PRRN14A
PRELIMINARY COPY, DATED JUNE 4, 2009 SUBJECT
TO COMPLETION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment
No. 2
to
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the
Registrant o
Filed by a Party other than the
Registrant þ
Check the appropriate box:
þ Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
o Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§ 240.14a-12
IPC HOLDINGS, LTD.
(Name of Registrant as Specified in
its Charter)
VALIDUS HOLDINGS, LTD.
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o No
fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Common Shares, $0.175 par value per share
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(2)
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Aggregate number of securities to which transaction applies:
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68,520,737
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(Set forth the amount on which the filing fee is calculated and
state how it was determined):
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N/A
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(4)
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Proposed maximum aggregate value of transaction:
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$1,482,329,499.84
$82,713.99 (based upon the product of $1,482,329,499.84 and
the fee rate of $55.80 per million dollars set forth in the Fee
Rate Advisory #5 for Fiscal Year 2009)
o Fee
paid previously with preliminary materials.
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þ |
Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
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(1)
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Amount previously paid: $84,262.55
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(2)
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Form, schedule or registration statement no.: Schedule 14A
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(3)
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Filing party: Validus Holdings, Ltd.
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(4)
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Date filed: April 16, 2009
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PRELIMINARY COPY, DATED JUNE 4,
2009 SUBJECT TO COMPLETION
NOTICE OF
COURT MEETING
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IN THE
SUPREME COURT OF BERMUDA
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No.
[] of 2009
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CIVIL JURISDICTION
(COMMERCIAL COURT)
IN THE
MATTER OF IPC HOLDINGS, LTD
and
IN THE MATTER OF THE COMPANIES ACT 1981
NOTICE IS HEREBY GIVEN that by an Order dated
[ ] 2009 made in the above matters the Court
has directed a meeting (including any adjournments or
postponements thereof, the court-ordered IPC
meeting) to be convened of the holders of the common
shares, par value $0.01 per share (the IPC Shares),
of IPC Holdings, Ltd., a Bermuda exempted company
(IPC) (other than any IPC Shares that are registered
in the name of, or beneficially owned by, Validus, IPC or any of
their respective subsidiaries or which Validus, IPC or any of
their respective subsidiaries acquires or becomes the beneficial
owner of) for the purpose of considering and, if the IPC
shareholders so determine, approving a scheme of arrangement
(the Scheme of Arrangement) to be made between IPC
and the holders of such IPC Shares, in the form attached as
Annex A hereto, and that the court-ordered IPC meeting will
be held at [ ] on [ ] 2009, at
[10:00] a.m., Atlantic time.
The proxy statement that accompanies this notice constitutes the
explanatory statement required to be furnished pursuant to
Part VII of The Companies Act of 1981 of Bermuda, as
amended.
If you are a shareholder of record, please complete, sign, date
and return the enclosed proxy in the return envelope furnished
for that purpose, as promptly as possible, whether or not you
plan to attend the meeting. If you own your IPC Shares through a
bank, broker or other nominee, you should follow the
instructions provided by your bank, broker or other nominee when
voting your IPC Shares.
In the case of joint holders, the vote of the senior who tenders
a vote, whether in person or by proxy, will be accepted to the
exclusion of the vote(s) of the other joint holder(s) and, for
this purpose, seniority will be determined by the order in which
the names stand in the register of members of IPC in respect of
the joint holding.
Entitlement to attend and vote at the court-ordered IPC meeting
and the number of votes which may be cast thereat will be
determined by reference to the register of members of IPC as of
[ ], 2009. Notwithstanding the foregoing, the
holders of any IPC Shares owned by Validus, IPC or their
respective subsidiaries will not be entitled to vote these
Shares at the court-ordered IPC meeting.
Voting at the court-ordered IPC meeting will be conducted on a
poll rather than a show of hands.
By the said Order, the Court has appointed [ ]
or, failing him, [ ] or, failing him,
[ ] to act as Chairman of the court-ordered IPC
meeting and has directed the Chairman to report the result
thereof to the Court.
The Scheme of Arrangement will be subject to the subsequent
sanction of the Supreme Court of Bermuda and the satisfaction
or, where relevant, waiver of the other conditions thereto.
Dated [ ] 2009
COURT-ORDERED
MEETING OF THE SHAREHOLDERS
OF
IPC HOLDINGS, LTD.
TO BE
HELD ON [ ], 2009
PROXY
STATEMENT
OF
VALIDUS HOLDINGS, LTD.
This proxy statement (the proxy statement) and the
enclosed BLUE proxy card are furnished by Validus Holdings,
Ltd., a Bermuda exempted company (Validus), in
connection with Validus solicitation of proxies to be used
at the court-ordered meeting (including any adjournments or
postponements thereof, the court-ordered IPC
meeting) of holders of common shares, par value $0.01 per
share (the IPC Shares), of IPC Holdings, Ltd., a
Bermuda exempted company (IPC) (other than any IPC
Shares owned by Validus, IPC or their respective subsidiaries)
to be held on [ ], 2009, at
[ ] at [ ] Atlantic Time, for
the purpose of giving such holders of IPC Shares the opportunity
to consider and, if the IPC shareholders so determine, approve a
scheme of arrangement (the Scheme of Arrangement)
under Bermuda law to effect the acquisition of IPC by Validus
(the Acquisition) pursuant to the Scheme of
Arrangement set forth in Annex A attached hereto.
On March 1, 2009, IPC entered into an Agreement and Plan of
Amalgamation, as amended on March 5, 2009, among Max
Capital Group Ltd. (Max), IPC and IPC Limited (the
Max Amalgamation Agreement) which would result in
the amalgamation of Max with IPC Limited, a wholly-owned
subsidiary of IPC that was formed for the purpose of the
amalgamation (the Proposed Max Amalgamation).
On March 31, 2009, Validus publicly announced that it had
delivered to IPC an offer (the Initial Validus
Offer) to acquire each outstanding IPC Share in exchange
for 1.2037 Validus voting common shares, par value $0.175 per
share (the Validus Shares). 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 (the Validus Amalgamation Offer) to
acquire each outstanding IPC Share in exchange for
(i) 1.1234 Validus Shares and (ii) $3.00 in cash (less
any applicable withholding taxes and without interest). Validus
has also delivered a proposed agreement and plan of amalgamation
and an amendment thereto (as amended, 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.
Additionally, 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. Based
upon closing market prices as of May 15, 2009, the day
prior to the announcement of the increased offer, the Validus
Amalgamation Offer represented a 13.2% premium to IPCs
closing price that day and a 21.9% premium based on IPCs
and Validus closing prices on March 30, 2009, the
last trading day before the announcement of the Initial Validus
Offer.
In order to implement the Scheme of Arrangement, the IPC
shareholders must approve the Scheme of Arrangement at the
court-ordered IPC meeting, IPC must separately approve the
Scheme of Arrangement and the Scheme of Arrangement must be
sanctioned by the Supreme Court of Bermuda. If the IPC
shareholders approve the Scheme of Arrangement at the
court-ordered IPC meeting, the separate approval of IPC of the
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
subsequent requisitioned special general meeting of IPC
shareholders (the IPC special general meeting),
including resolutions for IPC to approve and to be bound by the
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. On May 12, 2009, Validus filed with the
Securities and Exchange Commission (the SEC) a
preliminary proxy statement which, when filed in its definitive
form, will be used to solicit written requisitions from the IPC
shareholders to compel the IPC board of directors to call the
IPC special general meeting. 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 Scheme of
Arrangement, and the granting of a court order from the Supreme
Court of Bermuda sanctioning the Scheme of Arrangement, a copy
of the court order sanctioning the Scheme of Arrangement will be
delivered to the Bermuda Registrar of Companies, at which time
(the closing or the effective time) the
Scheme of Arrangement will be effective.
VALIDUS IS DISTRIBUTING THIS PROXY STATEMENT IN ORDER TO URGE
IPCS SHAREHOLDERS TO VOTE FOR THE SCHEME OF
ARRANGEMENT AT THE COURT-ORDERED IPC MEETING. WE BELIEVE THAT
THE ACQUISITION OF IPC BY VALIDUS OFFERS GREATER VALUE TO THE
IPC SHAREHOLDERS THAN THE PROPOSED MAX AMALGAMATION.
The court-ordered IPC meeting is being held in accordance with
an order of the Supreme Court of Bermuda issued on
[ ], 2009, at the request of Validus in
accordance with Bermuda law. The record date for determining the
IPC shareholders who will be entitled to vote at the
court-ordered IPC meeting is [ ], 2009. The
Scheme of Arrangement must be approved by a majority in number
of the holders of IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy, representing 75% or more
in value of the IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy. The presence at the
court-ordered IPC meeting of two or more persons present in
person and representing in person or by proxy in excess of 50%
of the total issued and outstanding IPC Shares throughout the
meeting is required to constitute a quorum thereat.
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
Validus Shares on a fully-diluted basis following closing of the
Acquisition.
Validus Shares are quoted on the New York Stock Exchange (the
NYSE) under the symbol VR. The closing
price of a Validus common share on the NYSE on
June [ ], 2009, the last practicable date
prior to the filing of this proxy statement, was
$[ ]. IPC Shares, which are currently quoted on
the NASDAQ Global Select Market (NASDAQ) under the
symbol IPCR and the Bermuda Stock Exchange under the
symbol IPCR BH, would be delisted upon completion of
the Acquisition. The closing price of an IPC Share on NASDAQ on
June [ ], 2009, the last practicable date
prior to the filing of this proxy statement, was
$[ ]. All references to dollars and
$ in this proxy statement refer to U.S. dollars.
This proxy statement provides IPC shareholders with detailed
information about the court-ordered IPC meeting and the Scheme
of Arrangement and is intended to satisfy the requirement, under
Section 100 of The Companies Act of 1981 of Bermuda, as
amended (the Companies Act), of a statement
explaining the effect of the proposed Scheme of Arrangement. You
can also obtain information from publicly available documents
filed by Validus and IPC with the SEC. Validus encourages you
to read this entire document carefully, including the section
entitled Risk Factors beginning on
page [ ].
Your vote is very important. Whether or not you plan to attend
the court-ordered IPC meeting, please take time to vote by
completing and mailing your enclosed BLUE proxy card or by
following the voting instructions provided to you if you own
your shares through a bank, broker or other nominee. If you do
not receive such instructions, you may request them from that
firm. If you have any questions or need additional copies of the
proxy materials, please call Georgeson Inc. at the phone numbers
listed below.
199 Water
Street
26th Floor
New York, New York 10038
Banks and Brokers should call:
(212) 440-9800
or
Toll Free: at
(888) 274-5119
Email: validusIPC@georgeson.com
Neither the SEC nor any state securities regulatory agency
has approved or disapproved the Scheme of Arrangement, passed
upon the merits or fairness thereof or passed upon the adequacy
or accuracy of the disclosure in this proxy statement. Any
representation to the contrary is a criminal offense.
This proxy statement is dated [ ], 2009
and is first being mailed to IPC shareholders on or about
[ ], 2009
Important Notice Regarding the Availability of Proxy
Materials for the court-ordered IPC meeting to be held on
[ ], 2009.
This proxy statement and the related proxy materials are
available free of charge on Validus website at
www.validusre.bm.
SOURCES
OF ADDITIONAL INFORMATION
This proxy statement includes information, including important
business and financial information, also set forth in documents
filed by Validus and IPC with the SEC, and those documents
include information about Validus and IPC that is not included
in or delivered with this proxy statement. You can obtain any of
the documents filed by Validus or IPC, as the case may be, with
the SEC from the SEC or, without charge, from the SECs
website at
http://www.sec.gov.
IPC shareholders also may obtain documents filed by IPC or
Validus with the SEC or documents incorporated by reference in
this proxy statement free of cost, by directing a written or
oral request to Validus at:
Validus
Holdings, Ltd.
19 Par-La-Ville Road
Hamilton HM11
Bermuda
Attention: Jon Levenson
(441) 278-9000
If you would like to request documents, in order to ensure
timely delivery, you must do so at least five business days
before the date of the meeting. This means you must request this
information no later than [ ], 2009.
Validus will mail properly requested documents to requesting
shareholders by first class mail, or another equally prompt
means, within one business day after receipt of such request.
The information concerning IPC, its business, management and
operations presented or incorporated by reference in this proxy
statement has been taken from, or is based upon, publicly
available information on file with the SEC and other publicly
available information. Although Validus has no knowledge that
would indicate that statements and information relating to IPC
contained or incorporated by reference in this proxy statement,
in reliance upon publicly available information, are inaccurate
or incomplete, to date it has not had access to the full books
and records of IPC, was not involved in the preparation of such
information and statements and is not in a position to verify
any such information or statements.
The consolidated financial statements of IPC appearing in its
annual report on
Form 10-K
for the year ended December 31, 2008 (including schedules
appearing therein), and IPC managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2008 included therein, have been audited by an
independent registered public accounting firm, as set forth in
their reports thereon, included therein, and included
and/or
incorporated herein by reference. Validus has not obtained the
authorization of IPCs independent auditors to incorporate
by reference the audit reports relating to this information.
Pursuant to
Rule 12b-21
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), Validus requested that IPC provide
Validus with information required for complete disclosure
regarding the businesses, operations, financial condition and
management of IPC. Validus will amend or supplement this proxy
statement to provide any and all information Validus receives
from IPC, if Validus receives the information before the
court-ordered IPC meeting and Validus considers it to be
material, reliable and appropriate.
See Where You Can Find More Information on
page [ ].
TABLE OF
CONTENTS
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I-1
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A-1
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-ii-
QUESTIONS
AND ANSWERS ABOUT THE ACQUISITION
AND THE COURT-ORDERED IPC MEETING
The following questions and answers highlight selected
information from this proxy statement and may not contain all
the information that is important to you. Validus encourages you
to read this entire document carefully.
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Q: |
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When and where is the court-ordered IPC meeting? |
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The court-ordered IPC meeting is scheduled to take place at
[ ], Atlantic Time, on [ ],
2009, at [ ]. |
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What is the purpose of the court-ordered IPC meeting? |
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The purpose of the meeting is to seek IPC shareholder approval
of the Scheme of Arrangement. IPC shareholder approval is a
necessary step toward consummation of the Acquisition without
the cooperation of the IPC board of directors. |
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What am I being asked to vote on at the court-ordered IPC
meeting? |
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At the court-ordered IPC meeting, IPC shareholders will be asked
to consider and vote upon a proposal to approve the Scheme of
Arrangement. |
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What would happen under the Scheme of Arrangement? |
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If the Scheme of Arrangement becomes effective, Validus will
effect the Acquisition of IPC by the transfer of all outstanding
IPC Shares (excluding any IPC Shares owned by Validus, IPC or
their respective subsidiaries) to Validus in exchange for
Validus Shares at a ratio of 1.1234 (the exchange
ratio) Validus Shares and $3.00 in cash (less any
applicable withholding taxes and without interest) for each IPC
Share. IPC would thereby become a wholly-owned subsidiary of
Validus. |
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Why is Validus proposing the Acquisition? |
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Based on a number of factors described below under The
Acquisition Reasons to Vote FOR the
Scheme of Arrangement, Validus believes that the Acquisition
represents a compelling combination and excellent strategic fit
that will enable Validus to capitalize on opportunities in the
global reinsurance market. Successful completion of the
Acquisition 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. |
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Why is the Scheme of Arrangement better than the Proposed Max
Amalgamation? |
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Validus believes that the combination of Validus and IPC offers
a number of benefits to holders of IPC Shares, including the
following: |
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The Scheme of Arrangement provides a premium to IPC
shareholders.
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The Validus Shares to be issued to IPC shareholders
as a portion of the Acquisition Consideration (as defined below)
pursuant to the Scheme of Arrangement represent what we believe
is an attractive investment.
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A Validus/IPC combination will have a strong balance
sheet with minimal exposure to risky asset classes.
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Validus offers IPC a highly experienced, first class
management team.
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The Scheme of Arrangement provides IPC shareholders
with an opportunity for stable, profitable diversification into
attractive business lines and further growth.
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See The Acquisition Reasons to vote
FOR the Scheme of Arrangement below. |
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Is Validus pursuing multiple acquisition strategies? |
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Yes, in addition to proposing the Scheme of Arrangement, Validus
is soliciting votes against the Proposed Max Amalgamation, has
made an offer to amalgamate with IPC and has launched an
exchange offer (the Exchange Offer) for all of the
issued and outstanding IPC Shares. The Validus Amalgamation
Offer, the Scheme of Arrangement and the Exchange Offer are
alternative methods for Validus to acquire all of the issued and |
-1-
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outstanding IPC 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 Shares by
whichever method Validus determines is most effective and
efficient. |
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How will the Scheme of Arrangement become effective? |
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A Scheme of Arrangement under Bermuda law is an arrangement
between a company and its shareholders. In order to implement
the Scheme of Arrangement, the IPC shareholders must approve the
Scheme of Arrangement at the court-ordered IPC meeting, IPC must
separately approve the Scheme of Arrangement and the Scheme of
Arrangement must be sanctioned by the Supreme Court of Bermuda.
If the IPC shareholders approve the Scheme of Arrangement at the
court-ordered IPC meeting, the separate approval of IPC of the
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 Scheme of Arrangement and to
terminate the Max Amalgamation Agreement. On May 12, 2009,
Validus filed with the SEC a preliminary proxy statement which,
when filed in its definitive form, will be used to solicit
written requisitions from the IPC shareholders to compel the IPC
board of directors to call the IPC special general meeting. In
order to compel the IPC board of directors to call the IPC
special general meeting, written requisitions from the holders
of 10% of the IPC Shares must be deposited with IPC. 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 Scheme of Arrangement, and the granting of a court order
from the Supreme Court of Bermuda sanctioning the Scheme of
Arrangement, a copy of the court order sanctioning the Scheme of
Arrangement will be delivered to the Bermuda Registrar of
Companies, at which time the Scheme of Arrangement will be
effective. |
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How would the Scheme of Arrangement work? |
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Procedurally, the Scheme of Arrangement can be divided into the
following stages: |
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(1) Applying to the Supreme Court of Bermuda for an order
giving directions for the holding and conduct of the
court-ordered IPC meeting.
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(2) Requisitioning the IPC special general meeting. On
May 12, 2009, Validus filed with the SEC a preliminary
proxy statement which, when filed in its definitive form, will
be used to solicit written requisitions from the IPC
shareholders to compel the IPC board of directors to call the
IPC special general meeting.
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(3) Holding the court-ordered IPC meeting to which this
proxy statement relates to consider and, if the IPC shareholders
so determine, approve the Scheme of Arrangement. The Scheme of
Arrangement must be approved by a majority in number of the
holders of IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy, representing 75% or more in value
of the IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy.
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(4) Holding the IPC special general meeting to approve
resolutions determined by Validus to be reasonably necessary in
connection with implementation of the Scheme of Arrangement,
including resolutions for IPC to approve and to be bound by the
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. Approval of each resolution at the IPC special
general meeting requires the affirmative vote of the holders of
a majority of the IPC Shares voting at the meeting, whether in
person or by proxy.
