PREM14A
PRELIMINARY PROXY STATEMENT DATED APRIL 16, 2009 SUBJECT TO COMPLETION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to § 240.14a-12 |
VALIDUS HOLDINGS, LTD.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
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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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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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Aggregate number of securities to which transaction applies: |
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68,566,016 |
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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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Solely for the purpose of calculating the registration fee, the underlying value of the
transactions was calculated as the product of (i) 56,962,712 IPC Holdings, Ltd.
common shares (the sum of (x) 55,943,297 IPC Holdings, Ltd. common shares
outstanding as of February 23, 2009 (as reported in IPC Holdings, Ltd. Annual Report
on Form 10-K for the fiscal year ended December 31, 2008) and
(y) 1,019,415 IPC Holdings,
Ltd. common shares issuable upon the exercise or vesting of
outstanding options, restricted common shares, restricted share units
and performance share units as of December
31, 2008 (as reported in the IPC Holdings, Ltd. Annual Report on Form
10-K for the fiscal year ended December 31, 2008)), and (ii) the average of the
high and low sales prices of IPC Holdings, Ltd. common shares as quoted on the
NASDAQ Global Select Market on April 14, 2009 ($26.51). |
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Proposed maximum aggregate value of transaction: |
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$1,510,081,495.12 |
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Total fee paid: |
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$84,262.55 (based upon the product of $1,510,081,495.12 and the fee rate of $55.80 per
million dollars set forth in the Fee Rate Advisory #5 for Fiscal Year 2009) |
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o Fee paid previously with preliminary materials. |
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o 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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Amount previously paid: |
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Form, schedule or registration statement no.: |
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Filing party: |
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Date filed: |
PRELIMINARY PROXY STATEMENT DATED APRIL 16, 2009 SUBJECT TO COMPLETION
19 Par-La-Ville Road
Hamilton HM11
Bermuda
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2009
, 2009
Notice is hereby given that a Special Meeting of Shareholders of Validus Holdings, Ltd.
(Validus) will be held at 19 Par-La-Ville Road, Hamilton HM11, Bermuda, on ,
2009, at , Atlantic Time, for the following purposes:
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to approve the issuance of Validus voting common shares, par
value $0.175 per share, which we refer to as the Validus
Shares in connection with the acquisition of all
of the outstanding shares of IPC Holdings, Ltd., pursuant to the amalgamation agreement (as defined
below) or
otherwise, which we refer to as the share issuance; and |
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to transact such further business, if any, as may be lawfully brought before the
meeting, including to approve the adjournment of the meeting for the solicitation of
additional proxies in favor of the above proposal, which we refer to as an adjournment
proposal. |
On March 31, 2009, Validus publicly announced that it had delivered a binding offer to IPC
presenting a proposal, which we refer to as the Validus Offer, for the amalgamation of Validus
and IPC, which we refer to as the amalgamation, whereby each IPC common share would be exchanged
for 1.2037 Validus Shares. In connection with the delivery of the Validus Offer to IPC, Validus
delivered a signed amalgamation agreement that would be binding on Validus upon countersignature by
IPC, which we refer to as the amalgamation agreement.
For further information concerning matters to be acted upon at the Validus special meeting,
you are urged to read the proxy statement on the following pages.
If you are a shareholder of record, please 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, or follow the instructions on the Validus proxy card to complete your proxy
card on the Internet at the website indicated or by telephone. If you own your shares through a
bank or brokerage firm, you will receive instructions from that institution on how to instruct them
to vote your shares, including by completing a voting instruction form, or providing instructions by Internet or
telephone. If you do not receive such instructions, you may contact that institution to request
them. If you later desire to revoke your proxy for any reason, you may do so in the manner
described in the attached proxy statement. Only shareholders of record as shown on the transfer
books of Validus at the close of business on , 2009 will be entitled to notice of, and to
vote at, the Validus special meeting or any adjournments thereof. See The Validus Special Meeting
beginning on page 75 in the accompanying proxy statement for more information.
By Order of the Board of Directors,
Lorraine Dean
Secretary
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED APRIL 16, 2009
19 Par-La-Ville Road
Hamilton HM11
Bermuda
SPECIAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
This proxy statement is furnished to the holders of Validus voting common shares, $0.175 par
value per share, which we refer to as the Validus Shares, and together with any non-voting common
shares, $0.175 par value per share, the common shares, in connection with the solicitation of
proxies by the board of directors of Validus Holdings, Ltd., which we refer to as Validus, to be
voted at a special meeting of shareholders, which we refer to as the Validus special meeting, on
, 2009, at , Atlantic time, at the registered office of Validus, located at
19 Par-La-Ville Road, Hamilton HM11, Bermuda.
Validus shareholders will be asked at the Validus special meeting:
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to approve the issuance of Validus Shares in connection with the acquisition of all
of the outstanding shares of IPC Holdings, Ltd., pursuant to the amalgamation agreement (as defined
below) or
otherwise, which we refer to as the share issuance; and |
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to transact such further business, if any, as may be lawfully brought before the
meeting, including to approve the adjournment of the meeting for the solicitation of
additional proxies in favor of the above proposal, which we refer to as an adjournment
proposal. |
On March 1, 2009, IPC Holdings, Ltd., which we refer to as IPC, entered into an Agreement
and Plan of Amalgamation, as amended on March 5, 2009, among Max Capital Group Ltd., which we refer
to as Max, IPC and IPC Limited, which we refer to as 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, which we refer to as the Proposed Max Amalgamation.
On March 27, 2009, IPC filed a Registration Statement on Form S-4 with the Securities and Exchange
Commission, which we refer to as the SEC. On April 13, 2009, IPC filed Amendment No. 1 to the
IPC/Max S-4 with the SEC. We refer to such Registration Statement and Amendment collectively as
the IPC/Max S-4.
On March 31, 2009, Validus publicly announced that it had delivered a binding offer to IPC
presenting a proposal, which we refer to as the Validus Offer, for the amalgamation of Validus
and IPC, which we refer to as the amalgamation, whereby each IPC common share would be exchanged
for 1.2037 Validus Shares. In connection with the delivery of the Validus Offer to IPC, Validus
delivered a signed amalgamation agreement that would be binding on Validus upon countersignature by
IPC, which we refer to as the amalgamation agreement. IPC announced on April 7, 2009 that its
board of directors determined that the Validus Offer does not constitute a superior proposal
under the terms of the Max Amalgamation Agreement and reaffirmed its support of the Proposed Max
Amalgamation. As of March 31, 2009, the Validus Offer had a value of $29.98 per IPC common share,
or approximately $1.68 billion in the aggregate, which represented an 18% premium to the closing
market price of the IPC common shares on March 30, 2009, the day prior to Validus announcement of
the Validus Offer, and a 24% premium over $24.26, which was the average closing price of IPC common
shares between March 2, 2009, the day IPC and Max announced the Proposed Max Amalgamation, and
March 30, 2009, the last trading day before Validus announced the Validus Offer.
Validus continues to be fully committed to its binding offer, and intends to solicit proxies
from IPC shareholders against the Proposed Max Amalgamation and to take other actions it deems
necessary to lead to a consummation of the acquisition of all of the
outstanding shares of IPC, by amalgamation or otherwise. Validus is
soliciting proxies from holders of Validus Shares at the Validus
special meeting in order to be able to issue the shares to IPC
shareholders. The share
issuance will become effective only if it is approved by Validus shareholders and the IPC shares
are exchanged for Validus Shares, pursuant to the amalgamation agreement or otherwise but based on
an exchange ratio no less favorable to Validus shareholders than the exchange ratio set forth in
the amalgamation agreement. The affirmative vote of a majority of the votes cast at the Validus
special meeting at which a quorum is present in accordance with Validus bye-laws is required to
approve each matter to be acted on at the Validus special meeting, including the adjournment
proposal.
Assuming
closing of the acquisition of all of the outstanding shares of IPC, by amalgamation or otherwise, based on Validus and IPCs
capitalization as of December 31, 2008 and the exchange ratio of 1.2037, Validus would issue
approximately 67,338,947 Validus Shares in connection with the acquisition in exchange for IPCs
outstanding common shares, resulting in IPC shareholders owning approximately 43% of the issued and
outstanding shares of Validus on a fully diluted basis.
Shareholders of record as of the close of business on , 2009 will be entitled to
vote at the Validus special meeting. As of March 13, 2009, there were 58,849,289 outstanding
Validus Shares entitled to vote at the Validus special meeting, and
19,771,422 Validus
non-voting common shares. Each Validus Share entitles the holder of record thereof to one vote at
the Validus special meeting; however, if, and for so long as, the Validus Shares of a shareholder,
including any votes conferred by controlled shares (as defined below), would otherwise represent
more than 9.09% of the aggregate voting power of all Validus Shares entitled to vote on a matter,
the votes conferred by such Validus Shares will be reduced by whatever amount is necessary such
that, after giving effect to any such reduction (and any other reductions in voting power required
by Validus bye-laws), the votes conferred by such Validus Shares represent 9.09% of the aggregate
voting power of all Validus Shares entitled to vote on such matter. Controlled shares include,
among other things, all shares that a person is deemed to own directly, indirectly or
constructively (within the meaning of Section 958 of the Internal Revenue Code of 1986 or Section
13(d)(3) of the Securities Exchange Act of 1934, as amended).
Validus knows of no specific matter to be brought before the Validus special meeting that is
not referred to in the notice of the Validus special meeting. If any such matter comes before the
Validus special meeting, including any shareholder proposal properly made, the proxy holders will
vote proxies in accordance with their judgment.
Validus common shares are quoted on the New York Stock Exchange, which we refer to as the
NYSE, under the symbol VR. The closing price of a Validus common share on the NYSE on April
14, 2009 was $22.65. IPC common shares, which are currently quoted on the Nasdaq Global Select
Market, which we refer to as Nasdaq, under the symbol IPCR and the Bermuda Stock Exchange under
the symbol IPCR BH, would be delisted upon completion of the amalgamation. The closing price of
an IPC common share on Nasdaq on April 14, 2009 was $25.99.
Validus board of directors has unanimously adopted the amalgamation agreement and authorized
the share issuance and deems it fair, advisable and in the best interests of Validus and its
shareholders to consummate the share issuance and the other transactions contemplated by the
amalgamation agreement. Validus board of directors recommends that Validus shareholders vote
FOR the proposals submitted to Validus shareholders on the attached Validus proxy card. All of
the officers and directors and those shareholders which we refer to as our Qualified Sponsors have
indicated that they intend to vote the Validus Shares owned by them in favor of the Validus share
issuance proposal and the adjournment proposal. As of March 13, 2009, these persons and
entities beneficially owned 42.4% of the voting interests relating to
the Validus Shares and 57.4% of
the economic interests relating to all outstanding common shares of
Validus, including the non-voting common shares.
This proxy statement provides Validus shareholders with detailed information about the Validus
special meeting and the proposed acquisition. 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 31.
Your vote is very important. Whether or not you plan to attend the Validus special meeting,
please take time to vote by completing and mailing your enclosed proxy card or by following the
voting instructions provided to you if you own your shares through a bank or brokerage firm. If
you do not receive such instructions, you may request them from that firm.
Neither the Securities and Exchange Commission nor any state securities regulatory agency has
approved or disapproved the share issuance, passed upon the merits or fairness of the share
issuance or passed upon the adequacy or accuracy of the disclosure in this document. Any
representation to the contrary is a criminal offense.
This proxy statement is dated , 2009
and is first being mailed to Validus shareholders on or about , 2009
SOURCES OF ADDITIONAL INFORMATION
This proxy statement includes information also set forth in documents filed by Validus and IPC
with the SEC, and those documents include information about each company 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. Validus shareholders also may obtain documents filed by 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 ten 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. Accordingly, Validus does not take any
responsibility for the accuracy or completeness of such information or for any failure by IPC to
disclose events that may have occurred and may affect the significance or accuracy of any such
information.
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 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
Validus special meeting and Validus considers it to be material, reliable and appropriate.
In this proxy statement, we refer to the Securities Act of 1933, as amended, as the
"Securities Act and the Securities Exchange Act of 1934, as amended, as the Exchange Act.
See Where You Can Find More Information on page 87.
TABLE OF CONTENTS
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S-1 |
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ANNEX A:
AGREEMENT AND PLAN OF AMALGAMATION |
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ANNEX B: OPINION OF VALIDUS FINANCIAL ADVISOR ADDRESSED TO VALIDUS BOARD OF DIRECTORS |
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-ii-
QUESTIONS AND ANSWERS ABOUT THE AMALGAMATION AND THE 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. We encourage you to read this
entire document carefully.
Q: When and where is the Validus special meeting?
A: The Validus Special Meeting of Shareholders, which we refer to as the Validus special
meeting, will take place at , Atlantic Time, on , 2009, at 19
Par-La-Ville Road, Hamilton HM11, Bermuda.
Q: What is happening at the Validus special meeting?
A: At the Validus special meeting, Validus shareholders will be asked:
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to approve the issuance of Validus Shares in connection with the acquisition of all
of the outstanding shares of IPC, pursuant to the amalgamation agreement or otherwise,
which we refer to as the share issuance; and |
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to approve the adjournment of the shareholder meeting for the solicitation of
additional proxies in favor of the above proposal, which we refer to as an adjournment
proposal. |
Even if shareholders approve the share issuance, the share issuance will take effect only if
and when the IPC shares are exchanged for Validus Shares pursuant to the amalgamation agreement or
otherwise.
Q: Why is shareholder approval of the share issuance required?
A: Based upon publicly available information about the number of IPC shares outstanding and
the proposed exchange ratio, Validus expects it would need to issue 67,338,947 Validus Shares in
exchange for all outstanding IPC shares. This number of Validus Shares will be greater than 20% of
the total number of Validus Shares outstanding prior to such issuance. The listing requirements of
the NYSE require that Validus shareholders approve any issuance of Validus Shares or securities
convertible into or exercisable for Validus Shares if (a) the Validus Shares or other securities
being issued will have voting power equal to or in excess of 20% of the voting power outstanding
before such issuance or (b) the number of Validus Shares to be issued is or will be equal to or in
excess of 20% of the number of Validus Shares or other securities before such issuance.
If the share issuance proposal is approved by Validus shareholders, Validus will be permitted
to issue Validus Shares in exchange for IPC shares, pursuant to the
amalgamation agreement or otherwise.
Shareholders are not being asked to vote on the acquisition and no vote of Validus shareholders is
required on such matter.
Q: What will happen in the amalgamation?
A: If the amalgamation agreement is signed by IPC, if Validus shareholders approve the share
issuance, if IPC shareholders adopt the amalgamation agreement and approve the amalgamation, and
all other conditions to the amalgamation have been satisfied or waived, on the date the
amalgamation is consummated, which we refer to as the closing date or closing, IPC would
amalgamate with Validus Ltd., a direct, wholly owned subsidiary of Validus, upon the terms and
subject to the conditions set forth in the amalgamation agreement. Pursuant to the amalgamation
agreement, after the effective time of the amalgamation, which we refer to as the effective time,
IPC shareholders (including the shareholders that do not vote in favor of the amalgamation) would
have the right to receive 1.2037 Validus Shares and cash in lieu of fractional shares in exchange
for each IPC common share they hold, unless they exercise appraisal rights pursuant to Bermuda law.
Upon the closing of the amalgamation, the separate corporate existence of Validus Ltd. and IPC
would cease and they would continue as an amalgamated company and subsidiary of Validus, which we
refer to as the amalgamated company, and the name of the amalgamated company would be Validus
Ltd.
Q: Why
is Validus proposing the acquisition?
A: Based on a number of factors described below under The AmalgamationReasons Why Validus
Board of Directors Recommends Approval of the Share Issuance, Validus board of directors believes
that the acquisition will represent a compelling combination and excellent strategic fit that will
be able to better capitalize on opportunities in the global reinsurance market. In addition,
Validus board of directors believes that a combination of Validus and IPC will create a larger
entity that will bring Validus the benefits of additional client penetration, greater scale and
greater market position as a leading Bermuda short-tail focused global underwriter. Please see The
AmalgamationReasons Why Validus Board of Directors Recommends Approval of the Share Issuance on
page 46 for more information.
Q: What will IPC shareholders receive in the acquisition?
A: Under the terms of the amalgamation agreement, each outstanding IPC common share
(including any shares held by IPC shareholders that do not vote in favor of the amalgamation, but
excluding any dissenting shares as to which appraisal rights have been properly exercised pursuant
to Bermuda law, and including any shares held by Validus) would be cancelled and converted into the
right to receive 1.2037 Validus Shares upon closing of the amalgamation. We refer to this fraction
of a Validus Share as the exchange ratio. IPC shareholders would not receive any fractional
Validus Shares in the amalgamation. Instead, IPC shareholders would be paid cash in lieu of the
fractional share interest to which such shareholders would otherwise be entitled as described under
The Amalgamation AgreementAmalgamation Consideration below. We refer to the exchange ratio and
the cash in lieu of fractional shares as the amalgamation consideration.
Q: Will the Validus Shares be issued if the Amalgamation Agreement is not signed by IPC?
A: We are still hopeful that IPCs board will recognize that the Validus Offer is a Superior
Proposal as defined in the Max Amalgamation Agreement and they will sign the amalgamation agreement
with Validus after the Max Amalgamation Agreement is terminated.
However, Validus may also seek to accomplish the acquisition of the
IPC shares through other means.
Q: Will the amalgamation agreement signed by IPC be the exact form attached hereto as Annex A?
A: Validus delivered the amalgamation agreement to IPC on March 31, 2009 intending it to be
executed in the exact form provided. Since then, in response to IPCs rejection of the Validus
Offer, we are proceeding with efforts to move forward with the transaction without IPCs
cooperation, including by soliciting your votes to approve the issuance of Validus Shares in
connection with the amalgamation. These efforts will necessitate certain updates to the form of
amalgamation agreement which we believe are not material to Validus or IPC shareholders. We cannot
predict what other changes may become necessary due to changed circumstances or as a result of
negotiations with IPC should that occur. If any changes are made to the amalgamation agreement
that Validus believes are material to Validus shareholders, Validus will supplement this proxy
statement and, if necessary, resolicit proxies from its shareholders.
Q: Are Validus shareholders able to exercise appraisal rights?
A: The Validus shareholders will not be entitled to exercise appraisal rights with respect to
any matter to be voted upon at the Validus special meeting.
Q: Will I have preemptive rights in connection with the share issuance?
A: No. Validus shareholders will not be entitled to any preemptive rights in connection
with the share issuance.
-2-
Q: What are the closing conditions set forth in the amalgamation agreement?
A: The closing of the amalgamation would be subject to customary closing conditions under the
amalgamation agreement, including IPC shareholder approval, approval by Validus and IPCs banking
syndicates and receipt of certain other regulatory approvals. Please see The Amalgamation
AgreementConditions to the Amalgamation on page 68.
Q: What will be the composition of the board of directors of Validus following the amalgamation?
A: Upon closing of the amalgamation, Validus board of directors would consist of the
directors serving on the board of directors of Validus before the amalgamation; however, Validus
has expressed to the IPC directors that if they desire to participate in the leadership of Validus
after the amalgamation, Validus would consider that.
Q: How will Validus be managed after the amalgamation?
A: Upon closing of the amalgamation, the officers of Validus will be the officers serving
Validus before the amalgamation.
Q:
What shareholder vote is required to approve the share issuance and
the adjournment proposal at the Validus special meeting
and how many votes must be present to hold the meeting?
A: The affirmative vote of a majority of the votes cast at the Validus special meeting, at
which a quorum is present in accordance with Validus bye-laws,
is required to approve each of the share
issuance and
the adjournment proposal. The share issuance will become effective only if it is duly approved by Validus
shareholders and all of the other conditions to the acquisition are satisfied or waived and the
acquisition closes. The affirmative vote of a majority of the votes cast at the Validus special
meeting is required to approve each other matter to be acted on, including any adjournment
proposal. As of March 13, 2009, 42.4% of the outstanding Validus Shares were held by entities
affiliated with Validus directors and executive officers.
Q: Does
the Validus board of directors recommend approval of the proposals?
A: Yes. Validus board of directors, taking into consideration the reasons discussed under
The AmalgamationReasons Why Validus Board of Directors Recommends Approval of the Share
Issuance, unanimously adopted the amalgamation agreement and authorized and approved the share
issuance. Validus board of directors deems it fair, advisable and in the best interests of
Validus to enter into the amalgamation agreement, to acquire all of
the outstanding shares of IPC and to consummate the share issuance and the other
transactions contemplated by the amalgamation agreement. Validus board of directors recommends
that Validus shareholders vote FOR the matters submitted on the Validus proxy card.
Q: Have
any of Validus shareholders agreed to support the proposals?
A: All of the officers and directors and those shareholders which we refer to as our
Qualified Sponsors have indicated that they intend to vote the Validus Shares owned by them in
favor of the Validus share issuance proposal and
the adjournment proposal. As of March 13, 2009, these persons and entities
beneficially owned 42.4% of the voting interests relating to the
Validus Shares and 57.4% of the economic interests relating to all
outstanding common shares of Validus, including the non-voting common
shares.
Q: Will any other matters be voted on?
A: Validus knows of no specific matter to be brought before the Validus special meeting that
is not referred to in the notice of the Validus special meeting. If any such matter comes before
the Validus special meeting, the proxy holders will vote proxies in accordance with their judgment.
Q: What is the record date for the Validus special meeting?
A: Only shareholders of record, as shown by the transfer books of Validus at the close of
business on , 2009, which we refer to as the Validus record date, are entitled to
receive notice of and to vote at the Validus special meeting or any adjournment thereof.
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Q: How many votes do I have and how many votes can be cast by all shareholders?
A: Shareholders of record as of the close of business on , 2009 will be entitled
to vote at the Validus special meeting. As of March 13, 2009, there were 58,849,289 outstanding
Validus Shares entitled to vote at the Validus special meeting, and 19,771,422 non-voting common
shares. Each Validus Share entitles the holder of record thereof to one vote at the Validus
special meeting; however, if, and for so long as, the Validus Shares of a shareholder, including
any votes conferred by controlled shares, would otherwise represent more than 9.09% of the
aggregate voting power of all Validus Shares entitled to vote on a matter, the votes conferred by
such shares will be reduced by whatever amount is necessary such that, after giving effect to any
such reduction (and any other reductions in voting power required by Validus bye-laws), the votes
conferred by such Validus Shares represent 9.09% of the aggregate voting power of all Validus
Shares entitled to vote on such matter.
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 87 and consult with your accounting, legal and
tax advisors.
Q: What is a quorum?
A: A quorum is the minimum number of our common shares that must be represented at a duly
called meeting in person or by proxy in order to legally conduct business at the meeting. For the
Validus special meeting, a quorum consists of two or more shareholders present in person and
representing in person or by proxy in excess of fifty percent (50%) of the total issued Validus
Shares throughout the meeting.
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 Validus special meeting.
Because the vote required to approve the proposals is the affirmative vote of a majority of the
votes cast, assuming a quorum is present, a broker non-vote with respect to any proposal to be
voted on at the shareholder 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.
Q: What if a quorum is not present at the Validus special meeting?
A. If a quorum is not present at the scheduled time of the Validus special meeting, we may
adjourn the meeting with the vote of the shareholders. If we propose to have the shareholders vote
whether to adjourn the meeting, the proxyholders will exercise their discretion to vote all shares
for which they have authority in favor of the adjournment.
Q: How can I vote my shares at the Validus special meeting?
A: If your shares are registered directly in your name with our transfer agent, Bank of New
York Mellon, 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 by Validus. 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 or vote using the ballot provided at the meeting. Most shareholders of
Validus hold their shares through a broker, bank 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 broker, bank or
other nominee together with a voting instruction card. Because a beneficial holder is not the
shareholder of record, you may not vote these shares in person at the meeting unless you obtain a
legal proxy from the broker, bank or other nominee that holds your shares, giving you the right
to vote the shares at the meeting. Even if you plan to attend the Validus special 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 Validus special meeting.
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Q: How can I vote my shares without attending the Validus special meeting?
A: Whether you are the shareholder of record or hold your shares in street name, you may
direct your vote without attending the Validus special meeting by completing and mailing your proxy
card or voting instruction card in the enclosed pre-paid envelope. In addition, if you are the
registered shareholder of record, you may grant a proxy to vote your shares at the Validus special
meeting by telephone by calling
866-367-5524 and following the simple recorded instructions,
twenty-four hours a day, seven days a week, at any time prior to 11:59 p.m., Eastern Time, on the
day prior to the Validus special meeting. Alternatively, as a registered shareholder of record, you may
vote via the Internet at any time prior to 11:59 p.m., Eastern Time, on the day prior to the Validus
special meeting by going to http://proxy.georgeson.com, entering the company number and control
number on your proxy card and following the instructions to submit an electronic proxy. If you
vote by telephone or the Internet, you will be required to provide the control number contained on
your proxy card. If your shares are held in street name, your voting instruction card may contain
instructions from your broker, bank or nominee that allow you to vote your shares using the
Internet or by telephone. Please consult with your broker, bank or nominee if you have any
questions regarding the electronic voting of shares held in street name.
Q: What do I need for admission to the Validus special meeting?
A: You are entitled to attend the Validus special meeting only if you are a shareholder of
record or a beneficial owner as of the close of business on , 2009, or you hold a
valid proxy for the Validus special meeting. 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 Validus
special meeting. You should be prepared to present photo identification for admission. If you
hold your shares in street name, you should provide proof of beneficial ownership on the record
date, such as a brokerage account statement showing that you owned Validus Shares as of the record
date, a copy of the voting instruction card provided by your broker, bank or other nominee, or
other similar evidence of ownership as of the record date, as well as your photo identification,
for admission. If you do not provide photo identification or comply with the other procedures
outlined above upon request, you will not be admitted to the Validus special meeting.
Q: If my shares are held in a brokerage account or in street name, will my broker vote my shares
for me?
A: If you own your shares through a bank or brokerage firm, you will receive instructions
from that institution on how to instruct them to vote your shares, including by completing a voting instruction form, or providing instructions by Internet or telephone. If you do not receive such instructions,
you may contact that institution to request them. If you do not provide your bank or broker with
instructions on how to vote your street name shares, your bank or broker will generally not be
permitted to vote them unless your bank or broker already has discretionary authority to vote such
street name shares. Also, if your bank or broker has indicated on the relevant proxy that it does
not have discretionary authority to vote such street name shares, your bank or broker will not be
permitted to vote them. Either of these situations results in a broker non-vote.
A broker non-vote with respect to the Validus special meeting will not be considered as
entitled to vote with respect to any matter presented at the respective meeting, but will be
counted for purposes of establishing a quorum, provided that your broker, bank or nominee is in
attendance in person or by proxy. Because the vote required to approve the proposals is the
affirmative vote of a majority of the votes cast, assuming a quorum is present, a broker non-vote
with respect to any proposal to be voted on at the shareholder 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.
Because your bank or broker will generally not have discretionary authority to vote your
shares, you generally must provide your bank or broker with instructions on how to vote your shares
or arrange to attend the Validus special meeting and vote your shares in person if you want your
shares to be voted and to avoid a broker non-vote. If your bank or broker holds your shares and
you attend the special meeting in person, you should bring a letter from your bank or broker
identifying you as the beneficial owner of the shares and authorizing you to vote your shares at
the meeting.
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Q: What effect do abstentions and broker non-votes have on the proposals?
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 Validus special meeting.
Because the vote required to approve the proposals is the affirmative vote of a majority of the
votes cast, assuming a quorum is present, a broker non-vote with respect to any proposal to be
voted on at the shareholder 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 Validus Special MeetingRecord 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 share issuance proposal and FOR the
adjournment proposal 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 Validus special 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 Validus special
meeting.
If you are a shareholder of record, you may change your vote or revoke
your proxy by: (1) delivering to Validus (Attention: General Counsel) at the address on the first
page of this proxy statement a written notice of revocation of your proxy; (2) delivering to
Validus an authorized proxy bearing a later date (including a proxy by telephone or over the
Internet); or (3) attending the Validus special meeting and
voting in person as described above under How do I vote my shares if I am a shareholder of record? Attendance at the
Validus special meeting in and of itself, without voting in person at the Validus special meeting,
will not cause your previously granted proxy to be revoked. For shares you hold in street name,
you may change your vote by submitting new voting instructions to your broker, bank or other
nominee or, if you have obtained a legal proxy from your broker, bank or other nominee giving you
the right to vote your shares at the Validus special meeting, by attending the Validus special
meeting and voting in person.
Q: Who can I contact with any additional questions?
If you have additional questions about the proposed acquisition, you should contact Georgeson
Inc. at:
Georgeson Inc.
199 Water Street, 26th Floor
New York, New York 10038
Banks and Brokerage Firms Please Call: (212) 440-9800
All Others Please Call Toll Free: (888) 274-5146
E-mail inquiries: validus@georgeson.com
If you would like additional copies of this proxy statement, or if you need assistance voting
your shares, you should contact Georgeson
Inc. at:
Georgeson Inc.
199 Water Street, 26th Floor
New York, New York 10038
Banks and Brokerage Firms Please Call: (212) 440-9800
All Others Please Call Toll Free: (888) 274-5146
E-mail inquiries: validus@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 87.
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SUMMARY
This summary highlights the material information in this proxy statement. To fully understand
Validus proposal, and for a more complete description of the terms of the proposed amalgamation,
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 87.
Validus
and Validus Ltd. (page 73)
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., which we refer to as Validus Re, and Talbot
Holdings Ltd., which we refer to as Talbot. Validus Re is a Bermuda based reinsurer focused on
short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group
primarily operating within the Lloyds insurance market through Syndicate 1183. Validus common
shares are traded on the NYSE under the symbol VR and, as of April 14, 2009, Validus had a market capitalization of
approximately $1.86 billion. Validus
has approximately 280 employees.
Validus Ltd. is a recently formed Bermuda exempted company organized in connection with
Validus binding offer relating to the amalgamation and has not carried on any activities other
than in connection therewith.
The principal offices of Validus Ltd. are located at 19 Par-La-Ville Road, Hamilton HM11,
Bermuda. The telephone number of Validus Ltd. is (441) 278-9000. Validus Ltd. is a direct, wholly
owned subsidiary of Validus.
Unless Validus Ltd. exchanges IPC common shares on behalf of Validus pursuant to the Validus
Offer, it is not anticipated that Validus Ltd. will have any significant assets or liabilities or
engage in activities other than those incidental to its formation and capitalization.
Information for each of the directors and executive officers of Validus and Validus Ltd. and
other officers and employees 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, Validus Ltd. or any of the participants set forth on Schedule I
hereto have any interest, direct or indirect, by security holdings or otherwise, in the
amalgamation.
IPC
(page 73)
The following description of IPC is taken in its entirety from 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
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premiums written, excluding reinstatement premiums. At December 31, 2008, IPC had total
shareholders equity of $1,851 million and total assets of $2,389 million.
IPCs common 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.
The
Validus Special Meeting (page 75)
The Validus special meeting will be held on , 2009, at , Atlantic time,
at the registered office of Validus, located at 19 Par-La-Ville Road, Hamilton HM11 Bermuda.
Validus shareholders will be asked at the Validus special meeting:
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to approve the issuance of Validus Shares in connection with the acquisition of all
of the outstanding shares of IPC, pursuant to the amalgamation agreement or otherwise;
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to transact such further business, if any, as may be lawfully brought before the
meeting, including to approve the adjournment of the meeting for the solicitation of
additional proxies in favor of the above proposal. |
You can vote at the Validus special meeting only if you are a shareholder of record, as shown
by the transfer books of Validus, at the close of business on , 2009, which is the
record date for the Validus special meeting.
The
Amalgamation (page 34)
General
Description (page 34)
If the amalgamation agreement is signed by IPC, and all conditions to the amalgamation have
been satisfied or waived, IPC will amalgamate with Validus Ltd., a direct, wholly owned subsidiary
of Validus, with the amalgamated company continuing as the surviving company and succeeding to and
assuming all of the rights, properties, liabilities and obligations of IPC and Validus Ltd. if the
amalgamation is consummated. Upon the closing of the amalgamation, the separate corporate
existence of each of IPC and Validus Ltd. will cease and they will continue as an amalgamated
company and subsidiary of Validus. The amalgamated company will be named Validus Ltd.
Following closing of the amalgamation, based on Validus and IPCs present capitalization and
the exchange ratio of 1.2037, Validus would issue approximately 67,338,947 Validus Shares in
connection with the amalgamation and IPC shareholders would own approximately 43% of the issued and
outstanding common shares of Validus on a fully diluted basis. The amalgamation agreement is
attached as Annex A to this proxy statement. You should read the amalgamation agreement in its
entirety because it, and not this proxy statement, is the legal document that would govern the
amalgamation.
Recommendations of the Validus Board of Directors
Validus board of directors has adopted the amalgamation agreement and authorized and approved
the share issuance, and deems it fair, advisable and in the best interests of Validus to enter into
the amalgamation agreement and to consummate the share issuance and the other transactions
contemplated by the amalgamation agreement. Validus board of directors recommends that Validus
shareholders vote FOR the proposals submitted to Validus shareholders on the attached Validus
proxy card.
Reasons
Why Validus Board of Directors Recommends Approval of the Share
Issuance (page 46)
Validus board of directors recommends approval of the share issuance in order to enable the
issuance of shares necessary to effect the acquisition. Validus board of directors believes that
the acquisition will represent a compelling combination and excellent strategic fit that will be
able to better capitalize on opportunities in the
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global reinsurance market. In addition, Validus board of directors believes that a
combination of Validus and IPC will create a larger entity that will bring Validus the benefits of
additional client penetration, greater scale and greater market position as a leading Bermuda
short-tail focused global underwriter.
In reaching these conclusions and in determining that the share issuance is fair, advisable
and in the best interests of Validus, and in recommending the approval of the share issuance,
Validus board of directors consulted with Validus management as well as Validus legal and
financial advisors and considered a number of factors. Those factors included, but were not
limited to, those set forth under The AmalgamationReasons Why Validus Board of Directors
Recommends Approval of the Share Issuance below.
Opinion
of Validus Financial Advisor (page 49)
The Validus board of directors received an oral opinion, subsequently confirmed in writing,
from Greenhill & Co., LLC, who we refer to as Greenhill, that, based upon and subject to the
various limitations and assumptions described in the written opinion, as of March 31, 2009, the
exchange ratio pursuant to the amalgamation agreement was fair, from a financial point of view, to
Validus.
The full text of the written opinion of Greenhill, dated March 31, 2009, which sets forth,
among other things, the assumptions made, procedures followed, matters considered and limits on the
opinion and the review undertaken in connection with rendering the opinion, is attached as Annex B
to this proxy statement and is incorporated herein by reference. Validus shareholders are urged
to read the opinion in its entirety, but should note that it is not a recommendation as to how
Validus shareholders should vote with respect to the issuance of Validus Shares pursuant to the
amalgamation or any other matter.
Dividends
and Distributions (page 56)
Each of Validus and IPC regularly pays a quarterly cash dividend. Under the terms of the
amalgamation agreement, before the amalgamation closes, Validus and IPC would both be permitted to
declare and pay ordinary course quarterly dividends on their common shares with record and payment
dates consistent with past practice; provided that any such dividend is at a rate no greater than
the rate it paid during the fiscal quarter immediately preceding the date of the amalgamation
agreement, i.e., $0.20 per common share in Validus case and $0.22 per common share in IPCs case.
Pursuant to the amalgamation agreement, Validus and IPC would agree to coordinate the
declaration of, and setting of record dates and payment dates for, dividends on Validus common
shares and IPC common shares so that the IPC shareholders do not receive dividends on both the IPC
common shares and the Validus common shares received in the amalgamation in respect of any calendar
quarter or fail to receive a dividend in respect of any calendar quarter.
Anticipated
Accounting Treatment (page 57)
The amalgamation will be accounted for under the purchase method of accounting in accordance
with Statement of Financial Accounting Standards No. 141(R),
Business Combinations, (FAS 141(R)) under which
the total consideration paid in the amalgamation 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 amalgamation 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 amalgamation 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 amalgamation, the excess will be accounted
for in accordance with FAS 141(R).
The excess resulting from the amalgamation will be recognized in earnings as a gain
attributable to the acquirer on the acquisition date. Validus
anticipates the amalgamation agreement will result in an excess of
the fair values of the acquired assets and liabilities assumed over
the total consideration paid in the amalgamation.
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The
Amalgamation Agreement (page 58)
The amalgamation agreement is attached as Annex A to this proxy statement. This description
of the amalgamation agreement assumes that it is signed by IPC in the form delivered by Validus to
IPC. You should read the amalgamation agreement in its entirety because it, and not this proxy
statement, is the legal document that would govern the amalgamation if it were signed by IPC.
In
response to IPCs rejection of the Validus Offer, Validus is engaging in efforts to move forward
with the transaction without IPCs cooperation. These efforts will necessitate certain changes to
the amalgamation agreement which are not material to Validus or IPC shareholders. For example, the
amalgamation agreement contemplates Validus and IPC would cooperate in the preparation and filing
of a joint proxy statement/prospectus regarding the amalgamation which would have included
soliciting the votes we are seeking by this proxy statement. Certain other provisions regarding
timing and process would need to be updated similarly.
Amalgamation
Consideration (page 59)
Under the amalgamation agreement, each outstanding IPC common share (including any shares held
by IPC shareholders that do not vote in favor of the amalgamation, but excluding any dissenting
shares as to which appraisal rights have been exercised pursuant to Bermuda law, and including any
shares held by Validus) will be cancelled and converted into the right to receive 1.2037 Validus
Shares upon closing of the amalgamation and cash consideration in lieu of any fractional Validus
Shares.
Validus will not issue any fractional Validus Shares in connection with the amalgamation.
Instead, any IPC shareholder who would otherwise have been entitled to a fraction of a Validus
Share in connection with the amalgamation will be paid an amount in cash determined by multiplying
such fraction by the average Validus price (such average Validus common share price is determined
by valuing Validus common shares based on the volume weighted average price per Validus common
share on the NYSE for the five consecutive trading days immediately preceding the second trading
day prior to the closing of the amalgamation).
Restrictions
on Change in Recommendation by the Board of Directors of IPC or
Validus (page 65)
Pursuant to the amalgamation agreement, the boards of directors of IPC or Validus may not
withdraw or modify, in any manner adverse to the other party, its recommendations in connection
with the amalgamation except if such board has concluded in good faith, after consultation with its
outside counsel and financial advisors, that such action is reasonably likely to be required in
order for the directors to comply with their fiduciary duties under applicable law, and such party
has not materially breached its obligations with respect to changing its recommendation. Before a
party can change its recommendation with respect to the amalgamation, it must provide advance
written notice of such change to the other party and give the other party five business days to
agree to alter the terms and conditions of the amalgamation agreement in a manner that removes the
need for the applicable board of directors to change its recommendation in order to prevent a
breach of its fiduciary duties. Even if IPC or Validus has had a change in recommendation, each
will still be required to submit such matters to the respective shareholders meeting. See The
Amalgamation AgreementRestrictions on Change in Recommendation by the Boards of IPC or Validus
below.
Restrictions
on Solicitation of Acquisition Proposals by IPC (page 65)
The amalgamation agreement precludes IPC and its subsidiaries and advisors from, directly or
indirectly, initiating, soliciting, encouraging or facilitating (including by providing
information) any effort or attempt to make or implement any proposal or offer with respect to an
amalgamation, reorganization, consolidation, business combination or similar transaction involving
it or any of its subsidiaries or any purchase or sale involving 10% or more of its consolidated
assets (including, without limitation, shares of its subsidiaries), or 10% or more of its total
voting power or the voting power of any of its subsidiaries. There is no fiduciary duty
exception to this restriction. IPC may withdraw or modify its recommendation as described under
The Amalgamation AgreementRestrictions on Change in Recommendation by the Boards of IPC or
Validus below. See The Amalgamation AgreementRestrictions on Solicitation of Acquisition
Proposals by IPC below.
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Conditions
to the Amalgamation (page 68)
Validus and IPCs respective obligations to complete the amalgamation are subject to the
fulfillment or waiver (by both Validus and IPC) of certain conditions, including:
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receipt of the required Validus shareholder approval of the share issuance and the
required IPC vote to adopt the amalgamation agreement and approve the amalgamation; |
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approval for listing on the NYSE of the Validus Shares to be issued or reserved for
issuance in connection with the amalgamation, subject to official notice of issuance; |
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certain regulatory filings, approvals or exemptions will have been made, will have
occurred or will have been obtained; |
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a registration statement registering the shares to be issued in the amalgamation
will have become effective under the Securities Act, and will not be the subject of any
stop order or proceedings seeking a stop order; |
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no injunction or other legal restraints or prohibitions preventing the consummation
of the amalgamation will be in effect; |
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subject to the materiality standards provided in the amalgamation agreement, the
representations and warranties of each other party in the amalgamation agreement will
be true and correct, and each party will have performed its obligations under the
amalgamation agreement (and each party will have received a certificate from the other
party to such effect); |
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no governmental entity will have imposed any term, condition, obligation or
restriction that would reasonably be expected to have a material adverse effect on
Validus and its subsidiaries (including the amalgamated entity) after the effective
time of the amalgamation; and |
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each of IPC and Validus will have received a tax opinion with respect to certain
U.S. federal income tax consequences of the amalgamation. |
Validus obligation to complete the amalgamation is also subject to the fulfillment or waiver
(by Validus) of the following condition:
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all amendments or waivers under (x) IPCs credit facilities and (y) Validus credit
facilities, in each case, as determined by Validus to be necessary to consummate the
amalgamation and the other transactions contemplated thereby, shall be in full force
and effect. |
At any time prior to the effective time of the amalgamation, the parties may, to the extent
legally permissible, waive compliance with any of the conditions contained in the amalgamation
agreement, as described under The Amalgamation AgreementAmendments and Waivers under the
Amalgamation Agreement below.
Termination
of the Amalgamation Agreement (page 69)
The amalgamation agreement may be terminated, at any time prior to the effective time, by
mutual written consent of IPC and Validus, and, subject to certain limitations described in the
amalgamation agreement, by either IPC or Validus, if any of the following occurs:
|
|
|
a regulatory approval required by the amalgamation agreement to be obtained has been
denied or any governmental authority has taken any action permanently restraining or
prohibiting the amalgamation, and such denial or action has become final and
non-appealable (unless the failure to complete the |
-11-
|
|
|
amalgamation by that date is due to a breach by the party seeking to terminate the
amalgamation agreement); |
|
|
|
the amalgamation has not been consummated on or before the later of (x) November 30,
2009 or (y) the date that is five months after the date the amalgamation agreement is
executed by all parties (unless the failure to complete the amalgamation by that date
is due to a breach by the party seeking to terminate the amalgamation agreement); |
|
|
|
|
the other partys board of directors has (1) changed its recommendation to its
shareholders, (2) failed to include such recommendation in this proxy statement, or (3)
with respect to IPC only, materially breached certain of the non-solicitation
obligations applicable to it under the amalgamation agreement; |
|
|
|
|
the other party has breached a covenant, agreement, representation or warranty that
would preclude the satisfaction of certain closing conditions and such breach is not
remedied in the 45 days following written notice to the breaching party or is not
capable of being so remedied; |
|
|
|
|
the Validus shareholders have not approved any of the matters for which their
approval is solicited for the required Validus vote or the IPC shareholders have not
approved and adopted the amalgamation agreement and approved the amalgamation at the
IPC shareholders meeting; |
|
|
|
|
the other partys good-faith estimate of such partys book value as of the day prior
to the requesting partys shareholder meeting indicates that since December 31, 2008,
either (1) the other partys book value has declined by more than 50%, or (2) the other
partys book value has declined by more than 20 percentage points greater than the
decline in the terminating partys book value during the same period (with any increase
in a partys book value since December 31, 2008, deemed to be no change for purposes of
measuring the 20 percentage point differential). |
In addition, Validus may terminate the amalgamation agreement if the total number of
dissenting IPC common shares for which appraisal rights have been properly exercised in accordance
with Bermuda law exceeds 15% of the issued and outstanding IPC common shares on the business day
immediately following the last day on which IPC shareholders can require appraisal of their common
shares. See The Amalgamation AgreementTermination of the Amalgamation Agreement.
Effects
of Termination, Remedies (page 70)
If either of the parties terminates the amalgamation agreement, the non-terminating party will
be required to pay the other a termination fee of $16 million in certain circumstances, as
described under The Amalgamation AgreementTermination of the Amalgamation AgreementEffects of
Termination; Remedies below.
-12-
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 the audited financial statements filed as part
of Validus Annual Report on Form 10-K for the year ended December 31, 2008. This financial data
should be read in conjunction with the financial statements and the related notes and other
financial information contained in Validus Annual Report on Form 10-K for the year ended December
31, 2008, which is incorporated by reference into this proxy statement and which we refer to as the
Validus 10-K. More comprehensive financial information, including managements discussion and
analysis of financial condition and results of operations, is contained in the Validus 10-K, and
the following summary is qualified in its entirety by reference to the Validus 10-K and all of the
financial information and notes contained in the Validus 10-K. See Where You Can Find More
Information on page 87.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Period Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands, except share and per share amounts) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,362,484 |
|
|
$ |
988,637 |
|
|
$ |
540,789 |
|
|
$ |
|
|
Reinsurance premiums ceded |
|
|
(124,160 |
) |
|
|
(70,210 |
) |
|
|
(63,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
1,238,324 |
|
|
|
918,427 |
|
|
|
477,093 |
|
|
|
|
|
Change in unearned premiums |
|
|
18,194 |
|
|
|
(60,348 |
) |
|
|
(170,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
1,256,518 |
|
|
|
858,079 |
|
|
|
306,514 |
|
|
|
|
|
Net investment income |
|
|
139,528 |
|
|
|
112,324 |
|
|
|
58,021 |
|
|
|
2,032 |
|
Realized gain on repurchase of debentures |
|
|
8,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on investments |
|
|
(1,591 |
) |
|
|
1,608 |
|
|
|
(1,102 |
) |
|
|
39 |
|
Net unrealized gains on investments(2) |
|
|
(79,707 |
) |
|
|
12,364 |
|
|
|
|
|
|
|
|
|
Other income |
|
|
5,264 |
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses) |
|
|
(49,397 |
) |
|
|
6,696 |
|
|
|
2,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,279,367 |
|
|
|
994,372 |
|
|
|
365,590 |
|
|
|
2,071 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
772,154 |
|
|
|
283,993 |
|
|
|
91,323 |
|
|
|
|
|
Policy acquisition costs |
|
|
234,951 |
|
|
|
134,277 |
|
|
|
36,072 |
|
|
|
|
|
General and administrative expenses(1) |
|
|
123,948 |
|
|
|
100,765 |
|
|
|
38,354 |
|
|
|
2,367 |
|
Share compensation expenses |
|
|
27,097 |
|
|
|
16,189 |
|
|
|
7,878 |
|
|
|
290 |
|
Finance expenses |
|
|
57,318 |
|
|
|
51,754 |
|
|
|
8,789 |
|
|
|
|
|
Fair value of warrants issued |
|
|
|
|
|
|
2,893 |
|
|
|
77 |
|
|
|
49,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,215,468 |
|
|
|
589,871 |
|
|
|
182,493 |
|
|
|
51,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes |
|
|
63,899 |
|
|
|
404,501 |
|
|
|
183,097 |
|
|
|
(49,708 |
) |
Taxes |
|
|
(10,788 |
) |
|
|
(1,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
53,111 |
|
|
|
402,996 |
|
|
|
183,097 |
|
|
|
(49,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period(2) |
|
|
|
|
|
|
|
|
|
|
(332 |
) |
|
|
144 |
|
Foreign currency translation adjustments |
|
|
(7,809 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
Adjustment for reclassification of losses realized in
income |
|
|
|
|
|
|
|
|
|
|
1,102 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
45,302 |
|
|
$ |
402,947 |
|
|
$ |
183,867 |
|
|
$ |
(49,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common
share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
74,677,903 |
|
|
|
65,068,093 |
|
|
|
58,477,130 |
|
|
|
58,423,174 |
|
Diluted |
|
|
75,819,413 |
|
|
|
67,786,673 |
|
|
|
58,874,567 |
|
|
|
58,423,174 |
|
Basic earnings per share |
|
$ |
0.62 |
|
|
$ |
6.19 |
|
|
$ |
3.13 |
|
|
$ |
(0.85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.61 |
|
|
$ |
5.95 |
|
|
$ |
3.11 |
|
|
$ |
(0.85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
|
$ |
0.80 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(4) |
|
|
61.5 |
% |
|
|
33.1 |
% |
|
|
29.8 |
% |
|
|
|
|
Policy acquisition cost ratio(5) |
|
|
18.7 |
% |
|
|
15.6 |
% |
|
|
11.8 |
% |
|
|
|
|
General and administrative expense ratio(6) |
|
|
12.0 |
% |
|
|
13.3. |
% |
|
|
15.1 |
% |
|
|
|
|
Expense ratio(7) |
|
|
30.7 |
% |
|
|
28.9 |
% |
|
|
26.9 |
% |
|
|
|
|
Combined ratio(8) |
|
|
92.2 |
% |
|
|
62.0 |
% |
|
|
56.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity(9) |
|
|
2.7 |
% |
|
|
26.9 |
% |
|
|
17.0 |
% |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
The following table sets forth summarized balance sheet data as of December 31, 2008, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
As of |
|
|
December 31, 2008 |
|
December 31, 2007 |
|
December 31, 2006 |
|
|
(Dollars in thousands, except share and per share amounts) |
Summary Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value |
|
$ |
2,831,537 |
|
|
$ |
2,662,021 |
|
|
$ |
1,376,387 |
|
Cash and cash equivalents |
|
|
449,848 |
|
|
|
444,698 |
|
|
|
63,643 |
|
Total assets |
|
|
4,322,480 |
|
|
|
4,144,224 |
|
|
|
1,646,423 |
|
Reserve for losses and loss expenses |
|
|
1,305,303 |
|
|
|
926,117 |
|
|
|
77,363 |
|
Unearned premiums |
|
|
539,450 |
|
|
|
557,344 |
|
|
|
178,824 |
|
Junior Subordinated Deferrable Debentures |
|
|
304,300 |
|
|
|
350,000 |
|
|
|
150,000 |
|
Total shareholders equity |
|
|
1,938,734 |
|
|
|
1,934,800 |
|
|
|
1,192,523 |
|
Book value per common share(10) |
|
|
25.64 |
|
|
|
26.08 |
|
|
|
20.39 |
|
Diluted book value per common share(11) |
|
|
23.78 |
|
|
|
24.00 |
|
|
|
19.73 |
|
|
|
|
NM |
|
Not meaningful |
|
(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. Our
Advisory Agreement with Aquiline terminated upon completion of our IPO, in connection with
which the Company recorded general and administrative expense of $3,000,000 in the year ended
December 31, 2007. |
|
(2) |
|
The Company has early 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 has no impact on the results of operations for the annual or
interim periods beginning January 1, 2007. The Companys 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 123R 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 one reverse stock split of our outstanding common shares. The stock split does not
affect our financial statements other than to the extent it decreases the number of
outstanding shares and correspondingly increases per share information for all periods
presented. The share consolidation has been reflected retroactively in these financial
statements. |
|
(4) |
|
The loss 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 Aquiline termination fee 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 loss ratio, the policy acquisition cost
ratio and the general and administrative expense ratio. |
|
(9) |
|
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 out-standing (assuming
their exercise). Diluted book value per common share is a Non-GAAP financial measure as
described under Item 7. Managements Discussion and Analysis of Financial condition and
Results of OperationsFinancial Measures. |
-14-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF IPC
The following disclosure is taken from IPCs Annual Report on Form 10-K for the year ended
December 31, 2008, except in respect of diluted book value per common share.
