UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Under Rule 14a-12

 

DARWIN PROFESSIONAL UNDERWRITERS, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

o  No fee required.

 

 

 

Common Stock, par value $0.01 per share (the “Common Stock”)

 

 

17,017,881 shares of Common Stock (including 125,554 restricted shares of Common Stock); 404,414 options to purchase shares of Common Stock with an exercise price of less than $32.00 per share; and 27,044 director share units.

 

 

The maximum aggregate value was determined based upon the sum of (A) 17,017,881 shares of Common Stock (including 125,554 restricted shares of Common Stock) multiplied by $32.00 per share; (B) options to purchase 404,414 shares of Common Stock multiplied by $10.90 (which is the difference between $32.00 and the weighted average exercise price of $21.10 per share); and (C) 27,044 director share units multiplied by $32.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0000393 by the sum of the preceding sentence.

 

 

(5)  Total fee paid: $21,608.94

 

o  Fee paid previously with preliminary materials.

 

 

 

(4)  Date Filed:

 

DARWIN PROFESSIONAL UNDERWRITERS, INC.
9 Farm Springs Road
Farmington, CT 06032

 

[    l    ], 2008

 

Dear Stockholder:

 

On behalf of the board of directors of Darwin Professional Underwriters, Inc. (“Darwin”), I cordially invite you to a special meeting of stockholders of Darwin, to be held on [    l    ], 2008, at [    l    ] a.m. local time, located at [    l    ].

 

At the special meeting, you will be asked to consider and vote on (i) a proposal to adopt the Agreement and Plan of Merger, dated as of June 27, 2008, by and among Darwin, Allied World Assurance Company Holdings, Ltd (“Allied World”), and Allied World Merger Company, an indirect wholly owned subsidiary of Allied World, and (ii) a proposal to approve the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. If the merger is consummated, Darwin, as the surviving corporation, will become an indirect wholly owned subsidiary of Allied World and you will be entitled to receive the merger consideration of $32.00 per share in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own at the consummation of the merger, as more fully described in the enclosed proxy statement. The consideration you will receive is subject to a potential downward price adjustment in the event that certain representations by Darwin in the merger agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Allied World in the merger would otherwise be increased by more than $1,000,000.

 

After careful consideration, our board of directors, acting upon the unanimous recommendation of a special committee of the board of directors consisting of four independent directors, approved the merger agreement and determined that the merger and the other transactions contemplated by the merger agreement are in the best interests of Darwin and its stockholders. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

The accompanying proxy statement provides you with information about the special meeting, the merger agreement, the merger and the other transactions contemplated by the merger agreement. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and the merger agreement carefully. You may also obtain more information about Darwin from documents we have filed with the Securities and Exchange Commission.

 

Your vote is very important.  We cannot complete the merger unless the majority of the outstanding shares of common stock entitled to be cast at the special meeting are voted “FOR” the adoption of the merger agreement. The failure of any stockholder to vote on the proposal to adopt the merger agreement will have the same effect as a vote against the adoption of the merger agreement. As more fully described in “Voting Agreement” beginning on page 56, Alleghany Insurance Holdings LLC, a wholly owned subsidiary of Alleghany Corporation, which owns approximately 55% of Darwin’s outstanding common stock, has agreed to, among other things, vote a number of shares equal to 40% of Darwin’s outstanding voting stock in favor of adoption of the merger agreement, subject to certain limitations and the occurrence of certain events, pursuant to the terms of a voting agreement entered into with Allied World.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy in the accompanying reply envelope, or submit your proxy by telephone or the Internet, using the telephone number or Internet voting instructions printed on your proxy card prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. If you have Internet access, we encourage you to record your vote via the Internet. If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, all of your shares of

common stock will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of the special meeting to adopt the merger agreement. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

 

Mark I. Rosen

Executive Vice President, General Counsel

and Secretary

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

The proxy statement is dated [    l    ], 2008, and is first being mailed to stockholders on or about [    l    ], 2008.

DARWIN PROFESSIONAL UNDERWRITERS, INC.

9 Farm Springs Road

Farmington, CT 06032

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To Be Held On [    l    ], 2008

 

Dear Stockholder:

 

A special meeting of stockholders of Darwin Professional Underwriters, Inc., a Delaware corporation (“Darwin”), will be held on [    l    ], 2008, at [ l ] a.m. local time, located at [    l    ], for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 27, 2008 (the “Merger Agreement”), by and among Darwin, Allied World Assurance Company Holdings, Ltd, a Bermuda company (“Allied World”), and Allied World Merger Company, a Delaware corporation and an indirect wholly owned subsidiary of Allied World (“MergerCo”). A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. Pursuant to the terms of the Merger Agreement, MergerCo will merge with and into Darwin (the “Merger”), with Darwin as the surviving corporation. If the Merger is consummated, Darwin will become an indirect wholly owned subsidiary of Allied World and you will be entitled to receive the merger consideration of $32.00 per share in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own at the consummation of the Merger (unless you properly exercise appraisal rights under Delaware law), as more fully described in the enclosed proxy statement. The consideration you will receive is subject to a potential downward price adjustment in the event that certain representations by Darwin in the Merger Agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Allied World in the Merger would otherwise be increased by more than $1,000,000.

 

2. To consider and vote on the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the Merger Agreement.

 

3. To consider and vote on any other business that may properly come before the special meeting.

 

Our board of directors has specified [    l    ], 2008, as the record date for the purpose of determining the stockholders who are entitled to receive notice of, and to vote at (in person or by proxy), the special meeting. Only stockholders of record at the close of business on the record date are entitled to notice of, and to vote at (in person or by proxy), the special meeting and at any adjournment or postponement thereof. Each stockholder is entitled to one vote for each share of our common stock held on the record date.

 

The adoption of the Merger Agreement requires that a majority of the outstanding shares of our common stock entitled to be cast at the special meeting be voted “FOR” the adoption of the Merger Agreement. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy in the accompanying reply envelope or submit your proxy by telephone or the Internet, using the telephone number or Internet voting instructions printed on your proxy card, prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. If you have Internet access, we encourage you to record your vote via the Internet. If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, all of your shares of common stock will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. If you fail to return your proxy card or fail to submit your proxy by phone or the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the adoption of the Merger Agreement, but will not affect the outcome of the vote regarding the adjournment proposal. If you are a stockholder of record, voting in person at the

meeting will revoke any proxy previously submitted. If you hold your shares through a bank, broker or other custodian, you must obtain a legal proxy from such custodian in order to vote in person at the meeting.

 

After careful consideration, our board of directors, acting upon the unanimous recommendation of a special committee of the board of directors consisting of four independent directors, approved the Merger Agreement and determined that the Merger and the other transactions contemplated by the Merger Agreement are advisable and fair to, and in the best interests of, Darwin and its stockholders. Our board of directors recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

Please note that space limitations make it necessary to limit attendance at the special meeting to stockholders as of the record date (or their authorized representatives) holding admission tickets or other evidence of ownership. The admission ticket is detachable from your proxy card. If your shares are held by a bank or broker, please bring to the special meeting a statement evidencing your beneficial ownership of our common stock and photo identification.

 

Stockholders of Darwin who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of common stock if they deliver a demand for appraisal before the vote is taken on the Merger Agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

For more information about the Merger and the other transactions contemplated by the Merger Agreement, please review the accompanying proxy statement and the Merger Agreement attached to it as Annex A. The proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies in the event that there are insufficient votes at the time of the special meeting to adopt the Merger Agreement is also described in the accompanying proxy statement.

 

Please do not send your stock certificates at this time. If the Merger is completed, you will be sent instructions regarding the surrender of your stock certificates.

 

By Order of the Board of Directors,

 

 

Mark I. Rosen

Executive Vice President, General Counsel and Secretary

 

Farmington, Connecticut

[    l    ], 2008

 

TABLE OF CONTENTS

 

 

SUMMARY

	•	MergerCo will merge with and into Darwin (the “Merger”); and
	•	Darwin will be the surviving corporation in the Merger (the “Surviving Corporation”) and will continue to do business as “Darwin Professional Underwriters, Inc.” following the Merger.

	•	by notifying us in a signed written revocation, bearing a date later than the date of the proxy, addressed and delivered to our Executive Vice President, General Counsel and Secretary, Mark I. Rosen, 9 Farm Springs Road, Farmington, CT 06032;

	•	by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting); or
	•	by submitting a later-dated proxy (including by telephone or the Internet) relating to the same shares of Common Stock.

	•	certain of our executive officers and members of our Board hold Stock Options which, whether vested or unvested, will be cancelled and entitle such holders (and all other holders of Stock Options) to receive in cash the excess, if any, of the merger consideration of $32.00 per share over the option exercise price for each share of Common Stock subject to the Stock Option, less any applicable withholding taxes, without interest and subject to the potential downward price adjustment;
	•	certain of our executive officers and members of our Board hold restricted shares of Common Stock which will vest and become free of all restrictions and which will be cancelled and converted into the right to receive a cash payment equal to the number of restricted shares of Common Stock multiplied by the merger consideration of $32.00 per share in cash, plus any declared and unpaid dividends, less any applicable withholding taxes, without interest and subject to the potential downward price adjustment;
	•	certain members of our Board hold director share units which will be converted into the right to receive an amount in cash equal to the merger consideration of $32.00 per unit in cash, and subject to the potential downward price adjustment;
	•	certain of our executive officers have interests in Darwin’s Long Term Incentive Plan (the “LTIP”) and each such participant’s vested percentage in his respective portion of the LTIP profit pools for fiscal years 2003 through 2008 shall be 100% upon the consummation of the Merger, subject to forfeiture for termination for Cause (as defined in the LTIP);
	•	our current and former directors and officers will continue to be indemnified after the completion of the Merger and will have the benefit of liability insurance for six years after completion of the Merger;
	•	certain of our executive officers may be entitled to severance benefits if, following the Merger, Darwin terminates such executive’s employment for any reason other than for cause or such executive terminates his employment for good reason;
	•	certain members of our management team entered into employment agreements with Darwin in connection with the Merger, which provide for their continued employment effective as of the closing of the Merger, subject to the terms and conditions set forth in each employment agreement; and

	•	our chief executive officer entered into an amendment to his employment agreement, pursuant to which he will retire upon the closing of the Merger, be entitled to certain payments and benefits, and be subject to certain restrictive covenants for two years following the closing of the Merger.

	•	the majority of the outstanding shares of Common Stock entitled to be cast at the special meeting shall have been voted “FOR” the adoption of the Merger Agreement;
	•	any applicable waiting period under the HSR Act shall have expired or been terminated;
	•	no order, injunction, decree or ruling (whether temporary, preliminary or permanent) by any governmental authority of competent jurisdiction that renders illegal or prohibits consummation of the Merger shall be in effect; and
	•	certain specified approvals or filings under all applicable state laws regulating the business of insurance shall have been obtained or filed.

	•	our representations and warranties that (i) are not made as of a specific date must be true and correct as of the date of the Merger Agreement and as of the closing of the Merger and (ii) are made as of a specific date must be true and correct as of such date, in each case, except where the failure of such representations or warranties to be true and correct (without giving effect to any qualification as to materiality or material adverse effect set forth in such representations and warranties) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (as defined under “The Merger Agreement — Representations and Warranties” beginning on page 44); provided, however, that our representations and warranties with respect to corporate status, corporate authority and the absence of certain events since March 31, 2008 that have had or would reasonably be expected to have a Material Adverse Effect must be true and correct in all respects, in each case, as of the date of the Merger Agreement and as of the closing of the Merger;
	•	we must have performed, in all material respects, our obligations and complied with, in all material respects, our agreements and covenants under the Merger Agreement; and

	•	we must have delivered to Allied World and MergerCo a certificate signed by an executive officer of Darwin with respect to the satisfaction of the conditions relating to our representations, warranties, obligations, covenants and agreements.

	•	Allied World’s and MergerCo’s representations and warranties that (i) are not made as of a specific date must be true and correct as of the date of the Merger Agreement and as of the closing of the Merger and (ii) are made as of a specific date must be true and correct as of such date, in each case, except where the failure of such representations or warranties to be true and correct (without giving effect to any qualification as to materiality or parent material adverse effect set forth in such representations and warranties) has not had and would not reasonably be expected to have, individually or in the aggregate, an effect, event, development or change that would reasonably be expected to prevent or materially hinder or delay Allied World or MergerCo from consummating the Merger;
	•	Allied World and MergerCo must have, in all material respects, performed all of their obligations and complied with, in all material respects, their agreements and covenants under the Merger Agreement; and
	•	Allied World must deliver to Darwin an officer’s certificate with respect to the satisfaction of the conditions relating to its representations, warranties, obligations, covenants and agreements.

	•	initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or the making of any proposal or other action that constitutes, or may reasonably be expected to lead to, any company acquisition proposal;
	•	enter into discussions or negotiate with any person in furtherance of such inquiries or to obtain a company acquisition proposal; or
	•	enter into an agreement with respect to a company acquisition proposal.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Darwin stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where You Can Find More Information” beginning on page 61.

 

Q. What matters will be voted on at the special meeting?

 

A. You will vote on the following proposals: (1) to adopt the Merger Agreement and (2) to approve the adjournment of the special meeting to a later date, if we deem such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

On June 27, 2008, we entered into a Merger Agreement with Allied World and MergerCo. Under the Merger Agreement, Darwin, as the surviving corporation, will become an indirect wholly owned subsidiary of Allied World and holders of shares of Common Stock will be entitled to receive the merger consideration of $32.00 per share in cash (subject to a potential downward price adjustment in the event that certain representations by Darwin in the Merger Agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Allied World in the Merger would otherwise be increased by more than $1,000,000), without interest and less any applicable withholding tax. This proxy statement contains important information about the Merger and the special meeting, and you should read it carefully. The enclosed voting materials allow you to vote your shares of Common Stock without attending the special meeting.

 

Q. What will I receive in the Merger?

 

A. Upon completion of the Merger, you will be entitled to receive the merger consideration of $32.00 per share in cash (subject to a potential downward price adjustment in the event that certain representations by Darwin in the Merger Agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Allied World in the Merger would otherwise be increased by more than $1,000,000), without interest and less any applicable withholding tax, for each share of Common Stock that you own, unless you have exercised your appraisal rights with respect to the Merger. For example, if you own 100 shares of Common Stock, you will receive $3,200.00 in cash in exchange for your 100 shares of Common Stock, less any applicable withholding tax and subject to the potential downward price adjustment. You will not own any shares or other interest in the Surviving Corporation.

