PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 25, 2001.
8,000,000 SHARES
[XL LOGO]
CLASS A ORDINARY SHARES
------------------
This is an offering of Class A Ordinary Shares of XL Capital Ltd. All of
the Class A Ordinary Shares are being sold by XL Capital Ltd.
The Class A Ordinary Shares are listed on the New York Stock Exchange
under the symbol "XL". The last reported sale price of our Class A Ordinary
Shares on November 1, 2001 was $89.55 per share.
------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------------
PER SHARE TOTAL
--------- -----
Initial price to public ............................ $ 89.00 $712,000,000
Underwriting discount .............................. $ 3.34 $ 26,720,000
Proceeds, before expenses, to XL Capital Ltd ....... $ 85.66 $685,280,000
To the extent that the underwriters sell more than 8,000,000 Class A
Ordinary Shares, the underwriters have the option to purchase up to an
additional 1,200,000 shares from XL Capital Ltd at the initial price to public
less the underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on November 7, 2001.
GOLDMAN, SACHS & CO.
MORGAN STANLEY
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
JPMORGAN
MERRILL LYNCH & CO.
------------------
Prospectus Supplement dated November 1, 2001.
This document is in two parts. The first is this prospectus supplement,
which describes the specific terms of this offering of Class A Ordinary Shares.
The second part, the accompanying prospectus, gives more general information,
some of which does not apply to this offering.
If the description of this offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering and sale of the Class A Ordinary Shares in certain
jurisdictions may be restricted by law. XL Capital Ltd and the underwriters
require persons into whose possession this prospectus supplement and the
accompanying prospectus comes to inform themselves about and to observe any such
restrictions. This prospectus supplement and the accompanying prospectus
supplement do not constitute an offer of, or an invitation to purchase, any of
the Class A Ordinary Shares in any jurisdiction in which such offer or
invitation would be unlawful.
XL Capital Ltd is prohibited from making any invitation to the public of
the Cayman Islands to purchase the Class A Ordinary Shares. Non-resident or
exempted companies or other non-resident or exempted entities established in the
Cayman Islands, however, may purchase the Class A Ordinary Shares.
Unless the context requires otherwise, references to "we," "us," "our" and
"our company" refer to XL Capital Ltd and its subsidiaries. Unless the context
otherwise requires, references in this prospectus supplement and the
accompanying prospectus to "$" or "dollars" are references to U.S. dollars.
S-1
XL CAPITAL LTD
We are a leading provider of insurance and reinsurance coverages and
financial products and services to industrial, commercial and professional
service firms, insurance companies and other enterprises on a worldwide basis.
We were incorporated with limited liability under the Cayman Islands
Companies Law on March 16, 1998, as EXEL Merger Company Ltd. We were formed as a
result of the merger of EXEL Merger Company Ltd, EXEL Limited and Mid Ocean
Limited on August 7, 1998, and were renamed EXEL Limited on that date. This
merger was accounted for as a purchase business combination. EXEL and Mid Ocean
were companies that were incorporated in the Cayman Islands in 1986 and 1992,
respectively. At a special general meeting held on February 1, 1999, the
shareholders of EXEL Limited approved a resolution changing the name of EXEL
Limited to XL Capital Ltd.
On June 18, 1999, we merged with NAC Re Corp. (now known as XL Reinsurance
America Inc.), a Delaware corporation that was organized in 1985, in a stock
merger. The NAC merger was accounted for as a pooling of interests under U.S.
generally accepted accounting principles. Accordingly, all prior period
information contained or incorporated by reference in this prospectus includes
the results of NAC as though it had always been a part of XL Capital Ltd.
Following the merger, we changed our fiscal year end from November 30 to
December 31 as a conforming pooling adjustment. On July 25, 2001, we completed
the acquisition of certain of the operations of Winterthur International from
Winterthur Swiss Insurance Company, an indirect subsidiary of the Credit Suisse
Group. Although the Winterthur International acquisition closed on July 25,
2001, it is being given effect as if it closed on July 1, 2001, which is the
date from which the economic interest was transferred to us.
