NU Online News Service, April 29, 3:41 p.m.EDT

Validus Holdings, in its continuing fight with Max Capital overwho will acquire IPC Re, has filed a lawsuit that challengesaspects of the arrangement Max has made with IPC.

Validus is attempting to force the IPC board to accept itsmerger offer valued at $1.68 billion, which it proposed after IPCand Max announced in early March that their boards of directors hadapproved a merger deal valued at roughly $900 million.

After being rebuffed by IPC's board, which recommended the Maxdeal to IPC shareholders on April 7 in spite of Validus' repeatedassertions that it was presenting a sweeter offer, Validus shot offa letter to the chairman of IPC Holdings announcing its intentionto wage a proxy fight and to take legal action.

In the letter dated April 8, Edward Noonan, Validus' chairmanand chief executive officer, said it would file the suit as ashareholder of IPC, to reduce the $50 million penalty Max wouldreceive under termination of the agreement, stating that this wasillegal under Bermuda law.

Last night, Validus announced that it filed legal proceedings inthe Supreme Court of Bermuda against IPC Holdings Ltd., IPC Limitedand Max Capital Group Ltd. challenging the $50 million terminationfee and a "no-talk" provision contained in the March Agreement andPlan of Amalgamation between IPC and Max.

Validus said the termination fee, "because of its excessivesize...amounts to an unlawful penalty under Bermuda law and isaccordingly unenforceable."

Validus added, however, that if the termination fee isultimately eliminated or reduced, Validus will not object to IPC'spaying the difference as a dividend to IPC shareholders "so thatIPC shareholders--and not Max or Validus shareholders--will sharein the value obtained."

Referring to both the fee and a "no-talk" provision restrictingIPC's board from talking to suitors other than Max, Validus arguesthat by entering into an agreement with Max that contained suchprovisions it "constituted a breach of the directors' fiduciaryduties."

In addition to the lawsuit filed yesterday, Validus filedpreliminary proxy materials with the Securities and ExchangeCommission on April 9, urging IPC shareholders to vote against theproposed deal with Max.

Among other things, Validus contends IPC would be better offmerging with them rather than Max because an IPC-Validuscombination would create a market-leading carrier in Bermuda'sshort-tail reinsurance and insurance markets.

Max says it offers more diversification to IPC's monolineproperty-catastrophe reinsurance operation by adding long-tailliability business to the mix.

For its part, IPC Holdings has said that in spite of the hostileoffer, the deal with Max is on track to be completed in June.

Two weeks ago, IPC and Max announced that the Federal TradeCommission and the Antitrust Division of the U.S. Department ofJustice have completed their review of the deal. The governmententities granted early termination of the Hart-Scott-Rodino waitingperiod, effective April 14, satisfying one of the conditions tocomplete the IPC-Max deal.

The transaction is still subject to approval of both IPC's andMax's shareholders.