 

Q. When and where is the special meeting?

 

A. The special meeting of stockholders of Darwin will be held on [    l    ], 2008, at [ l ] a.m. local time, and located at [    l    ].

 

Q. What vote is required for Darwin’s stockholders to adopt the Merger Agreement?

 

A. The adoption of the Merger Agreement requires that a majority of the outstanding shares of Common Stock entitled to be cast at the special meeting be voted “FOR” the adoption of the Merger Agreement. As more fully described in “Voting Agreement” beginning on page 56, AIHL, which owns approximately 55% of Darwin’s outstanding Common Stock, has entered into a voting agreement under which it has agreed, among other things, to vote a number of shares of Common Stock equal to 40% of Darwin’s outstanding voting stock in favor of the adoption of the Merger Agreement, subject to certain limitations and the occurrence of certain events.

 

Q: What vote of our stockholders is required to approve the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement?

 

A. The proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger

Agreement requires the affirmative vote of a majority of the votes present and entitled to be cast at the special meeting, whether or not a quorum is present.

 

Q. How does the Board recommend that I vote?

 

A. The Board, acting upon the unanimous recommendation of the Special Committee, recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to adopt the Merger Agreement. You should read “The Merger — Reasons for the Merger; Recommendation of the Special Committee and Our Board” beginning on page 25 for a discussion of the factors that the Special Committee and the Board considered in deciding to recommend the adoption of the Merger Agreement.

 

Q. What effects will the proposed Merger have on Darwin?

 

A. As a result of the proposed Merger, Darwin will cease to be a stand-alone publicly-traded company and will be indirectly wholly owned by Allied World. You will no longer have any interest in Darwin’s future earnings or growth. Following the consummation of the Merger, the registration of our Common Stock and our reporting obligations with respect to our Common Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated upon application to the Securities and Exchange Commission (the “SEC”). In addition, upon completion of the proposed Merger, our Common Stock will no longer be listed on any stock exchange or quotation system, including the NYSE.

 

Q. What happens if the Merger is not consummated?

 

A. If the Merger Agreement is not adopted by our stockholders or if the Merger is not completed for any other reason, you will not receive any payment for your shares of Common Stock in connection with the Merger. Instead, Darwin will remain an independent public company and our Common Stock will continue to be listed and traded on the NYSE. If the Merger Agreement is terminated under specified circumstances, Darwin may be required to pay to Allied World a termination fee of $16.5 million as described under the caption “The Merger Agreement — Termination Fees and Expenses” beginning on page 52.

 

Q. What do I need to do now?

 

A. Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, if you hold your shares of Common Stock in your own name as the stockholder of record, please vote your shares of Common Stock by (i) completing, signing, dating and returning the enclosed proxy card, (ii) using the telephone number printed on your proxy card or (iii) using the Internet voting instructions printed on your proxy card. If you have Internet access, we encourage you to record your vote via the Internet. You can also attend the special meeting and vote. Please DO NOT return your stock certificate(s) with your proxy.

 

If your shares of Common Stock are held in “street name” by your broker, after carefully reading and considering the information contained in this proxy statement, you should instruct your broker on how to vote your shares of Common Stock using the instructions provided to your broker.

 

Q. How do I vote?

 

A: You may vote by:

 

 

 

If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, all of your shares of Common Stock will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the Merger Agreement.

 

Q. How can I change or revoke my vote?

 

A. Any Darwin stockholder of record who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke the proxy at any time before the polls close at the special meeting in any one of the following ways:

 

 

If you have instructed a broker, bank or other nominee to vote your shares of Common Stock, you must follow the directions received from your broker, bank or other nominee to change those instructions.

 

Q. If my shares of Common Stock are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?

 

A. Your broker, bank or other nominee will only be permitted to vote your shares of Common Stock if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares of Common Stock. If you do not instruct your broker, bank or other nominee to vote your shares of Common Stock, your shares of Common Stock will not be voted and the effect will be the same as a vote “AGAINST” the adoption of the Merger Agreement, but will not have an effect on the proposal to adjourn the special meeting.

 

Q. What do I do if I receive more than one proxy or set of voting instructions?

 

A. You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares of Common Stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of Common Stock. If you are a holder of record and your shares of Common Stock are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive to ensure that all of your shares of Common Stock are voted.

 

Q. What happens if I sell my shares of Common Stock before the special meeting?

 

A. The record date of the special meeting is earlier than the date of the special meeting and the date that the Merger is expected to be completed. If you transfer your shares of Common Stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will have transferred the right to receive the merger consideration of $32.00 per share in cash to be received by our stockholders in the Merger. In order to receive the merger consideration of $32.00 per share in cash, you must hold your shares through completion of the Merger.

Q. Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of Common Stock?

 

A. Yes. As a holder of shares of Common Stock, you are entitled to appraisal rights under Delaware law in connection with the Merger if you meet certain conditions. See “Dissenters’ Rights of Appraisal” beginning on page 58.

 

Q. When is the Merger expected to be completed?

 

A. We are working toward completing the Merger as quickly as possible, and we anticipate that it will be completed in the fourth calendar quarter of 2008. However, the exact timing of the completion of the Merger cannot be predicted. In order to complete the Merger, we must obtain stockholder approval and the other closing conditions under the Merger Agreement must be satisfied or waived.

 

Q. Is the Merger contingent upon Allied World obtaining financing?

 

A. No. The Merger is not conditioned upon Allied World or MergerCo obtaining financing. Allied World and MergerCo estimate that the total amount of cash funds necessary to consummate the Merger and related transactions will be approximately $550 million. Allied World has informed us that it expects that its cash on hand will be sufficient to complete the acquisition.

 

Q. Will a proxy solicitor be used?

 

A. Yes. Darwin has engaged Georgeson Inc. (“Georgeson”) to assist in the solicitation of proxies for the special meeting and Darwin estimates it will pay Georgeson a fee of approximately $8,500. Darwin has also agreed to reimburse Georgeson for reasonable administrative and out-of-pocket expenses incurred in connection with the proxy solicitation and indemnify Georgeson, absent Georgeson’s gross negligence or willful misconduct, against certain losses, costs and expenses.

 

Q. Should I send in my stock certificates now?

 

A. No. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your Common Stock certificates for the merger consideration. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration. Please do NOT send your stock certificates in now.

 

Q. Who can help answer my other questions?

 

A. If you have additional questions about the Merger, need assistance in submitting your proxy or voting your shares of Common Stock, or need additional copies of the proxy statement or the enclosed proxy card, please call Georgeson at [    l    ].

 

This proxy statement, and the documents to which we refer you in this proxy statement, include forward-looking statements, including information relating to the Merger, based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary,” “Questions and Answers about the Special Meeting and the Merger,” “The Merger,” and “Opinion of Financial Advisor,” and in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” or “would” or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this proxy statement or elsewhere. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those in the forward-looking statements, including, among others:

 

 

Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

Darwin

Darwin Professional Underwriters, Inc.

9 Farm Springs Road

Farmington, CT 06032

860-284-1300

 

Darwin was initially formed in March 2003 and became a publicly traded company on May 19, 2006. We are a holding company, the subsidiaries of which are engaged in insurance underwriting and distribution across a spectrum of the specialty commercial property-casualty insurance market. Darwin is focused on the professional liability insurance market and underwrites directors and officers liability for public and private companies, errors and omissions liability insurance, medical malpractice liability insurance, and other specialty coverages. Darwin member companies include Darwin Professional Underwriters, Inc., Darwin National Assurance Company and Darwin Select Insurance Company.

 

Our majority stockholder, Alleghany, through its wholly owned subsidiary AIHL, indirectly owns approximately 55% of Darwin’s outstanding Common Stock. Our Common Stock is publicly traded on the NYSE under the symbol “DR.” For more information about Darwin, please visit our website at www.darwinpro.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. See also “Where You Can Find More Information” beginning on page 61.

 

Allied World

Allied World Assurance Company Holdings, Ltd

27 Richmond Road

Pembroke HM 08, Bermuda

441-278-5400

 

Allied World Assurance Company Holdings, Ltd is a Bermuda-based specialty insurance and reinsurance holding company and its subsidiaries underwrite a global, diversified portfolio of property and casualty insurance and reinsurance lines of business. Allied World was initially formed in November 2001 and became a publicly traded company on the NYSE on July 11, 2006 under the symbol “AWH.” Allied World writes direct property and casualty insurance as well as reinsurance through its operations in Bermuda, the United States, Ireland and the United Kingdom. Allied World has three business segments: property insurance, casualty insurance and reinsurance. The property segment provides direct coverage of physical property and business interruption coverage for commercial property and energy-related risks. The casualty segment specializes in insurance products providing coverage for general and product liability, professional liability and healthcare liability risks. The reinsurance segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by other insurance companies. For more information about Allied World, please visit its website at www.awac.com. Allied World’s website address is provided as an inactive textual reference only. The information provided on this website is not part of this proxy statement, and therefore is not incorporated by reference.

 

MergerCo

Allied World Merger Company

c/o Allied World Assurance Company Holdings, Ltd

27 Richmond Road

Pembroke HM 08, Bermuda

441-278-5400

 

MergerCo is a Delaware corporation that was formed solely for the purpose of completing the proposed Merger. MergerCo is an indirect wholly owned subsidiary of Allied World and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon consummation of the proposed Merger, MergerCo will cease to exist and Darwin will continue as the Surviving Corporation.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our Board for use at the special meeting to be held on [    l    ], starting at [ l ] a.m. local time, located at [    l    ], or at any postponement or adjournment thereof. The purpose of the special meeting is for our stockholders to consider and vote on (i) a proposal to adopt the Merger Agreement, and (ii) a proposal to approve the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. Our stockholders must adopt the Merger Agreement in order for the Merger to occur. If our stockholders fail to adopt the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A. You are urged to read the Merger Agreement in its entirety. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on [    l    ], 2008.

 

We have fixed the close of business on [    l    ], 2008 as the record date for the special meeting, and only holders of record of shares of Common Stock on the record date are entitled to vote at the special meeting. On the record date, there were [ l ] shares of Common Stock outstanding and entitled to vote. Each share of Common Stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting constitutes a quorum for the purpose of considering the proposals. Shares of Common Stock represented at the special meeting but not voted, including shares of Common Stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

 

The adoption of the Merger Agreement requires that a majority of the outstanding shares of Common Stock entitled to be cast at the special meeting be voted “FOR” the adoption of the Merger Agreement. For the proposal to adopt the Merger Agreement, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Abstentions will count for the purpose of determining whether a quorum is present. If you abstain or fail to vote, it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, all of your shares of Common Stock will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

The adoption of the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement requires the affirmative vote of a majority of the votes present and entitled to be cast at the special meeting, whether or not a quorum is present. Therefore, if your shares of Common Stock are present and entitled to be cast but you abstain, it will have the same effect as a vote “AGAINST” the adoption of the proposal to adjourn the special meeting. If your shares of Common Stock are not present or are present but not entitled to be cast, it will have no effect on the outcome of the proposal.

 

If your shares of Common Stock are held in “street name” by your broker, bank or nominee, you should instruct your broker, bank or nominee on how to vote your shares of Common Stock using the instructions provided by your broker, bank or nominee. In the absence of specific instructions, your broker, bank or nominee will not be entitled to vote your shares of Common Stock. Because the adoption of the Merger Agreement requires that a majority of the outstanding shares of Common Stock entitled to be cast at the special meeting be voted “FOR” the adoption of the Merger Agreement, the failure to provide your broker, bank or nominee with voting instructions will have the same

effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. Because the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement requires the affirmative vote of a majority of the votes present and entitled to be cast at the special meeting, whether or not a quorum is present, and because your broker, bank or nominee does not have discretionary authority to vote on that proposal, the failure to provide your broker, bank or nominee with voting instructions on how to vote your shares of Common Stock will have no effect on the approval of that proposal.

 

As more fully described in “Voting Agreement” beginning on page 56, pursuant to the terms of the Voting Agreement, AIHL, which owns approximately 55% of Darwin’s outstanding Common Stock, has agreed to, among other things, vote a number of shares of Common Stock equal to 40% of Darwin’s outstanding voting stock in favor of adoption of the Merger Agreement, subject to certain limitations and the occurrence of certain events.

 

As of [    l    ], 2008, the record date, the directors and executive officers of Darwin held and are entitled to vote, in the aggregate, [ l ] shares of Common Stock representing approximately [ l ]% of the outstanding shares of Common Stock. The directors and executive officers have informed Darwin that they currently intend to vote all of their shares of Common Stock “FOR” the adoption of the Merger Agreement.

 

If you submit a proxy by telephone or the Internet or by returning a signed proxy card by mail, your shares of Common Stock will be voted at the special meeting as you indicate on your proxy card or by such other method. If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, all of your shares of Common Stock will be voted “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement, and in accordance with the recommendations of our Board on any other matters properly brought before the special meeting for a vote.

 

If your shares of Common Stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares of Common Stock voted.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting.

 

Any stockholder of record who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke the proxy at any time before the polls close at the special meeting in any one of the following ways:

 

 

If you have instructed a broker, bank or other nominee to vote your shares of Common Stock, you must follow the directions received from your broker, bank or other nominee to change those instructions.

 

Please do not send in your stock certificates with your proxy card. When the Merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

 

Although it is not currently expected, the special meeting may be adjourned, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. Any adjournment may be made without notice (if the adjournment is not for more than 30 days and a new record date is not set for the adjourned meeting) by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Approval of the proposal to adjourn the special meeting requires the affirmative vote of a majority of the votes present and entitled to be cast at the special meeting, whether or not a quorum is present. Any signed proxies received by Darwin in which no voting instructions are provided on such matter will be voted “FOR” an adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. Any adjournment or postponement of the special meeting to solicit additional proxies will allow Darwin’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

Under Delaware law, holders of shares of Common Stock who do not vote in favor of adopting the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock as determined by the Delaware Court of Chancery if the Merger is completed, but only if they comply with all requirements of Section 262 of the Delaware General Corporation Law, which are summarized in this proxy statement. The text of Section 262 of the Delaware General Corporation Law is attached as Annex C to this proxy statement. No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and you should be aware that the fair value of your shares of Common Stock as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement. Any holder of shares of Common Stock intending to exercise such holder’s appraisal rights, among other things, must submit a written demand for an appraisal to us prior to the vote on the adoption of the Merger Agreement and must not vote in favor of adoption of the Merger Agreement in person or by proxy. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. We encourage you to read these provisions carefully in their entirety. See “Dissenters’ Rights of Appraisal” beginning on page 58 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex C.

