global companies, global risk: exposures arising outside the us

2007 D&O Symposium2007 D&O Symposium

GLOBAL COMPANIES, GLOBAL RISK: GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE USEXPOSURES ARISING OUTSIDE THE US

MODERATOR: NILAM SHARMA - ROBIN SIMON LLPMODERATOR: NILAM SHARMA - ROBIN SIMON LLPRODDY GRAHAM – THOMPSON HEATH & BOND LIMITEDRODDY GRAHAM – THOMPSON HEATH & BOND LIMITEDKATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUPKATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUP

GILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGERGILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGERDANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLLDANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLL

GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK: GLOBAL RISK:

EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US

Roddy Graham

Thompson Heath & Bond Ltd.

London, UK

TOPICSTOPICS

• Exchange Competition: London vs. New York

• International D&O Broking Considerations

• International D&O Claims

AIM – KEY STATISTICSAIM – KEY STATISTICS

• Owned by London Stock Exchange

• AIM Companies: 1,590

• Overseas AIM Companies: 283

• IPOs on AIM in 2005: 335

259 UK

76 Overseas

• Capital raised since 1995: US$ 65bn

• Capital raised in 2005: US$ 16bn

AIM – COUNTRY AIM – COUNTRY DISTRIBUTIONDISTRIBUTION

• UK:1,296• Australia: 47• Canada: 44• Republic of Ireland: 39• USA: 36• BVI: 21• Bermuda: 20• Cayman: 20• Less than 20 listings: 19 other countries

AIM ADMISSION RULESAIM ADMISSION RULES

• No minimum size to be admitted

• No trading record required

• No min. amount of shares in public hands

• In most cases, no prior shareholder approval required for transactions

• Admission documents not pre-vetted by Exchange or UKLA but by nominated adviser

• Nominated adviser (“NOMAD”) required

BENEFITS OF AN AIM BENEFITS OF AN AIM LISTING?LISTING?

• Lower market entrance fees:

AIM: US$7,595; Nasdaq: US$100-150,000

• Lower annual fees:

AIM: US$7,595; Nasdaq: US$21,225-60,000

• Biannual and annual earnings reports only

• Alleviates costs associated with SOX/SEC

• As little as 3 months to gain admission; compared to 4-6 months on Nasdaq

IPOs STAMPEDE FROM IPOs STAMPEDE FROM SOX?SOX?

• 2001: 94 AIM vs. 63 Nasdaq

• 2002: 60 AIM vs. 51 Nasdaq

• 2003: 66 AIM vs. 56 Nasdaq

• 2004: 243 AIM vs. 170 Nasdaq

• 2005: 335 AIM vs. 118 Nasdaq

• 2006: 262 AIM vs. 97 Nasdaq

• Total: 1,060 AIM vs. 555 Nasdaq

Note: 2006 IPO data annualized

BID TO RECAPTURE BID TO RECAPTURE MARKET SHARE? MARKET SHARE?

• Nasdaq make 2 bids in 12 months for LSE

• International IPO’s 6 months to 10/31/06:

LSE/AIM: 40

Lux: 13

DB: 6

Nasdaq: 3

NYSE: 3

ENXT: 0

U.S. BROKER PRODUCED U.S. BROKER PRODUCED INTL. D&OINTL. D&O

• Australia• Belgium • Bermuda• Canada• Caribbean• Cayman Islands• China• France

• Hong Kong• Iceland• India• Ireland• Israel• Luxembourg• Russia• U.K.

BROKING BROKING CONSIDERATIONSCONSIDERATIONS

• Need for local licensed intermediary?

• What local taxes are payable?

• Who is responsible for paying and filing?

• Most London and Bermuda markets will consider any International D&O risk BUT is the carrier licensed to write local business? (e.g. South America, Japan, China, India etc.)

• Choice of law: local front vs. reinsurance

LOCAL PREMIUM TAXESLOCAL PREMIUM TAXES

Country Premium Tax

Other Tax Paid by? Remitted by?

U.K. 5% Nil Insured Insurer

Australia 3% Stamp Duty

Insurer Broker

Canada 4% Retail Sales Tax

Insurer Insurer

Ireland 2% Stamp Duty Insured Insurer

Bermuda 1% Stamp Duty

Nil Insurer Broker or Insured

Israel 2.5% Nil Insurer Insurer

UNUSUAL COVERAGE UNUSUAL COVERAGE ISSUESISSUES

• Israel: “costs in addition”• France: claims made vs. occurrence (3

or 5 years ERP for nil a.p.)• Germany: supervisory/management

board structure (no Insd. vs. Insd. exclusion)

• EU countries: Tacit renewal clauses Freedom of Services Directive

UNUSUAL COVERAGE UNUSUAL COVERAGE ISSUESISSUES

• UK: Easier to bring shareholder derivative

actions NatWest 3 extradition costs Legal Representation expenses

• India: Clause 49 Certification of financials 50% of boards to be independent directors

• Mongolia: WHO KNOWS?

