S-4/A
As filed with the Securities
and Exchange Commission on June 1, 2009
Registration Number
333-159148
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
VALIDUS HOLDINGS,
LTD.
(Exact Name of Registrant as
Specified in its Charter)
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BERMUDA
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6331
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98-0501001
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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19 Par-La-Ville Road,
Hamilton, HM 11 Bermuda
(441) 278-9000
(Address, including zip code,
and telephone number, including area code,
of registrants principal
executive offices)
C. Jerome Dill
Executive Vice
President & General Counsel
Validus Holdings, Ltd.
19 Par-La-Ville Road,
Hamilton, HM 11 Bermuda
(441) 278-9000
(Name, address, including zip
code, and telephone number, including area code,
of agent for service)
Copies to:
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W. Leslie Duffy, Esq.
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Stephen F. Arcano, Esq.
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John Schuster, Esq.
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Todd E. Freed, Esq.
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Cahill Gordon & Reindel LLP
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Skadden, Arps, Slate, Meagher & Flom LLP
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80 Pine Street
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Four Times Square
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New York, New York 10005
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New York, New York 10036
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(212) 701-3000
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(212) 735-3000
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Approximate date of commencement of proposed sale of
securities to the public: As soon as practicable
after the effective date of this Registration Statement.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender
Offer) o
Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender
Offer) o
CALCULATION
OF REGISTRATION FEE
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Proposed
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Proposed Maximum
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Title of Each Class of
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Maximum Offering
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Aggregate Offering
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Amount of
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Securities to be Registered
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Amount to be Registered(1)
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Price Per Unit
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Price(2)
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Registration Fee(3)
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Voting Common Shares, par value $0.175 per share
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68,520,737
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N/A
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$1,482,329,499.84
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$82,713.99
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(1)
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Represents the maximum number of
shares of Validus Holdings, Ltd. common shares that can be
issued in the exchange offer and second-step acquisition.
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(2)
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Pursuant to Rule 457(c) and
Rule 457(f) under the Securities Act, and solely for the
purpose of calculating the registration fee, the market value of
the securities to be received was calculated as the product of
(i) 56,925,096 IPC Holdings, Ltd. common shares (the sum of
(x) 55,948,821 IPC Holdings, Ltd. common shares outstanding
as of April 9, 2009 (as reported in the joint
proxy/prospectus filed by IPC Holdings, Ltd. and Max Capital
Group Ltd. on May 7, 2009) and (y) 976,275 IPC
Holdings, Ltd. common shares issuable upon the exercise of
outstanding options, restricted common shares, restricted share
units and performance share units (as reported in the Quarterly
Report on
Form 10-Q
of IPC Holdings, Ltd. filed on May 8, 2009)) and
(ii) the average of the high and low sales prices of IPC
Holdings, Ltd. common shares as reported on the NASDAQ Global
Select Market on May 7, 2009 ($26.04).
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(3)
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The amount of the filing fee,
calculated in accordance with Rule 457(c) and Rule 457(f)
under the Securities Act, equals $0.00005580 multiplied by the
proposed maximum offering price. The amount of such registration
fee was previously paid by Validus Holdings, Ltd. in connection
with the payment of the $84,262.55 fee paid in respect of the
preliminary proxy statement on Schedule 14A filed with the
Securities and Exchange Commission on April 16, 2009.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus/offer to exchange may change. The
registrant may not complete the exchange offer and issue these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
prospectus/offer to exchange is not an offer to sell these
securities and Validus Holdings, Ltd. is not soliciting an offer
to buy these securities in any state or jurisdiction in which
such offer is not permitted.
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Offer to Exchange
Each Outstanding Common
Share
of
IPC HOLDINGS, LTD.
for
1.1234 Validus Holdings, Ltd.
Voting Common Shares
and
$3.00 in Cash
by
VALIDUS HOLDINGS,
LTD.
Validus Holdings, Ltd., which we refer to as Validus
or we, us or our, is
offering, upon the terms and subject to the conditions set forth
in this prospectus/offer to exchange and in the accompanying
revised pink letter of transmittal, to exchange 1.1234 voting
common shares, par value $0.175 per share, of Validus, which we
refer to as Validus common shares, and $3.00 in cash
(less any applicable withholding taxes and without interest) for
each outstanding common share of IPC Holdings, Ltd., which we
refer to as IPC, par value $0.01 per share, which we
refer to as IPC common shares, you validly tender
and do not properly withdraw before the expiration time of the
exchange offer described below. In addition, you will receive
cash in lieu of any fractional Validus common share to which you
may be entitled.
This prospectus/offer to exchange amends and supersedes
information included in the prospectus/offer to exchange
originally filed with the Securities and Exchange Commission on
May 12, 2009, as amended on May 13, 2009 and
May 21, 2009.
THE EXCHANGE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME (6:00 P.M. ATLANTIC
TIME), ON FRIDAY, JUNE 26, 2009, OR THE EXPIRATION
TIME OF THE EXCHANGE OFFER, UNLESS EXTENDED. SHARES
TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION TIME OF THE EXCHANGE OFFER, BUT NOT
DURING ANY SUBSEQUENT OFFERING PERIOD.
Validus common shares trade on the New York Stock Exchange under
the symbol VR. IPC common shares trade on the NASDAQ
Global Select Market under the symbol IPCR and on
the Bermuda Stock Exchange under the symbol IPCR BH.
FOR A DISCUSSION OF RISKS AND OTHER FACTORS THAT YOU SHOULD
CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER, PLEASE CAREFULLY
READ THE SECTION OF THIS PROSPECTUS/OFFER TO EXCHANGE
ENTITLED RISK FACTORS.
Validus obligation to accept IPC common shares for
exchange and to exchange any IPC common shares for Validus
common shares is subject to conditions, including a condition
that 90% of the then-outstanding number of IPC common shares on
a fully-diluted basis (excluding any IPC common shares owned by
Validus, its subsidiaries or IPC) have been validly tendered
into the exchange offer and not withdrawn and a condition that
the Agreement and Plan of Amalgamation, dated as of
March 1, 2009, as amended, among Max Capital Group Ltd.,
which we refer to as Max, IPC and IPC Limited, which
we refer to as the Max amalgamation agreement, has
been terminated. The conditions to the exchange offer are
described in the section of this prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer.
On March 31, 2009, Validus publicly announced that it had
delivered an offer, which we refer to as the initial
Validus offer, to IPC for the amalgamation of Validus and
IPC whereby each issued and outstanding IPC common share would
be exchanged for 1.2037 Validus common shares. On May 18,
2009, Validus publicly announced that it had delivered to IPC an
increased offer, which we refer to as the Validus
amalgamation offer, to acquire each outstanding IPC common
share in exchange for (i) 1.1234 Validus common shares and
(ii) $3.00 in cash (less any applicable withholding taxes
and without interest). Validus is making the exchange offer as
an alternative to the Validus amalgamation offer in order to
acquire all of the issued and outstanding IPC common shares.
Validus has not authorized any person to provide any information
or to make any representation in connection with the exchange
offer other than the information contained or incorporated by
reference in this prospectus/offer to exchange, and if any
person provides any of this information or makes any
representation of this kind, that information or representation
must not be relied upon as having been authorized by Validus.
VALIDUS IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND A PROXY TO VALIDUS. As described in this
prospectus/offer to exchange, Validus is separately soliciting
proxies to vote at the IPC annual general meeting against the
proposed amalgamation of IPC and Max, which we refer to as the
proposed Max amalgamation, and intends to
solicit proxies through separate proxy solicitation material in
connection with various matters which are described in the
section of this prospectus/offer to exchange entitled
Solicitation of Proxies. Any such proxy solicitation
is being made, or will be made, only pursuant to separate proxy
materials complying with the requirements of the rules and
regulations of the Securities and Exchange Commission.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus/offer to exchange. Any representation to the contrary
is a criminal offense.
The dealer manager for the exchange
offer is:
The date of this prospectus/offer to exchange is June 1,
2009
TABLE OF
CONTENTS
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i
THIS PROSPECTUS/OFFER TO EXCHANGE INCORPORATES IMPORTANT
BUSINESS AND FINANCIAL INFORMATION ABOUT VALIDUS AND IPC FROM
DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT
HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS
PROSPECTUS/OFFER TO EXCHANGE.
THIS INFORMATION IS AVAILABLE AT THE INTERNET WEBSITE THE
SECURITIES AND EXCHANGE COMMISSION MAINTAINS AT
http://www.sec.gov,
AS WELL AS FROM OTHER SOURCES. PLEASE SEE THE SECTION OF
THIS PROSPECTUS/OFFER TO EXCHANGE ENTITLED WHERE YOU CAN
FIND MORE INFORMATION. YOU ALSO MAY REQUEST COPIES OF
THESE DOCUMENTS FROM VALIDUS, WITHOUT CHARGE, UPON WRITTEN OR
ORAL REQUEST TO VALIDUS INFORMATION AGENT AT ITS ADDRESS
OR TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS
PROSPECTUS/OFFER TO EXCHANGE. IN ORDER TO RECEIVE TIMELY
DELIVERY OF THE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO LATER
THAN JUNE 19, 2009, OR FIVE BUSINESS DAYS PRIOR TO THE
EXPIRATION TIME OF THE EXCHANGE OFFER, WHICHEVER IS LATER.
ii
The exchange offer does not constitute a solicitation of
proxies. Any solicitation of proxies by Validus will be made
only pursuant to separate proxy solicitation materials complying
with the requirements of Section 14(a) of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
As described in this prospectus/offer to exchange, Validus is
soliciting proxies to vote at the IPC annual general meeting
against the proposed Max amalgamation and intends to
solicit proxies through separate proxy solicitation materials in
connection with various matters which are described in the
section of this prospectus/offer to exchange entitled
Solicitation of Proxies. Each shareholder is urged
to read any proxy statement regarding the business to be
conducted at the applicable meeting, if and when it becomes
available, because it will contain important information. Any
such proxy statement has been, or will be, filed with the
Securities and Exchange Commission. When completed, each
definitive proxy statement of Validus and an accompanying proxy
card of Validus will be made available to applicable
shareholders and such shareholders will be able to obtain a free
copy of any proxy statement, as well as other filings containing
information about the parties (including information regarding
the participants in any proxy solicitation (which may include
Validus officers and directors and other persons) and a
description of their direct and indirect interests, by security
holdings or otherwise), from the Securities and Exchange
Commissions web site at
http://www.sec.gov.
Each such proxy statement (when available) and these other
documents may also be obtained for free from Validus web
site at
http://www.validusre.bm.
iii
QUESTIONS
AND ANSWERS ABOUT THE EXCHANGE OFFER
Below are some of the questions that you as a holder of IPC
common shares may have regarding the exchange offer and answers
to those questions. The answers to these questions do not
contain all the information relevant to your decision whether to
tender your IPC common shares, and Validus urges you to read
carefully the remainder of this prospectus/offer to exchange and
the pink letter of transmittal circulated with this
prospectus/offer to exchange, which we refer to as the
revised pink letter of transmittal.
Who is
offering to buy my IPC common shares?
The exchange offer is made by Validus Holdings, Ltd., a Bermuda
exempted company. Validus is a provider of reinsurance and
insurance, conducting its operations worldwide through two
wholly-owned subsidiaries, Validus Reinsurance, Ltd., which we
refer to as Validus Re, and Talbot Holdings Ltd.,
which we refer to as Talbot. Validus Re is a
Bermuda-based reinsurer focused on short-tail lines of
reinsurance. Talbot is the Bermuda parent of the specialty
insurance group primarily operating within the Lloyds
insurance market through Syndicate 1183.
What
classes and amounts of IPC securities is Validus seeking for
exchange in the exchange offer?
Validus seeks to acquire all of the issued and outstanding IPC
common shares.
How
has the exchange offer changed?
Validus has increased the offer consideration per IPC common
share so that it now consists of 1.1234 Validus common shares
and $3.00 in cash (less any applicable withholding taxes and
without interest). The offer consideration per IPC common share
initially consisted of 1.2037 Validus common shares.
Why
did Validus increase its offer and add cash to the consideration
to be paid in the exchange offer?
Validus increased the consideration to be paid in the exchange
offer in order to demonstrate its commitment to completing the
acquisition of IPC. Moreover, Validus believes that by adjusting
the exchange ratio in the exchange offer, Validus is able to
provide IPC shareholders with a meaningful cash component, a
request that Validus has heard repeatedly from IPC shareholders.
If I
have already tendered my IPC common shares, do I need to do
anything to tender into the revised exchange offer for the
revised offer consideration?
If you have already tendered your IPC common shares, you do not
need to do anything to tender into the revised exchange offer.
IPC common shares validly tendered and not properly withdrawn
prior to the date of this prospectus/offer to exchange will
automatically be considered to have been tendered pursuant to
the revised terms of the exchange offer set forth in this
prospectus/offer to exchange. All IPC shareholders will receive
the highest consideration received by IPC shareholders whose IPC
common shares are tendered and accepted for exchange in the
exchange offer. Therefore, if you have already tendered your IPC
common shares, including if you did so with the blue letter of
transmittal previously circulated with the prospectus/offer to
exchange dated May 13, 2009, which we refer to as the
original blue letter of transmittal, you do not have
to take any action to be entitled to receive the offer
consideration described in this prospectus/offer to exchange if
your shares are accepted for exchange and exchanged pursuant to
the exchange offer.
What
will I receive for my IPC common shares in the exchange
offer?
Validus is offering, upon the terms and subject to the
conditions set forth in this prospectus/offer to exchange and in
the accompanying revised pink letter of transmittal, to exchange
1.1234 Validus common shares and $3.00 in cash (less any
applicable withholding taxes and without interest) for each
outstanding IPC common share you validly tender and do not
properly withdraw before the expiration time of the exchange
offer. Because no fractional Validus common shares will be
issued, to the extent that you would be entitled to receive
fractional Validus common shares, you will receive cash in lieu
of the fractional share interest to which you would otherwise be
entitled.
1
Based upon closing market prices as of May 15, 2009, the
day prior to the announcement of the increased offer, the
exchange offer represented a 13.2% premium to the closing price
of IPC common shares that day and a 21.9% premium based on the
closing prices of IPC common shares and Validus common shares on
March 30, 2009, the last trading day before the
announcement of the initial Validus offer. The price of Validus
common shares fluctuates and may be higher or lower than in
these examples at the time IPC common shares are exchanged
pursuant to the exchange offer. On May 29, 2009, the last
practicable date prior to the filing of this prospectus/offer to
exchange, the closing price of a Validus common share was
$22.81. Based on the closing price of Validus common shares on
May 29, 2009, the exchange offer has a value of $28.62 per
IPC common share. Shareholders are encouraged to obtain current
market quotations for Validus common shares and IPC common
shares prior to making any decision with respect to the exchange
offer.
Please also see the section of this prospectus/offer to exchange
entitled Risk Factors for a discussion, among other
things, of the effect of fluctuations in the market price of
Validus common shares.
How
does the exchange offer relate to the Validus amalgamation
offer?
On March 31, 2009, Validus publicly announced that it had
delivered the initial Validus offer to IPC, pursuant to which
each issued and outstanding IPC common share would be exchanged
for 1.2037 Validus common shares.
In connection with the delivery of the initial Validus offer to
IPC, Validus delivered a signed amalgamation agreement that
would be binding on Validus upon countersignature by IPC, which
we refer to as the Validus amalgamation agreement,
so that, upon a termination of the Max amalgamation agreement,
IPC would have the certainty of Validus transaction and
would be able to sign the Validus amalgamation agreement. IPC
announced on April 7, 2009 that its board of directors had
determined that the initial Validus offer did not constitute a
superior proposal to the Max amalgamation agreement and
reaffirmed its support of the proposed Max amalgamation.
Validus is making the exchange offer as an alternative method
for Validus to acquire all of the issued and outstanding IPC
common shares. Validus commenced the exchange offer on
May 12, 2009 on the economic terms set forth in the initial
Validus offer. On May 14, 2009, IPC filed a
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 13, 2009 and
determined to recommend that IPC shareholders reject the
exchange offer and not tender their IPC common shares to
Validus. On May 18, 2009, Validus announced that it had
increased the offer consideration such that each IPC common
share validly tendered into the exchange offer would be
exchanged for 1.1234 Validus common shares and $3.00 in cash
(less any applicable withholding taxes and without interest) and
delivered an executed amendment to the Validus amalgamation
agreement to IPC. On May 21, 2009, IPC filed an amendment
to its Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 20, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the revised terms of the exchange offer
and not tender their IPC common shares to Validus pursuant to
the exchange offer. As of the date of this prospectus/offer to
exchange, IPC has not been willing to meet or negotiate with
Validus.
We are still hopeful that IPCs board of directors will
recognize that the Validus amalgamation offer, as amended to
increase the consideration offered and revise certain other
terms, is a superior proposal (as defined in the Max
amalgamation agreement) and IPCs board of directors will
approve the Validus amalgamation agreement after the Max
amalgamation agreement is terminated.
What
is the purpose of the exchange offer?
The exchange offer is one part of our plan to acquire all of the
issued and outstanding IPC common shares. We intend to, promptly
after completion of the exchange offer, seek to acquire, which
we refer to as the second-step acquisition, all
shares of those shareholders who choose not to tender their IPC
common shares pursuant to the exchange offer, in accordance with
either Section 102 or Section 103 of The Companies Act
of 1981 of Bermuda, as amended, which we refer to as the
Companies Act. The purpose of the second-step
acquisition is for Validus to acquire all outstanding IPC common
shares that are not acquired in the exchange offer on the same
terms as in the exchange offer.
2
Section 102 of the Companies Act permits a person acquiring
shares of a Bermuda company under a scheme or
contract that has been approved by at least 90% in
value of the shares subject to the scheme or
contract to seek to acquire the shares of any
shareholders dissenting from such scheme or
contract. The exchange offer will constitute a
scheme or contract pursuant to
Section 102 of the Companies Act. As a result, if Validus
acquires at least 90% in value of the IPC common shares subject
to the exchange offer (other than IPC common shares owned by
Validus, its subsidiaries or IPC), Validus will have the right,
subject to compliance with the requirements of Section 102
of the Companies Act, to acquire each remaining IPC common
share, subject to the rights of dissenting shareholders as set
forth in Section 102, which include the right to petition
the Supreme Court of Bermuda for an order as the court sees fit.
Section 103 of the Companies Act permits the holder of at
least 95% of any class of shares in a Bermuda company to give
notice to the remaining shareholders of such class of such
holders intention to acquire the outstanding shares of the
company on the terms set out in the holders notice. The
acquisition of remaining shares will be on the terms set forth
in the holders notice unless a remaining shareholder
applies to the Supreme Court of Bermuda for an appraisal of its
shares. Therefore, if Validus acquires at least 95% of the
outstanding IPC common shares, Validus will have the right,
pursuant to Section 103, to acquire each remaining IPC
common share on the same terms as in the exchange offer, or at
the appraised value as determined by the court.
On May 21, 2009, the Chairman of IPCs board of
directors sent a letter to Validus which stated that IPCs
bye-laws would prevent Validus from becoming the legal owner of
10% or more of the IPC common shares. Validus believes, based
upon the advice of Bermuda and UK counsel, that IPCs
bye-laws will not operate to prevent Validus from accepting IPC
common shares for exchange in the exchange offer and acquiring
beneficial ownership of any such IPC common shares.
Additionally, Validus will take such actions as are necessary,
including by seeking a judgment of a Bermuda court, to enforce
its rights under Section 102
and/or
Section 103 of the Companies Act to the extent that any
person (including IPC, IPCs board of directors or any IPC
shareholder) seeks to restrict the operation thereof. However,
resolution of any such actions or proceedings is not a condition
to the exchange offer.
After the second-step acquisition, former remaining IPC
shareholders will no longer have any ownership interest in IPC
and will be shareholders of Validus and Validus will own all of
the issued and outstanding IPC common shares. Validus intends,
promptly following the second-step acquisition, to amalgamate
IPC with a newly-formed, wholly-owned subsidiary of Validus in
accordance with Section 107 of the Companies Act. Please
see the sections of this prospectus/offer to exchange entitled
The Exchange Offer Purpose and Structure of
the Exchange Offer; The Exchange Offer
Statutory Requirements; Second-Step Acquisition; The
Exchange Offer Short-Form Amalgamation;
and The Exchange Offer Plans for IPC.
Why is
Validus proposing the exchange offer?
The Validus common shares to be issued and cash to be paid to
IPC shareholders in exchange for IPC common shares in the
exchange offer and second-step acquisition will provide IPC
shareholders with an immediate premium for their IPC common
shares, and will allow IPC shareholders to participate in the
growth and opportunities of the combined company while receiving
cash for a portion of their investment in IPC common shares.
Validus believes that the acquisition of IPC represents a
compelling combination and excellent strategic fit that will
enable the combined company to capitalize on opportunities in
the global reinsurance market. Successful completion of the
exchange offer would allow IPC shareholders to benefit from the
superior growth potential of a combined company that would be a
leading carrier in Bermudas short-tail reinsurance and
insurance markets, with a strong balance sheet and quality
diversification in profitable business lines.
Why is
the exchange offer better than the proposed Max
amalgamation?
Validus believes that the combination of Validus and IPC offers
a number of benefits to holders of IPC common shares, including
the following:
The
exchange offer provides a premium to IPC shareholders.
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Based upon closing prices of IPC common shares and Validus
common shares as of March 30, 2009, the last trading day
prior to the announcement of the initial Validus offer, the
exchange offer would have had a value of $30.98 per IPC common
share, or approximately $1.75 billion in the aggregate,
which represented a
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21.9% premium to the trading value of IPC common shares as of
such date and a 27.7% premium over $24.26, which was the average
closing price of IPC common shares between March 2, 2009,
the day IPC and Max announced the proposed Max amalgamation, and
March 30, 2009, the last trading day before we announced
the initial Validus offer. The premium represented by the
exchange offer may be larger or smaller depending on the market
price of each of the IPC common shares and the Validus common
shares at the expiration time of the exchange offer and will
fluctuate between now and then depending on the market prices.
Based upon the closing prices of IPC common shares and Validus
common shares on May 29, 2009, the last practicable date
prior to the filing of this prospectus/offer to exchange, the
exchange offer had a value of $28.62 per IPC common share,
or $1.60 billion in the aggregate, which represented a
15.2% premium to the closing price of the IPC common shares as
of such date and a premium of 12.6% over the March 30, 2009
closing price of the IPC common shares. In addition, the
meaningful cash component that has been added to the exchange
offer provides IPC shareholders with the opportunity to achieve
immediate liquidity on a portion of their investment in IPC
common shares.
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Information with respect to the range of closing prices for IPC
common shares for certain dates and periods is set forth in the
section of this prospectus/offer to exchange entitled
Comparative Market Price and Dividend Information.
Validus urges IPC shareholders to obtain a current market
quotation for IPC common shares.
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The
Validus common shares to be issued to IPC shareholders in
exchange for IPC common shares under the exchange offer
represent what we believe is an attractive investment.
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We believe that the relative performance of Validus common
shares in the market indicates that the markets view Validus as
a more attractive investment than Max. From July 24, 2007
(the date of Validus initial public offering) through
March 30, 2009 (the last trading day prior to the
announcement of the initial Validus offer), Validus common
shares have appreciated 13.2% whereas Max common shares have
declined 36.5% over the same period. Based on the closing prices
of Validus common shares and Max common shares on March 30,
2009, the last day of trading prior to Validus
announcement of the initial Validus offer, Validus common shares
traded at a premium to their diluted book value and diluted
tangible book value of 1.05x and 1.13x, respectively, whereas
Max common shares traded at a discount of 0.76x and 0.77x,
respectively.
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Between December 31, 2005 and December 31, 2008, and
notwithstanding the significant property catastrophe claim
activity during this period (generated, for instance, by
Hurricanes Ike and Gustav), Validus grew its book value per
share (including accumulated dividends) at a 13.2% rate compared
to Maxs 8.8% growth rate over the same period. In 2008,
Validus grew its book value per share by 2.4% compared to
Maxs decline in book value of 10.8% during the same
period. Moreover, Validus common shares are more liquid than Max
common shares (as measured by their respective dollar trading
volumes in various periods prior to announcement of the proposed
Max amalgamation). Further, as a shareholder of Validus
following completion of the exchange offer, you will receive a
dividend payable by Validus at an equivalent annual rate of
approximately $0.90 per IPC common share (based on Validus
current annual rate of $0.80 per Validus common share multiplied
by the exchange ratio of 1.1234), compared to the current IPC
annual dividend of $0.88 per IPC common share, in both cases
based on the most recent quarterly dividends declared and paid
by each company.
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Additionally, Validus common shares are significantly less
volatile than Max common shares. As measured by Bloomberg,
during the 260 business day (approximately one year) period
prior to the announcement of the proposed Max amalgamation, the
annualized daily volatility of Maxs shares was 79.4
compared to 61.0 for Validus common shares. Volatility
represents the standard deviation of the day-over-day difference
in the daily share price change. Although we believe that the
exchange offer would provide the IPC shareholders with a
significant premium for their IPC common shares upon
consummation, because both the proposed Max amalgamation and the
exchange offer provide for stock consideration with fixed
exchange ratios, the respective values of the proposed Max
amalgamation and the exchange offer to IPC shareholders will
vary over time based on relative changes in the market prices of
each companys common shares, which could result in a
smaller premium or no premium.
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A
Validus/IPC combination will have a strong balance sheet and
minimal exposure to risky asset classes.
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Under the proposed Max amalgamation, IPC will be assuming the
entirety of Maxs assets and liabilities. Despite
statements by IPCs board of directors of its desire to
reduce earnings volatility through a business combination, it
has proposed a transaction in which IPC shareholders will assume
an investment portfolio with a significant concentration of
risky assets, including alternative investments, and inadequate
property and casualty and life and annuity reserves. According
to Maxs Annual Report of
Form 10-K
for the year ended December 31, 2008, which we refer to as
the Max 2008
Form 10-K,
Maxs holdings of alternative investments totaled 61% of
its tangible equity, indicating a significant amount of embedded
risk. Despite Maxs announced plan to reduce its exposure
to alternative investments to 10% to 12% of its portfolio
(according to recent Max disclosures), as a result of the
proposed Max amalgamation, IPCs investment in alternative
investments would increase from 7% of its total portfolio at
December 31, 2008 to 12% of its total portfolio on a pro
forma basis after giving effect to the proposed Max
amalgamation, an increase of 5%. The riskiness of the Max
balance sheet is evident in the fact that Max wrote down the
value of its alternative assets in 2008 by $233 million, a
markdown which exceeded its underwriting income. In contrast,
Validus holds no alternative investments in its investment
portfolio and has specific investment policies in place
prohibiting it from investing in those asset classes, which it
believes are unduly risky to its shareholders and policyholders.
Validus believes counterparties will view the strength of
Validus balance sheet very favorably as buyers are
rethinking counterparty risk in the current environment, giving
Validus a significant advantage over many of its competitors.
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Also, according to the registration statement on
Form S-4
filed by IPC on March 27, 2009, as amended, which we refer
to as the IPC/Max
S-4,
IPC will have to reflect a fair value adjustment of
$130 million to Maxs property and casualty and life
and annuity reserves, which directly and adversely impacts the
capitalization of the combined IPC/Max. We believe that this
need to adjust reserves is indicative of prior under-reserving
by Max in its businesses. Validus does not expect that the
combination of Validus and IPC will require additions or
adjustments to IPCs or Validus existing insurance
reserves. Although IPC discloses that the amount of the fair
value adjustment will be amortized into the combined
IPC/Maxs income each year and will increase the amount of
net income each year during the amortization period, any
amortization will be limited to the extent that losses exceed
Maxs prior unadjusted reserves.
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Additionally, an IPC/Validus combination will result in a
combined entity with pro forma GAAP shareholders equity of
approximately $3.5 billion as of December 31, 2008 and
$3.6 billion as of March 31, 2009. This compares to a
combined IPC/Max pro forma shareholders equity of
approximately $3.0 billion at December 31, 2008,
according to the IPC/Max
S-4. Validus
believes that a significant capital base provides an important
competitive advantage for companies in Validus industry,
especially given the current economic climate in which companies
face limited access to new capital and the demand for
reinsurance is increasing.
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Validus
offers IPC a highly experienced, first class management
team.
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Validus offers IPC a highly experienced, first-class management
team. Validus management team has demonstrated the ability
to execute growth strategies successfully, carefully manage risk
and deliver enhanced shareholder value. Under the stewardship of
its current management, Validus has completed the acquisition of
Talbot and established a presence in the energy and aviation
markets. Similarly, between December 31, 2005 and
December 31, 2008, Validus grew its book value per share
(including accumulated dividends) at a 13.2% rate compared to
Maxs 8.8% growth rate over the same period. The superior
performance of the leadership of the Validus management team is
evidenced by the fact that Validus common shares traded at a
premium of 1.05x and 1.13x, respectively, to Validus
diluted book value and diluted tangible book value based on the
closing price of Validus common shares on March 30, 2009.
In comparison, Max common shares traded at a discount of 0.76x
and 0.77x, respectively, to Maxs diluted book value and
diluted tangible book value based on the closing price of Max
common shares on March 30, 2009. Please see Schedule I
to this prospectus/offer to exchange.
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The
exchange offer and second-step acquisition provide IPC
shareholders with an opportunity for stable, profitable
diversification into attractive business lines and further
growth.
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By entering into the proposed Max amalgamation, IPCs board
of directors has chosen to combine with an entity that reported
a comprehensive net loss of $200.4 million, or $3.10 per
Max diluted share, in 2008. While Max reported a combined ratio
of 91.9% in 2008, its underwriting results benefited from
$106 million in favorable reserve development. Excluding
this benefit, Maxs underwriting activities in the
2008 year generated an underwriting loss and a combined
ratio of 110.6%. Maxs U.S. Specialty segment, the
centerpiece of its diversified businesses, operated
in 2008 with a combined ratio of 138.5%. The combined ratio is a
commonly used measure of an insurance companys
underwriting profitability. It is calculated as the sum of an
insurers net loss ratio and its expense ratio. A combined
ratio below 100% indicates profitable underwriting; a combined
ratio of 100% or higher indicates that premiums are less than
aggregate claims and expenses. The net loss ratio is calculated
by dividing losses and loss expenses incurred (including
estimates for incurred but not reported losses) by net premiums
earned. The expense ratio is calculated by dividing acquisition
costs combined with general and administrative expenses by net
premiums earned. As evidenced by Maxs combined ratio in
2008, Maxs underwriting business was loss-making in 2008.
In contrast, the combined ratio at Validus in 2008,
notwithstanding the unusual concurrence of two major events
giving rise to claims (Hurricanes Gustav and Ike) was 92.2%,
indicating profitable underwriting results.
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Maxs results have been significantly more volatile than
those of Validus in recent years, despite statements by
IPCs board of directors and Maxs management alleging
the reduced volatility that will result from an IPC/Max
combination. For example, according to the Max 2008
Form 10-K,
Maxs return on average shareholders equity has
varied between -12.2% and 20.4% in the period from 2006 through
2008. In contrast, Validus return on average
shareholders equity has varied between 2.7% and 26.9% in
the same period, and has been higher than Maxs in each of
those years.
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The decision of the IPC board of directors to combine with a
volatile, underperforming entity diversifies IPC and
its shareholders into businesses which have earned returns below
what IPC earned on a standalone basis in the same period. In
that context, we would urge you to consider that Validus
generated comprehensive income of $45.3 million, or net
income of $0.61 per Validus diluted share, in 2008.
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Validus is one of the leading providers of short-tail insurance
globally, writing over $1.0 billion of non-catastrophe
business in 2008 in 134 countries around the world from offices
in Bermuda, London, Singapore, New York and Miami. Validus is a
global leader in profitable business lines including marine,
energy and war and terrorism. In independent forecasts conducted
by Willis Re, the Council of Insurance Agents and Brokers and
Aon, the rate trends in business lines which accounted for
approximately 86% of Validus 2008 non-reinsurance gross
written premiums (marine, property, war and terrorism, and
financial institutions) are currently positive, whereas the same
independent forecasts predict negative rate changes in business
lines which accounted for 58% of Maxs 2008 non-reinsurance
gross written premiums. Validus believes its diverse businesses
would be highly complementary with IPCs existing
operations and provide meaningful, profitable diversification.
Validus management team has consistently articulated
Validus business plan: to grow in profitable segments. It
has taken significant steps in this direction in the last few
years. Its acquisition of Talbot in 2007 gave Validus access to
a premier underwriting franchise in the Lloyds syndicate,
which has already proven a profitable investment. In addition,
Validus has set the stage for further organic growth by adding
market leading teams in Latin America and the energy and
aviation segments. It has global licenses that will permit
Validus to expand in other lines if and when the pricing
presents a profitable opportunity to do so. Validus believes
that the combination of IPC and Validus will bolster all of
these initiatives and give the combined company a leading
platform and additional opportunities for growth.
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Have
you discussed the exchange offer with the board of
IPC?
No, we have not. On March 31, 2009, Validus delivered the
initial Validus offer to IPC, which included the Validus
amalgamation agreement signed by Validus. IPC announced on
April 7, 2009 that its board of directors determined that
the initial Validus offer did not constitute a superior proposal
to the Max amalgamation agreement and reaffirmed its support of
the proposed Max amalgamation. Because of a prohibition in the
Max amalgamation
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agreement that prevents IPC from even discussing the Validus
amalgamation offer with Validus, with no provision allowing
IPCs directors to enter into such discussions in order to
comply with any fiduciary or other duties that they may have, we
made the exchange offer without discussing it with IPC. On
May 14, 2009, IPC filed a Solicitation/Recommendation
Statement on
Schedule 14D-9
reporting that IPCs board had met on May 13, 2009 and
determined to recommend that IPC shareholders reject the
exchange offer and not tender their IPC common shares to
Validus. On May 21, 2009, IPC filed an amendment to its
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 20, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the revised terms of the exchange offer
and not tender their IPC common shares to Validus pursuant to
the exchange offer. Additionally, IPC has not sought any
information from Validus or to have any discussions with Validus.
When
do you expect the exchange offer to be completed?
We believe that we would be able to complete the exchange offer
in June 2009, promptly following termination of the Max
amalgamation agreement (and subject to the satisfaction or
waiver of the other conditions to the exchange offer), based on
the following. The expiration time of the exchange offer will be
June 26, 2009, unless extended. As a result, if the
conditions of the exchange offer are satisfied or waived at the
expiration time of the exchange offer, Validus would be able to
acquire all of the IPC common shares that are validly tendered
pursuant to the exchange offer.
Will
you increase the consideration being offered in the exchange
offer?
Validus believes that the offer consideration represents full
and fair value for IPC common shares. Validus is under no
obligation to increase the offer consideration again and does
not currently intend to do so.
What
are the conditions of the exchange offer?
The exchange offer is conditioned upon, among other things, the
following:
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IPC shareholders shall have validly tendered and not withdrawn
prior to the expiration time of the exchange offer at least that
number of IPC common shares that shall constitute 90% of the
then-outstanding number of IPC common shares on a fully-diluted
basis (excluding any IPC common shares owned by Validus, its
subsidiaries or IPC). We refer to this condition as the
minimum tender condition.
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The Max amalgamation agreement shall have been validly
terminated, and Validus shall reasonably believe that IPC could
not have any liability, and Max shall not have asserted any
claim of liability or breach against IPC in connection with the
Max amalgamation agreement other than with respect to the
possible payment of the $50 million termination fee
thereunder, which we refer to as the Max termination
fee.
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The registration statement of which this prospectus/offer to
exchange is a part shall have become effective under the
Securities Act of 1933, which we refer to as the
Securities Act, no stop order suspending the
effectiveness of the registration statement shall have been
issued and no proceedings for that purpose shall have been
initiated or threatened by the Securities and Exchange
Commission, which we refer to as the SEC, and
Validus shall have received all necessary state securities law
or blue sky authorizations.
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The shareholders of Validus shall have approved the issuance of
the Validus common shares pursuant to the exchange offer and the
second-step acquisition as required under the rules of the New
York Stock Exchange, which we refer to as the NYSE.
All of the Validus officers, directors and those shareholders
which Validus refers to as its qualified sponsors
(please see the section of this prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer), in each case, who own Validus common
shares have indicated that they intend to vote the Validus
common shares beneficially owned by them in favor of such
approvals. As of April 30, 2009, these persons and entities
beneficially owned 42.4% of the voting interests relating to the
Validus common shares.
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The Validus common shares to be issued to IPC shareholders in
exchange for IPC common shares in the exchange offer and the
second-step acquisition shall have been authorized for listing
on the NYSE, subject to official notice of issuance.
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There shall be no threatened or pending litigation, suit, claim,
action, proceeding or investigation before any governmental
authority that, in the judgment of Validus, is reasonably likely
to, directly or indirectly, restrain or prohibit (or which
alleges a violation of law in connection with) the exchange
offer or is reasonably likely to prohibit or limit the full
rights of ownership of IPC common shares by Validus or any of
its affiliates.
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Since December 31, 2008, there shall not have been any
material adverse effect on IPC and its subsidiaries, taken as a
whole. A more than 50% decline in IPCs book value or a
more than 20% decline in IPCs book value relative to
Validus book value shall be deemed to have a material
adverse effect on IPC.
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Each of IPC and its subsidiaries shall have carried on their
respective businesses in the ordinary course consistent with
past practice at all times on or after the date of this
prospectus/offer to exchange and prior to the expiration time of
the exchange offer.
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All amendments or waivers under Validus credit facilities
necessary to consummate the exchange offer, the second-step
acquisition and the other transactions contemplated by this
prospectus/offer to exchange shall be in full force and effect.
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The exchange offer is subject to additional conditions referred
to in the section of this prospectus/offer to exchange entitled
The Exchange Offer Conditions of the Exchange
Offer, including that IPC shareholders shall not have
approved the Max amalgamation agreement and that there shall
have been no business combination consummated between IPC and
Max. The exchange offer is not conditioned on the receipt of
regulatory approvals or the elimination of the Max termination
fee.
What
actions do you propose to take with respect to the proposed Max
amalgamation?
Validus has mailed definitive proxy materials and proxy cards to
IPC shareholders to solicit votes at the IPC annual general
meeting against the proposed Max amalgamation.
The exchange offer does not constitute a solicitation of proxies
in connection with such matters. Any such solicitation will be
made only pursuant to separate proxy materials complying with
the requirements of the rules and regulations of the SEC.
In addition, Validus has filed legal proceedings in the Supreme
Court of Bermuda against IPC, IPC Limited and Max, which we
refer to as the Bermuda claim. The Bermuda claim
challenges the validity of the Max termination fee and
provisions which restrict the ability of IPC to discuss
competing proposals with third parties, which we refer to as the
no talk provisions, in the Max amalgamation
agreement. Validus is seeking, among other things, an injunction
to restrain payment of the Max termination fee and to restrain
operation of the no-talk provisions on the bases that
(1) because of its excessive size, the termination fee
amounts to an unlawful penalty under Bermuda law and is
accordingly unenforceable, and (2) entry into the Max
amalgamation agreement, in circumstances where such agreement
contained the Max termination fee and the no talk provisions,
constituted a breach of the IPC directors fiduciary or
other duties. Please see the section of this prospectus/offer to
exchange entitled The Exchange Offer Certain
Legal Matters; Regulatory Approvals.
How
does the exchange offer relate to the Validus amalgamation offer
and the Validus scheme of arrangement?
The exchange offer is one of the parts of our plan to acquire
all of the issued and outstanding IPC common shares.
First, Validus is soliciting proxies from IPC shareholders to
vote against the proposed Max amalgamation. If the proposed Max
amalgamation is voted down by IPC shareholders, IPCs board
of directors will be able to terminate the Max amalgamation
agreement and enter into the Validus amalgamation agreement. If
IPCs board of directors were to enter into the Validus
amalgamation agreement promptly following the termination of the
Max amalgamation agreement, Validus believes the amalgamation
contemplated by the Validus amalgamation offer could be
completed in mid-to-late July 2009 based on the assumption that
IPC terminates the Max amalgamation agreement promptly following
its June 12, 2009 annual general meeting, allowing approximately
one month to hold a special general meeting of IPC shareholders
to obtain the required shareholder approval and to satisfy the
other conditions in the Validus amalgamation agreement.
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Second, Validus has commenced the exchange offer. The exchange
offer is subject to the terms and conditions described in this
prospectus/offer to exchange. Under Bermuda law, if Validus
acquires at least 90% of the IPC common shares which it is
seeking to acquire in the exchange offer, Validus will have the
right to acquire the remaining IPC common shares on the same
terms in the second-step acquisition. Validus believes that it
would be able to complete the exchange offer in June 2009,
promptly following termination of the Max amalgamation agreement
(and subject to the satisfaction or waiver of the other
conditions to the exchange offer), based on the following. The
expiration time of the exchange offer will be June 26,
2009, unless extended. As a result, if the conditions of the
exchange offer are satisfied or waived at the expiration time of
the exchange offer, Validus would be able to acquire all of the
IPC common shares that are validly tendered pursuant to the
exchange offer.
Third, Validus has petitioned the Supreme Court of Bermuda to
approve a scheme of arrangement under Part VII
of the Companies Act, which we refer to as the Validus
scheme of arrangement, pursuant to which Validus would
acquire all of the issued and outstanding IPC common shares on
the same economic terms as in the exchange offer and the Validus
amalgamation offer. In order to implement the Validus scheme of
arrangement, the IPC shareholders must approve the Validus
scheme of arrangement at a meeting ordered by the Supreme Court
of Bermuda, which we refer to as the court-ordered IPC
meeting, IPC must separately approve the Validus scheme of
arrangement and the Validus scheme of arrangement must be
sanctioned by the Supreme Court of Bermuda. The Validus scheme
of arrangement must be approved by a majority in number of the
holders of IPC common shares voting at the court-ordered IPC
meeting, whether in person or by proxy, representing 75% or more
in value of the IPC common shares voting at the court-ordered
IPC meeting, whether in person or by proxy. If the IPC
shareholders approve the Validus scheme of arrangement at the
court-ordered IPC meeting, the separate approval of IPC to the
Validus scheme of arrangement can be provided by either
(i) the IPC board of directors voluntarily complying with
the will of the IPC shareholders as expressed at the
court-ordered IPC meeting, or (ii) the shareholders of IPC
approving resolutions at a special general meeting of IPC, which
we refer to as the IPC special general meeting,
including resolutions for IPC to approve and to be bound by the
Validus scheme of arrangement and to terminate the Max
amalgamation agreement. Following IPC shareholder approval at
both the court-ordered IPC meeting and the IPC special general
meeting, the satisfaction or, where relevant, waiver of the
other conditions to the effectiveness of the Validus scheme of
arrangement and the granting of a court order from the Supreme
Court of Bermuda sanctioning the Validus scheme of arrangement,
a copy of the court order sanctioning the Validus scheme of
arrangement will be delivered to the Bermuda Registrar of
Companies, at which time the Validus scheme of arrangement will
be effective. In a decision rendered on May 29, 2009, the
Supreme Court of Bermuda has determined that it has jurisdiction
to sanction the Validus scheme of arrangement without approval
of the IPC board of directors. However, the Court has determined
not to exercise its discretion to order the court-ordered IPC
meeting in advance of the vote on the proposed Max amalgamation
at the IPC annual general meeting and evidence of IPC
shareholder support for the Validus scheme of arrangement.
