424B2
The information in
this preliminary prospectus supplement is not complete and may
be changed. This preliminary prospectus supplement and the
accompanying prospectus are not an offer to sell and do not seek
an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
|
Filed
Pursuant to Rule 424(b)(2)
Registration
No. 333-152856
Subject
to Completion, Dated January 20, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT
(To prospectus dated August 7, 2008)
$
Validus Holdings,
Ltd.
% Senior
Notes due 2040
We are offering
$
aggregate principal amount of
our % senior notes due 2040,
which we refer to as the notes. The notes offered
hereby will mature
on ,
2040. Interest on the notes is payable
on
and
of each year,
beginning ,
2010. The notes will be issued in minimum denominations of
$2,000 and integral multiples of $1,000 in excess thereof.
We may redeem the notes in whole at any time, or in part from
time to time, at a make-whole redemption price described in this
prospectus supplement. We may redeem the notes in whole, but not
in part, at any time upon the occurrence of certain tax events
as described in this prospectus supplement.
The notes will be our unsecured and unsubordinated obligations
and will rank equally in right of payment with all our existing
and future unsecured and unsubordinated indebtedness. The notes
will be effectively junior to all our future secured debt, to
the extent of the value of the collateral securing such debt,
and will rank senior to all our existing and future subordinated
debt. The notes will be structurally subordinated to all
obligations of our subsidiaries.
See Risk Factors on
page S-7
of this prospectus supplement, page 3 of the accompanying
prospectus, Part I, Item 1A of our annual report on Form 10-K
for the year ended December 31, 2008 and Part II,
Item 1A of our quarterly report on Form 10-Q for the
quarter ended June 30, 2009 to read about important factors
you should consider before buying the notes.
Neither the U.S. Securities and Exchange Commission
(SEC) nor any other regulatory body has approved or
disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Public Offering
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Underwriting
|
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Proceeds to Us
|
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Price
|
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Discount
|
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Before Expenses
|
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Per Note
|
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%
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%
|
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%
|
Total
|
|
$
|
|
|
|
$
|
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$
|
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|
The initial public offering price set forth above does not
include accrued interest, if any. Interest on the notes will
accrue from January , 2010 and must be paid by
the underwriters if the notes are delivered after
January , 2010.
The underwriters expect to deliver the notes through the
facilities of The Depository Trust Company
(DTC) against payment in New York, New York on or
about January , 2010.
Prospectus Supplement dated January , 2010.
TABLE OF
CONTENTS
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Page
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Prospectus Supplement
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S-1
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S-7
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S-9
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S-11
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S-12
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S-13
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S-14
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S-21
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S-23
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S-26
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S-28
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S-29
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S-29
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S-30
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Prospectus
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1
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2
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3
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19
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21
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22
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23
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37
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40
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55
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57
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58
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59
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60
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61
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64
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65
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66
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67
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68
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You should carefully read this prospectus supplement, the
accompanying prospectus and any free writing prospectus filed by
us with the SEC. You should rely only on the information
contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus or any free writing
prospectus filed by us with the SEC. We have not authorized
anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. We are offering to sell, and seeking
offers to buy, the notes only in jurisdictions where offers and
sales are permitted. The information contained in this
prospectus supplement, the accompanying prospectus and any free
writing prospectus is accurate only as of their respective dates
and the information in the documents incorporated by reference
in this prospectus supplement, the accompanying prospectus or
any free writing prospectus is accurate only as of the date of
those respective documents, regardless of the time of delivery
of this prospectus supplement, the accompanying prospectus or
free writing prospectus or of any sale of the notes.
This document is in two parts. The first is this prospectus
supplement, which describes the specific terms of this offering
of notes. The second part, the accompanying prospectus, gives
more general information, some of which does not apply to this
offering.
If the description of this offering varies between this
prospectus supplement and the accompanying prospectus, you
should rely on the information in this prospectus supplement.
The distribution of this prospectus supplement, the accompanying
prospectus and any free writing prospectus, as well as the
offering and sale of the notes, may be restricted by law in
certain jurisdictions.
S-i
Validus Holdings, Ltd. and the underwriters require persons into
whose possession this prospectus supplement, the accompanying
prospectus or any free writing prospectus come to inform
themselves about and to observe any such restrictions. This
prospectus supplement, the accompanying prospectus and any free
writing prospectus do not constitute an offer of, or an
invitation to purchase, any of the notes in any jurisdiction in
which such offer or invitation would be unlawful.
As used in this prospectus, references to the
Company, we, us or
our refer to the consolidated operations of Validus
Holdings, Ltd. (Validus) and its direct and indirect
subsidiaries unless the context suggests otherwise.
References in this prospectus to dollars and
$ are to the lawful currency of the United States of
America, unless otherwise indicated or the context suggests
otherwise.
S-ii
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere, or
incorporated by reference, in this prospectus supplement and the
accompanying prospectus. This summary does not contain all of
the information that you should consider before investing in the
notes. You should read carefully this entire prospectus
supplement, the accompanying prospectus, any free writing
prospectus and the information incorporated by reference herein
and therein.
Validus
Holdings, Ltd.
We are a provider of reinsurance and insurance, conducting our
operations worldwide through two wholly owned subsidiaries,
Validus Reinsurance, Ltd. (Validus Re) and Talbot
Holdings Ltd. (Talbot). Validus Re is a
Bermuda-based reinsurer focused on short-tail lines of
reinsurance. Talbot is the Bermuda parent of a specialty
insurance group primarily operating within the Lloyds
insurance market through Syndicate 1183.
We seek to establish ourselves as a leader in the global
insurance and reinsurance markets. Our principal operating
objective is to use our capital efficiently by underwriting
primarily short-tail insurance and reinsurance contracts with
superior risk and return characteristics. Our primary
underwriting objective is to construct a portfolio of short-tail
insurance and reinsurance contracts which maximize our return on
equity subject to prudent risk constraints on the amount of
capital we expose to any single extreme event. We manage our
risks through a variety of means, including contract terms,
portfolio selection, diversification criteria, including
geographic diversification criteria, and proprietary and
commercially available third-party vendor models. We have
assembled a senior management team with substantial industry
expertise and longstanding industry relationships. We are well
positioned to take advantage of current market conditions; we
have also built our operations so that we may effectively take
advantage of future market conditions as they develop.
You can also obtain additional information about us in the
reports and other documents incorporated by reference in this
prospectus supplement and the accompanying prospectus. See
Incorporation of Certain Documents by Reference in
this prospectus supplement and Where You Can Find More
Information and Incorporation of Certain Documents
by Reference in the accompanying prospectus.
Our principal executive offices are located at 29 Richmond Road,
Pembroke, Bermuda HM 08, and our telephone number is
(441) 278-9000.
S-1
The
Offering
|
|
|
Issuer |
|
Validus Holdings, Ltd. |
|
Notes |
|
$
aggregate principal amount
of % senior notes
due ,
2040. |
|
Maturity |
|
,
2040. |
|
Interest Payment Dates |
|
and
of each year, commencing
on ,
2010. |
|
Ranking |
|
The notes will be our unsecured and unsubordinated obligations
and will rank equally in right of payment with all our existing
and future unsecured and unsubordinated indebtedness. The notes
will be effectively junior to all our future secured debt, to
the extent of the value of the collateral securing such debt,
and will rank senior to all our existing and future subordinated
debt. |
|
|
|
As of September 30, 2009, on a pro forma basis after giving
effect to this offering, the aggregate amount of our outstanding
consolidated indebtedness for money borrowed was approximately
$ million, including
$304.3 million outstanding under our two series of junior
subordinated deferrable debentures. The notes will be
structurally subordinated to all obligations of our
subsidiaries. As of September 30, 2009, the aggregate
amount of indebtedness for money borrowed of our subsidiaries
was nil. |
|
Optional Redemption |
|
We may redeem the notes, in whole at any time, or in part from
time to time, at our option on not less than 30 nor more than
60 days notice, at a make-whole redemption price
described in Description of the Notes Optional
Redemption in this prospectus supplement. |
|
Redemption for Tax Purposes |
|
We may redeem the notes, in whole, but not in part, at any time
upon the occurrence of certain tax events as described in
Description of the Notes Redemption for Tax
Purposes in this prospectus supplement. |
|
Covenants |
|
The indenture governing the notes contains a covenant, which
will apply to the notes, that limits our ability to create liens
on the capital stock of certain of our subsidiaries. This
covenant is subject to a number of important qualifications and
limitations. See Description of the Notes
Limitation on Liens on Stock of Subsidiaries in this
prospectus supplement. |
|
Events of Default |
|
Events of default generally include failure to pay interest or
any additional amounts with respect thereto, failure to pay
principal or any premium, or any additional amounts with respect
thereto, failure to file with the trustee reports required by
Section 13 or Section 15 of the Securities Exchange Act of 1934,
as amended (the Exchange Act), failure to perform,
or breach, any other covenant or warranty in the indenture, or
certain events relating to bankruptcy, insolvency, or
reorganization and are subject to customary notice requirements
and grace periods. See Description of the
Notes Events of Default. |
S-2
|
|
|
Trustee, Registrar, Principal Paying and Transfer Agent
|
|
The Bank of New York Mellon. |
|
Form of the Notes; Governing Law |
|
When issued, the notes will be issued as global notes in
registered form and governed by the laws of the State of New
York. |
|
Use of Proceeds |
|
We intend to use the net proceeds from this offering for general
corporate purposes, which may include the repurchase of our
outstanding capital stock, dividends to our shareholders and/or
potential acquisitions. We currently have no agreements or
letters of intent to make any acquisitions. See Use of
Proceeds in this prospectus supplement. |
|
Listing |
|
The notes will not be listed on any securities exchange.
Currently there is no public market for the notes. |
|
Conflicts of Interest |
|
Goldman, Sachs & Co. is deemed to have a conflict of
interest in this offering within the meaning of NASD
Conduct Rule 2720 of FINRA (Rule 2720) because
affiliates of Goldman, Sachs & Co. currently in the
aggregate beneficially own a 10% or more interest in Validus.
Any underwriter with a conflict of interest is not
permitted to sell the notes in this offering to an account over
which it exercises discretionary authority without the prior
specific written approval of the account holder. See
Underwriting Conflicts of Interest; FINRA
Regulations. |
S-3
Summary
Historical Consolidated Financial Data of Validus
The below summary historical financial data of Validus has been
derived from our quarterly report on
Form 10-Q
for the quarter ended September 30, 2009 (the Validus
10-Q)
and our annual report on
Form 10-K
for the year ended December 31, 2008 (the Validus
10-K),
which are incorporated by reference into this prospectus
supplement. You should not take historical results as
necessarily indicative of the results that may be expected for
any future period. This financial data should be read in
conjunction with the financial statements and the related notes
and other financial information contained in the Validus
10-Q and the
Validus
10-K. You
should read the more comprehensive financial information,
including Managements Discussion and Analysis of
Financial Condition and Results of Operations, which is
contained in the Validus
10-Q and
Validus
10-K. The
following summary is qualified in its entirety by reference to
the Validus
10-Q and
Validus 10-K
and all of the financial information and notes contained
therein. Please see the section of this prospectus supplement
entitled Incorporation of Certain Documents by
Reference.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,365,951
|
|
|
$
|
1,170,749
|
|
|
$
|
1,362,484
|
|
|
$
|
988,637
|
|
|
$
|
540,789
|
|
Reinsurance premiums ceded
|
|
|
(202,489
|
)
|
|
|
(121,438
|
)
|
|
|
(124,160
|
)
|
|
|
(70,210
|
)
|
|
|
(63,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
1,163,462
|
|
|
|
1,049,311
|
|
|
|
1,238,324
|
|
|
|
918,427
|
|
|
|
477,093
|
|
Change in unearned premiums
|
|
|
(141,786
|
)
|
|
|
(108,823
|
)
|
|
|
18,194
|
|
|
|
(60,348
|
)
|
|
|
(170,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,021,676
|
|
|
|
940,488
|
|
|
|
1,256,518
|
|
|
|
858,079
|
|
|
|
306,514
|
|
Gain on bargain purchase, net of expenses
|
|
|
287,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
83,267
|
|
|
|
108,857
|
|
|
|
139,528
|
|
|
|
112,324
|
|
|
|
58,021
|
|
Realized gain on repurchase of debentures
|
|
|
|
|
|
|
8,752
|
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on investments
|
|
|
(20,642
|
)
|
|
|
(8,348
|
)
|
|
|
(1,591
|
)
|
|
|
1,608
|
|
|
|
(1,102
|
)
|
Net unrealized gains (losses) on investments(1)
|
|
|
109,839
|
|
|
|
(72,608
|
)
|
|
|
(79,707
|
)
|
|
|
12,364
|
|
|
|
|
|
Other income
|
|
|
2,875
|
|
|
|
3,666
|
|
|
|
5,264
|
|
|
|
3,301
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
(1,012
|
)
|
|
|
(35,843
|
)
|
|
|
(49,397
|
)
|
|
|
6,696
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,483,102
|
|
|
|
944,964
|
|
|
|
1,279,367
|
|
|
|
994,372
|
|
|
|
365,590
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses
|
|
|
390,736
|
|
|
|
580,578
|
|
|
|
772,154
|
|
|
|
283,993
|
|
|
|
91,323
|
|
Policy acquisition costs
|
|
|
190,125
|
|
|
|
173,545
|
|
|
|
234,951
|
|
|
|
134,277
|
|
|
|
36,072
|
|
General and administrative expenses(2)
|
|
|
125,315
|
|
|
|
101,139
|
|
|
|
123,948
|
|
|
|
100,765
|
|
|
|
38,354
|
|
Share compensation expenses
|
|
|
18,848
|
|
|
|
19,818
|
|
|
|
27,097
|
|
|
|
16,189
|
|
|
|
7,878
|
|
Finance expenses
|
|
|
29,732
|
|
|
|
48,796
|
|
|
|
57,318
|
|
|
|
51,754
|
|
|
|
8,789
|
|
Fair value of warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
754,756
|
|
|
|
923,876
|
|
|
|
1,215,468
|
|
|
|
589,871
|
|
|
|
182,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
728,346
|
|
|
|
21,088
|
|
|
|
63,899
|
|
|
|
404,501
|
|
|
|
183,097
|
|
Income tax expense
|
|
|
3,301
|
|
|
|
(4,992
|
)
|
|
|
(10,788
|
)
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
731,647
|
|
|
|
16,096
|
|
|
|
53,111
|
|
|
|
402,996
|
|
|
|
183,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332
|
)
|
Foreign currency translation adjustments
|
|
|
2,882
|
|
|
|
(1,479
|
)
|
|
|
(7,809
|
)
|
|
|
(49
|
)
|
|
|
|
|
Adjustment for reclassification of losses realized in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
734,529
|
|
|
$
|
14,617
|
|
|
$
|
45,302
|
|
|
$
|
402,947
|
|
|
$
|
183,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Earnings per share(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,458,329
|
|
|
|
74,435,840
|
|
|
|
74,677,903
|
|
|
|
65,068,093
|
|
|
|
58,477,130
|
|
Diluted
|
|
|
84,626,505
|
|
|
|
77,922,718
|
|
|
|
75,819,413
|
|
|
|
67,786,673
|
|
|
|
58,874,567
|
|
Basic earnings per share
|
|
$
|
8.92
|
|
|
$
|
0.15
|
|
|
$
|
0.62
|
|
|
$
|
6.19
|
|
|
$
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
8.65
|
|
|
$
|
0.14
|
|
|
$
|
0.61
|
|
|
$
|
5.95
|
|
|
$
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
$
|
0.80
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected financial ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(4)
|
|
|
38.2
|
%
|
|
|
61.7
|
%
|
|
|
61.5
|
%
|
|
|
33.1
|
%
|
|
|
29.8
|
%
|
Policy acquisition cost ratio(5)
|
|
|
18.6
|
%
|
|
|
18.5
|
%
|
|
|
18.7
|
%
|
|
|
15.6
|
%
|
|
|
11.8
|
%
|
General and administrative expense ratio(6)
|
|
|
14.1
|
%
|
|
|
12.9
|
%
|
|
|
12.0
|
%
|
|
|
13.3.
|
%
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio(7)
|
|
|
32.7
|
%
|
|
|
31.4
|
%
|
|
|
30.7
|
%
|
|
|
28.9
|
%
|
|
|
26.9
|
%
|
Combined ratio(8)
|
|
|
70.9
|
%
|
|
|
93.1
|
%
|
|
|
92.2
|
%
|
|
|
62.0
|
%
|
|
|
56.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity(9)
|
|
|
38.7
|
%
|
|
|
1.1
|
%
|
|
|
2.7
|
%
|
|
|
26.9
|
%
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth summarized balance sheet data as
of September 30, 2009, both actual and as adjusted to give
effect to the issuance of notes in this offering, and as of
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual,
|
|
|
As Adjusted,
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2009(10)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
5,313,736
|
|
|
$
|
5,313,736
|
|
|
$
|
2,831,537
|
|
|
$
|
2,662,021
|
|
|
$
|
1,376,387
|
|
Cash and cash equivalents
|
|
|
393,788
|
|
|
|
|
|
|
|
449,848
|
|
|
|
444,698
|
|
|
|
63,643
|
|
Total assets
|
|
|
7,177,071
|
|
|
|
|
|
|
|
4,322,480
|
|
|
|
4,144,224
|
|
|
|
1,646,423
|
|
Reserve for losses and loss expenses
|
|
|
1,624,743
|
|
|
|
1,624,743
|
|
|
|
1,305,303
|
|
|
|
926,117
|
|
|
|
77,363
|
|
Unearned premiums
|
|
|
955,049
|
|
|
|
955,049
|
|
|
|
539,450
|
|
|
|
557,344
|
|
|
|
178,824
|
|
Junior Subordinated Deferrable Debentures
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
350,000
|
|
|
|
150,000
|
|
Total shareholders equity
|
|
|
3,966,192
|
|
|
|
3,966,192
|
|
|
|
1,938,734
|
|
|
|
1,934,800
|
|
|
|
1,192,523
|
|
Book value per common share(11)
|
|
|
30.25
|
|
|
|
30.25
|
|
|
|
25.64
|
|
|
|
26.08
|
|
|
|
20.39
|
|
Diluted book value per common share(12)
|
|
|
28.61
|
|
|
|
28.61
|
|
|
|
23.78
|
|
|
|
24.00
|
|
|
|
19.73
|
|
|
|
|
(1)
|
|
Validus 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. Validus investments were accounted
for as trading for the annual or interim periods beginning
January 1, 2007 and as such all unrealized gains and losses
are included in net income.
|
|
(2)
|
|
General and administrative expenses
for the years ended December 31, 2007 and 2006 include
$4,000,000 and $1,000,000, respectively, related to our Advisory
Agreement with Aquiline Capital Partners LLC. Our Advisory
Agreement terminated upon completion of our initial public
offering, in connection with which Validus recorded general and
administrative expense of $3,000,000 in the year ended
December 31, 2007 (the Aquiline Termination
Fee).
|
|
(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
|
S-5
|
|
|
|
|
shares and correspondingly
increases per share information for all periods presented. The
share consolidation has been reflected retroactively in these
financial statements.
|
|
(4)
|
|
The losses and loss expenses 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 losses and loss expenses 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)
|
|
Adjusted to give effect to the
offering of the notes and the resulting increase in cash and
cash equivalents. See Use of Proceeds.
|
|
(11)
|
|
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.
|
|
(12)
|
|
Diluted book value per common share
is calculated based on total shareholders equity plus the
assumed proceeds from the exercise of outstanding options and
warrants, divided by the sum of common shares, unvested
restricted shares, options and warrants outstanding (assuming
their exercise). Diluted book value per common share is a
Non-GAAP financial measure as described under Item 2.
Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial
Measures in the
Validus 10-Q.
|
S-6
RISK
FACTORS
In addition to the risk factors set forth below, you should
read and consider other risk factors specific to Validus, as
described in Part I, Item 1A of the Validus
10-K, in
Part II, Item 1A of Validus quarterly report on
Form 10-Q
for the quarter ended June 30, 2009, in the accompanying
prospectus and other documents that have been filed with the
SEC, which, in each case, are incorporated by reference into
this prospectus supplement. If any of the risks described below
or in the accompanying prospectus or in the reports incorporated
by reference into this prospectus supplement actually occur, our
business, financial results, financial condition, operating
results or share prices could be materially adversely
affected.
Risk
Factors Related to the Offering
Because
we are a holding company and substantially all of our operations
are conducted by our subsidiaries, we are dependent on
distributions from our subsidiaries to make payments on the
notes. In addition, our obligations under the notes are
effectively subordinated to the obligations of our
subsidiaries.
We currently conduct substantially all of our operations through
our subsidiaries, and our subsidiaries generate substantially
all of our operating income and cash flow. Our ability to pay
our obligations under the notes depends on our ability to obtain
cash dividends or other cash payments or obtain loans from our
subsidiaries, which are separate and distinct legal entities
that have no obligations to pay us any dividends or to lend or
advance us funds and which may be restricted from doing so by
contract, including other financing arrangements, charter
provisions or applicable legal or regulatory requirements. Our
ability to pay our obligations under the notes may also depend
on the financial condition of our subsidiaries.
As of September 30, 2009, on a pro forma basis after giving
effect to this offering, the aggregate amount of our outstanding
consolidated indebtedness for money borrowed was approximately
$ million, including
$304.3 million outstanding under our two series of junior
subordinated debentures. As of September 30, 2009, the
aggregate amount of outstanding indebtedness for money borrowed
of our subsidiaries was nil. The notes will also be structurally
subordinated to all obligations of our subsidiaries.
In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to any of our
subsidiaries, we, as a common equity owner of such subsidiary,
and, therefore, holders of our debt, including holders of the
notes, will be subject to the prior claims of such
subsidiarys creditors, including trade creditors, and
preferred equity holders. As a result, our obligations under the
notes will be effectively subordinated to all of the obligations
of our subsidiaries. See the risk factor entitled Because
we are a holding company and substantially all of our operations
are conducted by our main operating subsidiaries, Validus Re and
Talbot, our ability to meet any ongoing cash requirements and to
pay dividends will depend on our ability to obtain cash
dividends or other cash payments or obtain loans from Validus Re
and Talbot in our Annual Report on
Form 10-K
for the year ended December 31, 2008 for a description of
certain insurance regulatory and other restrictions that may
affect the ability of our subsidiaries to pay dividends or make
other payments to us.
Restrictive
covenants in the agreements governing our indebtedness restrict
or prohibit our ability to engage in or enter into a variety of
transactions, which could adversely restrict our financial and
operating flexibility and subject us to other
risks.
The agreements governing our indebtedness contain various
restrictive covenants that limit our and our subsidiaries
ability to take certain actions. Our credit facilities contain
covenants that include, among other things, (i) the
requirement that we maintain a minimum level of consolidated net
worth, (ii) the requirement that we maintain at all times a
consolidated total debt to consolidated total capitalization
ratio not greater than 0.35:1.00, and (iii) the requirement
that Validus Re and any other material insurance subsidiaries
maintain a financial strength rating by A.M. Best of not
less than B++ (Fair). Our credit facilities also
contain restrictions on our ability to pay dividends and other
payments in respect of equity interests at any time that we are
otherwise in default with respect to certain provisions under
the credit facilities, make investments, incur debt, incur
liens, sell assets and merge or consolidate with others.
Any or all of these covenants could have a negative effect on
our business by limiting our ability to take advantage of
financing, merger and acquisition or other corporate
opportunities and to fund our operations.
S-7
Any future debt could also contain financial and other covenants
more restrictive than those imposed under our credit facilities
and the indenture governing the notes.
The
indenture under which the notes will be issued will contain only
limited protection for holders of the notes in the event we are
involved in a highly leveraged transaction, reorganization,
restructuring, merger, amalgamation or similar transaction in
the future.
The indenture under which the notes will be issued may not
sufficiently protect holders of notes in the event we are
involved in a highly leveraged transaction, reorganization,
restructuring, merger, amalgamation or similar transaction. The
indenture does not contain provisions restricting our ability to
incur additional debt, including debt senior in right of payment
to the notes, pay dividends on or purchase or redeem capital
stock, sell assets (other than certain restrictions on our
ability to consolidate, merge or sell all or substantially all
of our assets and our ability to sell the stock of certain
subsidiaries), enter into transactions with affiliates, create
liens (other than certain limitations on creating liens on the
stock of certain subsidiaries) or enter into sale and leaseback
transactions, or create restrictions on the payment of dividends
or other amounts to us from our subsidiaries. Additionally, the
indenture will not require us to offer to purchase the notes in
connection with a change of control or require that we or our
subsidiaries adhere to any financial tests or ratios or
specified levels of net worth.
The
secondary market for the notes may be illiquid.
We are unable to predict how the notes will trade in the
secondary market or whether that market will be liquid or
illiquid. We have no obligation to apply for any listing of the
notes on any stock exchange.
S-8
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995
(PSLRA) provides a safe harbor for
forward-looking statements. This prospectus supplement and the
accompanying prospectus, our annual report to shareholders, any
proxy statement, registration statement, any annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
or current reports on
Form 8-K
of ours or any other written or oral statements made by or on
behalf of us may include forward-looking statements that reflect
our current views with respect to future events and financial
performance. Such statements include forward-looking statements
both with respect to us in general, and to the insurance and
reinsurance sectors in particular. 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 for purposes of the PSLRA or
otherwise.
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
statement.
We believe that these factors include, but are not limited to,
the following:
|
|
|
|
|
unpredictability and severity of catastrophic events;
|
|
|
|
our ability to obtain and maintain ratings, which may be
affected by our ability to raise additional equity or debt
financings;
|
|
|
|
adequacy of the Companys and IPC Holdings, Ltd.s
(IPC) risk management and loss limitation methods;
|
|
|
|
cyclicality of demand and pricing in the insurance and
reinsurance markets;
|
|
|
|
our limited operating history;
|
|
|
|
our ability to successfully implement our business strategy
during soft as well as hard markets;
|
|
|
|
adequacy of our loss reserves;
|
|
|
|
continued availability of capital and financing;
|
|
|
|
our ability to identify, hire and retain, on a timely and
unimpeded basis and on anticipated economic and other terms,
experienced and capable senior management, as well as
underwriters, claims professionals and support staff;
|
|
|
|
acceptance of our business strategy, security and financial
condition by rating agencies and regulators, as well as by
brokers and (re)insureds;
|
|
|
|
competition, including increased competition, on the basis of
pricing, capacity, coverage terms or other factors;
|
|
|
|
potential loss of business from one or more major insurance or
reinsurance brokers;
|
|
|
|
our 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;
|
|
|
|
general economic and market conditions (including inflation,
volatility in the credit and capital markets, interest rates and
foreign currency exchange rates) and conditions specific to the
insurance and reinsurance markets in which we expect to operate;
|
|
|
|
the integration of IPC or other businesses we may acquire or new
business ventures, including overseas offices, we may start;
|
|
|
|
accuracy of those estimates and judgments used in the
preparation of our financial statements, including those related
to revenue recognition, insurance and other reserves,
reinsurance recoverables, investment valuations, intangible
assets, bad debts, taxes, contingencies, litigation and any
|
S-9
|
|
|
|
|
determination to use the deposit method of accounting, which,
for a relatively new insurance and reinsurance company like our
company, are even more difficult to make than those made in a
mature company because of limited historical information;
|
|
|
|
|
|
the effect on the Companys or IPCs investment
portfolio of changing financial market conditions including
inflation, interest rates, liquidity and other factors;
|
|
|
|
acts of terrorism, political unrest, outbreak of war and other
hostilities or other non-forecasted and unpredictable events;
|
|
|
|
availability and cost of reinsurance and retrocession coverage;
|
|
|
|
the failure of reinsurers, retrocessionaires, producers or
others to meet their obligations to us;
|
|
|
|
the timing of loss payments being faster or the receipt of
reinsurance recoverables being slower than anticipated by us;
|
|
|
|
changes in domestic or foreign laws or regulations, or their
interpretations;
|
|
|
|
changes in accounting principles or the application of such
principles by regulators;
|
|
|
|
statutory or regulatory or rating agency developments, including
as to tax policy and matters and reinsurance and other
regulatory matters such as the adoption of proposed legislation
that would affect Bermuda-headquartered companies
and/or
Bermuda-based insurers or reinsurers; and
|
|
|
|
failure to realize the anticipated benefits of our acquisition
of IPC, including as a result of failure or delay in integrating
the businesses of the Company and IPC.
|
In addition, other general factors could affect our results,
including: (a) developments in the worlds financial
and capital markets and our access to such markets;
(b) changes in regulations or tax laws applicable to us,
including, without limitation, any such changes resulting from
the recent investigations relating to the insurance industry and
any attendant litigation; and (c) the effects of business
disruption or economic contraction due to terrorism or other
hostilities.
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 or
elsewhere. Any forward-looking statements made in this report
are qualified by these cautionary statements, and there can be
no assurance that the actual results or developments anticipated
by us will be realized or, even if substantially realized, that
they will have the expected consequences to, or effects on, us
or our business or operations. We undertake no obligation to
update publicly or revise any forward-looking statement, whether
as a result of new information, future developments or otherwise.
S-10
USE OF
PROCEEDS
We estimate net proceeds to us from the sale of notes in this
offering, after deducting underwriting discounts and commissions
and estimated offering expenses, will be approximately
$ million. We intend to use
the net proceeds from this offering for general corporate
purposes, which may include the repurchase of our outstanding
capital stock, dividends to our shareholders
and/or
potential acquisitions. We currently have no agreements or
letters of intent to make any acquisitions.
S-11
RATIO OF
EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and ratio of earnings to
fixed charges excluding Funds at Lloyds costs (FAL
Costs) are measures of our ability to cover fixed costs
with current period earnings. For purposes of computing the
following ratios, earnings consist of net income before income
tax expense plus fixed charges to the extent that such charges
are included in the determination of earnings. Fixed charges
consist of interest, amortization of debt issuance costs and
credit facility fees and an imputed interest portion on
operating leases. The following table is derived from unaudited
results for the nine months ended September 30, 2009 and
audited results for the years ended December 31, 2008,
2007, 2006 and the period from October 19, 2005, the date
of Validus incorporation, to December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Period Ended
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005(1)
|
|
Ratio of Earnings to Fixed Charges
|
|
|
24.7
|
|
|
|
2.1
|
|
|
|
8.7
|
|
|
|
21.7
|
|
|
|
NM
|
|
Ratio of Earnings to Fixed Charges Excluding FAL Costs(2)
|
|
|
32.4
|
|
|
|
3.1
|
|
|
|
15.7
|
|
|
|
21.7
|
|
|
|
NM
|
|
|
|
|
(1) |
|
We commenced underwriting activities on January 1, 2006.
There were no earnings from underwriting activities during the
period ended December 31, 2005. |
|
(2) |
|
Talbot operates in Lloyds through a corporate member,
Talbot 2002 Underwriting Capital Ltd (T02), which is
the sole participant in Syndicate 1183. Lloyds sets
T02s required capital annually based on syndicate
1183s business plan, rating environment, reserving
environment together with input arising from Lloyds
discussions with, inter alia, regulatory and rating agencies.
Such capital, called Funds at Lloyds (FAL),
comprises: cash, investments and undrawn letters of credit
provided by various banks. FAL Costs represent both fixed and
variable costs paid for financing our operations at
Lloyds. The ratio of earnings to fixed charges excluding
FAL Costs demonstrates the degree to which the ratio changes if
FAL Costs are treated as variable rather than fixed costs. |
NM: Not meaningful
S-12
CAPITALIZATION
The following table sets forth our consolidated capitalization
as of September 30, 2009, on an actual basis and as
adjusted to give effect to the issuance of notes in this
offering.
You should read the following information in conjunction with
our consolidated financial statements and the notes to those
financial statements and the information under the heading
Managements Discussion and Analysis of Financial
Condition and Results of Operations in the
Validus 10-Q,
which is incorporated by reference in this prospectus supplement.