 

This proxy solicitation is being made and paid for by Darwin on behalf of its Board. In addition, we have retained Georgeson to assist in the solicitation. We will pay Georgeson approximately $8,500 plus reasonable out-of-pocket expenses for their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These directors, officers and employees will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Common Stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse the brokers and other fiduciaries for their reasonable out-of-pocket expenses. In addition, we will indemnify Georgeson, absent Georgeson’s gross negligence or willful misconduct, against any losses arising out of that firm’s proxy soliciting services on our behalf.

 

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call Georgeson at [    l    ].

 

The reports, opinions or appraisals referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of Darwin during its regular business hours by any interested holder of shares of Common Stock.

 

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

Darwin was originally formed in March 2003 by Stephen J. Sills, the president and chief executive officer of Darwin, and Alleghany and became a publicly traded company in May 2006. In August 2007, at the request of Alleghany, Darwin registered all of the shares of Common Stock owned by Alleghany (which currently represent approximately 55% of Darwin’s total outstanding shares) to allow Alleghany to sell all or a part of its equity interest in Darwin, if and when Alleghany decided to sell such interest.

 

In December 2007 and January 2008, senior management of Alleghany and Darwin held preliminary discussions with respect to possible strategic alternatives for Darwin. During that same time period, in connection with Darwin’s periodic review of potential business opportunities, Mr. Sills met separately with senior management of three insurance companies to discuss the trends and outlook for the insurance industry generally as well as possible business opportunities for the companies.

 

Mr. Sills reported these discussions to the independent members of the Board and to Mr. Weston M. Hicks, the president and chief executive officer of Alleghany. Mr. Sills, representatives of Alleghany, and the members of the Board discussed whether, and how, a sales process should be conducted, including the process of selecting an investment banking firm to assist in the evaluation of potential strategic alternatives. Following these discussions, it was agreed that Darwin’s senior management would interview investment banking firms to assist Darwin in evaluating potential strategic alternatives to maximize value for Darwin’s stockholders, including the continued pursuit of Darwin’s business plan. Mr. Sills expressed his views that, at that time, targeted discussions with one or more potential identified partners would yield more benefit to Darwin and its stockholders than a broad, open-ended auction process.

 

On February 28, 2008, in light of the foregoing discussions, the Board held a meeting to discuss, among other things, the potential strategic alternatives for Darwin. A representative of Dewey & LeBoeuf LLP (“Dewey & LeBoeuf”), legal counsel to Darwin, participated in the meeting and reviewed with the members of the Board their fiduciary duties associated with their evaluation of Darwin’s strategic alternatives. Following such presentation and discussion among the members of the Board, the Board formed the Special Committee of independent directors consisting of R. Bruce Albro, William C. Popik, George M. Reider, Jr. and Irving B. Yoskowitz. The Board authorized the Special Committee to, among other things, examine, negotiate and evaluate potential strategic alternatives for Darwin and any related matters.

 

On March 4, 2008, the Special Committee held a meeting to elect a chair of the Special Committee and to identify and retain legal counsel and a financial advisor to the Special Committee. The Special Committee members elected Mr. Yoskowitz to act as chair (the “Chair”) and retained Cleary Gottlieb Steen & Hamilton LLP (“Cleary Gottlieb”) to act as legal counsel to the Special Committee. After meeting with three potential financial advisors, the Special Committee decided to retain UBS as financial advisor to the Special Committee.

 

From March 7, 2008 through March 18, 2008, representatives of UBS met with members of Darwin’s senior management, reviewed the market environment and reviewed certain financial information and other data relating to the business and financial prospects of the Company that were provided to UBS by Darwin’s management.

 

On March 19, 2008, at a telephone meeting of the Special Committee with representatives of Cleary Gottlieb and UBS, representatives of UBS presented their preliminary analysis to the Special Committee. A representative of Cleary Gottlieb reviewed the fiduciary duties of the directors associated with their evaluation of Darwin’s strategic alternatives. The UBS representatives discussed the state of the mergers and acquisitions market for insurance companies and various considerations regarding Darwin and the property and casualty sector generally, including the cyclical nature of Darwin’s business. The UBS representatives also reviewed with the Special Committee preliminary financial analyses of Darwin based on, in part, information provided by Darwin’s management and an indicative timeline for a potential sale process as well as a preliminary list of parties, including domestic and

international insurance companies and financial buyers, that might be interested in a business combination transaction with Darwin. The Special Committee members discussed the analysis, the timeline and the list of potential acquirors with the representatives of UBS. After further deliberation, the Special Committee members unanimously agreed that it was in the best interests of Darwin and its stockholders to explore a potential business combination transaction, including a possible sale of Darwin. The Special Committee requested that, prior to contacting potential strategic acquirors, UBS review the list of such potential acquirors with Darwin’s management to consider the likelihood that each such potential acquiror would find a strategic fit with Darwin’s business.

 

On March 27, 2008, the Special Committee held a telephone meeting with representatives of Cleary Gottlieb and UBS to discuss the parties to be contacted in connection with a potential business combination with Darwin. A representative of Cleary Gottlieb reviewed the fiduciary duties of the directors associated with their evaluation of Darwin’s strategic alternatives. Representatives of UBS presented a list of potential financial and strategic acquirors to the Special Committee. A representative of UBS indicated that, as requested by the Special Committee, the list of potential strategic acquirors had been prepared after consultation with Darwin’s senior management. In identifying the potential acquirors, UBS considered their known or potential interest in a transaction, their ability to complete a transaction of this size in a timely manner and, in the case of strategic acquirors, strategic interests that would be consistent with making a bid for Darwin. Of the initial 21 potential acquirors presented to the Special Committee, four were financial buyers, and the others were insurance companies.

 

The Special Committee reviewed and discussed the list of potential acquirors, the process for contacting such parties and UBS’ further preliminary financial analyses of Darwin, which had been prepared in consultation with Darwin’s senior management and were based, in part, on information provided by Darwin’s management. After such discussions, the Special Committee instructed UBS to contact each of the potential acquirors identified by UBS.

 

Beginning on March 31, 2008 and through the month of April, UBS contacted representatives of each of the potential bidders. During this process, two additional parties contacted UBS to express interest in a potential transaction involving Darwin. Eleven potential bidders executed confidentiality agreements with Darwin containing customary confidentiality and standstill provisions.

 

During the month of April 2008, each of the parties who executed a confidentiality agreement received a process letter along with confidential information regarding Darwin’s operations, financial performance and growth strategy. Interested bidders were asked to submit non-binding indications of interest by May 7, 2008.

 

On May 7, 2008, UBS received initial non-binding indications of interest from three potential acquirors. One of the indications of interest was from Allied World. The other bids were from two other insurance companies (referred to in this Proxy Statement as Bidder A and Bidder B). Allied World’s indication of interest valued Darwin’s capital stock between $27.00 and $30.00 per share and proposed a mixture of cash and stock as consideration for 100% of the shares of capital stock of Darwin. Bidder A’s indication of interest valued the outstanding stock of Darwin in the range of $433.70 million to $484.70 million, or between $25.50 and $28.50 per share, for 100% of Darwin’s outstanding capital stock. Bidder B’s indication of interest valued Darwin’s capital stock at $32.00 per share for 100% of the outstanding stock (including shares underlying options or other convertible securities) of Darwin. Bidder A and Bidder B both proposed to pay 100% cash consideration. None of the indications of interest contained a financing contingency.

 

On May 8, 2008, the Special Committee held a telephone meeting to discuss the initial indications of interest. Representatives of Cleary Gottlieb and UBS participated in the meeting. The members of the Special Committee discussed the three proposals including the price and key non-financial terms and conditions. The Special Committee unanimously agreed to request final offers and comments to a draft merger agreement from Allied World and Bidder B. The Special Committee instructed UBS to inform Bidder A that it would need to raise its offer substantially in order to be permitted to continue in the process.

 

UBS also communicated with Bidder A that it would need to increase its offer substantially in order to be permitted to continue in the process. Bidder A did not increase its offer or otherwise continue in the process.

Management presentations to Allied World and Bidder B were given on May 15, 2008 and May 23, 2008, respectively. At the presentations, management provided information regarding Darwin’s operations and business plan, recent financial performance and prospects.

 

On May 28, 2008, UBS provided Allied World and Bidder B with copies of a draft merger agreement and requested that each submit its definitive bid, including a mark-up of the merger agreement, by no later than June 9, 2008.

 

On June 2, 2008, the Compensation Committee of the Board and the Special Committee held a joint telephone meeting to consider a term sheet addressing the effect of a change of control on certain of Darwin’s incentive plans for senior management. Representatives of Darwin’s management, Alleghany’s management and Cleary Gottlieb participated in the meeting. The members of the Compensation Committee and the members of the Special Committee discussed a proposal prepared by Darwin’s management to address a change of control under the incentive plans. The proposal provided for, among other things, immediate vesting of Darwin’s LTIP in the event of a change of control (as provided for pursuant to the existing terms of the LTIP), continued payouts under the plan for profit pool years 2003 through 2008, continuation of Darwin’s performance incentive plan for 2008 with certain changes to the administration of the plan and cash payments in lieu of restricted stock and option awards that would be paid in February 2009 pursuant to Darwin’s Stock Incentive Plan in the absence of a change in control. After discussion, the Compensation Committee and the Special Committee recommended eliminating the cash payments in lieu of the restricted stock and option awards and requiring that for an employee to receive payments under the performance incentive plan, certain other conditions would need to be satisfied. The joint meeting adjourned. The Special Committee further discussed the proposal and then approved a term sheet, as amended, to reflect the changes discussed in the joint meeting.

 

On June 9, 2008, UBS received proposals from Allied World and Bidder B. Allied World proposed to acquire 100% of Darwin’s equity interests on a fully diluted basis for $32.00 per share in cash or approximately $550 million in the aggregate. The proposal, which included a revised draft of the merger agreement, indicated it was subject to completion of due diligence, agreement with certain key employees of Darwin regarding their employment following the transaction and execution of a voting agreement by Alleghany that would commit Alleghany to vote at least 40% of Darwin’s shares of Common Stock in favor of the acquisition. Allied World indicated that its offer would be subject to revision if certain assumptions related to Darwin’s retention bonus payments, LTIP accruals, deferred underwriting fees and certain transaction fees were incorrect. In addition, Allied World proposed in its revised draft of the merger agreement that if Darwin’s representations and warranties relating to its capitalization were not true and correct in all respects as of the date of the merger agreement and as of the closing of the merger, Allied World would have the option not to close the merger (the “Capitalization Closing Condition”). Bidder B proposed to acquire 100% of Darwin’s outstanding stock (including shares underlying options or other convertible securities) for $31.00 per share in cash or approximately $532.2 million in the aggregate. The proposal, which included a revised draft of the merger agreement, indicated it was subject to completion of due diligence, agreement with all key members of senior management of Darwin regarding their employment following the transaction, including that they would invest their after-tax proceeds from the transaction in the common stock of Bidder B, and execution of a voting agreement with Alleghany. Bidder B’s revised draft of the merger agreement provided that the unavailability of any of specified key members of management at the closing of the merger to provide services to Darwin would be deemed an event that would permit Bidder B to elect not to complete the transaction.

 

Following receipt of the proposals on June 9, 2008, the Special Committee held a telephone meeting to review the proposals. Representatives of Cleary Gottlieb and UBS participated in the meeting. After discussion of the proposals, the Special Committee determined that it needed more information from the potential acquirors, including as to their respective conditions related to the ongoing employment of Darwin’s management. The Special Committee asked UBS to seek such information from the potential acquirors and determine whether either bidder was prepared to improve its proposal.

 

On June 11, 2008, representatives from Darwin, Allied World and Willkie Farr & Gallagher LLP, legal counsel to Allied World (“Willkie”), participated in a telephone conference call to discuss certain due diligence items regarding Darwin.

On June 12, 2008, UBS arranged (and attended) a meeting between senior members of management from Allied World and Darwin to discuss a potential strategic transaction between the companies and the role of Darwin’s senior management following such a transaction. At the meeting, Darwin’s chief executive officer informed the Allied World representatives that he did not expect to continue his employment with Darwin following a merger with Allied World.

 

On June 13, 2008, representatives of Bidder B advised UBS that Bidder B was prepared to increase its proposed merger price to $32.00 per share in cash. UBS also offered Bidder B an opportunity to meet with Darwin’s senior management so as to permit Bidder B to clarify the condition to its proposal related to the ongoing employment of senior management and an opportunity to complete its due diligence. Bidder B declined these opportunities, noting that it would require a period of exclusivity before proceeding further.

 

On June 13, 2008, the Special Committee held a telephone meeting to discuss the final offers. Representatives of Cleary Gottlieb and UBS participated in the meeting. Representatives of UBS presented the financial terms of the two proposals, which were now equivalent at $32.00 per share in cash. Allied World proposed a termination fee of 4% of the aggregate offer price and Bidder B proposed a termination fee of 3% of the aggregate offer price. UBS noted that Allied World had completed substantially all of its due diligence, while Bidder B required additional diligence to confirm its proposal. UBS also noted that each of Allied World and Bidder B had requested a period of exclusivity as a condition to proceeding with further discussions. UBS and the Special Committee discussed the likelihood of obtaining an increase in the proposed purchase price from either bidder. UBS noted that Allied World had on several occasions in the preceding days, in response to inquiries from UBS, declined to increase its price.

 

Representatives of Cleary Gottlieb then reviewed with the Special Committee the non-financial terms of the two proposals, including the material adverse effect definitions, voting agreements, closing conditions, representations and warranties and termination fees. Cleary Gottlieb concluded that the Allied World draft of the merger agreement was more favorable to Darwin in substantially all non-financial respects than Bidder B’s draft of the merger agreement.

 

After discussion of the two proposals, including a discussion of whether Darwin could deliver greater value to its shareholders as a standalone company, the Special Committee unanimously determined to instruct UBS to request that Allied World improve its proposal in three respects: (i) increase the price, (ii) reduce the termination fee and (iii) eliminate the material adverse effect trigger related to a reduction in Darwin’s A.M. Best or credit ratings. If Allied World improved its proposal in response to items (ii) and (iii) above, the Special Committee also instructed UBS to advise Allied World that Darwin would like to work with Allied World with the goal of negotiating and signing a definitive merger agreement and agreeing on the related arrangements with management (which Allied World required as a condition to entering into a merger agreement). Shortly after completion of the meeting, UBS advised the Chair that Allied World had declined to raise its price, but had agreed to reduce the proposed termination fee from 4% to 3% and to eliminate the ratings trigger in the material adverse effect definition.