Validus believes that, under the Validus scheme of arrangement,
it would be able to close the contemplated acquisition in July
2009 based on the assumptions that: (1) the Supreme Court
of Bermuda will be able to accommodate the preferred hearings
schedule and meeting dates and other procedural matters;
(2) IPC shareholders holding at least one-tenth of the
issued IPC common shares have requisitioned the IPC special
general meeting to be held in July 2009; and (3) the IPC
directors, following the rejection of the Max amalgamation
agreement, or the IPC shareholders, convene the IPC special
general meeting, allowing it to be held in July 2009.
The Validus amalgamation offer, the exchange offer and the
Validus scheme of arrangement are alternative methods for
Validus to acquire all of the issued and outstanding IPC common
shares on the same economic terms. Ultimately, only one of these
transaction structures can be pursued to completion. Validus
intends to seek to acquire all IPC common shares by whichever
method Validus determines is most effective and efficient.
The exchange offer does not constitute a solicitation of proxies
in connection with the Validus scheme of arrangement or the
Validus amalgamation offer. Any such solicitation will be made
only pursuant to separate proxy materials complying with the
requirements of the rules and regulations of the SEC. Such
materials will contain, among other things, a summary of all
material terms of the transactions to which such proxy
statements relate. Validus advises shareholders to read any such
proxy statements applicable to them because they contain
important information. Please see the section of this
prospectus/offer to exchange entitled Solicitation of
Proxies.
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Has
IPCs board of directors made a recommendation concerning
the exchange offer?
On May 14, 2009, IPC filed a Solicitation/Recommendation
Statement on
Schedule 14D-9
reporting that IPCs board had met on May 13, 2009 and
determined to recommend that IPC shareholders reject the
exchange offer and not tender their IPC common shares to us. On
May 21, 2009, IPC filed an amendment to its
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 20, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the revised terms of the exchange offer
and not tender their IPC common shares to Validus pursuant to
the exchange offer.
Do I
need to grant proxies to Validus in connection with any of the
potential proxy solicitations described above if I wish to
accept the exchange offer? Do I have to vote against the
proposed Max amalgamation?
No. Your ability to tender your IPC common shares in the
exchange offer is not conditioned on IPC shareholders granting
proxies to Validus in connection with any of its potential proxy
solicitations discussed above. However, a tendering shareholder
will irrevocably appoint designees of Validus as such
shareholders agents, attorneys-in-fact and proxies,
effective as of and only to the extent that Validus accepts such
tendered IPC common shares for exchange. Until such time as
Validus accepts such tendered IPC common shares for exchange,
IPC shareholders will be able to vote on any alternative
proposal.
You may validly tender your IPC common shares in the exchange
offer, regardless of whether or how you vote on the proposed Max
amalgamation. However, assuming a quorum is present at the
annual general meeting of IPC shareholders, at which meeting IPC
shareholders will vote upon the proposed Max amalgamation, a
majority of votes cast at the annual general meeting must vote
against the proposed Max amalgamation and a successful vote
against the proposed Max amalgamation would help permit this to
occur, as the exchange offer is conditioned on the termination
of the Max amalgamation agreement (and such a vote would give
IPC the right, but not the obligation, to terminate the Max
amalgamation agreement).
Do I
have to vote at any meeting to approve the exchange offer or the
second-step acquisition?
No. The minimum tender condition will be satisfied only if
Validus (or a wholly-owned subsidiary of Validus) acquires 90%
of the then-outstanding number of IPC common shares on a
fully-diluted basis (excluding any IPC common shares owned by
Validus, its subsidiaries or IPC). Once the exchange offer is
completed, Bermuda law does not require any additional
shareholder vote or the approval of IPCs board of
directors for us to complete the second-step acquisition
pursuant to Section 102 or Section 103 of the
Companies Act.
What
will the composition of the board of directors of IPC and
Validus be following the exchange offer and the second-step
acquisition?
Validus currently intends to replace IPCs existing board
of directors following the second-step acquisition and
short-form amalgamation. Upon completion of the exchange offer
and the second-step acquisition, Validus board of
directors would consist of the directors serving on the board of
directors of Validus before the completion of the exchange offer
and the second-step acquisition; however, Validus has publicly
expressed to the IPC directors that if they desire to
participate in the leadership of Validus after completion of the
exchange offer and the second-step acquisition, Validus would
consider that.
Will I
be taxed on the Validus common shares I receive?
The exchange offer, second-step acquisition and short-form
amalgamation are intended to constitute a single integrated
transaction that qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended, which we refer to as the Code.
Assuming it does so qualify, U.S. holders of IPC common
shares will generally recognize gain (but not loss) in an amount
equal to the lesser of (i) the amount of cash received by
such U.S. holder and (ii) the excess, if any, of
(a) the sum of the cash and the fair market value of the
Validus common shares received by such U.S. holder, over
(b) the U.S. holders tax basis in the IPC common
shares exchanged pursuant to the exchange offer and second-step
acquisition. Subject to the passive foreign investment company
rules or the potential application of Section 1248 of the
Code, any gain recognized upon the exchange generally will be
capital gain, unless the receipt of cash by a U.S. holder
has the effect of the distribution of a
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dividend for U.S. federal income tax purposes. For more
information, please see the section of this prospectus/offer to
exchange under the caption Material U.S. Federal
Income Tax Consequences.
Tax matters are complicated and the tax consequences of the
transaction to you will depend upon the facts of your particular
circumstances. Because individual circumstances may differ,
Validus urges you to consult with your own tax advisor as to the
specific tax consequences of the exchange offer, second-step
acquisition and short-form amalgamation to you, including the
applicability of U.S. federal, state, local,
non-U.S. and
other tax laws.
Will I
have to pay any fee or commission to exchange IPC common
shares?
If you are the record owner of your IPC common shares and you
tender your IPC common shares in the exchange offer, you will
not have to pay any brokerage fees, commissions or similar
expenses. If you own your IPC common shares through a broker,
dealer, commercial bank, trust company or other nominee and your
broker, dealer, commercial bank, trust company or other nominee
tenders your IPC common shares on your behalf, your broker,
dealer, commercial bank, trust company or other nominee may
charge a fee for doing so. You should consult your broker,
dealer, commercial bank, trust company or other nominee to
determine whether any charges will apply.
Is
Validus financial condition relevant to my decision to
tender IPC common shares in the exchange offer?
Yes. Validus financial condition is relevant to your
decision to tender your IPC common shares because the
consideration you will receive if your IPC common shares are
exchanged in the exchange offer will consist of a combination of
Validus common shares and cash. You should therefore consider
Validus financial condition before you decide to become
one of Validus shareholders through the exchange offer.
You also should consider the likely effect that Validus
acquisition of IPC will have on Validus financial
condition. This prospectus/offer to exchange contains financial
information regarding Validus and IPC, as well as pro forma
financial information (which does not reflect any of our
expected synergies) for the acquisition of all of the issued and
outstanding IPC common shares by Validus, all of which we
encourage you to review.
Does
Validus have the financial resources to complete the exchange
offer and the second-step acquisition?
The exchange offer consideration will consist of a combination
of Validus common shares and cash (less any applicable
withholding taxes and without interest), including cash paid in
lieu of any fractional Validus common shares to which any IPC
shareholder may be entitled. The exchange offer is not subject
to a financing condition.
Validus expects to have sufficient cash and cash equivalents on
hand to complete the transactions contemplated by the exchange
offer and the second-step acquisition, including to pay the cash
portion of the offer consideration and any cash that may be
required to be paid in respect of dissenters or appraisal
rights and to pay fees, expenses and other related amounts.
The estimated amount of cash required is based on Validus
due diligence review of IPCs publicly available
information to date and is subject to change. For a further
discussion of the risks relating to Validus limited due
diligence review, please see the section of this
prospectus/offer to exchange entitled Risk
Factors Risk Factors Relating to the Exchange Offer
and the Second-Step Acquisition.
What
percentage of Validus common shares will former holders of IPC
common shares own after the exchange offer?
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that if all IPC common shares are exchanged
pursuant to the exchange offer
and/or the
second-step acquisition, former IPC shareholders would own, in
the aggregate, approximately 41.3% of the issued and outstanding
Validus common shares and
non-voting
common shares, par value $0.175 per share, of Validus, which we
refer to as Validus non-voting common shares, on a
fully-diluted basis. For a detailed discussion of the
assumptions on which this estimate is based, please see the
section of this prospectus/offer to exchange entitled The
Exchange Offer Ownership of Validus After the
Exchange Offer.
11
When
does the exchange offer expire?
The exchange offer is scheduled to expire at 5:00 p.m., New
York City time (6:00 p.m., Atlantic Time), on June 26,
2009, which is the expiration time of the exchange offer, unless
further extended by Validus. When we make reference to the
expiration time of the exchange offer anywhere in
this prospectus/offer to exchange, this is the time to which we
are referring, including when applicable, any extension period
that may apply. For more information, please see the section of
this prospectus/offer to exchange entitled The Exchange
Offer Extension, Termination and Amendment.
Can
the exchange offer be extended and, if so, under what
circumstances?
Validus may, in its sole discretion, extend the exchange offer
at any time or from time to time until the expiration time of
the exchange offer. For instance, the exchange offer may be
extended if any of the conditions specified in The
Exchange Offer Conditions of the Exchange
Offer are not satisfied prior to the scheduled expiration
time of the exchange offer.
Validus may also elect to provide a subsequent offering
period for the exchange offer. A subsequent offering
period would not be an extension of the exchange offer. Rather,
a subsequent offering period would be an additional period of
time, beginning after Validus has accepted for exchange all IPC
common shares tendered during the exchange offer, during which
shareholders who did not tender their shares in the exchange
offer may tender their shares and receive the same consideration
provided in the exchange offer. Validus does not currently
intend to include a subsequent offering period, although it
reserves the right to do so.
The exchange offer is conditioned upon, among other things, the
termination of the Max amalgamation agreement, the approval by
our shareholders of the issuance of Validus common shares to be
issued as a portion of the offer consideration in exchange for
IPC common shares in the exchange offer and the second-step
acquisition, tender without withdrawal of at least 90% of the
then-outstanding number of IPC common shares on a fully-diluted
basis (excluding any IPC common shares owned by Validus, its
subsidiaries or IPC), no material adverse effect having occurred
with respect to IPC and its subsidiaries, IPC and its
subsidiaries continuing to operate in the ordinary course of
business consistent with past practice and the registration
statement of which this prospectus/offer to exchange is a part
becoming effective. The expiration time of the exchange offer
may also be subject to multiple extensions and any decision to
extend the exchange offer, and if so, for how long, will be made
at such time. Any decision to extend the exchange offer will
be made public by an announcement regarding such extension as
described in the section of this prospectus/offer to exchange
entitled The Exchange Offer Extension,
Termination and Amendment.
How do
I tender my IPC common shares?
To tender your IPC common shares into the exchange offer, you
must deliver the certificates representing your IPC common
shares, together with a completed revised pink letter of
transmittal and any other documents required by the revised pink
letter of transmittal, to BNY Mellon Shareowner Services, the
exchange agent for the exchange offer, not later than the
expiration time of the exchange offer. The revised pink letter
of transmittal is enclosed with this prospectus/offer to
exchange.
If your IPC common shares are held in street name
(i.e., through a broker, dealer, commercial bank, trust company
or other nominee), your IPC common shares can be tendered by
your nominee by book-entry transfer through The Depository
Trust Company.
If you are unable to deliver any required document or instrument
to the exchange agent by the expiration time of the exchange
offer, you may have a limited amount of additional time by
having a broker, a bank or other fiduciary that is an eligible
guarantor institution guarantee that the missing items will be
received by the exchange agent by using the enclosed yellow
notice of guaranteed delivery circulated with this
prospectus/offer to exchange, which we refer to as the
revised yellow notice of guaranteed delivery, or the
green notice of guaranteed delivery previously circulated with
the prospectus/offer to exchange dated May 13, 2009, which
we refer to as the original green notice of guaranteed
delivery. For the tender to be valid, however, the
exchange agent must receive the missing items within three
NASDAQ Global Select Market trading days after the date of
execution of such notice of guaranteed delivery. In all cases,
an exchange of tendered shares will be made only after timely
receipt by the
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exchange agent of certificates for such shares (or of a
confirmation of a book-entry transfer of such shares) and a
properly completed and duly executed revised pink letter of
transmittal and any other required documents.
Tendering stockholders may continue to use the original blue
letter of transmittal and the original green notice of
guaranteed delivery, or they may use the revised pink letter of
transmittal and the revised yellow notice of guaranteed
delivery. Stockholders using the original blue letter of
transmittal to tender their IPC common shares will nevertheless
be deemed to be tendering pursuant to the terms and conditions
contained in this prospectus/offer to exchange and the enclosed
revised pink letter of transmittal and will receive 1.1234
Validus common shares and $3.00 in cash, less any applicable
withholding taxes and without interest. For a complete
discussion on the procedures for tendering your IPC common
shares, please see the section of this prospectus/offer to
exchange entitled The Exchange Offer Procedure
for Tendering.
Until
what time can I withdraw tendered IPC common
shares?
You may withdraw previously tendered IPC common shares any time
prior to the expiration time of the exchange offer, and, if
Validus has not accepted your IPC common shares for exchange by
the expiration time of the exchange offer, at any time following
60 days from commencement of the exchange offer. IPC common
shares tendered during the subsequent offering period, if one is
provided, may not be withdrawn. For a complete discussion on the
procedures for withdrawing your IPC common shares, please see
the section of this prospectus/offer to exchange entitled
The Exchange Offer Withdrawal Rights.
How do
I withdraw previously tendered IPC common shares?
To withdraw previously tendered IPC common shares, you must
deliver a written or facsimile notice of withdrawal with the
required information to the exchange agent while you still have
the right to withdraw. If you tendered shares by giving
instructions to a broker, dealer, commercial bank, trust company
or other nominee, you must instruct the broker, dealer,
commercial bank, trust company or other nominee to arrange for
the withdrawal of your IPC common shares. For a complete
discussion on the procedures for withdrawing your IPC common
shares, please see the section of this prospectus/offer to
exchange entitled The Exchange Offer
Withdrawal Rights.
When
and how will I receive the exchange offer consideration in
exchange for my tendered IPC common shares?
Validus will exchange all validly tendered and not properly
withdrawn IPC common shares promptly after the expiration time
of the exchange offer, subject to the terms thereof and the
satisfaction or waiver of the conditions to the exchange offer,
as set forth in The Exchange Offer Conditions
of the Exchange Offer. Validus will deliver the
consideration for your validly tendered and not properly
withdrawn IPC common shares by depositing the consideration
therefor with the exchange agent, which will act as your agent
for the purpose of receiving the exchange offer consideration
from Validus and transmitting such consideration to you. In all
cases, an exchange of tendered IPC common shares will be made
only after timely receipt by the exchange agent of certificates
for such shares (or of a confirmation of a book-entry transfer
of such shares as described in The Exchange
Offer Procedure for Tendering) and a properly
completed and duly executed revised pink letter of transmittal
or original blue letter of transmittal and any other required
documents.
Will
IPC continue as a public company following the exchange
offer?
If the second-step acquisition occurs, IPC will become a
wholly-owned subsidiary of Validus and will no longer be
publicly owned. Even if the second-step acquisition does not
occur, if Validus exchanges all IPC common shares which have
been tendered, there may be so few remaining shareholders and
publicly-held shares that IPC common shares will no longer be
eligible to be traded through the NASDAQ Global Select Market,
the Bermuda Stock Exchange or any other securities market, there
may not be a public trading market for such shares, and IPC may
cease making filings with the SEC or otherwise cease being
required to comply with applicable law and SEC rules relating to
publicly-held companies. Please see the section of this
prospectus/offer to exchange entitled The Exchange
Offer Plans for IPC and The Exchange
Offer Effect of the Exchange Offer on the Market for
IPC Common Shares; NASDAQ and Bermuda Stock Exchange Listing;
Registration Under the Exchange Act; Margin Regulations.
13
Are
dissenters or appraisal rights available in either the
exchange offer and/or the second-step acquisition?
No dissenters or appraisal rights are available in
connection with the exchange offer. However, if the second-step
acquisition is subsequently consummated between Validus and IPC,
IPC shareholders who have not tendered their IPC common shares
in the exchange offer will have certain rights under
Section 102 and Section 103 of the Companies Act to
dissent from the second-step acquisition and, in the case of
Section 103, to demand appraisal. Please see the section of
this prospectus/offer to exchange entitled The Exchange
Offer Appraisal/Dissenters Rights.
What
is the market value of my IPC common shares as of a recent
date?
On March 30, 2009, the last trading day before Validus made
the initial Validus offer, the closing price of an IPC common
share was $25.41. On May 29, 2009, the last practicable
date prior to the filing of this prospectus/offer to exchange,
the closing price of an IPC common share was $24.84. IPC
shareholders are encouraged to obtain a recent quotation for IPC
common shares before deciding whether or not to tender such
shares.
Why
does the cover page state that the exchange offer is subject to
change and that the registration statement filed with the SEC is
not yet effective? Does this mean that the exchange offer has
not commenced?
No. Completion of this preliminary prospectus/offer to exchange
and effectiveness of the registration statement are not
necessary for the exchange offer to commence. Validus commenced
the exchange offer on May 12, 2009. We cannot, however,
accept for exchange any IPC common shares tendered in the
exchange offer or exchange any IPC common shares until the
registration statement is declared effective by the SEC and the
other conditions to the exchange offer have been satisfied or
waived.
Where
can I find more information on Validus and IPC?
You can find more information about Validus and IPC from various
sources described in the section of this prospectus/offer to
exchange entitled Where You Can Find More
Information.
Who
can I contact with any additional questions about the exchange
offer?
You can call the information agent or the dealer manager for the
exchange offer.
The information agent for the exchange offer is:
199 Water Street, 26th Floor
New York, New York 10038
Banks and Brokerage Firms, Please Call:
(212) 440-9800
All Others Call Toll-Free: at
(800) 213-0317
Email: validusIPC@georgeson.com
The dealer manager for the exchange offer is:
Greenhill & Co., LLC
300 Park Avenue
New York, New York 10022
Call Toll-Free:
(888) 504-7336
14
SUMMARY
OF THE EXCHANGE OFFER
This summary highlights the material information in this
prospectus/offer to exchange. To fully understand the exchange
offer to holders of IPC common shares, and for a more complete
description of the terms of the exchange offer and the
second-step acquisition, you should read carefully this entire
document, including the exhibits, schedules and documents
incorporated by reference herein, and the other documents
referred to herein. For information on how to obtain the
documents that are on file with the SEC, please see the section
of this prospectus/offer to exchange entitled Where You
Can Find More Information.
The
Companies (See page 38)
Validus
Validus is a Bermuda exempted company with its principal
executive offices located at 19 Par-La-Ville Road, Hamilton
HM11, Bermuda. The telephone number of Validus is
(441) 278-9000.
Validus is a provider of reinsurance and insurance, conducting
its operations worldwide through two wholly-owned subsidiaries,
Validus Re and Talbot. Validus Re is a Bermuda-based reinsurer
focused on short-tail lines of reinsurance. Talbot is the
Bermuda parent of the specialty insurance group primarily
operating within the Lloyds insurance market through
Syndicate 1183. At March 31, 2009, Validus had total
shareholders equity of $2.023 billion and total
assets of $4.763 billion. Validus common shares are traded
on the NYSE under the symbol VR and, as of
May 29, 2009, the last practicable date prior to the filing
of this prospectus/offer to exchange, Validus had a market
capitalization of approximately $1.74 billion. Validus has
approximately 280 employees.
As of the date of the filing of this prospectus/offer to
exchange with the SEC, Validus was the registered holder of 100
IPC common shares, or less than 1% of the amount outstanding.
IPC
The following description of IPC is taken from the IPC/Max
S-4. Please
see the section of this prospectus/offer to exchange entitled
Note on IPC Information.
IPC, a Bermuda exempted company, provides property catastrophe
reinsurance and, to a limited extent,
property-per-risk
excess, aviation (including satellite) and other short-tail
reinsurance on a worldwide basis. During 2008, approximately 93%
of its gross premiums written, excluding reinstatement premiums,
covered property catastrophe reinsurance risks. Property
catastrophe reinsurance covers against unpredictable events such
as hurricanes, windstorms, hailstorms, earthquakes, volcanic
eruptions, fires, industrial explosions, freezes, riots, floods
and other man-made or natural disasters. The substantial
majority of the reinsurance written by IPCRe, IPCs
Bermuda-based property catastrophe reinsurance subsidiary, has
been, and continues to be, written on an excess of loss basis
for primary insurers rather than reinsurers, and is subject to
aggregate limits on exposure to losses. During 2008, IPC had
approximately 258 clients from whom it received either
annual/deposit or adjustment premiums, including many of the
leading insurance companies around the world. In 2008,
approximately 36% of those clients were based in the United
States, and approximately 53% of gross premiums written,
excluding reinstatement premiums, related primarily to
U.S. risks. IPCs
non-U.S. clients
and its
non-U.S. covered
risks are located principally in Europe, Japan, Australia and
New Zealand. During 2008, no single ceding insurer accounted for
more than 3.7% of IPCs gross premiums written, excluding
reinstatement premiums. IPC did not disclose gross premiums
written by class of business in its Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009, which we refer
to as the
IPC 10-Q.
Therefore, comparable disclosure of property catastrophe
premiums cannot be presented. At March 31, 2009, IPC had
total shareholders equity of $1.849 billion and total
assets of $2.453 billion.
IPC common shares are quoted on the NASDAQ Global Select Market
under the ticker symbol IPCR and the Bermuda Stock
Exchange under the symbol IPCR BH. IPCs
principal executive offices are located at American
International Building, 29 Richmond Road, Pembroke HM 08,
Bermuda and its telephone number is
(441) 298-5100.
The
Exchange Offer (See pages 65 and 81)
Validus is offering to exchange for each outstanding IPC common
share that is validly tendered and not properly withdrawn prior
to the expiration time of the exchange offer, 1.1234 Validus
common shares and $3.00 in cash (less
15
any applicable withholding taxes and without interest), upon the
terms and subject to the conditions contained in this
prospectus/offer to exchange and the accompanying revised pink
letter of transmittal. In addition, you will receive cash in
lieu of any fractional Validus common share to which you may be
entitled.
Validus intends, promptly following acceptance for exchange and
exchange of IPC common shares in the exchange offer, to effect
the second-step acquisition pursuant to which Validus will
acquire all shares of those IPC shareholders who choose not to
tender their IPC common shares pursuant to the exchange offer in
accordance with either Section 102 or Section 103 of
the Companies Act. After the second-step acquisition, former
remaining IPC shareholders will no longer have any ownership
interest in IPC and will be shareholders of Validus. Validus
intends, promptly following the second-step acquisition, to
amalgamate IPC with a newly-formed, wholly-owned subsidiary of
Validus in accordance with Section 107 of the Companies Act.
On May 21, 2009, the Chairman of IPCs board of
directors sent a letter to Validus which stated that IPCs
bye-laws would prevent Validus from becoming the legal owner of
10% or more of the IPC common shares. Validus believes, based
upon the advice of Bermuda and UK counsel, that IPCs
bye-laws will not operate to prevent Validus from accepting IPC
common shares for exchange in the exchange offer and acquiring
beneficial ownership of any such IPC common shares.
Additionally, Validus will take such actions as are necessary,
including by seeking a judgment of a Bermuda court, to enforce
its rights under Section 102
and/or
Section 103 of the Companies Act to the extent that any
person (including IPC, IPCs board of directors or any IPC
shareholder) seeks to restrict the operation thereof. However,
resolution of any such actions or proceedings is not a condition
to the exchange offer.
Reasons
for the Exchange Offer (See page 61)
The Validus common shares to be issued and cash to be paid to
IPC shareholders in exchange for IPC common shares will provide
IPC shareholders with an immediate premium for their shares and
will allow IPC shareholders to participate in the growth and
opportunities of the combined company. Validus believes that the
acquisition of IPC represents a compelling combination and
excellent strategic fit that will enable the combined company to
capitalize on opportunities in the global reinsurance market.
Successful completion of the exchange offer would allow IPC
shareholders to benefit from the superior growth potential of a
combined company that would be a leading carrier in
Bermudas short-tail reinsurance and insurance markets,
with a strong balance sheet and quality diversification in
profitable business lines.
Conditions
of the Exchange Offer (See page 87)
The exchange offer is conditioned upon, among other things, the
following:
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IPC shareholders shall have validly tendered and not withdrawn
prior to the expiration time of the exchange offer at least that
number of IPC common shares that shall constitute 90% of the
then-outstanding number of IPC common shares on a fully-diluted
basis (excluding any IPC common shares owned by Validus, its
subsidiaries or IPC).
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The Max amalgamation agreement shall have been validly
terminated, and Validus shall reasonably believe that IPC could
not have any liability, and Max shall not have asserted any
claim of liability or breach against IPC in connection with the
Max amalgamation agreement other than with respect to the
possible payment of the Max termination fee.
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The registration statement of which this prospectus/offer to
exchange is a part shall have become effective under the
Securities Act, no stop order suspending the effectiveness of
the registration statement shall have been issued and no
proceedings for that purpose shall have been initiated or
threatened by the SEC, and Validus shall have received all
necessary state securities law or blue sky
authorizations.
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The shareholders of Validus shall have approved the issuance of
the Validus common shares pursuant to the exchange offer and the
second-step acquisition as required under the rules of the NYSE.
All of the Validus officers, directors and those shareholders
which Validus refers to as its qualified sponsors
(please see the section of this prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer), in each case, who own Validus common
shares have indicated that they intend to vote the Validus
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common shares beneficially owned by them in favor of such
approvals. As of April 30, 2009, these persons and entities
beneficially owned 42.4% of the voting interests relating to the
Validus common shares.
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The Validus common shares to be issued to IPC shareholders in
exchange for IPC common shares in the exchange offer and the
second-step acquisition shall have been authorized for listing
on the NYSE, subject to official notice of issuance.
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There shall be no threatened or pending litigation, suit, claim,
action, proceeding or investigation before any governmental
authority that, in the judgment of Validus, is reasonably likely
to, directly or indirectly, restrain or prohibit (or which
alleges a violation of law in connection with) the exchange
offer or is reasonably likely to prohibit or limit the full
rights of ownership of IPC common shares by Validus or any of
its affiliates.
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Since December 31, 2008, there shall not have been any
material adverse effect on IPC and its subsidiaries, taken as a
whole. A more than 50% decline in IPCs book value or a
more than 20% decline in IPCs book value relative to
Validus book value shall be deemed to have a material
adverse effect on IPC.
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Each of IPC and its subsidiaries shall have carried on their
respective businesses in the ordinary course consistent with
past practice at all times on or after the date of this
prospectus/offer to exchange and prior to the expiration time of
the exchange offer.
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All amendments or waivers under Validus credit facilities
necessary to consummate the exchange offer, the second-step
acquisition and the other transactions contemplated by this
prospectus/offer to exchange shall be in full force and effect.
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The exchange offer is subject to additional conditions,
including that IPC shareholders shall not have approved the Max
amalgamation agreement and that there shall have been no
business combination consummated between IPC and Max. The
exchange offer is not conditioned on the receipt of regulatory
approvals or the elimination of the Max termination fee. The
conditions to the exchange offer are for the sole benefit of
Validus and, other than the unwaivable conditions described in
the section of this prospectus/offer to exchange entitled
The Exchange Offer Conditions of the Exchange
Offer, may be waived prior to the expiration time of the
offer by Validus in its discretion.
Ownership
of Validus After the Exchange Offer (See page 73)
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that if all IPC common shares are exchanged
pursuant to the exchange offer
and/or the
second-step acquisition, former IPC shareholders would own, in
the aggregate, approximately 41.3% of the issued and outstanding
Validus common shares and Validus non-voting common shares on a
fully-diluted basis. For a detailed discussion of the
assumptions on which this estimate is based, please see the
section of this prospectus/offer to exchange entitled The
Exchange Offer Ownership of Validus After the
Exchange Offer.
Comparative
Market Price and Dividend Information (See
page 31)
Validus common shares are listed on the NYSE under the symbol
VR. IPC common shares are listed on the NASDAQ
Global Select Market under the symbol IPCR and the
Bermuda Stock Exchange under the symbol IPCR BH. The
following table sets forth the closing prices of Validus and IPC
as reported on March 30, 2009, the last day of trading
before Validus public announcement of delivery of the
initial Validus offer to the board of directors of IPC, and
May 29, 2009, the last practicable trading day prior to the
filing of this prospectus/offer to exchange. The table also
shows the implied value of one IPC common share in the exchange
offer, which was calculated by multiplying the closing price for
one Validus common share by the exchange ratio of 1.1234 and
adding $3.00 in cash.
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Implied Value Per IPC
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Validus Common Shares
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IPC Common Shares
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Common Share in the
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Closing Price
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Closing Price
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Exchange Offer
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March 30, 2009
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$
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24.91
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$
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25.41
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$
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30.98
|
|
May 29, 2009
|
|
$
|
22.81
|
|
|
$
|
24.84
|
|
|
$
|
28.62
|
|
17
The value of the exchange offer will change as the market
prices of Validus common shares and IPC common shares fluctuate
during the exchange offer period and thereafter, and may
therefore be different from the prices set forth above at the
expiration time of the exchange offer and at the time you
receive your Validus common shares. Please see the section of
this prospectus/offer to exchange entitled Risk
Factors. Shareholders are encouraged to obtain current
market quotations for Validus common shares and IPC common
Shares prior to making any decision with respect to the exchange
offer.
Interest
of Executive Officers and Directors of Validus in the Exchange
Offer (See page 93)
Except as set forth in this prospectus/offer to exchange,
neither we nor, after due inquiry and to the best of our
knowledge and belief, any of our directors, executive officers
or other affiliates has any contract, arrangement, understanding
or relationship with any other person with respect to any
securities of IPC, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the
transfer or the voting of any securities, joint ventures, loan
or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies.
Validus does not believe that the exchange offer and the
second-step acquisition will result in a change in control under
any of Validus stock option plans or any employment
agreement between Validus and any of its employees. As a result,
no options or other equity grants held by such persons will vest
as a result of the exchange offer and the second-step
acquisition. Please see the section of this prospectus/offer to
exchange entitled The Exchange Offer Certain
Relationships With IPC and Interests of Validus in the Exchange
Offer.
Appraisal/Dissenters
Rights (See page 83)
You do not have appraisal or dissenters rights in
connection with the exchange offer. However, if the second-step
acquisition is subsequently consummated between Validus and IPC,
IPC shareholders who have not tendered their IPC common shares
in the exchange offer will have certain rights under
Section 102 and Section 103 of the Companies Act to
dissent from the second-step acquisition and, in the case of
Section 103, to demand appraisal.
Material
U.S. Federal Income Tax Consequences (See
page 74)
The exchange offer, second-step acquisition and short-form
amalgamation are intended to constitute a single integrated
transaction that qualifies as a reorganization within the
meaning of Section 368(a) of the Code. Assuming it does so
qualify, U.S. holders of IPC common shares will generally
recognize gain (but not loss) in an amount equal to the lesser
of (i) the amount of cash received by such U.S. holder
and (ii) the excess, if any, of (a) the sum of the
cash and the fair market value of the Validus common shares
received by such U.S. holder, over (b) the
U.S. holders tax basis in the IPC common shares
exchanged pursuant to the exchange offer and second-step
acquisition. Subject to the passive foreign investment company
rules or the potential application of Section 1248 of the
Code, any gain recognized upon the exchange generally will be
capital gain, unless the receipt of cash by a U.S. holder
has the effect of the distribution of a dividend for U.S.
federal income tax purposes. For more information, please see
the section of this prospectus/offer to exchange under the
caption Material U.S. Federal Income Tax
Consequences.
Tax matters are complicated and the tax consequences of the
transaction to you will depend upon the facts of your particular
circumstances. Because individual circumstances may differ,
Validus urges you to consult with your own tax advisor as to the
specific tax consequences of the exchange offer, second-step
acquisition and short-form amalgamation to you, including the
applicability of U.S. federal, state, local,
non-U.S. and
other tax laws.
Accounting
Treatment (See page 95)
Validus will account for the acquisition of IPC common shares
under the purchase method of accounting in accordance with
Statement of Financial Accounting Standards (FAS)
141(R), Business Combinations, under which the total
consideration paid in the exchange offer will be allocated among
acquired assets and assumed liabilities based on the fair values
of the assets acquired and liabilities assumed. In the event
there is an excess of the total consideration paid in the
exchange offer over the fair values, the excess will be
accounted for as goodwill.
18
Intangible assets with definite lives will be amortized over
their estimated useful lives. Goodwill resulting from the
exchange offer will not be amortized but instead will be tested
for impairment at least annually (more frequently if certain
indicators are present). In the event that the management of
Validus determines that the value of goodwill has become
impaired, an accounting charge will be taken in the fiscal
quarter in which such determination is made. In the event there
is an excess of the fair values of the acquired assets and
liabilities assumed over the total consideration paid in the
exchange offer, the excess will be accounted for as a gain to be
recognized through the income statement at the close of the
transaction, in accordance with FAS 141(R). Validus
anticipates the acquisition will result in an excess of the fair
values of the acquired assets and liabilities assumed over the
total consideration paid.
Regulatory
Approval and Status (See page 91)
Validus is not aware of any governmental license or regulatory
permit that appears to be material to IPCs business that
might be adversely affected by Validus acquisition of IPC
common shares pursuant to the exchange offer or, except as
described below, of any approval or other action by any
government or governmental administrative or regulatory
authority or agency, domestic or foreign, that would be required
for Validus acquisition or ownership of IPC common shares
pursuant to the exchange offer. Should any of these approvals or
other actions be required, Validus currently contemplates that
these approvals or other actions will be sought. There can be no
assurance that any such approvals or other actions, if required,
will be obtained (with or without conditions), or that if these
approvals were not obtained or these other actions were not
taken adverse consequences might not result to IPCs
business, or that certain parts of IPCs or Validus,
or any of their respective subsidiaries, businesses might
not have to be disposed of or held separate.
The consummation of the exchange offer and the second-step
acquisition will not require the approval of any
U.S. insurance regulators because neither Validus nor IPC
operates a
U.S.-regulated
insurance business that would require any such approval.
The exchange offer is not conditioned on the receipt of
regulatory approvals.
Listing
of Validus Common Shares to be Issued Pursuant to the Exchange
Offer and the Second-Step Acquisition (See
page 87)
Validus will submit the necessary applications to cause the
common shares to be issued as a portion of the offer
consideration and the consideration in the second-step
acquisition to be authorized for listing on the NYSE. Approval
of this listing is a condition to the exchange offer.
Comparison
of Shareholders Rights (See page 97)
You will receive Validus common shares as a portion of the offer
consideration if you tender your IPC common shares in the
exchange offer. Although both companies are incorporated under
Bermuda law, there are a number of differences between the
rights of a shareholder of IPC and the rights of a shareholder
of Validus. Validus urges you to review the discussion in the
section of this prospectus/offer to exchange entitled
Comparison of Shareholders Rights.
Expiration
Time of the Exchange Offer (See page 66)
The exchange offer is scheduled to expire at 5:00 p.m., New
York City time (6:00 p.m., Atlantic Time), on June 26,
2009, which is the expiration time of the exchange offer, unless
further extended by Validus. For more information, you should
read the discussion in the section of this prospectus/offer to
exchange entitled The Exchange Offer
Extension, Termination and Amendment.
Extension,
Termination and Amendment (See page 66)
To the extent legally permissible, Validus also reserves the
right, in its sole discretion, at any time or from time to time
(except as expressly limited below) until the expiration time of
the exchange offer:
|
|
|
|
|
to extend, for any reason, the period of time during which the
exchange offer is open;
|
19
|
|
|
|
|
to delay acceptance for exchange of, or exchange of, any IPC
common shares in order to comply in whole or in part with
applicable law;
|
|
|
|
|
|
to terminate the exchange offer without accepting for exchange,
or exchanging, any IPC common shares if any of the individually
subheaded conditions referred to in the section of this
prospectus/offer to exchange entitled The Exchange
Offer Conditions of the Exchange Offer have
not been satisfied immediately prior to the expiration time of
the exchange offer or if any event specified in the section of
this prospectus/offer to exchange entitled The Exchange
Offer Conditions of the Exchange Offer under
the subheading Other Conditions has occurred;
|
|
|
|
|
|
to amend or terminate the exchange offer without accepting for
exchange, or exchanging, any IPC common shares if Validus or any
of its affiliates enters into a definitive agreement or
announces an agreement in principle with IPC providing for an
amalgamation, scheme of arrangement or other business
combination or transaction with or involving IPC or any of its
subsidiaries, or the purchase or exchange of securities or
assets of IPC or any of its subsidiaries, or the Supreme Court
of Bermuda sanctions a scheme of arrangement between IPC and its
shareholders whereby Validus or any of its subsidiaries acquires
securities of IPC, or Validus and IPC reach any other agreement
or understanding, in either case, pursuant to which it is agreed
or provided that the exchange offer will be terminated; and
|
|
|
|
to amend the exchange offer or waive any conditions to the
exchange offer;
|
in each case, by giving oral or written notice of such delay,
termination, waiver or amendment to the exchange agent and by
making public announcement thereof.
The expiration time of the exchange offer may be subject to
multiple extensions and any decision to extend the exchange
offer will be made at the expiration time of the exchange offer.
Procedure
for Tendering Shares (See page 69)
The procedure for tendering IPC common shares varies depending
on whether you possess physical certificates or a nominee holds
your certificates for you and on whether or not you hold your
securities in book-entry form. Validus urges you to read the
section of this prospectus/offer to exchange entitled The
Exchange Offer Procedure for Tendering as well
as the transmittal materials, including the revised pink letter
of transmittal.
Withdrawal
Rights (See page 72)
You can withdraw tendered shares at any time until the exchange
offer has expired and, if Validus has not accepted your IPC
common shares for exchange by the expiration time of the
exchange offer, at any time following 60 days from
commencement of the exchange offer. If Validus decides to
provide a subsequent offering period, it will accept shares
validly tendered during that period immediately and you will not
be able to withdraw shares tendered in the exchange offer during
any subsequent offering period. Please see the section of this
prospectus/offer to exchange entitled The Exchange
Offer Withdrawal Rights.
Exchange
of IPC Common Shares; Delivery of Offer Consideration (See
page 68)
Upon the terms and subject to the conditions of the exchange
offer (including, if the exchange offer is extended or amended,
the terms and conditions of any such extension or amendment),
Validus will accept for exchange, and will exchange for Validus
common shares and cash promptly after the expiration time of the
exchange offer, all IPC common shares validly tendered and not
properly withdrawn. If Validus elects to provide a subsequent
offering period following the expiration time of the exchange
offer, IPC common shares validly tendered during such subsequent
offering period will be accepted for exchange immediately upon
tender and will be promptly exchanged for the exchange offer
consideration.
Risk
Factors (See page 34)
The exchange offer and the second-step acquisition are, and if
the exchange offer and the second-step acquisition are
consummated, the combined company will be, subject to several
risks which you should carefully consider prior to participating
in the exchange offer.
20
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF VALIDUS
Set forth below is certain selected historical consolidated
financial data relating to Validus. The financial data has been
derived from Validus Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009, which is
incorporated by reference into this prospectus/offer to
exchange, and which we refer to as the Validus
10-Q,
and Validus Annual Report on
Form 10-K
for the year ended December 31, 2008, which is incorporated
into this prospectus/offer to exchange, and which we refer to as
the Validus
10-K.