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(5) Applying to the Supreme Court of Bermuda to sanction
the Scheme of Arrangement.
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(6) Delivering a copy of the order of the Supreme Court of
Bermuda sanctioning the Scheme of Arrangement to the Bermuda
Registrar of Companies.
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|
Q: |
|
When do you expect the Scheme of Arrangement to become
effective? |
|
A: |
|
Assuming the Scheme of Arrangement is approved by the requisite
vote of IPCs shareholders at the court-ordered IPC
meeting, the Scheme of Arrangement could become effective in
July 2009. However, it is possible that the IPC board of
directors will seek to take measures which would extend this
time frame. Even if the Scheme of Arrangement has been approved
by the IPC shareholders, Validus may terminate the |
-2-
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Scheme of Arrangement at any time prior to the commencement of
the hearing of the Supreme Court of Bermuda to sanction the
Scheme of Arrangement without obtaining the approval of the IPC
shareholders, if any event or condition occurs which would cause
any of the conditions to the effectiveness of the Scheme of
Arrangement not to be satisfied by November 30, 2009 (or
such later date, if any, as Validus may agree and the Supreme
Court of Bermuda may allow). |
|
Q: |
|
What would IPC shareholders receive in the Scheme of
Arrangement? |
|
A: |
|
Under the terms of the Scheme of Arrangement, each outstanding
IPC Share (excluding any IPC Shares owned by Validus, IPC or
their respective subsidiaries), would be transferred to Validus
in exchange for (i) 1.1234 Validus Shares and
(ii) $3.00 in cash (less any applicable withholding taxes
and without interest) upon the effectiveness of the Scheme of
Arrangement. IPC shareholders would not receive any fractional
Validus Shares in the Scheme of Arrangement. Instead, IPC
shareholders would be paid cash in lieu of the fractional share
interest to which such shareholders would otherwise be entitled
(together with the Validus Shares and other cash payable, the
Acquisition Consideration) as described under
Summary The Scheme of Arrangement
Acquisition Consideration on page [ ]. |
|
Q: |
|
How does the Scheme of Arrangement relate to the amalgamation
agreement contained in the Validus Amalgamation Offer? |
|
A: |
|
On March 31, 2009, Validus publicly announced that it had
delivered to IPC an offer to consummate the Acquisition 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 Share for (i) 1.1234 Validus 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 Share 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.
Additionally, 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. |
|
Q: |
|
How does the Scheme of Arrangement relate to the Exchange
Offer commenced by Validus for all IPC Shares? |
|
A: |
|
On May 12, 2009, Validus commenced the Exchange Offer
whereby Validus is offering to exchange (i) 1.1234 Validus
Shares and (ii) $3.00 in cash (less any applicable
withholding taxes and without interest) for each IPC Share
tendered by participating IPC shareholders. Validus commenced
the Exchange Offer as an alternative method to acquire all the
issued and outstanding IPC Shares. The Exchange Offer is
intended to be pursued in parallel with the Scheme of
Arrangement, since it may provide a means to acquire all the
issued and outstanding IPC Shares on the same economic terms as
the Validus Amalgamation Offer. We intend to effect the
Acquisition by whichever method we determine is most effective
and efficient. The Exchange Offer is subject to the condition,
among others, that a minimum of 90% of the then-outstanding IPC
Shares on a fully-diluted basis (excluding any IPC Shares owned
by Validus, its subsidiaries or IPC) be tendered. If this
condition is satisfied and the Exchange Offer completed, we
intend, promptly after completion of the Exchange Offer, to
acquire the IPC Shares of those shareholders who choose not to
tender their IPC Shares pursuant to the Exchange Offer in a
second-step acquisition pursuant to the Companies Act. |
|
Q: |
|
What percentage of Validus Shares will the former holders of
IPC Shares own after the Acquisition? |
|
A: |
|
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
Validus Shares on a fully-diluted basis following closing of the
Acquisition. |
-3-
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Q: |
|
If the Scheme of Arrangement becomes effective, do I have to
take any action to exchange my IPC Shares for Acquisition
Consideration? |
|
A: |
|
Validus will appoint BNY Mellon Shareowner Services as exchange
agent to transfer and pay the Acquisition Consideration to
persons holding IPC Shares outstanding immediately prior to the
effective time (other than Validus, IPC or their respective
subsidiaries) in exchange for share certificates representing
IPC Shares or for non-certificated shares represented by
book-entry (book-entry shares). At or about the
effective time, Validus will deposit with the exchange agent the
cash payable and the Validus Shares issuable as Acquisition
Consideration and will provide for the cash issuable in lieu of
fractional shares. Promptly after the effective time, the
exchange agent will mail each holder of IPC Shares outstanding
immediately prior to the effective time (other than Validus, IPC
or their respective subsidiaries) instructions for surrendering
share certificates and book-entry shares. The exchange agent
will transfer and pay the Acquisition Consideration, less any
applicable withholding taxes, to the persons holding IPC Shares
outstanding immediately prior to the effective time (other than
Validus, IPC or their respective subsidiaries) promptly
following the exchange agents receipt of the share
certificates (or book-entry shares). No interest will be paid or
accrued on the cash payable upon the surrender of any share
certificate (or book-entry shares). Until so surrendered, each
such IPC Share certificate (or book-entry share) will represent
after the effective time for all purposes only evidence of the
right to receive such Acquisition Consideration. |
|
Q: |
|
What is the market value of my IPC Shares as of a recent
date? |
|
A: |
|
On March 30, 2009, the last trading day before Validus made
the Validus Amalgamation Offer, the closing price of an IPC
Share was $25.41. On June [ ], 2009, the
last practicable date prior to the filing of this proxy
statement, the closing price of an IPC Share was
$[ ]. IPC shareholders are encouraged to obtain
a recent quotation for IPC Shares before deciding how to vote at
the court-ordered IPC meeting. |
|
Q: |
|
Are IPC shareholders able to dissent? |
|
A: |
|
IPC shareholders will be entitled to be present and be heard at
the Supreme Court of Bermuda hearing to sanction the Scheme of
Arrangement. Any IPC shareholder who wishes to may oppose the
sanctioning of the Scheme of Arrangement and may make
presentations to the court on the hearing of the petition. IPC
shareholders may also vote against the Scheme of Arrangement at
the court-ordered IPC meeting. |
|
Q: |
|
Are IPC shareholders able to exercise appraisal rights? |
|
A: |
|
No. If the Scheme of Arrangement becomes effective, it will
be binding on all IPC shareholders whether or not they voted in
favor of the Scheme of Arrangement at the court-ordered IPC
meeting or of the resolutions proposed at the IPC special
general meeting, and IPC shareholders will not be entitled to
exercise any appraisal rights. Please see The Scheme of
Arrangement Dissenters and Appraisal Rights of
IPC Shareholders on page [ ]. |
|
Q: |
|
What are the closing conditions set forth in the Scheme of
Arrangement? |
|
A: |
|
In addition to the requisite approval by IPC shareholders at the
court-ordered IPC meeting, the approval by IPC shareholders at
the IPC special general meeting of resolutions determined by
Validus to be reasonably necessary in connection with
implementation of the Scheme of Arrangement, including
resolutions for IPC to approve and to be bound by the Scheme of
Arrangement and to terminate the Max Amalgamation Agreement, the
sanction of the Scheme of Arrangement by the Supreme Court of
Bermuda and the filing of a copy of the court sanction order
with the Bermuda Registrar of Companies (collectively, the
Procedural Conditions), the effectiveness of the
Scheme of Arrangement is subject to the satisfaction or, where
relevant, waiver of certain other conditions, including the
following: |
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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 (the Max Termination Fee).
|
-4-
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The shareholders of Validus shall have approved the
issuance of the Validus Shares pursuant to the Scheme of
Arrangement 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 (as defined in
this proxy statement), in each case who own Validus Shares, have
indicated that they intend to vote the Validus Shares
beneficially owned by them in favor of such approval. As of
April 30, 2009, these persons and entities beneficially
owned 42.4% of the voting interests relating to the Validus
Shares.
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The Validus Shares to be issued to IPC shareholders
pursuant to the Scheme of Arrangement 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 Scheme of Arrangement or is reasonably likely to
prohibit or limit the full rights of ownership of IPC 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
proxy statement and prior to the commencement of the hearing of
the Supreme Court of Bermuda to sanction the Scheme of
Arrangement.
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All amendments or waivers under Validus credit
facilities necessary to consummate the Scheme of Arrangement and
the other transactions contemplated by this proxy statement
shall be in full force and effect.
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The Scheme of Arrangement is subject to additional conditions
referred to below in The Scheme of Arrangement
Conditions to the Scheme of Arrangement, 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 Scheme of Arrangement is
not conditioned on the receipt of regulatory approvals or the
elimination of the Max Termination Fee. The conditions to the
effectiveness of the Scheme of Arrangement are for the sole
benefit of Validus and, other than the Procedural
Conditions, the Registration Condition, the
Shareholder Approval Condition and the NYSE
Listing Condition described below in The Scheme of
Arrangement Conditions to the Scheme of
Arrangement, may be waived by Validus prior to the
commencement of the hearing of the Supreme Court of Bermuda to
sanction the Scheme of Arrangement in its discretion. |
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Q: |
|
What will be the composition of the board of directors of
Validus following the effectiveness of the Scheme of
Arrangement? |
|
A: |
|
Upon the effectiveness of the Scheme of Arrangement,
Validus board of directors would consist of the directors
serving on the board of directors of Validus before the
Acquisition; however, Validus has publicly expressed to the IPC
directors that if they desire to participate in the leadership
of Validus after the Acquisition, Validus would consider that. |
|
Q: |
|
How will Validus be managed following the effectiveness of
the Scheme of Arrangement? |
|
A: |
|
Upon the effectiveness of the Scheme of Arrangement, the
officers of Validus will be the officers serving Validus before
the Acquisition. |
|
Q: |
|
What shareholder vote is required to approve the Scheme of
Arrangement at the court-ordered IPC meeting and how many votes
must be present to hold the meeting? |
|
A: |
|
The Scheme of Arrangement must be approved by a majority in
number of the holders of IPC Shares voting at the court-ordered
IPC meeting, whether in person or by proxy, representing 75% or
more in value of the IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy. Therefore, abstentions
and broker non-votes will not have the effect of a
vote for or against the Scheme of Arrangement, but will reduce |
-5-
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the number of votes cast and therefore increase the relative
influence of those shareholders voting. The presence at the
court-ordered IPC meeting of two or more persons present in
person and representing in person or by proxy in excess of 50%
of the total issued and outstanding IPC Shares throughout the
meeting is required to constitute a quorum thereat. |
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Q: |
|
What is the record date for the court-ordered IPC meeting? |
|
A: |
|
Only shareholders of record, as shown by the transfer books of
IPC at the close of business on [ ], 2009 (the
record date) are entitled to receive notice of and
to vote at the court-ordered IPC meeting. |
|
Q: |
|
How many votes do I have and how many votes can be cast by
all IPC shareholders? |
|
A: |
|
As of [ ], 2009, there were
[ ] outstanding IPC Shares entitled to vote.
Each IPC Share (other than any IPC Shares owned by Validus, IPC
or their respective subsidiaries) entitles the holder of record
thereof to one vote at the court-ordered IPC meeting. |
|
Q: |
|
What do I need to do now? |
|
A: |
|
Validus urges you to read carefully this proxy statement,
including its annexes and the documents incorporated by
reference herein. You also may want to review the documents
referenced under Where You Can Find More Information on
page [ ] and consult with your accounting,
legal and tax advisors. Once you have considered all relevant
information, Validus encourages you to fill in and return the
attached proxy card (if you are a shareholder of record) or
voting instruction form you receive from your bank, broker or
other nominee (if you hold your IPC Shares in street name). |
|
Q: |
|
How can I vote my shares in person at the court-ordered IPC
meeting? |
|
A: |
|
If your IPC Shares are registered directly in your name as of
the record date with the transfer agent, Computershare Investor
Services, you are considered the shareholder of
record with respect to those shares, and the proxy
materials and proxy card are being sent directly to you. As the
shareholder of record, you have the right to vote in person at
the meeting. If you choose to do so, you can bring the enclosed
proxy card. Most shareholders of IPC hold their shares through a
bank, broker or other nominee (that is, in street
name) rather than directly in their own name. If you hold
your shares in street name, you are a beneficial
holder, and the proxy materials are being forwarded to you
by your bank, broker or other nominee together with a voting
instruction form. Because a beneficial holder is not the
shareholder of record, you may not vote these shares in person
at the meeting unless you have previously either arranged for
the IPC Shares beneficially owned by you to be transferred of
record into your name by the record date for the court-ordered
IPC meeting or secured a valid proxy or power of attorney from
the bank, broker or other nominee that holds your shares as of
the record date for the court-ordered IPC meeting (and who has
received a valid proxy or power of attorney from the shareholder
of record pursuant to a legal proxy with a power of
subdelegation from the shareholder of record as of the record
date). Even if you plan to attend the court-ordered IPC meeting,
we recommend that you vote your shares in advance as described
below so that your vote will be counted if you later decide not
to attend the court-ordered IPC meeting. |
|
Q: |
|
How can I vote my shares without attending the court-ordered
IPC meeting? |
|
A: |
|
If you are the shareholder of record, you may direct your vote
without attending the court-ordered IPC meeting by completing
and mailing your proxy card in the enclosed pre-paid envelope.
If you hold your IPC Shares in street name, you should complete
and return the voting instruction form you receive from your
bank, broker or other nominee in accordance with the
instructions you receive from your bank, broker or other
nominee. Your voting instruction form may contain instructions
from your bank, broker or other nominee that allow you to vote
your shares using the Internet or by telephone. Please consult
with your bank, broker or other nominee if you have any
questions regarding the voting of shares held in street name. |
|
Q: |
|
What do I need for admission to the court-ordered IPC
meeting? |
|
A: |
|
You are entitled to attend the court-ordered IPC meeting only if
you are (i) a shareholder of record or (ii) a
beneficial owner or other person holding a valid proxy or power
of attorney from the bank, broker or other nominee that holds
your shares (and who has received a valid proxy or power of
attorney from the shareholder of |
-6-
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record pursuant to a legal proxy with power of
subdelegation from the shareholder of record as of the record
date). If you are the shareholder of record, your name will be
verified against the list of shareholders of record prior to
your admittance to the court-ordered IPC meeting. You should be
prepared to present photo identification for admission. If you
hold your shares in street name and would like to be admitted to
the meeting, you will need to provide a valid proxy or power of
attorney from the bank, broker or other nominee that holds your
shares (and who has received a valid proxy or power of attorney
from the shareholder of record pursuant to a legal
proxy with power of subdelegation from the shareholder of
record as of the record date) and proof of beneficial ownership
on the record date, such as a brokerage account statement
showing that you owned IPC Shares as of the record date, a copy
of the voting instruction form provided by your bank, broker or
other nominee, or other similar evidence of ownership as of the
record date, as well as your photo identification. If you do not
comply with the procedures outlined above, you may not be
admitted to the court-ordered IPC meeting. |
|
Q: |
|
If my IPC Shares are held in a brokerage account or in
street name, will my broker vote my shares for
me? |
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A: |
|
If you own your shares through a bank, broker or other nominee,
you will receive instructions from that institution on how to
instruct them to vote your shares. If you do not receive such
instructions, you may contact that institution to request them.
In accordance with NYSE rules, brokers and nominees who hold IPC
Shares in street name for customers may not exercise their
voting discretion with respect to the Scheme of Arrangement.
Accordingly, if you do not provide your bank, broker or other
nominee with instructions on how to vote your street name
shares, your bank, broker or other nominee will not be permitted
to vote them at the court-ordered IPC meeting, possibly
resulting in a broker non-vote. |
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A broker non-vote with respect to the court-ordered
IPC meeting will not be considered as a vote cast with respect
to any matter presented at the court-ordered IPC meeting, but
will be counted for purposes of establishing a quorum,
provided that your bank, broker or other nominee is in
attendance in person or by proxy. A broker non-vote with respect
to any proposal to be voted on at the court-ordered IPC meeting
will not have the effect of a vote for or against the proposal,
but will reduce the number of votes cast and therefore increase
the relative influence of those shareholders voting. |
|
Q: |
|
What effect do abstentions and broker non-votes have on the
Scheme of Arrangement? |
|
A: |
|
Abstentions and broker non-votes will be counted
toward the presence of a quorum at, but will not be considered
votes cast on any proposal brought before the court-ordered IPC
meeting. Because the vote required to approve the Scheme of
Arrangement is the affirmative vote of a majority in number of
the holders of IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy, representing 75% or more
in value of the IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy, a broker non-vote with
respect to any proposal to be voted on at the court-ordered IPC
meeting will not have the effect of a vote for or against the
relevant proposal, but will reduce the number of votes cast and
therefore increase the relative influence of those shareholders
voting. See also The Court-Ordered IPC Meeting
Record Date and Shares Entitled to Vote. |
|
Q: |
|
How will my shares be voted if I sign and return a proxy card
or voting instruction form without specifying how to vote my
shares? |
|
A. |
|
If you sign and return a proxy card or voting instruction form
without giving specific voting instructions, your shares will be
voted FOR the Scheme of Arrangement and as the
persons named as proxies may determine in their discretion with
respect to any other matters properly presented for a vote
before the court-ordered IPC meeting. |
|
Q: |
|
What do I do if I want to change my vote or revoke my
proxy? |
|
A: |
|
You may change your vote or revoke your proxy at any time before
your proxy is voted at the court-ordered IPC meeting. If you are
a shareholder of record, you may change your vote or revoke your
proxy by: (1) delivering to IPC (Attention: General
Counsel) at American International Building, 29 Richmond Road,
Pembroke HM 08, Bermuda a written notice of revocation of your
proxy; (2) delivering to IPC an authorized proxy bearing a
later |
-7-
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date; or (3) attending the court-ordered IPC meeting and
voting in person as described above under How can I vote my
shares in person at the court-ordered IPC meeting?