We are incorporated in the Cayman Islands. Our principal executive offices
are located at XL House, One Bermudiana Road, Hamilton, Bermuda HM11. Our
telephone number is (441) 292-8515. Our website is www.xlcapital.com. The
information contained on our website is not incorporated by reference into this
prospectus supplement.
You can obtain additional information about us in the reports and other
documents incorporated by reference in this prospectus supplement and the
accompanying prospectus. See "Incorporation of Documents by Reference" in this
prospectus supplement and "Where You Can Find More Information" and
"Incorporation of Documents by Reference" in the accompanying prospectus.
S-2
RECENT DEVELOPMENTS
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2001
On October 29, 2001, we reported our results for the quarter ended
September 30, 2001. Information regarding our underwriting profit and loss for
the quarter ended September 30, 2001 by segment, together with a reconciliation
of underwriting results to net loss and net loss per share, is set forth below.
The information for the quarter ended September 30, 2001 has been derived from
our unaudited consolidated financial statements on our Form 10-Q for the
quarterly period ended September 30, 2001 ("Form 10-Q"), which are incorporated
by reference in this prospectus supplement and the accompanying prospectus. The
results of operations for the three months ended September 30, 2001 are not
necessarily indicative of the results for a full year. The results of operations
include estimates and assumptions relating to the September 11 event (as defined
below). Actual results could differ from those estimates.
FINANCIAL
LLOYD'S PRODUCTS AND
INSURANCE SYNDICATES REINSURANCE SERVICES TOTAL
--------- ---------- ---------- ---------- ---------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
Net premiums earned ....................... $401,118 $ 94,155 $ 242,998 $13,253 $ 751,524
Fee income and other ...................... 8,593 (1,477) (5,175) 6,049 7,990
Net losses and loss expenses .............. 366,905 342,151 689,525 4,464 1,403,045
Acquisition costs ......................... 54,833 37,835 72,545 978 166,191
Operating expenses ........................ 70,652 5,625 21,078 10,813 108,168
Exchange (gains) losses ................... 6,400 (540) 1,337 -- 7,197
--------- --------- --------- ------- ---------
Underwriting (loss) profit ................$ (89,079) $(292,393) $(546,662) $ 3,047 $(925,087)
--------- --------- --------- ------- ---------
Net investment income ..................... 142,818
Net realized losses on investments ......... 64,635
Equity in net income of affiliates ........ 7,267
Interest expense .......................... 18,926
Amortization of intangible assets ......... 15,045
Corporate operating expenses (1) .......... 34,712
Minority interest ......................... (390)
Income tax benefit ........................ (67,898)
---------
Net loss ................................... $ 840,032
---------
Net loss per share ........................ $6.70
Loss and loss expense ratio (2) ........... 91.5% 363.4% 283.8% 33.7% 186.7%
Underwriting expense ratio (3) ............ 31.3% 46.2% 38.6% 89.0% 36.5%
-------- --------- --------- ------- ---------
Combined ratio (4) ........................ 122.8% 409.6% 322.4% 122.7% 223.2%
--------- --------- --------- ------- ---------
(1) Corporate operating expenses include $14.0 million related to costs
incurred in the third quarter associated with the integration of the
acquired Winterthur International operations.
(2) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by the net premiums earned.
(3) The underwriting expense ratio is the sum of acquisition expenses and
operating expenses divided by net premiums earned. Operating expenses
relating to the corporate segment and foreign exchange gains and losses
have not been included for purposes of calculating the underwriting expense
ratio. See Note 4 to our unaudited consolidated financial statements on
Form 10-Q incorporated by reference in this prospectus supplement and the
accompanying prospectus for further information.
(4) The combined ratio is the sum of the loss and loss expense ratio and the
underwriting expense ratio. A combined ratio of under 100% represents an
underwriting profit and over 100% represents an underwriting loss.