You should not take historical results as necessarily indicative
of the results that may be expected for any future period. This
financial data should be read in conjunction with the financial
statements and the related notes and other financial information
contained in the Validus
10-Q and the
Validus
10-K. More
comprehensive financial information, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, is contained in the
Validus 10-Q
and Validus
10-K, and
the following summary is qualified in its entirety by reference
to the Validus
10-Q and
Validus 10-K
and all of the financial information and notes contained
therein. Please see the section of the prospectus/offer to
exchange entitled Where You Can Find More
Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
609,892
|
|
|
$
|
521,594
|
|
|
$
|
1,362,484
|
|
|
$
|
988,637
|
|
|
$
|
540,789
|
|
|
$
|
|
|
Reinsurance premiums ceded
|
|
|
(72,512
|
)
|
|
|
(84,900
|
)
|
|
|
(124,160
|
)
|
|
|
(70,210
|
)
|
|
|
(63,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
537,380
|
|
|
|
436,694
|
|
|
|
1,238,324
|
|
|
|
918,427
|
|
|
|
477,093
|
|
|
|
|
|
Change in unearned premiums
|
|
|
(218,621
|
)
|
|
|
(144,830
|
)
|
|
|
18,194
|
|
|
|
(60,348
|
)
|
|
|
(170,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
318,759
|
|
|
|
291,864
|
|
|
|
1,256,518
|
|
|
|
858,079
|
|
|
|
306,514
|
|
|
|
|
|
Net investment income
|
|
|
26,772
|
|
|
|
36,043
|
|
|
|
139,528
|
|
|
|
112,324
|
|
|
|
58,021
|
|
|
|
2,032
|
|
Realized gain on repurchase of debentures
|
|
|
|
|
|
|
|
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on investments
|
|
|
(23,421
|
)
|
|
|
7,744
|
|
|
|
(1,591
|
)
|
|
|
1,608
|
|
|
|
(1,102
|
)
|
|
|
39
|
|
Net unrealized gains on investments(2)
|
|
|
22,153
|
|
|
|
(14,977
|
)
|
|
|
(79,707
|
)
|
|
|
12,364
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
757
|
|
|
|
935
|
|
|
|
5,264
|
|
|
|
3,301
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
(4,200
|
)
|
|
|
8,179
|
|
|
|
(49,397
|
)
|
|
|
6,696
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
340,820
|
|
|
|
329,788
|
|
|
|
1,279,367
|
|
|
|
994,372
|
|
|
|
365,590
|
|
|
|
2,071
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses
|
|
|
131,834
|
|
|
|
140,024
|
|
|
|
772,154
|
|
|
|
283,993
|
|
|
|
91,323
|
|
|
|
|
|
Policy acquisition costs
|
|
|
61,449
|
|
|
|
56,701
|
|
|
|
234,951
|
|
|
|
134,277
|
|
|
|
36,072
|
|
|
|
|
|
General and administrative expenses(1)
|
|
|
38,079
|
|
|
|
37,107
|
|
|
|
123,948
|
|
|
|
100,765
|
|
|
|
38,354
|
|
|
|
2,367
|
|
Share compensation expenses
|
|
|
7,354
|
|
|
|
6,535
|
|
|
|
27,097
|
|
|
|
16,189
|
|
|
|
7,878
|
|
|
|
290
|
|
Finance expenses
|
|
|
7,723
|
|
|
|
21,517
|
|
|
|
57,318
|
|
|
|
51,754
|
|
|
|
8,789
|
|
|
|
|
|
Fair value of warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
|
|
77
|
|
|
|
49,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
246,439
|
|
|
|
261,884
|
|
|
|
1,215,468
|
|
|
|
589,871
|
|
|
|
182,493
|
|
|
|
51,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
94,381
|
|
|
|
67,904
|
|
|
|
63,899
|
|
|
|
404,501
|
|
|
|
183,097
|
|
|
|
(49,708
|
)
|
Taxes
|
|
|
526
|
|
|
|
(1,429
|
)
|
|
|
(10,788
|
)
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
94,907
|
|
|
|
66,475
|
|
|
|
53,111
|
|
|
|
402,996
|
|
|
|
183,097
|
|
|
|
(49,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332
|
)
|
|
|
144
|
|
Foreign currency translation adjustments
|
|
|
(196
|
)
|
|
|
67
|
|
|
|
(7,809
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Adjustment for reclassification of losses realized in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
94,711
|
|
|
$
|
66,542
|
|
|
$
|
45,302
|
|
|
$
|
402,947
|
|
|
$
|
183,867
|
|
|
$
|
(49,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
75,744,577
|
|
|
|
74,209,371
|
|
|
|
74,677,903
|
|
|
|
65,068,093
|
|
|
|
58,477,130
|
|
|
|
58,423,174
|
|
Diluted
|
|
|
79,102,643
|
|
|
|
78,329,727
|
|
|
|
75,819,413
|
|
|
|
67,786,673
|
|
|
|
58,874,567
|
|
|
|
58,423,174
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.87
|
|
|
$
|
0.62
|
|
|
$
|
6.19
|
|
|
$
|
3.13
|
|
|
$
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.85
|
|
|
$
|
0.61
|
|
|
$
|
5.95
|
|
|
$
|
3.11
|
|
|
$
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.80
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected financial ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(4)
|
|
|
41.4
|
%
|
|
|
48.0
|
%
|
|
|
61.5
|
%
|
|
|
33.1
|
%
|
|
|
29.8
|
%
|
|
|
|
|
Policy acquisition cost ratio(5)
|
|
|
19.3
|
%
|
|
|
19.4
|
%
|
|
|
18.7
|
%
|
|
|
15.6
|
%
|
|
|
11.8
|
%
|
|
|
|
|
General and administrative expense ratio(6)
|
|
|
14.3
|
%
|
|
|
15.0
|
%
|
|
|
12.0
|
%
|
|
|
13.3
|
%
|
|
|
15.1
|
%
|
|
|
|
|
Expense ratio(7)
|
|
|
33.6
|
%
|
|
|
34.4
|
%
|
|
|
30.7
|
%
|
|
|
28.9
|
%
|
|
|
26.9
|
%
|
|
|
|
|
Combined ratio(8)
|
|
|
75.0
|
%
|
|
|
82.4
|
%
|
|
|
92.2
|
%
|
|
|
62.0
|
%
|
|
|
56.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on average equity(9)
|
|
|
19.2
|
%
|
|
|
13.5
|
%
|
|
|
2.7
|
%
|
|
|
26.9
|
%
|
|
|
17.0
|
%
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table sets forth summarized balance sheet data as
of March 31, 2009 and 2008, and as of December 31,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
2,926,859
|
|
|
$
|
2,893,595
|
|
|
$
|
2,831,537
|
|
|
$
|
2,662,021
|
|
|
$
|
1,376,387
|
|
Cash and cash equivalents
|
|
|
535,798
|
|
|
|
347,347
|
|
|
|
449,848
|
|
|
|
444,698
|
|
|
|
63,643
|
|
Total assets
|
|
|
4,762,798
|
|
|
|
4,535,638
|
|
|
|
4,322,480
|
|
|
|
4,144,224
|
|
|
|
1,646,423
|
|
Reserve for losses and loss expenses
|
|
|
1,318,732
|
|
|
|
977,236
|
|
|
|
1,305,303
|
|
|
|
926,117
|
|
|
|
77,363
|
|
Unearned premiums
|
|
|
795,233
|
|
|
|
750,257
|
|
|
|
539,450
|
|
|
|
557,344
|
|
|
|
178,824
|
|
Junior subordinated deferrable debentures
|
|
|
304,300
|
|
|
|
350,000
|
|
|
|
304,300
|
|
|
|
350,000
|
|
|
|
150,000
|
|
Total liabilities
|
|
|
2,739,812
|
|
|
|
2,544,980
|
|
|
|
2,383,746
|
|
|
|
2,209,424
|
|
|
|
453,900
|
|
Total shareholders equity
|
|
|
2,022,986
|
|
|
|
1,990,658
|
|
|
|
1,938,734
|
|
|
|
1,934,800
|
|
|
|
1,192,523
|
|
Book value per common share(10)
|
|
|
26.68
|
|
|
|
26.82
|
|
|
|
25.64
|
|
|
|
26.08
|
|
|
|
20.39
|
|
Diluted book value per common share(11)
|
|
|
24.65
|
|
|
|
24.43
|
|
|
|
23.78
|
|
|
|
24.00
|
|
|
|
19.73
|
|
|
|
|
(1) |
|
General and administrative expenses for the years ended
December 31, 2007 and 2006 include $4,000,000 and
$1,000,000 respectively, related to our advisory agreement with
Aquiline Capital Partners, LLC, which, together with its related
companies, we refer to as Aquiline. Our advisory
agreement with Aquiline terminated upon completion of our
initial public offering, in connection with which Validus
recorded general and administrative expense of $3,000,000 in the
year ended December 31, 2007. |
|
(2) |
|
Validus adopted FAS 157 and FAS 159 as of
January 1, 2007 and elected the fair value option on all
securities previously accounted for as available-for-sale.
Unrealized gains and losses on available-for-sale investments at
December 31, 2006 of $875,000, previously included in
accumulated other comprehensive income, were treated as a
cumulative-effect adjustment as of January 1, 2007. The
cumulative-effect adjustment transferred the balance of
unrealized gains and losses from accumulated other comprehensive
income to retained earnings and had no impact on the results of
operations for the annual or interim periods beginning
January 1, 2007. Validus investments were accounted
for as trading for the annual or interim periods beginning
January 1, 2007 and as such all unrealized gains and losses
are included in net income. |
|
(3) |
|
FAS 123(R) requires that any unrecognized stock-based
compensation expense that will be recorded in future periods be
included as proceeds for purposes of treasury stock repurchases,
which is applied against the unvested restricted shares balance.
On March 1, 2007 we effected a 1.75 for 1 reverse stock
split of our outstanding common shares. The stock split does not
affect our financial statements other than to the extent it
decreases the number of outstanding shares and correspondingly
increases per share information for all periods presented. The
share consolidation has been reflected retroactively in these
financial statements. |
|
(4) |
|
The losses and loss expense ratio is calculated by dividing
losses and loss expenses by net premiums earned. |
|
(5) |
|
The policy acquisition cost ratio is calculated by dividing
policy acquisition costs by net premiums earned. |
|
(6) |
|
The general and administrative expense ratio is calculated by
dividing the sum of general and administrative expenses and
share compensation expenses by net premiums earned. The general
and administrative expense ratio for the year ended
December 31, 2007 is calculated by dividing the total of
general and administrative expenses plus share compensation
expenses less the $3,000,000 termination fee payable to Aquiline
by net premiums earned. |
|
(7) |
|
The expense ratio is calculated by combining the policy
acquisition cost ratio and the general and administrative
expense ratio. |
22
|
|
|
(8) |
|
The combined ratio is calculated by combining the losses and
loss expense ratio, the policy acquisition cost ratio and the
general and administrative expense ratio. |
|
(9) |
|
Annualized return on average equity is calculated by dividing
the net income for the period by the average shareholders
equity during the period. Annual average shareholders
equity is the average of the beginning, ending and intervening
quarter-end shareholders equity balances. |
|
(10) |
|
Book value per common share is defined as total
shareholders equity divided by the number of common shares
outstanding as at the end of the period, giving no effect to
dilutive securities. |
|
|
|
(11) |
|
Diluted book value per common share is calculated based on total
shareholders equity plus the assumed proceeds from the
exercise of outstanding options and warrants, divided by the sum
of common shares, unvested restricted shares, options and
warrants outstanding (assuming their exercise). Diluted book
value per common share is a Non-GAAP financial measure as
described under Item 7, Managements Discussion
and Analysis of Financial condition and Results of
Operations Financial Measures, in the
Validus 10-K. |
23
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF IPC
The following disclosure is taken from IPCs Quarterly
Report on
Form 10-Q
for the three months ended March 31, 2009, which we refer
to as the
IPC 10-Q,
and IPCs Annual Report on
Form 10-K
for the year ended December 31, 2008, which we refer to as
the
IPC 10-K,
except in respect of diluted book value per common share (as
discussed in footnote 5 below). Please see the section of this
prospectus/offer to exchange entitled Note on IPC
Information.
Set forth below is certain selected historical consolidated
financial data relating to IPC. The financial data has been
derived from the
IPC 10-Q,
which is incorporated by reference into this prospectus/offer to
exchange, and the
IPC 10-K,
which is incorporated by reference into this prospectus/offer to
exchange. You should not take historical results as necessarily
indicative of the results that may be expected for any future
period. This financial data should be read in conjunction with
the financial statements and the related notes and other
financial information contained in the IPC
10-Q and the
IPC 10-K.
More comprehensive financial information, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, is contained in other
documents filed by IPC with the SEC, and the following summary
is qualified in its entirety by reference to such other
documents and all of the financial information and notes
contained in those documents. Please see the section of this
prospectus/offer to exchange entitled Where You Can Find
More Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Statement of Income (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
234,610
|
|
|
$
|
197,875
|
|
|
$
|
403,395
|
|
|
$
|
404,096
|
|
|
$
|
429,851
|
|
|
$
|
472,387
|
|
|
$
|
378,409
|
|
Net premiums earned
|
|
|
98,708
|
|
|
|
89,697
|
|
|
|
387,367
|
|
|
|
391,385
|
|
|
|
397,132
|
|
|
|
452,522
|
|
|
|
354,882
|
|
Net investment income
|
|
|
21,866
|
|
|
|
23,874
|
|
|
|
94,105
|
|
|
|
121,842
|
|
|
|
109,659
|
|
|
|
71,757
|
|
|
|
51,220
|
|
Net (losses) gains on investments
|
|
|
(35,572
|
)
|
|
|
(6,020
|
)
|
|
|
(168,208
|
)
|
|
|
67,555
|
|
|
|
12,085
|
|
|
|
(10,556
|
)
|
|
|
5,946
|
|
Other income
|
|
|
7
|
|
|
|
26
|
|
|
|
65
|
|
|
|
1,086
|
|
|
|
3,557
|
|
|
|
5,234
|
|
|
|
4,296
|
|
Net loss and loss adjustment expenses incurred
|
|
|
39,109
|
|
|
|
5,324
|
|
|
|
155,632
|
|
|
|
124,923
|
|
|
|
58,505
|
|
|
|
1,072,662
|
|
|
|
215,608
|
|
Net acquisition costs
|
|
|
9,838
|
|
|
|
8,674
|
|
|
|
36,429
|
|
|
|
39,856
|
|
|
|
37,542
|
|
|
|
39,249
|
|
|
|
37,682
|
|
General and administrative expenses
|
|
|
24,281
|
|
|
|
7,079
|
|
|
|
26,314
|
|
|
|
30,510
|
|
|
|
34,436
|
|
|
|
27,466
|
|
|
|
23,151
|
|
Interest expense
|
|
|
383
|
|
|
|
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign exchange loss (gain)
|
|
|
3,146
|
|
|
|
(303
|
)
|
|
|
1,848
|
|
|
|
1,167
|
|
|
|
(2,635
|
)
|
|
|
2,979
|
|
|
|
1,290
|
|
Net income (loss)
|
|
$
|
8,252
|
|
|
$
|
86,803
|
|
|
$
|
90,447
|
|
|
$
|
385,412
|
|
|
$
|
394,585
|
|
|
$
|
(623,399
|
)
|
|
$
|
138,613
|
|
Preferred dividend
|
|
|
|
|
|
|
4,234
|
|
|
|
14,939
|
|
|
|
17,128
|
|
|
|
17,176
|
|
|
|
2,664
|
|
|
|
|
|
Net income (loss), available to common shareholders
|
|
$
|
8,252
|
|
|
$
|
82,569
|
|
|
$
|
75,508
|
|
|
$
|
368,284
|
|
|
$
|
377,409
|
|
|
$
|
(626,063
|
)
|
|
$
|
138,613
|
|
Net income (loss) per common share(1)
|
|
$
|
0.15
|
|
|
$
|
1.31
|
|
|
$
|
1.45
|
|
|
$
|
5.53
|
|
|
$
|
5.54
|
|
|
$
|
(12.30
|
)
|
|
$
|
2.87
|
|
Weighted average shares outstanding(1)
|
|
|
55,916,256
|
|
|
|
66,182,883
|
|
|
|
59,301,939
|
|
|
|
69,728,229
|
|
|
|
71,212,287
|
|
|
|
50,901,296
|
|
|
|
48,376,865
|
|
Cash dividend per common share
|
|
$
|
0.22
|
|
|
$
|
0.22
|
|
|
$
|
0.88
|
|
|
$
|
0.80
|
|
|
$
|
0.64
|
|
|
$
|
0.88
|
|
|
$
|
0.88
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio(2)
|
|
|
39.6
|
%
|
|
|
5.8
|
%
|
|
|
40.2
|
%
|
|
|
31.9
|
%
|
|
|
14.7
|
%
|
|
|
237.0
|
%
|
|
|
60.8
|
%
|
Expense ratio(2)
|
|
|
34.6
|
%
|
|
|
17.1
|
%
|
|
|
16.2
|
%
|
|
|
18.0
|
%
|
|
|
18.1
|
%
|
|
|
14.8
|
%
|
|
|
17.1
|
%
|
Combined ratio(2)
|
|
|
74.2
|
%
|
|
|
22.9
|
%
|
|
|
56.4
|
%
|
|
|
49.9
|
%
|
|
|
32.8
|
%
|
|
|
251.8
|
%
|
|
|
77.9
|
%
|
Return on average equity(3)
|
|
|
1.8
|
%
|
|
|
15.5
|
%
|
|
|
4.2
|
%
|
|
|
20.1
|
%
|
|
|
24.0
|
%
|
|
|
(38.0
|
)%
|
|
|
8.6
|
%
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments
|
|
$
|
2,189,966
|
|
|
$
|
2,475,860
|
|
|
$
|
2,235,187
|
|
|
$
|
2,473,244
|
|
|
$
|
2,485,525
|
|
|
$
|
2,560,146
|
|
|
$
|
1,901,094
|
|
Reinsurance premiums receivable
|
|
|
199,241
|
|
|
|
161,474
|
|
|
|
108,033
|
|
|
|
91,393
|
|
|
|
113,811
|
|
|
|
180,798
|
|
|
|
85,086
|
|
Total assets
|
|
|
2,453,085
|
|
|
|
2,712,037
|
|
|
|
2,388,688
|
|
|
|
2,627,691
|
|
|
|
2,645,429
|
|
|
|
2,778,281
|
|
|
|
2,028,290
|
|
Reserve for losses and loss adjustment expenses
|
|
|
354,467
|
|
|
|
355,276
|
|
|
|
355,893
|
|
|
|
395,245
|
|
|
|
548,627
|
|
|
|
1,072,056
|
|
|
|
274,463
|
|
Unearned premiums
|
|
|
219,641
|
|
|
|
181,889
|
|
|
|
85,473
|
|
|
|
75,980
|
|
|
|
80,043
|
|
|
|
66,311
|
|
|
|
68,465
|
|
Total liabilities
|
|
|
603,611
|
|
|
|
563,904
|
|
|
|
537,741
|
|
|
|
501,946
|
|
|
|
654,474
|
|
|
|
1,161,881
|
|
|
|
359,851
|
|
Total shareholders equity
|
|
$
|
1,849,474
|
|
|
$
|
2,148,133
|
|
|
$
|
1,850,947
|
|
|
$
|
2,125,745
|
|
|
$
|
1,990,955
|
|
|
$
|
1,616,400
|
|
|
$
|
1,668,439
|
|
Diluted book value per common share(4)
|
|
$
|
NA
|
|
|
$
|
NA
|
|
|
$
|
32.85
|
(5)
|
|
$
|
32.42
|
|
|
$
|
27.94
|
|
|
$
|
22.26
|
|
|
$
|
34.44
|
|
24
NA Not available
|
|
|
(1) |
|
Net income per common share is calculated upon the weighted
average number of common shares outstanding during the relevant
year. The weighted average number of shares includes common
shares and the dilutive effect of employee stock options and
stock grants, using the treasury stock method and convertible
preferred shares. The net loss per common share for the year
ended December 31, 2005 is calculated on the weighted
average number of shares outstanding during the year, excluding
the anti-dilutive effect of employee stock options, stock grants
and convertible preferred shares. The net income per common
share for the year ended December 31, 2008 is calculated on
the weighted average number of shares outstanding during the
year, excluding the anti-dilutive effect of stock-based
compensation and convertible preferred shares. |
|
(2) |
|
The loss and loss adjustment expense ratio is calculated by
dividing the net losses and loss expenses incurred by the net
premiums earned. The expense ratio is calculated by dividing the
sum of acquisition costs and general and administrative expenses
by net premiums earned. The combined ratio is the sum of the
loss and loss expense ratio and the expense ratio. |
|
(3) |
|
Return on average equity is calculated as the annual net income
(loss), available to common shareholders divided by the average
of the common shareholders equity, which is total
shareholders equity, excluding convertible preferred
shares, on the first and last day of the respective year. |
|
(4) |
|
Diluted book value per common share is calculated as
shareholders equity divided by the number of common shares
outstanding on the balance sheet date, after considering the
dilutive effects of stock-based compensation, calculated using
the treasury stock method. At December 31, 2008 the average
weighted number of shares outstanding, including the dilutive
effect of employee stock-based compensation and convertible
preferred shares (which were converted on November 15,
2008) using the treasury stock method was 59,301,939. |
|
(5) |
|
IPC reported diluted book value per common share as $33.07 in
the IPC 10-K
and amended it to $32.85 in an amendment to the IPC/Max
S-4 filed
with the SEC on April 13, 2009. |
25
SELECTED
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
The following tables set forth selected unaudited condensed
consolidated pro forma financial information for the three
months ended March 31, 2009 and the year ended
December 31, 2008 to provide you with information about how
the acquisition of IPC might have affected the historical
financial statements of Validus if it had been consummated at
such time. The selected unaudited condensed consolidated pro
forma financial information is for illustrative purposes only
and has been prepared using IPCs publicly available
financial statements and disclosures, without the benefit of
inspection of IPCs books and records. Therefore, certain
pro forma adjustments, such as recording fair value of assets
and liabilities and adjustments for consistency of accounting
policy, are not reflected in these unaudited condensed
consolidated pro forma financial statements. The following
selected unaudited condensed consolidated pro forma financial
information does not necessarily reflect the financial position
or results of operations that would have actually resulted had
the acquisition occurred as of the dates indicated, nor should
they be taken as necessarily indicative of the future financial
position or results of operations of Validus or a combined
company. The adjustments and assumptions reflected in the pro
forma financial information are discussed in the section of this
prospectus/offer to exchange entitled Unaudited Condensed
Consolidated Pro Forma Financial Information.
The following selected unaudited condensed consolidated pro
forma financial information is based on the historical financial
statements of Validus and IPC and on publicly available
information and certain assumptions that we believe are
reasonable, which are described in the notes to the
Unaudited Condensed Consolidated Pro Forma Financial
Information. The following should be read in connection
with the section of this prospectus/offer to exchange entitled
Unaudited Condensed Consolidated Pro Forma Financial
Information, and other information included in or
incorporated by reference into this document, including the
Validus
10-Q, the
Validus
10-K, the
IPC 10-Q and
the IPC
10-K, which
are filed with the SEC.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(Dollars in thousands, except
|
|
|
|
share and per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
844,237
|
|
|
$
|
1,765,628
|
|
Reinsurance premiums ceded
|
|
|
(75,401)
|
|
|
|
(130,031
|
)
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
768,836
|
|
|
|
1,635,597
|
|
Change in unearned premiums
|
|
|
(351,369)
|
|
|
|
8,288
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
417,467
|
|
|
|
1,643,885
|
|
Net investment income
|
|
|
46,685
|
|
|
|
223,902
|
|
Realized gain on repurchase of debentures
|
|
|
|
|
|
|
8,752
|
|
Net realized losses on investments
|
|
|
(58,993)
|
|
|
|
(169,799
|
)
|
Net unrealized losses on investments
|
|
|
22,153
|
|
|
|
(79,707
|
)
|
Other income
|
|
|
764
|
|
|
|
5,329
|
|
Foreign exchange losses
|
|
|
(7,346)
|
|
|
|
(51,245
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
420,730
|
|
|
|
1,581,117
|
|
Expenses
|
|
|
|
|
|
|
|
|
Losses and loss expenses
|
|
|
170,943
|
|
|
|
927,786
|
|
Policy acquisition costs
|
|
|
71,287
|
|
|
|
271,380
|
|
General and administrative expenses
|
|
|
46,071
|
|
|
|
144,637
|
|
Share compensation expenses
|
|
|
9,843
|
|
|
|
32,722
|
|
Finance expenses
|
|
|
8,106
|
|
|
|
59,977
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
306,250
|
|
|
|
1,436,502
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
114,480
|
|
|
|
144,615
|
|
Taxes
|
|
|
526
|
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
115,006
|
|
|
$
|
133,827
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
(Dollars in thousands, except
|
|
|
|
share and per share amounts)
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(196
|
)
|
|
|
(7,809
|
)
|
Movement in accumulated pension benefit obligation
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
114,810
|
|
|
$
|
126,023
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
138,597,483
|
|
|
|
137,530,809
|
|
Diluted
|
|
|
142,576,877
|
|
|
|
139,293,647
|
|
Basic earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.92
|
|
Diluted earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.91
|
|
Selected financial ratios
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(1)
|
|
|
40.9
|
%
|
|
|
56.4
|
%
|
Policy acquisition cost ratio(2)
|
|
|
17.1
|
%
|
|
|
16.5
|
%
|
General and administrative expense ratio(3)
|
|
|
13.4
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
Expense ratio(4)
|
|
|
30.5
|
%
|
|
|
27.3
|
%
|
|
|
|
|
|
|
|
|
|
Combined ratio(5)
|
|
|
71.4
|
%
|
|
|
83.7
|
%
|
|
|
|
|
|
|
|
|
|
The following table sets forth summarized balance sheet data as
of March 31, 2009:
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2009
|
|
|
(Dollars in thousands, except
|
|
|
share and per share amounts)
|
|
Summary Balance Sheet Data:
|
|
|
|
|
Investments at fair value
|
|
$
|
4,994,755
|
|
Cash and cash equivalents
|
|
$
|
412,162
|
|
Total assets
|
|
$
|
6,969,818
|
|
Reserve for losses and loss expenses
|
|
$
|
1,673,199
|
|
Unearned premiums
|
|
$
|
1,014,675
|
|
Junior Subordinated Deferrable Debentures
|
|
$
|
304,300
|
|
Total liabilities
|
|
$
|
3,343,064
|
|
Total shareholders equity
|
|
$
|
3,626,754
|
|
Book value per common share(6)
|
|
$
|
26.15
|
|
Diluted book value per common share(7)
|
|
$
|
24.90
|
|
|
|
|
(1) |
|
The losses and loss expense ratio is calculated by dividing
losses and loss expenses by net premiums earned. |
|
(2) |
|
The policy acquisition cost ratio is calculated by dividing
policy acquisition costs by net premiums earned. |
|
(3) |
|
The general and administrative expense ratio is calculated by
dividing the sum of general and administrative expenses and
share compensation expenses by net premiums earned. |
|
(4) |
|
The expense ratio is calculated by combining the policy
acquisition cost ratio and the general and administrative
expense ratio. |
27
|
|
|
(5) |
|
The combined ratio is calculated by combining the losses and
loss expense ratio, the policy acquisition cost ratio and the
general and administrative expense ratio. |
|
(6) |
|
Book value per common share is defined as total
shareholders equity divided by the number of common shares
outstanding as at the end of the period, giving no effect to
dilutive securities. |
|
(7) |
|
Diluted book value per common share is calculated based on total
shareholders equity plus the assumed proceeds from the
exercise of outstanding options and warrants, divided by the sum
of common shares, unvested restricted shares, options and
warrants out-standing (assuming their exercise). Diluted book
value per common share is a Non-GAAP financial measure as
described under Item 7, Managements Discussion
and Analysis of Financial condition and Results of
Operations Financial Measures, in the Validus
10-K. |
28
COMPARATIVE
PER SHARE DATA
The IPC historical per share data is taken from the IPC/Max
S-4. Please
see the section of this prospectus/offer to exchange entitled
Note on IPC Information. The pro forma combined data
is taken from the section of this prospectus/offer to exchange
entitled Unaudited Condensed Consolidated Pro Forma
Financial Information.
The historical earnings per share, dividends, and book value of
Validus and IPC shown in the table below are derived from their
respective audited consolidated financial statements as of and
for the year ended December 31, 2008 and as of and for the
three months ended March 31, 2009. The unaudited pro forma
comparative basic and diluted earnings per share data give
effect to the acquisition contemplated by this prospectus/offer
to exchange using the purchase method of accounting as if the
acquisition had been completed on January 1, 2008. The
unaudited pro forma book value and diluted book value per share
information was computed as if the acquisition had been
completed on December 31, 2008 and March 31, 2009.
The historical earnings per share, dividends, and book value of
Validus and IPC shown in the table below are derived from their
respective audited consolidated financial statements as of and
for the year ended December 31, 2008 and as of and for the
three months ended March 31, 2009. The unaudited pro forma
comparative basic and diluted earnings per share data give
effect to the acquisition using the purchase method of
accounting as if the acquisition had been completed on
January 1, 2008. The unaudited pro forma book value and
diluted book value per share information was computed as if the
acquisition had been completed on December 31, 2008 and
March 31, 2009. You should read this information in
conjunction with the historical financial information of Validus
and of IPC included or incorporated elsewhere in this
prospectus/offer to exchange, including Validus and
IPCs financial statements and related notes. The unaudited
pro forma data is not necessarily indicative of actual results
had the acquisition occurred during the periods indicated. The
unaudited pro forma data is not necessarily indicative of future
operations of Validus.
This pro forma information is subject to risks and
uncertainties, including those discussed in the section of this
prospectus/offer to exchange entitled Risk Factors.
Per share
data for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro forma
|
|
|
Equivalent
|
|
|
IPC Max
|
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Per IPC Share(2)
|
|
|
Pro Forma(4)
|
|
|
|
(For the year ended December 31, 2008)
|
|
|
Basic earnings per common share
|
|
$
|
0.62
|
|
|
$
|
1.45
|
|
|
$
|
0.92
|
|
|
$
|
1.03
|
|
|
$
|
(0.63
|
)
|
Diluted earnings per common share(1)
|
|
$
|
0.61
|
|
|
$
|
1.45
|
|
|
$
|
0.91
|
|
|
$
|
1.02
|
|
|
$
|
(0.63
|
)
|
Cash dividends declared per common share
|
|
$
|
0.80
|
|
|
$
|
0.88
|
|
|
$
|
0.80
|
|
|
$
|
0.90
|
|
|
$
|
0.73
|
|
Book value per common share
|
|
$
|
25.64
|
|
|
$
|
33.00
|
|
|
$
|
25.49
|
|
|
$
|
31.64
|
(3)
|
|
$
|
32.30
|
|
Diluted book value per common share
|
|
$
|
23.78
|
|
|
$
|
32.85
|
(5)
|
|
$
|
24.31
|
|
|
$
|
30.31
|
(3)
|
|
|
NA
|
|
Per share
data for the three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro forma
|
|
|
Equivalent
|
|
|
|
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Per IPC Share(2)
|
|
|
|
|
|
|
(For the three months ended March 31, 2009)
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.23
|
|
|
$
|
0.15
|
|
|
$
|
0.82
|
|
|
$
|
0.92
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.20
|
|
|
$
|
0.15
|
|
|
$
|
0.81
|
|
|
$
|
0.91
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
|
|
|
Book value per common share (at period end)
|
|
$
|
26.68
|
|
|
$
|
33.06
|
|
|
$
|
26.15
|
|
|
$
|
32.38
|
(3)
|
|
|
|
|
Diluted book value per common share
|
|
$
|
24.65
|
|
|
$
|
32.73
|
|
|
$
|
24.90
|
|
|
$
|
30.97
|
(3)
|
|
|
|
|
29
|
|
|
(1) |
|
Anti-dilution provisions apply to 2008. There is no effect of
stock-based compensation and preference shares because they are
anti-dilutive. |
|
|
|
(2) |
|
Equivalent per share amounts are calculated by multiplying
Validus pro forma per share amounts by the exchange offer
exchange ratio of 1.1234. |
|
(3) |
|
For purposes of calculating equivalent per IPC share values for
book value per common share and diluted book value per common
share, the $3.00 per common share cash consideration is added to
the equivalent per share amounts. |
|
(4) |
|
Source: IPC/Max Joint Proxy Statement/Prospectus dated
May 7, 2009 at p.22. |
|
(5) |
|
IPC reported diluted book value per common share as $33.07 in
the
IPC 10-K
and amended it to $32.85 in an amendment to the IPC/Max
S-4 filed
with the SEC on April 13, 2009. |
30
COMPARATIVE
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low closing prices
per share of Validus common shares and IPC common shares for the
periods indicated (commencing, in the case of Validus, from
Validus initial public offering on July 25,
2007) as reported on the consolidated tape of the NYSE or
NASDAQ Global Select Market, as applicable, as well as cash
dividends per common share, as reported in the Validus
10-K and the
IPC 10-K,
respectively, with respect to the years 2007 and 2008, and
thereafter as reported in publicly available sources. The IPC
dividend information was taken from the IPC/Max
S-4. Please
see the section of this prospectus/offer to exchange entitled
Note on IPC Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus
|
|
|
IPC
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.30
|
|
|
$
|
21.25
|
|
|
$
|
0.20
|
|
|
$
|
30.25
|
|
|
$
|
20.89
|
|
|
$
|
0.22
|
|
Second Quarter (through May 29, 2009)
|
|
$
|
24.52
|
|
|
$
|
21.55
|
|
|
|
N/A
|
|
|
$
|
27.65
|
|
|
$
|
24.55
|
|
|
|
N/A
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.22
|
|
|
$
|
23.00
|
|
|
$
|
0.20
|
|
|
$
|
28.25
|
|
|
$
|
24.82
|
|
|
$
|
0.22
|
|
Second Quarter
|
|
$
|
23.72
|
|
|
$
|
20.11
|
|
|
$
|
0.20
|
|
|
$
|
30.38
|
|
|
$
|
26.55
|
|
|
$
|
0.22
|
|
Third Quarter
|
|
$
|
24.70
|
|
|
$
|
20.00
|
|
|
$
|
0.20
|
|
|
$
|
33.00
|
|
|
$
|
26.58
|
|
|
$
|
0.22
|
|
Fourth Quarter
|
|
$
|
26.16
|
|
|
$
|
14.84
|
|
|
$
|
0.20
|
|
|
$
|
29.90
|
|
|
$
|
19.52
|
|
|
$
|
0.22
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
31.53
|
|
|
$
|
27.82
|
|
|
$
|
0.20
|
|
Second Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
32.53
|
|
|
$
|
28.57
|
|
|
$
|
0.20
|
|
Third Quarter
|
|
$
|
25.28
|
|
|
$
|
21.11
|
|
|
|
N/A
|
|
|
$
|
33.01
|
|
|
$
|
24.01
|
|
|
$
|
0.20
|
|
Fourth Quarter
|
|
$
|
26.59
|
|
|
$
|
24.73
|
|
|
|
N/A
|
|
|
$
|
30.13
|
|
|
$
|
26.87
|
|
|
$
|
0.20
|
|
The following table sets out the trading information for Validus
common shares and IPC common shares on March 30, 2009, the
last full trading day before Validus public announcement
of delivery of the initial Validus offer to the board of
directors of IPC, and May 29, 2009, the last practicable
trading day prior to the filing of this prospectus/offer to
exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus common
|
|
|
|
|
|
Equivalent Validus Per
|
|
|
|
share close
|
|
|
IPC common share close
|
|
|
Share Amount
|
|
|
March 30, 2009
|
|
$
|
24.91
|
|
|
$
|
25.41
|
|
|
$
|
30.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2009
|
|
$
|
22.81
|
|
|
$
|
24.84
|
|
|
$
|
28.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent per share amounts are calculated by multiplying
Validus per share amounts by the exchange offer exchange ratio
of 1.1234 and adding $3.00 in cash per IPC share.
The value of the exchange offer will change as the market
prices of Validus common shares and IPC common shares fluctuate
during the exchange offer period and thereafter, and may
therefore be different from the prices set forth above at the
expiration time of the exchange offer and at the time you
receive the offer consideration. Please see the section of this
prospectus/offer to exchange entitled Risk Factors.
Shareholders are encouraged to obtain current market quotations
for Validus common shares and IPC common shares prior to making
any decision with respect to the exchange offer.
31
Please also see the section of this prospectus/offer to exchange
entitled The Exchange Offer Effect of the
Exchange Offer on the Market for IPC Common Shares; NASDAQ and
Bermuda Stock Exchange Listing; Registration Under the Exchange
Act; Margin Regulations for a discussion of the
possibility that IPC common shares will cease to be listed on
the NASDAQ Global Select Market and on the Bermuda Stock
Exchange.
As of April 30, 2009, directors and executive officers of
Validus (exclusive of those shareholders who Validus deems to be
qualified sponsors (as defined in the section of the
prospectus/offer to exchange entitled Conditions of the
Exchange Offer)) held and were entitled to vote
approximately 1.76% of the outstanding Validus common shares. As
of March 26, 2009, directors and executive officers of IPC
held and were entitled to vote approximately 1.4% of the
outstanding IPC common shares.
32
RATIO OF
EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and ratio of earnings to
fixed charges excluding Funds at Lloyds costs (FAL
Costs) are measures of the Companys ability to cover
fixed costs with current period earnings. For purposes of
computing the following ratios, earnings consist of net income
before income tax expense plus fixed charges to the extent that
such charges are included in the determination of earnings.
Fixed charges consist of interest, amortization of debt issuance
costs and credit facility fees and an imputed interest portion
on operating leases. The following table is derived from
unaudited results for the three months ended March 31, 2009
and audited results for the years ended December 31, 2008,
2007, 2006 and the period from October 19, 2005, the date
of our incorporation, to December 31, 2005. In addition,
the table presents the pro forma combined ratio of earnings to
fixed charges for the three months ended March 31, 2009 and
year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Combined(1)
|
|
Validus
|
|
|
Three Months Ended
|
|
Year Ended
|
|
Three Months Ended
|
|
Year Ended
|
|
Period Ended
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005(2)
|
|
Ratio of Earnings to Fixed Charges
|
|
|
14.9
|
|
|
|
3.4
|
|
|
|
13.0
|
|
|
|
2.1
|
|
|
|
8.7
|
|
|
|
21.7
|
|
|
|
NM
|
|
Ratio of Earnings to Fixed Charges Excluding
FAL Costs(3)
|
|
|
15.5
|
|
|
|
5.3
|
|
|
|
13.6
|
|
|
|
3.1
|
|
|
|
15.7
|
|
|
|
21.7
|
|
|
|
NM
|
|
|
|
|
(1) |
|
The Pro Forma Combined reflects the acquisition and related
adjustments using the pro forma financial information presented
pursuant to Article 11 of
Regulation S-X.
For a discussion of the assumptions and adjustments made in
preparation of the pro forma financial information presented in
this prospectus/offer to exchange, see the section of this
prospectus/offer to exchange entitled Unaudited Condensed
Consolidated Pro Forma Financial Information. |
|
(2) |
|
Validus commenced underwriting activities on January 1,
2006. There were no earnings from underwriting activities during
the period ended December 31, 2005. |
|
(3) |
|
FAL Costs represent both fixed and variable costs paid for
financing the Companys operations at Lloyds. The
ratio of earnings to fixed charges excluding FAL Costs
demonstrates the degree to which the ratio changes if FAL Costs
are treated as variable rather than fixed costs. |
33
RISK
FACTORS
In addition to the risk factors set forth below, you should
read and consider other risk factors specific to each of the
Validus and IPC businesses that will also affect Validus after
consummation of the exchange offer and the second-step
acquisition, described in Part I, Item 1A of each
companys annual report on
Form 10-K
for the year ended December 31, 2008 and other documents
that have been filed with the SEC and all of which are
incorporated by reference into this prospectus/offer to
exchange. If any of the risks described below or in the reports
incorporated by reference into this prospectus/offer to exchange
actually occurs, the respective businesses, financial results,
financial conditions, operating results or share prices of
Validus or IPC could be materially adversely affected.
Risk
Factors Relating to the Exchange Offer and the Second-Step
Acquisition
The
value of the Validus common shares that the IPC shareholders
receive in the exchange offer will vary as a result of the fixed
exchange ratio and possible fluctuations in the price of Validus
common shares.
Upon consummation of the exchange offer, each IPC common share
validly tendered into the exchange offer and accepted by Validus
for exchange will be converted into the right to receive Validus
common shares equal to the exchange ratio, $3.00 in cash (less
any applicable withholding taxes and without interest) and cash
in lieu of fractional shares. Because the exchange ratio is
fixed at 1.1234 Validus common shares for each IPC common share,
the market value of the Validus common shares issued in exchange
for IPC common shares in the exchange offer will depend upon the
market price of a Validus common share at the date the exchange
offer is consummated. If the price of Validus common shares
declines, IPC shareholders could receive less value for their
shares upon the consummation of the exchange offer than the
value calculated pursuant to the exchange ratio on the date the
exchange offer was announced or as of the date of the filing of
this prospectus/offer to exchange. Share price changes may
result from a variety of factors that are beyond the
companies control, including general market conditions,
changes in business prospects, catastrophic events, both natural
and man-made, and regulatory considerations. In addition, the
ongoing business of Validus may be adversely affected by actions
taken by Validus in connection with the exchange offer,
including as a result of (i) the attention of management of
Validus having been diverted to the exchange offer instead of
being directed solely to Validus own operations and
pursuit of other opportunities that could have been beneficial
to Validus and the combined entity and (ii) payment by
Validus of certain costs relating to the exchange offer,
including certain legal, accounting and financial and capital
markets advisory fees.
Because the exchange offer and the second-step acquisition will
not be completed until certain conditions have been satisfied
or, where relevant, waived (please see the section of this
prospectus/offer to exchange entitled The Exchange
Offer Conditions of the Exchange Offer), a
period of time, which may be significant, may pass between the
commencement of the exchange offer and the time that Validus
accepts IPC common shares for exchange. Therefore, at the time
when you tender your IPC common shares pursuant to the exchange
offer, you will not know the exact market value of the Validus
common shares that will be issued if Validus accepts such shares
for exchange. However, tendered IPC common shares may be
withdrawn at any time prior to the expiration time of the
exchange offer and at any time following 60 days from
commencement of the exchange offer. Please see the section of
this prospectus/offer to exchange entitled Comparative
Market Price and Dividend Information for the historical
high and low closing prices of Validus common shares and IPC
common shares, as well as cash dividends per share of Validus
common shares and IPC common shares respectively for each
quarter of the period 2007 through 2009.
Furthermore, in connection with the exchange offer and the
second-step acquisition, Validus estimates that it will need to
issue approximately 63,474,234 Validus common shares. The
increase in the number of Validus common shares may lead to
sales of such shares or the perception that such sales may
occur, either of which may adversely affect the market for, and
the market price of, Validus common shares.
IPC shareholders are urged to obtain market quotations for
Validus common shares and IPC common shares when they consider
whether to tender their IPC common shares pursuant to the
exchange offer.
34
The
exchange offer may adversely affect the liquidity and value of
non-tendered IPC common shares.
In the event that not all IPC common shares are tendered in the
exchange offer and we accept for exchange those shares tendered
into the exchange offer, the number of shareholders and the
number of IPC common shares held by individual holders will be
greatly reduced. As a result, Validus acceptance of shares
for exchange in the exchange offer could adversely affect the
liquidity and could also adversely affect the market value of
the remaining IPC common shares held by the public. Subject to
the rules of the NASDAQ Global Select Market and the Bermuda
Stock Exchange, Validus may delist the IPC common shares on the
NASDAQ Global Select Market and Bermuda Stock Exchange,
respectively. As a result of such delisting, each issued and
outstanding IPC common share not tendered pursuant to the
exchange offer may become illiquid and may be of reduced value.
Please see the section of this prospectus/offer to exchange
entitled The Exchange Offer Plans for
IPC.
The
exchange offer remains subject to conditions that Validus cannot
control.
The exchange offer is subject to conditions, including tender
without withdrawal of at least 90% of the then-outstanding
number of IPC common shares on a fully-diluted basis (excluding
any IPC common shares owned by Validus, its subsidiaries or
IPC), the termination of the Max amalgamation agreement, the
approval by our shareholders of the issuance of Validus common
shares to be issued as a portion of the offer consideration in
exchange for IPC common shares in the exchange offer and the
second-step acquisition, no material adverse effect having
occurred with respect to IPC and its subsidiaries, IPC and its
subsidiaries continuing to operate in the ordinary course of
business consistent with past practice, the registration
statement of which this prospectus/offer to exchange is a part
becoming effective and consent of the lenders under our credit
agreements. There are no assurances that all of the conditions
to the exchange offer will be satisfied. In addition, the IPC
board of directors may seek to take actions that will delay, or
frustrate, the satisfaction of one or more conditions. If the
conditions to the exchange offer are not met, then Validus may
allow the exchange offer to expire, or could amend or extend the
exchange offer.
Please see the section of this prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer for a discussion of the conditions to the
exchange offer.
The
exchange offer is conditioned on termination of the Max
amalgamation agreement, which could under certain circumstances
result in the payment of the Max termination fee.
While Validus believes the provision of the Max amalgamation
agreement providing for the possible payment of the Max
termination fee is invalid and is seeking a ruling of the
Supreme Court of Bermuda to that effect, if the IPC shareholders
vote against the proposed Max amalgamation, a court may
determine that IPC is required, or IPC may otherwise be bound,
to pay all, or a portion, of the Max termination fee, including
in the circumstance where IPC subsequently agrees to enter into
an agreement with a third party in respect of another business
combination.
The
acquisition of IPC may fail to qualify as a reorganization
within the meaning of Section 368(a) of the Code, resulting
in your full recognition of taxable gain or loss in respect of
your IPC common shares.
The exchange offer, second-step acquisition and short-form
amalgamation are intended to constitute a single integrated
transaction that qualifies as a reorganization within the
meaning of Section 368(a) of the Code. No legal opinion
from U.S. legal counsel or ruling from the
U.S. Internal Revenue Service (the IRS) has
been requested, or is expected to be obtained, regarding the
U.S. federal income tax consequences of the exchange offer,
second-step acquisition and short-form amalgamation. No
assurance can be given that the IRS will not assert, or that a
court would not sustain, that the acquisition of IPC does not
qualify as a reorganization. If the acquisition of IPC fails to
qualify as a reorganization, you generally would recognize gain
or loss equal to the difference, if any, between (i) the
sum of the fair market value of the Validus common shares
received in the exchange offer and second-step acquisition and
the cash received and (ii) your adjusted tax basis in IPC
common shares surrendered in exchange therefor. For more
information, please see the section of this prospectus/offer to
exchange under the caption The Exchange Offer
Material U.S. Federal Income Tax Consequences.
U.S. holders of IPC common shares should consult their own
tax advisors as to the tax consequences to them of the exchange
offer, second-step acquisition and short-form amalgamation,
including any U.S. federal, state, local,
non-U.S. or
other tax consequences, and any tax return filing or other
reporting requirements.
35
Risk
Factors Relating to IPCs Businesses
You should read and consider other risk factors specific to
IPCs businesses that will also affect Validus after the
acquisition contemplated by this prospectus/offer to exchange,
described in Part I, Item 1A of the IPC
10-K and
other documents that have been filed by IPC with the SEC and
which are incorporated by reference into this document.