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|
|
|
|
|
|
|
|
|
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As of September 30, 2009
|
|
|
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Actual
|
|
|
As Adjusted
|
|
|
|
($ in thousands, except share amounts)
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
% Senior Notes due 2040
|
|
$
|
|
|
|
$
|
|
|
9.069% Junior Subordinated Deferrable Debentures
|
|
|
150,000
|
|
|
|
|
|
8.484% Junior Subordinated Deferrable Debentures
|
|
|
154,300
|
|
|
|
|
|
Total debt
|
|
$
|
304,300
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
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|
|
|
|
|
|
|
|
Common shares, 571,428,571 authorized, par value $0.175; issued
and outstanding: 131,107,196
|
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$
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22,944
|
|
|
$
|
|
|
Additional
paid-in-capital
|
|
|
2,748,121
|
|
|
|
|
|
Accumulated other comprehensive (loss)
|
|
|
(4,976
|
)
|
|
|
|
|
Retained earnings
|
|
|
1,200,103
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
3,966,192
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
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$
|
4,270,492
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
S-13
DESCRIPTION
OF THE NOTES
The following description of the particular terms of the
notes supplements the description of the general terms of the
debt securities set forth under the heading Description of
the Debt Securities in the accompanying prospectus. If the
descriptions are inconsistent, the information in this
prospectus supplement replaces the information in the
accompanying prospectus. We will issue the notes under a base
indenture, as supplemented by a supplemental indenture
(collectively, the indenture), that we will enter
into with The Bank of New York Mellon, as trustee. The form of
base indenture pursuant to which we will issue the notes is on
file with the SEC as an exhibit to the registration statement of
which this prospectus supplement forms a part and may be
obtained by accessing the internet address provided or
contacting us as described under Incorporation of Certain
Documents by Reference in this prospectus supplement. The
following description is not complete, and is qualified in all
respects by reference to the definitive base indenture, the form
of which was filed as an exhibit to the registration statement
of which this prospectus supplement is part. You should read the
base indenture and the associated documents carefully to fully
understand the terms of the notes because they, and not this
description, will define your rights as holders of the notes.
General
The notes will mature
on ,
2040. Unless previously redeemed in full as provided herein, we
will repay the notes at their principal amount plus accrued and
unpaid interest
on ,
2040.
The notes will bear interest at the rate
of % per annum from
January , 2010 to maturity or early redemption.
Interest on the notes will be payable
semi-annually on
and
of each year, commencing
on ,
2010, to the persons in whose names such notes were registered
at the close of business on the
preceding
and ,
respectively.
Interest on the notes will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. The amount of interest payable for any period shorter
than a full semi-annual period for which interest is computed
will be computed on the basis of the actual number of days
elapsed in the
180-day
period. The principal, interest, if any, and additional amounts,
if any, on the notes will be payable at our option at the
corporate trust office of the trustee, located at 101 Barclay
Street, Floor 8W, New York, New York 10286, Attn: Corporate
Trust Department, by check mailed to the address of the
person entitled thereto as it appears in the applicable register
for the notes or by wire transfer.
We will issue the notes initially in an aggregate principal
amount of $ million. The
indenture governing the notes will not limit the aggregate
principal amount of the debt securities which we may issue
thereunder and will provide that we may issue debt securities
thereunder from time to time in one or more series.
The notes will not be entitled to the benefit of any mandatory
redemption or sinking fund or to redemption or repurchase at the
option of the holders upon a change of control, a change in
management, an asset sale or any other specified event.
Because we are a holding company, our rights and the rights of
our creditors (including the holders of the notes) and
shareholders to participate in distributions by certain of our
subsidiaries upon that subsidiarys liquidation or
reorganization or otherwise would be subject to the prior claims
of that subsidiarys creditors and preferred shareholders,
except to the extent that we may ourselves be a creditor with
recognized claims against that subsidiary or our creditors may
have the benefit of a guaranty from our subsidiary. The rights
of our creditors (including the holders of the notes) to
participate in the distribution of stock owned by us in certain
of our subsidiaries, including our insurance subsidiaries, may
also be subject to approval by certain insurance regulatory
authorities having jurisdiction over such subsidiaries.
The notes will be issued only in fully registered form without
coupons in minimum denominations of $2,000 and integral
multiples of $1,000 in excess thereof. The notes may be
presented for transfer (duly endorsed or accompanied by a
written instrument of transfer, if so required by us or the
security registrar) or exchanged for other notes (containing
identical terms and provisions, in any authorized denominations,
and of a like aggregate principal amount) at the office or
agency maintained by us for such purposes (initially the
S-14
corporate trust office of the trustee). Such transfer or
exchange will be made without service charge, but we may require
payment of a sum sufficient to cover any tax or other
governmental charge and any other expenses then payable.
The indenture will not contain any provisions that would limit
our ability to incur indebtedness or that would afford holders
of the notes protection in the event of a sudden and significant
decline in our credit quality or a takeover, recapitalization or
highly leveraged or similar transaction involving us.
Accordingly, we could in the future enter into transactions that
could increase the amount of indebtedness outstanding at that
time or otherwise affect our capital structure or credit rating.
Optional
Redemption
The notes will be redeemable, in whole at any time or in part
from time to time, at our option, at a redemption price equal to
accrued and unpaid interest on the principal amount being
redeemed to the redemption date plus the greater of:
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100% of the principal amount of the notes to be
redeemed, and
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|
the sum of the present values of the remaining scheduled
payments of principal and interest on the notes to be redeemed
(not including any portion of such payments of interest accrued
to the date of redemption) discounted to the date of redemption
on a semiannual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the Treasury Rate, plus
basis points, in the case of the notes.
|
Treasury Rate means, with respect to any date
of redemption, the rate per year equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable
Treasury Price for such date of redemption. The Treasury Rate
shall be calculated on the third business day preceding the date
of redemption.
Comparable Treasury Issue means the United
States Treasury security selected as having a maturity
comparable to the remaining term of the notes to be redeemed
that would be used, at the time of selection and under customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the
notes.
Comparable Treasury Price means, with respect
to any date of redemption, the average of the Reference Treasury
Dealer Quotations for the date of redemption, after excluding
the highest and lowest Reference Treasury Dealer Quotations, or
if the trustee is provided with fewer than four Reference
Treasury Dealer Quotations, the average of all Reference
Treasury Dealer Quotations.
Reference Treasury Dealers means each of
Goldman, Sachs & Co., J.P. Morgan Securities Inc.
or Deutsche Bank Securities Inc. and, in each case, their
respective successors and any other primary Treasury dealer we
select. If any of the foregoing ceases to be a primary
U.S. government securities dealer in New York City, we must
substitute another primary Treasury dealer.
Reference Treasury Dealer Quotations means,
with respect to each Reference Treasury Dealer and any date of
redemption, the average, as determined by the trustee, of the
bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted in writing to the trustee by the Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third
business day before the date of redemption.
Notice of any redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to
each holder of notes to be redeemed at its registered address.
Unless we default in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the
notes or portion thereof called for redemption.
If less than all of the notes are to be redeemed, the notes to
be redeemed shall be selected by the trustee, by a method the
trustee deems to be fair and appropriate.
S-15
We may acquire notes by means other than a redemption, whether
by tender offer, open market purchases, negotiated transactions
or otherwise, so long as such acquisition does not otherwise
violate the terms of the indenture.
Payment
of Additional Amounts
We will make all payments of principal of and premium, if any,
interest and any other amounts on, or in respect of, the notes
without withholding or deduction at source for, or on account
of, any present or future taxes, fees, duties, assessments or
governmental charges of whatever nature imposed or levied by or
on behalf of Bermuda or any other jurisdiction in which we are
organized (a taxing jurisdiction) or any political
subdivision or taxing authority thereof or therein, unless such
taxes, fees, duties, assessments or governmental charges are
required to be withheld or deducted by (x) the laws (or any
regulations or rulings promulgated thereunder) of a taxing
jurisdiction or any political subdivision or taxing authority
thereof or therein or (y) an official position regarding
the application, administration, interpretation or enforcement
of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by
a taxing authority in a taxing jurisdiction or any political
subdivision thereof). If a withholding or deduction at source is
required by the laws of Bermuda or the jurisdiction in which we
are organized, we will, subject to certain limitations and
exceptions described below, pay to the holder of any such notes
such additional amounts as may be necessary so that every net
payment of principal, premium, if any, interest or any other
amount made to such holder, after the withholding or deduction,
will not be less than the amount provided for in such note and
the indenture to be then due and payable.
Notwithstanding the foregoing, we will not be required to pay
any additional amounts for or on account of:
(1) any tax, fee, duty, assessment or governmental charge
of whatever nature which would not have been imposed but for the
fact that such holder (or in the case of clause (a), a
fiduciary, settler, beneficiary, partner, member or shareholder
of or possessor of power over the relevant holder of notes if
the holder of notes is an estate, nominee, trust, partnership,
limited liability company, or corporation): (a) was a
resident, domiciliary or national of, or engaged in business or
maintained a permanent establishment or was physically present
in, the relevant taxing jurisdiction or any political
subdivision thereof or otherwise had some connection with the
relevant taxing jurisdiction other than by reason of the mere
ownership of, or receipt of payment under, such note;
(b) presented such note for payment in the relevant taxing
jurisdiction or any political subdivision thereof, unless such
note could not have been presented for payment elsewhere; or
(c) presented such debt security for payment more than
30 days after the date on which the payment in respect of
such note became due and payable or provided for, whichever is
later, except to the extent that the holder would have been
entitled to such additional amounts if it had presented such
note for payment on any day within that
30-day
period;
(2) any estate, inheritance, gift, sales, excise, transfer,
wealth or personal property or similar tax, assessment or other
governmental charge;
(3) any tax, assessment or other governmental charge that
is imposed or withheld by reason of the failure by the holder or
the beneficial owner of such note to comply with any reasonable
request by us addressed to the holder within 90 days of
such request (a) to provide information concerning the
nationality, residence or identity of the holder or such
beneficial owner or (b) to make any declaration or other
similar claim or satisfy any information or reporting
requirement, which is required or imposed by statute, treaty,
regulation or administrative practice of the relevant taxing
jurisdiction or any political subdivision thereof as a
precondition to exemption from all or part of such tax,
assessment or other governmental charge; or
(4) any withholding or deduction required to be made
pursuant to any EU Directive on the taxation of savings
implementing the conclusions of the ECOFIN Council meetings of
26-27 November
2000, 3 June 2003 or any law implementing or complying
with, or introduced in order to conform to, such EU
Directive; or
(5) any combination of items (1), (2), (3) and (4).
S-16
In addition, we will not pay additional amounts with respect to
any payment of principal of, or premium, if any, interest or any
other amounts on, any such note to any holder who is a fiduciary
or partnership or other than the sole beneficial owner of such
note to the extent such payment would be required by the laws of
the relevant taxing jurisdiction (or any political subdivision
or relevant taxing authority thereof or therein) to be included
in the income for tax purposes of a beneficiary or partner or
settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been
entitled to such additional amounts had it been the holder of
the note.
Redemption
for Tax Purposes
We may redeem the notes at our option, in whole but not in part,
at a redemption price equal to 100% of the principal amount,
together with accrued and unpaid interest and additional
amounts, if any, to the date fixed for redemption, at any time
we receive an opinion of counsel that as a result of
(1) any change in or amendment to the laws or treaties (or
any regulations or rulings promulgated under these laws or
treaties) of Bermuda or any taxing jurisdiction (or of any
political subdivision or taxation authority affecting taxation)
or any change in the application or official interpretation of
such laws, regulations or rulings, (2) any action taken by
a taxing authority of Bermuda or any taxing jurisdiction (or any
political subdivision or taxing authority affecting taxation)
which action is generally applied or is taken with respect to
the Company, or (3) a decision rendered by a court of
competent jurisdiction in Bermuda or any taxing jurisdiction (or
any political subdivision) whether or not such decision was
rendered with respect to us, there is a substantial probability
that we will be required as of the next interest payment date to
pay additional amounts with respect to the notes as provided in
Payment of Additional Amounts above and such
requirements cannot be avoided by the use of reasonable measures
(consistent with practices and interpretations generally
followed or in effect at the time such measures could be taken)
then available. If we elect to redeem the notes under this
provision, we will give written notice of such election to the
trustee and the holders of the notes. Interest on the notes will
cease to accrue unless we default in the payment of the
redemption price.
Limitations
on Liens on Stock of Subsidiaries
Under the indenture, we will covenant that, so long as any
senior debt securities are outstanding, we will not, nor will we
permit any subsidiary to, create, assume, incur, guarantee or
otherwise permit to exist any Indebtedness secured by any
mortgage, pledge, lien, security interest or other encumbrance
upon any shares of capital stock of any Designated Subsidiary
(whether such shares of stock are now owned or hereafter
acquired) without effectively providing concurrently that the
notes (and, if we so elect, any other Indebtedness of ours that
is not subordinate to the notes and with respect to which the
governing instruments require, or pursuant to which we are
otherwise obligated, to provide such security) will be secured
equally and ratably with, or prior to, such Indebtedness for at
least the time period such other Indebtedness is so secured.
This covenant does not apply to permitted liens upon any shares
of capital stock of any person existing at the time such person
becomes a Designated Subsidiary and any extensions, renewals or
replacements thereof.
For purposes of the indenture, capital stock of any
person means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person,
including preferred stock, but excluding any debt securities
convertible into such equity.
The term Designated Subsidiary means any present or
future consolidated subsidiary of ours, the consolidated net
worth of which constitutes at least 10% of our consolidated net
worth. As of September 30, 2009, our only Designated
Subsidiaries were Validus Ltd., Validus Reinsurance, Ltd. and
Talbot Holdings Ltd..
The term Indebtedness means, with respect to any
person:
(1) the principal of and any premium and interest on
(a) indebtedness of such person for money borrowed or
(b) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such person
is responsible or liable;
(2) all capitalized lease obligations of such person;
S-17
(3) all obligations of such person issued or assumed as the
deferred purchased price of property, all conditional sale
obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the
ordinary course of business);
(4) all obligations of such person for the reimbursement of
any obligor on any letter of credit, bankers acceptance or
similar credit transaction (other than obligations with respect
to letters of credit securing obligations (other than
obligations described in (1) through (3) above)
entered into in the ordinary course of business of such person
to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such
person of a demand for reimbursement following payment on the
letter of credit);
(5) all obligations of the type referred to in
clauses (1) through (4) of other persons and all
dividends of other persons for the payment of which, in either
case, such person is responsible or liable as obligor, guarantor
or otherwise the amount thereof being deemed to be the lesser of
the stated recourse, if limited, and the amount of the
obligation or dividends of the other person;
(6) all obligations of the type referred to in
clauses (1) through (5) of other persons secured by
any mortgage, pledge, lien, security interest or other
encumbrance on any property or asset of such person (whether or
not such obligation is assumed by such person), the amount of
such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so
secured; and
(7) any amendments, modifications, refundings, renewals or
extensions of any indebtedness or obligation described as
Indebtedness in clauses (1) through (6) above.
For purposes of the indenture, permitted liens means
liens for taxes or assessments or governmental charges or levies
not then due and delinquent or the validity of which is being
contested in good faith or which are less than $1,000,000 in
amount and liens created by or resulting from any litigation or
legal proceeding which is currently being contested in good
faith by appropriate proceedings or which involves claims of
less than $1,000,000.
Limitations
on Disposition of Stock of Designated Subsidiaries
The indenture will also provide that, so long as any senior debt
securities are outstanding and except in a transaction otherwise
governed by the indenture, we will not issue, sell, assign,
transfer or otherwise dispose of any shares of, securities
convertible into, or warrants, rights or options to subscribe
for or purchase shares of, capital stock (other than preferred
stock having no voting rights of any kind) of any Designated
Subsidiary (other than to the Company or another Designated
Subsidiary); and will not permit any Designated Subsidiary to
issue (other than to us or another Designated Subsidiary) any
shares (other than directors qualifying shares) of, or
securities convertible into, or warrants rights or options to
subscribe for or purchase shares of, capital stock (other than
preferred stock having no voting rights of any kind) of any
Designated Subsidiary, if, after giving effect to any such
transaction and the issuance of the maximum number of shares
issuable upon the conversion or exercise of all such convertible
securities, warrants, rights or options, the Designated
Subsidiary would remain a subsidiary of ours and we would own,
directly or indirectly, less than 80% of the shares of capital
stock of such Designated Subsidiary (other than preferred stock
having no voting rights of any kind); provided, however,
that (1) any issuance, sale, assignment, transfer or
other disposition permitted by us may only be made for at least
a fair market value consideration as determined by our Board of
Directors pursuant to a resolution adopted in good faith and
(2) the foregoing will not prohibit any such issuance or
disposition of securities if required by any law or any
regulation or order of any governmental or insurance regulatory
authority.
Notwithstanding the foregoing, (1) we may merge or
consolidate any Designated Subsidiary into or with another
direct or indirect subsidiary of ours, the shares of capital
stock of which we own at least 70%, and (2) we may, subject
to the provisions described under
Consolidation, Amalgamation, Merger and Sale
of Assets above, sell, assign, transfer or otherwise
dispose of the entire capital stock of any Designated
S-18
Subsidiary at one time for at least a fair market value
consideration as determined by our Board of Directors pursuant
to a resolution adopted in good faith.
Consolidation,
Amalgamation, Merger And Sale of Assets
The indenture will provide that we may not (1) consolidate
or amalgamate with or merge into any other Person (as defined in
the indenture) or convey, transfer or lease our properties and
assets as an entirety or substantially as an entirety to any
other Person and (2) we may not permit any Person to
consolidate or amalgamate with or merge into us or convey,
transfer or lease its properties and assets as an entirety or
substantially as an entirety to us (unless (a) such Person
is an entity organized and existing under the laws of the U.S.,
any state or territory thereof or the District of Columbia,
Bermuda, the Cayman Islands or any country or state which is a
member of the Organization for Economic Cooperation and
Development and will expressly assume, by supplemental indenture
reasonably satisfactory in form to the trustee, the due and
punctual payment of the principal of, any premium and interest
on and any additional amounts with respect to all of the notes
issued thereunder, and the performance of our obligations under
such indenture and the outstanding notes; (b) immediately
after giving effect to such transaction, no Event of Default (as
defined below), and no event which after notice or lapse of
time, or both, would become an Event of Default, will have
happened and be continuing; and (c) certain documents are
delivered).
Events of
Default
The following events will constitute an event of default under
the indenture (Event of Default) with respect to the
notes issued thereunder (whatever the reason for such Event of
Default and whether it will be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on the notes, or
any additional amounts payable with respect thereto, when such
interest becomes or such additional amounts become due and
payable, and continuance of such default for a period of
30 days and the time for payment of such interest or
additional amounts has not been extended;
(2) default in the payment of the principal of or any
premium on the notes, or any additional amounts payable with
respect thereto, when such principal, premium or such additional
amounts become due and payable either at maturity, upon any
redemption, by declaration of acceleration or otherwise and the
time for payment of such principal (or premium), or any
additional amounts payable with respect thereto, has not been
extended;
(3) default by us in filing with the trustee reports
required by Section 13 or Section 15 of the Exchange
Act, and the continuance of such default for a period of
180 days after there has been given written notice as
provided in the indenture;
(4) default by us in the performance, or breach, of any
other covenant or warranty of ours contained in the indenture
for the benefit of such series, and the continuance of such
default or breach for a period of 90 days after there has
been given written notice as provided in the indenture;
(5) certain events relating to bankruptcy, insolvency or
reorganization of us; and
(6) any other Event of Default provided in or pursuant to
the indenture.
If an Event of Default with respect to the notes (other than an
Event of Default described in clause (5) of the preceding
paragraph) occurs and is continuing, either the trustee or the
holders of at least 25% in principal amount of the outstanding
notes by written notice as provided in the indenture may declare
the principal amount (or such lesser amount as may be provided
for in the notes) of all outstanding notes of such series to be
due and payable immediately. At any time after a declaration of
acceleration has been made, but before a judgment or decree for
payment of money has been obtained by the trustee, and subject
to applicable law and certain other provisions of the indenture,
the holders of a majority in aggregate principal amount of the
notes may, under certain circumstances, rescind and annul such
acceleration. An Event of Default
S-19
described in clause (5) of the preceding paragraph will
cause the principal amount and accrued interest (or such lesser
amount as provided for in the notes) to become immediately due
and payable without any declaration or other act by the trustee
or any holder.
The indenture will provide that, within 90 days after the
occurrence of any event which is, or after notice or lapse of
time or both would become, an Event of Default with respect to
the notes, the trustee will transmit, in the manner set forth in
the indenture and subject to the exceptions described below,
notice of such default actually known to the trustee to the
holders of the notes unless such default has been cured or
waived. However, except in the case of a default in the payment
of principal of, or premium, if any, or interest, if any, on, or
additional amounts with respect to, any notes, the Trustee may
withhold such notice if and so long as a trust committee of
directors
and/or
responsible officers of the trustee in good faith determine that
the withholding of such notice is in the best interest of the
holders of the notes. In addition, in the case of any default of
the character described in clause (3) or (4) of the
second preceding paragraph, no such notice to holders will be
given until at least 60 days after the default occurs.
If an Event of Default occurs and is continuing with respect to
the notes, the trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of the
notes by all appropriate judicial proceedings. The indenture
will provide that, subject to the duty of the trustee during any
default to act with the required standard of care, the trustee
will be under no obligation to exercise any of its rights or
powers under the indenture at the request or direction of any of
the holders of the notes, unless such holders shall have offered
to the trustee indemnity which is reasonably satisfactory to the
trustee. Subject to such provisions for the indemnification of
the trustee, and subject to applicable law and certain other
provisions of the indenture, the holders of a majority in
aggregate principal amount of the outstanding notes will have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with
respect to notes.
Defeasance
The discharge, defeasance and covenant defeasance provisions of
the indenture described under Description of the Debt
Securities Discharge, Defeasance and Covenant
Defeasance in the accompanying prospectus will apply to
the notes.
New York
Law to Govern
The indenture and the notes will be governed by, and construed
in accordance with, the laws of the State of New York applicable
to agreements made or instruments entered into and, in each
case, performed in that state.
Information
Concerning the Trustee
We may from time to time borrow from, maintain deposit accounts
with and conduct other banking transactions with The Bank of New
York Mellon and its affiliates in the ordinary course of
business.
Under the indenture, The Bank of New York Mellon is required to
transmit annual reports to all holders regarding its eligibility
and qualifications as trustee under the indenture and related
matters.
Payment
and Paying Agent
We will pay principal of, and any premium, interest and
additional amounts on the notes at the office of the paying
agent designated by us.
All moneys we pay to a paying agent of the Trustee for the
payment of principal of, or any premium, interest or additional
amounts on, a note which remains unclaimed at the end of two
years will be repaid to us, and the holder of the note may then
look only to us for payment.
The Bank of New York Mellon will act as paying agent for the
notes.
S-20
BOOK-ENTRY;
DELIVERY AND FORM
Except as set forth below, the notes will be issued in the form
of one or more fully registered notes in global form without
coupons (each a Global Note). The Global Notes will
be deposited with, or on behalf of, DTC and registered in the
name of DTC or a nominee thereof.
Global
Notes
Pursuant to procedures established by DTC, interests in the
Global Notes will be shown on, and the transfer of such interest
will be effected only through, records maintained by DTC or its
nominee with respect to interests of persons who have accounts
with DTC (participants) and the records of
participants with respect to interests of persons other than
participants. Such accounts initially were designated by or on
behalf of the initial purchasers and ownership of beneficial
interests in the Global Notes will be limited to persons who
have accounts with DTC, or participants, or persons who hold
interests through participants. Holders may hold their interests
in the Global Notes directly through DTC if they are
participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC or its nominee is the registered owner or holder
of the notes, DTC or such nominee will be considered the sole
owner or holder of the notes represented by such Global Notes
for all purposes under the indenture. No beneficial owner of an
interest in the Global Notes will be able to transfer such
interest except in accordance with DTCs procedures, in
addition to those provided for under the indenture with respect
to the notes.
The laws of some states require that certain persons take
physical delivery in definitive form of securities that they
own. Consequently, your ability to transfer your beneficial
interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect
participants and certain banks, your ability to pledge your
interests in a Global Note to persons or entities that do not
participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of
a physical certificate evidencing such interests.
We will make payments of the principal of, premium, if any, and
interest on Global Notes to DTC or its nominee as the registered
owner thereof. Neither we nor the trustee nor any of their
respective agents will have any responsibility or liability for
any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Notes or
for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
We expect that DTC or its nominee, on receipt of any payment of
principal or interest in respect of a Global Note representing
any notes held by it or its nominee, will immediately credit
participants accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global Note as shown on the records of
DTC or its nominee. We also expect that payments by participants
to owners of beneficial interests in such Global Note held
through such participants will be governed by standing
instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in
street name. Such payment will be the responsibility
of such participants.
Transfers between participants in DTC will be effected in
accordance with DTCs procedures, and will be settled in
same-day
funds.
Notes that are issued as described below under
Certificated Notes will be issued in
registered definitive form without coupons (each, a
Certificated Note). Upon transfer of Certificated
Notes, such Certificated Notes may, unless the Global Note has
previously been exchanged for Certificated Notes, be exchanged
for an interest in the Global Note representing the principal
amount of notes being transferred.
DTC has advised us that it will take any action permitted to
betaken by a holder of notes, including the presentation of
notes for exchange as described below and the conversion of
notes, only at the direction of one or more participants to
whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate
principal amount of the notes as to which such participant or
participants has
S-21
or have given such direction. However, if there is an Event of
Default under the notes, the Global Notes will be exchanged for
legended notes in certificated form, and distributed to
DTCs participants.
DTC has advised us that it is:
(1) a limited purpose trust company organized under the
laws of the State of New York;
(2) a member of the Federal Reserve System;
(3) a clearing corporation within the meaning
of the Uniform Commercial Code; and
(4) a Clearing Agency registered pursuant to
the provisions of Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the
need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system
is available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly
(indirect participants).
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of beneficial ownership interests in the
Global Notes among participants of DTC, it is under no
obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither we,
nor the trustee nor any of their respective agents will have any
responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the
rules and procedures governing their operations, including
maintaining, supervising or reviewing the records relating to,
or payments made on account of, beneficial ownership interests
in Global Notes.
Certificated
Notes
You may not exchange your beneficial interest in a Global Note
for a note in certificated form unless:
(1) DTC notifies us that it is unwilling or unable to
continue as depositary for the Global Note, or DTC ceases to be
a clearing agency registered under the Exchange Act,
and in either case, we thereupon fail to appoint a successor
depositary within 90 days; or
(2) an Event of Default shall have occurred and be
continuing with respect to the notes.
In all cases, Certificated Notes delivered in exchange for any
Global Note or beneficial interests therein will be registered
in the names, and issued in any approved denominations,
requested by or on behalf of the depositary in accordance with
its customary procedures.
S-22
CERTAIN
TAX CONSIDERATIONS
Bermuda
Under current Bermuda law, there is no income, corporate or
profits tax or withholding tax, capital gains tax or capital
transfer tax, estate or inheritance tax payable by the Company.
The Company has obtained from the Minister of Finance under The
Exempted Undertaking Tax Protection Act 1966, as amended, an
assurance that, in the event that Bermuda enacts legislation
imposing tax computed on profits, income, any capital asset,
gain or appreciation, or any tax in the nature of estate duty or
inheritance, then the imposition of any such tax shall not be
applicable to the Company or to any of its operations, or its
shares, debentures, notes or other obligations, until
March 28, 2016. The Company is not required to deduct or
withhold on account of any Bermuda tax from payments made under
the notes and the holders of the notes who are not treated as
resident or ordinarily resident in Bermuda generally would not
be subject to any Bermuda taxation of capital gains realised on
the disposition of the Notes. Notes that are beneficially owned
by an individual domiciled outside of Bermuda will not be
subject to Bermuda inheritance tax. No Bermuda stamp duty or
stamp duty reserve tax will be imposed on the issuance of the
notes and no Bermuda stamp duty is payable on the transfer of
the notes. This assurance is subject to the proviso that it is
not to be construed so as to prevent the application of any tax
or duty to such persons as are ordinarily resident in Bermuda or
to prevent the application of any tax payable in accordance with
the provisions of the Land Tax Act 1967 or otherwise payable in
relation to any property leased to the Company.
United
States Taxation of the Holders of the Notes
The following is a general summary of certain U.S. federal
income tax consequences associated with the purchase, beneficial
ownership and disposition of the notes by holders of the notes.
This summary is based on the U.S. Internal Revenue Code of
1986, as amended (the Code), Treasury regulations
promulgated thereunder, rulings, official pronouncements and
judicial decisions, all as in effect on the date of this
offering circular and all of which are subject to change,
possibly with retroactive effect, or different interpretations.
This summary only addresses tax considerations for holders that
purchase the notes pursuant to this offering at the original
issue price and that hold the notes as capital
assets (generally, property held for investment).
Moreover, this summary is for general information only and does
not address all of the tax consequences that may be relevant to
specific investors in light of their particular circumstances or
to investors subject to special treatment under
U.S. federal income tax laws (such as banks, insurance
companies, tax-exempt entities, retirement plans, dealers in
securities, traders in securities that elect to use a mark to
market method of accounting, brokers, expatriates, entities
treated as partnerships for U.S. federal income tax
purposes and investors therein, persons who hold their notes as
part of a straddle, hedge, conversion transaction or other
integrated investment, U.S. holders (as defined below)
whose functional currency is not the U.S. dollar, persons
subject to the alternative minimum tax or persons deemed to sell
the notes under the constructive sale provisions of the Code),
all of whom may be subject to tax rules that differ
significantly from those summarized below. The discussion below
does not address U.S. federal estate and gift tax
considerations or the effect of any U.S. state, local or
non-U.S. tax
law. We have not sought any ruling from the Internal Revenue
Service (the IRS) or an opinion of counsel with
respect to the statements made and the conclusions reached in
this discussion, and there can be no assurance that the IRS will
agree with such statements and conclusions.
HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS FOR THEM
RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE
OR LOCAL TAX LAWS OR
NON-U.S. TAX
LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR
PROPOSED LEGISLATION OR REGULATIONS.
For purposes of this summary, a U.S. holder is
a beneficial owner of a note that is, for U.S. federal
income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income tax regardless of the source thereof; or
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a trust (1) if a court within the United States is able to
exercise primary supervision over its administration and one or
more U.S. persons have the authority to control all of its
substantial decisions, or (2) if it validly elects to be
treated as a United States person for U.S. federal income
tax purposes.
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A
non-U.S. holder
is a beneficial owner of a note that is an individual,
corporation, estate or trust and is not a U.S. holder.
If an entity treated as a partnership for U.S. federal
income tax purposes is a beneficial owner of a note, the
treatment of a partner in the partnership generally will depend
upon the status of the partner and the activities of the
partnership.
U.S.
Holders
Payment
of Interest
A U.S. holder must include in the U.S. holders
gross income all payments of interest (including any additional
amounts) in respect of the notes, at the time accrued or paid,
in accordance with the U.S. holders usual method of
tax accounting for U.S. federal income tax purposes.
Interest on the notes generally will (1) be treated as
foreign source income for U.S. federal income tax purposes,
and (2) constitute passive income, or in the case of
certain U.S. holders, general category income for foreign
tax credit purposes.
Sale,
Exchange, Redemption, Retirement or Other
Dispositions
A U.S. holder generally will recognize gain or loss for
U.S. federal income tax purposes upon the sale, exchange,
redemption, retirement or other taxable disposition of the notes
in an amount equal to the difference between the amount realized
and the U.S. holders adjusted tax basis in the notes.
For this purpose, the amount realized does not include any
amount attributable to accrued interest on the notes, which will
be taxable as ordinary income as described above, to the extent
not previously so taxed. A U.S. holders adjusted tax
basis in the notes generally will equal the cost of such notes
to such holder.
The gain or loss upon the sale, exchange, redemption, retirement
or other disposition of the notes generally will be capital gain
or loss. If, at the time of such disposition, the notes have
been held for more than one year, the gain or loss will be a
long-term capital gain or loss. Under current law, long-term
capital gains recognized by individuals or other non-corporate
U.S. holders are generally subject to a reduced
U.S. federal income tax rate. Capital losses are subject to
limits on deductibility. Any gain or loss recognized by a
U.S. holder generally will be treated as from sources
within the United States for U.S. federal income tax
purposes.
Non-U.S.
Holders
In general, a
non-U.S. holder
will not subject to U.S. federal income tax or withholding
tax on payments of interest on, or gain upon the sale, exchange,
redemption, retirement or other disposition of, notes, unless:
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the interest or gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States, or
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in the case of gain, the
non-U.S. holder
is an individual present in the United States for 183 or more
days in the taxable year of the sale or disposition and certain
other conditions exist.
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A
non-U.S. holder
will be subject to U.S. federal income tax in respect of
the interest or gain that is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States in the same
manner as it were a U.S. holder, unless an applicable
income tax treaty provides otherwise. A corporate
non-U.S. holder
will be subject to an additional branch profits tax
at a 30% rate or at a lower applicable
S-24
treaty. If a
non-U.S. holder
is an individual described in the second bullet point, any such
gain (net of certain U.S. source capital losses) will be
subject to 30% (or lower treaty rate) of U.S. federal
income tax.