S-3
IMPACT OF SEPTEMBER 11 AND CERTAIN OTHER LOSS EVENTS ON THE QUARTER ENDED
SEPTEMBER 30, 2001
Terrorist loss events at the World Trade Center and in Washington, D.C.
and Pennsylvania on September 11, 2001 (collectively, the "September 11 event")
are estimated to have caused the largest ever man-made insured losses for the
property and casualty insurance industry. We estimate that our gross claims
related to the September 11 event will be approximately $1.85 billion and that
net losses will be approximately $750 million, net of estimated reinsurance
recoveries of $1.1 billion. Approximately 96% of the relevant reinsurers
currently fall into Standard & Poor's financial strength rating categories or
equivalent of A or better, with approximately 65% rated AA or better. In
addition, the acquired Winterthur International operations incurred gross losses
of approximately $321 million related to the September 11 event, which are fully
recoverable. The losses relate to business written by Winterthur International
prior to June 30, 2001. Certain information regarding our loss and loss expense
ratio, underwriting expense ratio and combined ratio by segment for the quarter
ended September 30, 2001, excluding the effects of the September 11 event, is
set forth below. The information below excludes certain estimates and
assumptions regarding the September 11 event. Actual results could differ from
those estimates.
FINANCIAL
LLOYD'S PRODUCTS AND
INSURANCE SYNDICATES REINSURANCE SERVICES TOTAL
--------- ---------- ---------- ---------- ---------
Loss and loss expense ratio (1) 65.6% 112.7% 77.0% 33.7% 75.8%
Underwriting expense ratio (2) 31.0% 37.6% 28.5% 89.0% 31.8%
Combined ratio (3) 96.6% 150.3% 105.5% 122.7% 107.6%
(1) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by the net premiums earned.
(2) The underwriting expense ratio is the sum of acquisition expenses and
operating expenses divided by net premiums earned. Operating expenses
relating to the corporate segment and foreign exchange gains and losses
have not been included for purposes of calculating the underwriting expense
ratio. See Note 4 to our unaudited consolidated financial statements on
Form 10-Q incorporated by reference in this prospectus supplement and the
accompanying prospectus for further information.
(3) The combined ratio is the sum of the loss and loss expense ratio and the
underwriting expense ratio. A combined ratio of under 100% represents an
underwriting profit and over 100% represents an underwriting loss.
In addition to the effect of the September 11 event, net losses related to
the Sri Lanka airport loss event, two satellite losses, the Toulouse
petrochemical plant explosion and deterioration of loss development of prior
underwriting years reduced net income after-tax in the quarter ended September
30, 2001 by $103.7 million. Our total combined ratio for the quarter ended
September 30, 2001, excluding the September 11 event and those other loss
events, would have been 94.5%. Excluding the September 11 event and those other
loss events for the quarter ended September 30, 2001, our operating income per
share, economic income per share and return on equity (operating income) would
have been $1.23, $1.34 and 10.6%, respectively. Please see the footnotes to our
Summary Consolidated Financial, Operating and Supplemental Data, on page S-7,
for information on the calculation of these items. These calculations are not
defined under generally accepted accounting principles ("GAAP") and are provided
solely to assist users of this prospectus supplement.
S-4
THE OFFERING
The information set out in this section assumes that the underwriters do
not exercise the option granted by XL Capital Ltd to purchase 1,200,000
additional Class A Ordinary Shares in connection with the offering, as discussed
under "Underwriting."
Shares offered by XL Capital Ltd ..............8,000,000 shares.
Approximate number of Class A Ordinary
Shares outstanding after this offering ......132,666,116, excluding 4,728,401 Class A
Ordinary Shares issuable upon exercise
of vested options outstanding at
September 30, 2001. Also excludes Class
AOrdinary Shares issuable upon
conversion of our outstanding
zero-coupon convertible debentures due
2021 and Liquid Yield Option(TM) Notes due
2021.
New York Stock Exchange trading symbol.........XL.
USE OF PROCEEDS
We expect the net proceeds from this offering of Class A Ordinary Shares
to be approximately $684,000,000, after deducting underwriting discounts and
estimated expenses of the offering. The net proceeds from the sale of the Class
A Ordinary Shares will be used for general corporate purposes.