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 audited financial statements filed as part of IPCs
Annual Report on Form 10-K for the year ended December 31, 2008. This financial data should be
read in conjunction with the financial statements and the related notes and other financial
information contained in IPCs Annual Report on Form 10-K for the year ended December 31, 2008,
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 87.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
(in thousands, except per share amounts) |
Statement of Income (Loss) Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
403,395 |
|
|
$ |
404,096 |
|
|
$ |
429,851 |
|
|
$ |
472,387 |
|
|
$ |
378,409 |
|
Net premiums earned |
|
|
387,367 |
|
|
|
391,385 |
|
|
|
397,132 |
|
|
|
452,522 |
|
|
|
354,882 |
|
Net investment income |
|
|
94,105 |
|
|
|
121,842 |
|
|
|
109,659 |
|
|
|
71,757 |
|
|
|
51,220 |
|
Net (losses) gains on investments |
|
|
(168,208 |
) |
|
|
67,555 |
|
|
|
12,085 |
|
|
|
(10,556 |
) |
|
|
5,946 |
|
Other income |
|
|
65 |
|
|
|
1,086 |
|
|
|
3,557 |
|
|
|
5,234 |
|
|
|
4,296 |
|
Net loss and loss adjustment expenses incurred |
|
|
155,632 |
|
|
|
124,923 |
|
|
|
58,505 |
|
|
|
1,072,662 |
|
|
|
215,608 |
|
Net acquisition costs |
|
|
36,429 |
|
|
|
39,856 |
|
|
|
37,542 |
|
|
|
39,249 |
|
|
|
37,682 |
|
General and administrative expenses |
|
|
26,314 |
|
|
|
30,510 |
|
|
|
34,436 |
|
|
|
27,466 |
|
|
|
23,151 |
|
Interest expense |
|
|
2,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign exchange loss (gain) |
|
|
1,848 |
|
|
|
1,167 |
|
|
|
(2,635 |
) |
|
|
2,979 |
|
|
|
1,290 |
|
Net income (loss) |
|
$ |
90,447 |
|
|
$ |
385,412 |
|
|
$ |
394,585 |
|
|
$ |
(623,399 |
) |
|
$ |
138,613 |
|
Preferred dividend |
|
|
14,939 |
|
|
|
17,128 |
|
|
|
17,176 |
|
|
|
2,664 |
|
|
|
|
|
Net income (loss), available to common shareholders |
|
$ |
75,508 |
|
|
$ |
368,284 |
|
|
$ |
377,409 |
|
|
$ |
(626,063 |
) |
|
$ |
138,613 |
|
Net income (loss) per common share (1) |
|
$ |
1.45 |
|
|
$ |
5.53 |
|
|
$ |
5.54 |
|
|
$ |
(12.30 |
) |
|
$ |
2.87 |
|
Weighted average shares outstanding (1) |
|
|
59,301,939 |
|
|
|
69,728,229 |
|
|
|
71,212,287 |
|
|
|
50,901,296 |
|
|
|
48,376,865 |
|
Cash dividend per common share |
|
$ |
0.88 |
|
|
$ |
0.80 |
|
|
$ |
0.64 |
|
|
$ |
0.88 |
|
|
$ |
0.88 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio (2) |
|
|
40.2 |
% |
|
|
31.9 |
% |
|
|
14.7 |
% |
|
|
237.0 |
% |
|
|
60.8 |
% |
Expense ratio (2) |
|
|
16.2 |
% |
|
|
18.0 |
% |
|
|
18.1 |
% |
|
|
14.8 |
% |
|
|
17.1 |
% |
Combined ratio (2) |
|
|
56.4 |
% |
|
|
49.9 |
% |
|
|
32.8 |
% |
|
|
251.8 |
% |
|
|
77.9 |
% |
Return on average equity (3) |
|
|
4.2 |
% |
|
|
20.1 |
% |
|
|
24.0 |
% |
|
|
(38.0 |
)% |
|
|
8.6 |
% |
Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments |
|
$ |
2,235,187 |
|
|
$ |
2,473,244 |
|
|
$ |
2,485,525 |
|
|
$ |
2,560,146 |
|
|
$ |
1,901,094 |
|
Reinsurance premiums receivable |
|
|
108,033 |
|
|
|
91,393 |
|
|
|
113,811 |
|
|
|
180,798 |
|
|
|
85,086 |
|
Total assets |
|
|
2,388,688 |
|
|
|
2,627,691 |
|
|
|
2,645,429 |
|
|
|
2,778,281 |
|
|
|
2,028,290 |
|
Reserve for losses and loss adjustment expenses |
|
|
355,893 |
|
|
|
395,245 |
|
|
|
548,627 |
|
|
|
1,072,056 |
|
|
|
274,463 |
|
Unearned premiums |
|
|
85,473 |
|
|
|
75,980 |
|
|
|
80,043 |
|
|
|
66,311 |
|
|
|
68,465 |
|
Total shareholders equity |
|
$ |
1,850,947 |
|
|
$ |
2,125,745 |
|
|
$ |
1,990,955 |
|
|
$ |
1,616,400 |
|
|
$ |
1,668,439 |
|
Diluted book value per common share (4) |
|
$ |
32.85 |
(5) |
|
$ |
32.42 |
|
|
$ |
27.94 |
|
|
$ |
22.26 |
|
|
$ |
34.44 |
|
|
|
|
(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. |
-15-
|
|
|
(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 its Annual Report on Form 10-K
for the year ended December 31, 2008 and amended it to $32.85 in the amendment to the IPC/Max
S-4. |
-16-
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.
You should read the following condensed consolidated pro forma financial information in
conjunction with Validus Annual Report on Form 10-K for the year ended December 31, 2008 and
IPCs Annual Report on Form 10-K for the year ended
December 31, 2008, each as filed with the
Securities and Exchange Commission.
-17-
The following table presents unaudited condensed consolidated pro forma balance sheet data at
December 31, 2008 (expressed in thousands of U.S. dollars,
except share and per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
|
|
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
Validus |
|
|
Historical IPC |
|
|
Purchase |
|
|
|
|
|
|
Pro Forma |
|
|
|
Holdings, Ltd. |
|
|
Holdings, Ltd. |
|
|
adjustments |
|
|
Notes |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value |
|
$ |
2,454,501 |
|
|
$ |
1,793,020 |
|
|
$ |
|
|
|
|
|
|
|
$ |
4,247,521 |
|
Short-term investments, at fair value |
|
|
377,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,036 |
|
Equity investments, at fair value |
|
|
|
|
|
|
365,147 |
|
|
|
|
|
|
|
|
|
|
|
365,147 |
|
Cash and cash equivalents |
|
|
449,848 |
|
|
|
77,020 |
|
|
|
(85,000 |
) |
|
|
3 |
(a) |
|
|
441,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash |
|
|
3,281,385 |
|
|
|
2,235,187 |
|
|
|
(85,000 |
) |
|
|
|
|
|
|
5,431,572 |
|
Premiums receivable |
|
|
408,259 |
|
|
|
108,033 |
|
|
|
|
|
|
|
|
|
|
|
516,292 |
|
Deferred acquisition costs |
|
|
108,156 |
|
|
|
9,341 |
|
|
|
|
|
|
|
|
|
|
|
117,497 |
|
Prepaid reinsurance premiums |
|
|
22,459 |
|
|
|
2,165 |
|
|
|
|
|
|
|
|
|
|
|
24,624 |
|
Securities lending collateral |
|
|
98,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,954 |
|
Loss reserves recoverable |
|
|
208,796 |
|
|
|
2,771 |
|
|
|
|
|
|
|
|
|
|
|
211,567 |
|
Paid losses recoverable |
|
|
1,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388 |
|
Net receivable for investments sold |
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490 |
|
Accrued investment income |
|
|
20,433 |
|
|
|
27,717 |
|
|
|
|
|
|
|
|
|
|
|
48,150 |
|
Current taxes recoverable |
|
|
1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,365 |
|
Intangible assets |
|
|
127,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,217 |
|
Goodwill |
|
|
20,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,393 |
|
Other assets |
|
|
23,185 |
|
|
|
3,474 |
|
|
|
|
|
|
|
|
|
|
|
26,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,322,480 |
|
|
$ |
2,388,688 |
|
|
$ |
(85,000 |
) |
|
|
|
|
|
$ |
6,626,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premiums |
|
$ |
539,450 |
|
|
$ |
85,473 |
|
|
|
|
|
|
|
|
|
|
$ |
624,923 |
|
Reserve for losses and loss expense |
|
|
1,305,303 |
|
|
|
355,893 |
|
|
|
|
|
|
|
|
|
|
|
1,661,196 |
|
Reinsurance balances payable |
|
|
33,042 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
33,670 |
|
Deferred taxation |
|
|
21,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,779 |
|
Securities lending payable |
|
|
105,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,688 |
|
Bank loan payable |
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
Accounts payable and accrued expenses |
|
|
74,184 |
|
|
|
20,747 |
|
|
|
|
|
|
|
|
|
|
|
94,931 |
|
Debentures payable |
|
|
304,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,383,746 |
|
|
|
537,741 |
|
|
|
|
|
|
|
|
|
|
|
2,921,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
13,235 |
|
|
|
561 |
|
|
|
11,328 |
|
|
|
3(a), 3(b), 3 |
(c) |
|
|
25,124 |
|
Additional paid-in capital |
|
|
1,412,635 |
|
|
|
1,089,002 |
|
|
|
591,431 |
|
|
|
3(a), 3(b), 3 |
(c) |
|
|
3,093,068 |
|
Accumulated other comprehensive loss |
|
|
(7,858 |
) |
|
|
(876 |
) |
|
|
876 |
|
|
|
3 |
(c) |
|
|
(7,858 |
) |
Retained earnings |
|
|
520,722 |
|
|
|
762,260 |
|
|
|
(688,635 |
) |
|
|
3(a), 3(c), 3 |
(e) |
|
|
594,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
1,938,734 |
|
|
|
1,850,947 |
|
|
|
(85,000 |
) |
|
|
|
|
|
|
3,704,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
4,322,480 |
|
|
$ |
2,388,688 |
|
|
$ |
(85,000 |
) |
|
|
|
|
|
$ |
6,626,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
75,624,697 |
|
|
|
55,943,297 |
|
|
|
67,338,947 |
|
|
|
|
|
|
|
142,963,644 |
|
Common shares and common share
equivalents outstanding |
|
|
90,091,403 |
|
|
|
56,440,530 |
|
|
|
67,937,467 |
|
|
|
|
|
|
|
158,028,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
|
$ |
25.64 |
|
|
$ |
33.09 |
|
|
|
|
|
|
|
7 |
|
|
$ |
25.91 |
|
Diluted book value per share |
|
$ |
23.78 |
|
|
$ |
32.79 |
|
|
|
|
|
|
|
7 |
|
|
$ |
24.73 |
|
Diluted tangible book value per share |
|
$ |
22.14 |
|
|
$ |
32.79 |
|
|
|
|
|
|
|
|
|
|
$ |
23.80 |
|
-18-
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Validus |
|
|
Historical IPC |
|
|
Pro Forma Pur- |
|
|
|
|
|
|
Pro Forma |
|
|
|
Holdings, Ltd. |
|
|
Holdings, Ltd. |
|
|
chase adjustments |
|
|
Notes |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,362,484 |
|
|
$ |
403,395 |
|
|
$ |
(251 |
) |
|
|
3 |
(d) |
|
$ |
1,765,628 |
|
Reinsurance premiums ceded |
|
|
(124,160 |
) |
|
|
(6,122 |
) |
|
|
251 |
|
|
|
3 |
(d) |
|
|
(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 |
|
|
|
(2,438 |
) |
|
|
3 |
(a) |
|
|
231,195 |
|
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 gains (losses) |
|
|
(49,397 |
) |
|
|
(1,848 |
) |
|
|
|
|
|
|
|
|
|
|
(51,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,279,367 |
|
|
|
311,481 |
|
|
|
(2,438 |
) |
|
|
|
|
|
|
1,588,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense |
|
|
772,154 |
|
|
|
155,632 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(2,438 |
) |
|
|
|
|
|
|
151,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense |
|
|
(10,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
$ |
53,111 |
|
|
$ |
90,447 |
|
|
$ |
(2,438 |
) |
|
|
|
|
|
$ |
141,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and warrant dividend |
|
|
6,947 |
|
|
|
14,939 |
|
|
|
(14,939 |
) |
|
|
3 |
(f) |
|
|
6,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
46,164 |
|
|
$ |
75,508 |
|
|
$ |
12,501 |
|
|
|
|
|
|
$ |
134,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
and common
share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
74,677,903 |
|
|
|
52,124,034 |
|
|
|
67,338,947 |
|
|
|
|
|
|
|
142,016,850 |
|
Diluted |
|
|
75,819,413 |
|
|
|
59,301,939 |
|
|
|
67,937,467 |
|
|
|
|
|
|
|
143,756,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.62 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
6 |
|
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.61 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
6 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
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)
1. Basis of Presentation
The unaudited condensed consolidated pro forma financial information gives effect to the
proposed acquisition as if it had occurred at December 31, 2008 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 statement of operations for the year ended December 31,
2008. 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
December 31, 2008 and the unaudited condensed consolidated pro forma statement of operations for
the year ended December 31, 2008 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) |
|
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 from the IPC 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
-20-
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)
financial information should be read in
conjunction with Validus Annual Report on Form 10-K for the year ended December 31, 2008, as
filed with the Securities and Exchange Commission.
2. Recent Accounting Pronouncements
In December 2007, the FASB issued Statement No. 141(R), Business Combinations (FAS 141(R))
which is 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 and impacting these pro
forma financial statements include the determination of the purchase price, treatment of
transaction expenses, restructuring costs and negative goodwill as
follows:
|
|
|
Purchase Price Previously, the date the business combination was announced could
be used as the effective date in determining the 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; |
|
|
|
|
Transaction Expenses Previously, costs associated with purchase transactions
could be capitalized and included as part of transaction purchase price, adding to the
amount of goodwill recognized. Under FAS 141(R), all such costs must be expensed as
incurred; |
|
|
|
|
Restructuring Costs 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. 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, and therefore included as transaction costs, are those
for which an acquirer is obligated at the time of the closing; and |
|
|
|
|
Negative Goodwill/Bargain Purchases Previously, if the total fair value of net
assets acquired (assets less liabilities assumed) exceeded the consideration paid,
there was a pro rata reduction of the assets assumed to allow the net assets acquired
to equal the consideration paid. Under FAS 141(R), instead of allocating this negative
goodwill to reduce the carrying value of assets assumed, the acquirer will book a gain
as a result of the bargain purchase, to be recognized through the income statement at
the close of the transaction. |
3. Purchase adjustments
On March 31, 2009, Validus announced that it delivered a binding offer letter (the Offer
Letter) to the Board of Directors of IPC Holdings, Ltd. (IPC) pursuant to which Validus and IPC
would amalgamate (the Amalgamation) in a share-for-share exchange valuing IPC shares at an 18.0%
premium to IPCs closing market price on March 30, 2009, subject to the terms and conditions set
forth in the Offer Letter and in an Agreement and Plan of Amalgamation (the Amalgamation
Agreement) that was signed by Validus and delivered to IPC with the Offer Letter.
Validus proposed an amalgamation with IPC at an exchange ratio of 1.2037 Validus shares per
outstanding IPC share, providing a value per IPC share of $29.98 or an 18.0% premium to IPCs
closing share price as of March 30, 2009 (the date immediately
preceding the deliverance of the Offer Letter).
-21-
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 Board of Directors of Validus has unanimously approved the submission of its binding offer
and the delivery of the signed Amalgamation Agreement so that, upon a termination of IPCs
Agreement and Plan of Amalgamation with Max Capital Group Ltd., dated as of March 1, 2009 and
amended as of March 5, 2009 (the Max Plan of Amalgamation), IPC will be able to sign the
Amalgamation Agreement with the certainty of an agreed transaction. Validus 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.
Validus has reserved the right to withdraw its binding offer if the Board of Directors of IPC
has not reached a determination (i) that Validus binding offer constitutes a Superior Proposal (as
defined in the Max Plan of Amalgamation), (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 Validus binding offer by 5:00 p.m., Bermuda time, on Wednesday, April 15, 2009.
Validus has further reserved the right to withdraw its binding offer if IPC subsequently withdraws
its recommendation in favor of Validus offer or if IPC does not sign the Amalgamation Agreement
within two business days after the termination of the Max Plan of Amalgamation.
In connection with the IPC acquisition, transaction costs currently estimated at $35,000 will
be incurred and expensed. Of this amount, $15,000 relates to Validus expenses as set forth in The Amalgamation 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 IPCs Agreement and Plan of
Amalgamation with Max Capital Group Ltd., a break-up fee of $50,000 (the Max Termination Fee)
will be incurred and expensed.
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 December 31,
2008 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.
The share prices for both Validus and IPC used in determining the preliminary estimated
purchase price are based on the closing share prices on
March 30, 2009 (the date immediately preceding the deliverance
of the Offer Letter). The preliminary total
purchase price is calculated as follows:
Calculation of Total Purchase Price
|
|
|
|
|
IPC common shares outstanding as of February 23, 2009 |
|
|
55,943,297 |
|
IPC shares issued pursuant to option exercises |
|
|
3,818 |
|
IPC shares issued following vesting of restricted shares, RSUs and PSUs |
|
|
493,415 |
|
|
|
|
|
Total IPC common shares prior to transaction |
|
|
56,440,530 |
|
Exchange ratio |
|
|
1.2037 |
|
|
|
|
|
Total Validus common shares to be issued |
|
|
67,937,467 |
|
Validus closing share price on March 30, 2009 |
|
$ |
24.91 |
|
|
|
|
|
Total purchase price (a) |
|
$ |
1,692,322 |
|
The allocation of the purchase price is as follows:
Allocation of Purchase Price
|
|
|
|
|
IPC shareholders equity (b) |
|
$ |
1,850,947 |
|
Total purchase price |
|
$ |
1,692,322 |
|
|
|
|
|
Negative goodwill (a b) |
|
$ |
158,625 |
|
|
|
|
|
|
(a) |
|
In connection with the IPC acquisition, 67,937,467 shares are expected to be
issued resulting in additional share capital of $11,889 and Additional Paid-In Capital
of $1,680,433. |
|
|
|
|
In addition, transaction costs currently estimated at $35,000 and
the Max Termination Fee of $50,000 will be incurred and expensed by the
consolidated entity. Based on an expected investment |
-22-
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)
|
|
|
return of 3.75%, investment income of $2,438 would have been foregone during
2008 had these payments been made. |
|
(b) |
|
Employees of IPC hold 526,000 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 $34.31. It is
expected that 3,818 net shares would be issued upon exercise of these options. |
|
|
(c) |
|
Elimination of IPCs Ordinary Shares of $561, Additional Paid in Capital of
$1,089,002, Accumulated Other Comprehensive Loss of $876 and Retained Earnings of
$762,260. |
|
|
(d) |
|
A related party balance of $251 representing reinsurance ceded to IPC by
Validus was eliminated from gross premiums written and reinsurance ceded. These
policies were fully earned and expensed respectively at year end and had no other
effect on the pro forma financial statements. |
|
|
(e) |
|
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 acquisition-date fair value of the identifiable net assets acquired
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 $158,625 has
been recorded as a credit to retained earnings as upon completion of the amalgamation
negative goodwill will be treated as a gain in the consolidated statement of
operations. |
|
|
(f) |
|
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. |
-23-
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)
4. Gross Premiums Written
The following table sets forth the gross premiums written by Validus, IPC and pro forma
combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
Validus Re |
|
Validus |
|
|
IPC (a) |
|
|
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. |
|
(c) |
|
Proportional is comprised of Quota Share and Surplus Share. |
-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)
5. Selected ratios
Selected ratios of Validus, IPC and pro forma combined are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
|
Validus |
|
IPC |
|
combined |
Losses and loss expenses ratios |
|
|
61.5 |
% |
|
|
40.2 |
% |
|
|
56.4 |
% |
Policy acquisition costs ratios |
|
|
18.7 |
|
|
|
9.4 |
|
|
|
16.5 |
|
General and administrative cost ratios |
|
|
12.0 |
|
|
|
6.8 |
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
92.2 |
% |
|
|
56.4 |
% |
|
|
83.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Factors affecting the Validus 2008 Loss Ratio |
|
|
|
|
The loss 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 loss 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
loss ratio, respectively. Other notable loss events added $45,895 of 2008
loss expense or 3.7 percentage points of the loss ratio bringing the total effect of
aforementioned events on the 2008 loss ratio to 26.2 percentage points. Favorable
loss development on prior years totaled $69,702. Favorable loss reserve
development benefited Validus loss ratio for the year ended December 31, 2008 by
5.5 percentage points. |
|
|
(b) |
|
Factors affecting the IPC 2008 Loss Ratio |
|
|
|
|
The data in the following paragraph is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in IPCs
Annual Report on Form 10-K for the year ended December 31, 2008.
Such disclosure was not made in thousands of U.S.
dollars, and the data has been reproduced here as it was
originally presented. |
|
|
|
|
IPCs loss 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 loss 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
loss ratio for the year ended December 31, 2008 by 13.5 percentage points. |
6. Earnings per Common Share
(a) |
|
Pro forma earnings per common share for the year ended December 31, 2008 has been calculated
based on the estimated weighted average number of common shares outstanding on a pro forma
basis, as described in 6(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. |
|
(b) |
|
The pro forma weighted average number of common shares outstanding for the year ended
December 31, 2008, after giving effect to the exchange of shares as if the acquisition shares
had been issued and outstanding for the whole year, is 142,016,850 and 143,756,880, basic and
diluted, respectively. |
-25-
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)
(c) |
|
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 |
|
|
$ |
134,173 |
|
|
|
|
|
|
|
|
Weighted average shares basic ordinary shares outstanding |
|
|
74,677,903 |
|
|
|
142,016,850 |
|
Share equivalents |
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
Restricted Shares |
|
|
1,004,809 |
|
|
|
1,598,733 |
|
Options |
|
|
136,701 |
|
|
|
141,297 |
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
75,819,413 |
|
|
|
143,756,880 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.62 |
|
|
$ |
0.94 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.61 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
7. Book Value per Share
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 Amalgamation:
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
|
|
|
|
Validus |
|
|
Pro Forma |
|
|
|
Holdings |
|
|
Consolidated |
|
Book value per common share calculation |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
1,938,734 |
|
|
$ |
3,704,681 |
|
Shares |
|
|
75,624,697 |
|
|
|
142,963,644 |
|
Book value per common share |
|
$ |
25.64 |
|
|
$ |
25.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share calculation |
|
|
|
|
|
|
|
|
Total Shareholders equity |
|
$ |
1,938,734 |
|
|
$ |
3,704,681 |
|
Proceeds of assumed exercise of outstanding warrants |
|
$ |
152,315 |
|
|
$ |
152,316 |
|
Proceeds of assumed exercise of outstanding stock options |
|
$ |
51,043 |
|
|
$ |
51,043 |
|
Unvested restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,142,093 |
|
|
$ |
3,908,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
75,624,697 |
|
|
|
142,963,644 |
|
Warrants |
|
|
8,680,149 |
|
|
|
8,680,149 |
|
Options |
|
|
2,799,938 |
|
|
|
2,804,534 |
|
Unvested restricted shares |
|
|
2,986,619 |
|
|
|
3,580,543 |
|
|
|
|
90,091,403 |
|
|
|
158,028,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share |
|
$ |
23.78 |
|
|
$ |
24.73 |
|
-26-
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)
8. Capitalization
The following table sets forth the computation of debt to total capitalization and debt
(excluding debentures payable) to total capitalization, adjusted for the Amalgamation:
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
|
|
|
|
Validus |
|
|
Pro Forma |
|
|
|
Holdings |
|
|
Consolidated |
|
Total debt |
|
|
|
|
|
|
|
|
Bank loan payable |
|
$ |
|
|
|
$ |
75,000 |
|
Borrowings drawn under credit facility |
|
|
|
|
|
|
|
|
Debentures payable |
|
|
304,300 |
|
|
|
304,300 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
304,300 |
|
|
$ |
379,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
1,938,734 |
|
|
$ |
3,704,681 |
|
Bank loan payable |
|
|
|
|
|
|
75,000 |
|
Borrowings drawn under credit facility |
|
|
|
|
|
|
|
|
Debentures payable |
|
|
304,300 |
|
|
|
304,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
2,243,034 |
|
|
$ |
4,083,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization |
|
|
13.6 |
% |
|
|
9.3 |
% |
Debt
(excluding debentures payable) to total capitalization |
|
|
0.0 |
% |
|
|
1.8 |
% |
-27-
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. 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. 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 period
indicated. The unaudited pro forma data is not necessarily indicative of future operations of
Validus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
Historical |
|
Historical |
|
Validus |
|
Per IPC |
|
|
Validus |
|
IPC |
|
Pro forma |
|
Share(2) |
|
|
(for the Year Ended December 31, 2008) |
Basic earnings per
common share |
|
$ |
0.62 |
|
|
$ |
1.45 |
|
|
$ |
0.94 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per common share(1) |
|
$ |
0.61 |
|
|
$ |
1.45 |
|
|
$ |
0.93 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared per common
share |
|
$ |
0.80 |
|
|
$ |
0.88 |
|
|
$ |
0.80 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
common share (at
period end) |
|
$ |
25.64 |
|
|
$ |
33.00 |
|
|
$ |
25.91 |
|
|
$ |
31.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted book value
per common share |
|
$ |
23.78 |
|
|
$ |
32.85 |
(3) |
|
$ |
24.73 |
|
|
$ |
29.77 |
|
|
|
|
(1) |
|
Anti-dilution provisions apply to 2008. There is no effect of stock-based compensation and
preference shares because they are anti-dilutive. |
|
(2) |
|
Equivalent per share amounts are calculated by
multiplying Validus pro forma per share amounts by the
proposed amalgamation exchange ratio of 1.2037. |
|
(3) |
|
IPC reported diluted book value per common share as $33.07 in its Annual Report on Form 10-K
for the year ended December 31, 2008 and amended it to $32.85 in the amendment to the IPC/Max
S-4. |
-28-
MARKET PRICE AND DIVIDEND INFORMATION
The IPC market price and dividend information is taken in its entirety from the IPC/Max S-4.
See Sources of Additional Information above.
Validus and IPCs common shares are quoted on the NYSE and Nasdaq, respectively, under the
ticker symbol VR and IPCR, respectively. The following table sets out the high and low prices
for Validus common shares per fiscal quarter commencing from Validus IPO on July 25, 2007 as
reported by the NYSE and for IPCs common shares per fiscal quarter for the last three fiscal years
as reported by Nasdaq. These prices reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and do not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
26.22 |
|
|
$ |
23.00 |
|
|
$ |
0.20 |
|
|
$ |
29.10 |
|
|
$ |
24.67 |
|
|
$ |
0.22 |
|
Second Quarter |
|
$ |
23.72 |
|
|
$ |
20.11 |
|
|
$ |
0.20 |
|
|
$ |
31.11 |
|
|
$ |
26.51 |
|
|
$ |
0.22 |
|
Third Quarter |
|
$ |
24.70 |
|
|
$ |
20.00 |
|
|
$ |
0.20 |
|
|
$ |
33.75 |
|
|
$ |
26.29 |
|
|
$ |
0.22 |
|
Fourth Quarter |
|
$ |
26.16 |
|
|
$ |
14.84 |
|
|
$ |
0.20 |
|
|
$ |
31.40 |
|
|
$ |
19.01 |
|
|
$ |
0.22 |
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
34.35 |
|
|
$ |
27.64 |
|
|
$ |
0.20 |
|
Second Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
32.67 |
|
|
$ |
28.41 |
|
|
$ |
0.20 |
|
Third Quarter |
|
$ |
25.28 |
|
|
$ |
21.11 |
|
|
|
N/A |
|
|
$ |
33.18 |
|
|
$ |
23.30 |
|
|
$ |
0.20 |
|
Fourth Quarter |
|
$ |
26.59 |
|
|
$ |
24.73 |
|
|
|
N/A |
|
|
$ |
30.45 |
|
|
$ |
26.67 |
|
|
$ |
0.20 |
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
28.70 |
|
|
$ |
25.71 |
|
|
$ |
0.16 |
|
Second Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
28.25 |
|
|
$ |
23.81 |
|
|
$ |
0.16 |
|
Third Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
30.63 |
|
|
$ |
24.50 |
|
|
$ |
0.16 |
|
Fourth Quarter |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
31.97 |
|
|
$ |
29.11 |
|
|
$ |
0.16 |
|
The following table sets out the trading information for Validus common shares and IPC common
shares on March 30, 2009, the last full trading day before Validus public announcement of delivery
of the Validus Offer to the board of directors of IPC with respect to the proposed amalgamation
with IPC, and , 2009, the last practicable trading day for which information was
available before first mailing of this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
Validus com- |
|
IPC common |
|
Validus Per |
|
|
mon share close |
|
share close |
|
share Amount |
March 30, 2009 |
|
$ |
24.91 |
|
|
$ |
25.41 |
|
|
$ |
29.98 |
|
, 2009 |
|
$ |
|
|
|
$ |
|
|
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$ |
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Equivalent per share amounts are calculated by multiplying Validus per share amounts by the
proposed amalgamation exchange ratio of 1.2037.
-29-
FORWARD-LOOKING STATEMENTS
This proxy statement may include forward-looking statements, both with respect to Validus and
its industry, that reflect Validus 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. 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. Validus believes that these factors include, but are not
limited to, the following: 1) uncertainty as to whether IPC will enter into and consummate the
proposed amalgamation on the terms set forth in the Validus Offer; 2) unpredictability and severity
of catastrophic events; 3) rating agency actions; 4) adequacy of risk management and loss
limitation methods; 5) cyclicality of demand and pricing in the insurance and reinsurance markets;
6) Validus limited operating history; 7) Validus or IPCs ability to successfully implement their
respective business strategies during soft as well as hard markets; 8) adequacy of loss
reserves; 9) continued availability of capital and financing; 10) retention of key personnel; 11)
competition; 12) potential loss of business from one or more major insurance or reinsurance
brokers; 13) the 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; 14) general
economic and market conditions (including inflation, volatility in the credit and capital markets,
interest rates and foreign currency exchange rates); 15) the integration of Talbot Holding, Ltd.,
with respect to Validus, or other businesses Validus may acquire or new business ventures Validus
may start including, without limitation, the amalgamation with IPC; 16) the effect on the
investment portfolios of changing financial market conditions including inflation, interest rates,
liquidity and other factors; 17) acts of terrorism or outbreak of war; and 18) availability of
reinsurance and retrocessional coverage, 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 Validus 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 Securities and Exchange Commission. 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, Validus or its businesses or operations. Validus undertakes no
obligation to update publicly or revise any forward-looking statement, whether as a result of new
information, future developments or otherwise.
-30-
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 share
issuance and the adjournment proposal. This proposal is described in this proxy statement under
Proposals to Be Submitted to
Validus Shareholders Vote; Voting Requirements and Recommendations
beginning on page 78. 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
amalgamation, described in Item 1A of each companys annual report on Form 10-K for the year ended
December 31, 2008, each of which is 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 Validus
could be materially adversely affected.
Risks Related to the Validus Offer
The Validus Offer remains subject to conditions that Validus may not control.
The Validus Offer is subject to a number of conditions, including the termination of the Max
Amalgamation Agreement, receipt of regulatory approvals, receipt of amendments or waivers under
Validus and IPCs credit facilities and the approval of the amalgamation by IPCs shareholders.
There are no assurances that all of the conditions to the Validus Offer will be satisfied. If the
conditions to the Validus Offer are not met, the ongoing business of Validus may be adversely
affected as follows:
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the attention of management of Validus will have been diverted to the Validus Offer
instead of being directed solely to Validus own operations and pursuit of other
opportunities that could have been beneficial to Validus; |
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Validus will have to pay certain costs relating to the Validus Offer, including
certain legal, accounting and financial advisory fees. |
The Validus Offer is not conditioned on due diligence in respect of IPC.
Pursuant to the terms of the Max Amalgamation Agreement, IPC is not permitted to engage in
discussions with Validus. Although Validus has requested information from IPC, Validus access to
information is limited to IPCs publicly available information, including IPCs annual report on
Form 10-K and the IPC/Max S-4. As a result, the Validus Offer is not subject to Validus or its
advisors performing a due diligence investigation. As a U.S. public reporting entity, IPC is
subject to the federal securities laws and the Sarbanes-Oxley Act of 2002, which carry civil and
criminal penalties for false and misleading statements. However, there can be no assurance that
there does not exist a material adverse fact or circumstance about IPC that has not been publicly
disclosed and that could materially adversely affect Validus.
Risks Related to the Amalgamation if the Amalgamation Agreement Is Signed by IPC
Failure to complete the amalgamation could negatively impact Validus.
The amalgamation agreement has not yet been signed by IPC and contains a number of conditions
precedent that must be satisfied or waived prior to the consummation of the amalgamation. In
addition, the amalgamation agreement may be terminated under certain circumstances. In addition to
customary termination provisions contained in agreements of this nature, Validus may terminate the
amalgamation agreement if the total number of dissenting IPC common shares for which appraisal
rights have been exercised pursuant to Bermuda law exceeds 15% of the issued and outstanding IPC
common shares on the business day immediately following the last day on which IPC shareholders can
require appraisal for their common shares. See The Amalgamation AgreementTermination
of the Amalgamation Agreement on page 69 for a complete description of the circumstances
under which the amalgamation agreement can be terminated.
-31-
If the amalgamation agreement is signed by IPC but the amalgamation is not completed, the
ongoing business of Validus may be adversely affected as follows:
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the attention of management of Validus will have been diverted to the amalgamation
instead of being directed solely to Validus own operations and pursuit of other
opportunities that could have been beneficial to Validus; |
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Validus will have to pay certain costs relating to the amalgamation, including
certain legal, accounting and financial advisory fees; and |
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Validus may be required, in certain circumstances, if the amalgamation agreement is
signed by IPC, to pay a termination fee of $16 million to IPC. |
Validus may waive one or more of the conditions to the amalgamation without resoliciting or
seeking additional shareholder approval for the amalgamation.
Each of the conditions to Validus obligations to complete the amalgamation, may be waived, in
whole or in part, to the extent permitted by applicable law, by Validus. The board of directors of
Validus will evaluate the materiality of any such waiver to determine whether amendment of this
proxy statement and resolicitation of proxies is necessary or, if shareholder approval has been
received, whether further shareholder approval is necessary. In the event that any such waiver is
not determined to be significant enough to require resolicitation or additional approval of
shareholders, the companies may complete the amalgamation without seeking further shareholder
approval.
If the Amalgamation Agreement is signed by IPC, potential payments made to dissenting IPC
shareholders in respect of their rights to appraisal of their shares could exceed the amount of
consideration otherwise due to them under the terms of the amalgamation agreement.
Any IPC shareholder may apply, within one month after the date of giving of notice convening
the IPC special meeting in connection with the Validus Offer, for an appraisal of the fair value of
its IPC common shares. Unless Validus has terminated the amalgamation agreement because the number
of dissenting shares is greater than 15% of the issued and outstanding IPC common shares (see The
Amalgamation AgreementTermination of the Amalgamation Agreement
Termination on page 69), then
Validus may be required to pay the fair value appraised by the court to such dissenting
shareholder. Any such payments may have a material adverse effect on Validus business, financial
condition and operating results.
-32-
Risks
Related to Validus Following the Acquisition
Validus may experience difficulties integrating IPCs businesses, which could cause Validus to
fail to realize the anticipated benefits of the acquisition.
If the acquisition is consummated, achieving the anticipated benefits of the acquisition
will depend in part upon whether the two companies integrate their businesses in an efficient and
effective manner. The companies may not be able to accomplish this integration process smoothly or
successfully. The integration of certain operations following the acquisition will take time and
will require the dedication of significant management resources, which may temporarily distract
managements attention from the routine business of Validus. Any delay or inability of management
to successfully integrate the operations of the two companies could compromise Validus potential
to achieve the long-term strategic benefits of the acquisition and could have a material adverse
effect on the business, financial condition and operating results of Validus after the acquisition.
The acquisition may result in a ratings downgrade of one or more of Validus reinsurance
subsidiaries (including the newly acquired IPC operating companies) which may adversely affect
Validus business, financial condition and operating results, as well as the market price of its
common shares.
Ratings with respect to claims paying ability and financial strength are important factors in
maintaining customer confidence in Validus and its ability to market insurance and reinsurance
products and compete with other insurance and reinsurance companies. Rating organizations
regularly analyze the financial performance and condition of insurers and reinsurers and will
likely place the ratings of Validus and its reinsurance subsidiaries
under review following an agreement by Validus to acquire IPC. While
each of Standard & Poors and A.M. Best have stated that
they will not take any current action with respect to Validus ratings following the announcement of the Validus Offer to IPC,
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 issuer credit rating of bbb, A.M. Best
has also indicated that each of these IPC ratings is under review with negative implications in
connection with the Proposed Max Amalgamation. A.M. Best and the other ratings agencies would most
likely provide similar scrutiny and analysis to the proposed acquisition of IPC by Validus.
Following the acquisition, any ratings downgrades, or the potential for ratings downgrades, of
Validus or its subsidiaries (including the newly acquired IPC operating companies) could adversely
affect Validus ability to market and distribute products and services and successfully compete in
the marketplace, which could have a material adverse effect on its business, financial condition
and operating results, as well as the market price for Validus common shares.
The
occurrence of severe catastrophic events after the acquisition may cause Validus net income
to be more volatile than if the acquisition did not take place.
For the year ended December 31, 2008, Validus gross premiums written on property catastrophe
business were $328.2 million or 24.1% of total gross premiums written. For the year ended
December 31, 2008, 93% of IPCs gross premiums written covered property catastrophe reinsurance
risks. For the year ended December 31, 2008, after giving effect
to the acquisition as if it had
been consummated on December 31, 2008, gross premiums written in property catastrophe business
would have been $661.9 or 37.5% of total gross premiums of Validus on a pro forma basis. Because
Validus after the 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. See Unaudited Condensed Consolidated Pro Forma
Financial Information.
-33-
THE AMALGAMATION
General Description
On March 31, 2009, Validus publicly announced that it had delivered a binding offer to IPC
presenting a proposal, which we refer to as the Validus Offer, for the amalgamation of Validus
and IPC whereby each IPC common share would be exchanged for 1.2037 Validus voting common shares,
par value $0.175 per share, which we refer to as the Validus Shares. In connection with the
delivery of the Validus Offer to IPC, Validus delivered a signed amalgamation agreement that would
be binding on Validus upon countersignature by IPC, which we refer to as the amalgamation
agreement. IPC announced on April 7, 2009 that its board of directors determined that the Validus
Offer does not constitute a superior proposal under the terms of the Max Amalgamation Agreement
and reaffirmed its support of the Proposed Max Amalgamation. As of March 31, 2009 the Validus
Offer had a value of $29.98 per IPC common share, or approximately $1.68 billion in the aggregate,
which represented an 18% premium to the closing market price of the IPC common shares on March 30,
2009, and a 24% premium over $24.26, which was the average closing price of the IPC common shares
between March 2, 2009, the day IPC and Max announced the Proposed Max Amalgamation, and March 30,
2009, the last trading day before Validus announced the Validus Offer.
Subject to IPC signing the amalgamation agreement, shareholder approval as described in this
proxy statement and the satisfaction or waiver of the other conditions specified in the
amalgamation agreement, on the closing date of the amalgamation, which we refer to as the closing
date or closing, IPC will amalgamate with Validus Ltd. Pursuant to the amalgamation agreement,
after the effective time, which we refer to as the effective time, IPC shareholders (including
the shareholders that do not vote in favor of the amalgamation) will have the right to receive
1.2037 Validus Shares and cash in lieu of fractional shares in exchange for each IPC common share
they hold, unless they exercised appraisal rights pursuant to Bermuda law.
Further details relating to the structure of the amalgamation and the amalgamation
consideration are described in The Amalgamation AgreementStructure of the Amalgamation and The
Amalgamation Agreement Amalgamation Consideration below.
Background of the Amalgamation
On March 2, 2009, IPC and Max announced that they had entered into the Max Amalgamation
Agreement. The IPC/Max S-4 provides a summary of the events leading to Max and IPC entering into
the Max Amalgamation Agreement.
In the morning of March 31, 2009, Edward J. Noonan, the Chief Executive Officer and Chairman
of the Board of Validus, placed a telephone call to James P. Bryce, the Chief Executive Officer and
President of IPC. Mr. Noonan spoke with Mr. Bryce and explained that Validus intended to make an
offer to exchange each outstanding IPC common share for 1.2037 Validus 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 Validus Offer to IPCs Board of Directors in care of Mr. Bryce and issued a
press release announcing the Validus Offer. The letter reads as follows:
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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
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Re:
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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 offer pursuant to which Validus
and IPC would amalgamate in a share-for-share exchange valuing IPC shares at an 18.0%
premium to yesterdays closing market price. We believe that an amalgamation of Validus and
IPC would represent a compelling combination and excellent strategic fit and create superior
value for our respective shareholders.
We unquestionably would have preferred to work cooperatively with you to complete a
negotiated transaction. However, it was necessary to communicate our binding offer to you
by letter because of the provisions of the Agreement and Plan of Amalgamation between IPC
and Max Capital Group Ltd. (Max), dated as of March 1, 2009, as amended on March 5, 2009
(the Max Plan of Amalgamation). We have reviewed the Max Plan of Amalgamation and see
that it contemplates your receipt of acquisition proposals. Given the importance of our
binding offer to our respective shareholders, we have decided to make this letter public.
Our binding offer involves a share-for-share exchange valuing IPC shares at an 18.0%
premium to yesterdays closing market price. Consistent with that, we are prepared to
amalgamate with IPC at a fixed exchange ratio of 1.2037 Validus shares per IPC share.
Our board of directors has unanimously approved the submission of our binding offer and
delivery of the enclosed signed amalgamation agreement, so that, upon termination of the Max
Plan of Amalgamation, you will be able to sign the enclosed agreement with the certainty of
an agreed transaction. Our offer is structured as a tax-free share-for-share transaction
and does not require any external financing. It is not conditioned on due diligence. The
only conditions to our offer are those contained in the enclosed executed amalgamation
agreement.
Our binding offer is clearly superior to the Max transaction for your shareholders and
is a Superior Proposal as defined in section 5.5(f) of the Max Plan of Amalgamation for the
reasons set forth below.
Superior Current Value. Our proposed transaction will provide superior
current value for your shareholders. Our fixed exchange ratio of 1.2037 represents
a value of $29.98 per IPC share, which is a premium of 18.0% to the closing price of
IPCs common shares on March 30, 2009.
Superior Trading Characteristics. Validus common shares have superior
trading characteristics to those of Max as noted in the table below.
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Validus |
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Max |
Share Price Change Since Validus IPO (1) |
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+13.2% |
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-36.5% |
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Mkt. Cap as of 3/30/09 |
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$ 2.0 billion |
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$ 0.9 billion |
Average Daily Trading Volume (2) |
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$ 11.3 million |
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$ 6.7 million |
Price / Book (3) |
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1.05 x |
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0.76 x |
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Price / Tangible Book (3) |
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1.13 x |
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0.77 x |
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(1) |
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Based on the closing prices on March 30, 2009 and July 24, 2007. |
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Three months prior to March 2, 2009, date of announcement of Max and IPC amalgamation. |
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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. The combined investment portfolio of IPC/Validus
is more stable than that of IPC/Max. 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:
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Superior size and scale, with pro forma December 31, 2008
shareholders equity of $3.7 billion and total GAAP capitalization of
$4.1 billion; |
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2. |
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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. |
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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. |
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Superior diversified business mix, with lines of business
concentrated in short-tail lines where pricing momentum is strongest; and |
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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.
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.
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 commit
ment to IPCs business. Therefore, a combination with Validus will be less
disruptive to IPCs client base.
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'
Our binding offer is clearly a Superior Proposal, within the meaning of the Max Plan
of Amalgamation. We and our financial advisors, Greenhill & Co., LLC, and our legal
advisors, Cahill Gordon & Reindel llp, are prepared to move forward immediately.
We believe that our offer presents a compelling opportunity for both our companies and our
respective shareholders, and look forward to your prompt response. We respectfully request
that the Board of IPC reach a determination by 5:00 p.m., Bermuda time, on Wednesday, April
15, 2009, that (i) our binding offer constitutes a Superior Proposal, (ii) it is
withdrawing its recommendation for the transaction contemplated by the Max Plan of
Amalgamation and (iii) it is making a recommendation for the transaction contemplated by
this binding offer.
We reserve the right to withdraw this offer if the Board of IPC has not reached a
determination (i) that our binding offer constitutes a Superior Proposal, (ii) to withdraw
its recommendation for the transaction contemplated by the Max Plan of Amalgamation and
(iii) to make a recommendation for the transaction contemplated by this binding offer by
5:00 p.m., Bermuda time, on Wednesday, April 15, 2009. We further reserve the right to
withdraw this binding offer if you subsequently withdraw your recommendation in favor of
our offer or if you do not sign the enclosed amalgamation agreement within two business
days after the termination of the Max Plan of Amalgamation.
We look forward to your prompt response.
Sincerely,
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/s/ Edward J. Noonan |
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Edward J. Noonan
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Chairman and Chief Executive Officer |
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cc:
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Robert F. Greenhill |
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Greenhill & Co., LLC |
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John J. Schuster |
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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 Validus Offer and indicating that IPCs Board of Directors would
review the terms of the Validus Offer in a manner consistent with its obligations under the Max
Amalgamation Agreement and applicable Bermuda law.
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 Validus Offer.
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 Validus Offer and issued a press release announcing the letter.
The letter presented Maxs analysis of the Validus Offer asserting 12 purported advantages to the
Proposed Max Amalgamation and concluded that Validus had not presented a Superior Proposal or a
proposal that could reasonably be expected to lead to a Superior Proposal pursuant to the Max
Amalgamation Agreement. The text of the letter was filed by Max with the SEC.
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
-37-
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
We are writing to respond to the letter sent to you by Mr. Becker of Max Capital Group
Ltd. (Max) dated April 2, 2009, regarding the purported benefits of the proposed
combination of IPC Holdings, Ltd. (IPC) with Max (pursuant to an Amalgamation Agreement
between Max and IPC dated as of March 2, 2009 (the Amalgamation Agreement)), as compared
to the benefits presented by a combination of IPC with Validus Holdings, Ltd. (Validus)
on the terms we proposed to you in our letter dated March 31, 2009 (the Validus
Proposal).
First, we would like to reiterate our sincere belief that the Validus Proposal is in
every respect a Superior Proposal as defined in the Amalgamation Agreement. In fact, as
you have undoubtedly seen, the markets have already endorsed our proposal: the IPC share
price has increased significantly since the announcement of our proposal, in recognition of
the fact that our proposal delivers superior value to the IPC shareholders an irrefutable
fact. Our proposal offers the IPC shareholders superior value (an 18% premium to the value
of the IPC stock on the date prior to our announcement), a currency with superior trading
characteristics (Validus shares trade at a premium to book value, as opposed to the Max
shares, which trade at a discount to book value), less balance sheet risk, and most
importantly, superior long term prospects.
Max suggests that the choice you are facing is between (i) a combined company based on
a shared vision in which you, the IPC Board, can continue your stewardship, and (ii) an
entity which offers you few benefits over what you have today, with no ability to continue
your stewardship. We view the choice quite differently: you can choose to combine with a
company which, on almost every metric, is a worse choice for your shareholders, or ours,
which delivers, immediately and in the long term, superior value for your shareholders. To
the extent that you, the members of the IPC Board, have an interest in continuing
involvement in the affairs of the combined company, we would be happy to discuss continued
Board representation with you.
Turning now to the assertions in the Max letter, we note that Max has made a number of
statements which distort the facts and present an incomplete picture. We would like to
respond to each of these in turn.
1. A combination with Max delivers 29% more tangible book value per share to IPC.
Max believes book value per share is a very important measure in our industry, and we do
not disagree. The relevant question for the IPC Board, however, is not, as Max suggests,
the relative percentage of book value being delivered to IPC shareholders in the two
proposals, but the absolute value of the shares themselves. On this measure, the Validus
proposal is clearly superior, as it offers IPC shareholders a significant premium over the
current value of their shares. Moreover, Max does not explain in its letter why Maxs
shares are trading at such a deep discount to its book value. We can only guess that the
market assigns such a discount because of Maxs stewardship of its business or because so
much of Maxs investment portfolio is tied up in risky alternative assets. Indeed, of
Maxs $1.2 billion of tangible common equity, $754 million is in alternative assets, which
in 2008 generated mark downs of $233 million, greater than the entirety of Maxs
underwriting income, and $476 million is in non-agency asset/mortgage backed securities.
We believe it is a far better value proposition for the IPC shareholders to receive Validus
shares, a currency which the market values at a premium to book.
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
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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%. Maxs diversified businesses represent
diversification without profit. Maxs chief source of diversifying growth, Max US
Specialty, generated a 138.5% combined ratio in 2008. Results such as those cannot create
value for shareholders. 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. In contrast,
Validus is a global leader in very profitable business lines, including marine, energy and
war and terrorism. 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 world. 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) 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.
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Max also tries to make an issue of the fact that IPC has not had a chance to conduct
due diligence on Validus. Validus would welcome the opportunity to provide IPC with
customary due diligence information. Validus stands ready to respond to any requests IPC
may make on an expedited basis, and would be more than happy to meet with IPC to answer any
questions IPC may have about Validus, its operations, its financial health or any other
matter relevant to the Board of IPC in considering Validus Superior Proposal. We call
upon Max to permit IPCs Board to exercise its fiduciary duties by releasing IPC from the
extraordinarily restrictive prohibition in the Amalgamation Agreement which prevents it
from even talking to Validus regarding the terms of its Superior Proposal.
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. 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.
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.
8. Max maintains less underwriting volatility through greater diversification in its
portfolio of risks. Due to the significant investment losses Max sustained in 2008, it is
unsurprising that Max is attempting to focus on underwriting volatility alone. Selectively
focusing on underwriting volatility wholly ignores the other various risks and
uncertainties that IPCs shareholders would be assuming by combining with Max and its risky
balance sheet. With respect to underwriting performance, in 2008, Validus successfully
weathered its exposures from Hurricanes Ike and Gustav with a combined ratio of 92.2% and
net income of $63.9 million. This performance was generated despite the fact that Validus
reserved for those events more conservatively than its industry peers, as discussed in
paragraph 4 above. Validus disclosures offer the highest level of transparency with
regard to its probable maximum losses, zonal aggregates and realistic disaster scenarios
and we would challenge Max to provide the same level of transparency to its shareholders
before presumptuously speculating on the impacts of various potential events.
9. Max has a proven, long term history of successful acquisitions without incurring
good will. Validus has a proven track record of acquiring a high quality premier business
with a leading position in its market. Maxs pointing to its acquisition of Imagine Group
(UK) Limited as an example of a successful acquisition is ironic, especially relative to
our successful acquisition of Talbot. In that transaction, Validus acquired a strong
balance sheet with excess reserves at a multiple of 3.1x earnings demonstrating Validus
commitment to creating value for our shareholders. When we acquired Talbot, Validus booked
$154 million of goodwill
and intangible assets; however, from acquisition closing until December 31, 2008, we
benefited from $105 million in reserve releases from the Talbot business, emanating from
periods prior to the acquisition. Maxs acquisition history, on the other hand, is that of
acquiring subscale small businesses that significantly lag the leaders in their respective
markets.
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
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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. 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. 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. In 2007, when the global credit crisis
began, Maxs current management had the opportunity to liquidate its alternative assets.
Max chose to continue holding those risky investments, which have led to massive losses.
Combined, we believe these factors highlight Maxs poor history as stewards of shareholder
capital.
* * *
In closing, I would like to reiterate that we have submitted to you a proposal which
we are confident the IPC Board will agree is a Superior Proposal as defined in your
Amalgamation Agreement. We have submitted this proposal because we deeply and honestly
believe that the combination of IPC and Validus will result in a far better value
proposition for the IPC shareholders than the combination of IPC and Max. Validus is
absolutely committed to our Superior Proposal and we simply do not understand how Max can
characterize our actions as opportunistic. If Max truly believes its combination with IPC
is superior, we call upon Max to free the IPC Board from the shackles that your
Amalgamation Agreement has placed on the ability of the members of the IPC Board to
exercise their fiduciary duties under Bermuda law, so as to create a level playing field on
which the shareholders of IPC will be able to decide which of the two proposals is indeed
superior.
Sincerely,
/s/ Edward J. Noonan
Edward J. Noonan
Chairman and Chief Executive Officer
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 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
-41-
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,
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/s/ Edward J. Noonan |
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Edward J. Noonan
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Chairman and Chief Executive Officer |
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cc: Marty Dolan, J.P. Morgan Securities, Inc. |
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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 Validus Proposal and stating that it continued to believe that Validus had not
presented a Superior Proposal, nor one that can be reasonably expected to lead to a Superior
Proposal (as such term is defined in the Max Amalgamation Agreement).
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
-42-
standalone basis from either Validus or Max. We disagree
with this basis for valuation. Our approach is focused on a comparison of what an IPC
shareholder would own as a result of either transaction.
However, if we were to follow the Max approach, we would note that there are a number
of adjustments contemplated in the proposed IPC/Max Amalgamation Agreement, which would
reduce the standalone value 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 $1.81 per share reduction in book value.
We have provided the attached schedule of our calculations in an effort to be as
transparent as possible in our communication with you.
