PLUS Western Canada

Directors and Officers Liability

February 8, 2007

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Agenda

1. Favourable D&O Liability Insurance Marketplace

2. Negative Pressures on D&O Marketplace

3. Market Dynamics

4. How Underwriters Can Distinguish Themselves

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D&O Insurance Market

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D&O Market – Favourable Factors

• Claims• Legal• Capacity• Coverage• Pricing

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NEGATIVE FORCES ON MARKETPLACE

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D&O Insurance Market – Negative Factors

• Increase in financial restatements• Increase in settlement amounts in US• Bill 198 litigation commenced: IMAX• Options

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OPTIONS

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Hot Topics: Options Backdating

• Spring-loading Options

• Bullet-Dodging

• Must report failure to comply in annual proxy statement

• Backdating is not illegal, but optics?

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Options Backdating: Perception is Everything

• “Backdating strikes everyone as the ultimate unfair ploy, which is essentially taking an award and adjusting it so you can make more money,'' -- Ann Yerger, executive director of the Washington, D.C.-based Council of Institutional Investors, an organization of large pension funds

• “It's an egregious abuse of executive privilege, it's an abuse of shareholders, and at a time when folks are upset about executive pay levels, to know that some of this has been rigged is particularly upsetting.'' -- James Cox, law professor Duke University

• “It's a question of knowingly betting on a race that's already been run." -- James Cox

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The Perils of Backdating

Companies found to have engaged in impermissible options backdating face several risks, including:

• SEC Investigations and Federal Criminal Prosecutions SEC Investigations and Federal Criminal Prosecutions

• Accounting Restatement Risk and Reduced Net Profits Accounting Restatement Risk and Reduced Net Profits

• Potential Criminal as well as Civil Lawsuits Potential Criminal as well as Civil Lawsuits

• Regulatory Risk and Tax Implications Regulatory Risk and Tax Implications

• Management Credibility RiskManagement Credibility Risk

The shareholder suits are generally derivative suits, but a few have been accompanied by stock-drop suits as well

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Options Backdating: Canadian Context

• Time Period Restrictions

• Reporting Grants

NOTE: US reporting

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Critical D&O Insurance Purchasing Issues

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Critical Purchasing Issues

• Purchasing Decision is changing:

• Directors/Trustees involvement• Potential conflicts• Third Party Reviews and Advice• D&O coverage gaining in importance over price

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How Underwriters Can Distinguish Themselves

• Coverage and Price!• Understand Evolving Market Dynamics• Ask Thoughtful Questions• Alternatives• Policy Documentation• Long Term Commitment

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THANK YOU

Catherine RichmondWillis CanadaCatherine.Richmond@Willis.com(604) 605-5611