Risk
Factors Relating to Validus Businesses
You should read and consider other risk factors specific to
Validus businesses that will also affect Validus after the
acquisition contemplated by this prospectus/offer to exchange,
described in Part I, Item 1A of the Validus
10-K and
other documents that have been filed by Validus with the SEC and
which are incorporated by reference into this prospectus/offer
to exchange.
Risk
Factors Relating to Validus Following the Exchange
Offer
Validus
may experience difficulties integrating IPCs businesses,
which could cause Validus to fail to realize the anticipated
benefits of the acquisition.
If the acquisition is consummated, achieving the anticipated
benefits of the acquisition will depend in part upon whether the
two companies integrate their businesses in an efficient and
effective manner. The companies may not be able to accomplish
this integration process smoothly or successfully. The
integration of certain operations following the acquisition will
take time and will require the dedication of significant
management resources, which may temporarily distract
managements attention from the routine business of the
combined entity.
Additionally, because of the notice and procedural requirements
contemplated by Section 102 and Section 103 of the
Companies Act, there may be a period of time after IPC common
shares have been exchanged in the exchange offer during which
Validus will not own all of the outstanding IPC common shares,
IPC common shares may continue to be subject to limitations on
voting set forth in the IPC bye-laws, and Validus may not be
able to immediately exercise operational control over IPC,
including the right to appoint directors and executive officers
of IPC and to manage the day-to-day operations of IPC.
In addition, to the extent IPC, IPCs board of directors or
any IPC shareholder attempts to prevent or delay Validus from
enforcing its rights under Section 102
and/or
Section 103 of the Companies Act, Validus may determine to
take such actions as it believes are necessary, including by
seeking a judgment of a Bermuda court, to enforce its rights
under Section 102
and/or
Section 103 of the Companies Act. Although the resolution
of any such actions or proceedings is not a condition to the
exchange offer, the outcome of any such actions or proceedings
is subject to risk and uncertainty.
Any delay or inability of management to successfully integrate
the operations of the two companies could compromise the
combined entitys potential to achieve the long-term
strategic benefits of the acquisition and could have a material
adverse effect on the business, financial condition, operating
results and market value of Validus common shares after the
acquisition.
Validus
has only conducted a review of IPCs publicly available
information and has not had access to IPCs non-public
information. Therefore, Validus may be subject to unknown
liabilities of IPC which may have a material adverse effect on
Validus profitability, financial condition and results of
operations
To date, Validus has only conducted a due diligence review of
IPCs publicly available information. The consummation of
the exchange offer may constitute a default, or an event that,
with or without notice or lapse of time or both, would
constitute a default, or result in the acceleration or other
change of any right or obligation (including, without
limitation, any payment obligation) under agreements of IPC that
are not publicly available. As a result, after the consummation
of the exchange offer, Validus may be subject to unknown
liabilities of IPC, which may have a material adverse effect on
Validus profitability, financial condition and results of
operations.
In addition, the exchange offer may also permit a counter-party
to an agreement with IPC to terminate that agreement because
completion of the exchange offer or the second-step acquisition
would cause a default or violate an anti-assignment, change of
control or similar clause. If this happens, Validus may have to
seek to replace that
36
agreement with a new agreement. Validus cannot assure you that
it will be able to replace a terminated agreement on comparable
terms or at all. Depending on the importance of a terminated
agreement to IPCs business, failure to replace that
agreement on similar terms or at all may increase the costs to
Validus of operating IPCs business or prevent Validus from
operating part or all of IPCs business.
In respect of all information relating to IPC presented in,
incorporated by reference into or omitted from, this
prospectus/offer to exchange, Validus has relied upon publicly
available information, including information publicly filed by
IPC with the SEC. Although Validus has no knowledge that would
indicate that any statements contained herein regarding
IPCs condition, including its financial or operating
condition (based upon such publicly filed reports and documents)
are inaccurate, incomplete or untrue, Validus was not involved
in the preparation of such information and statements. For
example, Validus has made adjustments and assumptions in
preparing the pro forma financial information presented in this
prospectus/offer to exchange that have necessarily involved
Validus estimates with respect to IPCs financial
information. Any financial, operating or other information
regarding IPC that may be detrimental to Validus following
Validus acquisition of IPC that has not been publicly
disclosed by IPC, or errors in Validus estimates due to
the lack of access to IPC, may have a material adverse effect on
Validus financial condition or the benefits Validus
expects to achieve through the consummation of the exchange
offer.
The
acquisition may result in ratings downgrades of one or more of
Validus insurance or reinsurance subsidiaries (including
the newly acquired IPC insurance and reinsurance operating
companies) which may adversely affect Validus business,
financial condition and operating results, as well as the market
price of Validus common shares.
Ratings with respect to claims paying ability and financial
strength are important factors in maintaining customer
confidence in Validus and its ability to market insurance and
reinsurance products and compete with other insurance and
reinsurance companies. Rating organizations regularly analyze
the financial performance and condition of insurers and
reinsurers and will likely reevaluate the ratings of Validus and
its reinsurance subsidiaries following the consummation of the
second-step acquisition, if applicable. While each of
Standard & Poors and A.M. Best have not
taken any action with respect to Validus ratings following
the announcement of the initial Validus offer or the Validus
amalgamation offer, Moodys has changed the outlook to
negative with respect to the A3 insurance financial strength
rating of Validus reinsurance subsidiary, Validus
Reinsurance, Ltd., and the Baa2 long-term issuer rating of
Validus. Additionally, although A.M. Best has assigned the
reinsurance subsidiaries of IPC (including IPCRe Limited and
IPCRe Europe Limited) the financial strength rating of
A (Excellent) and issuer credit ratings of
a and IPC the issuer credit rating of
bbb, A.M. Best has also indicated that each of
these IPC ratings is under review with negative implications in
connection with the proposed Max amalgamation. A.M. Best
and the other ratings agencies would most likely provide similar
scrutiny and analysis to the proposed acquisition of IPC common
shares by Validus. Following the acquisition, any ratings
downgrades, or the potential for ratings downgrades, of Validus
or its subsidiaries (including the newly acquired IPC operating
companies) could adversely affect Validus ability to
market and distribute products and services and successfully
compete in the marketplace, which could have a material adverse
effect on its business, financial condition and operating
results, as well as the market price for Validus common shares.
The
occurrence of severe catastrophic events after the completion of
the exchange offer and the second-step acquisition could cause
Validus net income to be more volatile than if the
exchange offer and the second-step acquisition did not take
place.
For the year ended December 31, 2008, Validus gross
premiums written on property catastrophe business were
$328.2 million or 24.1% of total gross premiums written.
For the year ended December 31, 2008, 93% of IPCs
gross premiums written covered property catastrophe reinsurance
risks. For the year ended December 31, 2008, after giving
effect to the exchange offer and the second-step acquisition as
if it had been consummated on December 31, 2008, gross
premiums written on property catastrophe business would have
been $661.9 or 37.5% of total gross premiums of Validus on a pro
forma basis. Because Validus after the exchange offer and the
second-step acquisition will, among other things, have larger
aggregate exposures to natural and man-made disasters than it
does today, Validus aggregate loss experience could have a
significant influence on Validus net income. Please see
the section of this prospectus/offer to exchange entitled
Unaudited Condensed Consolidated Pro Forma Financial
Information.
37
THE
COMPANIES
Validus
Validus is a Bermuda exempted company, with its principal
executive offices located at 19 Par-La-Ville Road, Hamilton
HM11, Bermuda. The telephone number of Validus is
(441) 278-9000.
Validus is a provider of reinsurance and insurance, conducting
its operations worldwide through two wholly-owned subsidiaries,
Validus Re and Talbot. Validus Re is a Bermuda-based reinsurer
focused on short-tail lines of reinsurance. Talbot is the
Bermuda parent of the specialty insurance group primarily
operating within the Lloyds Insurance market through
Syndicate 1183. At March 31, 2009, Validus had total
shareholders equity of $2.023 billion and total
assets of $4.763 billion. Validus common shares are traded
on the NYSE under the symbol VR and, as of
May 29, 2009, the last practicable date prior to the filing
of this prospectus/offer to exchange, Validus had a market
capitalization of approximately $1.74 billion. Validus has
approximately 280 employees.
As of the date of the filing of this prospectus/offer to
exchange with the SEC, Validus was the registered holder of 100
IPC common shares, or less than 1% of the amount outstanding.
IPC
The following description of IPC is taken from the IPC/Max
S-4. Please
see the section of this prospectus/offer to exchange entitled
Note on IPC Information.
IPC provides property catastrophe reinsurance and, to a limited
extent,
property-per-risk
excess, aviation (including satellite) and other short-tail
reinsurance on a worldwide basis. During 2008, approximately 93%
of its gross premiums written, excluding reinstatement premiums,
covered property catastrophe reinsurance risks. Property
catastrophe reinsurance covers against unpredictable events such
as hurricanes, windstorms, hailstorms, earthquakes, volcanic
eruptions, fires, industrial explosions, freezes, riots, floods
and other man-made or natural disasters. The substantial
majority of the reinsurance written by IPCRe has been, and
continues to be, written on an excess of loss basis for primary
insurers rather than reinsurers, and is subject to aggregate
limits on exposure to losses. During 2008, IPC had approximately
258 clients from whom it received either annual/deposit or
adjustment premiums, including many of the leading insurance
companies around the world. In 2008, approximately 36% of those
clients were based in the United States, and approximately 53%
of gross premiums written, excluding reinstatement premiums,
related primarily to U.S. risks. IPCs
non-U.S. clients
and its
non-U.S. covered
risks are located principally in Europe, Japan, Australia and
New Zealand. During 2008, no single ceding insurer accounted for
more than 3.7% of its gross premiums written, excluding
reinstatement premiums. IPC did not disclose gross premiums
written by class of business in the IPC
10-Q.
Therefore, comparable disclosure of property catastrophe
premiums cannot be presented. At March 31, 2009, IPC had
total shareholders equity of $1.849 billion and total
assets of $2.453 billion.
In response to a severe imbalance between the global supply of
and demand for property catastrophe reinsurance that developed
during the period from 1989 through 1993, IPC and IPCRe were
formed as Bermuda companies and commenced operations in June
1993 through the sponsorship of American International Group,
Inc. (AIG). On August 15, 2006, AIG sold its
entire shareholding in an underwritten public offering. As from
August 15, 2006, to IPCs knowledge, AIG no longer has
any direct ownership interest in IPC.
IPC common shares are quoted on the NASDAQ Global Select Market
under the ticker symbol IPCR and the Bermuda Stock
Exchange under the symbol IPCR BH. IPCRe Europe
Limited, a subsidiary of IPCRe incorporated in Ireland,
underwrites select reinsurance business. Currently, IPCRe Europe
Limited retrocedes 90% of the business it under-writes to IPCRe.
Internet Address: IPCs Internet address is www.ipcre.bm
and the investor relations section of its website is located at
www.ipcre.bm/financials/quarterly-index.html. IPC makes
available free of charge, through the investor relations section
of its website, annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act as
soon as reasonably practicable after they are electronically
filed with, or furnished to, the SEC.
38
THE
ACQUISITION, BACKGROUND AND REASONS FOR THE EXCHANGE
OFFER
The
Acquisition
In order to consummate the acquisition of IPC, Validus is
simultaneously pursuing the following alternative transaction
structures:
(1) the Validus amalgamation offer;
(2) the exchange offer; or
(3) the Validus scheme of arrangement.
The Validus amalgamation offer, the Validus scheme of
arrangement and the exchange offer are alternative methods for
Validus to acquire all of the issued and outstanding IPC common
shares on the same economic terms. Ultimately, only one of these
transaction structures can be pursued to completion. Validus
intends to seek to acquire all IPC common shares by whichever
method Validus determines is most effective and efficient.
On March 31, 2009, Validus publicly announced that it had
delivered to IPC an offer to consummate the acquisition of IPC
on the terms and subject to the conditions set forth in the
initial Validus offer. IPC announced on April 7, 2009 that
its board of directors had determined that the initial Validus
offer did not constitute a superior proposal to the proposed Max
amalgamation and reaffirmed its support of the proposed Max
amalgamation. On May 18, 2009, Validus publicly announced
that it had delivered to IPC an increased offer to acquire each
outstanding IPC common share for (i) 1.1234 Validus common
shares and (ii) $3.00 in cash (less any applicable
withholding taxes and without interest). In addition, IPC
shareholders will receive cash in lieu of any fractional Validus
common shares to which they may be entitled. Validus has also
delivered the Validus amalgamation agreement signed by Validus
so that, upon a termination of the Max amalgamation agreement,
IPC would have the certainty of Validus transaction and
would be able to sign the Validus amalgamation agreement. IPC
announced on May 21, 2009 that its board of directors had
determined that the Validus amalgamation offer did not
constitute a superior proposal to the proposed Max amalgamation
and reaffirmed its support of the proposed Max amalgamation. Max
has not released IPC from the prohibition in the Max
amalgamation agreement that prevents IPC from even discussing
the Validus amalgamation offer with Validus. As of the date of
this prospectus/offer to exchange, IPC has not been willing to
meet or negotiate with Validus.
In order to consummate the acquisition of IPC without the
cooperation of the IPC board of directors, Validus is pursuing a
three-part plan.
First, Validus is soliciting proxies from IPC shareholders to
vote against the proposed Max amalgamation. If the proposed Max
amalgamation is voted down by IPC shareholders, IPCs board
of directors will be able to terminate the Max amalgamation
agreement and enter into the Validus amalgamation agreement. If
IPCs board of directors were to enter into the Validus
amalgamation agreement following the termination of the Max
amalgamation agreement, Validus believes the amalgamation
contemplated by the Validus amalgamation offer could be
completed in mid-to-late July 2009 based on the assumption that
IPC terminates the Max amalgamation agreement promptly following
its June 12, 2009 annual general meeting, allowing approximately
one month to hold a special general meeting of IPC shareholders
to obtain the required shareholder approval and to satisfy the
other conditions in the Validus amalgamation agreement.
Second, Validus has commenced the exchange offer. The exchange
offer is subject to the terms and conditions described in this
prospectus/offer to exchange. Under Bermuda law, if Validus
acquires at least 90% of the IPC common shares which it is
seeking to acquire in the exchange offer, Validus will have the
right to acquire the remaining IPC common shares on the same
terms in the second-step acquisition. Validus believes that it
would be able to complete the exchange offer in June 2009,
promptly following termination of the Max amalgamation agreement
(and subject to the satisfaction or waiver of the other
conditions to the exchange offer), based on the following. The
expiration time of the exchange offer will be June 26,
2009, unless extended. As a result, if the conditions of the
exchange offer are satisfied or waived at the expiration time of
the exchange offer, Validus would be able to acquire all of the
IPC common shares that are validly tendered pursuant to the
exchange offer.
39
Third, Validus is pursuing the Validus scheme of arrangement. In
order to implement the Validus scheme of arrangement, the IPC
shareholders must approve the Validus scheme of arrangement at
the court-ordered IPC meeting, IPC must separately approve the
Validus scheme of arrangement and the Validus scheme of
arrangement must be sanctioned by the Supreme Court of Bermuda.
The Validus scheme of arrangement must be approved by a majority
in number of the holders of IPC common shares voting at the
court-ordered IPC meeting, whether in person or by proxy,
representing 75% or more in value of the IPC common shares
voting at the court-ordered IPC meeting, whether in person or by
proxy. If the IPC shareholders approve the Validus scheme of
arrangement at the court-ordered IPC meeting, the separate
approval of IPC to the Validus scheme of arrangement can be
provided by either (i) the IPC board of directors
voluntarily complying with the will of the IPC shareholders as
expressed at the court-ordered IPC meeting, or (ii) the
shareholders of IPC approving resolutions at the IPC special
general meeting, including resolutions for IPC to approve and to
be bound by the Validus scheme of arrangement and to terminate
the Max amalgamation agreement. Following IPC shareholder
approval at both the court-ordered IPC meeting and the IPC
special general meeting, the satisfaction or, where relevant,
waiver of the other conditions to the effectiveness of the
Validus scheme of arrangement and the granting of a court order
from the Supreme Court of Bermuda sanctioning the Validus scheme
of arrangement, a copy of the court order sanctioning the
Validus scheme of arrangement will be delivered to the Bermuda
Registrar of Companies, at which time the Validus scheme of
arrangement will be effective. In a decision rendered on
May 29, 2009, the Supreme Court of Bermuda has determined
that it has jurisdiction to sanction the Validus scheme of
arrangement without approval of the IPC board of directors.
However, the Court has determined not to exercise its discretion
to order the court-ordered IPC meeting in advance of the vote on
the proposed Max amalgamation at the IPC annual general meeting
and evidence of IPC shareholder support for the Validus scheme
of arrangement. Validus believes that, under the Validus scheme
of arrangement, it would be able to close the contemplated
acquisition in July 2009 based on the assumptions that:
(1) the Supreme Court of Bermuda will be able to
accommodate the preferred hearings schedule and meeting dates
and other procedural matters; (2) IPC shareholders holding
at least one-tenth of the issued IPC common shares have
requisitioned the IPC special general meeting to be held in July
2009; and (3) the IPC directors, following the rejection of
the Max amalgamation agreement, or the IPC shareholders, convene
the IPC special general meeting, allowing it to be held in July
2009.
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that if all IPC common shares are exchanged
pursuant to the exchange offer
and/or the
second-step acquisition, former IPC shareholders would own, in
the aggregate, approximately 41.3% of the issued and outstanding
Validus common shares and Validus non-voting common shares on a
fully-diluted basis.
For more details relating to the structure of the exchange
offer, please see the section of this prospectus/offer to
exchange entitled The Exchange Offer.
Background
of the Exchange Offer
On March 2, 2009, IPC and Max announced that they had
entered into the Max amalgamation agreement. The IPC/Max
S-4 provides
a summary of the events leading to Max and IPC entering into the
Max amalgamation agreement.
In the morning of March 31, 2009, Edward J. Noonan, the
Chief Executive Officer and Chairman of the Board of Validus,
placed a telephone call to James P. Bryce, the Chief Executive
Officer and President of IPC. Mr. Noonan spoke with
Mr. Bryce and explained that Validus intended to make an
offer to exchange each outstanding IPC common share for 1.2037
Validus common shares, subject to the termination of the Max
amalgamation agreement.
40
Following this telephone call, in the morning of March 31,
2009, Validus delivered a proposal letter containing the initial
Validus offer to IPCs board of directors in care of
Mr. Bryce and issued a press release announcing the initial
Validus offer. The letter reads as follows:
March 31,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
|
|
Re:
|
Superior
Amalgamation Proposal by Validus Holdings, Ltd.
(Validus) to
IPC Holdings, Ltd. (IPC)
|
Dear Sirs:
On behalf of Validus, I am writing to submit a binding
offer1
pursuant to which Validus and IPC would amalgamate in a
share-for-share exchange valuing IPC shares at an 18.0% premium
to yesterdays closing market price. We believe that an
amalgamation of Validus and IPC would represent a compelling
combination and excellent strategic fit and create superior
value for our respective shareholders.
We unquestionably would have preferred to work cooperatively
with you to complete a negotiated transaction. However, it was
necessary to communicate our binding offer to you by letter
because of the provisions of the Agreement and Plan of
Amalgamation between IPC and Max Capital Group Ltd.
(Max), dated as of March 1, 2009, as amended on
March 5, 2009 (the Max Plan of Amalgamation).
We have reviewed the Max Plan of Amalgamation and see that it
contemplates your receipt of acquisition proposals. Given the
importance of our binding offer to our respective shareholders,
we have decided to make this letter public.
Our binding offer involves a share-for-share exchange valuing
IPC shares at an 18.0% premium to yesterdays closing
market price. Consistent with that, we are prepared to
amalgamate with IPC at a fixed exchange ratio of 1.2037 Validus
shares per IPC share.
Our board of directors has unanimously approved the submission
of our binding offer and delivery of the enclosed signed
amalgamation agreement, so that, upon termination of the Max
Plan of Amalgamation, you will be able to sign the enclosed
agreement with the certainty of an agreed transaction. Our offer
is structured as a tax-free share-for-share transaction and does
not require any external financing. It is not conditioned on due
diligence. The only conditions to our offer are those contained
in the enclosed executed amalgamation agreement.
Our binding offer is clearly superior to the Max transaction for
your shareholders and is a Superior Proposal as defined in
section 5.5(f) of the Max Plan of Amalgamation for the
reasons set forth below.
Superior Current Value. Our proposed
transaction will provide superior current value for your
shareholders. Our fixed exchange ratio of 1.2037 represents a
value of $29.98 per IPC share, which is a premium of 18.0% to
the closing price of IPCs common shares on March 30,
2009.2
1 Throughout
this letter we refer to our binding offer because,
as of the date of this letter, we had indicated to IPC that our
offer could not be withdrawn prior to April 15, 2009. As of
the date of this prospectus/offer to exchange, we have revised
our offer. The terms of our offer do not prevent us from
withdrawing it.
2 The
Validus amalgamation offer, as increased on May 18, 2009,
provides IPC shareholders with total consideration of $30.14 per
IPC Share based on the closing price of Validus common shares on
May 15, 2009, a 13.2% premium to the closing price of IPC
common shares that day and a 21.9% premium based on the closing
prices of IPC common shares and Validus common shares on
March 30, 2009, the last trading day before the
announcement of the initial Validus offer.
41
Superior Trading
Characteristics. Validus common shares
have superior trading characteristics to those of Max as noted
in the table below.
|
|
|
|
|
|
|
Validus
|
|
Max
|
|
Share Price Change Since Validus
IPO(1)
|
|
+13.2%
|
|
−36.5%
|
Mkt. Cap as of 3/30/09
|
|
$2.0 billion
|
|
$0.9 billion
|
Average Daily Trading
Volume(2)
|
|
$11.3 million
|
|
$6.7 million
|
Price/Book(3)
|
|
1.05x
|
|
0.76x
|
Price/Tangible
Book(3)
|
|
1.13x
|
|
0.77x
|
|
|
|
(1) |
|
Based on the closing prices on March 30, 2009 and
July 24, 2007. |
|
(2) |
|
Three months prior to March 2, 2009, date of announcement
of Max and IPC amalgamation. |
|
(3) |
|
Based on December 31, 2008 GAAP book value per diluted
share and diluted tangible GAAP book value per share using
closing prices on March 30, 2009. |
Less Balance Sheet
Risk.3
The combined investment portfolio of IPC/Validus is more stable
than that of
IPC/Max.4
Pro forma for the proposed IPC/Max combination,
alternative investments represent 12% of investments
and 29% of shareholders equity. In contrast, Validus does
not invest in alternatives and pro forma for a
Validus/IPC combination, alternative investments
represent 3% of investments and 4% of shareholders equity,
providing greater safety for shareholders and clients.
Superior Long-term Prospects. A
combined Validus and IPC would be a superior company to IPC/Max
with greater growth prospects and synergies with:
1. Superior size and scale, with pro forma
December 31, 2008 shareholders equity of
$3.7 billion and total GAAP capitalization of
$4.1 billion;
2. Superior financial flexibility, with debt/total
capitalization of only 1.8% and total leverage including hybrid
securities of only 9.1%;
3. A global platform, with offices and underwriting
facilities in Bermuda, at Lloyds in London, Dublin,
Singapore, New York and Miami;
4. Superior diversified business mix, with lines of
business concentrated in short-tail lines where pricing momentum
is strongest; and
5. An experienced, proven and stable management team with
substantial expertise operating in IPCs core lines of
business.
Our superior growth prospects are evidenced by our historical
track record. Between December 31, 2005 and
December 31, 2008, Validus grew its book value per share
(including accumulated dividends) at a 13.2%
3 The
occurrence of severe catastrophic events after an amalgamation
with IPC could cause Validus net income to be more
volatile than if the amalgamation did not take place. For the
year ended December 31, 2008, Validus gross premiums
written (excluding reinstatement premiums) on property
catastrophe business were $328.2 million or 24.1% of total
gross premiums written. For the year ended December 31,
2008, 93% of IPCs gross premiums written covered property
catastrophe reinsurance risks. For the year ended
December 31, 2008, after giving effect to the amalgamation
of Validus and IPC as if it had been consummated on
December 31, 2008, gross premiums written on property
catastrophe business would have been $661.9 million or
37.5% of total gross premiums of Validus on a pro forma basis.
Because Validus after the amalgamation will, among other things,
have larger aggregate exposures to natural and man-made
disasters than it does today, Validus aggregate loss
experience could have a significant influence on Validus
net income. IPC did not disclose gross premiums written by class
of business in the IPC
10-Q.
Therefore, comparable disclosure of property catastrophe
premiums cannot be presented.
4 Despite
Maxs announced plan to reduce its exposure to alternative
investments to 10-12% of its portfolio, according to recent Max
disclosures, as a result of the proposed Max amalgamation,
IPCs investment in alternative investments would increase
from 7% of its total portfolio at December 31, 2008 to 12%
of its total portfolio on a pro forma basis after giving effect
to the proposed Max amalgamation, an increase of 5%.
42
compound annual rate vs. Maxs 8.8% growth over the same
period. In 2008, we grew our book value per share (including
accumulated dividends) by 2.4% vs. Maxs 10.8% decline over
the same period.
Expedited Closing Process. We will be
able to close an amalgamation with IPC more quickly than Max
because we will not require the approval of U.S. insurance
regulators.5
Substantially the Same Contractual Terms and
Conditions. Our proposed amalgamation
agreement contains substantially the same terms and conditions
as those in the Max Plan of Amalgamation, and for your
convenience we have included a markup of our amalgamation
agreement against the Max Plan of Amalgamation.
Superior Outcome for Bermuda
Community. The combination of Validus and IPC
creates a larger, stronger entity than a combination of Max and
IPC which will benefit the Bermuda
community.6
Superior Outcome for IPC
Clients. Validus has a greater commitment to
the lines of business underwritten by IPC and has superior
technical expertise and capacity to provide IPC customers with
continuing reinsurance coverage. Max has consistently stated its
intention to reduce its commitment to IPCs business.
Therefore, a combination with Validus will be less disruptive to
IPCs client base.
Our binding offer is clearly a Superior Proposal, within the
meaning of the Max Plan of Amalgamation. We and our financial
advisors, Greenhill & Co., LLC, and our legal
advisors, Cahill Gordon & Reindel LLP, are prepared to
move forward immediately. We believe that our offer presents a
compelling opportunity for both our companies and our respective
shareholders, and look forward to your prompt response. We
respectfully request that the Board of IPC reach a determination
by 5:00 p.m., Bermuda time, on Wednesday, April 15,
2009, that (i) our binding offer constitutes a Superior
Proposal, (ii) it is withdrawing its recommendation for the
transaction contemplated by the Max Plan of Amalgamation and
(iii) it is making a recommendation for the transaction
contemplated by this binding offer.
We reserve the right to withdraw this offer if the Board of IPC
has not reached a determination (i) that our binding offer
constitutes a Superior Proposal, (ii) to withdraw its
recommendation for the transaction contemplated by the Max Plan
of Amalgamation and (iii) to make a recommendation for the
transaction contemplated by this binding offer by
5:00 p.m., Bermuda time, on Wednesday, April 15, 2009.
We further reserve the right to withdraw this binding offer if
you subsequently withdraw your recommendation in favor of our
offer or if you do not sign the enclosed amalgamation agreement
within two business days after the termination of the Max Plan
of Amalgamation.
We look forward to your prompt response.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
|
|
|
|
cc:
|
Robert F. Greenhill
Greenhill & Co., LLC
|
John J. Schuster
Cahill Gordon & Reindel LLP
5 As
of the date of this letter, our belief that we could close an
amalgamation with IPC more quickly than Max was based on the
observation that the Validus amalgamation with IPC would not
require the approval of U.S. insurance regulators because
neither IPC nor Validus operates a
U.S.-regulated
insurance business that would require any such approval while
the proposed Max amalgamation requires such approvals.
6 We
believe that a larger, stronger entity will benefit the Bermuda
community because it offers greater stability.
43
In the afternoon on March 31, 2009, IPC issued a press
release acknowledging receipt of the letter from Validus
outlining the initial Validus offer. The text of the press
release reads as follows:
IPC Holdings, Ltd. (NASDAQ: IPCR) (IPC) acknowledges
receipt of an unsolicited letter dated today, March 31,
2009, from Validus Holdings, Ltd. (NYSE: VR)
(Validus) outlining a proposed transaction.
On March 2, 2009, IPC entered into an Agreement and Plan of
Amalgamation (the Amalgamation Agreement) with its
wholly-owned subsidiary IPC Limited and Max Capital Group Ltd.
(Max) which provides that Max will amalgamate with
IPC Limited. IPC continues to be bound by the terms of the
Amalgamation Agreement and the parties have recently filed a
joint proxy statement/prospectus with the Securities &
Exchange Commission.
IPCs Board of Directors will review the terms of the
proposal submitted by Validus in a manner consistent with its
obligations under the Amalgamation Agreement and applicable
Bermuda law.
IPC will have no further comment on this matter until IPCs
Board of Directors makes a determination regarding Validus
offer.
Also in the afternoon on March 31, 2009, Max issued a press
release announcing that it had received from IPC a copy of the
letter from Validus outlining the initial Validus offer. The
text of the press release reads as follows:
Max Capital Group Ltd. (NASDAQ: MXGL; BSX: MXGL BH) today
announced that it has received a copy of Validus Holdings,
Ltd.s unsolicited, stock-for-stock, proposal for IPC
Holdings, Ltd.
As previously announced on March 2, 2009, Max and IPC
entered into an Agreement and Plan of Amalgamation pursuant to
which Max will amalgamate with IPC Limited. The Boards of both
companies have previously stated that the combination of Max
with IPC would create a strong company with a balanced,
diversified portfolio of risk across a mix of geographies and
business lines with the opportunity to generate more stable and
attractive returns on capital. Maxs pending merger with
IPC is expected to be completed late in the second quarter or
early in the third quarter of this year.
W. Marston (Marty) Becker, Chairman and Chief Executive
Officer of Max Capital, said: In todays
unprecedented business environment and cycle, we believe that
diversification, in terms of global presence and both short and
long-tail exposures, significantly reduces risk and provides a
more solid platform for building sustained long-term value. The
merger of IPC and Max was founded on a shared vision of allowing
the combined group of shareholders to enjoy the benefits of a
strong, diversified operating platform with a proven track
record. While we have not yet had the opportunity to review
Validus proposal carefully, we believe that combining two
short-tailed property catastrophe oriented companies would
appear to do little for true shareholder diversification. By
contrast, Maxs track record of building a diversified
platform without diluting shareholder value should lead to
better long-term growth prospects and value creation following
completion of the pending IPC-Max merger.
In the morning on April 2, 2009, Max sent a letter to
IPCs board of directors purporting to outline the relative
advantages of the pending proposed Max amalgamation as well as
the business and financial issues raised by the initial Validus
offer and issued a press release announcing the letter. The text
of the letter reads as follows:
Dear Members of the Board:
We are writing regarding the many business and financial issues
raised by the public proposal by Validus Holdings Ltd.
(Validus) to acquire IPC Holdings, Ltd.
(IPC) in lieu of the pending IPC amalgamation with
Max Capital Group Ltd. (Max). The IPC/Max
amalgamation was founded on a shared vision of allowing our
combined group of shareholders to enjoy the benefits of a
strong, diversified operating platform with a proven track
record. The Validus proposal does not offer that.
Rather, in light of the Validus proposal, the IPC Board faces
two starkly contrasting choices:
A. You can agree to be taken over by Validus at a price
that is below IPCs book value. The result of this takeover
for your shareholders would be a minority equity stake in an
entity that offers substantially
44
similar product lines to those offered by IPC today, with little
risk diversification, and apparently no ability by the IPC Board
to steward the longer term prospects of the company.
OR
B. You can complete the planned merger of equals with Max
at a price that is below Maxs book value. We believe that
this transaction will create a more stable entity that will
provide significant product, geographic and risk diversification
and over which IPCs Board will continue to have
significant influence, which in turn will provide superior
shareholder value.
For the reasons set forth below, and in the accompanying
exhibits, we do not agree with Validus that its proposal
represents a Superior Proposal or is a proposal that
can reasonably be expected to lead to a Superior Proposal
pursuant to the IPC/Max Plan of Amalgamation dated March 1,
2009 (the IPC/Max Plan).
1. A combination with Max delivers 29% more tangible
book value per share to IPC. As we operate in an industry
where the primary valuation driver is a multiple of book value
(and tangible book value), we believe that a transaction that
maximizes the book value to shareholders provides the best
opportunity to generate shareholder value. The IPC combination
with Max is a truly superior proposal versus the takeover
proposal by Validus. The takeover proposal by Validus would
result in IPC receiving only $28.35 in diluted book value per
IPC share and $26.19 of diluted tangible book value per IPC
share from Validus. In contrast, our combination delivers $34.93
of diluted book value per IPC share (a 23.2% premium to Validus)
and $33.83 of diluted tangible book value per IPC share from Max
(a 29.2% premium to Validus). A combination with Max provides
greater underlying value to IPCs shareholders, which we
believe will result in greater upside for both IPC and Max
shareholders.
2. The IPC/Max Plan creates significant value for IPC
shareholders. As we indicated during our discussions, we
believe that the IPC/Max Plan provides an attractive financial
outcome for IPC. The IPC/Max Plan is expected to be accretive to
both earnings per share and return on equity. In addition, as
you consider the historical trading multiples of Max and IPC,
there is significant opportunity to create substantial value for
all shareholders of the combined company. We believe the Validus
proposal prioritizes an immediate premium in the
form of stock for IPC shareholders, while compromising a value
creation opportunity for IPC shareholders. Importantly, the
written proposal by Validus does not contemplate any
participation by the IPC board of directors, whose participation
remains an important consideration for Max in the amalgamation
and provides continuity to shareholders and clients.
3. Max is a truly diversified underwriting platform.
The IPC/Max Plan offers IPCs shareholders superior current
and future value by combining IPC with a truly diversified
underwriting platform, with a strong and well established track
record. Max enjoys a diversified portfolio of business across
many dimensions by class, geography, customers and
distribution. We believe that Maxs diversified
underwriting platform, with its strong emphasis on profitable
longer-tail casualty business, will generate more stable returns
on capital through underwriting cycles, compared to the
volatility embedded in the Validus short-tail portfolio.
Validus, whose 2008 gross premiums written are 94%
concentrated in short-tail lines of business, claims that its
portfolio represents diversification. Validus
ability to deliver anything approaching true diversification
seems to be constrained by its limited underwriting platforms in
Bermuda and at Lloyds and lack of underwriting
capabilities in longer-tail casualty classes. Combining two
short-tailed property catastrophe companies as proposed by
Validus does little for shareholder diversification.
Validus stated intention to take advantage of currently
strong rates in the property market is a short-term strategy
that is capital intensive, creates greater volatility for
shareholders, and is one which IPC could have continued on a
stand-alone basis but elected not to do so. By contrast, Max
remains committed to an underwriting strategy that produces
attractive results across market cycles, by continuing to expand
its specialty insurance business in selected underwriting
classes and limiting volatility in its underwriting results.
4. Max has a proven, long-term, operating history.
Maxs underwriting has been tested through the tragic
events of 9/11, the active 2004 hurricane season and the
confluence of Hurricanes Katrina, Rita, and Wilma in 2005.
Validus operating history, by contrast, does not extend
beyond the past three years, during which time the industry as a
whole has experienced both strong property catastrophe pricing
and limited catastrophe
45
activity. The first test of Validus portfolio of business
and risk management capabilities since its formation three years
ago came in 2008 with Hurricanes Ike and Gustav. In our view,
the results speak for themselves: the net loss reported by
Validus for these events represented 12.4% of its June 30,
2008 shareholders equity, the largest percentage loss
of its broad peer group which averaged 7.2% of
shareholders equity. The loss was almost double the net
loss incurred by IPC, which represented just 6.7% of IPCs
June 30, 2008 shareholders equity. The losses
recorded by Validus included a 42% increase in its initial loss
estimate for Hurricane Ike (from $165 million to
$235 million) during the fourth quarter of 2008. By
comparison, Maxs net incurred losses from Hurricanes Ike
and Gustav were limited to 3.4% of June 30,
2008 shareholders equity, the lowest among the
broader peer group, demonstrating the lower embedded volatility
of Maxs underwriting results versus Validus.
5. IPC and Max can complete an amalgamation more
quickly, and with greater certainty.
(a) IPC and Max can close our amalgamation expeditiously.
Max believes that the IPC/Max Plan can close as soon as June
2009. By contrast, we believe that Validus would not be in a
position to close a transaction with IPC until September 2009 at
the earliest, notwithstanding its public prediction of a second
quarter close. As you are well aware, the IPC/Max Plan requires
that shareholders have the opportunity to vote on our
amalgamation before IPCs Board can terminate our agreement
and thereafter begin discussions with a bidder such as Validus.
We anticipate that we will be able to hold our respective
shareholder meetings in June, and only after those shareholder
votes would Validus be able to pursue its proposal.
Validus inability to close before September 2009, the
middle of hurricane season, adds meaningful uncertainly to
Validus proposal, as IPC shareholders and the transaction
itself would be put at risk by the significant catastrophe
exposures of Validus and Validus ability to terminate the
transaction based upon changes in shareholders equity.
Much has been made by Validus regarding US regulatory approvals
required to complete the IPC/Max amalgamation. As you know,
these approvals are well underway and we do not foresee such
requisite approvals adversely impacting a possible June closing.
(b) IPC has conducted extensive diligence on Max. IPC was
given complete and open access to Max to afford you and your
outside advisors and consultants with the ability to conduct
extensive due diligence on Max. The Validus proposal seeks to
have IPC enter into a transaction for which IPC has not
conducted due diligence. We also note that certain of
Validus disclosure schedules will not be provided to IPC
until after IPC and Maxs shareholders have the opportunity
to vote upon our amalgamation.
6. Maxs business is complementary to IPC.
Clients seek a diversified program of reinsurers. As you were
able to confirm in your due diligence, Max has very limited
overlap with the customers of IPC and neither party expects a
combination of IPC and Max to lead to any meaningful disruption
of either business. In addition, the continuity of the
underwriters at IPC will maximize the opportunity for IPC to
continue to write this business in the future, assuming market
conditions support it. By contrast, Validus acknowledges that it
writes business with many of the same clients as IPC, which we
would expect to result in a loss of business as clients seek to
diversify their reinsurance placements.
7. Maxs complementary and diversified platform is
appreciated by our ratings agencies. Max currently has a
financial strength rating of A- by A.M. Best, with its
outlook changed to positive in December 2008. As IPC and Max
have jointly presented to our ratings agencies, IPCs Board
has the comfort of knowing that the ratings agencies view our
combination, and its diversifying impact on IPCs business,
positively. In contrast, we believe that the agencies would not
look as favorably on combining two short-tailed
property-oriented platforms.
8. Max maintains less underwriting volatility through
greater diversification of its portfolio of risks. Max seeks
to limit its exposure to catastrophic events (probable maximum
loss based on a 1 in 250 year event) to a maximum of 20% of
its shareholders equity, often operating below this level.
As part of the IPC/Max Plan, we have discussed continuing to
have a significant presence in the property catastrophe market
while on a combined equity basis adhering to this same 20% risk
tolerance. In contrast, Validus maintains peak exposures where
the probable maximum loss based on a 1 in 250 year event
runs at a stated 33% of shareholders equity. Max believes
that combining this risk profile with IPC would expose IPC
shareholders to an even greater level of volatility than at
present and would not change the markets perception of IPC as
being a property catastrophe company. The volatility of
Validus results would also seem to be cause for concern,
particularly
46
when the net losses from Hurricanes Ike and Gustav (which
approximated a 1 in 15 year event) was 12.4% of
shareholders equity, the highest among its broader peer
group. This compared to a net loss of 6.7% of shareholders
equity for IPC and 3.4% for Max.
9. Max has a proven, long-term history of successful
acquisitions without incurring goodwill. We believe
IPCs shareholders can take comfort in Maxs
demonstrated history of successfully entering new business lines
through acquisitions and
start-ups
without incurring meaningful goodwill. For example, when Max
entered the Lloyds market, we booked intangible assets of
$8 million upon closing our acquisition of Imagine Group
(UK) Limited, which stands in contrast to the $154 million
of intangible assets booked by Validus in their acquisition of
Talbot.
10. Max has a diversified shareholder base. We
believe having a shareholder base dominated by five private
equity owners controlling 64.9% of Validus total
beneficial ownership (as of March 13, 2009) will limit
the potential upside in the value of Validus over time as these
private shareholders seek to exit their investment. Max has a
diversified shareholder base with an 84% public float. In
addition, Max has a well diversified shareholder base of high
quality institutional shareholders.
11. IPC and Max have compatible cultures. IPC and
Max have compatible cultures that will help ease the integration
of the two companies. IPC and Max share a common focus on
underwriting, claims and actuarial disciplines, and on running
our respective businesses as meritocracies.
12. Maxs higher asset leverage provides greater
investment income over time. Max believes that investment
leverage (invested assets as a multiple of shareholders
equity) is a positive in driving earnings and stability of
returns on capital over time. Based on 2008 figures, Max had
total investment to equity of 4.2x versus 1.7x for Validus. As
Validus continues to pursue a short-tail strategy, Validus will
be limited in its ability to increase its asset leverage. This
deprives IPC of the meaningful investment income derived from
longer-tail casualty lines and continues to leave IPC
shareholders exposed to increased volatility from catastrophes.
Validus has commented on Maxs investment portfolio,
particularly its alternative investment portfolio. Maxs
year end allocation to alternative investments was 14% of total
invested assets, which is expected to reduce to 10% to 12% in
2009. In looking at results, Maxs total investment return,
including realized and unrealized gains and losses, during the
very volatile period of 2007 / 2008 has outperformed
Validus in 6 of the last 8 quarters.
We believe that the facts regarding the proposal submitted by
Validus and the attempt by Validus to present a one-sided
proposal to IPC shareholders make it clear that Validus has not
presented a Superior Proposal, nor one that can be reasonably
expected to lead to a Superior Proposal. We believe Validus has
created an unnecessary and unproductive disruption for its own
opportunistic purposes, which should not distract either
IPCs or Maxs employees and customers from our
amalgamation, which we both believe to be in the best interests
of our shareholders.
Lastly, Max remains both steadfast in its commitment and excited
to complete its planned amalgamation with IPC. We continue to
believe that the amalgamation of IPC and Max represents the best
strategic and financial opportunity for our collective
shareholders.
Very truly yours,
W. Marston Becker
Chairman and Chief Executive Officer
Max Capital Group Ltd.
47
In the afternoon on April 2, 2009, Validus sent a letter to
IPCs board of directors addressing the claims made by Max
in its letter to IPCs board of directors in the morning on
April 2, 2009. The text of our letter reads as follows:
April 2,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
We are writing to respond to the letter sent to you by
Mr. Becker of Max Capital Group Ltd. (Max)
dated April 2, 2009, regarding the purported benefits of
the proposed combination of IPC Holdings, Ltd. (IPC)
with Max (pursuant to an Amalgamation Agreement between Max and
IPC dated as of March 2, 2009 (the Amalgamation
Agreement)), as compared to the benefits presented by a
combination of IPC with Validus Holdings, Ltd.
(Validus) on the terms we proposed to you in our
letter dated March 31, 2009 (the Validus
Proposal).
