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Slide 1:

D&O Liability: The Risk of Serving on a Board Presented by: Steve Guggenheim, Partner, Wilson Sonsini Goodrich & Rosati September 15, 2011

Slide 2:

TK Kerstetter President Corporate Board Member Mike Ryan SVP, Managing Director of Board Services Corporate Board Member Hosts

Corporate Board Member:

Corporate Board Member Board Education Program Conferences & Webinars

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Presentation Steve Guggenheim Partner Wilson Sonsini Goodrich & Rosati Q&A / Discussion Simon Beynon President, National Accounts, Executive Liability Chartis Presenters

A Decade of Regulation:

Sarbanes Oxley- 2002 Enhanced corporate governance standards Audit committees Dodd Frank – 2010 SEC Whistleblower program – 2011 Increased enforcement and investigations? Bypassing internal compliance structures? A Decade of Regulation

Trends - Investigations, Enforcement Activity and Litigation:

Trends - Investigations, Enforcement Activity and Litigation Securities and Exchange Commission Investigations Special Units Enforcement Department of Justice Shareholder litigation Securities class actions M&A Litigation

Fortunately . . . :

Empirical studies show that out-of-pocket contributions are still rare Officers less than 5% of settlements Outside Directors less than 1% of settlements Fortunately . . .

D&O Insurance – Key Issues Severability:

Problem Insurer can rescind the policy if there are false statements in the application (which includes SEC filings) Solution Language restricting when and against whom the insurer can rescind Beware the so-called “non-rescindable” policy D&O Insurance – Key Issues Severability

D&O Insurance – Key Issues (cont’d) Triggers for Conduct Exclusions:

Problem Policies exclude coverage for dishonest conduct and unlawful gain Virtually all shareholder suits allege conduct that would violate exclusions Vague triggers to exclusions – e.g. written admission – compound issue Solution Make certain that trigger is “final determination” or, better yet, “final adjudication” D&O Insurance – Key Issues (cont’d) Triggers for Conduct Exclusions

D&O Insurance – Key Issues (cont’d) The Insured v. Insured Exclusion:

Problem U.S. D&O policies typically won’t cover claims brought by one insured against another Can be worsened by broadening definition of insured Solution Exceptions/Carvebacks to the I v. I exclusion Entity v. Insured Exclusion D&O Insurance – Key Issues (cont’d) The Insured v. Insured Exclusion

D&O Insurance – Key Issues (cont’d) Excess Layers:

Problem Excess policies may not respond until underlying insurer pays its full limit or may not “follow form” Can impact entire tower of insurance Solution Review language in excess policies carefully Provide language specifically allowing company to pay underlying limits where underlying insurer fails to pay D&O Insurance – Key Issues (cont’d) Excess Layers

D&O Insurance – Key Issues (cont’d) Side A Policies:

Are Side A Policies worth it? Limited chance of responding to a claim No indemnity available and no A,B,C insurance However. . . Dedicated Limit Immune from bankruptcy risk Opportunity for broader coverage May be last line of defense for personal assets D&O Insurance – Key Issues (cont’d) Side A Policies

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Q&A Upcoming Webinars from Corporate Board Member  Regulatory Update: Washington D.C.’s Impact on Corporate Decision Making September 28, 2011  Engaging with Institutional Investors and Proxy Advisory Firms October 12, 2011  Critical Issues Comp Committees Should Be Discussing Today for Tomorrow October 26, 2011  Board Portals: A Case Study of a More Effective Board November 10, 2011  Key Issues Impacting Audit Committee Agendas December 1, 2011  Succession Planning: Getting Process and Disclosure Right December 14, 2011 More info at

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Q&A Upcoming Conferences from Corporate Board Member  Board Committee Peer Exchange • Oct. 5, 2011  Annual Boardroom Summit • Oct. 6-7, 2011  Healthcare Industry Peer Exchange • Oct. 20, 2011  Insurance Industry Peer Exchange • Oct. 25, 2011  Telecom Industry Peer Exchange • Oct. 27, 2011  General Counsel Forum • Nov. 14-15, 2011 More info at

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