Attendance at the court-ordered IPC meeting in and of itself,
without voting in person at the court-ordered IPC meeting, will
not cause your previously granted proxy to be revoked. For
shares you hold in street name, you should follow the
instructions of your bank, broker or other nominee or, if you
have obtained a valid proxy or power of attorney from the bank,
broker or other nominee that holds your shares (and who has
received a valid proxy or power of attorney from the shareholder
of record pursuant to a legal proxy with power of
subdelegation from the shareholder of record as of the record
date) giving you the right to vote your shares at the
court-ordered IPC meeting, by attending the court-ordered IPC
meeting and voting in person. |
|
Q: |
|
What are the material U.S. federal income tax consequences of
the Scheme of Arrangement? |
|
A: |
|
Following the Scheme of Arrangement, 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. The Scheme of Arrangement
and subsequent 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 (the
Code). Assuming it does so qualify,
U.S. holders of IPC Shares will generally recognize gain
(but not loss) in an amount equal to the lesser of (i) the
amount of the cash received by such U.S. holder (excluding
any cash received in lieu of a fractional share) and
(ii) the excess, if any, of (a) the sum of the cash
and the fair market value of the Validus Shares received by such
U.S. holder (including any fractional shares deemed
received by such U.S. holder), over (b) the
U.S. holders tax basis in the IPC Shares exchanged
pursuant to the Scheme of Arrangement. Subject to the passive
foreign investment company rules or the potential application of
Section 1248 of the Code, any gain recognized upon the
Scheme of Arrangement generally will be capital gain, unless the
receipt of cash by a U.S. holder has the effect of a
distribution of a dividend for U.S. federal income tax
purposes. For more information, please see the section of this
proxy statement under the caption Material U.S. Federal
Income Tax Consequences. |
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|
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 Scheme of Arrangement and
short-form amalgamation to you, including the applicability of
U.S. federal, state, local,
non-U.S. and
other tax laws. |
|
Q: |
|
Who can I contact with any additional questions? |
|
|
|
If you have additional questions about the Acquisition, if you
would like additional copies of this proxy statement, or if you
need assistance voting your IPC Shares, you should contact
Georgeson Inc. at: |
|
|
|
Georgeson Inc.
199 Water Street
26th Floor
New York, New York 10038
Banks and Brokers should call:
(212) 440-9800
All Others Call Toll Free: at
(888) 274-5119
Email: validusIPC@georgeson.com |
|
Q: |
|
Where can I find more information about the companies? |
|
A: |
|
You can find more information about Validus and IPC in the
documents described under Where You Can Find More Information
on page [ ]. |
-8-
SUMMARY
This summary highlights the material information in this
proxy statement. To fully understand the Scheme of Arrangement,
and for a more complete description of the terms of the
Acquisition, you should read carefully this entire document,
including the annexes 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, see Where You Can Find More Information on
page [ ].
Validus
(page [ ])
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 Reinsurance, Ltd. (Validus Re) and Talbot
Holdings Ltd. (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 Shares are traded on the NYSE under the symbol
VR and, as of June [], 2009, the last
practicable date prior to the filing of this proxy statement,
Validus had a market capitalization of approximately
$[ ] billion. Validus has approximately
280 employees.
As of the date this proxy statement was first mailed to IPC
shareholders, Validus was the registered holder of 100 IPC
Shares, or less than 1% of the outstanding IPC Shares, and
Validus was entitled to vote as to all of the IPC Shares it owns.
Information for the director and executive officers of Validus
who are considered to be participants in this proxy solicitation
and certain other information is set forth in Schedule I
hereto. Other than as set forth herein, none of Validus, or any
of the participants set forth on Schedule I hereto have any
interest, direct or indirect, by security holdings or otherwise,
in the Acquisition.
IPC
(page [ ])
The following description of IPC is taken from the Registration
Statement on
Form S-4
filed by IPC with the SEC in connection with the Proposed Max
Amalgamation (as amended from time to time, the IPC/Max
S-4).
See Sources of Additional Information above.
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 its 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. 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 Shares are quoted on NASDAQ 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.
-9-
The
Court-Ordered IPC Meeting
(page [ ])
The court-ordered IPC meeting is being held in accordance with
an order of the Supreme Court of Bermuda issued on
[ ], 2009, to give the IPC shareholders the
opportunity to consider and, if they so determine, approve the
Scheme of Arrangement. The record date for determining the IPC
shareholders who will be entitled to vote at the court-ordered
IPC meeting is [ ], 2009. The Scheme of
Arrangement must be approved by a majority in number of the
holders of IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy, representing 75% or more in value
of the IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy. The court-ordered IPC meeting
will be held on [ ], 2009, at
[ ], Atlantic time, at [ ].
The holders of any IPC Shares owned by Validus, IPC or their
respective subsidiaries will not be entitled to vote those
shares at the court-ordered IPC meeting.
The
Acquisition (page [ ])
General
Description (page [ ])
If the Scheme of Arrangement becomes effective, Validus will
effect the Acquisition of IPC by the transfer of all outstanding
IPC Shares (excluding any IPC Shares owned by Validus, IPC or
their respective subsidiaries) to Validus in exchange for
Validus Shares at a ratio of 1.1234 Validus Shares (together
with cash in lieu of the fractional Validus Share interest to
which such shareholders would otherwise be entitled) and $3.00
in cash (less any applicable withholding taxes and without
interest) for each IPC Share. IPC would thereby become a
wholly-owned subsidiary of Validus.
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
Validus Shares on a fully-diluted basis following closing of the
Acquisition. The Scheme of Arrangement is attached as
Annex A to this proxy statement. You should read the Scheme
of Arrangement in its entirety because it, and not this proxy
statement or Validus proxy statement for the IPC special
general meeting, is the legal document that would govern the
Acquisition.
Following the Acquisition, 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. Following the short-form
amalgamation, IPC and the Validus subsidiary would continue as
one amalgamated company in accordance with the Companies Act.
Completing
the Acquisition
On March 31, 2009, Validus publicly announced that it had
delivered to IPC an offer to consummate the Acquisition 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 Share for (i) 1.1234 Validus 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 Share 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.
Additionally, 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.
-10-
In order to consummate the Acquisition 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 the
Offer to Exchange relating thereto. Under Bermuda law, if
Validus acquires at least 90% of the IPC Shares which it is
seeking to acquire in the Exchange Offer, Validus will have the
right to acquire the remaining IPC Shares on the same terms in a
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 Shares
that are validly tendered pursuant to the Exchange Offer.
Third, Validus is pursuing the Scheme of Arrangement. In order
to implement the Scheme of Arrangement, the IPC shareholders
must approve the Scheme of Arrangement at the court-ordered IPC
meeting, IPC must separately approve the Scheme of Arrangement
and the Scheme of Arrangement must be sanctioned by the Supreme
Court of Bermuda. If the IPC shareholders approve the Scheme of
Arrangement at the court-ordered IPC meeting, the separate
approval of IPC of the 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
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. On May 12, 2009, Validus filed with the SEC a
preliminary proxy statement which, when filed in its definitive
form, will be used to solicit written requisitions from the IPC
shareholders to compel the IPC board of directors to call the
IPC special general meeting. 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 Scheme of
Arrangement, and the granting of a court order from the Supreme
Court of Bermuda sanctioning the Scheme of Arrangement, a copy
of the court order sanctioning the Scheme of Arrangement will be
delivered to the Bermuda Registrar of Companies, at which time
the 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 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 Scheme of
Arrangement. Validus believes that, under the Scheme of
Arrangement, it would be able to close the 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 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
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
Scheme of Arrangement are alternative methods for Validus to
acquire all of the issued and outstanding IPC 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 Shares by whichever method Validus determines
is most effective and efficient.
-11-
Reasons
to Vote FOR the Scheme of Arrangement
(page [ ])
Validus recommends approval of the Scheme of Arrangement in
order to enable the consummation of the Acquisition. Validus
believes that the Acquisition represents a compelling
combination and excellent strategic fit that will enable Validus
to capitalize on opportunities in the global reinsurance market.
Successful completion of the Acquisition 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 Shares to be issued and
cash to be paid to IPC shareholders pursuant to the Scheme of
Arrangement will provide IPC shareholders with an immediate
premium for their shares, and will allow IPC shareholders to
participate in the growth and opportunities of Validus following
the Acquisition.
In reaching these conclusions Validus board of directors
consulted with Validus management as well as legal and financial
advisors and considered a number of factors. Those factors
included, but were not limited to, those set forth under The
Acquisition Reasons to Vote FOR the
Scheme of Arrangement below.
Interests
of Validus Directors and Executive Officers in the Acquisition
(page [ ])
The consummation of the Acquisition would not be deemed to be a
change in control impacting grants under any of Validus
long-term incentive or stock option plans, or a change in
control under 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 Acquisition.
Pursuant to the Scheme of Arrangement, upon the effective time
all of Validus current directors and officers will
continue as the directors and officers of Validus. For more
information, see The Acquisition Interests of
Validus Directors and Executive Officers in the Acquisition
below.
Interests
of IPC Directors and Executive Officers in the Acquisition
(page [ ])
The consummation of the Acquisition would likely be deemed to be
a change in control under the existing employment agreements of
certain executive officers of IPC. In addition, IPC shareholders
should be aware that James P. Bryce, John R. Weale, Peter J. A.
Cozens, and Stephen F. Fallon, individually, and all the members
of IPCs board of directors as a group, have interests in
the Acquisition that are different from,
and/or in
addition to, the interests of IPC shareholders generally. For
more information, see The Acquisition Interests
of IPC Directors and Executive Officers in the Acquisition
below.
Material
U.S. Federal Income Tax Consequences
(page [ ])
Following the Scheme of Arrangement, 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. The Scheme of Arrangement
and subsequent 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
Shares will generally recognize gain (but not loss) in an amount
equal to the lesser of (i) the amount of the cash received
by such U.S. holder (excluding any cash received in lieu of
a fractional share) and (ii) the excess, if any, of
(a) the sum of the cash and the fair market value of the
Validus Shares received by such U.S. holder (including any
fractional shares deemed received by such U.S. holder),
over (b) the U.S. holders tax basis in the IPC
Shares exchanged pursuant to the Scheme of Arrangement. Subject
to the passive foreign investment company rules or the potential
application of Section 1248 of the Code, any gain
recognized upon the Scheme of Arrangement generally will be
capital gain, unless the receipt of cash by a U.S. holder has
the effect of a distribution of a dividend for U.S. federal
income tax purposes. For more information, please see the
section of this proxy statement 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 Scheme of Arrangement and
short-form amalgamation to you, including the applicability of
U.S. federal, state, local,
non-U.S. and
other tax laws.
-12-
Anticipated
Accounting Treatment
(page [ ])
The Acquisition will be accounted for under the purchase method
of accounting in accordance with Statement of Financial
Accounting Standards (FAS) No. 141R,
Business Combinations, (FAS 141(R))
under which the total consideration paid in the Acquisition will
be allocated among acquired tangible and intangible assets and
assumed liabilities based on the fair values of the tangible and
intangible assets acquired and liabilities assumed. In the event
there is an excess of the total consideration paid in the
Acquisition 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 Acquisition 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 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
Acquisition, the excess will be accounted for as a gain to be
recognized through the income statement at the consummation of
the Acquisition in accordance with FAS 141(R). Validus
anticipates the Scheme of Arrangement will result in an excess
of the fair values of the acquired assets and liabilities
assumed over the total consideration paid.
The
Scheme of Arrangement
(page [ ])
The form of Scheme of Arrangement is attached as Annex A
to this proxy statement. You should read that document in its
entirety because it, and not this proxy statement or
Validus proxy statement for the IPC special general
meeting, is the legal document that would govern the Scheme of
Arrangement.
Purpose;
Effective Time (page [ ])
The Supreme Court of Bermuda ordered the court-ordered IPC
meeting to be held to give the IPC shareholders (other than the
holders of any IPC Shares owned by Validus, IPC or their
respective subsidiaries) the opportunity to consider and, if
they so determine, approve the Scheme of Arrangement. Assuming
the Scheme of Arrangement receives the approval of the IPC
shareholders and the sanction of the Supreme Court of Bermuda,
and all the other conditions to the effectiveness of the Scheme
of Arrangement are satisfied or, where relevant, waived,
including approval of the Scheme of Arrangement by IPC either by
vote of the IPC board of directors or a vote of IPC shareholders
at the IPC special general meeting, an office copy of the court
order sanctioning the Scheme of Arrangement will be delivered to
the Bermuda Registrar of Companies, at which time the Scheme of
Arrangement will be effective.
Implementing
the Scheme of Arrangement
(page [ ])
The steps involved in the Scheme of Arrangement are as follows:
(1) Applying to the Supreme Court of Bermuda for an order
giving directions for the holding and conduct of the
court-ordered IPC meeting.
(2) Requisitioning the IPC special general meeting. On May
12, 2009, Validus filed with the SEC a preliminary proxy
statement which, when filed in its definitive form, will be used
to solicit written requisitions from the IPC shareholders to
compel the IPC board of directors to call the IPC special
general meeting.
(3) Holding the court-ordered IPC meeting to which this
proxy statement relates to consider and, if the IPC shareholders
so determine, approve the Scheme of Arrangement. The Scheme of
Arrangement must be approved by a majority in number of the
holders of IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy, representing 75% or more in value
of the IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy.
(4) Holding the IPC special general meeting to approve
resolutions determined by Validus to be reasonably necessary in
connection with implementation of the Scheme of Arrangement,
including resolutions for IPC to approve and to be bound by the
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. Approval of each resolution at the IPC special
general meeting requires the affirmative vote of the holders of
a majority of the IPC Shares voting at the meeting, whether in
person or by proxy.
-13-
(5) Applying to the Supreme Court of Bermuda to sanction
the Scheme of Arrangement.
(6) Delivering a copy of the order of the Supreme Court of
Bermuda sanctioning the Scheme of Arrangement to the Bermuda
Registrar of Companies.
Acquisition
Consideration (page [ ])
Under the Scheme of Arrangement, at the closing, each IPC Share
issued and outstanding immediately prior to the closing
(excluding any IPC Shares owned by Validus, IPC or their
respective subsidiaries) will be transferred to Validus in
exchange for (i) 1.1234 Validus Shares and (ii) $3.00
in cash (less any applicable withholding taxes and without
interest).
Validus will not issue any fractional Validus Shares in
connection with the Acquisition. Instead, any IPC shareholder
who would otherwise have been entitled to a fraction of a
Validus Share in connection with the Acquisition 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
Shares that would otherwise be received by such shareholder) by
(ii) the closing price of Validus Shares as reported on the NYSE
on the last trading day immediately prior to the closing of the
Acquisition.
Amendment
and Termination of the Scheme of Arrangement
(page [ ])
The Scheme of Arrangement contains a provision for Validus to
consent, on behalf of all persons concerned, to any modification
of or addition to the Scheme of Arrangement or any condition to
the effectiveness of the Scheme of Arrangement that the Supreme
Court of Bermuda may approve or impose. If there is any
modification of or addition to the Scheme of Arrangement or any
condition to the effectiveness of the Scheme of Arrangement that
is material to the interests of IPC shareholders, Validus will
amend this proxy statement and advise the IPC shareholders of
such modification, addition or condition in advance of the
court-ordered IPC meeting, in accordance with applicable law.
Prior to approval by the IPC shareholders at the court-ordered
IPC meeting, Validus may terminate the Scheme of Arrangement at
any time. Following approval by the IPC shareholders at the
court-ordered IPC meeting, Validus may terminate the Scheme of
Arrangement at any time prior to commencement of the hearing of
the Supreme Court of Bermuda to sanction the Scheme of
Arrangement without obtaining the approval of the IPC
shareholders if any event or condition occurs which would cause
any of the conditions to its effectiveness not to be satisfied
by November 30, 2009 (or such later date, if any, as
Validus may agree and the Supreme Court of Bermuda may allow).
Conditions
to the Scheme of Arrangement
(page [ ])
In addition to the requisite approval by IPC shareholders at the
court-ordered IPC meeting, the approval by IPC shareholders at
the IPC special general meeting of resolutions determined by
Validus to be reasonably necessary in connection with
implementation of the Scheme of Arrangement, including
resolutions for IPC to approve and to be bound by the Scheme of
Arrangement and to terminate the Max Amalgamation Agreement, the
sanction of the Scheme of Arrangement by the Supreme Court of
Bermuda and the filing of a copy of the court sanction order
with the Bermuda Registrar of Companies, the effectiveness of
the Scheme of Arrangement is subject to the satisfaction or,
where relevant, waiver of certain other conditions, including
the following:
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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 shareholders of Validus shall have approved the issuance of
the Validus Shares pursuant to the Scheme of Arrangement 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 (as defined in this
proxy statement), in each case who own Validus Shares, have
indicated that they intend to vote the Validus Shares
beneficially owned
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by them in favor of such approval. As of April 30, 2009,
these persons and entities beneficially owned 42.4% of the
voting interests relating to the Validus Shares.
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The Validus Shares to be issued to IPC shareholders pursuant to
the Scheme of Arrangement 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 Scheme of
Arrangement or is reasonably likely to prohibit or limit the
full rights of ownership of IPC 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 proxy
statement and prior to the commencement of the hearing of the
Supreme Court of Bermuda to sanction the Scheme of Arrangement.
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All amendments or waivers under Validus credit facilities
necessary to consummate the Scheme of Arrangement and the other
transactions contemplated by this proxy statement shall be in
full force and effect.
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The Scheme of Arrangement is subject to additional conditions
referred to below in The Scheme of Arrangement
Conditions to the Scheme of Arrangement, 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 Scheme of Arrangement is
not conditioned on the receipt of regulatory approvals or the
elimination of the Max Termination Fee. The conditions to the
effectiveness of the Scheme of Arrangement are for the sole
benefit of Validus and, other than the Procedural
Conditions, the Registration Condition, the
Shareholder Approval Condition and the NYSE
Listing Condition described below in The Scheme of
Arrangement Conditions to the Scheme of
Arrangement, may be waived by Validus prior to the
commencement of the hearing of the Supreme Court of Bermuda to
sanction the Scheme of Arrangement in its discretion.
Dividends
and Distributions (page [ ])
Each of Validus and IPC regularly pays a quarterly cash
dividend, i.e., $0.20 per common share in Validus
case and $0.22 per common share in IPCs case. Validus
expects to continue to pay its regular quarterly dividends
consistent with past practice. It is a condition to the
effectiveness of the Scheme of Arrangement that IPC shall not
have declared, paid or proposed to declare or pay any dividend
or other distribution on any share capital of IPC other than
(i) any quarterly cash dividends paid in the ordinary
course of business consistent with past practice to holders of
IPC Shares and (ii) a
one-time
dividend to the holders of IPC Shares in an aggregate amount not
to exceed any reduction in the Max Termination Fee. All mandates
and other instructions in force at the effective time in
relation to the IPC Shares (including elections for payment of
dividends (if any)) will, immediately after the effective time,
be deemed to be valid as effective mandates or instructions in
respect of the Validus Shares received in consideration of such
IPC Shares.
Dissenters
and Appraisal Rights of IPC Shareholders
(page [ ])
If the Scheme of Arrangement becomes effective, it will be
binding on all IPC shareholders whether or not they voted in
favor of the Scheme of Arrangement at the court-ordered IPC
meeting or of the resolutions proposed at the IPC special
general meeting, and IPC shareholders will not be entitled to
exercise any appraisal rights. IPC shareholders will be entitled
to be present and be heard at the Supreme Court of Bermuda
hearing to sanction the Scheme of Arrangement. Any IPC
shareholder who wishes to may oppose the sanctioning of the
Scheme of Arrangement and may make presentations to the court on
the hearing of the petition. IPC shareholders may also vote
against the Scheme of Arrangement at the court-ordered IPC
meeting.
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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 (the
Validus
10-Q)
and Validus annual report on
Form 10-K
for the year ended December 31, 2008 (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-K and the
Validus
10-Q, each
of which is incorporated by reference into this proxy statement.