Sincerely,
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/s/ Edward J. Noonan |
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Edward J. Noonan
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Chairman and Chief Executive Officer |
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cc: Marty Dolan, J.P. Morgan Securities, Inc. |
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Adjustments to Max Book Value Upon Combination with IPC
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(in millions, except per share values) |
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Net book value of net assets acquired prior to fair value adjustments(1) |
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$ |
1,280.3 |
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Preliminary adjustments for fair value |
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Adjustment to deferred acquisitions costs(2) |
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(51.3 |
) |
Adjustment to goodwill and intangible assets(3) |
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(12.0 |
) |
Adjustment to reserve for property and casualty losses and loss adjustment
expenses(4) |
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(60.0 |
) |
Adjustment to life and annuity benefits(4) |
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(70.0 |
) |
Adjustment to unearned property and casualty premiums(5) |
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51.3 |
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Adjustment to senior notes(6) |
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24.6 |
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Total adjustments |
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(117.4 |
) |
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Fair value of net assets acquired |
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$ |
1,162.9 |
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Total adjustments |
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$ |
(117.4 |
) |
Max diluted shares outstanding(7) |
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64.9 |
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Adjustment per diluted share |
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$ |
(1.81 |
) |
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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) |
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Represents historical net book value of Max. |
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(2) |
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Represents adjustment to reduce the deferred acquisition costs of Max to
their estimated fair value at December 31, 2008. |
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(3) |
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Represents adjustment to reduce goodwill and intangible assets of Max to
their estimated fair value at December 31, 2008. |
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(4) |
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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. |
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(5) |
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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. |
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(6) |
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Represents adjustment to record Maxs senior notes to their estimated fair
value at December 31, 2008. |
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(7) |
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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) |
In the afternoon on April 7, 2009, Kenneth L. Hammond, Chairman of the Companys Board of
Directors, sent a letter to Mr. Noonan indicating that the Companys 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:
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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 |
-44-
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review of strategic alternatives. A
transaction with Validus would not accomplish that strategic objective given
Validuss substantial correlated catastrophe exposure. |
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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
Validuss 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, Validuss 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. |
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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 and negotiate with Validus. There is
no assurance IPC would, at that time, choose to enter into a transaction with
Validus. Even if IPC were to proceed with Validus at that time, Validus and
IPC would both need to obtain consents under their credit facilities before the
deal could close, whereas no such additional consents would be necessary to
close the IPC/Max transaction. Validus and IPC would also need to achieve
satisfactory indications from the ratings agencies regarding the ratings
outcomes of such a combination. |
Given these considerations and others, the board of directors unanimously determined
that the Validus proposal does not constitute a Superior Proposal as defined in our
amalgamation agreement with Max. IPC remains committed to completing our transaction with
Max, which we believe will create a diversified and balanced platform for growth that
should drive stronger performance and value for shareholders for many years.
Sincerely,
Kenneth L. Hammond
Chairman of the Board of Directors
On Behalf of the IPC Holdings Board of Directors
In the afternoon on April 8, 2009, Validus sent a letter to Mr. Hammond, the Chairman of IPCs
Board of Directors, regarding the IPC letter press release and letter and issued a press release
announcing the letter. The text of our letter reads as follows:
April 8, 2009
Kenneth L. Hammond
Chairman
IPC Holdings, Ltd.
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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 expect,
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, 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,
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/s/ Edward J. Noonan |
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Edward J. Noonan
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Chairman and Chief Executive Officer |
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On April 9, 2009, Validus filed a preliminary proxy statement with the SEC with respect to
soliciting votes from IPC shareholders against the approval of the Proposed Max Amalgamation.
On April 13, 2009, IPC filed an amendment to the IPC/Max S-4 with the SEC.
Reasons Why Validus Board of Directors Recommends Approval of the Share Issuance
By approving the share issuance, you will be enabling Validus to issue the shares necessary to
effect the acquisition. Validus board of directors believes that the amalgamation will represent
a compelling combination and
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excellent strategic fit that will be able to better capitalize on
opportunities in the global reinsurance market. In addition, Validus board of directors believes
that a combination of Validus and IPC will create a larger entity that will bring Validus the
benefits of additional client penetration, greater scale and greater market position as a leading
Bermuda short-tail focused global underwriter. In reaching these conclusions and in
determining that the amalgamation agreement, the acquisition of all
of IPCs outstanding shares and the share issuance are fair, advisable and in the
best interests of Validus, and in recommending the approval of the share issuance, Validus board
of directors consulted with Validus management as well as legal and financial advisors and
considered a number of factors. The factors included, but were not limited to, the following:
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Validus board of directors analysis and understanding of the business,
operations, financial performance, financial condition, earnings and future prospects
of Validus and its assessment, based on such analysis and understanding, that Validus
will have: |
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lines of business concentrated in short-tail lines where pricing momentum is
strongest; |
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enhanced market position and client penetration that will make
Validus a more significant player in short-tail reinsurance placements globally; |
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ability to add a significant amount of short-tail reinsurance
premium to Validus existing Bermuda infrastructure; |
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global and diversified operating platforms, with offices and
underwriting facilities in Bermuda, at Lloyds in London, Dublin, Singapore, New
York and Miami; |
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enhanced size and scope, with GAAP capitalization of approximately
$4.1 billion and shareholders equity of approximately $3.7 billion (on a pro
forma basis as of December 31, 2008); |
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continuing financial flexibility, with debt/total capitalization of
only 1.8% and total leverage including hybrid securities of only 9.3%; and |
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the opportunity to reduce costs associated with running two
separate public companies, including IPCs Nasdaq listing fees, transfer agent
fees, legal and accounting fees related to SEC filings and shareholder mailings,
printing and mailing expenses for periodic reports and proxy statements, annual
meeting expenses and other investor relations related expenses; |
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the fact that Validus will experience accretion to its book value and tangible
book value per share as a result of the transaction; |
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the fact that Validus would remain within its stated limitations of
reinsurance aggregates by exposure zone; |
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Validus board of directors understanding of the business, operations, and
financial condition of IPC; |
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the ongoing representation by all of Validus existing directors on Validus board
of directors after the amalgamation, and the fact that Validus senior management will
continue to manage Validus; |
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the written opinion from Greenhill, delivered to Validus board of directors on
March 31, 2009, to the effect that, based upon and subject to the various limitations
and assumptions described therein, as of the date thereof, the exchange ratio was
fair, from a financial point of view, to Validus, as described inOpinion of Validus
Financial Advisor below; |
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the fact that no external financing is required for the transaction; |
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Validus board of directors belief, based on advice from legal counsel, that the
amalgamation is likely to receive necessary regulatory approvals in a relatively
timely manner without material adverse conditions; and |
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the terms of the amalgamation agreement, including: |
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the requirement that the share issuance be approved by holders of a
majority of the outstanding Validus Shares casting votes at the Validus special
meeting, as described in The Amalgamation AgreementConditions to the
Amalgamation below; |
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Validus may terminate the amalgamation agreement if the total
number of dissenting IPC common shares for which appraisal rights have been
exercised pursuant to Bermuda law exceeds 15% of the outstanding IPC common
shares, as described in The Amalgamation AgreementTermination of the
Amalgamation Agreement Termination below. |
Validus board of directors considered other factors in making its determination and
recommendation, including the following:
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the possibility that IPC would have to pay a termination fee of up to $50 million
to terminate the Max Amalgamation Agreement; |
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the fact that, in order to agree to a transaction with IPC, the Validus board of
directors thought the amalgamation agreement would need to be substantially similar to
the Max Amalgamation Agreement; |
|
|
|
|
the restrictions on the conduct of Validus business imposed by the amalgamation
agreement prior to the consummation of the amalgamation, requiring Validus to conduct
its business in the ordinary course, subject to specific limitations, which may delay
or prevent Validus from undertaking business opportunities that may arise pending
completion of the amalgamation; |
|
|
|
|
the inability to control IPCs conduct of business before the amalgamation; |
|
|
|
|
that Validus shareholders and the IPC shareholders may not react favorably to the
Validus Offer or the amalgamation, and the execution risk and additional costs that
would be required to complete the amalgamation as a result of any legal actions and
appraisal actions brought by IPC shareholders; |
|
|
|
|
the effect of public announcement of the amalgamation on Validus share price if
Validus shareholders do not view the amalgamation positively or if the amalgamation is
not completed; |
|
|
|
|
the potential disruption to Validus business that could result from the
announcement and pursuit of the amalgamation, including the diversion of management
and employee attention; |
|
|
|
|
that Validus may wish to purchase retrocessional protection for the 2009 wind
season and the cost and availability of that protection; |
|
|
|
|
the possibility that IPC would not find the Validus Offer to be a superior proposal
under the Max Amalgamation Agreement, which would entail additional costs in order to
enable IPC shareholders to consider the Validus Offer; |
|
|
|
|
the possibility that the amalgamation might not be completed due to difficulties
with terminating the Max Amalgamation Agreement, obtaining sufficient shareholder
approval, the occurrence of a material adverse effect on either companys business, or
the inability to obtain required credit facility consents; |
-48-
|
|
|
the fact that Validus may be required to pay IPC a termination fee of $16 million,
as described in The Amalgamation AgreementTermination of the Amalgamation
AgreementEffects of Termination; Remedies below in certain circumstances; |
|
|
|
|
the risk that A.M. Best, S&P or Moodys might lower the ratings of Validus or any
of its reinsurance subsidiaries following the acquisition; |
|
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|
|
the possibility that after consummation of the amalgamation Validus might find a
material adverse fact or circumstance affecting IPC that was not disclosed by IPC in
its publicly available financial and other information, which could have a material
adverse effect on Validus; |
|
|
|
|
the risks described in this proxy statement under Risk Factors. |
The foregoing discussion of the information and factors considered by Validus board of
directors is not intended to be exhaustive, but is believed to include the material factors
considered by Validus board of directors. In view of the variety of factors considered in
connection with its evaluation of the amalgamation agreement, the share issuance and the other
transactions contemplated by the amalgamation and the amalgamation agreement, Validus board of
directors did not find it practicable to, and did not, quantify or otherwise assign specific
weights to the factors considered in reaching its determination and recommendation. In addition,
each of the members of Validus board of directors may have given differing weights to different
factors. Validus board of directors believed that the positive factors discussed above outweighed
the negative factors discussed above, especially after giving weight to the likelihood of
occurrence.
Opinion of Validus Financial Advisor
The Validus board of directors received an oral opinion, subsequently confirmed in writing,
from Greenhill that, based upon and subject to the various limitations and assumptions described in
the written opinion, as of March 31, 2009, the exchange ratio pursuant to the amalgamation
agreement was fair, from a financial point of view, to Validus.
The full text of the written opinion of Greenhill, dated March 31, 2009, which sets forth,
among other things, the assumptions made, procedures followed, matters considered and limits on the
opinion and the review undertaken in connection with rendering the opinion, is attached as Annex B
to this proxy statement and is incorporated herein by reference. Greenhills opinion is not a
recommendation as to how Validus shareholders should vote with respect to the issuance of Validus
Shares pursuant to the amalgamation or any other matter. The summary of Greenhills opinion that
is set forth below is qualified in its entirety by reference to the full text of the opinion.
Validus shareholders are urged to read the opinion in its entirety.
In connection with rendering its opinion, Greenhill, among other things:
|
|
|
reviewed the amalgamation agreement dated as of March 31, 2009 as executed by
Validus and Validus Ltd. (but not IPC as of the date of the opinion), and certain
related documents; |
|
|
|
|
reviewed certain publicly available financial statements of IPC and Validus; |
|
|
|
|
reviewed certain other publicly available business and financial information
relating to IPC and Validus that Greenhill deemed relevant; |
|
|
|
|
reviewed certain information, including financial forecasts and other financial and
operating data concerning Validus prepared by the management of Validus; |
|
|
|
|
discussed the past and present operations and financial condition and the prospects
of Validus with senior executives of Validus; |
-49-
|
|
|
reviewed the historical market prices and trading activity for IPC common shares
and Validus common shares and analyzed their implied valuation multiples; |
|
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|
|
compared the value of the amalgamation consideration with that received in certain
publicly available transactions that Greenhill deemed relevant; |
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compared the value of the amalgamation consideration with the trading valuations of
certain publicly traded companies that Greenhill deemed relevant; |
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|
compared the value of the amalgamation consideration with the relative contribution
of IPC to the pro forma combined company based on a number of metrics that Greenhill
deemed relevant; and |
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|
|
performed such other analyses and considered such other factors as Greenhill deemed
appropriate. |
Given the unsolicited nature of the proposed amalgamation with IPC, Greenhills review and
analysis of IPC and its business and financial information were necessarily limited to information
that was publicly available as of the date of the opinion. Greenhill did not review financial
forecasts and other financial and operating data concerning IPC prepared by management of IPC or
other non-public information regarding IPC, nor did Greenhill participate in discussions or
negotiations among representatives of IPC and its legal or financial advisor and representatives of
Validus or its legal advisor.
In giving its opinion, Greenhill assumed and relied upon, without independent verification,
the accuracy and completeness of the information publicly available, supplied or otherwise made
available to it by representatives and management of Validus for the purposes of its opinion.
Greenhill further relied upon the assurances of the representatives and management of Validus that
they were not aware of any facts or circumstances that would make such information inaccurate or
misleading. With respect to the financial forecasts and projections and other data that were
furnished or otherwise provided to it, Greenhill assumed that such financial forecasts and
projections and other data were reasonably prepared on a basis reflecting the best currently
available estimates and good faith judgments of the management of Validus as to those matters, and
Greenhill relied upon such financial forecasts and projections and other data in arriving at its
opinion. Greenhill expressed no opinion with respect to such financial forecasts and projections
and other data or the assumptions upon which they were based. Greenhill did not make any
independent valuation or appraisal of the assets or liabilities of IPC, nor was Greenhill furnished
with any such appraisals. Greenhill assumed, with the consent of the Validus board of directors,
that the amalgamation will be treated as a tax-free reorganization for federal income tax purposes.
Greenhill assumed that the amalgamation will be consummated in accordance with the terms set forth
in the final, fully executed amalgamation agreement, which Greenhill further assumed will be
identical in all material respects to the proposed amalgamation agreement that Greenhill reviewed,
and without amendment or waiver of any material terms or conditions set forth in the amalgamation
agreement. Greenhill further assumed that all material governmental, regulatory and other
consents, approvals and waivers necessary for the consummation of the amalgamation will be obtained
without any effect on IPC, Validus, the amalgamation or the contemplated benefits of the
amalgamation meaningful to Greenhills analysis. Greenhills opinion was necessarily based on
financial, economic, market and other conditions as in effect on, and the information made
available to it as of, March 31, 2009. It should be understood that subsequent developments may
affect Greenhills opinion, and Greenhill does not have any obligation to update, revise, or
reaffirm its opinion.
Greenhills opinion was for the information of the Validus board of directors and was not
intended to be and is not a recommendation as to how Validus shareholders should vote with respect
to the issuance of Validus Shares pursuant to the amalgamation or as to whether the Validus
shareholders should take any other action at any meeting of the Validus shareholders convened in
connection with the amalgamation or any other matter. Greenhills opinion did not address the
underlying business decision of Validus to engage in the amalgamation or the relative merits of the
amalgamation as compared to any other alternative strategies that might exist for Validus, and as
such was not intended to be and did not constitute a recommendation to the Validus board of
directors as to whether they should approve the amalgamation, the amalgamation agreement or any
related matters. Greenhill did not express an opinion as to any aspect of the amalgamation, other
than the fairness to Validus of the exchange ratio from a financial point of view. In particular,
Greenhill did not express any opinion as to the prices at which Validus common shares will trade at
any future time. Greenhill further did not express any opinion with respect to the amount or
-50-
nature of any compensation to any officers, directors or employees of Validus, or any class of such
persons relative to the exchange ratio or with respect to the fairness of any such compensation.
Summary of Greenhills Financial Analyses
The following is a summary of the material financial analyses provided by Greenhill to the
Validus board of directors in connection with rendering its opinion described above. The summary
set forth below does not purport to be a complete description of the analyses performed by
Greenhill, nor does
the order of analyses as set forth below represent the relative importance or weight given to
those analyses by Greenhill. Some of the summaries of the financial analyses include information
presented in tabular format. The tables must be read together with the full text of each summary
and are not alone a complete description of Greenhills financial analyses.
Exchange Ratio Analysis
Greenhill calculated the historical range and average of exchange ratios (the price of an IPC
common share divided by the price of a Validus common share). Using the daily closing prices of
Validus common shares and IPC common shares, the low, high and average exchange ratios for the
three-month, six-month and twelve-month periods ending on March 30, 2009 are set forth in the table
below. The percent premium that the exchange ratio pursuant to the amalgamation agreement
represents over the average exchange ratios for each period is set forth in the table below.
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|
|
Low |
|
Average |
|
High |
|
Premium |
March 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0 |
% |
Previous 3 Months |
|
|
0.9304 |
x |
|
|
1.1120 |
x |
|
|
1.2414 |
x |
|
|
8.3 |
% |
Previous 6 Months |
|
|
0.9304 |
x |
|
|
1.1944 |
x |
|
|
1.5564 |
x |
|
|
0.8 |
% |
Previous 12 Months |
|
|
0.9304 |
x |
|
|
1.2598 |
x |
|
|
1.5564 |
x |
|
|
(4.5 |
%) |
Transaction Multiple Analysis
Greenhill calculated the multiple of a range of assumed offer values per IPC common share to
several operating metrics for calendar years 2009 and 2010, including estimated earnings per share
based upon mean estimates obtained from Institutional Brokers Estimate System, which we refer to as
IBES. The calculations were based upon IPC common shares outstanding as of December 31, 2008 on a
fully diluted basis. This analysis indicated the following multiples:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Assumed Value per |
|
2009E P/E |
|
2010E P/E |
|
|
|
|
|
Price / Tangible |
IPC Share |
|
IBES Estimate |
|
IBES Estimate |
|
Price / Book Value(1) |
|
Book Value(1) |
$26.96 |
|
|
5.9 |
x |
|
|
5.6 |
x |
|
|
0.81 |
x |
|
|
0.81 |
x |
$27.00 |
|
|
5.9 |
x |
|
|
5.7 |
x |
|
|
0.82 |
x |
|
|
0.82 |
x |
$28.00 |
|
|
6.1 |
x |
|
|
5.9 |
x |
|
|
0.85 |
x |
|
|
0.85 |
x |
$29.00 |
|
|
6.3 |
x |
|
|
6.1 |
x |
|
|
0.88 |
x |
|
|
0.88 |
x |
$30.00 |
|
|
6.5 |
x |
|
|
6.3 |
x |
|
|
0.91 |
x |
|
|
0.91 |
x |
$31.27 |
|
|
6.8 |
x |
|
|
6.5 |
x |
|
|
0.95 |
x |
|
|
0.95 |
x |
$32.27 |
|
|
7.0 |
x |
|
|
6.8 |
x |
|
|
0.98 |
x |
|
|
0.98 |
x |
$33.27 |
|
|
7.2 |
x |
|
|
7.0 |
x |
|
|
1.01 |
x |
|
|
1.01 |
x |
$34.27 |
|
|
7.4 |
x |
|
|
7.2 |
x |
|
|
1.04 |
x |
|
|
1.04 |
x |
$35.27 |
|
|
7.7 |
x |
|
|
7.4 |
x |
|
|
1.07 |
x |
|
|
1.07 |
x |
$36.27 |
|
|
7.9 |
x |
|
|
7.6 |
x |
|
|
1.10 |
x |
|
|
1.10 |
x |
|
|
|
(1) |
|
Book value per IPC common share is calculated as of December 31, 2008 and does not reflect
the impact of 493,000 unvested restricted stock units, restricted common shares and
performance share units to be issued upon a change of control of IPC. |
-51-
Dividend Discount Analysis
Greenhill performed a dividend discount analysis of IPC to determine a range of implied
present values per IPC common share assuming that IPC continues to operate as a stand-alone
company. This range was determined by adding the present value of the estimated future excess
capital of IPC available to be dividended in each period and the present value of the estimated
terminal value of IPC common shares. To estimate present values, Greenhill discounted the
estimated future excess capital of IPC available to be dividended in each period through 2013 and
the estimated terminal value of IPC common shares by a range of discount rates that take into
account risk, the opportunity cost of capital, expected returns and other appropriate factors.
In connection with this analysis, Greenhill utilized 5-year net income and revenue projections
based on IBES estimates for 2009 and 2010, extrapolated by Greenhill to 2013. In calculating these
extrapolations, Greenhill assumed, among other things, a 4.0% return on total assets, with
projections based on an assumed total assets to total equity ratio of 1.30x. In addition,
Greenhill assumed that 493,000 unvested restricted shares of IPC would vest at the end of 2009, and
that IPC would continue to pay an aggregate annual dividend equal to $0.88 per IPC common share
throughout the 5-year projection period.
Greenhill then calculated a range of implied present values per IPC common share by applying:
|
|
|
a range of terminal multiples of 0.70x to 0.90x to year 2013 estimated book value of
IPC common shares; and |
|
|
|
|
a range of discount rates of 9.0% to 11.0% to each of the estimated future excess
capital of IPC available to be dividended in each period through 2013 and the estimated
terminal value of IPC common shares. |
This analysis resulted in a range of implied present values per IPC common share from $25.99
to $35.34.
Comparable Company Analysis
Greenhill reviewed and compared specific financial multiples, ratios and operating statistics
of IPC to corresponding financial multiples, ratios and operating statistics for selected publicly
traded reinsurance companies and compared the trading value of IPC to the trading values of the
selected companies. The companies chosen by Greenhill were:
|
|
ACE Limited |
|
|
|
Allied World Assurance Company
Holdings Ltd |
|
|
|
Arch Capital Group Ltd. |
|
|
|
Aspen Insurance Holdings Limited |
|
|
|
Axis Capital Holdings Limited |
|
|
|
Endurance Specialty Holdings Ltd. |
|
|
|
Everest Re Group, Ltd. |
|
|
|
Flagstone Reinsurance Holdings Limited |
|
|
|
Greenlight Capital Re, Ltd. |
|
|
|
IPC Holdings, Ltd. |
|
|
Max Capital Group Ltd. |
|
|
|
Montpelier Re Holdings, Ltd. |
|
|
|
Munich Re Group |
|
|
|
Odyssey Re Holdings Corp. |
|
|
|
PARIS RE Holdings Limited |
|
|
|
PartnerRe Ltd. |
|
|
|
Platinum Underwriters Holdings, Ltd. |
|
|
|
RenaissanceRe Holdings Ltd. |
|
|
|
Swiss Reinsurance Company Ltd. |
|
|
|
TransAtlantic Holdings, Inc. |
|
|
|
XL Capital Ltd |
For each of the companies identified above, Greenhill calculated and compared various
financial multiples, ratios and operating statistics based on publicly available financial data and
closing share prices as of March 25, 2009.
-52-
Although none of the companies are directly comparable
to IPC (other than IPC), Greenhill selected these companies because they had publicly traded equity
securities and were deemed to be similar to IPC in one or more respects including the nature of
their business, size, diversification, financial performance and geographic concentration. This
analysis indicated the following mean and median trading multiples for the selected companies:
|
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|
|
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|
|
|
|
|
|
|
|
Price / |
|
|
|
|
|
|
|
|
Price / |
|
Tangible Book |
|
Price / EPS Last |
|
Price / EPS |
|
Price / EPS |
|
|
Book Value |
|
Value |
|
12 Months |
|
2009E |
|
2010E |
Mean
|
|
0.83x
|
|
0.90x
|
|
7.9x
|
|
6.1x
|
|
5.9x |
Median
|
|
0.83x
|
|
0.85x
|
|
7.5x
|
|
5.7x
|
|
5.6x |
Greenhill then applied a range of selected multiples derived from the selected companies to
corresponding financial data of IPC for the corresponding periods. This analysis indicated the
following ranges of implied equity value and per share value for IPC:
|
|
|
Statistic |
|
Implied Per Share Value(2) |
2009E Net Income(1) |
|
$23.01 - $29.92 |
2010E Net Income(1) |
|
$23.88 - $28.66 |
Book Value |
|
$26.47 - $28.12 |
Tangible Book Value |
|
$26.47 - $29.78 |
|
|
|
(1) |
|
Estimates are mean IBES. |
|
(2) |
|
Assumes 55,943,297 fully diluted IPC common shares outstanding. |
Precedent Transaction Analysis
Global Reinsurance Transactions. Using publicly available information, Greenhill
analyzed selected merger and acquisition transactions with transaction values over $100 million in
the global reinsurance industry beginning in February 1999. The following table identifies the
global reinsurance transactions reviewed by Greenhill in this analysis:
|
|
|
|
|
Announcement Date |
|
Target |
|
Acquiror |
August 4, 2008
|
|
CastlePoint Holdings, Ltd.
|
|
Tower Group, Inc. |
|
January 7, 2008
|
|
Helicon Re Holdings, Ltd.
|
|
White Mountains Insurance Group, Ltd. |
|
November 5, 2007
|
|
PXRE Reinsurance Company
|
|
TAWA plc |
|
December 9, 2003
|
|
ABB Insurance Holding Sweden AB
|
|
White Mountains Insurance Group, Ltd. |
|
October 24, 2003
|
|
ERC Life Reinsurance Corporation
|
|
Scottish Re Group Limited |
|
December 19, 1999
|
|
LaSalle Re Holdings Limited
|
|
Trenwick Group Inc. |
|
August 15, 1999
|
|
Terra Nova (Bermuda) Holdings Ltd.
|
|
Markel Corporation |
|
June 21, 1999
|
|
Chartwell Re Corporation
|
|
Trenwick Group Inc. |
|
May 27, 1999
|
|
Capital Re Corporation
|
|
ACE Limited |
|
February 15, 1999
|
|
NAC Re Corp.
|
|
XL Capital Ltd. |
For the selected global reinsurance transactions, to the extent this information was
available, Greenhill calculated the multiples implied by each transaction relative to a number of
metrics, including the target companys book value and tangible book value at the time of such
transaction. This analysis indicated the following mean and median multiples for the selected
global reinsurance transactions:
-53-
|
|
|
|
|
|
|
GAAP Multiples |
|
|
Book Value |
|
Tangible Book Value |
Mean
|
|
0.99x
|
|
1.03x |
Median
|
|
0.95x
|
|
0.96x |
Greenhill then applied a range of selected multiples derived from the selected global
reinsurance transactions to corresponding financial data of IPC for the corresponding date. This
analysis indicated the following ranges of implied equity value and per share value for IPC:
|
|
|
|
|
Statistic |
|
Implied Per Share Value(1) |
Book Value |
|
$ |
29.52 - $39.36 |
|
Tangible Book Value |
|
$ |
29.52 - $39.36 |
|
|
|
|
(1) |
|
Assumes 55,943,297 fully diluted IPC common shares outstanding and 493,000 unvested
restricted stock units, restricted common shares and performance share units, for a total
share count of 56,436,297. |
Stock Transaction Premium Analysis. Greenhill analyzed the premiums paid in
stock-for-stock merger and acquisition transactions since March 2004 with a transaction value of
between $500 million and $5 billion. Greenhill calculated, for each of these transactions, the
premium of the transaction exchange ratio over the historical closing prices for each of the
one-day, one-week and one-month periods prior to announcement of such transaction. Greenhill then
applied the medians and ranges of such premiums, shown in the table below, to corresponding closing
prices per IPC common share, using the day immediately prior to the announcement of IPCs proposed
merger with Max as the corresponding announcement date. This analysis indicated a range of implied
values per IPC share shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Per |
Timing |
|
Median Premium |
|
Premium Range |
|
Share Value |
One Day Prior |
|
|
15.8 |
% |
|
|
14.0% - 19.0 |
% |
|
$ |
28.97 - $30.24 |
|
One Week Prior |
|
|
16.7 |
% |
|
|
15.0% - 20.0 |
% |
|
$ |
32.20 - $33.60 |
|
One Month Prior |
|
|
18.1 |
% |
|
|
16.0% - 21.0 |
% |
|
$ |
29.77 - $31.05 |
|
It should be noted that no transaction utilized in the analyses above is identical to the
proposed amalgamation. A complete analysis involves complex considerations and judgments
concerning differences in financial and operating characteristics of the companies involved in
these transactions and other factors that could affect the premiums and multiples in these
transactions to which the proposed amalgamation is being compared.
Book Value Growth Analysis
Using mean Bloomberg estimates of IPC net income and book value through the end of year 2009,
Greenhill calculated the implied price to book value multiple that a range of assumed offer values
per IPC common share would represent at the end of each quarter during the projection period. For
purposes of these calculations, Greenhill assumed that IPC would continue to pay its current
quarterly dividend of $0.22 through the projection period. This analysis indicated that due to
IPCs projected book value growth, the implied price to book value multiple would decrease over
time, as illustrated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed |
|
December 31, |
|
March 31, |
|
|
|
|
|
September 30, |
|
December 31, |
Per Share Value |
|
2008 |
|
2009 |
|
June 30, 2009 |
|
2009 |
|
2009 |
$29.97 |
|
|
0.906x |
|
|
|
0.875x |
|
|
|
0.847x |
|
|
|
0.835x |
|
|
|
0.811x |
|
$30.23 |
|
|
0.914x |
|
|
|
0.883x |
|
|
|
0.854x |
|
|
|
0.843x |
|
|
|
0.818x |
|
$30.49 |
|
|
0.922x |
|
|
|
0.891x |
|
|
|
0.861x |
|
|
|
0.850x |
|
|
|
0.825x |
|
$30.75 |
|
|
0.929x |
|
|
|
0.898x |
|
|
|
0.869x |
|
|
|
0.857x |
|
|
|
0.832x |
|
$31.01 |
|
|
0.937x |
|
|
|
0.906x |
|
|
|
0.876x |
|
|
|
0.865x |
|
|
|
0.839x |
|
$31.27 |
|
|
0.945x |
|
|
|
0.913x |
|
|
|
0.884x |
|
|
|
0.872x |
|
|
|
0.846x |
|
-54-
Pro Forma Combined Company Analysis
Greenhill analyzed certain financial data on a pro forma basis for IPC and Validus as a
combined company following the amalgamation. Greenhill based its analyses on publicly available
information and information and projections provided by Validus as described above.
Greenhill compared, among other things, the book value per share, tangible book value per
share and projected earnings per share for Validus on a standalone basis and for the pro forma
combined company. Greenhill then analyzed the accretive or dilutive effects of the amalgamation to
Validus shareholders for a range of assumed exchange ratios. This analysis indicated the following
accretive or dilutive effects:
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Accretion / (Dilution) |
Assumed |
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Book Value |
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Tangible Book |
Exchange Ratio |
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2009E EPS |
|
2010E EPS |
|
Per Share |
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Value Per Share |
1.156x |
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(4.3 |
%) |
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(4.5 |
%) |
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|
6.7 |
% |
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|
10.9 |
% |
1.177x |
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|
(5.1 |
%) |
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|
(5.3 |
%) |
|
|
5.9 |
% |
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|
10.1 |
% |
1.198x |
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|
(5.9 |
%) |
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|
(6.0 |
%) |
|
|
5.0 |
% |
|
|
9.2 |
% |
1.219x |
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|
(6.6 |
%) |
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|
(6.8 |
%) |
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|
4.2 |
% |
|
|
8.3 |
% |
1.240x |
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|
(7.4 |
%) |
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|
(7.5 |
%) |
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|
3.4 |
% |
|
|
7.5 |
% |
1.261x |
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|
(8.1 |
%) |
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|
(8.3 |
%) |
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|
2.6 |
% |
|
|
6.6 |
% |
1.282x |
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|
(8.8 |
%) |
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|
(9.0 |
%) |
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|
1.8 |
% |
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|
5.8 |
% |
1.303x |
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|
(9.5 |
%) |
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|
(9.7 |
%) |
|
|
1.0 |
% |
|
|
5.0 |
% |
1.324x |
|
|
(10.2 |
%) |
|
|
(10.4 |
%) |
|
|
0.3 |
% |
|
|
4.2 |
% |
1.345x |
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|
(10.9 |
%) |
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|
(11.1 |
%) |
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|
0.3 |
% |
|
|
3.4 |
% |
1.366x |
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|
(11.6 |
%) |
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|
(11.8 |
%) |
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|
0.4 |
% |
|
|
2.6 |
% |
In addition, Greenhill analyzed the pro forma combined companys business lines, investment
portfolio, balance sheet and capital base relative to each of Validus and IPC on a standalone
basis. Further, Greenhill conducted a comparison regarding the pro forma combined companys equity
as of December 31, 2008 relative to certain of its peers and each of Validus and IPC on a
standalone basis. Greenhill also performed a contribution analysis of the relative contributions
of each of Validus and IPC with respect to the pro forma combined companys balance sheet, gross
written premiums and other items.
The summary set forth above does not purport to be a complete description of the analyses
performed by Greenhill, but describes, in summary form, the material analyses that Greenhill
conducted in connection with rendering its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Greenhill did not attribute any particular weight to any analyses or
factors it considered and did not form an opinion as to whether any individual analysis or factor,
considered in isolation, supported or failed to support its opinion. Rather, Greenhill considered
the totality of the factors and analyses performed in determining its opinion. Accordingly, the
summary set forth above and the analyses of Greenhill must be considered as a whole and selecting
portions thereof, without considering all of its analyses, could create an incomplete view of the
processes underlying Greenhills analyses and opinion. Greenhill based its analyses on assumptions
that it deemed reasonable, including assumptions concerning general business and economic
conditions and industry-specific factors. Analyses based on forecasts or projections of future
results are inherently uncertain, as they are subject to numerous factors or events beyond the
control of the parties or their advisors. Accordingly, Greenhills analyses are not necessarily
indicative of actual values or actual future results that might be achieved, which values may be
higher or lower than those indicated. Moreover, Greenhills analyses are not and do not purport to
be appraisals or otherwise reflective of the prices at which businesses actually could be bought or
sold. In addition, no company (other than IPC) or transaction used in Greenhills analysis as a
comparison is directly comparable to IPC, Validus or the contemplated transaction. Because these
analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond
the control of the parties or their respective
-55-
advisors, none of Validus or Greenhill or any other
person assumes responsibility if future results are materially different from those forecasts or
projections.
Greenhills opinion and analyses were provided to the Validus board of directors in connection
with its consideration of the proposed amalgamation and were among many factors considered by the
Validus board of directors in evaluating the proposed amalgamation. While Greenhill provided
advice to Validus during this process, it did not recommend any specific amount of consideration to
Validus or the Validus board of directors or that any specific amount of consideration would
constitute the only appropriate consideration for the amalgamation. Neither Greenhills opinion
nor its analyses should be viewed as determinative of the consideration or the views of the Validus
board of directors with respect to the proposed amalgamation.
Engagement of Greenhill
Validus selected Greenhill as its financial advisor in connection with the proposed
amalgamation based on its qualifications and expertise in providing financial advice to acquirors,
target companies and their respective boards of directors in merger and acquisition transactions.
Greenhill will receive a fee of up to $12.0 million for its services rendered in connection with
the amalgamation, $2.75 million of which has already been paid and
$9.25 million of which is contingent on the consummation of the acquisition. In addition, Validus
has agreed to indemnify Greenhill for certain liabilities arising out of its engagement.
During the two years preceding the date of its opinion, Greenhill was not previously engaged
by, did not perform any services for, and did not receive any compensation from, Validus or any
other parties to the amalgamation (other than any amounts that were paid to Greenhill under its
engagement in connection with the proposed amalgamation). As of the date of Greenhills opinion,
four merchant banking funds affiliated with Greenhill owned an aggregate of 2,571,427 Validus
Shares, and certain employees of Greenhill and its affiliates had interests in one or more of such
funds.
Interests of Validus Directors and Executive Officers in the Amalgamation
The consummation of the proposed amalgamation 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 proposed
amalgamation.
Validus Shareholder Approval of Share Issuance
The affirmative vote of a majority of the votes cast at the Validus special meeting, at which
a quorum is present in accordance with Validus bye-laws, is required to approve the share
issuance, as described below under Proposals to Be Submitted to Validus Shareholders Vote; Voting
Requirements and RecommendationsProposal: Share Issuance on
page 78.
Listing of Validus Common Shares
It is a condition to the closing of the amalgamation that the Validus Shares issuable to IPC
shareholders in the amalgamation and the Validus Shares to be reserved for issuance upon the
exercise of IPC options and the vesting of IPC common 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.
Dividends and Distributions
Each of Validus and IPC regularly pays a quarterly cash dividend. Under the terms of the
amalgamation agreement, before the amalgamation closes, Validus and IPC are permitted to declare
and pay ordinary course quarterly dividends on their common shares with record and payment dates
consistent with past practice; provided that any such dividend is at a rate no greater than the
rate it paid during the fiscal quarter immediately preceding the date
-56-
of the amalgamation
agreement, i.e., $0.20 per common share in Validus case and $0.22 per common share in IPCs case.
Pursuant to the amalgamation agreement, Validus and IPC will coordinate the declaration of,
and setting of record dates and payment dates for, dividends on Validus common shares and IPC
common shares so that the IPC shareholders do not receive dividends on both the IPC common shares
and the Validus Shares received in the amalgamation in respect of any calendar quarter or fail to
receive a dividend in respect of any calendar quarter.
Anticipated Accounting Treatment
The amalgamation will be accounted for under the purchase method of accounting in accordance
with Statement of Financial Accounting Standards No. 141(R),
Business Combinations, (FAS 141(R)) under which
the total consideration paid in the amalgamation 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 amalgamation 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 amalgamation 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 amalgamation, the excess will be accounted
for in accordance with FAS 141(R). The excess resulting from the amalgamation will be recognized in earnings as a gain
attributable to the acquirer on the acquisition date. Validus
anticipates the amalgamation agreement will result in an excess of
the fair values of the acquired assets and liabilities assumed over
the total consideration paid in the amalgamation.
Sources of Funds, Fees and Expenses
The aggregate amalgamation consideration paid to IPC shareholders will consist of a number of
shares of Validus Shares determined in accordance with the exchange ratio and cash in lieu of
fractional shares, as described in The Amalgamation
AgreementAmalgamation Consideration on page 59.
It is anticipated that Validus will incur an aggregate of approximately $15.0 million in
expenses in connection with the amalgamation, including:
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approximately $14.0 million in financial, legal, accounting and tax advisory fees; |
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approximately $90,000 in SEC filing fees; |
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approximately $350,000 in printing, solicitation and mailing expenses associated
with this proxy statement; and |
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|
approximately $560,000 in miscellaneous expenses. |
These amounts do not include the expenses IPC would incur in the amalgamation.
Whether or not the amalgamation closes, all costs and expenses incurred in connection with the
amalgamation agreement and the transactions contemplated thereby will be paid by the party to the
amalgamation agreement incurring such expense, except as otherwise specifically provided in the
amalgamation agreement.
Validus engaged Greenhill as its financial advisor with respect to its strategic process and
the amalgamation. In connection with Greenhills services as financial advisor to Validus in
connection with Validus strategic process and the amalgamation, Validus agreed to pay Greenhill an
aggregate fee of up to $12.0 million, $2.75 million of
which has already been paid and $9.25 million of which is contingent upon the
closing of the acquisition.
-57-
THE AMALGAMATION AGREEMENT
The following is a summary of selected material provisions of the amalgamation agreement. This
summary is qualified in its entirety by reference to the amalgamation agreement which is
incorporated by reference in its entirety and attached to this proxy statement as Annex A. This
summary assumes that the amalgamation agreement is signed by IPC in the form delivered by Validus
to IPC. In response to IPCs rejection of the Validus Offer, Validus is engaging in efforts to
move forward with the transaction without IPCs cooperation. These efforts will necessitate
certain changes to the amalgamation agreement which are not material to Validus or IPC
shareholders. For example, the amalgamation agreement contemplates Validus and IPC would cooperate
in the preparation and filing of a joint proxy statement/prospectus regarding the amalgamation
which would have included soliciting the votes we are seeking by this proxy statement. Certain other provisions regarding timing and process would need to be updated similarly.
The provisions of the amalgamation agreement are extensive and not easily summarized. You should
read the amalgamation agreement in its entirety because it, and not this proxy statement (including
this summary), is the legal document that would govern the amalgamation.
The representations, warranties and covenants contained in the amalgamation agreement will be
made only for purposes of the amalgamation agreement and as of a specific date and may be subject
to more recent developments, will be solely for the benefit of the parties to the amalgamation
agreement, may be subject to limitations agreed upon by the contracting parties, including being
qualified by disclosures made for the purposes of allocating risk between the parties to the
amalgamation agreement instead of establishing these matters as facts, and may apply standards of
materiality in a way that is different from what may be viewed as material by you or by other
investors. For the foregoing reasons, you should not rely on the representations, warranties and
covenants or any descriptions thereof as characterizations of the actual state of facts or
condition of IPC, Validus or Validus Ltd. or any of their respective subsidiaries or affiliates.
Structure of the Amalgamation
Pursuant to the amalgamation agreement, IPC will amalgamate with Validus Ltd., a direct,
wholly owned subsidiary of Validus, with the amalgamated company continuing as the surviving
company and succeeding to and assuming all of the rights, properties, liabilities and obligations
of IPC and Validus Ltd., if all the conditions provided in the amalgamation agreement, which are
summarized in Conditions to the Amalgamation below, are satisfied or waived. The name of the
amalgamated company will be Validus Ltd.
Upon closing of the amalgamation, Validus board of directors would consist of the directors
serving on the board of directors of Validus before the amalgamation; however, Validus has
expressed to the IPC directors that if they desire to participate in the leadership of Validus
after the amalgamation, Validus would consider that. Upon closing of the amalgamation, the
officers of Validus will be the officers serving Validus before the amalgamation.
Closing; Completion of the Amalgamation
The closing is expected to occur on the third business day after the satisfaction or waiver of
all closing conditions, which are summarized
in Conditions to the Amalgamation below, unless
otherwise agreed in writing by the parties, except that the closing may be postponed if either
party requests a book value estimate from the other party pursuant to the amalgamation agreement,
as described in Book Value Calculations below.
The amalgamation will become effective on the date on which the certificate of amalgamation is
issued by the Registrar of Companies in Bermuda or such other time as the certificate of
amalgamation may provide. The application for the certificate of amalgamation will be filed by IPC
and Validus Ltd. with the Registrar of Companies
in Bermuda on or prior to the closing date.
-58-
Amalgamation Consideration
At the effective time, the amalgamation agreement provides that each IPC common share issued
and outstanding immediately prior to the effective time (other than dissenting shares as to which
appraisal rights have been properly exercised in accordance with Bermuda law and including any
shares beneficially owned by Validus) will be converted into the right to receive, subject to
adjustment as described below, for each IPC common share:
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Validus Shares equal to the exchange ratio; and |
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cash consideration in lieu of fractional shares. |
This consideration is collectively referred to as the amalgamation consideration.
Exchange Ratio
The exchange ratio is 1.2037. Each common share of IPC issued and outstanding immediately
prior to the effective time (other than dissenting shares as to which appraisal rights have been
properly exercised in accordance with Bermuda law and including any shares beneficially owned by
Validus) will be cancelled and converted into the right to receive Validus Shares equal to this
exchange ratio.
Fractional Shares
Validus will not issue any fractional Validus common shares in connection with the
amalgamation. Instead, any IPC shareholder who would otherwise have been entitled to a fraction of
a Validus Share in connection with the amalgamation will be paid, upon surrender of title to all
IPC common shares held by such shareholder, an amount in cash determined by multiplying such
fraction by the average Validus share price (such average Validus common share price is determined
by valuing Validus common shares based on the volume weighted average price per Validus common
share on the NYSE for the five consecutive trading days immediately preceding the second trading
day prior to the closing of the amalgamation).
Example of Amalgamation Consideration
For example, with the exchange ratio being 1.2037, an IPC shareholder owning 100 IPC common
shares will receive total consideration valued at 120.37 Validus Shares. Under the amalgamation
agreement, such shareholders amalgamation consideration would be 120 Validus Shares and for the
fractional remainder, an amount of cash equal to the value of one Validus Share (determined in the
manner described above) times .37.
Unless otherwise required by law or Validus agreement with the exchange agent, any portion of
the exchange fund held by the exchange agent that has not been distributed to IPC shareholders six
months following the effective time will be delivered to Validus, upon demand, and after such
transfer, any IPC shareholder may look only to Validus for payment of the amalgamation
consideration and any dividends or distributions with respect to Validus Shares.
Treatment of IPC Share Options and Other IPC Equity Awards
At the effective time, all outstanding options to purchase IPC common shares will cease to
represent a right to acquire IPC common shares and will automatically be converted into new options
to purchase, on substantially similar terms, such number of Validus Shares and at an exercise price
per share determined as follows:
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Number of Shares: the number of Validus Shares subject to new options will be equal
to the product of (1) the number of IPC common shares subject to IPC share options
immediately before the effective time and (2) the exchange ratio, the product being
rounded, if necessary, to the nearest whole share; and |
-59-
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Exercise Price: the exercise price per Validus Share purchasable upon exercise of
the new options will be equal to (1) the per share exercise price of the IPC share
option divided by (2) the exchange ratio, the quotient being rounded, if necessary, to
the nearest cent. |
At the effective time, any holder of an outstanding right of any kind to acquire IPC common
shares or benefits measured by the value of IPC common shares (other than share options) will have
such right automatically converted into the right to acquire or receive benefits measured by the
value of the number of Validus Shares equal to the product of (1) the number of IPC common shares
subject to the outstanding right immediately before the effective time and (2) the exchange ratio
(rounded down, if necessary, to the nearest number of whole shares). The Validus Shares received
for such IPC common shares will remain subject to the same restrictions that applied before the
amalgamation was effective and will otherwise have the same terms and conditions (taking into
account any accelerated vesting thereunder) as were applicable before the effective time.
Representations and Warranties of the Parties in the Amalgamation Agreement
The amalgamation agreement contains various customary representations and warranties of IPC
and Validus (and Validus Ltd. with respect to specified sections) relating to, among other things:
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organization, good standing and corporate power; |
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capital structure; |
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authorization to enter into, and enforceability of, the amalgamation agreement; |
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the absence of conflicts with, or violations of, (1) organizational documents, (2)
applicable law or (3) material agreements, indentures or other instruments, in each
case as a result of the amalgamation or entry into the amalgamation agreement; |
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the filing, accuracy and completeness of SEC reports, the preparation and
presentation of financial statements, and the absence of undisclosed liabilities; |
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compliance with applicable laws and reporting requirements; |
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absence of material pending or threatened legal and arbitration proceedings and
investigations; |
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tax matters; |
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absence of certain changes or events in the business or condition of each party; |
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approvals of the boards of directors in connection with the amalgamation; |
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the required vote of shareholders; |
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agreements with regulatory agencies or governmental authorities; |
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insurance matters, including statements and reports filed with applicable insurance
regulatory authorities; |
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investments and derivatives; |
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material and intercompany contracts; |
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employee benefits and executive compensation; |
-60-
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labor relations and other employment matters; |
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intellectual property; |
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real and leased properties; |
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brokers fees payable in connection with the amalgamation; |
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investment advisor status; |
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the opinion of each partys financial advisor as to fairness from a financial point
of view; and |
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inapplicability of takeover statutes to the amalgamation. |
Some of the representations and warranties of Validus, Validus Ltd. and IPC in the
amalgamation agreement are qualified by materiality thresholds, or a material adverse effect
clause. For purposes of the amalgamation agreement, the material adverse effect clause and its
related definition contemplate any change, state of facts, circumstance, event or effect that is
materially adverse to the financial condition, properties, assets, liabilities, obligations
(whether accrued, absolute, contingent or otherwise), businesses or results of operations of a
party and its subsidiaries, taken as whole, except any such effect to the extent resulting from any
of the following is excluded from the definition of material adverse effect:
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the execution, delivery and announcement of the amalgamation agreement and the
transactions contemplated thereby; |
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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 the Bermudian, U.S. or global financial markets except to the extent
such changes have a materially disproportionate effect on a party relative to other
similarly situated persons in the property and casualty reinsurance industry; |
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changes, circumstances or events generally affecting the property and casualty
insurance and reinsurance industries in the geographic areas in which such party
operates, except to the extent such changes have a materially disproportionate effect
on a party relative to other similarly situated persons in the property and casualty
reinsurance industry; |
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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; |
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changes in any applicable law, except to the extent such changes have a materially
disproportionate effect on a party relative to other similarly situated persons in the
property and casualty reinsurance industry; |
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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,
except to the extent such changes have a materially disproportionate effect on a party
relative to other similarly situated persons in the property and casualty reinsurance
industry; |
-61-
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any change or announcement of a potential change in its or any of its subsidiaries
credit or claims-paying rating or A.M. Best rating or the ratings of any of its or its
subsidiaries businesses or securities, but not excluding the underlying cause of such
change or announcement; |
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a change in the trading prices or volume of such partys capital shares, but not
excluding the underlying cause of such a change; |
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the failure to meet any revenue, earnings or other projections, forecasts or
predictions for any period ending after the date of the amalgamation agreement, but not
excluding the underlying cause of such failure; |
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the commencement, occurrence or continuation of any war or armed hostilities except
to the extent any such changes have a materially disproportionate effect on a party
relative to other similarly situated persons in the property and casualty reinsurance
industry; |
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any action or failure to act required to be taken by a party pursuant to the terms
of the amalgamation agreement; and/or |
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a partys ability to perform its obligations under the amalgamation agreement or to
consummate the transactions contemplated thereby. |
In most instances, the representations and warranties of Validus, Validus Ltd. and IPC in the
amalgamation agreement that are qualified by material adverse effect are qualified only to the
extent the failure of such representations or warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a material adverse effect on
Validus, Validus Ltd. or IPC, as the case
may be.
Conduct of Business Pending the Closing of the Amalgamation
The amalgamation agreement requires that each of IPC and Validus, subject to certain
exceptions, as consented to in writing by the other party or as expressly noted below as solely
applicable to IPC and its subsidiaries during the period from the signing of the amalgamation
agreement to the effective time, it and its subsidiaries, among other things, (1) will conduct its
respective businesses in the ordinary course consistent with past practice and use commercially
reasonable efforts to preserve intact its business organization, maintain permits and licenses and
preserve relationships with its employees, customers, investment advisors and managers, regulators,
financing providers and others having business dealings with it and (2) will not:
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declare or pay any dividend or make other distributions, with limited exceptions
including ordinary course quarterly dividends on its common shares with record and
payment dates consistent with past practice and at a rate no greater than the rate it
paid in the fiscal quarter immediately preceding the date of the amalgamation
agreement; |
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split, combine or reclassify, or propose to split, combine or reclassify, any of its
share capital, or issue or authorize or propose the issuance or authorization of any
other securities in respect of, in lieu of or in substitution for, shares of its share
capital; |
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in the case of IPC and its subsidiaries, repurchase, redeem or otherwise acquire any
shares of its or any of its subsidiaries share capital or any securities convertible
into or exercisable for any such shares, other than repurchases, redemptions or
acquisitions by a wholly owned subsidiary of share capital or such other securities, as
the case may be, of another of its wholly owned subsidiaries; |
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issue, deliver or sell any shares of any class of its capital shares, any voting
debt, any share appreciation rights or any securities convertible into, or exercisable
or exchangeable for, any rights, warrants or options to acquire such shares or voting
debt, other than as required by its existing equity benefit |
-62-
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plans and issuances by any
of its wholly owned subsidiaries to it or to another of its wholly owned subsidiaries; |
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amend or propose to amend its organizational documents or those of any of its
subsidiaries, except as provided in the amalgamation agreement; |
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with limited exceptions, acquire or agree to acquire any equity interests in or a
substantial portion of the assets of any other entity or any material assets, rights or
properties, or sell, dispose or otherwise encumber any of its assets, rights or
properties; |
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modify or terminate any material contract (as defined in the amalgamation
agreement), or cancel, modify or waive any debts or claims held by it under, or in
connection with, any material contract; |
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enter into any contract that would have been a material contract had it been entered
into before entering into the amalgamation agreement; |
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fail to comply with its investment policy, or modify its investment policy in any
material respect, except as may be required by (or, in its reasonable good-faith
judgment, advisable under) generally accepted accounting principles or in statutory
accounting principles prescribed by applicable law; |
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enter into, purchase, sell, amend or modify any derivative contract other than in
the ordinary course of business consistent with past practice and its investment
policy; |
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voluntarily forfeit, abandon, modify, waive or terminate any of its material
permits; |
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take any action with the knowledge and intent that it would result in any of the
conditions to the amalgamation agreement not being satisfied; |
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take any action that would materially adversely affect the ability of the parties to
obtain any of the regulatory approvals; |
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change its methods of accounting except as required by changes in applicable laws,
generally accepted accounting principles or in applicable statutory accounting
principles; |
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make, change or revoke any material tax election, file any amended tax return,
settle any tax matters or change its method of tax accounting (except, with respect to
any amended return or any change in the accounting method, as required by changes in
law (or any taxing authoritys interpretation thereof)), in each case, if such action
would increase any of its tax liabilities by a material amount; |
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alter or amend in any material respect its investment policy or any existing
underwriting, claim handling and related financial protection, or the methods,
guidelines or policies or any material assumptions underlying such practices, except as
may be required by (or, in its reasonable good-faith judgment, advisable under)
generally accepted accounting principles or in applicable statutory accounting
principles or any governmental entity or applicable laws; |
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adopt any plan of complete or partial liquidation or dissolution, restructuring,
recapitalization or reorganization; |
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incur, create or assume any indebtedness for borrowed money (or modify any of the
material terms of any such outstanding indebtedness), other than (1) in replacement of
existing or maturing debt, (2) in connection with amending existing indebtedness
agreements in connection with the amalgamation agreement, (3) in the ordinary course of
the insurance or reinsurance business and (4) draw-downs pursuant to existing credit
facilities and letters of credit; |
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modify or waive any material rights in or dispose of any material intellectual
property rights; |
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settle or compromise any legal proceedings for an amount in excess of $1 million
(excluding any amounts previously reserved for such matters in its latest audited
balance sheet filed with the SEC and any insurance coverage applicable thereto) or
involving any non-monetary relief; |
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with respect to IPC and its subsidiaries, enter into, adopt, amend or terminate any
of its benefit plans, subject to limited exceptions; |
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with respect to IPC and its subsidiaries, except as required by its existing benefit
plans, increase compensation or fringe benefits of any director, officer, employee,
independent contractor or consultant, or pay any benefit not required by any benefit
plan, subject to certain limited exceptions; |
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with respect to IPC and its subsidiaries, enter into or renew any contract providing
for payment to any director, officer, employee, independent contractor or consultant of
compensation or benefits contingent upon the occurrence of the amalgamation; or |
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agree to or make any commitment to take or authorize, any of the actions described
above. |
Existing Credit Facilities
IPC and Validus must mutually agree to any changes in either partys existing credit
facilities and will use commercially reasonable efforts to cooperate with each other in connection
with the arrangement or modification of any such financing; provided that (1) neither party is
required to cooperate if such cooperation would unreasonably interfere with the ongoing operations
of itself or its subsidiaries prior to the effective time, (2) no party or any of its subsidiaries
will be required to incur any liability under such financing prior to the effective time unless
such liability is contingent upon the occurrence of the amalgamation and not material to IPC and
its subsidiaries (after giving effect to the amalgamation), and (3) IPC and Validus will be solely
responsible for their respective costs and expenses incurred in connection with such cooperation.