First, we would like to reiterate our sincere belief that the
Validus Proposal is in every respect a Superior Proposal as
defined in the Amalgamation Agreement. In fact, as you have
undoubtedly seen, the markets have already endorsed our
proposal: the IPC share price has increased significantly since
the announcement of our proposal, in recognition of the fact
that our proposal delivers superior value to the IPC
shareholders an irrefutable fact. Our proposal
offers the IPC shareholders superior value (an 18% premium to
the value of the IPC stock on the date prior to our
announcement), a currency with superior trading characteristics
(Validus shares trade at a premium to book value, as opposed to
the Max shares, which trade at a discount to book value), less
balance sheet risk, and most importantly, superior long term
prospects.
Max suggests that the choice you are facing is between
(i) a combined company based on a shared vision in which
you, the IPC Board, can continue your stewardship, and
(ii) an entity which offers you few benefits over what you
have today, with no ability to continue your stewardship. We
view the choice quite differently: you can choose to combine
with a company which, on almost every metric, is a worse choice
for your shareholders, or ours, which delivers, immediately and
in the long term, superior value for your shareholders. To the
extent that you, the members of the IPC Board, have an interest
in continuing involvement in the affairs of the combined
company, we would be happy to discuss continued Board
representation with you.
Turning now to the assertions in the Max letter, we note that
Max has made a number of statements which distort the facts and
present an incomplete picture. We would like to respond to each
of these in turn.
1. A combination with Max delivers 29% more
tangible book value per share to IPC. Max believes
book value per share is a very important measure in our
industry, and we do not disagree. The relevant question for the
IPC Board, however, is not, as Max suggests, the relative
percentage of book value being delivered to IPC shareholders in
the two proposals, but the absolute value of the shares
themselves. On this measure, the Validus proposal is clearly
superior, as it offers IPC shareholders a significant premium
over the current value of their shares. Moreover, Max does not
explain in its letter why Maxs shares are trading at such
a deep discount to its book value. We can only guess that the
market assigns such a discount because of Maxs stewardship
of its business or because so much of Maxs investment
portfolio is tied up in risky alternative assets. Indeed, of
Maxs $1.2 billion of tangible common equity,
$754 million is in alternative assets, which in 2008
generated mark downs of $233 million, greater than the
entirety of Maxs underwriting income, and
$476 million is in non-agency asset/mortgage backed
securities. We believe it is a far better value proposition for
the IPC shareholders to receive Validus shares, a currency which
the market values at a premium to book.
48
2. The IPC/Max Plan creates significant value for
IPC shareholders. This statement is simply incorrect.
According to data calculated from the proxy statement filed by
IPC on March 27, 2009, IPCs book value per share
would decrease from $33.00 to $32.30, or 2.1% as a result of the
combination with Max (this obviously implies the deal is
accretive to Max at your expense). That can hardly be described
as the best opportunity to deliver shareholders
value. Moreover, while it is true that the Validus
proposal delivers an immediate premium for IPC shareholders, it
wrong of Max to suggest that such a premium will compromise
value creation for IPC shareholders in the longer term. We
believe that receiving a better currency, in a stronger, better
capitalized company, offers a more likely starting point for
long term value creation than retaining shares in IPC, whose
previously conservatively managed balance sheet will be
negatively impacted by assets of questionable value in the
IPC/Max combination.
3. Max is a truly diversified underwriting
platform. We think the relevant question for IPC is
not whether its merger partner has a diversified platform, but
rather the quality of that diversification. In terms of the
quality of diversification, Validus offers far superior
characteristics than Max, as evidenced by 2008 results for
Maxs diversified businesses. Maxs 2008
reported 91.9% property and casualty GAAP combined ratio
benefited from $107.0 million of prior-year reserve
releases. The true 2008 accident-year GAAP combined ratio was
103.4%.7 Maxs
diversified businesses represent diversification
without profit. Maxs chief source of diversifying growth,
Max US Specialty, generated a 138.5% combined ratio in 2008.
Results such as those cannot create value for
shareholders.8
Max is not a leader in any category of business, and moreover,
it has chosen to focus on volatile lines of business which yield
low
margins.9
In contrast, Validus is a global leader in very profitable
business lines, including marine, energy and war and
terrorism.10Furthermore,
Maxs statement that Validus is constrained by its limited
underwriting platforms is demonstrably untrue. Validus has the
global licenses and other capabilities in place to write long
tail insurance if and when it believes doing so would be
profitable. In fact, today, Validus writes non-catastrophe
business in 143 countries around the
world.11
And, as demonstrated by Validus superior financial results and
lower combined ratio, Validus does so profitably.
4. Max has a proven, long-term, operating
history. Max may have a longer history than Validus,
but even a cursory look at the decline in Maxs book value,
its weak growth, volatile results and general underperformance
will quash any notion that the length of its operating history
trumps the superior abilities of the deeply experienced Validus
management team to generate best in class performance.
By focusing on the net loss reported by Validus based on
hurricanes Ike and Gustav, Max is yet again ignoring the larger
benefit of Validus conservative risk management and
diversification. Validus assumed that the hurricane season in
2008 would generate a market loss of $18 to $21 billion,
and we set our reserve levels accordingly. IPC, by contrast,
assumed $14.5 billion of losses. Notwithstanding the
severity of the events of
7 Upon
verification of the calculations used to prepare this letter we
have determined that Maxs true 2008 accident year GAAP
combined ratio is in fact 110.6% rather than 103.4% as set forth
in our letter reprinted above. The combined ratio, expressed as
a percentage, is a key measurement of profitability
traditionally used in the property-casualty insurance business.
The combined ratio, also referred to as the calendar year
combined ratio, is the sum of the losses and loss
adjustment expense ratio and the underwriting and other
operating expense ratio. The losses and loss adjustment expense
ratio is the percentage of net losses and loss adjustment
expenses incurred to net premiums earned. The underwriting and
other operating expense ratio is the percentage of underwriting
and other operating expenses to net premiums earned. When the
calendar year combined ratio is adjusted to exclude prior period
items, such as loss reserve development, it becomes the
accident year combined ratio.
8 As
described elsewhere in this prospectus/offer to exchange, a
combined ratio of greater than 100% indicates that premiums are
less than aggregate claims and expenses. Validus believes that
unprofitable operations do not create value for shareholders.
9 As
of the date of this prospectus/offer to exchange, this statement
should be qualified as an expression of our opinion based on our
experience and knowledge of the industry.
10 As
of the date of this prospectus/offer to exchange, this statement
should be qualified as an expression of our opinion based on our
experience and knowledge of the industry.
11 Upon
verification, the statement should refer to 134 countries,
rather than 143.
49
that hurricane season, Validus was easily able to absorb the
loss (yielding a combined ratio of 92.2%, with a corresponding
combined ratio at Validus Re of 86.0%). As a result, Validus was
profitable, notwithstanding the losses associated with
hurricanes Gustav and Ike. Its highly touted diversification
notwithstanding, Max sustained a loss for the year in excess of
$200 million, demonstrating beyond a shadow of a doubt that
its greater diversification is not a guarantee of
profitability.
We at Validus believe that our diversification is of a higher
quality, our underwriting decisions are made more carefully, our
risks are managed more prudently, and we exercise a more
conservative stewardship over our capital, all of which would
inure to the long term benefit of the IPC shareholders in our
proposed combination.
5. IPC and Max can complete an amalgamation more
quickly, with greater certainty. Max now claims
(contrary to the statements it made prior to the Validus
Proposal)12
that Max and IPC will be able to close their amalgamation in
June 2009. Max freely admits, however, that it does not control
the time table: the SEC must clear the proxy
statement/prospectus filed by IPC, it must clear the proxy
statement for Max, and the parties must obtain shareholders
approval (which we believe will be difficult to do while our
Superior Proposal is pending). Most importantly, the closing of
the IPC/Max transaction requires regulatory approvals from
several different state insurance departments in the United
States. Implicit in Maxs prediction of a closing date is a
presumption of the receipt of regulatory approvals, which simply
cannot be taken for granted given the likely timing of
regulatory review and the public hearing process. Thus there is
absolutely no guarantee that the IPC/Max deal can be consummated
in the second quarter. Finally, it is important for the IPC
Board not to lose sight of the fact that the Amalgamation
Agreement cedes to Max the power to delay the closing of a
Validus/IPC
combination.13
Max also tries to make an issue of the fact that IPC has not had
a chance to conduct due diligence on Validus. Validus would
welcome the opportunity to provide IPC with customary due
diligence information. Validus stands ready to respond to any
requests IPC may make on an expedited basis, and would be more
than happy to meet with IPC to answer any questions IPC may have
about Validus, its operations, its financial health or any other
matter relevant to the Board of IPC in considering Validus
Superior Proposal. We call upon Max to permit IPCs Board
to exercise its fiduciary duties by releasing IPC from the
extraordinarily restrictive prohibition in the Amalgamation
Agreement which prevents it from even talking to Validus
regarding the terms of its Superior
Proposal.14
6. Maxs business is complementary to
IPC. Maxs assertions that a combination of
Validus and IPC would result in a loss of customers are without
merit and are particularly surprising, given that Max has
publicly stated its intention to significantly reduce IPCs
core reinsurance activities. As we are both aware, the
12 IPC
and Max may update their predictions as to timing as new
information becomes available to each party. For example, in a
recent letter to shareholders filed on May 1, 2009, Max
discloses that it expects the transaction to close late in
the second quarter or early in the third quarter of 2009.
13 As
of the date of this prospectus/offer to exchange, the Max
amalgamation agreement cedes to Max the power to delay the
closing of a Validus/IPC combination because IPC has no right to
terminate the Max amalgamation agreement until after the vote of
IPC shareholders at the annual general meeting, even if the IPC
board of directors changes its recommendation and recommends a
vote FOR the Validus amalgamation offer.
Accordingly, should IPCs board of directors choose to
recommend a vote FOR the Validus amalgamation offer,
Max would have the power to delay the closing of a Validus/IPC
combination by not terminating the IPC/Max agreement until after
the shareholders vote down the proposed Max amalgamation.
14 The
agreement governing the initial Validus amalgamation offer
retained this restrictive prohibition. Validus board of
directors determined that proposing substantially similar
agreement terms with what we believed to be improved economic
terms would facilitate IPCs board of directors evaluation
of the initial Validus amalgamation offer. On May 18, 2009,
Validus amended this provision in the Validus amalgamation offer
to permit IPC and its subsidiaries and their respective
personnel and representatives to participate or engage in
discussions relating to an acquisition proposal for IPC so long
as IPCs board has concluded in good faith that such action
is required in order for IPCs directors to comply with
fiduciary duties under applicable law and IPC complies with
certain notification and confidentiality requirements.
50
current reinsurance market is in the midst of a capacity
shortage.15
As a result, we do not believe that clients will actively seek
to diversify their reinsurance placements away from our combined
company. In fact, our combined financial strength and clout
should only serve to make a combined Validus/IPC a
go-to player for reinsurance
placements.16
7. Maxs complementary and diversified
platform is appreciated by our ratings agencies. We
have been in dialogue with our ratings agencies with regard to
our proposal. We encourage the Board of IPC to focus its
attention on what the ratings agencies actually say, rather than
on Maxs
speculations.17
8. Max maintains less underwriting volatility
through greater diversification in its portfolio of risks.
Due to the significant investment losses Max sustained in
2008, it is unsurprising that Max is attempting to focus on
underwriting volatility alone. Selectively focusing on
underwriting volatility wholly ignores the other various risks
and uncertainties that IPCs shareholders would be assuming
by combining with Max and its risky balance sheet. With respect
to underwriting performance, in 2008, Validus successfully
weathered its exposures from Hurricanes Ike and Gustav with a
combined ratio of 92.2% and net income of $63.9 million.
This performance was generated despite the fact that Validus
reserved for those events more conservatively than its industry
peers, as discussed in paragraph 4 above. Validus
disclosures offer the highest level of transparency with regard
to its probable maximum losses, zonal aggregates and realistic
disaster scenarios and we would challenge Max to provide the
same level of transparency to its shareholders before
presumptuously speculating on the impacts of various potential
events.
9. Max has a proven, long term history of
successful acquisitions without incurring good will.
Validus has a proven track record of acquiring a high
quality premier business with a leading position in its market.
Maxs pointing to its acquisition of Imagine Group (UK)
Limited as an example of a successful acquisition is ironic,
especially relative to our successful acquisition of Talbot. In
that transaction, Validus acquired a strong balance sheet with
excess reserves at a multiple of 3.1x earnings demonstrating
Validus commitment to creating value for our shareholders.
When we acquired Talbot, Validus booked $154 million of
goodwill and intangible assets; however, from acquisition
closing until December 31, 2008, we benefited from
$105 million in reserve releases from the Talbot business,
emanating from periods prior to the acquisition. Maxs
acquisition history, on the other hand, is that of acquiring
subscale small businesses that significantly lag the leaders in
their respective
markets.18
10. Max has a diversified shareholder base.
Maxs attempt to characterize our shareholder base as a
liability is baseless. What is relevant is the relative
liquidity of Max and Validus shares. As previously mentioned in
our letter dated March 31, 2009, Validus daily
average trading volume was $11.3 million vs.
$6.7 million for Max for the three months prior to
announcement of the IPC/Max transaction. Additionally, since our
shareholder base is publicly disclosed, if the market viewed it
as an overhang, such information would already be
embedded in the market price of our common shares. The
combination of our trading volume and the premium pricing of our
shares compared to either Max or IPC should put to rest any
concerns IPC shareholders may have regarding liquidity of the
combined company.
15 A
reinsurance industry commentator has recently stated that,
taking reinsurer capital as the nearest proxy for capacity, it
is estimated that reinsurer capital, which was down 8 to
10 percent from January 1, 2008 through
September 30, 2008, will be down 15 to 20 percent for
the year ending December 31, 2008 when reported. In
addition, the same commentator observed that capital markets
capacity for insurance risk has declined in similar proportions.
16 We
believe that a combined Validus/IPC would be a go-to
player for reinsurance placements because Validus will be better
capitalized (as measured by pro forma shareholders equity)
than many of the members of its peer group.
17 As
of the date of this prospectus/offer to exchange, this statement
is intended to emphasize that Validus believes the statement
being referred to, in the April 2, 2009 Max letter to
IPCs board of directors, is based upon speculation by Max,
since, to Validus knowledge, the rating agencies have not
made a determination in this regard.
18 As
of the date of this prospectus/offer to exchange, we are aware
of only three small acquisitions by Max and we believe, based on
our experience and knowledge of the industry, that the acquired
entities were not leaders in their markets.
51
11. IPC and Max have compatible cultures.
Max has mentioned that it has a compatible culture with IPC.
If that is in fact the case, we find the paucity of IPC
management that will continue in senior roles at IPC/Max curious
and an indication that such cultural fit may be only skin deep.
We have successfully integrated large acquisitions in the past,
and believe that experience is most relevant in this regard.
12. Maxs higher asset leverage provides
greater investment income over time. Maxs asset
leverage has been a significant liability given its risky
investment
strategy.19
This leverage would similarly expose a combined IPC/Max to
significant volatility. Maxs alternative investments and
non-agency asset/mortgage backed securities alone comprise 99%
of its tangible equity, indicating a massive amount of embedded
risk.20
Maxs $233 million loss in 2008 on their alternative
investment portfolio is entirely indicative of that risk. Its
so-called outperformance in 6 of the last 8 quarters
ignores the abject underperformance it experienced in other
periods.21
In 2007, when the global credit crisis began, Maxs current
management had the opportunity to liquidate its alternative
assets. Max chose to continue holding those risky investments,
which have led to massive losses. Combined, we believe these
factors highlight Maxs poor history as stewards of
shareholder capital.
* * *
In closing, I would like to reiterate that we have submitted to
you a proposal which we are confident the IPC Board will agree
is a Superior Proposal as defined in your
Amalgamation Agreement. We have submitted this proposal because
we deeply and honestly believe that the combination of IPC and
Validus will result in a far better value proposition for the
IPC shareholders than the combination of IPC and Max. Validus is
absolutely committed to our Superior Proposal and we simply do
not understand how Max can characterize our actions as
opportunistic. If Max truly believes its combination
with IPC is superior, we call upon Max to free the IPC Board
from the shackles that your Amalgamation Agreement has placed on
the ability of the members of the IPC Board to exercise their
fiduciary duties under Bermuda law, so as to create a level
playing field on which the shareholders of IPC will be able to
decide which of the two proposals is indeed superior.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
19 As
of the date of this prospectus/offer to exchange, we believe
that the investment strategy that has been employed by Max, and
is expected to be employed by Max management who will control
the combined IPC/Max, and that according to Maxs public
information is expected to include a 10% to 12% concentration in
alternative investments, should be considered a risky investment
strategy that could amount to a significant liability when
compared with an investment strategy, like Validus, that does
not allow for such investments in alternative investments.
20 As
of the date of this prospectus/offer to exchange, this statement
is intended to emphasize that Maxs alternative investments
alone comprised 61% of tangible equity, indicating what we
believe to be a significant amount of embedded risk.
21 As
of the date of this prospectus/offer to exchange, this statement
should be qualified as an expression of our opinion based on our
experience and knowledge of the industry and on Maxs
investment performance in the third and fourth quarters of 2008,
which was worse than the average for its peer group but better
than the investment performance of several of its peers.
52
In the afternoon on April 5, 2009, Validus sent a letter to
IPCs board of directors regarding an error that Max had
made in its calculation of pro forma tangible book value under
the terms of the initial Validus offer. The text of our letter
reads as follows:
April 5,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
We are writing to call to your attention an error contained in
the publicly disseminated letter sent to you by Mr. Becker
of Max Capital Group Ltd. (Max) dated April 2,
2009 and the accompanying presentation materials, regarding the
purported benefits of the proposed combination of IPC Holdings,
Ltd. (IPC) with Max (pursuant to an Amalgamation
Agreement between Max and IPC dated as of March 2, 2009
(the Amalgamation Agreement)), as compared to the
benefits presented by a combination of IPC with Validus
Holdings, Ltd. (Validus) on the terms we proposed to
you in our letter dated March 31, 2009 (the Validus
Proposal).
In his letter, Mr. Becker states (and he has been widely
quoted in the media stating) that [a] combination with
Max delivers 29% more tangible book value per share to
IPC. This is not correct. We, and our financial
advisors and SEC counsel, have reviewed this calculation and we
would like to provide you with the correct figures.
Specifically, Mr. Beckers calculation understates the
pro forma IPC share of Validus tangible book value per share by
$2.74, which results in overstating the premium calculated on
this basis quite significantly. We have attached some materials
that illustrate the correct calculation. Our SEC counsel has
advised us that this error is material and that Max will be
required to amend its SEC filings to correct its error.
As we noted in our letter dated April 2, 2009, putting
aside this error, we believe that this measure is the wrong
framework on which to analyze whether the IPC/Max plan is
superior to the IPC/Validus plan, and refer you to the analysis
in our earlier letter. We remain confident that the IPC Board
will agree the Validus Proposal is a Superior
Proposal as defined in your Amalgamation Agreement.
We look forward to your response to the Validus Proposal.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
cc: Marty Dolan, J.P. Morgan Securities, Inc.
In the afternoon on April 5, 2009, Validus also posted the
material referenced in the letter on its website.
On the morning of April 6, 2009, Max issued a press release
reaffirming its prior disclosure regarding the initial Validus
offer and stating that it continues to believe that
Validus had not presented a Superior Proposal, nor one that can
be reasonably expected to lead to a Superior Proposal (as such
term is defined in the IPC/Max Plan of Amalgamation dated
March 1, 2009). The text of the press release reads
as follows:
Max Capital Group Ltd. (NASDAQ:MXGL; BSX: MXGL BH) today
confirmed that the calculations of diluted book value per IPC
share and diluted tangible book value per IPC share included in
Maxs April 2, 2009
53
letter to the Board of Directors of IPC Holdings, Ltd.
(IPC) are true and correct. Max has consulted with
its financial advisors and SEC counsel.
In a press release dated April 5, 2009, Validus alleged
that Max had made a substantial error in its
calculation of pro forma tangible book value under
the proposed terms of Validuss unsolicited takeover of
IPC. However, Validuss allegation is incorrect and
misleading. The calculations that Max presented accurately
represent what an IPC shareholder would receive on a stand alone
basis from either Max or Validus, without giving effect to what
IPC itself contributes to a transaction. The Max presentation
allows IPC shareholders to compare the value received under each
transaction on an apples-to-apples basis. Max
believes this is an important measure in comparing the value
received today by an IPC shareholder under the agreement with
Max and the proposed Validus transaction. The pro forma
calculations Validus is utilizing include the additional benefit
derived from issuing Validus shares to purchase IPC at a
discount to book value.
One has to question whether the IPC shareholders are being
well served by the non-substantive claims being initiated by
Validus. They have made certain statements that completely
misrepresent and falsely characterize the information presented
by Max. Since Validus initially made its below book value,
unsolicited takeover offer for IPC, it has demonstrated a lack
of understanding of what is important to the shareholders of IPC
in allowing them to assess the relative value being delivered by
Max versus Validus, stated W. Marston (Marty) Becker, Max
Chairman and CEO.
The facts presented in Maxs April 2, 2009 letter to
IPC have not changed and are clear:
(i) Max delivers to IPC $33.83 of diluted tangible book
value per IPC share a 29.2% premium versus $26.19
delivered by Validus, and
(ii) Max delivers to IPC $34.93 of diluted book value per
IPC share a 23.2% premium versus $28.35 delivered by
Validus.
As noted above, these figures represent the book value per IPC
share being delivered to IPCs shareholders on a standalone
basis, without giving effect to what IPC itself contributes to a
transaction.
The conclusion remains clear a combination with Max
provides greater underlying value to IPCs shareholders
today, with true diversification of underwriting exposures and
without an over-concentration in short-tail catastrophe oriented
business, and will result in greater upside for IPC shareholders
as compared to the hostile takeover proposal by Validus.
Max continues to believe that Validus has not presented a
Superior Proposal, nor one that can be reasonably expected to
lead to a Superior Proposal (as such term is defined in the
IPC/Max Plan of Amalgamation dated March 1, 2009).
Additional details on the Max calculations referred to above are
posted on [Maxs] website: www.maxcapgroup.com.
54
In the afternoon on April 6, 2009, Validus sent a letter to
IPCs board of directors regarding the Max press release
and issued a press release announcing the letter. The text of
our letter reads as follows:
April 6,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
The difficulty of being unable to speak directly has lead to an
exchange of press releases, which is unfortunate. In this
context, we would like to respond to the Max statement issued
this morning by describing the analytical framework we believe
is appropriate.
In todays press release, Max modified its description of
its calculation of pro forma book value per share. In essence,
the Max calculation now describes what an IPC shareholder would
receive on a standalone basis from either Validus or Max. We
disagree with this basis for valuation. Our approach is focused
on a comparison of what an IPC shareholder would own as a result
of either transaction.
However, if we were to follow the Max approach, we would note
that there are a number of adjustments contemplated in the
proposed IPC/Max Amalgamation Agreement which would reduce the
standalone value
22 that
Max delivers by $117.4 million. The joint proxy
statement/prospectus filed by IPC and Max references, among
other adjustments, the need to increase Max loss reserves
for annuity claims as well as property and casualty claims by
$130.0 million. As a result, the Max book value delivered
would be reduced by $2.06 per Max share, resulting in a book
value delivered of $20.40 per share, on the basis of Maxs
calculation of diluted book value.
I would also note that Validus and Max use differing accounting
conventions for calculating diluted book value per share. While
each is valid, on the basis upon which Validus calculates
diluted book value per share, the Max value delivered would be
$19.68 after a $1.81 per share reduction in book value.
We have provided the attached schedule of our calculations in an
effort to be as transparent as possible in our communication
with you.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
cc: Marty Dolan, J.P. Morgan Securities, Inc.
22 If
the adjustments to reduce the net asset value of Max were made,
it would reduce by $117.4 million the book value that Max
contributes to the combined company at closing.
55
Adjustments
to Max Book Value Upon Combination with IPC
|
|
|
|
|
(In millions, except per share
values)
|
|
|
|
|
Net book value of net assets acquired prior to fair value
adjustments(1)
|
|
$
|
1,280.3
|
|
Preliminary adjustments for fair value
|
|
|
|
|
Adjustment to deferred acquisitions costs(2)
|
|
|
(51.3
|
)
|
Adjustment to goodwill and intangible assets(3)
|
|
|
(12.0
|
)
|
Adjustment to reserve for property and casualty losses and loss
adjustment expenses(4)
|
|
|
(60.0
|
)
|
Adjustment to life and annuity benefits(4)
|
|
|
(70.0
|
)
|
Adjustment to unearned property and casualty premiums(5)
|
|
|
51.3
|
|
Adjustment to senior notes(6)
|
|
|
24.6
|
|
|
|
|
|
|
Total adjustments
|
|
|
(117.4
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
1,162.9
|
|
Total adjustments
|
|
$
|
(117.4
|
)
|
Max diluted shares outstanding(7)
|
|
|
64.9
|
|
|
|
|
|
|
Adjustment per diluted share
|
|
$
|
(1.81
|
)
|
|
|
|
|
|
Source: Note 1 to unaudited pro forma consolidated
financial information of IPC in
Form S-4
filed
3/27/2009
(S-4).
Notes 1-6
are excerpts from the
S-4.
|
|
|
(1) |
|
Represents historical net book value of Max. |
|
(2) |
|
Represents adjustment to reduce the deferred acquisition costs
of Max to their estimated fair value at December 31, 2008. |
|
(3) |
|
Represents adjustment to reduce goodwill and intangible assets
of Max to their estimated fair value at December 31, 2008. |
|
(4) |
|
The fair value of Maxs reserve for property and casualty
losses and loss adjustment expenses, life and annuity benefits,
and loss and loss adjustment expenses recoverable were estimated
based on the present value of the underlying cash flows of the
loss reserves and recoverables. In determining the fair value
estimate, IPCs management estimated a risk premium deemed
to be reasonable and consistent with expectations in the
marketplace given the nature and the related degree of
uncertainty of such reserves. Such risk premium exceeded the
discount IPCs management would use to determine the
present value of the underlying cash flows. |
|
(5) |
|
Represents the estimated fair value of the profit within
Maxs unearned property and casualty premiums. In
determining fair value, IPCs management estimated the
combined ratio associated with Maxs net unearned property
and casualty premiums. |
|
(6) |
|
Represents adjustment to record Maxs senior notes to their
estimated fair value at December 31, 2008. |
|
(7) |
|
Common shares outstanding plus the gross amount of all warrants,
options, restricted shares, RSUs, restricted common shares and
performance share units outstanding as of the 12/31/2008 balance
sheet date (Source: Max 2008
Form 10-K) |
56
In the afternoon on April 7, 2009, Kenneth L. Hammond,
Chairman of IPCs board of directors, sent a letter to
Mr. Noonan indicating that IPCs board of directors
had reaffirmed its recommendation to combine with Max. The text
of the letter reads as follows:
April 7,
2009
Edward J. Noonan
Chairman & Chief Executive Officer
Validus Holdings Ltd.
19 Par-La-Ville Road
Hamilton HM11
Bermuda
Dear Mr. Noonan:
I am writing to respond to your letter of March 31, 2009,
submitting an offer pursuant to which Validus would combine with
IPC.
IPCs board of directors, after careful consultation with
management and our financial and legal advisors, has unanimously
concluded that the Validus proposal does not constitute a
Superior Proposal as defined in the Agreement and Plan of
Amalgamation with Max Capital Group Ltd. dated March 1,
2009. Furthermore, IPCs board of directors has unanimously
reaffirmed its recommendation that IPC shareholders vote in
favor of the transaction with Max.
In reaching its decision, IPCs board of directors
considered several factors, including the following:
|
|
|
|
|
The Validus Offer Fails to Meet IPCs Diversification
Goals During 2008, IPCs board of directors
concluded that it would be in IPCs best interest to
diversify beyond its monoline property catastrophe business
model in order to reduce the volatility inherent in focusing on
catastrophe reinsurance and to spread our risk base across less
correlated risks. A key factor in our decision to choose Max
over other options is our belief that Maxs diversified
operations offer the best path to achieve this goal. The
decision was the result of a robust and thorough review of
strategic alternatives. A transaction with Validus would not
accomplish that strategic objective given Validus
substantial correlated catastrophe exposure.
|
|
|
|
The Max Transaction Has Significant Value Creation Potential and
Upside for IPC Shareholders The combination with Max
has the potential to create significant value for IPC
shareholders, as detailed in the filed
S-4
registration statement dated March 27, 2009. It also
provides greater book value per share to IPC shareholders.
Furthermore, Maxs balance sheet has significantly lower
goodwill and intangibles, resulting in an even greater tangible
book value per share to IPCs shareholders. We are
concerned that Validus proposal enables Validus to raise
capital at a discount to book value at the expense of IPC
shareholders, on the other hand, the combination with Max allows
deployment of capital under a combined business plan that
benefits IPCs shareholders. Maxs diversified book,
when combined with IPCs, has the potential to reduce
earnings volatility. Earnings volatility affects share price
volatility, ratings and other important financial measures. A
combination with Max carries less risk, as this combination is
less exposed to catastrophe events and other risk
concentrations. On the other hand, Validus earnings and
share price are more affected by catastrophe losses. At the time
of the Validus offer, its share price was near the high end of
its 52-week trading range, resulting in an exchange ratio that
poses potential downside risk to IPC shareholders. In contrast,
we entered into the transaction with Max at an exchange ratio
determined at a time that Max was trading at 53% of its 52-week
high.
|
|
|
|
The Validus Amalgamation Proposal Is Less Certain, Is
Riskier for IPCs Shareholders and Would Take Longer to
Close We currently expect to be able to complete the
transaction with Max in June, with all regulatory approvals
obtained. In contrast, in our view, any transaction with Validus
likely could not be completed before September, right in the
middle of the wind season. Our transaction with Max would have
to be rejected by IPC shareholders before IPC would be able to
conduct due diligence on
|
57
|
|
|
|
|
and negotiate with Validus. There is no assurance IPC would, at
that time, choose to enter into a transaction with Validus. Even
if IPC were to proceed with Validus at that time, Validus and
IPC would both need to obtain consents under their credit
facilities before the deal could close, whereas no such
additional consents would be necessary to close the IPC/Max
transaction. Validus and IPC would also need to achieve
satisfactory indications from the ratings agencies regarding the
ratings outcomes of such a combination.
|
Given these considerations and others, the board of directors
unanimously determined that the Validus proposal does not
constitute a Superior Proposal as defined in our amalgamation
agreement with Max. IPC remains committed to completing our
transaction with Max, which we believe will create a diversified
and balanced platform for growth that should drive stronger
performance and value for shareholders for many years.
Sincerely,
Kenneth L. Hammond
Chairman of the Board of Directors
On Behalf of the IPC Holdings Board of Directors
In the afternoon on April 8, 2009, Validus sent a letter to
Mr. Hammond, the Chairman of IPCs board of directors,
regarding the IPC press release and letter and issued a press
release announcing the letter. The text of the letter reads as
follows:
April 8,
2009
Kenneth L. Hammond
Chairman
IPC Holdings, Ltd.
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Mr. Hammond,
I am writing in response to your letter of April 7, 2009,
in which you confirm the continuing support of the IPC board for
the Max takeover of IPCs operations.
I am disappointed with the Boards decision and
respectfully disagree with your assessment of our Superior
Proposal. I am confident that had your Amalgamation Agreement
with Max allowed you to engage in dialogue with us, you would
have instead supported the Validus Superior Proposal on behalf
of your shareholders. In particular, although you cite a
robust and thorough review of strategic
alternatives, I am greatly disappointed that you never invited
us to participate in that process, although you spoke with
numerous potential buyers. To the extent that Max will release
you from the restrictive terms of the Amalgamation Agreement, we
continue to stand ready to discuss your objectives and how our
business meets those objectives. Until you agree to discuss our
proposal with us, we have no choice except to communicate
directly with your shareholders. We believe the facts will
demonstrate that our proposal is truly a Superior Proposal.
We hereby advise the shareholders of IPC that:
1. We have retained Georgeson as our proxy solicitor. We
will shortly file proxy solicitation materials with the SEC and
those materials will contain, among other things, the many
reasons why we believe you should vote against the Max takeover.
Once the proxy is effective, Georgeson will be in touch
58
with IPCs shareholders to solicit their votes AGAINST the
Max takeover. If, as we
[hope]23,
IPCs shareholders vote down the Max takeover, you will be
unencumbered by the restrictive Amalgamation Agreement and free
to execute the Validus Agreement.
2. In our capacity as an IPC shareholder, we object to the
punitive nature of the $50 million Max Termination Fee. The
Termination Fee is an unenforceable penalty under Bermuda law
and we are commencing litigation to reduce this penalty. If
successful,24
we will permit IPC to pay the amount by which such penalty is
reduced as a dividend to IPC shareholders, so that IPC
shareholders and not Max or Validus
shareholders will share in the value obtained.
I regret that the terms of the Max takeover preclude the
management teams of IPC and Validus from cooperating in
delivering a superior outcome for IPC shareholders, but we are
pleased to work directly with your shareholders to achieve the
same end. We remain fully committed to our proposal.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
On April 9, 2009, Validus filed a preliminary proxy
statement with the SEC which, in its definitive form, is being
used to solicit votes from IPC shareholders against the proposed
Max amalgamation.
On April 13, 2009, IPC filed an amendment (Amendment
No. 1) to the IPC/Max
S-4 with the
SEC, which, among other things, added to the disclosure
regarding the background to the proposed Max amalgamation
including the reasons as to why Validus was excluded from the
process that resulted in the proposed Max amalgamation.
Amendment No. 1 also contained a correction to IPCs
diluted book value for the year ended December 31, 2008.
On April 16, 2009, Validus filed a preliminary proxy
statement with the SEC with respect to soliciting votes from
Validus shareholders to approve the issuance of the Validus
common shares in connection with the acquisition of IPC.
On April 21, 2009, Validus filed an amendment to the
preliminary proxy statement with the SEC with respect to
soliciting votes from IPC shareholders against the proposed Max
amalgamation.
On April 28, 2009, IPC filed a second amendment to the
IPC/Max S-4
with the SEC.
On April 28, 2009, Validus filed the Bermuda claim against
IPC, IPC Limited and Max. The Bermuda claim challenges the
validity of the Max termination fee and the no talk provisions
in the Max amalgamation agreement. Further, the Bermuda claim
alleges that by entering into the Max amalgamation agreement
containing the Max termination fee and the no talk provisions
and continuing to act in accordance with the terms of these
provisions, the directors of IPC have acted in breach of their
fiduciary or other duties and not in accordance with the
constitution of IPC.
On April 30, 2009, Validus issued a press release outlining
its three-part plan to expedite its acquisition of IPC.
On April 30, 2009, IPC issued a press release reaffirming
its belief that the initial Validus offer did not represent a
superior proposal and that the IPC board of directors continued
to recommend IPC shareholders vote in favor of the proposed Max
amalgamation.
23 As
of the date of this prospectus/offer to exchange, the word
hope has been inserted to replace the word
expect in this sentence.
24 As
of the date of this prospectus/offer to exchange, the reference
to success in this sentence relates to Validus
success in pursuing the litigation strategy referenced in the
immediately prior sentence followed by the successful
consummation of the offer.
59
On May 1, 2009, Validus filed an amendment to the
preliminary proxy statement with the SEC with respect to
soliciting votes from IPC shareholders against the proposed Max
amalgamation.
On May 1, 2009, Validus filed an application to expedite
the trial of the Bermuda claim.
On May 4, 2009, IPC filed a third amendment to the IPC/Max
S-4 with the
SEC.
On May 5, 2009, Validus filed an investor presentation
titled Superior Proposal for IPC Shareholders with
the SEC and on May 6, 2009 filed a revised investor
presentation with the SEC.
On May 6, 2009, Validus filed an amendment to its preliminary
proxy statement with respect to soliciting votes from IPC
shareholders against the proposed Max amalgamation.
On May 7, 2009, IPC and Max filed a joint proxy
statement/prospectus for the IPC/Max S-4 with the SEC and stated
that they would mail the joint proxy statement/prospectus on or
about May 7, 2009 to their respective shareholders of record as
of the close of business on April 28, 2009.
On May 8, 2009, Validus filed with the SEC and commenced
mailing definitive proxy materials and proxy cards to IPC
shareholders seeking proxies from IPC shareholders to vote
against the proposed Max amalgamation.
On May 11, 2009 Validus filed with the SEC two amendments to its
preliminary proxy statement with respect to soliciting votes
from Validus shareholders to approve the issuance of the Validus
common shares in connection with the acquisition of IPC.
On May 11-12, 2009, Validus application to expedite
the trial of the Bermuda claim was heard by the Supreme Court of
Bermuda. Following the hearing, on May 13, 2009, the Court
denied the application for expedition of the timetable for the
proceedings. While this was not a hearing on the merits of
Validus claims, the Court acknowledged that Validus had
raised serious questions to be tried.
On May 12, 2009, Validus filed three preliminary proxy
statements with the SEC to, respectively, (i) solicit votes
from IPC shareholders to approve the Validus scheme of
arrangement at the court-ordered IPC meeting, (ii) solicit
requisitions from IPC shareholders to compel the board of
directors of IPC to call the IPC special general meeting and
(iii) solicit votes to approve certain proposals at the IPC
special general meeting.
On May 12, 2009, Validus commenced the exchange offer.
On May 14, 2009, Validus amended its registration statement
on
Form S-4
and the underlying prospectus/offer to exchange.
On May 14, 2009, IPC filed a Solicitation/Recommendation
Statement on
Schedule 14D-9
reporting that IPCs board had met on May 13, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the exchange offer and not tender their
IPC common shares to Validus pursuant to the exchange offer.
On May 14, 2009, Validus filed an application to the
Supreme Court of Bermuda to convene the court-ordered IPC
meeting to approve the Validus scheme of arrangement. The Court
issued its decision on Validus application on May 29,
2009. In the decision, the Court rejected IPCs primary
contention that the Court lacked jurisdiction to sanction the
Validus scheme of arrangement without approval of IPCs
board of directors, and found that the Validus scheme of
arrangement could be approved on behalf of IPC by its
shareholders acting at the IPC special general meeting. The
Court, however, determined not to exercise its discretion to
order the court-ordered IPC meeting (at which the IPC
shareholders may consider and vote on approval of the Validus
scheme of arrangement) in advance of the vote on the proposed
Max amalgamation and evidence of IPC shareholder support for the
Validus scheme of arrangement. Based on this decision, Validus
will be able to pursue its scheme of arrangement if IPC
shareholders reject the proposed Max amalgamation at IPCs
annual general meeting on June 12, 2009.
On May 18, 2009, Validus delivered an offer letter to IPC
advising IPC of the increased economic terms of the Validus
amalgamation offer and containing the amendment to the Validus
amalgamation agreement.
60
Later on May 18, 2009, IPC issued a press release
announcing that its board of directors, along with its legal and
financial advisors, would carefully review the revised terms of
the exchange offer consistent with its fiduciary duties and make
a formal recommendation to IPC shareholders in accordance
therewith.
Also on May 18, 2009, Validus filed an investor
presentation titled Improved Superior Proposal for IPC
Shareholders with the SEC.
On May 19, 2009, IPC filed an amendment to its
Solicitation/Recommendation
Statement on
Schedule 14D-9.
Also on May 19, 2009, Validus filed an amendment to its
preliminary proxy statement with respect to soliciting votes
from Validus shareholders to approve the issuance of the Validus
common shares in connection with the acquisition of IPC.
On May 21, 2009, IPC filed an amendment to its
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 20, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the revised terms of the exchange offer
and not tender their IPC common shares to Validus pursuant to
the exchange offer.
On May 21, 2009, Validus amended its registration statement
on
Form S-4
and the underlying prospectus/offer to exchange.
On May 26, 2009, Validus filed the definitive proxy
statement with the SEC seeking proxies from Validus shareholders
to approve the issuance of Validus common shares in connection
with the acquisition of IPC. Validus commenced mailing
definitive proxy materials and proxy cards to Validus
shareholders on or about May 27, 2009.
Also on May 26, 2009, Validus filed an amendment to its
preliminary proxy statement with respect to soliciting votes
from IPC shareholders to approve the Validus scheme of
arrangement at the court-ordered IPC meeting.
Reasons
for the Exchange Offer
We are still hopeful that IPCs board of directors will
recognize that the Validus amalgamation offer, as amended to
increase the consideration offered and revise certain other
terms, is a superior proposal (as defined in the Max
amalgamation agreement) and that IPCs board of directors
will approve the Validus amalgamation agreement if the Max
amalgamation agreement is terminated. However, we commenced the
exchange offer as an alternative method to accomplish the
acquisition of the issued and outstanding IPC common shares.
Validus believes that the acquisition of IPC represents a
compelling combination and excellent strategic fit that will
enable the combined company to capitalize on opportunities in
the global reinsurance market. Successful completion of the
exchange offer would allow IPC shareholders to benefit from the
superior growth potential of a combined company that would be a
leading carrier in Bermudas short-tail reinsurance and
insurance markets, with a strong balance sheet and quality
diversification in profitable business lines. The Validus common
shares to be issued and cash to be paid to IPC shareholders in
exchange for IPC common shares in the exchange offer and
second-step acquisition will provide IPC shareholders with an
immediate premium for their shares and will allow IPC
shareholders to participate in the growth and opportunities of
the combined company while receiving cash for a portion of their
investment in IPC common shares. Validus believes that the
combination of Validus and IPC offers a number of benefits to
holders of IPC common shares, including the following:
The
exchange offer provides a premium to IPC shareholders.
Based upon closing prices of IPC common shares and Validus
common shares as of March 30, 2009, the last trading day
prior to the initial Validus offer, the exchange offer would
have had a value of $30.98 per IPC common share, or
approximately $1.75 billion in the aggregate, which
represented a 21.9% premium to the trading value of IPC common
shares as of such date and a 27.7% premium over $24.26, which
was the average closing price of IPC common shares between
March 2, 2009, the day IPC and Max announced the proposed
Max amalgamation, and March 30, 2009, the last trading day
before we announced the initial Validus offer. The premium
represented by the exchange offer may be larger or smaller
depending on the market price of each of the IPC common shares
and the Validus common shares at the expiration time of the
exchange offer and will fluctuate between now and then
61
depending on the market prices. Based upon the closing prices
on May 29, 2009, the last practicable date prior to the
filing of this prospectus/offer to exchange, the exchange offer
had a value of $28.62 per IPC common share, or
$1.60 billion in the aggregate, which represented a 15.2%
premium to the closing price of the IPC common shares as of such
date and a premium of 12.6% over the March 30, 2009 closing
price of the IPC common shares. In addition, the meaningful cash
component that has been added to the exchange offer provides IPC
shareholders with the opportunity to achieve immediate liquidity
on a portion of their investment in IPC common shares.
Information with respect to the range of closing prices for IPC
common shares for certain dates and periods is set forth in the
section of this prospectus/offer to exchange entitled
Comparative Market Price and Dividend Information.
Validus urges IPC shareholders to obtain a current market
quotation for IPC common shares.
The
Validus common shares to be issued to IPC shareholders in
exchange for IPC common shares under the exchange offer
represent what we believe is an attractive investment.
We believe that the relative performance of Validus common
shares in the market indicates that the markets view Validus as
a more attractive investment than Max. From July 24, 2007
(the date of Validus initial public offering) through
March 30, 2009 (the last trading day prior to the
announcement of the initial Validus offer), Validus common
shares have appreciated 13.2% whereas Max common shares have
declined 36.5% over the same period. Based on the closing prices
of Validus common shares and Max common shares on March 30,
2009, the last day of trading prior to Validus
announcement of the initial Validus offer, Validus common shares
traded at a premium to their diluted book value and diluted
tangible book value of 1.05x and 1.13x, respectively, whereas
Max common shares traded at a discount of 0.76x and 0.77x,
respectively.