 

In the afternoon of June 13, 2008, representatives of Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”), legal counsel to Alleghany, distributed a voting agreement that committed Alleghany to voting 40% of the shares of Common Stock of Darwin in favor of the Allied World transaction and against any competing transaction. Representatives of Goldman, Sachs & Co. (“Goldman Sachs”), financial advisors to Allied World, requested that Darwin enter into exclusive negotiations with Allied World. Cleary Gottlieb advised Willkie that the Special Committee had not authorized execution of an exclusivity agreement with Allied World, but that the Special Committee had not authorized proceeding with any other bidder at that time.

 

From June 14, 2008 through the execution of the definitive merger agreement, Allied World and its advisors completed their due diligence review of Darwin, including reviewing drafts of Darwin’s disclosure schedules to the draft merger agreement.

 

On June 14, 2008, the Chair and representatives of Cleary Gottlieb and UBS had a telephone meeting to discuss the status of Allied World’s proposed separation arrangements with Darwin’s chief executive officer and employment arrangements with the other members of Darwin’s senior management. The Chair directed UBS to facilitate discussions among Allied World, Darwin’s management and their respective legal representatives.

In the evening of June 14, 2008, Dewey & LeBoeuf distributed a revised draft of the merger agreement which, among other things, modified Allied World’s proposed Capitalization Closing Condition so that Allied World would be required to close the merger unless the inaccuracy of the Capitalization Closing Condition was material.

 

On June 16, 2008, representatives of Cleary Gottlieb, Dewey & LeBoeuf and Willkie discussed the draft merger agreement by telephone.

 

On June 17, 2008, Willkie circulated a revised draft of the merger agreement. Later that day, representatives of Cleary Gottlieb, Dewey & LeBoeuf and Willkie held a telephone meeting to discuss the outstanding issues in the merger agreement, including the dollar amount above which the Capitalization Closing Condition needed to be inaccurate in order for Allied World not to close the merger.

 

From June 17, 2008 through June 27, 2008, members of Darwin’s senior management and representatives of Allied World and UBS engaged in discussions regarding the post-merger employment and/or separation arrangements for such members of Darwin’s senior management.

 

On June 18, 2008, representatives of Cleary Gottlieb, Goldman Sachs, UBS and Willkie held a telephone meeting to discuss the status of discussions among Allied World and members of senior management with respect to proposed post-merger employment and separation arrangements.

 

Later on June 18, 2008, the Special Committee held a telephone meeting to discuss the status of the possible transaction with Allied World. Representatives of Cleary Gottlieb and UBS participated in the meeting. The Special Committee authorized the Chair to seek to facilitate the discussions among Darwin’s management and Allied World. On June 19, 2008, the Chair discussed with the chief executive officer of Allied World the status of the transaction, including the negotiations with members of Darwin’s senior management.

 

On June 21, 2008, representatives of Goldman Sachs and Willkie advised representatives of UBS and Cleary Gottlieb that Allied World wanted to resolve two issues before proceeding with the transaction: (i) reaching satisfactory post-merger employment arrangements with nine senior managers of Darwin (not including Darwin’s chief executive officer) and (ii) reaching a satisfactory separation arrangement with Darwin’s chief executive officer, including an extension of his existing post-employment restrictive covenants, contained in his current employment agreement, from one year to two years and an expansion of the scope of the restrictive covenants contained in that agreement. The Allied World representatives also communicated Allied World’s position that any incremental amounts that would need to be paid to the chief executive officer to induce him to agree to such proposed separation arrangements, including the expansion and extension of his post-employment covenants from one year to two years, would result in a reduction by Allied World of the proposed merger consideration unless such amounts were borne by a third party such as Alleghany.

 

Later on June 21, 2008, representatives of Morris Nichols circulated a revised draft of the voting agreement to Allied World and its advisors.

 

On June 22, 2008, the Special Committee held a telephone meeting to discuss the status of the possible transaction with Allied World, including the status of discussions between Allied World and Darwin’s senior management. Following a discussion of the employment and separation issues, representatives of Cleary Gottlieb reviewed the fiduciary duties of the directors in connection with their consideration of a possible transaction with Allied World as well as the basic terms and principal outstanding issues related to the merger agreement and the voting agreement. After discussion, the Special Committee unanimously concluded to continue the discussions with Allied World.

 

Later that same day, at the direction of the Chair, a representative of UBS spoke with Alleghany’s chief executive officer to ask that Alleghany consider bearing the cost of any additional payment to Darwin’s chief executive officer in consideration of his agreement to expand and extend his post-employment restrictive covenants from one year to two years.

 

On June 23, 2008, representatives of Cleary Gottlieb, Dewey & LeBoeuf and Willkie held a conference call to continue negotiation of the merger agreement. Also, on June 23, 2008, the Chair held separate discussions with Darwin’s chief executive officer and Alleghany’s chief executive officer concerning separation arrangements for Darwin’s chief executive officer and Allied World’s position that any additional payment to be made to Darwin’s

chief executive officer in consideration of his agreement to expand and extend his post-employment restrictive covenants from one year to two years be paid by a third party such as Alleghany or else Allied World would reduce the proposed merger consideration amount.

 

On June 24, 2008, the Special Committee held a telephone meeting to discuss the status of the possible transaction with Allied World. Representatives of Cleary Gottlieb and UBS attended the meeting. The Special Committee discussed the status of negotiations regarding the merger agreement and voting agreement and the status of negotiations with Darwin’s senior management. Representatives of Cleary Gottlieb informed the Special Committee that progress had been made with respect to employment agreements with certain of Darwin’s senior managers but the separation arrangements with Darwin’s chief executive officer were still under discussion.

 

Following additional separate discussions among Alleghany’s chief executive officer, the Chair and Darwin’s chief executive officer, on June 24 and 25, Alleghany agreed to pay $973,413 of the incremental amounts to be paid to Darwin’s chief executive officer to induce him to accept Allied World’s proposal for expansion and extension of his post-employment restrictive covenants from one year to two years (such amount being the estimated amount of his projected base salary and cash bonus compensation for the additional year).

 

On June 25, 2008, the Special Committee held a telephone meeting to review the terms for the proposed transaction as negotiated to that date. Representatives of Cleary Gottlieb reviewed the principal terms of the proposed merger agreement with Allied World and responded to questions from the Special Committee regarding various terms. Representatives of UBS then reviewed with the Special Committee UBS’ financial analysis of the consideration to be received by Darwin’s shareholders in the proposed merger.

 

Later in the afternoon of June 25, 2008 and during the course of the day on June 26, 2008, Cleary Gottlieb, Dewey & LeBoeuf, Morris Nichols and Willkie continued negotiating the terms of the merger agreement and the voting agreement. Because the parties were unable to agree on a threshold amount regarding the Capitalization Closing Condition, the parties instead agreed that the per share purchase price would be subject to a potential downward adjustment in the event that certain of Darwin’s capitalization representations and warranties prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Allied World in the merger would be increased by more than $1,000,000.

 

On June 27, 2008, Cleary Gottlieb, Dewey & LeBoeuf, Morris Nichols and Willkie concluded negotiations on the merger agreement and the voting agreement. Also, the employment arrangements with Darwin’s senior management and the separation arrangements with Darwin’s chief executive officer were concluded.

 

On that same date, the Special Committee held a meeting to receive a final update on the merger agreement, the voting agreement and the employment and separation arrangements between Allied World and Darwin’s senior management. Representatives of Cleary Gottlieb reviewed with the Special Committee the fiduciary duties of the directors in connection with their consideration of the proposed transaction with Allied World, reviewed the status of discussions with respect to the merger and voting agreements and the employment and separation arrangements and noted that such discussions were very close to completion. Representatives of UBS confirmed that their financial analysis had not changed materially since the analysis presented to the Special Committee on June 25, 2008. UBS then delivered to the Special Committee an oral opinion, subsequently confirmed in writing, to the effect that, as of such date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the $32.00 per share cash consideration to be received by the holders of shares of Common Stock (other than Alleghany, AIHL and their respective affiliates) in the proposed merger was fair, from a financial point of view, to such holders.

 

After deliberation and based upon the totality of the information considered during its evaluation of the merger and the merger agreement, the Special Committee unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and fair to, and in the best interests of, Darwin and its stockholders. In addition, the Special Committee resolved to recommend that the full board of directors approve and declare advisable the merger agreement and the transactions contemplated thereby, including the merger.

 

In the afternoon of June 27, 2008, the full Board (other than Mr. Phillip Ben-Zvi) held a meeting to consider the potential transaction with Allied World. Representatives of Cleary Gottlieb, Dewey & LeBoeuf, UBS and Morris

Nichols participated in the meeting. Representatives of Dewey & LeBoeuf reviewed with the members of the Board their fiduciary duties in connection with their consideration of the potential transaction with Allied World. Representatives of Cleary Gottlieb and Dewey & LeBoeuf reviewed the principal terms of the proposed merger agreement with Allied World. Representatives of UBS presented UBS’ analysis of the consideration to be received by Darwin’s stockholders in the proposed merger from a financial point of view and delivered to the Board an oral opinion, subsequently confirmed in writing, to the effect that, as of such date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the $32.00 per share cash consideration to be received by the holders of shares of Common Stock (other than Alleghany, AIHL, and their respective affiliates) in the proposed merger was fair, from a financial point of view, to such holders. Darwin’s chief executive officer described his arrangement to separate from Darwin and the expansion of his non-compete covenant. Following a discussion regarding the recommendation of the Special Committee and the proposed resolutions, the Board approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and resolved to recommend that the stockholders of Darwin vote to adopt the merger agreement and approve the merger.

 

The merger agreement and voting agreement were entered into on June 27, 2008 and the transaction was publicly announced on June 30, 2008.

 

Special Committee

 

The Special Committee unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, Darwin and its stockholders and (ii) resolved to recommend to the Board that it approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

In the course of reaching its determination, the Special Committee considered the following substantive factors and potential benefits of the Merger, each of which the Special Committee believed supported its decisions:

 

 

 

The Special Committee also considered a variety of risks and other potentially negative factors concerning the Merger and the Merger Agreement including the following:

 

 

This discussion summarizes the material factors considered by the Special Committee in its consideration of the Merger. After considering these factors, the Special Committee concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the potential negative factors. In view of the wide variety of factors considered by the Special Committee, and the complexity of these matters, the Special Committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the Special Committee may have assigned different weights to various factors. The Special Committee unanimously resolved that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and fair to, and in the best interests of the Company and its stockholders based upon the totality of the information presented to and considered by it.

Our Board

 

The Board, acting upon the unanimous recommendation of the Special Committee, has (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, Darwin and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (iii) resolved to recommend that Darwin’s stockholders adopt the Merger Agreement and (iv) directed that the Merger Agreement be submitted to Darwin’s stockholders for their adoption.

 

In reaching these determinations, the Board considered (i) a variety of business, financial and market factors, (ii) each of the factors considered by the Special Committee in its unanimous recommendation, as described above, (iii) the financial presentation of UBS, including the opinion of UBS as to the fairness, from a financial point of view, to the holders of shares of Common Stock (other than Alleghany, AIHL or any of their respective affiliates) of the cash merger consideration and (iv) the unanimous recommendation of the Special Committee.

 

The foregoing discussion summarizes the material factors considered by the Board in its consideration of the Merger. In view of the wide variety of factors considered by the Board, and the complexity of these matters, the Board did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the Board may have assigned different weights to various factors. The Board approved and recommends the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it.

 

Our Board recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the adjournment of the special meeting, if Darwin deems such adjournment to be necessary or appropriate, to solicit additional proxies.

 

On June 27, 2008, at meetings of the Special Committee and the Board held to evaluate the proposed merger, UBS delivered to each of the Special Committee and the Board an oral opinion, which opinion was confirmed by delivery of a written opinion dated June 27, 2008, addressed to each of the Special Committee and the Board, to the effect that, as of that date and based upon and subject to various assumptions, matters considered and limitations described in its opinion, the merger consideration of $32.00 per share in cash to be received in the Merger by the holders of Common Stock (other than Alleghany, its subsidiary AIHL or any of their respective affiliates) was fair, from a financial point of view, to such holders.

 

The full text of UBS’ opinion describes assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. This opinion is attached as Annex B and is incorporated into this proxy statement by reference. UBS’ opinion was provided for the benefit of the Special Committee and the Board in connection with, and for the purpose of, their evaluation of the merger consideration of $32.00 per share in cash from a financial point of view and does not address any other aspect of the Merger. The opinion does not address the relative merits of the Merger as compared to other business strategies or transactions that might be available with respect to Darwin or Darwin’s underlying business decision to effect the Merger. The opinion does not constitute a recommendation to any stockholder as to how to vote or act with respect to the Merger. Holders of shares of Common Stock are encouraged to read UBS’ opinion carefully in its entirety. The following summary of UBS’ opinion is qualified in its entirety by reference to the full text of UBS’ opinion.

 

In arriving at its opinion, UBS, among other things:

 

 

 

In connection with its review, with the consent of the Special Committee and the Board, UBS assumed and relied upon, without independent verification, the accuracy and completeness in all material respects of the information provided to or reviewed by UBS for the purpose of its opinion. In addition, with the consent of the Special Committee and the Board, UBS did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Darwin, and was not furnished with any such evaluation or appraisal. With respect to the financial forecasts and estimates referred to above, UBS assumed, at the direction of the Special Committee and the Board, that such forecasts and estimates had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Darwin’s management as to the future financial performance of Darwin. UBS’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to UBS as of, the date of its opinion.

 

At the request of the Special Committee and the Board, UBS contacted third parties to solicit indications of interest in a possible transaction with Darwin and held discussions with certain of these parties prior to the date of UBS’ opinion. At the direction of the Special Committee and the Board, UBS was not asked to, nor did it, offer any opinion as to the terms, other than the merger consideration of $32.00 per share in cash to the extent expressly specified in UBS’ opinion, of the Merger Agreement or any related documents or the form of the Merger. In addition, UBS expressed no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the Merger, or any class of such persons, relative to the merger consideration of $32.00 per share in cash. In rendering its opinion, UBS assumed, with the consent of the Special Committee and the Board, that (i) the final executed form of the merger agreement would not differ in any material respect from the draft that UBS reviewed, (ii) Allied World and Darwin would comply with all material terms of the Merger Agreement and (iii) the Merger would be consummated in accordance with the terms of the Merger Agreement without any adverse waiver or amendment of any material term or condition thereof. Except as described above, the Special Committee and the Board imposed no other instructions or limitations on UBS with respect to the investigations made or the procedures followed by UBS in rendering its opinion. The issuance of UBS’ opinion was approved by an authorized committee of UBS.

