validus lawsuit against transatlantic holdings
TRANSCRIPT
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
VALIDUS HOLDINGS, LTD.,
Plaintiff,
v.
TRANSATLANTIC HOLDINGS, INC.,STEPHEN P. BRADLEY, IAN H.CHIPPENDALE, JOHN G. FOOS, JOHN L.MCCARTHY, ROBERT F. ORLICH,RICHARD S. PRESS, MICHAEL C.SAPNAR, ALLIED WORLD ASSURANCECOMPANY HOLDINGS, AG andGO SUB, LLC,
Defendants.
::::::::::::::::
C.A. No. _____-___
VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
Plaintiff Validus Holdings, Ltd. (Validus), by and through its
undersigned attorneys, as and for its complaint against Transatlantic Holdings, Inc.
(Transatlantic), Stephen P. Bradley, Ian H. Chippendale, John G. Foos, John L.
McCarthy, Robert F. Orlich, Richard S. Press, Michael C. Sapnar, Allied World
Assurance Company Holdings, AG (Allied World), and GO Sub, LLC (Merger Sub)
(defendants other than Transatlantic, Allied World and Merger Sub are collectively
referred to herein as the Individual Defendants), upon knowledge as to matters relating
to itself and upon information and belief as to all other matters, alleges as follows:
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3. On July 12, 2011, Validus delivered to Transatlantic a proposal letter for,
and publicly announced, a merger transaction that would deliver to the Transatlantic
stockholders a price as of the announcement of the offer of $55.95 per share, consisting
of 1.5564 Validus voting common shares in the merger and $8.00 in cash per share
pursuant to a one-time special dividend from Transatlantic immediately prior to closing
of the merger (the Validus Merger Offer).
4. On July 19, 2011, the Individual Defendants rejected the Validus Merger
Offer. Although the Validus Merger Offer represented a $6.04 or 12.1% premium, as of
July 12, 2011 (and a $2.82 or 5.8% premium, as of July 19, 2011), over the market value
of the Proposed Allied World Takeover, the Individual Defendants claimed it does not
constitute a superior proposal.
5. However, also on July 19, 2011, the Individual Defendants determined
that the Validus proposal is reasonably likely to lead to a Superior Proposal [as definedunder the Merger Agreement] and that the failure to enter into discussions regarding the
Validus proposal would result in a breach of [their] fiduciary duties under applicable
law . As a result, the Board has determined to offer to engage in discussions and
exchange information with Validus. (emphasis added)
6. Despite admitting that entering into discussions with Validus would likely
lead to a superior deal for the Transatlantic stockholders, and that a failure to do so would
be a breach of their fiduciary duties, the Individual Defendants are still arbitrarily
refusing to enter into discussions with Validus.
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7. As a pretext for this refusal, Transatlantic and the Individual Defendants
have asserted that the Merger Agreement requires Validus to enter into a confidentiality
agreement with a two-year standstill provision before they may even discuss a potential
transaction with Validus. While the Merger Agreement may require Transatlantic to
enter into a confidentiality agreement with Validus, it does not require Transatlantic and
the Individual Defendants to insist that Validus (or any other third party) enter into a
standstill agreement, let alone enforce a standstill against Validus (or any other third
party). In fact, Section 5.5(e) of the Merger Agreement clearly provides that the terms of
any confidentiality agreement with a third party must simply be determined in good
faith by [the Transatlantic Board] to be substantially similar to and not less favorable to
[Transatlantic], in the aggregate, than those contained in the Allied World
confidentiality agreement (emphasis added). Moreover, it is clear that the Transatlantic
Board is able to make such a determination based on the fact that Allied World is
currently not bound by an effective standstill provision. Validus remains ready and
willing to enter into a confidentiality agreement without a standstill. Not surprisingly,
however, Validus has refused to sign a standstill agreement that would preclude it from
taking its offer directly to Transatlantic stockholders or opposing the Proposed Allied
World Takeover.
8.
In light of the Individual Defendants wrongful refusal to enter intodiscussions with Validus, on July 25, 2011, Validus commenced a non-coercive, non-
discriminatory, cash and stock exchange offer for all of the outstanding shares of
Transatlantic common stock (the Validus Exchange Offer and, together with the
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Validus Merger Offer, the Validus Offer) on terms consistent with the Validus Merger
Offer.
9. The Individual Defendants' immediate reaction to the Validus Exchange
Offer was, once again, to seek to block the Transatlantic stockholders from considering
the Validus Offer. On July 26, 2011, the Individual Defendants (i) caused Transatlantic
to put in place a poison pill shareholder rights plan (the Poison Pill) that will
effectively block Validus ability to complete the Validus Exchange Offer unless and
until the Individual Defendants agree to exempt Validus exchange offer from the Poison
Pill and (ii) amended Transatlantics by-laws in an apparent effort to more easily
manipulate Transatlantic stockholder meetings.
10. Moreover, in an attempt to convince the Transatlantic stockholders that
the superior Validus Offer be spurned in favor of the objectively inferior Proposed Allied
World Takeover, the Individual Defendants have breached on multiple occasions their duty of candor by making numerous material misrepresentations and omissions regarding
the Validus Offer and the Proposed Allied World Takeover.
11. Among other things, Transatlantic and the Individual Defendants have
stated in multiple filings with the Securities and Exchange Commission (the SEC) that
the reason the Individual Defendants are refusing to enter into discussions with Validus is
that Validus has refused to enter into a confidentiality agreement. This assertion is highly
misleading. In truth, Validus and its advisors have communicated to Transatlantic and its
advisors on multiple occasions that Validus is ready and willing to enter into a standard
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confidentiality agreement so long as it does not preclude Validus from taking its offer
directly to Transatlantic stockholders or opposing the Proposed Allied World Takeover.
12. Individual Defendants have consistently misrepresented the restrictive
nature of the proposed confidentiality agreement, which would grant the Transatlantic
Board a veto right over Validus ability to even present a proposal to Transatlantics
stockholders. Individual Defendants further misrepresented that a restrictive standstill
agreement is required by the Merger Agreement, only belatedly disclosed that the
confidentiality agreement not accepted by Validus contained a standstill agreement, and
failed to disclose that the standstill agreement was interposed to block Validus from
being able to compete fairly for Transatlantic.
13. Individual Defendants have also made material misrepresentations to the
effect that Allied World is bound by a standstill agreement and have failed to disclose
that any standstill that existed between Transatlantic and Allied World was expressly or effectively waived when Allied World was permitted to enter into the Merger Agreement,
to solicit Transatlantic stockholders in connection with the Proposed Allied World
Takeover, and to take other actions in connection with the Proposed Allied World
Takeover.
14. Moreover, Individual Defendants have failed to disclose that a standstill
agreement would be entirely superfluous in light of the Individual Defendants adoption
of the Poison Pill, which effectively achieves the same result of blocking the
Transatlantic stockholders from considering any offer not blessed by the Individual
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Defendants. Further, Individual Defendants have failed to fully disclose that
Transatlantic is permitting Allied World to dictate the confidentiality agreement
negotiations process, and thus outsourcing to Allied World the Transatlantic Boards
fiduciary duties to Transatlantic stockholders.
15. Finally, Individual Defendants have misrepresented the character of their
meetings with Validus and its advisors regarding a confidentiality agreement by implying
that Transatlantic is actively seeking to enter into a confidentiality agreement, and thus
discussions, with Validus. Transatlantics misstatements are all the more troublesome
because, in its August 9, 2011 amendment to its Solicitation/Recommendation Statement
on Schedule 14D-9 (the Schedule 14D-9 Amendment), Transatlantic seeks to justify
multiple unfounded negative assertions regarding the Validus Offer based on the fact that
Transatlantic has been unable (of its own doing) to engage in diligence regarding
Validus operations.
16. Transatlantics July 28, 2011 Solicitation/Recommendation Statement on
Schedule 14D-9 (the Schedule 14D-9) demonstrates that Allied World is aiding and
abetting the Individual Defendants breaches of fiduciary duty. In particular, the
Schedule 14D-9 discloses that, on July 25, 2011, Allied World, through its outside legal
advisor, informed Transatlantic that Allied World was taking the position that
Transatlantic entering into a confidentiality agreement with Validus that did not contain a
standstill would not comply with the terms of the Merger Agreement, and that Allied
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World reserved all of its rights i.e. , threatened to sue if Transatlantic proceeded to
enter into discussions with Validus.