Access to Information; Confidentiality
The amalgamation agreement requires that each of Validus and IPC provide to the officers,
employees and representatives of the other party access, during normal business hours prior to the
effective time, to all of its properties, books, contracts, records and officers and all other
information concerning its business, properties and personnel as such other party may reasonably
request, subject to certain restrictions. The parties will hold any such information in confidence
to the extent required by, and in accordance with, the confidentiality provisions of the
amalgamation agreement.
Agreements to Use Commercially Reasonable Efforts
Subject to the terms and conditions of the amalgamation agreement, the amalgamation agreement
requires that each of Validus and IPC use commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or advisable under the
amalgamation agreement and applicable laws to consummate the amalgamation and the other
transactions contemplated by the amalgamation agreement as promptly as practicable after the date
of the amalgamation agreement, including:
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preparing and filing all documentation to effect all necessary applications,
notices, filings and other documents and to obtain all required regulatory approvals
and all other consents; |
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supplying any additional information and documentary material that may be requested
pursuant to applicable laws or by applicable authorities and causing the expiration of
applicable waiting periods, or cause the receipt of all consents from governmental
entities or required under applicable law as soon as practicable; |
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cooperating in all respects with the other party in connection with any filing or
submission and in connection with any investigation or other inquiry, including any
proceeding initiated by any private party; |
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keeping the other party apprised of the status of matters relating to completion of
the transactions contemplated by the amalgamation agreement and promptly informing the
other party of (and upon reasonable request providing copies of) any communication in
connection with any governmental entity and of any material communication in connection
with any proceeding by any private party; |
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consulting with the other party in advance of, and to the extent possible allowing
the other party to participate in, any meeting, conference, conference call, discussion
or communication with, any such governmental entity or, in connection with any
proceeding by any private party, with any other person; and |
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taking all reasonable actions to ensure that no takeover statute or similar
regulation is or becomes applicable to the amalgamation, and if such regulation becomes
applicable, ensuring that the amalgamation is consummated as soon as possible as to
minimize the effect of such regulation. |
Additionally, IPC will take such actions as are necessary to amend its bye-laws to reflect the
IPC bye-law amendment as outlined in the amalgamation agreement; provided that such bye-law
amendment is approved by IPCs shareholders.
However, neither IPC nor Validus or their respective subsidiaries (1) may, without the prior
written consent of the other party, consent to any action for the purpose of obtaining the
regulatory approvals or (2) be required to consent to any restriction for the purpose of obtaining
the regulatory approvals, in each case, which would be effective prior to the effective time or
which would not be immaterial to Validus and its subsidiaries taken together after the
amalgamation.
Restrictions on Change in Recommendation by the Boards of Directors of IPC or Validus
The boards of directors of IPC or Validus may not withdraw or modify, in any manner adverse to
the other party, its recommendations in connection with the amalgamation except if such board has
concluded in good faith, after consultation with its outside counsel and financial advisors, that
such action is reasonably likely to be required in order for the directors to comply with their
fiduciary duties under applicable law, and such party has not materially breached its obligations
with respect to changing its recommendation. Before a party can change its recommendation with
respect to the amalgamation, it must provide advance written notice of such change to the other
party and give the other party five days to agree to alter the terms and conditions of the
amalgamation agreement in a manner that removes the need for the applicable board of directors to
change its recommendation in order to prevent a breach of its fiduciary duties.
Even if IPC or Validus has had a change in recommendation, each will still be required to
submit such matters to the respective shareholders meeting.
Restrictions on Solicitation of Acquisition Proposals by IPC
The amalgamation agreement precludes IPC and each of its subsidiaries and advisors from,
directly or indirectly, initiating, soliciting, encouraging or facilitating (including by providing
information) any effort or attempt to make or implement any proposal or offer with respect to an
amalgamation, reorganization, consolidation, business combination or similar transaction involving
it or any of its subsidiaries or any purchase or sale involving 10% or more of its consolidated
assets (including, without limitation, shares of its subsidiaries), or 10% or more of its total
voting power or the voting power of any of its subsidiaries, which we refer to as an acquisition
proposal. Additionally, except as described below, IPC and each of its subsidiaries may not, and
each shall use its respective commercially reasonable efforts to prevent its advisors from,
directly or indirectly: (1) having, participating or otherwise engaging in any discussions or
negotiations with, or providing any confidential information or data to, any person relating to an
acquisition proposal; (2) approving or recommending, or proposing to approve or recommend, any
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acquisition proposal or submitting an acquisition proposal to a vote of its shareholders; or (3)
approving, recommending or proposing to approve or recommend, or executing or entering into, any
letter of intent, agreement in principle, merger agreement, or other similar agreement related to,
any acquisition proposal.
IPC must provide the other party with written notice within 24 hours of the receipt of any
acquisition proposal or request that could reasonably be related to an acquisition proposal from a
third party indicating the identity of the third party making such acquisition proposal and the
material terms and conditions of any such acquisition proposal and any related documentation and
correspondence. In addition, IPC must keep Validus reasonably informed of the status and terms of
any such acquisition proposal or request (including any material changes to the terms of the
acquisition proposal).
If, prior to the required shareholder vote of IPC, the board of directors of IPC concludes
that an unsolicited bona fide written acquisition proposal in respect of IPC is a superior proposal
(as defined below), after giving effect to all adjustments to the amalgamation agreement that may
be offered by Validus, it may make a change to its recommendation; provided that it must first (1)
give the other party written notice indicating that it has received an acquisition proposal that
could reasonably be likely to constitute a superior proposal and specifying the identity of the
person making such acquisition proposal as well as the material terms of such acquisition proposal
and (2) allow Validus five business days to agree to alter the terms and conditions of the
amalgamation agreement in a manner that removes the need for the applicable board of directors to
change its recommendation in order to prevent a breach of its fiduciary duties. The term superior
proposal means a bona fide unsolicited written acquisition proposal, which did not result from a
breach by IPC of its obligations under the amalgamation agreement regarding acquisition proposals
(as summarized above), that would result in any person beneficially owning securities representing
50% or more of the voting power of IPC, the voting power of any of its subsidiaries or all or
substantially all of IPCs assets which the board of directors of IPC concludes in good faith
(after consultation with its outside legal and financial advisors) is in the long-term best
interests of IPC, including its shareholders, employees, communities and other stakeholders and (1)
is more favorable to its shareholders and other constituencies, (2) is fully financed or reasonably
capable of being fully financed, reasonably likely to receive all required governmental approvals
and otherwise reasonably capable of being completed on the terms proposed, and (3) is reasonably
likely to require the board of directors of IPC to change its recommendation with respect to the
amalgamation, in order to comply with its fiduciary duties under applicable law.
As summarized below in Termination of Amalgamation AgreementEffects of Termination;
Remedies, under certain circumstances (among others) as described in the amalgamation agreement, if
within 12 months of the termination of the amalgamation agreement, either IPC or Validus enters
into or consummates an acquisition transaction (as defined below) with a person (or such persons
affiliate) that made an acquisition proposal to IPC or Validus, as the case may be, after the date
of the amalgamation agreement and prior to the relevant partys shareholder meeting, then the party
entering such acquisition transaction with such person will be liable to the other party for a
termination fee of $16 million upon the earlier of the date of execution or consummation of such
agreement for the acquisition transaction. The term acquisition transaction means, with respect
to any person, any amalgamation, merger, combination or similar transaction involving it or any of
its subsidiaries or any purchase or sale of 35% of more of the consolidated assets (including,
without limitation, stock of its subsidiaries) of it and its subsidiaries, taken as a whole, or any
purchase or sale of, or tender or exchange offer for, its voting securities that, if consummated,
would result in any person (or the shareholders of such person) beneficially owning securities
representing 35% or more of its total voting power or the voting power of any of its subsidiaries.
Expenses
Whether or not the amalgamation is consummated, with the exception of the expenses described
in the next sentence, all costs and expenses incurred in connection with the amalgamation agreement
and the transactions contemplated by the amalgamation agreement will be paid by the party incurring
such expense, except as otherwise described in the amalgamation agreement, and except that IPC and
Validus will share equally any expenses incurred in connection with the filing, printing and
mailing of a joint proxy statement/prospectus. IPC and Validus will share equally the fees payable
to the lenders in connection with the contingent amendments to and consents under their respective
credit facilities.
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Directors and Officers Insurance and Indemnification
Validus will purchase a tail policy covering Validus and IPCs current officers and directors
with regard to any actions occurring prior to the effective time for six years from the effective
time. Subject to certain limitations set forth in the amalgamation agreement, such tail policy will
cover IPCs directors and officers to the same extent such persons are indemnified or have the
right to advancement of expenses as of the date of the amalgamation agreement.
Employee Benefits
As of the effective time, Validus will (or will cause its subsidiaries to) continue to employ
each person employed by IPC or Validus and any of their respective subsidiaries as of the effective
time. Except as outlined below, nothing contained in the amalgamation agreement will restrict
Validus in the future in the exercise of its independent, good faith business judgment as to the
terms and conditions under which such employment will continue, the duration of such employment,
the basis on which such employment is terminated or the benefits provided to any employees.
For a period of not less than one year following the closing date, Validus will (or will cause
its subsidiaries to) make available employee benefits and compensation opportunities substantially
comparable in the aggregate to the employee benefits and compensation opportunities in effect for
such individuals that have been employed by Validus from IPC or the applicable IPC subsidiary
immediately prior to the closing of the amalgamation.
Validus and its subsidiaries will ensure that any compensation and benefit plan in which
employees are eligible to participate after the closing of the amalgamation will give credit
(except for purposes of qualifying for subsidized early retirement benefits or to the extent it
would result in a duplication of benefits) to service by the employees with IPC and any of its
subsidiaries, before the closing of the amalgamation, to the same extent such service was credited
prior to the closing of the amalgamation under a comparable compensation and benefit plan of IPC.
From and after the closing of the amalgamation, Validus will honor all IPC benefit plans, in
each case in accordance with their terms as in effect immediately before the closing of the
amalgamation; provided that nothing in the amalgamation agreement will limit the right of Validus
to amend or terminate any such plan in accordance with its terms.
NYSE Listing and Nasdaq Delisting; Reservation for Issuance
Validus will use its commercially reasonable efforts to cause all the following shares to be
approved for listing and quotation on the NYSE, subject to official notice of issuance, no later
than the closing date: (1) all Validus Shares to be issued in the amalgamation to IPC shareholders
and (2) all Validus Shares to be reserved for issuance upon exercise or vesting of the IPC share
options or other awards, which we refer to collectively as the listed Validus Shares. Validus
will take all action necessary to reserve for issuance, prior to the amalgamation, any listed
Validus Shares that, by their terms and in accordance with amalgamation agreement, will not be
issued until after the effective time. Validus will also use its commercially reasonable efforts to
cause the IPC common shares to no longer be listed or quoted on Nasdaq and to be deregistered under
the Exchange Act as soon as practicable following the effective time.
Dividends
IPC and Validus will coordinate the declaration, setting of record dates and payment dates of
dividends on IPC common shares and Validus common shares so that holders of IPC common shares do
not either receive or fail to receive, dividends on both IPC common shares and the Validus common
shares received in the amalgamation in respect of any calendar quarter. This is to ensure that the
holders of the Validus common shares and IPC common shares each receive the same number of
quarterly dividends after execution of the amalgamation agreement and prior to the effective time
with respect to such shares.
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Book Value Calculations
On the first business day after the date of its shareholder meeting, either IPC or Validus may
request in writing that the other party prepare an estimate of its book value as of one business
day prior to such shareholder meeting, which we refer to as the measurement date. Within five
calendar days of such written request, each of IPC and Validus must provide the other with an
estimate of its book value (calculated in the manner specified in the amalgamation agreement) as of
the measurement date (together with any reasonable supporting analysis). Each of IPC and Validus
will then have five calendar days to review the other partys book value estimate and supporting
analysis, together with such other information it may reasonably request. Once either IPC or
Validus has requested that the other provide an estimate of its book value as of the measurement
date, the closing will be delayed until the covenants and agreements contained in the amalgamation
agreement related to the book value calculations have been satisfied or waived.
The party that requested the book value estimates has the right to terminate the agreement if
the estimates indicate that, since December 31, 2008, the other partys book value has declined
more than 50% or more than 20 percentage points greater than the decline in the requesting partys
book value (if any) over the same period (with any increase in a partys book value since December
31, 2008, to the measurement date deemed to be no change for purposes of measuring the 20
percentage point differential).
Conditions to the Amalgamation
Validus and IPCs respective obligations to complete the amalgamation are subject to the
fulfillment or waiver (by both Validus and IPC) of certain conditions, including:
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IPC shall have obtained the required affirmative vote of its shareholders to (1)
approve the bye-law amendment described in the amalgamation agreement and (2) adopt the
amalgamation agreement and approve the amalgamation, which we refer to collectively as
the required IPC vote; |
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Validus shall have obtained the required affirmative vote of its shareholders to
approve the issuance of Validus Shares to IPC shareholders as contemplated by the
amalgamation agreement; |
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the Validus Shares to be issued or reserved for issuance in connection with the
amalgamation shall have been authorized for listing on the NYSE, subject to official
notice of issuance; |
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certain regulatory filings, approvals or exemptions shall have been made, have
occurred or been obtained; and |
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no injunction or other legal restraints or prohibitions preventing the consummation
of the amalgamation shall be in effect. |
Each of IPCs and Validus obligations to complete the amalgamation is also separately subject
to the satisfaction or waiver of a number of conditions including:
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the truth and correctness of the representations and warranties of each other party
in the amalgamation agreement, subject to the materiality standards provided in the
amalgamation agreement, and the performance, subject to the materiality standards
provided in the amalgamation agreement, by each party of its obligations under the
amalgamation agreement (and the receipt by each party of a certificate from the other
party to such effect); |
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no governmental entity shall have imposed by law, or any other action, any term,
condition, obligation or restriction upon IPC, the amalgamated company or their
respective subsidiaries that would, individually or in the aggregate, reasonably be
expected to have a material adverse effect on Validus and its subsidiaries (including
the amalgamated company) after the effective time; and |
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receipt by each IPC and Validus of a tax opinion with respect to certain U.S.
federal income tax consequences of the amalgamation. |
Validus obligation to complete the amalgamation is also subject to the fulfillment or waiver
(by Validus) of the following condition:
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all amendments or waivers under (x) IPCs credit facilities and (y) Validus credit
facilities, in each case, as determined by Validus to be necessary to consummate the
amalgamation and the other transactions contemplated thereby, shall be in full force
and effect. |
Termination of the Amalgamation Agreement
Termination
The amalgamation agreement may be terminated, at any time prior to the effective time, by
mutual written consent of IPC and Validus, and, subject to certain limitations described in the
amalgamation agreement, by either IPC or Validus, if any of the following occurs:
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a regulatory approval required by the amalgamation agreement to be obtained has been
denied or any governmental authority has taken any action permanently restraining or
prohibiting the amalgamation and such denial or action has become final and
non-appealable (unless the failure to complete the amalgamation by that date is due to
a breach by the party seeking to terminate the amalgamation agreement); |
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the amalgamation has not been consummated on or before the later of (x) November 30,
2009 or (y) the date that is five months after the date of execution of the
amalgamation agreement by all parties thereto (unless the failure to complete the
amalgamation by that date is due to a breach by the party seeking to terminate the
amalgamation agreement); |
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the other partys board of directors has (1) changed its recommendation to its
shareholders, (2) failed to include such recommendation in this proxy statement or (3)
with respect to IPC only, materially breached certain of the non-solicitation
obligations applicable to it under the amalgamation agreement, as summarized in
Restrictions on Change in Recommendation by the Boards of Directors of IPC or Validus
and Restrictions on Solicitation of Acquisition Proposals by IPC above; |
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the other party has breached a covenant, agreement, representation or warranty that
would preclude the satisfaction of certain closing conditions and such breach is not
remedied in the 45 days following written notice to the breaching party or is not
capable of being so remedied; |
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the IPC shareholders have not approved any of the matters for which their approval
is solicited for the required IPC vote or the Validus shareholders have not approved
the issuance of Validus Shares to IPC shareholders as contemplated by the amalgamation
agreement; |
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by either IPC or Validus after its respective shareholder meeting to vote on the
amalgamation if the other partys good-faith estimate of such partys book value as of
the day prior to the requesting partys shareholder meeting indicates that since
December 31, 2008, either (1) the other partys book value has declined by more than
50%, or (2) the other partys book value has declined by more than 20 percentage points
greater than the decline in the terminating partys book value during the same period
(with any increase in a partys book value since December 31, 2008, deemed to be no
change for purposes of measuring the 20 percentage point differential), as summarized
in Book Value Calculations above; or |
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by Validus if the total number of dissenting IPC common shares for which appraisal
rights have been properly exercised in accordance with Bermuda law exceeds 15% of the
issued and outstanding IPC |
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common shares on the business day immediately following the
last day on which IPC shareholders can require appraisal of their common shares. |
Effects of Termination; Remedies
If the amalgamation agreement is terminated as described in Termination above, the
amalgamation agreement will become void, and there will be no liability or obligation of any party
or its officers and directors under the amalgamation agreement, except as to certain limited
provisions relating to confidentiality, the payments of termination fees in connection with a
termination (as applicable), and other transaction expenses, which will survive the termination of
the amalgamation agreement, and except that no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of the amalgamation agreement.
If either of the parties terminates the amalgamation agreement, the non-terminating party will
be required to pay the other a termination fee of $16 million under the following circumstances:
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if the non-terminating partys board of directors has changed or failed to include
in the proxy statement its recommendation to shareholders to vote in favor of the
amalgamation, or has approved or recommended an acquisition proposal or submitted an
acquisition proposal to its shareholders for approval prior to the termination of the
amalgamation agreement; |
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if the amalgamation agreement is terminated for failure to complete the amalgamation
on or before the later of (x) November 30, 2009 or (y) the date that is five months
after the date of execution of the amalgamation agreement by all parties thereto, and
within 12 months of the termination date, the non-terminating party enters into or
consummates an acquisition transaction with the person (or affiliate) that made an
acquisition proposal that was publicly announced or otherwise communicated to the
officers or directors of the non-terminating party prior to the later of (x) November
30, 2009 or (y) the date that is five months after the date of execution of the
amalgamation agreement by all parties thereto; and |
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if the amalgamation agreement is terminated on the basis of certain specified
breaches (as provided therein) and within 12 months, the non-terminating party enters
into or consummates an acquisition transaction with the person (or affiliate) that made
an acquisition proposal that was publicly announced or otherwise communicated to the
officers or directors of the non-terminating party prior to the non-terminating partys
shareholder meeting. |
In addition to the foregoing:
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Validus will pay the termination fee to IPC if either party has terminated the
agreement for failure to obtain the required vote of Validus shareholders (and if IPC
is the terminating party, its required shareholder vote has either been obtained or not
yet taken) and within 12 months of the termination date, Validus or any of its
subsidiaries enters into or consummates an acquisition transaction with the person (or
affiliate) that made an acquisition proposal that was publicly announced or otherwise
communicated to Validus officers or directors prior to the date of Validus
shareholder meeting; and |
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IPC will pay the termination fee to Validus if either party has terminated the
agreement for failure to obtain the required vote of IPC shareholders (and if Validus
is the terminating party, its required shareholder vote has either been obtained or not
yet taken) and if within 12 months of the termination date, IPC or any of its
subsidiaries enters into or consummates an acquisition transaction with the person (or
affiliate) that made an acquisition proposal that was publicly announced or otherwise
communicated to IPCs officers or directors prior to the date of IPCs shareholder
meeting. |
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Amendments and Waivers under the Amalgamation Agreement
Amendments
The amalgamation agreement may be amended in writing by the parties by action taken or
authorized by their respective boards of directors, at any time before or after the approval of
matters presented in connection with the amalgamation by the IPC shareholders and Validus
shareholders. Following such approval, however, no amendment may be made that by law would require
further approval of IPC shareholders or Validus shareholders, without obtaining such further
approval.
Waiver
To the extent legally permissible, the parties may at any time before the effective time do
any of the following:
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extend the time of performance of any of the obligations or other acts of the other
party; |
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waive any inaccuracies in the representations and warranties contained in the
amalgamation agreement or in any document delivered pursuant to the amalgamation
agreement; or |
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waive compliance with any of the agreements or conditions contained in the
amalgamation agreement. |
Any extension or waiver will be valid only if set forth in writing and signed by the party
granting the waiver.
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REGULATORY MATTERS
If the amalgamation agreement is signed by IPC, subject to the terms and conditions of the
amalgamation agreement, Validus and IPC would use commercially reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable
under the amalgamation agreement and applicable laws, rules and regulations to close the
amalgamation and the other transactions contemplated by the amalgamation agreement as promptly as
practicable after the date of the amalgamation agreement, as discussed in The Amalgamation
AgreementAgreements to Use Commercially Reasonable Efforts
above on page 64.
Notwithstanding the foregoing, the amalgamation agreement provides that none of Validus, IPC
or their respective subsidiaries may consent to or take any action without the prior written
consent of the other parties for the purpose of obtaining a regulatory approval, nor will either
party be required to consent or agree to any restriction or limitation in order to obtain a
required regulatory approval if such action would be effective before the effective time or would,
after the effective time, not be immaterial to Validus.
Insurance Regulations
Applications or notifications in connection with the amalgamation and the changes in control
of various subsidiaries of IPC that may be deemed to occur as a result of the amalgamation may be
required to be filed, pursuant to the amalgamation agreement, with various non-U.S. regulatory
authorities.
In addition, under the Bermuda Insurance Act of 1978 and pursuant to the amalgamation
agreement, Validus will file a notification regarding the amalgamation with the BMA within 45 days
after the closing date. Following the amalgamation, any person who, directly or indirectly,
becomes a holder of at least 10 percent, 20 percent, 33 percent or 50 percent of the shares of
Validus must notify the BMA in writing within 45 days of becoming such a holder or 30 days after
the date they have knowledge of having such a holding, whichever is later. The BMA may, by written
notice, object to such a person if it appears to the BMA that the person is not fit and proper to
be such a holder. Following the effectiveness of the amalgamation, the BMA may require the holder
to reduce its holding of shares and direct, among other things, that voting rights attaching to
those shares will not be exercisable. A person that does not comply with such a notice or
direction from the BMA will be guilty of an offense.
Although Validus does not expect these regulatory authorities to raise any significant
concerns in connection with their review of the amalgamation, there is no assurance that Validus
and IPC will obtain all required regulatory approvals or that these approvals will not include
terms, conditions or restrictions that are adverse to Validus or to IPC or that would cause one or
both of them to abandon the amalgamation, if permitted by the terms of the amalgamation agreement.
Other than the approvals and notifications described above, Validus is not aware of any
material regulatory approvals required to be obtained, or waiting periods required to expire after
the making of a filing. If the parties discover that other approvals or filings and waiting
periods are necessary, they will seek to obtain or comply with them, although there can be no
assurance that they will be obtained, as is the case with the regulatory approvals described above.
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INFORMATION ABOUT VALIDUS AND IPC
Validus and Validus Ltd.
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, which we refer to as Validus Re, and Talbot
Holdings Ltd., which we refer to as Talbot. Validus Re is a Bermuda based reinsurer focused on
short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group
primarily operating within the Lloyds insurance market through Syndicate 1183. Validus common
shares are traded on the NYSE under the symbol VR and, as of the date preceding the filing of
this proxy statement, Validus had a market capitalization of
approximately $1.86 billion. Validus
has approximately 280 employees.
Validus Ltd. is a recently formed Bermuda exempted company organized in connection with
Validus binding offer relating to the amalgamation and has not carried on any activities other
than in connection therewith.
The principal offices of Validus Ltd. are located at 19 Par-La-Ville Road, Hamilton HM11,
Bermuda. The telephone number of Validus Ltd. is (441) 278-9000. Validus Ltd. is a direct, wholly
owned subsidiary of Validus.
Unless Validus Ltd. exchanges IPC common shares on behalf of Validus pursuant to the Validus
Offer, it is not anticipated that Validus Ltd. will have any significant assets or liabilities or
engage in activities other than those incidental to its formation and capitalization.
Information for each of the directors and executive officers of Validus and Validus Ltd. and
other officers and employees 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, Validus Ltd. or any of the participants set forth on Schedule I
hereto have any interest, direct or indirect, by security holdings or otherwise, in the
amalgamation.
Validus files periodic reports, proxy statements and other information with the SEC. The
public may read and copy any materials filed with the SEC at the SECs Public Reference Room at 100
F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that
contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The SECs website address is http://www.sec.gov. Validus common
shares are traded on the NYSE with the symbol VR. Similar information concerning Validus can be
reviewed at the office of the NYSE at 20 Broad Street, New York, New York, 10005. Validus website
address is http://www.validusre.bm. Information contained in this website is not part of this
report.
Validus Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act are available free of charge, including through its website, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the SEC. Copies of
the charters for the audit committee, the compensation committee, the corporate governance and
nominating committee, the finance committee and the underwriting committee, as well as Validus
Corporate Governance Guidelines, Code of Business Conduct and Ethics for Directors, Officers and
Employees (the Code), which applies to all of Validus Directors, officers and employees, and
Code of Ethics for Senior Officers, which applies to Validus principal executive officer,
principal accounting officer and other persons holding a comparable position, are available free of
charge on Validus website at www.validusre.bm or by writing to Investor Relations, Validus
Holdings, Ltd., 19 Par-La-Ville Road, Hamilton HM11, Bermuda. Validus will also post on its
website any amendment to the Code and any waiver of the Code granted to any of its directors or
executive officers to the extent required by applicable rules.
IPC
The following description of IPC is taken in its entirety from the IPC/Max S-4.
-73-
See Sources of Additional Information above. IPC provides property catastrophe reinsurance
and, to a limited extent, property-per-risk excess, aviation (including satellite) and other
short-tail reinsurance on a worldwide basis. During 2008, approximately 93% of its gross premiums
written, excluding reinstatement premiums, covered property catastrophe reinsurance risks.
Property catastrophe reinsurance covers against unpredictable events such as hurricanes,
windstorms, hailstorms, earthquakes, volcanic eruptions, fires, industrial explosions, freezes,
riots, floods and other man-made or natural disasters. The substantial majority of the reinsurance
written by IPCRe has been, and continues to be, written on an excess of loss basis for primary
insurers rather than reinsurers, and is subject to aggregate limits on exposure to losses. During
2008, IPC had approximately 258 clients from whom it received either annual/deposit or adjustment
premiums, including many of the leading insurance companies around the world. In 2008,
approximately 36% of those clients were based in the United States, and approximately 53% of gross
premiums written, excluding reinstatement premiums, related primarily to U.S. risks. IPCs
non-U.S. clients and its non-U.S. covered risks are located principally in Europe, Japan, Australia
and New Zealand. During 2008, no single ceding insurer accounted for more than 3.7% of its gross
premiums written, excluding reinstatement premiums. At December 31, 2008, IPC had total
shareholders equity of $1,851 million and total assets of $2,389 million.
In response to a severe imbalance between the global supply of and demand for property
catastrophe reinsurance that developed during the period from 1989 through 1993, IPC and IPCRe were
formed as Bermuda companies and commenced operations in June 1993 through the sponsorship of
American International Group, Inc. (AIG). On August 15, 2006, AIG sold its entire shareholding
in an underwritten public offering. As from August 15, 2006, to IPCs knowledge, AIG no longer has
any direct ownership interest in IPC.
IPCs common shares are quoted on Nasdaq under the ticker symbol IPCR and the Bermuda Stock
Exchange under the symbol IPCR BH. IPCRe Europe Limited, a subsidiary of IPCRe incorporated in
Ireland, underwrites select reinsurance business. Currently, IPCRe Europe Limited retrocedes 90%
of the business it underwrites to IPCRe.
Internet Address: IPCs Internet address is www.ipcre.bm and the investor relations section of
its website is located at www.ipcre.bm/financials/quarterly-index.html. IPC makes available free
of charge, through the investor relations section of its website, annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 as soon as
reasonably practicable after they are electronically filed with, or furnished to, the SEC.
-74-
THE VALIDUS SPECIAL MEETING
This proxy statement is being provided to the Validus shareholders in connection with the
solicitation of proxies by Validus board of directors to be voted at the Validus special meeting
and any adjournment thereof.
Date, Time and Place
The Validus special meeting will be held at , Atlantic Time,
on , 2009, at 19 Par-La-Ville Road, Hamilton HM11, Bermuda.
Purposes of the Validus Special Meeting
At the Validus special meeting, Validus shareholders will be asked to consider and vote on the
following proposals:
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to approve the issuance of Validus Shares in connection with the acquisition of all
of the outstanding common shares of IPC, pursuant to the amalgamation agreement or
otherwise, which we refer to as the share issuance; and |
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to transact such other further business, if any, as may lawfully be brought before
the meeting, including approving an adjournment proposal. |
The board of directors of Validus has unanimously adopted the amalgamation agreement and authorized the
share issuance and deems it fair, advisable and in the best interests of Validus and its shareholders to consummate the share issuance and the other transactions contemplated
by the amalgamation agreement. Validus board of directors unanimously recommends that Validus shareholders vote FOR
each of the items above.
If you sign and return a proxy card or voting instruction form without giving specific voting
instructions, your shares will be voted FOR the share issuance proposal and FOR the adjournment
proposal 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 Validus special meeting.
The share issuance will become effective only if such proposal is approved by Validus
shareholders and the IPC shares are exchanged for Validus Shares, pursuant to the amalgamation
agreement or otherwise but based on an exchange ratio no less favorable to Validus shareholders
than the exchange ratio set forth in the amalgamation agreement, and all the other conditions of
the amalgamation or similar agreement are satisfied or waived.
Record Date and Shares Entitled to Vote
Shareholders of record, as shown on the transfer books of Validus at the close of business on
, 2009 will be entitled notice of, and to vote at, the Validus special meeting or any
adjournments thereof. As of March 13, 2009, there were 58,849,289 outstanding Validus Shares
entitled to vote at the Validus special meeting, and 19,771,422 non-voting common shares.
Each Validus Share entitles the holder of record thereof to one vote at the Validus special
meeting; however, if, and for so long as, the Validus Shares of a shareholder, including any votes
conferred by controlled shares, would otherwise represent more than 9.09% of the aggregate voting
power of all Validus Shares entitled to vote on a matter, the votes conferred by such Validus
Shares will be reduced by whatever amount is necessary such that, after giving effect to any such
reduction (and any other reductions in voting power required by Validus bye-laws), the votes
conferred by such Validus Shares represent 9.09% of the aggregate voting power of all Validus
Shares entitled to vote on such matter.
-75-
How to Vote Your Validus Common Shares
The manner in which your shares may be voted depends on how your Validus Shares are held.
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If you own shares of record, meaning that your Validus Shares are represented by
certificates or book entries in your name so that you appear as a shareholder in the
transfer books maintained by the share transfer agent, Bank of New York Mellon, a
Validus proxy card for voting those Validus Shares will be included with this proxy
statement. You may direct how your Validus Shares are to be voted by completing,
signing and returning the Validus proxy card in the enclosed envelope; alternatively,
you may use the toll-free telephone number indicated on the proxy card to vote by
telephone or visit the website indicated in the proxy card to vote on the Internet. |
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If you own Validus Shares through a bank or brokerage firm, you may instead receive
from your bank or brokerage firm a voting instructions form with this proxy statement
that you may use to instruct how your Validus Shares are to be voted. As with a proxy
card, you may direct how your Validus Shares are to be voted by completing, signing and
returning the voting instructions form in the envelope provided. Many banks and
brokerage firms have arranged for Internet or telephonic instructions
regarding how shares are to be voted and provide instructions for using those services on the voting
instruction form. |
Validus has requested that brokerage and other custodians, nominees and fiduciaries forward
solicitation materials to the beneficial owners of Validus Shares and it will reimburse the brokers
and other fiduciaries for their reasonable out-of-pocket expenses for forwarding the materials.
How to Revoke a Proxy
You may change your vote or revoke your proxy at any time before your proxy is voted at the
Validus special meeting. If you are a shareholder of record, you may change your vote or revoke
your proxy by: (1) delivering to Validus (Attention: General Counsel) at the address on the first
page of this proxy statement a written notice of revocation of your proxy; (2) delivering to
Validus an authorized proxy bearing a later date (including a proxy by telephone or over the
Internet); or (3) attending the Validus special meeting and voting in person. Attendance at the
Validus special meeting in and of itself, without voting in person at the Validus special meeting,
will not cause your previously granted proxy to be revoked. For shares you hold in street name,
you may change your vote by submitting new voting instructions to your broker, bank or other
nominee or, if you have obtained a legal proxy from your broker, bank or other nominee giving you
the right to vote your shares at the Validus special meeting, by attending the Validus special
meeting and voting in person.
Other Matters
Validus knows of no specific matter to be brought before the Validus special meeting that is
not referred to in the notice of the Validus special meeting. If any such matter comes before the
Validus special meeting, including any shareholder proposal properly made, the proxy holders will
vote proxies in accordance with their judgment.
Quorum; Abstentions and Broker Non-Votes
The quorum required at the Validus special meeting is two or more shareholders present in
person and representing in person or by proxy in excess of fifty percent (50%) of the total issued
Validus Shares throughout the meeting.
-76-
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 Validus special meeting. Because the
vote required to approve the proposals is the affirmative vote of a majority of the votes cast,
assuming a quorum is present, a broker non-vote with respect to any proposal to be voted on at the
shareholder 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.
Required Vote
As more fully described below under the description of the proposals, an affirmative vote of a
majority of the votes cast at the Validus special meeting, at which a quorum is present in
accordance with Validus bye-laws, is required to approve the share issuance and the adjournment proposal.
Validus Auditors
Representatives of PricewaterhouseCoopers are not expected to be present at the Validus
special meeting and accordingly will not make any statement or be available to respond to any
questions.
Proxy Solicitation
Validus will pay the cost of this proxy solicitation. In addition to soliciting proxies by
mail, directors, officers and employees of Validus may solicit proxies personally and by telephone,
facsimile or otherwise. None of these persons will receive additional or special compensation for
soliciting proxies. In addition, Validus has retained Georgeson Inc. to assist in its solicitation
of proxies in connection with the Validus special meeting, and estimates that it will pay Georgeson
Inc. a fee not to exceed $75,000. Georgeson Inc. may solicit proxies from individuals, banks,
brokers, custodians, nominees, other institutional holders and other fiduciaries. Validus has also
agreed to reimburse Georgeson Inc. for its reasonable administrative and out-of-pocket expenses and
to indemnify it against certain losses, costs and expenses. Also, upon request, Validus will
reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their
customers who are beneficial owners and obtaining their voting instructions. Validus will furnish,
without charge, to any shareholder a copy of its Annual Report on Form 10-K that it files with the
SEC. A copy of the Validus Annual Report on Form 10-K for the year ended December 31, 2008 may be
obtained upon written request to Jon Levenson at Validus Holdings, Ltd., 19 Par-La-Ville Road,
Hamilton HM11, Bermuda.
-77-
PROPOSALS TO BE SUBMITTED TO VALIDUS SHAREHOLDERS VOTE; VOTING
REQUIREMENTS AND RECOMMENDATIONS
Proposal: Share Issuance
Validus board of directors unanimously adopted, subject to Validus shareholder approval at
the Validus meeting, a resolution to approve the issuance of Validus Shares in connection with the
acquisition of all outstanding IPC common shares, pursuant to the amalgamation or otherwise.
Under the terms of the amalgamation agreement, IPC shareholders (including IPC shareholders
that do not vote in favor of the amalgamation, but excluding holders of any shares as to which
appraisal rights have been exercised pursuant to Bermuda law and including any shares beneficially
owned by Validus) will receive a fraction of a Validus Share equal to the exchange ratio of 1.2037
and cash in lieu of fractional shares as consideration for the exchange of their IPC shares in
connection with the amalgamation.
The Listed Company Manual for companies listed on the NYSE, on which Validus common shares
are listed, requires the approval of Validus shareholders in connection with the issuance of
common shares or securities convertible into or exercisable for common shares if (a) the common
shares or other securities being issued will have voting power equal to or in excess of 20% of the
voting power outstanding before such issuance or (b) the number of common shares to be issued in or
will be equal to or in excess of 20% of the number of common shares or other securities outstanding
before such issuance. The minimum vote that will constitute shareholder approval under the NYSE
rules is a majority of the total votes cast on the proposal.
Assuming
closing of the acquisition, by amalgamation or otherwise, based on Validus and
IPCs capitalization as of December 31, 2008, and a share exchange ratio of 1.2037, Validus would
issue approximately 67,338,947 Validus Shares to shareholders of IPC in connection with the
acquisition in exchange for IPCs outstanding common shares. Upon closing of the amalgamation,
current Validus shareholders will own approximately 57% of Validus on a fully diluted basis and IPC
shareholders will own approximately 43% of Validus on a fully diluted basis.
The affirmative vote of a majority of the votes cast at the Validus special meeting, at which
a quorum is present in accordance with Validus bye-laws, is required to approve this proposal
regarding the share issuance. The acquisition will not close unless the Validus shareholders
approve the share issuance.
Validus board of directors unanimously recommends a vote FOR this proposal.
Proposal: Adjournment Proposal
Validus shareholders are being asked to consider and vote on a proposal to adjourn or postpone
the Validus special meeting, in the discretion of the persons named as proxies, to solicit additional
proxies.
The affirmative vote of a majority of the votes cast at the Validus special meeting, at which
a quorum is present in accordance with Validus bye-laws, is required to approve this proposal
regarding the adjournment proposal.
Validus board of directors unanimously recommends a vote FOR this proposal.
-78-
BENEFICIAL OWNERSHIP OF VALIDUS COMMON SHARES
The following table sets forth information as of March 13, 2009 regarding the beneficial
ownership of Validus common shares by:
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each person known by Validus to beneficially own more than 5% of our outstanding
common shares, |
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each of Validus directors, |
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each of our named executive officers, and |
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all of our directors and executive officers as a group. |
The information provided in the table below with respect to each principal shareholder has
been obtained from that shareholder.
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Unvested |
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Fully |
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Shares |
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Restricted |
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Diluted |
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Subject to |
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Shares and |
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Total |
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Total |
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Exercise |
|
Shares Subject |
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Beneficial |
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Beneficial |
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Common |
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of |
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to Exercise of |
|
Ownership |
|
Ownership |
Beneficial Owner(1)(16)(17) |
|
Shares |
|
Warrants |
|
Options |
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(%)(2) |
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(%)(2) |
Investment funds affiliated
with The Goldman Sachs Group,
Inc.(3),(4) |
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14,057,137 |
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1,604,410 |
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20.23 |
% |
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17.38 |
% |
Aquiline Capital Partners LLC
and the funds it manages(5) |
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6,886,342 |
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3,193,865 |
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12.76 |
% |
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11.19 |
% |
Funds affiliated with or
managed by Vestar Capital
Partners(6) |
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8,571,427 |
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972,810 |
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12.43 |
% |
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10.59 |
% |
Funds affiliated with or
managed by New Mountain
Capital, LLC(7) |
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6,986,241 |
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784,056 |
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10.14 |
% |
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8.62 |
% |
Entities affiliated with Bank
of America Corp. or managed
by Bank of America Corp
affiliates(3),(8) |
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6,134,530 |
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1,067,187 |
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9.37 |
% |
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7.99 |
% |
Edward J. Noonan(9) |
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421,564 |
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29,039 |
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920,779 |
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0.59 |
% |
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1.52 |
% |
George P. Reeth(9) |
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133,084 |
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7,260 |
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523,767 |
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0.19 |
% |
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0.74 |
% |
C. N. Rupert Atkin(9) |
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90,962 |
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319,680 |
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0.12 |
% |
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0.46 |
% |
Michael E. A. Carpenter(9) |
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291,715 |
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22,910 |
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0.38 |
% |
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0.35 |
% |
Jeff Consolino(9) |
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59,405 |
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384,964 |
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0.08 |
% |
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0.49 |
% |
Matthew J. Grayson(10),(11) |
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3,993 |
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0.01 |
% |
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0.00 |
% |
Jeffrey W. Greenberg(10),(12) |
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6,886,342 |
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3,203,883 |
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12.77 |
% |
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11.20 |
% |
John J. Hendrickson(10) |
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57,142 |
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72,598 |
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4,430 |
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0.17 |
% |
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0.15 |
% |
Sumit Rajpal(3),(4),(10) |
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20.23 |
% |
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|
17.38 |
% |
Sander M. Levy(10),(13) |
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12.43 |
% |
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|
10.59 |
% |
Jean-Marie Nessi(10) |
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Mandakini Puri(10),(14) |
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8.82 |
% |
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7.53 |
% |
Alok Singh(10),(15) |
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10.14 |
% |
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|
8.62 |
% |
Christopher E. Watson(10),(11) |
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6,026 |
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|
0.01 |
% |
|
|
0.01 |
% |
Directors and Executive
Officers as a group(19
persons)(16) |
|
|
1,211,483 |
|
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128,934 |
|
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3,338,034 |
|
|
|
1.76 |
% |
|
|
5.16 |
% |
|
|
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(1) |
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All holdings in this beneficial ownership table have been rounded to the nearest whole share. |
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(2) |
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The percentage of beneficial ownership for all holders has been rounded to the nearest 1/10th
of a percentage. Total beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes common shares issuable within 60 days of March
13, 2009 upon the exercise of all options and warrants and other rights beneficially owned by
the indicated person on that date. Fully diluted total beneficial ownership is based upon all
common shares and all common shares subject to exercise of options and warrants outstanding at
March 13, 2009. Under our Bye-laws, if, and for so long as, the common shares of a
shareholder, including any votes conferred by controlled shares, would otherwise |
-79-
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represent
more than 9.09% of the aggregate voting power of all common shares entitled to vote on a
matter, including an election of directors, the votes conferred by such shares will be reduced
by whatever amount is necessary such that, after giving effect to any such reduction (and any
other reductions in voting power required by our Bye-laws), the votes conferred by such shares
represent 9.09% of the aggregate voting power of all common shares entitled to vote on such
matter. |
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(3) |
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All of the common shares beneficially owned by funds affiliated with or managed by The
Goldman Sachs Group, Inc. and Goldman, Sachs & Co. (Goldman Sachs) are non-voting. Common
shares beneficially owned by entities affiliated with Bank of America Corp. (Bank of
America) (the parent corporation of Merrill Lynch & Co, Inc. (Merrill Lynch)) or managed by
Bank of America affiliates are non-voting. |
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(4) |
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Funds affiliated with or managed by Goldman Sachs (collectively, the Goldman Sachs Funds)
are GSCP V AIV, L.P. (4,798,022 shares and 638,458.3 warrants), GS Capital Partners V
Employees Fund, L.P. (1,550,787 shares and 206,358.9 warrants), GS Capital Partners V
Offshore, L.P. (3,279,530 shares and 436,397.5 warrants), GS Capital Partners V GmbH & Co. KG
(251,708 shares and 33,495.5 warrants), GSCP V Institutional AIV, Ltd. (2,177,093 shares and
289,698.7 warrants), GS Private Equity Partners 1999, L.P. (1,039,607 shares), GS Private
Equity Partners 1999 Offshore, L.P. (166,143 shares), GS Private Equity Partners 1999 Direct
Investments Funds, L.P. (29,720 shares), GS Private Equity Partners 2000, L.P. (439,293
shares), GS Private Equity Partners 2000 Offshore Holdings, L.P. (154,627 shares) and GS
Private Equity Partners 2000 Direct Investment Fund, L.P. (170,607 shares). The Goldman
Sachs Group, Inc., and certain affiliates, including Goldman Sachs, which is a broker-dealer,
and the Goldman Sachs Funds may be deemed to directly or indirectly beneficially own in the
aggregate 14,057,137 of our common shares and 1,604,410 warrants which are owned directly or
indirectly by the Goldman Sachs Funds. Affiliates of The Goldman Sachs Group, Inc. and Goldman
Sachs are the general partner, managing general partner or managing limited partner of the
Goldman Sachs Funds. Goldman Sachs is the investment manager for certain of the Goldman Sachs
Funds. Goldman Sachs is a direct and indirect, wholly owned subsidiary of The Goldman Sachs
Group, Inc. The Goldman Sachs Group, Inc., Goldman Sachs and the Goldman Sachs Funds share
voting power and investment power with certain of their respective affiliates. Sumit Rajpal,
The Goldman Sachs Group, Inc. and Goldman Sachs each disclaim beneficial ownership of the
common shares owned directly or indirectly by the Goldman Sachs Funds, except to the extent of
their pecuniary interest therein, if any. The address for the Goldman Sachs Funds and their
affiliates is 85 Broad Street, 10th Floor, New York, New York 10004. |
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(5) |
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Funds managed by Aquiline Capital Partners LLC are Aquiline Financial Services Fund L.P.
(4,420,420 shares) and Aquiline Financial Services Fund (Offshore) L.P. (2,465,922 shares).
Aquiline Capital Partners LLC owns the warrants shown. Matthew J. Grayson and Christopher E.
Watson are senior principals at Aquiline Capital Partners LLC and Jeffrey W. Greenberg is the
managing principal of Aquiline Capital Partners LLC. |
|
(6) |
|
Funds affiliated with or managed by Vestar Capital Partners are Vestar AIV Employees Validus
Ltd. (90,419 shares and 10,236.3 warrants), Vestar AIV Holdings B L.P. (71,538 shares and
8,130.9 warrants), and Vestar AIV Holdings A L.P. (8,409,470 shares and 954,442.4 warrants).
Sander M. Levy is a managing director of Vestar Capital Partners. |
|
(7) |
|
Funds affiliated with or managed by New Mountain Capital, LLC are New Mountain Partners II
(Cayman), L.P. (6,391,468 shares and 716,031.5 warrants), Allegheny New Mountain Partners
(Cayman), L.P. (484,642 shares and 55,392.1 warrants) and New Mountain Affiliated Investors II
(Cayman), L.P. (110,131 shares and 12,632.0 warrants). Alok Singh is a managing director of
New Mountain Capital, LLC. |
|
(8) |
|
Entities affiliated with Bank of America or managed by Bank of America affiliates are ML
Global Private Equity Fund, L.P. (4,285,714 shares and 364,803.6 warrants), Merrill Lynch
Ventures L.P. 2001 (1,428,571 shares and 121,601.2 warrants), GMI Investments, Inc. (580,781.9
warrants) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (420,245 shares). |
|
|
|
The general partner of ML Global Private Equity Fund, L.P. is MLGPE LTD., a Cayman Islands
exempted |
-80-
|
|
|
|
|
company whose sole shareholder is ML Global Private Equity Partners, L.P., a Cayman
Islands exempted limited partnership (ML Partners). The investment committee of ML
Partners, which is composed of Merrill Lynch GP, Inc., a Delaware corporation, as the
general partner of ML Partners, and certain investment professionals who are actively
performing services for ML Global Private Equity Fund, L.P., retains decision-making power
over the disposition and voting of shares of portfolio investments of ML Global Private
Equity Fund, L.P. The consent of Merrill Lynch GP, Inc., as ML Partners general partner, is
required for any such vote. Merrill Lynch GP, Inc. is a wholly owned subsidiary of Merrill
Lynch Group, Inc., a Delaware corporation, which in turn is a wholly owned subsidiary of
Merrill Lynch, which in turn is a wholly owned subsidiary of Bank of America. MLGPE LTD., as
general partner of ML Global Private Equity Fund, L.P.; ML Partners, the special limited
partner of ML Global Private Equity Fund, L.P.; Merrill Lynch GP, Inc., by virtue of its
right to consent to the voting of shares of portfolio investments of ML Global Private
Equity Fund, L.P.; the individuals who are members of the investment committee of ML
Partners; and each of Merrill Lynch Group, Inc. and Merrill Lynch, because they control
Merrill Lynch GP, Inc., may therefore be deemed to beneficially own the shares that ML
Global Private Equity Fund, L.P. holds of record or may be deemed to beneficially own. Each
such entity or individual expressly disclaims beneficial ownership of these shares. |
|
|
|
The general partner of Merrill Lynch Ventures L.P. 2001 is Merrill Lynch Ventures, L.L.C.