S-5
SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND SUPPLEMENTAL DATA
Our summary consolidated financial, operating and supplemental data
presented below as at and for the years ended December 31, 1996, 1997, 1998,
1999 and 2000 are derived from our audited consolidated financial statements,
which have been audited by PricewaterhouseCoopers LLP, independent auditors, and
which are incorporated by reference in this prospectus supplement and the
accompanying prospectus. The summary consolidated financial, operating and
supplemental data presented below for the nine month periods ended September 30,
2000 and September 30, 2001 have been derived from our unaudited consolidated
financial data as presented in our Form 10-Q incorporated by reference in this
prospectus supplement and reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of our
financial position and results of operations as at the end of and for the
periods presented. The results of operations for the nine month period ended
September 30, 2001 are not necessarily indicative of the results for a full year
and include the results of the acquired Winterthur International operations from
July 1, 2001. The information presented includes the results of XL Reinsurance
America Inc. (formerly known as NAC Re Corp.) with whom we merged in 1999 as
though it had always been a part of our company. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. As at and for the nine months ended September 30, 2001, these
estimates and assumptions include the September 11 event. Actual results could
differ from those estimates.
You should read the following information in conjunction with our
consolidated financial statements and the notes to those financial statements,
which are incorporated by reference in this prospectus supplement and the
accompanying prospectus.
UNAUDITED
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND SUPPLEMENTAL DATA)
INCOME STATEMENT DATA:
Net premiums earned ................ $ 1,934,662 $ 1,537,819 $ 2,035,240 $ 1,750,006 $ 1,324,291 $1,114,758 $1,038,643
Net investment income .............. 412,969 399,591 542,500 525,318 417,290 345,115 304,823
Net realized gains (losses) on
investments ...................... (35,536) 74,808 50,571 94,356 211,204 410,658 174,593
Equity in net income of affiliates . 65,169 61,682 74,355 40,907 50,292 64,959 59,084
Fee income and other ............... 26,552 8,835 14,793 100,400 22,325 -- --
Losses and loss expenses ........... 2,120,200 969,374 1,432,559 1,304,304 841,517 738,849 739,058
Acquisition costs, operating
expenses and exchange
gains and losses ................. 746,736 553,267 743,067 689,005 436,598 318,107 277,801
Interest expense ................... 42,238 23,719 32,147 37,378 33,444 29,622 22,322
Amortization of intangible
assets ........................... 44,216 41,409 58,597 49,141 26,881 7,403 368
Income (loss) before minority
interest and income tax
expense .......................... (549,574) 494,966 451,089 431,159 686,962 841,509 537,594
Net income (loss) .................. (492,497) 505,704 506,352 470,509 656,330 809,029 516,471
PER SHARE DATA:
Net (loss) income .................. (3.93) 4.02 4.03 3.62 5.68 7.74 4.73
Realized losses (gains) on
investments and one time
charges (after tax) .............. 0.38 (0.64) 0.49 0.02 (1.44) (3.77) (1.53)
Operating (loss) income (1) ........ (3.55) 3.38 4.52 3.64 4.24 3.97 3.20
Amortization of intangible
assets ........................... 0.35 0.33 0.46 0.38 0.23 0.07 0.01
Economic operating
(loss) income (2) ................ (3.20) 3.71 4.98 4.02 4.47 4.04 3.21
Weighted average ordinary
shares and ordinary share
equivalents outstanding-diluted .. 125,358 125,679 125,697 130,304 116,206 105,005 109,908
S-6
UNAUDITED
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND SUPPLEMENTAL DATA)
BALANCE SHEET DATA:
Total investments available
for sale ...................... $10,452,034 $ 9,174,337 $ 9,501,548 $ 9,122,591 $ 9,057,892 $6,562,609 $5,647,589
Cash and cash equivalents ........ 2,129,512 931,502 930,469 557,749 480,874 383,594 321,140
Investments in affiliates ........ 964,173 725,860 792,723 479,911 154,668 524,866 414,891
Total assets ..................... 25,665,428 16,368,953 16,941,952 15,13,581,140 9,070,031 7,823,375
Unpaid losses and loss
expenses ....................... 11,288,036 5,369,143 5,672,062 5,369,402 4,896,643 3,972,376 3,623,334
Notes payable and debt ........... 1,561,207 450,030 450,032 410,726 613,873 453,866 323,858
Shareholders' equity ............. 4,786,800 5,566,567 5,573,668 5,577,078 5,612,603 3,195,749 2,637,533
OPERATING RATIOS:
Loss and loss expense ratio (3) .. 109.6% 63.1% 70.4% 74.5% 63.5% 66.3% 71.2%
Underwriting expense ratio (4) ... 34.5% 33.3% 36.4% 34.3% 30.3% 27.9% 26.2%
Combined ratio (5) ............... 144.1% 96.4% 106.8% 108.8% 93.8% 94.2% 97.4%
OTHER SUPPLEMENTAL DATA:
Return on equity (operating
income) (6) .................... N/M 10.1% 10.1% 8.7% 11.8% 15.6% 15.2%
(1) Excludes net realized investment gains and losses and one-time charges, net
of tax. These calculations are not defined under GAAP and are provided
solely to assist users of this prospectus supplement.