 

In connection with rendering its opinion to the Special Committee and the Board, UBS performed a variety of financial and comparative analyses which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by UBS in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected public company analysis and selected precedent transactions analysis summarized below, no company or transaction used as a comparison was identical to Darwin or the Merger. These analyses necessarily involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or acquisition values of the companies concerned.

 

UBS believes that its analysis and the summary below must be considered as a whole and that selecting portions of its analysis and factors or focusing on information presented in tabular format, without considering all analyses and factors or the full narrative description of the analyses, could create a misleading or incomplete view of the processes underlying UBS’ analyses and opinion. UBS did not draw, in isolation, conclusions from or with

regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on results of all analyses undertaken by it and assessed as a whole.

 

The estimates of the future performance of Darwin provided by Darwin’s management in or underlying UBS’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, UBS considered industry performance, general business and economic conditions and other matters, many of which were beyond the control of Darwin. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which companies may actually be sold.

 

The merger consideration was determined through negotiation between Darwin and Allied World, and the decisions by the Special Committee to recommend the Merger and the Merger Agreement, and by the Board to enter into the Merger Agreement, were solely that of the Special Committee and the Board, respectively. UBS’ opinion and financial analyses were only one of many factors considered by the Special Committee and the Board in their evaluation of the Merger and should not be viewed as determinative of the views of the Special Committee or the Board with respect to the Merger or the merger consideration.

 

The following is a brief summary of the material financial analyses performed by UBS and reviewed with the Special Committee and the Board on June 27, 2008 in connection with UBS’ opinion relating to the proposed merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand UBS’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of UBS’ financial analyses. Financial data of Darwin were based on Darwin’s public filings, Institutional Brokers’ Estimate System (“IBES”) estimates for Darwin and certain financial forecasts and estimates prepared by Darwin’s management that the Special Committee and the Board directed UBS to utilize for purposes of its analyses.

 

Selected Public Company Analysis

 

UBS compared selected financial information, ratios and public market data for Darwin to the corresponding data for the publicly traded companies identified below in the property and casualty insurance industry that were selected by UBS.

 

Although none of these companies is directly comparable to Darwin, these companies were selected, among other reasons, because their equity is publicly traded in the United States and they are in the property and casualty insurance industry:

 

 

For each of the companies selected by UBS, UBS reviewed, among other things:

 

 

 

UBS then compared these multiples and percentages derived for the selected companies with corresponding multiples and percentages implied for Darwin based on the closing price of the Common Stock on June 26, 2008 and the merger consideration of $32.00 per share in cash in the Merger. Financial data for the selected companies were based on public filings and estimated financial data for the selected companies were based on IBES consensus estimates.

 

The results of these analyses are summarized in the following table:

 

 

Selected Precedent Transactions Analysis

 

UBS reviewed the transaction value, calculated as the purchase price paid for the target company’s common equity, for each of the nine selected transactions set forth below involving target entities in the property and casualty insurance industry.

 

For each selected transaction, UBS calculated and compared:

 

 

UBS then compared these multiples derived from the selected transactions to the multiple implied for Darwin based on the merger consideration of $32.00 per share in cash in the Merger, Darwin’s estimated NTM earnings and Darwin’s book value of net assets as of March 31, 2008. Financial data for the selected transactions were based on publicly available information and various research reports, and estimated financial data for the selected transactions were based on various research reports and IBES consensus estimates at the time of announcement of the relevant transaction.

 

The following table summarizes the results of these analyses:

 

 

Discounted Cash Flow Analysis

 

UBS performed a discounted cash flow analysis of Darwin using certain financial forecasts and estimates prepared by Darwin’s management for fiscal years 2008 through 2012 that the Special Committee and the Board directed UBS to utilize for purposes of its analysis. UBS calculated a range of implied present values as of June 30, 2008 of the stand-alone distributable cash flows that Darwin was forecasted to generate from July 1, 2008 through December 31, 2012 using discount rates ranging from 11.0% to 13.0%. UBS also calculated estimated terminal values for Darwin as of December 31, 2012, using price-to-book terminal multiples ranging from 1.60 to 1.90 times estimated stockholders’ common equity as of December 31, 2012. The estimated terminal values were then discounted to present value as of June 30, 2008 using discount rates ranging from 11.0% to 13.0%. The discounted cash flow analysis resulted in an implied equity reference range per share of Common Stock of approximately $26 to $32.

 

Miscellaneous

 

Under the terms of UBS’ engagement, Darwin has agreed to pay UBS for its financial advisory services in connection with the Merger an aggregate fee currently estimated to be approximately $5.0 million, a portion of which was payable in connection with UBS’ opinion and a significant portion of which is contingent upon consummation of the Merger. In addition, Darwin has agreed to reimburse UBS for its reasonable expenses, including fees, disbursements and other charges of its counsel, and to indemnify UBS and related parties against liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement.

 

In the ordinary course of business, UBS and its affiliates may hold or trade, for their own accounts and the accounts of their customers, securities of Darwin, Allied World and Alleghany and, accordingly, may at any time hold a long or short position in such securities.

Darwin selected UBS as its financial advisor in connection with the Merger because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions and because of UBS’ familiarity with Darwin and its businesses. UBS is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

 

Darwin does not, as a matter of course, publicly disclose forecasts of future revenues, earnings, financial condition or other results. However, in connection with the discussions concerning the proposed merger described in “The Merger — Background of the Merger” beginning on page 19, Darwin provided Allied World with financial forecasts of our operating performance for the fiscal years 2008 through 2012 prepared by Darwin’s management , which we refer to as the “Projections.” The Projections were also provided to our financial advisor, UBS, and were utilized by UBS, at the direction of the Special Committee and the Board, for purposes of its analyses in connection with its opinion.

 

The Projections were not prepared with a view to public disclosure and are included in this proxy statement because such information was made available, in whole or in part, to Allied World, in connection with its due diligence review of Darwin. The Projections were not prepared with a view to compliance with published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, our auditor has not examined, compiled or otherwise applied procedures to the Projections and, accordingly, assumes no responsibility for, and expresses no opinion on them.

 

The Projections provided are summarized as follows:

 

 

The material assumptions made by Darwin in developing these Projections are as follows:

 

 

 

 

The development of the Projections entailed numerous assumptions, including assumptions regarding Darwin’s industry, products and services, Darwin’s ability to execute on its strategic growth plan and general business, economic, regulatory, market and financial conditions. Although the Projections are presented with numerical specificity, the Projections reflect numerous assumptions and estimates as to future events made by Darwin’s management that Darwin’s management believed were reasonable at the time the Projections were prepared. These Projections were initially created at the end of the third quarter of 2007 and were updated only to record actual results through the end of the first quarter of 2008. They do not take into account any circumstances or events occurring after the date that they were prepared, such as, among other things, increased pricing competition, changes in overall business strategy and employee turnover, and, accordingly, do not give effect to the Merger or any changes to our operations or strategy that may be implemented after completion of the Merger. For the foregoing reasons, the inclusion of the Projections in this proxy statement should not be regarded as an indication that Darwin, the Board, the Special Committee, Allied World, MergerCo, UBS or any other recipient of this information considered, or now considers, the Projections to be necessarily predictive of actual future events or conditions, and they should not be relied on as such. You should review our most recent SEC filings for a description of risk factors with respect to our business. See “Where You Can Find More Information” beginning on page 61.

No representation is made by Darwin or any other person to any Darwin stockholder regarding any information included in these Projections. Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Projections to reflect circumstances existing after the date when prepared or to reflect the occurrence of future events even in the event that any of the assumptions underlying the Projections are shown to be in error.

 

The Merger is not conditioned upon Allied World or MergerCo obtaining financing. Allied World and MergerCo estimate that the total amount of cash funds necessary to consummate the Merger and related transactions will be approximately $550 million. Allied World has informed us that it expects that its cash on hand will be sufficient to complete the acquisition.

 

In considering the recommendations of the Board that you vote to adopt the Merger Agreement, Darwin’s stockholders should be aware that certain of Darwin’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of Darwin’s stockholders generally. These interests may present such directors and executive officers with actual or potential conflicts of interest, and these interests, to the extent material, are described below. The Special Committee and the Board were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions to approve the Merger Agreement and the Merger and the recommendations that our stockholders vote in favor of adopting the Merger Agreement.

 

Treatment of Stock Options

 

Immediately prior to the effective time of the Merger, each Stock Option that is then outstanding, whether vested or unvested, will become fully vested and exercisable. At the effective time of the Merger, each unexercised Stock Option will be cancelled and converted into the right to receive a cash payment equal to the excess of the merger consideration of $32.00 per share in cash over the exercise price of such Stock Option, without interest and less any applicable withholding taxes, multiplied by the number of shares of Common Stock underlying the Stock Option, subject to the potential downward purchase price adjustment.

 

The following table identifies, for each of our directors and executive officers, the aggregate number of shares of Common Stock subject to his outstanding vested and unvested Stock Options as of July 31, 2008, the aggregate number of shares of Common Stock subject to his outstanding unvested Stock Options that will become fully vested in connection with the Merger, the weighted average exercise price and the value of such unvested Stock Options, and the weighted average exercise price and value of his collective vested and unvested Stock Options. The information in the table assumes that all Stock Options included therein remain outstanding on the closing date of the Merger.

 

 

 

 

Treatment of Restricted Shares

 

Immediately prior to the effective time of the Merger, each restricted share of Common Stock that is then outstanding, whether vested or unvested, will become fully vested and payable. At the effective time of the Merger, each restricted share of Common Stock will be cancelled and converted into the right to receive an amount in cash

equal to the merger consideration of $32.00 per share in cash, plus any declared and unpaid dividends, subject to the potential downward purchase price adjustment.

 

The following table identifies, for each of our directors and executive officers, the number of restricted shares of Common Stock owned as of July 31, 2008 and the value of such restricted shares of Common Stock that will become fully vested in connection with the Merger. The information in the table assumes that all such restricted shares of Common Stock included therein remain outstanding on the closing date of the Merger.

 

 

 

 

Treatment of Director Share Units

 

At the effective time of the Merger, each director share unit that is outstanding immediately prior to the Merger will be cancelled and converted into the right to receive an amount in cash equal to the merger consideration of $32.00 per share, subject to the potential downward purchase price adjustment.

 

The following table identifies, for each of our non-employee directors (defined as a director who is neither our employee nor an employee of any of our affiliates including Alleghany), the number of director share units as of July 31, 2008 and the value of such director share units that will become payable in connection with the Merger. The

information in the table assumes that all such director share units included therein remain outstanding on the closing date of the Merger.

 

 

 

 

Treatment of Long Term Incentive Plan

 

At the effective time of the Merger, each participant’s vested percentage in his respective portion of the LTIP profit pools for the fiscal years 2003 through 2008 in the LTIP shall be 100%. Payments of the LTIP profit pools for the fiscal years 2003 through 2008 shall continue under the current terms of the LTIP.

 

The following table identifies, for each of our executive officers with interests in the LTIP profit pools for the fiscal years 2003 through 2008, the aggregate vested amount of such interests prior to the Merger, the aggregate vested amount of such interests subsequent to the Merger and the increase in such vested amount due to the Merger. An employee’s vested amount in the LTIP is subject to forfeiture if such employee is terminated for Cause (as defined in the LTIP).

 

 

 

 

Employment Arrangements

 

Robert Asensio, Employment Agreement

 

On June 27, 2008, Darwin entered into an employment agreement with Robert Asensio, to be effective upon the closing of the Merger. Mr. Asensio shall be employed and serve as the Executive Vice President and Chief Information Officer of Darwin. Pursuant to the agreement, Mr. Asensio is entitled to receive an annual base salary of not less than $230,000 and is eligible for an annual incentive bonus award determined by Darwin in respect of each fiscal year. In addition, Mr. Asensio will be eligible to participate in the equity incentive plans maintained by Allied World. Mr. Asensio’s term of employment commences on the effective time of the Merger and terminates upon the

earliest to occur of (i) his death, (ii) a termination by reason of a Disability (as defined in the agreement), (iii) a termination by Darwin with or without Cause (as defined in the agreement) and (iv) a termination by Mr. Asensio with or without Good Reason (as defined in the agreement). In the event that Mr. Asensio’s employment is terminated by Darwin without Cause or if he terminates his employment for Good Reason, the agreement provides for a payment to him of his then current base salary and annual bonus prorated in equal payments for the 12 months following the termination, continued participation in health and other insurance plans for 12 months following termination and vesting of equity awards that would have vested in the 12 months following termination. The agreement includes confidentiality, non-competition, non-interference and indemnification provisions.

 

Paul Martin, Employment Agreement

 

On June 27, 2008, Darwin entered into an employment agreement with Paul Martin, to be effective upon the closing of the Merger. Mr. Martin shall be employed and serve as Senior Vice President and Chief Actuary of Darwin. Pursuant to the agreement, Mr. Martin is entitled to receive an annual base salary of not less than $229,100 and is eligible for an annual incentive bonus award determined by Darwin in respect of each fiscal year. In addition, Mr. Martin will be eligible to participate in the equity incentive plans maintained by Allied World. Mr. Martin’s term of employment commences on the effective time of the Merger and terminates upon the earliest to occur of (i) his death, (ii) a termination by reason of a Disability (as defined in the agreement), (iii) a termination by Darwin with or without Cause (as defined in the agreement) and (iv) a termination by Mr. Martin with or without Good Reason (as defined in the agreement). In the event that Mr. Martin’s employment is terminated by Darwin without Cause or if he terminates his employment for Good Reason, the agreement provides for a payment to him of his then current base salary and annual bonus prorated in equal payments for the 12 months following the termination, continued participation in health and other insurance plans for 12 months following termination and vesting of equity awards that would have vested in the 12 months following termination. The agreement includes confidentiality, non-competition, non-interference and indemnification provisions.

