Houston) mbrunger@andrewskurth.com GEORGE VLAHAKOS Partner Andrews Kurth LLP +1.713.220.4351 (Houston) gvlahakos@andrewskurth.com PHILIP PEACOCK

3. January 13, 20153 SEC Commissioners and Enforcement Staff have announced a new focus on “broken windows,” or non-fraudulent violations. Late filings and disclosure omissions receive new scrutiny with a view to potential enforcement. Compliance. SEC Enforcement Staff seek to have a “presence” in all areas of disclosure compliance, including timeliness of filing. Form checks. Failure to meet SEC form disclosure requirements may rise to the level of enforcement. In short, there is no technical or de minimis disclosure failure that is immune from enforcement. Disclosure controls. Risk of enforcement places additional pressure on an issuer’s disclosure controls and CEO/CFO certifications. Operation Broken Gate. Announced by SEC in September 2013, charging three auditors with violating federal securities laws or failing to comply with US auditing standards. Part of effort to identify auditors, Audit Committees and other gatekeepers who fail to carry out duties consistent with industry standards. Broken windows enforcement IMPACT OF SEC’S “BROKEN WINDOWS” ENFORCEMENT ON DISCLOSURE

4. January 13, 20154 Enforcement example (Form 8-K). In November 2014, SEC announced separate enforcement actions against 10 issuers for failing to make required Form 8-K disclosures about financing deals and other unregistered sales that diluted their stock. Enforcement example (Section 13 & 16 beneficial ownership). In September 2014, SEC charged 28 officers, directors or major shareholders with failing to promptly report information about their stock holdings and transactions. Don’t assume a low probability of enforcement action on any disclosure rule. Dodd- Frank has given the SEC increased authority to bring administrative proceedings “in house” with a greater probability of winning settlements and penalties. SEC technology. New data-mining technology enables the SEC to bring cases more quickly and cost-effectively by processing massive amounts of data every day. Technology can identify both suspicious activity and instances of noncompliance with disclosure requirements. IMPACT OF SEC’S “BROKEN WINDOWS” ENFORCEMENT ON DISCLOSURE Broken windows enforcement trends

5. January 13, 20155 Regulatory issues  State/local initiatives  E.g., Colorado “setback” ballot initiative  FERC regulation of liquids lines  No gathering exception  Jurisdiction depends on the intent of the shipper  No federal power of eminent domain  Ability to provide true “firm” transportation service is very limited Enhanced Audit Committee independence standards Delaware corporate/MLP fiduciary duty decisions Regulatory and governance perspectives SOME THINGS TO KEEP AN EYE ON…

6. January 13, 20156 “Dear CFO” letter (July 2014). Sent to certain issuers regarding their Form 10-Qs, reminding them to include all required calculation relationships for contributing line item elements for the financial statements and related footnotes. SEC Staff observations of custom tag rates (July 2014) Custom tag usage. Steady decline in custom tag use by large accelerated filers, but continued high custom tag rates among other issuers. Management’s responsibility for vendors. Issuers relying on a vendor “to create their XBRL exhibits are responsible for the exhibits’ accuracy and compliance with the filing requirements.” Continued monitoring of custom tag use. SEC Staff may issue further guidance or pursue “other action.” SEC Staff comment trends. SEC Staff continue to point out basic errors, including (1) incorrect use of negative values, (2) incomplete tagging and (3) inappropriate use of custom tags. SEC Staff focused on XBRL disclosures DON’T IGNORE XBRL!

7. January 13, 20157 Limited liability phase-in has ended. All issuers, including newly-public issuers, are subject to anti-fraud, Securities Act Section 11 and 12 and Exchange Act Section 18 liability for any material errors or omissions in XBRL files. Review disclosure controls. In light of SEC observations and expiration of the limited liability period, ensure disclosure controls adequately address XBRL filing matters. Review exhibit index reference to XBRL exhibits. As XBRL exhibits are now “filed,” ensure any reference to “furnished” or “furnished, not filed” is removed. Exchange Act Rule 12b-25 is not available to extend the due date of an XBRL file. Instead, must comply with the temporary or continuing hardship exemption requirements of Regulation S-T. XBRL reminders DON’T IGNORE XBRL!

8. January 13, 20158 SEC and other government agencies have noted their expectation that Boards oversee cyber risk, along with other risk oversight responsibilities. Cyber risk. SEC Commissioner Aguilar expressed “little doubt that cyber-risk also must be considered as part of [the] board’s overall risk oversight.” (June 2014 speech). Cybersecurity has moved from the IT department to the Boardroom. Rule. Regulation S-K Item 407(h) requires disclosure of the extent of the Board’s role in the issuer’s risk oversight and the effect on the Board’s leadership structure. Litigation. Lawsuits were filed against directors and officers at Target and Wyndham following cyber incidents, alleging failure to formulate adequate policies and responses. ISS. ISS recommended removal of Target’s incumbent Board following its cyber incident. Board oversight INCREASED FOCUS ON CYBERSECURITY DISCLOSURE

9. January 13, 20159 Risk disclosure needed despite defenses. Disclose material cyber risks regardless of perceived strength/effectiveness of cyber defenses. Update cautionary statements regarding forward-looking statements in SEC filings and press releases. Address actual cyber risks then affecting the issuer or its industry. Consider controls. Ensure disclosure controls cover cyber disclosure. Consider impact on disclosure controls and internal control over financial reporting (ICFR), including audit of ICFR, if a breach occurs and is not detected and reported timely. Pre-clear or coordinate disclosures. Coordinate if governmental agencies conduct a parallel investigation and ensure consistent disclosure with public statements by the government (e.g., see FBI press release about Sony Pictures in Appendix A). Consider Form 8-K disclosure. Although not required by Form 8-K, consider whether to provide Form 8-K disclosure following an incident if material. INCREASED FOCUS ON CYBERSECURITY DISCLOSURE Disclosure considerations

10. January 13, 201510 Press release disclosure example. Website disclosure example (cited in press release). Traditional channels. Issuers continue to rely on traditional channels for market- moving disclosures. Post-Netflix disclosures: establishing social media channels SOCIAL MEDIA DISCLOSURE TRENDS

