Directors & Officers Bootcamp Basics of Duties & Liabilities Rian JorgensenAdrian Atilano Senior Vice PresidentVice PresidentFINPRO San Francisco, CASan Diego, CA January 26, 2007

2 Introduction to Marsh and MMC n Merger Bid Evaluations n D&O Mass Tort Litigation Estimates Consulting Services n Risk Management Consulting n Risk Management Due Diligence n Innovative Deal Solutions n Deal Referral/Networking n Portfolio Insurance Programs n Post-Acquisition Services n Employee Benefits n Retirement Benefit Programs n Health/Group Benefits Programs n Compensation Evaluation n Management Evaluation and Structure n High Yield Debt Participation n 401K Management n Money Management Services n Strategic Idea Generation n Deal Sourcing n Strategic Due Diligence n Value Enhancement n Financial Risk Identification n Insurance Capital Solutions n Organizational Architecture n Change Management n Image Analysis n Identity Planning n Reinsurance Solutions n Specialty Practices n Modeling & Actuarial Services Risk & Insurance Services Investment Management n Corporate Advisory n Background Screening n Corporate Restructuring n Forensic Accounting n Financial Services Strategy n Risk Management Consulting MMC ALTERNATIVE RISK SOLUTIONS

PSLRA: Be Careful What You Wish For Rise of the institutional investors (who were not as benign as the law’s drafters had hoped) Number and severity of suits continued unabated

4 Enron, WorldCom and Tyco Massive frauds Personal liability (triggered much concern, for the most part, overblown, particularly for outside directors)

SOX Expanded statute of limitations (from 1/3 to 2/5) Increased criminal penalties and enforcement  Boost in the SEC’s enforcement division’s funding

6 NERA and Cornerstone Results Why the drop in number of suits?  Steady bull market of last few years  Turmoil among the plaintiffs attorneys  Less fraud due to fear of criminal prosecution Not all good news – Many new routes to courthouse besides class actions (Opt-outs, serious derivative litigation, SEC/DOJ) Stock option backdating cases – directors investigating (and spending the company’s money on legal fees) at the drop of a hat

7 What Does The Future Hold? More invasive personal underwriting for D&O coverage More uninsured legal costs for investigations (challenge for the insurance industry to address) Movement afoot to “loosen up” SOX Conflicts between interests of companies and their D’s and O’s to become more pronounced (broad indemnification, A-side to the extreme…)

D&O Indemnification Trends and Implications

9 How are Personal Assets of Directors and Officers Protected? IndemnificationIndemnification InsuranceInsurance BOTH

10 Indemnification Indemnification Authorization (DE & CA)  Corporate Charter  Corporate Bylaws  Indemnification Contract

11 Failure to Indemnify Common Situations Where Unable or Unwilling to Indemnify:  Conduct Not in “Good Faith” or “Reasonable Belief”  Bankruptcy or Near Bankruptcy  Hostile Board  Hostile Regulatory or Prosecutorial Environment  Public Policy:  Violation of Federal Securities Laws or Statutory Prohibition  Derivative Suit Judgments/Settlements (Delaware)

D&O Insurance Trends & Implications

13 Directors’ & Officers’ Liability Insurance Covered Claim Against Directors & Officers No Insureds - Directors & Officers Insureds - Directors & Officers Personal Assets D&O Insurance Insuring Agreement A: Personal Liability D&O Insurance Insuring Agreement A: Personal Liability “PERSONAL ASSETS PROTECTION” INDEMNIFICATION? Yes Insured - Corporate Balance Sheet Insured - Corporate Balance Sheet Corporate Assets D&O Insurance Insuring Agreement B: Corporate Reimbursement D&O Insurance Insuring Agreement B: Corporate Reimbursement “CORPORATE RISK TRANSFER” Covered Sec. Claim Against Corporate Entity Insured - Corporate Entity as a Defendant in Sec. Claims only Insured - Corporate Entity as a Defendant in Sec. Claims only Corporate Assets D&O Insurance Insuring Agreement C: Corporate Entity Coverage for SEC Claims D&O Insurance Insuring Agreement C: Corporate Entity Coverage for SEC Claims “SIGNIFICANT DEFENDANT ALLOCATION COVERAGE” Side A Side B Side C

14 Coverage A Personal Asset Protection For Non-Indemnifiable Claims Coverage B Corporate Asset Protection For Indemnifiable Claims Coverage C Corporate Asset Protection For Corporate Liability Claims (Securities Claims only) Side A-only* Excess Difference in Conditions Single Aggregate Limit Retention TBDNo RetentionRetention TBD A,B,C coverage w/ excess side A Program Structure w/Side A DIC Public D&O forms cover the entity for securities claims only

15 ABC Corp. Public D&O Program w/Side A DIC SIR $0 / $500,000 / $1,000,000 Hartford $10,000,000 Chubb $10,000,000 Axis $10,000,000 $10M $20M $30M Retention Navigators $10,000,000 $40M Darwin $10,000,000 HCC $10,000,000 $60M Arch $10,000,000 $70M ACE $10,000,000 $80M $90M $50M DIC AIG $10,000,000 Side A DIC

16 50% Employees 8% Customers / Clients 10% Competitors / Suppliers 31% Shareholders / Investors 3% Other Third Party Source: 2005 Directors & Officers Liability Survey the Tillinghast Towers Perrin Major Types of Allegations Denial of civil rights Wrongful termination Breach of contract Price fixing Breach of duty Conflict of interest Anti-trust Mismanagement Self dealing Failure to disclose material facts Misconduct Who Sues Private Companies?

17 Preparing to go public – Form Changes Private to Public Form Changes  Add SEC coverage for individuals and Entity (securities only )  Understand severability provisions and fraud exclusions  Continuity with side A and side B insuring clauses  Address Employment Practices Liability exposures (separate policy)  Securities Act of 1933 coverage  section 11 (material misrepresentation)  section 12 (misrepresentation in prospectus or oral communication)  Securities Act of 1934 coverage

18 FAQs Do I have to pay a retention/deductible if I am sued? What happens if I am accused of fraudulent conduct? Will I be covered by the D&O Insurance if someone else commits fraud? Will I be covered by the insurance contract if someone else makes misrepresentations in the application to the D&O Insurers or if the company has to restate its financials? Will the D&O Insurance protect me if the SEC pursues a formal investigation against me? If the company is sued as well as directors and officers, how does the policy respond? If the company declares bankruptcy, will the D&O policy cover me? May I have choice of counsel?

19 Shopping For D&O Coverage Choosing a broker:  Expertise and Service  Proactive solutions  Relationships with markets and leveraging power  Claims advocacy and Governance consulting  Global presence Choosing a underwriter/carrier  Policy language, Pricing, Deductibles  Financial Strength/Surplus  Global presence  Internal and Experienced Claims Adjusters  Consistency Coverage  Policy language  Who’s the buyer? Board? Officers?  Limits Benchmarking – Peers or Market Cap

20 QUESTIONS???