(2) Excludes net realized investment gains and losses net of tax, one-time
charges and amortization of intangible assets. These calculations are not
defined under GAAP and are provided solely to assist users of this
prospectus supplement.
(3) The loss and loss expense ratio is calculated by dividing the losses and
loss expenses incurred by the net premiums earned.
(4) The underwriting expense ratio is the sum of acquisition expenses and
operating expenses divided by net premiums earned. Operating expenses
relating to the corporate segment and foreign exchange gains and losses
have not been included for purposes of calculating the underwriting expense
ratio. See Note 3 to our audited consolidated financial statements in our
Form 10-K and Note 4 to our unaudited consolidated financial statements in
our Form 10-Q for further information.
(5) The combined ratio is the sum of the loss and loss expense ratio and the
underwriting expense ratio. A combined ratio of under 100% represents an
underwriting profit and over 100% represents an underwriting loss.
(6) Excludes one-time charges and realized gains and losses. These calculations
are not defined under GAAP and are provided solely to assist users of this
prospectus supplement.
S-7
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 2001, on an actual basis and as adjusted to give effect to the
issuance of the Class A Ordinary Shares we are selling in this offering. The
following table assumes that the underwriters have not exercised their
over-allotment option.
You should read the following information in conjunction with our
consolidated financial statements and the notes to those financial statements in
our Form 10-Q, which are incorporated by reference in this prospectus supplement
and the accompanying prospectus.
UNAUDITED
AS OF SEPTEMBER 30, 2001
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS OF DOLLARS)
Cash and cash equivalents ............................ $ 2,129,512 $ 2,813,512
=========== ===========
Debt:
364-day revolving credit facility (1) ................ -- --
Five-year revolving credit facilities (2) ............ $ 350,000 $ 350,000
7.15% senior notes due 2005 .......................... 100,000 100,000
6.58% senior notes due 2011 .......................... 255,000 255,000
Zero-coupon convertible debentures due 2021 (3) ...... 605,700 605,700
Liquid Yield Option(TM)Notes due 2021 (LYONs) (3)(4) . 250,500 250,500
----------- -----------
Total debt ..................................... $ 1,561,200 $ 1,561,200
----------- -----------
Shareholders' equity:
Class A Ordinary Shares; $0.01 par value per share,
124,513,107 Shares issued and outstanding ......... 1,245 1,325
Class B Ordinary Shares; $0.01 par value per share,
no shares issued and outstanding .................. -- --
Preference Ordinary Shares; $0.01 par value per share,
no shares issued and outstanding .................. -- --
Additional paid-in capital ........................... 2,520,098 3,204,018
Accumulated other comprehensive loss ................. (151,060) (151,060)
Deferred compensation ................................ (26,914) (26,914)
Accumulated retained earnings ........................ 2,443,431 2,443,431
----------- -----------
Total shareholders' equity ..................... 4,786,800 5,470,800
----------- -----------
Total capitalization ........................... $ 6,348,000 $ 7,032,000
=========== ===========
(1) A syndicate of banks provides a $500 million commitment under our 364-day
unsecured revolving credit facility. This facility was renewed along with
our letter of credit facility effective September 29, 2001.
(2) Does not include letters of credit outstanding as of September 30, 2001 in
the amount of approximately $1.6 billion.