11. January 13, 201511 Commencement. SEC Staff interprets “solicitation” broadly; any social media or other communication with an activist may constitute a solicitation and commence a solicitation period. Same-day filing. Written solicitation materials, including social media posts (and emails), are subject to same-day filing with the SEC (before a proxy statement is filed or as a proxy supplement). Example: mergers. Social media posts require filing after announcement of a merger or otherwise in the lead-up to a stockholder vote. “Solicitations” SOCIAL MEDIA DISCLOSURE TRENDS

12. January 13, 201512 In April 2014, the SEC Staff provided guidance that hyperlinks may be used to add required legends to character-limited social media posts. Guidance—limited use. Guidance permits hyperlinks to legends upon compliance with certain conditions in social media posts involving tender offers, business combinations, proxy solicitations and registered securities offerings. Other contexts. Although hyperlinks are sometimes used in other contexts, guidance does not extend to those situations or rules (e.g., tweeting during earnings releases or providing GAAP number with link to Reg. G reconciliation). Consult with SEC Staff in other contexts. Safe harbor. Risks can arise when safe harbor cautionary statement does not “accompany” forward-looking statements (e.g., class action brought after CEO blog). Hyperlinks to required securities legends SOCIAL MEDIA DISCLOSURE TRENDS

13. January 13, 201513 Avoid discussing material, non-public information on social media to prevent inadvertent disclosure, such as the public tweet by Twitter’s CFO. Social media channels can leak SOCIAL MEDIA DISCLOSURE TRENDS

14. January 13, 201514 Enforcement without allegations of fraud or intentional wrongdoing. For example, action against an issuer alleging that its internal accounting controls kept it from adhering to accounting rules. Weak internal controls can result in accounting fraud. For example, actions against a Dallas-based jewelry issuer and its CFO for allegedly inflating inventory values and misleading auditors, and a Silicon Valley software issuer and two VPs for alleged improper revenue recognition scheme by VPs. CEOs & CFOs face personal liability for ICFR disclosure and SOX 404 certification violations. Control failures can assign individual responsibility for restatements or material misstatements (e.g., action against CEO & CFO for internal control deficiencies and certification violations). Inadequate controls around revenue recognition are ripe for enforcement. For example, action against Arizona-based software issuer for allegedly failing to properly recognize and report revenue from software licenses. Ensure proper controls exist and operate for foreign operations. For example, action against Smith & Wesson related to FCPA violations. Lessons from recent SEC enforcement actions INTERNAL CONTROL OVER FINANCIAL REPORTING

15. January 13, 201515 Failure to identify COSO framework used. In both management’s report and the auditor’s report. (Area for scrutiny by Office of Chief Accountant) Inquiries when multiple control deficiencies exist. Including how management evaluated severity of deficiencies when a material weakness is not reported, and if management evaluated whether deficiencies existed in other COSO components. Whether management evaluated the severity of deficiencies related to immaterial restatements. A deficiency’s severity does not depend upon a misstatement, but on whether a reasonable possibility exists that the deficiency could result in a misstatement. Challenging ICFR effectiveness. Especially if there are changes in ICFR and corrections of previous errors (e.g., where an issuer discloses a charge due to historical accounting inconsistent with GAAP). Questioning lack of disclosure of material changes in ICFR. Especially during periods when certain events occur with the potential to affect controls adversely (e.g., employee layoffs or changes in accounting policies or outsourcing arrangements). SEC Staff comment trends INTERNAL CONTROL OVER FINANCIAL REPORTING

16. January 13, 201516 Disclose cause. Allow investors to understand the cause of any control deficiency. Disclose the accounting error and also the deficiency: Cause. What is its cause? Nature of the deficiency. For example, is it a design or operating effectiveness issue? Is the issue narrow or could the deficiency be broader than what has been observed? Impact. What is its impact on financial reporting and ICFR? Careful consideration is required when considering the “could factor” - do not equate the actual error identified with the reasonably possible potential misstatement. Identification. How was it discovered (e.g., by management or the auditor)? If by management, was it identified “accidentally” or as part of the normal operation of controls? Remediation. What measures are likely necessary to rectify the deficiency? Disclosure considerations in the event of a control deficiency INTERNAL CONTROL OVER FINANCIAL REPORTING

17. January 13, 201517 New audit procedures will be required in the upcoming year for audits of related party transactions (RPTs), significant unusual transactions (SUTs) and financial relationships with executive officers. More extensive diligence by auditors. Focus on proper authorization and business purpose of transactions will assess risks of material misstatements. Auditors must discuss RPTs with the Audit Committee. Auditors expected to probe Audit Committee about their concerns with RPTs and to discuss RPTs they identify. New management representations regarding RPTs and SUTs. Management will face additional inquiries during the audit. Review accounting policies and controls. Accounting policies and procedures, disclosure controls and ICFR must properly address RPTs, SUTs and executive compensation in light of AS18. SEC enforcement action may intensify auditor scrutiny. SEC recently pursued action against an auditor regarding an audit failure relating to RPTs. New Auditing Standard 18 focuses on related party and significant transactions PCAOB IMPOSES NEW BURDENS

18. January 13, 201518 PCAOB evaluating standards for auditing accounting estimates and fair value measurements Changes increase the potential for auditor/issuer disputes. Disputes over accounting estimates and fair value determinations with related risks of restatements and compensation clawbacks. PCAOB’s Audit Practice Alert on auditing revenue. Alert issued in September 2014 after audit inspections identified numerous audit failures relating to revenues. Auditors expected to step up audit review of revenues. Other PCAOB developments PCAOB IMPOSES NEW BURDENS

19. January 13, 201519 Recent Facebook IPO litigation Allegations. Failure to adequately disclose (1) whether increasing mobile usage had or was reasonably expected to have a material unfavorable impact on revenues, and (2) the extent these trends had or were reasonably expected to impact revenues. Plaintiffs alleged issuer had a duty to disclose its knowledge of these known trends. Decision. Court found the allegations stated a claim for omissions of material information required by Regulation S-K Item 303, noting that an issuer has a duty to disclose “any trend, event or uncertainty that is ‘known and existing at the time of the IPO’” that ‘was reasonably likely to have a material impact’ on the issuer’s financial condition,” and “‘whether, and to what extent’ that known trend, event or uncertainty ‘might reasonably be expected to materially impact … future revenues.’” Awareness of trend. Court also found that the issuer’s notice to underwriters when it changed its own internal guidance and projections demonstrated that the issuer was aware the trend was material. Known trends and uncertainties disclosure MD&A CONSIDERATIONS

