Filed
pursuant to Rule 424(b)(3)
Registration No.
333-158578
PROSPECTUS
MAIDEN
HOLDINGS, LTD.
11,700,000
COMMON SHARES
This
prospectus relates to the resale from time to time of up to 11,700,000 common
shares by the selling shareholders described in this prospectus. We
will not receive any proceeds from the sale of these shares by the selling
shareholders. We are registering these shares so that the selling
shareholders may sell them from time to time in the public market, in amounts,
at prices and on terms determined by them at the time of their
offerings. The selling shareholders may sell these shares through
ordinary brokerage transactions, directly to market makers of our shares or
through any other means described in the section entitled “Plan of Distribution”
below.
Our
common shares are quoted on the NASDAQ Global Select Market under the symbol
“MHLD.” On April 14, 2009, the reported closing price per share of
our common shares was $4.46.
You
should read this prospectus carefully before you invest. Investing in
these securities involves significant risks. See “Risk Factors”
beginning on page 3 of this prospectus and as they appear in our reports filed
with the Securities and Exchange Commission from time to time.
Neither
the Securities and Exchange Commission, any state securities commission, the
Registrar of Companies in Bermuda nor the Bermuda Monetary Authority has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is April 28, 2009
TABLE
OF CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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i |
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PROSPECTUS
SUMMARY
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1 |
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RISK
FACTORS
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3 |
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WARNING
REGARDING FORWARD-LOOKING STATEMENTS
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4 |
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USE
OF PROCEEDS
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5 |
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SELLING
SHAREHOLDERS
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5 |
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PLAN
OF DISTRIBUTION
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8 |
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DESCRIPTION
OF SHARE CAPITAL
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11 |
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MATERIAL
TAX CONSIDERATIONS
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18 |
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LEGAL
MATTERS
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27 |
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EXPERTS
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27 |
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ENFORCEABILITY
OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
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27 |
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WHERE
YOU CAN FIND MORE INFORMATION
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28 |
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INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
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28 |
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ABOUT
THIS PROSPECTUS
This
prospectus incorporates by reference important information. You may
obtain the information incorporated by reference without charge by following the
instructions under “Where You Can Find More Information” and “Incorporation of
Certain Information by Reference” appearing below before deciding to invest in
our shares.
References
in this prospectus to “we”, “us” and “our” are to Maiden Holdings, Ltd. and its
subsidiaries.
You
should rely only on the information contained or incorporated by reference in
this prospectus. Neither we nor the selling shareholders have
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or the time of any sale of our common shares under this
prospectus. Our business, financial condition, results of operations
and prospects may have changed since such date. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of this document. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
prospectus will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this prospectus modifies or supersedes that
statement. Any statement that is modified or superseded will not
constitute a part of this prospectus, except as modified or
superseded.
PROSPECTUS
SUMMARY
The
following is only a summary of some of the information contained or incorporated
by reference in this prospectus which we believe to be important. We
have selected highlights of material aspects of our business to be included in
this summary. We urge you to read this entire prospectus, including
the information incorporated by reference in this
prospectus. Investing in our common shares involves
risks. You should carefully consider the information below provided
under the heading “Risk Factors,” in this prospectus and under that heading in
our reports filed with the SEC from time to time.
Business
We are a
Bermuda-based holding company formed in June 2007 to provide reinsurance
solutions, products and services to U.S. and European insurance companies that
specialize in products offering coverage at low limits or insuring risks that
are believed to be low hazard, predictable and generally not susceptible to
catastrophe claims. We have operations in Bermuda and the U.S. We provide
innovative reinsurance business solutions for such insurance companies to enable
them to improve their capacity and ability to deliver and market their products
and services.
On
October 31, 2008, we acquired the reinsurance operations of GMAC Insurance from
GMACI Holdings, LLC (“GMACI”), including a book of assumed reinsurance business.
As part of the transaction, the Company’s wholly owned subsidiary, Maiden
Holdings North America, Ltd. (“Maiden NA”), acquired GMAC RE LLC (“GMAC RE”), a
reinsurance managing general agent writing business on behalf of Motors
Insurance Corporation (“Motors”) and the renewal rights for the business written
through GMAC RE. GMAC RE was subsequently renamed Maiden Re Insurance Services,
LLC (“Maiden Re”). In connection with the transaction, Maiden NA also entered
into stock purchase agreements to acquire insurance companies, GMAC Direct
Insurance Company (“GMAC Direct”) and Integon Specialty Insurance Company
(“Integon”). The acquisition of GMAC Direct was consummated on December 23, 2008
and it was renamed Maiden Reinsurance Company (“Maiden Reinsurance”) on February
2, 2009. Regulatory approval for the acquisition of Integon is pending. In
conjunction with the GMAC Acquisition, on October 31, 2008, Maiden Insurance and
Motors entered into a Portfolio Transfer and Quota Share Reinsurance Agreement
under which Maiden Insurance reinsured (i) all of the existing contracts written
by GMAC RE pursuant to a loss portfolio transfer, and (ii) contracts written
pursuant to a fronting arrangement with Motors. The acquisition of GMAC RE, GMAC
Direct and Integon and the renewal rights to GMACI’s reinsurance business and
the loss portfolio and quota share reinsurance transaction with Motors is
referred to as the “GMAC Acquisition”.
Before
the GMAC Acquisition, all reinsurance was underwritten in our wholly owned
subsidiary, Maiden Insurance Company, Ltd. (“Maiden Insurance”). Maiden
Insurance does not underwrite any primary insurance business. We may on
occasion, make strategic investments in some of our clients in order to enable
those clients to expand their business and the amount of business they do with
us. We do not currently hold such investments.
As a
result of the GMAC Acquisition, the Company can also underwrite reinsurance
through Maiden Reinsurance. Following the acquisition of Integon, the Company
will underwrite primary insurance on a surplus lines basis through
Integon.
Our
founding shareholders, Michael Karfunkel, George Karfunkel and Barry Zyskind
(the “Founding Shareholders”), are the majority shareholders of AmTrust
Financial Services, Inc. (“AmTrust”) (NASDAQ: AFSI), a multinational insurance
holding company that offers workers’ compensation and property and casualty
coverages for small businesses, extended warranty coverages for consumer and
commercial goods and other specialty insurance products. Michael Karfunkel is
the Chairman of the Board of Directors, George Karfunkel is a director, and
Barry Zyskind is the President, Chief Executive Officer and a director of
AmTrust. We were formed to take advantage of the opportunity to partner with
AmTrust and opportunities to partner with insurers, like AmTrust, that focus on
specialty insurance markets in which they have developed expertise.
Recent
Developments
In April
2009, Maiden learned that Bentzion S. Turin, our and Maiden Insurance's former
Chief Operating Officer, General Counsel and Secretary, sent a letter to the
U.S. Department of Labor claiming that his employment with us was terminated in
retaliation for corporate whistleblowing in violation of the whistleblower
protection provisions of the Sarbanes-Oxley Act of 2002. Mr. Turin
alleged concerns regarding corporate governance with respect to negotiation of
the terms of our January 2009 trust preferred offering and seeks reinstatement
as our and Maiden Insurance's Chief Operating Officer, General Counsel and
Secretary, back pay and legal fees incurred. Maiden believes that it
had ample reason for terminating such employment for good and sufficient legal
cause, and Maiden believes that the claim is without merit and intends to
vigorously defend this claim.
Our
principal executive office is located at 48 Par-la-Ville Road, Suite 1141,
Hamilton HM 11, Bermuda and our telephone number is (441)
292-7090. Our web site address is www.maiden.bm. Unless
specifically incorporated by reference, information contained in our web site is
not a part of this prospectus.
The
Offering
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Background
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In
January 2009, we completed a private placement of 260,000 units (the
“Units”), each Unit consisting of $1,000 principal amount of capital
securities (the “Trust Preferred Securities”) of Maiden Capital Financing
Trust (the “Trust”), a trust established by Maiden NA, and 45 common
shares of Maiden Holdings, Ltd. Pursuant to the purchase
agreement we entered into with the purchasers in connection with the
private placement, we agreed to file a registration statement, of which
this prospectus is a part, with the SEC to register the resale of our
common shares by the purchasers and their transferees.
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Common
shares offered by the selling
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shareholders
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Up
to 11,700,000 shares
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Use
of proceeds
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We
will not receive any proceeds from the sale of the common shares by the
selling shareholders.
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NASDAQ
Global Select Market symbol
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MHLD
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RISK
FACTORS
You
should carefully consider the risk factors set forth under “Risk Factors”
included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2008, which are incorporated by reference in this
prospectus. Any of those risks could materially and adversely affect
our business, financial condition or results of operations. While those risks
are all of the material risks currently known to us, additional risks and
uncertainties either not currently known to us or that we currently view to be
immaterial could also materially and adversely affect our business, financial
condition or results of operations. If any risks materially and
adversely affect our business, financial condition or results of operations, the
trading price of our common shares could decline and you may lose all or part of
your investment.
WARNING
REGARDING
FORWARD-LOOKING
STATEMENTS
This
prospectus and the information incorporated by reference in it include
forward-looking statements. Forward-looking statements are not statements of
historical fact and reflect our views and assumptions as of the date of this
prospectus regarding future events and operating performance. Because we have a
very limited operating history, many statements relating to us and our business,
including statements relating to our competitive strengths and business
strategies, are forward-looking statements. The words “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should,” “would” and similar
expressions may, but are not necessary to, identify forward-looking
statements.
All
forward-looking statements address matters that involve risks and uncertainties.
Accordingly, there are important factors that could cause our actual results to
differ materially from those indicated in these statements. We believe that
these factors include but are not limited to those incorporated by reference
under “Risk Factors” above.
If one or
more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from our
projections. Any forward-looking statements you read in this prospectus reflect
our current views with respect to future events and are subject to these and
other risks, uncertainties and assumptions relating to, among other things, our
operations, results of operations, growth strategy and liquidity. We undertake
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise, except as
may be required under applicable law.
USE
OF PROCEEDS
The net
proceeds from the disposition of the shares covered by this prospectus will be
received by the selling shareholders. We will not receive any
proceeds from the disposition of the shares.
SELLING
SHAREHOLDERS
In
January 2009, we completed a private placement of 260,000 Units, each Unit
consisting of $1,000 principal amount of Trust Preferred Securities of Maiden
Capital Financing Trust, a trust established by Maiden NA, and 45 common shares
of Maiden Holdings, Ltd. Pursuant to the purchase agreement we
entered into with the purchasers in connection with the private placement, we
agreed to file with the SEC a registration statement, of which this prospectus
is a part, to register the resale of our common shares by the purchasers and
their transferees.
Set forth
below is the following information regarding the beneficial ownership of our
common shares by the selling shareholders: (i) the name of each
selling shareholder; (ii) the number of common shares owned by each selling
shareholder as of April 7, 2009; (iii) the number of
shares being offered pursuant to this prospectus; (iv) the number of common
shares expected to be owned by each selling shareholder upon completion of this
offering, assuming all shares offered hereby are sold; and (v) the percentage of
our outstanding common shares expected to be owned by each selling shareholder
upon completion of this offering, assuming all shares offered hereby are
sold.
We have
prepared this table using information furnished to us by the selling
shareholders or their representatives or included in the selling shareholders’
filings with the SEC. For purposes of this table, beneficial ownership is
determined in accordance with the rules of the SEC and includes voting or
investment power with respect to common shares, as well as any common shares as
to which the selling shareholder has the right to acquire beneficial ownership
within 60 days of April 7, 2009, through the exercise or conversion of any stock
options, warrants, convertible debt or otherwise. Unless otherwise
indicated below, to our knowledge, the selling shareholders have sole voting and
investment power with respect to their common shares. The inclusion
of any shares in the table does not constitute an admission of beneficial
ownership by the persons named therein.