More comprehensive financial information, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, is contained in the
Validus 10-K
and the
Validus 10-Q,
and the following summary is qualified in its entirety by
reference to the Validus
10-K and the
Validus 10-Q
and all of the financial information and notes contained
therein. See Where You Can Find More Information on
page [ ].
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Three Months Ended
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|
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
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
-17-
|
|
|
(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. |
|
(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
Form 10-K. |
-18-
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 (the
IPC 10-Q) and
IPCs annual report on
Form 10-K
for the year ended December 31, 2008 (the
IPC 10-K),
except in respect of diluted book value per common share (as
discussed in footnote 5 below). See Sources of Additional
Information above.
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 proxy statement,
and the
IPC 10-K,
which is incorporated by reference into this proxy statement.
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-K and the
IPC 10-Q,
each of which is incorporated by reference into this proxy
statement. 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. See Where You Can Find More
Information on page [ ].
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
-19-
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
IPCs annual report on
Form 10-K
for the year ended December 31, 2008 and amended it to
$32.85 in an amendment to the IPC/Max
S-4 filed
with the SEC on April 13, 2009. |
-20-
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma
financial information is intended 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 an earlier time. The unaudited condensed
consolidated pro forma information 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 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.
The unaudited condensed consolidated pro forma financial
information should be read in conjunction with the Validus
10-Q, the
Validus
10-K, the
IPC 10-Q and
the IPC
10-K, each
as filed with the SEC. The unaudited condensed consolidated pro
forma financial information gives effect to the proposed
acquisition as if it had occurred at March 31, 2009 for the
purposes of the unaudited consolidated pro forma balance sheet
and at January 1, 2008 for the purposes of the unaudited
condensed consolidated pro forma statements of operations for
the year ended December 31, 2008 and the three months ended
March 31, 2009. For a summary of the proposed business
combination contemplated by the Acquisition, see the section of
this proxy statement entitled The Acquisition.
-21-
The following table presents unaudited condensed consolidated
pro forma balance sheet data at March 31, 2009 (expressed
in thousands of U.S. dollars, except share and per share
data) giving effect to the proposed acquisition of IPC Shares as
if it had occurred at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings Ltd.
|
|
|
Holdings Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value
|
|
$
|
2,644,496
|
|
|
$
|
1,772,805
|
|
|
$
|
|
|
|
|
|
$
|
4,417,301
|
|
Short-term investments, at fair value
|
|
|
282,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,363
|
|
Equity investments, at fair value
|
|
|
|
|
|
|
295,091
|
|
|
|
|
|
|
|
|
|
295,091
|
|
Cash and cash equivalents
|
|
|
535,798
|
|
|
|
122,070
|
|
|
|
(245,706
|
)
|
|
3(a), 3(b), 4
|
|
|
412,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash
|
|
|
3,462,657
|
|
|
|
2,189,966
|
|
|
|
(245,706
|
)
|
|
|
|
|
5,406,917
|
|
Premiums receivable
|
|
|
600,943
|
|
|
|
199,241
|
|
|
|
(160
|
)
|
|
3(e)
|
|
|
800,024
|
|
Deferred acquisition costs
|
|
|
143,510
|
|
|
|
23,302
|
|
|
|
|
|
|
|
|
|
166,812
|
|
Prepaid reinsurance premiums
|
|
|
59,510
|
|
|
|
3,585
|
|
|
|
(199
|
)
|
|
3(e)
|
|
|
62,896
|
|
Securities lending collateral
|
|
|
99,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,727
|
|
Loss reserves recoverable
|
|
|
204,197
|
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
208,471
|
|
Paid losses recoverable
|
|
|
4,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,438
|
|
Accrued investment income
|
|
|
20,511
|
|
|
|
27,907
|
|
|
|
|
|
|
|
|
|
48,418
|
|
Current taxes recoverable
|
|
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244
|
|
Intangible assets
|
|
|
126,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,177
|
|
Goodwill
|
|
|
20,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,393
|
|
Other assets
|
|
|
19,491
|
|
|
|
4,810
|
|
|
|
|
|
|
|
|
|
24,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,762,798
|
|
|
$
|
2,453,085
|
|
|
$
|
(246,065
|
)
|
|
|
|
$
|
6,969,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premiums
|
|
$
|
795,233
|
|
|
$
|
219,641
|
|
|
$
|
(199
|
)
|
|
3(e)
|
|
$
|
1,014,675
|
|
Reserve for losses and loss expense
|
|
|
1,318,732
|
|
|
|
354,467
|
|
|
|
|
|
|
|
|
|
1,673,199
|
|
Reinsurance balances payable
|
|
|
66,180
|
|
|
|
4,483
|
|
|
|
(160
|
)
|
|
3(e)
|
|
|
70,503
|
|
Deferred taxation
|
|
|
20,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,914
|
|
Securities lending payable
|
|
|
105,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,369
|
|
Net payable for investments purchased
|
|
|
57,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,434
|
|
Accounts payable and accrued expenses
|
|
|
71,650
|
|
|
|
25,020
|
|
|
|
|
|
|
|
|
|
96,670
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,739,812
|
|
|
|
603,611
|
|
|
|
(359
|
)
|
|
|
|
|
3,343,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
13,271
|
|
|
|
561
|
|
|
|
10,547
|
|
|
3(a), 3(c), 3(d)
|
|
|
24,379
|
|
Additional paid-in capital
|
|
|
1,419,602
|
|
|
|
1,091,491
|
|
|
|
430,938
|
|
|
3(a), 3(c), 3(d)
|
|
|
2,942,031
|
|
Accumulated other comprehensive loss
|
|
|
(8,054
|
)
|
|
|
(876
|
)
|
|
|
876
|
|
|
3(d)
|
|
|
(8,054
|
)
|
Retained earnings
|
|
|
598,167
|
|
|
|
758,298
|
|
|
|
(688,067
|
)
|
|
3(b), 3(d), 3(f)
|
|
|
668,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,022,986
|
|
|
|
1,849,474
|
|
|
|
(245,706
|
)
|
|
|
|
|
3,626,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,762,798
|
|
|
$
|
2,453,085
|
|
|
$
|
(246,065
|
)
|
|
|
|
$
|
6,969,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
75,828,922
|
|
|
|
55,948,821
|
|
|
|
62,852,906
|
|
|
|
|
|
138,681,828
|
|
Common shares and common share equivalents outstanding
|
|
|
90,317,793
|
|
|
|
56,501,900
|
|
|
|
63,474,234
|
|
|
|
|
|
153,792,027
|
|
Book value per share
|
|
$
|
26.68
|
|
|
$
|
33.06
|
|
|
|
|
|
|
8
|
|
$
|
26.15
|
|
Diluted book value per share
|
|
$
|
24.65
|
|
|
$
|
32.73
|
|
|
|
|
|
|
8
|
|
$
|
24.90
|
|
Diluted tangible book value per share
|
|
$
|
23.03
|
|
|
$
|
32.73
|
|
|
|
|
|
|
|
|
$
|
23.95
|
|
-22-
The following table sets forth unaudited condensed consolidated
pro forma results of operations for the year ended December 31,
2008 (expressed in thousands of U.S. dollars, except share
and per share data) giving effect to the proposed acquisition of
IPC Shares as if it had occurred at January 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings, Ltd.
|
|
|
Holdings, Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,362,484
|
|
|
$
|
403,395
|
|
|
$
|
(251
|
)
|
|
3(e), 5
|
|
$
|
1,765,628
|
|
Reinsurance premiums ceded
|
|
|
(124,160
|
)
|
|
|
(6,122
|
)
|
|
|
251
|
|
|
3(e)
|
|
|
(130,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
1,238,324
|
|
|
|
397,273
|
|
|
|
|
|
|
|
|
|
1,635,597
|
|
Change in unearned premiums
|
|
|
18,194
|
|
|
|
(9,906
|
)
|
|
|
|
|
|
|
|
|
8,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,256,518
|
|
|
|
387,367
|
|
|
|
|
|
|
|
|
|
1,643,885
|
|
Net investment income
|
|
|
139,528
|
|
|
|
94,105
|
|
|
|
(9,731
|
)
|
|
3(b)
|
|
|
223,902
|
|
Realized gain on repurchase of debentures
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,752
|
|
Net realized (losses) gains on investments
|
|
|
(1,591
|
)
|
|
|
(168,208
|
)
|
|
|
|
|
|
|
|
|
(169,799
|
)
|
Net unrealized (losses) gains on investments
|
|
|
(79,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,707
|
)
|
Other income
|
|
|
5,264
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
5,329
|
|
Foreign exchange losses
|
|
|
(49,397
|
)
|
|
|
(1,848
|
)
|
|
|
|
|
|
|
|
|
(51,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,279,367
|
|
|
|
311,481
|
|
|
|
(9,731
|
)
|
|
|
|
|
1,581,117
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense
|
|
|
772,154
|
|
|
|
155,632
|
|
|
|
|
|
|
6
|
|
|
927,786
|
|
Policy acquisition costs
|
|
|
234,951
|
|
|
|
36,429
|
|
|
|
|
|
|
|
|
|
271,380
|
|
General and administrative expenses
|
|
|
123,948
|
|
|
|
20,689
|
|
|
|
|
|
|
|
|
|
144,637
|
|
Share compensation expense
|
|
|
27,097
|
|
|
|
5,625
|
|
|
|
|
|
|
|
|
|
32,722
|
|
Finance expenses
|
|
|
57,318
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
59,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,215,468
|
)
|
|
|
(221,034
|
)
|
|
|
|
|
|
|
|
|
(1,436,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
63,899
|
|
|
|
90,447
|
|
|
|
(9,731
|
)
|
|
|
|
|
144,615
|
|
Income tax expense
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
53,111
|
|
|
$
|
90,447
|
|
|
$
|
(9,731
|
)
|
|
|
|
$
|
133,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and warrant dividend
|
|
|
6,947
|
|
|
|
14,939
|
|
|
|
(14,939
|
)
|
|
3(g)
|
|
|
6,947
|
|
Net income available to common shareholders
|
|
$
|
46,164
|
|
|
$
|
75,508
|
|
|
$
|
5,208
|
|
|
|
|
$
|
126,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,677,903
|
|
|
|
52,124,034
|
|
|
|
62,852,906
|
|
|
|
|
|
137,530,809
|
|
Diluted
|
|
|
75,819,413
|
|
|
|
59,301,939
|
|
|
|
63,474,234
|
|
|
|
|
|
139,293,647
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
|
$
|
1.45
|
|
|
|
|
|
|
7
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.61
|
|
|
$
|
1.45
|
|
|
|
|
|
|
7
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
The following table sets forth unaudited condensed consolidated
pro forma results of operations for the three months ended
March 31, 2009 (expressed in thousands of
U.S. dollars, except share and per share data) giving
effect to the proposed acquisition of IPC Shares as if it had
occurred at January 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings Ltd.
|
|
|
Holdings Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
609,892
|
|
|
$
|
234,610
|
|
|
$
|
(265
|
)
|
|
3(e), 5
|
|
$
|
844,237
|
|
Reinsurance premiums ceded
|
|
|
(72,512
|
)
|
|
|
(3,154
|
)
|
|
|
265
|
|
|
3(e)
|
|
|
(75,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
537,380
|
|
|
|
231,456
|
|
|
|
|
|
|
|
|
|
768,836
|
|
Change in unearned premiums
|
|
|
(218,621
|
)
|
|
|
(132,748
|
)
|
|
|
|
|
|
|
|
|
(351,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
318,759
|
|
|
|
98,708
|
|
|
|
|
|
|
|
|
|
417,467
|
|
Net investment income
|
|
|
26,772
|
|
|
|
21,866
|
|
|
|
(1,953
|
)
|
|
3(b)
|
|
|
46,685
|
|
Net realized (losses) gains on investments
|
|
|
(23,421
|
)
|
|
|
(35,572
|
)
|
|
|
|
|
|
|
|
|
(58,993
|
)
|
Net unrealized (losses) gains on investments
|
|
|
22,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,153
|
|
Other income
|
|
|
757
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
764
|
|
Foreign exchange gains (losses)
|
|
|
(4,200
|
)
|
|
|
(3,146
|
)
|
|
|
|
|
|
|
|
|
(7,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
340,820
|
|
|
|
81,863
|
|
|
|
(1,953
|
)
|
|
|
|
|
420,730
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense
|
|
|
131,834
|
|
|
|
39,109
|
|
|
|
|
|
|
6
|
|
|
170,943
|
|
Policy acquisition costs
|
|
|
61,449
|
|
|
|
9,838
|
|
|
|
|
|
|
|
|
|
71,287
|
|
General and administrative expenses
|
|
|
38,079
|
|
|
|
21,792
|
|
|
|
(13,800
|
)
|
|
3(b)
|
|
|
46,071
|
|
Share compensation expense
|
|
|
7,354
|
|
|
|
2,489
|
|
|
|
|
|
|
|
|
|
9,843
|
|
Finance expenses
|
|
|
7,723
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
8,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(246,439
|
)
|
|
|
(73,611
|
)
|
|
|
13,800
|
|
|
|
|
|
(306,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
94,381
|
|
|
|
8,252
|
|
|
|
11,847
|
|
|
|
|
|
114,480
|
|
Income tax credit
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after taxes
|
|
$
|
94,907
|
|
|
$
|
8,252
|
|
|
$
|
11,847
|
|
|
|
|
$
|
115,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and warrant dividend
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
93,171
|
|
|
$
|
8,252
|
|
|
$
|
11,847
|
|
|
|
|
$
|
113,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
75,744,577
|
|
|
|
55,903,740
|
|
|
|
62,852,906
|
|
|
|
|
|
138,597,483
|
|
Diluted
|
|
|
79,102,643
|
|
|
|
55,916,256
|
|
|
|
63,474,234
|
|
|
|
|
|
142,576,877
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.15
|
|
|
|
|
|
|
7
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.15
|
|
|
|
|
|
|
7
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The unaudited condensed consolidated pro forma financial
information gives effect to the Acquisition as if it had
occurred at March 31, 2009 for the purposes of the
unaudited condensed consolidated pro forma balance sheet and at
January 1, 2008 for the purposes of the unaudited condensed
consolidated pro forma statements of operations for the year
ended December 31, 2008 and three months ended
March 31, 2009. The unaudited condensed consolidated pro
forma financial information has been prepared by Validus
management and is based on Validus historical consolidated
financial statements and IPCs historical consolidated
financial statements. Certain amounts from IPCs historical
consolidated financial statements have been reclassified to
conform to the Validus presentation. The unaudited condensed
consolidated pro forma financial statements have been prepared
using IPCs publicly available financial statements and
disclosures, without the benefit of inspection of IPCs
books and records or discussion with the IPC management team.
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.
Additional reclassifications of IPC data to conform to the
Validus presentation may also be required.
This unaudited condensed consolidated pro forma financial
information is prepared in conformity with US GAAP. The
unaudited condensed consolidated pro forma balance sheet as of
March 31, 2009 and the unaudited condensed consolidated pro
forma statements of operations for the year ended
December 31, 2008 and the three months ended March 31,
2009 have been prepared using the following information:
(a) Audited historical consolidated financial statements of
Validus as of December 31, 2008 and for the year ended
December 31, 2008;
(b) Audited historical consolidated financial statements of
IPC as of December 31, 2008 and for the year ended
December 31, 2008;
(c) Unaudited historical consolidated financial statements
of Validus as of March 31, 2009 and for the three months
ended March 31, 2009;
(d) Unaudited historical consolidated financial statements
of IPC as of March 31, 2009 and for the three months ended
March 31, 2009;
(e) Such other known supplementary information as
considered necessary to reflect the Acquisition in the unaudited
condensed consolidated pro forma financial information.
The pro forma adjustments reflecting the Acquisition of IPC
under the purchase method of accounting are based on certain
estimates and assumptions. The unaudited condensed consolidated
pro forma adjustments may be revised as additional information
becomes available. The actual adjustments upon consummation of
the Acquisition and the allocation of the final purchase price
of IPC will depend on a number of factors, including additional
financial information available at such time, changes in values
and changes in IPCs operating results between the date of
preparation of this unaudited condensed consolidated pro forma
financial information and the effective date of the Acquisition.
Therefore, it is likely that the actual adjustments will differ
from the pro forma adjustments and it is possible the
differences may be material. Validus management believes
that its assumptions provide a reasonable basis for presenting
all of the significant effects of the transactions contemplated
based on information available to Validus at the time and that
the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited condensed
consolidated pro forma financial information.
The unaudited condensed consolidated pro forma financial
information does not include any financial benefits, revenue
enhancements or operating expense efficiencies arising from the
Acquisition. In addition, the unaudited condensed consolidated
pro forma financial information does not include any additional
expenses that may result
-25-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
from the Acquisition. Estimated costs of the transaction as well
as the benefit of the negative goodwill have been reflected in
the unaudited condensed consolidated pro forma balance sheets,
but have not been included on the pro forma income statement due
to their non-recurring nature.
The unaudited condensed consolidated pro forma financial
information is not intended to reflect the results of operations
or the financial position that would have resulted had the
Acquisition been effected on the dates indicated and if the
companies had been managed as one entity. The unaudited
condensed consolidated pro forma financial information should be
read in conjunction with the Validus
10-Q, the
Validus
10-K, the
IPC 10-Q and
the IPC
10-K, as
filed with the SEC. See Where You Can Find More
Information on page [ ].
|
|
2.
|
Recent
Accounting Pronouncements
|
In December 2007, the FASB issued Statement No. 141(R),
Business Combinations (FAS 141(R))
and No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
(FAS 160) which are effective for business
combinations for which the Acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. On April 1, 2009 the FASB
finalized and issued FSP FAS 141(R)-1 which amended and
clarified FAS 141 (R) and is effective for business
combinations whose Acquisition date is on or after
January 1, 2009.
FSP FAS 141(R)-1 has amended FAS 141(R)s
guidance on the initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets acquired
and liabilities assumed in a business combination that arise
from contingencies.
Significant changes arising from FAS 141 (R) and FSP
FAS 141(R)-1 which will impact any future acquisitions
include the determination of the purchase price and treatment of
transaction expenses, restructuring charges and negative
goodwill as follows:
|
|
|
|
|
Purchase Price Under FAS 141(R), the purchase
price is determined as of the acquisition date, which is the
date that the acquirer obtains control. Previously, the date the
business combination was announced was used as the effective
date in determining the purchase price;
|
|
|
|
Transactions Expenses Under FAS 141(R), all
costs associated with purchase transactions must be expensed as
incurred. Previously, all such costs could be capitalized and
included as part of transaction purchase price, adding to the
amount of goodwill recognized;
|
|
|
|
Restructuring Costs Under FAS 141(R), expected
restructuring costs are not recorded at the closing date, but
rather after the transaction. The only costs to be included as a
liability at the closing date are those for which an acquirer is
obligated at the time of the closing. Previously, restructuring
costs that were planned to occur after the closing of the
transaction were recognized and recorded at the closing date as
a liability;
|
|
|
|
Negative Goodwill/Bargain Purchases Under
FAS 141(R), where total fair value of net assets acquired
exceeds consideration paid (creating negative
goodwill), the acquirer will record a gain as a result of
the bargain purchase, to be recognized through the income
statement at the close of the transaction. Previously, negative
goodwill was recognized as a pro rata reduction of the assets
assumed to allow the net assets acquired to equal the
consideration paid; and
|
|
|
|
Noncontrolling Interests Under FAS 141(R), in a
partial or step acquisition where control is obtained, 100% of
goodwill and identifiable net assets are recognized at fair
value and the noncontrolling (sometimes called minority
interest) interest is also recorded at fair value. Previously,
in a partial acquisition only the controlling interests
share of goodwill was recognized, the controlling
interests share of identifiable net assets was recognized
at fair value and the noncontrolling interests share of
identifiable net assets was
|
-26-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
recognized at carrying value. Under FAS 160, a
noncontrolling interest is now recognized in the equity section,
presented separately from the controlling interests
equity. Previously, noncontrolling interest in general was
recorded in the mezzanine section.
