A large Electrical Energy Systems Operator was approved by the Federal Energy Regulatory Commission (FERC) to enter into a settlement agreement with several departing members. The agreement contained very broad and large indemnifications given by the client and most of the remaining members. In order to satisfy the remaining members, satisfy FERC’s requirements and remain operational, additional representations had to be made to the remaining members to a total of $200 million by our client.

The members were willing to pay a premium to secure a catastrophe excess policy insuring the representations.

Lockton did structure and secure a manuscript representations and warranties liability policy for our client at a limit of $100 million excess of $100 million.

A Lockton U.S. Client was purchasing a British company. Representations were being made by the Target’s management team who were also seeking employment and an ownership interest in Newco. Previously, management only had an operational interest. Because the Purchase and Sale Agreement allowed for insignificant financial responsibilities by the management team in the indemnity, we structured a Buyer’s side Reps and Warranties policy that waived any means of subrogation (except for fraud) against the Seller.

We structured a reps policy based UK contract and extended the limit of liability to secure the Buyer’s interest. The limit was $5 million with a retention level of $400,000 on Financial Statements and a 3% of Purchase Price Retention on all other reps.

A British printing firm (our client) was purchasing a U.S. west coast multi-location printing operation. The U.S. Company was wholly owned by an Employee Stock Ownership Plan (ESOP) and could therefore offer no indemnification to secure the representations and warranties. Because of the thorough due diligence process, Lockton was able to offer a policy with a very low retention ($100,000) level and an adequate limit of liability ($4 million). Because of the financial security of the policy, the Seller was comfortable enough to make the necessary reps to close the transaction.

A California-based software firm was in the process of acquiring a smaller company in a similar business. The process became stalled when diligence revealed a possible built-in gains tax assessment in excess of target company reserves (the target estimated no reserve set when they covered U.S. amount not to exceed $250,000). The acquiring company received an opinion from tax counsel that any IRS assessment “should” not exceed $250,000, but, in the event that it did, the total tax liabilities could be as high as $4 million. Lockton Companies was able to structure a program based on the written opinion of tax counsel. The program provided the acquirer $4,000,000 of coverage, excess of a $1,500,000 retention, for a period of six years.

Our Client, an Internet-based company, with adequate revenues but negative EBITDA, was seeking to purchase a similar operation that would triple its size. Our Client had assets that consisted primarily of desks and personal computers; therefore, the proportion of income to assets was askew. The Target Company’s attorneys feared that if a bankruptcy situation were to occur in the near future, that the purchase of the Target could be considered a fraudulent conveyance. The Target wanted security that they could recoup their company and any lost profits and reputation if an unlikely event (i.e., bankruptcy filing) were to occur. A policy form was written to address the specific situation with a double trigger. The first trigger was the event of a bankruptcy filing; the second trigger was the transaction being deemed a fraudulent conveyance by a regulatory body.

A client was purchasing a sports manufacturing company that had substantial product liability losses. An impasse developed concerning who would be responsible for losses on products manufactured and sold prior to closing. We developed a five-year, pre-paid products liability program whereby the buyer and seller would both contribute to the premium cost. We then worked with the target to determine estimated product life expectancies, and negotiated on behalf of the buyer for the seller to pay 85% of the premium.

In a spin-off agreement between a new cellular phone company and its parent, the new company was required to indemnify the parent for past liabilities. During our diligence, we discovered that pending litigation could lead to the possibility of catastrophic claims. We examined the extent of the liability and determined the estimated maximum exposure for our client to be $55 million. We developed a risk transfer policy with enough coverage to protect our client at a high level from a catastrophic loss arising from the assumed liabilities.

A Private Equity firm was looking to divest one of its portfolio companies, a California-based plastics manufacturing firm, but environmental liabilities associated with an existing remediation at one of the company's facilities were dissuading potential buyers. These open-ended liabilities represented a potentially insurmountable issue to a potential buyer as seen by the estimated costs of remediation as well as possible unquantified third party liabilities stemming from on-site pollution conditions. Lockton Companies structured an environmental liability policy that provided coverage for remediation on a “cost-cap” basis, enabling remediation costs to be quantified at a firm upper limit, as well as provide third party coverage for claims arising from possible off-site migration of pollution conditions to third parties. The policy was put in place with a term of six years, and was structured so that a potential buyer could assume the policy as an asset to offset unknown liabilities associated with the polluted site.

A Private Equity firm was looking to acquire a storage facility in the mid-west area. Initial environmental assessments indicated that the storage facility site was comprised of potentially contaminated historic fill material. The Private Equity firm retained an environmental consultant to assess the situation and provide cost estimates to address the potential situation. Even though the situation and cost estimates were insignificant, lenders were not comfortable that the environmental regulatory agency would give a “No Further Action” status regarding the fill issue. Lockton Companies structured an environmental policy that provided on-site clean-up, remediation and third-party coverage for post-closing claims arising from the “known” condition (i.e., fill material). The policy was put in place with a term of one year to satisfy the lenders involved with the transaction.

A Private Equity firm wanted to acquire a potato processing facility. The Buyer was concerned with one of the facility's historic environmental management practices. Lockton Companies structured an environmental policy that provided on and off-site clean-up, remediation and third party coverage. Additionally, the policy provided coverage for liabilities that the Company would be responsible for related to the disposal facilities that it had historically used. The policy was put in place with a term of five years and was structured so that a potential buyer could assume the policy as an asset to offset liabilities associated with these facilities.

Upon Lockton’s involvement, a firm specializing in semiconductor solutions for wireless communications products found themselves in the process of a strategic technology acquisition. With only two weeks until the scheduled closing an inability to agree on escrow terms acceptable to both parties threatened to kill the deal. Lockton engaged the services of PECAP to find a transactional risk transfer solution for the problem. Lockton PECAP recommended a buyer-side representations and warranties insurance policy, but also recognized aspects of the deal that would complicate the process. The deal’s small size and concentration of intellectual property assets would require specialized underwriters accustomed to such challenges. Within five business days, Lockton PECAP Associates successfully negotiated and bound a R&W policy that filled the difference between the buyer’s and seller’s escrow requirements, closing the acquisition on schedule. The solution’s cost was less than one half of one percent of the deal value.

A private equity firm purchased a struggling division (SpinCo) of a conglomerate.  The firm immediately employed a prepackaged bankruptcy strategy to mitigate the debt and contractual obligations of SpinCo. The private equity firm’s broker told them that SpinCo’s new casualty program would require significant premium and $15 million in collateral, prompting the call to Lockton. SpinCo needed a stand-alone property, casualty and executive risk program and coverage in effect prior to entering the pre-packaged bankruptcy. Lockton provided a solution that required zero collateral to be posted and offered a short-term, less expensive guaranteed cost primary casualty program. Lockton’s work allowed the private equity firm to mitigate some of SpinCo’s pre-petition liabilities and help the conglomerate unload a non-core asset that was not performing profitably. 

A large construction and fabrication client of Lockton wanted to buy a large competitor. Lockton worked with the client to develop and implement many improvement processes. The client saw an immediate reduction in injuries. The acquisition was blended into the client’s operations with no increase in claims costs per man-hour. Overall, the changes eliminated the potential annual recurring cost of $6 million in accident costs each year and netted $30 million over five years in accident cost reduction.