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GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US

GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US MODERATOR: NILAM SHARMA - ROBIN SIMON LLP RODDY GRAHAM – THOMPSON HEATH & BOND LIMITED KATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUP GILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGER DANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLL.

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GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US

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  1. GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE USMODERATOR: NILAM SHARMA - ROBIN SIMON LLPRODDY GRAHAM – THOMPSON HEATH & BOND LIMITEDKATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUPGILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGERDANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLL

  2. GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US Roddy Graham Thompson Heath & Bond Ltd. London, UK

  3. TOPICS • Exchange Competition: London vs. New York • International D&O Broking Considerations • International D&O Claims

  4. AIM – 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

  5. AIM – COUNTRY DISTRIBUTION • 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

  6. AIM 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

  7. BENEFITS OF AN AIM 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

  8. IPOs STAMPEDE FROM 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

  9. BID TO RECAPTURE 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

  10. U.S. BROKER PRODUCED INTL. D&O • Hong Kong • Iceland • India • Ireland • Israel • Luxembourg • Russia • U.K. • Australia • Belgium • Bermuda • Canada • Caribbean • Cayman Islands • China • France

  11. BROKING CONSIDERATIONS • 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

  12. LOCAL PREMIUM TAXES

  13. UNUSUAL COVERAGE ISSUES • 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

  14. UNUSUAL COVERAGE ISSUES • 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?

  15. EUROPEAN D&O SETTLEMENTS Source: GenRe

  16. EUROPEAN CLASS ACTIONS

  17. R.O.W. D&O SETTLEMENTS Source: XL Capital

  18. ALSO D&O LITIGATION FROM HERE! • Mexico • Russia • South Korea • Spain • Sweden China Japan Finland Israel Italy

  19. GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US Kathleen E. Dubé ACE European Group Limited Paris, France

  20. COMMON MISCONCEPTIONS • 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

  21. EUROPE • UK • Continent • Eastern

  22. CHALLENGES • 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

  23. CHALLENGES • The Legal Context • Civil Law VS Common Law • Anglo-Saxon remedies for Civil Law Contracts • The courts • Perception of the US

  24. CLAIMS ACTIVITY Jurisprudence What have we seen ? What are we expecting?

  25. GLOBAL COMPANIES, GLOBAL RISK:EXPOSURES ARISING OUTSIDE THE US THE EUROPEAN LITIGATION ENVIRONMENT Gillian Eastwood Freshfields Bruckhaus Deringer London, UK

  26. FACTORS AFFECTING D&O 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

  27. Finland Sweden Est. Lat. Ireland Den United Kingdom Lith Neth Poland Germany Bel Lux Czech Rep Slov Aus France Hung Slo Romania Port. Bul Italy Spain Greece Malta Cyprus FACTORS VARY FOR EACH MEMBER STATE…

  28. EUROPEAN LEGAL FRAMEWORK • 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.

  29. COMMON LAW VS 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

  30. EUROPE vs US – THE PRINCIPAL DIFFERENCES Availability and nature of “Class actions” No contingency fees Loser pays costs Generally, no juries in civil cases No punitive damages

  31. IS THIS CHANGING?

  32. COLLECTIVE 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

  33. FORM OF MULTIPLE CLAIMANT SYSTEM ALREADY IN PLACE • Sweden • Spain • Germany • UK • Netherlands

  34. FURTHER “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

  35. GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US Daniel S. Sommers, Esq. Partner Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

  36. U.S. PLAINTIFFS’ BAR IN EUROPE • 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

  37. 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) Chicago Bridge & Iron Co NV Metzler Investment GmbH (Germany) Converium Holding AG Avalon Holdings, Inc. (Greece) Duke Energy Corporation SBA Artsenpensioenfondsen (Netherlands) Handelsfinanz CCF Bank SA (Switzerland) Eagle Building Tech. SP Private Bank SA (Switzerland) Ozma Provident Fund, Ltd. (Israel) ECI Telecom Ltd. 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) Parmalat Finanziaria SpA 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 Company Capital Invest, Kapitalanlagegesellschaft der Bank Austria Creditanstalt Grappe GmbH (Austria) Catu Ltd. (Mexico) Versata, Inc. Gonnet Informatica (Switzerland) Prigest, S.A. (France) Vivendi Universal Tocqueville Finance, S.A. (France) Williams Co./Williams Ontario Teachers Pension Plan (Canada) NON-U.S. INVESTORS AS LEAD PLAINTIFFS IN U.S. SECURITIES CLASS ACTIONS

  38. INDIVIDUAL U.S. ACTIONS BY NON-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

  39. ISSUES IMPACTING D&O EXPOSURE • 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

  40. Examples of U.S. versus Non-U.S. Shareholder Distribution Deutsche Telekom Royal Dutch/Shell

  41. GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE US REGULATORY £XPO$UR€A GLOBAL PERSPECTIVE Nilam Sharma Robin Simon LLP London, UK

  42. MISSION 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”.

  43. FSA INVESTIGATIONS

  44. UK REGULATORY LANDSCAPE • 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)

  45. ALL AROUND THE WORLD…

  46. REGULATORS WORLDWIDE

  47. THE MIGHT OF THE REGULATOR

  48. REGULATORS 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.

  49. REGULATORS’ 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

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