Capital Markets and Corporate Governance Hot Topics for 2015 PRESENTATION TO Clients and Friends

Pay-for-Performance Disclosure Proposed Rule 1 Proposed rule would require that public companies disclose:  Total compensation reported in the Summary Compensation Table for the CEO and the average for the other named executive officers.  Compensation actually paid (“Actual Compensation”) to the CEO and to the other named executive officers.  Actual Compensation is the total compensation adjusted to remove change in pension value and to include only the fair value of equity awards that vested during the fiscal year, rather than when the awards were granted.  Company and peer group total shareholder return. Compliance Date: The SEC must consider comments and meet again to finalize and approve the rule. It is possible that the rule could be in place for the 2016 proxy season.

Clawback Policy Proposal 2 Proposed rule would require that national securities exchanges adopt listing standards requiring each listed company to adopt a clawback policy. Under policy, compensation committee would be required to recover incentive-based compensation received by executive officers, regardless of fault, responsibility, or misconduct if a company is required to prepare an accounting restatement to correct a material error. Would apply to incentive-based compensation for the three fiscal years preceding the restatement. Compliance Date: The SEC must consider comments and then meet again to finalize and approve the rule. In addition, national securities exchanges must propose and adopt standards implementing the SEC’s rule. Consequently, it is unlikely that the new listing standards requiring clawback policies will be in effect before the 2017 proxy season.

Proxy Access On December 1, 2014, the SEC agreed with Whole Foods Market, Inc. that it could exclude a proxy access proposal from its proxy on the basis that Whole Foods’ own proxy access proposal conflicted with the proposal. The Whole Foods Proposal - 9% for five years; ability to nominate the greater of one director or 10% of the board The shareholder proposal - 3% for three years; ability to nominate up to 20% of the board. 3 “Due to questions that have arisen about the proper scope and application of Rule 14a- 8(i)(9), I have directed the staff to review the rule and report to the Commission on its review.” – SEC Chair Mary Jo White (Jan. 16, 2015) “In light of Chair White's direction to the staff to review Rule 14a-8(i)(9) and report to the Commission on its review, the Division of Corporation Finance will express no views on the application of Rule 14a-8(i)(9) during the current proxy season.” – SEC Division of Corporation Finance (Jan. 16, 2015)

Rule 14a-8(i)(9) Review Following Whole Foods  The SEC’s decision to express no review with respect to this exclusion had meaningful effects on decision making - many companies that would have been able to rely on Rule 14a- 8(i)(9) decided to include in their proxy materials shareholder proposals that would have been excludable under Rule 14a-8(i)(9). 4

Proxy Access Other Considerations Impact On Proxy Advisory Firm Recommendations  Glass Lewis and ISS have hinted that they may recommend votes against boards that exclude proxy access proposals in favor of conflicting management proposals Institutional Ianvestor Responses  Several public pension funds (e.g., CalPERS, NYCPF, CalSTRS) have suggested that they would vote against boards that exclude proxy access proposals in favor of conflicting management proposals Litigation Considerations  Companies may pursue declaratory judgment  Shareholders may seek injunction  Minimal SEC enforcement risk 5

Proxy Access 6 What Is The Current State Of Proxy Access? Estimated that 110+ proxy access proposals were submitted in 2015, including 75 submitted by the New York City Pension Funds Boardroom Accountability Project. Proposals generally modeled after the SEC's access rule (3%/ 3 years / 25% of the board) As of September 9, 2015, 42 companies have adopted proxy access bylaws, including 21 Fortune 500 companies. 96 companies included proxy access proposals in their proxy materials in 2015, including 83 shareholder proposals and 13 management proposals. Of these proposals, 56 shareholder proposals and 7 management proposals were approved by shareholders.

Proxy Access 7 The Council of Institutional Investors 2015 “Best Practices” outline proxy access provisions that the CII and its members view as the most troublesome. Problematic provisions include: bylaws that impose a minimum ownership requirement of 5% or higher bylaws that allow shareholders to nominate 20% or less of a board bylaws that limit the number of shareholders that can aggregate their shares in order to satisfy a bylaw’s minimum ownership requirements bylaws that require that a nominating shareholder hold its shares after the annual meeting at which its nominee is being voted upon

Shareholder Proposals Shareholders submitted 943 shareholder proposals to public companies, while 350 companies included 600 shareholder proposals in their proxy materials. Approximately 18% of all of the shareholder proposals submitted in the 2015 proxy season have been withdrawn and approximately 14% have been excluded pursuant to no-action requests granted by the SEC. 318 no-action requests in 2015 as compared to 295 in 2015, while the SEC granted no-action relief 61% of the time in 2015, as compared to 71% of the time in Fortune 250 companies faced an average of 1.39 shareholder proposals in 2015—the highest average since 2010.

Shareholder Proposals - Key Topics 9 According to Proxy Monitor:.  42% of all shareholder proposals submitted Fortune 250 companies concerned corporate governance matters,  43% concerned environmental or social matters  15% concerned executive compensation matters. According to ISS, shareholders submitted 110 political spending and lobbying proposals to public companies in 2015 as compared to 126 in Shareholder proposals regarding the environment remain popular, with 110 proposals filed that include traditional requests, such as adoption of greenhouse gas emissions goals and disclosure of risk associated with climate change, as well as more uncommon topics, such as adoption of carbon dioxide emissions as a metric of executive compensation.

Shareholder Proposals - Wal-Mart Litigation Trinity Wall Street v. Wal-Mart Stores, Inc 2014 U.S. Dist. Lexis (d. Del. 2014): “At its core, Trinity's Proposal seeks to have Wal-Mart's Board oversee the development and effectuation of a Wal-Mart policy. While such a policy, if formulated and implemented, could (and almost certainly would) shape what products are sold by Wal- Mart, the Proposal does not itself have this consequence. … The significant social policy issues on which the Proposal focuses include the social and community effects of sales of high capacity firearms at the world's largest retailer and the impact this could have on Wal-Mart's reputation, particularly if such a product sold at Wal-Mart is misused and people are injured or killed as a result. In this way, the Proposal implicates significant policy issues that are appropriate for a shareholder vote.” 10

Shareholder Proposals - Wal-Mart Litigation Potential Consequences:  Potential nullification of "ordinary business exclusion" for proposals that seek Board/Committee review  Uncertainty regarding treatment of proposals involving sale of products Takeaways:  Demonstrates that shareholders and companies alike use courts to resolve shareholder proposal disputes  Numerous proposals that would otherwise be excludable as relating to ordinary business will make their way onto corporate proxies Status of Appeal:  Wal-Mart has appealed; decision expected in 2015  Numerous business groups have submitted amicus briefs 11

Shareholder Proposals - Expected Trends for 2016 Proxy Access: Widely expected that shareholders will continue their successful proxy access campaign in the 2016 proxy season. Political Spending: With a presidential election looming, we also expect that shareholders will continue to submit a significant number of political spending shareholder proposals to public companies in Conflicting Proposal Review: The SEC’s review of Rule 14a-8(i)(9) is probably the most significant anticipated development for the 2016 proxy season. 12