17. Moreover, in their SEC filings, as set forth in detail below, Defendants
have made a series of additional misleading misrepresentations, including:
Allied Worlds stating in a filing on July 25, 2011 that Allied Worlds bid for Transatlantic was superior in all respects to the Validus Merger Offer andthe best possible combination, when, in fact, the Validus Merger Offer represented a 3.7% premium to the consideration proposed by Allied World asof July 22, 2011, and when, in fact, it is difficult to identify any respect inwhich the Allied World bid is, in fact, superior.
Transatlantics failure on multiple occasions, including in the Schedule 14D-9Amendment, to state that the Validus Offer has represented a market value
premium to the Proposed Allied World Takeover as of the dates referenced byTransatlantic therein.
Allied Worlds and Transatlantics portraying the Proposed Allied WorldTakeover as a merger of equals, when, in fact, Allied Worlds subsidiarywould acquire Transatlantic, Transatlantics non-executive chairman and chief executive officer would cease to serve a role in the combined company(TransAllied), and TransAllied would have its headquarters in Switzerland,
at the current headquarters of Allied World. Transatlantics characterizing the Validus Exchange Offer as highly
conditional, and thereby falsely implying that the Validus Exchange Offer ismore conditional than the Proposed Allied World Takeover when the level of conditionality is, in fact, substantially similar.
18. On August 7, 2011, Transatlantic announced that it had received a
proposal from National Indemnity Company (National Indemnity) to acquire all of the
outstanding shares of Transatlantic common stock for $52.00 per share (the National
Indemnity Proposal). On August 8, 2011, Transatlantic announced that the National
Indemnity Proposal does not constitute a Superior Proposal under the terms of the Merger
Agreement, but is reasonably likely to lead to a Superior Proposal, and that the failure to
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in any action or inaction that has the effect of improperly impeding, thwarting, frustrating
or interfering with the Validus Offer.
THE PARTIES
20. Plaintiff Validus is a Bermuda-based provider of reinsurance and
insurance, with its executive offices located at 29 Richmond Road, Pembroke, Bermuda
HM 08. Validus conducts its operations worldwide through two wholly-owned
subsidiaries, Validus Reinsurance, Ltd. (Validus Re) and Talbot Holdings Ltd.
(Talbot). Validus Re is a Bermuda-based reinsurer focused on short-tail lines of
reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily
operating within the Lloyds insurance market through Syndicate 1183. Validus owns
200 shares of Transatlantic common stock acquired on July 11, 2011. Validus is the
offeror in the Validus Exchange Offer. Validus common shares publicly trade on the
New York Stock Exchange (NYSE) under the symbol VR and, as of August 3, 2011,
it had 99,032,232 common shares outstanding.
21. Defendant Transatlantic is a Delaware corporation headquartered in New
York. Through its subsidiaries, Transatlantic offers reinsurance capacity for a range of
property and casualty products, directly and through brokers, to reinsurance and
insurance companies, in domestic and international markets. Transatlantic common stock
publicly trades on the NYSE under the symbol TRH and, as of June 30, 2011, it had
62,483,787 shares of common stock outstanding.
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22. Individual Defendant Stephen P. Bradley has been a member of the
Transatlantic Board since 2010. Individual Defendant Bradley is the Chairperson of the
Nominating and Corporate Governance Committee and also serves on the Audit, Finance
and Investment, and Risk Management Committees. Individual Defendant Bradley
receives payments from Transatlantic in the amount of $37,000 as an annual Board
Member Retainer Fee and $5,000 as Chairperson of the Nominating and Corporate
Governance Committee. During 2010, Individual Defendant Bradley received a grant of
2,200 restricted stock units with a grant date fair value of $98,648. Individual Defendant
Bradley will become a member of the board of directors of TransAllied (the TransAllied
Board) following the closing of the Proposed Allied World Takeover. Current members
of the Allied Worlds board of directors receive $75,000 annually for serving as a
director and $1,500 per meeting attended, and are entitled to additional fees for
committee service (the Allied World Director Fees). Based upon information and
belief, Individual Defendant Bradley will receive the Allied World Director Fees as a
member of the TransAllied Board following the closing of the Proposed Allied World
Takeover.
23. Individual Defendant Ian H. Chippendale has been a member of the
Transatlantic Board since 2007. Individual Defendant Chippendale is the Chairperson of
the Compensation Committee and also serves on the Nominating and CorporateGovernance, Risk Management, and Underwriting Committees. Individual Defendant
Chippendale receives payments from Transatlantic in the amount of $37,000 as an annual
Board Member Retainer Fee and $5,000 as Chairperson of the Compensation Committee.
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During 2010, Individual Defendant Chippendale received a grant of 2,200 restricted stock
units with a grant date fair value of $98,648. Individual Defendant Chippendale will
become a member of the TransAllied Board following the closing of the Proposed Allied
World Takeover. Based upon information and belief, Individual Defendant Chippendale
will receive the Allied World Director Fees as a member of the TransAllied Board
following the closing of the Proposed Allied World Takeover.
24. Individual Defendant John G. Foos has been a member of the
Transatlantic Board since 2007. Individual Defendant Foos is the Chairperson of the
Audit Committee and also serves on the Executive, Finance and Investment, Nominating
and Corporate Governance, and Risk Management Committees. Individual Defendant
Foos receives payments from Transatlantic in the amount of $37,000 as an annual Board
Member Retainer Fee and $10,000 as Chairperson of the Audit Committee. During 2010,
Individual Defendant Foos received a grant of 2,200 restricted stock units with a grant
date fair value of $98,648. Individual Defendant Foos will become a member of the
TransAllied Board following the closing of the Proposed Allied World Takeover. Based
upon information and belief, Individual Defendant Foos will receive the Allied World
Director Fees as a member of the TransAllied Board following the closing of the
Proposed Allied World Takeover.
25. Individual Defendant John L. McCarthy has been a member of the
Transatlantic Board since 2008. Individual Defendant McCarthy is the Chairperson of
the Risk Management Committee and also serves on the Compensation, Nominating and
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Corporate Governance, and Underwriting Committees. Individual Defendant McCarthy
receives payments from Transatlantic in the amount of $37,000 as an annual Board
Member Retainer Fee and $5,000 as Chairperson of the Risk Management Committee.
During 2010, Individual Defendant McCarthy received a grant of 2,200 restricted stock
units with a grant date fair value of $98,648. Individual Defendant McCarthy will
become a member of the TransAllied Board following the closing of the Proposed Allied
World Takeover. Based upon information and belief, Individual Defendant McCarthy
will receive the Allied World Director Fees as a member of the TransAllied Board
following the closing of the Proposed Allied World Takeover.
26. Individual Defendant Robert F. Orlich (Orlich) is and was at all relevant
times the President and Chief Executive Officer of Transatlantic. Individual Defendant
Orlich has been a member of the Transatlantic Board since 1994. Individual Defendant
Orlich is also the Chairperson of the Underwriting and Executive Committees and serves
on the Risk Management Committee. Individual Defendant Orlich served as Chairman
of the Transatlantic Board from July 2008 through July 2009. Individual Defendant
Orlich also currently serves as Chairman, President and Chief Executive Officer of
Transatlantic Reinsurance Company (Transatlantic Re) and Putnam Reinsurance
Company (Putnam Re) and has been a director of Transatlantic Re and Putnam Re
since 1992. In 2010, Individual Defendant Orlich received nearly $10 million in totalcompensation from Transatlantic.
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27. Individual Defendant Richard S. Press (Press) is Chairman of the
Transatlantic Board, and has been a member of the Transatlantic Board since 2006.
Individual Defendant Press was appointed Chairman of the Transatlantic Board in July
2009. Individual Defendant Press is the Chairperson of the Finance and Investment
Committee and also serves on the Audit, Compensation, Executive, and Nominating and
Corporate Governance Committees. Individual Defendant Press receives payments from
Transatlantic in the amount of $37,000 as an annual Board Member Retainer Fee,
$127,000 as Chairman of the Transatlantic Board, and $5,000 as the Chairperson of the
Finance and Investment Committee. During 2010, Individual Defendant Press received a
grant of 2,200 restricted stock units with a grant date fair value of $98,648. Under the
terms of the Merger Agreement, Individual Defendant Press will become the Chairman of
the TransAllied Board and receive the Allied World Director Fees following the closing
of the Proposed Allied World Takeover.
28. Individual Defendant Michael C. Sapnar (Sapnar) has been Executive
Vice President, Chief Operating Officer, and a member of the Transatlantic Board since
May 2011. Individual Defendant Sapnar also serves on the Risk Management and
Underwriting Committees. Individual Defendant Sapnar has been employed by
Transatlantic since 1995, serving as Executive Vice President and Chief Underwriting
Officer, Domestic Operations of Transatlantic, since 2006 and Senior Vice President andChief Underwriting Officer of Transatlantic Re and Putnam Re from 2002 through 2006.