On April 30, 2009, Validus announced a three-part plan to
acquire IPC. The three-part plan, involves (1) soliciting
IPC shareholders to vote against the Proposed Max Amalgamation,
(2) commencing an Exchange Offer for all IPC Shares and
(3) petitioning the Supreme Court of Bermuda to approve a
Scheme of Arrangement under Bermuda law. If the Acquisition is
consummated, former IPC shareholders will no longer have any
ownership interest in IPC and will be shareholders of Validus.
Validus intends, promptly following the Scheme of Arrangement,
to amalgamate IPC with a newly-formed, wholly-owned subsidiary
of Validus in accordance with Section 107 of the Companies
Act.
In connection with the Acquisition, transaction costs currently
estimated at $40,000 will be incurred and expensed. Of this
amount, $20,000 relates to Validus expenses as set forth in
The Acquisition Sources of Funds, Fees and
Expenses and $20,000 is our estimate of IPCs
expenses based on the IPC/Max
S-4. In
addition, upon termination of the Max Amalgamation Agreement,
the Max Termination Fee will be incurred and expensed. The data
in the following sentence is taken from Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in the IPC
10-Q, where
such disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. Approximately $13.8 million
of expenses, including legal and financial advisory services,
were associated with IPCs strategic initiatives designed
to increase shareholder value and which resulted in the Max
Amalgamation Agreement. Therefore, Validus is estimating that
approximately $13,800 of the estimated $40,000 total transaction
costs have been incurred and expensed by IPC in the three months
ended March 31, 2009.
As discussed above, these pro forma purchase adjustments are
based on certain estimates and assumptions made as of the date
of the unaudited condensed consolidated pro forma financial
information. The actual adjustments will depend on a number of
factors, including changes in the estimated fair value of net
balance sheet assets and operating results of IPC between
March 31, 2009 and the effective date of the Acquisition.
Validus expects to make such adjustments at the effective date
of the Acquisition. These adjustments are likely to be different
from the adjustments made to prepare the unaudited condensed
consolidated pro forma financial information and such
differences may be material.
-27-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The share prices for both Validus and IPC used in determining
the preliminary estimated purchase price are based on the
closing share prices on May 15, 2009. The preliminary total
purchase price is calculated as follows:
|
|
|
|
|
Calculation of Total Purchase Price
|
|
|
|
|
IPC common shares outstanding as of May 8, 2009
|
|
|
55,948,821
|
|
IPC common shares issued pursuant to option exercises
|
|
|
3,804
|
|
IPC common shares issued following vesting of restricted shares,
RSUs and PSUs
|
|
|
549,275
|
|
|
|
|
|
|
Total IPC common shares and share equivalents prior to
transaction
|
|
|
56,501,900
|
|
Exchange ratio
|
|
|
1.1234
|
|
|
|
|
|
|
Total Validus common shares to be issued
|
|
|
63,474,234
|
|
Validus closing share price on May 15, 2009
|
|
$
|
24.16
|
|
|
|
|
|
|
Total value of Validus common shares to be issued
|
|
$
|
1,533,537
|
|
Total cash consideration paid at $3.00 per IPC share
|
|
$
|
169,506
|
|
Total Purchase Price
|
|
$
|
1,703,043
|
|
|
|
|
|
|
The allocation of the purchase price is as follows:
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
|
IPC shareholders equity(B)
|
|
$
|
1,849,474
|
|
Total purchase price(A)
|
|
$
|
1,703,043
|
|
|
|
|
|
|
Negative goodwill (A B)
|
|
$
|
146,431
|
|
|
|
|
|
|
|
|
|
(a) |
|
In connection with the Acquisition, 63,474,234 Validus Shares
are expected to be issued as a portion of the Acquisition
Consideration for all of IPCs Shares, IPC Shares issued
pursuant to option exercises, and IPC Shares issued following
vesting of restricted shares, restricted share units and
performance share units resulting in additional share capital of
$11,108 and Additional Paid-In Capital of $1,522,429. In
addition, cash consideration of $3.00 per IPC Share, or $169,506
in total, is expected to be paid to IPC shareholders. |
|
(b) |
|
It is expected that total transaction costs currently estimated
at $40,000 and the Max Termination Fee of $50,000 will be
incurred and expensed by the consolidated entity. Based on an
expected investment return of 3.75% per annum, investment income
of $9,731 would have been foregone during the year end
December 31, 2008 had these payments of $259,506 been made. |
|
|
|
The data in the following sentence is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the IPC
10-Q, where such disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here as it
was originally presented. Approximately $13.8 million of
expenses, including legal and financial advisory services, were
associated with IPCs strategic initiatives, designed to
increase shareholder value, and which resulted in the Agreement
and Plan of Amalgamation with Max. Therefore, Validus is
estimating that approximately $13,800 of the estimated $40,000
total transaction costs have been incurred and expensed by IPC
in the three months ended March 31, 2009. These expenses
have been eliminated from the unaudited condensed consolidated
pro forma results of operations for the three months ended
March 31, 2009. In addition, an adjustment of $76,200 was
recorded to cash and to retained earnings as at March 31,
2009 to reflect the remaining transaction costs and Max
Termination Fee. Based on an expected investment return of 3.18%
per annum, investment income of $1,953 would have been foregone
during the three months ended March 31, 2009 had these
remaining payments of $245,706 been made. |
-28-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
|
(c) |
|
Employees of IPC hold 427,000 options to purchase IPC
Shares. These options would vest upon a change in control, and
would be exercisable. The exercise price range of these options
is from $13 to $49, with a weighted average of $34.68. It is
expected that 3,804 net shares would be issued upon
exercise of these options. |
|
(d) |
|
Elimination of IPC ordinary shares of $561, Additional Paid-in
Capital of $1,091,491, Accumulated Other Comprehensive Loss of
$876 and Retained Earnings of $758,298. |
|
(e) |
|
A related party balance of $265 for the three months ended
March 31, 2009 and $251 for the year ended
December 31, 2008 representing reinsurance ceded to IPC by
Validus was eliminated from gross premiums written and
reinsurance ceded. Corresponding prepaid reinsurance premiums
and unearned premiums of $199 and premiums receivable and
reinsurance balances payable of $160 have been eliminated from
the pro forma balance sheet. |
|
(f) |
|
The unaudited condensed consolidated pro forma financial
statements have been prepared using IPCs publicly
available financial statements and disclosures, without the
benefit of inspection of IPCs books and records.
Therefore, the carrying value of assets and liabilities in
IPCs financial statements are considered to be a proxy for
fair value of those assets and liabilities, with the difference
between the net assets and the total purchase price considered
to be negative goodwill. In addition, 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 pro forma
consolidated financial statements. In December 2007, the
Financial Accounting Standards Board (FASB) issued
Statement No. 141(R), Business Combinations
(FAS 141(R)). This Statement defines a bargain
purchase as a business combination in which the total fair value
of the identifiable net assets acquired on the date of
acquisition of IPC Shares exceeds the fair value of the
consideration transferred plus any noncontrolling interest in
the acquiree, and it requires the acquirer to recognize that
excess in earnings as a gain attributable to the acquirer.
Negative goodwill of $146,431 has been recorded as a credit to
retained earnings as upon completion of the acquisition of IPC
Shares negative goodwill will be treated as a gain in the
consolidated statement of operations. |
|
(g) |
|
On November 15, 2008, IPCs 9,000,000 Series A
Mandatory Convertible preferred shares automatically converted
pursuant to their terms into 9,129,600 common shares. Therefore,
dividends of $14,939 on these preferred shares of IPC have been
eliminated from the unaudited pro forma results of operations
for the year ended December 31, 2008. |
|
(h) |
|
The share prices of both Validus and IPC used in preparing these
unaudited condensed consolidated pro forma financial statements
are based on the closing share prices on May 15, 2009, and
were $24.16 and $26.63, respectively. As of June 3, 2009,
the share prices were $24.27 and $26.74, respectively. The
effect of using the June 3, 2009 closing share price in
preparation of these unaudited condensed consolidated pro forma
financial statements would have resulted in an entry to
additional paid in capital of $6,983 reflecting reduced purchase
price and an offsetting entry to retained earnings of $6,983
reflecting additional negative goodwill. Using June 3,
2009 share prices would have had no effect on calculation
of book value per share, diluted book value per share, basic
earnings per share and diluted earnings per share. |
|
|
4.
|
Adjustments
to cash and cash equivalents
|
The Acquisition will result in the payment of cash and cash
equivalents by IPC of $56,200 and by Validus of $189,506.
The unaudited condensed consolidated pro forma statements of
operations reflect the impact of these reductions in cash and
cash equivalents. Actual transaction costs may vary from such
estimates which are based on the best information available at
the time the unaudited condensed consolidated pro forma
financial information was prepared.
-29-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
For purposes of presentation in the unaudited condensed
consolidated pro forma financial information, the sources and
uses of funds of the acquisition are as follows:
Sources
of funds
|
|
|
|
|
IPC cash and cash equivalents
|
|
$
|
56,200
|
|
Validus cash and cash equivalents
|
|
|
189,506
|
|
Total
|
|
$
|
245,706
|
|
Uses of
funds
|
|
|
|
|
Cash consideration for IPC shares
|
|
$
|
169,506
|
|
IPC transaction costs
|
|
|
6,200
|
|
Validus transaction costs
|
|
|
20,000
|
|
Max termination fee
|
|
|
50,000
|
|
Total
|
|
$
|
245,706
|
|
-30-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
5.
|
Gross
Premiums Written
|
IPC did not disclose gross premiums written by class of business
in the IPC
10-Q.
Therefore, a table of gross premiums written by Validus, IPC and
pro forma combined cannot be presented.
The following table sets forth the gross premiums written for
the year ended December 31, 2008 by Validus, IPC and pro
forma combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re
|
|
Validus
|
|
|
IPC(a)
|
|
|
Purchase Adjustments
|
|
|
Combined
|
|
|
Property Cat XOL(b)
|
|
$
|
328,216
|
|
|
$
|
333,749
|
|
|
$
|
|
|
|
$
|
661,965
|
|
Property Per Risk XOL
|
|
|
54,056
|
|
|
|
10,666
|
|
|
|
|
|
|
|
64,722
|
|
Property Proportional(c)
|
|
|
110,695
|
|
|
|
|
|
|
|
|
|
|
|
110,695
|
|
Marine
|
|
|
117,744
|
|
|
|
|
|
|
|
|
|
|
|
117,744
|
|
Aerospace
|
|
|
39,323
|
|
|
|
18,125
|
|
|
|
(151
|
)
|
|
|
57,297
|
|
Life and A&H
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
Financial Institutions
|
|
|
4,125
|
|
|
|
|
|
|
|
|
|
|
|
4,125
|
|
Other
|
|
|
|
|
|
|
8,318
|
|
|
|
(100
|
)
|
|
|
8,218
|
|
Terrorism
|
|
|
25,502
|
|
|
|
|
|
|
|
|
|
|
|
25,502
|
|
Workers Comp
|
|
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Validus Re Segment
|
|
|
687,771
|
|
|
|
370,858
|
|
|
|
(251
|
)
|
|
|
1,058,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talbot
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
152,143
|
|
|
|
|
|
|
|
|
|
|
|
152,143
|
|
Marine
|
|
|
287,694
|
|
|
|
|
|
|
|
|
|
|
|
287,694
|
|
Aviation & Other
|
|
|
40,028
|
|
|
|
|
|
|
|
|
|
|
|
40,028
|
|
Accident & Health
|
|
|
18,314
|
|
|
|
|
|
|
|
|
|
|
|
18,314
|
|
Financial Institutions
|
|
|
42,263
|
|
|
|
|
|
|
|
|
|
|
|
42,263
|
|
War
|
|
|
128,693
|
|
|
|
|
|
|
|
|
|
|
|
128,693
|
|
Contingency
|
|
|
22,924
|
|
|
|
|
|
|
|
|
|
|
|
22,924
|
|
Bloodstock
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Talbot Segment
|
|
|
708,996
|
|
|
|
|
|
|
|
|
|
|
|
708,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
(21,724
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,724
|
)
|
Marine
|
|
|
(8,543
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,543
|
)
|
Specialty
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intersegment Revenue Eliminated
|
|
|
(34,283
|
)
|
|
|
|
|
|
|
|
|
|
|
(34,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for reinstatement premium
|
|
|
|
|
|
|
32,537
|
|
|
|
|
|
|
|
32,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,362,484
|
|
|
$
|
403,395
|
|
|
$
|
(251
|
)
|
|
$
|
1,765,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For IPC, this includes annual (deposit) and adjustment premiums.
Excludes reinstatement premiums of $32,537 which are not
classified by class of business by IPC. |
|
(b) |
|
For Validus, Cat XOL is comprised of Catastrophe XOL, Aggregate
XOL, RPP, Per Event XOL, Second Event and Third Event covers.
For IPC, this includes Catastrophe XOL and Retrocessional. |
-31-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
|
(c) |
|
Proportional is comprised of Quota Share and Surplus Share. |
Selected ratios of Validus, IPC and pro forma combined are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2008
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Losses and loss expense ratios
|
|
|
61.5
|
%
|
|
|
40.2
|
%
|
|
|
56.4
|
%
|
|
|
41.4
|
%
|
|
|
39.6
|
%
|
|
|
40.9
|
%
|
Policy acquisition costs ratios
|
|
|
18.7
|
|
|
|
9.4
|
|
|
|
16.5
|
|
|
|
19.3
|
|
|
|
10.0
|
|
|
|
17.1
|
|
General and administrative cost ratios
|
|
|
12.0
|
|
|
|
6.8
|
|
|
|
10.8
|
|
|
|
14.3
|
|
|
|
24.6
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
92.2
|
%
|
|
|
56.4
|
%
|
|
|
83.7
|
%
|
|
|
75.0
|
%
|
|
|
74.2
|
%
|
|
|
71.4
|
%
|
|
|
|
(a) |
|
Factors affecting the losses and loss expense ratio for the year
ended December 31, 2008 |
|
|
|
Validus losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
year ended December 31, 2008 was 61.5%. During the year
ended December 31, 2008, the frequency and severity of
worldwide losses that materially affected Validus losses
and loss expense ratio increased. During the year ended
December 31, 2008, Validus incurred $260,567 and $22,141 of
loss expense attributable to Hurricanes Ike and Gustav, which
represent 20.7 and 1.8 percentage points of the losses and
loss expense ratio, respectively. Other notable loss events
added $45,895 of 2008 loss expense or 3.7 percentage points
of the losses and loss expense ratio bringing the total effect
of aforementioned events on the 2008 losses and loss expense
ratio to 26.2 percentage points. Favorable loss development
on prior years totaled $69,702. Favorable loss reserve
development benefited Validus losses and loss expense
ratio for the year ended December 31, 2008 by
5.5 percentage points. |
|
|
|
The data in the following paragraph is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the IPC
10-K. Such
disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. |
|
|
|
IPCs losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
year ended December 31, 2008 was 40.2%. IPC incurred net
losses and loss adjustment expenses of $155.6 million for
the year ended December 31, 2008. Total net losses for the
year ended December 31, 2008 relating to the current year
were $206.6 million, while reductions to estimates of
ultimate net loss for prior year events were $50.9 million.
During 2008, IPCs incurred losses included:
$23.0 million from the Alon Refinery explosion in Texas, a
storm that affected Queensland, Australia, and Windstorm Emma
that affected parts of Europe, which all occurred in the first
quarter of 2008; $10.5 million from the flooding in Iowa in
June and tornadoes that affected the mid-west United States in
May 2008; together with $160.0 million from Hurricane Ike
and $7.6 million from Hurricane Gustav, which both occurred
in September 2008. The impact on IPCs 2008 losses and loss
expense ratio from these events was 51.9 percentage points.
The losses from these events were partly offset by reductions to
IPCs estimates of ultimate loss for a number of prior year
events, including $11.0 million for Hurricane Katrina,
$18.6 million for the storm and flooding that affected New
South Wales, Australia in 2007 and $22.8 million for the
floods that affected parts of the U.K. in June and July 2007.
The cumulative $52.4 million of favorable loss reserve
development benefited the IPCs losses and loss expense
ratio for the year ended December 31, 2008 by
13.5 percentage points. |
|
(b) |
|
Factors affecting the losses and loss expense ratio for the
three months ended March 31, 2009 |
|
|
|
Validus losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
three months ended March 31, 2009, was 41.4%. During the
three months ended March 31, |
-32-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
|
|
|
2009, Validus incurred $6,889 and $6,625 of loss expense
attributable to Windstorm Klaus and Australian wildfires,
respectively, which represent 2.2 and 2.1 percentage points
of the losses and loss expense ratio, respectively. Favorable
loss development on prior years totaled $8,079. Favorable loss
reserve development benefited Validus losses and loss
expense ratio for the months ended March 31, 2009 by
2.5 percentage points. |
|
|
|
|
|
The data in the following paragraph is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the IPC
10-Q. Such
disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. |
|
|
|
|
|
IPCs losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
three months ended March 31, 2009, was 39.6%. In the
quarter ended March 31, 2009, IPC incurred net losses and
loss adjustment expenses of $39.1 million, compared to
$5.3 million in the first quarter of 2008. Net losses
incurred in the first quarter of 2009 included
$15.0 million from Winter Storm Klaus that affected
southern France and $13.3 million from the bushfires in
south eastern Australia, as well as net adverse development to
their estimates of ultimate losses for several prior year
events. The impact on IPCs losses and loss expense ratio
from these events was 28.7 percentage points. |
|
|
7.
|
Earnings
per Common Share
|
(a) Pro forma earnings per common share for the year ended
December 31, 2008 and the three months ended March 31,
2009 have been calculated based on the estimated weighted
average number of common shares outstanding on a pro forma
basis, as described in 7(b) below. The historical weighted
average number of common shares outstanding of Validus was
74,677,903 and 75,819,413 basic and diluted, respectively, for
the year ended December 31, 2008 and 75,744,577 and
79,102,643 basic and diluted, respectively, for the three months
ended March 31, 2009.