20. January 13, 201520 Commodity price sensitivity Known impacts and trends of lower crude oil prices Impairments, contingencies and volatility Estimates of oil and gas reserves Goodwill from recent acquisitions Potential trends as long-term contracts with existing cash flows expire Impairment “cushion” and forward-looking disclosures Political risks and effects of sanctions Know where your company and your material customers do business Effects on liquidity Known or anticipated effects of the foregoing, if applicable  Borrowing base redeterminations  Repatriation of cash from foreign jurisdictions and related tax liabilities 2014 10-K and 2015 focus for current macro trends MD&A CONSIDERATIONS

21. January 13, 201521 Expanded Audit Committee responsibilities have increased regulators’ and investors’ interest in the committee’s roles, responsibilities and activities. SEC scrutiny. Chair White has asked the SEC Staff to consider improvements to the Audit Committee report to make it more useful to investors, in part because investors “have expressed interest in increased transparency into the audit committee’s activities.” (May 2014 speech). SEC expects to issue a concept release on enhancing Audit Committee work in 2015. Investors. Some investors and policy groups are seeking greater disclosure. (See Appendix A for United Brotherhood of Carpenters letter and Council for Institutional Investors Policies on Corporate Governance.) Calls for increased transparency ENHANCING AUDIT COMMITTEE DISCLOSURE

22. January 13, 201522 Enhanced disclosure is voluntary, but may help with shareholder votes on Audit Committee members and auditor ratification. Centralize audit-related disclosures. Either in Audit Committee report or “audit- related” section of proxy statement. Scope of responsibilities. Especially responsibility for appointment, compensation, retention and oversight of external and internal auditors and areas of risk oversight (especially those areas beyond financial reporting). Processes or specific activities undertaken for external auditor oversight. Discussion could include the degree of interaction with the auditor (e.g., nature or number of meetings without management), issues/topics discussed with auditor and factors used to assess qualifications and work quality (e.g., PCAOB reports on auditor). Auditor compensation. Responsibility for fee negotiations, factors considered when determining compensation, and explanation of reasons for changes in fees from prior years. Audit Committee disclosure enhancement considerations ENHANCING AUDIT COMMITTEE DISCLOSURE

23. January 13, 201523 Auditor independence. Discussion of processes for conducting periodic independence evaluation, including consideration of non-audit fees/services and auditor rotation, and enhanced discussion of approval/pre-approval of audit and non-audit services/fees. Rationale for selecting or reappointing an auditor. For example, qualifications (e.g., industry expertise and geographical reach), impact of changing auditors, relevant information from the annual auditor evaluation, and statement that selection is in best interest of issuer and shareholders. Involvement in selecting lead audit engagement partner. Including disclosure of year current lead engagement partner was appointed. Auditor tenure. Number of years or year auditor was initially engaged. Committee composition. Not only independence, financial literacy, and identity of Audit Committee financial experts, but also clearly describe members’ qualifications. Audit Committee disclosure enhancement considerations ENHANCING AUDIT COMMITTEE DISCLOSURE

24. January 13, 201524 Drill down into nature and scope of proposed services. Consider “appearance issues” in addition to any prohibited services. Preview fees in proxy table. Disproportionate fees for non-audit and tax services can highlight independence questions. Monitor shifts in scope. Changing transactions and relationships (e.g., business combinations) can result in “scope creep,” which could result in prohibited non-audit services identified after the fact, forcing the auditor to resign. Disclosure impact Reporting violations resulting from non-independence. If a non-independent audit report is filed with a Form 10-K, the issuer would violate fundamental reporting obligations under Exchange Act Section 13(a) (that financial statements in annual reports must be audited by an independent accountant). Risk of losing access to capital markets. Lack of audited financial statements would foreclose public offerings. SEC Staff encouraging fee disclosures. In the proxy statement audit fee table, SEC Staff is seeking and reviewing details about significant non-audit services. Audit Committee shares responsibility and risk of auditor non-independence REVISITING AUDITOR INDEPENDENCE

25. January 13, 201525 Permissible non-audit services (e.g., tax) are prohibited if otherwise inconsistent with rules (e.g., prohibition against acting as an employee). Scrutinize both the nature of the proposed non-audit services and how the services will be delivered. “Loaned staff” arrangements are prohibited. Auditor may not perform any decision- making, supervisory, or monitoring functions for the issuer. Acting as an employee is prohibited, even if temporary. A key inquiry is the degree of control that the issuer exercises over auditor personnel. Advocacy on behalf of audit clients is prohibited. Advocacy can take many forms (e.g., not only “lobbying”). Former lead partner must step out after rotation. Observe roles of new and former engagement partner post-rotation. SEC Staff will respond to independence questions. SEC Staff encourage Audit Committee members to contact the Office of the Chief Accountant in advance with any independence questions, including the permissibility of a contemplated service. Lessons from recent SEC enforcement actions REVISITING AUDITOR INDEPENDENCE

26. January 13, 201526 FASB’s new ASC Topic 606 will supersede current Topic 605, effective as to public companies for fiscal years beginning after December 15, 2016, including interim periods. Every contract for the transfer of goods and services and certain nonfinancial assets. Applies across industries and types of transactions. Judgments. Requires new types of accounting judgments, estimates and determinations and increased disclosure. Impact on contracts. New rules for recognizing revenues from contracts with variable consideration.  Indexed pricing. Will affect E&P and midstream issuers that are parties to, e.g., gas purchase/sale contracts with pricing varying over contract term based on changes in an index.  Estimates. Will require significant judgments regarding such contracts, including estimates of amounts probable of being received under the contracts.  Drafting impact. Consider writing contract terms to make the timing of revenue recognition and amount of revenues to be recognized under the new rules more certain. New standard on accounting for revenues from contracts with customers NEW REVENUE RECOGNITION STANDARD