Between December 31, 2005 and December 31, 2008, and
notwithstanding the significant property catastrophe claim
activity during this period (generated, for instance, by
Hurricanes Ike and Gustav), Validus grew its book value per
share (including accumulated dividends) at a 13.2% rate compared
to Maxs 8.8% growth rate over the same period. In 2008,
Validus grew its book value per share by 2.4% compared to
Maxs decline in book value of 10.8% during the same
period. Moreover, Validus common shares are more liquid than Max
common shares (as measured by their respective dollar trading
volumes in various periods prior to announcement of the proposed
Max amalgamation). Further, as a shareholder of Validus
following completion of the exchange offer, you will receive a
dividend payable by Validus at an equivalent annual rate of
approximately $0.90 per IPC common share (based on Validus
current annual rate of $0.80 per Validus common share
multiplied by the exchange ratio of 1.1234), compared to the
current IPC annual dividend of $0.88 per IPC common share,
in both cases based on the most recent quarterly dividends
declared and paid by each company.
Additionally, Validus common shares are significantly less
volatile than Max common shares. As measured by Bloomberg,
during the 260 business day (approximately one year) period
prior to the announcement of the proposed Max amalgamation, the
annualized daily volatility of Maxs shares was 79.4
compared to 61.0 for Validus common shares. Volatility
represents the standard deviation of the day-over-day difference
in the daily share price change. Although we believe that the
exchange offer would provide the IPC shareholders with a
significant premium for their IPC common shares upon
consummation, because both the proposed Max amalgamation and the
exchange offer provide for stock consideration with fixed
exchange ratios, the respective values of the proposed Max
amalgamation and the exchange offer to IPC shareholders will
vary over time based on relative changes in the market prices of
each companys common shares, which could result in a
smaller premium or no premium.
A
Validus/IPC combination will have a strong balance sheet with
minimal exposure to risky asset classes.
Under the proposed Max amalgamation, IPC will be assuming the
entirety of Maxs assets and liabilities. Despite
statements by IPCs board of directors of its desire to
reduce earnings volatility through a business combination, it
has proposed a transaction in which IPC shareholders will assume
an investment portfolio with a significant concentration of
risky assets, including alternative investments, and inadequate
property and casualty and life and annuity reserves. According
to the Max 2008
Form 10-K,
Maxs holdings of alternative investments totaled 61% of
its tangible equity, indicating a significant amount of embedded
risk. Despite Maxs announced plan to reduce its exposure
to alternative investments to 10% to 12% of its portfolio
(according to recent Max disclosures), as a result of the
proposed Max amalgamation IPCs investment in alternative
investments would
62
increase from 7% of its total portfolio at December 31,
2008 to 12% of its total portfolio on a pro forma basis after
giving effect to the proposed Max amalgamation, an increase of
5%. The riskiness of the Max balance sheet is evident in the
fact that Max wrote down the value of its alternative assets in
2008 by $233 million, a markdown which exceeded its
underwriting income. In contrast, Validus holds no alternative
investments in its investment portfolio and has specific
investment policies in place prohibiting it from investing in
those asset classes, which it believes are unduly risky to its
shareholders and policyholders. Validus believes counterparties
will view the strength of Validus balance sheet very
favorably as buyers are rethinking counterparty risk in the
current environment, giving Validus a significant advantage over
many of its competitors.
Also, according to the IPC/Max
S-4, IPC
will have to reflect a fair value adjustment of
$130 million to Maxs property and casualty and life
and annuity reserves, which directly and adversely impacts the
capitalization of the combined IPC/Max. We believe that this
need to adjust reserves is indicative of prior under-reserving
by Max in its businesses. Validus does not expect that the
combination of Validus and IPC will require additions or
adjustments to IPCs or Validus existing insurance
reserves. Although IPC discloses that the amount of the fair
value adjustment will be amortized into the combined
IPC/Maxs income each year and will increase the amount of
net income each year during the amortization period, any
amortization will be limited to the extent that losses exceed
Maxs prior unadjusted reserves.
Additionally, an IPC/Validus combination will result in a
combined entity with pro forma GAAP shareholders equity of
approximately $3.5 billion as of December 31, 2008 and
$3.6 billion as of March 31, 2009. This compares to a
combined IPC/Max pro forma shareholders equity of
approximately $3.0 billion at December 31, 2008,
according to the IPC/Max
S-4. Validus
believes that a significant capital base provides an important
competitive advantage for companies in Validus industry,
especially given the current economic climate in which companies
face limited access to new capital and the demand for
reinsurance is increasing.
Validus
offers IPC a highly experienced, first class management
team.
Validus offers IPC a highly experienced, first-class management
team. Validus management team has demonstrated the ability
to execute growth strategies successfully, carefully manage risk
and deliver enhanced shareholder value. Under the stewardship of
its current management, Validus has completed the acquisition of
Talbot and established a presence in the energy and aviation
markets. Similarly, between December 31, 2005 and
December 31, 2008, Validus grew its book value per share
(including accumulated dividends) at a 13.2% rate compared to
Maxs 8.8% growth rate over the same period. The superior
performance of the leadership of the Validus management team is
evidenced by the fact that Validus common shares traded at a
premium of 1.05x and 1.13x, respectively, to Validus
diluted book value and diluted tangible book value based on the
closing price of Validus common shares on March 30, 2009.
In comparison, Max common shares traded at a discount of 0.76x
and 0.77x , respectively, to Maxs diluted book value and
diluted tangible book value based on the closing price of Max
common shares on March 30, 2009. Please see Schedule I
to this prospectus/offer to exchange.
The
exchange offer and second-step acquisition provide IPC
shareholders with an opportunity for stable, profitable
diversification into attractive business lines and further
growth.
By entering into the proposed Max amalgamation, IPCs board
of directors has chosen to combine with an entity that reported
a comprehensive net loss of $200.4 million, or $3.10 per
Max diluted share, in 2008. While Max reported a combined ratio
of 91.9% in 2008, its underwriting results benefited from
$106 million in favorable reserve development. Excluding
this benefit, Maxs underwriting activities in the
2008 year generated an underwriting loss and a combined
ratio of 110.6%. Maxs U.S. Specialty segment, the
centerpiece of its diversified businesses, operated
in 2008 with a combined ratio of 138.5%. The combined ratio is a
commonly used measure of an insurance companys
underwriting profitability. It is calculated as the sum of an
insurers net loss ratio and its expense ratio. A combined
ratio below 100% indicates profitable underwriting; a combined
ratio of 100% or higher indicates that premiums are less than
aggregate claims and expenses. The net loss ratio is calculated
by dividing losses and loss expenses incurred (including
estimates for incurred but not reported losses) by net premiums
earned. The expense ratio is calculated by dividing acquisition
costs combined with general and administrative expenses by net
premiums earned. As evidenced by Maxs combined ratio in
2008, Maxs underwriting business was loss-making in 2008.
In contrast, the combined ratio at Validus in 2008,
notwithstanding the unusual concurrence of two
63
major events giving rise to claims (Hurricanes Gustav and Ike)
was 92.2%, indicating profitable underwriting results.
Maxs results have been significantly more volatile than
those of Validus in recent years, despite statements by
IPCs board of directors and Maxs management alleging
the reduced volatility that will result from an IPC/Max
combination. For example, according to the Max 2008
Form 10-K,
Maxs return on average shareholders equity has
varied between -12.2% and 20.4% in the period from 2006 through
2008. In contrast, Validus return on average
shareholders equity has varied between 2.7% and 26.9% in
the same period, and has been higher than Maxs in each of
those years.
The decision of the IPC board of directors to combine with a
volatile, underperforming entity diversifies IPC and
its shareholders into businesses which have earned returns below
what IPC earned on a standalone basis in the same period. In
that context, we would urge you to consider that Validus
generated comprehensive income of $45.3 million, or net
income of $0.61 per Validus diluted share, in 2008.
Validus is one of the leading providers of short-tail insurance
globally, writing over $1.0 billion of non-catastrophe
business in 2008 in 134 countries around the world from offices
in Bermuda, London, Singapore, New York and Miami. Validus is a
global leader in profitable business lines including marine,
energy and war and terrorism. In independent forecasts conducted
by Willis Re, the Council of Insurance Agents and Brokers and
Aon, the rate trends in business lines which accounted for
approximately 86% of Validus 2008 non-reinsurance gross
written premiums (marine, property, war and terrorism, and
financial institutions) are currently positive, whereas the same
independent forecasts predict negative rate changes in business
lines which accounted for 58% of Maxs 2008 non-reinsurance
gross written premiums. Validus believes its diverse businesses
would be highly complementary with IPCs existing
operations and provide meaningful, profitable diversification.
Validus management team has consistently articulated
Validus business plan: to grow in profitable segments. It
has taken significant steps in this direction in the last few
years. Its acquisition of Talbot in 2007 gave Validus access to
a premier underwriting franchise in the Lloyds syndicate,
which has already proven a profitable investment. In addition,
Validus has set the stage for further organic growth by adding
market leading teams in Latin America and the energy and
aviation segments. It has global licenses that will permit
Validus to expand in other lines if and when the pricing
presents a profitable opportunity to do so. Validus believes
that the combination of IPC and Validus will bolster all of
these initiatives and give the combined company a leading
platform and additional opportunities for growth.
64
THE
EXCHANGE OFFER
Validus is offering to exchange for each outstanding IPC common
share that is validly tendered and not properly withdrawn prior
to the expiration time of the exchange offer, 1.1234 Validus
common shares and $3.00 in cash (less any applicable withholding
taxes and without interest), upon the terms and subject to the
conditions contained in this prospectus/offer to exchange and
the accompanying revised pink letter of transmittal. In
addition, you will receive cash in lieu of any fractional
Validus common share to which you may be entitled.
The term expiration time of the exchange offer means
5:00 p.m., New York City time (6:00 p.m., Atlantic
Time) on June 26, 2009, unless Validus extends the period
of time for which the exchange offer is open, in which case the
term expiration time of the exchange offer means the
latest time and date on which the exchange offer, as so
extended, expires.
The exchange offer is subject to conditions which are described
in the section of this prospectus/offer to exchange entitled
The Exchange Offer Conditions of the Exchange
Offer. Validus expressly reserves the right, subject to
the applicable rules and regulations of the SEC, to waive any
condition of the exchange offer described herein in its
discretion, except for the conditions described under the
subheadings Shareholder Approval Condition,
Registration Statement Condition, and NYSE
Listing Condition in the section of this prospectus/offer
to exchange entitled The Exchange Offer
Conditions of the Exchange Offer below, each of which
cannot be waived. Validus expressly reserves the right to make
any changes to the terms and conditions of the exchange offer
(subject to any obligation to extend the exchange offer pursuant
to the applicable rules and regulations of the SEC), including,
without limitation, with respect to increasing or decreasing the
consideration payable per IPC common share in the exchange offer.
If you are the record owner of your IPC common shares and you
tender your IPC common shares in the exchange offer, you will
not have to pay any brokerage fees or similar expenses. If you
own your IPC common shares through a broker, dealer, commercial
bank, trust company or other nominee and your broker, dealer,
commercial bank, trust company or other nominee tenders your IPC
common shares on your behalf, your broker or such other nominee
may charge a fee for doing so. You should consult your broker,
dealer, commercial bank, trust company or other nominee to
determine whether any charges will apply.
The purpose of the exchange offer is for Validus to acquire
control of, and ultimately the entire equity interest in, IPC.
Validus has publicly expressed a desire to enter into a
negotiated business combination with IPC. As of the date of this
prospectus/offer to exchange, IPC has not been willing to meet
or negotiate with Validus. On March 31, 2009, Validus sent
the initial Validus offer to IPC. IPC announced on April 7,
2009 that its board of directors had determined that the initial
Validus offer did not constitute a superior proposal to the Max
amalgamation agreement and reaffirmed its support of the
proposed Max amalgamation. On May 18, 2009, Validus
publicly announced that it had delivered to IPC an increased
offer to acquire each outstanding IPC common share for
(i) 1.1234 Validus common shares and (ii) $3.00 in
cash (less any applicable withholding taxes and without
interest). Validus has also delivered the Validus amalgamation
agreement signed by Validus so that, upon a termination of the
Max amalgamation agreement, IPC would have the certainty of
Validus transaction and would be able to sign the Validus
amalgamation agreement. Validus commenced the exchange offer on
May 12, 2009 on the economic terms set forth in the initial
Validus offer. On May 14, 2009, IPC filed a
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 13, 2009 and
determined to recommend that IPC shareholders reject the
exchange offer and not tender their IPC common shares to
Validus. Validus amended the exchange offer to reflect the
revised terms of the Validus amalgamation offer on May 18,
2009. On May 21, 2009, IPC filed an amendment to its
Solicitation/Recommendation Statement on
Schedule 14D-9
reporting that IPCs board had met on May 20, 2009 and
stating IPCs board of directors recommendation that
IPC shareholders reject the revised terms of the exchange offer
and not tender their IPC common shares to Validus pursuant to
the exchange offer.
Validus intends, promptly following acceptance for exchange and
exchange of IPC common shares in the exchange offer, to effect
the second-step acquisition pursuant to which Validus will
acquire all shares of those IPC shareholders who choose not to
tender their IPC common shares pursuant to the exchange offer in
accordance with either Section 102 or Section 103 of
the Companies Act, as applicable. After the second-step
acquisition, former
65
remaining IPC shareholders will no longer have any ownership
interest in IPC and will be shareholders of Validus and Validus
will own all of the issued and outstanding IPC common shares.
Validus intends, promptly following the second-step acquisition,
to amalgamate IPC with a newly-formed, wholly-owned subsidiary
of Validus in accordance with Section 107 of the Companies
Act. Please see the sections of this prospectus/offer to
exchange entitled The Exchange Offer Purpose
and Structure of the Exchange Offer; The Exchange
Offer Statutory Requirements; Second-Step
Acquisition; The Exchange Offer
Short-Form Amalgamation; and The Exchange
Offer Plans for IPC.
Subject to applicable law, Validus reserves the right to amend
the exchange offer (including by amending the offer
consideration to be offered in the exchange offer or second-step
acquisition or the structure of the second-step acquisition),
including upon entering into an amalgamation agreement with IPC,
or to pursue an acquisition of IPC not involving an exchange
offer (including the Validus scheme of arrangement), in which
event we would terminate the exchange offer and the IPC common
shares would, upon consummation of such acquisition, be
converted into the right to receive the consideration negotiated
by Validus and IPC, or offered pursuant to such alternative
acquisition structure. Please see the sections of this
prospectus/offer to exchange entitled The Exchange Offer
Plans for IPC and The Exchange
Offer Extension, Termination and Amendment.
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that if all IPC common shares are exchanged
pursuant to the exchange offer and the second-step acquisition,
former IPC shareholders would own, in the aggregate,
approximately 41.3% of the issued and outstanding Validus common
shares and Validus non-voting common shares on a fully-diluted
basis. For a detailed discussion of the assumptions on which
this estimate is based, please see the section of this
prospectus/offer to exchange entitled The Exchange
Offer Ownership of Validus After the Exchange
Offer.
Expiration
Time of the Exchange Offer
The exchange offer is scheduled to expire at 5:00 p.m., New
York City time (6:00 p.m., Atlantic Time), on June 26,
2009, which is the expiration time of the exchange offer, unless
further extended by Validus. For more information, you should
read the discussion below in the section of this
prospectus/offer to exchange entitled The Exchange
Offer Extension, Termination and Amendment.
Extension,
Termination and Amendment
Subject to the applicable rules of the SEC and the terms and
conditions of the exchange offer, Validus also expressly
reserves the right (but will not be obligated) (1) to
extend, for any reason, the period of time during which the
exchange offer is open, (2) to delay acceptance for
exchange of, or exchange of, IPC common shares in order to
comply in whole or in part with applicable laws (any such delay
shall be effected in compliance with
Rule 14e-1(c)
under the Exchange Act, which requires Validus to pay the
consideration offered or to return IPC common shares deposited
by or on behalf of shareholders promptly after the termination
or withdrawal of the exchange offer), (3) to terminate the
exchange offer without accepting for exchange, or exchanging,
any IPC common shares if any of the individually subheaded
conditions referred to in the section of this prospectus/offer
to exchange entitled The Exchange Offer
Conditions of the Exchange Offer have not been satisfied
immediately prior to the expiration time of the exchange offer
or if any event specified in the section of this
prospectus/offer to exchange entitled The Exchange
Offer Conditions of the Exchange Offer under
the subheading Other Conditions has occurred;
(4) to amend or terminate the exchange offer without
accepting for exchange or exchanging any IPC common shares if
Validus or any of its affiliates enters into a definitive
agreement or announces an agreement in principle with IPC
providing for an amalgamation, scheme of arrangement or other
business combination or transaction with or involving IPC or any
of its subsidiaries, or the purchase or exchange of securities
or assets of IPC or any of its subsidiaries, or the Supreme
Court of Bermuda sanctions a scheme of arrangement between IPC
and its shareholders whereby Validus or any of its subsidiaries
acquires securities of IPC, or Validus and IPC reach any other
agreement or understanding, in either case, pursuant to which it
is agreed or provided that the exchange offer will be
terminated; and (5) to amend the exchange offer or to waive
any conditions to the exchange offer at any time, in each case
by giving oral or written notice of such delay, termination,
waiver or amendment to the exchange agent and by making public
announcement thereof.
66
The expiration time of the exchange offer may also be subject to
multiple extensions and any decision to extend the exchange
offer, and if so, for how long, will be made at the expiration
time of the exchange offer.
Any such extension, delay, termination, waiver or amendment will
be followed as promptly as practicable by public announcement
thereof, which, in the case of an extension, will be made no
later than 9:00 a.m., New York City time (10:00 a.m.,
Atlantic Time), on the next business day after the previously
scheduled expiration time of the exchange offer. Subject to
applicable law (including
Rules 14d-4(d)(i),
14d-6(c) and
14e-1 under
the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably
designed to inform them of such changes), and without limiting
the manner in which Validus may choose to make any public
announcement, Validus will have no obligation to publish,
advertise or otherwise communicate any such public announcement
other than by issuing a press release or other announcement.
Rule 14e-1(c)
under the Exchange Act requires Validus to pay the consideration
offered or return the IPC common shares tendered promptly after
the termination or withdrawal of the exchange offer.
If Validus increases or decreases the percentage of IPC common
shares being sought or increases or decreases the consideration
to be paid for IPC common shares pursuant to the exchange offer
and the exchange offer is scheduled to expire at any time before
the expiration of 10 business days from, and including, the date
that notice of such increase or decrease is first published,
sent or given in the manner specified below, the exchange offer
will be extended until the expiration of 10 business days from,
and including, the date of such notice. If Validus makes a
material change in the terms of the exchange offer (other than a
change in the price to be paid in the exchange offer or the
percentage of securities sought) or in the information
concerning the exchange offer, or waives a material condition of
the exchange offer, Validus will extend the exchange offer, if
required by applicable law, for a period sufficient to allow you
to consider the amended terms of the exchange offer. In a
published release, the SEC has stated its view that an offer
must remain open for a minimum period of time following a
material change in the terms of such offer, and that the waiver
of a condition such as the condition described in the section of
this prospectus/offer to exchange entitled The Exchange
Offer Conditions of the Exchange Offer under
the subheading Minimum Tender Condition is a
material change in the terms of an offer. The release states
that an offer should remain open for a minimum of five business
days from the date that the material change is first published,
sent or given to shareholders, and that if material changes are
made with respect to information that approaches the
significance of the price to be paid in the exchange offer or
the percentage of shares sought in the exchange offer, a minimum
of 10 business days may be required to allow adequate
dissemination and investor response.
As used in this prospectus/offer to exchange, a business
day means any day, other than a Saturday, Sunday or a
federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight, Eastern time. If, prior
to the expiration time of the exchange offer, Validus increases
the consideration being paid for IPC common shares accepted for
exchange pursuant to the exchange offer, such increased
consideration will be received by all shareholders whose common
shares are exchanged pursuant to the exchange offer, whether or
not such IPC common shares were tendered prior to the
announcement of the increase of such consideration.
Pursuant to
Rule 14d-11
under the Exchange Act, Validus may, subject to certain
conditions, elect to provide a subsequent offering period of at
least three business days following the expiration time of the
exchange offer on the date of the expiration time of the
exchange offer and acceptance for exchange of the IPC common
shares tendered in the exchange offer. A subsequent offering
period would be an additional period of time, following the
first exchange of IPC common shares in the exchange offer,
during which shareholders could tender IPC common shares not
tendered in the exchange offer.
During a subsequent offering period, tendering shareholders
would not have withdrawal rights and Validus would promptly
exchange and pay for any IPC common shares tendered at the same
price paid in the exchange offer.
Rule 14d-11
under the Exchange Act provides that Validus may provide a
subsequent offering period so long as, among other things,
(1) the initial period of at least 20 business days of the
exchange offer has expired, (2) Validus offers the same
form and amount of consideration for IPC common shares in the
subsequent offering period as in the initial offer,
(3) Validus immediately accepts and promptly pays for all
IPC common shares tendered during the exchange offer prior to
its expiration, (4) Validus announces the results of the
exchange offer, including the approximate number and percentage
of IPC common shares deposited in the exchange offer, no later
than 9:00 a.m., New York City time (10:00 a.m.,
Atlantic Time), on the next business day after the expiration
time of the exchange offer and immediately
67
begins the subsequent offering period and (5) Validus
immediately accepts and promptly pays for IPC common shares as
they are tendered during the subsequent offering period. If
Validus elects to include a subsequent offering period, it will
notify shareholders of IPC by making a public announcement on
the next business day after the expiration time of the exchange
offer consistent with the requirements of
Rule 14d-11
under the Exchange Act.
Pursuant to
Rule 14d-7(a)(2)
under the Exchange Act, no withdrawal rights apply to shares
tendered during a subsequent offering period and no withdrawal
rights apply during a subsequent offering period with respect to
shares tendered in the exchange offer and accepted for exchange.
The same consideration will be received by shareholders
tendering IPC common shares in the exchange offer or in a
subsequent offering period, if one is included. Please see the
section of this prospectus/offer to exchange entitled The
Exchange Offer Withdrawal Rights.
A request has been made by Validus to IPC pursuant to
Rule 14d-5
under the Exchange Act for the use of IPCs shareholder
lists and security position listings for the purpose of
disseminating the exchange offer materials (and amendments
thereto) to IPC shareholders. IPC has elected to disseminate the
exchange offer materials to IPC shareholders, including a letter
of transmittal and all other relevant materials to record
holders of IPC common shares and brokers, dealers, banks, trust
companies and similar persons whose names, or the names of whose
nominees, appear on IPCs shareholder lists, or, if
applicable, who are listed as participants in a clearing
agencys security position listing for subsequent
transmittal to beneficial owners of IPC common shares.
Acceptance
for Exchange, and Exchange, of IPC Common Shares; Delivery of
Offer Consideration
Upon the terms and subject to the conditions of the exchange
offer (including, if the exchange offer is extended or amended,
the terms and conditions of any such extension or amendment),
Validus will accept for exchange promptly after the expiration
time of the exchange offer all IPC common shares validly
tendered (and not withdrawn in accordance with the procedure set
out in the section of this prospectus/offer to exchange entitled
The Exchange Offer Withdrawal Rights)
prior to the expiration time of the exchange offer. Validus
shall exchange all IPC common shares validly tendered and not
withdrawn promptly following the acceptance of IPC common shares
for exchange pursuant to the exchange offer. Validus expressly
reserves the right, in its discretion, but subject to the
applicable rules of the SEC, to delay acceptance for and thereby
delay exchange of IPC common shares in order to comply in whole
or in part with applicable laws or if any of the conditions
referred to in the section of this prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer have not been satisfied or if any event
specified in the section of the prospectus/offer to exchange
entitled The Exchange Offer Conditions of the
Exchange Offer under the subheading Other
Conditions has occurred. If Validus decides to include a
subsequent offering period, Validus will accept for exchange,
and promptly exchange, all validly tendered IPC common shares as
they are received during the subsequent offering period. Please
see the section of this prospectus/offer to exchange entitled
The Exchange Offer Withdrawal Rights.
In all cases (including during any subsequent offering period),
Validus will exchange all IPC common shares tendered and
accepted for exchange pursuant to the exchange offer only after
timely receipt by the exchange agent of (1) the
certificates evidencing such IPC common shares or timely
confirmation (a book-entry confirmation) of a
book-entry transfer of such IPC common shares into the exchange
agents account at The Depository Trust Company
pursuant to the procedures set forth in the section of this
prospectus/offer to exchange entitled The Exchange
Offer Procedure for Tendering, (2) the
revised pink letter of transmittal or original blue letter of
transmittal (or a manually signed facsimile thereof), properly
completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an
Agents Message (as defined below) and (3) any other
documents required under the revised pink letter of transmittal
or original blue letter of transmittal. This prospectus/offer to
exchange refers to The Depository Trust Company as the
Book-Entry Transfer Facility. As used in this
prospectus/offer to exchange, the term Agents
Message means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the exchange agent and
forming a part of the book-entry confirmation which states that
the Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer
Facility tendering the IPC common shares that are the subject of
such book-entry confirmation, that such participant has received
and agrees to be bound by the revised pink letter of transmittal
or original blue letter of transmittal and that Validus may
enforce such agreement against such participant.
68
For purposes of the exchange offer (including during any
subsequent offering period), Validus will be deemed to have
accepted for exchange, and thereby exchanged, IPC common shares
validly tendered and not properly withdrawn as, if and when
Validus gives oral or written notice to the exchange agent of
Validus acceptance for exchange of such IPC common shares
pursuant to the exchange offer. Upon the terms and subject to
the conditions of the exchange offer, exchange of IPC common
shares accepted for exchange pursuant to the exchange offer will
be made by deposit of the offer consideration being exchanged
therefor with the exchange agent, which will act as agent for
tendering shareholders for the purpose of receiving the offer
consideration from Validus and transmitting such consideration
to tendering shareholders whose IPC common shares have been
accepted for exchange. Under no circumstances will Validus
pay interest on the exchange offer consideration for IPC common
shares, regardless of any extension of the exchange offer or
other delay in making such exchange.
If any tendered IPC common shares are not accepted for exchange
for any reason pursuant to the terms and conditions of the
exchange offer, or if certificates representing such shares are
submitted evidencing more IPC common shares than are tendered,
certificates evidencing unexchanged or untendered IPC common
shares will be returned, without expense to the tendering
shareholder (or, in the case of IPC common shares tendered by
book-entry transfer into the exchange agents account at a
Book-Entry Transfer Facility pursuant to the procedure set forth
in the section of this prospectus/offer to exchange entitled
The Exchange Offer Procedure for
Tendering, such IPC common shares will be credited to an
account maintained at such Book-Entry Transfer Facility), as
promptly as practicable following the expiration or termination
of the exchange offer. Validus reserves the right to transfer or
assign, in whole or from time to time in part, to one or more of
its affiliates, the right to exchange all or any portion of the
IPC common shares tendered pursuant to the exchange offer, but
any such transfer or assignment will not relieve Validus of its
obligations under the exchange offer or prejudice the rights of
tendering shareholders to exchange IPC common shares validly
tendered and accepted for exchange pursuant to the exchange
offer.
IPC common shares previously validly tendered (and not
withdrawn) prior to the date of this prospectus/offer to
exchange in connection with the exchange offer will be entitled
to receive the offer consideration described in this
prospectus/offer to exchange in the event such IPC common shares
are accepted for exchange by Validus and exchanged for the offer
consideration.
Cash In
Lieu of Fractional Validus Common Shares
Validus will not issue certificates representing fractional
Validus common shares pursuant to the exchange offer. Instead,
each tendering shareholder who would otherwise be entitled to a
fractional Validus common share will receive cash (rounded to
the nearest whole cent) in an amount (without interest) equal to
the product obtained by multiplying (i) the fractional
share interest to which such shareholder would otherwise be
entitled (after aggregating all fractional Validus common shares
that would otherwise be received by such shareholder) by
(ii) the closing price of Validus common shares as reported
on the NYSE on the last trading day prior to the expiration time
of the exchange offer.
Procedure
for Tendering
In order for a holder of IPC common shares to tender IPC common
shares pursuant to the exchange offer, the exchange agent must
receive, prior to the expiration time of the exchange offer, the
revised pink letter of transmittal or original blue letter of
transmittal (or a manually signed facsimile thereof), properly
completed and duly executed, together with any required
signature guarantees or, in the case of a book-entry transfer,
an Agents Message, and any other documents required by
such letter of transmittal, at one of its addresses set forth on
the back cover of this prospectus/offer to exchange and either
(1) the certificates evidencing tendered IPC common shares
must be received by the exchange agent at such address or such
IPC common shares must be tendered pursuant to the procedure for
book-entry transfer described below and a book-entry
confirmation must be received by the exchange agent (including
an Agents Message), in each case prior to the expiration
time of the exchange offer or the expiration of the subsequent
offering period, if one is provided, or (2) the tendering
shareholder must comply with the guaranteed delivery procedures
described below.
Tendering IPC shareholders may continue to use the original blue
letter of transmittal and the original green notice of
guaranteed delivery previously circulated with the
prospectus/offer to exchange dated May 13, 2009, or
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they may use the revised pink letter of transmittal and the
revised yellow notice of guaranteed delivery circulated with
this prospectus/offer to exchange. IPC shareholders using the
original blue letter of transmittal to tender their IPC common
shares will nevertheless be deemed to be tendering pursuant to
the terms and conditions contained in this prospectus/offer to
exchange and the enclosed revised pink letter of transmittal and
will receive 1.1234 Validus common shares and $3.00 in cash,
less any applicable withholding taxes and without interest.
The method of delivery of share certificates and all other
required documents, including delivery through the Book-Entry
Transfer Facility, is at the option and risk of the tendering
shareholder, and the delivery will be deemed made only when
actually received by the exchange agent. If delivery is by mail,
registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed
to ensure timely delivery.
Book-Entry Transfer. The exchange agent will
establish accounts with respect to the IPC common shares at the
Book-Entry Transfer Facility for purposes of the exchange offer
within two business days after the date of this prospectus/offer
to exchange. Any financial institution that is a participant in
the system of the Book-Entry Transfer Facility may make a
book-entry delivery of IPC common shares by causing the
Book-Entry Transfer Facility to transfer such IPC common shares
into the exchange agents account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer
Facilitys procedures for such transfer. However, although
delivery of IPC common shares may be effected through book-entry
transfer at the Book-Entry Transfer Facility, an Agents
Message and any other required documents must, in any case, be
received by the exchange agent at one of its addresses set forth
on the back cover of this prospectus/offer to exchange prior to
the expiration time of the exchange offer or the expiration of
the subsequent offering period, if one is provided, or the
tendering shareholder must comply with the guaranteed delivery
procedures described below. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the
exchange agent.
Signature Guarantees. No signature guarantee
is required on a letter of transmittal (1) if a letter of
transmittal is signed by a registered holder of IPC common
shares who has not completed either the box entitled
Special Issuance Instructions or the box entitled
Special Delivery Instructions the original blue
letter of transmittal or revised pink letter of transmittal or
(2) if IPC common shares are tendered for the account of a
financial institution that is a member of the Securities
Transfer Agents Medallion Signature Program, or by any other
eligible guarantor institution, as such term is
defined in
Rule 17Ad-15
under the Exchange Act (each of the foregoing being referred to
as an Eligible Institution). In all other cases, all
signatures on letters of transmittal must be guaranteed by an
Eligible Institution. If a certificate evidencing IPC common
shares is registered in the name of a person other than the
signer of a letter of transmittal, or if the exchange offer
consideration is to be delivered, or a share certificate not
accepted for exchange or not tendered is to be returned, to a
person other than the registered holder(s), then such
certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the share certificate, with the
signature(s) on such certificate or stock powers guaranteed by
an Eligible Institution. See Instructions 1 and 5 of the
original blue letter of transmittal or revised pink letter of
transmittal.
Guaranteed Delivery. If a shareholder desires
to tender IPC common shares pursuant to the exchange offer and
such shareholders certificate(s) evidencing such IPC
common shares are not immediately available, such shareholder
cannot deliver such certificates and all other required
documents to the exchange agent prior to the expiration time of
the exchange offer, or such shareholder cannot complete the
procedure for delivery by book-entry transfer on a timely basis,
such IPC common shares may nevertheless be tendered, provided
that all the following conditions are satisfied:
(1) such tender is made by or through an Eligible
Institution;
(2) a properly completed and duly executed original green
notice of guaranteed delivery or revised yellow notice of
guaranteed delivery, substantially in the form made available by
Validus, is received prior to the expiration time of the
exchange offer by the exchange agent as provided below; and
(3) the share certificates (or a book-entry confirmation)
evidencing all tendered IPC common shares, in proper form for
transfer, in each case together with the original blue letter of
transmittal or revised pink letter of transmittal (or a manually
signed facsimile thereof), properly completed and duly executed,
with any required
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signature guarantees or, in the case of a book-entry transfer,
an Agents Message, and any other documents required by the
original blue letter of transmittal or revised pink letter of
transmittal are received by the exchange agent within three
NASDAQ Global Select Market trading days after the date of
execution of such notice of guaranteed delivery.
The original green notice of guaranteed delivery or revised
yellow notice of guaranteed delivery may be delivered by hand or
mail or by facsimile transmission to the exchange agent and must
include a guarantee by an Eligible Institution in the form set
forth in such notice of guaranteed delivery. The procedures for
guaranteed delivery above may not be used during any subsequent
offering period.
In all cases (including during any subsequent offering period),
exchanges of IPC common shares tendered and accepted for
exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of the certificates
evidencing such IPC common shares, or a book-entry confirmation
of the delivery of such IPC common shares (except during any
subsequent offering period), and the the original blue letter of
transmittal or revised pink letter of transmittal (or a manually
signed facsimile thereof), properly completed and duly executed,
with any required signature guarantees or, in the case of a
book-entry transfer, an Agents Message, and any other
documents required by the original blue letter of transmittal or
revised pink letter of transmittal.
Determination of Validity. Validus
interpretation of the terms and conditions of the exchange offer
(including the the original blue letter of transmittal or
revised pink letter of transmittal and the instructions thereto)
will be final and binding to the fullest extent permitted by
law. All questions as to the form of documents and the validity,
form, eligibility (including time of receipt) and acceptance for
exchange of any tender of IPC common shares will be determined
by Validus, in its discretion, which determination shall be
final and binding to the fullest extent permitted by law.
Validus reserves the absolute right to reject any and all
tenders determined by it not to be in proper form or the
acceptance of or exchange for which may, in the opinion of its
counsel, be unlawful. Validus also reserves the absolute right
to waive any condition of the exchange offer to the extent
permitted by applicable law or any defect or irregularity in the
tender of any IPC common shares of any particular shareholder,
whether or not similar defects or irregularities are waived in
the case of other shareholders. No tender of IPC common shares
will be deemed to have been validly made until all defects and
irregularities have been cured or waived. None of Validus or any
of their respective affiliates or assigns, the dealer manager,
the exchange agent, the information agent or any other person
will be under any duty to give any notification of any defect or
irregularity in tenders or to waive any such defect or
irregularity or incur any liability for failure to give any such
notification or waiver.
A tender of IPC common shares pursuant to any of the
procedures described above will constitute the tendering
shareholders acceptance of the terms and conditions of the
exchange offer, as well as the tendering shareholders
representation and warranty to Validus that (1) such
shareholder owns the tendered IPC common shares (and any and all
other IPC common shares or other securities issued or issuable
in respect of such IPC common shares), (2) the tender
complies with
Rule 14e-4
under the Exchange Act, (3) such shareholder has the full
power and authority to tender, sell, assign and transfer the
tendered IPC common shares (and any and all other IPC common
shares or other securities issued or issuable in respect of such
IPC common shares) and (4) when the same are accepted for
exchange, Validus will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse
claims.
The acceptance for exchange by Validus of IPC common shares
pursuant to any of the procedures described above will
constitute a binding agreement between the tendering shareholder
and Validus upon the terms and subject to the conditions of the
exchange offer.
Appointment as Proxy; Other Agreements. By
executing the original blue letter of transmittal or revised
pink letter of transmittal, or through delivery of an
Agents Message, as set forth above, a tendering
shareholder irrevocably appoints designees of Validus as such
shareholders agents, attorneys-in-fact and proxies, each
with full power of substitution, in the manner set forth in such
letter of transmittal, to the full extent of such
shareholders rights with respect to the IPC common shares
tendered by such shareholder and accepted for exchange by
Validus (and with respect to any and all other IPC common shares
or other securities issued or issuable in respect of such IPC
common shares on or after the date of this prospectus/offer to
exchange). All such powers of attorney and proxies
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shall be considered irrevocable and coupled with an interest in
the tendered IPC common shares (and such other IPC common shares
and securities). Such appointment will be effective when, and
only to the extent that, Validus accepts such IPC common shares
for exchange. Upon appointment, all prior powers of attorney and
proxies given by such shareholder with respect to such IPC
common shares (and such other IPC common shares and securities)
will be revoked, without further action, and no subsequent
powers of attorney or proxies may be given nor any subsequent
written consent executed by such shareholder (and, if given or
executed, will not be deemed to be effective) with respect
thereto. The designees of Validus will, with respect to the IPC
common shares (and such other IPC common shares and securities)
for which the appointment is effective, be empowered to exercise
all voting, consent and other rights of such shareholder as they
in their discretion may deem proper at any annual or special
meeting of IPC shareholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or
otherwise. Validus reserves the right to require that, in order
for IPC common shares to be deemed validly tendered, immediately
upon Validus acceptance of IPC common shares for exchange,
Validus must be able to exercise full voting, consent and other
rights with respect to such IPC common shares (and such other
IPC common shares and securities).
The foregoing proxies are effective only upon acceptance for
exchange of IPC common shares tendered pursuant to the exchange
offer. The exchange offer does not constitute a solicitation of
proxies (absent an exchange of IPC common shares) for any
meeting of IPC shareholders, which will be made only pursuant to
separate proxy materials or consent solicitation materials
complying with the requirements of the rules and regulations of
the SEC. See the section of this prospectus/offer to exchange
entitled Solicitation of Proxies.
In addition, by tendering IPC common shares pursuant to the
exchange offer, a tendering shareholder will agree (and, if
applicable, the registered holder of the IPC common shares
holding such shares for the benefit of a tendering IPC
shareholder will also agree (and the tendering shareholder shall
procure such agreement)) that such tender is a scheme or
contract involving the transfer of IPC common shares for the
purposes of Section 102 of the Companies Act. To the extent
a tendering IPC shareholder holds IPC common shares
beneficially, and is not the registered holder of such IPC
common shares, such IPC shareholder will instruct, and will take
all further action to instruct and cause, the registered holder
of such IPC common shares to approve the contract for the
transfer of such IPC common shares and to take such actions and
execute such documents as Validus may request of such registered
holder in order for Validus to avail itself of, and fully comply
with, Section 102 of the Companies Act.
Backup Withholding. Under the current
backup withholding provisions of U.S. federal
income tax law, the exchange agent may be required to withhold
28% of the amount of any payments pursuant to the exchange offer
or the second-step acquisition. In order to prevent backup
withholding with respect to payments to certain shareholders for
IPC common shares sold pursuant to the exchange offer or
received pursuant to the second-step acquisition, each such
shareholder must provide the exchange agent with such
shareholders correct taxpayer identification number
(TIN) and certify that such shareholder is not
subject to backup withholding by completing the Substitute
Form W-9
in the original blue letter of transmittal or revised pink
letter of transmittal, or otherwise establish an exemption.
Certain shareholders (including, among others, all corporations
and certain
non-U.S. individuals
and entities) are not subject to backup withholding. If a
shareholder does not provide its correct TIN or fails to provide
the certifications described above, the Internal Revenue Service
may impose a penalty on the shareholder and payment of cash to
the shareholder pursuant to the exchange offer or the
second-step acquisition may be subject to backup withholding.
All shareholders surrendering IPC common shares pursuant to the
exchange offer or the second-step acquisition that are
U.S. persons should complete and sign the Substitute
Form W-9
included in the original blue letter of transmittal or revised
pink letter of transmittal to provide the information necessary
to avoid backup withholding.
Non-U.S. shareholders
should complete and sign an applicable
Form W-8
(a copy of which may be obtained from the exchange agent) in
order to avoid backup withholding.
Withdrawal
Rights
Tenders of IPC common shares made pursuant to the exchange offer
are irrevocable except that such IPC common shares may be
withdrawn at any time prior to the expiration time of the
exchange offer and, if Validus has not accepted your IPC common
shares for exchange by the expiration time of the exchange
offer, at any time following 60 days from commencement of
the exchange offer. If Validus elects to extend the exchange
offer, is delayed in its acceptance for exchange of IPC common
shares or is unable to accept IPC common shares for
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exchange pursuant to the exchange offer for any reason, then,
without prejudice to Validus rights under the exchange
offer, the exchange agent may, on behalf of Validus, retain
tendered IPC common shares, and such IPC common shares may not
be withdrawn except to the extent that tendering shareholders
are entitled to withdrawal rights as described in this section.
Any such delay will be by an extension of the exchange offer to
the extent required by law. If Validus decides to include a
subsequent offering period, IPC common shares tendered during
the subsequent offering period may not be withdrawn. Please see
the section of this prospectus/offer to exchange entitled
The Exchange Offer Extension, Termination and
Amendment.
For a withdrawal to be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the
exchange agent at one of its addresses set forth on the back
cover page of this prospectus/offer to exchange. Any such notice
of withdrawal must specify the name of the person who tendered
the IPC common shares to be withdrawn, the number of IPC common
shares to be withdrawn and the name of the registered holder of
such IPC common shares, if different from that of the person who
tendered such IPC common shares. If certificates evidencing IPC
common shares to be withdrawn have been delivered or otherwise
identified to the exchange agent, then, prior to the physical
release of such certificates, the serial numbers shown on such
certificates must be submitted to the exchange agent and, unless
such IPC common shares have been tendered by or for the account
of an Eligible Institution, the signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution. If IPC
common shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in the section of this
prospectus/offer to exchange entitled The Exchange
Offer Procedure for Tendering, any notice of
withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the
withdrawn IPC common shares.
Withdrawals of IPC common shares may not be rescinded. Any IPC
common shares properly withdrawn will thereafter be deemed not
to have been validly tendered for purposes of the exchange
offer. However, withdrawn IPC common shares may be re-tendered
at any time prior to the expiration time of the exchange offer
(or during the subsequent offering period, if one is provided)
by following one of the procedures described in the section of
this prospectus/offer to exchange entitled The Exchange
Offer Procedure for Tendering (except IPC
common shares may not be re-tendered using the procedures for
guaranteed delivery during any subsequent offering period).
All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by
Validus, in its discretion, whose determination will be final
and binding to the fullest extent permitted by law. None of
Validus or any of their respective affiliates or assigns, the
dealer manager, the exchange agent, the information agent or any
other person will be under any duty to give any notification of
any defect or irregularity in any notice of withdrawal or incur
any liability for failure to give any such notification.
Announcement
of Results of the Exchange Offer
Validus will announce the final results of the exchange offer,
including whether all of the conditions to the exchange offer
have been fulfilled or waived and whether Validus will accept
the tendered IPC common shares for exchange after expiration
time of the exchange offer. The announcement will be made by a
press release.