Backup
Withholding and Information Reporting
U.S. backup withholding (at a current rate of 28%) may
apply to payments to a U.S. holder of interest on the notes
and/or
proceeds from the sale, exchange, redemption, retirement or
other disposition of the notes if the U.S. holder fails to
furnish to the paying agent the U.S. holders taxpayer
identification number, that is, the U.S. holders
social security number or employer identification number, or
fails to otherwise comply with the applicable requirements of
the backup withholding rules. Certain U.S. holders,
including corporations, are not subject to backup withholding.
In addition, payments of interest on the notes
and/or
proceeds from the sale, exchange, redemption, retirement or
other disposition of the notes will generally be subject to
information reporting requirements.
If the notes are held by a
non-U.S. holder
through a
non-U.S. (and
non-U.S. related)
broker or financial institution, backup withholding and related
information reporting generally would not be required.
Information reporting, and possibly backup withholding, may
apply to the interest on and proceeds from the notes if he notes
are held by a
non-U.S. holder
through a U.S. (or U.S. related) broker or financial
institution and the
non-U.S. holder
fails to provide appropriate information or otherwise establish
an exemption.
Any amounts withheld under the backup withholding rules from a
payment to a holder with respect to the notes will be allowed as
a refund or credit against such holders U.S. federal
income tax liability; provided that the holder timely
furnishes the required information to the IRS.
S-25
UNDERWRITING
Our company and the underwriters have entered into an
underwriting agreement with respect to the notes. Subject to
certain conditions, the underwriters have severally agreed to
purchase the principal amount of notes indicated in the
following table:
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Principal Amount
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Underwriters
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of Notes
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Goldman, Sachs & Co.
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$
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Deutsche Bank Securities Inc.
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J.P. Morgan Securities Inc.
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Total
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$
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The underwriters are committed to take and pay for all of the
notes being offered, if any are taken.
Notes sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus supplement. Any notes sold by the
underwriters to securities dealers may be sold at a discount
from the initial public offering price of up
to %
of the principal amount of notes. Any such securities dealers
may resell any notes purchased from the underwriters to certain
other brokers or dealers at a discount from the initial public
offering price of up
to %
of the principal amount of notes. If all the notes are not sold
at the initial offering price, the underwriters may change the
offering price and the other selling terms. The offering of the
notes by the underwriters is subject to receipt and acceptance
and subject to the underwriters right to reject any order
in whole or in part.
The notes are a new issue of securities with no established
trading market. The company has been advised by the underwriters
that the underwriters intend to make a market in the notes but
are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.
In connection with the offering, the underwriters may purchase
and sell notes in the open market. These transactions may
include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of notes than it is
required to purchase in the offering. Stabilizing transactions
consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the
notes while the offering is in progress.
These activities by the underwriters, as well as other purchases
by the underwriters for their own accounts, may stabilize,
maintain or otherwise affect the market price of the notes. As a
result, the price of the notes may be higher than the price that
otherwise might exist in the open market. If these activities
are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected in the
over-the-counter
market or otherwise.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that,
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date), it has not made and will not make
an offer of notes to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
notes which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in
that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of
notes to the public in that Relevant Member State at any time:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
S-26
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by the issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of notes to the public in relation to any
notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the notes to be offered so as to enable an
investor to decide to purchase or subscribe the notes, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
The underwriters have represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 (FSMA)) received by it in
connection with the issue or sale of the notes in circumstances
in which Section 21(1) of the FSMA does not apply to the
Company; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to, from or otherwise involving the United Kingdom.
The notes may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the notes may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to notes
which are or are intended to be disposed of only to persons
outside Hong Kong or only to professional investors
within the meaning of the Securities and Futures Ordinance (Cap.
571, Laws of Hong Kong) and any rules made thereunder.
The notes have not been and will not be registered under the
Securities and Exchange Law of Japan (the Securities and
Exchange Law) and the underwriters have agreed that it will not
offer or sell any notes, directly or indirectly, in Japan or to,
or for the benefit of, any resident of Japan (which term as used
herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
This prospectus supplement has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement and any other document
or material in connection with the offer or sale, or invitation
for subscription or purchase, of the notes may not be circulated
or distributed, nor may the notes be offered or sold, or be made
the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or
S-27
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
Where the notes are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the notes under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $330,000.
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities
Act of 1933.
Certain of the underwriters and their respective affiliates are
full service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us, for which they received or will receive
customary fees and expenses. In addition, one of the members of
Validus board of directors is an employee of Goldman,
Sachs & Co.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers and may at any time hold long
and short positions in such securities and instruments. Such
investment and securities activities may involve securities and
instruments of the issuer.
Conflicts
of Interest; FINRA Regulations
Goldman, Sachs & Co. is deemed to have a
conflict of interest in this offering within the
meaning of Rule 2720 because affiliates of Goldman, Sachs
& Co. currently in the aggregate beneficially own a 10% or
more interest in Validus. Any underwriter with a conflict
of interest is not permitted to sell the notes in this
offering to an account over which it exercises discretionary
authority without the prior specific written approval of the
account holder. Because Goldman, Sachs & Co. is deemed
to have a conflict of interest in this offering
within the meaning of Rule 2720, this offering will be
conducted in accordance with Rule 2720(a)(1)(C). Pursuant
to that rule, the appointment of a qualified independent
underwriter is not necessary in connection with the offering, as
the offering is of a class of securities that are investment
grade rated, as that term is defined in Rule 2720. In
compliance with the guidelines of FINRA, the maximum
underwriting compensation in connection with this offering will
not exceed 8% of the gross proceeds.
LEGAL
MATTERS
Certain U.S. legal matters with respect to the notes will
be passed upon for Validus by Cahill Gordon & Reindel
llp, New York, New
York. Certain matters with respect to the notes under the laws
of Bermuda will be passed upon for Validus by Appleby. The
underwriters are being represented by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Skadden, Arps,
Slate, Meagher & Flom LLP has, from time to time,
represented and may in the future represent, Validus and its
affiliates in connection with various legal matters.
S-28
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus supplement by reference to Validus annual
report on
Form 10-K
for the year ended December 31, 2008 have been so incorporated
in reliance on the report of PricewaterhouseCoopers, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
IPCs consolidated financial statements as of
December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2008,
have been incorporated by reference herein in reliance upon the
reports of KPMG, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in auditing and accounting.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference into
this prospectus supplement the information we file with the SEC,
which means that we can disclose important information to you by
referring to another document filed separately with the SEC. The
information that we file after the date of this prospectus
supplement with the SEC will automatically be deemed to be
incorporated by reference and will update and supersede this
information. We incorporate by reference into this prospectus
supplement the documents listed below and under
Incorporation of Certain Documents by Reference in
the accompanying prospectus, and any future filings made with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act. You can review and copy documents that Validus has
filed at the SECs Public Reference Room in
Washington, D.C. Call 1-202-551-8090 for information. The
SEC charges a fee for copies. You can get the same information
free from the SECs EDGAR database on the Internet
(http://www.sec.gov).
You may also
e-mail
requests for these documents to publicinfo@sec.gov or make a
request in writing to the SECs Public Reference Section,
100 F Street, N.E., Room 1580,
Washington, D.C. 20549.
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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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Quarterly Report on
Form 10-Q
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For the quarters ended March 31, 2009, June 30, 2009 and
September 30, 2009
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Current Reports on
Form 8-K
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Filed on February 9, 2009, March 31, 2009, April 3, 2009, April
9, 2009, April 16, 2009, April 29, 2009, April 30, 2009, May 6,
2009 (Form 8-K/A), May 11, 2009, May 12, 2009, May 14, 2009, May
18, 2009, May 20, 2009, May 22, 2009, June 1, 2009, June 8,
2009, July 9, 2009, July 27, 2009, July 30, 2009, August 5,
2009, August 6, 2009, August 13, 2009, August 19, 2009,
September 4, 2009, September 15, 2009, November 20, 2009 and
December 28, 2009 (other than documents or any portion of any
documents not deemed to be filed, although the Form 8-K filed on
May 11, 2009 (Film No. 09816281), was furnished and not filed
with the SEC, it is specifically incorporated by reference
herein, notwithstanding any other provisions to the contrary).
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Proxy Statements on Schedule 14A
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Filed on March 25, 2009, May 26, 2009, May 28, 2009, May 29,
2009, June 1, 2009, June 3, 2009, June 8, 2009, June 10,
2009, June 12, 2009, June 15, 2009, June 17, 2009 and June 23,
2009.
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Any statement contained in a document incorporated or considered
to be incorporated by reference in this prospectus supplement
shall be considered to be modified or superseded for purposes of
this prospectus
S-29
supplement to the extent that a statement contained in this
prospectus supplement or in any subsequently filed document that
is or is considered to be incorporated by reference modifies or
supersedes such statement. Any statement that is modified or
superseded will not, except as so modified or superseded,
constitute a part of this prospectus supplement. You may request
a copy of any of the documents which are incorporated by
reference in this prospectus supplement or the accompanying
prospectus, other than exhibits which are not specifically
incorporated by reference into such documents, and Validus
constitutional documents, at no cost, by writing or telephoning
us at the following:
Validus Holdings, Ltd.
Attn.: General Counsel
29 Richmond Road
Pembroke, Bermuda, HM 08
Telephone:
(441) 278-9063
NON-GAAP
FINANCIAL MEASURES
In presenting certain information regarding Validus
results in this prospectus supplement and certain of the
documents incorporated by reference, management has included and
discussed underwriting income, operating income and diluted book
value per share that are not calculated under standards or rules
that comprise U.S. GAAP. Such measures are referred to as
non-GAAP. Non-GAAP measures may be defined or calculated
differently by other companies. We believe that these measures
are important to investors and other interested parties. These
measures should not be viewed as a substitute for those
determined in accordance with U.S. GAAP.
Underwriting income is defined as net income excluding net
investment income (loss), other income (expense), finance
expenses, tax benefit, net realized gains (losses) on
investments, net unrealized gains (losses) on investments,
foreign exchange gains (losses) and non-recurring items,
including the gain on bargain purchase, net of expenses relating
to the acquisition of IPC. Underwriting income measures the
performance of our core underwriting function, excluding
revenues and expenses. We believe the reporting of underwriting
income enhances the understanding of our results by highlighting
the underlying profitability of our core insurance and
reinsurance business. Underwriting profitability is influenced
significantly by earned premium growth, adequacy of our pricing
and loss frequency and severity. Underwriting profitability over
time is also influenced by our underwriting discipline, which
seeks to manage exposure to loss through favorable risk
selection and diversification, our management of claims, our use
of reinsurance and our ability to manage our expense ratio,
which we accomplish through our management of acquisition costs
and other underwriting expenses. We believe that underwriting
income provides investors with a valuable measure of
profitability derived from underwriting activities. Net income
is the most directly comparable U.S. GAAP measure.
Net operating income is defined as net income (loss) excluding
net realized and unrealized gains or losses on investments,
foreign exchange gains and losses and non-recurring items,
including the gain on bargain purchase, net of expenses relating
to the acquisition of IPC. Net income is the most comparable
U.S. GAAP financial measure. Management believes net
operating income is important to investors and other interested
parties as net operating income focuses on the underlying
fundamentals of our operations without the influence of realized
gains (losses) from the sale of investments, translation of
non-U.S.$
currencies and non-recurring items. Realized gains (losses) from
the sale of investments are driven by the timing of the
disposition of investments, not by our operating performance.
Gains (losses) arising from translation of
non-U.S.$
denominated balances are unrelated to our underlying business.
Diluted book value per common share is defined as total
shareholders equity plus the assumed proceeds from the
exercise of outstanding options and warrants, divided by the sum
of common shares, unvested restricted shares, options and
warrants outstanding (assuming their exercise). The most
comparable U.S. GAAP financial measure is book value per
common share.
A reconciliation of each of underwriting income (loss) to net
income (loss), net operating income (loss) to net income (loss)
and diluted book value per common share to book value per common
share is presented in the notes to the financial statements
contained in the Validus
10-Q and the
Validus 10-K.
S-30
PROSPECTUS
Validus Holdings, Ltd.
Common Shares, Preference
Shares, Depositary Shares,
Debt Securities, Warrants to Purchase Common Shares,
Warrants to Purchase Preference Shares,
Warrants to Purchase Debt Securities, Share Purchase
Contracts,
Share Purchase Units and Units
We may offer and sell from time to time:
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common shares;
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preference shares;
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depositary shares representing preference shares or common
shares;
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senior or subordinated debt securities;
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warrants to purchase common shares, preference shares or debt
securities;
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share purchase contracts and share purchase units; and
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units which may consist of any combination of the securities
listed above.
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In addition, selling shareholders to be named in a prospectus
supplement may offer, from time to time, Validus Holdings, Ltd.
common shares. We will not receive any of the proceeds from the
sale of these securities by any selling shareholders.
Specific terms of these securities and material tax
considerations pertaining to an investment in these securities
will be provided in one or more supplements to this prospectus.
You should read this prospectus and any applicable prospectus
supplement carefully before you invest.
Investing in these securities involves risks. See Risk
Factors beginning on page 3 of this prospectus and
Risk Factors in our Annual Report on
Form 10-K
and/or our
Quarterly Reports on
Form 10-Q,
if any.
Our common shares are listed on the New York Stock Exchange,
Inc. (NYSE) under the trading symbol VR.
Other than for our common shares, there is no market for the
other securities we may offer.
Neither the Securities and Exchange Commission, any state
securities commission, the Registrar of Companies in Bermuda,
the Bermuda Monetary Authority nor any other regulatory body has
approved or disapproved of these securities or passed upon the
adequacy of this prospectus or any prospectus supplement. Any
representation to the contrary is a criminal offense.
The date of this prospectus is August 7, 2008.
Table of
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II-1
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II-5
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i
PROSPECTUS
SUMMARY
This prospectus is part of a registration statement filed by
Validus Holdings, Ltd. with the Securities and Exchange
Commission (the SEC) using a shelf registration
process. Under this shelf process, we may sell any combination
of the securities described in this prospectus in one or more
offerings.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. If there is any inconsistency between the
information in this prospectus and any applicable prospectus
supplement, you should rely on the information in the applicable
prospectus supplement. You should read both this prospectus and
any applicable prospectus supplement together with additional
information described under the heading Where You Can Find
More Information.
You should rely only on the information contained in this
prospectus and the information to which we have referred you. We
have not authorized any other person to provide you with
information that is different. This prospectus may only be used
where it is legal to sell these securities. The information in
this prospectus may only be accurate on the date of this
document.
Securities may be offered or sold in Bermuda only in compliance
with the provisions of the Investment Business Act of 2003 of
Bermuda, which regulates the sale of securities in Bermuda. In
addition, the Bermuda Monetary Authority (the BMA)
must approve all issuances and transfers of securities of a
Bermuda exempted company. The BMA has issued its permission for
the free issuance and transferability of our securities, as long
as any of our shares are listed on the NYSE or other appointed
stock exchanges, to and among persons who are non-residents of
Bermuda for exchange control purposes. The issue and transfer of
in excess of 20% of the common shares to and among persons who
are residents of Bermuda for exchange control purposes requires
prior authorization from the BMA. Any other transfers remain
subject to approval by the BMA. In addition, at the time of
issue of each prospectus supplement, we will deliver to and file
a copy of this prospectus and the prospectus supplement with the
Registrar of Companies in Bermuda in accordance with Bermuda
law. The BMA and the Registrar of Companies accept no
responsibility for the financial soundness of any proposal or
for the correctness of any of the statements made or opinions
expressed in this prospectus or in any prospectus supplement.
As used in this prospectus, references to the
Company, we, us or
our refer to the consolidated operations of Validus
Holdings, Ltd. (Validus) and its direct and indirect
subsidiaries unless the context suggests otherwise.
References in this prospectus to dollars or
$ are to the lawful currency of the United States of
America, unless otherwise indicated or the context suggests
otherwise.
1
VALIDUS
HOLDINGS, LTD.
Validus Holdings, Ltd. (the Company) was
incorporated under the laws of Bermuda on October 19, 2005.
Our initial investor, which we refer to as our founding
investor, is Aquiline Capital Partners LLC, a private equity
firm dedicated to investing in financial services companies.
Other sponsoring investors include private equity funds managed
by Goldman Sachs Capital Partners, Vestar Capital Partners, New
Mountain Capital and Merrill Lynch Global Private Equity. The
Company conducts its operations worldwide through two
wholly-owned subsidiaries, Validus Reinsurance, Ltd.
(Validus Re) and Talbot Holdings Ltd
(Talbot). The Company, through its subsidiaries,
provides reinsurance coverage in the Property, Marine and
Specialty lines markets, effective January 1, 2006, and
insurance coverage in the same markets effective July 2,
2007.
We seek to establish ourselves as a leader in the global
insurance and reinsurance markets. Our principal operating
objective is to use our capital efficiently by underwriting
primarily short-tail insurance and reinsurance contracts with
superior risk and return characteristics. Our primary
underwriting objective is to construct a portfolio of short-tail
insurance and reinsurance contracts which maximize our return on
equity subject to prudent risk constraints on the amount of
capital we expose to any single extreme event. We manage our
risks through a variety of means, including contract terms,
portfolio selection, diversification criteria, including
geographic diversification criteria, and proprietary and
commercially available third-party vendor models. We have
assembled a senior management team with substantial industry
expertise and longstanding industry relationships. We are well
positioned to take advantage of current market conditions; we
have also built our operations so that we may effectively take
advantage of future market conditions as they develop.
Our principal executive offices are located at
19 Par-La-Ville Road, Hamilton, Bermuda HM 11, and our
telephone number is
(441) 278-9000.
2
RISK
FACTORS
Investing in our securities involves risks. You should
carefully consider the following information about these risks,
together with the other information contained or incorporated by
reference in this prospectus, including our Annual Report on
Form 10-K
and/or our
Quarterly Reports on
Form 10-Q
and information contained in any prospectus supplement related
to securities offered by that prospectus supplement, before
making an investment decision.
Risks
Related to Our Company
We have a
limited operating history and our historical financial results
do not accurately indicate our future performance.
Validus Re was formed in October 2005 and was fully operational
by December 2005. Talbot was formed in 2002. We, therefore, have
a limited operating and financial history. Validus Re began
underwriting with risks attaching no earlier than
January 1, 2006. It has been reported that among the last
20 years, 2006 has produced the third-lowest level of
insured losses, after 1997 and 1988. As of July 31, 2008,
Validus Re has not experienced any catastrophe events such as
those experienced by the industry in 2004 and 2005. Talbot
experienced losses in 2004 and 2005 but was formed following the
events of September 11, 2001 and thus had no exposure to
losses prior to 2002. As a result, we cannot provide assurances
as to how our business model or risk controls would respond to
such events. There is limited historical financial and operating
information available to help evaluate our past performance or
make a decision about an investment in our common shares. As a
recently formed company, we face substantial business and
financial risks and may suffer significant losses. As a result
of these risks, it is possible that we may not be successful in
the continued implementation of our business strategy or
completing the development of the infrastructure necessary to
run our business.
In addition, particularly as a recently formed company, our
business strategy may change and may be affected by
acquisitions, joint venture or other business, investment
and/or
growth opportunities that may, in the future, become available
to us or that we may pursue. In the future, we may pursue
investments in or acquisitions of companies complementary to our
business. There can be no assurance that any such investments or
acquisitions will occur, or if such investments or acquisitions
do occur, that they will be on terms favorable to us.
Claims on
policies written under our short-tail insurance lines that arise
from unpredictable and severe catastrophic events could
adversely affect our financial condition or results of
operations.
Substantially all of our gross premiums written to date are in
short-tail lines, which means we could become liable for a
significant amount of losses in a brief period. Short-tail
policies expose us to claims arising out of unpredictable
natural and other catastrophic events, such as hurricanes,
windstorms, tsunamis, severe winter weather, earthquakes,
floods, fires, explosions, acts of terrorism and other natural
and man-made disasters. Many observers believe that the Atlantic
basin is in the active phase of a multi-decade cycle in which
conditions in the ocean and atmosphere, including
warmer-than-average sea-surface temperatures and low wind shear,
enhance hurricane activity. This increase in the number and
intensity of tropical storms and hurricanes can span multiple
decades (approximately 20 to 30 years). These conditions
may translate to a greater potential for hurricanes to make
landfall in the U.S. at higher intensities over the next
five years. The frequency and severity of catastrophes are
inherently unpredictable.
The extent of losses from catastrophes is a function of both the
number and severity of the insured events and the total amount
of insured exposure in the areas affected. Increases in the
value and concentrations of insured property, the effects of
inflation and changes in cyclical weather patterns may increase
the severity of claims from catastrophic events in the future.
Claims from catastrophic events could reduce our earnings and
cause substantial volatility in our results of operations for
any fiscal quarter or year, which could adversely affect our
financial condition, possibly to the extent of eliminating our
shareholders equity. Our ability to write new reinsurance
policies could also be affected as a result of corresponding
reductions in our capital.
3
Underwriting is inherently a matter of judgment, involving
important assumptions about matters that are unpredictable and
beyond our control, and for which historical experience and
probability analysis may not provide sufficient guidance. One or
more catastrophic or other events could result in claims that
substantially exceed our expectations and which would become due
in a short period of time, which could materially adversely
effect our financial condition, liquidity or results of
operations.
Emerging
claim and coverage issues could adversely affect our
business.
As industry practices and legal, judicial, social and other
environmental conditions change, unexpected and unintended
issues related to claims and coverage may emerge. These issues
may adversely affect our business by either extending coverage
beyond our underwriting intent or by increasing the number or
size of claims. In some instances, these changes may not become
apparent until some time after we have issued reinsurance
contracts that are affected by the changes. For example, a
reinsurance contract might limit the amount that can be
recovered as a result of flooding. However, if the flood damage
was caused by an event that also caused extensive wind damage,
the quantification of the two types of damage is often a matter
of judgment. Similarly, one geographic zone could be affected by
more than one catastrophic event. In this case, the amount
recoverable from a reinsurer may in part be determined by the
judgmental allocation of damage between the storms. Given the
magnitude of the amounts at stake involved with a catastrophic
event, these types of issues occasionally necessitate judicial
resolution. In addition, our actual losses may vary materially
from our current estimate of the loss based on a number of
factors, including receipt of additional information from
insureds or brokers, the attribution of losses to coverages that
had not previously been considered as exposed and inflation in
repair costs due to additional demand for labor and materials.
As a result, the full extent of liability under an insurance or
reinsurance contract may not be known for many years after such
contract is issued and a loss occurs. Our exposure to this
uncertainty is greater in our longer tail lines (marine and
energy liabilities and financial institutions).
We depend
on ratings from third party rating agencies. Our financial
strength rating could be revised downward, which could affect
our standing among brokers and customers, cause our premiums and
earnings to decrease and limit our ability to pay dividends on
the common shares.
Third-party rating agencies assess and rate the financial
strength of reinsurers based upon criteria established by the
rating agencies, which criteria are subject to change. The
financial strength ratings assigned by rating agencies to
insurance and reinsurance companies represent independent
opinions of financial strength and ability to meet policyholder
obligations and are not directed toward the protection of
investors. Ratings have become an increasingly important factor
in establishing the competitive position of insurance and
reinsurance companies. Insurers and intermediaries use these
ratings as one measure by which to assess the financial strength
and quality of insurers and reinsurers. These ratings are often
a key factor in the decision by an insured or intermediary of
whether to place business with a particular insurance or
reinsurance provider. These ratings are not an evaluation
directed toward the protection of investors or a recommendation
to buy, sell or hold our common shares.
Validus Re was assigned a rating of A−
(Excellent) by A.M. Best Company in December 2005, which
was affirmed by A.M. Best on August 29, 2007. This
rating action followed the Companys closing of the
acquisition of Talbot Holdings (Talbot), as well as the
Companys completion of its capital raising initiatives,
which were necessary to support the risk-adjusted capital
position of the Company. Talbots subsidiary, Talbot
Underwriting Ltd., which manages Syndicate 1183 at Lloyds,
uses the Lloyds rating. On March 7, 2007,
A.M. Best Company assigned an issuer credit rating of
bbb- to Validus Holdings, Ltd. Lloyds is rated
A (Excellent) by A.M. Best and A+
(Strong) by Standard & Poors
(S&P).
If our financial strength rating is reduced from current levels,
our competitive position in the reinsurance industry would
suffer, and it would be more difficult for us to market our
products. A downgrade could result in a significant reduction in
the number of reinsurance contracts we write and in a
substantial loss of business as our customers, and brokers that
place such business, move to other competitors with higher
financial strength ratings. The substantial majority of
reinsurance contracts issued through reinsurance brokers
contains provisions permitting the ceding company to cancel such
contracts in the event of a downgrade of the
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reinsurer by A.M. Best below A−
(Excellent). Consequently, substantially all of our business
could be affected by a downgrade of our A.M. Best rating.
It is increasingly common for our reinsurance contracts to
contain terms that would allow the ceding companies to cancel
the contract for the remaining portion of our period of
obligation if our financial strength rating is downgraded below
A− (Excellent) by A.M. Best. We cannot
predict in advance the extent to which this cancellation right
would be exercised, if at all, or what effect any such
cancellations would have on our financial condition or future
operations, but such effect could be material.
The indenture governing our Junior Subordinated Deferrable
Debentures would restrict us from declaring or paying dividends
on our common shares if we are downgraded by A.M. Best to a
financial strength rating of B (Fair) or below or if
A.M. Best withdraws its financial strength rating on any of
our material insurance subsidiaries.
A downgrade of the Companys A.M. Best financial
strength rating below B++ (Fair) would also
constitute an event of default under our credit facilities.
Either of these events could, among other things, reduce the
Companys financial flexibility.
If
Validus Res risk management and loss limitation methods
fail to adequately manage exposure to losses from catastrophic
events, our financial condition and results of operations could
be adversely affected.
Validus Re manages exposure to catastrophic losses by analyzing
the probability and severity of the occurrence of catastrophic
events and the impact of such events on our overall reinsurance
and investment portfolio. Validus Re uses various tools to
analyze and manage the reinsurance exposures assumed from ceding
companies and risks from a catastrophic event that could have an
adverse effect on their investment portfolio. VCAPS, a
proprietary risk modeling software, enables Validus Re to assess
the adequacy of risk pricing and to monitor the overall exposure
to risk in correlated geographic zones. VCAPS is new and
relatively untested and Validus Re cannot assure the models and
assumptions used by the software will accurately predict losses.
Further, Validus Re cannot assure that it is free of defects in
the modeling logic or in the software code. In addition, Validus
Re has not sought copyright or other legal protection for VCAPS.
In addition, much of the information that Validus Re enters into
the risk modeling software is based on third-party data that
they cannot assure to be reliable, as well as estimates and
assumptions that are dependent on many variables, such as
assumptions about building material and labor demand surge,
storm surge, the expenses of settling claims, which are known as
loss adjustment expenses, insurance-to-value and storm
intensity. Accordingly, if the estimates and assumptions that
are entered into the proprietary risk model are incorrect, or if
the proprietary risk model proves to be an inaccurate
forecasting tool, the losses Validus Re might incur from an
actual catastrophe could be materially higher than their
expectation of losses generated from modeled catastrophe
scenarios, and their financial condition and results of
operations could be adversely affected.
Validus Re also seeks to limit loss exposure through loss
limitation provisions in their policies, such as limitations on
the amount of losses that can be claimed under a policy,
limitations or exclusions from coverage and provisions relating
to choice of forum, which are intended to assure that their
policies are legally interpreted as intended. Validus Re cannot
assure that these contractual provisions will be enforceable in
the manner expected or that disputes relating to coverage will
be resolved in their favor. If the loss limitation provisions in
the policies are not enforceable or disputes arise concerning
the application of such provisions, the losses they might incur
from a catastrophic event could be materially higher than
expectation, and their financial condition and results of
operations could be adversely affected.
5
The
insurance and reinsurance business is historically cyclical, and
we expect to experience periods with excess underwriting
capacity and unfavorable premium rates and policy terms and
conditions, which could materially adversely affect our
financial condition and results of operations.
The insurance and reinsurance industry has historically been
cyclical. Insurers and reinsurers have experienced significant
fluctuations in operating results due to competition, frequency
of occurrence or severity of catastrophic events, levels of
underwriting capacity, underwriting results of primary insurers,
general economic conditions and other factors. The supply of
insurance and reinsurance is related to prevailing prices, the
level of insured losses and the level of industry surplus which,
in turn, may fluctuate, including in response to changes in
rates of return on investments being earned in the reinsurance
industry.
The insurance and reinsurance pricing cycle has historically
been a market phenomenon, driven by supply and demand rather
than by the actual cost of coverage. The upward phase of a cycle
is often triggered when a major event forces insurers and
reinsurers to make large claim payments, thereby drawing down
capital. This, combined with increased demand for insurance
against the risk associated with the event, pushes prices
upwards. Over time, insurers and reinsurers capital
is replenished with the higher revenues. At the same time, new
entrants flock to the industry seeking a part of the profitable
business. This combination prompts a slide in prices
the downward cycle until a major insured event
restarts the upward phase. As a result, the insurance and
reinsurance business has been characterized by periods of
intense competition on price and policy terms due to excessive
underwriting capacity, which is the percentage of surplus or the
dollar amount of exposure that a reinsured is willing to place
at risk, as well as periods when shortages of capacity result in
favorable premium rates and policy terms and conditions.
Premium levels may be adversely affected by a number of factors
which fluctuate and may contribute to price declines generally
in the reinsurance industry. For example, as premium levels for
many products have increased subsequent to the significant
natural catastrophes of 2004 and 2005, the supply of reinsurance
has increased and is likely to increase further, either as a
result of capital provided by new entrants or by the commitment
of additional capital by existing reinsurers. In addition, some
of the prior upward cycles were initiated following each of
Hurricane Andrew in 1992 and the events of September 11,
2001. Continued increases in the supply of insurance and
reinsurance may have consequences for the reinsurance industry
generally and for us, including fewer contracts written, lower
premium rates, increased expenses for customer acquisition and
retention, and less favorable policy terms and conditions. For
instance, the Company has noted an increase in the amount of
available underwriting capacity in most lines in which it is
involved throughout 2007 and continuing through the July 1,
2008 renewal period of 2008. As a consequence, the Company has
experienced greater competition on most insurance and
reinsurance lines. This has adversely affected the rates we
receive for our reinsurance and our overall gross premiums
written to date. Furthermore, the State of Florida has
instituted a law that, in part, increases the amount of
reinsurance available to primary insurers from the Florida
Hurricane Catastrophe Fund.
The cyclical trends in the industry and the industrys
profitability can also be affected significantly by volatile and
unpredictable developments, such as natural disasters (such as
catastrophic hurricanes, windstorms, tornados, earthquakes and
floods), courts granting large awards for certain damages,
fluctuations in interest rates, changes in the investment
environment that affect market prices of investments and
inflationary pressures that may tend to affect the size of
losses experienced by insureds and primary insurance companies.
We expect to experience the effects of cyclicality, which could
materially adversely affect our financial condition and results
of operations.
If we
underestimate our reserve for losses and loss expenses, our
financial condition and results of operations could be adversely
affected.
Our success depends on our ability to accurately assess the
risks associated with the businesses and properties that we
reinsure. If unpredictable catastrophic events occur, or if we
fail to adequately manage our exposure to losses or fail to
adequately estimate our reserve requirements, our actual losses
and loss expenses may deviate, perhaps substantially, from our
reserve estimates.
6
We estimate the risks associated with our outstanding
obligations, including the risk embedded within our unearned
premiums. To do this, we establish reserves for losses and loss
expenses (or loss reserves ), which are liabilities that we
record to reflect the estimated costs of claim payment and the
related expenses that we will ultimately be required to pay in
respect of premiums written and include case reserves and
incurred but not reported (IBNR) reserves. However,
under U.S. GAAP, we are not permitted to establish reserves
for losses with respect to our property catastrophe reinsurance
until an event which gives rise to a claim occurs. As a result,
only reserves applicable to losses incurred up to the reporting
date may be set aside on our financial statements, with no
allowance for the provision of loss reserves to account for
possible other future losses with respect to our
catastrophe-exposed reinsurance. Case reserves are reserves
established with respect to specific individual reported claims.
IBNR reserves are reserves for estimated losses that we have
incurred but that have not yet been reported to us. Property
catastrophe reinsurance covers insurance companies
exposures to an accumulation of property and related losses from
separate policies, typically relating to natural disasters or
other catastrophic events.