27. January 13, 201527 Lead time to review contracts. Issuers may have to review each customer contract and make major changes to accounting systems and procedures and internal controls to ensure compliance with the new standard. Systems. Full retrospective adoption requires accounting systems to be upgraded soon. Covenants. New standard may affect compliance with financial covenants and other provisions tied to revenues, operating income, net income, EBITDA and other liquidity measures in credit and other agreements, and achievement of executive compensation performance targets. Risks. New standard may increase risks of financial restatements and compensation clawbacks. Other revenue recognition standards to be amended. FASB is also amending its standard for recognition of gains and losses on transfer of PPE and intangibles. New standard on accounting for revenues from contracts with customers NEW REVENUE RECOGNITION STANDARD

28. January 13, 201528 SEC Staff report released in late 2013 with recommendations for next steps. Avoid information overload. SEC Chair White is speaking out on how “information is presented, where and how that information is disclosed, and how we can take advantage of technology to facilitate investors’ access to information and make it more meaningful.” Initial SEC Staff focus. SEC is encouraging comments.  Business and financial disclosures required by periodic and current reports, Forms 10-K, 10-Q and 8-K (and impact on Securities Act disclosures).  Whether to update and codify Industry Guides and form-specific disclosure requirements.  Whether disclosure requirements should be based on issuer size. Subsequent phases. SEC also plans to focus on compensation and governance information in proxy statements. SEC positions SEC STAFF’S FOCUS ON DISCLOSURE EFFECTIVENESS: BEYOND PLAIN ENGLISH

29. January 13, 201529 Reduce repetition. Consolidate Regulation S-K with financial disclosure requirements and use cross-references where appropriate. Use executive summaries. Introduce and organize other disclosures. Eliminate outdated information. Focus on current information and delete older information if no longer relevant or material. What to expect? Comments on information overloads. Length, redundancies and information overload may trigger SEC Staff scrutiny, especially in risk factor disclosure. New round of “disclosure effectiveness” comments? Return of plain English comment letters? Impact on current disclosure SEC STAFF’S FOCUS ON DISCLOSURE EFFECTIVENESS: BEYOND PLAIN ENGLISH

30. January 13, 201530 First year’s compliance marked by uncertainty and uneven efforts. Many issuers may not have made significant improvements to their compliance programs for 2014, which is the last year in the rule’s transition period. Limited information available for compliance and disclosure Supplier responses. Some conflict mineral suppliers did not respond to information requests for 2013, while others responded with form letters or inadequate information. Inadequate information. Available marketplace information appeared to be inadequate to allow issuers to identify country of origin for much of conflict mineral supply. Responses to the filed Form SDs and conflict minerals reports Social activists. Criticized issuers for inadequate compliance and disclosures. No SEC Staff comments. Staff does not appear to be commenting on specific filings. Full compliance advantages. Some issuers said to seek a competitive and reputational advantage from full compliance and disclosure. Conflict minerals rule compliance CONFLICT MINERALS RULE: FIRST YEAR PROBLEMS / SECOND YEAR CHALLENGES

31. January 13, 201531 SEC Staff views. SEC Staff’s review of first year filings led the SEC Staff to note that: Distinction should be made between reasonable country of origin inquiries and due diligence regarding the country of origin of conflict minerals for larger issuers. Implications of products being “DRC conflict free” should be avoided if that determination has not been made. Issuers failed to disclose known countries of origin, smelters and refiners in sufficient detail. Challenges for second year compliance. Many compliance challenges in 2013 are likely to remain for the 2014 reporting year. Problems with information availability will likely persist for compliance as to 2014 and perhaps into the future; many suppliers likely unmotivated to improve. Some issuers may be unaware of their obligations to file, or changes in business and contracts may capture new issuers. Conflict minerals rule compliance CONFLICT MINERALS RULE: FIRST YEAR PROBLEMS / SECOND YEAR CHALLENGES

32. January 13, 201532 Whether taking profits at a high point in the market, or seeking better returns when oil prices fall and market values of energy issuers decline, activist positions influence governance and disclosure. Activists may work in parallel, creating “wolf packs” of dissident investors who may control the vote for directors and other proposals at the annual meeting. Activist objectives differ Activists have differing objectives and playbooks, and require targeted responses from management and the Board. Proxy solicitors may be able to advise on changes in investor base and activist strategies pursued by large investors. Activists may pursue: Governance reform. Governance changes that affect the Board and governance policies, such as proxy access or changes in executive compensation to “pay for performance.” Corporate social responsibility (CSR). CSR goals, such as changes in investments and sustainability planning, with potential shareholder proposals for the annual meeting. Value. Strategic changes advanced by value-oriented funds, who may press for a transaction in the near term, whether a sale of the issuer or specific transactions to “unlock” value for the benefit of investors (and the fund’s portfolio). Activist positions ACTIVISM TRENDS AND FOCUS ON ENERGY

33. January 13, 201533 While meeting disclosure requirements, an issuer may also highlight information that is followed by activist investors. For example: Proxy statement—directors. Governance-oriented activists (such as pension funds) look for disclosures of director qualifications to see whether investor experience and viewpoints are represented on the Board. Proxy statement—compensation. All activists track executive compensation and specific disclosure of “pay for performance” and equity dilution, especially when trading prices are falling or the issuer proposes a new equity plan. Business description. Social responsibility activists look for descriptions of business activity, including geographical locations (for example, Myanmar/Burma, Sudan and Syria), human rights policies and practices, environmental impact, and sustainability planning. Specific proactive disclosures can head off shareholder proposals. Strategic focus. Value funds look for disclosures in MD&A regarding known trends and uncertainties and the issuer’s planned response, such as capital expenditures, margins, overhead, use of cash, and investment in core businesses. Impact of activism on disclosure ACTIVISM TRENDS AND FOCUS ON ENERGY

34. January 13, 201534 Dodd-Frank Section 954. Requires SEC to adopt rules (yet to be proposed) prohibiting the listing of any issuer without a clawback policy to recoup incentive-based compensation from current and former executives based on specified triggers. Broader than SOX. Extends further than clawback provisions in SOX Section 304. SOX enforcement actions. SEC Enforcement Chief recently stated that since SOX, SEC has obtained clawbacks from 52 people related to activity at 32 issuers, and six enforcement actions sought clawbacks from executives without citing any misconduct. Saba Software (September 2014). CEO repaid $2.57 million of bonuses, incentive pay and profit from stock sales to issuer despite no allegation of CEO misconduct related to alleged improper revenue recognition scheme perpetrated by two VPs. Open questions State employment law Variable accounting Practicalities of recoupment Uncertainty over future SEC rules Desire of Board and Committees to retain discretion Regulatory status CURRENT STATE OF CLAWBACKS