Our
registration of the common shares does not mean that the selling shareholders
identified below will sell all or any of these
securities. Furthermore, the selling shareholders may have sold,
transferred or disposed of a portion of their common shares in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”), since the date on which we filed this
prospectus.
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Shares
Owned
Prior
to the
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Shares
Being
Offered
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Shares
Owned upon
Completion
of this
Offering
(2)(3)
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Name
(1)
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Offering
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Hereby
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Bay
Pond Investors (Bermuda) L.P. (4)
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1,663,300 |
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139,500 |
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1,523,800 |
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2.2 |
% |
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Bay
Pond Partners, L.P. (4)
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3,509,000 |
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445,500 |
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3,063,500 |
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4.4 |
% |
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First
Opportunity Fund, Inc. (4)
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555,900 |
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72,000 |
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483,900 |
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* |
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The
George Karfunkel 2007 Grantor Retained Annuity Trust #1
(5)
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1,798,515 |
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1,798,515 |
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0 |
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* |
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The
George Karfunkel 2007 Grantor Retained Annuity Trust #2
(5)
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1,798,515 |
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1,798,515 |
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0 |
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* |
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Ithan
Creek Master Investors (Cayman) L.P. (4)
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297,000 |
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297,000 |
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0 |
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* |
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Kensico
Associates LP (6)
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2,116,055 |
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790,155 |
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1,325,900 |
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1.9 |
% |
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Kensico
Offshore Fund Master, Ltd. (6)
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2,132,298 |
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700,380 |
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1,431,918 |
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2.0 |
% |
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Kensico
Offshore Fund II Master, Ltd. (6)
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601,735 |
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198,135 |
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403,600 |
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* |
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Kensico
Partners LP (6)
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1,508,003 |
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561,330 |
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946,673 |
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1.3 |
% |
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The
Michael Karfunkel 2005 Grantor Retained Annuity Trust (7)
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5,500,470 |
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3,557,970 |
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1,942,500 |
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2.8 |
% |
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Park
West Investors Master Fund, Limited (8)
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2,770,932 |
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526,140 |
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2,244,792 |
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3.2 |
% |
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Park
West Partners International, Limited (8)
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820,318 |
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148,860 |
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671,458 |
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* |
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Prism
Partners I, L.P. (9)
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54,000 |
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54,000 |
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0 |
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* |
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Prism
Partners III Leveraged L.P. (9)
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198,000 |
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198,000 |
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0 |
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* |
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Prism
Partners IV Leveraged Offshore Fund (9)
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198,000 |
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198,000 |
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0 |
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* |
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Wolf
Creek Investors (Bermuda) L.P. (4)
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150,600 |
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108,000 |
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42,600 |
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* |
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Wolf
Creek Partners, L.P. (4)
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427,300 |
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108,000 |
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319,300 |
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* |
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(1)
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Throughout
this prospectus, when we refer to the “selling shareholders,” we mean the
persons listed in the table above, as well as the pledgees, donees,
assignees, transferees, successors and others who later hold any of the
selling shareholders’ interests.
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(2)
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Percentages
are based upon 70,287,664 common shares that
were outstanding as of April 7,
2009.
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(3)
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Assumes
the sale of all shares covered by this
prospectus.
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(4)
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Wellington
Management Company, LLP, a registered investment advisor under the
Investment Advisers Act of 1940, serves as investment advisor for this
selling shareholder and has investment and voting control over the shares
held by this selling shareholder.
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(5)
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George
Karfunkel has investment and voting control over the shares held by this
selling shareholder. Information regarding Mr. Karfunkel’s
beneficial ownership of additional common shares is set forth
below.
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(6)
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Kensico
Capital Management serves as investment manager for this selling
shareholder. Thomas Coleman and Michael Lowenstein serve as
Co-Presidents of Kensico Capital Management and have investment and voting
control over the shares held by this selling
shareholder.
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(7)
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Michael
Karfunkel serves as trustee of this selling shareholder and has investment
and voting control over the shares held by this selling
shareholder. Information regarding Mr. Karfunkel’s beneficial
ownership of additional common shares is set forth
below.
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(8)
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Park
West Asset Management LLC serves as investment manager for this selling
shareholder. Peter S. Park is the sole member and manager of
Park West Asset Management LLC and has investment and voting control over
the shares held by this selling
shareholder.
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(9)
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Weintraub
Capital Management serves as investment manager for this selling
shareholder. Jerald M. Weintraub is manager of Weintraub
Capital Management and has investment and voting control over the shares
held by this selling shareholder.
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Michael
Karfunkel, who beneficially owns the shares held by The Michael Karfunkel 2005
Grantor Retained Annuity Trust, and George Karfunkel, who beneficially owns the
shares held by The George Karfunkel 2007 Grantor Retained Annuity Trust #1 and
The George Karfunkel 2007 Grantor Retained Annuity Trust #2, are two of our
Founding Shareholders.
We were
formed in June 2007. In connection with our formation and capitalization, we
issued 2,600,000 common shares to each of
Michael Karfunkel and George Karfunkel (the “Founder Shares”) in consideration
of their investment in us. In connection with our formation and
capitalization, we also issued 10-year warrants to each of Michael Karfunkel and
George Karfunkel to purchase up to an additional 1,350,000 common shares
each. As of March 31, 2009, the shares held or controlled by each of
Michael Karfunkel and George Karfunkel, including the shares set forth in the
table above, together with the shares issuable upon exercise of their respective
warrants, represent 15% and 10.5%, respectively, of our outstanding common
shares assuming the exercise of all warrants. Michael Karfunkel
disclaims beneficial ownership of the 3,892,130 common shares that he holds
indirectly as a trustee of the Hod Foundation, a charitable foundation organized
by Michael Karfunkel. George Karfunkel disclaims beneficial ownership
of the 741,453 common shares that he holds indirectly as a trustee of the Chesed
Foundation, a charitable foundation organized by George
Karfunkel. Their warrants will expire 10 years from the date of
issuance. To the extent Michael Karfunkel and George Karfunkel exercise all or
part of their warrants, our common shares issued upon such exercise will be
subject to “lock-up” restrictions preventing transfer by them of any such shares
for three years from the date of issuance of such warrants.
Pursuant
to a registration rights agreement dated July 3, 2007 with our Founding
Shareholders, we registered Michael Karfunkel’s and George Karfunkel’s Founder
Shares (in each case excluding shares issuable upon exercise of their warrants)
pursuant to a registration statement as initially filed with the SEC on
September 17, 2007, subsequently amended and declared effective May 6, 2008 and
deregistered on July 22, 2008. The registration rights
under the agreement are subject to certain conditions and limitations and
include, subject to certain limitations, the right to participate in
future registered offerings of our common shares and the right to request on not
more than two occasions that we register a portion or all of their Founder
Shares. We are
generally required to bear all of the expenses of the registration, except
underwriting discounts and selling commissions. We agreed to indemnify
Michael Karfunkel and George Karfunkel for certain violations of U.S. federal or
state securities laws in connection with any registration statement filed
pursuant to these registration rights under which they sell their Founder
Shares.
Michael
Karfunkel and George Karfunkel are the Chairman of the Board of Directors and a
Director of AmTrust, respectively. Mr. Zyskind, our chairman of the Board and
other Founding Shareholder, is the son-in-law of Michael
Karfunkel. Mr. Zyskind is also the President, Chief Executive Officer
and a director of AmTrust. As of March 31, 2009, the Founding Shareholders own
or control approximately 59.7% of the outstanding shares of
AmTrust. One of our directors, Yehuda L. Neuberger, is the son-in-law
of George Karfunkel.
Since our
formation, we have had extensive business relationships with AmTrust and
continue to be dependent on it and its subsidiaries for a substantial portion of
our business. See “Certain Relationships and Related Transactions” in
our Definitive Proxy Statement on Schedule 14A as filed on April 6,
2009.
Our
transfer agent, American Stock Transfer & Trust Company, was formerly
controlled by Michael Karfunkel and George Karfunkel, both of whom remain
officers of American Stock Transfer & Trust Company.
PLAN
OF DISTRIBUTION
We are
registering the shares offered by this prospectus on behalf of the selling
shareholders, which as used herein includes pledgees, donees, assignees,
transferees, or other successors-in-interest selling common shares or interests
in common shares received after the date of this prospectus from the selling
shareholders as a gift, pledge, partnership distribution or other
transfer. The selling shareholders may, from time to time, sell,
transfer or otherwise dispose of any or all of their common shares or interests
in common shares on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.
To the
extent the selling shareholders gift, pledge or otherwise transfer the shares
offered hereby, their transferees may offer and sell the shares from time to
time under this prospectus, provided that this prospectus has been amended under
Rule 424(b)(3) or other applicable provision of the Securities Act to include
the name of such transferee in the list of selling shareholders under this
prospectus.
The
selling shareholders may use any one or more of the following methods when
disposing of shares or interests therein:
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through
underwriters, broker-dealers or
agents;
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·
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directly
to a limited number of purchasers or to a single
purchaser;
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·
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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·
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block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
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·
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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·
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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·
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privately
negotiated transactions;
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·
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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·
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broker-dealers
may agree with the selling shareholders to sell a specified number of such
shares at a stipulated price per
share;
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·
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a
combination of any such methods of sale;
and
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·
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any
other method permitted pursuant to applicable
law.
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If
underwriters are used in the sale of any shares, the shares may be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at
varying prices determined at the time of sale, or at negotiated
prices. The shares may be either offered to the public through
underwriting syndicates represented by managing underwriters, or directly by
underwriters. Generally, the underwriters’ obligations to purchase the shares
will be subject to certain conditions precedent. The underwriters will be
obligated to purchase all of the shares if they purchase any of the shares
(other than any shares purchased upon exercise of any over-allotment
option). In addition, underwriters may be used to sell shares on a
best efforts basis.
The
selling shareholders may sell the shares through agents from time to
time. Generally, any agent will be acting on a best efforts basis for
the period of its appointment.
Underwriters
or agents may purchase and sell the shares in the open market. These
transactions may include over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids. Over-allotment involves sales
in excess of the offering size, which creates a short position. Stabilizing
transactions consist of bids or purchases for the purpose of preventing or
retarding a decline in the market price of the shares and are permitted so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in
connection with the offering. The underwriters or agents also may impose a
penalty bid, which permits them to reclaim selling concessions allowed to
syndicate members or certain dealers if they repurchase the shares in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the shares, which may be higher than the
price that might otherwise prevail in the open market. These activities, if
begun, may be discontinued at any time. These transactions may be effected on
any exchange on which the shares are traded, in the over-the-counter market or
otherwise.
The
selling shareholders may, from time to time, pledge or grant a security interest
in some or all of the common shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act amending the list of selling shareholders to include the
pledgee, transferee or other successor in interest as selling shareholders under
this prospectus.
In
connection with the sale of our common shares or interests therein, the selling
shareholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the shares in
the course of hedging the positions they assume. The selling
shareholders may also sell our shares short and deliver these securities to
close out their short positions, or loan or pledge the shares to broker-dealers
that in turn may sell these securities. The selling shareholders may
also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities that
require the delivery to such broker-dealer or other financial institution of
shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction).