 

David Newman, Employment Agreement

 

On June 27, 2008, Darwin entered into an employment agreement with David Newman, to be effective upon the closing of the Merger. Mr. Newman shall be employed and serve as Senior Vice President and Chief Underwriting Officer of Darwin. Pursuant to the agreement, Mr. Newman is entitled to receive an annual base salary of not less than $273,181 and is eligible for an annual incentive bonus award determined by Darwin in respect of each fiscal year. In addition, Mr. Newman will be eligible to participate in the equity incentive plans maintained by Allied World. Upon the occurrence of a Change in Control as defined in the agreement, all such equity-based awards will fully vest immediately prior to such Change in Control. Mr. Newman’s term of employment commences on the effective time of the Merger and terminates upon the earliest to occur of (i) his death, (ii) a termination by reason of a Disability (as defined in the agreement), (iii) a termination by Darwin with or without Cause (as defined in the agreement) and (iv) a termination by Mr. Newman with or without Good Reason (as defined in the agreement). In the event that Mr. Newman’s employment is terminated by Darwin without Cause or if he terminates his employment for Good Reason, the agreement provides for a payment to him of his then current base salary and annual bonus prorated in equal payments for the 12 months following the termination, continued participation in health and other insurance plans for 12 months following termination and vesting of equity awards that would have vested in the 12 months following termination. The agreement includes confidentiality, non-competition, non-interference and indemnification provisions.

 

Mark I. Rosen, Employment Agreement

 

On June 27, 2008, Darwin entered into an employment agreement with Mark I. Rosen, to be effective upon the closing of the Merger, and which supersedes (unless stated otherwise) the terms of his prior employment agreement. Mr. Rosen shall be employed and serve as Executive Vice President, General Counsel and Chief Claims Officer of Darwin. Pursuant to the agreement, Mr. Rosen is entitled to receive an annual base salary of not less than $346,094 and is eligible for an annual incentive bonus award determined by Darwin in respect of each fiscal year. In addition, Mr. Rosen will be eligible to participate in the equity incentive plans maintained by Allied World. Under the agreement, any awards under Darwin’s LTIP immediately vest upon the Merger, with payments of his interest in “Profit Pools” to be made at times, in amounts, and in the manner provided in the LTIP as if the Merger had not occurred. With respect to any “parachute payments” paid in connection with the Merger, the excise tax gross-up

provision of Mr. Rosen’s prior employment agreement will remain in full force. Mr. Rosen’s term of employment commences on the effective time of the Merger and terminates upon the earliest to occur of (i) his death, (ii) a termination by reason of a Disability (as defined in the agreement), (iii) a termination by Darwin with or without Cause (as defined in the agreement) and (iv) a termination by Mr. Rosen with or without Good Reason (as defined in the agreement). In the event that Mr. Rosen’s employment is terminated by Darwin without Cause or if he terminates his employment for Good Reason, the agreement provides for a payment to him of his then current base salary and annual bonus prorated in equal payments for the 12 months following the termination, continued participation in health and other insurance plans for 12 months following termination and vesting of equity awards that would have vested in the 12 months following termination. The agreement includes confidentiality, non-competition, non-interference and indemnification provisions.

 

John L. Sennott, Jr., Employment Agreement

 

On June 27, 2008, Darwin entered into an employment agreement with John L. Sennott, Jr., to be effective upon the closing of the Merger. Mr. Sennott shall be employed and serve as Chief Operating Officer of Darwin. In the event the position of Chief Operating Officer of Allied World’s U.S. operations becomes available, Mr. Sennott will be offered such position. If Mr. Sennott is not offered such position within 12 months of the closing of the Merger, Mr. Sennott will have the right to terminate his employment for Good Reason (as defined in the agreement). Pursuant to the agreement, Mr. Sennott is entitled to receive an annual base salary of not less than $273,181 and is eligible for an annual incentive bonus award determined by Darwin in respect of each fiscal year. In addition, Mr. Sennott will be eligible to participate in the equity incentive plans maintained by Allied World. Upon the occurrence of a Change in Control as defined in the agreement, all such equity-based awards will fully vest immediately prior to such Change in Control. Mr. Sennott’s term of employment commences on the effective time of the Merger and terminates upon the earliest to occur of (i) his death, (ii) a termination by reason of a Disability (as defined in the agreement), (iii) a termination by Darwin with or without Cause (as defined in the agreement) and (iv) a termination by Mr. Sennott with or without Good Reason (as defined in the agreement). In the event that Mr. Sennott’s employment is terminated by Darwin without Cause or if he terminates his employment for Good Reason, the agreement provides for a payment to him of his then current base salary and annual bonus prorated in equal payments for the 12 months following the termination, continued participation in health and other insurance plans for 12 months following termination and vesting of equity awards that would have vested in the 12 months following termination. The agreement includes confidentiality, non-competition, non-interference and indemnification provisions.

 

Stephen J. Sills, Employment Agreement

 

On June 27, 2008, Darwin amended the amended and restated employment agreement between Darwin and Stephen J. Sills, effective as of the closing of the Merger. Under the terms of the amended agreement, Mr. Sills’ employment will terminate effective immediately upon the closing of the Merger, and such termination will be treated as being without Cause, as defined in the agreement. Under the amended employment agreement, Mr. Sills will be entitled to (i) continued payment of base salary and a medical coverage subsidy (as described in the employment agreement) for 12 months, (ii) a payment of $259,577 (on or about March 15, 2009) in satisfaction of the annual bonus component of the severance obligation under the amended and restated employment agreement, and (iii) an additional lump-sum payment, payable on the date of the closing of the Merger, equal to $973,413. A letter agreement between Darwin and AIHL provides that AIHL will pay to Darwin an amount equal to the $973,413 described in the previous sentence, reduced by the amount of the reduction in Darwin’s federal, state and local income taxes that is expected to be realized because of such payment (such expected realization assumed based on a combined effective federal, state and local tax rate of 25%). Such payment shall not occur if the Merger is not consummated. Under the amended employment agreement, if any amounts payable to Mr. Sills trigger an excise tax under Section 4999 of the Internal Revenue Code on account of being deemed “parachute payments” within the meaning of Section 280G of the Internal Revenue Code, then Mr. Sills will be entitled to receive a “gross-up” payment based on such excise tax amount, and any interest and penalties incurred in connection therewith. In substantial part in consideration for the payments described above, the amendment to Mr. Sills’ employment agreement also includes enhanced non-competition and non-interference provisions. Specifically, Mr. Sills will be subject to non-competition and non-interference restrictions for 24 months following the termination of his employment.

Indemnification and Insurance

 

Allied World and the Surviving Corporation have agreed to indemnify and hold harmless the current and former directors and officers of Darwin to the fullest extent permitted by applicable law for all claims pertaining to matters that relate to such indemnified party’s duties or services as a director or officer. Allied World and the Surviving Corporation will advance, to the fullest extent authorized or permitted by applicable law, any expenses incurred in defending or participating in such claims.

 

The Merger Agreement requires that we purchase, immediately prior to the closing of the Merger, a single payment, run-off policy of directors’ and officers’ liability insurance which shall become effective at the closing and remain in effect for 6 years after the closing covering current and former officers and directors of Darwin and Darwin’s subsidiaries, with limits of $20,000,000 for each claim and in the aggregate. The premium for such run-off policy or policies will not exceed $400,000. Immediately prior to the closing of the Merger, Allied World will provide for the current officers and directors of Darwin and Darwin’s subsidiaries who continue in such capacity after the closing to be covered under Allied World’s directors’ and officers’ liability program with the same terms as those applicable to the officers and directors of Allied World and its subsidiaries.

 

Continued Benefits

 

Allied World will honor, in accordance with their terms, all existing employment plans and agreements (other than equity-based incentive plans) in effect immediately before the effective time of the Merger. For a period of one year after the Merger, Allied World will provide (i) compensation (including incentive compensation) no less favorable in the aggregate than the compensation (including incentive compensation) provided to employees of Darwin immediately before the effective time of the Merger and (ii) employee benefits no less favorable than provided to similarly situated employees of Allied World.

 

The following discussion summarizes the material U.S. federal income tax consequences to beneficial holders of shares of Common Stock whose shares are converted into the right to receive cash pursuant to the Merger, and is based upon present law (which may change, possibly with retroactive effect). The tax consequences set forth below are not intended to constitute a complete description of all tax consequences relating to the Merger.

 

Due to the individual nature of tax consequences, you should consult your tax advisors as to the specific tax consequences of the Merger to you, including the effects of applicable federal, state, local, foreign and other tax laws.

 

The following discussion applies only if you hold your shares of Common Stock as a capital asset and does not apply if you (i) acquired your shares of Common Stock, or receive payment pursuant to the Merger, in connection with the exercise of Stock Options or other compensation arrangements with Darwin, (ii) hold your shares of Common Stock as part of a hedge, straddle or conversion transaction or (iii) are a person otherwise subject to special tax treatment under the Internal Revenue Code of 1986, as amended. In addition, this discussion does not address the U.S. federal income tax consequences to a beneficial holder of shares of Common Stock who, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust, nor does it consider the effect of any state, local or foreign tax laws. If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of Common Stock, the tax treatment of a partner generally will depend on the status of the partners and activities of the partnership. A partner of a partnership holding shares of Common Stock should consult its tax advisor.

 

The receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes, and it may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, if you receive cash pursuant to the Merger, you will recognize gain or loss equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and your adjusted tax basis in the shares of Common Stock converted into cash pursuant to the Merger. Gain or loss will be determined separately for each block of shares of Common Stock (i.e., shares of Common Stock acquired for the same cost in a single transaction) converted into cash pursuant to the Merger. Such gain or loss generally will be capital gain or loss and

generally will be long-term capital gain or loss if your holding period for the shares is more than one year at the time of consummation of the Merger. Long-term capital gains of individuals are subject to U.S. federal income tax at a maximum rate of 15%. The deduction of capital losses is subject to limitations.

 

Cash payments received by beneficial holders of shares of Common Stock pursuant to the Merger are subject to information reporting, and may be subject to backup withholding at the applicable rate (currently 28%) if the beneficial holder or other payee fails to provide a valid taxpayer identification number and comply with certain certification procedures or otherwise establish an exemption from backup withholding. Backup withholding is not an additional U.S. federal income tax. Rather, the U.S. federal income tax liability of the person subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is timely furnished to the Internal Revenue Service.

 

The receipt of cash pursuant to the exercise of statutory appraisal rights will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. Any beneficial holder of shares of Common Stock considering exercising statutory appraisal rights should consult its own tax advisor with respect to its particular circumstances.

 

Antitrust

 

Under the HSR Act, we cannot consummate the Merger until we and Allied World have notified the DOJ and the FTC of the Merger, furnished them with certain information and materials relating to the Merger and the applicable waiting periods have terminated or expired. The termination of the waiting period means the parties have satisfied the regulatory requirements under the HSR Act. We and Allied World filed notification and report forms under the HSR Act with the Antitrust Division of the DOJ and the FTC on July 14, 2008. Darwin and Allied World received notice that the waiting period under the HSR Act was terminated as of July 21, 2008.

 

At any time before or after consummation of the Merger, notwithstanding the early termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of Darwin. At any time before or after the consummation of the Merger, and notwithstanding the early termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of Darwin. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

Insurance Regulations

 

The insurance laws and regulations of all 50 U.S. states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands generally require that, prior to the acquisition of control of an insurance company, either through the acquisition of or merger with the insurance company or a holding company of that insurance company, the acquiring party must obtain approval from the insurance commissioner of the insurance company’s state of domicile and any state in which an insurance company is commercially domiciled.

 

In connection with this state approval and notification process, Allied World has made formal filing applications, called Form “A” filings, for approval of the Merger with the insurance commissioners of Delaware and Arkansas, the states in which the insurance company subsidiaries of Darwin are domiciled. As of the date of this proxy statement, Allied World has not yet obtained the approvals under the applicable state insurance laws that may be required to complete the Merger. There can be no assurance that the insurance commissioners will provide the approvals under the applicable state insurance laws. Subject to the terms and conditions provided in the Merger Agreement, as promptly as practicable, each of Allied World and Darwin has agreed to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary or appropriate to consummate the Merger as soon as practicable, including obtaining the termination of any waiting period under the HSR Act and seeking the receipt of governmental consents (including the consents of insurance regulators).

In addition, Allied World has made notice filings in certain other jurisdictions regarding the potential competitive impact of the Merger on market share in particular insurance lines in those jurisdictions. Approval of the Merger is generally not required in these states, but state insurance departments could determine to take action to prevent or impose conditions on the Merger or on any related change of control affecting Darwin’s existing insurance licenses and authorizations.

 

Although Darwin and Allied World do not expect these regulatory authorities to raise any significant concerns in connection with their review of the Merger, there is no assurance that Allied World will obtain all required regulatory approvals.

 

Other than the filings described above, neither Darwin nor Allied World is aware of any regulatory approvals required to be obtained, or waiting periods to expire, to complete the Merger. If the parties discover that other approvals or waiting periods are necessary, they will seek to obtain or comply with them.

 

Following consummation of the Merger, the registration of shares of Common Stock and Darwin’s reporting obligations with respect to the Common Stock under the Exchange Act will be terminated upon application to the SEC and we will no longer file periodic reports with the SEC on account of Darwin or the Common Stock. In addition, upon completion of the Merger, shares of the Common Stock will be delisted from the NYSE and will no longer be listed on any stock exchange or quotation system, including the NYSE.

 

This section of the proxy statement describes the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the Merger Agreement because it is the legal document that governs the Merger. It is not intended to provide you with any other factual information about us. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement (and summarized below) are qualified by information in confidential disclosure schedules provided by Darwin and Parent to each other in connection with the signing of the Merger Agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purpose of allocating risk between Darwin and Parent rather than establishing matters as facts and may be subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to stockholders. Accordingly, you should not rely on the representations and warranties in the Merger Agreement (or the summaries contained herein) as characterizations of the actual state of facts about Darwin or Parent. The representations and warranties in the Merger Agreement and the description of them in this document should not be read alone but instead should be read in conjunction with the other information contained in the reports, statements and filings we publicly file with the SEC. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” beginning on page 61.

 

The Merger Agreement provides for the Merger of MergerCo with and into Darwin upon the terms, and subject to the conditions, of the Merger Agreement. As the Surviving Corporation, Darwin will continue to exist as an indirect wholly owned subsidiary of Parent following the Merger. Upon consummation of the Merger, the directors of MergerCo immediately prior to the effective time of the Merger will be the initial directors of the Surviving Corporation and the officers of Darwin immediately prior to the effective time of the Merger will be the initial officers of the Surviving Corporation. All of Surviving Corporation’s directors and officers will hold their positions until their successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal.