(3) The zero-coupon convertible debentures and the LYONs were issued at a
discount to their face amount. The amount shown is the accreted value at
September 30, 2001. The zero-coupon convertible debentures and the LYONs
are convertible into Class AOrdinary Shares under certain circumstances.
(4) On November 1, 2001, we issued additional LYONs with an accreted value of
approximately $36.8 million pursuant to exercise of an over-allotment
option granted to the initial purchaser of the LYONs.
S-8
PRICE RANGE OF ORDINARY SHARES AND DIVIDENDS
Our Class A Ordinary Shares are listed and traded on the New York Stock
Exchange under the symbol "XL". The following table provides, for the calendar
quarters indicated, the high and low closing sales prices per share on the New
York Stock Exchange for the periods shown below as reported on the New York
Stock Exchange Composite Tape and the quarterly cash dividends declared per
Class A Ordinary Share:
CASH DIVIDENDS
PERIOD HIGH LOW DECLARED
------ ---- ---- -----------
1999:
First Quarter ................................... $ 75.188$ 56.750$ 0.44
Second Quarter .................................. 66.500 56.750 0.44
Third Quarter ................................... 57.688 42.188 0.44
Fourth Quarter .................................. 58.063 44.938 0.44
2000:
First Quarter ................................... 55.375 39.563 0.45
Second Quarter .................................. 61.000 45.750 0.45
Third Quarter ................................... 78.188 54.938 0.45
Fourth Quarter .................................. 88.563 69.375 0.45
2001:
First Quarter ................................... 88.500 67.250 0.46
Second Quarter .................................. 84.100 65.400 0.46
Third Quarter ................................... 82.010 62.000 0.46
Fourth Quarter (through November 1, 2001) ....... 94.830 79.500 N/A
The declaration and payment of future dividends by us will be at the
discretion of our Board of Directors and will depend upon many factors,
including our earnings, financial condition, business needs, capital and surplus
requirements of our operating subsidiaries and regulatory restrictions. For a
description of certain restrictions on the payment of dividends by our
subsidiaries, see Note 18 of the Notes to Consolidated Financial Statements of
XL Capital Ltd incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2000.
S-9
CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of XL Capital Ltd and its Bermuda
insurance subsidiaries ("XL") and the taxation of shareholders of XL Capital Ltd
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 foregoing discussion (including and subject to the matters and
qualifications set forth in such summary) of certain tax considerations (i)
under "Taxation of XL Capital Ltd and XL-- Bermuda" and "Taxation of
Shareholders-- Bermuda Taxation" is based upon the advice of Bermuda legal
counsel, (ii) under "Taxation of XL Capital Ltd and Its Subsidiaries-- Cayman
Islands" and "Taxation of Shareholders-- Cayman Islands Taxation" is based upon
the advice of Cayman Islands legal counsel, and (iii) under "Taxation of XL
Capital Ltd and XL-- United States" and "Taxation of Shareholders-- United
States Taxation of U.S. and Non-U.S. Shareholders" is based upon the advice of
Cahill Gordon & Reindel, New York, New York (the advice of such firms does not
include any factual or accounting matters, determinations or conclusions such as
RPII amounts and computations and amounts of components thereof (for example,
amounts or computations of income or expense items or reserves entering into
RPII computations) or facts relating to XL Capital Ltd's business or
activities). The summary is based upon current law and is for general
information only. The tax treatment of a holder of Class A Ordinary Shares, or
of a person treated as a holder of Class A Ordinary Shares for U.S. federal
income, state, local or non-U.S. tax purposes, may vary depending on the
holder's particular tax situation. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could be retroactive and
could affect the tax consequences to holders of Class A Ordinary Shares.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF OWNING THE CLASS A
ORDINARY SHARES.
TAXATION OF XL CAPITAL LTD AND XL
BERMUDA
XL has received from the Ministry of Finance in Bermuda exemptions from
any Bermuda taxes which might be imposed on profits, income or any capital
asset, gain or appreciation, until March 28, 2016. The exemptions are subject to
the proviso that they are not construed so as to prevent the application of any
tax or duty to such persons as are ordinarily resident in Bermuda (XL Capital
Ltd and XL are not so currently designated) and 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 the land leased to XL. XL Capital Ltd, as a
permit company under The Companies Act 1981 of Bermuda, has received similar
exemptions which are effective until March 28, 2016. Both XL Capital Ltd and XL
are required to pay certain annual Bermuda government fees and XL, additionally,
is required to pay certain business fees as an insurer under The Insurance Act
1978 of Bermuda. Currently there is no Bermuda withholding tax on dividends paid
by XL to XL Capital Ltd.