The
aggregate proceeds to the selling shareholders from the sale of the common
shares offered by them will be the price at which they sell the common shares
less discounts or commissions, if any. The selling shareholders
reserve the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase by a third party of common
shares to be sold by the selling shareholders directly or through
agents. We will not receive any of the proceeds from this
offering.
The
selling shareholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
The
selling shareholders and any underwriters, broker-dealers or agents that act in
connection with the sale of securities registered pursuant to this prospectus
may be deemed to be “underwriters” within the meaning of Section 2(11) of the
Securities Act, and any commissions received by such underwriters,
broker-dealers or agents and any profit on the resale of the securities sold by
them while acting as principals may be deemed to be underwriting discounts or
commissions under the Securities Act. In no event shall any
broker-dealer receive fees, commissions or mark-ups that, in the aggregate,
would exceed 8% of the gross proceeds received by the selling shareholders for
the sale of the common shares.
To the
extent required, the shares to be sold, the names of the selling shareholders,
the respective purchase prices and public offering prices, the names of any
agents, dealers or underwriters, and any applicable commissions or discounts
with respect to a particular offer will be set forth in an accompanying
prospectus supplement or, if appropriate, a post-effective amendment to the
registration statement that includes this prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
shares may be sold in these jurisdictions only through registered or licensed
brokers or dealers.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of shares in the market and to the activities of the selling shareholders
and their affiliates. Regulation M’s prohibition on purchases may
include purchases to cover short positions by the selling shareholders, and the
selling shareholders’ failure to cover a short position at a lender’s request
and subsequent purchases by the lender in the open market of shares to cover
such short positions, may be deemed to constitute an inducement to buy shares,
which is prohibited by Regulation M.
We will
make copies of this prospectus (as it may be supplemented or amended from time
to time) available to the selling shareholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling
shareholders may indemnify any broker-dealer that participates in transactions
involving the sale of the shares against certain liabilities, including
liabilities arising under the Securities Act.
At the
time a particular offer of securities is made, if required, a prospectus
supplement will be distributed that will set forth the number of securities
being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
We have
agreed to indemnify the selling shareholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
DESCRIPTION
OF SHARE CAPITAL
The
following information describes our common shares and provisions of our
bye-laws. This description is only a summary. You should
also refer to our bye-laws, which were filed with the SEC as an exhibit to our
Registration Statement on Form S-1, as initially filed with the SEC on September
17, 2007, subsequently amended and declared effective May 6, 2008.
We have
an authorized share capital of $1 million, which is divided into 100,000,000
common shares, par value $0.01 per share. Our Board of Directors has recommended
to our shareholders to authorize, at our 2009 Annual General Meeting of
Shareholders on April 30, 2009, an increase in our authorized share capital to
$1.5 million divided into 150,000,000 common shares, par value $0.01 per
share.
As of
April 7, 2009, there were 70,287,664 common shares outstanding held by 27
shareholders of record. This figure does not represent the actual
number of beneficial owners of our common shares because shares are frequently
held in “street name” by securities dealers and others for the benefit of
beneficial owners who may vote the shares.
Common
Shares
Holders
of common shares have no pre-emptive, redemption, conversion or sinking fund
rights. Subject to the limitation on voting rights described below, holders of
common shares are entitled to one vote per share on all matters submitted to a
vote of holders of common shares. Most matters to be approved by holders of
common shares require approval by a simple majority vote. Under our bye-laws,
the holders of at least a majority of the common shares voting in person or by
proxy at a meeting must generally approve an amalgamation with another company.
The Companies Act 1981 of Bermuda (the “Companies Act”) provides that a
resolution to remove our auditor before the expiration of its term of office
must be approved by at least two-thirds of the votes cast at a meeting of our
shareholders. The quorum for any meeting of our shareholders is two or more
persons holding or representing a majority of the outstanding common shares on
an unadjusted basis. Our board of directors has the power to approve our
discontinuation from Bermuda to another jurisdiction. Under our bye-laws, the
rights attached to any class of shares, common or preferred, may be varied with
the consent in writing of the holders of at least a majority of the issued
shares of that class or with the sanction of a resolution passed by a majority
of the votes cast at a separate general meeting of the holders of the shares of
the class.
In the
event of our liquidation, dissolution or winding-up, the holders of shares are
entitled to share equally and ratably in our assets, if any, remaining after the
payment of all our debts and liabilities and the liquidation preference of any
outstanding preferred shares. All outstanding shares are fully paid and
non-assessable. Authorized but unissued shares may, subject to any rights
attaching to existing shares, be issued at any time and at the discretion of the
board of directors without the approval of our shareholders, with such rights,
preferences and limitations as the board may determine.
Limitation
on Voting Rights
In
general, and except as provided under our bye-laws and as provided below, the
common shareholders have one vote for each common share held by them and are
entitled to vote, on a non-cumulative basis, at all meetings of shareholders.
However, if, and so long as, the shares of a shareholder are treated as
“controlled shares” (as determined pursuant to sections 957 and 958 of the
Internal Revenue Code of 1986, as amended (the “Code”)) of any U.S. Person (that
owns shares directly or indirectly through non-U.S. entities) and such
controlled shares constitute 9.5% or more of the votes conferred by our issued
shares, the voting rights with respect to the controlled shares owned by such
U.S. Person will be limited, in the aggregate, to a voting power of less than
9.5%, under a formula specified in our bye-laws. The formula is applied
repeatedly until the voting power of all 9.5% U.S. Shareholders has been reduced
to less than 9.5%. In addition, our board may limit a shareholder’s voting
rights when it deems it appropriate to do so to (i) avoid the existence of any
9.5% U.S. Shareholder; and (ii) avoid certain material adverse tax, legal or
regulatory consequences to us, any of our subsidiaries or any direct or indirect
shareholder or its affiliates. “Controlled shares” include, among other things,
all shares that such U.S. Person is deemed to own directly, indirectly or
constructively (within the meaning of section 958 of the Code). The amount of
any reduction of votes that occurs by operation of the above limitations will
generally be reallocated proportionately amongst other shareholders whose shares
were not “controlled shares” of the 9.5% U.S. Shareholder so long as such
reallocation does not cause any person to become a 9.5% U.S.
Shareholder.
Under
these provisions, certain shareholders may have their voting rights limited,
while other shareholders may have voting rights in excess of one vote per share.
Moreover, these provisions could have the effect of reducing the votes of
certain shareholders who would not otherwise be subject to the 9.5% limitation
by virtue of their direct share ownership.
We are
authorized to require any shareholder to provide information as to that
shareholder’s beneficial share ownership, the names of persons having beneficial
ownership of the shareholder’s shares, relationships with other shareholders or
any other facts the directors may deem relevant to a determination of the number
of common shares attributable to any person. If any holder fails to respond to
this request or submits incomplete or inaccurate information, we may, in our
sole discretion, eliminate the shareholder’s voting rights. Pursuant to our
bye-laws, a shareholder must give notice within ten days of the date the
shareholder acquires actual knowledge that it is the direct or indirect holder
of controlled shares of 9.5% or more of the voting power of all our issued and
outstanding shares. No shareholder will be liable to any other shareholder or to
us for any losses or damages resulting from the shareholder’s failure to respond
to, or submission of incomplete or inaccurate information in response to, a
request from us for information as to the shareholder’s beneficial share
ownership or from the shareholder’s failure to give the notice described in the
previous sentence. All information provided by the shareholder will be treated
by us as confidential information and will be used by us solely for the purpose
of establishing whether any 9.5% U.S. Shareholder exists (except as otherwise
required by applicable law or regulation).
If Maiden
Holdings is required or entitled to vote at an annual or special general meeting
(or to act by unanimous written consent in lieu of a general meeting) of any
directly held non-U.S. subsidiary (including Maiden Insurance), the Maiden
Holdings directors would refer the subject matter of the vote to the Maiden
Holdings shareholders and seek direction from such shareholders as to how the
Maiden Holdings directors should vote on the resolution proposed by the non-U.S.
subsidiary. In such cases, the voting rights of Maiden Holdings’ shareholders
will be subject to the same restriction on voting power as set forth above.
Substantially similar provisions are contained in the bye-laws (or equivalent
governing documents) of the non-U.S. subsidiaries.
Restrictions
on Transfer, Issuance and Repurchase
Our
directors may decline to register the transfer of any shares if they have reason
to believe that such transfer may expose us or any direct or indirect
shareholder or its affiliates to non-de minimis adverse tax, legal or regulatory
consequences in any jurisdiction. Similarly, we could be restricted from issuing
or repurchasing shares if our directors believe that such issuance or repurchase
may result in a non-de minimis adverse tax, legal or regulatory consequence to
us or any direct or indirect shareholder or its affiliates.
Our
directors also may, in their absolute discretion, decline to register the
transfer of any shares if they have reason to believe that registration of the
transfer under the Securities Act or under any U.S. state securities laws or
under the laws of any other jurisdiction is required and such registration has
not been duly effected. In addition, our directors may decline to approve or
register a transfer of shares unless all applicable consents, authorizations,
permissions or approvals of any governmental body or agency in Bermuda, the
United States or any other applicable jurisdiction required to be obtained prior
to such transfer shall have been obtained.
We are
authorized to request information from any holder or prospective acquirer of
shares as necessary to give effect to the transfer, issuance and repurchase
restrictions described above, and may decline to effect any transaction if
complete and accurate information is not received as requested.
Conyers
Dill & Pearman, our Bermuda counsel, has advised us that while the precise
form of the restrictions on transfer contained in our bye-laws is untested, as a
matter of general principle, restrictions on transfers are enforceable under
Bermuda law and are not uncommon. A proposed transferee will be permitted to
dispose of any shares purchased that violate the restrictions and as to the
transfer of which registration is refused. The proposed transferor of those
shares will be deemed to own those shares for dividend, voting and reporting
purposes until a transfer of such shares has been registered on our shareholders
register.
If the
directors refuse to register a transfer for any reason, they must notify the
proposed transferor and transferee within 30 days of such refusal. Our bye-laws
also provide that our board of directors may suspend the registration of
transfers for any reason and for such periods as it may determine, provided that
it may not suspend the registration of transfers for more than 45 days in any
period of 365 consecutive days.
The
voting restrictions and restrictions on transfer described above may have the
effect of delaying, deferring or preventing a change in control of Maiden
Holdings.
Bye-laws
Our
bye-laws provide for our corporate governance, including the establishment of
share rights, modification of those rights, issuance of share certificates,
calls on shares which are not fully paid, forfeiture of shares, the transfer of
shares, alterations of capital, the calling and conduct of general meetings,
proxies, the appointment and removal of directors, conduct and power of
directors, the payment of dividends, the appointment of an auditor and our
winding-up.
Our
bye-laws provide that shareholders may only remove a director for cause prior to
the expiration of that director’s term at a meeting of shareholders at which a
majority of the holders of shares voting thereon vote in favor of that
action.
Our
bye-laws may only be amended by a resolution adopted by the board of directors
and by resolution of the shareholders.
Transfer
Agent
Our
registrar and transfer agent for the shares is American Stock Transfer &
Trust Company.
Listing
Our
common shares are listed on the NASDAQ Global Select Market under the symbol
“MHLD.”
Differences
in Corporate Law
The
Companies Act differs in certain material respects from laws generally
applicable to U.S. corporations and their shareholders. Set forth below is a
summary of certain significant provisions of the Companies Act (including
modifications adopted pursuant to our bye-laws) applicable to us, which differ
in certain respects from provisions of Delaware corporate law, which is the law
that governs many U.S. public companies. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be relevant
to us and our shareholders.