Our reserve estimates do not represent an exact calculation of
liability. Rather, they are estimates of what we expect the
ultimate settlement and administration of claims will cost.
These estimates are based upon actuarial and statistical
projections and on our assessment of currently available data,
predictions of future developments and estimates of future
trends and other variable factors such as inflation.
Establishing an appropriate level of our loss reserve estimates
is an inherently uncertain process. It is likely that the
ultimate liability will be greater or less than these estimates
and that, at times, this variance will be material. Our reserve
estimates are regularly refined as experience develops and
claims are reported and settled. Establishing an appropriate
level for our reserve estimates is an inherently uncertain
process. In addition, as we operate solely through
intermediaries, reserving for our business can involve added
uncertainty arising from our dependence on information from
ceding companies which, in addition to the risk of receiving
inaccurate information involves an inherent time lag between
reporting information from the primary insurer to us.
Additionally, ceding companies employ differing reserving
practices which adds further uncertainty to the establishment of
our reserves. Moreover, these uncertainties are greater for
reinsurers like us than for reinsurers with a longer operating
history, because we do not yet have an established loss history.
The lack of historical information for the Company has
necessitated the use of industry loss emergence patterns
in deriving IBNR. Loss emergence patterns are development
patterns used to project current reported or paid loss amounts
to their ultimate settlement value or amount. Further, expected
losses and loss ratios are typically developed using vendor and
proprietary computer models and these expected loss ratios are a
material component in the calculation deriving IBNR. Actual loss
ratios will deviate from expected loss ratios and ultimate loss
ratios will be greater or less than expected loss ratios.
Because of these uncertainties, it is possible that our
estimates for reserves at any given time could prove inadequate.
To the extent we determine that actual losses and loss
adjustment expenses from events which have occurred exceed our
expectations and the loss reserves reflected in our financial
statements, we will be required to reflect these changes in the
current period. This could cause a sudden and material increase
in our liabilities and a reduction in our profitability,
including operating losses and reduction of capital, which could
materially restrict our ability to write new business and
adversely affect our financial condition and results of
operations and potentially our A.M. Best rating.
We rely
on key personnel and the loss of their services may adversely
affect us. The Bermuda location of our head office may be an
impediment to attracting and retaining experienced
personnel.
Various aspects of our business depend on the services and
skills of key personnel of the Company. We believe there are
only a limited number of available qualified executives in the
business lines in which we compete. We rely substantially upon
the services of Edward J. Noonan, Chairman of our Board of
Directors and Chief Executive Officer; George P. Reeth,
President and the Deputy Chairman of our Board of Directors;
C.N. Rupert Atkin, Chief Executive Officer of the Talbot Group;
Michael J. Belfatti, Executive Vice President and Chief Actuary;
Gilles A. M. Bonvarlet, Chief Operating Officer of the Talbot
Group; Michael E.A. Carpenter, Chairman of the Talbot Group;
Joseph E. (Jeff) Consolino, Chief Financial Officer; C. Jerome
Dill, General Counsel; Stuart W. Mercer, Chief Risk Officer; and
Conan M. Ward, Chief Underwriting Officer,
7
among other key employees. Although we are not aware of any
planned departures, the loss of any of their services or the
services of other members of our management team or any
difficulty in attracting and retaining other talented personnel
could impede the further implementation of our business
strategy, reduce our revenues and decrease our operational
effectiveness. Although we have an employment agreement with
each of the above named executives, there is a possibility that
these employment agreements may not be enforceable in the event
any of these employees leave. The employment agreements for each
of the above-named executives provide that the terms of the
agreement will continue for a defined period after either party
giving notice of termination, and will terminate immediately
upon the Company giving notice of termination for cause. We do
not currently maintain key man life insurance policies with
respect to them or any of our other employees.
The operating location of our head office and Validus Re
subsidiary may be an impediment to attracting and retaining
experienced personnel. Under Bermuda law, non-Bermudians (other
than spouses of Bermudians) may not engage in any gainful
occupation in Bermuda without an appropriate governmental work
permit. Our success may depend in part on the continued services
of key employees in Bermuda. A work permit may be granted or
renewed upon demonstrating that, after proper public
advertisement, no Bermudian (or spouse of a Bermudian or a
holder of a permanent residents certificate or holder of a
working residents certificate) is available who meets the
minimum standards reasonably required by the employer. The
Bermuda governments policy places a six-year term limit on
individuals with work permits, subject to certain exemptions for
key employees. A work permit is issued with an expiry date (up
to five years) and no assurances can be given that any work
permit will be issued or, if issued, renewed upon the expiration
of the relevant term. If work permits are not obtained, or are
not renewed, for our principal employees, we would lose their
services, which could materially affect our business. Work
permits are currently required for 26 of our Bermuda employees,
all of whom have obtained three- or five-year work permits
except Mr. Belfatti whose five year work permit has been
applied for but not yet approved due his recent start date with
the Company.
Certain
of our directors and officers may have conflicts of interest
with us.
Entities affiliated with some of our directors have sponsored or
invested in, and may in the future sponsor or invest in, other
entities engaged in or intending to engage in insurance and
reinsurance underwriting, some of which compete with us. They
have also entered into, or may in the future enter into,
agreements with companies that compete with us.
We have a policy in place applicable to each of our directors
and officers which provides for the resolution of potential
conflicts of interest. However, we may not be in a position to
influence any partys decision to engage in activities that
would give rise to a conflict of interest, and they may take
actions that are not in our shareholders best interests.
We may
require additional capital or credit in the future, which may
not be available or only available on unfavorable
terms.
We monitor our capital adequacy on a regular basis. The capital
requirements of our business depend on many factors, including
our premiums written, loss reserves, investment portfolio
composition and risk exposures, as well as satisfying regulatory
and rating agency capital requirements. Our ability to
underwrite is largely dependent upon the quality of our claims
paying and financial strength ratings as evaluated by
independent rating agencies. To the extent that our existing
capital is insufficient to fund our future operating
requirements
and/or cover
claim losses, we may need to raise additional funds through
financings or limit our growth. Any equity or debt financing, if
available at all, may be on terms that are unfavorable to us. In
the case of equity financings, dilution to our shareholders
could result, and, in any case, such securities may have rights,
preferences and privileges that are senior to those of our
outstanding securities. If we are not able to obtain adequate
capital, our business, results of operations and financial
condition could be adversely affected.
In addition, as an alien reinsurer (not licensed in the United
States), we are required to post collateral security with
respect to any reinsurance liabilities that we assume from
ceding insurers domiciled in the United States in order for
U.S. ceding companies to obtain full statutory and
regulatory credit for our
8
reinsurance. Other jurisdictions and
non-U.S. ceding
insurers may have similar collateral requirements. Under
applicable statutory provisions, these security arrangements may
be in the form of letters of credit, reinsurance trusts
maintained by trustees or funds withheld arrangements where
assets are held by the ceding company. We intend to
satisfy such statutory requirements by providing to primary
insurers letters of credit issued under our credit facilities.
To the extent that we are required to post additional security
in the future, we may require additional letter of credit
capacity and we cannot assure that we will be able to obtain
such additional capacity or arrange for other types of security
on commercially acceptable terms or on terms as favorable as
under our current letter of credit facilities. Our inability to
provide collateral satisfying the statutory and regulatory
guidelines applicable to primary insurers would have a material
effect on our ability to provide reinsurance to third parties
and negatively affect our financial position and results of
operations.
Security arrangements may subject our assets to security
interests
and/or
require that a portion of our assets be pledged to, or otherwise
held by, third parties. Although the investment income derived
from our assets while held in trust typically accrues to our
benefit, the investment of these assets is governed by the
investment regulations of the state of domicile of the ceding
insurer.
Competition
for business in our industry is intense, and if we are unable to
compete effectively, we may not be able to retain market share
and our business may be materially adversely affected.
The insurance and reinsurance industries are highly competitive.
We face intense competition, based upon (among other things)
global capacity, product breadth, reputation and experience with
respect to particular lines of business, relationships with
reinsurance intermediaries, quality of service, capital and
perceived financial strength (including independent rating
agencies ratings), innovation and price. We compete with
major global insurance and reinsurance companies and
underwriting syndicates, many of which have extensive experience
in reinsurance and may have greater financial, marketing and
employee resources available to them than us. Other financial
institutions, such as banks and hedge funds, now offer products
and services similar to our products and services through
alternative capital markets products that are structured to
provide protections similar to those provided by reinsurers.
These products, such as catastrophe-linked bonds, compete with
our products. In the future, underwriting capacity will continue
to enter the market from these identified competitors and
perhaps other sources. After the events of September 11,
2001, and then again following the three major hurricanes of
2005 (Katrina, Rita and Wilma), new capital flowed into Bermuda,
and much of these new proceeds went to a variety of
Bermuda-based
start-up
companies. The full extent and effect of this additional capital
on the reinsurance market will not be known for some time and
market conditions could become less favorable. Increased
competition could result in fewer submissions and lower rates,
which could have an adverse effect on our growth and
profitability. If we are unable to compete effectively against
these competitors, we may not be able to retain market share.
In addition, insureds have been retaining a greater proportion
of their risk portfolios than previously, and industrial and
commercial companies have been increasingly relying upon their
own subsidiary insurance companies, known as captive insurance
companies, self-insurance pools, risk retention groups, mutual
insurance companies and other mechanisms for funding their
risks, rather than risk transferring insurance. This has put
downward pressure on insurance premiums.
Loss of
business from one or more major brokers could adversely affect
us.
We market our insurance and reinsurance on a worldwide basis
primarily through brokers, and we depend on a small number of
brokers for a large portion of our revenues. For the year ended
December 31, 2007, our business was primarily sourced from
the following brokers: Marsh Inc./Guy Carpenter & Co.
26.9%, Willis Group Holdings Ltd. 15.7%, Aon Corporation 15.1%
and Benfield Group Ltd. 9.3%. These four brokers provided a
total of 67.0% of our gross premiums written for the year ended
December 31, 2007. Talbot was acquired on July 2,
2007. Talbots gross premium written for the full year
ended December 31, 2007 has been included in the above
analysis for informational purposes only and is not included
within the consolidated results. Loss of all or a substantial
portion of the business provided by one or more of these brokers
could adversely affect our business.
9
We assume
a degree of credit risk associated with substantially all of our
brokers.
In accordance with industry practice, we frequently pay amounts
owed on claims under our policies to brokers and the brokers, in
turn, pay these amounts over to the ceding insurers and
reinsurers that have reinsured a portion of their liabilities
with us. In some jurisdictions, if a broker fails to make such a
payment, we might remain liable to the ceding insurer or
reinsurer for the deficiency notwithstanding the brokers
obligation to make such payment. Conversely, in certain
jurisdictions, when the ceding insurer or reinsurer pays
premiums for these policies to reinsurance brokers for payment
to us, these premiums are considered to have been paid and the
ceding insurer or reinsurer will no longer be liable to us for
these premiums, whether or not we have actually received them.
Consequently, we assume a degree of credit risk associated with
substantially all of our brokers.
Our
success depends on our ability to establish and maintain
effective operating procedures and internal controls. Failure to
detect control issues and any instances of fraud could adversely
affect us.
Our success is dependent upon our ability to establish and
maintain operating procedures and internal controls (including
the timely and successful implementation of information
technology systems and programs) to effectively support our
business and our regulatory and reporting requirements. We may
not be successful in such efforts. Even if and when implemented,
as a result of the inherent limitations in all control systems,
no evaluation of controls can provide full assurance that all
control issues and instances of fraud, if any, within the
Company will be detected.
We may be
unable to purchase reinsurance or retrocessional reinsurance in
the future, and if we successfully purchase retrocessional
reinsurance, we may be unable to collect, which could adversely
affect our business, financial condition and results of
operations.
We purchase reinsurance and retrocessional reinsurance in order
that we may offer insureds and cedants greater capacity, and to
mitigate the effect of large and multiple losses upon our
financial condition. Reinsurance is a transaction whereby an
insurer or reinsurer cedes to a reinsurer all or part of the
reinsurance it has assumed. A reinsurers or retrocessional
reinsurers insolvency or inability or refusal to make
timely payments under the terms of its reinsurance agreement
with us could have an adverse effect on us because we remain
liable to our client. From time to time, market conditions have
limited, and in some cases have prevented, insurers and
reinsurers from obtaining the types and amounts of reinsurance
or retrocessional reinsurance that they consider adequate for
their business needs. Accordingly, we may not be able to obtain
our desired amounts of reinsurance or retrocessional reinsurance
or negotiate terms that we deem appropriate or acceptable or
obtain reinsurance or retrocessional reinsurance from entities
with satisfactory creditworthiness.
Our
investment portfolio may suffer reduced returns or losses which
could adversely affect our results of operations and financial
condition. Any increase in interest rates or volatility in the
fixed income markets could result in significant unrealized
losses in the fair value of our investment portfolio which,
commencing in 2007, would reduce our net income.
Our operating results depend in part on the performance of our
investment portfolio, which currently consists of fixed maturity
securities, as well as the ability of our investment managers to
effectively implement our investment strategy. Our Board of
Directors, including our Finance Committee, oversees our
investment strategy, and in consultation with BlackRock
Financial Management, Inc. and Goldman Sachs Asset Management,
our portfolio advisors, has established investment guidelines.
The investment guidelines dictate the portfolios overall
objective, benchmark portfolio, eligible securities, duration,
limitations on the use of derivatives and inclusion of foreign
securities, diversification requirements and average portfolio
rating. The Board periodically reviews these guidelines in light
of our investment goals and consequently they may change at any
time.
The investment income derived from our invested assets was
$112.3 million or 27.9% of our net income for the year
ended December 31, 2007. While we follow a conservative
investment strategy designed to emphasize the preservation of
invested assets and to provide sufficient liquidity for the
prompt payment of claims, we will nevertheless be subject to
market-wide risks including illiquidity and pricing uncertainty
and fluctuations, as well as to risks inherent in particular
securities. Our investment performance may vary
10
substantially over time, and we cannot assure that we will
achieve our investment objectives. Unlike more established
reinsurance companies with longer operating histories, Validus
Re has a limited performance record to which investors can refer.
Investment results will also be affected by general economic
conditions, market volatility, interest rate fluctuations,
liquidity and credit risks beyond our control. In addition, our
need for liquidity may result in investment returns below our
expectations. Also, with respect to certain of our investments,
we are subject to prepayment or reinvestment risk. In
particular, our fixed income portfolio is subject to
reinvestment risk, and as at December 31, 2007, 44.5% of
the fixed income portfolio is comprised of mortgage backed and
asset backed securities which are subject to prepayment risk.
Although we attempt to manage the risks of investing in a
changing interest rate environment, a significant increase in
interest rates could result in significant losses, realized or
unrealized, in the fair value of our investment portfolio and,
consequently, could have an adverse affect on our results of
operations.
As of January 1, 2007, the Companys investments were
accounted for as trading and, as such, all unrealized gains and
losses are included in Net Income on the Statement of
Operations. Including unrealized gains and losses in Net Income
may have the effect of increasing the volatility of our earnings.
The
movement in foreign currency exchange rates could adversely
affect our operating results because we enter into insurance and
reinsurance contracts where the premiums receivable and losses
payable are denominated in currencies other than the U.S. dollar
and we maintain a portion of our investments and liabilities in
currencies other than the U.S. dollar.
The U.S. dollar is our reporting currency. We enter into
insurance and reinsurance contracts where the premiums
receivable and losses payable are denominated in currencies
other than the U.S. dollar. In addition, we maintain a
portion of our investments and liabilities in currencies other
than the U.S. dollar. Premiums received in
non-U.S. currencies
are generally converted into U.S. dollars at the time of
receipt. When we incur a liability in a
non-U.S. currency,
we carry such liability on our books in the original currency.
These liabilities are converted from the
non-U.S. currency
to U.S. dollars at the time of payment. We will therefore
realize foreign currency exchange gains or losses as we
ultimately receive premiums and settle claims required to be
paid in foreign currencies. At December 31, 2007, 8.7% of
our investments and 30.9% of our reserves for losses and loss
expenses were in foreign currencies.
To the extent that we do not seek to hedge our foreign currency
risk, the impact of a movement in foreign currency exchange
rates could adversely affect our operating results.
The
preparation of our financial statements will require us to make
many estimates and judgments, which are even more difficult than
those made in a mature company, and which, if inaccurate, could
cause volatility in our results.
The Companys consolidated financial statements have been
prepared in accordance with U.S. GAAP. Management believes
the item that requires the most subjective and complex estimates
is the reserve for losses and loss expenses. Due to Validus
Res short operating history, loss experience is limited
and reliable evidence of changes in trends of numbers of claims
incurred, average settlement amounts, numbers of claims
outstanding and average losses per claim will necessarily take
many years to develop. Following a major catastrophic event, the
possibility of future litigation or legislative change that may
affect interpretation of policy terms further increases the
degree of uncertainty in the reserving process. The
uncertainties inherent in the reserving process, together with
the potential for unforeseen developments, including changes in
laws and the prevailing interpretation of policy terms, may
result in losses and loss expenses materially different than the
reserves initially established. Changes to prior year reserves
will affect current underwriting results by increasing net
income if the prior year reserves prove to be redundant or by
decreasing net income if the prior year reserves prove to be
insufficient. The Company expects volatility in results in
periods in which significant loss events occur because
U.S. GAAP does not permit insurers or reinsurers to reserve
for loss events until they have occurred and are expected to
give rise to a claim. As a result, the Company is not allowed to
record contingency reserves to account for expected future
losses. The Company anticipates that claims arising from future
events will require the establishment of substantial reserves
from time to time.
11
An
inability to implement, for the fiscal year ending
December 31, 2008, the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 in a timely and satisfactory
manner could cause the price of our common shares to
fall.
We are presently evaluating our existing internal controls with
respect to the standards adopted by the Public Company
Accounting Oversight Board. We cannot be certain at this time
that we will be able to successfully and satisfactorily complete
the procedures, certification and attestation requirements of
Section 404 of the Sarbanes Oxley Act of 2002 by the time
that we are required to file our Annual Report on
Form 10-K
for the year ending December 31, 2008, which is the first
time that our management and our external auditors will be
required to deliver reports on our internal controls and
procedures in accordance with the Sarbanes-Oxley Act of 2002.
Uncertainty as to our ability to comply with such requirements
or any material weaknesses uncovered as a result of such
procedures could have a material adverse effect on the trading
price of our common shares. In addition, we may incur increased
costs associated with such procedures or a diversion of internal
resources necessary to prepare for or comply with such
requirements.
Risks
Related to Acquisitions and New Ventures
There can
be no assurance that we will fully realize the expected benefits
of the Talbot acquisition in the anticipated time.
In order to realize the benefits of the Talbot acquisition, our
and Talbots management will be required to devote
considerable effort to projects such as upgrading and
integrating financial, actuarial, underwriting and other systems
and preparing financial reports on a timely basis, whether for a
public company or otherwise, and no assurances can be given as
to the impact these efforts may have upon our operations. In
addition, no assurances can be given as to how much business
Talbot will be permitted by Lloyds to write in 2009 and
subsequent years nor as to the viability or cost of the capital
structure we may use as a substitute for the external capital
and reinsurance used by Talbot in 2007 and prior underwriting
years. The Company has recorded intangible assets related to the
acquisition of Talbot based on assumptions of anticipated
benefits. These intangible assets may become impaired if
anticipated benefits are not achieved, resulting in a
corresponding impact on our income.
Any
future acquisitions or new ventures may expose us to operational
risks.
We may in the future make strategic acquisitions, either of
other companies or selected blocks of business, or grow our
business organically. Any future acquisitions or new ventures
may expose us to operational challenges and risks, including:
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integrating financial and operational reporting systems;
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establishing satisfactory budgetary and other financial controls;
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funding increased capital needs and overhead expenses;
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obtaining management personnel required for expanded operations;
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funding cash flow shortages that may occur if anticipated sales
and revenues are not realized or are delayed, whether by general
economic or market conditions or unforeseen internal
difficulties;
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the value of assets related to acquisitions or new ventures may
be lower than expected or may diminish due to credit defaults or
changes in interest rates and liabilities assumed may be greater
than expected;
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the assets and liabilities related to acquisitions or new
ventures may be subject to foreign currency exchange rate
fluctuation; and
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financial exposures in the event that the sellers of the
entities we acquire are unable or unwilling to meet their
indemnification, reinsurance and other obligations to us.
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Our failure to manage successfully these operational challenges
and risks may impact our results of operations.
12
Risks
Relating to Lloyds and Other U.K. Regulatory
Matters
The
regulation of Lloyds members by Lloyds and of
Lloyds by the U.K. Financial Services Authority
(FSA) and under European Directives and other local
laws may result in intervention that could have a significant
negative impact on Talbot.
Talbot operates in a regulated industry. Its underwriting
activities are regulated by the FSA and franchised by
Lloyds. The FSA has substantial powers of intervention in
relation to the Lloyds managing agents (such as Talbot
Underwriting Ltd.) which it regulates, including the power to
remove their authorization to manage Lloyds syndicates. In
addition, the Lloyds Franchise Board requires annual
approval of Syndicate 1183s business plan, including a
maximum underwriting capacity, and may require changes to any
business plan presented to it or additional capital to be
provided to support underwriting (known as Funds at Lloyds
or FAL). An adverse determination in any of these
cases could lead to a change in business strategy which may have
an adverse effect on Talbots financial condition and
operating results.
European Directives affect the regulation governing the carrying
on of insurance business in the United Kingdom. A new Directive
covering the prudential supervision of insurance companies is
being developed to replace the existing insurance Directives.
The proposed Solvency II insurance Directive is
presently under consultation and is unlikely to come into force
before 2009. Likewise, a new reinsurance Directive was adopted
on 17 October 2005, which is likely to be fully implemented
in the U.K. by the end of 2010. There can be no assurance that
future legislation will not have an adverse effect on Talbot.
Additionally, Lloyds worldwide insurance and reinsurance
business is subject to local regulation. Changes in such
regulation may have an adverse effect on Lloyds generally
and on Talbot.
Should
Lloyds Council decide additional levies are required to
support the New Central Fund, this could adversely affect
Talbot.
The New Central Fund, which is funded by annual contributions
and loans from Lloyds members, acts as a
policyholders protection fund to make payments where any
Lloyds member has failed to pay, or is unable to pay,
valid claims. The Lloyds Council may resolve to make
payments from the New Central Fund for the advancement and
protection of policyholders, which could lead to additional or
special contributions being payable by Lloyds members,
including Talbot. This, in turn, could adversely affect Talbot.
Lloyds
1992 and prior liabilities.
Notwithstanding the firebreak introduced when
Lloyds implemented the Reconstruction and Renewal Plan in
1996, Lloyds members, including Talbot subsidiaries,
remain indirectly exposed in a number of ways to 1992 and prior
business reinsured by Equitas, including through the application
of overseas deposits and the New Central Fund.
Lloyds currently has a number of contingent liabilities in
respect of risks under certain policies allocated to 1992 or
prior Years of Account. If the statutory transfer of business
from Equitas to National Indemnity Company (NICO) is not
implemented, and the limit of the NICO retrocession cover proves
to be insufficient and as a consequence Equitas is unable to pay
the 1992 and prior liabilities in full, Lloyds will be
liable to meet any shortfall arising in respect of those
policies. The New Central Fund, which can, subject to
Lloyds regulations, issue calls on current underwriting
members of Lloyds (which will include Talbot
subsidiaries), may be applied for these purposes. Lloyds
also has contingent liabilities under indemnities in respect of
claims against certain persons and from residual litigation with
Lloyds members who have not accepted the settlement offer.
The
failure of Lloyds to satisfy the FSAs annual
solvency test could result in limitations on Talbots
ability to underwrite or its ability to commence legal
proceedings against Lloyds.
The FSA requires Lloyds to satisfy an annual solvency
test. The solvency requirement in essence measures whether
Lloyds has sufficient assets in the aggregate to meet all
outstanding liabilities of its
13
members, both current and in run-off. If Lloyds fails to
satisfy the test in any year, the FSA may require Lloyds
to cease trading
and/or its
members to cease or reduce underwriting. In the event of
Lloyds failing to meet any solvency requirement, either
the Society of Lloyds or the FSA may apply to the court
for a Lloyds Market Reorganisation Order
(LMRO). On the making of an order a
reorganisation controller is appointed, and for its
duration, a moratorium is imposed preventing any proceedings or
legal process from being commenced or continued against any
party that is the subject of such an order, which, if made,
would apply to the market as a whole, including members, former
members, managing agents, members agents, Lloyds
brokers, approved run-off companies and managing general agents
unless individual parties are specifically excluded.
A
downgrade in Lloyds ratings would have an adverse effect
on Syndicate 1183s standing among brokers and customers
and cause its premiums and earnings to decrease.
The ability of Lloyds syndicates to trade in certain
classes of business at current levels is dependent on the
maintenance of a satisfactory credit rating issued by an
accredited rating agency. The financial security of the
Lloyds market is regularly assessed by three independent
rating agencies, A.M. Best, Standard &
Poors and Fitch Ratings. Syndicate 1183 benefits from
Lloyds current ratings and would be adversely affected if
the current ratings were downgraded from their present levels.
An
increase in the charges paid by Talbot to participate in the
Lloyds market could adversely affect Talbots
financial and operating results.
Lloyds imposes a number of charges on businesses operating
in the Lloyds market, including, for example, annual
subscriptions and central fund contributions for members and
policy signing charges. The bases and amounts of charges may be
varied by Lloyds and could adversely affect Talbot.
An
increase in the level or type of deposits required by U.S. Situs
Trust Deeds to be maintained by Lloyds could result in
Syndicate 1183 being required to make a cash call which could
adversely affect Talbots financial performance.
The U.S. Situs Trust Deeds require syndicates
transacting certain types of business in the United States
to maintain minimum deposits as protection for
U.S. policyholders. These deposits represent the
syndicates estimates of unpaid claims liabilities (less
premiums receivable) relating to this business, adjusted for
provisions for potential bad debt on premiums earned but not
received and for any anticipated profit on unearned premiums. No
credit is generally allowed for potential reinsurance
recoveries. The New York Insurance Department and the
U.S. National Association of Insurance Commissioners
currently require funding of 30% of gross liabilities in
relation to insurance business classified as Surplus
Lines. The Credit for Reinsurance trust fund
is usually required to be funded at 100% of gross liabilities.
The funds contained within the deposits are not ordinarily
available to meet trading expenses. U.S. regulators may
increase the level of funding required or change the
requirements as to the nature of funding. Accordingly, in the
event of a major claim arising in the United States, for example
from a major catastrophe, syndicates participating in such
U.S. business may be required to make cash calls on their
members to meet claims payments and deposit funding obligations.
This could adversely affect Talbot.
14
Risks
Related to Taxation
We may be
subject to U.S. tax.
We are organized under the laws of Bermuda and presently intend
to structure our activities to minimize the risk that we would
be considered engaged in a U.S. trade or business. No
definitive standards, however, are provided by the Internal
Revenue Code of 1986, as amended (the Code),
U.S. Treasury regulations or court decisions regarding
activities that constitute the conduct of a U.S. trade or
business. Because that determination is essentially factual, we
cannot assure that the Internal Revenue Service (the
IRS) will not contend that we are engaged in a
U.S. trade or business. If we were found to be so engaged,
we would be subject to U.S. corporate income and branch
profits tax on our earnings that are effectively connected to
such U.S. trade or business.
If Validus Re is entitled to the benefits of the income tax
treaty between the U.S. and Bermuda (the Bermuda
Treaty), it would not be subject to U.S. income tax
on any income protected by the Bermuda Treaty unless that income
is attributable to a permanent establishment in the
U.S. The treaty clearly applies to premium income, but may
be construed as not protecting other income such as investment
income. If Validus Re were found to be engaged in a trade or
business in the U.S. and were entitled to the benefits of
the treaty in general, but the treaty were found not to protect
investment income, a portion of Validus Res investment
income could be subject to U.S. tax.
U.S.
persons who hold common shares may be subject to U.S. income
taxation at ordinary income rates on our undistributed earnings
and profits.
Controlled Foreign Corporation Status: The
Company should not be a controlled foreign corporation
(CFC) because its organizational documents provide
that if the common shares owned, directly, indirectly or by
attribution, by any person would otherwise represent more than
9.09% of the aggregate voting power of all the Companys
common shares, the voting rights attached to those common shares
will be reduced so that such person may not exercise and is not
attributed more than 9.09% of the total voting power of the
common shares. We cannot assure, however, that the provisions of
the organizational documents will operate as intended and that
the Company will not be considered a CFC. If the Company were
considered a CFC, any shareholder that is a U.S. person
that owns directly, indirectly or by attribution, 10% or more of
the voting power of the Company may be subject to current
U.S. income taxation at ordinary income tax rates on all or
a portion of the Companys undistributed earnings and
profits attributable to Validus Res insurance and
reinsurance income, including underwriting and investment
income. Any gain realized on sale of common shares by such 10%
shareholder may also be taxed as a dividend to the extent of the
Companys earnings and profits attributed to such shares
during the period that the shareholder held the shares and while
the Company was a CFC (with certain adjustments).
Related Person Insurance Income: If the
related person insurance income (RPII) of any of the
Companys
non-U.S. insurance
subsidiaries were to equal or exceed 20% of that
subsidiarys gross insurance income in any taxable year,
and U.S. persons were treated as owning 25% or more of the
subsidiarys stock, by vote or value, a U.S. person
who directly or indirectly owns any common shares on the last
day of such taxable year on which the 25% threshold is met would
be required to include in income for U.S. federal income
tax purposes that persons ratable share of that
subsidiarys RPII for the taxable year. The amount
includible in income is determined as if the RPII were
distributed proportionately to U.S. holders on that date,
regardless of whether that income is distributed. The amount of
RPII includible in income is limited by such shareholders
share of the subsidiarys current-year earnings and
profits, and possibly reduced by the shareholders share of
prior year deficits in earnings and profits. The amount of RPII
earned by a subsidiary will depend on several factors, including
the identity of persons directly or indirectly insured or
reinsured by that subsidiary. Although we do not believe that
the 20% threshold will be met for our
non-U.S. insurance
subsidiaries, some of the factors that might affect that
determination in any period may be beyond our control.
Consequently, we cannot assure that we will not exceed the RPII
threshold in any taxable year.
15
If a U.S. person disposes of shares in a
non-U.S. insurance
corporation that had RPII (even if the 20% threshold was not
met) and the 25% threshold is met at any time during the
five-year period ending on the date of disposition, and the
U.S. person owned any shares at such time, any gain from
the disposition will generally be treated as a dividend to the
extent of the holders share of the corporations
undistributed earnings and profits that were accumulated during
the period that the holder owned the shares (possibly whether or
not those earnings and profits are attributable to RPII). In
addition, the shareholder will be required to comply with
specified reporting requirements, regardless of the amount of
shares owned. We believe that those rules should not apply to a
disposition of common shares because the Company is not itself
directly engaged in the insurance business. We cannot assure,
however, that the IRS will not successfully assert that those
rules apply to a disposition of common shares.
U.S.
persons who hold common shares will be subject to adverse tax
consequences if the Company is considered a passive foreign
investment company for U.S. federal income tax
purposes.
If the Company is considered a passive foreign investment
company (PFIC) for U.S. federal income tax
purposes, a U.S. holder who owns common shares will be
subject to adverse tax consequences, including a greater tax
liability than might otherwise apply and an interest charge on
certain taxes that are deferred as a result of the
Companys
non-U.S. status.
We currently do not expect that the Company will be a PFIC for
U.S. federal income tax purposes in the current taxable
year or the foreseeable future because, through Validus Re,
Talbot 2002 Underwriting Capital Ltd. and Talbot Underwriting
Ltd., it intends to be predominantly engaged in the active
conduct of a global insurance business. We cannot assure you,
however, that the Company will not be deemed to be a PFIC by the
IRS. No regulations currently exist regarding the application of
the PFIC provisions to an insurance company. New regulations or
pronouncements interpreting or clarifying such provisions may be
forthcoming. We cannot predict what effect, if any, such
guidance would have on an investor that is subject to
U.S. federal income taxation.
Changes
in U.S. tax laws may be retroactive and could subject a U.S.
holder of common shares to other adverse tax
consequences.
