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2005 Takeover Defense Year End Summary
Trend Toward Removing Takeover Defenses Continues
New York - January 17, 2006 John Laide

Takeover Defenses
U.S. incorporated companies continued to dismantle their takeover defenses in 2005. For the first time since SharkRepellent.net began recording statistics, the average Bullet Proof Rating (BPR) of the companies in its universe of coverage as well as the S&P 500 ended the year below 5. The Bullet Proof Rating is a relative measurement of a company's takeover defense protection. It is based upon an index that considers charter and bylaw provisions and procedural items that contribute to defending against hostile takeovers and proxy battles. The rating scale ranges from 0 to 10, with 10 representing the highest relative protection. The average BPR for the SharkRepellent.net universe at year end was down almost 4% to 4.92 from 5.11 last year and down almost 11% from 5.51 at year end 2002. The average BPR for the S&P 500 at year end was down almost 10% to 4.89 from 5.41 last year and down 17.5% from 5.93 at year end 2002. The decrease in 2005 can again be attributed to companies switching to annually elected directors from staggered board terms, companies removing poison pills, and less companies providing that directors can only be removed for cause (under Delaware law, stockholders of a company with a classified board can only remove directors for cause unless the company opts out of this provision, so as companies switch to annually elected boards, fewer companies have this removal provision). Also noteworthy, 2005 was the first time since the 1980s that a majority of the companies in the S&P 500 did not have a classified board or poison pill in place.

IPO Takeover Defenses
The average Bullet Proof Rating of companies that went public during the year was 3.73%, the same percentage as 2004's group of IPOs. 2004's average rating was up 11% from 3.36 in 2003. Ninety-three of the companies (57%) that went public during 2005 elected to classify their boards, but only 9 companies (5.5%) went public with a poison pill in place. CF Industries Holdings, Inc. (CF), Hercules Offshore, Inc. (HERO), iRobot Corporation (IRBT), and Wright Express Corporation (WXS) had the highest Bullet Proof Ratings (9.25 out of 10) of all IPOs in 2005. Skadden Arps Slate Meagher & Flom LLP represented two of the four companies.

Poison Pills
There was a net decline of 122 U.S. companies with a poison pill in force from year end to 2004 to year end 2005, after factoring in all new poison pill adoptions, expirations, terminations and companies with poison pills being acquired, going private or going bankrupt. Companies continued to terminate poison pills at historic levels. In 2005, 41 companies terminated their poison pills. This total is second only to 2004's record 45 terminations. The renewal rate of poison pills due to expire during the year also declined to about 33% from 46% in 2004. However, in 2005 there were 104 original and replacement poison pills adopted compared to 92 adoptions in 2004. This was the first year over year increase since the 2000-2001 period. An interesting trend has developed in terms of what types of companies are maintaining a poison pill defense. As the corporate governance practices of larger companies tend to be more closely scrutinized, more smaller companies are concluding that the benefits of maintaining a poison pill exceed the negative. Only 9 out of the 79 companies that adopted their first ever poison pill in 2005 are in the S&P 1,500, and the average market capitalization of the 79 pill adopters is $554 million as opposed to the $8.7 billion average market capitalization of the 41 companies that terminated their poison pills during the year.

Takeover Defense Activism
In a year that will be remembered for the emergence of the hedge fund activist as a force to be reckoned with and the groundswell of support for changing the plurality voting standard to elect corporate directors, proposals to eliminate poison pills and destagger board terms remained the two most targeted takeover defenses by investors. The number of stockholder proposals to remove poison pills declined in 2005 as many companies, including those targeted by proposals in past years, have heeded stockholder concerns and removed their poison pills. In 2005, 44 anti-poison pill proposals were submitted by stockholders, of which 26 were on the ballot, and another 18 were omitted after the company sought and received a no action letter from the SEC. This is down from 2004's 96 proposals and 2003's record 110 proposals. The pill proposals voted on continue to get widespread support from stockholders. In 2005, 59.1% of the Yes/No votes were voted for these anti-pill proposals. This is slightly ahead of the five year average of 58.9% support on this issue. In 2005, there were 51 stockholder proposals to destagger board terms. This is one more than last year and only five less than 2003's total of 56. Interestingly, this number has remained relatively unchanged over the last five years despite the fact that numerous companies have switched to annually elected directors. In fact, there have been more binding company proposals to destagger boards than stockholder proposals in each of the last two years.


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