(b) The pro forma weighted average number of common shares
outstanding for the year ended December 31, 2008 and three
months ended March 31, 2009, after giving effect to the
exchange of shares as if the exchange offer had been issued and
outstanding for the whole year, is 137,530,809 and 139,293,647,
basic and diluted, and 138,597,483 and 142,576,877, basic and
diluted, respectively.
(c) In the basic earnings per share calculation,
dividends and distributions declared on warrants are deducted
from net income. In calculating diluted earnings per share, we
consider the application of the treasury stock method and the
two-class method and which ever is more dilutive is included
into the calculation of diluted earnings per share.
The following table sets forth the computation of basic and
diluted earnings per share for the three months ended
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Net income
|
|
$
|
94,907
|
|
|
$
|
115,006
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic ordinary shares
outstanding
|
|
|
75,744,577
|
|
|
|
138,597,483
|
|
Share Equivalents
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
2,307,094
|
|
|
|
2,307,094
|
|
Restricted Shares
|
|
|
683,468
|
|
|
|
1,300,523
|
|
Options
|
|
|
367,504
|
|
|
|
371,777
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
79,102,643
|
|
|
|
142,576,877
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
-33-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The following table sets forth the computation of basic and
diluted earnings per share for the year ended December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Net income available to common shareholders
|
|
$
|
46,164
|
|
|
$
|
126,880
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic ordinary shares
outstanding
|
|
|
74,677,903
|
|
|
|
137,530,809
|
|
Share equivalents
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
Restricted Shares
|
|
|
1,004,809
|
|
|
|
1,621,864
|
|
Options
|
|
|
136,701
|
|
|
|
140,974
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
75,819,413
|
|
|
|
139,293,647
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.61
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
-34-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
Validus calculates diluted book value per share using the
as-if-converted method, where all proceeds received
upon exercise of warrants and stock options would be retained by
Validus and the resulting common shares from exercise remain
outstanding. In its public records, IPC calculates diluted book
value per share using the treasury stock method,
where proceeds received upon exercise of warrants and stock
options would be used by IPC to repurchase shares from the
market, with the net common shares from exercise remaining
outstanding. Accordingly, for the purposes of the Pro Forma
Condensed Consolidated Financial Statements and notes thereto,
IPCs diluted book value per share has been recalculated
based on the as-if-converted method to be consistent
with Validus calculation.
The following table sets forth the computation of book value and
diluted book value per share adjusted for the Acquisition as of
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Book value per common share calculation
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Shares
|
|
|
75,828,922
|
|
|
|
138,681,828
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
26.68
|
|
|
$
|
26.15
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share calculation
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Proceeds of assumed exercise of outstanding warrants
|
|
$
|
152,316
|
|
|
$
|
152,316
|
|
Proceeds of assumed exercise of outstanding stock options
|
|
$
|
50,969
|
|
|
$
|
50,969
|
|
Unvested restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,226,271
|
|
|
$
|
3,830,039
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
75,828,922
|
|
|
|
138,681,828
|
|
Warrants
|
|
|
8,680,149
|
|
|
|
8,680,149
|
|
Options
|
|
|
2,795,868
|
|
|
|
2,800,141
|
|
Unvested restricted shares
|
|
|
3,012,854
|
|
|
|
3,629,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,317,793
|
|
|
|
153,792,027
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share
|
|
$
|
24.65
|
|
|
$
|
24.90
|
|
|
|
|
|
|
|
|
|
|
-35-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The following table sets forth the computation of debt to total
capitalization and debt (excluding debentures payable) to total
capitalization at March 31, 2009, adjusted for the
Acquisition:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
Borrowings drawn under credit facility
|
|
$
|
|
|
|
$
|
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
304,300
|
|
|
$
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Borrowings drawn under credit facility
|
|
|
|
|
|
|
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,327,286
|
|
|
$
|
3,931,054
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization
|
|
|
13.1
|
%
|
|
|
7.7
|
%
|
Debt (excluding debentures payable) to total capitalization
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
-36-
COMPARATIVE
PER-SHARE DATA
The IPC historical per share data is taken from the IPC/Max
S-4. See
Sources of Additional Information above. The pro forma
combined data is taken from the Unaudited Condensed
Consolidated Pro Forma Financial Information above.
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.
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 proxy
statement, 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 Risk Factors
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data at or for the
|
|
|
year ended December 31, 2008
|
|
|
|
|
|
|
Validus
|
|
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro Forma
|
|
Equivalent Per
|
|
IPC Max
|
|
|
Validus
|
|
IPC
|
|
combined
|
|
IPC Share(2)
|
|
Pro Forma(4)
|
|
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 at or for the
|
|
|
three months ended March 31, 2009
|
|
|
|
|
|
|
Validus
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro Forma
|
|
Equivalent Per
|
|
|
Validus
|
|
IPC
|
|
combined
|
|
IPC Share(2)
|
|
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)
|
|
|
|
(1) |
|
Anti-dilution provisions apply to 2008. There is no effect of
stock-based compensation and preference shares because they are
anti-dilutive. |
-37-
|
|
|
(2) |
|
Equivalent per share amounts are calculated by multiplying
Validus pro forma per share amounts by the Acquisition 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. |
-38-
COMPARATIVE
MARKET PRICE AND DIVIDEND INFORMATION
Validus and IPCs Shares are quoted on the NYSE and
NASDAQ, respectively, under the ticker symbol VR and
IPCR, respectively. The following table sets forth
the high and low closing prices per share of Validus Shares and
IPC 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
IPCs annual report on
Form 10-K
for the year ended December 31, 2008, 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. See
Sources of Additional Information above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June [], 2009)
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
|
|
N/A
|
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
|
|
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
Shares and IPC 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 June [], 2009, the last practicable trading day
for which information was available before first mailing of this
proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
|
|
|
|
|
|
Validus
|
|
|
|
Validus Common
|
|
|
IPC Common
|
|
|
Per-Share
|
|
|
|
Share Close
|
|
|
Share Close
|
|
|
Amount
|
|
|
March 30, 2009
|
|
$
|
24.91
|
|
|
$
|
25.41
|
|
|
$
|
30.98
|
|
June [], 2009
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
|
$
|
[ ]
|
|
Equivalent per-share amounts are calculated by multiplying
Validus per-share amounts by the Acquisition exchange ratio of
1.1234 and adding $3.00 in cash per IPC Share.
The value of the Scheme of Arrangement will change as the
market prices of Validus Shares and IPC Shares fluctuate prior
to the consummation of the Scheme of Arrangement, and may
therefore be different from the prices set forth above at the
effective time and at the time you receive the Acquisition
Consideration. See Risk Factors above. IPC shareholders
are encouraged to obtain current market quotations for Validus
Shares and IPC Shares prior to making any decision with respect
to the Scheme of Arrangement.
Please also see The Acquisition Delisting of IPC
Shares for a discussion of the possibility that IPC 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 this proxy
statement)) held and were entitled to vote approximately 1.76%
of the outstanding Validus 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 Shares.
-39-
FORWARD-LOOKING
STATEMENTS
This proxy statement may include forward-looking statements,
both with respect to us and our industry, that reflect our
current views with respect to future events and financial
performance. Statements that include the words
expect, intend, plan,
believe, project,
anticipate, will, may and
similar statements of a future or forward-looking nature
identify forward-looking statements. All forward-looking
statements address matters that involve risks and uncertainties,
many of which are beyond our control. Accordingly, there are or
will be important factors that could cause actual results to
differ materially from those indicated in such statements and,
therefore, you should not place undue reliance on any such
statements. We believe that these factors include, but are not
limited to, the following: 1) uncertainty as to whether
Validus will be able to enter into and to consummate the
proposed acquisition on the terms set forth in the Validus
amalgamation offer; 2) uncertainty as to the actual premium
that will be realized by IPC shareholders in connection with the
proposed acquisition; 3) uncertainty as to the long-term
value of Validus Shares; 4) unpredictability and severity
of catastrophic events; 5) rating agency actions;
6) adequacy of Validus or IPCs risk management
and loss limitation methods; 7) cyclicality of demand and
pricing in the insurance and reinsurance markets;
8) Validus limited operating history;
9) Validus ability to implement its business strategy
during soft as well as hard markets;
10) adequacy of Validus or IPCs loss reserves;
11) continued availability of capital and financing;
12) retention of key personnel; 13) competition;
14) potential loss of business from one or more major
insurance or reinsurance brokers; 15) Validus or
IPCs ability to implement, successfully and on a timely
basis, complex infrastructure, distribution capabilities,
systems, procedures and internal controls, and to develop
accurate actuarial data to support the business and regulatory
and reporting requirements; 16) general economic and market
conditions (including inflation, volatility in the credit and
capital markets, interest rates and foreign currency exchange
rates); 17) the integration of Talbot or other businesses
we may acquire or new business ventures we may start;
18) the effect on Validus or IPCs investment
portfolios of changing financial market conditions including
inflation, interest rates, liquidity and other factors;
19) acts of terrorism or outbreak of war;
20) availability of reinsurance and retrocessional
coverage; 21) failure to realize the anticipated benefits
of the proposed acquisition, including as a result of failure or
delay in integrating the businesses of Validus and IPC; and
22) the outcome of litigation arising from Validus
offer for IPC, as well as managements response to any of
the aforementioned factors.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
the other cautionary statements that are included herein and
elsewhere, including the Risk Factors included in our most
recent reports on
Form 10-K
and
Form 10-Q
and the risk factors included in IPCs most recent reports
on
Form 10-K
and
Form 10-Q
and other documents of Validus and IPC on file with the SEC. Any
forward-looking statements made in this proxy statement are
qualified by these cautionary statements, and there can be no
assurance that the actual results or developments anticipated by
Validus will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on,
us or our business or operations. Except as required by law, we
undertake no obligation to update publicly or revise any
forward-looking statement, whether as a result of new
information, future developments or otherwise.
-40-
RISK
FACTORS
In addition to the other information included or incorporated
by reference in this proxy statement (including the matters
addressed under Forward-Looking Statements above), you
should carefully consider the following risk factors before
deciding whether to vote to approve the Scheme of Arrangement.
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 the
effectiveness of the Scheme of Arrangement, described in
Part I, Item 1A of each companys annual report
on
Form 10-K
for the year ended December 31, 2008, and the other
documents that have been filed with the SEC and all of which are
incorporated by reference into this proxy statement. If any of
the risks described below or in the reports incorporated by
reference into this proxy statement actually occurs, the
respective businesses, financial results, financial conditions,
operating results or share prices of Validus or IPC could be
materially adversely affected.
Risks
Related to the Scheme of Arrangement
The
value of the Validus Shares that the IPC shareholders receive in
the Scheme of Arrangement will vary as a result of the fixed
exchange ratio and possible fluctuations in the price of Validus
Shares.
At the effective time, each IPC Share issued and outstanding
immediately prior to the effective time (excluding any IPC
Shares owned by Validus, IPC or their respective subsidiaries)
will be exchanged for Validus 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 of a Validus Share for
each IPC Share, the market value of the Validus Shares issued in
the Scheme of Arrangement will depend upon the market price of a
Validus Share at the effective time. If the price of Validus
Shares declines, IPC shareholders could receive less value for
their shares upon the consummation of the Scheme of Arrangement
than the value calculated pursuant to the exchange ratio on the
date the Scheme of Arrangement is approved by the IPC
shareholders. 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 Scheme of Arrangement, including as a result of
(i) the attention of management of Validus having been
diverted to the Scheme of Arrangement instead of being directed
solely to Validus own operations and pursuit of other
opportunities that could have been beneficial to Validus prior
to and after the effectiveness of the Scheme of Arrangement and
(ii) payment by Validus of certain costs relating to the
Acquisition, including certain legal, accounting and financial
and capital market advisory fees.
Because the Scheme of Arrangement will not be completed until
certain conditions have been satisfied or, where relevant,
waived (see The Scheme of Arrangement Conditions
to the Scheme of Arrangement below), a period of time may
pass which may be significant between the filing of this proxy
statement and the effectiveness of the Scheme of Arrangement.
Therefore, at the time when you vote with respect to the
court-ordered IPC meeting, you will not know the exact market
value of the Validus Shares that will be issued if the Scheme of
Arrangement becomes effective. Please see Comparative Market
Price and Dividend Information above for the historical high
and low closing prices per share of Validus Shares and IPC
Shares, as well as cash dividends per share of Validus Shares
and IPC Shares respectively for each quarter of the period 2007
through 2009.
Furthermore, in connection with the Scheme of Arrangement,
Validus estimates that it will need to issue approximately
63,474,234 Validus Shares. The increase in the number of Validus
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 Shares.
IPC shareholders are urged to obtain market quotations for
Validus Shares and IPC Shares when they consider whether to
tender their IPC Shares pursuant to the Exchange Offer.
-41-
The
Scheme of Arrangement is subject to conditions that Validus
cannot control which may result in the Scheme of Arrangement
being terminated.
The Scheme of Arrangement is subject to conditions, including
the termination of the Max Amalgamation Agreement, the approval
by our shareholders of the issuance of Validus Shares pursuant
to the Scheme of Arrangement, the sanctioning of the Scheme of
Arrangement by the Supreme Court of Bermuda, 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 consent
of the lenders under Validus credit agreements. There are
no assurances that all of such conditions will be satisfied, or
where relevant, waived. In addition, the IPC board of directors
may take actions that will delay, or frustrate, the satisfaction
of one or more conditions. If the conditions are not met, then
Validus may terminate the Scheme of Arrangement. Please see
The Scheme of Arrangement Conditions to the
Scheme of Arrangement on page [ ] for
a complete description of the conditions to the effectiveness of
the Scheme of Arrangement.
Validus
may waive one or more of the conditions to the effectiveness of
the Scheme of Arrangement or modify the Scheme of Arrangement
without resoliciting or seeking additional shareholder
approval.
Except for the unwaivable conditions described below in The
Scheme of Arrangement Conditions to the Scheme of
Arrangement, each of the conditions to the effectiveness of
the Scheme of Arrangement may be waived, in whole or in part by
Validus. Validus may consent on behalf of all persons concerned
to any modification of or addition to the Scheme of Arrangement
or any condition to the effectiveness of the Scheme of
Arrangement which the Supreme Court of Bermuda may approve or
impose. The board of directors of Validus will evaluate the
materiality of any such modification, addition or condition to
determine whether resolicitation of proxies is necessary, or if
shareholder approval has been received, whether further
shareholder approval is necessary. In the event that any such
modification, addition or condition is not determined to be
significant enough to require resolicitation or additional
approval of shareholders, the Scheme of Arrangement may be
consummated without seeking further shareholder approval.
The
effectiveness of the Scheme of Arrangement 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 proposals
related to the Max Amalgamation Agreement are not approved by
IPC shareholders, 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
Scheme of Arrangement and subsequent short-form amalgamation 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
Shares.
The Scheme of Arrangement and subsequent 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 Scheme of Arrangement and short-form
amalgamation. No assurance can be given that the IRS will not
assert, or that a court would not sustain, that the transaction
does not qualify as a reorganization. If the transaction fails
to qualify as a reorganization, you generally would recognize
gain or loss equal to the difference, if any, between the sum of
the fair market value of the Validus Shares received in the
Scheme of Arrangement and the cash received and your adjusted
tax basis in IPC Shares surrendered in exchange therefor. For
more information, please see the section of this proxy statement
under the caption Material U.S. Federal Income Tax
Consequences. U.S. holders of IPC Shares should
consult their own
-42-
tax advisors as to the tax consequences to them of the Scheme of
Arrangement 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.
Risks
Related to IPCs Businesses
You should read and consider other risk factors specific to
IPCs businesses that will also affect Validus after the
effectiveness of the Scheme of Arrangement, 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 proxy statement.
Risks
Related to Validus Businesses
You should read and consider other risk factors specific to
Validus businesses that will also affect Validus after the
effectiveness of the Scheme of Arrangement, 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 proxy statement.
Risks
Related to Validus Following the Effectiveness of the Scheme of
Arrangement
Validus
may experience difficulties integrating IPCs businesses,
which could cause Validus to fail to realize the anticipated
benefits of the Scheme of Arrangement.
If the Scheme of Arrangement is consummated, achieving the
anticipated benefits of the Acquisition will depend in part upon
whether the two companies integrate their businesses in an
effective and efficient 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
Validus. Any delay or inability of management to successfully
integrate the operations of the two companies could compromise
Validus potential to achieve the anticipated 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 Shares after the
effectiveness of the Scheme of Arrangement.
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 Scheme of Arrangement 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 termination,
cancellation, 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 Scheme of
Arrangement, 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.
The Scheme of Arrangement may also permit a counter-party to an
agreement with IPC to terminate that agreement because
completion of the Scheme of Arrangement 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
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 proxy
statement, 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
-43-
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
proxy statement 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 the effectiveness of the
Scheme of Arrangement 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 Scheme of
Arrangement.
The
Scheme of Arrangement 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 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 effectiveness of the
Scheme of Arrangement. 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 of the Scheme of Arrangement. Following
the consummation of the Scheme of Arrangement, 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 Shares.
The
occurrence of severe catastrophic events after consummation of
the Scheme of Arrangement could cause Validus net income
to be more volatile than if the consummation of the Scheme of
Arrangement 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 Scheme of
Arrangement 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 Scheme of Arrangement 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. See
Unaudited Condensed Consolidated Pro Forma Financial
Information.
-44-
THE
ACQUISITION
General
Description
In order to consummate the Acquisition, Validus is
simultaneously pursuing the following alternative transaction
structures:
(1) the Validus Amalgamation Offer;
(2) the Exchange Offer; and
(3) the Scheme of Arrangement to which this proxy statement
relates.
The Validus Amalgamation Offer, the Exchange Offer and the
Scheme of Arrangement are alternative methods for Validus to
acquire all of the issued and outstanding IPC 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 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 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 Share for (i) 1.1234 Validus 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 Share 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.
Additionally, 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 proxy statement, IPC has not been willing to
meet or negotiate with Validus.
In order to consummate the Acquisition 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 the
Offer to Exchange relating thereto. Under Bermuda law, if
Validus acquires at least 90% of the IPC Shares which it is
seeking to acquire in the Exchange Offer, Validus will have the
right to acquire the remaining IPC Shares on the same terms in a
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 Shares
that are validly tendered pursuant to the Exchange Offer.
-45-
Third, Validus is pursuing the Scheme of Arrangement. In order
to implement the Scheme of Arrangement, the IPC shareholders
must approve the Scheme of Arrangement at the court-ordered IPC
meeting, IPC must separately approve the Scheme of Arrangement
and the Scheme of Arrangement must be sanctioned by the Supreme
Court of Bermuda. If the IPC shareholders approve the Scheme of
Arrangement at the court-ordered IPC meeting, the separate
approval of IPC of the 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
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. On May 12, 2009, Validus filed with the SEC a
preliminary proxy statement which, when filed in its definitive
form, will be used to solicit written requisitions from the IPC
shareholders to compel the IPC board of directors to call the
IPC special general meeting. 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 Scheme of
Arrangement, and the granting of a court order from the Supreme
Court of Bermuda sanctioning the Scheme of Arrangement, a copy
of the court order sanctioning the Scheme of Arrangement will be
delivered to the Bermuda Registrar of Companies, at which time
the 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 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 Scheme of
Arrangement. Validus believes that, under the Scheme of
Arrangement, it would be able to close the 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 shares of IPC have requisitioned the special general
meeting to be held in July 2009; and (3) the IPC directors,
following the rejection of the Max Amalgamation Agreement, or
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 former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
Validus Shares on a fully-diluted basis following closing of the
Acquisition.