Ownership
of Validus After the Exchange Offer
Based the exchange ratio of 1.1234, Validus estimates that if
all IPC common shares are exchanged pursuant to the exchange
offer and/or
the second-step acquisition, former IPC shareholders would own,
in the aggregate, approximately 41.3% of the issued and
outstanding Validus common shares and Validus non-voting common
shares on a fully-diluted basis using the treasury stock method
for IPC and the as-if-converted method for Validus, assuming
that:
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Validus exchanges, pursuant to the exchange offer
and/or the
second-step acquisition, all of the outstanding IPC common
shares, the number of which is assumed to be 56,092,672, the
total number of IPC common shares reported as of March 31,
2009;
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Validus exchanges, pursuant to the exchange offer or the
second-step acquisition, the IPC common shares issuable upon the
exercise or vesting of outstanding options, restricted common
shares, restricted share units, and performance share units, of
which there were reported to be 976,275 as of March 31,
2009; and
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90,317,793 Validus common shares and Validus non-voting common
shares were outstanding on a
fully-diluted
basis, including 75,828,922 Validus common shares and Validus
non-voting common shares, 8,680,149 Validus common shares
underlying outstanding warrants, 2,795,868 Validus common
shares underlying unexercised options, 2,998,069 restricted
Validus common shares, and 14,785 restricted share units
respectively, as of March 31, 2009.
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Material
U.S. Federal Income Tax Consequences
The following is a summary of the anticipated material
U.S. federal income tax consequences to U.S. holders
(as defined below) of IPC common shares of (i) the exchange
offer, second-step acquisition and short-form amalgamation and
(ii) holding and disposing of the Validus common shares
received pursuant to the exchange offer and second-step
acquisition. This summary is based on provisions of the Code,
Treasury regulations promulgated thereunder, administrative
rulings and judicial decisions, each as in effect as of the date
of this prospectus/offer to exchange, all of which are subject
to change at any time, possibly with retroactive effect. Any
such change could alter the tax consequences described herein.
No legal opinion from U.S. legal counsel or ruling from the
IRS has been requested, or is expected to be obtained, regarding
the U.S. federal income tax consequences described herein.
This discussion is not binding on the IRS or any court, and
there can be no assurance that the IRS will not take a contrary
position or that any contrary position taken by the IRS will not
be sustained by a court. This summary assumes that a
U.S. holder holds a Validus or IPC common share as a
capital asset within the meaning of Section 1221 of the
Code (generally, property held for investment).
For purposes of this summary, the term
U.S. holder means a beneficial owner of Validus
or IPC common shares that is, for U.S. federal income tax
purposes:
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a citizen or individual resident of the United States;
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a corporation, or an entity treated as a corporation for
U.S. federal income tax purposes, that is created or
organized under the laws of the United States or any of its
political subdivisions;
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a trust that (1) is subject to the primary supervision of a
court within the United States and the authority of one or more
U.S. persons, within the meaning of
Section 7701(a)(30) of the Code, to control all substantial
decisions or (2) has a valid election in effect under
applicable Treasury regulations to be treated as a
U.S. person; or
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an estate that is subject to U.S. federal income tax on its
income regardless of its source.
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If an entity treated as a partnership for U.S federal income tax
purposes holds Validus or IPC common shares, the
U.S. federal income tax treatment of such partnership and
each partner will generally depend on the status and the
activities of the partnership and the partner. Partnerships that
hold Validus or IPC common shares, and partners in such
partnerships, should consult their own tax advisors regarding
the U.S. federal, state, local and
non-U.S. tax
consequences applicable to them with respect to the exchange
offer, second-step acquisition and short-form amalgamation and
the disposition of Validus common shares received pursuant to
the exchange offer and second-step acquisition.
This summary does not address all of the U.S. federal
income tax consequences that may be applicable to a particular
holder of IPC common shares. In addition, this summary does not
address the U.S. federal income tax consequences that may
be relevant to particular holders in light of their individual
circumstances or to holders that are subject to special rules,
including:
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brokers or dealers in securities or currencies;
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banks and other financial institutions;
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individual retirement accounts and other tax-deferred accounts;
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regulated investment companies, real estate investment trusts,
partnerships (or any entity treated as a partnership for
U.S. federal income tax purposes) and other pass-through
entities;
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insurance companies;
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tax-exempt entities;
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traders in securities that elect to use a mark to market method
of accounting;
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holders whose functional currency is not the U.S. dollar;
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holders who hold Validus or IPC common shares as part of a
hedge, appreciated financial position, straddle, conversion
transaction or other risk reduction strategy;
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holders who acquired IPC common shares pursuant to the exercise
of an employee stock option or right or otherwise as
compensation;
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holders who are subject to the alternative minimum tax
provisions of the Code;
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except as provided herein, holders who own or have owned,
directly, indirectly, or constructively, 5% or more of IPC
common shares or will own 5% or more of Validus common shares
pursuant to the exchange offer and second-step acquisition;
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holders of IPC common shares who validly exercise their rights
under Bermuda law to seek the determination of the fair market
value of their IPC shares in the Supreme Court of
Bermuda; and
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holders of IPC common shares who dispose of their IPC common
shares for cash as part of a transaction that is integrated with
the exchange offer, second-step acquisition and short-form
amalgamation.
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This summary does not address the tax consequences of the
exchange offer, second-step acquisition and short-form
amalgamation under state, local or
non-U.S. tax
laws, or federal tax laws other than those pertaining to income
tax.
This summary is provided for general information purposes
only and is not intended to be, and should not be construed as,
legal or tax advice to any holder of IPC common shares. IPC
shareholders should consult their own tax advisors to determine
the particular tax consequences to them of the exchange offer,
second-step acquisition and short-form amalgamation (including
the application and effect of any state, local or
non-U.S. and
other tax laws).
The
Exchange Offer, Second-Step Acquisition and
Short-Form Amalgamation
U.S. Federal Income Tax Consequences of the Exchange
Offer, Second-Step Acquisition and
Short-Form Amalgamation. The
U.S. federal income tax consequences to a U.S. holder
with respect to the exchange offer, second-step acquisition and
short-form amalgamation depend in part on whether the exchange
offer, second-step acquisition and short-form amalgamation are
characterized as a single, integrated transaction or as separate
transactions for U.S. federal income tax purposes. Validus
intends, and for purposes of the following summary it is
assumed, that the exchange offer, second-step acquisition and
short-form amalgamation will be characterized as a single,
integrated transaction that qualifies as a reorganization for
U.S. federal income tax purposes. We will not seek a ruling
from the IRS with regard to the transactions. Accordingly, there
can be no assurance that the IRS will not challenge the
conclusions described below or that a court would not sustain
such a challenge.
If, as Validus intends, the exchange offer, second-step
acquisition and short-form amalgamation are properly
characterized as part of an integrated transaction that
qualifies as a reorganization within the meaning of
Section 368(a) of the Code, for U.S. federal income
tax purposes a U.S. holder of IPC common shares will
generally recognize gain (but not loss) in an amount equal to
the lesser of (i) the amount of cash received in the
exchange offer and second-step acquisition (excluding any cash
received in lieu of a fractional share, as discussed below), and
(ii) the excess, if any, of (a) the sum of the cash
and fair market value of the Validus common shares received by
such U.S. holder, over (b) the U.S. holders
tax basis in the IPC common shares exchanged therefor. For this
purpose, U.S. holders of IPC common shares must calculate
gain (or disallowed loss) separately for each
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identified block of IPC common shares exchanged (that is, IPC
common shares acquired at the same cost in a single transaction).
Subject to the passive foreign investment company rules
discussed below or the potential application of
Section 1248 of the Code, any gain recognized in the
exchange offer and second-step acquisition generally will be
treated as capital gain, unless the receipt of cash by a
U.S. holder has the effect of the distribution of a
dividend for U.S. federal income tax purposes (as discussed
below). Any such capital gain will be long-term capital gain if
the U.S. holder has held the IPC common shares for more
than one year at the time of such exchange. Under current law,
long-term capital gain of non-corporate shareholders is
generally subject to tax at a maximum rate of 15%. If the
receipt of cash has the effect of the distribution of a
dividend, the gain will be treated as dividend income to the
extent of the U.S. holders ratable share of
IPCs accumulated earnings and profits as calculated for
U.S. federal income tax purposes. Any gain of a
non-corporate U.S. holder which is treated as dividend
income will generally be subject to U.S. federal income tax
at a maximum rate of 15%, provided certain holding period
requirements are met. A corporate U.S. holder will not be
entitled to a dividends received deduction for any gain which is
treated as dividend income that is otherwise generally available
upon the receipt of dividends distributed by
U.S. corporations.
The aggregate tax basis of the Validus common shares received by
a U.S. holder of IPC common shares in the exchange offer
and second-step acquisition (including the basis in any
fractional share of Validus common shares deemed received) will
be the same as the aggregate tax basis of the
U.S. holders IPC common shares exchanged in the
exchange offer and second-step acquisition, decreased by the
amount of cash received (excluding cash received in lieu of a
fractional share) and increased by the amount of gain recognized
in the exchange offer and second-step acquisition (including
gain treated as dividend income but excluding any gain
recognized with respect to cash received in lieu of a fractional
share). The holding period of the Validus common shares received
by a U.S. holder of IPC common shares pursuant to the
exchange offer and second-step acquisition will include the
holding period of the IPC common shares exchanged in the
exchange offer and second-step acquisition. If U.S. holders
of IPC common shares acquired different blocks of IPC common
shares at different times or at different prices, such
holders tax basis and holding period in their Validus
common shares may be determined with reference to each block of
IPC common shares exchanged.
In general, the determination as to whether gain recognized by a
U.S. holder of IPC common shares has the effect of a
distribution of a dividend depends upon whether, and to what
extent, the exchange offer and second-step acquisition reduces
the U.S. holders deemed percentage share ownership in
Validus. For purposes of this determination, a U.S. holder
of IPC common shares will be treated as if it first exchanged
all of its IPC common shares solely for Validus common shares
(instead of the combination of Validus common shares and cash
actually received), and then a portion of the Validus common
shares so received were immediately redeemed by Validus for the
cash (excluding any cash received in lieu of a fractional share)
that the holder actually received in the exchange offer and
second-step acquisition. Subject to the passive foreign
investment company rules discussed below or the potential
application of Section 1248 of the Code, the gain
recognized will be treated as capital gain if the deemed
redemption is substantially disproportionate or
not essentially equivalent to a dividend with
respect to the U.S. holder of IPC common shares.
In general, the deemed redemption will be substantially
disproportionate with respect to a U.S. holder of IPC
common shares if the stockholder experiences more than a 20%
reduction in its interest in Validus as a result of the deemed
redemption. In order for the deemed redemption to be not
essentially equivalent to a dividend, the deemed
redemption must result in a meaningful reduction in
the IPC shareholders deemed percentage share ownership of
Validus common shares. The IRS has indicated that a minority
stockholder in a publicly traded corporation whose relative
stock interest is minimal and who exercises no control with
respect to corporate affairs will experience a meaningful
reduction if that stockholder experiences any reduction in
its percentage stock ownership in connection with a transaction
such as the exchange offer and second-step acquisition. In
applying the foregoing tests, a U.S. holder will, under the
constructive ownership rules, be deemed to own shares that are
owned by certain related persons or entities or with respect to
which the U.S. holder owns options, in addition to the
shares actually owned by that U.S. holder. Because the
application of these tests may be complex, U.S. holders of
IPC common shares should consult their own tax advisors
regarding the possibility that all or a portion of any cash
received in exchange for IPC common shares will be treated as a
dividend.
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Cash In Lieu of Fractional Shares. Cash
received in lieu of a fractional share of Validus common shares
will generally be treated as received in redemption of such
fractional share interest, and a holder of IPC common shares
will recognize gain or loss measured by the difference between
the amount of cash received and the portion of the basis of the
Validus common shares allocable to such fractional interest.
Subject to the discussion below relating to the potential
application of Section 1248 of the Code or the passive
foreign investment company rules, such gain or loss generally
will constitute capital gain or loss and will be long-term
capital gain or loss if the U.S. holders holding period in
the IPC common shares exchanged was greater than one year as of
the date of the exchange.
Miscellaneous Reporting Requirements. If a
holder of IPC common shares receives Validus common shares in
the exchange offer or second-step acquisition and, immediately
before the acquisition, owned 5% or more, by vote or value, of
IPC common shares, such holder will be required to file a
statement with its U.S. federal income tax return for the
year of the acquisition. U.S. holders of IPC common shares
that own more than 5% of IPC common shares should consult with
their own tax advisors regarding any applicable reporting
requirements.
Failure to Qualify as a Reorganization. If the
acquisition of IPC fails to qualify as a reorganization, a
U.S. holder of IPC common shares would generally recognize
gain or loss equal to the difference, if any, between
(i) the sum of the fair market value of the Validus common
shares received in the exchange offer and the second-step
acquisition and any cash received and (ii) such
U.S. holders adjusted tax basis in the IPC common
shares surrendered in exchange therefor. Subject to the passive
foreign investment company rules discussed below or subject to
the potential application of Section 1248 of the Code, such
recognized gain would generally constitute capital gain or loss,
and would constitute long-term capital gain or loss if the
U.S. holders holding period for the IPC common shares
exchanged is greater than one year as of the date of the
exchange.
Passive Foreign Investment Company Status of
IPC. A U.S. holder of IPC common shares may
be subject to adverse U.S. federal income tax rules in
respect of a disposition of IPC common shares, including a
non-taxable disposition pursuant to the exchange offer and
second-step acquisition, if IPC were classified as a
passive foreign investment company (a
PFIC) for any taxable year during which such
U.S. holder has held IPC common shares and does not have a
valid pedigreed qualified electing fund election in effect.
Based on its public filings, IPC has indicated that it does not
believe that it is a PFIC. However, the determination of PFIC
status is fundamentally factual in nature, depends on the
application of complex U.S. federal income tax rules that
are subject to differing interpretations, and generally cannot
be determined until the close of the taxable year in question.
Further, neither Validus nor Validus counsel has made any
determination regarding the PFIC status of IPC for any taxable
year. Accordingly, there can be no assurance that IPC has not
been a PFIC for its current taxable year or any other taxable
year during which a U.S. holder holds IPC common shares.
U.S. holders should consult their own tax advisors
regarding the classification of IPC as a PFIC, the effect of the
PFIC rules to such holder, and the availability and effect of
any election that may be available under the PFIC rules.
If IPC were treated as a PFIC as of the date of the acquisition
of IPC but Validus were not treated as a PFIC for the current
taxable year, the disposition of IPC common shares in the
exchange offer and second-step acquisition may constitute a
fully taxable transaction to U.S. holders of IPC common
shares for U.S. federal income tax purposes. As discussed
in greater detail below, Validus does not believe that it will
be treated as a PFIC for the current taxable year and does not
expect to become a PFIC in the foreseeable future.
U.S. holders should consult their own tax advisors
regarding the U.S. federal income tax consequences of the
exchange offer, second-step acquisition and short-form
amalgamation if IPC were treated as a PFIC with respect to such
U.S. holder.
Backup Withholding and Information
Reporting. Cash payments received by a
non-corporate U.S. holder of IPC common shares may, under
certain circumstances, be subject to information reporting and
backup withholding (currently imposed at a rate of 28%), unless
the holder provides proof of an applicable exemption or
furnishes its taxpayer identification number and otherwise
complies with all applicable requirements of the backup
withholding rules. Any amounts withheld from payments to a
holder under the backup withholding rules are not additional tax
and generally will be allowed as a refund or credit against the
holders U.S. federal income tax liability, provided
the required information is timely furnished to the IRS.
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Holding
and Disposing of Validus Common Shares
Distributions. Unless Validus is treated as a
PFIC, described below, the gross amount of distributions paid to
U.S. holders with respect to Validus common shares received
in the exchange offer and second-step acquisition will be
included in the gross income of such U.S. holders, as
dividend income, to the extent paid out of current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Under current law,
dividends paid to a non-corporate U.S. holder with respect
to Validus common shares received in the exchange offer and
second-step acquisition in taxable years beginning before
January 1, 2011, that constitute qualified dividend
income will be taxable at a maximum tax rate of 15% if the
U.S. holder held such Validus common shares for more than
60 days during the
121-day
period that begins 60 days before the ex-dividend date and
meets certain other holding period requirements. Except as
discussed below with respect to backup withholding,
distributions paid by Validus to U.S. holders with respect
to Validus common shares received in the exchange offer and
second-step acquisition will not be subject to
U.S. withholding tax. A corporate U.S. holder will not
be entitled to a dividends received deduction that is otherwise
generally available upon the receipt of dividends distributed by
U.S. corporations.
To the extent that the amount of any distribution exceeds the
current and accumulated earnings and profits for a taxable year
of Validus, as determined under U.S. federal income tax
principles, the distribution will first be treated as a tax-free
return of capital, causing a reduction in the adjusted tax basis
of Validus common shares with regard to which the distribution
was made, and to the extent in excess of such basis, will be
treated as gain from the sale or exchange of such shares.
U.S. holders should consult their own tax advisors
regarding the amount of distributions from Validus after the
exchange offer and second-step acquisition that are treated as
dividends for U.S. federal income tax purposes.
Controlled Foreign Corporation Rules. If a
foreign corporation is a controlled foreign corporation, which
we refer to as a CFC, for an uninterrupted period of
30 days or more during a taxable year, each 10%
U.S. Shareholder (defined below) of such corporation
who owns shares in the CFC directly, or indirectly through
foreign entities, on the last day, in such year, on which such
corporation is a CFC must include in its gross income for
U.S. federal income tax purposes its pro rata share of the
CFCs subpart F income, even if the subpart F
income is not distributed. A foreign corporation is considered a
CFC if 10% U.S. Shareholders own (directly,
indirectly through foreign entities or constructively pursuant
to the application of certain constructive ownership rules) more
than 50% of (i) the total combined voting power of all
classes of voting stock of such foreign corporation, or
(ii) the total value of all stock of such corporation. A
10% U.S. Shareholder is a U.S. person who owns at
least 10% of the total combined voting power of all classes of
stock entitled to vote of the foreign corporation. For purposes
of taking into account insurance income, a CFC also includes a
foreign corporation in which more than 25% of the total combined
voting power of all classes of stock (or more than 25% of the
total value of the stock) is owned (directly, indirectly through
foreign entities or constructively pursuant to the application
of certain constructive ownership rules) by 10%
U.S. Shareholders, on any day during the taxable year of
such corporation, if the gross amount of premiums or other
consideration for the reinsurance or the issuing of insurance
contracts exceeds 75% of the gross amount of all premiums or
other consideration in respect of all risks.
Under the bye-laws of Validus that limit voting power, no
U.S. person who owns Validus common shares directly or
indirectly through one or more
non-U.S. entities
should be treated as owning (directly, indirectly through
non-U.S. entities,
or constructively) 10% or more of the total voting power of all
classes of shares of Validus or any of its
non-U.S. subsidiaries.
As a result of this restriction, Validus believes that none of
its shareholders should be treated as a 10%
U.S. Shareholder of a CFC for purposes of these rules.
There can be no assurance, however, that the CFC rules will not
apply to shareholders of Validus, including as a result of their
indirect ownership of the stock of Validus subsidiaries.
Accordingly, U.S. persons who might, directly, indirectly,
or constructively acquire 10% or more of the Validus common
shares or shares of any of its subsidiaries should consult their
own tax advisors regarding the possible application of the CFC
rules.
Related Person Insurance Income Rules. Any
U.S. person who owns Validus common shares, and hence
indirectly owns shares of Validus Reinsurance Ltd., IPCRe, or
any of Validus other insurance company subsidiaries, on
the last day of such insurance companys taxable year may
be required to include in its income for U.S. federal
income tax purposes its pro rata share of such insurance
companys related person insurance income,
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which we refer to as RPII, for the taxable year if
U.S. persons own, directly, indirectly or constructively,
25% or more of the shares of such insurance company for an
uninterrupted period of at least 30 days during the taxable
year. In general, RPII means premium and related investment
income from the direct or indirect insurance or reinsurance of
any direct or indirect U.S. shareholder of such insurance
subsidiary, or any person related to such shareholder, including
Validus. U.S. persons who own shares of an insurance
company must include RPII in income only if such companys
RPII equals or exceeds 20% of its gross insurance income in any
taxable year and at least 20% of the stock of such insurance
company (measured by either voting power or value) is owned,
directly or indirectly (under complex attribution rules), by
(1) persons (including
non-U.S. persons)
who are insured, directly or indirectly, under policies of
insurance or reinsurance written by such insurance company or
(2) persons related to any such person. The amount of
income included is determined as if such RPII were distributed
proportionately to such U.S. persons on the last day of
such taxable year, regardless of whether such income is actually
distributed. A U.S. persons pro rata share of an
insurance subsidiarys RPII for any taxable year, however,
will not exceed its proportionate share of that
subsidiarys earnings and profits for the year (as
determined for U.S. federal income tax purposes). Validus
does not anticipate that any of its subsidiaries will have RPII
that equals or exceeds 20% of such subsidiarys gross
insurance income. Because some of the factors that determine the
extent of RPII in any period may be beyond Validus
control, there can be no assurance that RPII of any of its
insurance subsidiaries will not equal or exceed 20% of its gross
insurance income in any taxable year. In addition, it may be
difficult for Validus to determine whether it is 20% or more
owned (by either voting power or value), directly or indirectly
(under complex attribution rules), by insured or reinsured
persons or persons related to insured or reinsured persons.
If the RPII rules were to apply to any of Validus
insurance subsidiaries:
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a U.S. persons tax basis in its Validus common shares
would be increased by the amount of any RPII that the
shareholder includes in income;
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the shareholder could exclude from income the amount of any
distribution by Validus to the extent of the RPII included in
income for the year in which the distribution was paid or for
any prior year (which excluded amount would be applied to reduce
the U.S. persons tax basis in the Validus common
shares); and
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each U.S. person who is a direct or indirect shareholder of
Validus on the last day of its taxable year would be required to
attach a Form 5471 to such persons income tax or
information return (failure to file Form 5471 may result in
the imposition of penalties).
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There is a lack of definitive guidance interpreting the RPII
provisions. Accordingly, the meaning of the RPII provisions and
their application to Validus and its subsidiaries is uncertain.
In addition, there can be no assurance that the IRS will not
challenge any determinations by Validus or any of its
subsidiaries as to the amount, if any, of RPII that should be
includible in income or that the amounts of the RPII inclusions
will not be subject to adjustment based upon subsequent IRS
examination.
Foreign Tax Credit. It is anticipated that at
least 50% (determined by voting power or value) of the total
outstanding Validus common shares may be owned by
U.S. persons. Provided that Validus is so owned, dividends
paid by Validus will be treated, for purposes of determining the
foreign tax credit limitation, as partly
U.S.-source
and partly
non-U.S.-source,
in proportion to the source of Validus earnings and
profits for the year in which the dividend is paid. Any amounts
required to be included in income of U.S. holders under the
CFC rules or the RPII rules would also be partly
non-U.S.-source
and partly
U.S.-source.
For foreign tax credit limitation purposes, it is likely that
substantially all of the RPII and dividends that are
non-U.S.-source
income will constitute either passive or
general income. Because the calculation of a
taxpayers foreign tax credit limitation is complex and is
dependent on the particular taxpayers circumstances,
U.S. holders should consult their own tax advisors with
respect to these matters.
Sale, Exchange, Redemption or Other Taxable Disposition of
Shares. Subject to the discussion below relating
to the potential application of Section 1248 of the Code or
the PFIC rules, any gain or loss realized by a U.S. holder
on the sale or other taxable disposition of Validus common
shares received in the exchange offer or second-step acquisition
will be subject to U.S. federal income taxation as capital
gain or loss (which will be long-term capital gain or loss if
the holding period for such Validus common shares exceeds one
year on the date of such sale or disposition) in an amount equal
to the difference, if any, between the amount realized upon such
sale or
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exchange and such persons tax basis in its Validus common
shares. Preferential tax rates currently apply to long-term
capital gains of non-corporate U.S. holders. Deductions for
capital losses are subject to significant limitations under the
Code. Any gain or loss will generally be treated as
U.S. source gain or loss for foreign tax credit limitation
purposes, and any gain will generally constitute passive
income for these purposes.
Section 1248 of the Code provides that if a
U.S. person sells or exchanges stock in a foreign
corporation and such person owned directly, indirectly through
certain foreign entities or constructively 10% or more of the
voting power of the corporation at any time during the five-year
period ending on the date of disposition when the corporation
was a CFC, any gain from the sale or exchange of the shares will
generally be treated as a dividend to the extent of the
CFCs earnings and profits (determined under
U.S. federal income tax principles) during the period that
the shareholder held the shares and while the corporation was a
CFC (with certain adjustments). A 10% U.S. Shareholder may
in certain circumstances be required to report a disposition of
shares of a CFC by attaching IRS Form 5471 to the
U.S. federal income tax or information return that it would
normally file for the taxable year in which the disposition
occurs.
Section 953(c)(7) of the Code generally provides that
Section 1248 of the Code will also apply to the sale or
exchange of shares in a
non-U.S. corporation
if the
non-U.S. corporation
would be taxed as an insurance company if it were a domestic
corporation and is 25% or more owned by U.S. persons,
regardless of whether the shareholder is a 10% shareholder or
whether RPII constitutes 20% or more of the corporations
gross insurance income. Existing Treasury regulations do not
address whether Section 1248 of the Code and the
requirement to file Form 5471 would apply if the
non-U.S. corporation
is not a CFC but the
non-U.S. corporation
has a subsidiary that is a CFC and that would be taxed as an
insurance company if it were a domestic corporation (although,
as discussed above, shareholders of 10% or more of the Validus
common shares may have an independent obligation to file
Form 5471). Validus believes that Section 1248 of the
Code will not apply to dispositions of Validus common shares
because (i) Validus should not have any
U.S. shareholders that own directly, indirectly or
constructively 10% or more of the voting power of its common
shares, and (ii) Validus is not directly engaged in the
insurance business and, under proposed Treasury regulations,
Sections 953(c)(7) and 1248 of the Code appear to be
applicable only in the case of shares of corporations that are
directly engaged in the insurance business. There can be no
assurance, however, that the IRS will interpret the proposed
Treasury regulations in this manner or that the proposed
Treasury regulations will not be amended or promulgated in final
form so as to provide that Section 1248 of the Code and the
requirement to file Form 5471 will apply to dispositions of
Validus common shares.
Passive Foreign Investment Company
Considerations. Certain adverse U.S. federal
income tax rules generally apply to a U.S. person that owns
or disposes of stock in a
non-U.S. corporation
that is treated as a PFIC. In general, a
non-U.S. corporation
will be treated as a PFIC for any taxable year during which
either (i) 75% or more of the
non-U.S. corporations
gross income is passive income, or (ii) 50% or more of the
average value of the
non-U.S. corporations
assets produce or are held for the production of passive income.
For these purposes, passive income generally includes dividends,
interest, and certain rents and royalties. The PFIC statutory
provisions, however, contain an exception for income derived in
the active conduct of an insurance business by a corporation
which is predominantly engaged in an insurance business.
Distributions constituting excess distributions, as
defined in Section 1291 of the Code, from a PFIC and
dispositions of shares of a PFIC generally are subject to the
highest applicable rate of tax on ordinary income in effect and
to an interest charge based on the value of the tax deferred
during the period during which the shares are owned.
Validus does not believe that it will be treated as a PFIC for
the current taxable year and does not expect to become a PFIC in
the foreseeable future. However, the determination of whether
Validus is a PFIC is made annually, and is based on the
activities, income and assets of Validus and its subsidiaries,
all of which are subject to change. Accordingly, no assurance
can be given that Validus will not become a PFIC in the future.
U.S. holders should consult their own tax advisors with
respect to how the PFIC rules could affect the sale, exchange,
redemption or other taxable disposition of Validus common shares
received in the exchange offer and second-step acquisition or
the receipt of any distributions with respect to such Validus
common shares.
Backup Withholding and Information
Reporting. In general, information reporting will
apply to distributions made with respect to, and proceeds
received on the disposition of, Validus common shares that are
paid to a U.S. holder within the United States (and, in
certain cases, outside of the United States), unless the
U.S. holder
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establishes that it is an exempt recipient, such as a
corporation. Backup withholding (currently imposed at a rate of
28%) may apply to such payment if the U.S. holder fails to
timely provide a taxpayer identification number or certification
of exempt status or fails to report in full dividend and
interest income. Backup withholding tax is not an additional
tax. A U.S. holder subject to the backup withholding rules
will be allowed a credit of the amount withheld against such
U.S. holders U.S. federal income tax liability
and, if backup withholding tax results in an overpayment of
U.S. federal income tax, such U.S. holder may be
entitled to a refund, provided that the requisite information is
correctly furnished to the IRS in a timely manner.
U.S. holders should consult their own tax advisors as to
the information reporting and backup withholding tax rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE
ANALYSIS OF ALL TAX CONSEQUENCES APPLICABLE TO U.S. HOLDERS
RELATING TO THE EXCHANGE OFFER, SECOND-STEP ACQUISITION, AND
SHORT-FORM AMALGAMATION AND THE OWNERSHIP AND DISPOSITION
OF VALIDUS COMMON SHARES RECEIVED PURSUANT TO THE EXCHANGE OFFER
AND SECOND-STEP ACQUISITION. U.S. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES APPLICABLE TO
THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Purpose
and Structure of the Exchange Offer
The purpose of the exchange offer is for Validus to acquire
control of, and ultimately the entire equity interest in, IPC.
The exchange offer is the first step in our plan to acquire all
of the issued and outstanding IPC common shares. We intend to,
promptly after completion of the exchange offer, seek to
acquire, which we refer to as the second-step
acquisition, all shares of those shareholders who choose
not to tender their IPC common shares pursuant to the exchange
offer, in accordance with either Section 102 or
Section 103 of the Companies Act. The purpose of the
second-step acquisition is for Validus to acquire all
outstanding IPC common shares that are not acquired in the
exchange offer on the same terms as in the exchange offer. After
the second-step acquisition, former remaining IPC shareholders
will no longer have any ownership interest in IPC and will be
shareholders of Validus and Validus will own all of the issued
and outstanding IPC common shares. Validus intends, promptly
following the second-step acquisition, to amalgamate IPC with a
newly-formed, wholly-owned subsidiary of Validus in accordance
with Section 107 of the Companies Act. Please see the
sections of this prospectus/offer to exchange entitled The
Exchange Offer Statutory Requirements; Second-Step
Acquisition; The Exchange Offer
Short-Form Amalgamation; and The Exchange
Offer Plans for IPC.
Subject to applicable law, Validus reserves the right to amend
the exchange offer (including by amending the number of IPC
common shares to be exchanged or the exchange offer
consideration to be offered in the second-step acquisition or
the structure of the second-step acquisition), including upon
entering into an amalgamation agreement with IPC, or to pursue
an acquisition of IPC not involving an exchange offer (including
the Validus scheme of arrangement), in which event we would
terminate the exchange offer and the IPC common shares would,
upon consummation of such acquisition, be converted into the
right to receive the consideration negotiated by Validus and
IPC, or offered pursuant to such alternative acquisition
structure.
Statutory
Requirements; Second-Step Acquisition
If
Validus acquires 90% in value of the IPC common
shares.
Section 102 of the Companies Act permits a person acquiring
shares of a Bermuda company under a scheme or
contract that has been approved by at least 90% in
value of the shares subject to the scheme or
contract to seek to acquire the shares of any
shareholders dissenting from such scheme or
contract. The exchange offer will constitute a
scheme or contract pursuant to
Section 102 of the Companies Act. As a result, if Validus
acquires at least 90% in value of the IPC common shares subject
to the exchange offer (other than IPC common shares owned by
Validus, its subsidiaries or IPC), Validus will have the right,
subject to compliance with the requirements of Section 102
of the Companies Act, to acquire each remaining IPC common
share, subject to the rights of dissenting shareholders as set
forth in Section 102, which include the right to petition
the Supreme Court of Bermuda for an
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order as the court sees fit. Any IPC shareholder whose IPC
shares are not tendered and accepted for exchange in the
exchange offer will potentially have rights as a dissenting
shareholder of IPC under Section 102.
Under Section 102, Validus will be permitted to give
notice, to acquire the IPC common shares of any remaining IPC
shareholders, at any time within four months from the making of
the exchange offer, so long as it delivers any such notice
within two months of accepting for exchange at least 90% in
value of the IPC common shares.
Upon delivery of a notice by Validus to dissenting shareholders,
Validus will be required to acquire all IPC common shares
subject to such notice on the same terms as in the exchange
offer. However, a dissenting IPC shareholder may petition the
Supreme Court of Bermuda within one month of receipt of notice
from Validus for an order as the court sees fit.
In the event that the Supreme Court of Bermuda declines to make
an order contrary to the compulsory acquisition procedures under
Section 102 and the terms of the Validus notice, Validus
will be required, within the expiration of one month from the
date that the dissenting shareholders application has been
disposed of by the Supreme Court of Bermuda, to transmit to IPC
(i) a copy of the notice, (ii) an instrument of
transfer executed on behalf of the each dissenting shareholder
by a person appointed by Validus and (iii) the exchange
offer consideration in respect of all IPC common shares held by
each such IPC shareholder. Following this delivery, IPC will be
required to register Validus as the holder of the IPC common
shares held by any such IPC shareholder. IPC will be required to
hold the exchange offer consideration received by IPC from
Validus in a separate account held in trust for the applicable
dissenting shareholders.
If
Validus acquires at least 95% of outstanding IPC common
shares.
Section 103 of the Companies Act permits the holder of at
least 95% of any class of shares in a Bermuda company to give
notice to the remaining shareholders of such class of such
holders intention to acquire the outstanding shares of the
company on the terms set out in the holders notice. The
acquisition of remaining shares will be on the terms set forth
in the holders notice unless a remaining shareholder
applies to the Supreme Court of Bermuda for an appraisal of its
shares. Therefore, if Validus acquires at least 95% of the
outstanding IPC common shares, Validus will have the right,
pursuant to Section 103, to acquire each remaining IPC
common share on the same terms as in the exchange offer, subject
to the right of remaining IPC shareholders to demand appraisal
from a court.
Pursuant to Section 103, Validus must give notice to all
remaining IPC shareholders of its intention to acquire their IPC
common shares, and must set out in such notice the terms upon
which it intends to acquire such shares. Following delivery of
this notice, Validus will be required to acquire the outstanding
IPC common shares on the terms set forth in its notice to IPC
shareholders unless one or any of the remaining IPC shareholders
applies to the Supreme Court of Bermuda for an appraisal of the
value of the IPC common shares sought to be purchased by Validus.
In the event of an appraisal proceeding, Validus will be
required, within one month of the determination of the Supreme
Court of Bermuda in connection with such appraisal proceeding,
to either (i) acquire the IPC common shares subject to
appraisal at the price determined by the Supreme Court of
Bermuda or (ii) cancel the notice to acquire the
outstanding IPC common shares. The Supreme Court of
Bermudas appraisal of shares cannot be appealed.
If the Supreme Court of Bermuda appraises any outstanding IPC
common shares at a higher price than that set forth in the
exchange offer, then Validus will be required by
Section 103 to, within one month of such appraisal
determination, either: (i) pay to each remaining
shareholder whose shares were acquired by Validus pursuant to
the notice given in accordance with Section 103 the
difference in price between the value of the exchange offer
consideration paid to such shareholders and the appraisal value
as determined by the Supreme Court of Bermuda (in the form of
consideration as determined in the courts discretion) or
(ii) cancel the notice given to remaining IPC shareholders,
in which case any remaining IPC shareholder whose shares were
previously acquired by Validus will be required to return the
exchange offer consideration received by it to Validus in
exchange for the return of such IPC shareholders IPC
common shares.
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Following completion of the second-step acquisition, Validus
will take, or cause to be taken, directly or indirectly, any
such action as Validus determines is necessary (if and at such
time as Validus determines is necessary) to cause Validus to
become the registered holder of any IPC common shares for which
Validus became the beneficial (but not legal) holder thereof
under Section 102 or Section 103 of the Companies Act.
Short-Form Amalgamation
Following the acquisition of all of the issued and outstanding
IPC common shares, as part of an overall plan, Validus intends
to complete a short-form amalgamation between IPC and another
wholly-owned subsidiary of Validus pursuant to Section 107
of the Companies Act.
A short-form amalgamation would require the consent of the board
of directors of each of IPC and the Validus subsidiary, but
would not require shareholder approval or an amalgamation
agreement. Following the short-form amalgamation, IPC and the
Validus subsidiary would continue as one amalgamated company in
accordance with the Companies Act.
Appraisal/Dissenters
Rights
You do not have appraisal rights in connection with the exchange
offer. However, if the second-step acquisition is subsequently
consummated between Validus and IPC, IPC shareholders who have
not tendered their IPC common shares in the exchange offer will
have certain rights under Section 102 and Section 103
of the Companies Act to dissent from the second-step acquisition
and, in the case of Section 103, to demand appraisal.
If Validus acquires at least 95% of the outstanding IPC common
shares, and Validus seeks a compulsory acquisition of
outstanding shares pursuant to Section 103 of the Companies
Act, the remaining IPC shareholders may apply to the Supreme
Court of Bermuda for an appraisal of their shares. The
Courts appraisal of the IPC common shares cannot be
appealed.
If Validus acquires 90% in value of the IPC common shares (other
than any IPC common shares owned by Validus, its subsidiaries or
IPC) and thereafter seeks to effect a compulsory acquisition of
IPC common shares pursuant to Section 102 of the Companies
Act, dissenting shareholders may apply to the Supreme Court of
Bermuda for an order as the court sees fit.
THE FOREGOING SUMMARY OF THE RIGHTS, IF ANY, OF DISSENTING
SHAREHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROCEDURES TO BE FOLLOWED BY SHAREHOLDERS DESIRING TO EXERCISE
DISSENTERS RIGHTS UNDER BERMUDA LAW IN CONNECTION WITH THE
SECOND-STEP ACQUISITION. FAILURE TO FOLLOW THE STEPS REQUIRED
FOR PERFECTING DISSENTERS RIGHTS, IF ANY, MAY RESULT IN
THE LOSS OF THOSE RIGHTS.
Plans for
IPC
The exchange offer is the first step in our plan to acquire all
of the outstanding IPC common shares. Validus intends, promptly
following acceptance for exchange and exchange of IPC common
shares in the exchange offer, to effect the second-step
acquisition pursuant to which Validus will acquire all shares of
those shareholders who choose not to tender their IPC common
shares pursuant to the exchange offer in accordance with either
Section 102 or Section 103 of the Companies Act. The
purpose of the second-step acquisition is for Validus to acquire
all outstanding IPC common shares that are not acquired in the
exchange offer. After the second-step acquisition, former
remaining IPC shareholders will no longer have any ownership
interest in IPC and will be shareholders of Validus and Validus
will own all of the issued and outstanding IPC common shares.
Validus intends, promptly following the second-step acquisition,
to amalgamate IPC with a newly-formed, wholly-owned subsidiary
of Validus in accordance with Section 107 of the Companies
Act. Please see the sections of this prospectus/offer to
exchange entitled The Exchange Offer Purpose
and Structure of the Exchange Offer; The Exchange
Offer Statutory Requirements; Second-Step
Acquisition; and The Exchange Offer
Short-Form Amalgamation.
Validus has also filed preliminary proxy materials to solicit
proxies from Validus shareholders (and, when permitted, will
distribute definitive proxy materials and proxy cards to Validus
shareholders) to vote to approve the
83
issuance of Validus common shares in connection with the
acquisition by Validus of all of the outstanding IPC common
shares.
Validus has also filed legal proceedings in the Supreme Court of
Bermuda against IPC and Max that challenge the Max termination
fee and the no-talk provision contained in the Max
amalgamation agreement. Validus is seeking, among other things,
an injunction to restrain payment of the Max termination fee and
to restrain operation of other restrictions on IPCs board
of directors under the Max amalgamation agreement on the bases
that (1) because of its excessive size, the termination fee
amounts to an unlawful penalty under Bermuda law and is
accordingly unenforceable, and (2) entry into the Max
amalgamation agreement, in circumstances where such agreement
contained the Max termination fee and restrictions on the
ability of IPCs board of directors to consider alternative
offers, constituted a breach of the IPC directors
fiduciary duties. Please see the section of this
prospectus/offer to exchange entitled The Exchange
Offer Certain Legal Matters; Regulatory
Approvals.
Validus has also taken steps to provide alternative methods of
acquiring all of the issued and outstanding IPC common shares.
First, Validus is soliciting proxies from IPC shareholders to
vote against the proposed Max amalgamation. If the proposed Max
amalgamation is voted down by IPC shareholders, IPCs board
of directors will be able to terminate the Max amalgamation
agreement and enter into the Validus amalgamation agreement. If
IPCs board of directors were to enter into the Validus
amalgamation agreement following the termination of the Max
amalgamation agreement, Validus believes the amalgamation
contemplated by the Validus amalgamation offer could be
completed in mid-to-late July 2009 based on the assumption
that IPC terminates the Max amalgamation agreement promptly
following its June 12, 2009 annual general meeting,
allowing approximately one month to hold a special general
meeting of IPC shareholders to obtain the required shareholder
approval and to satisfy the other conditions in the Validus
amalgamation agreement.
Second, Validus has commenced the exchange offer. The exchange
offer is subject to the terms and conditions described in this
prospectus/offer to exchange. Under Bermuda law, if Validus
acquires at least 90% of the IPC common shares which it is
seeking to acquire in the exchange offer, Validus will have the
right to acquire the remaining IPC common shares on the same
terms in the second-step acquisition. Validus believes that it
would be able to complete the exchange offer in June 2009,
promptly following termination of the Max amalgamation agreement
(and subject to the satisfaction or waiver of the other
conditions to the exchange offer), based on the following. The
expiration time of the exchange offer will be June 26,
2009, unless extended. As a result, if the conditions of the
exchange offer are satisfied or waived at the expiration time of
the exchange offer, Validus would be able to acquire all of the
IPC common shares that are validly tendered pursuant to the
exchange offer.
Third, Validus is pursuing the Validus scheme of arrangement. In
order to implement the Validus scheme of arrangement, the IPC
shareholders must approve the Validus scheme of arrangement at
the court-ordered IPC meeting, IPC must separately approve the
Validus scheme of arrangement and the Validus scheme of
arrangement must be sanctioned by the Supreme Court of Bermuda.
The Validus scheme of arrangement must be approved by a majority
in number of the holders of IPC common shares voting at the
court-ordered IPC meeting, whether in person or by proxy,
representing 75% or more in value of the IPC common shares
voting at the court-ordered IPC meeting, whether in person or by
proxy. If the IPC shareholders approve the Validus scheme of
arrangement at the court-ordered IPC meeting, the separate
approval of IPC to the Validus scheme of arrangement can be
provided by either (i) the IPC board of directors
voluntarily complying with the will of the IPC shareholders as
expressed at the court-ordered IPC meeting, or (ii) the
shareholders of IPC approving resolutions at the IPC special
general meeting, including resolutions for IPC to approve and to
be bound by the Validus scheme of arrangement and to terminate
the Max amalgamation agreement. Following IPC shareholder
approval at both the court-ordered IPC meeting and the IPC
special general meeting, the satisfaction or, where relevant,
waiver of the other conditions to the effectiveness of the
Validus scheme of arrangement and the granting of a court order
from the Supreme Court of Bermuda sanctioning the Validus scheme
of arrangement, a copy of the court order sanctioning the
Validus scheme of arrangement will be delivered to the Bermuda
Registrar of Companies, at which time the Validus scheme of
arrangement will be effective. In a decision rendered on
May 29, 2009, the Supreme Court of Bermuda has determined
that it has jurisdiction to sanction the Validus scheme of
arrangement without approval of the IPC board of directors.