Duties
of Directors
Under
Bermuda law, at common law, members of a board of directors owe a fiduciary duty
to the company to act in good faith in their dealings with or on behalf of the
company and exercise their powers and fulfill the duties of their office
honestly. This duty has the following essential elements:
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a
duty to act in good faith in the best interests of the
company;
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a
duty not to make a personal profit from opportunities that arise from the
office of director;
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a
duty to avoid conflicts of interest;
and
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a
duty to exercise powers for the purpose for which such powers were
intended.
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The
Companies Act imposes a duty on directors and officers of a Bermuda
company:
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to
act honestly and in good faith with a view to the best interests of the
company; and
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to
exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable
circumstances.
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In
addition, the Companies Act imposes various duties on officers of a company with
respect to certain matters of management and administration of the
company.
The
Companies Act provides that in any proceedings for negligence, default, breach
of duty or breach of trust against any officer, if it appears to a court that
such officer is or may be liable in respect of the negligence, default, breach
of duty or breach of trust, but that he has acted honestly and reasonably, and
that, having regard to all the circumstances of the case, including those
connected with his appointment, he ought fairly to be excused for the
negligence, default, breach of duty or breach of trust, that court may relieve
him, either wholly or partly, from any liability on such terms as the court may
think fit. This provision has been interpreted to apply only to actions brought
by or on behalf of the company against such officer. Our bye-laws, however,
provide that shareholders waive all claims or rights of action that they might
have, individually or in the right of Maiden Holdings, against any director or
officer of us for any act or failure to act in the performance of such
director’s or officer’s duties, except this waiver does not extend to any claims
or rights of action that arise out of fraud or dishonesty on the part of such
director or officer.
Under
Delaware law, the business and affairs of a corporation are managed by or under
the direction of its board of directors. In exercising their powers, directors
are charged with a fiduciary duty of care to protect the interests of the
corporation and a fiduciary duty of loyalty to act in the best interests of its
stockholders.
The duty
of care requires that directors act in an informed and deliberative manner and
inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of care also requires that
directors exercise care in overseeing and investigating the conduct of corporate
employees. The duty of loyalty may be summarized as the duty to act in good
faith, not out of self-interest, and in a manner which the director reasonably
believes to be in the best interests of the stockholders.
A party
challenging the propriety of a decision of a board of directors bears the burden
of rebutting the applicability of the presumptions afforded to directors by the
“business judgment rule.” If the presumption is not rebutted, the business
judgment rule attaches to protect the directors and their decisions, and their
business judgments will not be second-guessed. Where, however, the presumption
is rebutted, the directors bear the burden of demonstrating the entire fairness
of the relevant transaction. Notwithstanding the foregoing, Delaware courts
subject directors’ conduct to enhanced scrutiny in respect of defensive actions
taken in response to a threat to corporate control and approval of a transaction
resulting in a sale of control of the corporation.
Dividends
Bermuda
law does not permit payment of dividends or distributions of contributed surplus
by a company if there are reasonable grounds for believing that the company,
after the payment is made, would be unable to pay its liabilities as they become
due, or that the realizable value of the company’s assets would be less, as a
result of the payment, than the aggregate of its liabilities and its issued
share capital and share premium accounts. The excess of the consideration paid
on issue of shares over the aggregate par value of such shares must (except in
certain limited circumstances) be credited to a share premium account. Share
premium may be distributed in certain limited circumstances, for example to pay
up unissued shares which may be distributed to shareholders in proportion to
their holdings, but is otherwise subject to limitation. In addition, our ability
to pay dividends is subject to Bermuda insurance laws and regulatory
constraints.
Under
Delaware law, subject to any restrictions contained in the company’s certificate
of incorporation, a company may pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year. Delaware law also provides that
dividends may not be paid out of net profits at any time when capital is less
than the capital represented by the outstanding stock of all classes having a
preference upon the distribution of assets.
Mergers
and Similar Arrangements
The
amalgamation of a Bermuda company with another company or corporation (other
than certain affiliated companies) requires the amalgamation agreement to be
approved by the company’s board of directors and by its shareholders. Under our
bye-laws, we may, with the approval of at least majority of the votes cast at a
general meeting of our shareholders at which a quorum is present, amalgamate
with another Bermuda company or with a body incorporated outside Bermuda. In the
case of an amalgamation, a shareholder may apply to a Bermuda court for a proper
valuation of such shareholder’s shares if such shareholder is not satisfied that
fair value has been paid for such shares. Under Delaware law, with certain
exceptions, a merger, consolidation or sale of all or substantially all the
assets of a corporation must be approved by the board of directors and the
holders of a majority of the outstanding shares entitled to vote thereon. Under
Delaware law, a stockholder of a corporation participating in certain major
corporate transactions may, under certain circumstances, be entitled to
appraisal rights pursuant to which the stockholder may receive cash in the
amount of the fair value of the shares held by that stockholder (as determined
by a court) in lieu of the consideration that the stockholder would otherwise
receive in the transaction. Delaware law does not provide stockholders of a
corporation with voting or appraisal rights when the corporation acquires
another business through the issuance of its stock or other consideration (i) in
exchange for the assets of the business to be acquired; (ii) in exchange for the
outstanding stock of the corporation to be acquired; (iii) in a merger of the
corporation to be acquired with a subsidiary of the acquiring corporation; or
(iv) in a merger in which the corporation’s certificate of incorporation is not
amended and the corporation issues less than 20% of its common stock outstanding
prior to the merger.
Takeovers
Bermuda
law provides that where an offer is made for shares of another company and,
within four months of the offer, the holders of not less than 90% of the shares
which are the subject of the offer (other than shares held by or for the offeror
or its subsidiaries) accept, the offeror may by notice require the nontendering
shareholders to transfer their shares on the terms of the offer. Dissenting
shareholders may apply to the court within one month of the notice objecting to
the transfer. The test is one of fairness to the body of the shareholders and
not to individuals and the burden is on the dissenting shareholder to prove
unfairness, not merely that the scheme is open to criticism. Delaware law
provides that a parent corporation, by resolution of its board of directors and
without any shareholder vote, may merge with any subsidiary of which it owns at
least 90% of the outstanding shares of each class of stock that is entitled to
vote on the transaction. Upon any such merger, dissenting stockholders of the
subsidiary would have appraisal rights.
Interested
Directors
Bermuda
law provides that if a director has a personal interest in a transaction to
which the company is also a party and if the director discloses the nature of
this personal interest at the first opportunity, either at a meeting of
directors or in writing to the directors, then the company will not be able to
declare the transaction void solely due to the existence of that personal
interest and the director will not be liable to the company for any profit
realized from the transaction. In addition, Bermuda law and our bye-laws provide
that, after a director has made the declaration of interest referred to above,
he is allowed to be counted for purposes of determining whether a quorum is
present and to vote on a transaction in which he has an interest, unless
disqualified from doing so by the chairman of the relevant board meeting. Under
Delaware law such transaction would not be voidable if (i) the material facts as
to such interested director’s relationship or interests are disclosed to or are
known by the board of directors and the board in good faith authorizes the
transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed to or are known by the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the majority of shares entitled
to vote thereon or (iii) the transaction is fair as to the corporation as of the
time it is authorized, approved or ratified. Under Delaware law, such interested
director could be held liable for a transaction in which such director derived
an improper personal benefit.
Shareholder’s
Suit
The
rights of shareholders under Bermuda law are not as extensive as the rights of
shareholders under legislation or judicial precedent in many U.S. jurisdictions.
Class actions and derivative actions are generally not available to shareholders
under the laws of Bermuda. However, the Bermuda courts ordinarily would be
expected to follow English case law precedent, which would permit a shareholder
to commence an action in our name to remedy a wrong done to us where the act
complained of is alleged to be beyond our corporate power or is illegal or would
result in the violation of our memorandum of association or bye-laws.
Furthermore, consideration would be given by the court to acts that are alleged
to constitute a fraud against the minority shareholders or where an act requires
the approval of a greater percentage of shareholders than actually approved it.
The winning party in such an action generally would be able to recover a portion
of attorneys’ fees incurred in connection with such action. Our bye-laws provide
that shareholders waive all claims or rights of action that they might have,
individually or in the right of Maiden Holdings, against any of our directors or
officers for any act or failure to act in the performance of such director’s or
officer’s duties, except with respect to any fraud or dishonesty of such
director or officer. Class actions and derivative actions generally are
available to stockholders under Delaware law for, among other things, breach of
fiduciary duty, corporate waste and actions not taken in accordance with
applicable law. In such actions, the court has discretion to permit the winning
party to recover attorneys’ fees incurred in connection with such
action.
Indemnification
of Directors and Officers
Our
bye-laws indemnify our directors and officers in their capacity as such in
respect of any loss arising or liability attaching to them by virtue of any rule
of law in respect of any negligence, default, breach of duty or breach of trust
of which a director or officer may be guilty in relation to us other than in
respect of his own fraud or dishonesty, which is the maximum extent of
indemnification permitted under the Companies Act. Under Delaware law, a
corporation may indemnify a director or officer of the corporation against
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in defense of an action, suit or
proceeding by reason of such position if (i) the director or officer acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and (ii) with respect to any criminal action
or proceeding, if the director or officer had no reasonable cause to believe his
conduct was unlawful. Under our bye-laws, each of our shareholders agrees to
waive any claim or right of action, other than those involving fraud or
dishonesty, against us or any of our officers or directors. In addition, we have
entered into indemnification agreements with our directors and
officers.
Inspection
of Corporate Records
Members
of the general public have the right to inspect our public documents available
at the office of the Registrar of Companies in Bermuda, which includes our
memorandum of association (including our objects and powers) and alterations to
our memorandum of association, including any increase or reduction of our
authorized capital. Our shareholders have the additional right to inspect our
bye-laws, minutes of general meetings and our audited financial statements,
which must be presented to the annual general meeting of shareholders. Our
register of shareholders is also open to inspection by shareholders and to
members of the public without charge. We are required to maintain a share
register in Bermuda but may establish a branch register outside Bermuda. We are
required to keep at our registered office a register of our directors and
officers which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records. Delaware law permits
any stockholder to inspect or obtain copies of a corporation’s stockholder list
and its other books and records for any purpose reasonably related to such
person’s interest as a stockholder.
Enforcement
of Judgments and Other Matters
We have
been advised by Conyers Dill & Pearman, our Bermuda counsel, that there is
doubt as to whether the courts of Bermuda would enforce (i) judgments of U.S.
courts obtained in actions against us or our directors and officers who may
reside outside the United States, as well as the experts named in this
prospectus who reside outside the United States, predicated upon the civil
liability provisions of the U.S. federal securities laws and (ii) original
actions brought in Bermuda against us or our directors and officers, as well as
the experts named in this prospectus who reside outside the United States
predicated solely upon U.S. federal securities laws. There is no treaty in
effect between the United States and Bermuda providing for such enforcement, and
there are grounds upon which Bermuda courts may not enforce judgments of U.S.
courts. Certain remedies available under the laws of U.S. jurisdictions,
including certain remedies available under the U.S. federal securities laws,
would not be allowed in Bermuda courts as contrary to Bermuda’s public
policy.