(ML Ventures), which is a wholly owned subsidiary of Merrill Lynch Group, Inc. Decisions
regarding the voting or disposition of shares of portfolio investments of Merrill Lynch
Ventures L.P. 2001 are made by the management and investment committee of the board of
directors of ML Ventures, which is composed of three individuals. Each of ML Ventures,
because it is the general partner of Merrill Lynch Ventures L.P. 2001; Merrill Lynch Group,
Inc. and Merrill Lynch, because they control ML Ventures; and the three members of the ML
Ventures investment committee, by virtue of their shared decision making power, may be
deemed to beneficially own the shares held by Merrill Lynch Ventures L.P. 2001. Such
entities and individuals expressly disclaim beneficial ownership of the shares that Merrill
Lynch Ventures L.P. 2001 holds of record or may be deemed to beneficially own. |
|
|
|
Merrill Lynch Ventures L.P. 2001 disclaims beneficial ownership of the shares that ML Global
Private Equity Fund, L.P. holds of record or may be deemed to beneficially own. ML Global
Private Equity Fund, L.P. disclaims beneficial ownership of the shares that Merrill Lynch
Ventures, L.P. 2001 holds of record or may be deemed to beneficially own. The address for
the Merrill Lynch Funds and their affiliates is 4 World Financial Center, 23rd Floor, New
York, NY 10080. Mandakini Puri is a senior vice president of Merrill Lynch Global Private
Equity. |
|
(9) |
|
Unvested restricted shares held by our named executive officers and included in common shares
accumulate dividends and may be voted. Unvested restricted shares held by our named executive
officers are Mr. Noonan (180,938 shares), Mr. Reeth (153,847 shares), Mr. Atkin (319,680
shares), Mr. Consolino (138,350 shares), Mr. Carpenter (22,910). |
|
(10) |
|
See the section entitled Election of Directors in Validus Definitive Proxy Statement filed
with the SEC on March 25, 2009 for biographies of the directors, including their relationships
with certain beneficial owners of common shares listed in this table. |
|
(11) |
|
Does not include shares and warrants beneficially owned by Aquiline Capital Partners LLC and
the funds it manages. Mr. Grayson and Mr. Watson each disclaim existence of a group and
beneficial ownership of the shares and warrants owned by Aquiline Capital Partners LLC and the
funds it manages. |
|
(12) |
|
Includes shares and warrants beneficially owned by Aquiline Capital Partners LLC and the
funds it manages. Mr. Greenberg disclaims existence of a group and disclaims beneficial
ownership of the shares, options and warrants owned by entities affiliated with or managed by
Aquiline Capital Partners LLC. |
|
(13) |
|
Includes shares and warrants beneficially owned by entities affiliated with or managed by
Vestar Capital Partners. Mr. Levy disclaims existence of a group and disclaims beneficial
ownership of the shares, options and warrants owned by entities affiliated with or managed by
Vestar Capital Partners. |
-81-
|
|
|
(14) |
|
Includes shares and warrants beneficially owned by entities affiliated with Bank of America
or managed by Bank of America affiliates. Ms. Puri disclaims existence of a group and
disclaims beneficial ownership of the shares, options and warrants owned by Bank of America or
managed by Bank of America affiliates. |
|
(15) |
|
Includes shares, options and warrants beneficially owned by entities affiliated with or
managed by New Mountain Capital LLC. Mr. Singh disclaims existence of a group and disclaims
beneficial ownership of the shares, options and warrants owned by entities affiliated with or
managed by New Mountain Capital Group, LLC. |
|
(16) |
|
Excludes shares as to which beneficial ownership is disclaimed. |
|
(17) |
|
The addresses of each beneficial owner are as follows: Funds affiliated with or managed by
Goldman, Sachs & Company, c/o Goldman, Sachs & Co., 85 Broad Street, New York, NY 10004;
Aquiline Financial Services Fund L.P., c/o Aquiline Capital Partners LLC, 535 Madison Avenue,
New York, NY 10022; Funds affiliated with or managed by Vestar, c/o Vestar Capital Partners,
245 Park Avenue, 41st Floor, New York, NY 10167; Funds affiliated with or managed by New
Mountain Capital, LLC, c/o New Mountain Capital, LLC, 787 Seventh Avenue, 49th Floor, New
York, NY 10019; Funds affiliated with or managed by Bank of America, c/o Merrill Lynch Global
Private Equity, 4 World Financial Center, 23rd Floor, New York, NY 10080. The address of each
other beneficial owner listed is c/o Validus Holdings, Ltd., 19 Par-La-Ville Road, Hamilton
HM11 Bermuda. |
-82-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Validus
Validus has established written procedures for the review of transactions between us and any
company affiliated with funds managed by any of Validus sponsors or any other company in which
Validus officers or directors have a material interest. We refer to a company in which one of
Validus sponsors has a material interest as a portfolio company. Any such transaction must be
reviewed and approved by our management or the management of the operating subsidiary entering into
the transaction, and the terms of such transaction should be
arms-length or on terms that are
otherwise fair to Validus. Any such transaction will also require prior approval of the audit
committee, except reinsurance assumed transactions with a portfolio company that senior management
has determined are ordinary course. Furthermore, the effect, if any, of such a transaction on the
independence of any director will be considered.
The employers of or entities associated with certain directors or their affiliates have
purchased or may in the future purchase insurance and/or reinsurance from Validus on terms Validus
believes were and will be no more favorable to these insureds than those made available to other
customers.
Certain members of Validus management and staff have provided guarantees to 1384 Capital Ltd,
a company formed to indirectly facilitate the provision of Funds at Lloyds, which we refer to as
FAL.
Compensation Committee Interlocks and Insider Participation
Validus compensation committee is composed of John J. Hendrickson, Sander M. Levy, Mandakini
Puri, Sumit Rajpal and Alok Singh. Each member of Validus compensation committee, other than
Messrs. Hendrickson and Singh, has a relationship with entities with which Validus has engaged in
certain transactions described below. Entities affiliated with Messrs. Hendrickson and Singh
acquired common shares at the time of Validus formation and are parties to Validus shareholder
agreement described below.
Shareholders Agreement and Related Provisions
Certain of Validus shareholders who acquired Validus common shares prior to the date of
Validus initial public offering, which we refer to as the existing shareholders, and Validus
have entered into a shareholders agreement dated as of December 12, 2005 that governs certain
relationships among, and contains certain rights and obligations of, such existing shareholders.
In connection with any future public offerings of common shares by Validus, the shareholders
agreement grants those existing shareholders certain rights to participate in registered offerings
by Validus of its common shares, including demand and piggyback registration rights. The
shareholders agreement defines Aquiline Capital Partners, LLC, which. together with its related
companies, we refer to as Aquiline, Goldman Sachs Capital Partners, Vestar Capital Partners, New
Mountain Capital, LLC and Merrill Lynch Global Private Equity as sponsors. So long as a sponsor
continues to beneficially hold at least 1/3 of its original common shares, a sponsor is deemed to
be a qualified sponsor. The shareholders agreement permits qualified sponsors to make up to four
demand registrations.
These demand and piggyback registration rights are subject to limitations as to the maximum
number of shares that may be registered if the managing underwriter in such an offering advises
that the number of common shares offered should be limited due to market conditions or otherwise.
Validus is required to pay all expenses incurred in connection with demand and piggyback
registrations, excluding, in the case of demand registrations, underwriting discounts and
commissions.
Each of Goldman Sachs Capital Partners and Merrill Lynch Global Private Equity is entitled to
require pursuant to the shareholders agreement that Validus appoint each of Goldman Sachs and
Merrill Lynch to act as a lead managing underwriter for certain demand registrations; provided that
each of Goldman Sachs and Merrill Lynch
-83-
individually is recognized at the time as a leading underwriter for such securities and
affiliates of Goldman Sachs and Merrill Lynch are qualified sponsors at such time and the terms
offered are market terms.
Additionally, the shareholders agreement provides that existing shareholders as well as
affiliates, directors, officers, employees and agents of existing shareholders are permitted to
engage in activities or businesses that are competitive with us. This section of the shareholders
agreement also specifically releases existing shareholders from any obligation to refer business
opportunities to Validus and establishes that no existing shareholder has any fiduciary duty to
Validus.
Relationships with Our Founder and Sponsoring Investors and Their Related Parties
Validus Reinsurance, Ltd., which we refer to as Validus Re, entered into agreements on
December 8, 2005 with BlackRock Financial Management, Inc.,
which we refer to as BlackRock, under
which BlackRock provides investment management services of part of its investment portfolio, as
well as certain reporting and related services in connection therewith. Accounting and investment
management fees earned by BlackRock for the year ended December 31, 2008 were $2,243,000. During
2008, Merrill Lynch (whose parent company is Bank of America) owned a substantial equity interest
in BlackRock.
Validus Re entered into an agreement on December 8, 2005 with Goldman Sachs Asset Management
and its affiliates, which we refer to as GSAM, under which GSAM was appointed as an investment
manager of part of Validus investment portfolio. Investment management fees earned by GSAM for
year ended December 31, 2008 were $1,404,000.
Pursuant to a reinsurance agreement, Validus has ceded premiums to Group Ark Insurance
Holdings Ltd., which we refer to as Group Ark, of $1,348,000 for the year ended December 31,
2008. A balance due to Group Ark of $60,000 was included in reinsurance balances payable December
31, 2008. The contract terms were negotiated on an arms-length basis. Aquiline and its
affiliates own a majority of the ordinary shares of, and Mr. Watson is a director of, Group Ark.
Certain members of Validus management and staff have provided guarantees to 1384 Capital Ltd,
a company formed to indirectly facilitate the provision of FAL. Validus paid $803,000 of finance
expenses to such management and staff in respect of such provision of FAL for the year ended
December 31, 2008, all of which was included in accounts payable and accrued expenses at December
31, 2008. An amount of $66,000 was included in general and administrative expenses in respect of
the reimbursement of expenses relating to such FAL provision for the year ended December 31, 2008.
Validus and IPC
Validus
acquired 100 IPC common shares, through its wholly owned subsidiary, Validus
Re, a Bermuda exempted company, in the open market. As of the date of the filing of this proxy statement with the SEC, Validus
beneficially owned 100 IPC common shares, or less than 1% of the amount outstanding.
-84-
SOLICITATION OF PROXIES
Except as set forth below, Validus will not pay any fees or commissions to any broker, dealer,
commercial bank, trust company or other nominee for the solicitation of proxies in connection with
this solicitation.
Proxies will be solicited by mail, telephone, facsimile, telegraph, the internet, e-mail,
newspapers and other publications of general distribution and in person. Directors and officers of
Validus and Validus Ltd. listed on Schedule I hereto may assist in the solicitation of proxies
without any additional remuneration.
Validus has retained Georgeson Inc. (Georgeson) for solicitation and advisory services in
connection with solicitations relating to the Validus special meeting, for which Georgeson may
receive a fee of up to $75,000 in connection with the solicitation of proxies for the Validus
special meeting. Up to 50 people may be employed by Georgeson in connection with the solicitation
of proxies for the Validus special meeting. Validus has also agreed to reimburse Georgeson for
out-of-pocket expenses and to indemnify Georgeson against certain liabilities and expenses,
including reasonable legal fees and related charges. Georgeson will solicit proxies for the
Validus special meeting from individuals, brokers, banks, bank nominees and other institutional
holders. Directors, officers and certain employees of Validus and Validus Ltd. may assist in the
solicitation of proxies without any additional remuneration. The entire expense of soliciting
proxies for the Validus special meeting by or on behalf of Validus is being borne by Validus.
If you have any questions concerning this proxy statement or the procedures to be followed to
execute and deliver a proxy, please contact Georgeson at the address or phone number specified on
the front or back cover of this proxy statement.
OTHER MATTERS
Validus knows of no specific matter to be brought before the Validus special meeting that is
not referred to in the notice of the Validus special meeting. If any such matter comes before the
Validus special meeting, including any shareholder proposal properly made, the proxy holders will
vote proxies in accordance with their judgment.
-85-
SHAREHOLDER PROPOSALS FOR 2009 ANNUAL GENERAL MEETING
The date for submission of shareholder proposals intended for inclusion in the proxy statement
for the 2009 annual general meeting has passed and such proposals should have been submitted in
accordance with the procedures prescribed by Rule 14a-8 promulgated under the Exchange Act and sent
to the General Counsel at Validus Holdings, Ltd., Suite 1790, 48 Par-La-Ville Road, Hamilton HM11,
Bermuda and should have been received by December 4, 2008.
The date for presentations of other proposals at the 2009 annual general meeting has also
passed. A shareholder could have presented a proposal at the 2009 annual general meeting other
than pursuant to Rule 14a-8 promulgated under the Exchange Act if such proposal had been received
by the General Counsel at Validus Holdings, Ltd., Suite 1790, 48 Par-La-Ville Road, Hamilton HM11,
Bermuda by February 17, 2009. Any such proposal not so received would be deemed untimely and,
therefore, the persons appointed by the board of directors as its proxy would have the right to
exercise discretionary voting authority with respect to such proposal.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements with respect to two or more shareholders sharing the
same address by delivering a single proxy statement addressed to those shareholders. This process,
which is commonly referred to as householding, potentially provides extra convenience for
shareholders and cost savings for companies. Validus and some brokers household proxy materials,
delivering a single proxy statement to multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders. Once you have received notice from
your broker or Validus that they or we will be householding materials to your address, householding
will continue until you are notified otherwise or until you revoke your consent. If, at any time,
you no longer wish to participate in householding and would prefer to receive a separate proxy
statement, or if you currently receive multiple proxy statements and would prefer to participate in
householding, please notify your broker if your shares are held in a brokerage account or Validus
if you hold registered shares. You can notify Validus by sending a written request to Validus
Holdings, Ltd., Attention: Investor Relations, 17 Par-La-Ville Road, Hamilton HM11 Bermuda.
-86-
WHERE YOU CAN FIND MORE INFORMATION
Validus and IPC file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other information that
Validus and IPC file with the SEC at the SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room. These SEC filings are also available to the public from
the Internet worldwide website maintained by the SEC at http://www.sec.gov. Reports, proxy
statements and other information, with respect to Validus, may also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York, 10005, and, with respect to IPC,
may also be inspected at the offices of The Nasdaq Stock Market, One Liberty Plaza, 165 Broadway,
New York, NY 10006.
If you are a Validus shareholder, some of the documents previously filed with the SEC may have
been sent to you, but you can also obtain any of them through Validus, the SEC or the SECs
Internet website as described above. Documents filed with the SEC are available from Validus
without charge, excluding all exhibits, except that, if Validus has specifically incorporated by
reference an exhibit in this proxy statement, the exhibit will also be provided without charge.
You may obtain documents filed with the SEC by requesting them in writing or by telephone from
Validus at the following addresses:
VALIDUS HOLDINGS, LTD.
19 Par-La-Ville Road
Hamilton HM11
Bermuda
(441) 278-9000
Attention: Jon Levenson
If you would like to request documents, in order to ensure timely delivery, you must do so at
least ten 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.
You can also get more information by visiting Validus website at http://www.validusre.bm and
IPCs website at http://www.ipcre.bm.
Materials from these websites and other websites mentioned in this proxy statement are not
incorporated by reference in this proxy statement. If you are viewing this proxy statement in
electronic format, each of the URLs mentioned in this proxy statement is an active textual
reference only.
The SEC allows Validus to incorporate by reference information in this proxy statement,
which means that Validus can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by reference is considered to
be a part of this proxy statement, except for any information that is superseded by information
included directly in this proxy statement.
The documents listed below that Validus and IPC have previously filed with the SEC are
considered to be a part of this proxy statement. They contain important business and financial
information about the companies:
Validus Filings
(Commission File No. 001-33606)
|
|
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Annual Report on Form 10-K
|
|
For the fiscal year ended December 31, 2008 |
-87-
|
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Current Reports on Form 8-K
|
|
Filed on: February 9, 2009, March 31, 2009 (two reports),
April 3, 2009, and April 9, 2009 (other than the portions of
those documents not deemed to be filed) |
|
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|
The description of Validus common shares
contained in its registration statement on
Form S-3, including any amendment or
report filed for the purpose of updating the
description.
|
|
Filed on August 7, 2008 |
|
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IPC Filings |
|
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(Commission File No. 000-27662) |
|
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Annual Report on Form 10-K
|
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For fiscal year ended December 31, 2008 |
|
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Current Reports on Form 8-K
|
|
Filed on: March 2, 2009; March 10, 2009, March 11, 2009, March 31, 2009 and April
7, 2009 (other than the portions of those documents not deemed to be filed) |
|
|
|
The description of IPC common shares
contained in its registration statement on
Form S-3, including any amendment or
report filed for the purpose of updating the
description.
|
|
Filed on April 27, 2006 |
Validus also incorporates by reference into this proxy statement each document filed by Validus or IPC with the
SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement, but before the date of the Validus special meeting. To the extent, however, required
by the rules and regulations of the SEC, Validus will amend this proxy statement to include
information filed after the date of this proxy statement.
Validus has supplied all of the information contained or incorporated by reference in this
proxy statement relating to Validus, as well as all unaudited pro forma financial information. All
information contained or incorporated by reference in this proxy statement relating to IPC has been
obtained from public filings filed by IPC with the SEC.
-88-
SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND OFFICERS
OF VALIDUS AND VALIDUS LTD.
1. Directors and Participant Executive Officers of Validus.
The following table sets forth certain information with respect to each director and
Participant executive officer of Validus and each other employee of Validus that is a Participant
in the solicitation. Unless otherwise indicated, the current business address of each person is 19
Par-La-Ville Road, Hamilton HM11, Bermuda and the current business telephone number is (441)
278-9000. Unless otherwise indicated, each such person is a citizen of the United States, and each
occupation set forth opposite an individuals name refers to employment with Validus.
DIRECTORS
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
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Edward J. Noonan
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|
Mr. Noonan has been Chairman of the
Board and the Chief Executive Officer of
Validus since its formation. He has 27
years of experience in the insurance and
reinsurance industry, serving most
recently as the acting chief executive
officer of United America Indemnity Ltd.
(Nasdaq: INDM) from February 2005
through October 2005 and as a member of
the board of directors from December
2003 to May 2007. Mr. Noonan served as
president and chief executive officer of
American Re-Insurance Company from 1997
to 2002, having joined American Re in
1983. Mr. Noonan also served as
chairman of Inter-Ocean Reinsurance
Holdings of Hamilton, Bermuda from 1997
to 2002. Prior to joining American Re,
Mr. Noonan worked at Swiss Reinsurance
from 1979 to 1983. |
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Matthew J. Grayson
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|
Mr. Grayson has been a Director of
Validus since its formation. He also
serves as a senior principal of
Aquiline. Mr. Grayson has 24 years
experience in the financial services
industry. In 1998, following a career
in investment banking, corporate finance
and capital markets, Mr. Grayson
co-founded Venturion Capital, a private
equity firm that specialized in global
financial services companies. In 2005,
Venturion Capitals professionals joined
with Jeffrey W. Greenberg, among others,
to form Aquiline. Mr. Grayson serves on
the board of Structured Credit Holdings
Plc and has served as Director of Tygris
Commercial Finance Group since May of
2008. In 2007, Structured Credit
Holdings successfully completed a scheme
of arrangement in the Irish High Court
with its creditors. |
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Jeffrey W. Greenberg
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|
Mr. Greenberg has been a Director of
Validus since its formation. He also
serves as the managing principal of
Aquiline, which he founded in 2005. Mr.
Greenberg served as chairman and chief
executive officer of Marsh & McLennan
Companies, Inc. from 2000 to 2004. From
1996 to 2004, Mr. Greenberg was the
chairman of MMC Capital, the manager of
the Trident Funds. He previously served
as a director of Ace, Inc. Previously,
he served as a senior executive of AIG,
where he was employed from 1978 to 1995.
Mr. Greenberg is also Chairman of Group
Ark Insurance Holdings Ltd., a
Bermuda-based underwriter of insurance
and reinsurance risks in the Lloyds
market. |
S-1
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Present Principal Occupation or Employment, Material Positions |
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|
Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
|
Citizenship |
John J. Hendrickson
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|
Mr. Hendrickson has been a Director of
Validus since its formation. He is also
the Founder and Managing Partner of SFRi
LLC, an independent investment and
advisory firm (formed in 2004)
specializing in the insurance industry.
From 1995 to 2004, Mr. Hendrickson held
various positions with Swiss Re,
including as Member of the Executive
Board, Head of Capital Partners (Swiss
Res Merchant Banking Division),
Co-Founding Partner of Securities
Capital, a private equity firm, and
Managing Director of Fox-Pitt Kelton,
Swiss Res Investment Banking
Subsidiary. From 1985 to 1995, Mr.
Hendrickson was with Smith Barney, the
U.S. investment banking firm, where he
focused on serving the capital and
strategic needs of (re)insurance clients
and private equity investors active in
the insurance sector. Mr. Hendrickson
has served as a director for several
insurance and financial services
companies, and, in addition to Validus,
currently serves on the board of CX
Reinsurance Company Limited and Tawa
PLC. |
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|
|
Sander M. Levy
|
|
Mr. Levy has been a Director of Validus
since its formation. He also serves as a
Managing Director of Vestar Capital
Partners, a private equity investment
firm based in New York which manages
over $7 billion of equity capital, and
was a founding partner of Vestar Capital
Partners at its inception in 1988. Mr.
Levy is currently a member of the board
of directors of Symetra Financial
Corporation, Wilton Re Holdings Limited
and Duff & Phelps, LLC. |
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Jean-Marie Nessi
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|
Mr. Nessi has been a Director of Validus
since its formation. He has also served
as a director of Matmut Enterprises
since 2007. Mr. Nessi also has served as
the head of Aon Global Risk Consulting
at Aon France since October 2007. Mr.
Nessi served as Chairman and CEO of
NessPa Holding from January 2006 to
September 2007 and as the head of the
property and casualty business unit for
PartnerRe Global, a subsidiary of
PartnerRe SA, from 2003 to January 2006.
He was appointed Chairman of PartnerRe
SA in June of 2003. Prior to PartnerRe,
Mr. Nessi led AXA Corporate Solutions,
the successor company to AXA Ré and AXA
Global Risk. Mr. Nessi is a citizen of
France. |
|
|
|
Mandakini Puri
|
|
Ms. Puri has been a Director of Validus
since its formation. She also serves as
a Senior Vice President with Merrill
Lynch Global Private Equity, where she
is the Chief Investment Officer. Ms.
Puri has been part of Merrill Lynchs
private equity business since 1994,
prior to which she was a Director in the
High Yield Finance & Restructuring Group
at Merrill. Ms. Puri joined Merrill
Lynch in 1986. Ms. Puri is a member of
the board of directors of PSi
Technologies Holdings, Inc. |
|
|
|
Sumit Rajpal
|
|
Mr. Rajpal has been a director of
Validus since November 2008. He is also
a managing director of Goldman, Sachs &
Co. He joined Goldman, Sachs & Co. in
2000 and became a managing director in
2007. Mr. Rajpal also serves as a
director on the boards of HealthMarkets,
Inc., USI Holdings Corporation, CSI
Entertainment, Alliance Films Holdings
Inc., CW Media Holdings, Inc. and Dollar
General Corporation (where he is an
observer on the board). |
|
|
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George P. Reeth
|
|
Mr. Reeth has been President and Deputy
Chairman of Validus since its formation
and has senior operating and
distribution responsibilities. |
S-2
|
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
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Mr.
Reeth, who has 30 years experience in
the insurance and reinsurance industry,
was a senior executive with Willis Group
Limited from 1992 to 2005 and was
chairman and chief executive officer of
North American Reinsurance Operations
for Willis Re Inc. from 2000 to 2005.
Prior to Willis, Mr. Reeth was executive
vice president at Wilcox, Inc. Prior to
Wilcox, Mr. Reeth was a senior
professional with E.W. Payne
Intermediaries from 1986 to 1988 and
with Intere Intermediaries, Inc. |
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Alok Singh
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Mr. Singh has been a Director of Validus
since its formation. He also serves as
a Managing Director of New Mountain
Capital, a private equity investment
firm based in New York which manages
over $7 billion of equity capital.
Prior to joining New Mountain Capital in
2002, Mr. Singh served as a Partner and
Managing Director of Bankers Trust from
1978 to 2001. In 2001 he established
the Corporate Financial Advisory Group
for the Americas for Barclays Capital,
and led the group until 2002. Mr. Singh
is non-executive chairman of Overland
Solutions, Inc. and a director of
Apptis, Inc., Deltek, Inc, and Ikaria
Holdings, Inc. |
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Christopher E. Watson
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Mr. Watson has been a Director of
Validus since its formation. He also
serves as a senior principal of
Aquiline, which he joined in 2006. Mr.
Watson has more than 33 years of
experience in the financial services
industry. From 1987 to 2004, Mr. Watson
served in a variety of executive roles
within the property & casualty insurance
businesses of Citigroup and its
predecessor entities. From 1995 to
2004, Mr. Watson was president and chief
executive officer of Gulf Insurance
Group, one of the largest surplus lines
insurance companies in the world. Mr.
Watson served as a senior executive of
AIG from 1974 to 1987. Mr. Watson is
also a director of Group Ark Insurance
Holdings Ltd., a Bermuda-based
underwriter of insurance and reinsurance
risks in the Lloyds market. |
PARTICIPANT EXECUTIVE OFFICERS
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
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Edward J. Noonan
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Mr. Noonan has been Chairman of the
Board and the Chief Executive Officer of
Validus since its formation. He has 27
years of experience in the insurance and
reinsurance industry, serving most
recently as the acting chief executive
officer of United America Indemnity Ltd.
(Nasdaq: INDM) from February 2005
through October 2005 and as a member of
the board of directors from December
2003 to May 2007. Mr. Noonan served as
president and chief executive officer of
American Re-Insurance Company from 1997
to 2002, having joined American Re in
1983. Mr. Noonan also served as
chairman of Inter-Ocean Reinsurance
Holdings of Hamilton, Bermuda from 1997
to 2002. Prior to joining American Re,
Mr. Noonan worked at Swiss Reinsurance
from 1979 to 1983. |
S-3
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
Joseph E. (Jeff) Consolino
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Mr. Consolino has been Executive Vice
President and Chief Financial Officer of
Validus since March 2006. He has over 16
years of experience in the financial
services industry, specifically in
providing investment banking services to
the insurance industry, and most
recently served as a managing director
in Merrill Lynchs Financial
Institutions Group specializing in
insurance company advisory and financing
transactions. He serves as a Director of
National Interstate Corporation, a
property and casualty company based in
Ohio, and of AmWINS Group, Inc., a
wholesale insurance broker based in
North Carolina. |
2. Directors and Participant Executive Officers of Validus Ltd.
The following table sets forth certain information with respect to each director and each
participant executive officer of Validus Ltd. Unless otherwise indicated, the current business
address of each person is 19 Par-La-Ville Road, Hamilton HM11, Bermuda and the current business
telephone number is (441) 278-9000. Unless otherwise indicated, each such person is a citizen of
the United States.
DIRECTORS
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
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Stuart W. Mercer
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Mr. Mercer has been a director of
Validus Ltd. since its formation. Mr.
Mercers principal occupation is
executive vice president and chief risk
officer of Validus. Mr. Mercer has over
18 years of experience in the financial
industry focusing on structured
derivatives, energy finance and
reinsurance. Previously, Mr. Mercer was
a senior advisor to DTE Energy Trading. |
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C. Jerome Dill
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Mr. Dill has been a director of Validus
Ltd. since its formation. Mr. Dills
principal occupation is executive vice
president and general counsel of
Validus. Prior to joining Validus, Mr.
Dill was a partner with the law firm of
Appleby Hunter Bailhache, which he
joined in 1986. Mr. Dill serves on the
Board of Directors of Bermuda Commercial
Bank. |
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Conan M. Ward
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Mr. Ward has been a director of Validus
Ltd. since its formation. Mr. Wards
principal occupation is executive vice
president and chief underwriting officer
of Validus Reinsurance, Ltd. Mr. Ward has over 16 years
of insurance industry experience. Mr.
Ward was executive vice president of the
Global Reinsurance division of Axis
Capital Holdings, Ltd. from November
2001 until November 2005, where he
oversaw the divisions worldwide
property catastrophe, property per risk,
property pro rata portfolios. He is one
of the founders of Axis Specialty, Ltd
and was a member of the Operating Board
and Senior Management Committee of Axis
Capital. From July 2000 to November
2001, Mr. Ward was a senior vice
president at Guy Carpenter & Co. |
S-4
PARTICIPANT EXECUTIVE OFFICERS
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Present Principal Occupation or Employment, Material Positions |
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Held During the Past Five Years and Business Address Thereof, |
Name and Current Business Address |
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Citizenship |
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Edward J. Noonan
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Mr. Noonan has been Chief Executive
Officer of Validus Ltd. since its
formation. Mr. Noonans principal
occupation is chief executive officer
and chairman of Validus. For
biographical information, see 1.
Directors and Participant Executive
Officers of Validus above. |
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Joseph E. (Jeff) Consolino
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Mr. Consolino has been Chief Financial
Officer and Executive Vice President of
Validus Ltd. since its formation. Mr.
Consolinos principal occupation is
executive vice president and chief
financial officer of Validus. For
biographical information, see 1.
Directors and Participant Executive
Officers of Validus above. |
S-5
Annex
A
AGREEMENT AND PLAN OF AMALGAMATION
Dated as of March 31, 2009
Between
IPC HOLDINGS, LTD.,
VALIDUS HOLDINGS, LTD.
And
VALIDUS LTD.
TABLE OF CONTENTS
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ARTICLE I |
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THE AMALGAMATION |
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1.1 The Amalgamation; Effective Time |
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1 |
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1.2 Closing |
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1 |
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1.3 Effects of the Amalgamation |
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2 |
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1.4 Amalgamated Company Bye-laws |
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2 |
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1.5 [Reserved] |
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2 |
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1.6 Directors and Officers of the Amalgamated Company |
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2 |
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1.7 Amalgamated Company Name |
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2 |
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ARTICLE II |
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CONVERSION OF IPC SECURITIES; EXCHANGE OF CERTIFICATES |
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2.1 Effect on Share Capital |
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2 |
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2.2 Exchange Procedures |
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3 |
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2.3 IPC Equity Awards |
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5 |
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ARTICLE III |
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REPRESENTATIONS AND WARRANTIES |
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3.1 Organization, Standing and Power |
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8 |
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3.2 Capital Structure |
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8 |
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3.3 Authority; Non-Contravention |
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9 |
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3.4 SEC Documents; Regulatory Reports; Undisclosed Liabilities |
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10 |
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3.5 Compliance with Applicable Laws and Reporting Requirements
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11 |
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3.6 Legal and Arbitration Proceedings and Investigations |
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12 |
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3.7 Taxes |
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13 |
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3.8 Absence of Certain Changes or Events |
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15 |
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3.9 Board Approval |
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15 |
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3.10 Vote Required |
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16 |
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3.11 Agreements with Regulators |
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16 |
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3.12 Insurance Matters |
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16 |
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3.13 Investments; Derivatives |
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20 |
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3.14 Material Contracts; Intercompany Contracts |
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21 |
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3.15 Employee Benefits and Executive Compensation |
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22 |
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3.16 Labor Relations and Other Employment Matters |
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23 |
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3.17 Intellectual Property |
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24 |
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3.18 Properties |
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25 |
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3.19 Brokers or Finders |
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25 |
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3.20 Investment Advisor |
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25 |
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3.21 Opinion of Financial Advisor |
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25 |
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3.22 Takeover Laws |
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25 |
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ARTICLE IV |
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COVENANTS RELATING TO CONDUCT OF BUSINESS |
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4.1 Covenants of Validus and IPC |
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26 |
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4.2 Financing |
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29 |
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4.3 Bermuda Required Actions |
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29 |
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ARTICLE V |
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ADDITIONAL AGREEMENTS |
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5.1 Preparation of Proxy Statements; Shareholders Meetings
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29 |
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5.2 Access to Information; Confidentiality |
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31 |
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5.3 Commercially Reasonable Efforts |
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32 |
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5.4 No Change in Recommendation |
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33 |
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5.5 Acquisition Proposals |
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34 |
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5.6 Section 16 Matters |
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36 |
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5.7 Fees and Expenses |
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36 |
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5.8 Indemnification; Directors and Officers Insurance |
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37 |
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5.9 Public Announcements |
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37 |
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5.10 Additional Agreements |
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38 |
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5.11 Shareholder Litigation |
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38 |
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5.12 Employee Benefits |
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38 |
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5.13 Listing and Delisting; Reservation for Issuance |
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38 |
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5.14 Dividends |
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39 |
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5.15 Tax Treatment |
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39 |
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5.16 Book Value Calculations |
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39 |
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ARTICLE VI |
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CONDITIONS PRECEDENT |
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6.1 Conditions to Each Partys Obligation to Effect the
Amalgamation |
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40 |
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6.2 Conditions to Obligation of IPC |
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41 |
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6.3 Conditions to Obligation of Validus |
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42 |
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ARTICLE VII |
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TERMINATION AND AMENDMENT |
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7.1 Termination |
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43 |
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7.2 Effect of Termination |
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44 |
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ARTICLE VIII |
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GENERAL PROVISIONS |
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8.1 Non-Survival of Representations, Warranties and Agreements
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46 |
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8.2 Notices |
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46 |
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8.3 Interpretation |
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47 |
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8.4 Counterparts |
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47 |
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8.5 Entire Agreement; No Third Party Beneficiaries |
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47 |
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Page |
8.6 Governing Law |
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48 |
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8.7 Severability |
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48 |
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8.8 Assignment |
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48 |
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8.9 Enforcement |
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48 |
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8.10 Submission to Jurisdiction |
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48 |
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8.11 Amendment |
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48 |
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8.12 Extension; Waiver |
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49 |
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8.13 Defined Terms |
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49 |
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Exhibit A Amalgamation Agreement |
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Exhibit B [Reserved] |
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Exhibit C [Reserved] |
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Exhibit D [Reserved] |
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Exhibit E IPC Bye-Law Amendment |
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Exhibit F Supplement to Section 4.1 of IPC Disclosure Letter |
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-iii-
AGREEMENT AND PLAN OF AMALGAMATION, dated as of March 31, 2009 (this Agreement),
between IPC HOLDINGS, LTD., a Bermuda exempted company (IPC), VALIDUS HOLDINGS, LTD., a
Bermuda exempted company (Validus) and VALIDUS LTD., a Bermuda exempted company and a
wholly owned subsidiary of Validus (Amalgamation Sub).
WHEREAS, the board of directors of IPC has adopted this Agreement and the Amalgamation
Agreement (as defined in Section 1.1) and authorized and approved the amalgamation of IPC with
Amalgamation Sub upon the terms and subject to the conditions set forth herein (the
Amalgamation), authorized and approved the IPC Bye-Law Amendment (as defined in Section
3.9(a)) and deems it fair to, advisable to and in the best interests of IPC to enter into this
Agreement and to consummate the Amalgamation and the other transactions contemplated hereby;
WHEREAS, the board of directors of Validus has adopted this Agreement, authorized and approved
the issuance of Validus Common Shares (as defined in Section 2.1(a)) in the Amalgamation (the
Share Issuance) and deems it fair, advisable and in the best interests of Validus to
enter into this Agreement and to consummate the Share Issuance and the other transactions
contemplated hereby;
WHEREAS, the board of directors of Amalgamation Sub has adopted this Agreement, authorized and
approved the Amalgamation, and deems it advisable and in the best interests of Amalgamation Sub to
enter into this Agreement and to consummate the Amalgamation and the other transactions
contemplated hereby;
WHEREAS, this Agreement is being entered into in accordance with the Bermuda Companies Act of
1981, as amended (the Companies Act);
WHEREAS, IPC, Validus, and Amalgamation Sub desire to make certain representations, warranties
and agreements in connection with the Amalgamation and also to prescribe various conditions to the
Amalgamation; and
WHEREAS, it is intended that this Agreement shall constitute a plan of reorganization,
within the meaning of Section 354 of the Internal Revenue Code of 1986, as amended (the
Code).
NOW, THEREFORE, in consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties agree as follows:
ARTICLE I
THE AMALGAMATION
1.1 The Amalgamation; Effective Time. Subject to the provisions of this Agreement and
the amalgamation agreement attached as Exhibit A (the Amalgamation Agreement),
Amalgamation Sub and IPC will cause an application for registration of an amalgamated company (the
Amalgamation Application) to be prepared, executed and delivered to the Registrar of
Companies in Bermuda (the Registrar) as provided under S.108 of the Companies Act on or
prior to the Closing Date and will cause the Amalgamation to become effective pursuant to the
Companies Act. The Amalgamation shall become effective upon the issuance of a Certificate of
Amalgamation by the Registrar or such other time as the Certificate of Amalgamation may provide.
The parties agree that they will request the Registrar provide in the Certificate of Amalgamation
that the Effective Time will be the time when the Amalgamation Application is filed with the
Registrar or another time mutually agreed by the parties (the Effective Time).
1.2 Closing. The closing of the Amalgamation (the Closing) will take place
at 10:00 a.m. on the date (the Closing Date) that is the third business day after the
satisfaction or waiver
(if such waiver is permitted and effective under applicable Law (as defined in Section 3.5(a))
of the latest to be satisfied or waived of the conditions set forth in ARTICLE VI (excluding
conditions that, by their terms, are to be satisfied on the Closing Date), unless another time or
date is agreed to in writing by the parties. The Closing shall be held at the offices of Cahill
Gordon & Reindel llp, 80 Pine Street, in New York, NY, unless another place is agreed to
in writing by the parties.
1.3 Effects of the Amalgamation. As of the Effective Time, subject to the terms and
conditions of this Agreement and the Amalgamation Agreement, IPC shall be amalgamated with
Amalgamation Sub and the amalgamated company (the Amalgamated Company) shall continue
after the Amalgamation. The parties acknowledge and agree that for purposes of Bermuda Law
(a) the Amalgamation shall be effected so as to constitute an amalgamation and
(b) the Amalgamated Company shall be deemed to be an amalgamated company in accordance
with section 104 of the Companies Act. Under Section 109 of the Companies Act, from and after the
Effective Time: (i) the Amalgamation of IPC and Amalgamation Sub and their continuance as
one company shall become effective; (ii) the property of each of IPC and Amalgamation Sub
shall become the property of Amalgamated Company; (iii) Amalgamated Company shall continue
to be liable for the obligations and liabilities of each of IPC and Amalgamation Sub; (iv)
any existing cause of action, claim or liability to prosecution shall be unaffected; (v) a
civil, criminal or administrative action or proceeding pending by or against IPC or Amalgamation
Sub may be continued to be prosecuted by or against Amalgamated Company; and (vi) a
conviction against, or ruling, order or judgment in favor of or against, IPC or Amalgamation Sub
may be enforced by or against Amalgamated Company.
1.4 Amalgamated Company Bye-laws. The bye-laws of the Amalgamated Company shall be
the bye-laws of the Amalgamation Sub.
1.5 [Reserved].
1.6 Directors and Officers of the Amalgamated Company.
(a) The parties hereto shall take all actions necessary so that the board of directors of
Amalgamation Sub at the Effective Time shall, from and after the Effective Time, be the directors
of the Amalgamated Company until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed.
(b) The parties hereto shall take all actions necessary so that the officers of Amalgamation
Sub at the Effective Time shall, from and after the Effective Time, be the officers of the
Amalgamated Company until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed.
1.7 Amalgamated Company Name. IPC and Validus shall take all actions reasonably
necessary so that immediately after the Effective Time the name of the Amalgamated Company shall be
Validus Ltd.
ARTICLE II
CONVERSION OF IPC SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Effect on Share Capital. Subject to the terms and conditions of this Agreement,
at the Effective Time, by virtue of the Amalgamation and without any action on the part of the
holder of any common shares in IPC, each having a par value of $0.01 (each, an IPC Common
Share), as evidenced by way of entry in the register of shareholders of IPC (the IPC
Share Register) or by share
-2-
certificates registered in the name of a shareholder and representing outstanding IPC Common
Shares (each, a IPC Certificate):
(a) Conversion of IPC Common Shares. Each IPC Common Share, issued and
outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall be
cancelled and converted into the right to receive shares in the share capital of Validus,
each having a par value of $0.175 (each, a Validus Common Share) equal to 1.2037
(the Exchange Ratio) (the Exchange Ratio, together with any cash paid in lieu of
fractional shares in accordance with Section 2.2(e), the Amalgamation
Consideration). Upon such conversion, each IPC Common Share shall be cancelled and
each holder of shares registered in the IPC Share Register or holding a valid IPC
Certificate immediately prior to the Effective Time shall thereafter cease to have any
rights with respect to such shares except the right to receive the Amalgamation
Consideration. The Amalgamation Consideration shall be appropriately adjusted to reflect
fully the effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into Validus Common Shares or IPC Common
Shares), reorganization, recapitalization, reclassification or other like change with
respect to Validus Common Shares or IPC Common Shares having a record date on or after the
date hereof and prior to the Effective Time.
(b) Cancellation of Validus-Owned Securities. Notwithstanding anything in this
Agreement to the contrary, all IPC Common Shares that are owned by Validus or by any
subsidiary of Validus immediately prior to the Effective Time shall, by virtue of the
Amalgamation, and without any action on the part of the holder thereof, automatically be
cancelled and retired without any conversion thereof and shall cease to exist, and no
payment shall be made in respect thereof.
(c) Shares of Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding IPC Common Shares held by a person who
did not vote in favor of the Amalgamation and who complies with all the provisions of the
Companies Act concerning the right of holders of IPC Common Shares to require appraisal of
their IPC Common Shares pursuant to Bermuda Law (such shareholder, a Dissenting
Shareholder, and such shares, Dissenting Shares) shall, at the Effective
time, be cancelled and converted into the right to receive the Amalgamation Consideration as
described in Section 2.1(a), and the right to receive the excess thereof, if any, as
appraised by the Supreme Court of Bermuda under Section 106 of the Companies Act. In the
event that a Dissenting Shareholder fails to perfect, effectively withdraws or otherwise
waives any right to appraisal, its IPC Common Shares shall be cancelled and converted as of
the Effective Time into the right to receive the Amalgamation Consideration for each such
Dissenting Share. IPC shall give Validus (i) prompt notice of (A) any
written demands for appraisal of Dissenting Shares or withdrawals of such demands received
by IPC and (B) to the extent that IPC has actual knowledge, any applications to the
Supreme Court of Bermuda for appraisal of the fair value of the Dissenting Shares, and
(ii) the opportunity to participate with IPC in all negotiations and proceedings
with respect to any demands for appraisal under the Companies Act. Neither IPC nor Validus
shall, without the prior written consent of the other party (not to be unreasonably withheld
or delayed), voluntarily make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
2.2 Exchange Procedures.
(a) Exchange Agent. Prior to the Effective Time, Validus shall designate an exchange
agent reasonably acceptable to IPC (the Exchange Agent) for the purpose of exchanging IPC
Common Shares outstanding immediately prior to the Effective Time. Prior to or at the Effective
Time, Validus shall deposit, or shall cause to be deposited, with the Exchange Agent in accordance
with this
-3-
ARTICLE II, certificates, or at Validuss option, shares in book entry form representing the
Validus Common Shares to be exchanged in the Amalgamation, cash in an amount sufficient to pay any
cash payable in lieu of fractional shares pursuant to Section 2.2(e) and any dividends or
distributions to which the shareholders of IPC may be entitled pursuant to Section 2.2(c). Such
Amalgamation Consideration and cash so deposited are hereinafter referred to as the Exchange
Fund. No interest shall be paid or accrued for the benefit of holders of the IPC Certificates
on cash amounts payable upon the surrender of such certificates pursuant to this Section 2.2.
(b) Exchange Procedures. As promptly as practicable following the Effective Time,
Validus or the Amalgamated Company shall cause the Exchange Agent to mail, to each shareholder of
IPC, (i) a letter of transmittal (which shall be in such form and have such other
provisions as the parties may reasonably specify) and (ii) where applicable, instructions
for use in effecting the surrender of IPC Certificates, to the extent available and in issue, in
exchange for the Amalgamation Consideration. After the Effective Time, upon surrender of title to
the IPC Common Shares previously held by a shareholder of IPC in accordance with this Section 2.2,
together with such letter of transmittal duly executed if such shareholder holds IPC Certificates,
and such other documents as the Exchange Agent may reasonably require, a holder of IPC Common
Shares shall be entitled to receive in exchange therefor a certificate or book-entry representing
that number of whole Validus Common Shares and any cash in lieu of fractional shares that such
shareholder has the right to receive pursuant to this ARTICLE II, and any IPC Certificate
surrendered in respect thereof shall forthwith be marked as cancelled. In the event of a transfer
of ownership of IPC Common Shares that is not registered in the transfer records of IPC, a
certificate or book-entry representing the proper number of Validus Common Shares may be issued to
a transferee if the IPC Certificate representing such IPC Common Shares (if any) is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to Validus Common Shares with a record date on or after
the Effective Time shall be paid to any shareholder of IPC holding any unsurrendered IPC
Certificate with respect to the Validus Common Shares represented thereby, nor shall the cash
payment in lieu of fractional shares be paid to any such shareholder pursuant to Section 2.2(e),
until such shareholder shall surrender such IPC Certificate in accordance with the procedures set
forth in this ARTICLE II. Following the surrender of any such IPC Certificate in accordance with
the procedures set forth in this ARTICLE II, such shareholder shall be entitled to receive, in
addition to the consideration set forth in Section 2.1(a), without interest, (i) at the
time of such surrender, the amount of any dividends or other distributions with a record date on or
after the Effective Time theretofore paid (but withheld pursuant to the immediately preceding
sentence) with respect to such whole Validus Common Shares which a shareholder of IPC holding such
IPC Certificate is entitled to receive hereunder, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with respect to such whole
Validus Common Shares which such shareholder is entitled to receive hereunder.
(d) No Further Rights in IPC Common Shares. All Amalgamation Consideration paid or
issued upon the surrender of title to IPC Common Shares in accordance with the terms of this
ARTICLE II (including any cash paid pursuant to this ARTICLE II) shall be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining to the shareholders of IPC, in
their capacity as shareholders of IPC prior to the Effective Time. There shall be no further
registration of transfers on the stock transfer books of the Amalgamated Company of the IPC Common
Shares which were outstanding immediately prior to the Effective Time. If, after the Effective
Time, IPC Certificates are presented to Validus or to the Amalgamated Company or to the Exchange
Agent for any reason, they shall be marked as cancelled and exchanged in accordance with this
ARTICLE II, except as otherwise required by Law.
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(e) No Fractional Shares. Notwithstanding anything in this Agreement to the contrary,
no fraction of a Validus Common Share will be issued in connection with the Amalgamation, and in
lieu thereof any shareholder of IPC who would otherwise have been entitled to a fraction of a
Validus Common Share, shall be paid upon surrender of title to IPC Common Shares for exchange (and
after taking into account and aggregating IPC Common Shares represented by all IPC Certificates
surrendered by such holder, or as set out in the IPC Share Register, as applicable) cash in an
amount (without interest) equal to the product obtained by multiplying (i) the fractional
share interest to which such shareholder (after taking into account and aggregating all IPC Common
Shares represented by all IPC Certificates surrendered by such shareholder or as set out in the IPC
Share Register, as applicable) would otherwise be entitled by (ii) the Average Validus
Share Price (as defined in Section 8.13(a)).
(f) Lost, Stolen or Destroyed Certificates. In the event any IPC Certificates shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder
thereof, the Amalgamation Consideration and any dividends or other distributions as may be required
pursuant to this ARTICLE II in respect of the IPC Common Shares represented by such lost, stolen or
destroyed certificates; provided that Validus may, in its reasonable discretion and as a
condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Validus or the Exchange Agent with respect to the certificates
alleged to have been lost, stolen or destroyed.
(g) Termination of Exchange Fund. Unless a longer period is prescribed by applicable
Law or Validuss agreement with the Exchange Agent, any portion of the Exchange Fund that remains
undistributed to the shareholders of IPC for six months after the Effective Time shall be delivered
to Validus, upon demand, and any shareholders of IPC who have not theretofore complied with this
ARTICLE II shall thereafter look only to Validus for payment of their claim for the Amalgamation
Consideration and any dividends or distributions with respect to Validus Common Shares.
(h) No Liability. To the extent allowed under applicable Law, any Amalgamation
Consideration and any dividends or distributions with respect to Validus Common Shares comprising
the Amalgamation Consideration that remain undistributed to the shareholders of IPC shall be
delivered to and become the property of Validus on the day immediately prior to the day that such
property is required to be delivered to any public official pursuant to any applicable abandoned
property, escheat or similar Law. None of Validus, Amalgamation Sub, Amalgamated Company or the
Exchange Agent shall be liable to any shareholder of IPC for any such property delivered to Validus
or to a public official pursuant to any applicable abandoned property, escheat or similar Law.
(i) Withholding. The Exchange Agent, Validus and the Amalgamated Company shall be
entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement
to any shareholder of IPC such amounts as it is required to deduct and withhold with respect to the
making of such payment under any provision of applicable tax Law. To the extent that amounts are
so withheld by the Exchange Agent, Validus or the Amalgamated Company, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder of the IPC Common
Shares in respect of which such deduction and withholding was made. The parties agree to cooperate
with each other for purposes of determining whether any taxes are required to be withheld with
respect to the Amalgamation.
2.3 IPC Equity Awards.
(a) IPC Stock Options. Subject to the terms and conditions of this Agreement, at the
Effective Time, by virtue of the transactions contemplated by this Agreement and without any action
on
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the part of any holder of any outstanding option to purchase IPC Common Shares under any IPC
Share Plan (as defined in Section 3.2(a)), whether vested or unvested, exercisable or unexercisable
(each, an IPC Share Option), each IPC Share Option that is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire IPC Common Shares and shall
be converted into an option (a New Option) to purchase, on the same terms and conditions
as were applicable under the terms of the IPC Share Plan under which the IPC Share Option was
granted and the applicable award agreement thereunder (taking into account any accelerated vesting
thereunder), such number of Validus Common Shares and at an exercise price per share determined as
follows:
(1) Number of Shares. The number of IPC Common Shares subject to a New Option
shall be equal to the product of (A) the number of IPC Common Shares subject to such
IPC Share Option immediately prior to the Effective Time and (B) the Exchange Ratio,
the product being rounded, if necessary, to the nearest whole share; and
(2) Exercise Price. The exercise price per Validus Common Share purchasable
upon exercise of a New Option shall be equal to (A) the per share exercise price of
the IPC Share Option divided by (B) the Exchange Ratio, the quotient being rounded,
if necessary, to the nearest cent.
The foregoing adjustments shall (i) in the case of any IPC Share Option that is
intended to be an incentive stock option under Section 422 of the Code, be determined in a manner
consistent with the requirements of Section 424(a) of the Code and (ii) in the case of any
IPC Share Option that is not intended to be an incentive stock option, be determined in a manner
consistent with the requirements of Section 409A of the Code.
(b) IPC Other Awards. Subject to the terms and conditions of this Agreement:
(1) at the Effective Time, by virtue of the transactions contemplated by this Agreement
and without any action on the part of any holder of any outstanding right of any kind,
contingent or accrued, to acquire or receive IPC Common Shares or benefits measured by the
value of IPC Common Shares, each outstanding award of any kind consisting of IPC Common
Shares or benefits measured by the value of IPC Common Shares (including performance share
units where the performance period has ended prior to the Effective Date), in each case that
may be held, awarded, outstanding, payable or reserved for issuance under any IPC Share Plan
and any other IPC Benefit Plan (as defined in Section 8.13(a)), but excluding IPC Share
Options and IPC performance share units for which the performance period expires on or after
the Effective Time (the IPC Non-Performance Awards), shall be deemed to be
converted into the right to acquire or receive benefits measured by the value of (as the
case may be) the number of Validus Common Shares equal to the product (rounded, if
necessary, to the nearest whole number) of (x) the number of IPC Common Shares subject to
such IPC Non-Performance Award immediately prior to the Effective Time and (y) the Exchange
Ratio. Except as specifically provided above, following the Effective Time, each such right
shall otherwise be subject to the same terms and conditions as were applicable to the rights
under the relevant IPC Share Plan or other IPC Benefit Plan and the applicable award
agreement thereunder (taking into account any accelerated vesting thereunder) immediately
prior to the Effective Time; and
(2) immediately prior to the Effective Time, by virtue of the transactions contemplated
by this Agreement and without any action on the part of any holder of any IPC performance
share unit for which the performance period expires on or after the Effective Time (each a
Non-Vested PSU), the number of IPC Common Shares to which each Non-Vested PSU
relates shall be calculated based on the original grant date target value of the Non-Vested
PSU, as
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pro-rated on a daily basis to each year of the original vesting period (the IPC
Performance Awards) and, at the Effective Time, each IPC Performance Award shall be
deemed to be converted into the right to acquire or receive benefits measured by the value
of (as the case may be) the number of Validus Common Shares equal to the product (rounded,
if necessary, to the nearest whole number) of (x) the number of IPC Common Shares to which
each IPC Performance Award relates immediately prior to the Effective Time and (y) the
Exchange Ratio. Except as specifically provided above, following the Effective Time, each
such right shall otherwise be subject to the same terms and conditions as were applicable to
the rights under the relevant IPC Share Plan or other IPC Benefit Plan and the applicable
award agreement thereunder (taking into account any accelerated vesting thereunder)
immediately prior to the Effective Time. IPC Performance Awards and IPC Non-Performance
Awards shall be, collectively, referred to as the IPC Other Awards.
(c) Corporate Actions. Before the Effective Time, IPC, or its board of directors or
an appropriate committee thereof, shall take all action necessary on its part to give effect to the
provisions of Sections 2.3(a) and (b) and shall take such other actions reasonably requested by
Validus to give effect to the foregoing (including obtaining the consent of the holder of or
amending the terms of any IPC Share Options, IPC Other Awards or any IPC Share Plan). IPC shall
take all actions necessary to ensure that, from and after the Effective Time, none of IPC, Validus,
the Amalgamated Company or any of their respective subsidiaries will be required to deliver IPC
Common Shares or other capital stock of IPC to any person pursuant to or in settlement of IPC Share
Options or IPC Other Awards at or after the Effective Time.
(d) Registration. If registration of any interests in the IPC Share Plans or any
other IPC Benefit Plan or the Validus Common Shares issuable thereunder is required under the
Securities Act, Validus shall file with the SEC within five business days after the Effective Time
a registration statement on Form S-8 (or any successor or other appropriate forms) with respect to
such interests of Validus Common Shares, and shall use its commercially reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the current status of the
prospectus or the prospectuses contained therein) for so long as the relevant IPC Share Plans or
other IPC Benefit Plans, as applicable, remain in effect and such registration of interests therein
or the Validus Common Shares issuable thereunder continues to be required.