EUROPEAN D&O EUROPEAN D&O SETTLEMENTSSETTLEMENTS

Company Country Amount Date

Deutsche Telekom Germany USD 120mm Nov. 2004

Otto GmbH Germany USD 104mm Feb. 2005

Royal Dutch Netherlands USD 90mm July 2005

Elan Corp. Ireland USD 75mm Feb. 2005

SkillSoft plc UK USD 32mm Mar. 2004

CBT Group UK USD 32mm Jan. 2004

ACLN Ltd. Belgium USD27.6mm Sept. 2004

Vivendi France USD 26mm Dec. 2003

Turkcell Turkey USD19.2mm Apr. 2004

Royal Ahold Netherlands USD 10mm Oct. 2004

Source: GenRe

EUROPEAN CLASS ACTIONSEUROPEAN CLASS ACTIONS

Company Country Amount Year

Royal Ahold Netherlands USD 1.1bn 2006

Lernaut & Hauspie Belgium USD 539mm 2003

Daimler Chrysler Germany USD 300mm 2003

Deutsche Telekom Germany USD 120mm 2005

Otto GmbH Germany USD 104mm 2005

Royal Dutch Shell Netherlands USD 90mm 2005

Elan Corp. Ireland USD 75mm 2004

Alcatel France USD 75mm 2001

Deutsche Bank Germany USD 58mm 2002

CBT Group plc UK USD 32mm 2004

R.O.W. D&O SETTLEMENTSR.O.W. D&O SETTLEMENTS

Country Allegation Amount Loss Date

Australia Securities Fraud

USD 112mm Aug. 2003

Bermuda Securities Fraud

USD 16.5mm Jul. 2004

Canada Securities Fraud

USD 125mm Sept. 2004

Colombia Securities Fraud

USD 19.2mm Feb. 2004

Switzerland Securities Fraud

USD 100mm Dec. 2001

Source: XL Capital

ALSO D&O LITIGATION ALSO D&O LITIGATION FROM HERE!FROM HERE!

• China

• Japan

• Finland

• Israel

• Italy

• Mexico

• Russia

• South Korea

• Spain

• Sweden

GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:

EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US

Kathleen E. Dubé

ACE European Group Limited

Paris, France

COMMON COMMON MISCONCEPTIONSMISCONCEPTIONS

• D&O liability

• A D&O is a D&O

• One policy fits all

• The policy will govern the risk

• US experience as the guide

EUROPEEUROPE

Eastern Europe

UK

Continent

• UK

• Continent

• Eastern

CHALLENGESCHALLENGES

• The risk• Coverage

Market expectations Valid mechanisms

• Standard Exclusions• Claims made• Civil Law becomes Penal Law

• Maturity of the market Local expertise

• The Insurer• The broker• The risk manager• The judge• The media• The legal system

CHALLENGESCHALLENGES

• The Legal Context Civil Law VS Common Law Anglo-Saxon remedies for Civil Law

Contracts The courts Perception of the US

CLAIMS ACTIVITY CLAIMS ACTIVITY

• Jurisprudence

• What have we seen ?

• What are we expecting?

GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK:GLOBAL RISK:

EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US

THE EUROPEAN LITIGATION ENVIRONMENT

Gillian Eastwood

Freshfields Bruckhaus Deringer

London, UK

FACTORS AFFECTING D&O FACTORS AFFECTING D&O RISK ASSESSMENT:RISK ASSESSMENT:

• Local laws re Directors’ and Officers’ liabilities and local corporate governance requirements

• Local laws affecting availability and enforceability of cover

• Local litigation environment: culture and procedure

• Regulatory requirements – by country and by industry sector

FACTORS VARY FOR EACH FACTORS VARY FOR EACH MEMBER STATE…MEMBER STATE…

France

Italy

RomaniaBul

Greece

Aus Hung

Czech Rep

PolandGermany

United Kingdom

Ireland LithLat.Est.

FinlandSweden

Neth

LuxBel

Slo

Den

Slov

Cyprus

Port. Spai

n

Malta

EUROPEAN LEGAL EUROPEAN LEGAL FRAMEWORKFRAMEWORK

• US has complex legal structure: federal laws and Courts, separate regimes in each of 50 states

• Europe – 27 member states in EU alone Each has own national law and court structure Some have their own state or regional variations Overarching EU law and court structure

• NB fundamental differences in legal systems. Common law system (used in England and US) is in the minority. Most EU countries have a civil law system.