The tax treatment of
non-U.S. companies
and their U.S. and
non-U.S. insurance
and reinsurance subsidiaries has been the subject of
Congressional discussion and legislative proposals in the
U.S. We cannot assure that future legislative action will
not increase the amount of U.S. tax payable by us. For
example, Congress has recently conducted hearings related to the
tax treatment of offshore insurance and is reported to be
considering legislation that would adversely affect reinsurance
between affiliates and offshore insurance and reinsurance more
generally. One such proposal would increase the excise tax rate
on reinsurance premiums paid to affiliated foreign reinsurers
from 1% to 4%; another proposal would limit deductions for
premiums ceded to affiliated
non-U.S. companies
above certain levels. Other proposals relating to cross-border
transactions, intangible products, or
non-U.S. jurisdictions
generally have been introduced in a number of Congressional
committees. Enactment of some versions of such legislation as
well as other changes in U.S. tax laws, regulations and
interpretations thereof to address these issues could adversely
affect our financial condition and results of operations could
be materially adversely affected.
In addition, the U.S. federal income tax laws and
interpretations, including those regarding whether a company is
engaged in a U.S. trade or business or is a PFIC, or
whether U.S. holders would be required to include
subpart F income or RPII in their gross income, are
subject to change, possibly on a retroactive basis. No
regulations regarding the application of the PFIC rules to
insurance companies are currently in effect, and the regulations
regarding RPII are still in proposed form. New regulations or
pronouncements interpreting or clarifying such rules may be
forthcoming. We cannot be certain if, when, or in what form,
such regulations or pronouncements may be provided, and whether
such guidance will have a retroactive effect.
16
Proposed
U.S. Tax Legislation Could Adversely Affect U.S.
Shareholders.
Under current U.S. law, non-corporate U.S. holders of
the Companys common shares generally are taxed on
dividends at a capital gains tax rate rather than ordinary
income tax rates. Currently, there is proposed legislation
before both Houses of Congress that would exclude shareholders
of certain foreign corporations from this advantageous income
tax treatment. If this legislation became law, non-corporate
U.S. shareholders would no longer qualify for the capital
gains tax rate on the Companys dividends.
We may
become subject to taxes in Bermuda after March 28, 2016,
which may have a material adverse effect on our results of
operations.
Under current Bermuda law, we are not subject to tax on income
or capital gains. We have received from the Minister of Finance
under The Exempted Undertaking Tax Protection Act 1966, as
amended, an assurance that, in the event that Bermuda enacts
legislation imposing tax computed on profits, income, any
capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance, then the imposition of any such tax
shall not be applicable to us or to any of our operations or
shares, debentures or other obligations, until March 28,
2016. We could be subject to taxes in Bermuda after that date.
This assurance is subject to the proviso that it is not to be
construed to prevent the application of any tax or duty to such
persons as are ordinarily resident in Bermuda or to prevent the
application of any tax payable in accordance with the provisions
of the Land Tax Act 1967 or otherwise payable in relation to any
property leased to us. We and Validus Re each pay annual Bermuda
government fees; Validus Re pays annual insurance license fees.
In addition, all entities employing individuals in Bermuda are
required to pay a payroll tax and there are other sundry taxes
payable, directly or indirectly, to the Bermuda government.
The
Organisation for Economic Cooperation and Development and other
multinational organizations are considering measures that might
increase our taxes and reduce our net income.
The Organisation for Economic Cooperation and Development, which
is commonly referred to as the OECD, has published reports and
launched a global dialogue among member and non-member countries
on measures to limit harmful tax competition. These measures are
largely directed at counteracting the effects of tax havens and
preferential tax regimes in countries around the world. In the
OECDs report dated 18 April 2002 and updated as of
June 2004, Bermuda was not listed as an uncooperative tax haven
jurisdiction because it had previously committed to eliminate
harmful tax practices and to embrace international tax standards
for transparency, exchange of information and the elimination of
any aspects of the regimes for financial and other services that
attract business with no substantial domestic activity. We are
not able to predict what changes will arise from the commitment
or whether such changes will subject us to additional taxes.
Our
non-U.S.
companies may be subject to U.K tax.
We intend to operate in such a manner so that none of our
companies other than Talbot Underwriting Ltd., which manages
Syndicate 1183 at Lloyds, Talbot 2002 Underwriting Capital
Ltd. and Underwriting Risk Services Ltd. (Talbot U.K.
Group) should be resident in the U.K. for tax purposes or
have a permanent establishment in the U.K. Accordingly, we
expect that none of our companies other than the Talbot U.K.
Group should be subject to U.K. taxation. However, since
applicable law and regulations do not conclusively define the
activities that constitute conducting business in the U.K.
through a permanent establishment, the U.K. Inland Revenue might
contend successfully that one or more of our other companies, is
conducting business in the U.K. through a permanent
establishment in the U.K.
17
Risks
Related to Laws and Regulations Applicable to Us
If we
become subject to insurance statutes and regulations in addition
to the statutes and regulations that currently apply to us,
there could be a significant and negative impact on our
business.
We currently conduct our business in a manner such that we
expect the Company will not be subject to insurance
and/or
reinsurance licensing requirements or regulations in any
jurisdiction other than Bermuda and, with respect to Talbot, the
U.K. and jurisdictions to which Lloyds is subject. See
Business Regulation United States
and Bermuda. Although we do not currently intend to engage
in activities which would require us to comply with insurance
and reinsurance licensing requirements of other jurisdictions,
should we choose to engage in activities that would require us
to become licensed in such jurisdictions, we cannot assure that
we will be able to do so or to do so in a timely manner.
Furthermore, the laws and regulations applicable to direct
insurers could indirectly affect us, such as collateral
requirements in various U.S. states to enable such insurers
to receive credit for reinsurance ceded to us.
The insurance and reinsurance regulatory framework of Bermuda
and the insurance of U.S. risk by companies based in
Bermuda that are not licensed or authorized in the
U.S. have recently become subject to increased scrutiny in
many jurisdictions, including the United States. In the past,
there have been Congressional and other initiatives in the
United States regarding increased supervision and regulation of
the insurance industry, including proposals to supervise and
regulate offshore reinsurers. Government regulators are
generally concerned with the protection of policyholders rather
than other constituencies, such as our shareholders. We are not
able to predict the future impact on our operations of changes
in the laws and regulations to which we are or may become
subject.
18
CAUTIONARY
STATEMENT REGARDING 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. This
prospectus may include forward-looking statements, both with
respect to us and our industry, that reflect our current views
with respect to future events and financial performance.
Statements that include the words expect,
intend, plan, believe,
project, anticipate, will,
may and similar statements of a future or
forward-looking nature identify forward-looking statements.
We believe that these factors include, but are not limited to,
the following:
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unpredictability and severity of catastrophic events;
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our ability to obtain and maintain ratings, which may be
affected by our ability to raise additional equity or debt
financings, as well as other factors described herein;
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adequacy of our risk management and loss limitation methods;
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cyclicality of demand and pricing in the insurance and
reinsurance markets;
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our limited operating history;
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our ability to successfully implement our business strategy
during soft as well as hard markets;
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adequacy of our loss reserves;
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continued availability of capital and financing;
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our ability to identify, hire and retain, on a timely and
unimpeded basis and on anticipated economic and other terms,
experienced and capable senior management, as well as
underwriters, claims professionals and support staff;
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acceptance of our business strategy, security and financial
condition by rating agencies and regulators, as well as by
brokers and reinsureds;
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competition, including increased competition, on the basis of
pricing, capacity, coverage terms or other factors;
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potential loss of business from one or more major insurance or
reinsurance brokers;
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our 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;
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general economic and market conditions (including inflation,
interest rates and foreign currency exchange rates) and
conditions specific to the insurance and reinsurance markets in
which we expect to operate;
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the integration of Talbot Holdings, Ltd., or other businesses we
may acquire or new business ventures we may start;
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accuracy of those estimates and judgments used in the
preparation of our financial statements, including those related
to revenue recognition, insurance and other reserves,
reinsurance recoverables, investment valuations, intangible
assets, bad debts, income taxes, contingencies, litigation and
any determination to use the deposit method of accounting,
which, for a relatively new insurance and reinsurance company
like our company, are even more difficult to make than those
made in a mature company because of limited historical
information;
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the effect on our investment portfolio of changing financial
market conditions including inflation, interest rates, liquidity
and other factors.
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19
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acts of terrorism, political unrest and other hostilities or
other non-forecasted and unpredictable events;
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availability of reinsurance and retrocession coverage to manage
our gross and net exposures and the cost of such reinsurance and
retrocession;
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the failure of reinsurers, retrocessionaires, producers or
others to meet their obligations to us;
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the timing of loss payments being faster or the receipt of
reinsurance recoverables being slower than anticipated by us;
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changes in domestic or foreign laws or regulations, or their
interpretations;
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changes in accounting principles or the application of such
principles by regulators;
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statutory or regulatory or rating agency developments, including
as to tax policy and matters and reinsurance and other
regulatory matters such as the adoption of proposed legislation
that would affect the Bermuda-headquartered companies
and/or
Bermuda-based insurers or reinsurers, and;
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the other factors set forth in Risk Factors and
other sections of this prospectus, as well as the other factors
set forth in the Companys filings with the SEC.
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In addition, other general factors could affect our results,
including (a) developments in the worlds financial
and capital markets and our access to such markets;
(b) changes in regulations or tax laws applicable to us,
including, without limitation, any such changes resulting from
recent investigations relating to the insurance industry and any
attendant litigation; and (c) the effects of business
disruption or economic contraction due to terrorism and other
hostilities.
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 or
elsewhere. Any forward-looking statements made in this
prospectus are qualified by these cautionary statements, and
there can be no assurance that the actual results or
developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected
consequences to, or effects on, us or out business or
operations. We undertake no obligation to update publicly or
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise.
20
USE OF
PROCEEDS
Unless otherwise indicated in an applicable prospectus
supplement, the net proceeds from the sale of the securities
offered by us will be used for general corporate purposes. We
may provide additional information on the use of the net
proceeds from the sale of the offered securities in an
applicable prospectus supplement relating to the offered
securities. We will not receive any of the proceeds from the
sale of securities by the selling shareholders.
21
RATIO OF
EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and ratio of earnings to
fixed charges excluding FAL costs are measures of the
Companys ability to cover fixed costs with current period
earnings. For purposes of computing the following ratios,
earnings consist of net income before income tax expense plus
fixed charges to the extent that such charges are included in
the determination of earnings. Fixed charges consist of
interest, amortization of debt issuance costs and credit
facility fees and an imputed interest portion on operating
leases. The following table is derived from audited results for
the years ended December 31, 2007 and December 31,
2006 and the period from October 19, 2005, the date of our
incorporation, to December 31, 2005.
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Three Months
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Year Ended
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Year Ended
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Period Ended
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Ended March 31,
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December 31,
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December 31,
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December 31,
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2008
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2007
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2006
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2005(1)
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Ratio of Earnings to Fixed Charges
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4.1
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8.7
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21.7
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NM
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Ratio of Earnings to Fixed Charges Excluding FAL Costs(2)
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8.7
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15.7
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21.7
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NM
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The initial premiums written by the Company incepted
January 1, 2006. There were no earnings during the period
ended December 31, 2005. |
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FAL costs represent both fixed and variable costs paid for
financing the Companys operations at Lloyds. The
ratio of earnings to fixed charges excluding FAL costs
demonstrates the degree to which the ratio changes if FAL costs
are treated as variable rather than fixed costs. |
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NM Not meaningful |
22
DESCRIPTION
OF SHARE CAPITAL
The following summary of our share capital is qualified in its
entirety by applicable provisions of Bermuda law and our
Memorandum of Association and Bye-laws, copies of which will be
filed as exhibits to the registration statement of which this
prospectus is a part. In this section, the Company,
we, us and our refer to
Validus Holdings, Ltd. and not to any of its subsidiaries.
General
We have an authorized share capital of approximately
571,428,571 shares ($0.175 par value per share), which
can consist of common shares
and/or
preference shares, as determined by our board. We effected a
1.75 for one reverse stock split of our Common Shares which was
approved by our shareholders at our Annual General Meeting on
March 1, 2007 and effective immediately thereafter.
Common
Shares
Common Shares will have no preemptive rights or other rights to
subscribe for additional Common Shares, and no rights of
redemption, conversion or exchange.
Holders of our common shares are entitled to receive dividends
if and when those dividends are declared by our board of
directors, subject to rights of holders of preference shares, if
any. As of the date of this Prospectus, no preference shares
have been issued.
Shareholders
Agreement And Related Provisions
Certain of our shareholders who acquired our common shares prior
to the date of our initial public offering (Existing
Shareholders) and we 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 us, the shareholders agreement grants those Existing
Shareholders certain rights to participate in registered
offerings by us of our common shares, or piggyback
registration rights. In addition, the shareholders
agreement permits Qualified Sponsors to make up to four demand
registrations. Our shareholders agreement defines
Acquiline Capital Partners, LLC (together with its related
companies Aquiline), Goldman Sachs Capital Partners,
Vestar Capital Partners, New Mountain Capital and Merrill Lynch
Global Private Equity as Sponsors. So long as a
Sponsor continues to beneficially hold at least 1/3 of its
original shares of common shares, a Sponsor is deemed to be a
Qualified Sponsor.
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 shares of common shares offered
should be limited due to market conditions or otherwise. We are
required to pay all expenses incurred in connection with demand
and piggyback registrations, excluding, in the case of demand
registrations, underwriting discounts and commissions.
No prediction can be made as to the effect, if any, future sales
of shares, or the availability of shares for future sales, will
have on the market price of our common shares prevailing from
time to time. The sale of substantial amounts of our common
shares in the public market, or the perception that such sales
could occur, could harm the prevailing market price of our
common shares.
Each of Goldman Sachs Capital Partners and Merrill Lynch Global
Private Equity are entitled to require pursuant to the
shareholders agreement that the Company 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 individually
are 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
23
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 the Company and establishes that no Existing Shareholder has
any fiduciary duty to the Company.
Voting
Rights and Adjustments
Under our Bye-laws, the company has the right to issue
non-voting common shares, which are identical in all respects to
voting common shares except that they are non-voting. The only
non-voting common shares of the Company are held by affiliates
of The Goldman Sachs Group, Inc. and affiliates of Merrill
Lynch & Co., Inc. (Merrill Lynch).
In general, and except as provided below, shareholders have one
vote for each common share held by them and are entitled to vote
at all meetings of shareholders. However, if, and for so long
as, the common 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 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.
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
Code or Section 13(d)(3) of the Exchange Act).
Warrants
We issued warrants to purchase our common shares to certain of
our founders and related persons, as well as certain of our
employees. The terms of the warrants provide that they are
exercisable at any time prior to December 12, 2015 (the
Warrants). As of July 31, 2008, there were
outstanding Warrants to purchase 255,479 common shares at an
exercise price of $17.50 per share and Warrants to purchase
8,424,669 common shares at an exercise price of $22.00 per
share. The exercise price and number of common shares issuable
upon exercise of each Warrant is subject to adjustment in
respect of certain customary events. Holders of our warrants are
entitled to receive dividends if and when those dividends are
declared by our Board of Directors.
Preference
Shares
Pursuant to the Bye-laws and Bermuda law, the board of directors
by resolution may establish one or more series of preference
shares in such number and having such designations, relative
voting rights, dividend rates, liquidation and other rights,
preferences, policies and limitations as may be fixed by the
board of directors without any further shareholder approval.
Such rights, preferences, powers and limitations as may be
established could also have the effect of discouraging an
attempt to obtain control of us. As of the date of this
prospectus, no preference shares have been issued.
The preference shares, upon issuance against full consideration,
will be fully paid and nonassessable. This section describes the
general terms and provisions of the preference shares. The
applicable prospectus supplement will describe the specific
terms of the preference shares offered by that prospectus
supplement and any general terms outlined in this section that
will not apply to those preference shares. You should refer to
the Memorandum, the Bye-laws and any applicable Certificate of
Designation, Preferences and Rights or similar document or other
governing instrument for complete information regarding the
terms of the class or series of preference shares described in a
prospectus supplement.
A prospectus supplement will specify the terms of a particular
class or series of preference shares as follows:
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the number of shares to be issued and sold and the distinctive
designation thereof;
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the dividend rights of the preference shares, whether dividends
will be cumulative and, if so, from which date or dates and the
relative rights or priority, if any, of payment of dividends on
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preference shares and any limitations, restrictions or
conditions on the payment of such dividends;
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the voting powers, if any, of the preference shares, equal to or
greater than one vote per share, which may include the right to
vote, as a class or with other classes of capital stock, to
elect one or more of our directors;
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the terms and conditions (including the price or prices, which
may vary under different conditions and at different redemption
dates), if any, upon which all or any part of the preference
shares may be redeemed, at whose option such a redemption may
occur, and any limitations, restrictions or conditions on such
redemption;
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the terms, if any, upon which the preference shares will be
convertible into or exchangeable for our shares of any other
class, classes or series;
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the relative amounts, and the relative rights or priority, if
any, of payment in respect of preference shares, which the
holders of the preference shares will be entitled to receive
upon our liquidation, dissolution, winding up, merger or sale of
assets;
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the terms, if any, of any purchase, retirement or sinking fund
to be provided for the preference shares;
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the restrictions, limitations and conditions, if any, upon the
issuance of our indebtedness so long as any preference shares
are outstanding; and
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any other relative rights, preferences, limitations and powers
not inconsistent with applicable law, the Memorandum or the
Bye-laws.
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Subject to the specification of the above terms of preference
shares in a supplement to this prospectus, we anticipate that
the terms of such preference shares will correspond to those set
forth below.
Dividends
The holders of preference shares may be entitled to receive
dividends, if any, at the rate established in accordance with
the Bye-laws, payable on specified dates each year for the
respective dividend periods ending on such dates (dividend
periods), when and as declared by our board of directors.
Such dividends will accrue on each preference share from the
first day of the dividend period in which such share is issued
or from such other date as the board of directors may fix for
such purpose. If we do not pay or set apart for payment the
dividend, or any part thereof, on the issued and outstanding
preference shares for any dividend period, the deficiency in the
dividend on the preference shares, if applicable, must
thereafter be fully paid or declared and set apart for payment
(without interest) before any dividend may be paid or declared
and set apart for payment on the common shares. The holders of
preference shares may not be entitled to participate in any
other or additional earnings or profits of ours, except for such
premiums, if any, as may be payable in case of our liquidation,
dissolution or winding up.
Any dividend paid upon the preference shares at a time when any
accrued dividends for any prior dividend period are delinquent
will be expressly declared to be in whole or partial payment of
the accrued dividends to the extent thereof, beginning with the
earliest dividend period for which dividends are then wholly or
partly delinquent, and will be so designated to each shareholder
to whom payment is made.
No dividends will be paid upon any shares of any class or series
of preference shares for a current dividend period unless there
will have been paid or declared and set apart for payment
dividends required to be paid to the holders of each other class
or series of preference shares for all past dividend periods of
such other class or series. If any dividends are paid on any of
the preference shares with respect to any past dividend period
at any time when less than the total dividends then accumulated
and payable for all past dividend periods on all of the
preference shares then outstanding are to be paid or declared
and set apart for payment, then the dividends being paid will be
paid on each class or series of preference shares in the
proportions that the dividends then accumulated and payable on
each class or series for all past dividend
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periods bear to the total dividends then accumulated and payable
for all past dividend periods on all outstanding preference
shares.
Liquidation,
Dissolution or Winding Up
In case of our voluntary or involuntary liquidation, dissolution
or winding up, the holders of each class or series of preference
shares may be entitled to receive out of our assets in money or
monies worth the liquidation preference with respect to that
class or series of preference shares. These holders may also
receive an amount in cash equal to all accrued but unpaid
dividends thereon (whether or not earned or declared), before
any of our assets will be paid or distributed to holders of
common shares.
It is possible that, in the case of our voluntary or involuntary
liquidation, dissolution or winding up, our assets could be
insufficient to pay the holders of all of the classes or series
of preference shares then outstanding the full, or any, amounts
to which they may be entitled. In that circumstance, the holders
of each outstanding class or series of preference shares may
share ratably in such assets in proportion to the amounts which
would be payable with respect to such class or series if all
amounts payable thereon were paid in full.
Our amalgamation, consolidation or merger with or into any other
corporation, or a sale of all or any part of our assets, will
not be deemed to constitute a liquidation, dissolution or
winding up.
Redemption
Except as otherwise provided with respect to a particular class
or series of preference shares, the following general redemption
provisions will apply to each class or series of preference
shares.
On or prior to the date fixed for redemption of a particular
class or series of preference shares or any part thereof as
specified in the notice of redemption for such class or series,
we will deposit adequate funds for such redemption, in trust for
the account of holders of such class or series, with a bank or
trust company that has an office in the U.S., and that has, or
is an affiliate of a bank or trust company that has, capital and
surplus of at least $50,000,000. If the name and address of such
bank or trust company and the deposit of or intent to deposit
the redemption funds in such trust account have been stated in
the redemption notice, then from and after the mailing of the
notice and the making of such deposit the shares of the class or
series called for redemption will no longer be deemed to be
outstanding for any purpose whatsoever, and all rights of the
holders of such shares in or with respect to us will cease and
terminate, except for the right of the holders of the shares:
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to transfer such shares prior to the date fixed for redemption;
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to receive the redemption price of such shares, including
accrued but unpaid dividends to the date fixed for redemption,
without interest, upon surrender of the certificate or
certificates representing the shares to be redeemed; and
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on or before the close of business on the fifth day preceding
the date fixed for redemption, to exercise privileges of
conversion, if any, not previously expired.
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Any monies so deposited by us which remain unclaimed by the
holders of the shares called for redemption and not converted
will, at the end of six years after the redemption date, be paid
to us upon our request, after which repayment the holders of the
shares called for redemption can no longer look to such bank or
trust company for the payment of the redemption price but must
look only to us for the payment of any lawful claim for such
monies which holders of such shares may still have. After such
six-year period, the right of any shareholder or other person to
receive such payment may lapse through limitations imposed in
the manner and with the effect provided under the law of
Bermuda. Any portion of the monies so deposited by us, in
respect of preference shares called for redemption that are
converted into common shares, will be repaid to us upon our
request.
In case of redemption of only a part of a class or series of
preference shares, we will designate by lot, in such manner as
the board of directors may determine, the shares to be redeemed,
or will effect such redemption pro rata.
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Conversion
Rights
Except as otherwise provided with respect to a particular class
or series of preference shares and subject in each case to
applicable Bermuda law, the following general conversion
provisions will apply to each class or series of preference
shares that is convertible into common shares.
All common shares issued upon conversion will be fully paid and
nonassessable, and will be free of all taxes, liens and charges
with respect to the issue thereof except taxes, if any, payable
by reason of issuance in a name other than that of the holder of
the shares converted and except as otherwise provided by
applicable law or the Bye-laws.
The number of common shares issuable upon conversion of a
particular class or series of preference shares at any time will
be the quotient obtained by dividing the aggregate conversion
value of the shares of such class or series surrendered for
conversion, by the conversion price per share of common shares
then in effect for such class or series. We will not be
required, however, upon any such conversion, to issue any
fractional share of common shares, but instead we will pay to
the holder who would otherwise be entitled to receive such
fractional share if issued, a sum in cash equal to the value of
such fractional share based on the last reported sale price per
common share on the New York Stock Exchange at the date of
determination. Preference shares will be deemed to have been
converted as of the close of business on the date of receipt at
the office of the transfer agent of the certificates, duly
endorsed, together with written notice by the holder of his
election to convert the shares.
Except as otherwise provided with respect to a particular class
or series of preference shares and subject in each case to
applicable Bermuda law, the Memorandum and the Bye-laws, the
basic conversion price per ordinary share for a class or series
of preference shares, as fixed by the board of directors, may be
subject to adjustment from time to time:
Whenever there is an issue of additional common shares requiring
a change in the conversion price as provided above, and whenever
there occurs any other event which results in a change in the
existing conversion rights of the holders of shares of a class
or series of preference shares, we will file with our transfer
agent or agents, a statement signed by one of our executive
officers, describing specifically such issue of additional
common shares or such other event and the actual conversion
prices or basis of conversion as changed by such issue or event
and the change, if any, in the securities issuable upon
conversion.
We will at all times have authorized and will at all times
reserve and set aside a sufficient number of duly authorized
common shares for the conversion of all shares of all then
outstanding classes or series of preference shares which are
convertible into common shares.
Reissuance
of Shares
Any preference shares retired by purchase, redemption, through
conversion, or through the operation of any sinking fund or
redemption or purchase account, will have the status of
authorized but unissued preference shares, and may be reissued
as part of the same class or series or may be reclassified and
reissued by the board of directors in the same manner as any
other authorized and unissued preference shares.
Voting
Rights
Except as indicated below or as otherwise required by applicable
law or as provided in a prospectus supplement, the holders of
preference shares will have no voting rights.
Whenever dividends payable on any class or series of preference
shares are in arrears in an aggregate amount equivalent to six
full quarterly dividends on all of the preference shares of that
class or series then outstanding, the holders of preference
shares of that class or series, together with the holders of
each other class or series of preference shares ranking on a
parity with respect to the payment of dividends and amounts upon
our liquidation, dissolution or winding up, may have the right,
voting together as a single class regardless of class or series,
to elect two directors of our board of directors. In such case,
we will use our best efforts to
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increase the number of directors constituting the board of
directors to the extent necessary to effectuate such right.
Whenever such special voting power of such holders of the
preference shares has vested, such right may be exercised
initially either at a special general meeting of the holders of
preference shares, or at any annual general meeting of
shareholders, and thereafter at annual general meetings of
shareholders. The right of such holders of preference shares to
elect members of the board of directors, if applicable, will
continue until such time as all dividends accumulated on such
preference shares have been paid in full, at which time that
special right will terminate, subject to revesting in the event
of each and every subsequent default in an aggregate amount
equivalent to six full quarterly dividends.
At any time when such special voting power has vested in the
holders of any such preference shares as described in the
preceding paragraph, our Chief Executive Officer will, upon the
written request of the holders of record of at least 10% of such
preference shares then outstanding addressed to our Secretary,
call a special general meeting of the holders of such preference
shares for the purpose of electing directors. Such meeting will
be held at the earliest practicable date in such place as may be
designated pursuant to the
Bye-laws (or
if there be no designation, at our principal office in Bermuda).
If such meeting shall not be called by our proper officers
within 20 days after our Secretary has been personally
served with such request, or within 60 days after mailing
the same by registered or certified mail addressed to our
Secretary at our principal office, then the holders of record of
at least 10% of such preference shares then outstanding may
designate in writing one such holder to call such meeting at our
expense, and such meeting may be called by such holder so
designated upon the notice required for annual general meetings
of shareholders and will be held in Bermuda, unless we otherwise
designate.
Any holder of such preference shares so designated will have
access to our register of members for the purpose of causing
meetings of shareholders to be called pursuant to these
provisions. Notwithstanding the foregoing, no such special
general meeting will be called during the period within
90 days immediately preceding the date fixed for the next
annual general meeting of shareholders.
At any annual or special general meeting at which the holders of
such preference shares have the special right, voting separately
as a class, to elect directors as described above, the presence,
in person or by proxy, of the holders of 50% of such preference
shares will be required to constitute a quorum of such
preference shares for the election of any director by the
holders of such preference shares, voting as a class. At any
such meeting or adjournment thereof the absence of a quorum of
such preference shares will not prevent the election of
directors other than those to be elected by such preference
shares, voting as a class, and the absence of a quorum for the
election of such other directors will not prevent the election
of the directors to be elected by such preference shares, voting
as a class.
During any period in which the holders of such preference shares
have the right to vote as a class for directors as described
above, any vacancies in the board of directors will be filled by
vote of a majority of the board of directors pursuant to the
Bye-laws. During such period the directors so elected by the
holders of such preference shares will continue in office
(1) until the next succeeding annual general meeting of
shareholders or until their successors, if any, are elected by
such holders and qualify or (2) unless required by
applicable law to continue in office for a longer period, until
termination of the right of the holders of such preference
shares to vote as a class for directors, if earlier. If and to
the extent permitted by applicable law, immediately upon any
termination of the right of the holders of such preference
shares to vote as a class for directors as provided herein, the
term of office of the directors then in office so elected by the
holders of such preference shares will terminate.
Whether or not we are being wound up, the rights attached to any
class or series of preference shares may only be varied with the
consent in writing of the holders of three-quarters of the
issued shares of that class or series, or with the sanction of a
special resolution approved by at least a majority of the votes
cast by the holders of the shares of that class or series at a
separate general meeting in accordance with Section 47(7)
of the Companies Act 1981 of Bermuda. The rights attached to any
class or series of preference shares will not be deemed to be
varied by the creation or issue of any shares or any securities
convertible into or evidencing the right to purchase shares
ranking prior to or equally with such class or series of the
preference
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shares with respect to the payment of dividends or of assets
upon liquidation, dissolution or winding up. Holders of
preference shares are not entitled to vote on any amalgamation,
consolidation, merger or statutory share exchange, except to the
extent that such a transaction would vary the rights attached to
any class or series of preference shares, in which case any such
variation is subject to the approval process described above.
Holders of preference shares are not entitled to vote on any
sale of all or substantially all of our assets.
On any item on which the holders of the preference shares are
entitled to vote, such holders will be entitled to one vote for
each preference share held.
Restrictions
in Event of Default in Dividends on Preferences
Shares
Unless we provide otherwise in a prospectus supplement, if at
any time we have failed to pay dividends in full on the
preference shares, thereafter and until dividends in full,
including all accrued and unpaid dividends for all past
quarterly dividend periods on the preference shares outstanding,
shall have been declared and set apart in trust for payment or
paid, or if at any time we have failed to pay in full amounts
payable with respect to any obligations to retire preference
shares, thereafter and until such amounts shall have been paid
in full or set apart in trust for payment:
(1) we may not redeem less than all of the preference
shares at such time outstanding unless we obtain the affirmative
vote or consent of the holders of at least
662/3%
of the outstanding preference shares given in person or by
proxy, either in writing or by resolution adopted at a special
general meeting called for the purpose, at which the holders of
the preference shares shall vote separately as a class,
regardless of class or series;
(2) we may not purchase any preference shares except in
accordance with a purchase offer made in writing to all holders
of preference shares of all classes or series upon such terms as
the board of directors in its sole discretion after
consideration of the respective annual dividend rate and other
relative rights and preferences of the respective classes or
series, will determine (which determination will be final and
conclusive) will result in fair and equitable treatment among
the respective classes or series; provided that (a) we, to
meet the requirements of any purchase, retirement or sinking
fund provisions with respect to any class or series, may use
shares of such class or series acquired by it prior to such
failure and then held by it as treasury stock and
(b) nothing will prevent us from completing the purchase or
redemption of preference shares for which a purchase contract
was entered into for any purchase, retirement or sinking fund
purposes, or the notice of redemption of which was initially
mailed, prior to such failure; and
(3) we may not redeem, purchase or otherwise acquire, or
permit any subsidiary to purchase or acquire any shares of any
other class of our stock ranking junior to the preference shares
as to dividends and upon liquidation.
Preemptive
Rights
No holder of preference shares, solely by reason of such
holding, has or will have any preemptive right to subscribe to
any additional issue of shares of any class or series or to any
security convertible into such shares.
Transfer
Agent
Our registrar and transfer agent for each of our common shares
is The Bank of New York.
Bye-Laws
In addition to the provisions of the Bye-laws described above,
the following provisions are a summary of some of the other
important provisions of our Bye-laws.
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Our
Board of Directors
Our Bye-laws provide that our Board of Directors shall consist
of not less than nine and not more than twelve directors (as
determined by resolution of the Board). Our Board of Directors
is divided into three classes. Each director generally will
serve a three-year term, with termination staggered according to
class. Termination prior to the expiry of a directors term
will only be for cause. The Board of Directors may from time to
time appoint any person to be a director to fill a vacancy.
Under our Bye-laws, subject to certain exceptions, the
affirmative vote of a majority of the votes cast at any meeting
at which a quorum is present generally is required to authorize
a resolution put to vote at a meeting of the Board of Directors.
Corporate action may also be taken by a unanimous written
resolution of the Board of Directors without a meeting. A quorum
at a meeting of the Board of Directors shall be at least a
majority of directors then in office present in person or
represented by a duly authorized representative. Furthermore,
our Bye-laws provide that with respect to any direct or indirect
wholly-owned subsidiary of the Company that is not a
U.S. corporation or that is not treated as a pass-through
or disregarded entity for U.S. federal income tax purposes
(together, the Designated Companies), unless
otherwise designated by the Board, the board of directors of
each such Designated Company shall, from and after the time such
entity becomes a wholly owned subsidiary, be elected and removed
by our shareholders by resolution in general meeting or by
written resolution.