In 2010, Individual Defendant Sapnar received nearly $4 million in total compensation
from Transatlantic. Under the terms of the Merger Agreement, Individual Defendant
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Sapnar will become a member of the TransAllied Board and receive the Allied World
Director Fees and will serve as President and Chief Executive Officer of TransAllieds
Global Reinsurance division following the closing of the Proposed Allied World
Takeover.
29. Defendant Allied World, a Switzerland corporation, operates as a specialty
insurance and reinsurance company in the United States and certain other jurisdictions.
Allied World common stock publicly trades on the NYSE under the symbol AWH and,
as of May 2, 2011, it had 37,919,865 shares of common stock outstanding.
30. Defendant GO Sub, LLC, a Delaware limited liability company and
wholly-owned subsidiary of Allied World, was formed to effectuate the merger between
Transatlantic and Allied World. Where appropriate from the context of the allegations,
Merger Sub and Allied World are sometimes referred to herein collectively as Allied
World.
31. The Individual Defendants, as directors and/or officers of Transatlantic,
have a fiduciary responsibility to Validus and the other public stockholders of
Transatlantic, and owe them the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
32. The Individual Defendants, together with Transatlantic and Allied World,
are referred to herein collectively as Defendants.
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STATEMENT OF FACTS
I. TRANSATLANTICS DIRECTORS HAVE KNOWN FOR YEARS THATVALIDUS IS INTERESTED IN A BUSINESS COMBINATION.
33. Validus is a multi-billion-dollar, publicly-traded company specializing in
property and casualty reinsurance and insurance products.
34. Validus regularly considers a variety of strategic transactions to enhance
its business, including through acquisitions of companies, businesses, intellectual
properties and other assets. Validus has been interested in pursuing a business
combination with Transatlantic since September 2008. In September 2008 and March
2009, Validus informed Transatlantic that it was interested in a business combination.
Validus and Transatlantic also discussed a business combination in 2010.
II. THE INDIVIDUAL DEFENDANTS DISMISS VALIDUS JUNE 7THWRITTEN INQUIRY WITHOUT ANY INVESTIGATION AND SIGN UPAN INADEQUATE DEAL DESIGNED TO KEEP THEM EMPLOYED.
35. On June 3, 2011, Edward J. Noonan (Noonan), Chairman and Chief
Executive Officer of Validus, spoke with Orlich about the merits of a strategic merger
between Validus and Transatlantic. On June 7, 2011, Noonan followed up their
conversation by sending a letter to Orlich demonstrating Validus interest in a transaction
with Transatlantic (the June 7th Letter). This letter highlighted some of the reasons
that a Validus and Transatlantic merger would make a terrific complimentary fit and
requested a meeting to discuss what a combined company could look like.
36. Validus has completed similar transactions before. In 2009, Validus
successfully superseded a previous agreement and purchased IPC Holdings Ltd. (IPC)
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while providing IPC stockholders an additional 14% premium. Even when faced with
Validus initial superior proposal, IPCs board would not terminate a previously struck
deal with Max Capital Group Ltd., which provided for the continued employment of
IPCs chairman, independent directors and senior management structure. Only when
faced with court proceedings, a negative RiskMetrics recommendation, and finally, the
failure to obtain the necessary stockholder vote, did IPC finally begin to negotiate with
Validus. Validus did not retain any of IPCs executives or directors. The Individual
Defendants likely knew of these actions at the time they received the June 7th Letter.
37. Transatlantic never responded to the June 7th Letter. In fact, the next
news Validus heard regarding Transatlantics future was via a press release five days
later, announcing the Merger Agreement. Thus, the Individual Defendants had no way of
knowing that Validus intended to keep senior Transatlantic management intact, as
reflected in Validus public statements regarding the Validus Merger Offer. Instead, the
Individual Defendants jumped the gun and signed up the inferior Proposed Allied World
Takeover designed to ensure that they remained entrenched and employed.
38. The Merger Agreement provides that Transatlantic stockholders will
receive 0.88 of a share of Allied World stock for each share of Transatlantic common
stock that they own. Also, each outstanding Transatlantic stock option will be converted
into an option to purchase 0.88 of a share of Allied World stock at an exercise price per
share equal to the quotient of the exercise price of the Transatlantic option divided by
0.88. Even though the proposed consideration in the Proposed Allied World Takeover is
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all stock, it will be a taxable transaction. U.S. federal income tax law generally does not
permit an acquisition of a U.S. corporation by a non-U.S. corporation to be tax-free if the
stockholders of the U.S. corporation receive stock in the acquisition constituting more
than 50% (by vote or value) of the combined company. For that reason, among others,
any gain recognized by a Transatlantic stockholder in the Proposed Allied World
Takeover generally will be taxable for U.S. federal income tax purposes. In contrast, the
Validus Merger Offer is expected to be tax-free to Transatlantic stockholders for U.S.
federal income tax purposes to the extent of the stock component of the consideration
(though it may be taxable to the extent of the proposed dividend).
39. In the Merger Agreement, the Individual Defendants specifically
negotiated to preserve their directorships. Thus, at the close of the Proposed Allied
World Takeover, the TransAllied Board will consist of eleven members, composed of: (i)
four purportedly independent Transatlantic directors selected by Transatlantic; (ii)
Defendant Press (who will serve as non-executive chairman for a one-year term); (iii)
Defendant Sapnar; (iv) four purportedly independent Allied World directors selected by
Allied World; and (v) Scott A. Carmilani (current Chairman, President and Chief
Executive Officer of Allied World). Additionally, Defendant Sapnar will serve as
President and Chief Executive Officer, Global Reinsurance, of TransAllied.
40. Thus, the Merger Agreement provides that six out of seven Individual
Defendants will sit on the TransAllied Board, while one of those six Defendant Sapnar
will also occupy a high-level executive position. In contrast to these personal benefits
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that nearly all of the members of the Transatlantic Board will receive, however,
Transatlantic stockholders will receive consideration in the Proposed Allied World
Takeover that does not fully value Transatlantic.
41. The Individual Defendants lack any real economic interest in
Transatlantic, resulting in the situation where their sole interest in the Proposed Allied
World Takeover is to preserve their lucrative and prestigious roles as directors and
officers in a public company by continuing as members of the TransAllied Board (and, in
the case of Defendant Sapnar, as an executive officer of TransAllied) following
consummation of the Proposed Allied World Takeover. The joint proxy statement /
prospectus of Transatlantic and Allied World filed as part of Allied Worlds Form S-4 on
July 7, 2011 (as amended on August 5, 2011, the Joint Proxy Statement / Prospectus)
discloses that the officers and directors of Transatlantic beneficially own approximately
0.35% of the shares of Transatlantic common stock outstanding on [July 22, 2011].
Moreover, the bulk of this ownership comes from restricted stock grants and options
rather than purchases using personal funds. In short, the Individual Defendants are not
economically aligned with Transatlantic stockholders and were not acting in Transatlantic
stockholders best interests when they approved the Proposed Allied World Takeover.
42. The Proposed Allied World Takeover price represents only 79% of
Transatlantics book value as of June 10, 2011 (and 68% as of August 5, 2011). Indeed,
the Proposed Allied World Takeover price as of June 10, 2011 was so low that, even
before Validus made the Validus Merger Offer public, Barclays Analyst Jay Gelb
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predicted that it could result in a bidding war, with other P&C insurers and reinsurers
competing for [Transatlantic].
43. Indeed, Transatlantics own stockholders have not been shy about voicing
their frustration with the price of the Proposed Allied World Takeover. For example,
Davis Selected Advisers, L.P. (Davis Advisers), a holder of approximately 23.8% of
Transatlantic common stock as of June 13, 2011, has expressed dissatisfaction with the
Proposed Allied World Takeover. In a June 13, 2011 Schedule 13D filing (and again in a
July 6, 2011 Schedule 13D filing), Davis Advisers indicated that it had serious concerns
about and may oppose the Proposed Allied World Takeover; may encourage
Transatlantic management to explore other strategic options to maximize shareholder
value; and may have discussions with [Transatlantic] and/or third parties regarding
opportunities to maximize [Transatlantics] value. . . .
44.