Further details relating to the structure of the Scheme of
Arrangement are described in The Scheme of Arrangement below.
-46-
Background
of the Acquisition
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 directors
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 Share for 1.2037
Validus Shares, subject to the termination of the Max
Amalgamation Agreement.
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.
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 proxy statement, we have revised our offer. The
terms of our offer do not prevent us from withdrawing it.
-47-
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
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)
|
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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/Max4.
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 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 Shares on
May 15, 2009, a 13.2% premium to the closing price of IPC
Shares that day and a 21.9% premium based on the closing prices
of IPC Shares and Validus Shares on March 30, 2009, the
last trading day before the announcement of the Initial Validus
Offer.
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 (excluding
reinstatement premiums) 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%.
-48-
|
|
|
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2.
|
Superior financial flexibility, with debt/total capitalization
of only 1.8% and total leverage including hybrid securities of
only 9.1%;
|
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3.
|
A global platform, with offices and underwriting facilities in
Bermuda, at Lloyds in London, Dublin, Singapore, New York
and Miami;
|
|
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4.
|
Superior diversified business mix, with lines of business
concentrated in short-tail lines where pricing momentum is
strongest; and
|
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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% 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.
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.
-49-
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
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.
-50-
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 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
-51-
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 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.
-52-
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 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.
-53-
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.
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
-54-
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.
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%.7Maxs
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.10
Furthermore, 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
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 proxy statement, 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 proxy statement, 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 proxy statement, this statement should be
qualified as an expression of our opinion based on our
experience and knowledge of the industry.
-55-
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 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
11 Upon
verification, the statement should refer to 134 countries,
rather than 143.
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 proxy statement, 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 the IPC
shareholders at the Annual General Meeting, even if the IPC
Board changes its recommendation and recommends a vote
FOR the Validus Amalgamation Offer. Accordingly,
should the IPC Board 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.
-56-
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 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
14 The
agreement governing the Initial Validus 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 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
of directors 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.
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 proxy statement, this statement is intended
to emphasize that Validus believes the statement being referred
to, in the April 2, 2009 Max letter to IPCs Board, is
based upon speculation by Max, since, to Validus knowledge, the
rating agencies have not made a determination in this regard.
-57-
$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.
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
18 As
of the date of this proxy statement, 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.
19 As
of the date of this proxy statement, 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 proxy statement, 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 proxy statement, 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.
-58-
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
-59-
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
-60-
one that can be reasonably expected to lead to a Superior
Proposal (as such term is defined in the [Max Amalgamation
Agreement]). 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 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.
-61-
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
value22
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.
-62-
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)
|
-63-
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
|
-64-
|
|
|
|
|
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,
/s/ Kenneth
L. Hammond
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 with
IPCs shareholders to solicit their votes AGAINST the Max
takeover. If, as we
-65-
[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, 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 respect to soliciting votes from Validus
shareholders to approve the issuance of Validus Shares in
connection with the Acquisition.
On April 21, 2009, Validus filed an amendment with the SEC
to the preliminary proxy statement with respect to soliciting
votes from IPC shareholders against the Proposed Max
Amalgamation.
On April 28, 2009, Validus filed the Bermuda Claim (as
defined below) in the Supreme Court of Bermuda.
On April 28, 2009, IPC filed a second amendment to the
IPC/Max S-4
with the SEC.
On April 30, 2009, Validus issued a press release outlining
its three-part plan to expedite the Acquisition.
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.
On May 1, 2009, Validus filed with the SEC an amendment to
its preliminary proxy statement with respect to soliciting votes
from IPC shareholders against the Proposed Max Amalgamation.
23 To
clarify, as of the date of this proxy statement, the word
hope has been inserted to replace the word
expect in this sentence.
24 To
clarify, as of the date of this proxy statement, 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 Acquisition.
-66-
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 with the SEC to
the 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 the definitive proxy
statement 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
Validus Shares in connection with the Acquisition.
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, in addition to filing the preliminary copy
of this proxy statement, Validus filed two preliminary proxy
statements with the SEC which, when filed in their definitive
forms, will be used to, respectively: (i) solicit written
requisitions from IPC shareholders to compel the board of
directors of IPC to call the IPC special general meeting and
(ii) solicit votes from IPC shareholders to approve the
proposals at the IPC special general meeting.
On May 12, 2009, Validus commenced the Exchange Offer.
On May 14, 2009, IPC filed with the SEC a
Solicitation/Recommendation Statement on
Schedule 14D-9
in response to the Exchange Offer reporting that IPCs
board of directors had met on May 13, 2009 and stating
IPCs board of directors recommendation that
IPCs shareholders reject the Exchange Offer and not tender
their IPC Shares to Validus pursuant to the Exchange Offer.
On May 14, 2009, Validus amended the registration statement
of which the Offer to Exchange is a part.
On May 14, 2009, Validus filed an application to the
Supreme Court of Bermuda to convene the court-ordered IPC
meeting to approve the 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
Scheme of Arrangement without approval of IPCs board of
directors, and found that the 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 Scheme of Arrangement) in advance of the vote on the
Proposed Max Amalgamation and evidence of IPC shareholder
support for the Scheme of Arrangement. Based on this decision,
Validus will be able to pursue the 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.
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 Validus Amalgamation Offer
-67-
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
Shares in connection with the Acquisition.
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 Shares to Validus pursuant to the
Exchange Offer.
On May 21, 2009, Validus amended the registration statement
of which the Offer to Exchange is a part.
On May 26, 2009, Validus filed the definitive proxy
statement with the SEC and commenced mailing definitive proxy
materials and proxy cards to the Validus shareholders seeking
proxies from Validus shareholders to approve the issuance of
Validus Shares in connection with the Acquisition.
On May 26, 2009, Validus filed an amendment to this proxy
statement with the SEC.
On June 1, 2009, Validus amended the registration statement
of which the Offer to Exchange is a part.
On June 4, 2009, Validus filed an amendment to this proxy
statement with the SEC.
Reasons
to Vote FOR the Scheme of Arrangement
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
Scheme of Arrangement as an alternative method to accomplish the
Acquisition of the issued and outstanding IPC Shares.
Validus encourages IPC shareholders to approve the Acquisition
by voting FOR the Scheme of Arrangement. Validus
believes that the Acquisition 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 Acquisition
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 Shares to be issued and
cash to be paid to IPC shareholders in exchange for IPC Shares
in the Scheme of Arrangement 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 Shares. Validus believes that the combination
of Validus and IPC offers a number of benefits to holders of IPC
Shares, including the following:
The
Scheme of Arrangement provides a premium to IPC
shareholders.
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Based upon closing prices of IPC Shares and Validus Shares
as of March 30, 2009, the last trading day prior to the
announcement of the Initial Validus Offer, the Scheme of
Arrangement would have had a value of $30.98 per IPC Share, or
approximately $1.75 billion in the aggregate, which
represented a 21.9% premium to the trading value of the IPC
Shares as of such date and a 27.7% premium over $24.26, which
was the average closing price of the IPC 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 Validus Amalgamation Offer. The premium
represented by the Scheme of Arrangement may be larger or
smaller depending on the market price of each of the IPC Shares
and the Validus Shares at the effective time and will fluctuate
between now and then depending on the market prices. Based upon
the closing prices of IPC Shares
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and Validus Shares on June [ ], 2009, the
last practicable date prior to the filing of this proxy
statement, the Scheme of Arrangement had a value of
$[ ] per IPC Share, or
$[ ] billion in the aggregate, which
represented a [ ]% premium to the closing price
of the IPC Shares as of such date and a premium of
[ ]% over the March 30, 2009 closing price
of the IPC 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 Shares.
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Information with respect to the range of closing prices for the
IPC Shares for certain dates and periods is set forth in the
section of this proxy statement entitled Comparative Market
Price and Dividend Information on
page [ ] of this proxy statement. Validus
urges IPC shareholders to obtain a current market quotation for
the IPC Shares.
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The
Validus Shares to be issued to IPC shareholders as a portion of
the Acquisition Consideration pursuant to the Scheme of
Arrangement represent what we believe is an attractive
investment.
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We believe that the relative performance of Validus 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 Shares have
appreciated 13.2% whereas Max common shares have declined 36.5%
over the same period. Based on the closing prices of Validus
Shares and Max common shares on March 30, 2009, the last
day of trading prior to Validus announcement of the
Initial Validus Offer, Validus 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 Shares are more liquid than Max common
shares (as measured by their respective dollar trading volumes
in various periods prior to the announcement of the Proposed Max
Amalgamation). Further, as a shareholder of Validus following
completion of the Scheme of Arrangement, you will receive a
dividend payable by Validus at an equivalent annual rate of
approximately $0.90 per IPC Share (based on Validus
current annual rate of $0.80 per Validus Share multiplied by the
exchange ratio of 1.1234), compared to the current IPC annual
dividend of $0.88 per IPC Share, in both cases based on the most
recent quarterly dividends declared and paid by each company.
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Additionally, Validus 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 Shares. Volatility represents the
standard deviation of the day-over-day difference in the daily
share price change. Although we believe that the Scheme of
Arrangement would provide the IPC shareholders with a
significant premium for their IPC Shares upon consummation,
because both the Proposed Max Amalgamation and the Scheme of
Arrangement provide for stock consideration with fixed exchange
ratios, the respective values of the Proposed Max Amalgamation
and the Scheme of Arrangement to IPC shareholders will vary over
time based on relative changes in the market prices of the
companies 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 with
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 most recent annual report on
Form 10-K,
as of December 31, 2008, 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
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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 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 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 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 Information
Concerning the Director and Officers of Validus Who Are
Participants on Schedule I.
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The
Scheme of Arrangement provides 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
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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 Maxs 2008 annual
report on
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 IPCs 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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Litigation
On April 28, 2009, Validus filed a claim in the Supreme
Court of Bermuda against IPC, IPC Limited and Max (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
(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 respect to the Acquisition 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
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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. 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.
Interests
of Validus Directors and Executive Officers in the
Acquisition
Executive
Officers and Directors
The consummation of the Acquisition will not be deemed to be a
change in control impacting grants under any of Validus
long-term incentive or stock option plans, or a change in
control under 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 Acquisition.
Board
and Management Structure of Validus
Pursuant to the Scheme of Arrangement, upon the effective time
all of Validus current directors and officers will
continue as the directors and officers of Validus. For more
information, see Summary The Scheme of
Arrangement above.
Interests
of IPC Directors and Executive Officers in the
Acquisition
Except for the last sentence of Employment Agreements,
the following information is taken from the IPC/Max
S-4. See
Sources of Additional Information above.
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Retirement
and Consulting Agreement
James P. Bryce, Chief Executive Officer, President and a
director of IPC, has decided to commence a long contemplated
retirement from IPC, both as an employee and as a member of
IPCs board of directors, effective not later than
June 30, 2009. Mr. Bryce has agreed to provide
consulting services to IPC and to serve as non-executive
Chairman of Max IPC Re during the period from his retirement
through December 31, 2009, unless the period is extended by
mutual agreement of the parties, in order to help accomplish an
efficient transition in connection with the Proposed Max
Amalgamation. IPC entered into the Retirement and Consulting
Agreement with Mr. Bryce. See Compensation of IPCs
Executive Officers Compensation Discussion and
Analysis Employment and Other Agreements in the
IPC/Max S-4.
IPCs Executive Vice President and Chief Financial Officer,
John R. Weale, will be appointed acting Chief Executive Officer,
effective July 1, 2009, if the Proposed Max Amalgamation
has not closed by June 30, 2009. The board of directors
will engage an executive search firm to help identify a
successor to Mr. Bryce, as Chief Executive Officer and
President of IPC, including internal and external candidates, in
case the Proposed Max Amalgamation is not completed.
Employment
Agreements
Each of John R. Weale, Peter J. A. Cozens and Stephen F. Fallon
has entered into an employment agreement. See Compensation of
IPCs Executive Officers Compensation
Discussion and Analysis Employment and Other
Agreements in the IPC/Max
S-4. Given
the percentage change in ownership of IPC Shares as a result
thereof, the Acquisition would likely constitute a change in
control under those agreements.
Indemnification
and Insurance
IPC maintains standard directors and officers
liability insurance policies under which, pursuant to their
respective retirement and employment agreements,
Messrs. Bryce, Weale, Cozens and Fallon have rights to
indemnification by virtue of their positions as officers
and/or
directors of IPC.
Validus
Shareholder Approval of Share Issuance
The issuance of the Validus Shares in the Acquisition requires
the affirmative vote of a majority of the votes cast on a
proposal to approve such issuance at a meeting of the Validus
shareholders. On May 26, 2009, Validus filed a definitive
proxy statement with the SEC with respect to soliciting votes
from Validus shareholders to approve the issuance of the Validus
Shares in the Acquisition. All of the Validus officers,
directors and those shareholders which Validus refers to as its
qualified sponsors (as defined in this proxy
statement), in each case who own Validus Shares, have indicated
that they intend to vote the Validus Shares beneficially owned
by them in favor of such approval. As of April 30, 2009,
these persons and entities beneficially owned 42.4% of the
voting interests relating to the Validus Shares.
Listing
of Validus Shares
It is a condition to the closing of the Acquisition that the
Validus Shares issuable to IPC shareholders in the Acquisition
and the Validus Shares to be reserved for issuance upon the
exercise of IPC options and the vesting of IPC Shares authorized
to be issued under IPCs outstanding equity compensation
plans shall have been authorized for listing on the NYSE,
subject to official notice of issuance.
Delisting
of IPC Shares
Upon completion of the Acquisition, IPC Shares, which are
currently quoted on NASDAQ under the symbol IPCR and
the Bermuda Stock Exchange under the symbol IPCR BH,
will be delisted.
Federal
Securities Law Consequences
The issuance of Validus Shares pursuant to the Scheme of
Arrangement will not be registered under the Securities Act of
1933, as amended (the Securities Act).
Section 3(a)(10) of the Securities Act exempts securities
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issued in exchange for one or more outstanding securities from
the general requirement of registration where the terms and
conditions of the issuance and exchange of such securities have
been approved by any court of competent jurisdiction, after a
hearing upon the fairness of the terms and conditions of the
issuance and exchange at which all persons to whom such
securities will be issued have a right to appear and to whom
adequate notice of the hearing has been given. The Validus
Shares issued pursuant to the Scheme of Arrangement will be
deemed to be registered under Section 12(b) of the Exchange
Act by virtue of
Rule 12g-3
under the Exchange Act, without the filing of any Exchange Act
registration statement.
Anticipated
Accounting Treatment
The Acquisition will be accounted for under the purchase method
of accounting in accordance with FAS 141(R) under which the
total consideration paid in the Acquisition will be allocated
among acquired tangible and intangible assets and assumed
liabilities based on the fair values of the tangible and
intangible assets acquired and liabilities assumed. In the event
there is an excess of the total consideration paid in the
Acquisition 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 Acquisition 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 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
Acquisition, the excess will be accounted for as a gain to be
recognized through the income statement at the consummation of
the Acquisition in accordance with FAS 141(R). Validus
anticipates the Scheme of Arrangement will result in an excess
of the fair value of the acquired assets and liabilities assumed
over total consideration paid.
Plan of
Reorganization
Following the Scheme of Arrangement, 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. Following the short-form
amalgamation, IPC and the Validus subsidiary would continue as
one amalgamated company in accordance with the Companies Act.
The Scheme of Arrangement is intended to constitute a plan of
reorganization within the meaning of Section 368(a) of the
Code, which includes the Scheme of Arrangement and short-form
amalgamation.
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THE
SCHEME OF ARRANGEMENT
The following section contains summaries of selected material
provisions of the Scheme of Arrangement. These summaries are
qualified in their entirety by reference to the form of Scheme
of Arrangement which is incorporated by reference in its
entirety and attached to this proxy statement as Annex A.
You should read that document in its entirety because it, and
not this proxy statement or Validus proxy statement for
the IPC special general meeting, is the legal document that
would govern the Scheme of Arrangement.
Purpose;
Effective Time
The Supreme Court of Bermuda ordered the court-ordered IPC
meeting to be held to give the IPC shareholders (other than the
holders of any IPC Shares owned by Validus, IPC or their
respective subsidiaries) the opportunity to consider and, if
they so determine, approve the Scheme of Arrangement. Assuming
the Scheme of Arrangement receives the approval of the IPC
shareholders and the sanction of the Supreme Court of Bermuda,
and all the other conditions to the consummation of the
Acquisition are satisfied or, where relevant, waived, including
approval of the Scheme of Arrangement by IPC either by vote of
the IPC board of directors or a vote of IPC shareholders at the
IPC special general meeting, an office copy of the court order
sanctioning the Scheme of Arrangement will be delivered to the
Bermuda Registrar of Companies, at which time the Scheme of
Arrangement will be effective.
Implementing
the Scheme of Arrangement
A Scheme of Arrangement under Bermuda law is an arrangement
between a company and its shareholders. In order to implement
the Scheme of Arrangement, the IPC shareholders must approve the
Scheme of Arrangement at the court-ordered IPC meeting, IPC must
separately approve the Scheme of Arrangement and the Scheme of
Arrangement must be sanctioned by the Supreme Court of Bermuda.
If the IPC shareholders approve the Scheme of Arrangement at the
court-ordered IPC meeting, the separate approval of IPC of the
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 Scheme of Arrangement and to
terminate the Max Amalgamation Agreement.
At the court-ordered IPC meeting, you will be asked to approve
the consummation of the Acquisition by means of a court
sanctioned scheme of arrangement between IPC and the holders of
IPC Shares pursuant to section 99 of the Companies Act. The
Scheme of Arrangement is set out in full in Annex A to this
proxy statement.
The steps involved in the Scheme of Arrangement are as follows:
(1) Applying to the Supreme Court of Bermuda for an order
giving directions for the holding and conduct of the
court-ordered IPC meeting.
(2) Requisitioning the IPC special general meeting. On May
12, 2009, Validus filed with the SEC a preliminary proxy
statement which, when filed in its definitive form, will be used
to solicit written requisitions from the IPC shareholders to
compel the IPC board of directors to call the IPC special
general meeting.
(3) Holding the court-ordered IPC meeting to which this
proxy statement relates to consider and, if the IPC shareholders
so determine, approve the Scheme of Arrangement. The Scheme of
Arrangement must be approved by a majority in number of the
holders of IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy, representing 75% or more in value
of the IPC Shares voting at the court-ordered IPC meeting,
whether in person or by proxy.