Shareholder
Action
At any general meeting, two or more persons present in person
and representing, in person or by proxy, more than 50% of the
issued and outstanding shares entitled to vote at the meeting
throughout the meeting shall constitute a quorum for the
transaction of business. In general, anything that may be done
by resolution of our shareholders in a general meeting may be
taken, without a meeting, by a resolution in writing signed by
all of the shareholders entitled to attend such meeting and vote
on such resolution. Under our
Bye-laws,
subject to certain exceptions, including the liquidation,
dissolution or
winding-up
of our company, which, in certain circumstances, require the
affirmative vote of at least two-thirds of the votes cast in
accordance with our Bye-laws, any questions proposed for the
consideration of the shareholders at any general meeting
generally shall be decided by the affirmative votes of a
majority of the votes cast in accordance with our Bye-laws.
Indemnity
and Exculpation
Pursuant to our Bye-laws, we indemnify our officers, directors
and employees to the fullest extent permitted by Bermuda law.
Such indemnity will extend, without limitation, to any matter in
which an officer, director or employee of ours may be guilty of
negligence, default, breach of duty or breach of trust in
relation to us or any of our subsidiaries, but will not extend
to any matter in which such officer, director or employee is
found, by a court of competent jurisdiction in a final judgment
or decree not subject to appeal, guilty of any fraud or
dishonesty in relation to us. Our Bye-laws also provide that
none of our officers, directors or employees will be personally
liable to us or our shareholders for any action or failure to
act to the full extent that they are indemnified under our
Bye-laws.
Amendment
Our Bye-laws may be amended only by a resolution adopted by the
Board of Directors and by resolution of the shareholders
approved by the affirmative vote of the holders of a majority of
the total combined voting power of all issued and outstanding
shares of our Company.
Restrictions
On Transfer Of Common Shares
Each transfer must comply with current BMA permission or have
specific permission from the BMA. Our Board of Directors may
decline to register a transfer of any common shares if they have
reason to believe that any adverse tax, regulatory or legal
consequences to us, any of our subsidiaries or any of our
shareholders or indirect holders of shares or its Affiliates may
occur as a result of such transfer (other than such as our
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Board of Directors considers de minimis). Transfers must
be by instrument unless otherwise permitted by the Companies Act.
The restrictions on transfer and voting restrictions described
above may have the effect of delaying, deferring or preventing a
change in control of our Company.
Issuance
Of Shares
Subject to our Bye-laws and Bermuda law, our Board of Directors
has the power to issue any of our unissued shares as it
determines, including the issuance of any shares or class of
shares with preferred, deferred or other special rights.
Anti-Takeover
Provisions And Insurance Regulations Concerning Change Of
Control
Some of the provisions of our Bye-laws, as well as certain
insurance regulations concerning change of control, could delay
or prevent a change of control of our company that a shareholder
might consider favorable.
Differences
In Corporate Law
You should be aware that the Companies Act, which applies to us,
differs in certain material respects from laws generally
applicable to U.S. corporations and their shareholders. In
order to highlight these differences set forth below is a
summary of certain significant provisions of the Companies Act
applicable to us (including modifications adopted pursuant to
our Bye-laws) that differ in certain respects from provisions of
the corporate law of the State of Delaware. Because the
following statements are summaries, they do not address all
aspects of Bermuda law that may be relevant to us and our
shareholders.
Duties
of Directors
Under Bermuda common law, members of a board of directors owe a
fiduciary duty to a company to act in good faith in their
dealings with or on behalf of such company and to exercise their
powers and fulfill the duties of their office honestly. This
duty has the following essential elements:
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a duty to act in good faith in the best interests of such
company;
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a duty not to make a personal profit from opportunities that
arise from the office of director;
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a duty to avoid conflicts of interest; and
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a duty to exercise powers for the purpose for which such powers
were intended.
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The Companies Act imposes a duty on directors and officers of a
Bermuda company:
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to act honestly and in good faith, with a view to the best
interests of such company; and
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to exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.
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In addition, the Companies Act imposes various duties on
officers of a company with respect to certain matters of
management and administration of such company.
The Companies Act provides that in any proceedings for
negligence, default, breach of duty or breach of trust against
any officer, if it appears to a court that such officer is or
may be liable in respect of the negligence, default, breach of
duty or breach of trust, but that he has acted honestly and
reasonably, and that, having regard to all the circumstances of
the case, including those connected with his appointment, he
ought fairly to be excused for the negligence, default, breach
of duty or breach of trust, such court may relieve him, either
wholly or partly, from any liability on such terms as such court
may think fit. This provision has been interpreted to apply only
to actions brought by or on behalf of a company against such
officers. Our Bye-laws, however, provide that each of our
present and future shareholders waive all claims or rights of
action that such shareholder might have, individually or in the
right of our Company, against any of our directors, officers or
employees for any act or failure to act in the performance of
the duties of such director, officer or employee,
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provided that this waiver does not extend to any matter
in which such director, officer or employee is found, by a court
of competent jurisdiction in a final judgment or decree not
subject to appeal, guilty of any fraud or dishonesty in relation
to us.
Under Delaware law, the business and affairs of a corporation
are managed by or under the direction of its board of directors.
In exercising their powers, directors are charged with a
fiduciary duty of care to protect the interests of the
corporation and a fiduciary duty of loyalty to act in the best
interests of its shareholders. The duty of care requires that
directors act in an informed and deliberate manner, and inform
themselves, prior to making a business decision, of all relevant
material information reasonably available to them. The duty of
care also requires that directors exercise care in overseeing
and investigating the conduct of corporate employees. The duty
of loyalty may be summarized as the duty to act in good faith,
not out of self-interest, and in a manner that the director
reasonably believes to be in the best interests of the
shareholders.
Under the business judgment rule, courts generally
do not second guess the business judgment of directors and
officers. A party challenging the propriety of a decision of a
board of directors bears the burden of rebutting the presumption
afforded to directors by the business judgment rule. If the
presumption is not rebutted, the business judgment rule attaches
to protect the directors from liability for their decisions.
Where, however, the presumption is rebutted, the directors bear
the burden of demonstrating the fairness of the relevant
transaction. However, when the board of directors takes
defensive action in response to a threat to corporate control
and approves a transaction resulting in a sale of control of the
corporation, Delaware courts subject directors conduct to
enhanced scrutiny.
Interested
Directors
Under Bermuda law and our Bye-laws, a transaction entered into
by us, in which a director has an interest, will not be voidable
by us, and such director will not be liable to us for any profit
realized pursuant to such transaction, provided the nature of
the interest is duly disclosed to our Audit Committee. In
addition, our Bye-laws allow a director to be taken into account
in determining whether a quorum is present and to vote on a
transaction in which the director has an interest following a
declaration of the interest to our Board of Directors, provided
that the director is not disqualified from doing so by the
chairman of the meeting. Under Delaware law, such a transaction
would not be voidable if (i) the material facts with
respect to such interested directors relationship or
interests are disclosed or are known to the board of directors,
and the board of directors in good faith authorizes the
transaction by the affirmative vote of a majority of the
disinterested directors, (ii) such material facts are
disclosed or are known to the shareholders entitled to vote on
such transaction, and the transaction is specifically approved
in good faith by vote of the majority of shares entitled to vote
thereon or (iii) the transaction is fair to the corporation
as of the time it is authorized, approved or ratified. Under
Delaware law, an interested director could be held liable for a
transaction in which such director derived an improper personal
benefit.
Dividends
Bermuda law does not permit the declaration or payment of
dividends or distributions of contributed surplus by a company
if there are reasonable grounds for believing that a company is,
and after the payment is made, would be unable to pay its
liabilities as they become due, or the realizable value of such
companys assets would be less, as a result of the payment,
than the aggregate of its liabilities and its issued share
capital and share premium accounts. The excess of the
consideration paid on issue of shares over the aggregate par
value of such shares must (except in certain limited
circumstances) be credited to a share premium account. Share
premium may be distributed in certain limited circumstances, for
example, to pay up unissued shares which may be distributed to
shareholders in proportion to their holdings, but is otherwise
subject to limitation. In addition, our ability to declare and
pay dividends and other distributions is subject to Bermuda
insurance laws and regulatory constraints.
Under Delaware law, subject to any restrictions contained in a
companys certificate of incorporation, a company may pay
dividends out of surplus or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared
and for the preceding fiscal year. Delaware law also provides
that dividends
32
may not be paid out of net profits at any time when capital is
less than the capital represented by the outstanding stock of
all classes having a preference upon the distribution of assets.
Amalgamations,
Mergers and Similar Arrangements
We may acquire the business of another Bermuda exempted company
or a company incorporated outside Bermuda when conducting such
business would benefit us and would be conducive to attaining
our objectives contained within our Memorandum of Association.
Pursuant to our Bye-laws, we may, with the approval of our board
and, except in the case of certain amalgamations with and
between wholly owned Bermudian subsidiaries, the affirmative
vote of at least 75% of the votes cast (whether or not, in
respect of any given class of shares, such class ordinarily
carries the right to vote) at a general meeting at which a
quorum of not less than two persons at least holding or
representing by proxy more than one-third of the issued shares
of the Company is present, amalgamate with another Bermuda
company or with a body incorporated outside Bermuda. In the case
of an amalgamation, a shareholder may apply to a Bermuda court
for a proper valuation of such shareholders shares if such
shareholder is not satisfied that fair market value has been
paid for such shares. The court ordinarily would not disapprove
the transaction on that ground absent evidence of fraud or bad
faith.
Under Delaware law, with certain exceptions, a merger,
consolidation or sale of all or substantially all the assets of
a corporation must be approved by the board of directors and a
majority of the outstanding shares entitled to vote thereon.
Under Delaware law, a shareholder of a corporation participating
in certain major corporate transactions may, under certain
circumstances, be entitled to appraisal rights pursuant to which
such shareholder may receive payment in the amount of the fair
market value of the shares held by such shareholder (as
determined by a court) in lieu of the consideration such
shareholder would otherwise receive in the transaction.
Takeovers
Bermuda law provides that where an offer is made for shares of a
company and, within four months of the offer, the holders of not
less than 90% of the shares which are the subject of the offer
accept, the offeror may by notice require the non-tendering
shareholders to transfer their shares on the terms of the offer.
Dissenting shareholders may apply to the court within one month
of the notice, objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise
its discretion to enjoin the required transfer, which the court
will be unlikely to do unless there is evidence of fraud or bad
faith or collusion between the offeror and the holders of the
shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a
parent corporation, by resolution of its board of directors and
without any shareholder vote, may merge with any subsidiary of
which it owns at least 90% of each class of capital stock. Upon
any such merger, dissenting shareholders of the subsidiary would
have appraisal rights.
Certain
Transactions with Significant Shareholders
As a Bermuda company, we may enter into certain business
transactions with our significant shareholders, including asset
sales, in which a significant shareholder receives, or could
receive, a financial benefit that is greater than that received,
or to be received, by other shareholders with prior approval
from our Board of Directors but without obtaining prior approval
from our shareholders. If we were a Delaware corporation, we
would need, subject to certain exceptions, prior approval from
shareholders holding at least two-thirds of our outstanding
common shares not owned by such interested shareholder to enter
into a business combination (which, for this purpose, includes
asset sales of greater than 10% of our assets that would
otherwise be considered transactions in the ordinary course of
business) with an interested shareholder for a period of three
years from the time the person became an interested shareholder,
unless we had opted out of the relevant Delaware statute, as
provided for in that statute.
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Shareholders
Suits
The rights of shareholders under Bermuda law and our Bye-laws
are not as extensive as the rights of shareholders under
legislation or judicial precedent in many
U.S. jurisdictions. Class actions and derivative actions
are generally not available to shareholders under the laws of
Bermuda. However, the Bermuda courts ordinarily would be
expected to follow English case law precedent, which would
permit a shareholder to commence an action in our name to remedy
a wrong done to us where the act complained of is alleged to be
beyond our corporate power or is illegal or would result in the
violation of our Memorandum of Association or Bye-laws.
Furthermore, consideration would be given by the court to acts
that are alleged to constitute a fraud against the minority
shareholders or where an act requires the approval of a greater
percentage of our shareholders than actually approved it. The
winning party in such an action generally would be able to
recover a portion of attorneys fees incurred in connection
with such action. Our Bye-laws provide that all present and
future shareholders waive all claims or rights of action that
they might have, individually or in the right of our company,
against any of our directors, officers or employees for any
action or failure to act in the performance of the duties of
such director, officer or employee, except that such waiver does
not extend to any matter in which such director, officer or
employee is found, by a court of competent jurisdiction in a
final judgment or decree not subject to appeal, guilty of any
fraud or dishonesty in relation to us. Class actions and
derivative actions generally are available to shareholders under
Delaware law for, among other things, breach of fiduciary duty,
corporate waste and actions not taken in accordance with
applicable law. In such actions, the court generally has
discretion to permit the winning party to recover
attorneys fees incurred in connection with such action.
Indemnification
of Directors and Officers
Under Bermuda law we may and under our Bye-laws we will
indemnify our officers, directors and employees against any
liabilities and expenses incurred by such person by reason of
such person acting in such capacity or any other capacity for,
or on behalf of, us; provided that such indemnification
does not extend to any matter in which such director, officer or
employee is found, by a court of competent jurisdiction in a
final judgment or decree not subject to appeal, guilty of any
fraud or dishonesty in relation to us. Under Delaware law, a
corporation may indemnify a director or officer of the
corporation against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred in defense of an action, suit or proceeding
by reason of such position if (i) such director or officer
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and
(ii) with respect to any criminal action or proceeding,
such director or officer had no reasonable cause to believe his
conduct was unlawful. Under our Bye-laws, each of our present
and future shareholders agrees to waive any claim or right of
action that such shareholder might have, individually or in the
right of our company, against any of our directors, officers or
employees for any action or failure to act in the performance of
the duties of such director, officer or employee, except that
such waiver does not extend to any matter as to which such
director, officer or employee admits that he is guilty, or is
found, by a court of competent jurisdiction in a final judgment
or decree not subject to appeal, to be guilty of any fraud or
dishonesty in relation to us. Such an admission or finding is
not a prerequisite to a shareholder commencing or pursuing a
claim.
Inspection
of Corporate Records
Members of the general public have the right to inspect our
public documents available at the office of the Registrar of
Companies in Bermuda and our registered office in Bermuda, which
will include our Memorandum of Association (including its
objects and powers) and any alteration to our Memorandum of
Association and documents relating to any increase or reduction
of authorized capital. Our shareholders have the additional
right to inspect our Bye-laws, minutes of general meetings and
audited annual financial statements, which must be presented to
the annual general meeting of shareholders. The register of our
shareholders is also open to inspection by shareholders without
charge, and to members of the public for a fee. We are required
to maintain our share register in Bermuda but, after our shares
are listed on the NYSE and giving the required notice to the
Bermuda Registrar of Companies, we may establish a branch
register outside
34
of Bermuda. We are required to keep at our registered office a
register of our directors and officers (containing that
information required under Bermuda law), which is open for
inspection by members of the public without charge. Bermuda law
does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
Delaware law permits any shareholder to inspect or obtain copies
of a corporations shareholder list and its other books and
records for any purpose reasonably related to such persons
interest as a shareholder.
Shareholder
Proposals
Under Bermuda law, the Companies Act provides that shareholders
may, as set forth below and at their own expense (unless a
company otherwise resolves), require a company to give notice of
any resolution that the shareholders can properly propose at the
next annual general meeting
and/or to
circulate a statement prepared by the requesting shareholders in
respect of any matter referred to in a proposed resolution or
any business to be conducted at a general meeting. The number of
shareholders necessary for such a requisition is either that
number of shareholders representing at least 5% of the total
voting rights of all shareholders having a right to vote at the
meeting to which the requisition relates or not less than
100 shareholders. Delaware law does not include a provision
restricting the manner in which nominations for directors may be
made by shareholders or the manner in which business may be
brought before a meeting.
Calling
of Special Shareholders Meetings
Under our Bye-laws, a special general meeting may be called by
our President, our Chairman or a majority of the directors in
office. Under Bermuda law, a special meeting may also be called
by the shareholders when requisitioned by the holders of at
least 10% of the
paid-up
voting share capital of a company as provided by the Companies
Act. Delaware law permits the board of directors or any person
who is authorized under a corporations certificate of
incorporation or bylaws to call a special meeting of
shareholders.
Approval
of Corporate Matters by Written Consent
Under our Bye-laws, shareholders may take action by written
consent, with consent from 100% of shareholders required.
Delaware law permits shareholders to take action by the consent
in writing by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to
authorize or take such action at a meeting of shareholders at
which all shares entitled to vote thereon were present and voted.
Amendment
of Memorandum of Association
Bermuda law provides that the memorandum of association of a
company may be amended by a resolution passed at a general
meeting of shareholders of which due notice has been given. An
amendment to the memorandum of association that alters a
companys business objects may require approval of the
Bermuda Minister of Finance, who may grant or withhold approval
at his or her discretion.
Under Bermuda law, the holders of an aggregate of not less than
20% in par value of a companys issued share capital or of
any class of shares have the right to apply to the Bermuda
courts for an annulment of any amendment of the memorandum of
association adopted by shareholders at any general meeting,
other than an amendment that alters or reduces a companys
share capital as provided in the Companies Act. Where such an
application is made, the amendment becomes effective only to the
extent that it is confirmed by the Bermuda court. An application
for an annulment of an amendment of the memorandum of
association must be made within 21 days after the date on
which the resolution altering a companys memorandum of
association is passed and may be made on behalf of persons
entitled to make the application by one or more of their
designees as such holders may appoint in writing for such
purpose. No application may be made by the shareholders voting
in favor of the amendment.
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Under Delaware law, amendment of the certificate of
incorporation, which is the equivalent of a memorandum of
association, of a company must be made by a resolution of the
board of directors setting forth the amendment, declaring its
advisability, and either calling a special meeting of the
shareholders entitled to vote or directing that the amendment
proposed be considered at the next annual meeting of the
shareholders. Delaware law requires that, unless a different
percentage is provided for in the certificate of incorporation,
a majority of the outstanding shares entitled to vote thereon is
required to approve the amendment of the certificate of
incorporation at the shareholders meeting. If the amendment
would alter the number of authorized shares or otherwise
adversely affect the rights or preference of any class of a
companys stock, Delaware law provides that the holders of
the outstanding shares of such affected class should be entitled
to vote as a class upon the proposed amendment, regardless of
whether such holders are entitled to vote by the certificate of
incorporation. However, the number of authorized shares of any
class may be increased or decreased, to the extent not falling
below the number of shares then outstanding, by the affirmative
vote of the holders of a majority of the stock entitled to vote,
if so provided in a companys certificate of incorporation
or any amendment that created such class or was adopted prior to
the issuance of such class or that was authorized by the
affirmative vote of the holders of a majority of such class of
stock.
Amendment
of Bye-laws
Consistent with the Companies Act, our Bye-laws provide that the
Bye-laws may be rescinded, altered or amended only upon approval
by a resolution of our Board of Directors and by a resolution of
our shareholders approved by the affirmative vote of the holders
of a majority of the total combined voting power of all issued
and outstanding shares of our company.
Under Delaware law, holders of a majority of the voting power of
a corporation and, if so provided in the certificate of
incorporation, the directors of the corporation, have the power
to adopt, amend and repeal the bylaws of a corporation.
36
DESCRIPTION
OF THE DEPOSITARY SHARES
General
We may, at our option, elect to offer depositary shares, each
representing a fraction (to be set forth in the prospectus
supplement relating to our common shares or a particular series
of preference shares) of a share of a common share or a
particular series of preference shares as described below. In
the event we elect to do so, depositary receipts evidencing
depositary shares will be issued to the public.
The shares of common shares or a class or series of preference
shares represented by depositary shares will be deposited under
a deposit agreement among us, a depositary selected by us and
the holders of the depositary receipts. The depositary will be a
bank or trust company having its principal office in the
U.S. and having a combined capital and surplus of at least
$50,000,000. Subject to the terms of the deposit agreement, each
owner of a depositary share may be entitled, in proportion to
the applicable fraction of a common share or preference share
represented by such depositary share, to all the rights and
preferences of the common shares or preference shares
represented thereby (including dividend, voting, redemption and
liquidation rights).
The depositary shares will be evidenced by depositary receipts
issued pursuant to the deposit agreement. Depositary receipts
will be distributed to those persons purchasing the fractional
shares of the common shares or related class or series of
preference shares in accordance with the terms of the offering
described in the related prospectus supplement. If we issue
depositary shares the forms of deposit agreement and depositary
receipt will be filed as exhibits to the registration statement
of which this prospectus forms a part, or incorporated by
reference pursuant to a Current Report on
Form 8-K
in connection with an offering of such securities.
Pending the preparation of definitive depositary receipts, the
depositary may, upon our written order, issue temporary
depositary receipts substantially identical to (and entitling
the holders thereof to all the rights pertaining to) the
definitive depositary receipts but not in definitive form.
Definitive depositary receipts will be prepared thereafter
without unreasonable delay, and temporary depositary receipts
will be exchangeable for definitive depositary receipts without
charge to the holder thereof.
The following description sets forth the general terms and
provisions of the depositary shares. The applicable prospectus
supplement will describe the specific terms of the depositary
shares offered by that prospectus supplement and any general
terms outlined in this section that will not apply to those
depositary shares.
Dividends
And Other Distributions
The depositary may distribute all cash dividends or other
distributions received in respect of the related common shares
or class or series of preference shares to the record holders of
depositary shares relating to such common shares or class or
series of preference shares in proportion to the number of such
depositary shares owned by such holders.
In the event of a distribution other than in cash, the
depositary will distribute property received by it to the record
holders of depositary shares entitled thereto, unless the
depositary determines that it is not feasible to make such
distribution, in which case the depositary may, with our
approval, sell such property and distribute the net proceeds
from such sale to such holders.
Withdrawal
Of Shares
Upon surrender of the depositary receipts at the corporate trust
office of the depositary (unless the related depositary shares
have previously been called for redemption), the holder of the
depositary shares evidenced thereby is entitled to delivery of
the number of whole shares of the related common shares or class
or series of preference shares and any money or other property
represented by such depositary shares. Holders of depositary
shares may be entitled to receive whole shares of the related
common shares or class or series of preference shares on the
basis set forth in the prospectus supplement for such common
shares or class or series
37
of preference shares, but holders of such whole common shares or
preference shares may not thereafter be entitled to exchange
them for depositary shares. If the depositary receipts delivered
by the holder evidence a number of depositary shares in excess
of the number of depositary shares representing the number of
whole common shares or preference shares to be withdrawn, the
depositary will deliver to such holder at the same time a new
depositary receipt evidencing such excess number of depositary
shares. In no event will fractional common shares or preference
shares be delivered upon surrender of depositary receipts to the
depositary.
Redemption Of
Depositary Shares
Whenever we redeem common shares or preference shares held by
the depositary, the depositary will redeem as of the same
redemption date the number of depositary shares representing
shares of common shares or the related class or series of
preference shares so redeemed. The redemption price per
depositary share will be equal to the applicable fraction of the
redemption price per share payable with respect to such class or
series of the common shares or preference shares. If less than
all the depositary shares are to be redeemed, the depositary
shares to be redeemed will be selected by lot or pro rata as may
be determined by the depositary.
Voting
The Common Shares Or Preference Shares
Upon receipt of notice of any meeting at which the holders of
the common shares or preference shares are entitled to vote, the
depositary will mail the information contained in such notice of
meeting to the record holders of the depositary shares relating
to such common shares or preference shares. Each record holder
of such depositary shares on the record date (which will be the
same date as the record date for the common shares or preference
shares, as applicable) may be entitled to instruct the
depositary as to the exercise of the voting rights pertaining to
the amount of the class or series of preference shares or common
shares represented by such holders depositary shares. The
depositary will endeavor, insofar as practicable, to vote the
number of the common shares or preference shares represented by
such depositary shares in accordance with such instructions, and
we will agree to take all action which the depositary deems
necessary in order to enable the depositary to do so. The
depositary will abstain from voting common shares or preference
shares to the extent it does not receive specific instructions
from the holders of depositary shares representing such common
shares or preference shares.
Amendment
And Termination Of The Deposit Agreement
The form of depositary receipt evidencing the depositary shares
and any provision of the deposit agreement may at any time be
amended by agreement between us and the depositary. However, any
amendment which materially and adversely alters the rights of
the holders of depositary receipts will not be effective unless
such amendment has been approved by the holders of depositary
receipts representing at least a majority (or, in the case of
amendments relating to or affecting rights to receive dividends
or distributions or voting or redemption rights, 66 2 /3%,
unless otherwise provided in the related prospectus supplement)
of the depositary shares then outstanding. Unless otherwise
provided in the related prospectus supplement, the deposit
agreement may be terminated by us or the depositary only if
(1) all outstanding depositary shares have been redeemed,
(2) there has been a final distribution in respect of the
common shares or the related class or series of preference
shares in connection with our liquidation, dissolution or
winding up and such distribution has been distributed to the
holders of depositary receipts or (3) upon the consent of
holders of depositary receipts representing not less than 66
2/3%
of the depositary shares outstanding.
Charges
Of Depositary
Unless otherwise provided in the related prospectus supplement,
(1) we will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
depositary arrangements, (2) we will pay charges of the
depositary in connection with the initial deposit of the related
common shares or class or series of preference shares and any
redemption of such common shares or preference shares, and
(3) holders of depositary receipts will pay all other
transfer and other taxes and governmental charges and such other
charges as are expressly provided in the deposit agreement to be
for their accounts.
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The depositary may refuse to effect any transfer of a depositary
receipt or any withdrawal of shares of common shares or a class
or series of preference shares evidenced thereby until all such
taxes and charges with respect to such depositary receipt or
such common shares or preference shares are paid by the holders
thereof.
Miscellaneous
The depositary will forward all reports and communications from
us which are delivered to the depositary and which we are
required to furnish to the holders of the common shares or
preference shares.
Neither we nor the depositary will be liable if either of us is
prevented or delayed by law or any circumstance beyond our
control in performing our obligations under the deposit
agreement. Our obligations and the obligations of the depositary
under the deposit agreement will be limited to performance in
good faith of our and their duties thereunder and neither we nor
the depositary will be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares or class or
series of preference shares unless satisfactory indemnity is
furnished. We and the depositary may rely on written advice of
counsel or accountants, or information provided by persons
presenting preference shares for deposit, holders of depositary
shares or other persons believed to be competent and on
documents believed to be genuine.
Resignation
And Removal Of Depositary
The depositary may resign at any time by delivering to us notice
of its election to do so, and we may at any time remove the
depositary. Any such resignation or removal of the depositary
will take effect upon the appointment of a successor depositary,
which successor depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the
U.S. and having a combined capital and surplus of at least
$50,000,000.
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DESCRIPTION
OF THE DEBT SECURITIES
We may offer debt securities. The following description sets
forth the general terms and provisions of the debt securities.
The applicable prospectus supplement will describe the specific
terms of the debt securities offered by that prospectus
supplement and any applicable tax considerations and any general
terms outlined in this section that will not apply to those debt
securities.
Our senior debt securities are to be issued under a senior
indenture between us and The Bank of New York Mellon, as
trustee, a form of which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
Our subordinated debt securities are to be issued under a
subordinated indenture between us and The Bank of New York
Mellon, as trustee, a form of which is filed as an exhibit to
the registration statement of which this prospectus forms a
part. The senior indenture and the subordinated indenture are
sometimes referred to herein collectively as the
indentures and each individually as an
indenture.
Because the following summaries of the material terms and
provisions of the indentures and the related debt securities are
not complete, you should refer to the forms of the indentures
and the debt securities for complete information regarding the
terms and provisions of the indentures, including the
definitions of some of the terms used below, and the debt
securities. Wherever we refer to particular articles, sections
or defined terms of an indenture, those articles, sections or
defined terms are incorporated herein by reference. Whenever we
refer to particular articles, sections or defined terms of an
indenture, without specific reference to an indenture, those
articles, sections or defined terms are contained in all
indentures. The senior indenture and the subordinated indenture
are substantially identical, except for certain covenants of
ours and provisions relating to subordination.
General
The indentures do not limit the aggregate principal amount of
the debt securities which we may issue thereunder and provide
that we may issue the debt securities thereunder from time to
time in one or more series. (Section 3.1) Unless otherwise
described in a prospectus supplement regarding any debt
securities, the indentures do not limit the amount of other
indebtedness or the debt securities which we or our subsidiaries
may issue.
Unless otherwise provided in a prospectus supplement, our senior
debt securities will be unsecured obligations and will rank
equally with all other unsecured and unsubordinated
indebtedness. The subordinated indebtedness will be unsecured
obligations of us, subordinated in right of payment to the prior
payment in full of all Senior Indebtedness (which term includes
the senior debt securities) as described below under
Certain Provisions Applicable to Subordinated
Indebtedness and in the applicable prospectus supplement.
Because we are a holding company, our rights and the rights of
our creditors (including the holders of our debt securities) and
shareholders to participate in distributions by certain of our
subsidiaries upon that subsidiarys liquidation or
reorganization or otherwise would be subject to the prior claims
of that subsidiarys creditors, except to the extent that
we may ourselves be a creditor with recognized claims against
that subsidiary or our creditors may have the benefit of a
guaranty from our subsidiary. None of our creditors has the
benefit of a guaranty from any of our subsidiaries. The rights
of our creditors (including the holders of our debt securities)
to participate in the distribution of stock owned by us in
certain of our subsidiaries, including our insurance
subsidiaries, may also be subject to approval by certain
insurance regulatory authorities having jurisdiction over such
subsidiaries.