However, the Court has determined not to exercise its discretion
to order the court-ordered IPC meeting
84
in advance of the vote on the proposed Max amalgamation at the
IPC annual general meeting and evidence of IPC shareholder
support for the Validus scheme of arrangement. Validus believes
that, under the Validus scheme of arrangement, it would be able
to close the contemplated acquisition in July 2009 based on the
assumptions that: (1) the Supreme Court of Bermuda will be
able to accommodate the preferred hearings schedule and meeting
dates and other procedural matters; (2) IPC shareholders
holding at least one-tenth of the issued IPC common shares have
requisitioned the IPC special general meeting to be held in July
2009; and (3) the IPC directors, following the rejection of
the Max amalgamation agreement, or the IPC shareholders, convene
the IPC special general meeting, allowing it to be held in July
2009.
The Validus amalgamation offer, the Validus scheme of
arrangement and the exchange offer are alternative methods for
Validus to acquire all of the issued and outstanding IPC common
shares on the same economic terms. Validus intends to seek to
acquire all IPC common shares by whichever method Validus
determines is most effective and efficient.
If, and to the extent that Validus (and/or any of Validus
subsidiaries) acquires control of IPC or otherwise obtains
access to the books and records of IPC, Validus intends to
conduct a detailed review of IPCs business, operations,
capitalization and management and consider and determine what,
if any, changes would be desirable in light of the circumstances
which then exist. Validus currently intends to replace
IPCs existing board of directors following the second-step
acquisition and short-form amalgamation. In addition, it is
expected that, initially following the second-step acquisition,
the business and operations of IPC will, except as set forth in
this prospectus/offer to exchange, be continued substantially as
they are currently being conducted, but Validus expressly
reserves the right to make any changes that it deems necessary,
appropriate or convenient to optimize potential in conjunction
with Validus businesses and Validus review or in
light of future developments. Such changes could include, among
other things, changes in IPCs business, corporate
structure, assets, properties, marketing strategies,
capitalization, management, personnel or dividend policy and
changes to IPCs memorandum of association and bye-laws.
Except as indicated in this prospectus/offer to exchange or as
announced in the Validus amalgamation offer, neither Validus nor
any of Validus subsidiaries has any current plans or
proposals which relate to or would result in (1) any
extraordinary transaction, such as an amalgamation, merger,
reorganization or liquidation of IPC or any of its subsidiaries,
(2) any purchase, sale or transfer of a material amount of
assets of IPC or any of its subsidiaries, (3) any material
change in the present dividend rate or policy, or indebtedness
or capitalization of IPC or any of its subsidiaries,
(4) any change in the current board of directors or
management of IPC or any change to any material term of the
employment contract of any executive officer of IPC,
(5) any other material change in IPCs corporate
structure or business, (6) any class of equity security of
IPC being delisted from a national stock exchange or ceasing to
be authorized to be quoted in an automated quotation system
operated by a national securities association or (7) any
class of equity securities of IPC becoming eligible for
termination of registration under Section 12(g)(4) of the
Exchange Act.
Effect of
the Exchange Offer on the Market for IPC Common Shares; NASDAQ
and Bermuda Stock Exchange Listing; Registration Under the
Exchange Act; Margin Regulations
Effect
of the Exchange Offer on the Market for the IPC Common
Shares
In the event that not all IPC common shares are tendered in the
exchange offer and we accept for exchange those shares tendered
into the exchange offer, the number of shareholders and the
number of IPC common shares held by individual holders will be
greatly reduced. As a result, Validus acceptance of IPC
common shares for exchange in the exchange offer could adversely
affect the liquidity and could also adversely affect the market
value of the remaining IPC common shares held by the public. The
extent of the public market for IPC common shares and the
availability of quotations reported in the over-the-counter
market depends upon the number of shareholders holding IPC
common shares, the aggregate market value of the shares
remaining at such time, the interest of maintaining a market in
the shares on the part of any securities firms and other
factors. According to IPCs Solicitation/Recommendation
Statement on
Schedule 14D-9
filed with the SEC on May 14, 2009, as of April 28,
2009, there were 55,948,821 IPC common shares outstanding.
According to the IPC
10-K, there
were 73 holders of record of IPC common shares as of
January 31, 2009.
85
NASDAQ
Global Select Market Listing and Bermuda Stock Exchange
Listing
The IPC common shares are quoted on the NASDAQ Global Select
Market. Depending upon the number of IPC common shares exchanged
pursuant to the exchange offer and the number of IPC
shareholders remaining thereafter, the IPC common shares may no
longer meet the requirements of the NASDAQ Global Select Market
for continued listing and may be delisted from the NASDAQ Global
Select Market. According to the NASDAQ Global Select
Markets published guidelines, the NASDAQ Global Select
Market would consider delisting the IPC common shares if, among
other things, the number of total shareholders of IPC should
fall below 400 (the number of beneficial holders to be
considered in addition to the holders of record) and the number
of publicly held IPC common shares falls below 1,100,000 or the
market value of publicly held IPC common shares falls below
$15 million.
According to the Bermuda Stock Exchanges published
guidelines, the exchange may cancel the listing of IPC common
shares if, among other things, the Bermuda Stock Exchange
considers there are insufficient IPC common shares in the hands
of the public, unless the IPC common shares are solely in the
hands of qualified investors who meet the suitability tests set
out in the investor suitability declaration of the Bermuda Stock
Exchange.
If, as a result of the exchange of IPC common shares pursuant to
the exchange offer or otherwise, the IPC common shares no longer
meet the requirements of the NASDAQ Global Select Market for
continued listing or the Bermuda Stock Exchange cancels the IPC
common shares listing and the listing of the IPC common shares
is discontinued, the market for the IPC common shares could be
adversely affected. If the NASDAQ Global Select Market and
Bermuda Stock Exchange were to delist the IPC common shares, it
is possible that the IPC common shares would continue to trade
on another securities exchange or in the over-the-counter market
and that price or other quotations would be reported by such
exchange or other sources. The extent of the public market
therefor and the availability of such quotations would depend,
however, upon such factors as the number of shareholders
and/or the
aggregate market value of such securities remaining at such
time, the interest in maintaining a market in the IPC common
shares on the part of securities firms, the possible termination
of registration under the Exchange Act as described below, and
other factors. Validus cannot predict whether the reduction in
the number of IPC common shares that might otherwise trade
publicly would have an adverse or beneficial effect on the
market price for or marketability of the IPC common shares or
whether it would cause future market prices to be greater or
less than the consideration being offered in the exchange offer.
If the IPC common shares are not delisted prior to the
second-step acquisition, then the IPC common shares will cease
to be listed on the NASDAQ Global Select Market and on the
Bermuda Stock Exchange upon consummation of the second-step
acquisition.
Registration
Under Exchange Act
IPC common shares are currently registered under the Exchange
Act. This registration may be terminated upon application by IPC
to the SEC if IPC common shares are not listed on a
national securities exchange and there are fewer
than 300 record holders. Termination of registration would
substantially reduce the information required to be furnished by
IPC to holders of IPC common shares and to the SEC and would
make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b),
the requirement of furnishing a proxy statement in connection
with shareholders meetings and the requirements of
Exchange Act
Rule 13e-3
with respect to going private transactions, no
longer applicable to IPC. In addition, affiliates of
IPC and persons holding restricted securities of IPC
may be deprived of the ability to dispose of these securities
pursuant to Rule 144 under the Securities Act. If
registration of IPC common shares is not terminated prior to the
second-step acquisition, then the registration of IPC common
shares under the Exchange Act will be terminated upon
consummation of the second-step acquisition.
Margin
Regulations
IPC common shares are currently margin securities,
as such term is defined under the rules of the Board of
Governors of the Federal Reserve System (the Federal
Reserve Board), which has the effect, among other things,
of allowing brokers to extend credit on the collateral of such
securities. Depending upon factors similar to those described
above regarding listing and market quotations, following the
exchange offer it is possible that IPC
86
common shares might no longer constitute margin
securities for purposes of the margin regulations of the
Federal Reserve Board, in which event such IPC common shares
could no longer be used as collateral for loans made by brokers.
In addition, if registration of the IPC common shares under the
Exchange Act were terminated, the IPC common shares would no
longer constitute margin securities.
Conditions
of the Exchange Offer
Notwithstanding any other provision of the exchange offer, and
in addition to (and not in limitation of) Validus right to
extend and amend the exchange offer at any time, in its
discretion, Validus shall not be required to accept for exchange
any IPC common shares tendered pursuant to the exchange offer,
shall not be required to make any exchange for IPC common shares
accepted for exchange, and may extend, terminate or amend the
exchange offer, if immediately prior to the expiration time of
the exchange offer (or substantially concurrently therewith), in
the judgment of Validus, any one or more of the following
conditions shall not have been satisfied:
Minimum
Tender Condition
IPC shareholders shall have validly tendered and not withdrawn
prior to the expiration time of the exchange offer at least that
number of IPC common shares that shall constitute 90% of the
then-outstanding number of IPC common shares on a fully-diluted
basis (excluding any IPC common shares owned by Validus, its
subsidiaries or IPC).
Max
Amalgamation Condition
The Max amalgamation agreement shall have been validly
terminated, and Validus shall reasonably believe that IPC could
not have any liability, and Max shall not have asserted any
claim of liability or breach against IPC in connection with the
Max amalgamation agreement other than with respect to the
possible payment of the Max termination fee.
Registration
Statement Condition
The registration statement of which this prospectus/offer to
exchange is a part shall have become effective under the
Securities Act, no stop order suspending the effectiveness of
the registration statement shall have been issued and no
proceedings for that purpose shall have been initiated or
threatened by the SEC and Validus shall have received all
necessary state securities law or blue sky
authorizations.
Shareholder
Approval Condition
The shareholders of Validus shall have approved the issuance of
the Validus common shares pursuant to the exchange offer and the
second-step acquisition as required under the rules of the NYSE.
All of the Validus officers, directors and those shareholders
which Validus refers to as its qualified sponsors,
in each case, who own Validus common shares have indicated that
they intend to vote the Validus common shares beneficially owned
by them in favor of such approvals. As of April 30, 2009,
these persons and entities beneficially owned 42.4% of the
voting interests relating to the Validus common shares.
Validus qualified sponsors are currently
Aquiline Capital Partners, LLC (and its related companies),
Goldman Sachs Capital Partners, Vestar Capital Partners,
New Mountain Capital, LLC and Merrill Lynch Global Private
Equity.
NYSE
Listing Condition
The Validus common shares to be issued to IPC shareholders as a
portion of the offer consideration in exchange for IPC common
shares in the exchange offer and the second-step acquisition
shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
Pending
Litigation Condition
There shall be no threatened or pending litigation, suit, claim,
action, proceeding or investigation before any supranational,
national, state, provincial, municipal or local government,
governmental, regulatory or
87
administrative authority, agency, instrumentality or commission
or any court, tribunal or judicial or arbitral body (each of
which we refer to in this prospectus/offer to exchange as a
governmental authority): (1) challenging or
seeking to, or which, in the judgment of Validus, is reasonably
likely to, make illegal, delay or otherwise, directly or
indirectly, restrain or prohibit or in which there are
allegations of any violation of law, rule or regulation relating
to, the making of or terms of the exchange offer or the
provisions of this prospectus/offer to exchange or, the
acceptance for exchange of any or all of the IPC common shares
by Validus or any other affiliate of Validus or the second-step
acquisition; or (2) seeking to, or which in the judgment of
Validus, is reasonably likely to, prohibit or limit the full
rights of ownership of IPC common shares by Validus or any of
its affiliates, including, without limitation, the right to vote
any IPC common shares acquired by Validus pursuant to the
exchange offer or otherwise on all matters properly presented to
IPC shareholders.
No
Material Adverse Change Condition
Since December 31, 2008, there shall not have been any
change, state of facts, circumstance or event that has had, or
would reasonably be expected to have, a material adverse effect
on the financial condition, properties, assets, liabilities,
obligations (whether accrued, absolute, contingent or
otherwise), businesses or results of operations of IPC and its
subsidiaries, taken as a whole, excluding any such change, state
of facts, circumstance or event to the extent caused by or
resulting from: (i) changes in economic, market, business,
regulatory or political conditions generally in the United
States or in Bermuda or any other jurisdiction in which such
party operates or in Bermudan, United States or global financial
markets; (ii) changes, circumstances or events generally
affecting the property and casualty insurance and reinsurance
industry in the geographic areas in which such party operates;
(iii) changes, circumstances or events resulting in
liabilities under property catastrophe reinsurance, including
any effects resulting from any earthquake, hurricane, tornado,
windstorm, terrorist act, act of war or other natural or
man-made disaster; (iv) changes in any applicable law,
statute, ordinance, common law, arbitration award, or any rule,
regulation, judgment, order, writ, injunction, decree, agency
requirement or published interpretation of any governmental
authority, including all relevant bye-laws and regulations of
the Council and Society of Lloyds incorporated under the
Lloyds Act of 1871 to 1982 of England and Wales in each of
the jurisdictions in which IPC or its subsidiaries currently
conduct business or operate, which we refer to as
specified laws; (v) changes in generally
accepted accounting principles or in statutory accounting
principles (or local equivalents in the applicable jurisdiction)
prescribed by the applicable insurance regulatory authority,
including accounting and financial reporting pronouncements by
the Bermuda Monetary Authority, which we refer to as the
BMA, the SEC, the National Association of Insurance
Commissioners and the Financial Accounting Standards Board;
(vi) any change or announcement of a potential change in
IPCs or any of its subsidiaries credit or claims
paying rating or A.M. Best rating or the ratings of any of
IPCs or its subsidiaries businesses or securities;
(vii) a change in the trading prices or volume of IPC
common shares; (viii) the failure to meet any revenue,
earnings or other projections, forecasts or predictions for any
period ending after the date of this prospectus/offer to
exchange; or (ix) the commencement, occurrence or
continuation of any war or armed hostilities, except that
(A) in the case of the foregoing clauses (vi),
(vii) and (viii), such exceptions shall not prevent or
otherwise affect a determination that any changes, state of
facts, circumstances or events underlying a failure described in
any such clause has resulted in, or contributed to, a material
adverse effect on IPC and its subsidiaries and (B) in the
case of the foregoing clauses (i), (ii), (iv), (v) and
(ix), to the extent those changes, state of facts, circumstances
or events have a materially disproportionate effect on IPC and
its subsidiaries taken as a whole relative to other similarly
situated persons in the property and casualty insurance and
reinsurance industry. In addition, a material adverse
effect shall be deemed to have occurred if IPCs book value
shall have (A) declined by more than 50% from
December 31, 2008 to the expiration time of the exchange
offer or (B) declined from December 31, 2008 to the
expiration time of the exchange offer by more than 20% greater
than the percentage decline of Validus book value during
the same period, provided, that for purposes of measuring the
20% differential book value decline, if Validus has experienced
an increase in book value from December 31, 2008 to the
expiration time of the exchange offer, Validus shall be deemed
to have experienced no change in its book value. We refer to any
such materially adverse change, state of facts, circumstance or
event or decline in IPCs book value described above as a
material adverse effect.
88
Conduct
of Business Condition
Each of IPC and its subsidiaries shall have carried on their
respective businesses in the ordinary course consistent with
past practice at all times on or after the date of this
prospectus/offer to exchange and prior to the expiration time of
the exchange offer.
Validus
Credit Facility Condition
All amendments or waivers under Validus credit facilities
necessary to consummate the exchange offer, the second-step
acquisition and the other transactions contemplated by this
prospectus/offer to exchange shall be in full force and effect.
Other
Conditions
Additionally, Validus shall not be required to accept for
exchange any IPC common shares tendered pursuant to the exchange
offer, shall not be required to make any exchange for IPC common
shares accepted for exchange, and may extend, terminate or amend
the exchange offer, if at any time on or after the date of this
prospectus/offer to exchange and prior to the expiration time of
the exchange offer any of the following events or facts shall
have occurred:
(a) there shall be in effect any order or injunction issued
by any court of competent jurisdiction or any action taken, or
any specified law enacted, entered, enforced or deemed
applicable to the exchange offer, the second-step acquisition or
the other transactions contemplated by this prospectus/offer to
exchange by any governmental authority of competent jurisdiction
which imposes any term, condition, obligation or restriction
upon Validus, IPC or any of their respective subsidiaries that
would, individually or the aggregate, reasonably be likely to
(A) have a material adverse effect (assuming all references
to IPC in the definition of material adverse effect
were instead references to Validus) on Validus and its
subsidiaries (assuming the consummation of the acquisition of
IPC common shares in the exchange offer and the second-step
acquisition) on a consolidated basis after the consummation of
the exchange offer and the second-step acquisition or
(B) directly or indirectly (i) delay or otherwise
restrain, impede or prohibit the exchange offer or the
second-step acquisition or (ii) prohibit or limit the full
rights of ownership of IPC common shares by Validus or any of
its affiliates, including, without limitation, the right to vote
any IPC common shares acquired by Validus pursuant to the
exchange offer or otherwise on all matters properly presented to
IPC shareholders;
(b) IPC or any of its subsidiaries has (1) permitted
the issuance or sale of any shares of any class of share capital
or other securities of any subsidiary of IPC (other than IPC
common shares issued pursuant to, and in accordance with, the
terms in effect on the date of this prospectus/offer to exchange
of employee stock options, stock units or other similar awards
outstanding prior to the date of this prospectus/offer to
exchange), (2) declared, paid or proposed to declare or pay
any dividend or other distribution on any share capital of IPC
(other than (A) any quarterly cash dividends paid in the
ordinary course of business consistent with past practice to
holders of IPC common shares and (B) a one-time dividend to
the holders of IPC common shares in an aggregate amount not to
exceed any reduction in the Max termination fee), including by
adoption of a shareholders rights plan (or similar plan) which
has not otherwise been terminated or rendered inapplicable to
the exchange offer and the second-step acquisition prior to the
expiration time of the exchange offer, or (3) amended, or
authorized or proposed any amendment to, its articles of
incorporation or bye-laws (or other similar constituent
documents) or Validus becomes aware that IPC or any of its
subsidiaries shall have amended, or authorized or proposed any
amendment to, its articles of incorporation or bye-laws (or
other similar constituent documents) in a manner that, in the
reasonable judgment of Validus, is reasonably likely to,
directly or indirectly, (A) delay or otherwise restrain,
impede or prohibit the exchange offer or the second-step
acquisition or (B) prohibit or limit the full rights of
ownership of IPC common shares by Validus or any of its
affiliates, including, without limitation, the right to vote any
IPC common shares acquired by Validus pursuant to the exchange
offer or otherwise on all matters properly presented to IPC
shareholders;
(c) Validus or any of its affiliates enters into a
definitive agreement or announces an agreement in principle with
IPC providing for an amalgamation, scheme of arrangement or
other business combination or transaction with or involving IPC
or any of its subsidiaries, or the purchase or exchange of
securities or assets of IPC or any of its subsidiaries, or the
Supreme Court of Bermuda sanctions a scheme of arrangement
between
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IPC and its shareholders whereby Validus or any of its
subsidiaries acquires securities of IPC, or Validus and IPC
reach any other agreement or understanding, in either case,
pursuant to which it is agreed or provided that the exchange
offer will be terminated;
(d) IPC or any of its subsidiaries shall have
(1) granted to any person proposing an amalgamation or
other business combination with or involving IPC or any of its
subsidiaries or the purchase or exchange of securities or assets
of IPC or any of its subsidiaries any type of option, warrant or
right which, in Validus judgment, constitutes a
lock-up
device (including, without limitation, a right to acquire or
receive any IPC common shares or other securities, assets or
business of IPC or any of its subsidiaries), (2) paid or
agreed to pay any cash or other consideration to any party in
connection with or in any way related to any such business
combination, purchase or exchange (other than the Max
termination fee) or (3) amended the Max amalgamation
agreement in any respect that alters IPCs rights or
obligations upon termination of the Max amalgamation agreement
(other than a reduction of the Max termination fee); or
(e) IPC shareholders shall have adopted the proposed Max
amalgamation agreement or there shall have been a business
combination consummated between IPC and Max;
which in the reasonable judgment of Validus in any such case,
and regardless of the circumstances giving rise to any such
condition (other than any event or circumstance giving rise to
the triggering of a condition within the direct or indirect
control of Validus), makes it inadvisable to proceed with the
exchange offer
and/or with
acceptance for exchange, or exchange, of IPC common shares.
The foregoing conditions are for the sole benefit of Validus and
may be asserted by Validus regardless of the circumstances
giving rise to any such condition (other than any event or
circumstance giving rise to the triggering of a condition within
the direct or indirect control of Validus) or, other than the
conditions described under the subheadings Registration
Statement Condition, Shareholder Approval
Condition, and NYSE Listing Condition above,
which we refer to collectively as the unwaivable
conditions, may be waived by Validus in whole or in part
at any time and from time to time prior to the expiration time
of the exchange offer in its discretion. To the extent Validus
waives a condition set forth in this section with respect to one
tender, Validus will waive that condition with respect to all
other tenders. We expressly reserve the right to waive any of
the conditions to the exchange offer, other than the unwaivable
conditions, and to make any change in the terms of or conditions
to the exchange offer. The failure by Validus at any time to
exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with
respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time
until the expiration time of the exchange offer. Any
determination by Validus concerning any condition or event
described in this prospectus/offer to exchange shall be final
and binding on all parties to the fullest extent permitted by
law.
Dividends
and Distributions
If, on or after the date of this prospectus/offer to exchange,
IPC:
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splits, combines or otherwise changes the IPC common shares or
its capitalization;
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acquires or otherwise causes a reduction in the number of
outstanding IPC common shares; or
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issues or sells any additional IPC common shares (other than IPC
common shares issued pursuant to, and in accordance with, the
terms in effect on the date of this prospectus/offer to exchange
of employee stock options, stock units or other similar awards
outstanding prior to such date), shares of any other class or
series of share capital of IPC or any options, warrants,
convertible securities or other rights of any kind to acquire
any shares of the foregoing, or any other ownership interest
(including, without limitation, any phantom interest), of IPC
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then, without prejudice to Validus rights under the
section of this prospectus/offer to exchange entitled
Conditions of the Exchange Offer, Validus may make
such adjustments to the exchange offer consideration and other
terms of the exchange offer and the second-step acquisition
(including the number and type of securities to be exchanged) as
it deems appropriate to reflect such split, combination or other
change.
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If, on or after the date of this prospectus/offer to exchange,
IPC declares, sets aside, makes or pays any dividend on the IPC
common shares (other than any quarterly cash dividend paid in
the ordinary course of business consistent with past practice)
or makes any other distribution (including the issuance of
additional share capital pursuant to a share dividend or share
split, the issuance of other securities or the issuance of
rights for the purchase of any securities) with respect to IPC
common shares that is payable or distributable to shareholders
of record on a date prior to the transfer to the name of Validus
or its nominee or transferee on IPCs stock transfer
records of the IPC common shares exchanged pursuant to the
exchange offer, then, without prejudice to Validus rights
under The Exchange Offer Extension,
Termination and Amendment and The Exchange
Offer Conditions of the Exchange Offer:
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the consideration per IPC common shares payable by Validus
pursuant to the exchange offer will be reduced to the extent any
such dividend or distribution is payable in cash; and
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the whole of any such non-cash dividend, distribution or
issuance to be received by the tendering shareholders will
(1) be received and held by the tendering shareholders for
the account of Validus and will be required to be promptly
remitted and transferred by each tendering shareholder to the
exchange agent for the account of Validus, accompanied by
appropriate documentation of transfer or (2) at the
direction of Validus, be exercised for the benefit of Validus,
in which case the proceeds of such exercise will promptly be
remitted to Validus.
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Validus does not intend to make any adjustment to the exchange
offer consideration if IPC pays a one-time dividend to the
holders of IPC common shares in an aggregate amount not to
exceed to any reduction in the Max termination fee. Pending such
remittance and subject to applicable law, Validus will be
entitled to all the rights and privileges as owner of any such
non-cash dividend, distribution or right and may withhold the
entire offer consideration or deduct from the exchange offer
consideration the amount or value thereof, as determined by
Validus in its discretion.
Source
and Amount of Funds
Validus estimates that the aggregate consideration to be paid to
IPC shareholders in connection with the exchange offer and
second-step acquisition will consist of approximately
$169.5 million in cash and that number of Validus common
shares determined in accordance with the exchange ratio. In
addition, IPC shareholders will receive cash in lieu of any
fractional Validus common shares to which they may be entitled.
Validus expects to have sufficient cash and cash equivalents on
hand to complete the transactions contemplated by the exchange
offer and the second-step acquisition, including the cash
component of the offer consideration and any cash that may be
required to be paid in respect of dissenters or appraisal
rights and to pay fees, expenses and other related amounts.
The estimated amount of cash required is based on Validus
due diligence review of IPCs publicly available
information to date and is subject to change. For a further
discussion of the risks relating to Validus limited due
diligence review, see the section of this prospectus/offer to
exchange Risk Factors Risk Factors Relating to
the Exchange Offer and the Second-Step Acquisition.
Certain
Legal Matters; Regulatory Approvals
General
Validus is not aware of any governmental license or regulatory
permit that appears to be material to IPCs business that
might be adversely affected by Validus acquisition of IPC
common shares pursuant to the exchange offer or, except as
described below, of any approval or other action by any
government or governmental administrative or regulatory
authority or agency, domestic or foreign, that would be required
for Validus acquisition or ownership of IPC common shares
pursuant to the exchange offer. Should any of these approvals or
other actions be required, Validus currently contemplates that
these approvals or other actions will be sought. There can be no
assurance that any such approvals or other actions, if required,
will be obtained (with or without substantial conditions) or
that if these approvals were not obtained or these other actions
were not taken adverse
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consequences might not result to IPCs business or certain
parts of IPCs or Validus, or any of their respective
subsidiaries, businesses might not have to be disposed of
or held separate.
Other
Regulatory Matters
Applications or notifications in connection with the offer and
the changes in control of various subsidiaries of IPC that may
be deemed to occur as a result of the offer may be required to
be filed, with various
non-U.S. regulatory
authorities.
In addition, under the Bermuda Insurance Act of 1978,
(i) Validus is required to file a notification regarding
the acquisition of IPC common shares with the BMA within
45 days after the date that Validus becomes a 10%, 20%, 33%
or 50% shareholder of IPC and (ii) any person who, directly
or indirectly, becomes a holder of at least 10%, 20%, 33% or 50%
of the Validus common shares must notify the BMA in writing
within 45 days of such acquisition.
Although Validus does not expect these regulatory authorities to
raise any significant concerns in connection with their review
of the exchange offer, there is no assurance that Validus will
obtain all required regulatory approvals or that these approvals
will not include terms, conditions or restrictions that are
adverse to Validus or to IPC.
The consummation of the exchange offer and the second-step
acquisition will not require the approval of any
U.S. insurance regulators because neither Validus nor IPC
operates a
U.S.-regulated
insurance business that would require any such approval.
Other than the approvals and notifications described above,
Validus is not aware of any material regulatory approvals
required to be obtained, or waiting periods required to expire
after the making of a filing. If Validus discovers that other
approvals or filings
and/or
waiting periods are necessary, it will seek to obtain or comply
with them, although there can be no assurance that they will be
obtained, as is the case with the regulatory approvals described
above.
Additionally, there can be no assurance that any such approvals
or other actions, if required, will be obtained (with or without
conditions), or that if these approvals were not obtained or
these other actions were not taken adverse consequences might
not result to IPCs business, or that certain parts of
IPCs or Validus, or any of their respective
subsidiaries, businesses might not have to be disposed of
or held separate.
Going
Private Transaction
The SEC has adopted
Rule 13e-3
under the Exchange Act which is applicable to certain
going private transactions and which may under
certain circumstances be applicable to the second-step
acquisition or another business combination following the
exchange of IPC common shares pursuant to the exchange offer in
which Validus seeks to acquire the remaining IPC common share
not held by it. Validus believes that
Rule 13e-3
should not be applicable to the second-step acquisition;
however, the SEC may take a different view in the event that
nominees of Validus constitute a majority of IPCs board of
directors at the time of the second-step acquisition.
Rule 13e-3
requires, among other things, that certain financial information
concerning IPC and certain information relating to the fairness
of the proposed transaction and the consideration offered to
minority shareholders in such transaction be filed with the SEC
and disclosed to shareholders prior to consummation of the
transaction.
Litigation
On April 28, 2009, Validus filed the Bermuda claim. The
Bermuda claim challenges the validity of the Max termination fee
and the no-talk provisions in the Max amalgamation agreement.
Further, the Bermuda claim alleges that by entering into the Max
amalgamation agreement containing the Max termination fee and
the no talk provisions and continuing to act in accordance with
the terms of these provisions, the directors of IPC have acted
in breach of their fiduciary or other duties and not in
accordance with the constitution of IPC.
First, pursuant to the Max amalgamation agreement, in the event
of an unsolicited alternate offer from a third party, the board
of IPC is required to consider whether such a proposal amounts
to a Superior Proposal. The Bermuda claim alleges
however, that without the ability to engage in any discussions
or information exchange with
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the exchange offer or as a result of the no-talk provisions, the
board of IPC is restricted
and/or
precluded from properly exploring or evaluating whether in fact
the alternate offer is a Superior Proposal. Second, in the
event that a Superior Proposal is being made and the
directors of IPC vary or alter their recommendation of the
proposed Max amalgamation within the contractual closing
deadline, pursuant to the Max Amalgamation agreement, Max would
be entitled to terminate the Max amalgamation agreement and
collect the Max termination fee from IPC. Under the Max
amalgamation agreement, the Max termination fee is $50,000,000.
The Bermuda claim alleges that this is equivalent to 4.97% of
the aggregate consideration value of $1,005,915,920 of the
proposed Max amalgamation, based on the price of Max common
shares on February 27, 2009, the last trading day before
the signing of the Max amalgamation agreement. The Bermuda claim
also alleges that the quantum of the Max termination fee is
wholly excessive and was not calculated by reference to the
costs and expenses that would be expected to be incurred by Max
in the event that the Max amalgamation agreement was terminated
and substantially exceeds Maxs anticipated liability in
respect of such costs and expenses, which, based upon disclosure
in the IPC/Max
Form S-4,
is likely to be little more than $10 million. Therefore,
the Max amalgamation agreement constitutes an unlawful penalty
whose predominant function, the Bermuda claim alleges, is to
deter IPC or IPC Limited from breaching the Max amalgamation
agreement (including by way of recommending a Superior
Proposal to its board of directors).
By agreeing to the Max amalgamation agreement containing the Max
termination fee and no-talk provisions, as well as by continuing
to act in accordance with their terms, the Bermuda claim alleges
that the directors of IPC have failed to retain sufficient
flexibility to consider and, if thought fit, recommend an offer
which may be more advantageous to IPC shareholders, improperly
fettering their ability to exercise the powers conferred upon
them by the constitution of IPC
and/or act
in the best interests of IPC
and/or its
shareholders. And by doing so, the directors of IPC have acted
other than bona fide in the best interest of IPC
and/or for
an improper or collateral purpose, and the Max termination fee
and no-talk provisions were therefore beyond the actual or
implied authority of the board of directors of IPC, and as such,
not binding on IPC and unenforceable by Max.
The Bermuda claim requests: (1) declaratory relief that:
(a) the Max termination fee constitutes an unlawful and
unenforceable penalty, (b) in entering into the Max
amalgamation agreement containing the Max termination fee and
no-talk provisions, the directors of IPC acted in breach of duty
and otherwise than in accordance with the constitution of IPC,
(c) in continuing to act in accordance with the Max
termination fee and no-talk provisions in the Max amalgamation
agreement the directors of IPC continue to act in breach of duty
and otherwise than in accordance with the constitution of IPC;
(2) an injunction restraining IPC or IPC Limited from
making any direct or indirect payment to Max pursuant to the Max
termination fee
and/or
taking any steps, whether itself, or by its directors, servants,
agents or otherwise to give effect to the no-talk provisions of
the Max amalgamation agreement
and/or the
Max termination fee; (3) an order that IPC pay the costs of
the proceedings; and (4) any other or further relief the
Court may deem just and proper.
On May 1, 2009, Validus filed an application to expedite
the trial of the Bermuda claim. Validus requested that the
Supreme Court of Bermuda set a schedule permitting a trial to be
conducted commencing on an earlier date than any date on which
IPC seeks to hold its annual general meeting to consider the
proposals related to the proposed Max amalgamation. Max and IPC
opposed the application. Following the hearing, on May 13,
2009, the Court denied the application for expedition of the
timetable for the proceedings. While this was not a hearing on
the merits of Validus claims, the Court acknowledged that
Validus had raised serious questions to be tried.
Certain
Relationships With IPC and Interests of Validus in the Exchange
Offer
Except as otherwise described in this prospectus/offer to
exchange, there have been no contacts, negotiations or
transactions since January 1, 2007, between us or, after
due inquiry and to the best of our knowledge and belief, any of
the persons listed on Schedule I to this prospectus/offer
to exchange, and IPC or its affiliates, on the other hand,
concerning an amalgamation, consolidation or acquisition, an
exchange offer or other acquisition of securities, an election
of directors, or a sale or other transfer of a material amount
of assets.
As of the date of the exchange offer, Validus beneficially owns
100 IPC common shares, representing less than one percent of the
outstanding IPC common shares. These shares were purchased by
its wholly-owned subsidiary, Validus Re, a Bermuda exempted
company, through ordinary brokerage transactions on the open
market as set forth
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on Schedule II to this prospectus/offer to exchange. With
the exception of the foregoing, Validus has not effected any
transaction in securities of IPC in the past 60 days.
The name, citizenship, business address, business telephone
number, principal occupation or employment, and five-year
employment history for each of the directors and executive
officers of Validus and certain other information is set forth
in Schedule I to this prospectus/offer to exchange. Except
as described in this prospectus/offer to exchange and in
Schedule I hereto, none of Validus or, after due inquiry
and to the best of our knowledge and belief, any of the persons
listed on Schedule I to this prospectus/offer to exchange,
has during the last five years (i) been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to any judicial or
administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
Except as set forth in this prospectus/offer to exchange, after
due inquiry and to the best of our knowledge and belief, none of
the persons listed on Schedule I hereto, nor any of their
respective associates or majority owned subsidiaries,
beneficially owns or has the right to acquire any securities of
IPC or has effected any transaction in securities of IPC during
the past 60 days.
Validus does not believe that the exchange offer and the
second-step acquisition will result in a change in control under
any of Validus stock option plans or any employment
agreement between Validus and any of its employees. As a result,
no options or other equity grants held by such persons will vest
as a result of the exchange offer and the second-step
acquisition.
Fees and
Expenses
Validus has engaged Greenhill & Co., LLC, which we
refer to as Greenhill, as financial advisor with
respect to its strategic process and the transaction. In
connection with Greenhills services as financial advisor
to Validus in connection with Validus strategic process
and the transaction, Validus agreed to pay Greenhill an
aggregate fee of $10.0 million, $2.75 million of which
has already been paid and $7.25 million (less the fee for
Greenhills service as dealer manager in connection with
the exchange offer described below) of which is contingent upon
the consummation of a transaction or entry into a definitive
agreement that subsequently results in a transaction. In
addition, Validus will reimburse Greenhill for its reasonable
out-of-pocket expenses, including the reasonable fees and
expenses of its legal counsel. Validus has also agreed to
indemnify Greenhill and its affiliates in connection with
Greenhills service as financial advisor against certain
liabilities in connection with their engagement, including
liabilities under the U.S. federal securities laws.
Validus has also engaged Greenhill to act as dealer manager in
connection with the exchange offer. Greenhill may contact
beneficial owners of IPC common shares in its capacity as dealer
manager regarding the exchange offer and may request brokers,
dealers, commercial banks, trust companies and other nominees to
forward this prospectus/offer to exchange and related materials
to beneficial owners of IPC common shares. Validus has agreed to
pay Greenhill a reasonable and customary fee for its service as
dealer manager in connection with the exchange offer. In
addition, Validus will reimburse Greenhill for its reasonable
out-of-pocket expenses, including the reasonable fees and
expenses of its legal counsel. Validus has also agreed to
indemnify Greenhill and its affiliates in connection with
Greenhills service as dealer manager against certain
liabilities in connection with their engagement, including
liabilities under the U.S. federal securities laws.
As of May 17, 2009, four merchant banking funds affiliated
with Greenhill owned an aggregate of 2,571,427 Validus common
shares, and certain employees of Greenhill and its affiliates
had interests in one or more of such funds.
Validus has also engaged Dowling & Partners
Securities, LLC, which we refer to as Dowling, as
capital markets advisor with respect to the transaction. In
connection with Dowlings services, Validus agreed to pay
Dowling an aggregate fee of $2.0 million. Payment of the
fee to Dowling is not conditioned on the successful acquisition
of IPC common shares by Validus in the exchange offer or
otherwise. In addition, Validus will reimburse Dowling for its
reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its legal counsel. Validus has also agreed to
indemnify Dowling and its affiliates in connection with
Dowlings services against certain liabilities in
connection with their engagement, including liabilities under
the U.S. federal securities laws.
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Validus has retained Georgeson Inc., which we refer to as
Georgeson, as information agent in connection with
the exchange offer. The information agent may contact holders of
IPC common shares by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers, commercial
banks, trust companies and other nominees to forward material
relating to the exchange offer to beneficial owners of IPC
common shares. Validus will pay the information agent reasonable
and customary compensation for these services in addition to
reimbursing the information agent for its reasonable
out-of-pocket expenses. Validus agreed to indemnify the
information agent against certain liabilities and expenses in
connection with the exchange offer, including certain
liabilities under the U.S. federal securities laws.
Validus has also retained Georgeson for solicitation and
advisory services in connection with solicitations relating to
certain proxy solicitations described in this prospectus/offer
to exchange, for which Georgeson will receive a customary fee.
Validus has also agreed to reimburse Georgeson for out-of-pocket
expenses and to indemnify Georgeson against certain liabilities
and expenses, including reasonable legal fees and related
charges.
In addition, Validus has retained BNY Mellon Shareowner Services
as the exchange agent in connection with the exchange offer.
Validus will pay the exchange agent reasonable and customary
compensation for its services in connection with the exchange
offer, will reimburse the exchange agent for its reasonable
out-of-pocket expenses and will indemnify the exchange agent
against certain liabilities and expenses, including certain
liabilities under the U.S. federal securities laws.
Except as set forth above, Validus will not pay any fees or
commissions to any broker, dealer or other person for soliciting
tenders of shares pursuant to the exchange offer. Validus will
reimburse brokers, dealers, commercial banks and trust companies
and other nominees, upon request, for customary clerical and
mailing expenses incurred by them in forwarding offering
materials to their customers.
Accounting
Treatment
Validus will account for the acquisition of IPC common shares
under the purchase method of accounting in accordance with
FAS 141(R), Business Combinations, under which
the total consideration paid in the exchange offer will be
allocated among acquired assets and assumed liabilities based on
the fair values of the assets acquired and liabilities assumed.
In the event there is an excess of the total consideration paid
in the exchange offer over the fair values, the excess will be
accounted for as goodwill. Intangible assets with definite lives
will be amortized over their estimated useful lives. Goodwill
resulting from the exchange offer will not be amortized but
instead will be tested for impairment at least annually (more
frequently if certain indicators are present). In the event that
the management of Validus determines that the value of goodwill
has become impaired, an accounting charge will be taken in the
fiscal quarter in which such determination is made. In the event
there is an excess of the fair values of the acquired assets and
liabilities assumed over the total consideration paid in the
exchange offer, the excess will be accounted for as a gain to be
recognized through the income statement at the close of the
transaction, in accordance with FAS 141(R). Validus
anticipates the acquisition will result in an excess of the fair
values of the acquired assets and liabilities assumed over the
total consideration paid.
Memorandum
of Association and Bye-law Provisions
Various provisions contained in Validus Memorandum of
Association, as amended, and Amended and Restated Bye-laws could
delay or discourage some transactions involving an actual or
potential change in control of Validus or its management and may
limit the ability of Validus shareholders to remove current
management or approve transactions that Validus shareholders may
deem to be in their best interests. These provisions:
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authorize Validus board of directors to establish one or
more series of undesignated preferred shares, the terms of which
can be determined by the board of directors at the time of
issuance;
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divide the board of directors into three classes, each class
serving a three-year term;
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allow Validus directors, and not its shareholders, to fill
vacancies on its board of directors resulting from enlargement
of the board;
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deny shareholders the right to vote at any annual or special
meeting if that shareholder has not paid all the calls on the
Validus common shares held;
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provide that shareholders may only remove a director for cause
and requires the shareholders to give that director advanced
written notice and an opportunity to be heard at the meeting as
well as a supermajority vote
(662/3%)
of the outstanding shares; and
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reduce the voting power of a shareholder or group of related
shareholders who would otherwise represent more than 9.09% of
the aggregate voting power to represent 9.09% of the aggregate
voting power.
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Shareholders
Equity; Share Premium Account
Under Bermuda law, the excess of any consideration paid on issue
of shares over the aggregate par value of such shares must
(except in certain limited circumstances) be credited to a share
premium account. Share premium may be distributed in certain
limited circumstances, for example to pay up unissued shares
which may be distributed to shareholders in proportion to their
holdings, but is otherwise subject to limitation and cannot be
paid to shareholders as a dividend.
A Bermuda company may also create a contributed surplus account
and may credit to such account any cash and other property paid
or transferred to the company as sole beneficial owner (other
than in connection with the issuance of shares). Unlike share
premium arising upon the issuance of shares, the amount standing
to the credit of a companys contributed surplus account
may be distributed to shareholders subject to the solvency of
the company.
As of March 31, 2009, Validus had paid in nominal share
capital of $13.3 million, and a share premium account of
$1,419.6 million. As of March 31, 2009, IPC had paid
in nominal share capital of $0.6 million, and a share
premium account of $1,091.5 million.
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COMPARISON
OF SHAREHOLDERS RIGHTS
The following is a summary of the material differences between
the current rights of Validus shareholders and the current
rights of IPC shareholders. The rights of the IPC shareholders
who become Validus shareholders pursuant to the exchange offer
and second-step acquisition will be governed by the memorandum
of association and the amended and restated bye-laws of Validus,
which will remain subject to amendment in accordance with their
terms. This summary is not intended to be complete and is
qualified by reference to Validus memorandum of
association and its amended and restated bye-laws, and
IPCs memorandum of association and its amended and
restated bye-laws, as well as the laws of Bermuda. Validus
memorandum of association and amended and restated bye-laws are
incorporated by reference (as Exhibit 3.1 to Validus
Registration Statement on
Form S-1
filed on January 16, 2007 and Exhibit 3.2 to
Validus Registration Statement on
Form S-1
(Amendment No. 4) filed on July 5, 2007,
respectively). IPCs memorandum of association and amended
and restated bye-laws are incorporated by reference (as
Exhibit 3.1 to IPCs Registration Statement on
Form S-1
(Amendment No. 1) filed on February 9, 1996 and
Exhibit 3.2 to IPCs Quarterly Report on
Form 10-Q
filed on July 30, 2007, respectively).
The following information relating to IPC is taken from the
IPC/Max S-4.
Please see the section of this prospectus/offer to exchange
entitled Note on IPC Information. Shareholders of
Validus and IPC may request copies of these documents as
provided in the section of this prospectus/offer to exchange
entitled Where You Can Find More Information.
Share
Capital