Registration
Rights
Purchasers
in the January 20, 2009 Private Offering
On
January 20, 2009, we completed a private placement of 260,000 Units, each Unit
consisting of $1,000 principal amount of Trust Preferred Securities of Maiden
Capital Financing Trust, a trust established by Maiden NA, and 45 of our common
shares. In connection with the private placement, we entered into a
purchase agreement with the selling shareholders named under the “Selling
Shareholders” section of this prospectus, pursuant to which we filed a registration
statement on Form S-1, of which this prospectus is a part, to register
under the Securities Act the sale by the selling shareholders of all of our
common shares they acquired in the private placement. These registration rights
are subject to certain conditions and limitations. We are generally required to
bear all of the expenses of this registration, except underwriting discounts and
selling commissions. The sale of any of our common shares by the selling
shareholders pursuant to the registration statement would result in those common
shares becoming freely tradable without restriction under the Securities
Act. We agreed to indemnify the selling shareholders for
certain violations of U.S. federal or state securities laws in connection with
any registration statement filed pursuant to these registration rights under
which the selling shareholders sell their common shares.
Founding
Shareholders’ Registration Rights
We
entered into a registration rights agreement with our Founding Shareholders,
pursuant to which we agreed to register the 7,800,000 common shares they have
purchased from us, together with the 4,050,000 of our common shares issuable
upon the exercise of the warrants we granted to our Founding Shareholders in
connection with our formation and capitalization. These registration rights
are subject to certain conditions and limitations and include, subject to
certain limitations, the right to participate in future registered offerings of
our common shares and the right to request on not more than two occasions that
we register a portion or all of their shares. We are generally required
to bear all of the expenses of the registration, except underwriting discounts
and selling commissions. We agreed to indemnify our Founding Shareholders
for certain violations of U.S. federal or state securities laws in connection
with any registration statement filed pursuant to these registration rights
under which our Founding Shareholders sell their common shares.
MATERIAL
TAX CONSIDERATIONS
The
following summary of our taxation and the taxation of our shareholders is based
upon current law and is for general information only. Legislative, judicial or
administrative changes may be forthcoming that could affect this
summary.
The
following legal discussion (including and subject to the matters and
qualifications set forth in such summary) of the material tax considerations
under (i) “Taxation of Maiden Holdings and Maiden Insurance — Bermuda” and
“Taxation of Shareholders — Bermuda Taxation” is based upon the advice
of Conyers Dill & Pearman, our Bermuda counsel, (ii) “Taxation of Maiden
Holdings and Maiden Insurance — United States” and “Taxation of
Shareholders — United States Taxation” is based upon the advice of
Edwards Angell Palmer & Dodge LLP, Boston, Massachusetts, and (iii)
“Taxation of Maiden Holdings and Maiden Insurance — United Kingdom” is
based upon the advice of Edwards Angell Palmer & Dodge UK LLP, London,
United Kingdom. The advice of such firms does not include any factual or
accounting matters, determinations or conclusions including amounts and
computations of RPII (as defined below) and amounts or components thereof or
facts relating to our business or activities and is premised on the accuracy of
the assumptions contained herein and the factual statements and representations
made to such firms. The discussion is based upon current law. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could be retroactive and could affect the tax consequences to us or holders of
our shares. The tax treatment of a holder of our shares, or of a person treated
as a holder of our shares for U.S. federal income, state, local or non-U.S. tax
purposes, may vary depending on the holder’s particular tax situation.
Statements contained herein as to the beliefs, expectations, intentions and
conditions of Maiden Holdings and Maiden Insurance as to the application of such
tax laws or facts represent the view of management as to the application of such
laws and do not represent the opinions of counsel.
PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX
CONSEQUENCES OF OWNING THE SHARES.
Taxation
of Maiden Holdings and Maiden Insurance
Bermuda
Under
current Bermuda law, there is no income, corporate or profits tax or withholding
tax, capital gains tax or capital transfer tax, estate or inheritance tax
payable by us or our shareholders, other than shareholders ordinarily resident
in Bermuda, if any. Maiden Holdings and Maiden Insurance have each received from
the Minister of Finance under The Exempted Undertaking Tax Protection Act 1966,
as amended, an assurance that, in the event that Bermuda enacts legislation
imposing tax computed on profits, income, any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance, then the
imposition of any such tax shall not be applicable to Maiden Holdings and Maiden
Insurance or to any of their operations or their shares, debentures or other
obligations, until March 28, 2016. Maiden Holdings and Maiden Insurance could be
subject to taxes in Bermuda after that date. This assurance is subject to the
proviso that it is not to be construed so as to prevent the application of any
tax or duty to such persons as are ordinarily resident in Bermuda or to prevent
the application of any tax payable in accordance with the provisions of the Land
Tax Act 1967 or otherwise payable in relation to any property leased to Maiden
Holdings and Maiden Insurance. Maiden Holdings and Maiden Insurance each pay
annual Bermuda government fees, and Maiden Insurance pays annual insurance
license fees. In addition, all entities employing individuals in Bermuda are
required to pay a payroll tax and there are other sundry taxes payable, directly
or indirectly, to the Bermuda government.
United
States
The
following discussion is a summary of material U.S. tax considerations relating
to our operations. A non-U.S. corporation that is engaged in the conduct of a
U.S. trade or business will be subject to U.S. federal income tax as described
below, unless entitled to the benefits of an applicable tax treaty. Our
subsidiary, Maiden NA, will file a U.S. tax return as to the operations of it
and its subsidiaries. Whether business is being conducted in the United States
is an inherently factual determination. However, (i) because there is
considerable uncertainty as to activities which constitute being engaged in a
trade or business within the United States, (ii) a significant portion of Maiden
Insurance’s business will be reinsurance of AmTrust’s insurance subsidiaries and
reinsurance of subsidiaries of Maiden NA and, if we are unable to retain
customers of Maiden Re, Maiden Insurance may not be able to expand its
reinsurance business beyond its agreement with AmTrust, (iii) Maiden Insurance
has entered into a brokerage services agreement with IGI Inc. (an AmTrust
subsidiary that provides brokerage services in the United States), (iv) our
Chairman of the Board is AmTrust’s President and Chief Executive Officer, and
certain of our executive officers or directors and former executive officers are
also either executive officers of AmTrust or related to directors of AmTrust,
including (a) our former interim Chief Financial Officer for part of 2007 was at
the time and is AmTrust’s Chief Financial Officer, (b) our former Chief
Executive Officer is currently an executive officer of AmTrust, and (c) one of
our directors is related to two directors of AmTrust and a significant
shareholder of AmTrust and is employed by a company controlled by the majority
shareholders of AmTrust, (v) we will have an asset management agreement with a
subsidiary of AmTrust and may also have additional contractual relationships
with AmTrust in the future, and (vi) the activities conducted outside the United
States related to Maiden Insurance’s start-up were limited, we cannot be certain
that the IRS will not contend successfully that we are engaged in a trade or
business in the U.S. A non-U.S. corporation deemed to be so engaged would be
subject to U.S. federal income tax at regular corporate rates, as well as the
branch profits tax, on its income which is treated as effectively connected with
the conduct of that trade or business unless the corporation is entitled to
relief under the permanent establishment provision of an applicable tax treaty,
as discussed below. Such income tax, if imposed, would be based on effectively
connected income computed in a manner generally analogous to that applied to the
income of a U.S. corporation, except that a non-U.S. corporation is generally
entitled to deductions and credits only if it files a U.S. federal income tax
return. Maiden Insurance intends to file protective U.S. federal income tax
returns. The highest marginal federal income tax rates currently are 35% for a
corporation’s effectively connected income and 30% for the additional “branch
profits” tax.
If Maiden
Insurance is entitled to benefits under the income tax treaty between the United
States and Bermuda, which we refer to as the Bermuda Treaty, Maiden Insurance
would not be subject to U.S. federal income tax on any income found to be
effectively connected with a U.S. trade or business unless that trade or
business is conducted through a permanent establishment in the United States. No
regulations interpreting the Bermuda Treaty have been issued. Maiden Insurance
currently intends to conduct its activities so that it does not have a permanent
establishment in the United States, although we cannot be certain that we will
achieve this result.
An
insurance enterprise resident in Bermuda generally will be entitled to the
benefits of the Bermuda Treaty if (i) more than 50% of its shares are owned
beneficially, directly or indirectly, by individual residents of the United
States or Bermuda or U.S. citizens and (ii) its income is not used in
substantial part, directly or indirectly, to make disproportionate distributions
to, or to meet certain liabilities of, persons who are neither residents of
either the United States or Bermuda nor U.S. citizens. We cannot be certain that
Maiden Insurance will be eligible for Bermuda Treaty benefits immediately
following this offering or in the future because of factual and legal
uncertainties regarding the residency and citizenship of Maiden Holdings’
shareholders. Maiden Holdings would not be eligible for treaty benefits because
it is not an insurance company. Accordingly, Maiden Holdings and Maiden
Insurance have conducted and intend to conduct substantially all of their
operations outside the United States and to limit their U.S. contacts, other
than as noted above, so that Maiden Holdings and Maiden Insurance can mitigate
the risk that they would be treated as engaged in the conduct of a trade or
business in the United States.
Non-U.S.
insurance companies carrying on an insurance business within the United States
have a certain minimum amount of effectively connected net investment income,
determined in accordance with a formula that depends, in part, on the amount of
U.S. risk insured or reinsured by such companies. If Maiden Insurance is
considered to be engaged in the conduct of an insurance business in the United
States and it is not entitled to the benefits of the Bermuda Treaty in general
(because it fails to satisfy one of the limitations on treaty benefits discussed
above), the Code could subject a significant portion of Maiden Insurance’s
investment income to U.S. federal income tax. In addition, while the Bermuda
Treaty clearly applies to premium income, it is uncertain whether the Bermuda
Treaty applies to other income such as investment income. If Maiden Insurance is
considered engaged in the conduct of an insurance business in the United States
and is entitled to the benefits of the Bermuda Treaty in general, but the
Bermuda Treaty is interpreted to not apply to investment income, a significant
portion of Maiden Insurance’s investment income could be subject to U.S. federal
income tax.
Non-U.S.
corporations not engaged in a trade or business in the United States are
nonetheless subject to a U.S. income tax imposed by withholding on certain
“fixed or determinable annual or periodic gains, profits and income” derived
from sources within the United States (such as dividends and certain interest on
investments), subject to exemption under the Code or reduction by applicable
treaties. The Bermuda Treaty does not reduce the U.S. federal withholding rate
on U.S.-sourced investment income.
The
United States also imposes an excise tax on insurance and reinsurance premiums
paid to non-U.S. insurers or reinsurers (the “FET”) (i) with respect to risks of
a U.S. entity or individual located wholly or partly within the United States
and (ii) with respect to risks of a non-U.S. entity or individual engaged in a
trade or business in the United States which are located within the United
States (“U.S. Situs Risks”). The rates of tax applicable to premiums paid to
Maiden Insurance are 4% for direct casualty insurance premiums and 1% for
reinsurance premiums.
The IRS,
in Revenue Ruling 2008-15, has formally announced its position that the FET is
applicable (at a 1% rate on premiums) to all reinsurance cessions or
retrocessions of risks by non-U.S. insurers or reinsurers to non-U.S. reinsurers
where the underlying risks are U.S. Situs Risks, even if the FET has been paid
on prior cessions of the same risks. The legal and jurisdictional basis for, and
the method of enforcement of, the IRS' position is unclear. Maiden Insurance has
not determined if the FET should be applicable with respect to risks ceded to it
by, or by it to, a non-U.S. insurance company. If the FET is applicable, it
should apply at a 1% rate on premium for all U.S. Situs Risks ceded to Maiden
Insurance by a non-U.S. insurance company, or by Maiden Insurance to a non-U.S.
insurance company, even though the FET also applies at a 1% rate on premium
ceded to Maiden Insurance with respect to such risks.