The prospectus supplement relating to the particular debt
securities offered thereby will describe the following terms of
the offered debt securities:
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the title of such debt securities and the series in which such
debt securities will be included, which may include medium-term
notes;
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the aggregate principal amount of such debt securities and any
limit upon such principal amount;
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the date or dates, or the method or methods, if any, by which
such date or dates will be determined, on which the principal of
such debt securities will be payable;
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the rate or rates at which such debt securities will bear
interest, if any, which rate may be zero in the case of certain
debt securities issued at an issue price representing a discount
from the principal amount payable at maturity, or the method by
which such rate or rates will be determined (including, if
applicable, any remarketing option or similar method), and the
date or dates from which such interest, if any, will accrue or
the method by which such date or dates will be determined;
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whether the issuer can elect to defer interest, and if so, the
deferral period;
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the date or dates on which interest, if any, on such series of
debt securities will be payable and any regular record dates
applicable to the date or dates on which interest will be so
payable;
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the place or places where the principal of, any premium or
interest on or any additional amounts with respect to such debt
securities will be payable, any of such debt securities that are
issued in registered form may be surrendered for registration of
transfer or exchange, and any such debt securities may be
surrendered for conversion or exchange;
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whether any of such debt securities are to be redeemable at our
option and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other
terms and conditions upon which such debt securities may be
redeemed, in whole or in part, at our option;
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whether we will be obligated to redeem or purchase any of such
debt securities pursuant to any sinking fund or analogous
provision or at the option of any holder thereof and, if so, the
date or dates on which, the period or periods within which, the
price or prices at which and the other terms and conditions upon
which such debt securities will be redeemed or purchased, in
whole or in part, pursuant to such obligation, and any
provisions for the remarketing of such debt securities so
redeemed or purchased;
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if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any debt securities to be
issued in registered form will be issuable and, if other than a
denomination of $5,000, the denominations in which any debt
securities to be issued in bearer form will be issuable;
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whether the debt securities will be convertible into common
shares
and/or
exchangeable for other securities issued by us, and, if so, the
terms and conditions upon which such debt securities will be so
convertible or exchangeable;
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if other than the principal amount, the portion of the principal
amount (or the method by which such portion will be determined)
of such debt securities that will be payable upon declaration of
acceleration of the maturity thereof;
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if other than United States dollars, the currency of payment,
including composite currencies, of the principal of, any premium
or interest on or any additional amounts with respect to any of
such debt securities;
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whether the principal of, any premium or interest on or any
additional amounts with respect to such debt securities will be
payable, at our election or the election of a holder, in a
currency other than that in which such debt securities are
stated to be payable and the date or dates on which, the period
or periods within which, and the other terms and conditions upon
which, such election may be made;
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any index, formula or other method used to determine the amount
of payments of principal of, any premium or interest on or any
additional amounts with respect to such debt securities;
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whether such debt securities are to be issued in the form of one
or more global securities and, if so, the identity of the
depositary for such global security or securities;
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whether such debt securities are the senior debt securities or
subordinated indebtedness and, if subordinated indebtedness, the
specific subordination provisions applicable thereto;
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in the case of the subordinated indebtedness issued by us, the
relative degree, if any, to which such subordinated indebtedness
of the series will be senior to or be subordinated to other
series of the subordinated indebtedness or other indebtedness of
ours in right of payment, whether such other series of the
subordinated indebtedness or other indebtedness is outstanding
or not;
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any deletions from, modifications of or additions to the Events
of Default or covenants of ours with respect to such debt
securities;
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whether the provisions described below under Discharge,
Defeasance and Covenant Defeasance will be applicable to
such debt securities;
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whether, under what circumstances and in which currency we will
pay additional amounts on account of taxes, fees, assessments or
governmental charges on the debt securities of a series and if
so, whether we will have the option to redeem such debt
securities rather than pay such additional amounts;
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whether any of such debt securities are to be issued upon the
exercise of warrants, and the time, manner and place for such
debt securities to be authenticated and delivered; and
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any other terms of such debt securities and any other deletions
from or modifications or additions to the applicable indenture
in respect of such debt securities. (Section 3.1)
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We will have the ability under the indentures to
reopen a previously issued series of the debt
securities and issue additional debt securities of that series
or establish additional terms of that series. We are also
permitted to issue debt securities with the same terms as
previously issued debt securities. (Section 3.1)
Unless otherwise provided in the related prospectus supplement,
principal, premium, interest and additional amounts, if any,
with respect to any debt securities will be payable at the
office or agency maintained by us for such purposes (initially
the corporate trust office of the trustee). In the case of debt
securities issued in registered form, interest may be paid by
check mailed to the persons entitled thereto at their addresses
appearing on the security register or by wire transfer to an
account maintained by the payee with a bank located in the
United States. Interest on debt securities issued in registered
form will be payable on any interest payment date to the persons
in whose names the debt securities are registered at the close
of business on the regular record date with respect to such
interest payment date. Interest on such debt securities which
have a redemption date after a regular record date, and on or
before the following interest payment date, will also be payable
to the persons in whose names the debt securities are so
registered. All paying agents initially designated by us for the
debt securities will be named in the related prospectus
supplement. We may at any time designate additional paying
agents or rescind the designation of any paying agent or approve
a change in the office through which any paying agent acts,
except that we will be required to maintain a paying agent in
each place where the principal of, any premium or interest on or
any additional amounts with respect to the debt securities are
payable. (Sections 3.1, 3.7, 10.2 and 11.6)
Unless otherwise provided in the related prospectus supplement,
the debt securities may be presented for transfer (duly endorsed
or accompanied by a written instrument of transfer, if so
required by us or the security registrar) or exchanged for other
debt securities of the same series (containing identical terms
and provisions, in any authorized denominations, and of a like
aggregate principal amount) at the office or agency maintained
by us for such purposes (initially the corporate trust office of
the trustee). Such transfer or exchange will be made without
service charge, but we may require payment of a sum sufficient
to cover any tax or other governmental charge and any other
expenses then payable. Unless otherwise provided in the related
prospectus supplement, we will not be required to
(1) issue, register the transfer of, or exchange, the debt
securities during a period beginning at the opening of business
15 days before the day of mailing of a notice of redemption
of any such debt securities and ending at the close of business
on the day of such mailing or (2) register the transfer of
or exchange any debt security so selected for redemption in
whole or in part, except the unredeemed portion of any debt
security being redeemed in part. (Section 3.5)
We will appoint the trustee as security registrar. Any transfer
agent (in addition to the security registrar) initially
designated by us for any debt securities will be named in the
related prospectus supplement. We may at any time designate
additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which
any transfer agent acts, except that we will be required to
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maintain a transfer agent in each place where the principal of,
any premium or interest on, or any additional amounts with
respect to the debt securities are payable. (Section 10.2)
Unless otherwise provided in the related prospectus supplement,
the debt securities will be issued only in fully registered form
without coupons in minimum denominations of $1,000 and any
integral multiple thereof. (Section 3.2) The debt
securities may be represented in whole or in part by one or more
global debt securities registered in the name of a depositary or
its nominee and, if so represented, interests in such global
debt security will be shown on, and transfers thereof will be
effected only through, records maintained by the designated
depositary and its participants as described below. Where the
debt securities of any series are issued in bearer form, the
special restrictions and considerations, including special
offering restrictions and special U.S. federal income tax
considerations, applicable to such debt securities and to
payment on and transfer and exchange of such debt securities
will be described in the related prospectus supplement.
The debt securities may be issued as original issue discount
securities (bearing no interest or bearing interest at a rate
which at the time of issuance is below market rates) to be sold
at a substantial discount below their principal amount and may
for various other reasons be considered to have original issue
discount for U.S. federal income tax purposes. In general,
original issue discount is included in the income of holders on
a
yield-to-maturity
basis. Accordingly, depending on the terms of the debt
securities, holders may be required to include amounts in income
prior to the receipt thereof. Special U.S. federal income
tax and other considerations applicable to original issue
discount securities will be described in the related prospectus
supplement.
If the purchase price of any debt securities is payable in one
or more foreign currencies or currency units or if any debt
securities are denominated in one or more foreign currencies or
currency units or if the principal of, or any premium or
interest on, or any additional amounts with respect to, any debt
securities is payable in one or more foreign currencies or
currency units, the restrictions, elections, certain
U.S. federal income tax considerations, specific terms and
other information with respect to such debt securities and such
foreign currency or currency units will be set forth in the
related prospectus supplement.
We will comply with Section 14(e) under the Exchange Act,
and any other tender offer rules under the Exchange Act which
may then be applicable, in connection with any obligation of
ours to purchase debt securities at the option of the holders.
Any such obligation applicable to a series of debt securities
will be described in the related prospectus supplement.
Unless otherwise described in a prospectus supplement relating
to any debt securities, the indentures do not contain any
provisions that would limit our ability to incur indebtedness or
that would afford holders of the debt securities protection in
the event of a sudden and significant decline in our credit
quality or a takeover, recapitalization or highly leveraged or
similar transaction involving us. Accordingly, we could in the
future enter into transactions that could increase the amount of
indebtedness outstanding at that time or otherwise affect our
capital structure or credit rating.
You should refer to the prospectus supplement relating to a
particular series of the debt securities for information
regarding any deletions from, modifications of, or additions to
the Events of Defaults described below or our covenants
contained in the respective indenture, including any addition of
a covenant or other provisions providing event risk or similar
protection.
Conversion
And Exchange
The terms, if any, on which debt securities of any series are
convertible into or exchangeable for common shares, preference
shares or other securities, whether issued by us, property or
cash, or a combination of any of the foregoing, will be set
forth in the related prospectus supplement. Such terms may
include provisions for conversion or exchange, either mandatory,
at the option of the holder, or at our option, in which the
securities, property or cash to be received by the holders of
the debt securities would be calculated according to the factors
and at such time as described in the related prospectus
supplement. Any such conversion or exchange will comply with
applicable Bermuda law, the Memorandum and the Bye-laws.
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Consolidation,
Amalgamation, Merger And Sale Of Assets
Unless otherwise described in a prospectus supplement, each
indenture provides that we may not (1) consolidate or
amalgamate with or merge into any other Person or convey,
transfer or lease our properties and assets as an entirety or
substantially as an entirety to any other Person and (2) we
may not permit any Person to consolidate or amalgamate with or
merge into us or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to us
(unless (a) such Person is an entity organized and existing
under the laws of the U.S., any state or territory thereof or
the District of Columbia, Bermuda, the Cayman Islands or any
country or state which is a member of the Organization for
Economic Cooperation and Development and will expressly assume,
by supplemental indenture reasonably satisfactory in form to the
trustee, the due and punctual payment of the principal of, any
premium and interest on and any additional amounts with respect
to all of the debt securities issued thereunder, and the
performance of our obligations under such indenture and the
outstanding debt securities; (b) immediately after giving
effect to such transaction, no Event of Default, and no event
which after notice or lapse of time, or both, would become an
Event of Default, will have happened and be continuing; and
(c) certain documents are delivered.
Events Of
Default
Unless we provide other or substitute Events of Default in a
prospectus supplement, the following events will constitute an
Event of Default under the applicable indenture with respect to
any series of debt securities issued thereunder (whatever the
reason for such Event of Default and whether it will be
voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any interest on any debt
security of such series, or any additional amounts payable with
respect thereto, when such interest becomes or such additional
amounts become due and payable, and continuance of such default
for a period of 60 days and the time for payment of such
interest or additional amounts has not been extended; provided,
however that if we are permitted by the terms of the debt
securities of the applicable series to defer the payment in
question, the date on which such payment is due and payable
shall be the date on which we are required to make payment
following such deferral, if such deferral has been elected
pursuant to the terms of the debt securities of that series;
(2) default in the payment of the principal of or any
premium on any debt security of such series, or any additional
amounts payable with respect thereto, when such principal,
premium or such additional amounts become due and payable either
at maturity, upon any redemption, by declaration of acceleration
or otherwise and the time for payment of such principal (or
premium), or any additional amounts payable with respect
thereto, has not been extended; provided, however, that if we
are permitted by the terms of the debt securities of the
applicable series to defer the payment in question, the date on
which such payment is due and payable shall be the date on which
we are required to make payment following such deferral, if such
deferral has been elected pursuant to the terms of the debt
securities of that series;
(3) default in the deposit of any sinking fund payment when
and as due by the terms of any debt security of such series;
(4) default by us in filing with the Trustee reports
required by Section 13 or Section 15 of the Securities
Exchange Act of 1934, as amended, and the continuance of such
default for a period of 180 days after there has been given
written notice as provided in such indenture;
(5) default by us in the performance, or breach, of any
other covenant or warranty of ours contained in the applicable
indenture for the benefit of such series, and the continuance of
such default or breach for a period of 90 days after there
has been given written notice as provided in such indenture;
(6) certain events relating to bankruptcy, insolvency or
reorganization of us; and
(7) any other Event of Default provided in or pursuant to
the indenture.
If an Event of Default with respect to the debt securities of
any series (other than an Event of Default described in
clause (6) of the preceding paragraph) occurs and is
continuing, either the trustee or the holders
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of at least 25% in principal amount of the outstanding debt
securities of such series by written notice as provided in the
applicable indenture may declare the principal amount (or such
lesser amount as may be provided for in the debt securities of
such series) of all outstanding debt securities of such series
to be due and payable immediately. At any time after a
declaration of acceleration has been made, but before a judgment
or decree for payment of money has been obtained by the trustee,
and subject to applicable law and certain other provisions of
the applicable indenture, the holders of a majority in aggregate
principal amount of the debt securities of such series may,
under certain circumstances, rescind and annul such
acceleration. An Event of Default described in clause (6)
of the preceding paragraph will cause the principal amount and
accrued interest (or such lesser amount as provided for in the
debt securities of such series) to become immediately due and
payable without any declaration or other act by the trustee or
any holder.
Each indenture provides that, within 90 days after the
occurrence of any event which is, or after notice or lapse of
time or both would become, an Event of Default with respect to
the debt securities of any series, the trustee will transmit, in
the manner set forth in such indenture and subject to the
exceptions described below, notice of such default actually
known to the trustee to the holders of the debt securities of
such series unless such default has been cured or waived.
However, except in the case of a default in the payment of
principal of, or premium, if any, or interest, if any, on, or
additional amounts or any sinking fund or purchase fund
installment with respect to, any debt security of such series,
the Trustee may withhold such notice if and so long as a trust
committee of directors
and/or
responsible officers of the trustee in good faith determine that
the withholding of such notice is in the best interest of the
holders of the debt securities of such series. In addition, in
the case of any default of the character described in
clause (4) or (5) of the second preceding paragraph,
no such notice to holders will be given until at least
60 days after the default occurs.
If an Event of Default occurs and is continuing with respect to
the debt securities of any series, the trustee may in its
discretion proceed to protect and enforce its rights and the
rights of the holders of the debt securities of such series by
all appropriate judicial proceedings. Each indenture provides
that, subject to the duty of the trustee during any default to
act with the required standard of care, the trustee will be
under no obligation to exercise any of its rights or powers
under such indenture at the request or direction of any of the
holders of the debt securities, unless such holders shall have
offered to the trustee indemnity which is reasonably
satisfactory to the trustee. Subject to such provisions for the
indemnification of the trustee, and subject to applicable law
and certain other provisions of the applicable indenture, the
holders of a majority in aggregate principal amount of the
outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the trustee, or exercising any trust
or power conferred on the trustee, with respect to debt
securities of such series.
Modification
And Waiver
We and the trustee may modify or amend any indenture with the
consent of the holders of not less than a majority in aggregate
principal amount of the outstanding debt securities of each
series affected thereby; provided, however, that no such
modification or amendment may, without the consent of the holder
of each outstanding debt security affected thereby:
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change the stated maturity of the principal of, or any premium
or installment of interest on, or any additional amounts with
respect to, any debt security,
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reduce the principal amount of, or the rate (or modify the
calculation of such principal amount or rate) of interest on, or
any additional amounts with respect to, or any premium payable
upon the redemption of, any debt security,
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change our obligation to pay additional amounts with respect to
any debt security,
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change the redemption provisions of any debt security or,
following the occurrence of any event that would entitle a
holder to require us to repay any debt security at the option of
the holder, adversely affect the right of repayment at the
option of such holder, of any affected debt security,
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change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional
amounts with respect to, any debt security is payable,
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impair the right to institute suit for the enforcement of any
payment on or after the stated maturity of any debt security
(or, in the case of redemption, on or after the redemption date
or, in the case of repayment at the option of any holder, on or
after the repayment date),
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reduce the percentage in principal amount of the outstanding
debt securities, the consent of whose holders is required in
order to take specific actions,
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reduce the requirements for quorum or voting by holders of debt
securities in the applicable section of each indenture,
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modify any of the provisions in the applicable indenture
regarding the waiver of past defaults and the waiver of certain
covenants by the holders of the debt securities except to
increase any percentage vote required or to provide that other
provisions of such indenture cannot be modified or waived
without the consent of the holder of each debt security affected
thereby,
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make any change that adversely affects the right to convert or
exchange any debt security into or for our common shares or
other debt securities or other securities (whether or not issued
by us), cash or property in accordance with its terms,
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modify any of the provisions of the subordinated indenture
relating to the subordination of the subordinated debt
securities in a manner adverse to holders of the subordinated
debt securities, or
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modify any of the above provisions (Section 9.2).
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In addition, no supplemental indenture may directly or
indirectly modify or eliminate the subordination provisions of
any subordinated indenture in any manner which might terminate
or impair the subordination of the subordinated indebtedness to
Senior Indebtedness without the prior written consent of the
holders of the Senior Indebtedness. (Section 9.7)
We and the trustee may modify or amend any indenture and debt
securities of any series without the consent of any holder in
order to, among other things:
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provide for our successor pursuant to a consolidation,
amalgamation, merger or sale of assets;
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add to our covenants for the benefit of the holders of all or
any series of debt securities or to surrender any right or power
conferred upon us by the applicable indenture;
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provide for a successor trustee with respect to debt securities
of all or any series;
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cure any ambiguity or correct or supplement any provision in any
indenture which may be defective or inconsistent with any other
provision, or to make any other provisions with respect to
matters or questions arising under any indenture which will not
adversely affect the interests of the holders of debt securities
of any series issued thereunder in any material respect;
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change the conditions, limitations and restrictions on the
authorized amount, terms or purposes of issue, authentication
and delivery of debt securities under any indenture;
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add any additional Events of Default with respect to all or any
series of debt securities;
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provide for conversion or exchange rights of the holders of any
series of debt securities; or
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make any other change that does not materially adversely affect
the interests of the holders of any debt securities then
outstanding under the applicable indenture. (Section 9.1)
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The holders of at least a majority in aggregate principal amount
of debt securities of any series may, on behalf of the holders
of all debt securities of that series, waive compliance by us
with certain restrictive provisions of the applicable indenture.
(Section 10.9 of our senior indenture and Section 10.7
of our subordinated indenture) The holders of not less than a
majority in aggregate principal amount of the outstanding debt
securities of any series may, on behalf of the holders of all
debt securities of that series, waive any past default and its
consequences under the applicable indenture with respect to debt
securities of that series, except a default (1) in the
payment of principal of, any premium or interest on or any
additional amounts with respect to debt securities of that
series or (2) in respect of a covenant or provision of the
applicable indenture that cannot be modified or amended without
the consent of the holder of each debt security of any series.
(Section 5.13)
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Under each indenture, we are required to furnish the trustee
annually a statement as to our performance of certain of our
obligations under that indenture and as to any default in such
performance. We are also required to deliver to the trustee,
within five days after occurrence thereof, written notice of any
Event of Default or any event which after notice or lapse of
time or both would constitute an Event of Default under
clause (4) in Events of Default
described above. (Section 10.10 of our senior indenture and
Section 10.8 of our subordinated indenture)
Discharge,
Defeasance And Covenant Defeasance
We may discharge certain obligations to holders of any series of
debt securities that have not already been delivered to the
trustee for cancellation and that either have become due and
payable or will become due and payable within one year (or
scheduled for redemption within one year) by depositing with the
trustee, in trust, funds in U.S. dollars, Foreign Currency
(as defined below) in which such debt securities are payable or
Government Obligations (as defined below), or a combination
thereof, in an amount sufficient (without reinvestment) to pay
the entire indebtedness on such debt securities with respect to
principal and any premium, interest and additional amounts to
the date of such deposit (if such debt securities have become
due and payable) or with respect to principal, any premium and
interest to the maturity or redemption date thereof, as the case
may be. (Section 4.1)
Each indenture provides that, unless the provisions of
Section 4.2 thereof are made inapplicable to debt
securities of or within any series pursuant to Section 3.1
thereof, we may elect either (1) to defease and be
discharged from any and all obligations with respect to such
debt securities (except for, among other things, the obligation
to pay additional amounts, if any, upon the occurrence of
certain events of taxation, assessment or governmental charge
with respect to payments on such debt securities, if the debt
securities of a series provide for the payment of such
additional amounts, and other obligations to register the
transfer or exchange of such debt securities, to replace
temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency with respect to such
debt securities and to hold monies for payment in trust)
(defeasance) or (2) to be released from its
obligations with respect to such debt securities under certain
covenants as described in the related prospectus supplement, and
any omission to comply with such obligations will not constitute
a default or an Event of Default with respect to such debt
securities (covenant defeasance). Defeasance or
covenant defeasance, as the case may be, will be conditioned
upon the irrevocable deposit by us with the trustee, in trust,
of an amount in U.S. dollars or in the Foreign Currency in
which such debt securities are payable at stated maturity, or
Government Obligations, or a combination thereof, in an amount
sufficient (without reinvestment) to pay the principal of, any
premium, interest and additional amounts on such debt securities
on the scheduled due dates or any prior redemption date.
(Section 4.2)
Such a trust may only be established if, among other things:
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the applicable defeasance or covenant defeasance does not result
in a breach or violation of, or constitute a default under any
material agreement or instrument to which we are a party or by
which we are bound;
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no Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to the
debt securities to be defeased will have occurred and be
continuing on the date of establishment of such a trust after
giving effect to such establishment and, with respect to
defeasance only, no bankruptcy proceeding will have occurred at
any time during the period ending on the 91st day after
such date;
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with respect to registered securities, we have delivered to the
trustee an opinion of counsel (as specified in each indenture)
to the effect that the holders of such debt securities will not
recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance
and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of
defeasance, must refer to and be based upon a letter ruling of
the Internal Revenue Service received by us, a Revenue Ruling
published by the Internal Revenue Service or a change in
applicable U.S. federal income tax law occurring after the
date of the applicable indenture; and
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with respect to defeasance, we have delivered to the trustee an
officers certificate as to solvency and the absence of
intent of preferring holders over other creditors.
(Section 4.2)
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Foreign Currency means any currency, currency
unit or composite currency, including, without limitation, the
euro, issued by the government of one or more countries other
than the United States of America or by any recognized
confederation or association of such governments, all as
reasonably acceptable to the trustee. (Section 1.1)
Government Obligations means securities which
are (1) direct obligations of the United States of America
or the other government or governments or confederation or
association of governments which issued the Foreign Currency in
which the debt securities of a particular series are payable, in
each case where the payment or payments thereunder are supported
by the full faith and credit of such government or governments
or confederation or association of governments or
(2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of
America or such other government or governments or confederation
or association of governments, in each case where the timely
payment or payments thereunder are unconditionally guaranteed as
a full faith and credit obligation by the United States of
America or such other government or governments or confederation
or association of governments, and which, in the case of
clauses (1) or (2), are not callable or redeemable at our
option, and will also include a depository receipt issued by a
bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or
principal of or other amount with respect to any such Government
Obligation held by such custodian for the account of the holder
of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from
any amount received by the custodian with respect to the
Government Obligation or the specific payment of interest on or
principal of or other amount with respect to the Government
Obligation evidenced by such depository receipt.
(Section 1.1)
If after we have deposited funds
and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series,
(1) the holder of a debt security of that series is
entitled to, and does, elect pursuant to Section 3.1 of the
applicable indenture or the terms of such debt security to
receive payment in a currency other than that in which such
deposit has been made in respect of such debt security, or
(2) a Conversion Event (as defined below) occurs in respect
of the Foreign Currency in which such deposit has been made, the
indebtedness represented by such debt security will be deemed to
have been, and will be, fully discharged and satisfied through
the payment of the principal of, any premium and interest on, if
any, and any additional amounts, if any, with respect to, such
debt security as such debt security becomes due out of the
proceeds yielded by converting the amount or other property so
deposited in respect of such debt security into the currency in
which such debt security becomes payable as a result of such
election or such Conversion Event based on (a) in the case
of payments made pursuant to clause (1) above, the
applicable market exchange rate for such currency in effect on
the second business day prior to such payment date, or
(b) with respect to a Conversion Event, the applicable
market exchange rate for such Foreign Currency in effect (as
nearly as feasible) at the time of the Conversion Event.
(Section 4.2)
Conversion Event means the cessation of use
of (1) a Foreign Currency both by the government of the
country or the confederation which issued such Foreign Currency
and for the settlement of transactions by a central bank or
other public institutions of or within the international banking
community or (2) any currency unit or composite currency
for the purposes for which it was established. (Section 1.1)
In the event we effect covenant defeasance with respect to any
debt securities and such debt securities are declared due and
payable because of the occurrence of any Event of Default other
than an Event of Default with respect to any covenant as to
which there has been covenant defeasance, the amount in such
Foreign Currency in which such debt securities are payable, and
Government Obligations on deposit with the trustee, will be
sufficient to pay amounts due on such debt securities at the
time of the stated maturity or redemption date but may not be
sufficient to pay amounts due on such debt securities at the
time of the acceleration resulting from such Event of Default.
However, we would remain liable to make payment of such amounts
due at the time of acceleration.
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Redemption
Unless otherwise described in a prospectus supplement relating
to any debt securities, we may, at our option, redeem any series
of debt securities, in whole or in part, at any time at the
redemption price. Unless otherwise described in a prospectus
supplement, debt securities will not be subject to sinking fund
or other mandatory redemption or to redemption or repurchase at
the option of the holders upon a change of control, a change in
management, an asset sale or any other specified event. We do
not currently have any debt securities outstanding that are
subject to redemption or repurchase at the option of the
holders. We will include appropriate risk factor disclosure in
any prospectus supplement prepared in connection with the
issuance of debt securities that are subject to redemption or
repurchase at the option of the holders.
Unless otherwise described in a prospectus supplement, notice of
any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of
debt securities to be redeemed at its registered address. Unless
we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the debt
securities or portions thereof called for redemption.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global debt securities that will
be deposited with, or on behalf of, a depositary identified in
the prospectus supplement relating to such series.
The specific terms of the depositary arrangement with respect to
a series of the debt securities will be described in the
prospectus supplement relating to such series. We anticipate
that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a global security, the depositary for such
global security or its nominee will credit, on its book-entry
registration and transfer system, the respective principal
amounts of the debt securities represented by such global
security. Such accounts will be designated by the underwriters
or agents with respect to such debt securities or by us if such
debt securities are offered and sold directly by us. Ownership
of beneficial interests in a global security will be limited to
persons that may hold interests through participants. Ownership
of beneficial interests in such global security will be shown
on, and the transfer of that ownership will be effected only
through, records maintained by the depositary or its nominee
(with respect to interests of participants) and on the records
of participants (with respect to interests of persons other than
participants). The laws of some states require that certain
purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a global
security.
So long as the depositary for a global security, or its nominee,
is the registered owner of such global security, such depositary
or such nominee, as the case may be, will be considered the sole
owner or holder of the debt securities represented by such
global security for all purposes under the applicable indenture.
Except as described below, owners of beneficial interests in a
global security will not be entitled to have the debt securities
of the series represented by such global security registered in
their names and will not receive or be entitled to receive
physical delivery of the debt securities of that series in
definitive form.
Principal of, any premium and interest on, and any additional
amounts with respect to, the debt securities registered in the
name of a depositary or its nominee will be made to the
depositary or its nominee, as the case may be, as the registered
owner of the global security representing such debt securities.
None of the trustee, any paying agent, the security registrar,
or Validus will have any responsibility or liability for any
aspect of the records relating to or payments made on account of
beneficial ownership interests of the global security for such
debt securities or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
We expect that the depositary for a series of the debt
securities or its nominee, upon receipt of any payment with
respect to such debt securities, will credit immediately
participants accounts with payments in amounts
proportionate to their respective beneficial interest in the
principal amount of the global security for such debt securities
as shown on the records of such depositary or its nominee. We
also expect that payments
49
by participants to owners of beneficial interests in such global
security held through such participants will be governed by
standing instructions and customary practices, as is now the
case with securities held for the accounts of customers
registered in street name, and will be the
responsibility of such participants.
The indentures provide that if:
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the depositary for a series of the debt securities notifies us
that it is unwilling or unable to continue as depositary or if
such depositary ceases to be eligible under the applicable
indenture and a successor depositary is not appointed by us
within 90 days of written notice;
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we determine that the debt securities of a particular series
will no longer be represented by global securities and execute
and deliver to the trustee a company order to such
effect; or
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an Event of Default with respect to a series of the debt
securities has occurred and is continuing,
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the global securities will be exchanged for the debt securities
of such series in definitive form of like tenor and of an equal
aggregate principal amount, in authorized denominations.
Such definitive debt securities will be registered in such name
or names as the depositary shall instruct the trustee.
(Section 3.5) It is expected that such instructions may be
based upon directions received by the depositary from
participants with respect to ownership of beneficial interests
in global securities.
Payment
Of Additional Amounts
If the debt securities of a series provide for the payment of
additional amounts on account of taxes, fees, assessments or
governmental charges as will be described in the related
prospectus supplement, we will pay to the holder of the debt
securities of such series the additional amounts as described
herein and therein.
We will make all payments of principal of and premium, if any,
interest and any other amounts on, or in respect of, the debt
securities of any series without withholding or deduction at
source for, or on account of, any present or future taxes, fees,
duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of Bermuda or any other
jurisdiction in which we are organized (a taxing
jurisdiction) or any political subdivision or taxing
authority thereof or therein, unless such taxes, fees, duties,
assessments or governmental charges are required to be withheld
or deducted by (x) the laws (or any regulations or rulings
promulgated thereunder) of a taxing jurisdiction or any
political subdivision or taxing authority thereof or therein or
(y) an official position regarding the application,
administration, interpretation or enforcement of any such laws,
regulations or rulings (including, without limitation, a holding
by a court of competent jurisdiction or by a taxing authority in
a taxing jurisdiction or any political subdivision thereof). If
a withholding or deduction at source is required by the laws of
Bermuda or the jurisdiction in which the Company is organized,
we will, subject to certain limitations and exceptions described
below, pay to the holder of any such debt security such
additional amounts as may be necessary so that every net payment
of principal, premium, if any, interest or any other amount made
to such holder, after the withholding or deduction, will not be
less than the amount provided for in such debt security and the
applicable indenture to be then due and payable.
Notwithstanding the foregoing, we will not be required to pay
any additional amounts for or on account of:
(1) any tax, fee, duty, assessment or governmental charge
of whatever nature which would not have been imposed but for the
fact that such holder (or in the case of clause (a), a
fiduciary, settler, beneficiary, partner, member or shareholder
of or possessor of power over the relevant Holder if the Holder
is an estate, nominee, trust, partnership, limited liability
company, or corporation): (a) was a resident, domiciliary
or national of, or engaged in business or maintained a permanent
establishment or was physically present in, the relevant taxing
jurisdiction or any political subdivision thereof or otherwise
had some connection with the relevant taxing jurisdiction other
than by reason of the mere ownership of, or receipt of payment
under, such debt security, (b) presented such debt security
for payment in the relevant taxing jurisdiction or any political
subdivision thereof, unless such debt security could not have
been presented for payment elsewhere, or (c) presented such
debt security for payment more than 30 days after the date
on which the payment in respect
50
of such debt security became due and payable or provided for,
whichever is later, except to the extent that the holder would
have been entitled to such additional amounts if it had
presented such debt security for payment on any day within that
30-day
period;
(2) any estate, inheritance, gift, sales, excise, transfer,
wealth or personal property or similar tax, assessment or other
governmental charge;
(3) any tax, assessment or other governmental charge that
is imposed or withheld by reason of the failure by the holder or
the beneficial owner of such debt security to comply with any
reasonable request by us addressed to the holder within
90 days of such request (a) to provide information
concerning the nationality, residence or identity of the holder
or such beneficial owner or (b) to make any declaration or
other similar claim or satisfy any information or reporting
requirement, which is required or imposed by statute, treaty,
regulation or administrative practice of the relevant taxing
jurisdiction or any political subdivision thereof as a
precondition to exemption from all or part of such tax,
assessment or other governmental charge; or
(4) any withholding or deduction required to be made
pursuant to any EU Directive on the taxation of savings
implementing the conclusions of the ECOFIN Council meetings of
26-27 November
2000, 3 June 2003 or any law implementing or complying
with, or introduced in order to confirm to, such EU
Directive; or
(5) any combination of items (1), (2), (3) and (4).
In addition, we will not pay additional amounts with respect to
any payment of principal of, or premium, if any, interest or any
other amounts on, any such debt security to any holder who is a
fiduciary or partnership or other than the sole beneficial owner
of such debt security to the extent such payment would be
required by the laws of the relevant taxing jurisdiction (or any
political subdivision or relevant taxing authority thereof or
therein) to be included in the income for tax purposes of a
beneficiary or partner or settlor with respect to such fiduciary
or a member of such partnership or a beneficial owner who would
not have been entitled to such additional amounts had it been
the holder of the debt security. (Section 10.4)
Redemption
for Tax Purposes
Unless otherwise described in a prospectus supplement, we may
redeem the debt securities at our option, in whole but not in
part, at a redemption price equal to 100% of the principal
amount, together with accrued and unpaid interest and additional
amounts, if any, to the date fixed for redemption, at any time
we receive an opinion of counsel that as a result of
(1) any change in or amendment to the laws or treaties (or
any regulations or rulings promulgated under these laws or
treaties) of Bermuda or any taxing jurisdiction (or of any
political subdivision or taxation authority affecting taxation)
or any change in the application or official interpretation of
such laws, regulations or rulings, or (2) any action taken
by a taxing authority of Bermuda or any taxing jurisdiction (or
any political subdivision or taxing authority affecting
taxation) which action is generally applied or is taken with
respect to the Company, or (3) a decision rendered by a
court of competent jurisdiction in Bermuda or any taxing
jurisdiction (or any political subdivision) whether or not such
decision was rendered with respect to us, there is a substantial
probability that we will be required as of the next interest
payment date to pay additional amounts with respect to the debt
securities as provided in Payment of Additional
Amounts above and such requirements cannot be avoided by
the use of reasonable measures (consistent with practices and
interpretations generally followed or in effect at the time such
measures could be taken) then available. If we elect to redeem
the debt securities under this provision, we will give written
notice of such election to the trustee and the holders of the
debt securities. Interest on the debt securities will cease to
accrue unless we default in the payment of the redemption price.
(Section 4.10 of the indenture)
New York
Law To Govern
The indentures and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York
applicable to agreements made or instruments entered into and,
in each case, performed in that state.
51
Certain
Provisions Applicable to the Senior Debt Securities
Limitations
on Liens on Stock of Subsidiaries
Under the senior indenture, we will covenant that, so long as
any senior debt securities are outstanding, we will not, nor
will we permit any subsidiary to, create, assume, incur,
guarantee or otherwise permit to exist any Indebtedness secured
by any mortgage, pledge, lien, security interest or other
encumbrance upon any shares of capital stock of any Designated
Subsidiary (whether such shares of stock are now owned or
hereafter acquired) without effectively providing concurrently
that the senior debt securities (and, if we so elect, any other
Indebtedness of ours that is not subordinate to the debt
securities and with respect to which the governing instruments
require, or pursuant to which we are otherwise obligated, to
provide such security) will be secured equally and ratably with,
or prior to, such Indebtedness for at least the time period such
other Indebtedness is so secured. This covenant does not apply
to permitted liens upon any shares of capital stock of any
person existing at the time such person becomes a Designated
Subsidiary and any extensions, renewals or replacements thereof.