Likewise, Tweedy Browne Co. (Tweedy Browne), a holder of morethan 2% of Transatlantics common stock as of March 31, 2011, has also voiced
opposition to the Proposed Allied World Takeover. According to a June 15, 2011,
Bloomberg article, entitled Transatlantic Shareholder Tweedy Browne Opposes $3.2
Billion Allied Merger, Tom Shrager, one of four managing directors at Tweedy Browne,
reasoned as follows: It is really puzzling to us why they would want to sell the company
at a 20 percent discount from book value. . . . Simply doing it for size is not a good
enough reason to sell at this big discount.
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III. THE INDIVIDUAL DEFENDANTS APPROVE DEAL PROTECTIONMEASURES IN THE MERGER AGREEMENT WITHOUT ANY PROPER BASIS.
45. When the Individual Defendants received the June 7th Letter, they likely
thought that a transaction with Validus meant the end of their directorships and
management positions. So, instead of running a full and fair process to determine the
best deal for Transatlantics stockholders, they quickly took an offer received from
someone willing to continue their lucrative and prestigious roles as directors and officers
in a public company by continuing as members of the TransAllied Board (and, in the case
of Defendant Sapnar, as an executive officer of TransAllied) following consummation of
the Proposed Allied World Takeover.
46. Not only did the Individual Defendants fail to enter into discussions with
Validus, they did not even respond to the June 7th Letter.
47. In their rush to lock in an undervalued deal that preserved their lucrative
board seats and executive officer positions, the Individual Defendants approved several
provisions in the Merger Agreement designed to thwart competing bids.
48. In particular, Section 5.5(e) of the Merger Agreement contains a No-
Talk clause which provides that Transatlantic:
may furnish or cause to be furnished information to, and enter or cause to be entered into discussions with, and only with, a[competing bidder]. . ., if the [Transatlantic Board] has (i)determined in good faith (after consultation with its outside legalcounsel and financial advisor or advisors) that (A) suchAcquisition Proposal constitutes or is reasonably likely to lead to aSuperior Proposal and (B) the failure to enter into discussions
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regarding the Acquisition Proposal would result in a breach of itsfiduciary duties under applicable Law, (ii) provided at least threeBusiness Days notice to [Allied World] of its intent to furnishinformation to or enter into discussions with such Person in
accordance with this Section 5.5(e), and (iii) obtained from suchPerson an executed confidentiality agreement containing terms thatare determined in good faith by [Transatlantic] to be substantially
similar to and not less favorable to [Transatlantic], in theaggregate , than those contained in the [Allied WorldConfidentiality Agreement] (emphasis added).
49. The No-Talk provision requires the Transatlantic Board to consult[]
with its outside legal counsel and financial advisor or advisors. The Joint Proxy
Statement / Prospectus discloses that Transatlantics financial advisors will receive fees
of approximately $25 million in the aggregate in connection with the Proposed Allied
World Takeover.
50. In breach of their fiduciary duty, at Allied Worlds urging and under
Allied Worlds coercion, the Individual Defendants have taken the incorrect position that
the Merger Agreement, notwithstanding its language that a determination of substantial
similarity rests solely on the good faith determination of the Transatlantic Board,
prohibits Transatlantic and its advisors from entering into discussions with Validus unless
Validus enters into a confidentiality agreement containing a restrictive standstill that
would prohibit Validus from pursuing the Validus Offer or from opposing the Proposed
Allied World Takeover, without the written permission of the Individual Defendants.
While at the same time, Transatlantic and the Individual Defendants have failed to
disclose that Allied World is permitted, among other things, to (i) maintain its current
Merger Agreement with Transatlantic, (ii) make public statements in favor of, and solicit
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Transatlantic stockholders with respect to, the Proposed Allied World Takeover which
it has been doing on a regular basis, (iii) make counteroffers to the Transatlantic Board,
as contemplated by Section 5.5 of the Merger Agreement, without the Transatlantic
Boards consent, (iv) solicit in opposition to the Transatlantic Board, if it were to change
its recommendation with respect to the Proposed Allied World Takeover, and (v)
purchase 45,000 shares of Transatlantic common stock, as required by Section 6.11 of the
Merger Agreement, notwithstanding, in each case, the purported existence of a standstill
agreement in Transatlantics confidentiality agreement with Allied World that would
prevent Allied World from taking any of these actions. In light of the fact that Allied
World has already taken the actions described in (i) and (ii) above, and is contractually
obligated to take the action described in (v) above, Transatlantics statement that Allied
World continues to be bound by the standstill provisions of the confidentiality agreement
represents nothing less than an intentional misstatement of a material fact.
51. Moreover, the actions that Allied World is permitted to take make it clear
that any standstill to which Allied World may have been subject has been effectively or
expressly waived. Therefore, the Individual Defendants imposition of a standstill
agreement on Validus cannot be credibly considered as being required pursuant to the
terms of Section 5.5(e) of the Merger Agreement in order to comply with the covenant
that Transatlantic obtain a confidentiality agreement determined in good faith by[Transatlantic] to be substantially similar to and not less favorable to [Transatlantic], in
the aggregate , than those contained in the [Allied World] Confidentiality Agreement
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(emphasis added). Rather, the Individual Defendants, and Allied World, are using this
provision as a pretext for Transatlantics refusal to enter into discussions with Validus.
52. The Merger Agreement also obligates Transatlantic to pay Allied World
$115 million (a greater than 4.2% break-up fee, based on the market value of the Allied
World shares that would have been payable to Transatlantic stockholders had the
Proposed Allied World Takeover been consummated on June 10, 2011 and representing
a significantly higher percentage based on the current market value of Allied World
shares) if, in certain circumstances, the Individual Defendants terminate the Merger
Agreement or withdraw or modify their recommendation of the Proposed Allied World
Takeover. Indeed, so eager were the Individual Defendants to try to lock up the
undervalued Proposed Allied World Takeover and coerce their own stockholders into
voting for it, they agreed to pay a fee of up to $70 million merely upon a naked no
vote.
53. Pursuant to Section 5.5(d) of the Merger Agreement, upon receipt of an
acquisition proposal, Transatlantic must:
(i) keep [Allied World] fully informed, on a current basis, of any materialchanges in the status of, and any material changes or modifications in theterms of, any such Acquisition Proposal, inquiry or request and, if requested by [Allied World], counsel for [Transatlantic] shall consult withcounsel for [Allied World] once per day , at mutually agreeable times,regarding such status and any such changes or modifications, and (ii)
provide to [Allied World] as soon as practicable after receipt or deliverythereof with copies of all correspondence and other written material sentor provided to [Transatlantic] from any third party in connection with anyAcquisition Proposal or sent or provided by [Transatlantic] to any third
party in connection with any Acquisition Proposal; provided, however,that any material written material or material correspondence shall be sent
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or provided . . . within 24 hours after receipt or delivery thereof (emphasisadded).
This provision gives Allied World a de facto third seat at the bargaining table, for, by
agreeing to it, Transatlantic effectively ceded away its negotiating position.
54. Next, the Merger Agreement requires Transatlantic to set a stockholder
meeting date and Force the Vote on Transatlantics stockholders even if the Individual
Defendants make an Adverse Recommendation Change between now and the stockholder
meeting date. This allows Allied World to hold Transatlantic and its stockholders
hostage, unable to terminate the Merger Agreement in order to accept a Superior
Proposal.
55. The Individual Defendants and Allied World could agree to permit a
potentially indefinite extension of time to complete the Proposed Allied World Takeover
therefore keeping the No-Talk and Force the Vote provisions in place for an
unreasonably long period.
56. Allied World and Merger Sub wrongfully induced the Individual
Defendants to enter into the Merger Agreement with these offending provisions by
offering the Individual Defendants the lucrative and prestigious right to continue as
members of the TransAllied Board (and, in the case of Defendant Sapnar, as an executive
officer of TransAllied) following consummation of the Proposed Allied World Takeover.
Far from negotiating at arms length, Allied World and Merger Sub offered the Individual
Defendants extensive personal benefits to get the Individual Defendants to breach their
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fiduciary duties. To this day, Allied World and Merger Sub continue to aid and abet the
Individual Defendants breaches of fiduciary duty by refusing and preventing
Transatlantic from terminating the Proposed Allied World Takeover and by enforcing the
illegal provisions in the Merger Agreement.
IV. THE INDIVIDUAL DEFENDANTS REFUSE TO ACKNOWLEDGE THEVALIDUS OFFER AS A SUPERIOR PROPOSAL, BUT ADMIT THATTHEY HAVE A FIDUCIARY OBLIGATION TO ENTER INTODISCUSSIONS WITH VALIDUS.