(e) Notice to Equity Award Holders. As soon as practicable after the Effective Time,
Validus shall deliver to the holders of IPC Share Options and IPC Other Awards appropriate notices
setting forth such holders rights pursuant to any IPC Share Plan or IPC Benefit Plan and
agreements evidencing such IPC Share Options and IPC Other Awards and stating that the IPC Share
Plans or IPC Benefit Plans and such IPC Share Options and IPC Other Awards and agreements have been
assumed by Validus and shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 2.3 after giving effect to the Amalgamation and the terms of
the IPC Share Plans or IPC Benefit Plans).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Except as (i) set forth in the correspondingly identified subsection of the disclosure
letter delivered by Validus to IPC simultaneously with the execution of this Agreement by Validus
(the Validus Disclosure Letter) or the disclosure letter delivered by IPC to Validus
simultaneously with the execution of this Agreement by IPC, which shall be identical in all
respects to the Disclosure Letter delivered by IPC to Max Capital Group Ltd. at the time the IM
Agreement was signed (the IPC Disclosure Letter and each of the Validus Disclosure Letter
and the IPC Disclosure Letter, a Disclosure Letter), as the
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case may be, or (ii) disclosed in the relevant partys SEC Documents filed with the
SEC on or after January 1, 2008 and prior to the date of this Agreement (excluding any disclosures
set forth in any risk factor section or forward-looking statements contained therein), IPC hereby
represents and warrants to Validus, and Validus (and Amalgamation Sub with respect to Sections
3.1(a), 3.1(c), 3.3 and 3.9(c)) hereby represents and warrants to IPC, to the extent applicable, in
each case with respect to itself and its subsidiaries, as follows:
3.1 Organization, Standing and Power.
(a) Each of it and its subsidiaries is a company or other legal entity duly organized and
validly existing and in good standing (with respect to jurisdictions which recognize such concept)
under the Laws of its jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification necessary, except
where the failure to be so qualified has not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) The copies of its memorandum of association and bye-laws incorporated by reference in its
Form 10-K for the year ended December 31, 2008, are true, complete and correct copies of such
documents, are in full force and effect and have not been amended or otherwise modified, except as
they may be or have been amended or otherwise modified pursuant to the IPC Bye-Law Amendment (as
defined in Section 3.9(a)).
(c) Validus and Amalgamation Sub represent to IPC that: (i) true and complete copies
of the memorandum of association and bye-laws of Amalgamation Sub, each as in effect as of the date
of this Agreement, will be made available to IPC, upon request, within one (1) business day of the
termination of the IM Agreement, (ii) Amalgamation Sub was formed by Validus solely for the
purpose of effecting the Amalgamation and the other transactions contemplated by this Agreement,
and (iii) Amalgamation Sub has not conducted any business prior to the date hereof and has
no, and immediately prior to the Effective Time will have no, assets, liabilities or obligations of
any nature other than those incident to its formation and pursuant to this Agreement.
3.2 Capital Structure.
(a) Its authorized share capital and outstanding common shares as of the date set forth in the
corresponding section of its Disclosure Letter, including any shares reserved for issuance upon the
exercise or payment of outstanding warrants and outstanding stock options or other equity related
awards (such stock option and other equity-based award plans, agreements and programs,
collectively, in the case of Validus, the Validus Share Plans and, in the case of IPC,
the IPC Share Plans), is described in the corresponding section of its Disclosure Letter.
In the case of Validus, none of its Common Shares are held by it or by its subsidiaries. In the
case of IPC, its Common Shares that are held by it and its subsidiaries are described in the
corresponding section of its Disclosure Letter. All of its outstanding Common Shares have been
duly authorized and validly issued and are fully paid and non-assessable and not subject to
preemptive rights. Section 3.2(a) of its Disclosure Letter sets forth a list of all warrants,
options, restricted stock, restricted stock units or other equity awards outstanding as of the date
hereof.
(b) From January 1, 2009 to the date hereof, it has not issued or permitted to be issued any
common shares, share appreciation rights or securities exercisable or exchangeable for or
convertible into shares in its or any of its subsidiaries share capital.
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(c) It or one of its wholly-owned subsidiaries owns all of the issued and outstanding shares
in the share capital of its subsidiaries, beneficially and of record, and all such shares are fully
paid and nonassessable, are not subject to preemptive rights and are free and clear of any claim,
lien or encumbrance.
(d) No bonds, debentures, notes or other indebtedness having the right to vote (or which are
convertible into or exercisable for securities having the right to vote) on any matters on which
shareholders may vote (Voting Debt) of it or any of its subsidiaries are issued or
outstanding.
(e) Except for options or other equity-based awards issued or to be issued under the Validus
Share Plans (in the case of Validus) or the IPC Share Plans (in the case of IPC), there are no
options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements
of any character to which it or any of its subsidiaries is a party or by which it or any such
subsidiary is bound (i) obligating it or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the share capital or any Voting Debt
or other equity rights of it or any of its subsidiaries, (ii) obligating it or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call, convertible or
exchangeable security, right, commitment or agreement or (iii) that provide the economic
equivalent of an equity ownership interest in it or any of its subsidiaries.
(f) None of it or any of its subsidiaries is a party to any member or shareholder agreement,
voting trust agreement or registration rights agreement relating to any equity securities of it or
any of its subsidiaries or any other agreement relating to disposition, voting or dividends with
respect to any equity securities of it or any of its subsidiaries. There are no outstanding
contractual obligations of it or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares in the share capital of it or any of its subsidiaries.
(g) Since January 1, 2009 through the date of this Agreement, it has not declared, set aside,
made or paid to its shareholders dividends or other distributions on the outstanding shares in its
share capital.
(h) It has not waived any voting cut-back, transfer restrictions or similar provisions of its
or its subsidiaries bye-laws with respect to any of its or their shareholders, except for such
waivers set forth in its bye-laws.
3.3 Authority; Non-Contravention.
(a) It has all requisite corporate power and authority to enter into this Agreement and,
subject to obtaining the Required Validus Vote (as defined in Section 3.10(a)) (in the case of
Validus) or the Required IPC Vote (as defined in Section 3.10(b)) (in the case of IPC), to
consummate the transactions contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly authorized by all necessary
corporate action on its part and no other corporate proceedings on its part are necessary to
authorize this Agreement and consummate the transactions contemplated hereby, subject to the
Required Validus Vote (in the case of Validus) or the Required IPC Vote (in the case of IPC). This
Agreement has been duly executed and delivered by it and (assuming the due authorization, execution
and delivery by the other parties hereto) constitutes a valid and binding obligation of it,
enforceable against it in accordance with its terms, except to the extent enforcement is limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors rights and by general equitable principles.
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(b) Neither the execution and delivery of this Agreement by it nor the consummation by it of
the transactions contemplated hereby, nor compliance by it with any of the terms or provisions
hereof, will (i) violate any provision of the memorandum of association or bye-laws of it
(as they may be or have been modified, in the case of IPC, pursuant to the IPC Bye-Law Amendment)
or the memorandum of association, bye-laws or equivalent organizational documents of any of its
subsidiaries or (ii) assuming that the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in Section 3.3(c) are duly obtained or made,
(A) violate any Law applicable to it or any of its subsidiaries or any of their respective
properties or assets or (B) violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the cancellation, suspension,
non-renewal or termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security interest, charge
or other encumbrance upon (1) any Permit (as defined in Section 3.5(a)) or (2) any
of the respective properties or assets of it or any of its subsidiaries under, any of the terms,
conditions or provisions of any loan or credit agreement, note, mortgage, indenture, lease, Validus
Benefit Plan (as defined in Section 8.13(a)) (in the case of Validus) or IPC Benefit Plan (as
defined in Section 8.13(a)) (in the case of IPC) or other agreement, obligation or instrument to
which it or any of its subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (with respect to clause (ii)) for such
violations, conflicts or breaches that have not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental authority, body, agency,
official or instrumentality, domestic or foreign, or self-regulatory organization or other similar
non-governmental regulatory body (each, a Governmental Entity), is required to be made or
obtained by it or any of its subsidiaries in connection with the execution and delivery of this
Agreement by it or the consummation by it of the transactions contemplated hereby, except for
(i) the filing of the Amalgamation Application and related attachments with the Registrar,
(ii) the written notification to the Bermuda Monetary Authority regarding Validuss
acquisition of the IPC Common Shares, (iii) such other applications, filings,
authorizations, orders and approvals as may be required under applicable Laws (including all
applicable Insurance Laws) of any jurisdiction and any approvals thereof, which are set forth in
Section 3.3(c) of its Disclosure Letter, (iv) the filing with the SEC of such
registrations, prospectuses, reports and other materials as may be required in connection with this
Agreement and the transactions contemplated hereby, including the Joint Proxy Statement/Prospectus
(as defined in Section 5.1(a)), and the obtaining from the SEC of such orders as may be required in
connection therewith, (v) compliance with any applicable requirements of NASDAQ or the
NYSE, as applicable, (vi) in the case of Validus, such filings and approvals as are
required to be made or obtained under the securities or Blue Sky Laws of various jurisdictions in
connection with the issuance of the Validus Common Shares pursuant to this Agreement, and
(vii) for any other such consent, approval, order or authorization of, or registration,
declaration or filings, the failure of which to obtain or make would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.
3.4 SEC Documents; Regulatory Reports; Undisclosed Liabilities.
(a) It and its subsidiaries have timely filed all required reports, schedules, registration
statements and other documents with the SEC since January 1, 2008 (the SEC Documents).
As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior
to the date hereof, as of the date of such filing), the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the Securities
Act), or the Securities Exchange Act of 1934, as amended (the Exchange Act), as the
case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Documents,
and none of its or its subsidiaries SEC Documents when
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filed contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial statements of it and its
subsidiaries included in its SEC Documents complied, as of their respective dates of filing with
the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such
filing), with all applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be disclosed therein) and fairly present in all
material respects the consolidated financial position of it and its consolidated subsidiaries and
the consolidated results of operations, changes in shareholders equity and cash flows of such
companies as of the dates and for the periods shown. As of the date hereof, there are no
outstanding written comments from the SEC with respect to its SEC Documents.
(b) Except for (i) those liabilities that are reflected or reserved for in its
consolidated financial statements included in its Annual Report on Form 10-K for the year ended
December 31, 2008, as filed with the SEC prior to the date of this Agreement, (ii)
liabilities and obligations incurred pursuant to this Agreement, (iii) liabilities incurred since
December 31, 2008 (1) in the ordinary course of business (including claims and any related
litigation or arbitration arising in the ordinary course of business under Policies (as defined in
Section 3.12(g)) or (2) pursuant to any Reinsurance Agreements (as defined in Section
3.12(e)) issued or assumed, as the case may be, by one of its Insurance Entities (as defined in
Section 3.12(a)) for which adequate claims reserves have been established), and (iv) liabilities
which have not had and would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect, it and its subsidiaries do not have, and since December 31, 2008, it and
its subsidiaries have not incurred, any liabilities or obligations of any nature whatsoever
(whether accrued, absolute, contingent or otherwise and whether or not required to be reflected in
its financial statements in accordance with GAAP).
3.5 Compliance with Applicable Laws and Reporting Requirements. Except as has not
had and would not be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect:
(a) It and its subsidiaries hold in full force and effect all permits, certifications,
registrations, permissions, consents, franchises, concessions, licenses, variances,
exemptions, orders, approvals and authorizations of all Governmental Entities necessary for
the ownership and conduct of the business of it and its subsidiaries (including any
insurance licenses or permissions from insurance regulatory authorities) in each of the
jurisdictions in which it or its subsidiaries currently conduct or operate its business (the
Permits), and it and its subsidiaries are in compliance with the terms and
requirements of its Permits and any applicable law, statute, ordinance, common law,
arbitration award, or any rule, regulation, judgment, order, writ, injunction, decree,
agency requirement or published interpretation of any Governmental Entity, 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 (Lloyds) in each of the
jurisdictions in which it or its subsidiaries currently conduct business or operate
(collectively Laws). The businesses of it and its subsidiaries have not been, and
are not being, conducted in violation of any applicable Laws (including the USA PATRIOT Act
of 2001, as amended, the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd 1 et seq., as
amended (or any other similar applicable foreign, federal, or state legal requirement),
anti-money laundering laws, anti-terrorism laws, all applicable requirements relating to the
sale, issuance, marketing, advertising and administration of insurance products (including
licensing and appointments) and all Laws regulating the business and products of insurance
and all applicable orders and directives of insurance regulatory authorities (the
Insurance Laws) and all applicable laws or other legal requirements relating to
the retention of e-mail and other information). It and its subsidiaries have not received,
at any time since January 1, 2007,
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any written notice or communication from any Governmental Entity regarding any actual,
alleged, or potential violation of, or a failure to comply with, any Laws or the terms and
requirements of any Permit or any actual or potential revocation, withdrawal, suspension,
cancellation, modification, or termination of any Permit. All applications required to have
been filed for the renewal of each Permit or other filings required to be made with respect
to each Permit held by it or its subsidiaries have been duly filed on a timely basis with
the appropriate Governmental Entity.
(b) It has established and maintains disclosure controls and procedures (as defined in
Rule 13a-15 under the Exchange Act). Such disclosure controls and procedures are designed
to ensure that material information relating to it, including its consolidated subsidiaries,
is made known to its principal executive officer and its principal financial officer by
others within those entities, particularly during the periods in which the periodic reports
required under the Exchange Act are being prepared. Such disclosure controls and procedures
are effective in timely alerting its principal executive officer and principal financial
officer to material information required to be included in its periodic reports under the
Exchange Act and ensure that the information required to be disclosed in its SEC Documents
is recorded, processed, summarized and reported within the time periods specified by the
SECs rules and forms. It and its subsidiaries maintain a system of internal controls over
financial reporting sufficient to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP.
The records, systems, controls, data and information of it and its subsidiaries are
recorded, stored, maintained and operated under means (including any electronic, mechanical
or photographic process, whether computerized or not) that are under the exclusive ownership
and direct control of it or its subsidiaries or accountants (including all means of access
thereto and therefrom) and are held or maintained in such places as may be required under
all applicable Laws (including Insurance Laws). It has disclosed, based on its most recent
evaluation of internal controls prior to the date hereof, to its auditors and audit
committee (i) any significant deficiencies and material weaknesses in the design or
operation of internal controls which are reasonably likely to adversely affect its ability
to record, process, summarize and report financial information and (ii) any fraud that
involves management or other employees who have a significant role in internal controls.
(c) There are no outstanding loans or other extensions of credit made by it or any of
its subsidiaries to any of its executive officers (as defined in Rule 3b-7 under the
Exchange Act) or directors.
(d) Since January 1, 2007, it has complied with the applicable listing and corporate
governance rules and regulations of NASDAQ (in the case of IPC) or the NYSE (in the case of
Validus).
(e) Neither it nor any of its subsidiaries is a party to, or has any commitment to
become a party to, any joint venture, off-balance sheet partnership or any similar contract
(including any contract relating to any transaction or relationship between or among it and
any of its subsidiaries, on the one hand, and any unconsolidated affiliate, including any
structured finance, special purpose or limited purpose entity, on the other hand, or any
off-balance sheet arrangement (as defined in Item 303(a) of Regulation S-K of the SEC)),
where the result, purpose or intended effect of such contract is to avoid disclosure of any
material transaction involving, or material liabilities of, it or any of its subsidiaries in
the SEC Documents.
3.6 Legal and Arbitration Proceedings and Investigations. Except for litigation or
arbitration arising in the ordinary course of business from claims under Policies or Reinsurance
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Agreements issued or assumed, as the case may be, by one of its Insurance Entities for which
adequate claims reserves have been established, there are no claims, suits, actions, proceedings,
arbitrations or other proceedings whether judicial, arbitral or administrative, civil or criminal
(Legal Proceedings) pending or, to its knowledge, threatened, against it or any of its
subsidiaries, any present or former officer, director or employee thereof in his or her capacity
as such or any person for whom it or its subsidiaries may be liable or any of their respective
properties, that, if determined or resolved adversely against it, would be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect, nor are there any writs,
judgments, decrees, injunctions, rules or orders of any Governmental Entity or arbitrator binding
upon it or any of its subsidiaries or any of their respective assets or properties that would be
reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. To its
knowledge, since January 1, 2007, there have been no formal or informal SEC inquiries,
investigations or subpoenas, other Governmental Entity inquiries or investigations or internal
investigations or material whistle-blower complaints pending or otherwise threatened involving it
or its subsidiaries or any current or former officer or director thereof in his or her capacity as
such, other than, in each case, those that if determined or resolved adversely against it would
not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
3.7 Taxes.
(a) All material Tax Returns (as defined in Section 8.13(a)) required by applicable Law to be
filed with any Taxing Authority (as defined in Section 8.13(a)) by, or on behalf of, it or any of
its subsidiaries have been filed when due (taking into account extensions of time to file) in
accordance with all applicable Laws, and all such Tax Returns are true, correct and complete in all
material respects. All such Tax Returns have been examined by the appropriate Taxing Authority or
the period for assessment of the Taxes (as defined in Section 8.13(a)) in respect of which such Tax
Returns were required to be filed has expired.
(b) There are no liens for any Taxes upon the assets of it or any of its subsidiaries, other
than (i) statutory liens for Taxes not yet due and payable or (ii) liens which are
being contested in good faith by appropriate proceedings, for which adequate reserves have been
established on its financial statements in accordance with GAAP and Applicable SAP.
(c) It and each of its subsidiaries have paid or have withheld and remitted to the appropriate
Taxing Authority all material Taxes due and payable, and have established in accordance with GAAP
and Applicable SAP an adequate accrual for all material Taxes not yet due and payable.
(d) There is no claim, audit, action, suit, proceeding, examination or investigation now
pending or, to its knowledge, threatened against or with respect to it or any of its subsidiaries
in respect of any Tax or Tax Asset (as defined in Section 8.13(a)), and any deficiencies asserted
or assessments made as a result of any claim, audit, suit, proceeding, examination or investigation
have been paid in full.
(e) It and each of its subsidiaries have withheld all material amounts required to have been
withheld by them in connection with amounts paid or owed to (or any benefits or property provided
to) any employee, independent contractor, creditor, shareholder or any other third party; such
withheld amounts were either duly paid to the appropriate Taxing Authority or set aside in accounts
for such purpose. It and each of its subsidiaries have reported such withheld amounts to the
appropriate Taxing Authority and to each such employee, independent contractor, creditor,
shareholder or any other third party, as required under Law.
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(f) Neither it nor any of its subsidiaries is a party to a Tax allocation, sharing, indemnity
or similar agreement (other than indemnities included in ordinary course employment contracts or
leases) that will require any payment by it or any of its subsidiaries of any Tax of another person
after the Closing Date.
(g) Neither it nor any of its subsidiaries has entered into a reportable transaction within
the meaning of Treasury Regulations Section 1.6011-4, and neither it nor any of its subsidiaries
has been a material advisor to any such transactions within the meaning of Section 6111 of the
Code.
(h) Neither it nor any of its subsidiaries (i) has filed any extension of time within
which to file any Tax Returns that have not been filed, (ii) has entered into any agreement
or other arrangement waiving or extending the statute of limitations or the period of assessment or
collection of any material Taxes, (iii) has granted any power of attorney that is in force
with respect to any matters relating to any material Taxes, (iv) has applied for a ruling
from a Taxing Authority relating to any material Taxes that has not been granted or has proposed to
enter into an agreement with a Taxing Authority that is pending, or (v) has entered into
any closing agreement as described in Section 7121 of the Code (or any similar provision of
state, local or foreign Tax Law) or been issued any private letter rulings, technical advance
memoranda or similar agreement or rulings by any Taxing Authority.
(i) None of its subsidiaries is now or has ever been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.
(j) Neither it nor any of its subsidiaries has agreed to, requested, or is required to include
any adjustment under Section 481 of the Code (or any corresponding provision of applicable Law) by
reason of a change in accounting method or otherwise.
(k) Neither it nor any of its subsidiaries has elected to be a pass-through entity for U.S.
federal income tax purposes.
(l) Neither it nor any of its subsidiaries organized outside the United States, has ever been
engaged in a trade or business in the United States within the meaning of Section 864(b) of the
Code or has ever had a permanent establishment in the United States within the meaning of the tax
treaty between the United States and Bermuda.
(m) Neither it nor any of its subsidiaries has ever been a member of an affiliated, combined,
consolidated or unitary Tax group for purposes of filing any Tax Return.
(n) Neither it nor any of its subsidiaries has been a distributing corporation or a controlled
corporation in a transaction intended to be governed by Section 355 of the Code.
(o) It and each of its subsidiaries currently satisfies (assuming the relevant taxable year
ended on the date this representation is being given), and expects to satisfy with respect to the
taxable year in which the Closing Date falls, either or both of the exceptions described in
Sections 953(c)(3)(A) and (B) of the Code so that none of its United States shareholders (within
the meaning of Section 953(c) of the Code) will be required to include in income any of its or its
subsidiaries related person insurance income (within the meaning of Section 953(c)(2) of the
Code) by operation of Sections 951(a) and 953(c)(5) of the Code.
(p) Neither it nor any of its subsidiaries has received any notice or inquiry from any
Governmental Entity outside of Bermuda to the effect that any of it or its subsidiaries that are
domiciled or formed in Bermuda are subject to any Tax other than excise taxes or any Tax assessed
by Bermuda.
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(q) Other than as disclosed with respect to Section 3.7(l), Section 3.7(p) or this Section
3.7(q), it and each of its subsidiaries has never been subject to net basis taxation in any
country, or been tax resident or tax domiciled in any country, other than the country in which it
and each of its subsidiaries, respectively, is organized.
(r) Neither it nor any of its subsidiaries organized outside the United Kingdom has or has
ever had a permanent establishment in the United Kingdom for United Kingdom Tax purposes.
(s) No material transaction or arrangement involving it or any of its subsidiaries has taken
place or is in existence which is such that it has resulted, or is reasonably likely to result, in
the income, profits or gains of it or of any subsidiary being adjusted for Tax purposes in any
jurisdiction in accordance with applicable transfer pricing or thin capitalization laws.
(t) As of the date of this Agreement, neither it nor any of its subsidiaries has taken or
agreed to take any action, or is aware of any agreement, plan or circumstance, that, to its
knowledge, would reasonably be expected to prevent the Amalgamation from constituting a
reorganization, within the meaning of Section 368(a) of the Code.
3.8 Absence of Certain Changes or Events. Since January 1, 2009, (i) there has not been
any event, change, circumstance, state of facts or effect, alone or in combination, that has had
or would be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect
and (ii) it has not taken any action or failed to take any action that would have resulted in a
breach in any material respect of Section 4.1 had such section been in effect since January 1,
2009.
3.9 Board Approval.
(a) In the case of IPC, the board of directors of IPC, by resolutions duly adopted by
unanimous vote at a meeting duly called and held, has (i) determined that the Amalgamation
Consideration and the Exchange Ratio constitutes fair value for each IPC Common Share in accordance
with the Companies Act and deemed it fair to, advisable to and in the best interests of IPC to
enter into this Agreement and to consummate, the Amalgamation and the other transactions
contemplated hereby, (ii) adopted this Agreement and the Amalgamation Agreement and
authorized and approved the Amalgamation and the other transactions contemplated by this Agreement
and (iii) recommended that the shareholders of IPC vote in favor of matters constituting the
Required IPC Vote (as defined in Section 3.10(b)) (the IPC Recommendation) and (iv)
determined that the amendments to IPCs bye-laws set forth in Exhibit E (the IPC
Bye-Law Amendment) are advisable to and in the best interests of IPC, and directed that such
matters be submitted for consideration by IPC shareholders at the IPC Shareholders Meeting (as
defined in Section 5.1(c)).
(b) In the case of Validus, the board of directors of Validus, by resolutions duly adopted
unanimously, has (i) deemed it fair to, advisable and in the best interests of Validus to
enter into this Agreement and to consummate the Share Issuance and the other transactions
contemplated hereby, (ii) adopted this Agreement and authorized and approved the Share
Issuance, and (iii) recommended that the shareholders of Validus vote in favor of the
matters constituting the Required Validus Vote (the Validus Recommendation) and directed
that such matters be submitted for consideration by Validus shareholders at the Validus
Shareholders Meeting (as defined in Section 5.1(b)).
(c) In the case of Validus, the board of directors of Amalgamation Sub, by unanimous written
consent without a meeting, has (i) determined that this Agreement and the Amalgamation are
advisable and in the best interests of Amalgamation Sub and its sole shareholder, (ii)
adopted this Agreement and authorized and approved the Amalgamation and (iii) recommended
that the sole shareholder
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of Amalgamation Sub approve such matters. The sole shareholder of Amalgamation Sub has
approved this Agreement, the Amalgamation and the other transactions contemplated hereby.
3.10 Vote Required.
(a) In the case of Validus, the affirmative vote of a majority of the votes cast at a meeting
of the shareholders of Validus at which a quorum is present in accordance with the bye-laws of
Validus to approve the Share Issuance (the Required Validus Vote) is the only vote of the
holders of any class or series of Validus capital stock necessary to consummate the transactions
contemplated hereby.
(b) In the case of IPC, the affirmative vote of a majority of the votes cast at a meeting of
the shareholders of IPC at which a quorum is present in accordance with the bye-laws of IPC, in
each case, to approve the IPC Bye-Law Amendment and, assuming approval of the IPC Bye-Law
Amendment, adopt this Agreement and approve the Amalgamation (provided, however, if
the IPC Bye-Law Amendment is not approved, the affirmative vote of three-fourths of the votes cast
at such meeting shall be required to adopt this Agreement and approve the Amalgamation) (the
Required IPC Vote and, together with the Required Validus Vote, the Required
Shareholder Votes) is the only vote of the holders of any class or series of IPC share capital
necessary to approve this Agreement and consummate the transactions contemplated hereby (including
the Amalgamation).
3.11 Agreements with Regulators. Except as required by Insurance Laws of general
applicability and the insurance licenses maintained by its Insurance Entities or as does not have
and would not be reasonably expected to have, individually or in the aggregate, a Material Adverse
Effect, there are no written agreements, memoranda of understanding, commitment letters or similar
undertakings binding on it or any of its subsidiaries or to which it or any of its subsidiaries is
a party, on one hand, and any Governmental Entity is a party or addressee, on the other hand, or
any orders or directives by, or supervisory letters or cease-and-desist orders from, any
Governmental Entity, nor has it nor any of its subsidiaries adopted any board resolution at the
request of any Governmental Entity, in each case specifically with respect to it or any of its
subsidiaries, which (a) limit the ability of it or any of its Insurance Entities to issue
Policies or enter into Reinsurance Agreements; (b) require any divestiture of any
investment of any subsidiary; (c) in any manner relate to the ability of any of its
subsidiaries to pay dividends; (d) require any investment of its Insurance Entities to be
treated as non-admitted assets (or the local equivalent) or (e) otherwise restrict the
conduct of business of it or any subsidiary, nor has it been advised by any Governmental Entity
that it is contemplating any such undertakings.
3.12 Insurance Matters.
(a) Each of its subsidiaries which by virtue of its operations and activities is required to
be licensed as an insurance company, insurance intermediary, Lloyds corporate member or Lloyds
managing agent (collectively, the Insurance Entities) is listed in Section 3.12 of its
Disclosure Letter, together with the jurisdiction of domicile thereof. None of its Insurance
Entities is commercially domiciled in any other jurisdiction or is otherwise treated as domiciled
in a jurisdiction other than that of its incorporation. It conducts all of its insurance
operations that are required to be conducted through a licensed insurance company or insurance
intermediary, through its Insurance Entities, each of which is duly licensed or authorized as an
insurance company, and/or, where applicable, a reinsurer, insurance intermediary, Lloyds corporate
member or Lloyds managing agent, in its jurisdiction of incorporation and each other jurisdiction
where it is required to be so licensed or authorized and is duly licensed or authorized in each
such jurisdiction for each line of business written therein, except where the failure to so conduct
its insurance operations or the failure of its Insurance Entities to be so licensed or authorized
has not had and would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.
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(b) Since January 1, 2007, each of its Insurance Entities has timely filed or submitted all
annual and, to the extent applicable Law requires, quarterly and other periodic statements,
together with all exhibits, interrogatories, notes, schedules and any actuarial opinions,
affirmations or certifications or other supporting documents in connection therewith, required to
be filed with or submitted to the appropriate insurance regulatory authorities of the jurisdiction
in which it is domiciled or commercially domiciled on forms prescribed or permitted by such
authority (as filed through the date hereof and thereafter, collectively, the Statutory
Statements), except, in each case, as has been cured or resolved to the satisfaction of such
insurance regulatory authority without imposition of any material penalty or as would not,
individually or in the aggregate, be reasonably expected to have a Material Adverse Effect.
It will deliver or make available to the other parties, upon request, within one (1) business
day of the termination of the IM Agreement, to the extent permitted by applicable Laws, (i) true
and complete copies of all annual Statutory Statements filed with Governmental Entities for each of
its Insurance Entities for the periods beginning January 1, 2007 through the date hereof and, once
duly and timely filed, thereafter, and the quarterly Statutory Statements for each of its Insurance
Entities for the quarterly periods ended September 30, 2008 through the date hereof and, once duly
and timely filed, thereafter, each in the form (including exhibits, annexes and any amendments
thereto) filed with the applicable insurance regulatory authority and (ii) true and complete copies
of all examination reports (and has notified the other party of any pending examinations) of any
insurance regulatory authorities received by it on or after January 1, 2007 through the date hereof
relating to its Insurance Entities. Financial statements included in its Statutory Statements were
prepared in conformity with Applicable SAP, consistently applied for the periods covered thereby,
were prepared in accordance with the books and records of the applicable Insurance Entity, and
present fairly in all material respects the statutory financial position of the relevant Insurance
Entity as of the respective dates thereof and the results of operations, cash flows, and changes in
capital and surplus (or stockholders equity, as applicable) of such Insurance Entity for the
respective periods then ended. Its Statutory Statements complied in all material respects with all
applicable Laws when filed or submitted and no material violation or deficiency has been asserted
in writing by any Governmental Entity with respect to any of its Statutory Statements that have not
been cured or otherwise resolved to the satisfaction of such Governmental Entity. The statutory
balance sheets and income statements included in its annual Statutory Statements have been audited
by its independent auditors, and it has delivered or made available to the other party true and
complete copies of all audit opinions related thereto for periods beginning January 1, 2007 through
the date hereof. Except as is indicated therein, all assets that are reflected on its
subsidiaries Statutory Statements comply in all material respects with all applicable Insurance
Laws regulating the investments of Insurance Entities and all applicable Insurance Laws with
respect to admitted assets and are in amount at least equal to the minimum amount required by
applicable Insurance Laws. The financial statements included in its Statutory Statement accurately
reflect in all material respects the extent to which, pursuant to applicable Laws and Applicable
SAP, the applicable Insurance Entity is entitled to take credit for reinsurance (or any local
equivalent concept).
(c) The loss reserves and other actuarial amounts of each of its Insurance Entities contained
in its Statutory Statements: (i) were determined in accordance with generally accepted
actuarial standards and principles and other qualitative methods materially consistently applied
(except as otherwise noted in such financial statements), (ii) complied in all material
respects with applicable Laws and were computed on the basis of methodologies materially consistent
with those used in computing the corresponding reserves in the prior fiscal years, except as
otherwise noted in the financial statements and notes thereto included in such Statutory
Statements, and (iii) include provisions for all actuarial reserves and related items which
are required to be established in accordance with applicable Law. To its knowledge, no facts or
circumstances exist which would necessitate any material increase in the statutorily required
reserves above those reflected in the most recent balance sheet included in the Statutory
Statements.
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(d) Within one (1) business day of the termination of the IM Agreement, it will, upon request,
make available to the other party true and complete copies of all actuarial reports used as the
basis for establishing the reserves for each of its subsidiary Insurance Entities from and after
January 1, 2007, and all material attachments, addenda, supplements and modifications thereto. To
its knowledge, any information and data to be furnished by it or any of its subsidiaries to
independent actuaries in connection with the preparation of such actuarial reports will be accurate
in all material respects. To its knowledge, such actuarial reports will have been based upon an
accurate inventory of Policies and Reinsurance Agreements in force for it and its subsidiaries, as
the case may be, at the relevant time of preparation and will have been prepared in conformity in
all material respects with generally accepted actuarial principles and other qualitative methods in
effect at such time (except as may be noted therein) and the projections contained therein will
have been properly prepared in accordance with the assumptions stated therein.
(e) As of the date of this Agreement, all reinsurance or retrocession treaties or agreements,
slips, binders, cover notes or other similar arrangements to which it or any of its subsidiaries is
a party or under which it or any of its subsidiaries has any existing rights, obligations or
liabilities (the Reinsurance Agreements) are, and after the consummation of the
transactions contemplated hereby will continue to be, valid and binding obligations of it and its
subsidiaries (to the extent they are parties thereto or bound thereby) and, to its knowledge, each
other party thereto, in accordance with their terms and are in full force and effect, and it and
each of its subsidiaries (to the extent they are party thereto or bound thereby) and, to its
knowledge, each other party thereto has performed in all material respects all obligations required
to be performed by it under each Reinsurance Agreement, except as has not had and would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Neither it nor any of its subsidiaries has received notice, nor does it have knowledge, of any
violation or default in respect of any obligation under (or any condition which, with the passage
of time or the giving of notice or both, would result in such a violation or default), or any
intention to cancel, terminate or change the scope of rights and obligations under, or not to
renew, any Reinsurance Agreement, except, in each case, as has not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect. Since January 1,
2007, (i) neither it nor its subsidiaries have received any written notice from any party
to a Reinsurance Agreement that any amount of reinsurance ceded by it or such subsidiary to such
counterparty will be uncollectible or otherwise defaulted upon, (ii) to its knowledge, no
party to a Reinsurance Agreement under which it or its subsidiary is the cedent is insolvent or the
subject of a rehabilitation, liquidation, conservatorship, receivership, bankruptcy or similar
proceeding, (iii) to its knowledge, the financial condition of any party to a Reinsurance
Agreement under which it or its subsidiary is the cedent is not impaired to the extent that a
default thereunder is reasonably anticipated, (iv) there are no disputes under any
Reinsurance Agreement other than disputes in the ordinary course for which adequate loss reserves
have been established and (v) its relevant subsidiary is entitled under any applicable Law
and Applicable SAP to take full credit in its Statutory Statements for all amounts recoverable by
it pursuant to any Reinsurance Agreement under which it is the cedent and all such amounts
recoverable have been properly recorded in its books and records of account (if so accounted
therefor) and are properly reflected in its Statutory Statements, except as has not had and would
not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(f) Except as has not had and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect, with respect to any Reinsurance Agreement for which the
ceding insurer party thereto is taking credit on its most recent Statutory Statements, to its
knowledge, from and after January 1, 2007 (i) there has been no separate written or oral
agreement between such ceding insurer and the assuming reinsurer that would under any circumstances
reduce, limit, mitigate or otherwise affect any actual or potential loss to the parties under any
such Reinsurance Agreement, other than inuring contracts that are explicitly defined in any such
Reinsurance Agreement, (ii) for each such Reinsurance Agreement entered into, renewed or
amended on or after January 1, 2007, for which risk transfer
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is not reasonably considered to be self-evident to the extent required by any applicable
provisions of SSAP No. 62, documentation concerning the economic intent of the transaction and the
risk transfer analysis evidencing the proper accounting treatment is available for review by the
relevant Governmental Entities for each of it and its subsidiaries, (iii) its subsidiary
that is a party thereto, and to its knowledge, any other party thereto, complies and has complied
from and after January 1, 2007 with any applicable requirements set forth in SSAP No. 62, and
(iv) such Insurance Entity has and had since January 1, 2007 appropriate controls in place
to monitor the use of reinsurance and comply with the provisions of SSAP No. 62.
(g) All policies, policy forms, binders, slips, treaties, certificates, insurance or
reinsurance contracts or participation agreements and other agreements of insurance or reinsurance,
whether individual or group (including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) and all amendments, applications, brochures,
illustrations and certificates pertaining thereto (the Policies), in effect as of the
date of this Agreement, that are issued by it or its subsidiaries and any and all marketing
materials have been, to the extent required under applicable Law, filed with or submitted to and
not objected to by such Governmental Entity within the period provided for objection, and such
Policies and marketing materials comply with the Insurance Laws applicable thereto and have been
administered in accordance therewith, except as has not had and would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. All premium rates established
by it or its subsidiaries that are required to be filed with or submitted to or approved by
Governmental Entities have been so filed, submitted or approved, the premiums charged conform
thereto and such premiums comply with the Insurance Laws applicable thereto, except as has not had
and would not be reasonably expected to have, individually or in the aggregate, a Material Adverse
Effect.
(h) To its knowledge, each insurance agent, general agent, agency, producer, broker,
reinsurance intermediary, program manager, managing general agent and managing general underwriter
currently selling, issuing or underwriting business for or on behalf of it or its subsidiaries
(including it and its subsidiaries salaried employees) (each, an Agent) was duly
licensed for the type of activity and business conducted or written, sold, produced, underwritten
or managed. To its knowledge, each program manager, managing general agent, third party
administrator or claims adjuster or manager, at the time such person managed or administered
business (including without limitation the administration, handling or adjusting of claims) for or
on behalf of it or its subsidiaries (each, an Administrator) was duly licensed for the
type of activity conducted. To its knowledge, no Agent or Administrator has materially violated or
is currently in violation in any material respect of any term or provision of any Law applicable to
the writing, sale, production, underwriting or administration of business for it or its
subsidiaries, except for such failures or such violations which have been cured, that have been
resolved or settled through agreements with applicable Governmental Entities or that are barred by
an applicable statute of limitations. Each Agent was appointed and compensated by it or its
subsidiaries in compliance in all material respects with applicable Law and all processes and
procedures used in making inquiries with respect of such Agent were undertaken in compliance in all
material respects with applicable Law. No Agent has binding authority on behalf of it or its
subsidiaries. As of the date of this Agreement, no Agent accounting individually for 1% or more of
the total gross premiums of all of its Insurance Entities for the year ended December 31, 2008 has
indicated to it or its subsidiaries in writing or, to its knowledge, orally that such Agent will be
unable or unwilling to continue its relationship as an Agent with it or its subsidiary within
twelve months after the date hereof.
(i) Each of its Insurance Entities has duly and timely filed all reports or other filings
required to be filed with any insurance regulatory authority in the manner prescribed therefor
under applicable Laws and Permits and no Governmental Entity has asserted any deficiency or
violation with respect thereto, except as has been cured or resolved to the satisfaction of the
Government Entity or except, in each case, as has not had and would not reasonably be expected to
have, individually or in the aggregate,
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a Material Adverse Effect. Without limiting the foregoing, each of its and its subsidiaries
submissions, reports or other filings under applicable insurance holding company statutes or other
applicable Insurance Laws with respect to contracts, agreements, arrangements and transactions
between or among Insurance Entities and their affiliates, and all contracts, agreements,
arrangements and transactions in effect between any subsidiary that is an Insurance Entity and any
affiliate are in compliance with the requirements of all applicable insurance holding company
statutes or other such Insurance Laws and all required approvals or deemed approvals of insurance
regulatory authorities with respect thereto have been received or obtained, except as has not had
and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect.
(j) Copies (which are complete and correct in all material respects) of all analyses, reports
and other data prepared by or on behalf of any of its Insurance Entities or submitted by or on
behalf of any such Insurance Entity to any insurance regulatory authority relating to risk based
capital calculations or Insurance Regulatory Information Systems ratios will provide to the other
party, upon request, within one (1) business day of the termination of the IM Agreement.
(k) Except for regular periodic assessments in the ordinary course of business, there are no
material unpaid claims and assessments against it or its subsidiaries, whether or not due, by any
insurance guaranty association (in connection with that associations fund relating to insolvent
insurers), joint underwriting association, residual market facility or assigned risk pool. No such
material claim or assessment is pending and neither it nor any subsidiary has received written
notice of any such material claim or assessment against it or its subsidiaries by any insurance
guaranty association, joint underwriting association, residual market facility or assigned risk
pool.
(l) Since July 2, 2007, Validus and/or any of its subsidiaries which participate in Lloyds:
(i) has not participated on any Lloyds syndicate other than syndicate 1183; (ii) has not agreed to
sell, transfer or drop any of its rights to participate in a Lloyds syndicate or offered to
acquire rights to participate on a Lloyds syndicated; (iii) has complied with the franchise
standards (including principles and minimum standards, guidance and advice) issued by Lloyds and
(iv) all documents relating to the participation of it or any of its subsidiaries participation at
Lloyds are in Lloyds standard form and have not been amended in any way, including the standard
managing agents agreement, in each case, except as had not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(m) Since July 2, 2007: (i) all funds held on behalf of Lloyds syndicate 1183 are held in
accordance with the terms of the relevant premiums trust deed or other deposit arrangement as
required by the bye-laws, regulations, codes of practice and mandatory directions and requirements
governing the conduct and management of underwriting business at Lloyds from time to time and the
provisions of any deed, agreement or undertaking executed, made or given for compliance with
Lloyds requirements from time to time (Lloyds Regulations) and (ii) Validus and/or any
of its subsidiaries required to do so have complied in all material respects with all relevant
regulations, directions, notices and requirements in relation to the maintenance of Funds at
Lloyds (as defined in the Lloyds Membership Byelaw (No. 5 of 2005)) in accordance with Lloyds
Regulations and any directions imposed on it or any of its subsidiaries by Lloyds.
3.13 Investments; Derivatives.
(a) The information provided by each party to the SEC in its Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, related to its investment assets, including, without
limitation, bonds, notes, debentures, mortgage loans, real estate, collateral loans, derivatives
(including swaps, swaptions, caps, floors, foreign exchange, and options or forward agreements) and
all other
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instruments of indebtedness, stocks, partnership or joint venture interests and all other equity
interests, certificates issued by or interests in trusts, alternative investments and direct or
indirect investments in hedge funds, whether entered into for its own or its subsidiaries or their
customers accounts (such investment assets, together with all investment assets held between such
date and the Closing Date are referred to herein as the Investment Assets) is true and
complete in all material respects as of December 31, 2008.
(b) As of the date of this Agreement, to its knowledge, none of the Investment Assets is in
default in the payment of principal or interest or dividends.
(c) As of the date of this Agreement, to its knowledge, the Investment Assets comply in all
material respects with, and the acquisition thereof complied in all material respects with, any and
all investment restrictions under applicable Law and its Investment Policy (as hereinafter
defined). Except for Investment Assets sold in the ordinary course of business consistent with
past practice or as contemplated by this Agreement, each of it and its subsidiaries, as applicable,
has good and marketable title to all of the Investment Assets it purports to own, free and clear of
all encumbrances except Permitted Encumbrances (as defined in Section 8.13(a)). Upon request, it
will provide a copy of its and its subsidiaries policies with respect to the investment of the
Investment Assets (its Investment Policy) to the other party within one (1) business day
of the termination of the IM Agreement.
(d) To its knowledge, none of its Investment Assets is subject to any capital calls or similar
liabilities, or any restrictions or suspensions on redemptions, lock-ups, gates, side-pockets,
stepped-up fee provisions or other penalties or restrictions relating to withdrawals or
redemptions, except as would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect.
(e) Each agreement with each investment manager or investment advisor providing services to it
or any of its subsidiaries was entered into, and the performance of each investment manager is
evaluated, in a commercially reasonable, arms length manner.
(f) Neither it nor any of its subsidiaries holds any derivative instruments, including swaps,
swaptions, caps, floors, foreign exchange and option or forward agreements, whether entered into
for its account, or for the account of any of its subsidiaries or their customers.
3.14 Material Contracts; Intercompany Contracts.
(a) As of the date of this Agreement, neither it nor any of its subsidiaries is a party to or
bound by any contract (other than any Policy or Reinsurance Agreement) (i) that is or will
be required to be filed by it as a material contract pursuant to Item 601(b)(10) of Regulation S-K
of the SEC that is not already so filed; (ii) that limits or purports to limit in any
material respect either the type of business in which it or any of its subsidiaries (or, after
giving effect to the Amalgamation, Validus or any of its subsidiaries) may engage or the manner or
locations in which any of them may so engage in any business; (iii) that creates a
partnership, joint venture, strategic alliance or similar arrangement with respect to any of its or
its subsidiaries material business or assets; (iv) that is an indenture, credit agreement,
loan agreement, security agreement, guarantee, note, mortgage or other agreement providing for or
guaranteeing indebtedness in excess of $5,000,000; (v) that, individually or together with
related contracts, provides for any acquisition, disposition, lease, license or use after the date
of this Agreement of assets, services, rights or properties with a value or requiring annual fees
in excess of $5,000,000 or that comprise more than 15% of its business on a consolidated basis;
(vi) that is a collective bargaining agreement; (vii) that involves or could
reasonably be expected to involve aggregate payments by or to it and/or its subsidiaries in excess
of $5,000,000 in any twelve month period, except for any contract that may be cancelled without
penalty or termination payments by it or its subsidiaries upon notice of 60 days or less;
(viii) that includes an indemnification obligation of it or any of its subsidiaries with a
maximum potential liability in
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excess of $5,000,000; (ix) that is an investment advisory or investment management
agreement or arrangement to which it or any of its subsidiaries is a party or under which any
Investment Asset is invested or managed or any third party has the right or power to make
discretionary or investment decisions with respect to any Investment Asset or (x) that
would or would reasonably be expected to, individually or in the aggregate, prevent, materially
delay or materially impede its ability to consummate the transactions contemplated by this
Agreement or Validus and its subsidiaries ability to own and/or to conduct the businesses after
the Closing. Each such contract described in clauses (i)-(x) is referred to herein
as a Material Contract.
(b) Each Material Contract is, and after the consummation of the transactions contemplated by
this Agreement will continue to be, a valid and binding obligation of it and its subsidiaries (to
the extent they are parties thereto or bound thereby) enforceable against it and, to its knowledge,
each other party thereto, in accordance with its terms and is in full force and effect, and it and
each of its subsidiaries (to the extent they are party thereto or bound thereby) and, to its
knowledge, each other party thereto has performed in all material respects all obligations required
to be performed by it under each Material Contract, except where such failure to be valid and
binding or such non-performance has not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. Neither it nor any of its
subsidiaries has received written notice, nor does it have knowledge, of any material violation or
default in respect of any material obligation under (or any condition which with the passage of
time or the giving of notice or both would result in such a violation or default), or any intention
to cancel, terminate, change the scope of rights and obligations under or not to renew, any
Material Contract.
(c) Validus Annual Report filed with the SEC on Form 10-K for the year ended December 31,
2008, sets forth all contracts, agreements, notes, leases, licenses and other instruments between
Validus and any of its affiliates or between two or more affiliates of Validus. Section 3.14(c) of
IPCs Disclosure Letter sets forth all contracts, agreements, notes, leases, licenses and other
instruments between IPC and any of its affiliates or between two or more affiliates of IPC. Each
Validus intercompany agreement or IPC intercompany agreement, as the case may be, to which any
Insurance Entity is a party has been duly approved by each Governmental Entity whose approval is
required therefor, except where the failure to obtain such approval has not had and would not be
reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
3.15 Employee Benefits and Executive Compensation.
(a) It has disclosed its Compensation and Benefits Plans in Section 3.15(a) of its Disclosure
Letter and it will deliver or make available, to the extent requested, to the other party within
one (1) business day of the termination of the IM Agreement correct and complete copies of,
(i) each of its material Compensation and Benefit Plans (as defined in Section 8.13(a)),
(ii) each applicable trust agreement or other funding arrangement for each such
Compensation and Benefit Plan (including insurance contracts), and all amendments thereto,
(iii) with respect to any such Compensation and Benefit Plan that is intended to be
tax-qualified or tax-preferred under applicable Law, any applicable determination letter issued by
the U.S. Internal Revenue Service and any other applicable determination document issued by any
equivalent non-U.S. taxing or regulatory authority, in each case, confirming the tax-qualified or
tax-preferred status of such Compensation and Benefit Plan, (iv) annual reports or returns,
audited or unaudited financial statements, actuarial valuations and reports, and summary annual
reports or other reports prepared for any Compensation and Benefit Plan with respect to the two
most recently completed plan years, and (v) the most recent summary plan description for
any Compensation and Benefit Plan and summary of any material modifications thereto.
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(b) Each of its Compensation and Benefit Plans is in compliance with applicable Laws in all
material respects and has been administered in all material respects in accordance with its terms.
There are no actions, suits, investigations or claims pending, or to its knowledge, threatened or
anticipated (other than routine claims for benefits) relating to any Compensation and Benefit Plan.
(c) Neither it nor any of its subsidiaries has any obligations for retiree health and retiree
life benefits under any Compensation and Benefit Plan other than with respect to benefit coverage
mandated by applicable Law. There has been no amendment to, announcement by it or any of its
subsidiaries relating to, or change in employee participation in coverage under, any Compensation
and Benefit Plan which would materially increase the expense of maintaining such plan above the
level of the expense incurred therefor for the most recent fiscal year.
(d) None of the execution and delivery of this Agreement, the shareholder approval of the
transactions contemplated hereby, the termination of the employment of any of its or its
subsidiaries employees within a specified time of the Effective Time or the consummation of the
transactions contemplated hereby will (i) result in any payment (including severance,
golden parachute, or otherwise), whether or not in conjunction with a termination of employment,
becoming due to any director or any employee of it or any of its subsidiaries from it or any of its
subsidiaries under any Compensation and Benefit Plan or otherwise, other than by operation of Law,
(ii) increase any benefits otherwise payable under any Compensation and Benefit Plan,
(iii) result in any acceleration of the time of payment or vesting of any such benefit or
funding (through a grantor trust or otherwise) of any such payment or benefit, (iv) limit
or restrict the right of it to merge, amend or terminate any Compensation and Benefit Plan or any
related trust, (v) cause a trust for any Compensation and Benefit Plan to be required to be
funded, or (vi) result in payments under any Compensation and Benefit Plan which would not
be deductible under Section 280G of the Code or any equivalent non-U.S. tax Law.
(e) Each of its Compensation and Benefit Plans that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the U.S. Internal Revenue
Service and nothing has occurred that could reasonably be expected to cause the loss of such
qualification. Neither it nor any of its subsidiaries has engaged in a transaction with respect to
any Compensation and Benefit Plan that would subject it or any of its subsidiaries to a Tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). Neither it nor any of its subsidiaries
(i) has an obligation to contribute (as defined in ERISA Section 4212) nor have they ever had an
obligation to contribute to a multiemployer plan (as defined in ERISA Sections 4001(a)(3) and
3(37)(A)) or (ii) maintains or contributes to, or has, within six years preceding the date of this
Agreement, maintained or contributed to, an employee pension benefit plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code.
3.16 Labor Relations and Other Employment Matters.
(a) None of its or its subsidiaries employees are represented by any union with respect to
their employment by it or its subsidiaries, and no labor organization or group of employees of it
or any of its subsidiaries has made a pending demand for recognition or certification to it or any
of its subsidiaries and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or, to its knowledge, threatened to be
brought or filed with any labor relations tribunal or authority. Since January 1, 2007, neither it
nor any of its subsidiaries has experienced any material labor disputes, union organization
attempts or work stoppages, slowdowns or lockouts due to labor disagreements.
(b) (i) No unfair labor practice charges, grievances or complaints are pending or, to
its knowledge, threatened against it or any of its subsidiaries, (ii) no employee of it at
the officer level or
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above has given written notice to it or any of its subsidiaries that any such employee intends
to terminate his or her employment with it or any of its subsidiaries, (iii) to its
knowledge, no employee or former employee of it or any of its subsidiaries is in any respect in
violation of any term of any employment contract, nondisclosure agreement (including any agreement
relating of trade secrets or proprietary information) or non-competition agreement with it or any
of its subsidiaries, and (iv) it and its subsidiaries have materially complied with all
applicable Laws, contracts, policies, plans and programs relating to employment, employment
practices, compensation, benefits, hours, terms and conditions of employment and the termination of
employment.
(c) Each of its employees has all work permits, immigration permits, visas or other
authorizations required by Law for such employee given the duties and nature of such employees
employment and Section 3.16(c) of its Disclosure Letter sets forth a true and complete list of such
work permits, immigration permits, visas or other authorizations currently held by its employees.
3.17 Intellectual Property
(a) It and each of its subsidiaries has sufficient rights to use all of the Intellectual
Property used in its and each of its subsidiaries respective businesses as presently conducted and
as proposed to be conducted, all of which rights shall survive unchanged the consummation of the
transactions contemplated by this Agreement. The Intellectual Property owned by it or its
subsidiaries is (i) owned free and clear of any claim, lien or encumbrance (other than Permitted
Encumbrances), and (ii) valid and subsisting, and is not subject to any outstanding order, judgment
or decree adversely affecting its or its subsidiaries use thereof, or rights thereto.