With
respect to related party cross border reinsurance, section 845 of the Code
allows the IRS to allocate income, deductions, assets, reserves, credits and any
other items related to a reinsurance agreement among certain related parties to
the reinsurance agreement, or in circumstances where one party is an agent of
the other, recharacterize such items, or make any other adjustment, in order to
reflect the proper source, character or amount of the items for each party. In
addition, if a reinsurance contract has a significant tax avoidance effect on
any party to the contract, the IRS may make adjustments with respect to such
party to eliminate the tax avoidance effect. No regulations have been issued
under section 845 of the Code. Accordingly, the application of such provisions
to us is uncertain and we cannot predict what impact, if any, such provisions
may have on us. It is also possible that legislation may be enacted
that has a negative impact on the tax treatment of related party cross-border
reinsurance with respect to U.S. Situs Risks.
United
Kingdom
A company
which is resident in the UK for UK corporation tax purposes is subject to UK
corporation tax in respect of its worldwide income and gains. Neither Maiden
Holdings nor Maiden Insurance is incorporated in the UK. Nevertheless, Maiden
Holdings or Maiden Insurance would be treated as being resident in the UK for UK
corporation tax purposes if its central management and control were exercised in
the UK. The concept of central management and control is indicative of the
highest level of control of a company’s affairs, which is wholly a question of
fact. The directors and officers of both Maiden Holdings and Maiden Insurance
intend to manage their affairs so that both companies are resident in Bermuda,
and not resident in the UK, for UK tax purposes. However, Her Majesty’s Revenue
& Customs could challenge our tax residence status.
A company
which is not resident in the UK for UK corporation tax purposes can nevertheless
be subject to UK corporation tax at the rate of 28% if it carries on a trade in
the UK through a permanent establishment in the UK, but the charge to UK
corporation tax is broadly limited to profits (including income profits and
chargeable gains) attributable directly or indirectly to such permanent
establishment. Broadly, a company will have a permanent establishment in the UK
if it has a fixed place of business in the UK through which the business of the
company is wholly or partly carried on or if an agent acting on behalf of the
company habitually exercises authority in the UK to do business on behalf of the
company.
The
directors and officers of Maiden Insurance intend to operate the business of
Maiden Insurance in such a manner that it does not carry on a trade in the UK
through a permanent establishment in the UK. Nevertheless, as there can be
considerable uncertainty as to the activities which constitute carrying on a
trade in the UK through a permanent establishment in the UK, Her Majesty’s
Revenue & Customs might contend successfully that Maiden Insurance is
trading in the UK through such an establishment.
The UK
has no income tax treaty with Bermuda. Companies that are neither resident in
the UK nor entitled to the protection afforded by a double tax treaty between
the UK and the jurisdiction in which they are resident may be exposed to income
tax in the UK (other than by deduction or withholding), at the basic rate of
20%, on the profits of a trade carried on in the UK even where that trade is not
carried on through a permanent establishment in the UK. The directors and
officers of Maiden Insurance intend to operate the business in such a manner
that Maiden Insurance will not fall within the charge to income tax in the UK
(other than by way of deduction or withholding) in this respect.
If either
Maiden Holdings or Maiden Insurance were treated as being resident in the UK for
UK corporation tax purposes, or if Maiden Insurance was treated as carrying on a
trade in the UK, whether through a permanent establishment or otherwise, the
results of the Group’s operations could be materially adversely
affected.
Taxation
of Shareholders
Bermuda
Taxation
Currently,
there is no Bermuda income, corporate or profits tax or withholding tax, capital
gains tax or capital transfer tax, estate or inheritance tax or other tax
payable by holders of our shares, other than shareholders ordinarily resident in
Bermuda, if any.
United
States Taxation
The
following summary sets forth the material U.S. federal income tax considerations
related to the ownership and disposition of our shares. Unless otherwise stated,
this summary deals only with shareholders that are U.S. Persons (as defined
below) who acquire our shares through this offering, who do not own (directly,
indirectly through non-U.S. entities or “constructively”) shares of Maiden
Holdings or Maiden Insurance prior to this offering and who hold their shares as
capital assets within the meaning of section 1221 of the Code. The following
discussion is only a discussion of the material U.S. federal income tax matters
as described herein and does not purport to address all of the U.S. federal
income tax consequences that may be relevant to a particular shareholder in
light of such shareholder’s specific circumstances. In addition, except as
disclosed below, the following summary does not address the U.S. federal income
tax consequences that may be relevant to special classes of shareholders, such
as financial institutions, insurance companies, regulated investment companies,
real estate investment trusts, dealers or traders in securities, tax exempt
organizations, expatriates, investors in pass-through entities, persons who are
considered with respect to either Maiden Holdings or Maiden Insurance as “United
States shareholders” for purposes of the CFC rules of the Code (generally, a
U.S. Person, as defined below, who owns, directly, indirectly through foreign
entities or constructively, 10% or more of the total combined voting power of
all classes of Maiden Holdings or Maiden Insurance shares entitled to vote (a
“10% U.S. Shareholder”)), or persons who hold their shares as part of a hedging
or conversion transaction or as part of a short-sale or straddle, who may be
subject to special rules or treatment under the Code. This discussion is based
upon the Code, the Treasury Regulations promulgated thereunder and any relevant
administrative rulings or pronouncements or judicial decisions, all as in effect
on the date hereof and as currently interpreted, and does not take into account
possible changes in such tax laws or interpretations thereof, which may apply
retroactively. This discussion does not include any description of the tax laws
of any state or local governments within the United States or of any non-U.S.
government and does not discuss the effect of the alternative minimum tax.
Persons considering making an investment in our shares should consult their own
tax advisors concerning the application of the U.S. federal tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or non-U.S. taxing jurisdiction prior to making such
investment.
If a
partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds our shares, the tax treatment of the partners will
generally depend on the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our shares, you
should consult your tax advisor.
For
purposes of this discussion, the term “U.S. Person” means: (i) an individual
citizen or resident of the United States, (ii) a partnership or corporation
created or organized in or under the laws of the United States, or under the
laws of any State thereof (including the District of Columbia), (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its
source, (iv) a trust if either (x) a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more U.S. Persons have the authority to control all substantial decisions of
such trust or (y) the trust has a valid election in effect to be treated as a
U.S. Person for U.S. federal income tax purposes or (v) any other person or
entity that is treated for U.S. federal income tax purposes as if it were one of
the foregoing.
Taxation of Distributions.
Subject to the discussions below relating to the potential application of the
CFC, RPII and PFIC rules, cash distributions made with respect to our shares
will constitute dividends for U.S. federal income tax purposes to the extent
paid out of current or accumulated earnings and profits of Maiden Holdings (as
computed using U.S. tax principles). To the extent such distributions exceed
Maiden Holdings’ earnings and profits, they will be treated first as a return of
the shareholder’s basis in their shares to the extent thereof, and then as gain
from the sale of a capital asset. Dividends paid by us to corporate holders will
not be eligible for the dividends-received deduction. Since our common shares
have been approved for listing on the NASDAQ Global Select Market, we believe
dividends paid by us on our common shares before 2011 to non-corporate holders
will be eligible for reduced rates of tax up to a maximum of 15% as qualified
dividend income, provided that we are not a PFIC and certain other requirements,
including stock holding period requirements, are satisfied.
CFC Considerations. Each 10%
U.S. Shareholder of a non-U.S. corporation that is a CFC for an uninterrupted
period of 30 days or more during a taxable year, and who owns shares in the CFC,
directly or indirectly through non-U.S. entities, on the last day of the CFC’s
taxable year, must include in its gross income for U.S. federal income tax
purposes its pro rata share of the CFC’s “subpart F income,” even if the subpart
F income is not distributed. “Subpart F income” of a non-U.S. insurance
corporation typically includes foreign personal holding company income (such as
interest, dividends and other types of passive income), as well as insurance and
reinsurance income (including underwriting and investment income). A non-U.S.
corporation is considered a CFC if 10% U.S. Shareholders own (directly,
indirectly through non-U.S. entities or by attribution by application of the
constructive ownership rules of section 958(b) of the Code (that is,
“constructively”)) more than 50% of the total combined voting power of all
classes of voting stock of such non-U.S. corporation, or more than 50% of the
total value of all stock of such corporation on any day of the taxable year of
such corporation, which we refer to as the 50% CFC Test. For purposes of taking
into account insurance income, a CFC also includes a non-U.S. insurance company
in which more than 25% of the total combined voting power of all classes of
stock or more than 25% of the total value of all stock is owned (directly,
indirectly through non-U.S. entities or constructively) by 10% U.S. Shareholders
on any day of the taxable year of such corporation, which we refer to as the 25%
CFC Test, if the gross amount of premiums or other consideration for the
reinsurance or the issuing of insurance or annuity contracts (other than certain
insurance or reinsurance related to same country risks written by certain
insurance companies not applicable here) exceeds 75% of the gross amount of all
premiums or other consideration in respect of all risks. Moreover, Maiden
Insurance may be characterized as a CFC even if, based on the nominal voting
power attributable to its shares, it avoids CFC characterization under the 50%
CFC Test in the case of Maiden Holdings and the 25% CFC Test in the case of
Maiden Insurance if, based on the facts and circumstances, U.S. Persons who are
not 10% U.S. Shareholders based on the nominal voting power attributable to the
shares of Maiden Holdings or Maiden Insurance owned by such U.S. Persons
exercise control over Maiden Holdings or Maiden Insurance disproportionate to
their nominal voting power in such a manner that Maiden Holdings or Maiden
Insurance should be considered a CFC under the 50% CFC Test or 25% CFC Test, as
applicable.
We
believe, subject to the discussion below, that after the closing of this
offering, because of the anticipated dispersion of our share ownership,
provisions in our organizational documents that limit voting power (these
provisions are described in “Description of Share Capital”) and other factors,
no U.S. Person who acquires our shares in this offering directly or indirectly
through non-U.S. entities and that did not own (directly, indirectly through
non-U.S. entities, or “constructively”) shares of Maiden Holdings or Maiden
Insurance prior to this offering should be treated as owning (directly,
indirectly through non-U.S. entities or “constructively”) 10% or more of the
total voting power of all classes of shares of Maiden Holdings or Maiden
Insurance. However, the IRS could challenge the effectiveness of the provisions
in our organizational documents and a court could sustain such a challenge.
Accordingly, no assurance can be given that a U.S. Person who owns our shares
will not be characterized as a 10% U.S. Shareholder.
The RPII CFC Provisions. The
following discussion generally is applicable only if either the 20% Gross Income
Exception (as defined below) or the 20% Ownership Exception (as defined below)
is not met. The following discussion generally would not apply for any tax year
in which Maiden Insurance meets the 20% Gross Income Exception or the 20%
Ownership Exception. Although we cannot be certain, we believe that Maiden
Insurance should meet either the 20% Ownership Exception or the 20% Gross Income
Exception for each tax year for the foreseeable future.
RPII is
any insurance income (as defined below) attributable to policies of insurance or
reinsurance with respect to which the person (directly or indirectly) insured is
a RPII shareholder (as defined below) or a related person (as defined below) to
such RPII shareholder. In general, and subject to certain limitations,
“insurance income” is income (including premium and investment income)
attributable to the issuing of any insurance or reinsurance contract which would
be taxed under the portions of the Code relating to insurance companies if the
income were the income of a domestic insurance company. The term “RPII
shareholder” means any U.S. Person who owns (directly or indirectly through
non-U.S. entities) any amount of Maiden Holdings’ or Maiden Insurance’s shares.