CAYMAN ISLANDS
Under current Cayman Islands law, XL Capital Ltd is not obligated to pay
any taxes in the Cayman Islands on its income or gains. XL Capital Ltd has
received an undertaking from the Governor-in-Council of the Cayman Islands
pursuant to the provisions of the Tax Concessions Law, as amended, that until
June 2, 2018, (i) no subsequently enacted law imposing any tax on profits,
income, gains or appreciation shall apply to XL Capital Ltd and (ii) no such tax
and no tax in the nature of an estate duty or an inheritance tax shall be
payable on any shares, debentures or other obligations of XL Capital Ltd. Under
current law no tax will be payable on the transfer or other disposition of the
shares of XL Capital Ltd. The Cayman Islands currently impose stamp duties on
certain categories of documents; however, the current operations of XL Capital
Ltd do not involve the payment of stamp duties in any material amount. The
Cayman Islands currently impose an annual corporate fee upon all exempted
companies.
S-10
UNITED STATES
XL Capital Ltd and XL believe that they are not engaged in a trade or
business within the United States and currently intend to conduct their
operations such that they will not be engaged in a trade or business in the
United States in the future. However, because definitive identification of
activities which constitute being engaged in a trade or business in the United
States is not provided by the Internal Revenue Code (the "Code") or regulations
or court decisions, there can be no assurance that the Internal Revenue Service
("IRS") will not contend successfully that XL Capital Ltd or one or more of its
subsidiaries, including XL, is or will be engaged in a trade or business in the
United States. A foreign corporation deemed to be so engaged would be subject to
U.S. income tax, 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 a 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 domestic corporation. Under
regulations, the foreign corporation would be entitled to deductions and credits
only if the return is filed timely under rules set forth therein. Penalties may
be assessed for failure to file tax returns. The 30% branch profits tax is
imposed on net income after subtracting the regular corporate tax and making
certain other adjustments.
Under the income tax treaty between Bermuda and the United States (the
"Treaty"), XL is subject to U.S. income tax on any income found to be
effectively connected with a U.S. trade or business only if that trade or
business is conducted through a permanent establishment in the United States. No
regulations interpreting the Treaty have been issued. While there can be no
assurances, XL Capital Ltd does not believe XL has a permanent establishment in
the United States. XL would not be entitled to the benefits of the Treaty if (i)
less than 50% of XL's stock were beneficially owned, directly or indirectly, by
Bermuda residents or U.S. citizens or residents, or (ii) XL's income were used
in substantial part to make disproportionate distributions to, or to meet
certain liabilities to, persons who are not Bermuda residents or U.S. citizens
or residents. While there can be no assurances, XL believes that it will be
eligible for Treaty benefits after the sale of shares offered hereby.
Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to U.S. income tax on certain "fixed or
determinable annual or periodic gains, profits and income" derived from sources
within the United States as enumerated in section 881(a) of the Code (such as
dividends and certain interest on investments).
The United States also imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located in
the United States. The rates of tax applicable to premiums paid to XL are 4% for
casualty insurance premiums and 1% for reinsurance premiums. In general,
premiums paid to XL for periods prior to 1990 were exempt from the excise tax.
TAXATION OF SHAREHOLDERS
The following summary sets forth certain United States federal income tax
considerations related to the purchase, ownership and disposition of Class A
Ordinary Shares. Unless otherwise stated, this summary deals only with
shareholders that are United States Persons (as defined below) who hold their
Class A Ordinary Shares as capital assets. The following discussion is only a
general summary of the United States federal income tax matters described herein
and does not purport to address all of the United States federal income tax
consequences that may be relevant to a particular shareholder in light of such
shareholder's specific circumstances. In addition, the following summary does
not describe the United States federal income tax consequences that may be
relevant to certain types of shareholders, such as banks, insurance companies,
regulated investment companies, real estate investment trusts, financial asset
securitization investment trusts, dealers in securities or traders that adopt a
mark-to-market method of tax accounting, tax exempt organizations or persons who
hold the Class A Ordinary 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 United States
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and any relevant administrative
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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 foreign
government, that may be applicable to the Class A Ordinary Shares or the
shareholders. Persons considering making an investment in the Class A Ordinary
Shares should consult their own tax advisors concerning the application of the
United States federal tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction prior to making such investment.