 

We, Parent or MergerCo may terminate the Merger Agreement prior to the consummation of the Merger in some circumstances, whether before or after the adoption by our stockholders of the Merger Agreement. Additional details on termination of the Merger Agreement are described in “— Termination of the Merger Agreement” beginning on page 51.

 

The Merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger).

 

The parties are required to close the Merger no later than the third business day after the satisfaction or waiver of the conditions described under “— Conditions to the Merger” beginning on page 48, or such other time agreed to by the parties.

 

Each share of Common Stock issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive the merger consideration of $32.00 per share in cash, without interest and less any applicable withholding taxes, and subject to a potential downward price adjustment in the event that certain representations by the Company in the Merger Agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration payable by Parent in the merger would otherwise be increased by more than $1,000,000 (see “— Potential Downward Purchase Price Adjustment” beginning on

page 43). These provisions related to the merger consideration will not apply to the following shares of Common Stock:

 

 

After the Merger is effective, each holder of a certificate representing any shares of Common Stock (other than the excluded shares listed above) will no longer have any rights with respect to the shares of Common Stock, except for the right to receive the merger consideration.

 

In the event that certain representations and warranties of the Company in the Merger Agreement with respect to its capitalization prove to be inaccurate and, as a result of such inaccuracy, the aggregate consideration to be paid by Parent pursuant to the Merger would otherwise be increased by more than $1,000,000, then the merger consideration will be ratably and equitably reduced so that the aggregate consideration to be paid by Parent at the closing of the Merger is reduced by an amount equal to the amount of such increase above $1,000,000.

 

Stock Options.  Immediately prior to the effective time of the Merger, all outstanding Stock Options under the Company’s equity incentive plans will become fully vested and exercisable. All such Stock Options not exercised prior to the Merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of Common Stock underlying the Stock Options multiplied by the amount (if any) by which the merger consideration of $32.00 per share in cash exceeds the exercise price of the Stock Option, subject to the potential downward purchase price adjustment, without interest and less any applicable withholding taxes.

 

Restricted Shares.  Immediately prior to the effective time of the Merger, all restricted shares of Common Stock will vest and will be cancelled and converted into the right to receive a cash payment equal to the number of restricted shares multiplied by the merger consideration of $32.00 per share in cash, plus any declared and unpaid dividends, without interest and less any applicable withholding taxes, subject to the potential downward purchase price adjustment.

 

Director Share Units.  Upon the consummation of the Merger, each director share unit that is outstanding immediately prior to the Merger will be converted into the right to receive an amount in cash equal to $32.00 per share unit in cash, subject to the potential downward purchase price adjustment, without interest and less any applicable withholding taxes, plus any declared and unpaid dividends.

 

We will designate a paying agent reasonably satisfactory to Parent to make payment of the merger consideration as described above. At or prior to the effective time of the Merger, Parent will, or will cause the Surviving Corporation to, deposit in trust with the paying agent the funds appropriate to pay the merger consideration to the stockholders and holders of Stock Options, restricted shares of Common Stock and director share units.

 

Following the effective time of the Merger, we will close our stock transfer books. After that time, there will be no further transfers of shares of Common Stock.

 

As promptly as practicable after the effective time of the Merger, but no later than three business days following the effective time of the Merger, Parent and the Surviving Corporation will cause the paying agent to send you a letter of transmittal and instructions advising you how to surrender your certificates or Stock Options or transfer your shares of Common Stock (as applicable) in exchange for the merger consideration. The paying agent will pay you your merger consideration after you have surrendered your certificates and provided your signed letter of transmittal to the paying agent, along with any other items specified by the letter of transmittal, or complied with procedures specified by the paying agent for shares not represented by certificates. Interest will not be paid or

accrue in respect of the merger consideration. The Surviving Corporation will deduct and withhold any applicable withholding taxes from the amount of any merger consideration paid to you. You should not forward your stock certificates to the paying agent without a letter of transmittal and you should not return your stock certificates with the enclosed proxy.

 

If any cash deposited with the paying agent is not distributed within 1 year following the effective time of the Merger, such cash will be returned to the Surviving Corporation upon demand and you will be entitled to look only to the Surviving Corporation for the payment of your merger consideration.

 

If the paying agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other taxes payable by reason of the transfer or establish to the paying agent’s reasonable satisfaction that the taxes have been paid or are not required to be paid.

 

The transmittal instructions will tell you what to do if you have lost your certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by the Surviving Corporation, post a bond in a reasonable amount that the Surviving Corporation may direct as indemnity against any claim that may be made against the Surviving Corporation in respect of the lost, stolen or destroyed certificate.

 

The Merger Agreement contains representations and warranties made by us to Parent and MergerCo and representations and warranties made by Parent and MergerCo to us. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement and may be subject to important qualifications and limitations agreed by the parties in connection with negotiating its terms. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement (and summarized below) are qualified by information in confidential disclosure schedules provided by Darwin and Parent to each other in connection with the signing of the Merger Agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purpose of allocating risk between Darwin and Parent rather than establishing matters as facts and may be subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to stockholders. Accordingly, you should not rely on the representations and warranties in the Merger Agreement (or the summaries contained herein) as characterizations of the actual state of facts about Darwin or Parent. The representations and warranties in the Merger Agreement and the description of them in this document should not be read alone but instead should be read in conjunction with the other information contained in the reports, statements and filings we publicly file with the SEC.

 

In the Merger Agreement, Darwin, Parent and MergerCo each made representations and warranties relating to, among other things:

 

 

In the Merger Agreement, Parent and MergerCo also each made representations and warranties relating to:

 

 

 

Darwin also made representations and warranties relating to:

 

 

Many of Darwin’s representations and warranties are qualified by a material adverse effect standard. For purposes of the Merger Agreement, “Material Adverse Effect” is defined to mean, with respect to the Company, an effect, event, development or change that is materially adverse to the business, assets, results of operations or financial condition of the Company and the Company subsidiaries, taken as a whole, other than any of the following, or any effect, event, development or change arising out of or resulting from any of the following:

 

 

 

We have agreed in the Merger Agreement that, until the consummation of the Merger, except as consented to in writing by Parent, we will:

 

 

We have also agreed that, until the consummation of the Merger, except as expressly required or contemplated by the Merger Agreement, as may be required by applicable law, or with the prior written consent of Parent, we and our subsidiaries will not:

 

 

 

 

Subject to the terms and conditions provided in the Merger Agreement, as promptly as practicable, each party to the Merger Agreement has agreed to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary or appropriate to consummate the Merger as soon as practicable, including obtaining the termination of any waiting period under the HSR Act and seeking the receipt of governmental consents (including the consents of insurance regulators). The agreement to use reasonable best efforts includes the obligation of Parent or Darwin, as applicable, to (i) execute settlements and undertakings, (ii) sell, hold separate or divest any of Parent’s particular assets or businesses, (iii) agree to sell, hold separate or divest Darwin’s particular assets or businesses contemporaneously with or subsequent to the consummation of the Merger, (iv) permit Darwin to sell, hold separate or divest particular assets prior to the closing of the Merger and (v) take actions that, after the consummation of the Merger, would limit the freedom of action of Parent or Darwin with respect to one or more of their businesses, product lines or assets, in each case, as may be required in order to avoid a regulatory order or proceeding that would prevent or materially delay the consummation of the Merger.

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the Merger is subject to the satisfaction or waiver of the following conditions:

 

 

Conditions to Parent’s and MergerCo’s Obligations.  The obligations of Parent and MergerCo to complete the Merger are subject to the satisfaction or waiver of the following additional conditions:

 

 

 

Conditions to Darwin’s Obligations.  Our obligation to complete the Merger is subject to the satisfaction or waiver of the following further conditions:

 

 

During the term of the Merger Agreement, we have agreed not to:

 

 

Notwithstanding the foregoing restrictions, at any time prior to obtaining the approval of the Merger Agreement by our stockholders, if we receive a company acquisition proposal that was not received in breach of the foregoing restrictions, we may contact the potential acquiror to determine whether the company acquisition proposal is, or is reasonably likely to lead to, a company superior proposal. If our Board or the Special Committee determines in good faith after consultation with its legal and financial advisors that such company acquisition proposal is, or is reasonably likely to lead to, a company superior proposal, then we are permitted to furnish information to or engage in discussions or negotiations with the potential acquiror if we provide Parent with notice within 36 hours of any such furnishing of information and the same information has been previously or is concurrently provided to Parent.

 

We must promptly advise Parent in writing of any company acquisition proposal (and in no event less than 36 hours following our initial receipt of any company acquisition proposal), the material terms and conditions of any such company acquisition proposal (including any changes thereto) and the identity of the party making any such company acquisition proposal. We must also keep Parent reasonably informed of the status (including any change to the material terms and conditions thereof) of any such company acquisition proposal.

A “company acquisition proposal” means any proposal or offer for, whether in one transaction or a series of related transactions, any:

 

 

Notwithstanding the foregoing definition, the term “company acquisition proposal” shall not include:

 

 

A “company superior proposal” means a company acquisition proposal (on its most recently amended and modified terms, if amended and modified) made by a third party (and not obtained in breach of the non-solicitation provisions of the Merger Agreement or in material breach of any other provision of the Merger Agreement) which our Board, on the recommendation of the Special Committee, determines in good faith (after consultation with its financial and legal advisors) to be more favorable to our stockholders than the Merger. For purposes of this definition of “company superior proposal,” the references to “25%” in the definition of company acquisition proposal shall be deemed to be references to “50%.”

 

The Merger Agreement requires us to promptly and duly call, give notice of, convene and hold a meeting of our stockholders to adopt the Merger Agreement as soon as reasonably practicable after the SEC clears the proxy statement. Our Board will (i) except as otherwise provided in the non-solicitation provisions of the Merger Agreement, recommend adoption of the Merger Agreement and include in this proxy statement such recommendation and (ii) use its commercially reasonable efforts to solicit such adoption. In this regard, our Board has resolved to recommend that our stockholders adopt the Merger Agreement.

 

Generally, our Board may not (i) withdraw (or amend or modify in a manner adverse to Parent) or publicly propose to withdraw (or amend or modify in a manner adverse to Parent), its approval, recommendation or declaration of advisability of the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement, (ii) recommend or approve, or propose publicly to recommend or approve, any company acquisition proposal or (iii) allow Darwin to enter into an agreement or arrangement constituting or that could reasonably be expected to lead to a company acquisition proposal or requiring Darwin to abandon, terminate or fail to consummate the Merger. However, our Board may, at any time prior to the adoption of the Merger Agreement by our stockholders, withdraw (or amend or modify in a manner adverse to Parent) or publicly propose to withdraw (or amend or modify in a manner adverse to Parent), its approval, recommendation or declaration of advisability of the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement, or recommend, adopt or approve, or propose publicly to recommend, adopt or approve, any company acquisition proposal, if our

Board determines in good faith after consultation with its legal and financial advisors that failure to take such action would be inconsistent with its fiduciary duties to the stockholders of the Company under applicable law. Additionally, our Board may allow Darwin to enter into an agreement or arrangement requiring Darwin to abandon, terminate or fail to consummate the Merger in the event of a Superior Proposal Termination (as defined below).

 

The Merger Agreement may be terminated at any time prior to the consummation of the Merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

 

 

 

We must pay a $16.5 million termination fee if:

 

 

From and after the Merger Effective Time, Parent and the Surviving Corporation will (i) indemnify and hold harmless each person who was, at the date of the Merger Agreement, or becomes, during the period from the date of the Merger Agreement through the closing of the Merger, a director or officer of the Company or the Company subsidiaries or a director, officer or trustee of another entity (but only to the extent that such person is or was serving in such capacity at the request of the Company) and (ii) promptly pay on behalf of or, within 30 days after any request for advancement, advance to each of the indemnified parties, to the fullest extent authorized or permitted by applicable laws, any expenses incurred in defending, serving as a witness with respect to or otherwise participating in any claim in advance of the final disposition of such claim.

 

Immediately prior to the closing of the Merger, the Company will purchase a single payment, run-off policy of directors’ and officers’ liability insurance, which will become effective at the closing and remain in effect for 6 years. The policy will cover current and former officers and directors of the Company and the Company subsidiaries, with limits of $20,000,000 for each claim and in the aggregate. The premium for such run-off policy or policies will not exceed $400,000. In addition, immediately prior to the closing of the Merger, Parent will provide for the current officers and directors of the Company and the Company subsidiaries who continue in such capacity after the closing to be covered under Parent’s directors’ and officers’ liability program with the same terms as those applicable to the officers and directors of Parent and its subsidiaries.

 

From and after the effective time of the Merger, Parent will honor, in accordance with their terms, and will cause the Surviving Corporation to honor all employee benefit plans, compensation arrangements and employment, severance and termination plans and agreements of the Company in effect immediately before the effective time of the Merger (other than equity-based incentive plans). For a period of one year following the effective time of the Merger, Parent will provide, or will cause to be provided, to each Company employee (i) compensation no less favorable in the aggregate than the compensation provided to such Company employee immediately before the effective time of the Merger and (ii) employee benefits that are no less favorable, in the aggregate, than the benefits provided to similarly situated employees of Parent.

 

For all purposes under the employee benefit plans of Parent and its subsidiaries providing benefits to any Company employees after the effective time of the Merger, each Company employee will be credited with his or her

years of service with the Company and the Company subsidiaries and their respective predecessors before the effective time of the Merger, to the same extent as such Company employee was entitled, before the effective time of the Merger, to credit for such service under any similar Company employee benefits plan in which such Company employee participated or was eligible to participate immediately prior to the effective time of the Merger, except to the extent that such service credit would result in a duplication of benefits.

 

Each Company employee will be immediately eligible to participate, without any waiting time, in any and all employee benefit plans of Parent and its subsidiaries to the extent coverage under such new plans is comparable to coverage under any plan in which such Company employee participated immediately before the consummation of the Merger. For purposes of each employee benefit plan of Parent and its subsidiaries providing medical, dental, pharmaceutical or vision benefits to any Company employee, Parent will cause all pre-existing condition exclusions and actively-at-work requirements of such new plan to be waived for such Company employee and his or her covered dependents, unless such conditions would not have been waived under an old Company employee benefits plan in which such Company employee participated immediately prior to the effective time of the Merger.

 

The Merger Agreement may be amended by action taken by the respective boards of directors of each of the parties at any time prior to the effective time of the Merger. However, after approval of the Merger by our stockholders, no amendment may be made without further stockholder approval which, by law or in accordance with the rules of the NYSE, requires further approval by our stockholders. The Merger Agreement may not be amended except by an instrument in writing signed by each of the parties.

