Transfers: Key Considerations Navigating Scope of the Assumption, - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Structuring Environmental Risk Transfers: Key Considerations Navigating Scope of the Assumption, Financial Structure and Potential Tax Benefits WEDNESDAY, DECEMBER 16, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Daniel A. Cantor, Partner, Arnold & Porter , Washington, D.C. Jeffrey B. Gracer, Principal, Sive Paget & Riesel , New York William J. Squires, III, Esq., Morgan Lewis & Bockius , Boston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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S TRUCTURING E NVIRONMENTAL R ISKS : A LLOCATING E NVIRONMENTAL R ISK IN C OMMERCIAL T RANSACTIONS S TRAFFORD P UBLICATIONS D ECEMBER 16, 2015 DAN CANTOR ARNOLD & PORTER LLP daniel.cantor@aporter.com JEFF GRACER SIVE PAGET & RIESEL, P .C. jgracer@sprlaw.com BILL SQUIRES MORGAN, LEWIS & BOCKIUS LLP william.squires@morganlewis.com

A GENDA  Introduction  Key Contractual Provisions  Contractual Risk  Environmental Insurance  Risk Transfers 6

R ELEV ANT C OM IAL T RANSACTIONS IONS LEVAN OMME MERCIAL  Purchase and Sale of Business  Stock Purchase, Asset Purchase or Merger Agreements  Purchase and Sale of Real Property  Real Estate Purchase and Sale Agreements and Leases  Acquisition and Construction Financing  Various types of Loan Agreements  Insurance 7

I DENT NG E NVIRONMEN ENTAL R ISKS NTIFYI FYING 8

S OME G ENERAL AL C ONSIDER NS W HEN C ONTR ALLY IDERATI TIONS TRACTU CTUALL A LLOCA NG E NVIR AL R ISKS OCATI TING IRONMENT ONMENTAL  One cannot contract away statutory environmental liabilities and obligations  For the most part, contracts only bind the parties to the contract and do not bind third parties  In general, a contractual protection is only as good as the parties’ balance sheet 9

K EY EY C ON ONTRACTUAL P ROVIS IONS F OR OR A LL NG VISIONS LLOC OCATING E NVI MENTAL R ISK ISK VIRON ONMEN  Tools for allocating liability and responsibility  Definitions  Representation and warranties  Assumptions and affirmative requirements  Releases & covenants not to sue  Indemnities & escrows  Purchase price 10

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN  Application to third parties  Parents, subsidiaries, and affiliates?  Right to assign  Others  Are third parties bound by the contract?  Running with the land and recordation 11

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Representation and Warranties The importance of careful coordination with environmental personnel  Potential overlap with non-environmental representations   Including language that provides that environmental representation and warranty section is the exclusive section for environmental representations and warranties Important potential limitations   Materiality  Knowledge qualifiers  Time qualifiers Remedies for breaches  12

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Indemnities  Who as between the contracting parties is responsible?  For what?  Pre-Closing versus Post-Closing?  Presumptions and baselines  Just defined by a given party’s tenure at the property?  Only what is required by government or anything required by laws?  Voluntary cleanup? How about excavation in connection with development?  Cleanup of soil and groundwater only?  Asbestos, lead paint, mold, demolition? 13

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Indemnities (cont’d)  For what? (cont’d)  What kind of cleanup?  Industrial/commercial versus residential?  Risked-based permitted?  Use of institutional controls permitted? How implemented and complied with?  Third party claims (diminished value, toxic tort, business loss etc)  Who controls relationship with government and decisions re cleanup?  Right to comment on reports and attend meetings?  Managing future risk 14

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Indemnities (cont’d)  For how long?  The pros and cons of time limits?  Any thresholds/deductibles or financial caps?  Access  Non-disturbance  Cooperation 15

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Environmental Indemnities (cont’d)  Limitations on indemnities Anti-indemnity statutes  Government fines  Punitive damages  Ability of governmental entities to indemnify   Differences between an obligation “to defend” and an obligation “to indemnify”  Differences between an indemnity for “loss” or “damages” versus “claims” 16

S OM OME K EY EY C ON IONS W HEN A LL NG ONSIDER ERATIONS LLOC OCATING E NVI MENTAL R ISK ISK (cont’d) VIRON ONMEN Environmental Indemnities (cont’d)  Indemnification Procedures Simple vs detailed  Time limits for notice and making claims  Time limits for indemnitor assuming defense  Indemnitee participation in defense  Cooperation  Compromising and settling third-party claims  17

E NVIRON ENTAL I NSURANC NCE ONMEN  Two primary types of insurance  Pollution Legal Liability (PLL)  Menu of coverages including cleanup of unknowns discovered during policy period, tort coverage, NRD, transportation, disposal facilities and business interruption.  Typically has a per incident deductible  Costcap/Stoploss  Applies to cost overruns for cleanup of known contamination  Limited availability  Often high cost 18

I NSURANCE SURANCE P OLICY ICY D RAFTIN FTING C ONSIDER TIONS (cont’d) IDERATION Definitions  Defining “discovered” for purposes of PLL PLL policies often require that the insured “first discovers” the pre -existing pollution  during the policy period What does discover mean?  Does it cover discovering higher concentrations of a constituent that the insured knew  existed at a lower concentration? Does it cover the situation where an insured previously knew a constituent existed in the  soil in corner x of the Site and subsequently finds the constituent in corner y? 19

I NSURANCE SURANCE P OLICY ICY D RAFTIN FTING C ONSIDER TIONS (cont’d) IDERATION Definitions  Defining the Remedial Plan for purposes of Cost Cap Different insurers define the remedial plan in different ways  Key is clarity as Cost Cap will only typically apply to work performed pursuant to the  remedial plan It is essential that changes to the remedial plan be covered if the government regulator  requires such changes 20

I NSURANCE SURANCE P OLICY ICY D RAFTIN FTING C ONSIDER TIONS (cont’d) IDERATION Exclusions  Do the exclusions reduce coverage needed for transaction at issue and is manuscripting required?  Known conditions exclusion 21