(b) Section 3.17 of its Disclosure Letter, which, with respect to Validus, shall be provided
within one (1) business day of the termination of the IM Agreement, sets forth a true list of (i)
all registered trademarks and service marks, all trademark and service mark applications, and all
domain names owned by it and/or its subsidiaries, (ii) all registered copyrights and copyright
applications owned by it and/or its subsidiaries, and (iii) all patents and patent applications
owned by it and/or its subsidiaries.
(c) Any underwriting model it has created or uses in its business that, among other things,
assesses policy risk and premium (each an Underwriting Model) is based, in all material
respects, on information that is confidential and/or proprietary to it (other than third-party
vendor model information contained therein). It owns exclusively, free and clear of any claim,
lien or encumbrance (other than Permitted Encumbrances), all of the proprietary information
(including all Intellectual Property rights) upon which each Underwriting Model is based.
(d) All of the rights in the Intellectual Property created by its or any of its subsidiaries
employees during the course of their employment, including any software developed to use the
Underwriting Model, have been validly and irrevocably assigned to it.
(e) It and each of its subsidiaries has taken all reasonable measures to protect the
confidentiality of all Trade Secrets (as hereinafter defined) that are owned, used or held by it or
each of its subsidiaries, and to its knowledge, such Trade Secrets have not been used, disclosed to
or discovered by any person except pursuant to valid and appropriate non-disclosure agreements
which have not been breached.
(f) To its knowledge, neither it nor any of its subsidiaries has infringed, misappropriated or
otherwise violated the Intellectual Property rights of any third party during the five (5) year
period immediately preceding the date of this Agreement. There is no litigation, opposition,
cancellation, proceeding, reexamination, objection or claim pending, asserted or, to its knowledge,
threatened against it
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or any of its subsidiaries concerning the ownership, validity, registerability,
enforceability, infringement or use of, or licensed right to use, any Intellectual Property. To
its knowledge, no valid basis exists for any such litigation, opposition, cancellation, proceeding,
objection or claim. To its knowledge, no person is infringing, misappropriating or otherwise
violating any of its or its subsidiaries rights in any Intellectual Property.
(g) It and its subsidiaries has each complied in all material respects with (i) all
applicable Laws, rules and regulations regarding data protection and the privacy and security of
personal information, and (ii) their respective privacy policies or commitments to their
customers and consumers.
3.18 Properties. Neither it nor any of its subsidiaries owns any real property. It or
one of its subsidiaries has (a) a valid leasehold or sublease interest or other comparable
contract right in the real property that it or any of its subsidiaries leases, subleases or
otherwise occupies without owning and (b) good, valid and marketable title to, or has a valid
leasehold, sublease interest or other comparable contract right in, the other tangible assets and
properties necessary to the conduct of the business as currently conducted, except (i) as have
been disposed of in the ordinary course of business, in each case free and clear of all
encumbrances except for Permitted Encumbrances, or (ii) as has not had and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect. It and its
subsidiaries have complied in all material respects with the terms of all such leases, and to its
knowledge, all such leases are in full force and effect.
3.19 Brokers or Finders. Other than, in the case of IPC, J.P. Morgan Securities Inc.
(JP Morgan) and, in the case of Validus, Greenhill & Co., LLC (Greenhill), no
agent, broker, investment banker, financial advisor or other firm or person is or will be entitled
to any brokers or finders fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by or on behalf of it
or any of its subsidiaries. Prior to the date of execution of this Agreement by IPC, IPC has
provided a true and complete copy of its engagement letter with its financial advisor to Validus.
3.20 Investment Advisor. Neither it nor any of its subsidiaries conducts activities of or
is required to be registered as an investment advisor as such term is defined in Section 2(a)(2)
of the Investment Company Act of 1940. Neither it nor any of its subsidiaries is required to be
registered as an investment company as defined under the Investment Company Act of 1940.
3.21 Opinion of Financial Advisor.
(a) In the case of IPC, the board of directors of IPC has received the opinion of its
financial advisor, JP Morgan, dated the date of execution of this Agreement by all parties, to the
effect that, as of such date, the Amalgamation Consideration to be paid by Validus to the
shareholders of IPC pursuant to Section 2.1(a) is fair, from a financial point of view, to the
holders of IPC Common Shares (other than Validus and its subsidiaries).
(b) In the case of Validus, the board of directors of Validus has received the opinion of its
financial advisor, Greenhill, dated as of March 31, 2009, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to Validus.
3.22 Takeover Laws. To its knowledge as of the date of this Agreement, no fair price,
moratorium, control share acquisition, interested shareholder or other anti-takeover statute
or regulation would reasonably be expected to restrict or prohibit this Agreement, the
Amalgamation or the other transactions contemplated hereby by reason of it being a party to this
Agreement, performing
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its obligations hereunder and consummating the Amalgamation and the other transactions
contemplated hereby.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Validus and IPC. During the period from the date of this Agreement
and continuing until the Effective Time, Validus and IPC agree as to themselves and their
respective subsidiaries that, except as expressly contemplated or permitted by this Agreement, as
required by applicable Law, as set forth in Section 4.1 of the Validus Disclosure Letter (in the
case of Validus) or Section 4.1 of the IPC Disclosure Letter, including the supplement thereto
attached as Exhibit F hereto (in the case of IPC) or to the extent that IPC (in the case
of Validus) or Validus (in the case of IPC) shall otherwise consent in writing, that it and its
subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice (including, for the avoidance of doubt, adhering to any
operating guidelines and policies, whether or not written) and use commercially reasonable efforts
to preserve intact their present business organizations, maintain their Permits and preserve their
relationships with employees, investment advisers and managers, customers, policyholders,
reinsureds, retrocedents, regulators, Agents, Administrators, lenders and financing providers and
others having business dealings with them. Without limiting the generality of the foregoing,
except as expressly required by applicable Law or as set forth in Section 4.1 of the Validus
Disclosure Letter (in the case of Validus) or Section 4.1 of the IPC Disclosure Letter (in the
case of IPC), Validus and IPC shall not, and shall not permit any of their respective
subsidiaries, except as expressly noted in a subsection or clause that it is solely applicable to
IPC and its subsidiaries, to:
(a) (i) declare or pay, or propose to declare or pay, any dividends on or make
other distributions in respect of any of its share capital (whether in cash, shares or
property or any combination thereof), except for (A) dividends paid by a direct or
indirect wholly-owned subsidiary to it or its subsidiaries and (B) subject to
Section 5.14, ordinary course quarterly dividends on its common shares with record and
payment dates consistent with past practice; provided that any such dividend shall
be at a rate no greater than the rate paid by it during the fiscal quarter immediately
preceding the date of Agreement, (ii) split, combine or reclassify, or propose to
split, combine or reclassify, any of its share capital, or issue or authorize or propose the
issuance or authorization of any other securities in respect of, in lieu of or in
substitution for, shares of its share capital, or (iii) in the case of IPC and its
subsidiaries, repurchase, redeem or otherwise acquire, propose to repurchase, redeem or
otherwise acquire, any shares of its (or any of its subsidiaries) share capital or any
securities convertible into or exercisable for any shares of its (or any of its
subsidiaries) share capital, other than repurchases, redemptions or acquisitions by a
wholly-owned subsidiary of share capital or such other securities, as the case may be, of
another of its wholly-owned subsidiaries;
(b) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of,
any shares of its (or any of its subsidiaries) share capital of any class, any Voting Debt,
any share appreciation rights or any securities convertible into or exercisable or
exchangeable for, or any rights, warrants or options to acquire, any such shares or Voting
Debt, or enter into any agreement with respect to any of the foregoing (it being understood
that no such issuance, delivery or sale shall result in a net credit to either partys Book
Value Estimate made in connection with Section 5.16), other than (i) the issuance of
common shares required to be issued upon the exercise or settlement of share options or
other equity related awards outstanding on the date hereof under the Validus Share Plans the
IPC Share Plans, as the case may be, as in effect on the date hereof, (ii) issuances
by a wholly-owned subsidiary of share capital or capital stock, as the case may
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be, to it or another of its wholly-owned subsidiary and (iii) the issuance of
Validus Common Shares in connection with the consummation of this Agreement;
(c) amend or propose to amend its memorandum of association or bye-laws or equivalent
organizational documents of any of its subsidiaries (except in accordance with the IPC
Bye-Law Amendment) and shall not waive any requirement thereof;
(d) (i) other than in connection with transactions related to its Investment Assets
entered into in accordance with its Investment Policy or after obtaining the written consent
of the other parties hereto (which consent shall not be unreasonably withheld or delayed),
acquire or agree to acquire, by amalgamating, merging or consolidating with, by purchasing a
substantial equity interest in or a substantial portion of the assets of, by forming a
partnership or joint venture with, or by any other manner, any corporation, partnership,
association or other business organization or division thereof, or any material assets,
rights or properties (it being understood that no such acquisition shall result in a net
credit to either partys Book Value Estimate made in connection with Section 5.16) or (ii)
other than in connection with transactions related to its Investment Assets entered into in
accordance with its Investment Policy or that results in the creation or incurrence of a
Permitted Encumbrance, sell, lease, assign, transfer, license, encumber, abandon or
otherwise dispose of, or agree to sell, lease, assign, transfer, license, encumber, abandon
or otherwise dispose of, any of its assets, product lines, businesses, rights or properties
(including capital stock of its subsidiaries and indebtedness of others held by it and its
subsidiaries);
(e) other than any Validus Benefit Plan, as applicable, other than any IPC Benefit
Plan, as applicable (which is subject to paragraph (k) below) or as contemplated by Section
6.3(f): amend, modify or terminate any Material Contract, or cancel, modify or waive any
debts or claims held by it under, or waive any rights in connection with, any Material
Contract, or enter into any contract or other agreement of any type, whether written or
oral, that would have been a Material Contract had it been entered into prior to this
Agreement;
(f) do or permit any of its subsidiaries, investments managers or advisers, or Agents
or Administrators to do any of the following: (i) fail to comply with the Investment
Policy, or amend, modify or otherwise change the Investment Policy in any material respect,
except as may be required by (or, in its reasonable good faith judgment, advisable under)
GAAP, Applicable SAP or any Governmental Entity or applicable Laws, (ii) enter into,
purchase, sell, amend or modify any derivative other than in the ordinary course of business
consistent with past practice and its Investment Policy or (iii) voluntarily
forfeit, abandon, modify, waive, terminate or otherwise change any of its material Permits;
(g) take any action with the actual knowledge and intent that it would result in any of
the conditions to the Amalgamation set forth in ARTICLE VI not being satisfied or take any
action that would materially adversely affect the ability of the parties to obtain any of
the Requisite Regulatory Approvals (as defined in Section 6.1(c)) without imposition of a
condition or restriction of the type referred to in Section 6.2(d) or Section 6.3(d), as the
case may be);
(h) (i) except as disclosed in any of its SEC Documents filed prior to the date of this
Agreement, change its methods of accounting in effect at December 31, 2008, except as
required by changes in applicable Laws, GAAP or Applicable SAP as concurred to by its
independent auditors, (ii) make, change or revoke any material Tax election, file any
amended Tax Return, settle any Tax claim, audit, action, suit, proceeding, examination or
investigation or change its method of tax accounting (except, with respect to any amended
Tax Return or any change in tax accounting method, as required by changes in applicable Law
(or any Taxing Authoritys interpretation
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thereof)), in each case, if such action would have the effect of increasing any of its
Tax liabilities by an amount that is material or (iii) alter or amend in any material
respect its Investment Policy or any existing underwriting, claim handling, loss control,
investment, actuarial or financial reporting practices, methods, guidelines or policies or
any material assumption underlying an actuarial policy or practice (including compliance
policies), except as may be required by (or, in its reasonable good faith judgment,
advisable under) GAAP, Applicable SAP or any Governmental Entity or applicable Laws;
(i) adopt any plan of complete or partial liquidation or dissolution, restructuring,
recapitalization or reorganization;
(j) settle or compromise any Legal Proceedings other than settlements or compromises of
Legal Proceedings (i) where the amount paid (less the amount reserved for such
matters by it in the latest audited balance sheet included in its SEC Documents and any
insurance coverage applicable thereto) in settlement or compromise, in each case, does not
exceed $1,000,000 and such settlement or compromise only involves monetary relief or
(ii) arising from ordinary course claims for insurance under contracts of insurance
or reinsurance issued by one of its subsidiaries;
(k) with respect to IPC and its subsidiaries only, (i) enter into, adopt, amend
or terminate any IPC Benefit Plan, as the case may be, or any other employee benefit plan or
any agreement, arrangement, plan or policy between it or one of its subsidiaries and one or
more of its employees, directors or officers other than as required by this Agreement or in
the ordinary course of business consistent with past practice, (ii) except as
required by any IPC Benefit Plan, as the case may be, as in effect as of the date hereof,
increase in any manner the compensation or fringe benefits of any director, officer,
employee, independent contractor or consultant or pay any benefit not required by any IPC
Benefit Plan, as the case may be, as in effect as of the date hereof or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing, except for normal
payments, awards and increases to employees who are not directors or officers in the
ordinary course of business consistent with past practice, or (iii) enter into or
renew any contract, agreement, commitment or arrangement (other than a renewal occurring in
accordance with the terms of a IPC Benefit Plan, as the case may be) providing for the
payment to any director, officer, employee, independent contractor or consultant of
compensation or benefits contingent, or the terms of which are materially altered, upon the
occurrence of any of the transactions contemplated by this Agreement;
(l) incur, create or assume any indebtedness for borrowed money (or modify any of the
material terms of any such outstanding indebtedness), including by way of an intercompany
loan to it, guarantee any such indebtedness or issue or sell any debt securities or warrants
or rights to acquire any debt securities of it or any of its subsidiaries or guarantee any
debt securities of others, other than (i) in replacement of existing or maturing debt, (ii)
in connection with amending existing indebtedness agreements in connection with the
Amalgamation and the other transactions contemplated hereby, (iii) in the ordinary course of
the insurance or reinsurance business and (iv) draw-downs pursuant to existing credit
facilities and letters of credit;
(m) grant, extend, amend, waive or modify any material rights in or to, nor sell,
assign, lease, transfer, license, let lapse, abandon, cancel or otherwise dispose of, any
material Intellectual Property rights; or
(n) agree to, or make any commitment to, take, or authorize, any of the actions
prohibited by this Section 4.1.
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4.2 Financing.
(a) In the event that the parties mutually determine that it is desirable to obtain new, or
amend or obtain waivers under any of their existing, credit facilities or other existing financing
arrangements (Financing) in connection with the Amalgamation and the other transactions
contemplated hereby, then the parties shall, and shall cause each of their respective subsidiaries
to, use commercially reasonable efforts to cooperate with each other and to cause their respective
directors, officers, employees, agents and representatives to cooperate in connection with the
arrangement of such Financing, including with respect to the giving (effective as of the Effective
Time) of any mutually acceptable guarantees required by the lenders in connection therewith;
provided that (i) such requested cooperation does not unreasonably interfere with
the ongoing operations of a party and its subsidiaries prior to the Effective Time, (ii) no
party or any of its subsidiaries shall be required to incur any liability under the Financing prior
to the Effective Time unless contingent upon the occurrence of the Closing and not material to
Validus and its subsidiaries (after giving effect to the Amalgamation), and (iii) IPC and
Validus shall be responsible for their respective costs and expenses incurred in connection with
such cooperation. For the avoidance of doubt no failure of any party to obtain Financing shall be
deemed to be a failure of any condition set forth in Article VI of this Agreement, except as
specifically provided by Section 6.3(f) of this Agreement.
4.3 Bermuda Required Actions. Prior to the Closing, (a) IPC shall
(i) procure that the statutory declaration required by Section 108(3) of the Companies Act
is duly sworn by one of its officers; (ii) prepare a duly certified copy of the IPC
shareholder resolutions evidencing the Required IPC Vote and deliver such documents to Validus;
and (b) Amalgamation Sub shall (and Validus, as the sole shareholder of Amalgamation Sub
shall cause Amalgamation Sub to) (i) procure that the statutory declarations required by
Section 108(3) of the Companies Act is duly sworn by one of Amalgamation Subs officers;
(ii) prepare a duly certified copy of the shareholder resolutions evidencing the approval
of Validus, as the sole shareholder of the Amalgamation Sub, of the Amalgamation; and
(iii) prepare a notice advising the Registrar of the registered office of the Amalgamated
Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statements; Shareholders Meetings.
(a) At IPCs option, after consultation with Validus, IPC may elect to combine the IPC
Shareholders Meeting with IPCs 2009 annual general meeting, and at Validuss option, after
consultation with IPC, Validus may elect to combine the Validus Shareholders Meeting with Validuss
2009 annual general meeting. As promptly as reasonably practicable following the date hereof, IPC
and Validus shall cooperate in preparing and each shall cause to be filed with the SEC mutually
acceptable proxy materials which shall constitute the proxy statement/prospectus relating to the
matters to be submitted to the shareholders of Validus at the Validus Shareholders Meeting and to
the IPC shareholders at the IPC Shareholders Meeting and, subject to the first sentence of this
paragraph (a), such other matters as IPC and Validus elect to submit to their respective
shareholders in the ordinary course consistent with past practice in connection with their
respective annual general meetings, including the election of directors, the receipt of audited
financial statements, the appointment of an auditor and the transaction of such other further
business, if any, as may lawfully be brought before the meeting (such proxy statement/prospectus,
proxy and any amendments or supplements thereto, the Joint Proxy Statement/Prospectus),
and Validus shall prepare, together with IPC, and file with the SEC a registration statement on
Form S-4 (of which the Joint Proxy Statement/Prospectus shall be a part) with respect to the
issuance of Validus Common Shares in the Amalgamation (such Form S-4, and any amendments or
supplements thereto, the Form S-4).
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Each of IPC and Validus shall take all actions reasonably necessary to prepare and file the
Joint Proxy Statement/Prospectus and the Form S-4 no later than 30 days following the date of
execution of this Agreement by all parties. In addition, each of IPC and Validus shall:
(i) use commercially reasonable efforts to have the Joint Proxy Statement/Prospectus
cleared by the SEC and the Form S-4 declared effective by the SEC, to keep the Form S-4
effective as long as is necessary to consummate the Amalgamation and the other transactions
contemplated hereby, and to mail the Joint Proxy Statement/Prospectus to their respective
shareholders as promptly as practicable after the Form S-4 is declared effective. IPC and
Validus shall, on the same day of receipt thereof (and if not possible, as promptly as
practicable after receipt thereof), provide the other party with copies of any written
comments and advise the other party of any oral comments with respect to the Joint Proxy
Statement/Prospectus or Form S-4 received from the SEC;
(ii) cooperate and provide the other party with a reasonable opportunity to review and
comment on any amendment or supplement to the Joint Proxy Statement/Prospectus and the Form
S-4 prior to filing such with the SEC, and each party will provide the other party with a
copy of all such filings made with the SEC. None of the information supplied or to be
supplied by Validus or IPC for inclusion or incorporation by reference in the (A)
Form S-4 will, at the time the Form S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading, and
(B) Joint Proxy Statement/Prospectus will, at the date of mailing to shareholders
and at the times of the meetings of shareholders to be held in connection with the
Amalgamation, contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided
that, in each case of (A) and (B), neither party shall be responsible or liable for any
statements made or incorporated by reference therein based on information supplied by the
other party for inclusion or incorporation by reference therein;
(iii) cause the Joint Proxy Statement/Prospectus and the Form S-4 to comply as to form
in all material respects with the requirements of the Exchange Act and the Securities Act,
as the case may be, and the rules and regulations of the SEC thereunder, except that no
representation or warranty shall be made by either such party with respect to statements
made or incorporated by reference therein based on information supplied by the other party
for inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus or Form
S-4. IPC and Validus shall make any necessary filings with respect to the Amalgamation
under the Securities Act and the Exchange Act and the rules and regulations thereunder;
(iv) use commercially reasonable efforts to take any action required to be taken under
any applicable securities Laws in connection with the Amalgamation and each party shall
furnish all information concerning it and the holders of its capital stock as may be
reasonably requested in connection with any such action;
(v) advise the other party, promptly after it receives notice thereof, of the time when
the Form S-4 has become effective, the issuance of any stop order, the suspension of the
qualification of the Validus Common Shares issuable in connection with the Amalgamation for
offering or sale in any jurisdiction, or any request by the SEC for amendment of the Joint
Proxy Statement/Prospectus or the Form S-4; and
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(vi) promptly notify the other party if at any time prior to the Effective Time it
discovers any information relating to either of the parties, or their respective affiliates,
officers or directors, which should be set forth in an amendment or supplement to any of the
Form S-4 or the Joint Proxy Statement/Prospectus so that such documents would not include
any misstatement of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading, and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and disseminated to the shareholders of Validus and IPC, to the
extent required by Law.
(b) Validus shall take all action necessary to call, give notice of, convene and hold a
meeting of its shareholders as promptly as practicable, and in any event within 45 days, following
the date upon which the Form S-4 becomes effective (the Validus Shareholders Meeting) for
the purpose of obtaining the Required Validus Vote, provided that the Validus Shareholders
Meeting shall not be held prior to the third business day immediately following the last day on
which the holders of IPC Common Shares can require appraisal of their IPC Common Shares pursuant to
the Companies Act. Subject to Section 5.4, (i) Validus shall use commercially reasonable efforts
to solicit and secure the Required Validus Vote in accordance with applicable legal requirements
and (ii) the board of directors of Validus shall include the Validus Recommendation in the Joint
Proxy Statement/Prospectus.
(c) IPC shall take all action necessary to call, give notice of, convene and hold a meeting of
its shareholders as promptly as practicable, and in any event within 45 days, following the date
upon which the Form S-4 becomes effective (the IPC Shareholders Meeting) for the purpose
of obtaining the Required IPC Vote, provided that the IPC Shareholders Meeting shall not be
held prior to the third business day immediately following the last day on which the holders of IPC
Common Shares can require appraisal of their IPC Common Shares pursuant to the Companies Act.
Subject to Section 5.4, (i) IPC shall use commercially reasonable efforts to solicit and
secure the Required IPC Vote in accordance with applicable legal requirements and (ii) the
board of directors of IPC shall include the IPC Recommendation in the Joint Proxy
Statement/Prospectus.
(d) Validus and IPC shall coordinate and each shall use its commercially reasonable efforts to
cause the Validus Shareholders Meeting and the IPC Shareholders Meeting to be held on the same
date.
(e) Validus and IPC may determine, after consultation with each other, that each of them shall
file separate proxy statements rather than a joint proxy statement, in which case each of the
references in this Agreement to the Joint Proxy Statement/Prospectus shall include each partys
separate proxy statement.
5.2 Access to Information; Confidentiality.
(a) Upon reasonable notice, each of Validus and IPC shall (and shall cause each of its
subsidiaries to) (i) afford to the officers, employees, accountants, counsel, financial
advisors and other representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts, records and
officers and (ii) during such period, make available all other information concerning its
business, properties and personnel, in each case, as such other party may reasonably request.
Notwithstanding anything in this Section 5.2 or Section 5.3 to the contrary, neither party nor any
of its subsidiaries shall be required to provide access to or to disclose information where such
access or disclosure would jeopardize any legally recognized privilege applicable to such
information or violate or contravene any applicable Laws or binding agreement entered into prior to
the date of this Agreement (including any Laws relating to privacy). The parties will make
appropriate substitute disclosure arrangements under circumstances in which the restrictions of the
preceding sentence
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apply, including adopting additional specific procedures to protect the confidentiality of
certain sensitive material and to ensure compliance with applicable Law, and, if necessary,
restricting review of certain sensitive material to the receiving partys financial advisors or
outside legal counsel. No information or knowledge obtained in any investigation pursuant to this
Section 5.2 shall affect or be deemed to modify any representation or warranty made by any party
hereunder.
(b) The parties will hold any such information in confidence and neither of the parties nor
any of their respective affiliates, directors, officers, employees, advisors, agents or other
representatives (including, without limitation, attorneys, accountants, consultants, bankers and
financial advisors) (collectively, Representatives) will disclose any of the information in any
manner whatsoever; provided, however, that (i) any of such information may be disclosed to
Representatives who need to know such information for the sole purpose of assisting the parties in
effecting the Amalgamation (it being understood that such Representatives shall be informed by the
party hereto that they represent of your obligations under this Section 5.2(b) and shall be
required by you to comply with all such obligations)), (ii) any of such information may be
disclosed as required by applicable law or the rules of a national securities exchange and (iii)
any other disclosure of such information may be made only with the other partys prior written
consent. Each party hereto agrees to be responsible for any breach of this Section 5.2(b) by any
of its Representatives and, at its sole expense, to take all commercially reasonable measures
(including, but not limited to, court proceedings) to restrain its Representatives from breaching
this Section 5.2(b).
5.3 Commercially Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will cooperate and
consult with the other party with respect to, and will use its commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under this Agreement and applicable Laws to consummate the Amalgamation and the
other transactions contemplated by this Agreement as promptly as practicable after the date hereof,
including preparing and filing as promptly as practicable all documentation to effect all necessary
applications, notices, filings and other documents and to obtain as promptly as practicable all
Requisite Regulatory Approvals and all other consents, waivers, licenses, registrations, orders,
approvals, permits, rulings, requests, authorizations and clearances necessary or advisable to be
obtained from any third party or any Governmental Entity in order to consummate the Amalgamation or
any of the other transactions contemplated by this Agreement.
(b) In furtherance and not in limitation of Section 5.3(a), to the extent permissible under
applicable Laws, each party shall, in connection with the above referenced efforts to obtain all
Requisite Regulatory Approvals and any other requisite approvals, clearances and authorizations for
the transactions contemplated hereby under applicable Laws or any approval of a Governmental
Entity, use its commercially reasonable efforts to (i) supply as promptly as practicable
any additional information and documentary material that may be requested pursuant to applicable
Laws or by any Governmental Entity and to use commercially reasonable efforts to cause the
expiration or termination of the applicable waiting periods and the receipt of all such consents,
waivers, licenses, registrations, orders, approvals, permits, rulings, requests, authorizations and
clearances under applicable Laws or from such Governmental Entities as soon as practicable,
(ii) cooperate in all respects with the other party in connection with any filing or
submission and in connection with any investigation or other inquiry, including any proceeding
initiated by any private party, (iii) keep the other party apprised of the status of
matters relating to completion of the transactions contemplated hereby and promptly inform the
other party of (and upon reasonable request provide copies of) any communication received by such
party from, or given by such party to, any Governmental Entity and of any material communication
received or given in connection with any proceeding by any private party, in each case regarding
any other transactions contemplated hereby, (iv) permit the other parties, or the other
parties legal counsel, to review prior to its submission any
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communication given by it to any Governmental Entity or, in connection with any proceeding by any
private party, with any other person, (v) consult with the other party in advance of any
meeting, conference, conference call, discussion or communication with, any such Governmental
Entity or, in connection with any proceeding by any private party, with any other person and
(vi) to the extent permitted by such Governmental Entity or other person, give the other
party the opportunity to attend and participate in such meetings, conferences, conference calls,
discussions and communications.
(c) Notwithstanding the foregoing or anything in this Agreement to the contrary, none of IPC
(and its subsidiaries) or Validus (and its subsidiaries) may, without the prior written consent of
the other party, (i) consent to, take or agree or commit to take, any action for the purpose of
obtaining the Requisite Regulatory Approvals or (ii) consent to or agree to any restriction or
limitation for the purpose of obtaining the Requisite Regulatory Approvals (including with respect
to divesting, selling, licensing, transferring, holding separate or otherwise disposing of any
business or assets or conducting its (or its subsidiaries) business in any specified manner), in
each case, which would be effective prior to the Effective Time or which would, after the Effective
Time, not be immaterial to Validus and its subsidiaries taken together (after giving effect to the
Amalgamation).
(d) In connection with and without limiting the foregoing, Validus and IPC shall (i)
take all reasonable actions necessary to ensure that no takeover statute or similar statute or
regulation is or becomes applicable to the Amalgamation, this Agreement, or any of the other
transactions contemplated by this Agreement and (ii) if any takeover statute or similar
statute or regulation becomes applicable to the Amalgamation, this Agreement, or any other
transaction contemplated by this Agreement, use their respective commercially reasonable efforts to
ensure that the Amalgamation and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Amalgamation and the other transactions
contemplated by this Agreement.
(e) Subject to receipt of the Required IPC Vote, IPC shall take such actions as are necessary
to amend its bye-laws to reflect the IPC Bye-Law Amendment.
5.4 No Change in Recommendation.
(a) The board of directors of Validus shall not withhold, withdraw, qualify or modify
(including by amendment or supplement to the Joint Proxy Statement/Prospectus), in any manner
adverse to IPC, the Validus Recommendation, or publicly propose to, or publicly announce that its
board of directors has resolved to take any such action (any of the foregoing, with respect to the
Validus Recommendation, a Change in Validus Recommendation). The board of directors of
IPC shall not withhold, withdraw, qualify or modify (including by amendment or supplement to the
Joint Proxy Statement/Prospectus), in any manner adverse to Validus, the IPC Recommendation, or
publicly propose to, or publicly announce that its board of directors has resolved to take any such
action (any of the foregoing, with respect to the IPC Recommendation, a Change in IPC
Recommendation).
(b) Notwithstanding anything in this Agreement to the contrary, at any time prior to obtaining
the Required Validus Vote, in the case of Validus, or the Required IPC Vote, in the case of IPC,
the board of directors of Validus or IPC, as the case may be, may withhold, withdraw, qualify or
modify (or publicly announce that its board of directors has resolved to take any such action) the
Validus Recommendation, in the case of Validus, or the IPC Recommendation, in the case of IPC,
other than, with respect to IPC only, in connection with an Acquisition Proposal (as defined in
Section 5.5(a)) (for the avoidance of doubt, the conditions under which IPC may make a Change of
IPC Recommendation as a result of an Acquisition Proposal are as set forth in Section 5.5), if the
board of directors of Validus or IPC, as the case may be, after consultation with its outside
counsel and financial advisors, concludes in
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good faith that such action is reasonably likely to be required in order for the relevant
directors to comply with such directors fiduciary duties under applicable Law; provided
that no Change in Validus Recommendation or Change in IPC Recommendation, as the case may be, may
be made unless the party seeking to make such Change in Validus Recommendation or Change in IPC
Recommendation, as the case may be, (i) has not breached in any material respect its
obligations under this Section 5.4, and (ii) has provided a written notice to the other
party advising it of its intention to make a Change in Validus Recommendation or a Change in IPC
Recommendation, as the case may be, and such other party does not, within five business days
following its receipt of such notice, agree to make adjustments in the terms and conditions of this
Agreement which obviate the need for the Change in Validus Recommendation or the Change in IPC
Recommendation, as the case may be, as determined in good faith by the board of directors of
Validus or IPC, as the case may be, after consultation with its outside legal counsel and financial
advisors (provided that, during such five business day period, the party seeking to make
such Change in Validus Recommendation or Change in IPC Recommendation, as the case may be, shall,
and shall cause its outside legal counsel and its financial advisors to, negotiate in good faith
with the other party (to the extent the other party desires to negotiate) with respect to any
proposed adjustments to the terms and conditions of this Agreement). Notwithstanding the
foregoing, nothing contained herein shall be deemed to relieve either of Validus or IPC of its
obligation(s) under Section 5.1 to submit matters to obtain the Required Validus Vote at the
Validus Shareholders Meeting or the Required IPC Vote at the IPC Shareholders Meeting, as the case
may be; provided, however, that if the board of directors of Validus (in the case
of a Change in Validus Recommendation) or IPC (in the case of a Change in IPC Recommendation) shall
have effected a Change in Validus Recommendation or a Change in IPC Recommendation, as the case may
be, then in submitting such matters to the applicable shareholders meeting, the applicable board of
directors may submit such matters without recommendation, in which event the applicable board of
directors shall communicate the basis for its lack of a recommendation to the applicable
shareholders in the Joint Proxy Statement/Prospectus or an appropriate amendment or supplement
thereto to the extent it determines after consultation with its legal counsel, that such action is
compelled by applicable Law.
5.5 Acquisition Proposals.
(a) IPC agrees that neither it nor any of its subsidiaries nor any of the officers and
directors of it or its subsidiaries shall, and that it shall cause (and use commercially reasonable
efforts to instruct) its and its subsidiaries employees, agents, representatives and advisors
(including any investment banker, attorney or accountant retained by it or any of its subsidiaries)
not to, directly or indirectly:
(i) initiate, solicit, encourage or facilitate (including by providing information) any
effort or attempt to make or implement any proposal or offer with respect to, or a
transaction to effect, an amalgamation, merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution or similar
transaction involving it or any of its subsidiaries or any purchase or sale of 10% or more
of the consolidated assets (including, without limitation, stock of its subsidiaries) of it
and its subsidiaries, taken as a whole, or any purchase or sale of, or tender or exchange
offer for, its voting securities that, if consummated, would result in any person (or the
shareholders of such person) beneficially owning securities representing 10% or more of its
total voting power (or of the surviving Validus entity in such transaction) or the voting
power of any of its subsidiaries (any such proposal, offer or transaction (other than a
proposal or offer made by Validus) being hereinafter referred to as an Acquisition
Proposal);
(ii) have, participate or otherwise engage in any discussions or negotiations with or
provide any confidential information or data to any person relating to an Acquisition
Proposal;
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(iii) approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or submit to the vote of its shareholders any Acquisition Proposal prior to the
termination of this Agreement; or
(iv) approve or recommend, or propose to approve or recommend, or execute or enter
into, any letter of intent, agreement in principle, merger agreement, amalgamation
agreement, asset purchase or share exchange agreement, option agreement or other similar
agreement related to any Acquisition Proposal.
(b) IPC agrees that (i) it shall, and shall cause its subsidiaries and its and their
respective officers, directors, employees, agents, representatives and advisors to, cease
immediately and terminate any and all existing activities, discussions or negotiations with any
third parties conducted heretofore with respect to any Acquisition Proposal, and (ii) it
shall not release any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which it or any of its subsidiaries is a party with respect to any
Acquisition Proposal. IPC agrees that it shall use its commercially reasonable efforts to promptly
inform its and its subsidiaries respective directors, officers, employees, agents, representatives
and advisors of the obligations undertaken in this Section 5.5.
(c) IPC shall promptly notify Validus of any (i) Acquisition Proposal, (ii) request for
information that could reasonably be expected to be related to an Acquisition Proposal received by
it, any of its subsidiaries or any of their respective directors, officers, employees, agents,
representatives or advisors (including any investment bankers, attorneys or accountants), and (iii)
request that could reasonably be expected to be related to an Acquisition Proposal for discussions
with or negotiations by, it, any of its subsidiaries or any of their respective directors,
officers, employees, agents, representatives or advisors (including any investment bankers,
attorneys or accountants), indicating, in connection with such notice, the identity of the person
making such Acquisition Proposal or request and the material terms and conditions thereof
(including a copy thereof and any related available documentation and correspondence), and in any
event IPC shall provide written notice to Validus of any Acquisition Proposal, request for
information or request for such discussions or negotiations within 24 hours of such event. IPC
will (A) inform the person making such Acquisition Proposal, request for information or request for
discussions or negotiations of its obligations under this Agreement and (B) keep Validus reasonably
informed on a reasonably current basis of the terms of any such Acquisition Proposal or request for
information or request for discussions or negotiations (including whether such Acquisition Proposal
or request for information or request for discussions or negotiations is withdrawn and any material
change to the terms thereof).
(d) Notwithstanding anything in this Agreement to the contrary, if, at any time prior to
obtaining the Required IPC Vote, in the case of IPC (after the expiration of the Notice Period (as
hereinafter defined)), the board of directors of IPC concludes that an unsolicited bona fide
written Acquisition Proposal that did not result from a breach of this Section 5.5 could be
reasonably likely to constitute a Superior Proposal (after giving effect to all the adjustments to
this Agreement which may be offered by Validus prior to or during the Notice Period), the board of
directors of IPC may make a Change in IPC Recommendation; provided that the board of
directors of IPC may not make a Change in IPC Recommendation unless (i) IPC has provided a
written notice to Validus (a Notice of Superior Proposal) advising Validus that it has
received an Acquisition Proposal that could be reasonably likely to constitute a Superior Proposal
and specifying the identity of the person making such Acquisition Proposal and the material terms
thereof (including a copy thereof and any related available documentation and correspondence) and
(ii) Validus does not, within five business days following its receipt of the Notice of
Superior Proposal (the Notice Period), make an offer that, as determined in good faith by
the board of directors of IPC after consultation with its outside legal counsel and financial
advisors, results in the applicable Acquisition Proposal no longer being a Superior Proposal
(provided that, during the Notice Period, IPC shall, and shall cause its outside legal
counsel and its financial advisors to, negotiate in good faith with
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Validus (to the extent Validus desires to negotiate) with respect to such proposal). The
parties understand and agree that to comply with this Section 5.5(d) any revisions to the terms of
such Superior Proposal which, individually or in the aggregate would be material when considering
such Superior Proposal in its totality, shall require IPC to deliver to Validus a new Notice of
Superior Proposal and the commencement of a new Notice Period.
(e) Nothing contained in this Section 5.5 shall prohibit IPC, from (i) complying with
Rule 14d-9 or 14e-2 promulgated under the Exchange Act to the extent applicable with regard to an
Acquisition Proposal (provided that, in the case of an Acquisition Proposal made by way of
a tender offer or exchange offer, any failure by IPC or its board of directors to recommend that
the shareholders of IPC reject such offer within the time period specified in Rule 14e-2(a) shall
be deemed to be a Change in IPC Recommendation), or making any legally required disclosure to its
shareholders with regard to an Acquisition Proposal (provided that any disclosure (other
than a stop, look and listen or similar communication of the type contemplated by Rule 14d-9(f)
under the Exchange Act) made pursuant to Rule 14d-9 or 14e-2(a) shall be deemed to be a Change in
IPC Recommendation unless the board of directors of IPC expressly reaffirms its recommendation to
its shareholders in favor of approval of this Agreement and the transactions contemplated hereby)
or (ii) informing any person of the existence of the provisions contained in this Section
5.5.
(f) Superior Proposal means a bona fide unsolicited written Acquisition Proposal
from any person (other than Validus or its subsidiaries) that did not result from a breach by IPC
of this Section 5.5, which the board of directors of IPC concludes in good faith, after
consultation with its outside legal counsel and its financial advisors, taking into account the
legal, financial, regulatory, timing and other aspects of the Acquisition Proposal and the person
making the Acquisition Proposal (including any break-up fees, expense reimbursement provisions and
conditions to consummation) is in the long-term best interests of IPC including its shareholders,
employees, communities and other stakeholders, taking into account the long-term strategic
prospects and other benefits of the transactions contemplated by this Agreement, and (i) is
more favorable to IPC, its shareholders and other constituencies than the transactions contemplated
by this Agreement (after giving effect to all adjustments to this Agreement which may be offered by
Validus under Section 5.5(d) in response to such Acquisition Proposal), (ii) is fully
financed or reasonably capable of being fully financed, reasonably likely to receive all required
governmental approvals and otherwise reasonably capable of being completed on the terms proposed
and (iii) that could be reasonably likely to require the board of directors of IPC to make
a Change in IPC Recommendation in order to comply with its directors fiduciary duties under
applicable Law; provided that, for purposes of this definition of Superior Proposal, the
term Acquisition Proposal shall have the meaning assigned to such term in Section 5.5(a)(i),
except that the reference to 10% or more of its voting power or the voting power of any of its
subsidiaries in the definition of Acquisition Proposal shall be deemed to be a reference to 50%
or more of its total voting power or the voting power of any of its subsidiaries and the reference
to 10% or more of the consolidated assets in the definition of Acquisition Proposal shall be
deemed to be a reference to all or substantially all of the consolidated assets.
5.6 Section 16 Matters. Prior to the Effective Time, each of Validus and IPC shall
use its commercially reasonable efforts to cause to be exempt under Rule 16b -3 promulgated under
the Exchange Act any dispositions of IPC Common Shares or acquisitions of Validus Common Shares
(including, in each case, derivative securities) resulting from the transactions contemplated
hereby by each director or officer of IPC who is subject to the reporting requirements of Section
16(a) of the Exchange Act with respect to IPC.
5.7 Fees and Expenses. Whether or not the Amalgamation is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expense, except as otherwise provided herein, and except that
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expenses incurred in connection with filing, printing and mailing the Joint Proxy
Statement/Prospectus and the Form S-4 shall be shared equally by IPC and Validus.
5.8 Indemnification; Directors and Officers Insurance.
(a) From and after the Effective Time, Validus shall cause the Amalgamated Company to, to the
fullest extent permitted by applicable Law (and, in the case of former officers and directors, to
the extent permitted by the bye-laws of IPC and the Amalgamated Company prior to the Closing),
indemnify, defend and hold harmless, and provide advancement of expenses to, each person who is
now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, a
director or officer of IPC (the Indemnified Parties) against all losses, claims, damages,
costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in
connection with any claim, action, suit, proceeding or investigation based in whole or in part on
or arising in whole or in part out of the fact that such person is or was a director or officer of
IPC or any of its respective subsidiaries, and pertaining to any matter existing or occurring, or
any acts or omissions occurring, at or prior to the Effective Time, whether asserted or claimed
prior to, at or after, the Effective Time (including matters, acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the transactions
contemplated hereby) to the same extent such persons are indemnified or have the right to
advancement of expenses as of the date of this Agreement by IPC or any of its respective
subsidiaries pursuant to the relevant entitys memorandum of association, bye-laws and
indemnification agreements and resolutions, if any, in existence on the date hereof.
(b) For a period of six years after the Effective Time, Validus shall purchase as of the
Effective Time, a tail policy to the existing directors and officers liability insurance
maintained by IPC with respect to claims arising from facts or events which occurred at or before
the Effective Time, and which tail policy shall contain substantially the same coverage and amounts
as, and contain terms and conditions no less advantageous than the coverage provided by the
existing policy of IPC as of the date of this Agreement; provided, however, that in
no event shall Validus be required to expend for the entire tail policy, in excess of 350% of the
annual premium currently provided by IPC for its existing policy of directors and officers
liability insurance; and provided further that, if the premium of such insurance
coverage exceeds such amount, Validus shall be obliged to obtain a policy with the greatest
coverage available for a cost not to exceed such amount. At the request of Validus, IPC shall
cooperate with Validus to obtain such a tail policy effective as of the Effective Time.
(c) In the event that Validus or the Amalgamated Company or any of its successors or assigns
(i) consolidates or amalgamates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or amalgamation or (ii) transfers or conveys
all or substantially all of its properties and assets to any person (including by dissolution),
then, and in each such case, Validus shall cause proper provision to be made so that the successors
and assigns of Validus or the Amalgamated Company assume and honor the obligations set forth in
this Section 5.8.
(d) [Reserved].
(e) The provisions of this Section 5.8: (i) are intended to be for the benefit of, and
shall be enforceable by, each Indemnified Party, his or her heirs and legal representatives and
(ii) are in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such person may have by contract or otherwise.
5.9 Public Announcements. The press release to be issued after the execution of this
Agreement by all parties regarding the Amalgamation shall be a joint press release and thereafter
each of Validus and IPC shall, except as may be required by applicable Law or by obligations
pursuant to any
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listing agreement with or rules of NASDAQ or the NYSE, as applicable, or by request of any
Governmental Entity, consult with the other party before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions contemplated
hereby; provided, however, that this consultation obligation shall not apply to
any press release or other public statement relating to any actual or contemplated litigation
between the parties to this Agreement.
5.10 Additional Agreements. In case any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Amalgamated Company with full title to all
properties, assets, rights, approvals, permits, authorizations, immunities and franchises of IPC
and its subsidiaries, the parties shall use commercially reasonable efforts to cause their
respective officers and directors to take all such necessary action.
5.11 Shareholder Litigation. IPC shall give Validus the reasonable opportunity to
participate in the defense of any shareholder litigation against IPC or its directors or officers
relating to this Agreement and the transactions contemplated hereby.
5.12 Employee Benefits.
(a) [Reserved].
(b) As of the Closing Date, Validus shall, or shall cause one of its subsidiaries to, continue
to employ each person employed by Validus or IPC or any of their respective subsidiaries as of the
Closing Date (such employees, collectively, the Employees). Except as expressly provided
below, nothing contained herein shall restrict Validus in the future in the exercise of its
independent, good-faith business judgment as to the terms and conditions under which such
employment shall continue, the duration of such employment, the basis on which such employment is
terminated or the benefits provided to any Employee.
(c) For a period of not less than one year following the Closing Date, Validus shall (or shall
cause its subsidiaries to) make available to the Employees that immediately prior to the Closing
were employed by IPC, employee benefits and compensation opportunities (including salary, wages and
bonus opportunity) substantially comparable in the aggregate to the employee benefits and
compensation opportunities in effect for IPC employees immediately prior to the Closing.
(d) Validus and its subsidiaries shall ensure that any Compensation and Benefit Plan in which
the Employees are eligible to participate after the Closing Date shall take into account for
purposes of eligibility and vesting thereunder, except for purposes of qualifying for subsidized
early retirement benefits or to the extent it would result in a duplication of benefits, service by
the Employees with IPC and any of its subsidiaries prior to the Closing Date, to the same extent
such service was credited prior to the Closing Date under a comparable Compensation and Benefit
Plan of IPC.
(e) From and after the Closing Date, Validus shall honor all IPC Benefit Plans, in accordance
with their terms as in effect immediately before the Closing Date; provided that nothing
herein shall limit the right of Validus to amend or terminate any such plan in accordance with its
terms.
(f) Notwithstanding the foregoing, nothing herein shall (i) be treated as an amendment of any
Compensation and Benefit Plan or (ii) give any third party any right to enforce the provisions of
this Section 5.12.
5.13 Listing and Delisting; Reservation for Issuance. Validus shall use its
commercially reasonable efforts to cause all the following shares to be approved for listing and
quotation on the NYSE, subject to official notice of issuance, no later than the Closing Date: (i) all
Validus
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NYSE, subject to official notice of issuance, no later than the Closing Date: (i) all
Validus Common Shares to be issued in the Amalgamation to IPC shareholders and (ii) all
Validus Common Shares to be reserved for issuance upon exercise or vesting of the IPC Share
Options or IPC Other Awards (collectively, the Listed Validus Common Shares). Validus
shall take all action necessary to reserve for issuance, prior to the Closing Date, any Listed
Validus Common Shares that, by their terms and in accordance with this Agreement, will not be
issued until after the Effective Time. Validus shall use its commercially reasonable efforts to
cause the IPC Common Shares to no longer be listed or quoted on NASDAQ and to be deregistered
under the Exchange Act as soon as practicable following the Effective Time.
5.14 Dividends. IPC and Validus shall coordinate the declaration, setting of record
dates and payment dates of dividends of IPC Common Shares and Validus Common Shares so that
holders of IPC Common Shares do not receive dividends on both IPC Common Shares and the Validus
Common Shares received in the Amalgamation in respect of any calendar quarter or fail to receive a
dividend on either the IPC Common Shares or the Validus Common Shares received in the Amalgamation
in respect of any calendar quarter. For the avoidance of doubt, the purpose of this Section 5.14
is to ensure that the holders of the Validus Common Shares and IPC Common Shares each receive the
same number of quarterly dividends after execution of this Agreement and prior to the Effective
Time with respect to such shares.
5.15 Tax Treatment.
(a) The parties intend the Amalgamation to qualify as a reorganization within the meaning of
Section 368(a) of the Code and to obtain the opinions described in Sections 6.2(e) and 6.3(e) of
this Agreement. Each of IPC, Amalgamation Sub and Validus and each of their respective affiliates
shall use commercially reasonable efforts to cause the Amalgamation to so qualify and to obtain
such opinions, and unless otherwise required by applicable Law or by any other provision of this
Agreement, shall not take any actions, or cause any actions to be taken, which would reasonably be
expected to cause the Amalgamation to fail so to qualify or the opinions to fail to be delivered.
(b) Validus shall cause (i) Amalgamation Sub to file with the United States Internal Revenue
Service a properly completed Form 8832, so as to elect to be treated as a disregarded entity for
U.S. federal tax purposes effective at least one day prior to the Closing Date, and (ii) the
Amalgamated Company to file, after the Closing Date, with the United States Internal Revenue
Service a properly completed Form 8832, so as to cause it to be treated for U.S. federal tax
purposes as a disregarded entity effective as of the Closing Date.
5.16 Book Value Calculations.
(a) On the first business day after the date of its shareholder meeting held pursuant to
Section 5.1, unless this Agreement is earlier terminated pursuant to Section 7.1, either Validus or
IPC (the Requesting Party) may request, by providing notice in writing delivered to the
other party (the Non-Requesting Party), that the Non-Requesting Party prepare an estimate
of the Non-Requesting Partys book value as of the date that is one (1) business day prior to such
shareholder meeting (such date, the Measurement Date, and such estimate of book value, a
Book Value Estimate).
(b) If a Requesting Party makes a request pursuant to Section 5.16(a), then both the
Requesting Party and the Non-Requesting Party shall each promptly, and in any event within five (5)
calendar days, prepare Book Value Estimates and provide such Book Value Estimates, together with
reasonable supporting analysis, to each other. If the Requesting Party fails to provide such Book
Value Estimate within such five (5) calendar day period, then the Requesting Party shall have no
further rights under this
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Section 5.16 or Sections 7.1(h) or 7.1(i), as the case may be. For the avoidance of doubt,
the parties hereby agree that, if either party requests a Book Value Estimate, the Closing Date
shall not occur until the agreements and covenants set forth in this Section 5.16 have been
satisfied or waived.
(c) From and after the time that the Book Value Estimates have both been delivered, each party
shall have five (5) calendar days to review the other partys Book Value Estimate and supporting
analysis and such other information as the party may reasonably request in connection with its
review of the other partys Book Value Estimate. The parties understand and agree that no reserve
development occurring from and after the Measurement Date shall increase or reduce either partys
Book Value Estimate.
(d) If either partys Book Value Estimate indicates that such party has experienced a decline
in book value of more than 50% from December 31, 2008 to the Measurement Date (a 50% Book
Value Decline), then the other party shall have the right to terminate this Agreement pursuant
to and in accordance with Section 7.1(h) or Section 7.1(i), as appropriate.
(e) If the parties Book Value Estimates indicate that the percentage decline in either
partys book value from December 31, 2008 to the Measurement Date is more than 20 percentage points
greater than the percentage decline of the other partys book value from December 31, 2008 to the
Measurement Date (a 20% Differential Book Value Decline), then the party with the lesser
decline in book value over such period shall have the right to terminate this Agreement pursuant to
and in accordance with Section 7.1(h) or Section 7.1(i), as appropriate; provided that, for
purposes of measuring the 20% Differential Book Value Decline, if any, the book value of any party
that has experienced an increase in book value from December 31, 2008 to the Measurement Date shall
be deemed to have experienced no change in its book value.
(f) If, after complying with this Section 5.16, neither party has experienced a 50% Book Value
Decline or a 20% Differential Book Value Decline, then (i) in accordance with the terms this
Agreement, each party shall cooperate and consult with the other party with respect to, and will
use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under this Agreement and applicable
Laws to consummate the Amalgamation and the other transactions contemplated by this Agreement as
promptly as practicable and (ii) if all other conditions to Closing set forth in Article VI
(excluding conditions that, by their terms, are to be satisfied on the Closing Date) have been
satisfied or waived as of the third business day after the condition in Section 6.1(a) was
satisfied, then notwithstanding the provisions of Section 6.2(a) or Section 6.3(a) (as the case may
be) or any other provision of this Agreement, no representations or warranties of the
Non-Requesting Party set forth in this Agreement need be true and correct as of any date after the
third business day after the date on which the condition in Section 6.1(a) was satisfied and any
certificate of the Non-Requesting Party delivered pursuant to Section 6.2(c) or Section 6.3(c) (as
the case may be) shall reflect the foregoing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Partys Obligation to Effect the Amalgamation. The respective
obligation of each party to effect the Amalgamation shall be subject to the satisfaction prior to
the Closing of the following conditions, unless waived by both IPC and Validus:
(a) Shareholder Approval. Validus shall have obtained the Required Validus
Vote, and IPC shall have obtained the Required IPC Vote.
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(b) NYSE Listing. The Listed Validus Common Shares shall have been authorized
for listing on NYSE, subject to official notice of issuance.
(c) Requisite Regulatory Approvals. The authorizations, consents, orders or
approvals of, or declarations or filings with, and the expirations of waiting periods
required from, any Governmental Entity set forth in Section 6.1(c) of the Validus Disclosure
Letter and Section 6.1(c) of the IPC Disclosure Letter, to the extent required, shall have
been filed, have occurred or been obtained (all such permits, approvals, filings and
consents and the lapse of all such waiting periods being referred to as the Requisite
Regulatory Approvals).