35. January 13, 201535 Drafting notes. Boilerplate in the proxy statement can be subject to third party litigation as well as SEC Staff comments. Pay for performance. Avoid overstating pay-for-performance policies when payouts are discretionary or performance goals are easy to achieve. Tax deductions. Comply with terms of the plan and avoid general statements about qualifying compensation for deductibility under Section 162(m). Legal privilege. Communications involving the compensation consultant are not subject to legal privilege. Compensation Committee deliberations can be protected by holding executive sessions without the consultant, which can serve as a privileged forum for legal advice and sensitive discussions. Use of discretion if metrics are not met. In a market downturn, the Compensation Committee may use discretion to exceed target payouts. Bonus column. If Committee discretion is used after the fact, or performance criteria are not satisfied, compensation is more prominently reported in the bonus column of the summary compensation table (whether or not the award was originally intended to be an incentive award). EXECUTIVE COMPENSATION Litigation-resistant compensation disclosure

36. January 13, 201536 APPENDIX A

37. January 13, 201537 Speech, SEC Chair Mary Jo White, Remarks at the Securities Enforcement Forum (October 9, 2013), available at http://www.sec.gov/News/Speech/Detail/Speech/1370539872100#.VJe2JZ1DDs. http://www.sec.gov/News/Speech/Detail/Speech/1370539872100#.VJe2JZ1DDs SEC, Press Release, SEC Announces Charges Against Corporate Insiders for Violating Laws Requiring Prompt Reporting of Transactions and Holdings (September 10, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542904678#.VJsXp-AABh. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542904678#.VJsXp-AABh SEC, Press Release, SEC Announces Fraud Charges Against Biotech Company and Former Executive Who Failed to Report Insider Stock Sales (September 10, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542903208#.VJsXveAABh. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542903208#.VJsXveAABh SEC, Press Release, SEC Sanctions 10 Companies for Disclosure Failures Surrounding Financing Deals and Stock Dilution (November 5, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543368026#.VJsXweAABh. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543368026#.VJsXweAABh XBRL SEC, Sample Letter Sent to Public Companies Regarding XBRL Requirement to Include Calculation Relationships (July 2014), available at http://www.sec.gov/divisions/corpfin/guidance/xbrl-calculation-0714.htm.http://www.sec.gov/divisions/corpfin/guidance/xbrl-calculation-0714.htm SEC Division of Economic and Risk Analysis, Staff Observations of Custom Tag Rates (July 7, 2014), available at http://www.sec.gov/dera/reportspubs/assessment-custom-tag-rates-xbrl.html#.VJg9EOAABg. http://www.sec.gov/dera/reportspubs/assessment-custom-tag-rates-xbrl.html#.VJg9EOAABg SEC Office of Interactive Disclosure, Staff Observations From Review of Interactive Data Financial Statements (various dates), available at http://www.sec.gov/spotlight/xbrl/staff-review-observations.shtml.http://www.sec.gov/spotlight/xbrl/staff-review-observations.shtml SEC Division of Corporation Finance, Interactive Data Compliance & Disclosure Interpretations (last updated May 16, 2013), available at http://www.sec.gov/divisions/corpfin/guidance/interactivedatainterp.htm.http://www.sec.gov/divisions/corpfin/guidance/interactivedatainterp.htm SEC “Broken Windows” Enforcement BIBLIOGRAPHY

38. January 13, 201538 SEC Division of Corporation Finance’s Disclosure Guidance Topic No. 2, Cybersecurity, available at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm. http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm SEC Cybersecurity Roundtable Webcast (March 26, 2014), available at http://www.sec.gov/news/otherwebcasts/2014/cybersecurity-roundtable-032614.shtml. http://www.sec.gov/news/otherwebcasts/2014/cybersecurity-roundtable-032614.shtml Speech, SEC Commissioner Aguilar, Boards of Directors, Corporate Governance and Cyber-Risks: Sharpening the Focus (June 10, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370542057946#.VJghMsALA.http://www.sec.gov/News/Speech/Detail/Speech/1370542057946#.VJghMsALA FBI, Press Release, Update on Sony Investigation (December 19, 2014), available at http://www.fbi.gov/news/pressrel/press-releases/update-on-sony-investigation. http://www.fbi.gov/news/pressrel/press-releases/update-on-sony-investigation Social Media SEC Division of Corporation Finance, Securities Act Rules Compliance & Disclosure Interpretations regarding use of hyperlinks in compliance with Securities Act Rule 134 (April 21, 2014), available at http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#110-01. http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#110-01 SEC Division of Corporation Finance, Securities Act Rules Compliance & Disclosure Interpretations regarding use of hyperlinks in compliance with Securities Act Rule 165 (April 21, 2014), available at http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#164-02. http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#164-02 SEC Division of Corporation Finance, Securities Act Rules Compliance & Disclosure Interpretations regarding use of hyperlinks in compliance with Securities Act Rule 433 (April 21, 2014), available at http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#232-15. http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#232-15 Cybersecurity Disclosure BIBLIOGRAPHY

39. January 13, 201539 SEC, Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (June 27, 2007), available at http://www.sec.gov/rules/interp/2007/33-8810.pdf. http://www.sec.gov/rules/interp/2007/33-8810.pdf SEC, Definition of the Term Significant Deficiency, Release Nos. 33-8829; 34-56203 (August 3, 2007), available at http://www.sec.gov/rules/final/2007/33-8829.pdf. http://www.sec.gov/rules/final/2007/33-8829.pdf SEC Office of the Chief Accountant and Division of Corporation Finance, Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports FAQs (revised September 24, 2007), available at http://www.sec.gov/info/accountants/controlfaq.htm.http://www.sec.gov/info/accountants/controlfaq.htm Speech, SEC Deputy Chief Accountant Brian T. Croteau, Remarks Before the 2014 AICPA National Conference on Current SEC and PCAOB Developments (December 8, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370543616539#.VJtH2sALA. http://www.sec.gov/News/Speech/Detail/Speech/1370543616539#.VJtH2sALA Speech, SEC Senior Associate Chief Accountant Kevin M. Stout, Remarks before the 2014 AICPA Conference on Current SEC and PCAOB Developments (December 8, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370543613733#.VJtIWsALA. http://www.sec.gov/News/Speech/Detail/Speech/1370543613733#.VJtIWsALA SEC, Press Release, SEC Charges Fortune 200 Company for Accounting Deficiencies (June 3, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575142#.VKs1xtLF-y4. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575142#.VKs1xtLF-y4 SEC, Press Release, SEC Charges Former CFO of Dallas-Based Jewelry and Collectibles Company With Accounting Fraud (May 27, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541917817#.VJtMSsALA. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541917817#.VJtMSsALA SEC, Press Release, SEC Charges Software Company in Silicon Valley and Two Former Executives Behind Fraudulent Accounting Scheme; CEO Agrees to Return $2.5 Million Under Clawback Provision (September 24, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992#.VJsWh-AABh.http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992#.VJsWh-AABh Internal Control Over Financial Reporting BIBLIOGRAPHY