57. On July 12, 2011, Validus sent a proposal letter detailing the terms of the
Validus Merger Offer to the Individual Defendants (the Superior Proposal Letter). It
provided the material financial terms of the Validus Merger Offer and explained that the
stock component of the Validus Merger Offer unlike the stock to be received in the
Proposed Allied World Takeover was intended to be tax-free for U.S. federal income
tax purposes to the Transatlantic stockholders. The Superior Proposal Letter stated that
the only contingencies to the Validus Merger Offer were regulatory approvals, final
approval of a definitive merger agreement by the Validus board of directors and approval
by the Validus stockholders of the necessary share issuance. There are no financing or
due diligence requirements. It also included a draft merger agreement and a commitment
to enter into a mutually acceptable confidentiality agreement.
58. Based on July 12, 2011 closing prices for Allied World and Transatlantic
stock, the Proposed Allied World Takeover represented for Transatlantic stockholders
only a 1.8% premium to the market value of Transatlantics common stock. In contrast,
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based on July 12, 2011 closing prices for Validus and Transatlantic stock, the Validus
Offer represented a 14.1% premium to the market value of Transatlantics common stock.
59. On July 17, 2011, Validus provided supplemental information to the
Individual Defendants (which Validus subsequently made public), including regarding
the proposed management of the combined company and potential synergies expected by
Validus in connection with the Validus Merger Offer and Validus views regarding
potential capital management for the combined company. Validus noted in this
information that it expected that the Validus Merger Offer would generate substantially
more synergies than the $80 million forecasted by Allied World in connection with the
Proposed Allied World Takeover.
60. On July 19, 2011, Transatlantic issued a press release stating the Validus
Merger Offer does not constitute a Superior Proposal and Transatlantic remains
committed to the terms of the Allied World Merger Agreement. However, theIndividual Defendants also determined that the Validus proposal is reasonably likely to
lead to a Superior Proposal and that the failure to enter into discussions regarding the
Validus proposal would result in a breach of [their] fiduciary duties under applicable
law . As a result, the Board has determined to offer to engage in discussions and
exchange information with Validus (emphasis added).
61. Before deciding to reject the Validus Merger Offer, the Individual
Defendants failed to obtain an opinion from either of Transatlantics financial advisors in
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order to ascertain whether or not the consideration being offered by Validus in the
Validus Merger Offer was fair to Transatlantic stockholders.
62. On July 23, 2011, Transatlantic sent a letter to Validus attaching a
confidentiality agreement (the Confidentiality Agreement) stating:
Pursuant to Section 5.5(e) of the [Merger Agreement] prior toengaging in discussions or exchanging information with Validus,Transatlantic is required to provide Allied World with three
business days prior notice (which we have done) and to obtainfrom Validus an executed confidentiality agreement containingterms that are substantially similar, and not less favorable to
Transatlantic, in the aggregate, than those contained in theconfidentiality agreement between Transatlantic and Allied World.We have attached a confidentiality agreement betweenTransatlantic and Validus for your signature, so that we cancommence the process of entering into discussions and exchanginginformation.
Transatlantic included Allied World and Allied Worlds outside legal advisor as direct
copies on this letter, deliberately and improperly interposing Allied World and its outside
legal advisor directly into the Individual Defendants negotiation of the Confidentiality
Agreement with Validus.
63. The Confidentiality Agreement includes provisions regarding
confidentiality of information exchanged, but it also includes an onerous standstill
provision providing:
For a period of two years after the date of this Agreement, neither Company nor any of its subsidiaries or representatives will, unlessit shall have been specifically invited in writing by the board of directors of the other Company, in any manner, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or announce any intention to effect or cause or
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participate in or in any way assist or encourage any other person toeffect or seek, offer or propose (whether publicly or otherwise) toeffect or participate in, (i) any acquisition of any securities (or
beneficial ownership thereof) or material assets of the other
Company, including rights or options to acquire such ownership;(ii) any tender or exchange offer, merger or other businesscombination involving such other Company; (iii) anyrecapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to such other Company; or (iv) any solicitation of proxies (as such terms are defined inRule 14a-l of Regulation 14A under the Securities Exchange Actof 1934, as amended (the Exchange Act), disregarding clause(iv) of Rule 14a-1(l)(2) and including any otherwise exemptsolicitation pursuant to Rule 14a-2(b)) or consents to vote anyvoting securities of such other Company; (b) form, join or in any
way participate in a group (as such term is used in Rule 13d-5under the Exchange Act) with respect to any voting securities of such other Company or otherwise act in concert with any person inrespect of any such securities; (c) otherwise act, alone or in concertwith others, to seek to control, control, advise, change or influencethe management, Board of Directors, governing instruments,shareholders, policies or affairs of such other Company; (d) enter into any discussions or arrangements with any third party withrespect to any of the foregoing; or (e) make any public disclosure,or take any action which might force such other party to make any
public disclosure, with respect to the matters set forth in this
Agreement; provided, that each Company may make confidentialrequests to the other Company to amend or waive any of thelimitations set forth in this paragraph, which the other Companymay accept or reject in its sole discretion, so long as any suchrequest is not knowingly made by the Company in a manner thatwould require the public disclosure thereof by either Company.
64. Following receipt of a revised Confidentiality Agreement from Validus
outside legal advisor on July 23, 2011, Transatlantic and its advisors did not substantively
engage Validus or its advisors regarding the Confidentiality Agreement. Instead,
Transatlantic provided a copy of the revised Confidentiality Agreement to Allied World
and its advisors. Consequently, on July 25, 2011, Allied World, through its outside legal
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advisor, informed Transatlantic that Allied World was taking the position that
Transatlantic entering into a confidentiality agreement with Validus that did not contain a
standstill would not comply with the terms of the Merger Agreement, and that Allied
World reserved all of its rights i.e. , threatened to sue if Transatlantic proceeded to
enter into discussions with Validus.
65. The actions of Transatlantic and the Individual Defendants regarding the
Confidentiality Agreement were a deliberate effort on the part of the Individual
Defendants to avoid entering into discussions with Validus, and thus to hide their heads
in the sand regarding the superiority of the Validus Merger Offer. The Individual
Defendants have expressly or effectively waived whatever standstill to which Allied
World may originally have been a party. Among other things, Allied World was
permitted to enter into the Merger Agreement, and is permitted under the Merger
Agreement to make counterproposals to Transatlantic in the event of a superior proposal
from a third party, to speak publicly about its bid and to solicit Transatlantic
stockholders. Thus, the Merger Agreements requirement that the terms of a
confidentiality agreement be substantially similar to the terms of the Allied World
confidentiality agreement cannot, under a good-faith reading, prevent Transatlantic from
entering into a confidentiality agreement that would still permit Validus to pursue its own
proposal and oppose the Proposed Allied World Takeover. This is particularly so giventhat Transatlantic has now put in place the Poison Pill. Given that the Individual
Defendants have now blocked the ability of Validus and every other bidder for
Transatlantic from pursuing an acquisition the Individual Defendants do not approve,
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there can be no justification for the Individual Defendants continued insistence that the
terms of the Merger Agreement require that Validus be subject to a superfluous standstill
agreement.
66. Despite the terms of the Validus Merger Offer and their acknowledgement
that the Validus Merger Offer is reasonably likely to lead to a superior proposal and that
their refusal to enter into discussions with Validus is a breach of their fiduciary duties, the
Individual Defendants have hidden behind the No-Talk provision of the Merger
Agreement and refused to enter into discussions with Validus or declare the Validus
Merger Offer a Superior Proposal under the Merger Agreement, and have maintained
their recommendation to stockholders in favor of the Proposed Allied World Takeover.
67. These acts and failures to act are a breach of the Individual Defendants
fiduciary duties of care and loyalty. Specifically, with no adequate investigation or
attempt to enter into negotiations with Validus, in order to preserve their lucrative and prestigious roles as directors and officers in a public company by continuing as members
of the TransAllied Board (and, in the case of Defendant Sapnar, as an executive officer of
TransAllied) following consummation of the Proposed Allied World Takeover, and
subsequently to save the embarrassment of admitting yet another mistake to stockholders
who are already berating them, the Individual Defendants are wrongfully recommending
to Transatlantic stockholders a transaction that is demonstrably against the stockholders
interest. Of course at this point, the Individual Defendants can hardly be trusted to make
a disinterested recommendation to their stockholders, both because of their self-interest in
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originally locking up the Proposed Allied World Takeover to maintain their directorships
and management positions, and because a change of recommendation now would amount
to an admission that they made a foolish and very costly mistake by agreeing to a $115
million termination fee without first exploring reasonably available alternatives.
V. THE INDIVIDUAL DEFENDANTS SET A RECORD DATE THATVIOLATES FEDERAL SECURITIES LAW AND NEW YORK STOCK EXCHANGE RULES IN AN ATTEMPT TO MANIPULATE THE VOTE.