COMMON LAW COMMON LAW VS CIVIL LAWVS CIVIL LAW

• Common Law Strong tradition of doctrine of precedent - Cases

are key source of law Evidence is a critical part of process (e.g. discovery

of documents, factual and expert witness evidence)

• Civil Law Statute is primary source of all law No doctrine of binding precedent (but in practice

judges usually consider decisions of superior courts)

Very limited (and, in some cases, no) focus on discovery or witness evidence

EUROPE vs US – THE EUROPE vs US – THE

PRINCIPAL DIFFERENCESPRINCIPAL DIFFERENCES

• Availability and nature of “Class actions”

• No contingency fees• Loser pays costs• Generally, no juries in civil cases• No punitive damages

IS THIS CHANGING?IS THIS CHANGING?

COLLECTIVE ACTIONSCOLLECTIVE ACTIONS

• European procedures are usually “collective” actions by named individual plaintiffs or consumer associations, rather than actions by generic class.

• Claimants must expressly opt-in, often within a relatively short time period. No US-style “opt-out” system – YET.

• Changes may be on the way: in Italy, France, Ireland

• Broader changes being considered at EU level

FORM OF MULTIPLE CLAIMANT FORM OF MULTIPLE CLAIMANT SYSTEM SYSTEM

ALREADY IN PLACEALREADY IN PLACE

• Sweden

• Spain

• Germany

• UK

• Netherlands

FURTHER FURTHER “AMERICANISATION”?“AMERICANISATION”?

• Fees and funding EU, Italy and Netherlands considering

introduction of contingency fees UK – increasing use of CFAs and non-

traditional funding arrangements.

• Loser pays Some minor modifications being considered

• Punitive damages Italy considering

GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:

EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US

Daniel S. Sommers, Esq.Partner

Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

U.S. PLAINTIFFS’ BAR IN U.S. PLAINTIFFS’ BAR IN EUROPEEUROPE

• Opening of Cohen, Milstein, Hausfeld & Toll, P.L.L.C. London Office

• Emerging European Class/Group Action Legislation

• Expansion of Potential Non-Securities Cases in Europe Antitrust/Competition Consumer Civil Rights/Human Rights

• Increasing Awareness of U.S. Remedies for Non-U.S. Investors

NON-U.S. INVESTORS AS LEAD NON-U.S. INVESTORS AS LEAD PLAINTIFFS IN U.S. SECURITIES PLAINTIFFS IN U.S. SECURITIES

CLASS ACTIONSCLASS ACTIONS

Issuer Investor (Country)Able Laboratories, Inc. Deka International (Ireland) Ltd.Adecco, S.A. Union Asset Management Holdings AG (Germany)Ariba, Inc. Aletti Gestielle SGR, S. P. A. (Italy)Biovail Corp. Ontario Teachers Pension Plan (Canada)Cable & Wireless plc Ontario Teachers Pension Plan (Canada)

Fortis Investment Management N.V./S.A. (Belgium)Metzler Investment GmbH (Germany)

Converium Holding AG Avalon Holdings, Inc. (Greece)Duke Energy Corporation SBA Artsenpensioenfondsen (Netherlands)

Handelsfinanz CCF Bank SA (Switzerland)SP Private Bank SA (Switzerland)Ozma Provident Fund, Ltd. (Israel)Sion Provident Fund, Ltd. (Israel)

Gilat Statellite Networks 3 Leumi Mutual Funds (Israel)Merck & Co. Inc. Union Investment GmbH (Germany)Mirant Corporation SBA Artsenpensioenfondsen (Netherlands)Nortel Networks Corp. Ontario Teachers Pension Plan (Canada)

Capital & Finance Asset Management (Belgium)Cattolica Partecipazioni (Italy)Hermes Investment Management Ltd. (UK)Societe Moderne des Terrassements Parisiens (France)Solotrat (France)

Primus Telecommunications Group, Inc.Retail Investor (UK)Team Communications Group, Inc. Fischer & Euler (Germany)The Goodyear Tire & Rubber CompanyCapital Invest, Kapitalanlagegesellschaft der Bank Austria Creditanstalt Grappe GmbH (Austria)

Catu Ltd. (Mexico)Gonnet Informatica (Switzerland)Prigest, S.A. (France)Tocqueville Finance, S.A. (France)

Williams Co./Williams Ontario Teachers Pension Plan (Canada)

Versata, Inc.

Vivendi Universal

Chicago Bridge & Iron Co NV

Eagle Building Tech.

ECI Telecom Ltd.