40. January 13, 201540 SEC, Press Release, SEC Charges Company CEO and Former CFO With Hiding Internal Controls Deficiencies and Violating Sarbanes-Oxley Requirements (July 30, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542561150#.VJtOAsALA. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542561150#.VJtOAsALA SEC, Press Release, SEC Charges Arizona-Based Software Company for Inadequate Internal Accounting Controls Over Its Financial Reporting (September 25, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543042731#.VJtTz-AABh. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543042731#.VJtTz-AABh SEC, Press Release, SEC Charges Smith & Wesson With FCPA Violations (July 28, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542384677#.VJtuGsALA. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542384677#.VJtuGsALA Developments in PCAOB Auditing Standards PCAOB, Auditing Standard No. 18: Related Parties, Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions and Other Amendments to PCAOB Auditing Standards (June 10, 2014), available at http://pcaobus.org/Rules/Rulemaking/Docket038/Release_2014_002_Related_Parties.pdf. http://pcaobus.org/Rules/Rulemaking/Docket038/Release_2014_002_Related_Parties.pdf PCAOB, Staff Consultation Paper: Auditing Accounting Estimates and Fair Value Measurements (August 19, 2014), available at http://pcaobus.org/Standards/Documents/SCP_Auditing_Accounting_Estimates_Fair_Value_Measurements.pdf. http://pcaobus.org/Standards/Documents/SCP_Auditing_Accounting_Estimates_Fair_Value_Measurements.pdf PCAOB, Staff Audit Practice Alert No. 12: Matters Related to Auditing Revenue in an Audit of Financial Statements (September 9, 2014), available at http://pcaobus.org/Standards/QandA/9-9-14_SAPA_12.pdf.http://pcaobus.org/Standards/QandA/9-9-14_SAPA_12.pdf PCAOB Investor Advisory Group, Report from the Working Group on The Relationship and Role of the Auditor with the Audit Committee, available at http://pcaobus.org/News/Events/Documents/10202014_IAG/Auditor_and_Audit_Committee_Relationship.pdf. http://pcaobus.org/News/Events/Documents/10202014_IAG/Auditor_and_Audit_Committee_Relationship.pdf Internal Control Over Financial Reporting, cont. BIBLIOGRAPHY

41. January 13, 201541 SEC, Press Release, SEC Imposes Sanctions Against Hong Kong-Based Firm and Two Accountants for Audit Failures (December 17, 2014), available at http://www.sec.gov/news/pressrelease/2014-284.html#.VKc-0dLF-y4.http://www.sec.gov/news/pressrelease/2014-284.html#.VKc-0dLF-y4 MD&A In re Facebook, Inc., IPO Sec. and Derivative Litig., 986 F. Supp. 2d 487 (S.D.N.Y. 2013), available at http://scholar.google.com/scholar_case?case=7947374115702520923&q=In+re+Facebook,+Inc.,+IPO+Sec.+and+D erivative+Litig.,+986+F.+Supp.+2d+487+&hl=en&as_sdt=6,48. http://scholar.google.com/scholar_case?case=7947374115702520923&q=In+re+Facebook,+Inc.,+IPO+Sec.+and+D erivative+Litig.,+986+F.+Supp.+2d+487+&hl=en&as_sdt=6,48 In re Facebook, Inc., IPO Sec. and Derivative Litig., 986 F. Supp. 2d 544 (S.D.N.Y. 2014), available at http://scholar.google.com/scholar_case?case=18433700731972701561&q=In+re+Facebook,+Inc.,+IPO+Sec.+and+ Derivative+Litig.,+986+F.+Supp.+2d+487+&hl=en&as_sdt=6,48 (subsequent Section 16(b) litigation). http://scholar.google.com/scholar_case?case=18433700731972701561&q=In+re+Facebook,+Inc.,+IPO+Sec.+and+ Derivative+Litig.,+986+F.+Supp.+2d+487+&hl=en&as_sdt=6,48 Deloitte, SEC Comment Letters – Including Industry Insights: A Recap of Recent Trends (November 20, 2014), available at http://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/us-sec-comment-letters-including- industry-insights-a-recap-of-recent-trends-12112014.pdf.http://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/us-sec-comment-letters-including- industry-insights-a-recap-of-recent-trends-12112014.pdf Audit Committee Disclosures Center for Audit Quality, Enhancing the Audit Committee Report: A Call to Action (November 20, 2013), available at http://www.thecaq.org/docs/audit-committees/enhancing-the-audit-committee-report-a-call-to-action.pdf?sfvrsn=2. http://www.thecaq.org/docs/audit-committees/enhancing-the-audit-committee-report-a-call-to-action.pdf?sfvrsn=2 Slide Presentation, SEC Chief Accountant Paul Beswick, Regarding Audit Committees at SEC Speaks 2014 (February 22, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540846980#.VJtousALA.http://www.sec.gov/News/Speech/Detail/Speech/1370540846980#.VJtousALA Deloitte, Audit Committee Brief: A new era in audit committee reporting (February 2014), available at http://www2.deloitte.com/content/dam/Deloitte/be/Documents/risk/Directorsdesk/ACBrief_February2014.pdf. http://www2.deloitte.com/content/dam/Deloitte/be/Documents/risk/Directorsdesk/ACBrief_February2014.pdf Developments in PCAOB Auditing Standards, cont. BIBLIOGRAPHY