Generally, the term “related person” for this purpose means someone who controls
or is controlled by the RPII shareholder or someone who is controlled by the
same person or persons which control the RPII shareholder. Control is measured
by either more than 50% in value or more than 50% in voting power of stock
applying certain constructive ownership principles. A corporation’s pension plan
is ordinarily not a related person with respect to the corporation unless the
pension plan owns, directly or indirectly through the application of certain
constructive ownership rules, more than 50%, measured by vote or value, of the
stock of the corporation. Maiden Insurance will be treated as a CFC under the
RPII provisions if RPII shareholders are treated as owning (directly, indirectly
through non-U.S. entities or constructively) 25% or more of the shares of Maiden
Insurance by vote or value.
RPII Exceptions. The special
RPII rules do not apply to Maiden Insurance if (i) direct and indirect insureds
and persons related to such insureds, whether or not U.S. Persons, are treated
as owning (directly or indirectly through entities) less than 20% of the voting
power and less than 20% of the value of the shares of Maiden Insurance, which we
refer to as the 20% Ownership Exception, (ii) RPII, determined on a gross basis,
is less than 20% of the gross insurance income of Maiden Insurance for the
taxable year, which we refer to as the 20% Gross Income Exception, (iii) Maiden
Insurance elects to be taxed on its RPII as if the RPII were effectively
connected with the conduct of a U.S. trade or business and to waive all treaty
benefits with respect to RPII and meet certain other requirements or (iv) Maiden
Insurance elects to be treated as a U.S. corporation and waives all treaty
benefits and meets certain other requirements. Maiden Insurance does not intend
to make these elections. Where none of these exceptions applies to Maiden
Insurance, each U.S. Person owning directly or indirectly through non-U.S.
entities, any shares in Maiden Holdings (and therefore indirectly, in Maiden
Insurance) on the last day of Maiden Insurance’s taxable year will be required
to include in its gross income for U.S. federal income tax purposes its share of
the RPII of Maiden Insurance for the portion of the taxable year during which
Maiden Insurance was a CFC under the RPII provisions, determined as if all such
RPII were distributed proportionately only to such U.S. Persons at that date,
but limited by each such U.S. Person’s share of Maiden Insurance’s current-year
earnings and profits as reduced by the U.S. Person’s share, if any, of certain
prior-year deficits in earnings and profits. Maiden Insurance intends to operate
in a manner that is intended to ensure that it qualifies for either the 20%
Gross Income Exception or the 20% Ownership Exception; however, it is possible
that we will not be successful in qualifying under these
exceptions.
Computation of RPII. In order
to determine how much RPII Maiden Insurance has earned in each taxable year (for
purposes of providing this information to RPII shareholders), Maiden Insurance
may obtain and rely upon information from its insureds and reinsureds to
determine whether any of the insureds, reinsureds or persons related thereto own
(directly or indirectly through non-U.S. entities) shares of Maiden Insurance
and are U.S. Persons. Maiden Insurance may not be able to determine whether any
of its underlying direct or indirect insureds are RPII shareholders or related
persons to such RPII shareholders. Consequently, Maiden Insurance may not be
able to determine accurately the gross amount of RPII it earns in a given
taxable year or whether either the 20% Gross Income Exception or the 20%
Ownership Exception is met. For any year in which the 20% Ownership Exception
does not apply and the 20% Gross Income Exception is not met, Maiden Holdings
may also seek information from its shareholders as to whether beneficial owners
of Maiden Insurance shares at the end of the year are U.S. Persons so that the
RPII may be determined and apportioned among such persons; to the extent Maiden
Holdings is unable to determine whether a beneficial owner of Maiden Insurance
shares is a U.S. Person, Maiden Holdings may assume that such owner is not a
U.S. Person, thereby increasing the per share RPII amount for all known RPII
shareholders.
If, as
expected, Maiden Insurance meets the 20% Ownership Exception or 20% Gross Income
Exception for a taxable year, RPII shareholders will not be required to include
RPII in their taxable income. The amount of RPII includible in the income of a
RPII shareholder is based upon the net RPII income for the year after deducting
related expenses such as losses, loss reserves and operating
expenses.
Apportionment of RPII to U.S.
Persons. Every RPII shareholder who directly or indirectly owns shares of
Maiden Insurance on the last day of any taxable year of Maiden Insurance in
which the 20% Ownership Exception does not apply to Maiden Insurance and the 20%
Gross Income Exception is not met should expect that for such year the RPII
Shareholder will be required to include in gross income its share of Maiden
Insurance’s RPII for the portion of the taxable year during which Maiden
Insurance was a CFC under the RPII provisions, whether or not distributed, even
though such shareholders may not have owned the shares throughout such period. A
RPII shareholder who owns Maiden Insurance shares during such taxable year but
not on the last day of the taxable year is not required to include in gross
income any part of Maiden Insurance’s RPII.
Uncertainty as to Application of
RPII. The RPII provisions have never been interpreted by the courts or
the U.S. Treasury Department in final regulations, and regulations interpreting
the RPII provisions of the Code exist only in proposed form. It is not certain
whether these regulations will be adopted in their proposed form or what changes
or clarifications might ultimately be made thereto or whether any such changes,
as well as any interpretation or application of the RPII provisions by the IRS,
the courts or otherwise, might have retroactive effect. These provisions include
the grant of authority to the U.S. Treasury Department to prescribe “such
regulations as may be necessary to carry out the purpose of this subsection
including ... regulations preventing the avoidance of this subsection through
cross insurance arrangements or otherwise.” Accordingly, the meaning of the RPII
provisions and the application thereof to Maiden Insurance is uncertain. In
addition, we cannot be certain that the amount of RPII or the amounts of the
RPII inclusions for any particular RPII shareholder, if any, will not be subject
to adjustment based upon subsequent IRS examination. Any prospective investors
considering an investment in our shares should consult his tax advisor as to the
effects of these uncertainties.
Basis Adjustments. A U.S.
shareholder’s tax basis in its shares will be increased by the amount of any
subpart F income, including any RPII, included in income by the U.S.
shareholder. Any distributions made by Maiden Holdings out of previously taxed
subpart F income, including RPII income, will be exempt from further U.S. income
tax in the hands of the U.S. shareholder. The U.S. shareholder’s tax basis in
its shares will be reduced by the amount of any distributions by Maiden Holdings
that are excluded from income under this rule.
Information Reporting. Under
certain circumstances, U.S. Persons who own (directly or indirectly) shares in a
non-U.S. corporation are required to file IRS Form 5471 with their U.S. federal
income tax returns. Generally, information reporting on IRS Form 5471 is
required by (i) a person who is treated as a RPII shareholder, (ii) a 10% U.S.
Shareholder of a non-U.S. corporation that is a CFC for an uninterrupted period
of 30 days or more during any tax year of the non-U.S. corporation, and who
owned the stock on the last day of that year and (iii) under certain
circumstances, a U.S. Person who acquires stock in a non-U.S. corporation and as
a result thereof owns 10% or more of the voting power or value of such non-U.S.
corporation, whether or not such non-U.S. corporation is a CFC. For any taxable
year in which Maiden Holdings determines that the 20% Gross Income Exception is
not met and the 20% Ownership Exception does not apply, Maiden Holdings will
provide to all U.S. Persons registered as shareholders of its shares a completed
IRS Form 5471 or the relevant information necessary to complete the form.
Failure to file IRS Form 5471 may result in penalties.
Tax-Exempt Shareholders.
Tax-exempt entities will generally be required to treat certain subpart F
insurance income, including RPII, that is includible in income by the tax-exempt
entity as unrelated business taxable income. Prospective investors that are tax
exempt entities are urged to consult their tax advisors as to the potential
impact of the unrelated business taxable income provisions of the Code. A
tax-exempt organization that is treated as a 10% U.S. Shareholder or a RPII
shareholder also must file IRS Form 5471 in the circumstances described
above.
Dispositions of Shares.
Subject to the discussions below relating to the potential application of the
Code section 1248 and PFIC rules, U.S. holders of our shares generally should
recognize capital gain or loss for U.S. federal income tax purposes on the sale,
exchange or other disposition of our shares in the same manner as on the sale,
exchange or other disposition of any other shares held as capital assets. If the
holding period for the shares exceeds one year, any gain will be subject to tax
at a current maximum marginal tax rate of 15% for individuals and certain other
non-corporate shareholders and 35% for corporations. Moreover, gain, if any,
generally will be U.S. source gain and will generally constitute “passive
income” for foreign tax credit limitation purposes.
Code
section 1248 provides that if a U.S. Person sells or exchanges stock in a
non-U.S. corporation and such person owned, directly, indirectly through certain
non-U.S. entities or constructively, 10% or more of the voting power of the
corporation at any time during the five-year period ending on the date of
disposition when the corporation was a CFC, any gain from the sale or exchange
of the shares will be treated as a dividend to the extent of the CFC’s earnings
and profits (determined under U.S. federal income tax principles) during the
period that the shareholder held the shares and while the corporation was a CFC
(with certain adjustments). We believe that, because of the anticipated
dispersion of our share ownership, provisions in our organizational documents
that limit voting power and other factors, no U.S. Person who acquires shares in
this offering directly or indirectly through non-U.S. entities and that did not
own (directly, indirectly through non-U.S. entities, or “constructively”) shares
of Maiden Holdings prior to this offering should be treated as owning (directly,
indirectly through non-U.S. entities or “constructively”) 10% or more of the
total voting power of all classes of shares of Maiden Holdings; to the extent
this is the case, the application of Code section 1248 under the regular CFC
rules should not apply to dispositions of our shares. It is possible, however,
that the IRS could challenge the effectiveness of these provisions and that a
court could sustain such a challenge. A 10% U.S. Shareholder may in certain
circumstances be required to report a disposition of shares of a CFC by
attaching IRS Form 5471 to the U.S. federal income tax or information return
that it would normally file for the taxable year in which the disposition
occurs. In the event this is determined necessary, Maiden Holdings will provide
a completed IRS Form 5471 or the relevant information necessary to complete the
Form.
Code
section 1248 also applies to the sale or exchange of shares in a non-U.S.
corporation if the non-U.S. corporation would be treated as a CFC for RPII
purposes regardless of whether the shareholder is a 10% U.S. Shareholder or
whether the 20% Gross Income Exception is met or the 20% Ownership Exception
applies. Existing proposed regulations do not address whether Code section 1248
would apply if a non-U.S. corporation is not a CFC but the non-U.S. corporation
has a subsidiary that is a CFC and that would be taxed as an insurance company
if it were a domestic corporation. We believe, however, that this application of
Code section 1248 under the RPII rules should not apply to dispositions of our
shares because Maiden Holdings will not be directly engaged in the insurance
business. We cannot be certain, however, that the IRS will not interpret the
proposed regulations in a contrary manner or that the U.S. Treasury Department
will not amend the proposed regulations to provide that these rules will apply
to dispositions of our shares. Prospective investors should consult their tax
advisors regarding the effects of these rules on a disposition of our
shares.
Passive Foreign Investment
Companies. In general, a non-U.S. corporation will be a PFIC during a
given year if (i) 75% or more of its gross income constitutes “passive income,”
or the “75% test” or (ii) 50% or more of its assets produce (or are held for the
production of) passive income, or the “50% test”. A non-U.S. corporation will
not be treated as a PFIC, however, for its first taxable year in which it has
gross income (“Start-up Year”), provided (i) no “predecessor” of the non-U.S.
corporation was a PFIC, (ii) it can be established that the non-U.S. corporation
will not be a PFIC for either of the first two taxable years following the
Start-up Year and (iii) the non-U.S. corporation is not a PFIC for either of
such two years.