68. On the morning of July 13, 2011, approximately 12 hours after Validus
announcement of the Validus Merger Offer, both Allied World and Transatlantic issued
press releases that they had each set July 22, 2011 as the record date for their respective
special meetings of stockholders to be held in connection with the Proposed Allied World
Takeover.
69. The Individual Defendants precipitous decision to set July 22, 2011 as the
record date was in blatant violation of federal law, NYSE requirements, and their
fiduciary duty. Rule 14a-13 promulgated under the Securities Exchange Act of 1934, as
amended, requires that a registrant distribute broker search cards in connection with a
stockholder meeting at least 20 business days prior to the record date, unless inquiry at
such time is impracticable. Because the July 22, 2011 record dates were set on July 13,
2011, broker search cards could have been distributed only nine calendar days, or seven
business days, prior to the record dates for the special meetings. The Individual
Defendants action also violates NYSE Rule 402.05, which requires NYSE-listed
companies, including Allied World and Transatlantic, to make inquiry of brokers at least
10 days in advance of the record date.
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70. Since Allied World filed the Joint Proxy Statement / Prospectus on July 7,
2011, neither Allied World nor Transatlantic could have had a reasonable expectation of
completing the SEC review and comment process relating to the Form S-4 prior to early-
to mid-August, and therefore, would not be reasonably likely to be in a position to mail
the Joint Proxy Statement / Prospectus to their stockholders prior to some date in August.
71. Even if Allied World and Transatlantic had determined that it was
necessary to set a record date following the announcement of the Validus Merger Offer,
they could have complied with Rule 14a-13 and NYSE Rule 402.05 by setting a record
date of August 10, 2011 a date that was reasonably likely to be in advance of the date
on which the SECs review and comment process would be completed.
72. Furthermore, as of August 5, 2011, neither Allied World nor Transatlantic
had set a date for their respective special meetings of shareholders, so there was no
legitimate need on July 13, 2011 to set a July 22, 2011 record date.
73. It is apparent that the sole purpose of establishing a July 22, 2011 record
date was to manipulate the corporate machinery in an effort to inappropriately influence
the stockholder franchise. Indeed, Transatlantics and Allied Worlds violation of Rule
14a-13 represents a blatant and self-serving attempt to prevent stockholders (and
potential stockholders that would like to acquire shares of Transatlantic subsequent to the
announcement of the Validus Merger Offer and Transatlantics position with respect
thereto) from being able to effectively exercise their voting rights with respect to the
Proposed Allied World Takeover.
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VI. TRANSATLANTIC VIOLATES ITS DUTY OF CANDOR BY FILINGFALSE AND MISLEADING SCHEDULE 14D-9 AND SCHEDULE 14D-9AMENDMENT.
74. On July 28, 2011, Transatlantic filed with the SEC the Schedule 14D-9 in
which Transatlantic advised its stockholders that the Individual Defendants had
determined to stand by their recommendation that the stockholders approve the inferior
Proposed Allied World Takeover and reject the Validus Exchange Offer. On August 7,
2011, Transatlantic filed with the SEC the Schedule 14D-9 Amendment. The Schedule
14D-9 and Schedule 14D-9 Amendment include a host of material misstatements and
omissions, some rehashed and some new.
75. In addition, the Schedule 14D-9 discloses that the Transatlantic Board
held a meeting and determined to recommend that stockholders reject the Validus
Exchange Offer on July 26, 2011, just one day after Validus filed its exchange offer
documents with the SEC. Notwithstanding the timing of this meeting, Transatlantic did
not publicly announce such determination until July 28, 2011, thereby delaying two days
and allowing Transatlantic stock to trade during this period without disclosure in the
marketplace of the significant decision by the Transatlantic Board.
A. The Schedule 14D-9 and Schedule 14D-9 Amendment Contain Falseand Misleading Statements Regarding the Confidentiality Agreement.
76. On page 30 of the Schedule 14D-9, Transatlantic states that Transatlantic
and Validus have not been able to complete mutual due diligence [a]s a result of
Validus refusal to sign a standard confidentiality agreement. However, Validus has
stood ready and willing to sign a standard confidentiality agreement for the particular
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circumstances in which the companies find themselves involving a target that has agreed
to a transaction and an intervening bidder that has already commenced an exchange offer
at a higher price and a solicitation in opposition to the inferior transaction, i.e. , without a
standstill, and it is Transatlantic that has refused to negotiate a standard confidentiality
agreement with representatives of Transatlantic refusing to negotiate Validus proposed
confidentiality agreement or to engage in substantive discussions with Validus and its
advisors regarding other alternatives that would not include an effective standstill.
77. The Schedule 14D-9 and Schedule 14D-9 Amendment are materially false
and misleading because they contain disclosure that omits key provisions of Section
5.5(e) of the Merger Agreement regarding the requirement that Transatlantic seek a
confidentiality agreement with terms substantially similar, and not less favorable to
Transatlantic, in the aggregate, than those contained in Transatlantics confidentiality
agreement with Allied World. Specifically, Transatlantics disclosure on pages 18 and 34
of the Schedule 14D-9 fails to clarify that this determination need only be made solely by
the Transatlantic Board in good faith . Transatlantic repeats this misleading omission on
page 4 of the Schedule 14D-9 Amendment when discussing the National Indemnity
Proposal. It is extremely false and misleading for Transatlantic to fail to disclose to
Transatlantic stockholders that Transatlantics insistence on a standstill is a self-imposed
one.
78. The Schedule 14D-9 and Schedule 14D-9 Amendment are false and
misleading because they fail to disclose that, in light of Allied Worlds recent conduct
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and disclosures, either Allied World is in violation of its standstill with Transatlantic or
Transatlantic has expressly waived (or done so on an effective basis) the standstills
material restrictions. Indeed, if Allied were still bound by a standstill comparable to the
one that Transatlantic proposed to Validus, then Allied World would be unable to (i)
maintain its current Merger Agreement with Transatlantic, (ii) make public statements in
favor of, and solicit Transatlantic stockholders with respect to, the Proposed Allied World
Takeover which it has been doing on a regular basis, (iii) make counteroffers to the
Transatlantic Board, as contemplated by Section 5.5 of the Merger Agreement, without
the Transatlantic Boards consent, (iv) solicit in opposition to the Transatlantic Board, if
it were to change its recommendation with respect to the Proposed Allied World
Takeover, or (v) purchase 45,000 shares of Transatlantic common stock, as required by
Section 6.11 of the Merger Agreement. In light of the fact that Allied World has already
taken the actions described in (i) and (ii) above, and is contractually obligated to take the
action described in (v) above, Transatlantics statements that Allied World continues to
be bound by the standstill provisions of the confidentiality agreement are false and
misleading and contain material omissions.
79. The Schedule 14D-9 is materially false and misleading because Validus is
ready and willing to enter into a standard confidentiality agreement that does not impair
Validus ability to pursue the Validus Offer and oppose the Proposed Allied WorldTakeover. Contrary to Transatlantics assertions, Validus refusal to enter into a
confidentiality agreement is not the cause for the failure of Transatlantic and Validus to
complete mutual due diligence.
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80. The Amended Schedule 14D-9 is materially false and misleading because
it justifies false and misleading assertions made by Transatlantic regarding the Validus
Offer and Validus operations on the basis that Transatlantic is unable to complete due
diligence on Validus as a result of Validus refusal to enter into a confidentiality
agreement. 1
B. The Schedule 14D-9 and Schedule 14D-9 Amendment Contain Falseand Misleading Statements Regarding the Consideration Provided bythe Competing Transactions.
81. On the last bullet on page 5 of the Schedule 14D-9 Amendment,
Transatlantic lists among its reasons for recommending that Transatlantics stockholders
reject the Validus Exchange Offer the fact that the market value of the Validus Exchange
Offer represented a 2.9% discount to the closing price of Transatlantic stock on July 25,
2011. In comparison, Transatlantic includes a comparison of the market value of the
Proposed Allied World Takeover both as of June 10, 2011 and July 25, 2011. Moreover,
even though Transatlantic seeks to compare the market value of the consideration
represented by the Validus Offer and the Proposed Allied World Takeover, at no time
does Transatlantic state clearly the percentage premium to market value that the Validus
Offer represents over the Proposed Allied World Takeover as of such dates.
Compounding this material omission, both the Schedule 14D-9 (on page 24) and
1 On August 10, 2011, Validus delivered a one-way confidentiality agreement toTransatlantic that would permit Transatlantic to receive and review non-publicinformation regarding Validus and the Validus Offer (and, if required by law, todisclose this information publicly), and does not require Transatlantic to be bound
by a standstill.
