1 Seven consecutive years of rate decreases Source: Aon Services Group 4Q 2010 Rates have fallen 60% since 2003.

2 Rising median SCA settlement value Source: NERA Economic Consulting 2010 Year-End Update The median SCA settlement, a good proxy for D&O exposures to SCAs, has increased to $11M and does not include defense costs. Severity has climbed more than 80% since 2003

3 Source: Cornerstone Research What is the frequency trend of SCAs? Cornerstone’s CAF-U index is the most conservative tally of SCAs–it counts the number of companies sued and not number of lawsuits filed. At first glance, it may appear the number of companies with SCAs has slightly declined over the past decade.

4 Shrinking pool of public companies Source: World Federation of Exchanges Since 1999, there are 40% fewer public companies—a loss of 3,487 companies traded on major US stock exchanges.

5 Public company targets with merger objections The majority of M&A objections suits are filed in State courts. M&A objections are up about 600% over the past four years. Sources: Institutional Shareholder Services, Bloomberg

6 Suits filed continue to escalate even as fewer companies announce mergers. Suits were filed whether: The merger was friendly, hostile, solicited or unsolicited. The board accepted or rejected the acquisition offer. Today, one in two companies that announce acquisitions are sued. Public company targets with merger objections

7 US public companies with stock drop SCAs and merger objections Source: Cornerstone Research for CAF-U Stock Drop SCAs; Bloomberg for Public Companies that Announced Acquisition Offers Institutional Shareholder Services for Merger Objections

8 Probability of director or officer facing securities litigation has never been greater Using CAF-U Index, the most conservative measure of SCAs, and M&A objections in relation to shrinking pool of public companies….the SCA trend is escalating. Today’s directors and officers are more than twice as likely to get sued than 5 years ago. Source: Cornerstone Research, World Federation of Exchanges

9 Merger objection severity Settlements are getting larger 1 —eroding primary D&O towers, some hitting excess layers. Plaintiff fee awards may come out of defendants pockets—even when defending company no longer exists. 2 Multiple jurisdictions causing defendants’ legal expenses to escalate, eroding their D&O policy limits. 1 Institutional Shareholder Services 2 Depending on the specifics of the transaction, the facts of the claim, terms of the settlement and the terms of the D&O policy.

10 M&A objections similar in size to SCAs Merger objection suits typically allege many insurable wrongful acts. While D&O policies exclude “bump up” amounts, some D&O coverage litigation courts have suggested settlement amounts not specifically designated as an increase in acquisition price may be insurable. Source: Institutional Shareholder Services 2010 & 2011 Company Settlement*Plaintiff Fees** Pipeline Company $200M25% + $2M Food Distributor $89M$22.3M Computer Services Company $69M25% + $1.5M Media Company $45M27% + $1M Educational Institution $35M33.3% Clothing Retailer $16M$9M Pet Supplier $16M30% + $1.2M Restaurant Chain $14.5M$12.2M *2011 & 2010 settlements do not include defense costs. Defendants may have to defend suits in multiple jurisdictions. ** Plaintiff fee requests may not be final.

11 Plaintiff fees surprisingly large Plaintiff fees can be multi-millions even when settlements are non-monetary. Plaintiff fees often are paid as a covered loss under D&O policies. Source: Institutional Shareholder Services 2010 & 2011 Company Settlement* Plaintiff Fees** Energy Company$0$8.8M Bottling Group$0$7.7M Packaging Company$0$6.0M Energy Company$0$4.0M Agriculture Company$0$4.0M Biotech Company$0$3.5M Electric Service Company$0$1.5M Information Service Company$0$1.4M * 2011 & 2010 settlements do not include defense costs. Defendants may have to defend suits in multiple jurisdictions. ** Plaintiff fee requests may not be final.

12 Merger objection defense cost and multi-jurisdiction litigation “One of the factors behind this accelerated litigation growth is the fact that increasingly a merger announcement triggers multiple lawsuits, often filed in multiple jurisdictions. This proliferation of multi-jurisdiction litigation raises a host of procedural challenges, as the nominal corporate defendant is forced to litigate on multiple fronts while at the same time attempting to press ahead with the underlying transaction.” Kevin LaCroix The D&O Diary blog As long as Ds&Os are forced to defend themselves from the same allegation in multiple jurisdictions, they will more quickly erode their D&O policies. “Bernstein Litowitz’s Jerry Silk noted that M&A cases lack ‘a regime like we have in the Private Securities Litigation Reform Act. There is really no way to organize those cases, no way for the court empower an investor that has the largest holding in the company, or to empower the law firm that will do the best job’.” Advisen Special Report 2/11

13 Rising rate of merger objections: Passing trend or new reality? The central underlying problem is “that opportunistic plaintiffs’ lawyers have identified what seems like a sure-fire profit opportunity in creating litigation obstacles to announced transactions.” Kevin LaCroix The D&O Diary blog Delaware Vice Chancellor, Travis Laster, calls the attorneys behind many of these suits “frequent filers,” and has replaced law firms he believed to be motivated by a quick payday rather than representing the best interests of their clients. Advisen Special Report 02/11