42. January 13, 201542 Speech, SEC Chair White, Remarks at the Financial Accounting Foundation Trustees Dinner (May 20, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370541872065#.VKHOzuAABg.http://www.sec.gov/News/Speech/Detail/Speech/1370541872065#.VKHOzuAABg EY, Audit committee reporting to shareholders 2014 proxy season update (August 2014), available at http://www.ey.com/Publication/vwLUAssets/ey-lets-talk-governance-august-2014/$FILE/ey-lets-talk-governance- august-2014.pdf. http://www.ey.com/Publication/vwLUAssets/ey-lets-talk-governance-august-2014/$FILE/ey-lets-talk-governance- august-2014.pdf United Brotherhood of Carpenters, Carpenter Funds’ 2014 Proxy Season Report, available at https://www.carpenters.org/Todays_UBC_Top_Nav/CorporateGovernance/NewCGDhome/NewActRes/2014Report.a spx. https://www.carpenters.org/Todays_UBC_Top_Nav/CorporateGovernance/NewCGDhome/NewActRes/2014Report.a spx  Under “Auditor Independence Issue” lists six specific disclosures requested and large-cap issuers targeted. Requested disclosures include (1) responsibility for auditor appointment, compensation, retention and oversight, (2) auditor tenure, (3) responsibility for auditor fee negotiations, (4) consideration of regular auditor rotation, (5) involvement in the selection of a new lead engagement partner, and (6) retention of the auditor is in the best interests of the issuer and its investors. Council of Institutional Investors, Policies on Corporate Governance (last updated October 1, 2014), available at http://www.cii.org/corp_gov_policies. http://www.cii.org/corp_gov_policies  Section 2.13a notes that the Audit Committee report should include (1) “meaningful information” about how responsibilities are carried out, including how carried out in consideration of audit quality objectives, and (2) a “fact specific” explanation for not changing an auditor with more than 10 consecutive years of service, or if the auditor is retained despite knowledge of substantive deficiencies. Audit Committee Disclosures, cont. BIBLIOGRAPHY

43. January 13, 201543 SEC, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: KPMG, LLP (January 24, 2014), available at http://www.sec.gov/litigation/investreport/34-71390.pdf.http://www.sec.gov/litigation/investreport/34-71390.pdf SEC, Press Release, SEC Charges KPMG With Violating Auditor Independence Rules (January 24, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540667080?utm_source=feedburner&utm_mediu m=feed&utm_campaign=Feed%253A+sec%252FlgHO+(SEC.gov+Updates%253A+Press+Releases)#.VKH8Y-AABi. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540667080?utm_source=feedburner&utm_mediu m=feed&utm_campaign=Feed%253A+sec%252FlgHO+(SEC.gov+Updates%253A+Press+Releases)#.VKH8Y-AABi Slide Presentation, SEC Chief Accountant Paul Beswick, Regarding Audit Committees at SEC Speaks 2014 (February 22, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540846980#.VJtousALA.http://www.sec.gov/News/Speech/Detail/Speech/1370540846980#.VJtousALA SEC, Press Release, SEC Charges Ernst & Young With Violating Auditor Independence Rules in Lobbying Activities (July 14, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542298984#.VKIBBuAABg. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542298984#.VKIBBuAABg SEC, Press Release, SEC Sanctions Florida-Based Auditor for Circumventing Rules (October 24, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543281121#.VKIBE-AABi. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543281121#.VKIBE-AABi Speech, SEC Deputy Chief Accountant Brian T. Croteau, Remarks Before the 2014 AICPA National Conference on Current SEC and PCAOB Developments (December 8, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370543616539#.VJtH2sALA. http://www.sec.gov/News/Speech/Detail/Speech/1370543616539#.VJtH2sALA SEC, Guidance for Consulting with the Office of the Chief Accountant, available at http://www.sec.gov/info/accountants/ocasubguidance.htm. http://www.sec.gov/info/accountants/ocasubguidance.htm Auditor Independence BIBLIOGRAPHY

44. January 13, 201544 FASB, Accounting Standards Update: Revenue from Contracts with Customers (Topic 606) (May 2014), available at http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164076069&acceptedDisclaimer=true. http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164076069&acceptedDisclaimer=true SEC, Press Release, California-Based Telecommunications Equipment Firm and Two Former Executives Charged in Revenue Recognition Scheme (August 22, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542732440#.VKs6b9LF-y4. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542732440#.VKs6b9LF-y4 SEC Administrative Proceeding, SEC Charges Two Information Technology Executives With Mischaracterizing Resale Transactions to Increase Revenue (August 28, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542786775#.VKs7DNLF-y4. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542786775#.VKs7DNLF-y4 Disclosure Effectiveness Speech, SEC Chair White, The Path Forward on Disclosure (October 15, 2013), available at http://www.sec.gov/News/Speech/Detail/Speech/1370539878806#.VKLF_uAABg. http://www.sec.gov/News/Speech/Detail/Speech/1370539878806#.VKLF_uAABg SEC, Report on Review of Disclosure Requirements in Regulation S-K (December 2013), available at http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf Speech, SEC Chair White, The SEC in 2014 (January 27, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540677500#.VKs8c9LF-y4. http://www.sec.gov/News/Speech/Detail/Speech/1370540677500#.VKs8c9LF-y4 Speech, SEC Commissioner Daniel M. Gallagher, Remarks to the Forum for Corporate Directors, Orange County, California (January 24, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540680363#.VKLFA- AABh.http://www.sec.gov/News/Speech/Detail/Speech/1370540680363#.VKLFA- AABh Speech, SEC Director of Division of Corporation Finance Keith F. Higgins, Disclosure Effectiveness: Remarks Before the American Bar Association Business Law Section Spring Meeting (April 11, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370541479332#.VKLFRuAABg. http://www.sec.gov/News/Speech/Detail/Speech/1370541479332#.VKLFRuAABg Revenue Recognition BIBLIOGRAPHY