(Section 10.6 of our senior indenture)
For purposes of the senior indenture, capital stock
of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents
of or interests in (however designated) equity of such person,
including preferred stock, but excluding any debt securities
convertible into such equity. (Section 1.1)
The term Designated Subsidiary means any present or
future consolidated subsidiary of ours, the consolidated net
worth of which constitutes at least 10% of our consolidated net
worth. (Section 1.1 of our senior indenture) As of
July 31, 2008, our only Designated Subsidiaries were
Validus Re and Talbot.
The term Indebtedness means, with respect to any
person:
(1) the principal of and any premium and interest on
(a) indebtedness of such person for money borrowed or
(b) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such person
is responsible or liable;
(2) all capitalized lease obligations of such person;
(3) all obligations of such person issued or assumed as the
deferred purchased price of property, all conditional sale
obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the
ordinary course of business);
(4) all obligations of such person for the reimbursement of
any obligor on any letter of credit, bankers acceptance or
similar credit transaction (other than obligations with respect
to letters of credit securing obligations (other than
obligations described in (1) through (3) above)
entered into in the ordinary course of business of such person
to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such
person of a demand for reimbursement following payment on the
letter of credit);
(5) all obligations of the type referred to in
clauses (1) through (4) of other persons and all
dividends of other persons for the payment of which, in either
case, such person is responsible or liable as obligor, guarantor
or otherwise the amount thereof being deemed to be the lesser of
the stated recourse, if limited, and the amount of the
obligation or dividends of the other person;
(6) all obligations of the type referred to in
clauses (1) through (5) of other persons secured by
any mortgage, pledge, lien, security interest or other
encumbrance on any property or asset of such person (whether or
not such obligation is assumed by such person), the amount of
such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so
secured; and
(7) any amendments, modifications, refundings, renewals or
extensions of any indebtedness or obligation described as
Indebtedness in clauses (1) through (6) above.
(Section 1.1)
For purposes of the senior indenture, permitted
liens means liens for taxes or assessments or governmental
charges or levies not then due and delinquent or the validity of
which is being contested in good
52
faith or which are less than $1,000,000 in amount and liens
created by or resulting from any litigation or legal proceeding
which is currently being contested in good faith by appropriate
proceedings or which involves claims of less than $1,000,000.
(Section 1.1 of our senior indenture)
Limitations
on Disposition of Stock of Designated Subsidiaries
The senior indenture also provides that, so long as any senior
debt securities are outstanding and except in a transaction
otherwise governed by such indenture, we will not issue, sell,
assign, transfer or otherwise dispose of any shares of,
securities convertible into, or warrants, rights or options to
subscribe for or purchase shares of, capital stock (other than
preferred stock having no voting rights of any kind) of any
Designated Subsidiary (other than to the Company or another
Designated Subsidiary); and will not permit any Designated
Subsidiary to issue (other than to us or another Designated
Subsidiary) any shares (other than directors qualifying
shares) of, or securities convertible into, or warrants rights
or options to subscribe for or purchase shares of, capital stock
(other than preferred stock having no voting rights of any kind)
of any Designated Subsidiary, if, after giving effect to any
such transaction and the issuance of the maximum number of
shares issuable upon the conversion or exercise of all such
convertible securities, warrants, rights or options, the
Designated Subsidiary would remain a subsidiary of ours and we
would own, directly or indirectly, less than 80% of the shares
of capital stock of such Designated Subsidiary (other than
preferred stock having no voting rights of any kind);
provided, however, that (1) any issuance, sale,
assignment, transfer or other disposition permitted by us may
only be made for at least a fair market value consideration as
determined by our Board pursuant to a resolution adopted in good
faith and (2) the foregoing will not prohibit any such
issuance or disposition of securities if required by any law or
any regulation or order of any governmental or insurance
regulatory authority.
Notwithstanding the foregoing, (1) we may merge or
consolidate any Designated Subsidiary into or with another
direct or indirect subsidiary of ours, the shares of capital
stock of which we own at least 70%, and (2) we may, subject
to the provisions described under
Consolidation, Amalgamation, Merger and Sale
of Assets above, sell, assign, transfer or otherwise
dispose of the entire capital stock of any Designated Subsidiary
at one time for at least a fair market value consideration as
determined by our Board pursuant to a resolution adopted in good
faith. (Section 10.7 of our senior indenture)
Certain
Provisions Applicable To Subordinated Indebtedness
Our subordinated indebtedness will, to the extent set forth in
the subordinated indenture, be subordinate in right of payment
to the prior payment in full of all our Senior Indebtedness.
(Section 16.1 of our subordinated indenture)
Upon any payment or distribution of our assets of any kind or
character, whether in cash, property or securities, to creditors
upon any total or partial dissolution,
winding-up,
reorganization, assignment for the benefit of creditors or
marshaling of our assets, whether voluntary or involuntary, or
in a bankruptcy, insolvency, receivership or other similar
proceeding relating to us or our assets, all amounts due upon
all senior indebtedness will be paid first to all senior
indebtedness in full in cash, or such payment provided for in
money in accordance with its terms, before any payment is made
on account of the principal of, interest on or additional
amounts with respect to the subordinated debt securities.
By reason of such subordination, in the event of our liquidation
or insolvency, holders of our Senior Indebtedness and holders of
other obligations of ours that are not subordinated to our
Senior Indebtedness may recover more, ratably, than the holders
of our subordinated indebtedness.
Subject to the payment in full of all Senior Indebtedness of
ours, the rights of the holders of our subordinated indebtedness
will be subrogated to the rights of the holders of our Senior
Indebtedness to receive payments or distributions of cash,
property or securities of ours applicable to such Senior
Indebtedness until the principal of, any premium and interest
on, and any additional amounts with respect to, our subordinated
indebtedness have been paid in full. (Section 16.4 of our
subordinated indenture)
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No payment of principal (including redemption and sinking fund
payments) of or any premium or interest on or any additional
amounts with respect to our subordinated indebtedness, or
payments to acquire such securities (other than pursuant to
their conversion), may be made (1) if any Senior
Indebtedness of ours is not paid when due and any applicable
grace period with respect to such default has ended and such
default has not been cured or waived or ceased to exist, or
(2) if the maturity of any Senior Indebtedness of ours has
been accelerated because of a default. (Section 16.2 of our
subordinated indenture)
Our subordinated indenture does not limit or prohibit us from
incurring additional Senior Indebtedness, which may include
Indebtedness that is senior to our subordinated indebtedness,
but subordinate to our other obligations. The senior debt
securities issued by us will constitute Senior Indebtedness
under our subordinated indenture.
For purposes of this section, the term Senior
Indebtedness means all Indebtedness of ours outstanding at
any time, except:
(1) the subordinated debt securities;
(2) Indebtedness as to which, by the terms of the
instrument creating or evidencing the same, it is provided that
such Indebtedness is subordinated to or ranks equally with our
subordinated debt securities;
(3) our Indebtedness to, or guaranteed on behalf of, any of
our Subsidiaries, or any officers, directors or employee of us
or any of our subsidiaries;
(4) interest accruing after the filing of a petition
initiating any bankruptcy, insolvency or other similar
proceeding unless such interest is an allowed claim enforceable
against us in a proceeding under federal or state bankruptcy
laws;
(5) trade accounts payable; and
(6) any liability for income, franchise, real estate or
other taxes owed or owing.
Such Senior Indebtedness will continue to be Senior Indebtedness
and be entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any
term of such Senior Indebtedness. (Sections 1.1 and 16.8 of
our subordinated indenture)
Our subordinated indenture provides that the foregoing
subordination provisions, insofar as they relate to any
particular issue of our subordinated indebtedness, may be
changed prior to such issuance. Any such change would be
described in the related prospectus supplement.
Information
Concerning The Trustee
We may from time to time borrow from, maintain deposit accounts
with and conduct other banking transactions with The Bank of New
York Mellon and its affiliates in the ordinary course of
business.
Under each indenture, The Bank of New York Mellon is required to
transmit annual reports to all holders regarding its eligibility
and qualifications as trustee under the applicable indenture and
related matters.
54
DESCRIPTION
OF THE WARRANTS TO PURCHASE COMMON SHARES OR PREFERENCE
SHARES
The following statements with respect to the common share
warrants and preference share warrants are summaries of, and
subject to, the detailed provisions of a share warrant agreement
to be entered into by us and a share warrant agent to be
selected at the time of issue. The applicable prospectus
supplement will describe the specific terms of the warrants
offered by that prospectus supplement and any general terms
outlined in this section that will not apply to those warrants.
General
The share warrants may be issued under the share warrant
agreement independently or together with any other securities
offered by any prospectus supplement and may be attached to or
separate from such other offered securities. Such warrants will
be entered into the Companys warrant register. If share
warrants are offered, the related prospectus supplement will
describe the designation and terms of the share warrants,
including, without limitation, the following:
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the offering price, if any;
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the designation and terms of the common shares or preference
shares purchasable upon exercise of the share warrants;
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if applicable, the date on and after which the share warrants
and the related offered securities will be separately
transferable;
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the number of common shares or preference shares purchasable
upon exercise of one share warrant and the initial price at
which such shares may be purchased upon exercise;
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the date on which the right to exercise the share warrants shall
commence and the date on which such right shall expire;
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a discussion of certain U.S. federal income tax
considerations;
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the call provisions, if any;
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the currency, currencies or currency units in which the offering
price, if any, and exercise price are payable;
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the antidilution provisions of the share warrants; and
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any other terms of the share warrants.
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The common shares or preference shares issuable upon exercise of
the share warrants will, when issued in accordance with the
share warrant agreement, be fully paid and nonassessable.
Exercise
Of Share Warrants
Share warrants may be exercised with the form of election to
purchase duly completed and signed by the warrantholder, or its
duly authorized agent (such signature to be guaranteed by a bank
or trust company, by a broker or dealer which is a member of the
National Association of Securities Dealers, Inc. or by a member
of a national securities exchange), indicating the
warrantholders election to exercise all or a portion of
the share warrants. The warrantholder must also submit payment
of the exercise price of the share warrants to be exercised in
lawful money of the United States along with the share warrant
certificates, unless otherwise set forth in the applicable
prospectus supplement. The applicable prospectus supplement may
provide for net settlement of share warrants whereby the cash
payment due upon exercise of the warrants will be deemed paid
through adjustment of the number of shares to be issued upon
exercise of the warrants. Upon receipt of the form of election,
payment (if applicable) and the certificates by the share
warrant agent, the share warrant agent will requisition from the
transfer agent for the common shares or the preference shares,
as the case may be, for issuance and delivery to or upon the
written order of the exercising warrantholder, a certificate
representing the number of common shares or preference shares
purchased.
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Antidilution
And Other Provisions
The exercise price payable and the number of common shares or
preference shares purchasable upon the exercise of each share
warrant and the number of share warrants outstanding will be
subject to adjustment in certain events, including the issuance
of a stock dividend to holders of common shares or preference
shares, respectively, or a combination, subdivision or
reclassification of common shares or preference shares,
respectively. In lieu of adjusting the number of common shares
or preference shares purchasable upon exercise of each share
warrant, we may elect to adjust the number of share warrants. No
adjustment in the number of shares purchasable upon exercise of
the share warrants may be required until cumulative adjustments
require an adjustment of at least 1% thereof. We may, at our
option, reduce the exercise price at any time. No fractional
shares will be issued upon exercise of share warrants, but we
will pay the cash value of any fractional shares otherwise
issuable. Notwithstanding the foregoing, in case of our
consolidation, merger, or sale or conveyance of our property as
an entirety or substantially as an entirety, the holder of each
outstanding share warrant shall have the right to the kind and
amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of common
shares or preference shares into which such share warrants were
exercisable immediately prior thereto.
No Rights
As Shareholders
Except as set forth in a prospectus supplement, holders of share
warrants will not be entitled, by virtue of being such holders,
to vote, to consent, to receive dividends, to receive notice as
shareholders with respect to any meeting of shareholders for the
election of our directors or any other matter, or to exercise
any rights whatsoever as our shareholders. The holders of share
warrants will be entitled to those rights specified in the
applicable prospectus supplement.
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DESCRIPTION
OF THE WARRANTS TO PURCHASE DEBT SECURITIES
The following statements with respect to the debt warrants are
summaries of, and subject to, the detailed provisions of a debt
warrant agreement to be entered into by us and a debt warrant
agent to be selected at the time of issue. The debt warrant
agreement may include or incorporate by reference standard
warrant provisions substantially in the form of the Standard
Debt Warrant Provisions filed as an exhibit to the registration
statement of which this prospectus forms a part. The applicable
prospectus supplement will describe the specific terms of the
debt warrants offered by that prospectus supplement and any
general terms outlined in this section that will not apply to
those debt warrants.
General
The debt warrants, evidenced by debt warrant certificates, may
be issued under the debt warrant agreement independently or
together with any other securities offered by any prospectus
supplement and may be attached to or separate from such other
offered securities. If debt warrants are offered, the related
prospectus supplement will describe the designation and terms of
the debt warrants, including, without limitation, the following:
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the offering price, if any;
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the designation, aggregate principal amount and terms of the
debt securities purchasable upon exercise of the debt warrants;
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if applicable, the date on and after which the debt warrants and
the related offered securities will be separately transferable;
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the principal amount of debt securities purchasable upon
exercise of one debt warrant and the price at which such
principal amount of debt securities may be purchased upon
exercise;
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the date on which the right to exercise the debt warrants shall
commence and the date on which such right shall expire;
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a discussion of certain U.S. federal income tax
considerations;
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whether the warrants represented by the debt warrant
certificates will be issued in registered or bearer form;
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the currency, currencies or currency units in which the offering
price, if any, and exercise price are payable;
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the antidilution provisions of the debt warrants; and
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any other terms of the debt warrants.
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Warrantholders will not have any of the rights of holders of
debt securities, including the right to receive the payment of
principal of, any premium or interest on, or any additional
amounts with respect to, the debt securities or to enforce any
of the covenants of the debt securities or the applicable
indenture except as otherwise provided in the applicable
indenture.
Exercise
Of Debt Warrants
Debt warrants may be exercised by surrendering the debt warrant
certificate at the office of the debt warrant agent, with the
form of election to purchase on the reverse side of the debt
warrant certificate properly completed and executed (with
signature(s) guaranteed by a bank or trust company, by a broker
or dealer which is a member of the National Association of
Securities Dealers, Inc. or by a member of a national securities
exchange), and by payment in full of the exercise price, unless
otherwise set forth in the applicable prospectus supplement.
Upon the exercise of debt warrants, we will issue the debt
securities in authorized denominations in accordance with the
instructions of the exercising warrantholder. If less than all
of the debt warrants evidenced by the debt warrant certificate
are exercised, a new debt warrant certificate will be issued for
the remaining number of debt warrants.
57
DESCRIPTION
OF THE SHARE PURCHASE CONTRACTS AND THE SHARE PURCHASE
UNITS
We may issue share purchase contracts, obligating holders to
purchase from us, and obligating us to sell to the holders, a
specified number of our common shares or preference shares at a
future date or dates. The price per share may be fixed at the
time the share purchase contracts are issued or may be
determined by reference to a specific formula set forth in the
share purchase contracts and to be described in the applicable
prospectus supplement. The share purchase contracts may be
issued separately or as a part of share purchase units
consisting of a share purchase contract and, as security for the
holders obligations to purchase the shares under the share
purchase contracts, either:
(1) senior debt securities or subordinated debt securities
of ours;
(2) preference shares; or
(3) debt obligations of third parties, including
U.S. Treasury securities.
The applicable prospectus supplement will describe the specific
terms of the share purchase contracts offered by that prospectus
supplement and any general terms outlined in this section that
will not apply to those share purchase contracts. The applicable
prospectus supplement will also specify the securities that will
secure the holders obligations to purchase shares under
the applicable share purchase contract. Unless otherwise
described in a prospectus supplement, the securities related to
the share purchase contracts securing the holders
obligations to purchase our common shares or preference shares
will be pledged to a collateral agent, for our benefit, under a
pledge agreement. The pledged securities will secure the
obligations of holders of share purchase contracts to purchase
our common shares or preference shares under the related share
purchase contracts. The rights of holders of share purchase
contracts to the related pledged securities will be subject to
our security interest in those pledged securities. That security
interest will be created by the pledge agreement. No holder of
share purchase contracts will be permitted to withdraw the
pledged securities related to such share purchase contracts from
the pledge arrangement except upon the termination or early
settlement of the related share purchase contracts. Subject to
that security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of a share
purchase contract will retain full beneficial ownership of the
related pledged securities.
The share purchase contracts may require us to make periodic
payments to the holders of the share purchase units or vice
versa, and such payments may be unsecured or prefunded on some
basis. The share purchase contracts may require holders to
secure their obligations in a specified manner and in certain
circumstances we may deliver newly issued prepaid share purchase
contracts upon release to a holder of any collateral securing
such holders obligations under the original share purchase
contract.
The applicable prospectus supplement will describe the terms of
any share purchase contracts or share purchase units and, if
applicable, prepaid share purchase contracts.
Except as described in a prospectus supplement, the collateral
agent will, upon receipt of distributions on the pledged
securities, distribute those payments to us or a purchase
contract agent, as provided in the pledge agreement. The
purchase contract agent will in turn distribute payments it
receives as provided in the share purchase contract.
58
DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more purchase contracts,
purchase units, warrants, depositary shares, debt securities,
preference shares, common shares or any combination of such
securities. The applicable prospectus supplement will describe:
(1) the terms of the units and of the securities comprising
the units, including whether and under what circumstances the
securities comprising the units may be traded separately;
(2) a description of the terms of any unit agreement
governing the units; and
(3) a description of the provisions for the payment,
settlement, transfer or exchange of the units.
59
SELLING
SHAREHOLDERS
To the extent that this prospectus is used by any selling
shareholder to resell any Validus Holdings, Ltd. common shares,
information with respect to the selling shareholder and the plan
of distribution will be contained in a supplement to this
prospectus.
60
PLAN OF
DISTRIBUTION
We and/or
Selling Shareholders may sell offered securities in any one or
more of the following ways from time to time:
(1) through agents;
(2) to or through underwriters;
(3) through dealers; or
(4) directly to purchasers.
In addition, we may enter into derivative or other hedging
transactions with third parties, or sell securities not covered
by this prospectus to third parties in privately negotiated
transactions. If the applicable prospectus supplement indicates,
in connection with such a transaction the third parties may,
pursuant to this prospectus and the applicable prospectus
supplement, and subject to receiving the prior written consent
of the Bermuda Monetary Authority, sell securities covered by
this prospectus and applicable prospectus supplement. If so, the
third party may use securities borrowed from others to settle
such sales and may use securities received from us to close out
any related short positions. Subject to receiving the prior
written consent of the Bermuda Monetary Authority, we may also
loan or pledge securities covered by this prospectus and the
applicable prospectus supplement to third parties, who may sell
the loaned securities or, in an event of default in the case of
a pledge, sell the pledged securities pursuant to this
prospectus and the applicable prospectus supplement.
The prospectus supplement with respect to the offered securities
will set forth the terms of the offering of the offered
securities, including the name or names of any underwriters,
dealers or agents; the purchase price of the offered securities
and the proceeds to us
and/or
Selling Shareholders, from such sale; any underwriting discounts
and commissions or agency fees and other items constituting
underwriters or agents compensation; any initial
public offering price and any discounts or concessions allowed
or reallowed or paid to dealers and any securities exchange on
which such offered securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
The distribution of the offered securities may be effected from
time to time in one or more transactions at a fixed price or
prices, which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices
or at negotiated prices.
Offers to purchase offered securities may be solicited by agents
designated by us
and/or
selling shareholders, from time to time. Any such agent involved
in the offer or sale of the offered securities in respect of
which this prospectus is delivered will be named, and any
commissions payable by us
and/or the
Selling Shareholders to such agent will be set forth, in the
applicable prospectus supplement. Unless otherwise indicated in
such prospectus supplement, any such agent will be acting on a
reasonable best efforts basis for the period of its appointment.
Any such agent may be deemed to be an underwriter, as that term
is defined in the Securities Act, of the offered securities so
offered and sold.
If offered securities are sold by means of an underwritten
offering, we
and/or
Selling Shareholders will execute an underwriting agreement with
an underwriter or underwriters, and the names of the specific
managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transaction, including
commissions, discounts and any other compensation of the
underwriters and dealers, if any, will be set forth in the
prospectus supplement which will be used by the underwriters to
make resales of the offered securities. If underwriters are
utilized in the sale of the offered securities, the offered
securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public
offering prices or at varying prices determined by the
underwriters at the time of sale.
61
Each underwriter, dealer and agent participating in the
distribution of any offered securities which are issuable in
bearer form will agree that it will not offer, sell, resell or
deliver, directly or indirectly, offered securities in bearer
form in the U.S. or to U.S. persons except as
otherwise permitted by Treasury Regulations
Section 1.163-5(c)(2)(i)(D).
Offered securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or
directly by the managing underwriters. If any underwriter or
underwriters are utilized in the sale of the offered securities,
unless otherwise indicated in the prospectus supplement, the
underwriting agreement will provide that the obligations of the
underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of offered
securities will be obligated to purchase all such offered
securities of a series if any are purchased.
We and/or
Selling Shareholders may grant to the underwriters options to
purchase additional offered securities, to cover
over-allotments, if any, at the public offering price (with
additional underwriting discounts or commissions), as may be set
forth in the prospectus supplement relating thereto. If we grant
any over-allotment option, the terms of such over-allotment
option will be set forth in the prospectus supplement relating
to such offered securities.
If a dealer is utilized in the sales of offered securities in
respect of which this prospectus is delivered, we
and/or
Selling Shareholders will sell such offered securities to the
dealer as principal. The dealer may then resell such offered
securities to the public at varying prices to be determined by
such dealer at the time of resale. Any such dealer may be deemed
to be an underwriter, as such term is defined in the Securities
Act, of the offered securities so offered and sold. The name of
the dealer and the terms of the transaction will be set forth in
the related prospectus supplement.
Offers to purchase offered securities may be solicited directly
by us and/or
Selling Shareholders, and the sale thereof may be made by us
and/or
Selling Shareholders, directly to institutional investors or
others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The
terms of any such sales will be described in the related
prospectus supplement.
Offered securities may also be offered and sold, if so indicated
in the applicable prospectus supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more firms (remarketing firms), acting as principals
for their own accounts or as agents for us. Any remarketing firm
will be identified and the terms of its agreements, if any, with
us and its compensation will be described in the applicable
prospectus supplement. Remarketing firms may be deemed to be
underwriters, as such term is defined in the Securities Act, in
connection with the offered securities remarketed thereby.
We may sell equity securities in an offering at the
market as defined in Rule 415 under the Securities
Act. A post-effective amendment to this registration statement
will be filed to identify the underwriter(s) at the time of the
take-down for at the market offerings.
Underwriters and purchasers that are deemed underwriters under
the Securities Act may engage in transactions that stabilize,
maintain or otherwise affect the price of the securities,
including the entry of stabilizing bids or syndicate covering
transactions or the imposition of penalty bids. Such purchasers
will be subject to the applicable provisions of the Securities
Act and Exchange Act and the rules and regulations thereunder,
including
Rule 10b-5
and Regulation M. Regulation M may restrict the
ability of any person engaged in the distribution of the
securities to engage in market-making activities with respect to
those securities. In addition, the anti-manipulation rules under
the Exchange Act may apply to sales of the securities in the
market. All of the foregoing may affect the marketability of the
securities and the ability of any person to engage in
market-making activities with respect to the securities.
Agents, underwriters, dealers, remarketing firms and other third
parties described above may be entitled under relevant
underwriting and other agreements entered into with us to
indemnification by us against certain civil liabilities,
including liabilities under the Securities Act that may arise
from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a
material fact in this prospectus, any supplement or amendment
hereto, or in the registration statement of which this
prospectus
62
forms a part, or to contribution with respect to payments which
the agents, underwriters or dealers may be required to make.
If so indicated in the prospectus supplement, we
and/or
Selling Shareholders will authorize underwriters or other
persons acting as our agents to solicit offers by certain
institutions to purchase offered securities from us pursuant to
contracts providing for payments and delivery on a future date.
Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must
be approved by us. The obligations of any purchaser under any
such contract will be subject to the condition that the purchase
of the offered securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents
will not have any responsibility in respect of the validity or
performance of such contracts.
Disclosure in the prospectus supplement of our use of delayed
delivery contracts will include the commission that underwriters
and agents soliciting purchases of the securities under delayed
contracts will be entitled to receive in addition to the date
when we will demand payment and delivery of the securities under
the delayed delivery contracts. These delayed delivery contracts
will be subject only to the conditions described in the
prospectus supplement.
Each series of offered securities will be a new issue and, other
than the common shares, which are listed on the New York Stock
Exchange, will have no established trading market. We may elect
to list any series of offered securities on an exchange, and in
the case of the common shares, on any additional exchange, but,
unless otherwise specified in the applicable prospectus
supplement, we will not be obligated to do so. No assurance can
be given as to the liquidity of the trading market for any of
the offered securities.
Underwriters, dealers, agents and remarketing firms may be
customers of, engage in transactions with, or perform services
for us and our subsidiaries in the ordinary course of business.
63
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on
Form S-3
under the Securities Act relating to the common shares,
preference shares, depositary shares, debt securities, warrants,
share purchase contracts, share purchase units and units
described in this prospectus. This prospectus is a part of the
registration statement, but the registration statement also
contains additional information and exhibits.
We are subject to the informational requirements of the Exchange
Act. Accordingly, we file annual, quarterly and current reports,
proxy statements and other reports with the Commission. You can
read and copy the registration statement and the reports that we
file with the Commission at the Commissions public
reference rooms at Judiciary Plaza, 100 F Street,
N.E., Washington, D.C. 20549. Copies of such material can
also be obtained from the Public Reference Section of the
Commission, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates.
Our filings with the Commission are also available from the
Commissions website at
http://www.sec.gov.
Please call the Commissions toll-free telephone number at
1-800-SEC-0330
if you need further information about the operation of the
Commissions public reference rooms. Our common shares are
listed on the New York Stock Exchange under the symbol
VR and our reports can also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street,
17th Floor, New York, New York 10005.
64
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and current reports, proxy statements
and other information with the Commission. The Commission allows
us to incorporate by reference the information we
file with it, which means that we can disclose important
information to you by referring to those documents. The
information incorporated by reference is an important part of
this prospectus. Any statement contained in a document which is
incorporated by reference in this prospectus is automatically
updated and superseded if information contained in this
prospectus, or information that we later file with the
Commission, modifies or replaces this information. All documents
we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, after the initial filing of this registration
statement and prior to effectiveness of this registration
statement and after the date of this prospectus and until we
sell all the securities shall be deemed to be incorporated by
reference into this prospectus. We incorporate by reference the
following previously filed documents:
(1) Our Annual Report on
Form 10-K
for the year ended December 31, 2007;
(2) Our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008;
(3) Our Current Report on
Form 8-K
filed with the Commission on August 7, 2008 furnishing our
unaudited condensed consolidated pro forma information for the
year ended December 31, 2007 and the following consolidated
financial statements of Talbot: (a) consolidated balance
sheets as at June 30, 2007 (unaudited) and
December 31, 2006; (b) consolidated statements of
operations and comprehensive income for the six months ended
June 30, 2007 and 2006 (unaudited); (c) consolidated
statements of cash flows for the six months ended June 30,
2007 and 2006 (unaudited); and (d) notes to consolidated
financial statements (unaudited);
(4) Our Definitive Proxy Statement on Schedule 14A,
filed with the Commission on April 4, 2008;
(5) The description of our common shares incorporated by
reference in our registration statement filed under the Exchange
Act on
Form 8-A
on July 18, 2007, including any amendment or report for the
purpose of updating such description; and
(6) The consolidated financial statements of Talbot
Holdings Ltd. and its subsidiaries as of December 31, 2006
and 2005 and for each of the years in the three-year period
ended December 31, 2006 in our registration statement filed
under the Securities Act on
Form S-1
(file
no. 333-139989).
To receive a free copy of any of the documents incorporated by
reference in this Prospectus (other than exhibits) call or write
us at the following address: Validus Holdings, Ltd., Attn.:
General Counsel, 19 Par-La-Ville Road, Hamilton, HM 11,
Bermuda,
(441) 278-5400.
65
LEGAL
MATTERS
Certain legal matters with respect to the securities will be
passed upon for us by Cahill Gordon & Reindel
llp, New York, New
York. Certain legal matters with respect to the securities under
the laws of Bermuda will be passed upon for us by Conyers
Dill & Pearman, Hamilton, Bermuda, special Bermuda
counsel to the Company.
66
EXPERTS
The financial statements and related financial statement
schedules, incorporated in this Prospectus by reference to our
Annual Report on
Form 10-K
for the year ended December 31, 2007 have been so
incorporated in reliance on the report of
PricewaterhouseCoopers, an independent registered public
accounting firm, given on the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Talbot Holdings Ltd.
and its subsidiaries as of December 31, 2006 and 2005 and
for each of the years in the three-year period ended
December 31, 2006, have been incorporated by reference
herein in reliance upon the report of KPMG Audit Plc,
independent auditors, incorporated by reference herein, and upon
the authority of said firm as experts in auditing and
accounting. The audit report of KPMG Audit Plc refers to Talbot
Holdings Ltd.s adoption of FASB Accounting
Standard 123(R) Share-Based payment with effect
from January 1, 2006 and FASB Interpretation 46
(revised December 2003) Consolidation of Variable Interest
Entities with effect from January 1, 2005.
67
ENFORCEABILITY
OF CIVIL LIABILITIES UNDER U.S.
FEDERAL SECURITIES LAWS AND OTHER MATTERS
Validus is organized under the laws of Bermuda. In addition,
some of our directors and officers reside outside the United
States, and all or a substantial portion of its assets and their
assets are or may be located in jurisdictions outside the United
States. Therefore, it may be difficult or impossible for
investors to effect service of process within the United States
upon its
non-U.S. directors
and officers or to recover against Validus or its
non-U.S. directors
and officers on judgments of U.S. courts, including
judgments predicated upon the civil liability provisions of the
U.S. federal securities laws. Further, it may not be
possible to bring a claim in Bermuda against us or our directors
and officers for violation of U.S. federal securities laws
because these laws may have no extraterritorial application
under Bermuda law and do not have force of law in Bermuda. A
Bermuda court may, however, impose civil liability, including
the possibility of monetary damages, on us or our directors and
officers if the facts alleged in a complaint constitute or give
rise to a cause of action under Bermuda law. However, Validus
may be served with process in the United States with respect to
actions against us arising out of or in connection with
violations of U.S. federal securities laws relating to
offers and sales of securities made hereby by serving CT
Corporation System, our U.S. agent, irrevocably appointed
for that purpose.
We have been advised by Conyers Dill & Pearman, our
Bermuda counsel, that there is doubt as to whether the courts of
Bermuda would enforce judgments of U.S. courts obtained in
actions against us or our directors and officers, as well as the
experts named herein, predicated upon the civil liability
provisions of the U.S. federal securities laws or whether
proceedings could be commenced in the courts of Bermuda against
us or such persons predicated solely upon U.S. federal
securities laws. Further, we have been advised by Conyers
Dill & Pearman that there is no treaty in effect
between the United States and Bermuda providing for the
enforcement of judgments of U.S. courts, and there may be
grounds upon which Bermuda courts will not enforce judgments of
U.S. courts. Some remedies available under the laws of
U.S. jurisdictions, including some remedies available under
the U.S. federal securities laws, may not be allowed in
Bermuda courts as contrary to that jurisdictions public
policy.
At the time of issue of each prospectus supplement, we will
deliver to and file a copy of this prospectus and the prospectus
supplement with the Registrar of Companies in Bermuda in
accordance with Bermuda law. The BMA and the Registrar of
Companies accept no responsibility for the financial soundness
of any proposal or for the correctness of any of the statements
made or opinions expressed in this prospectus or any prospectus
supplement.
68
$
VALIDUS HOLDINGS,
LTD.
% Senior Notes due 2040
Goldman, Sachs &
Co.
Deutsche Bank Securities
J.P. Morgan