Parmalat Finanziaria SpA

INDIVIDUAL U.S. ACTIONS BY INDIVIDUAL U.S. ACTIONS BY NON-U.S. INVESTORSNON-U.S. INVESTORS

• Lernout & Hauspie EASDAQ Action Group of individuals from Belgium

• Royal Dutch Shell Opt-Out Deka Investment GmbH (Germany) Frankfurt-Trust Investment-Gesellschaft

mbH (Germany) Deka International SA Luxembourg 22 Dutch Institutional Investors

ISSUES IMPACTING D&O ISSUES IMPACTING D&O EXPOSUREEXPOSURE

• Willingness of U.S. Courts to Hear Claims of Purchasers on Non-U.S. Exchanges Subject Matter Jurisdiction Forum Non Conveniens

• Impact of Globalization of Exchanges

• Availability of Non-U.S. Courts Class/Group Action Device Contingent Fee Fee Shifting

Examples of U.S. versus Non-Examples of U.S. versus Non-U.S. Shareholder DistributionU.S. Shareholder Distribution

Europe 74%

North America

24%

Asia 2%U.S.19%

Europe81%

Royal Dutch/ShellDeutsche Telekom

GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:

EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US

REGULATORY £XPO$UR€A GLOBAL PERSPECTIVE

Nilam Sharma

Robin Simon LLP

London, UK

MISSION STATEMENTSMISSION STATEMENTS

FSA

“The FSA task is to achieve a marketplace that is run in an efficient, orderly and clean manner whilst

ensuring consumers receive a fair deal by being properly informed and appropriately protected”.

SEC

“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital

formation”.

FSA INVESTIGATIONS

Year of Annual Report Number of New Investigations

1997/1998 28

1998/1999 123

1999/2000 159

2000/2001 376

2001/2002 519

2002/2003 138

2003/2004 175

2004/2005 183

2005/2006 269

UK REGULATORY UK REGULATORY LANDSCAPELANDSCAPE

• Investigations – Quality Not Quantity

• Average fine now GBP500,000

• Responsibility BOTH Company and Individuals

• Increased focus on Criminal Prosecutions

• OFT, SFO, FRC, Competition Commission, HSE, Takeover Panel and Treasury Solicitor.

• Move to a US style suits and model (Witness Accomplice/Front End Plea Bargaining)

ALL AROUND THE WORLD…

REGULATORS WORLDWIDEREGULATORS WORLDWIDE

Country Regulator Notable Cases

Germany BaFin • Takeover of Schering by Bayer• Daimler Chrysler• Anti-trust cases (Eon, RWE, EnBw & Vattenfall)• Bribery allegations against Philips

France AMF • Airbus and EADS insider dealing allegations• Deutsche Bank and Vivendi

Holland AFM • Ahold

Italy CONSOB • Parmalat

Sweden SFSA • Scania• Volvo

Switzerland SBC • SwissAir• Siemans

South Korea FSS • Slush funds involving Hyundai, Samsung, LG Group • Fraud allegations/anti trust probe into Hyundai

Australia ASC • National Australia Bank• Multiplex

THE MIGHT OF THE THE MIGHT OF THE REGULATORREGULATOR

Disciplinary Powers Most regulatory authorities have power to discipline those under its jurisdiction eg. withdrawal of authorisation/licence.

Civil proceedings/fines/

penalties/ injunctions

FSA (UK), OFT (UK), BaFin, AFM (Holland), AMF (France), Consob (Italy)

Criminal Proceedings (fines and/or imprisonment)

FSA (UK), SFO (UK)

Proceedings by Public Prosecutor

AFM (Holland), Consob (Italy)

Early Settlement/Mediation FSA (UK), SEC (US)

REGULATORS UNITEDREGULATORS UNITED

• Section 169 FSMA Information Gathering and Investigative Powers.

• Section 354 FSMA General Duty to Co-operate.• Memoranda of Understanding (“MoUs”) FSA

and SEC.• IOSCO and CESR bilateral and multilateral

information sharing arrangements.• EU Directives (MAD AND MIFID)• Shell, Citigroup, Deutsche Bank, Ahold and

Siemens.

REGULATORS’ CHATROOMREGULATORS’ CHATROOM

• General prohibition on disclosure of confidential information in UK, but gateways.

• Information sharing between domestic regulators eg. Generic Pharmaceuticals - SFO Civil Action by NHS

• Information sharing between regulators worldwide eg. NatWest 3 - FSA SEC

• Regulatory investigation leads to litigation eg. Replica Football/Soccer Kits – OFT Class Action

END GAME…END GAME…

• Increased regulatory activity worldwide.

• Exhaustion of policy limits on defence costs.

• Jurisdiction issues –worldwide policy v. locally admitted policies.

• Sub-limits/Extensions/Endorsements.

• Entity coverage.

…When is a regulatory action over?

ON THE RADAR…ON THE RADAR…

• Insider Dealing• Private Equity• Market abuse by hedge funds and

investment banks• Cartels/Competition/Anti Trust Activities• Class Actions/Active Shareholders

GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK: GLOBAL RISK:

EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US

QUESTIONSQUESTIONS