45. January 13, 201545 Speech, SEC Director of Division of Corporation Finance Keith F. Higgins, Shaping Company Disclosure: Remarks before the George A. Leet Business Law Conference (October 3, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370543104412#.VKLFUsALA. http://www.sec.gov/News/Speech/Detail/Speech/1370543104412#.VKLFUsALA SEC Disclosure Effectiveness website, available at http://www.sec.gov/spotlight/disclosure-effectiveness.shtml.http://www.sec.gov/spotlight/disclosure-effectiveness.shtml FASB, Proposed Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting: Chapter 8: Notes to Financial Statements (March 4, 2014), available at http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176163868268&acceptedDisclaimer=true. http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176163868268&acceptedDisclaimer=true Clawbacks PWC, Executive Compensation: Clawbacks (2013 Proxy Disclosure Study) (April 2014), available at http://www.pwc.com/en_US/us/hr-management/publications/assets/pwc-clawbacks-2013-proxy-disclosure-study.pdf. http://www.pwc.com/en_US/us/hr-management/publications/assets/pwc-clawbacks-2013-proxy-disclosure-study.pdf  Events triggering clawbacks.  Restatement. 92% have policies to recoup compensation upon a restatement; of those 92%, 73% (i.e, 68% of total) require evidence that the employee caused or contributed to false or incorrect financial reporting, while 27% (i.e., 25% of total) require repayment in the event of a restatement without personal accountability. In many cases, the clawback is only triggered for a material restatement or the amount of the clawback is only the excess of the amount paid over the corrected payments after applying the restatement.  Misconduct. Misconduct is another prevalent reason (84%) for recoupment of incentives (100% of energy sector survey). Includes breaking an issuer’s code of conduct or ethics policies, being convicted of a criminal offense, or other transgressions and often overlaps at times of a restatement. Disclosure Effectiveness, cont. BIBLIOGRAPHY

46. January 13, 201546  Minority clawback events. Committing fraud (44%)(71% of energy sector survey); competition - breaching non-compete agreements (22%); misrepresentation of performance results to purposely attain higher incentive payments (24%); negligence or general lack of supervision/ oversight of subordinates (16%); violating non-solicitation agreements during or just after the employment period (15%); misstatement of financial or performance results without any intentions (14%); breaking a covenant other than non-solicit, non-compete, etc. (10%); financials impacted but through no fault of the employee (9%); performance targets/thresholds not met by the issuer or division (8%); and issuer standards for compliance (continuing education, certifications, credential criteria) are not met (3%).  Discretion.  Discretion on trigger events. PWC found that in almost all cases, discretionary features are not included in the events that trigger a clawback. (e.g., generally do not see provisions that provide blanket discretion for the Board or Compensation Committee to determine whether a clawback event has occurred).  Discretion on scope. PWC found many examples of discretion in determining the extent of recovery of compensation in cases where the triggering event has occurred. Many policies reserved the right to apply the recoupment policies on a case-by-case basis (“discretionary”), while others do not allow for discretion or judgment (“mandatory”). And some issuers use both, depending on the clawback trigger (“both”).  Discretion on enforcement. Of the 100 issuers studied, 79% reserved discretion to determine whether or not to enforce their clawback policies on a case-by-case basis (86% in energy sector), 14% mandated the recovery of awards at the discovery of any clawback triggering behaviors or actions, and 7% reserved discretion to determine whether or not to enforce their clawback policies for certain clawback triggers or awards and mandated the recovery of awards for others.  Dodd-Frank reference. Only a combined 33% of the study population mentioned Dodd-Frank in relation to clawback policies. With Dodd- Frank affecting issuers listed on a securities exchange, expect that percentage to increase once the SEC issues final rulemaking. Clawbacks, cont. BIBLIOGRAPHY

47. January 13, 201547 Equilar, Clawback Policy Report (2013), available at http://info.equilar.com/rs/equilar/images/equilar-2013-clawbacks- policy- report.pdf?mkt_tok=3RkMMJWWfF9wsRoisqjPZKXonjHpfsX54%2BgtW6C%2FlMI%2F0ER3fOvrPUfGjI4FScpjI%2B SLDwEYGJlv6SgFS7fFMalt0LgFXBY%3D.http://info.equilar.com/rs/equilar/images/equilar-2013-clawbacks- policy- report.pdf?mkt_tok=3RkMMJWWfF9wsRoisqjPZKXonjHpfsX54%2BgtW6C%2FlMI%2F0ER3fOvrPUfGjI4FScpjI%2B SLDwEYGJlv6SgFS7fFMalt0LgFXBY%3D  Key findings.  Clawback policy disclosure continues to grow. From 2006 to 2013, the number of Fortune 100 issuers with publicly-disclosed clawback policies increased from 17.6% to 89.4%. Many policies allow issuers to recover compensation in the event of a financial restatement or ethical misconduct.  Most clawback policies focus on multiple triggers. Of the Fortune 100 issuers that disclosed clawback policies as grounds for recoupment of compensation, 85.4% included materially inaccurate financial statements and 81.6% included ethical misconduct. Of Fortune 100 clawback policies, 71.8% included provisions containing both financial restatement and ethical misconduct triggers. In addition, 29.1% of the policies included non-compete violations as triggers and 27.2% had other forms of triggers.  Continuing focus on top executives. Of clawback policies included in the analysis, 68.0% applied to key executives and employees including NEOs in 2013, up slightly from 67.4% in 2012. Percentage of clawback policies that cover all employees dropped to 14.6% in 2013 from 15.6% in 2012, while policies that exclusively cover CEOs and/or CFOs rose to 7.8% in 2013 from 6.3% in 2012.  Recoupment policies expand to cover more pay. From 2012 to 2013, the percentage of policies covering types of compensation such as deferred compensation, sales commissions, flexible perquisite accounts and/or supplemental retirement plans increased from 25.1% to 35.9%. SEC, Press Release, SEC Charges Software Company in Silicon Valley and Two Former Executives Behind Fraudulent Accounting Scheme; CEO Agrees to Return $2.5 Million Under Clawback Provision (September 24, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992#.VJsWh-AABh.http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543035992#.VJsWh-AABh Clawbacks, cont. BIBLIOGRAPHY

48. ANDREWS KURTH LOCATIONS Copyright © 2015 by Andrews Kurth LLP. Andrews Kurth, the Andrews Kurth logo and Straight Talk Is Good Business are registered service marks of Andrews Kurth LLP. All Rights Reserved. This presentation has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create (and receipt of it does not constitute) an attorney-client relationship. Readers should not act on this information without seeking professional counsel. Prior results do not guarantee a similar outcome and depend on the facts of each matter. Attorney Advertising. 11462G 48