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Schedule 14D-9 Amendment (on page 6) contain the statement that The Exchange Offer
Economically Disadvantages Transatlantic Stockholders.
82. The Schedule 14D-9 Amendment discloses that the Transatlantic Board
has made the determination that the all-cash National Indemnity Proposal is reasonably
likely to lead to a Superior Proposal under the Merger Agreement. It is materially
misleading for Transatlantic to disclose the Transatlantic Boards views regarding long-
term value and the importance of book value per share without explaining its views as to
the potential long-term value creation potential of the National Indemnity Proposal or, if
the Transatlantic Board has no view, why the Transatlantic Board believes that such
factors are not relevant to a determination that the National Indemnity Proposal is
reasonably likely to lead to a Superior Proposal.
C. The Schedule 14D-9 and Schedule 14D-9 Amendment Contain Falseand Misleading Statements Regarding the Conditionality of theValidus Exchange Offer.
83. On page 21 of the Schedule 14D-9 (restated on page 4 of the Schedule
14D-9 Amendment), Transatlantic states that the Validus Exchange Offer is highly
conditional, resulting in substantial uncertainty. However, this statement is false and
misleading to stockholders because the passage implies that the Validus Exchange Offer
has an unusual level of conditionality and that it is more conditional than the Proposed
Allied World Takeover. In fact, the Proposed Allied World Takeover contains a number
of conditions that are not conditions to the Validus Exchange Offer (or the Validus
Merger Offer).
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84. The terms of the Validus Exchange Offer are standard for transactions of
that structure, and, in fact, its conditionality is comparable to, if not less conditional than,
the Proposed Allied World Takeover. For example, the Proposed Allied World Takeover
contains the following additional conditions:
the Proposed Allied World Takeover requires stockholder consent to theexpansion of the board, a corporate name change and an increase in sharecapital, while the Validus Exchange Offer has no equivalent condition;
the Proposed Allied World Takeover requires that Allied World purchase45,000 shares of Transatlantic common stock following receipt of requiredshareholder approvals, while the Validus Exchange Offer has no equivalent
condition; and
the Proposed Allied World Takeover requires each partys chief executiveofficer to execute a certificate as to the satisfactions of the conditions relatingto representations, warranties and covenants, while the Validus ExchangeOffer has no equivalent condition.
Conversely, the additional conditions to the Validus Exchange Offer primarily relate to
either the termination of the Proposed Allied World Takeover or actions that can be
controlled by the Transatlantic Board such as the redemption of the Poison Pill.
Further, Validus has fulfilled or is well on its way to fulfilling certain other additional
conditions to the Validus Exchange Offer e.g. , Validus has obtained all required credit
agreement consents and has taken affirmative steps to obtain the required approval of its
shareholders by filing a preliminary proxy statement on August 1, 2011. Thus, the
statement that the Validus Exchange Offer is highly conditional, and resulting implication
that it is more conditional than the Proposed Allied World Takeover, is a material
misstatement.
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85. Page 24 of the Schedule 14D-9 refers to the likelihood that the necessary
regulatory approvals for the Proposed Allied World Takeover will be received in a timely
manner. However, the Schedule 14D-9 fails to explain why Transatlantic does not
believe that regulatory approvals in connection with the Validus Offer would be received
in a timely manner or, given the current state of such approvals, why Transatlantic
believes that obtaining such approvals in connection with the Validus Offer would take
significantly more time than obtaining such approvals in connection with the Proposed
Allied World Takeover, particularly in light of disclosures on page B-7 of the Schedule
14D-9 Amendment that suggest that Transatlantic and Allied World have not yet made
the filings necessary to obtain many of the approvals required in connection with the
Proposed Allied World Takeover.
D. The Schedule 14D-9 and Schedule 14D-9 Amendment Contain Falseand Misleading Comparisons of Share Values for the Allied Worldand Validus Transactions.
86.
On page 22 of the Schedule 14D-9, Transatlantic states that the Individual
Defendants believe that the Transatlantic-Allied World Merger would provide greater
value to Transatlantics stockholders within a shorter timeframe than other potential
strategic alternatives. This statement is materially false and misleading because the
Individual Defendants do not have a reasonable basis for such a belief. In addition, the
Schedule 14D-9 Amendment does not disclose how the National Indemnity Proposal has
impacted the Transatlantic Boards view of the factors disclosed in the Schedule 14D-9.
87. On page 25 of the Schedule 14D-9, there is a graph that purports to
portray the book value per Transatlantic share as reported by Transatlantic, pro forma for
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the Proposed Allied World Takeover and pro forma for the Validus Exchange Offer.
However, the comparison between the pro forma numbers is materially false and
misleading as Validus pro forma book value per share includes a reserve charge while
Allied Worlds pro forma book value per share does not include a reserve charge, a fact
which is not noted in the Schedule 14D-9. The failure to include any disclosure about the
differences between the two pro forma book values renders the current disclosure
extremely misleading to Transatlantic stockholders.
88. On pages 25 and 26, the Schedule 14D-9 references Allied Worlds and
Validus stockholder returns over the period from the third quarter of 2006 to the first
quarter of 2011. However, these comparisons are false and misleading because Validus
did not complete its initial public offering until July of 2007. It is false and misleading
for the Individual Defendants to use comparisons for periods for which there is data for
Allied World but not Validus. This is especially true because the differences between the
periods make the relative returns of Allied World appear to be superior to Validus
returns. In fact, since Validus initial public offering through the date of public
announcement of the Proposed Allied World Takeover, Validus has delivered to its
shareholders a total return of 55%, compared with a 24% return for Allied World
shareholders during this same period.
89. On page 27, the Schedule 14D-9 cites the potential for greater multiple
expansion if there were to be an Allied World/Transatlantic merger than there would be if
there were a Validus/Transatlantic merger, which apparently is based on historical price
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to book value per share ratios of the two companies. Transatlantic repeats these
statements regarding multiple expansion on page 7 of the Schedule 14D-9 Amendment.
However, these disclosures are false and misleading because the two companies have
different periods for which historical data is available, which influences the two
companies historical ratios. In addition, these disclosures are false and misleading
because Transatlantic does not explain the reasons that Allied Worlds shares have traded
at a discount to Validus historical price to book value per share ratio including the
possibility that the market may believe that Allied World now has less likelihood for
growth than Validus (rather than imply room for future multiple expansion).
90. The graph on page 29 of the Schedule 14D-9 is false and misleading
because it depicts Validus probable maximum loss/equity ratio as of March 31, 2011,
even though, as noted in footnote 3 to the graph, Transatlantic had available more recent
information regarding Validus ratio. Transatlantics decision to display the 32% ratio
based on the March 31, 2011 data when it was aware that Validus current probable
maximum loss/equity ratio is only 27% is another flagrant attempt to mislead
stockholders into supporting Allied Worlds offer for Transatlantic.
91. The graph on page 30 of the Schedule 14D-9 fails to indicate that Validus
debt includes its hybrid notes, even though such hybrid notes are considered to be equity
by ratings agencies. The Schedule 14D-9 is misleading because it does not disclose the
equity treatment of the hybrid notes or exclude the hybrid notes from the calculation of
Validus debt/capital ratio.
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E. The Schedule 14D-9 and Schedule 14D-9 Amendment Contain Falseand Misleading Statements Regarding the Structure of the ValidusExchange Offer.
92. On page 31 of the Schedule 14D-9, the Individual Defendants state, as a
consideration purportedly weighing against the Validus Exchange Offer, that
Transatlantic stockholders would not have majority control over a Validus/Transatlantic
combined company, but would have majority control over TransAllied. However, this
disclosure is false and misleading because the terms of the Merger Agreement require
that, in order for a proposal to qualify as a Superior Proposal pursuant to the fiduciary
out provisions of the Merger Agreement, Transatlantic stockholders cannot control more
than fifty percent of the combined company. In order for Validus to structure an offer
that could have been recommended by the Transatlantic Board, Validus was required to
structure the Validus Merger Offer such that it constituted a Superior Proposal. The
stock and cash consideration of the Validus Exchange Offer is based on the amounts of
stock and cash offered to Transatlantic stockholders in the Validus Merger Offer. It is
false and misleading for Transatlantic to criticize the Validus Exchange Offer (and, by
implication, the Validus Merger Offer) because it does not provide Transatlantic
stockholders with control of the combined company when Transatlantic has effectively
required that Validus (or any other third party) structure its offer in this manner.