(4) Holding the IPC special general meeting to approve
resolutions determined by Validus to be reasonably necessary in
connection with implementation of the Scheme of Arrangement,
including resolutions for IPC to approve and to be bound by the
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. Approval of each resolution at the IPC special
general meeting requires the affirmative vote of the holders of
a majority of the IPC Shares voting at the meeting, whether in
person or by proxy.
(5) Applying to the Supreme Court of Bermuda to sanction
the Scheme of Arrangement.
(6) Delivering a copy of the order of the Supreme Court of
Bermuda sanctioning the Scheme of Arrangement to the Bermuda
Registrar of Companies.
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The purpose of the Scheme of Arrangement is to provide for
Validus to become the owner of the entire issued and
to-be-issued share capital of IPC not already held by Validus,
IPC or their respective subsidiaries. This is to be achieved by
the transfer to Validus (or its nominee(s)) of the IPC Shares
outstanding immediately prior to the effective time (excluding
any IPC Shares owned by Validus, IPC or their respective
subsidiaries) in exchange for Validus Shares and cash upon the
Scheme of Arrangement becoming effective.
To become effective, the Scheme of Arrangement requires:
(i) the approval of a majority in number of the holders of
IPC Shares voting at the court-ordered IPC meeting, whether in
person or by proxy, representing 75% or more in value of the IPC
Shares voting at the court-ordered IPC meeting, whether in
person or by proxy; (ii) the approval of IPC (either by
IPCs board of directors or by the affirmative vote of the
holders of a majority of the IPC Shares voting at the IPC
special general meeting, whether in person or by proxy) and the
approval of the other resolutions to be proposed at the IPC
special general meeting; (iii) the satisfaction or, where
relevant, waiver of the other conditions to the effectiveness of
the Scheme of Arrangement; (iv) the sanction of the Supreme
Court of Bermuda; and (v) the delivery of a copy of the
order of the Supreme Court of Bermuda sanctioning the Scheme of
Arrangement to the Bermuda Registrar of Companies.
If the IPC shareholders approve the Scheme of Arrangement at the
court-ordered IPC meeting, the separate approval of IPC of the
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 Scheme of Arrangement and to
terminate the Max Amalgamation Agreement. On May 12, 2009,
Validus filed with the SEC a preliminary proxy statement which,
when filed in its definitive form, will be used to solicit
written requisitions from the IPC shareholders to compel the IPC
board of directors to call the IPC special general meeting.
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 Scheme of Arrangement, and the granting of
a court order from the Supreme Court of Bermuda sanctioning the
Scheme of Arrangement, a copy of the court order sanctioning the
Scheme of Arrangement will be delivered to the Bermuda Registrar
of Companies, at which time the Scheme of Arrangement will be
effective.
Upon the Scheme of Arrangement becoming effective, Validus (or
its nominee(s)) will acquire the IPC Shares fully paid and free
from all liens, equitable interests, charges, encumbrances and
rights of pre-emption and any other interests of any nature
whatsoever and together with all rights attaching thereto
including the right to receive and retain all dividends and
other distributions declared, paid or made thereon, on or after
the effectiveness of the Scheme of Arrangement (other than a
one-time dividend to the holders of IPC Shares in an aggregate
amount not to exceed any reduction in the Max Termination Fee).
Validus will, in consideration for the transfer of the IPC
Shares, and subject as provided in the Scheme of Arrangement,
allot and issue, credited as fully paid, to each holder of IPC
Shares (as appearing in IPCs register of members
immediately prior to the effective time), new Validus Shares on
the following basis:
|
|
|
for each IPC Share
|
|
1.1234 Validus Shares and $3.00 in cash (less any
applicable withholding taxes and without interest)
|
Validus will not issue any fractional Validus Shares in
connection with the Scheme of Arrangement. Instead, any IPC
shareholder who would otherwise have been entitled to a fraction
of a Validus Share in connection with the Scheme of Arrangement
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 Shares that would otherwise be received by
such shareholder) by (ii) the closing price of Validus
Shares as reported on the NYSE on the last trading day
immediately prior to the closing of the Acquisition.
With effect from and including the effective time, each existing
certificate representing a holding of IPC Shares shall cease to
be valid in respect of such holding and each holder of IPC
Shares shall be bound at the request of Validus to deliver up
the same to Validus or to any person appointed by Validus to
receive the same for cancellation or to destroy such share
certificates.
Upon the Scheme of Arrangement becoming effective, it will be
binding on all IPC shareholders, whether or not they attended or
voted at the court-ordered IPC meeting or the IPC special
general meeting (and if they attended and voted, whether or not
they voted in favor).
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The Scheme of Arrangement contains a provision for Validus to
consent, on behalf of all persons concerned, to any modification
of or addition to the Scheme of Arrangement or any condition to
the effectiveness of the Scheme of Arrangement that the Supreme
Court of Bermuda may approve or impose. If there is any
modification of or addition to the Scheme of Arrangement or any
condition to the effectiveness of the Scheme of Arrangement that
is material to the interests of IPC shareholders, Validus will
amend this proxy statement and advise the IPC shareholders of
such modification, addition or condition in advance of the
court-ordered IPC meeting, in accordance with applicable law.
Once the Scheme of Arrangement is effective, the Courts of
Bermuda will have exclusive jurisdiction to hear and determine
any suit, action or proceeding and to settle any dispute which
arises out of or is connected with the terms of the Scheme of
Arrangement or their implementation or out of any action taken
or omitted to be taken under the Scheme of Arrangement or in
connection with the administration of the Scheme of Arrangement.
An IPC shareholder who wishes to enforce any rights under the
Scheme of Arrangement after such time must notify Validus in
writing of its intention at least ten business days prior to
commencing a new proceeding. After the effective time of the
Scheme of Arrangement, no shareholder may commence a proceeding
against Validus or IPC in respect of or arising from the Scheme
of Arrangement except to enforce its rights under the Scheme of
Arrangement where Validus or IPC has failed to perform its
obligations under the Scheme of Arrangement.
When, under any provision of the Scheme of Arrangement, a matter
is to be determined by Validus, Validus will have discretion to
interpret those matters under the Scheme of Arrangement in a
manner that it considers fair and reasonable, and its decisions
will be binding on all concerned.
If for any reason the Scheme of Arrangement does not become
effective in accordance with its terms, the Scheme of
Arrangement will not be consummated and IPC Shareholders will
retain their existing holdings of IPC Shares unless either the
Validus Amalgamation Offer or the Exchange Offer is consummated.
The
Meetings to Implement the Scheme of Arrangement
Before the Supreme Court of Bermudas sanction can be
sought for the Scheme of Arrangement, the Scheme of Arrangement
will require approval by the IPC shareholders at the
court-ordered IPC meeting and the approval of the resolutions to
be proposed at the IPC special general meeting. Notice of the
court-ordered IPC meeting is being delivered to you concurrently
herewith. Notice of the IPC special general meeting will be
forwarded to IPC shareholders separately.
(a) The
Court-Ordered IPC Meeting
The court-ordered IPC meeting, which has been convened for
[ ] Atlantic time on [ ], 2009
at [ ], is being held at the direction of the
Supreme Court of Bermuda to seek the approval of IPC
shareholders for the Scheme of Arrangement. Subject to the
following paragraph, all holders of IPC Shares whose names
appear on the register of members of IPC at
[ ] p.m. (Atlantic time) on
[ ] 2009 will be entitled to attend and vote at
the court-ordered IPC meeting in respect of the number of IPC
Shares registered in their name at the relevant time.
At the court-ordered IPC meeting, voting will be by way of poll
and each IPC shareholder (other than holders of any IPC Shares
owned by Validus, IPC or their respective subsidiaries) present
in person or by proxy will be entitled to one vote for each IPC
Share held. The vote required to approve the Scheme of
Arrangement at the court-ordered IPC meeting is a majority in
number of the holders of IPC Shares voting at the court-ordered
IPC meeting, whether in person or by proxy, representing 75% or
more in value of the IPC Shares voting at the court-ordered IPC
meeting, whether in person or by proxy. The holders of IPC
Shares owned by Validus, IPC or their respective subsidiaries
will not be able to vote those shares at the court-ordered IPC
meeting but Validus will undertake to the Supreme Court of
Bermuda to be bound by the Scheme of Arrangement.
It is important that, for the court-ordered IPC meeting in
particular, as many votes as possible are cast so that the
Supreme Court of Bermuda may be satisfied that there is a fair
and reasonable representation of opinion of the IPC
shareholders. Therefore, whether or not you intend to attend the
court-ordered IPC meeting in person, you are strongly urged to
sign and return your proxy card or voting instruction form as
soon as possible.
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(b) The
IPC Special General Meeting
In addition to the court-ordered IPC meeting, the IPC special
general meeting will be convened to consider and, if the IPC
shareholders so determine, approve resolutions determined by
Validus to be reasonably necessary in connection with
implementation of the Scheme of Arrangement, including
resolutions for IPC to approve and to be bound by the Scheme of
Arrangement and to terminate the Max Amalgamation Agreement.
Written requisitions from IPC shareholders holding at least 10%
of the issued and outstanding IPC Shares may compel the IPC
board of directors to call the IPC special general meeting. On
May 12, 2009 Validus filed with the SEC a preliminary proxy
statement which, when filed in its definitive form, will be used
to solicit such written requisitions.
At the IPC special general meeting, a vote by a show of hands
will be taken in the first instance on all matters properly
brought before the IPC special general meeting unless a poll is
requested in accordance with IPCs bye-laws. Each IPC
shareholder as of the record date for the IPC special general
meeting, including Validus and its subsidiaries, will be
entitled to attend and vote, either in person or by proxy, at
the IPC special general meeting. Approval of each resolution at
the IPC special general meeting requires the affirmative vote of
the holders of a majority of the IPC Shares voting at the
meeting, whether in person or by proxy.
Validus will be sending a separate proxy statement and proxy
card to IPC shareholders in respect of the IPC special general
meeting. We urge you to review those materials carefully.
Sanction
of the Scheme of Arrangement by the Supreme Court of
Bermuda
Under the Companies Act, the Scheme of Arrangement also requires
the sanction of the Supreme Court of Bermuda. Subject to the
prior satisfaction or, where relevant, waiver of the other
conditions to the effectiveness of the Scheme of Arrangement set
out in this proxy statement, Validus has confirmed that it will
be represented by counsel at the hearing of the Supreme Court of
Bermuda to sanction the Scheme of Arrangement so as to consent
to the Scheme of Arrangement and to undertake to the Supreme
Court of Bermuda to be bound thereby.
In order to approve the Scheme of Arrangement, the Supreme Court
of Bermuda will consider, among other things, whether the Scheme
of Arrangement is fair to the IPC shareholders. All IPC
shareholders are entitled to attend the Supreme Court of Bermuda
hearing in person or through counsel to support or oppose the
sanctioning of the Scheme of Arrangement.
The Scheme of Arrangement will become effective in accordance
with its terms upon the delivery of an office copy of the
Supreme Court of Bermuda order to the Bermuda Registrar of
Companies for registration.
If the Scheme of Arrangement becomes effective, it will be
binding on all IPC shareholders whether or not they attended or
voted in favor of the Scheme of Arrangement at the court-ordered
IPC meeting or of the resolutions proposed at the IPC special
general meeting. If the Scheme of Arrangement does not
become effective by November 30, 2009 (or such later date,
if any, as Validus may agree and the Supreme Court of Bermuda
may allow), the Scheme of Arrangement will not become effective
and will not be consummated.
Acquisition
Consideration
Under the Scheme of Arrangement, at the closing, each IPC Share
issued and outstanding immediately prior to the closing
(excluding any IPC Shares owned by Validus, IPC or their
respective subsidiaries) will be transferred to Validus in
exchange for (i) 1.1234 Validus Shares and (ii) $3.00
in cash (less any applicable withholding taxes and without
interest).
Validus will not issue any fractional Validus Shares in
connection with the Acquisition. Instead, any IPC shareholder
who would otherwise have been entitled to a fraction of a
Validus Share in connection with the Acquisition 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 Shares that would otherwise be received by such
shareholder) by (ii) the closing price of Validus Shares as
reported on the NYSE on the last trading day immediately prior
to the closing of the Acquisition.
Validus will appoint BNY Mellon Shareowner Services as exchange
agent to transfer and pay the Acquisition Consideration to
persons holding IPC Shares outstanding immediately prior to the
effective time (other than
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Validus, IPC or their respective subsidiaries) in exchange for
share certificates representing IPC Shares or for book-entry
shares. At or about the effective time of the Scheme of
Arrangement, Validus will deposit with the exchange agent the
cash payable and the Validus Shares issuable as Acquisition
Consideration and will provide for the cash issuable in lieu of
fractional shares. Promptly after the effective time, the
exchange agent will mail each holder of IPC Shares outstanding
immediately prior to the effective time (other than Validus, IPC
or their respective subsidiaries) instructions for surrendering
share certificates and book-entry shares and a substitute
Form W-9.
The exchange agent will transfer and pay the Acquisition
Consideration, less any applicable withholding taxes, to the
persons holding IPC Shares outstanding immediately prior to the
effective time (other than Validus, IPC or their respective
subsidiaries) promptly following the exchange agents
receipt of the share certificates (or book-entry shares). No
interest will be paid or accrued on the cash payable upon the
surrender of any share certificate (or book-entry shares). Until
so surrendered, each such IPC Share certificate (or book-entry
share) will represent after the effective time for all purposes
only evidence of the right to receive such Acquisition
Consideration.
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 Acquisition. In order to prevent backup withholding with
respect to payments of cash to certain shareholders, 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
included in the instructions mailed by the exchange agent to
each security holder, 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 Acquisition may be subject to
backup withholding. All shareholders surrendering IPC Shares
pursuant to the Acquisition that are U.S. persons should
complete and sign the substitute
Form W-9
included in the instructions mailed by the exchange agent 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.
Amendment
and Termination of the Scheme of Arrangement
The Scheme of Arrangement contains a provision for Validus to
consent, on behalf of all persons concerned, to any modification
of or addition to the Scheme of Arrangement or any condition to
the effectiveness of the Scheme of Arrangement that the Supreme
Court of Bermuda may approve or impose. If there is any
modification of or addition to the Scheme of Arrangement or any
condition to the effectiveness of the Scheme of Arrangement that
is material to the interests of IPC shareholders, Validus will
amend this proxy statement and advise the IPC shareholders of
such modification, addition or condition in advance of the
court-ordered IPC meeting, in accordance with applicable law.
Prior to approval by the IPC shareholders at the court-ordered
IPC meeting, Validus may terminate the Scheme of Arrangement at
any time. Following approval by the IPC shareholders at the
court-ordered IPC meeting, Validus may terminate the Scheme of
Arrangement at any time prior to commencement of the hearing of
the Supreme Court of Bermuda to sanction the Scheme of
Arrangement without obtaining the approval of the IPC
shareholders if any event or condition occurs which would cause
any of the conditions to its effectiveness not to be satisfied
by November 30, 2009 (or such later date, if any, as
Validus may agree and the Supreme Court of Bermuda may allow).
If for any reason the Scheme of Arrangement does not become
effective in accordance with its terms, the Scheme of
Arrangement will not be consummated and IPC shareholders will
retain their existing holdings of IPC Shares unless either the
Validus Amalgamation Offer or the Exchange Offer is consummated.
Conditions
to the Scheme of Arrangement
In addition to the requisite approval by IPC shareholders at the
court-ordered IPC meeting, the approval by IPC shareholders at
the IPC special general meeting of resolutions determined by
Validus to be reasonably necessary in connection with
implementation of the Scheme of Arrangement, including
resolutions for IPC to approve and to be bound by the Scheme of
Arrangement and to terminate the Max Amalgamation Agreement, the
sanction of the Scheme of Arrangement by the Supreme Court of
Bermuda and the delivery of a copy of the court sanction order
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with the Bermuda Registrar of Companies, the effectiveness of
the Scheme of Arrangement is subject to the satisfaction or,
where relevant, waiver of the following other conditions:
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
Condition
The issuance of Validus Shares to be issued pursuant to the
Scheme of Arrangement shall have been registered under the
Securities Act pursuant to an effective registration statement,
or shall be exempt from the registration requirements thereof.
The issuance of Validus Shares to be issued pursuant to the
Scheme of Arrangement will be exempt from such registration
requirements pursuant to Section 3(a)(10) of the Securities
Act.
Shareholder
Approval Condition
The shareholders of Validus shall have approved the issuance of
the Validus Shares pursuant to the Scheme of Arrangement 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 (as defined in this
proxy statement), in each case who own Validus Shares, have
indicated that they intend to vote the Validus Shares
beneficially owned by them in favor of such approval. As of
April 30, 2009, these persons and entities beneficially
owned 42.4% of the voting interests relating to the Validus
Shares.
NYSE
Listing Condition
The Validus Shares to be issued pursuant to the Scheme of
Arrangement 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 administrative authority, agency,
instrumentality or commission or any court, tribunal or judicial
or arbitral body (each of which, 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 proposing of, or terms
or provisions of, the Scheme of Arrangement, or the transfer of
all of the outstanding IPC Shares (excluding any IPC Shares
owned by Validus, IPC or their respective subsidiaries) to
Validus in exchange for Validus Shares; 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 Shares by
Validus or any of its affiliates, including, without limitation,
the right to vote any IPC Shares acquired by Validus pursuant to
the Scheme of Arrangement 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
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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 (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
Shares; (viii) the failure to meet any revenue, earnings or
other projections, forecasts or predictions for any period
ending after the date of this proxy statement; 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 commencement of the hearing by the
Supreme Court of Bermuda to sanction the Scheme of Arrangement
or (B) declined from December 31, 2008 to the
commencement of the hearing by the Supreme Court of Bermuda to
sanction the Scheme of Arrangement 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
commencement of the hearing by the Supreme Court of Bermuda to
sanction the Scheme of Arrangement, 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.
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 proxy
statement and prior to the commencement of the hearing by the
Supreme Court of Bermuda to sanction the Scheme of Arrangement.
Validus
Credit Facility Condition
All amendments or waivers under Validus credit facilities
necessary to consummate the Scheme of Arrangement and the other
transactions contemplated by this proxy statement shall be in
full force and effect.
Other
Conditions
None of the following events or facts shall have occurred:
(a) there is 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 Scheme of Arrangement or the other transactions contemplated
by this proxy statement 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
consummation of the Acquisition) on a consolidated basis
following the effective time of the Scheme of Arrangement or
(B) directly or indirectly (i) delay or otherwise
restrain, impede or prohibit the Scheme of Arrangement or
(ii) prohibit or limit the full rights of ownership of IPC
Shares by Validus or any of its affiliates, including, without
limitation, the right to vote any IPC Shares acquired by Validus
pursuant to the Scheme of Arrangement 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
Shares issued pursuant to, and in accordance
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with, the terms in effect on the date of this proxy statement
of employee stock options, stock units or other similar awards
outstanding prior to the date of this proxy statement),
(2) declared, paid or proposed to declare or pay any
dividend or other distributi