If Maiden
Holdings were characterized as a PFIC during a given year, each U.S. Person
holding our shares would be subject to a penalty tax at the time of the sale at
a gain of, or receipt of an “excess distribution” with respect to, their shares,
unless such person is a 10% U.S. Shareholder in a taxable year in which Maiden
Holdings is a CFC or made a “qualified electing fund election.” It is uncertain
that Maiden Holdings would be able to provide its shareholders with the
information necessary for a U.S. Person to make a qualified electing fund
election. In addition, if Maiden Holdings were considered a PFIC, upon the death
of any U.S. individual owning shares, such individual’s heirs or estate would
not be entitled to a “step-up” in the basis of their shares that might otherwise
be available under U.S. federal income tax laws. In general, a shareholder
receives an “excess distribution” if the amount of the distribution is more than
125% of the average distribution with respect to the shares during the three
preceding taxable years (or shorter period during which the taxpayer held the
shares). In general, the penalty tax is equivalent to the generally applicable
U.S. federal income tax and an interest charge on taxes that are deemed due
during the period the shareholder owned the shares, computed by assuming that
the excess distribution or gain (in the case of a sale) with respect to the
shares was taken in equal portion at the highest applicable tax rate on ordinary
income throughout the shareholder’s period of ownership. In addition, a
distribution paid by a PFIC to U.S. shareholders that is characterized as a
dividend and is not characterized as an excess distribution would not be
eligible for a reduced rate of tax as qualified dividend
income.
For the
above purposes, passive income generally includes interest, dividends, annuities
and other investment income. The PFIC rules provide that income “derived in the
active conduct of an insurance business by a corporation which is predominantly
engaged in an insurance business ... is not treated as passive income.” The PFIC
provisions also contain a look-through rule under which a non-U.S. corporation
shall be treated as if it “received directly its proportionate share of the
income ...” and as if it “held its proportionate share of the assets ...” of any
other corporation in which it owns at least 25% of the value of the stock. Under
the look-through rule, Maiden Holdings should be deemed to own its proportionate
share of the assets and to have received its proportionate share of the income
of Maiden Insurance for purposes of the 75% test and the 50% test. We expect
that the income and assets of Maiden Holdings other than the income generated by
Maiden Insurance and the assets held by Maiden Insurance will be de minimis in each year of
operations with respect to the overall income and assets of Maiden Holdings and
Maiden Insurance.
The
insurance income exception is intended to ensure that income derived by a bona
fide insurance company is not treated as passive income, except to the extent
such income is attributable to financial reserves in excess of the reasonable
needs of the insurance business. We expect, for purposes of the PFIC rules, that
Maiden Insurance will be predominantly engaged in the active conduct of an
insurance business and is unlikely to have financial reserves in excess of the
reasonable needs of its insurance business in each year of operations.
Accordingly, the Insurance Company Exception should apply to Maiden Insurance,
and none of the income or assets of Maiden Insurance should be treated as
passive. As a result, based upon the look-through rule, we believe that Maiden
Holdings should not be and we currently do not expect Maiden Holdings should be
treated as a PFIC, however, we cannot assure that the IRS will not successfully
conclude otherwise. Further, we cannot be certain that we will not be
characterized as a PFIC, as there are currently no regulations regarding the
application of the PFIC provisions to an insurance company and new regulations
or pronouncements interpreting or clarifying these rules may be forthcoming.
Prospective investors should consult their tax advisor as to the effects of the
PFIC rules.
The IRS,
in Revenue Ruling 2005-40, took the position that a transaction between an
insurer and an insured did not provide risk distribution, and thus did not
constitute insurance for U.S. federal income tax purposes, when the insured
provided over 90% of the insurer’s premiums for the year. We do not believe that
IRS would attempt to apply such a rule to quota share reinsurance transactions
in which the ceding company cedes a significant number of unrelated risks to the
reinsurer, even if the ceding company provided substantially all of the
reinsurance business, nor do we believe the IRS would be successful if it took
such a position. Nevertheless, if the IRS successfully asserted such a position
and transactions between AmTrust and its affiliates on one hand and Maiden
Insurance on the other hand were not considered insurance, Maiden Insurance
likely would not qualify for the insurance income exception, in which case
Maiden Holdings could be considered a PFIC. Further, it is possible that Maiden
Insurance may not qualify for the insurance income exception to the PFIC rules
for any taxable year in which its only business was the reinsurance of
affiliates of AmTrust.
Foreign Tax Credit. If U.S.
Persons own a majority of our shares, only a portion of the current income
inclusions, if any, under the CFC, RPII and PFIC rules and of dividends paid by
us (including any gain from the sale of shares that is treated as a dividend
under section 1248 of the Code) will be treated as foreign source income for
purposes of computing a shareholder’s U.S. foreign tax credit limitations. We
will consider providing shareholders with information regarding the portion of
such amounts constituting foreign source income to the extent such information
is reasonably available. It is also likely that substantially all of the subpart
F income, RPII and dividends that are foreign source income will constitute
either “passive” or “general” income. Thus, it may not be possible for most
shareholders to utilize excess foreign tax credits to reduce U.S. tax on such
income.
Information Reporting and Backup
Withholding on Distributions and Disposition Proceeds. Information
returns may be filed with the IRS in connection with distributions on our shares
and the proceeds from a sale or other disposition of the shares unless the
holder of the shares establishes an exemption from the information reporting
rules. A holder of shares that does not establish such an exemption may be
subject to U.S. backup withholding tax on these payments if the holder is not a
corporation or non-U.S. Person or fails to provide its taxpayer identification
number or otherwise comply with the backup withholding rules. The amount of any
backup withholding from a payment to a U.S. Person will be allowed as a credit
against the U.S. Person’s U.S. federal income tax liability and may entitle the
U.S. Person to a refund, provided that the required information is furnished to
the IRS.
Changes in U.S. Tax Law. The
U.S. federal income tax laws and interpretations regarding whether a company is
engaged in a trade or business within the United States or is a PFIC, or whether
U.S. Persons would be required to include in their gross income the subpart F
income or the RPII of a CFC, are subject to change, possibly on a retroactive
basis. There are currently no regulations regarding the application of the PFIC
rules to insurance companies and the regulations regarding RPII are still in
proposed form. New regulations or pronouncements interpreting or clarifying such
rules may be forthcoming. We cannot be certain if, when or in what form such
regulations or pronouncements may be provided and whether such guidance will
have a retroactive effect.
LEGAL
MATTERS
The
validity of the issuance of the common shares offered hereby has been passed
upon for us by Conyers Dill & Pearman, Hamilton, Bermuda.
EXPERTS
The
consolidated financial statements and schedules of Maiden Holdings, Ltd. and its
subsidiaries as of December 31, 2008 and 2007 and for the year ended
December 31, 2008 and for the period from May 31 2007 (inception) to
December 31, 2007 and the financial statements of GMAC RE as of December 31, 2007
and 2006, and for each of the fiscal years ended December 31, 2007, 2006 and
2005 have been incorporated by reference herein and in the registration
statement in reliance upon the report of BDO Seidman, LLP, an independent
registered public accounting firm, and upon the authority of said firm as
experts in accounting and auditing.
ENFORCEABILITY
OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
We are
incorporated under the laws of Bermuda and our business is based in Bermuda. In
addition, some of our directors and officers may reside outside the United
States, and all or a substantial portion of our assets will be and the assets of
these persons are, and will continue to be, located in jurisdictions outside the
United States. As such, it may be difficult or impossible for investors to
effect service of process within the United States upon us or those persons or
to recover against us or them on judgments of U.S. courts, including judgments
predicated upon civil liability provisions of the U.S. federal securities laws.
Further, no claim may be brought in Bermuda against us or our directors and
officers in the first instance for violation of U.S. federal securities laws
because these laws have no extraterritorial jurisdiction under Bermuda law and
do not have force of law in Bermuda. A Bermuda court may, however, impose civil
liability, including the possibility of monetary damages, on us or our directors
and officers if the facts alleged in a complaint constitute or give rise to a
cause of action under Bermuda law.
We have
been advised by Conyers Dill & Pearman, our Bermuda counsel, that there is
no treaty in force between the United States and Bermuda providing for the
reciprocal recognition and enforcement of judgments in civil and commercial
matters. As a result, whether a United States judgment would be enforceable in
Bermuda against us or our directors and officers depends on whether the U.S.
court that entered the judgment is recognized by the Bermuda court as having
jurisdiction over us or our directors and officers, as determined by reference
to Bermuda conflict of law rules. A judgment debt from a U.S. court that is
final and for a sum certain based on U.S. federal securities laws will not be
enforceable in Bermuda unless the judgment debtor had submitted to the
jurisdiction of the U.S. court, and the issue of submission and jurisdiction is
a matter of Bermuda (not U.S.) law.
In
addition, and irrespective of jurisdictional issues, the Bermuda courts will not
enforce a U.S. federal securities law that is either penal or contrary to
Bermuda public policy. It is the advice of Conyers Dill & Pearman that an
action brought pursuant to a public or penal law, the purpose of which is the
enforcement of a sanction, power or right at the instance of the state in its
sovereign capacity, will not be entertained by a Bermuda court. Certain remedies
available under the laws of U.S. jurisdictions, including certain remedies under
U.S. federal securities laws, would not be available under Bermuda law or
enforceable in a Bermuda court, as they would be contrary to Bermuda public
policy.
WHERE
YOU CAN FIND MORE INFORMATION
We file
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, Proxy Statements and other information with the SEC. You
may read and copy any document that we file at the SEC’s public reference room
at 100 F Street, N.E., Washington D.C. 20549. You can request copies
of these documents by contacting the SEC and paying a fee for the copying
cost. Please call the SEC at (800) SEC-0330 for further information
on the operation of the public reference rooms. Our SEC filings are
also available to the public from the SEC’s website at www.sec.gov.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
covering the shares offered by this prospectus. This prospectus is
part of that registration statement, but as allowed by the SEC’s rules, it does
not contain all of the information contained in the registration statement and
the exhibits to the registration statement. For further information
about us and the common shares offered by this prospectus, we refer you to the
registration statement and its exhibits and schedules, which may be obtained as
described above.
The SEC
allows us to “incorporate by reference” information contained in documents that
we file with the SEC into this prospectus. This means that we can
disclose important information to you by referring you to those documents and
that the information included in those documents is considered part of this
prospectus. The following documents filed with the SEC (File No. 001-34042) are
incorporated by reference into this prospectus, unless otherwise
indicated:
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Our
Annual Report on Form 10-K for the year ended December 31, 2008 as filed
on March 31, 2009;
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Our
Definitive Proxy Statement on Schedule 14A as filed on April 6, 2009;
and
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Our
Current Reports on Form 8-K as filed on January 21, 2009 and January 26,
2009 and our Current Report on Form 8-K/A as filed on January 20, 2009
(except for any information furnished under Item 7.01 of any Current
Report).
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You may
obtain copies of these filings, at no cost, through the Investor Relations
section of our website (www.maiden.bm), and you may request copies of these
filings, at no cost, by writing or telephoning us at:
48
Par-la-Ville Road, Suite 1141
Hamilton
HM 11
Bermuda
(441)
292-7090
Attn: Chief
Financial Officer
Information
contained on our web site that is not specifically incorporated by reference is
not a part of this prospectus.