 

At any time prior to the consummation of the Merger, the Company, on the one hand, and Parent and MergerCo, on the other hand, may, by written instrument:

 

 

The failure of any party to assert any of its rights under the Merger Agreement or otherwise shall not constitute a waiver of those rights.

 

Each of the parties will be entitled to specific performance of the terms of the Merger Agreement, in addition to any other remedy at law or equity. Notwithstanding the foregoing, each of Darwin and Parent acknowledges and agrees that in the event that Parent is entitled to receive and actually receives the termination fee pursuant to the Merger Agreement, Parent’s receipt of the termination fee will constitute each of Parent and MergerCo’s sole and exclusive remedy for, and such amount shall constitute liquidated damages in respect of any termination of the Merger Agreement regardless of the circumstances giving rise to such termination.

 

If at the special meeting the number of shares of Common Stock present or represented and voting in favor of the adoption of the Merger Agreement is insufficient to adopt the Merger Agreement under Delaware law and under our certificate of incorporation, the officer of Darwin presiding over the special meeting or our Board may move to adjourn the special meeting in order to enable our Board to continue to solicit additional proxies in favor of the adoption of the Merger Agreement. In that event, we will ask you to vote only upon the adjournment proposal and not the Merger proposal.

 

In this proposal, we are asking you to authorize the holder of any proxy solicited by the Board to vote in favor of adjourning the special meeting and any later adjournments. If the Darwin stockholders approve the adjournment proposal, we could use the additional time to solicit additional proxies in favor of the proposal to adopt the Merger Agreement, including the solicitation of proxies from Darwin stockholders that have previously voted against the Merger proposal. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against the proposal to adopt the Merger Agreement, we could adjourn the special meeting without a vote on the proposal to adopt the Merger Agreement and seek to convince the holders of those shares of Common Stock to change their votes to votes in favor of the adoption of the Merger Agreement.

 

Approval of the proposal to adjourn the special meeting requires the affirmative vote of a majority of the votes present and entitled to be cast at the special meeting, whether or not a quorum is present. Accordingly, broker non-votes will have no effect on the outcome of this proposal. However, abstentions will have the same effect as a vote “AGAINST” the adjournment proposal. No proxy that is specifically marked “AGAINST” the proposal to approve the Merger Agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the discretionary authority to adjourn the special meeting to a later date.

 

The Board believes that if the number of shares of Common Stock present or represented at the special meeting and voting in favor of the proposal to adopt the Merger Agreement is insufficient to adopt the Merger Agreement, it is in the best interests of the Darwin stockholders to enable the Board, for a limited period of time, to continue to seek to obtain a sufficient number of additional votes to adopt the Merger Agreement.

 

The Board recommends that you vote “FOR” the proposal to authorize the adjournment of the special meeting.

 

Our Common Stock is traded on the NYSE under the symbol “DR.” The table below sets forth by quarter, beginning with Darwin’s initial public offering on May 19, 2006, the high and low sales prices, and the closing prices as of each quarter’s end, of our Common Stock on the NYSE. Darwin has not paid any dividends during that period.

 

 

On June 27, 2008, the last full trading day prior to the public announcement of the Merger Agreement, the closing sale price of our Common Stock as reported on the NYSE was $30.20. On [    l    ], the last full trading day prior to the date of this proxy statement, the closing price of the Common Stock as reported on the NYSE was $[    l    ].

 

You are encouraged to obtain current market quotations for our Common Stock in connection with voting your shares of Common Stock.

 

Following the Merger there will be no further market for our Common Stock.

 

The following is a brief summary of the Voting Agreement. This description does not provide a complete description of all of the terms and conditions of the Voting Agreement. It is qualified in its entirety by the annexes hereto, including the text of the Voting Agreement, which is attached as Annex D to this proxy statement. The Voting Agreement is incorporated herein by reference. You are urged to read the annexes in their entirety.

 

In connection with the execution of the Merger Agreement, AIHL entered into a voting agreement with Allied World and MergerCo on June 27, 2008. As of [    l    ], 2008, the record date for the special meeting, AIHL held approximately [ l ] shares of the Common Stock representing approximately 55% percent of Darwin’s outstanding Common Stock.

 

Pursuant to the Voting Agreement, subject to certain limitations and the occurrence of certain events, AIHL agreed, among other things, (i) to vote a number of shares of Common Stock equal to 40% of Darwin’s outstanding voting stock in favor of the adoption of the Merger Agreement, (ii) to vote all of its shares of Common Stock against (A) any company acquisition proposal or (B) any other action or proposal that could reasonably be expected to impede, interfere with, delay or postpone the Merger or change in any manner the voting rights of any class of shares of Darwin, (iii) to grant to the proxyholders named in Darwin’s proxy card, three business days prior to the date of the special meeting, a revocable proxy to vote such shares in favor of the adoption of the Merger Agreement and, subject to certain conditions, not to revoke such proxy and (iv) not to sell, transfer, pledge, assign or otherwise dispose of any of its shares of the Common Stock or interest therein or grant any proxy or enter into any voting trust or other voting agreement or arrangement with respect to its shares of the Common Stock.

 

The Voting Agreement, and all the rights and obligations of the parties thereto, will terminate upon the first to occur of (i) the effective time of the Merger, (ii) the date on which the Merger Agreement is terminated in accordance with its terms, (iii) the date upon which the Board withdraws (or amends or modifies in a manner adverse to Allied World) or publicly proposes to withdraw (or amend or modify in a manner adverse to Allied World), its approval, recommendation or declaration of advisability of the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement, or recommends, adopts or approves, or proposes publicly to recommend, adopt or approve, any company acquisition proposal and (iv) unless consented to by AIHL, the date of any amendment to the Merger Agreement that is materially adverse to Darwin, its stockholders or AIHL (including, without limitation, any decrease in or change in the form of the consideration paid to Darwin’s stockholders of the addition of any material obligation or liability on the part of Darwin or its stockholders).

 

The following tables set forth information with respect to the beneficial ownership of shares of Common Stock, which is Darwin’s only class of voting stock, as of July 31, 2008, for:

 

 

As of July 31, 2008, the number of outstanding shares of Common Stock was 17,017,881 (which includes 125,554 restricted shares of Common Stock). The amounts and percentages of the shares of Common Stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. Unless otherwise indicated below, each beneficial owner named in the table below has sole voting and sole investment power with respect to all shares of Common Stock beneficially owned, subject to community property laws where applicable.

Persons Known to Own More than 5% of the Shares of Common Stock Outstanding

 

 

 

 

Director and Executive Officer Common Stock Ownership

 

 

 

 

Under the General Corporation Law of the State of Delaware (the “DGCL”), you have the right to dissent from the Merger and to receive payment in cash for the fair value of your shares of Common Stock as determined by the Delaware Court of Chancery, together with a fair rate of interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to pursuant to the Merger Agreement. These rights are known as appraisal rights. Darwin’s stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL (“Section 262”) in order to perfect their rights. Darwin will require strict compliance with the statutory procedures.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the Merger and perfect appraisal rights.

 

This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262, the full text of which appears in Annex C to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 may result in a termination or waiver of your appraisal rights. All references in this summary to a “stockholder” are to the record holder of shares of our Common Stock unless otherwise indicated.

 

Section 262 requires that stockholders be notified that appraisal rights will be available not less than 20 days before the stockholders’ meeting to vote on the Merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes Darwin’s notice to its stockholders of the availability of appraisal rights in connection with the Merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex C since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

If you elect to demand appraisal of your shares of Common Stock, you must satisfy each of the following conditions:

 

 

If you fail to comply with these conditions and the Merger is completed, you will be entitled to receive the cash payment for your shares of Common Stock as provided for in the Merger Agreement, but you will have no appraisal rights with respect to your shares of Common Stock. A proxy card which is signed and does not contain voting instructions will, unless revoked, be voted “FOR” the adoption of the Merger Agreement and will constitute a waiver of your right of appraisal and will nullify any previous written demand for appraisal.

 

All demands for appraisal should be addressed to Darwin Professional Underwriters, Inc., 9 Farm Springs Road in Farmington, CT 06032 Attention: Executive Vice President, General Counsel and Secretary, and must be delivered before the vote on the Merger Agreement is taken at the special meeting, and should be executed by, or on behalf of, the record holder of the shares of Common Stock. The demand must reasonably inform Darwin of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares of Common Stock.

To be effective, a demand for appraisal by a holder of shares of Common Stock must be made by, or in the name of, such registered stockholder, fully and correctly, as such stockholder’s name appears on his or her stock certificate(s). Beneficial owners who do not also hold the shares of Common Stock of record may not directly make appraisal demands to Darwin. The beneficial holder must, in such cases, have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares of Common Stock. If shares of Common Stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares of Common Stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares of Common Stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of Common Stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of Common Stock as to which appraisal is sought. Where no number of shares of Common Stock is expressly mentioned, the demand will be presumed to cover all shares of Common Stock held in the name of the record owner.

 

If you hold your shares of Common Stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Within 10 days after the effective time of the Merger, the Surviving Corporation must give written notice that the Merger has become effective to each Darwin stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the Merger Agreement. At any time within 60 days after the effective time, any stockholder who has demanded an appraisal and who has not commenced an appraisal proceeding or joined that proceeding as a named party has the right to withdraw the demand and to accept the cash payment specified by the Merger Agreement for his or her shares of Common Stock. Within 120 days after the effective date of the Merger, any stockholder who has complied with Section 262 shall, upon written request to the Surviving Corporation, be entitled to receive a written statement setting forth the aggregate number of shares of Common Stock not voted in favor of the Merger Agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the Surviving Corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the Surviving Corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of Common Stock held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the Surviving Corporation. The Surviving Corporation has no obligation to file such a petition in the event there are dissenting stockholders and there is no present intent to file an appraisal petition and stockholders seeking to exercise appraisal rights should not assume that the Surviving Corporation will file such a petition or that the Surviving Corporation will initiate any negotiations with respect to the fair value of such shares of Common Stock. Accordingly, holders of Common Stock who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262. A person who is the beneficial owner of shares of Common Stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the Surviving Corporation the statement described in this paragraph.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the Surviving Corporation, the Surviving Corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of Common Stock and with whom agreements as to the value of their shares have not been reached by the Surviving Corporation. After notice to dissenting stockholders who demanded appraisal of their shares of Common Stock, the Chancery Court is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Chancery Court may require the stockholders who have

demanded payment for their shares of Common Stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of the Common Stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any. Unless the Delaware Court of Chancery determines otherwise for good cause shown, interest from the effective time of the Merger through the date of payment of the judgment shall accrue at 5% over the Federal Reserve discount rate, established from time to time during such period, compounded quarterly. When the value is determined, the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares of Common Stock.

 

In determining fair value, the Chancery Court is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion that does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and you should be aware that the fair value of your shares of Common Stock as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement.

 

Costs of the appraisal proceeding may be imposed upon the Surviving Corporation and the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares of Common Stock entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective time of the Merger, be entitled to vote shares of Common Stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time of the Merger; however, if no petition for appraisal is filed within 120 days after the effective time of the Merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the Merger within 60 days after the effective time of the Merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its Common Stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the Merger may only be made with the written approval of the Surviving Corporation and must, to be effective, be made within 120 days after the effective time.

 

In view of the complexity of Section 262, Darwin’s stockholders who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors.

 

If the Merger is consummated, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the Merger is not completed, Darwin’s by-laws require that Darwin be furnished with timely written notice with respect to the submission of a proposal, other than a proposal submitted by or at the direction of the Board, at a meeting of stockholders. In order for any submission to be proper, the notice must contain certain information concerning the proposing stockholder and the proposal and must be furnished to Darwin generally not less than 90 days prior to the anniversary of the preceding year’s annual meeting. A copy of the applicable by-law provisions may be obtained, without charge, upon written request to the Secretary of Darwin at Darwin’s principal executive offices.

 

In accordance with Rule 14a-8 of the Securities and Exchange Commission, any proposal of a stockholder intended to be presented at Darwin’s 2009 Annual Meeting of Stockholders must be received by the Secretary of Darwin by December 6, 2008 in order for the proposal to be considered for inclusion in Darwin’s notice of meeting, proxy statement and proxy relating to the 2009 Annual Meeting, scheduled for Friday, May 1, 2009.

 

Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. If you would prefer to receive separate copies of the proxy statement, please contact Georgeson either by calling [    l    ], or by writing to [    l    ].

 

Upon written or oral request to Georgeson, they will provide separate copies of the proxy statement. In addition, security holders sharing an address can request delivery of a single copy of the proxy statements if you are receiving multiple copies upon written or oral request to Georgeson at the address and telephone number stated above.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov. You also may obtain free copies of the documents Darwin files with the SEC by going to the “Investors Relations” section of our website at http://www.darwinpro.com.

 

The SEC allows Darwin to “incorporate by reference” information into this proxy statement. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this proxy statement, except for any information that is superseded by information that is included directly in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.

 

This proxy statement incorporates by reference the documents listed below that we have previously filed with the SEC.

 

In addition, Darwin incorporates by reference additional documents that it may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy statement and the date of the special meeting. These documents include periodic reports, such as quarterly reports on Form 10-Q and current reports on Form 8-K.

 

We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates.

 

Requests for copies of our filings should be directed to

 

Executive Vice President, General Counsel and Secretary, Mark I. Rosen
Darwin Professional Underwriters, Inc.
9 Farm Springs Road, Farmington, CT 06032
Tel: (860) 284-1300

 

The request should be made by [    l    ], 2008 in order to receive them before the special meeting.

 

Reports, proxy statements or other information concerning us may also be inspected at the offices of the NYSE at 20 Broad Street, New York, NY 10005.

 

Any person, including any beneficial owner, to whom this proxy statement is delivered may request additional copies of the proxy statement, without charge on Darwin’s website at http://www.darwinpro.com or from the SEC through the SEC’s website at http://www.sec.gov.

 

This proxy does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom or from whom it is unlawful to make such proxy solicitation in that jurisdiction. You should rely only on the information contained or incorporated by reference in this proxy statement to vote your shares of Common Stock at the special meeting. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated [    l    ], 2008. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders does not create any implication to the contrary.

Annex A

 

 

AGREEMENT AND PLAN OF MERGER
by and among
DARWIN PROFESSIONAL UNDERWRITERS, INC.,
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
and
ALLIED WORLD MERGER COMPANY
Dated as of June 27, 2008

 

TABLE OF CONTENTS