93. Page 7 of the Schedule 14D-9 Amendment notes the definition of Superior
Proposal. However, Transatlantics disclosure regarding the definition of Superior
Proposal is materially misleading because it does not attempt to reconcile this definition
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with the Transatlantic Boards previously stated views of the structure of the Validus
Exchange Offer.
F. The Schedule 14D-9 and Schedule 14D-9 Amendment OmitTransatlantics Failure to Obtain an Expert Opinion Regarding theFairness of the Validus Exchange Offer.
94. The Schedule 14D-9 fails to disclose that the Individual Defendants did
not obtain an outside expert opinion regarding the Validus Exchange Offer, or the
Individual Defendants reasons for failing to do so. It appears that no expert opinions
were sought by the Individual Defendants as to whether the consideration offered by
Validus in the Validus Exchange Offer is fair to Transatlantic stockholders. The
Individual Defendants failed to seek these opinions despite the fact that Transatlantics
financial advisors were able to deliver an opinion that the lower market value
consideration offered by the Proposed Allied World Takeover was fair to Transatlantic
stockholders. Likewise, although the Transatlantic Board discussed the National
Indemnity Proposal with its financial advisors on August 8, 2011, the Schedule 14D-9
does not disclose whether or not the Transatlantic Board sought to obtain a fairness
opinion from its advisors as of such date with respect to either the Validus Exchange
Offer or the National Indemnity Proposal, or an updated fairness opinion in respect of the
Proposed Allied World Takeover (in light of the then-current valuation of Allied World
stock as of such date). These material omissions render the Schedule 14D-9 false and
misleading because they create the implication that the consideration offered by the
Proposed Allied World Takeover is fair to Transatlantic stockholders, but that the
consideration offered in the Validus Exchange Offer is not.
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VII. TRANSATLANTIC CONTINUES TO MISREPRESENT THESTANDSTILL AGREEMENT AND MISREPRESENTS ITS POISON PILLIN AN AUGUST 1, 2011 PRESENTATION.
95. On August 1, 2011, Transatlantic filed a presentation with the SEC.
Through this presentation, Transatlantic continues to misrepresent its demand for a
standstill agreement from Validus, and makes new misrepresentations regarding its
amendment of Transatlantics by-laws and its adoption of the Poison Pill.
A. Transatlantics Representations Regarding Its Demand for aStandstill Agreement Are False and Misleading.
96.
The continuing misrepresentations regarding the demand for a standstillagreement, together with Transatlantics insistence on a standstill that is not contractually
required, make clear that Transatlantic is using the demand for a standstill agreement as a
pretext for refusing to enter into discussions with Validus in connection with the Validus
Offer.
97. On page 3 of the August 1, 2011 presentation, which is subtitled The
Facts, Transatlantic claims that Allied World entered a confidentiality agreement with a
standstill and continues to be bound by it. As noted in the paragraphs above, in light of
Allied Worlds recent conduct and disclosures, either Allied World is in violation of the
standstill or Transatlantic has expressly waived (or done so on an effective basis) the
standstills material restrictions. Transatlantics statements to the contrary constitute
material misstatements and omissions.
98. Transatlantic further asserts on page 3 that the Merger Agreement requires
Validus to enter into a confidentiality agreement, and that Validus summarily refused to
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sign this confidentiality agreement. Transatlantic further claims on page 3 that Validus
sent Transatlantic a draft confidentiality agreement without a standstill and which would
expressly enable Validus to use Transatlantics confidential information in any manner
(including making it public). These statements are false and misleading. While the
Merger Agreement may require Validus to enter into a confidentiality agreement, the
Merger Agreement does not require the Individual Defendants to insist that Validus (or
any other third party) enter into a standstill agreement. The revisions proposed by
Validus would not expressly enable Validus to have carte blanche in disclosing
Transatlantics confidential information, but rather were intended to permit Validus to
comply with applicable law in light of the then-pending Validus Exchange Offer and
solicitation against the Proposed Allied World Takeover.
B. Transatlantics Representations Regarding the By-law Amendmentsand Poison Pill Are Incomplete and Misleading.
99. Transatlantic claims on page 4 of the August 1, 2011 presentation that the
amendments to Transatlantics by-laws are customary and consistent with the bylaws of
many other Delaware public companies, yet fails to provide any substantiation for the
assertion that they are customary and consistent.
100. Furthermore, Transatlantics description of the amendments as enabl[ing]
the Board to postpone a stockholder meeting to give stockholders sufficient time to
consider new information released immediately prior to a meeting is grossly misleading.
Transatlantic fails to disclose that the Transatlantic Board may use this newly-minted
postponement power not only to postpone a meeting if new information becomes
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available, but also to give them more time to solicit proxies, including once the meeting
commences, if stockholder sentiment turns against the Proposed Allied World Takeover.
Transatlantic does not disclose the conflict of these amended by-law provisions with the
proposal to be voted on by Transatlantic stockholders at Transatlantics special meeting
that purports to give Transatlantic stockholders control over an adjournment of such
meeting.
101. Likewise, in describing the Poison Pill it has adopted, Transatlantic does
not clearly explain that the Transatlantic Board chose to exempt Allied World from the
Poison Pill, even though Allied World has not paid a control premium for
Transatlantic. In addition, Transatlantic does not explain why it is in the stockholders
best interests to exempt Allied World from the Poison Pill.
VIII. TRANSATLANTICS AND ALLIED WORLDS FALSE ANDMISLEADING JOINT PROXY STATEMENT / PROSPECTUS.
102.
On July 7, 2011, Allied World filed a preliminary Joint Proxy Statement /Prospectus. The preliminary Joint Proxy Statement / Prospectus was amended on August
5, 2011. Transatlantic intends to distribute the Joint Proxy Statement / Prospectus to its
stockholders in an attempt to convince them to approve the Proposed Allied World
Takeover.
103. The Joint Proxy Statement / Prospectus includes a number of materially
false and misleading statements, and material omissions, which include, but are not
limited to, the following:
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A. The Joint Proxy Statement / Prospectus Inaccurately Portrays theProposed Allied World Takeover as a Merger of Equals.
104. In the Joint Proxy Statement / Prospectus, Allied World and Transatlantic
refer to Allied Worlds proposed acquisition of Transatlantic as a merger of equals.
This description of the nature of the Proposed Allied World Takeover is materially false
and misleading because Allied World is actually acquiring Transatlantic. This
misrepresentation is evidently intended to divert attention from the Individual
Defendants failure to negotiate a sufficient premium for the Transatlantic stockholders.
105. The Proposed Allied World Takeover is structured as a merger of
Transatlantic into Merger Sub, resulting in Transatlantic becoming a wholly-owned
subsidiary of Allied World. The nature of the Proposed Allied World Takeover as an
acquisition of Transatlantic by Allied World, rather than an equal combination of two
public companies, is also indicated by the fact that (i) Richard S. Press (the current non-
executive chairman of the Transatlantic Board) will cease to serve as the non-executivechairman of the TransAllied Board one year following the close of the Proposed Allied
World Takeover, (ii) the fact that the headquarters of TransAllied will be located in
Switzerland (the current headquarters of Allied World), (iii) the fact that Scott A.
Carmilani, Allied Worlds current Chairman, President and Chief Executive Officer, will
continue as President and Chief Executive Officer of TransAllied, and (iv) the fact that
Robert F. Orlich, Transatlantics current Chief Executive Officer, will play no role with
TransAllied.
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106. In addition, in connection with the selected transaction analysis conducted
by one of Transatlantics financial advisors, three of the four transactions considered as
part of this analysis were acquisitions, not mergers of equals. Therefore, even one of
Transatlantics own financial advisors did not view the Proposed Allied World Takeover
as a merger of equals.
107. The failure to clearly disclose the true nature of the Proposed Allied World
Takeover is materially misleading and is an omission of material information that is
necessary for Transatlantic stockholders to make informed voting and investment
decisions.
B. The Joint Proxy Statement / Prospectus Fails To Make AdequateDisclosure Regarding Projections for Both Allied World andTransatlantic.
108. The Joint Proxy Statement / Prospectus contains material omissions
because it does not contain adequate disclosure regarding the projections for both Allied
World and Transatlantic. As noted in paragraph 109 below, the disclosures do not
include basic and customary information investors would typically use in valuing
insurance and reinsurance companies.
109. The Individual Defendants have failed to disclose critical elements of their
projections, including Allied Worlds and Transatlantics net premiums earned,
investment income, income taxes, and debt. In addition, the current disclosure
regarding the projections omits critical information about the key assumptions used in
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