(d) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent
jurisdiction preventing the consummation of the Amalgamation shall be in effect. There
shall not be any action taken, or any Law enacted, entered, enforced or made applicable to
the Amalgamation, by any Governmental Entity of competent jurisdiction that makes the
consummation of the Amalgamation illegal or otherwise restrains, enjoins or prohibits the
Amalgamation.
6.2 Conditions to Obligation of IPC. The obligation of IPC to effect the
Amalgamation is subject to the satisfaction of the following conditions unless waived by IPC:
(a) Representations and Warranties. (i) The representations and
warranties of Validus set forth in Section 3.8 shall be true and correct in all respects as
of the date hereof and the Closing Date as though made on and as of the Closing Date,
(ii) the representations and warranties of Validus (and Amalgamation Sub, as
applicable) set forth in Sections 3.2, 3.3(a), 3.9(b) (other than in the case of a Change in
Validus Recommendation pursuant to Section 5.4(b)), 3.10(a) and 3.22 shall be true and
correct in all material respects as of the date hereof and the Closing Date as though made
on and as of the Closing Date (except for such representations and warranties made only as
of a specified date, which shall be true and correct in all material respects as of such
date) and (iii) each of the other representations and warranties of Validus set
forth in ARTICLE III of this Agreement shall be true and correct in all respects as of the
date hereof and the Closing Date as though made on and as of the Closing Date (except for
such representations and warranties made only as of a specified date, which shall be true
and correct as of such date), except where the failure of any such representations and
warranties to be true and correct (without giving effect to any materiality or Material
Adverse Effect or similar qualifier set forth therein) has not had and would not be
reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on
Validus.
(b) Performance of Obligations of Validus. Validus shall have performed or
complied in all respects with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as to materiality or
Material Adverse Effect, and shall have performed or complied in all material respects with
all other obligations required to be performed by it under this Agreement at or prior to the
Closing Date.
(c) Certification. IPC shall have received a certificate signed on behalf of
Validus by the Chief Executive Officer or the Chief Financial Officer of Validus, certifying
that the conditions set forth in Section 6.2(a) and Section 6.2(b) have been satisfied.
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(d) Burdensome Regulatory Condition. There shall not be any action taken, or
any Law enacted, entered, enforced or deemed applicable to the Amalgamation or the
transactions contemplated by this Agreement by any Governmental Entity of competent
jurisdiction (including any Requisite Regulatory Approval), which imposes any term,
condition, obligation or restriction upon Validus, the Amalgamated Company or their
respective subsidiaries that would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Validus and its subsidiaries (including the Amalgamated
Company and its subsidiaries) on a consolidated basis after the Effective Time.
(e) Opinion of Tax Counsel. IPC shall have received an opinion from Sullivan &
Cromwell LLP, special counsel to IPC, dated the Closing Date, to the effect that, on the
basis of the facts, representations and assumptions set forth or referred to in such
opinion, (i) the Amalgamation will be treated for U.S. federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, (ii) each of
IPC and Validus will be a party to that reorganization within the meaning of Section 368(b)
of the Code and (iii) IPC will be treated, in respect of any shareholder who will
own after the Amalgamation less than five percent of the issued IPC Common Shares (as
determined under Treasury Regulations Section 1.367(a)-3(b)(1)(i)), as a corporation under
Section 367(a) of the Code with respect to each transfer of property thereto pursuant to the
Amalgamation. In rendering its opinion, Sullivan & Cromwell LLP may require and rely upon
representations contained in letters from each of IPC and Validus.
6.3 Conditions to Obligation of Validus. The obligation of Validus to effect the
Amalgamation is subject to the satisfaction of the following conditions unless waived by Validus:
(a) Representations and Warranties. (i) The representations and warranties of
IPC set forth in Section 3.8 shall be true and correct in all respects as of the date hereof
and the Closing Date as though made on and as of the Closing Date, (ii) the
representations and warranties of IPC set forth in Sections 3.2, 3.3(a), 3.9(a) (other than
in the case of a Change in IPC Recommendation pursuant to Section 5.4(b)), 3.10(b) and 3.22
shall be true and correct in all material respects as of the date hereof and the Closing
Date as though made on and as of the Closing Date (except for such representations and
warranties made only as of a specified date, which shall be true and correct in all material
respects as of such date) and (iii) each of the other representations and warranties of IPC
set forth in ARTICLE III of this Agreement shall be true and correct in all respects as of
the date hereof and the Closing Date as though made on and as of the Closing Date (except
for such representations and warranties made only as of a specified date, which shall be
true and correct as of such date), except where the failure of any such representations and
warranties to be true and correct (without giving effect to any materiality or Material
Adverse Effect or similar qualifier set forth therein) has not had, and would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect
on IPC.
(b) Performance of Obligations of IPC. IPC shall have performed or complied in
all respects with all agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are qualified as to materiality or Material
Adverse Effect, and shall have performed or complied in all material respects with all other
obligations required to be performed by it under this Agreement at or prior to the Closing
Date.
(c) Certification. Validus shall have received a certificate signed on behalf
of IPC by the Chief Executive Officer or the Chief Financial Officer of IPC, certifying that
the conditions set forth in Section 6.3(a) and Section 6.3(b) have been satisfied.
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(d) Burdensome Regulatory Condition. There shall not be any action taken, or
any Law enacted, entered, enforced or deemed applicable to the Amalgamation or the
transactions contemplated by this Agreement by any Governmental Entity of competent
jurisdiction (including any Requisite Regulatory Approval), which imposes any term,
condition, obligation or restriction upon Validus, the Amalgamated Company or their
respective subsidiaries that would, individually or the aggregate, reasonably be expected to
have a Material Adverse Effect on Validus and its subsidiaries (including the Amalgamated
Company and its subsidiaries) on a consolidated basis after the Effective Time.
(e) Opinion of Tax Counsel. Validus shall have received an opinion from Cahill
Gordon & Reindel LLP, special counsel to Validus, dated the Closing Date, to the effect
that, on the basis of the facts, representations and assumptions set forth or referred to in
such opinion, (i) the Amalgamation will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code, (ii)
each of IPC and Validus will be a party to that reorganization within the meaning of Section
368(b) of the Code and (iii) IPC will be treated, in respect of any shareholder who
will own after the Amalgamation less than five percent of the issued IPC Common Shares (as
determined under Treasury Regulations Section 1.367(a)-3(b)(1)(i)), as a corporation under
Section 367(a) of the Code with respect to each transfer of property thereto pursuant to the
Amalgamation. In rendering its opinion, Cahill Gordon & Reindel LLP may require and rely
upon representations contained in letters from each of IPC and Validus.
(f) Credit Facility Waivers. All amendments or waivers under (x) IPCs credit
facilities and (y) Validus credit facilities, in each case, as determined by Validus to be
necessary to consummate the Amalgamation and the other transactions contemplated hereby,
shall be in full force and effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated, at any time prior to the
Effective Time, by action taken or authorized by the board of directors of the terminating party
or parties, whether before or after any Required Shareholder Vote has been obtained only:
(a) by mutual consent of IPC, Amalgamation Sub and Validus in a written instrument;
(b) by either IPC or Validus, upon written notice to the other party, if a Governmental
Entity of competent jurisdiction that must grant a Requisite Regulatory Approval has denied
such Requisite Regulatory Approval and such denial has become final and non-appealable; or
any Governmental Entity of competent jurisdiction shall have issued an order, judgment,
decision, decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Amalgamation, and such order, decree, ruling or other action has
become final and non-appealable; provided that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose failure to comply in any
material respect with Section 5.3 or any other provision of this Agreement has been the
direct cause of, or resulted directly in, such action;
(c) by either IPC or Validus, upon written notice to the other party, if the
Amalgamation shall not have been consummated on or before the later of (x) November 30, 2009
or (y) the date that is five months after the date of execution of this Agreement by all
parties; provided that the right to terminate this Agreement under this Section
7.1(c) shall not be available to any party
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whose failure to comply in any material respect with any provision of this Agreement
has been the direct cause of, or resulted directly in, the failure of the Effective Time to
occur on or before such date;
(d) by IPC or Validus, upon written notice to the other party, if the non-terminating
partys board of directors shall have (i) effected a Change in Validus
Recommendation or Change in IPC Recommendation, as the case may be (including by amending or
supplementing the Joint Proxy Statement/Prospectus to effect a Change in Validus
Recommendation or Change in IPC Recommendation, as the case may be), (ii) failed to
include the Validus Recommendation or IPC Recommendation, as the case may be, in the Joint
Proxy Statement/Prospectus in accordance with Section 5.1(b) or 5.1(c), or (iii)
with respect to IPC only, materially breached its obligations under Section 5.5(a)(iii)
or 5.5(d);
(e) by either IPC or Validus if the terminating party is not in material breach of its
obligations under this Agreement, upon written notice to the other party, if there shall
have been a breach by the other party of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part of such other party,
which breach would, individually or in the aggregate, result in, if occurring or continuing
on the Closing Date, the failure of the conditions set forth in Section 6.2(a) or 6.2(b) or
Section 6.3(a) or 6.3(b), as the case may be, and which breach has not been cured within 45
days following written notice thereof to the breaching party or, by its nature, cannot be
cured within such time period;
(f) by either IPC or Validus, if the Required IPC Vote or Required Validus Vote shall
not have been obtained upon a vote taken thereon at the duly convened IPC Shareholders
Meeting or Validus Shareholders Meeting, as the case may be, or any adjournment or
postponement thereof at which the applicable vote was taken;
(g) by Validus, if the total number of Dissenting Shares exceeds 15% of the issued and
outstanding IPC Common Shares on the business day immediately following the last day on
which the holders of IPC Common Shares can require appraisal of their IPC Common Shares
pursuant to Bermuda Law;
(h) by IPC, after the IPC Shareholders Meeting, if (i) IPC is a Requesting
Party and (ii) it is determined, in accordance with Section 5.16, that (A)
Validus has experienced a 50% Book Value Decline or (B) there is a 20% Differential
Book Value Decline and Validuss book value has declined by a greater percentage than IPCs
book value; or
(i) by Validus, after the Validus Shareholders Meeting, if (i) Validus is a
Requesting Party and (ii) it is determined, in accordance with Section 5.16, that
(A) IPC has experienced a 50% Book Value Decline or (B) there is a 20%
Differential Book Value Decline and IPCs book value has declined by a greater percentage
than Validuss book value.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Validus or IPC as provided in
Section 7.1, this Agreement shall forthwith become void, and there shall be no liability or
obligation on the part of IPC, Amalgamation Sub or Validus or their respective officers or
directors under or arising from this Agreement, except with respect to Section 5.2(b)
(Confidentiality), Section 5.7 (Fees and Expenses), this Section 7.2 (Effect of Termination), and
ARTICLE VIII (General Provisions), which shall survive such termination, except that no party shall
be relieved or released from any liabilities or damages arising out of its willful breach of this
Agreement.
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(b) If IPC or Validus, as the case may be, terminates this Agreement pursuant to Section
7.1(d), then the non-terminating party shall, as promptly as reasonably practicable (and, in any
event, within three business days following such termination), pay to the terminating party, by
wire transfer of immediately available funds, $16,000,000 (the Termination Fee).
(c) If either party terminates this Agreement pursuant to Section 7.1(c), and (i)
prior to the later of (x) November 30, 2009 or (y) the date that is five months after the date of
execution of this Agreement by all parties, an Acquisition Proposal (which for the purposes of this
Section 7.2(c) shall apply to an Acquisition Proposal for either IPC or Validus) shall have been
publicly announced or otherwise communicated to the officers of the non-terminating party or its
board of directors, and (ii) within 12 months of the date of such termination of this
Agreement, the non-terminating party enters into or consummates an Acquisition Transaction with the
person (or its affiliate) that made such Acquisition Proposal, then the non-terminating party shall
pay to the terminating party upon the earlier of the date of such execution or such consummation,
by wire transfer of immediately available funds, the Termination Fee.
(d) If either party terminates this Agreement pursuant to Section 7.1(e) and (i) at any time
after the date of this Agreement and at or before the date of the Validus Shareholders Meeting (if
Validus is the non-terminating party) or the IPC Shareholders Meeting (if IPC is the
non-terminating party), as the case may be, an Acquisition Proposal (which for the purposes of this
Section 7.2(d) shall apply to an Acquisition Proposal for either IPC or Validus) shall have been
publicly announced or otherwise communicated to the officers of the non-terminating party or its
board of directors, and (ii) within 12 months of the date of such termination of this Agreement,
the non-terminating party enters into or consummates an Acquisition Transaction with the person (or
its affiliate) that made such Acquisition Proposal, then the non-terminating party shall pay to the
terminating party upon the earlier of the date of such execution or such consummation, by wire
transfer of immediately available funds, the Termination Fee.
(e) If IPC or Validus, as the case may be, terminates this Agreement pursuant to Section
7.1(f) because the Required Validus Vote has not been obtained (and, if IPC is the terminating
party, the Required IPC Vote has not been taken yet or has already been obtained), and if
(i) at any time on or after the date of this Agreement and at or before the date of the
Validus Shareholders Meeting, an Acquisition Proposal (which for the purposes of this Section
7.2(e) shall apply to an Acquisition Proposal for Validus) shall have been publicly announced or
otherwise communicated to the officers of Validus or Validuss board of directors, and (ii)
within 12 months of the date of such termination of this Agreement, Validus or any of its
subsidiaries enters into or consummates an Acquisition Transaction with the person (or its
affiliate) that made such Acquisition Proposal, then Validus shall pay the Termination Fee to IPC
upon the earlier of the date of such execution or such consummation.
(f) If IPC or Validus, as the case may be, terminates this Agreement pursuant to Section
7.1(f) because the Required IPC Vote has not been obtained (and, if Validus is the terminating
party, the Required Validus Vote has not been taken yet or has already been obtained) and (i) at
any time on or after the date of this Agreement and at or before the date of the IPC Shareholders
Meeting, an Acquisition Proposal (which for the purposes of this Section 7.2(f) shall apply to an
Acquisition Proposal for IPC) is publicly announced or otherwise communicated to the officers of
IPC or IPCs board of directors, and (ii) within 12 months of the date of such termination
of this Agreement, IPC or any of its subsidiaries enters into or consummates an Acquisition
Transaction with the person (or its affiliate) that made such Acquisition Proposal, then IPC shall
pay the Termination Fee to Validus upon the earlier of the date of such execution or such
consummation.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. Except for Section
5.8 and any provision of this ARTICLE VIII to the extent it is related to a claim under Section
5.8, none of the representations, warranties, covenants and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement, including any rights arising out of any breach of
such representations, warranties, covenants, and agreements, shall survive the Effective Time,
except for those covenants and agreements contained herein and therein that by their terms apply
or are to be performed in whole or in part after the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in writing and
shall be deemed duly given (a) on the date of delivery if delivered personally, or by
email, telecopy or facsimile, upon confirmation of receipt, (b) on the first business day
following the date of dispatch if delivered by a recognized next-day courier service, or
(c) on the third business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below or pursuant to such other instructions as may be designated in
writing by the party to receive such notice.
(a) If to IPC, to
IPC Holdings, Ltd.
29 Richmond Road
Pembroke HM 08
Bermuda
Attention: James P. Bryce
John R. Weale
Facsimile: +1 (441) 292-8085
with a copy to (which shall not constitute notice):
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Attention: Andrew S. Rowen, Esq.
Melissa Sawyer, Esq.
Facsimile: +1 (212) 558-3588
(b) If to Validus, to
Validus Holdings Ltd.
19 Par-La-Ville Road
Hamilton, HM 11
Bermuda
Attention: C. Jerome Dill
Joseph E. (Jeff) Consolino
Facsimile: +1 (441) 278-9000
with a copy to (which shall not constitute notice):
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Cahill Gordon & Reindel LLP
80 Pine Street
New York, NY 10005
Attention: John Schuster, Esq.
Facsimile: +1 (212) 701-3000
8.3 Interpretation. When a reference is made in this Agreement to sections or
subsections, such reference shall be to a section or subsection of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words include, includes or including are used in this Agreement, they shall be
deemed to be followed by the words without limitation. The words herein, hereof,
hereunder and words of similar import shall be deemed to refer to this Agreement as a whole,
including the schedules and exhibits hereto, and not to any particular provision of this
Agreement. Any pronoun shall include the corresponding masculine, feminine and neuter forms.
References to party or parties in this Agreement mean IPC, Amalgamation Sub and/or Validus, as
the case may be. References to person in this Agreement mean an individual, a company, a
corporation, a limited liability company, a partnership, an association, a trust or any other
entity or organization, including a government or political subdivision or any agency or
instrumentality thereof. References to subsidiary in this Agreement means, as to any person,
any other person of which more than 50% of the effective voting power or equity or other ownership
interests is directly or indirectly owned by such person. References to affiliate in this
Agreement means, as to any person, any other person which, directly or indirectly, controls, or is
controlled by, or is under common control with, such person. As used in this Agreement, control
(including, with its correlative meanings, controlled by and under common control with) means
the possession, directly or indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the ownership of securities or partnership or
other ownership interests, by contract or otherwise. As used in this Agreement, knowledge means
the actual knowledge, without due inquiry, of the officers of Validus set forth in Section 8.3 of
the Validus Disclosure Letter or the officers of IPC set forth in Section 8.3 of the IPC
Disclosure Letter, as the case may be. References to US dollar, dollars, US$ or $ in this
Agreement are to the lawful currency of the United States of America. As used in this Agreement,
business day means any day other than a Saturday, Sunday or other day on which banking
institutions in New York or Bermuda are obligated by Law or executive order to be closed.
8.4 Counterparts. This Agreement may be executed in separate counterparts, each of
which shall be considered one and the same agreement and shall become effective when each of the
parties has delivered a signed counterpart to the other parties, it being understood that all
parties need not sign the same counterpart. Such counterpart executions may be transmitted to the
parties by facsimile or electronic transmission, which shall have the full force and effect of an
original signature.
8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the
Validus Disclosure Letter and the IPC Disclosure Letter) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof which shall survive the execution and delivery of this
Agreement and shall terminate in accordance with its terms and (b) is not intended to
confer upon any person other than the parties any rights or remedies hereunder, except (i) for the
rights of the holders of IPC Common Shares to receive the Amalgamation Consideration pursuant to
and subject to this Agreement if the Effective Time occurs, and (ii) as provided in
Section 5.8(c).
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8.6 Governing Law. This Agreement shall be governed in all respects, including as to
validity, interpretation and effect, by the Laws of Bermuda, without giving effect to its
principles or rules of conflict of laws.
8.7 Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability and, unless the effect of such invalidity or unenforceability
would prevent the parties from realizing the major portion of the economic benefits of the
Amalgamation that they currently anticipate obtaining therefrom, shall not render invalid or
unenforceable the remaining terms and provisions of this Agreement or affect the validity or
enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations of the parties hereunder shall be assigned by any of the parties (whether by operation
of Law or otherwise) without the prior written consent of the other parties, which may be granted
or withheld in the sole discretion of the other parties. Any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns.
8.9 Enforcement. The parties agree that money damages would be both incalculable and
an insufficient remedy and that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their specific terms on a
timely basis or were otherwise breached. It is accordingly agreed that, subject to the discretion
of the Chosen Court (as defined in Section 8.10), the parties shall be entitled to an injunction
or other equitable relief to prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement in any court identified in Section 8.10, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.10 Submission to Jurisdiction. Each party irrevocably and unconditionally
consents, agrees and submits to the exclusive jurisdiction of the Bermuda Supreme Court (and
appropriate appellate courts therefrom) (the Chosen Courts), for the purposes of any
litigation, action, suit or other proceeding arising out of or relating to this Agreement or any
transaction contemplated hereby. Each party agrees to commence any litigation, action, suit or
proceeding relating hereto only in the Bermuda Supreme Court, or if such litigation, action, suit
or other proceeding may not be brought in such court for reasons of subject matter jurisdiction,
in the other appellate courts therefrom or other courts of Bermuda. Each party irrevocably and
unconditionally waives any objection to the laying of venue of any litigation, action, suit or
proceeding arising out of this Agreement or the transactions contemplated hereby in the Chosen
Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum. Each party further irrevocably consents to and grants any such
court jurisdiction over the person of such parties and, to the extent legally effective, over the
subject matter of any such dispute and agrees that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section 8.2 or in such
other manner as may be permitted by Law, shall be valid and sufficient service thereof. The
parties agree that a final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by
Law.
8.11 Amendment. This Agreement may be amended by the parties, by action taken or
authorized by their respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Amalgamation by the shareholders of Validus or of IPC,
but, after any
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such approval, no amendment shall be made which by Law requires further approval by such
shareholders without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties by their duly authorized
representatives.
8.12 Extension; Waiver. At any time prior to the Effective Time, the parties may, to
the extent legally allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any
of the agreements or conditions contained herein. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. The failure of a party to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights. No single or partial exercise of any
right, remedy, power or privilege hereunder shall preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. Any waiver shall be effective
only in the specific instance and for the specific purpose for which given and shall not
constitute a waiver to any subsequent or other exercise of any right, remedy, power or privilege
hereunder.
8.13 Defined Terms.
(a) For purposes of this Agreement, each of the following terms shall have the meaning set
forth below.
Acquisition Transaction means with respect to any person, any amalgamation, merger,
reorganization, share exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving it or any of its subsidiaries or any purchase or sale
of 35% or more of the consolidated assets (including, without limitation, stock of its
subsidiaries) of it and its subsidiaries, taken as a whole, or any purchase or sale of, or tender
or exchange offer for, its voting securities that, if consummated, would result in any person (or
the shareholders of such person) beneficially owning securities representing 35% or more of its
total voting power or the voting power of any of its subsidiaries.
Average Validus Share Price means the volume weighted average price per Validus
Common Share on the NYSE (as reported by Bloomberg L.P. or, if not reported thereby, by another
authoritative source mutually agreed by the parties) for the five consecutive trading days
immediately preceding the second trading day prior to the Closing Date. For all purposes of this
Agreement, the Average Validus Share Price shall be calculated to the nearest one-hundredth of one
cent.
Compensation and Benefit Plan means any pension, retirement, profit-sharing,
deferred compensation, stock option, restricted stock unit, equity-based compensation, performance
units, employee stock ownership, severance pay, vacation, retention or other bonus or incentive
plan, any other employee program or agreement, any medical, vision, dental, or other health plan,
any life insurance plan, and any other employee benefit plan or fringe benefit plan, whether or not
tax-qualified or otherwise tax-preferred, maintained by, sponsored in whole or in part by, or
contributed to by IPC or Validus or their subsidiaries, as the case may be, for the benefit of
their employees, former employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which such employees, former employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to
participate and any employment, retention, change in control, severance, termination, consulting or
retirement agreement with their current or former employees.
IM Agreement means the Agreement and Plan of Amalgamation, dated as of March 1,
2009, between IPC, IPC Limited, a Bermuda exempted company and Max Capital Group Ltd., a Bermuda
exempted company, as amended on March 5, 2009.
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Intellectual Property means (i) trademarks, service marks, Internet domain
names, logos, trade dress, trade names, corporate names and any and every other form of trade
identity or indicia of origin, and the goodwill associated therewith and symbolized thereby;
(ii) inventions, discoveries and patents, and the improvements thereto; (iii)
published and unpublished works of authorship and the copyrights therein and thereto (including
databases and other compilations of information, computer and electronic data processing programs
and software, in both source code and object code); (iv) trade secrets, confidential
business and technical information and any other confidential information (including ideas,
research and development, know-how, formulae, calculations, algorithms, models, designs, processes,
business methods, customer lists and supplier lists) (Trade Secrets); (v) all
rights in data and data bases; (vi) all other intellectual property or similar proprietary
rights; and (vii) all applications, registrations and renewals for the foregoing.
IPC Benefit Plan means only those Compensation and Benefit Plans maintained by,
sponsored in whole or in part by, or contributed to by IPC or its subsidiaries for the benefit of
their employees, former employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which such employees, former employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to
participate or with respect to which IPC or any of its subsidiaries has any liability.
Material Adverse Effect means, with respect to any party, any change, state of
facts, circumstance, event or effect that is materially adverse to (A) the financial
condition, properties, assets, liabilities, obligations (whether accrued, absolute, contingent or
otherwise), businesses or results of operations of such party and its subsidiaries, taken as a
whole, excluding any such change, state of facts, circumstance, event or effect to the extent
caused by or resulting from:
(i) the execution, delivery and announcement of this Agreement and the transactions
contemplated hereby,
(ii) 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 Bermudian, U.S. or global financial markets,
(iii) changes, circumstances or events generally affecting the property and casualty
insurance and reinsurance industry in the geographic areas in which such party operates,
(iv) 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,
(v) changes in any Law,
(vi) 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 (GAAP and Applicable SAP,
respectively), including accounting and financial reporting pronouncements by the Bermuda
Monetary Authority, the Securities and Exchange Commission (the SEC), the National
Association of Insurance Commissioners and the Financial Accounting Standards Board,
(vii) any change or announcement of a potential change in its or any of its
subsidiaries credit or claims paying rating or A.M. Best rating or the ratings of any of
its or its subsidiaries businesses or securities (provided that this exception
shall not prevent or otherwise affect a
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determination that any changes, state of facts, circumstances, events or effects
underlying a change described in this clause (vii) has resulted in, or contributed to, a
Material Adverse Effect),
(viii) a change in the trading prices or volume of such partys capital stock
(provided that this exception shall not prevent or otherwise affect a determination
that any changes, state of facts, circumstances, events or effects underlying a change
described in this clause (viii) has resulted in, or contributed to, a Material Adverse
Effect),
(ix) the failure to meet any revenue, earnings or other projections, forecasts or
predictions for any period ending after the date of this Agreement (provided that
this exception shall not prevent or otherwise affect a determination that any state of
facts, circumstances, events or effects underlying a failure described in this clause (ix)
has resulted in, or contributed to, a Material Adverse Effect),
(x) the commencement, occurrence or continuation of any war or armed hostilities, or
(xi) any action or failure to act required to be taken by a party pursuant to the terms
of this Agreement,
except in the case of the foregoing clauses (ii), (iii), (v), (vi) and (x) to the extent those
changes, state of facts, circumstances, events, or effects have a materially disproportionate
effect on such party and its subsidiaries taken as a whole relative to other similarly situated
persons in the property and casualty insurance and reinsurance industry,
and/or (B) the ability of such party to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby on a timely basis.
Permitted Encumbrance means (i) statutory liens securing payments not yet
due, (ii) such imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances as do not affect the use of the properties or assets subject thereto or
affected thereby or otherwise impair business operations at such properties, (iii)
restrictions on transfer imposed by Law, (iv) assets pledged or transferred to secure
reinsurance or retrocession obligations, (v) ordinary-course securities lending and
short-sale transactions, (vi) investment securities held in the name of a nominee,
custodian or other record owner, (vii) statutory deposits, or (viii) any failure to
hold good title, in each case, that would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect.
Tax means (i) all federal, state, local or foreign taxes, charges, fees,
imposts, levies or other assessments, including all income, gross receipts, capital, sales, use, ad
valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, premium, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever,
(ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any
Taxing Authority in connection with any item described in clause (i), and (iii) any
transferee liability in respect of any items described in clauses (i) or (ii)
payable by reason of contract, assumption, transferee liability, operation of Law, Treasury
Regulation Section 1.1502-6(a) (or any predecessor or successor thereof of any analogous or similar
provision under Law) or otherwise.
Tax Asset means any loss, net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction, or any other credit or Tax attribute that could
be carried forward or carried back to reduce Taxes.
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Tax Return means any return, report or statement filed or required to be filed with
respect to any Tax (including any elections, declarations, schedules or attachments thereto, and
any amendment thereof) including any information return, claim for refund, amended return or
declaration of estimated Tax, and including, where permitted or required, combined, consolidated or
unitary returns for any group of entities that includes IPC, Validus or any subsidiaries thereof.
Taxing Authority means the Internal Revenue Service or any other Governmental Entity
responsible for the administration of any Tax.
Validus Benefit Plan means only those Compensation and Benefit Plans maintained by,
sponsored in whole or in part by, or contributed to by Validus or its subsidiaries for the benefit
of their employees, former employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which such employees, former employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to
participate or with respect to which Validus or any of its subsidiaries has any liability.
(b) Each of the following terms is defined in the provision listed opposite such term:
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Defined Term |
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Section |
20% Differential Book Value Decline
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5.16(e) |
50% Book Value Decline
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5.16(d) |
Acquisition Proposal
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5.5(a)(i) |
Acquisition Transaction
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8.13(a) |
Administrator
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3.12(h) |
affiliate
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8.3 |
Agent
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3.12(h) |
Agreement
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Introduction |
Amalgamated Company
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1.3 |
Amalgamation
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Recitals |
Amalgamation Agreement
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1.1 |
Amalgamation Application
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1.1 |
Amalgamation Consideration
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2.1(a) |
Amalgamation Sub
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Introduction |
Applicable SAP
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8.13(a) (See Material Adverse Effect) |
Average Validus Share Price
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8.13(a) |
Book Value Estimate
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5.16(a) |
business day
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8.3 |
Change in Validus Recommendation
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5.4(a) |
Change in IPC Recommendation
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5.4(a) |
Chosen Courts
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8.10 |
Closing
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1.2 |
Closing Date
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1.2 |
Code
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Recitals |
Companies Act
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Recitals |
Compensation and Benefit Plan
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8.13(a) |
control
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8.3 |
Disclosure Letter
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ARTICLE III |
Dissenting Shareholder
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2.1(c) |
Dissenting Shares
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2.1(c) |
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Defined Term |
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Section |
Effective Time
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1.1 |
Employees
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5.12(b) |
ERISA
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3.15(e) |
Exchange Act
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3.4(a) |
Exchange Agent
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2.2(a) |
Exchange Fund
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2.2(a) |
Exchange Ratio
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2.1(a) |
Financing
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4.2(a) |
Form S-4
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5.1(a) |
GAAP
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8.13(a) (See Material Adverse Effect) |
Governmental Entity
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3.3(c) |
Greenhill
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3.19 |
IM Agreement
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8.13(a) |
Indemnified Parties
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5.8(a) |
Insurance Entities
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3.12(a) |
Insurance Laws
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3.5(a) |
Intellectual Property
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8.13(a) |
Investment Assets
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3.13(a) |
Investment Policy
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3.13(c) |
IPC
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Introduction |
IPC Benefit Plan
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8.13(a) |
IPC Bye-Law Amendment
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3.9(a) |
IPC Certificate
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2.1 |
IPC Common Share
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2.1 |
IPC Disclosure Letter
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ARTICLE III |
IPC Non-Performance Awards
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2.3(b) |
IPC Other Awards
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2.3(b) |
IPC Performance Awards
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2.3(b) |
IPC Recommendation
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3.9(a) |
IPC Share Option
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2.3(a) |
IPC Share Plans
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3.2(a) |
IPC Share Register
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2.1 |
IPC Shareholders Meeting
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5.1(c) |
Joint Proxy Statement/Prospectus
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5.1(a) |
JP Morgan
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3.19 |
knowledge
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8.3 |
Laws
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3.5(a) |
Legal Proceedings
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3.6 |
Listed Validus Common Shares
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5.13 |
Lloyds
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3.5(a) |
Lloyds Regulations
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3.12(m) |
Material Adverse Effect
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8.13(a) |
Material Contract
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3.14(a) |
Measurement Date
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5.16(a) |
multiemployer plan
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3.15(e) |
New Option
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2.3(a) |
Non-Requesting Party
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5.16(a) |
Non-Vested PSU
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2.3(b) |
Notice of Superior Proposal
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5.5(d) |
Notice Period
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5.5(d) |
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Defined Term |
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Section |
NYSE
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2.1(a) |
party; parties
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8.3 |
Permits
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3.5(a) |
Permitted Encumbrance
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8.13(a) |
person
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8.3 |
Policies
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3.12(g) |
Registrar
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1.1 |
Reinsurance Agreements
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3.12(e) |
Representatives
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5.2(b) |
Requesting Party
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5.16(a) |
Required IPC Vote
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3.10(b) |
Required Shareholder Votes
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3.10(b) |
Required Validus Vote
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3.10(a) |
Requisite Regulatory Approvals
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6.1(c) |
SEC
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8.13(a) (See Material Adverse Effect) |
SEC Documents
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3.4(a) |
Securities Act
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3.4(a) |
Share Issuance
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Recitals |
Statutory Statements
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3.12(b) |
subsidiary
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8.3 |
Superior Proposal
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5.5(f) |
Tax
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8.13(a) |
Tax Asset
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8.13(a) |
Tax Return
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8.13(a) |
Taxing Authority
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8.13(a) |
Termination Fee
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7.2(b) |
Trade Secrets
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8.13(a) (See Intellectual Property) |
Underwriting Model
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3.17(c) |
Validus
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Introduction |
Validus Benefit Plan
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8.13(a) |
Validus Common Share
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2.1(a) |
Validus Disclosure Letter
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ARTICLE III |
Validus Recommendation
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3.9(b) |
Validus Share Plans
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3.2(a) |
Validus Shareholders Meeting
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5.1(b) |
Voting Debt
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3.2(d) |
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, IPC, Amalgamation Sub and Validus have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first set forth above.
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IPC HOLDINGS, LTD.
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By: |
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Name: |
James P. Bryce |
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Title: |
Chief Executive Officer |
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VALIDUS HOLDINGS, LTD.
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By: |
/s/ Edward J. Noonan
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Name: |
Edward J. Noonan |
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Title: |
Chairman and Chief Executive
Officer
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VALIDUS LTD |
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By: |
/s/ Joseph E. (Jeff) Consolino
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Name: |
Joseph E. (Jeff) Consolino |
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Title: |
Chief Financial Officer |
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Exhibit A
DATED [l], 2009
VALIDUS LTD. [AMAL 1]
IPC HOLDINGS, LTD. [AMAL 2]
AMALGAMATION AGREEMENT
THIS AMALGAMATION AGREEMENT is made as of [l], 2009 BETWEEN:
(1) Validus Ltd., a company incorporated under the laws of Bermuda having its
registered office at 19 Par-La-Ville Road, Hamilton, Bermuda (hereinafter called AMAL 1);
and
(2) IPC Holdings, Ltd., a company also incorporated under the laws of Bermuda having
its registered office at 29 Richmond Road, Pembroke, Bermuda (hereinafter called AMAL 2).
WHEREAS:
(A) AMAL 1 was incorporated under the laws of Bermuda pursuant to the Companies Act
1981, as evidenced by a memorandum of association dated [l], 2009 and is a company in
good standing with the laws of Bermuda;
(B) AMAL 2 was incorporated under the laws of Bermuda pursuant to the Companies Act
1981, as evidenced by a memorandum of association dated May 17, 1993 and is a company in
good standing under the laws of Bermuda;
(C) AMAL 1 and AMAL 2, acting under the authority contained in Section 104 of the
Companies Act 1981, have each, by a special general meeting of their Members held on
[l], 200[l], agreed to amalgamate upon the terms and conditions hereinafter set
out;
(D) AMAL 1 and AMAL 2 have each made full disclosure to the other of all their
respective assets and liabilities;
(E) AMAL 1 has an authorised and issued share capital of [l] consisting of
[l] ordinary shares having a par value of [l], all of which are fully paid;
(F) AMAL 2 has an authorised and issued share capital of [l] consisting of
[l] ordinary shares having a par value of [l], all of which are fully paid;
(G) It is desired by the parties that the said amalgamation shall be effected.
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1. In this Agreement:
Amalgamating Companies means AMAL 1 and AMAL 2, the parties hereto;
Amalgamated Company means the Company continuing from the amalgamation of the
Amalgamating Companies;
Amalgamation Agreement or Agreement means this Amalgamation Agreement;
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the Act means the Companies Act 1981, as amended up to and including the date of
this Agreement; and
the Effective Date means [l], 2009, which date is deemed to be the Effective
Date of Amalgamation.
2. Each of the Amalgamating Companies does hereby agree to amalgamate, as of the close
of business on the Effective Date, under the provisions of the Act and to continue as one
company under the terms and conditions hereinafter set out.
3. The name of the Amalgamated Company shall be Validus Ltd. (that is, the present
name of AMAL 1) and the registered office of the Amalgamated Company shall be 19
Par-La-Ville Road, Hamilton, HM 11, Bermuda.
4. The Amalgamated Company shall be governed by the Memorandum of Association of AMAL
1.
5. The Bye-Laws of the Amalgamated Company shall, to the extent that they are not
inconsistent with this Agreement, be the Bye-Laws of AMAL 1, until repealed, amended or
altered.
6. The Board of Directors of the Amalgamated Company (the Board of Directors) shall
consist of not more than [l] directors, and the first directors of the Amalgamated
Company shall be the persons whose names and addresses are set out in Schedule 1, attached
hereto, who shall hold office until the first annual meeting of the Amalgamated Company or
until their successors are elected or appointed.
7. The management and supervision of the business and affairs of the Amalgamated
Company shall be under the control of the Board of Directors from time to time subject to
the provisions of the Act and the Bye-Laws of the Amalgamated Company.
8. The Amalgamated Company shall have a minimum share capital of [l] and an
authorised share capital of [l] divided into [l] shares having a par value of
[l] each, having all the rights, conditions, restrictions and limitations set out in
the Bye-Laws of the Amalgamated Company. Such shares shall be allotted or issued to the
Shareholders of the Amalgamated Company on the basis set out in the attached Schedule 2.
9. After the issue of the Certificate of Amalgamation giving effect to the Amalgamation
contemplated by this Agreement, the Shareholders of the Amalgamating Companies shall, at the
request of the Amalgamated Company, surrender the certificates evidencing the shares held by
them in the Amalgamating Companies and, in return, shall be entitled to receive certificates
representing shares of the Amalgamated Company on the basis set out in the attached Schedule
B.
10. AMAL 1 shall contribute to the Amalgamated Company all its property and assets,
subject to all its liabilities, as more particularly set out in the balance sheet of AMAL 1
as of [l], 200[l], subject to changes occurring since that date in the ordinary
course of business.
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11. AMAL 2 shall contribute to the Amalgamated Company all its property and assets,
subject to all its liabilities, as more particularly set out in the balance sheet of AMAL 2
as of [l], 200[l], subject to changes occurring since that date in the ordinary
course of business.
12. The Amalgamated Company shall possess all the property, assets, rights and
privileges and shall be subject to all the contracts, liabilities, debts and obligations of
the Amalgamating Companies.
13. All the rights of creditors against the property, assets, rights and privileges of
the Amalgamating Companies and all liens upon their property, rights and assets shall be
unimpaired by such amalgamation and all debts, contracts, liabilities and duties of the
Amalgamating Companies shall henceforth attach to and may be enforced against the
Amalgamated Company.
14. No action or proceeding by or against the Amalgamating Companies shall abate or be
affected by such amalgamation but, for the purposes of such action or proceeding, the name
of the Amalgamated Company shall be substituted in such action or proceeding in place of
AMAL 1 and AMAL 2.
15. AMAL 1 and AMAL 2 agree to execute and do all such acts deeds and things as shall
or may be necessary to give effect to their respective undertakings pursuant to this
Agreement.
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Schedule 1 - Board of Directors of Amalgamated Company
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Schedule 2
1. Total Common Shares to be issued by Amalgamated Company
[[l] (insert number of shares in words) Common Shares of the par value $[l]
([l] dollar) each.]
2. Share Issuance Methodology
[Each Shareholder of AMAL 1 will receive one share of Common Stock of the Amalgamated Company
for each share of Common Stock of AMAL 1 which he holds. The Shareholders of AMAL 2 will receive
no shares in the Amalgamated Company and each of their shares in AMAL 2 (irrespective of class)
will be cancelled.]
3. Valuation of Shares in the Amalgamated Company
[Each share of the Amalgamated Company shall be entitled to a pro rata share of the assets of
the Amalgamated Company net of the accumulated liabilities of the Amalgamated Company, as
determined from time to time.]
IN WITNESS WHEREOF this Agreement has been duly executed by the parties hereto under their
respective seals as witnessed by the signatures of their proper officers.
The Common Seal of AMAL 1 )
is hereunto affixed in the presence )
of: )
The Common Seal of AMAL 2 )
is hereunto affixed in the presence )
of: )
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Exhibit E
IPC Bye-Law Amendment
The following shall be inserted as bye-law 100 under the caption MEMBER VOTE TO APPROVE
AN AMALGAMATION:
90. Amalgamation
A resolution proposed for consideration at a general meeting to approve the amalgamation of the
Company with any other company shall require the affirmative vote of a majority of the votes cast
by Members present or represented by proxy and voting at such general meeting and the quorum for
such general meeting shall be as set out in Bye-Law 39.
Exhibit F
Supplement to Section 4.1 of IPC Disclosure Letter
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IPC shall be permitted to pay to Max Capital Group Ltd. the termination fee
required to be paid by IPC to Max Capital Group Ltd. under the IM Agreement, using
(i) cash on hand or (ii) the proceeds of (x) indebtedness incurred under its existing
credit facility or (y) other unsecured indebtedness reasonably acceptable to Validus,
or (iii) the proceeds from the sale of Investment Assets reasonably acceptable to
Validus. |
Annex B
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Greenhill & Co., LLC |
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300 Park Avenue |
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New York, NY 10022 |
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(212) 389-1500 |
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(212) 389-1700 Fax |
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CONFIDENTIAL
March 31, 2009
Board of Directors
Validus Holdings, Ltd.
19 Par-La-Ville Road
Hamilton, Bermuda HM 11
Members of the Board of Directors:
We understand that Validus Holdings, Ltd. (the Parent) and Validus Ltd. (the Amalgamation
Subsidiary) propose to execute and deliver to IPC Holdings, Ltd. (the Company) an Agreement and
Plan of Amalgamation (the Amalgamation Agreement), which would provide, among other things, for
the amalgamation (the Amalgamation) of the Company with the Amalgamation Subsidiary, a wholly
owned subsidiary of the Parent. In the Amalgamation, each issued and outstanding share of common
stock, par value $0.01 per share, of the Company (the Company Common Stock), other than shares of
Company Common Stock that are owned by Parent or any of its subsidiaries and Dissenting Shares (as
defined in the Amalgamation Agreement), shall be cancelled and converted into the right to receive
a number of shares of common stock, par value $0.175 per share, of the Parent (the Parent Common
Shares) equal to the Exchange Ratio (as defined in the Amalgamation Agreement), together with any
cash paid in lieu of fractional shares in accordance with the terms of the Amalgamation Agreement.
The terms and conditions of the Amalgamation are more fully set forth in the Amalgamation
Agreement.
The Company, IPC Limited, a wholly owned subsidiary of the Company, and Max Capital Group Ltd.
entered into an Agreement and Plan of Amalgamation, dated as of March 1, 2009, and an amendment
thereto dated as of March 5, 2009.
You have asked for our opinion as to whether, as of the date hereof, the Exchange Ratio pursuant to
the Amalgamation Agreement is fair, from a financial point of view, to the Parent.
For purposes of the opinion set forth herein, we have:
1. reviewed the Amalgamation Agreement dated as of the date hereof as executed by Parent and the
Amalgamation Subsidiary (but not the Company as of the date hereof), and certain related documents;
2. reviewed certain publicly available financial statements of the Company and Parent;
3. reviewed certain other publicly available business and financial information relating to the
Company and Parent that we deemed relevant;
4. reviewed certain information, including financial forecasts and other financial and operating
data concerning the Parent prepared by the management of the Parent;
5. discussed the past and present operations and financial condition and the prospects of the
Parent with senior executives of the Parent;
6. reviewed the historical market prices and trading activity for the Company Common Stock and
Parent Common Shares and analyzed their implied valuation multiples;
7. compared the value of the consideration with that received in certain publicly available
transactions that we deemed relevant;
8. compared the value of the consideration with the trading valuations of certain publicly traded
companies that we deemed relevant;
9. compared the value of the consideration with the relative contribution of the Company to the pro
forma combined company based on a number of metrics that we deemed relevant; and
10. performed such other analyses and considered such other factors as we deemed appropriate.
However, given the unsolicited nature of the proposed Amalgamation with the Company, our review and
analysis of the Company and its business and financial information are necessarily limited to
information that is publicly available as of the date hereof. We have not reviewed financial
forecasts and other financial and operating data concerning the Company prepared by management of
the Company or other nonpublic information regarding the Company, nor have we participated in
discussions or negotiations among representatives of the Company and its legal or financial advisor
and representatives of the Parent or its legal advisor.
In giving our opinion, we have assumed and relied upon, without independent verification, the
accuracy and completeness of the information publicly available, supplied or otherwise made
available to us by representatives and management of the Parent for the purposes of this opinion
and have further relied upon the assurances of the representatives and management of the Parent
that they are not aware of any facts or circumstances that would make such information inaccurate
or misleading. With respect to the financial forecasts and projections and other data that have
been furnished or otherwise provided to us, we have assumed that such financial forecasts and
projections and other data were reasonably
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prepared on a basis reflecting the best currently available estimates and good faith judgments of
the management of the Parent as to those matters, and we have relied upon such financial forecasts
and projections and other data in arriving at our opinion. We express no opinion with respect to
such financial forecasts and projections and other data or the assumptions upon which they are
based. We have not made any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals. We have assumed, with your consent,
that the Amalgamation will be treated as a tax-free reorganization for federal income tax purposes.
We have assumed that the Amalgamation will be consummated in accordance with the terms set forth
in the final, fully executed Amalgamation Agreement, which we have further assumed will be
identical in all material respects to the proposed Amalgamation Agreement we have reviewed, and
without amendment or waiver of any material terms or conditions set forth in the Amalgamation
Agreement. We have further assumed that all material governmental, regulatory and other consents,
approvals and waivers necessary for the consummation of the Amalgamation will be obtained without
any effect on the Company, the Parent, the Amalgamation or the contemplated benefits of the
Amalgamation meaningful to our analysis. Our opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect this opinion, and we
do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Board of Directors of the Parent (the Board) in
connection with the Amalgamation and will receive a fee for services rendered in connection with
the Amalgamation, a portion of which is contingent on the consummation of the Amalgamation. In
addition, the Parent has agreed to indemnify us for certain liabilities arising out of our
engagement. During the two years preceding the date of this opinion, we have not been engaged by,
performed any services for or received any compensation from the Parent or any other parties to the
Amalgamation (other than any amounts that were paid to us under the letter agreement pursuant to
which we were retained as a financial advisor to the Parent in connection with the Amalgamation).
As of the date of this opinion, four merchant banking funds affiliated with Greenhill & Co., LLC
owned an aggregate of 2,571,427 Parent Common Shares, and certain employees of Greenhill & Co., LLC
and its affiliates have interests in one or more of such funds.
It is understood that this letter is for the information of the Board, and is rendered to the Board
in connection with its consideration of the execution and delivery of the Amalgamation Agreement
and may not be used for any other purpose without our prior written consent, except that this
opinion may, if required by law, be included in its entirety in any proxy or other information
statement or registration statement to be mailed to the stockholders of the Parent in connection
with the Amalgamation. We are not expressing an opinion as to any aspect of the Amalgamation,
other than the fairness to the Parent of the Exchange Ratio from a financial point of view. In
particular, we express no opinion as to the prices at which the Parent Common Shares will trade at
any future time. We express no opinion with respect to the amount or nature of any compensation to
any officers, directors or employees of the Parent, or any class of such persons relative to the
Exchange Ratio or
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with respect to the fairness of any such compensation. This opinion has been approved by our
fairness committee. This opinion does not address the underlying business decision of the Parent
to engage in the Amalgamation or the relative merits of the Amalgamation as compared to any other
alternative business strategies that might exist for the Parent and as such is not intended to be
and does not constitute a recommendation to the members of the Board as to whether they should
approve the Amalgamation, or the Amalgamation Agreement or any related matters. In addition, this
opinion is not intended to be and does not constitute a recommendation as to whether the
stockholders of the Parent should approve the issuance of the Parent Common Shares in the
Amalgamation or take any other action at any meeting of the shareholders of the Parent convened in
connection with the Amalgamation.
Based on and subject to the foregoing, including the limitations and assumptions set forth herein,
we are of the opinion that as of the date hereof the Exchange Ratio pursuant to the Amalgamation
Agreement is fair, from a financial point of view, to the Parent.
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Very best regards,
GREENHILL & CO., LLC
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By: |
/s/ Robert F. Greenhill
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Robert F. Greenhill |
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Managing Director |
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IMPORTANT
If your shares are held in your own name, please sign, date and return the enclosed proxy card
today. If your shares are held in Street-Name, only your broker or bank can vote your shares and
only upon receipt of your specific instructions. Please return the enclosed proxy card to your
broker or bank and contact the person responsible for your account to ensure that a proxy card is
voted on your behalf.
If you have any questions or need assistance, please contact:
Georgeson Inc.
199 Water Street, 26th Floor
New York, New York 10038
Banks and Brokerage Firms Please Call: (212) 440-9800
All Others Please Call Toll Free: (888) 274-5146
Email inquiries: validus@georgeson.com
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YOUR VOTE IS IMPORTANT Please complete, date, sign and mail your proxy card in the envelope
provided as soon as possible. TO VOTE BY MAIL, PLEASE DETACH PORXY CARD HERE PROXY VALIDUS
HOLDINGS, LTD. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned holder
of voting common shares, $0.175 par value per share (the Validus Shares), of Validus Holdings,
Ltd. hereby appoints Edward J. Noonan or, failing him, C. Jerome Dill to be its proxy and to vote
for the undersigned on all matters arising at the Validus Special Meeting of Shareholders of
Validus Shares or any adjournment thereof, and to represent the undersigned at such meeting or any
adjournment thereof to be held at , Atlantic Time, on , 2009 at the registered office of Validus
Holdings, Ltd. at 19 Par-La-Ville Road located in Hamilton, Bermuda. THE SHARES REPRESENTED HEREBY
WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED HEREIN. IF A SIGNED PROXY CARD IS RETURNED AND NO
INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE PROPOSALS ON THE REVERSE HEREOF, ALL SAID
ITEMS BEING FULLY DESCRIBED IN THE NOTICE OF SUCH MEETING, DATED , 2009, AND THE ACCOMPANYING PROXY
STATEMENT, RECEIPT OF WHICH ARE ACKNOWLEDGED. THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID
PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF. (Continued and to be marked, dated
and signed, on the other side) CG&R DRAFT: 4/15/09 12:02 PM #985638 v1 (2H601.DOC) |
THERE ARE THREE WAYS TO AUTHORIZE THE PROXIES TO CAST YOUR VOTES Your telephone or Internet
vote authorizes the named proxies to vote your shares in the same manner as if you had returned
your proxy card. We encourage you to use these cost effective and convenient ways of voting, 24
hours a day, 7 days a week. TELEPHONE VOTING INTERNET VOTING VOTING BY MAIL On a touch tone
telephone, call TOLL Visit the Internet website at Simply complete, sign and date your proxy FREE
(866) 367-5524, 24 hours a day, 7 http://proxy.georgeson.com. Enter the card and return it in the
postage-paid days a week. You will asked to enter COMPANY NUMBER and CONTROL envelope. If you are
using telephone or ONLY the CONTROL NUMBER shown NUMBER shown below and follow the the Internet,
please do not mail your proxy below. Have your instruction card ready, instructions on your screen.
You will incur card. and then follow the prerecorded instruconly your usual Internet charges. This
tions. Your instructions will be confirmed method is available until 11:59 p.m., East- and votes
cast as you direct. This method ern Daylight Time on , 2009. is available until 11:59 p.m., Eastern
Daylight Time on , 2009. COMPANY NUMBER CONTROL NUMBER THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE PROPOSALS BELOW. Vote on Proposal For Against Abstain (1) To approve the issuance of
voting common shares, $0.175 par value per share, of Validus Holdings, Ltd., in connection with the
acquisition of all of the outstanding shares of IPC Holdings, Ltd. Pursuant to the amalgamation
agreement (as defined in the enclosed proxy statement) or otherwise. (THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR) (2) To adjourn or postpone the Validus Special Meeting of Shareholders of
Validus Shares, in the proxies discretion, to solicit additional proxies. (THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR) In their discretion, the proxies are authorized to vote and otherwise
represent the undersigned on such other matters as may properly come before the Validus Special
Meeting of Shareholders of Validus Shares or any adjournment or postponement thereof. Please sign
exactly as your name(s) appear(s) hereon. If you are acting as an attorney-in-fact, corporate
officer, or in a fiduciary capacity, please indicate the capacity in which you are signing.
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date CG&R DRAFT: 4/15/09 12:02 PM
#985638 v1 (2H601.DOC) |