If a partnership holds the Class A Ordinary Shares, the tax treatment of a
partner will generally depend upon the status of the partner and the activities
of the partnership. If you are a partner of a partnership holding Class A
Ordinary Shares, you should consult your tax advisor.
For purposes of this discussion, the term "United States Person" means (i)
a citizen or resident of the United States, (ii) a corporation or entity treated
as a corporation created or organized in or under the laws of the United States,
or any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(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 United
States 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 United
States Person for United States federal income tax purposes.
CAYMAN ISLANDS TAXATION
Dividends paid by XL Capital Ltd are not subject to Cayman Islands
withholding tax.
BERMUDA TAXATION
Currently, there is no Bermuda withholding tax on dividends paid by XL
Capital Ltd to shareholders who are not ordinarily resident in Bermuda.
UNITED STATES TAXATION OF U.S. SHAREHOLDERS
RELATED PERSON INSURANCE INCOME. The following discussion generally is
applicable only if the "related person insurance income" ("RPII") of XL,
determined on a gross basis, is 20% or more of XL's gross insurance income for
the taxable year. The following discussion generally would not apply for any
fiscal year in which XL's RPII falls below the 20% threshold. XL Capital Ltd
believes that XL's gross RPII as a percentage of gross insurance income is, and
will continue to be, below the 20% threshold.
CLASSIFICATION OF XL AS A CONTROLLED FOREIGN CORPORATION. Under section
951(a) of the Code, each "United States shareholder" of a "controlled foreign
corporation" ("CFC") must include in its gross income for United States federal
income tax purposes its pro rata share of the CFC's "subpart F income", even if
the subpart F income is not distributed. Under Code section 951(b), any U.S.
corporation, citizen, resident or other U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own (by application of
the rules of constructive ownership set forth in Code section 958(b), generally
applying to family members, partnerships, estates, trusts or controlled
corporations) 10% or more of the total combined voting power of all classes of
stock of the foreign corporation will be considered to be a "United States
shareholder". In general, a foreign corporation is treated as a CFC only if such
"United States shareholders" collectively own more than 50% (more than 25% for
certain insurance companies) of the total combined voting power or total value
of the corporation's stock for an uninterrupted period of 30 days or more during
any tax year. XL Capital Ltd believes that because of the wide dispersion of its
share ownership and because under its Articles of Association no single
shareholder is permitted to hold as much as 10% of its total combined voting
power, it is not a CFC under the foregoing general rules.
RPII COMPANIES. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns RPII. RPII is defined as any "insurance
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income" (as defined in the Code) attributable to policies of insurance or
reinsurance with respect to which the person (directly or indirectly) insured is
a "United States shareholder" or a "related person" to such a shareholder. Gross
and net RPII and gross insurance income have been computed by XL Capital Ltd by
reference to XL on an unconsolidated basis, wfthout reference to the income of
XL's investment subsidiaries. XL Capital Ltd believes, based on the advice of
counsel, that the exclusion of the investment subsidiaries' income is consistent
with both existing and proposed Treasury regulations under section 953 of the
Code. However, there can be no assurance that the IRS may not, by rule,
regulation, interpretation or otherwise, require a portion or all of the income
of such subsidiaries to be treated as includable in the insurance income of XL
or that a court might not uphold such action by the IRS.
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the U.S. shareholder or someone who is controlled
by the same person or persons which control the U.S. shareholder. Control is
measured by either more than 50% in value or more than 50% in voting power of
stock applying constructive ownership principles similar to the rules of section
958 of the Code. 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 constructive ownership rules similar to
those contained in section 958, more than 50% measured by vote or value, of the
stock of the corporation. For purposes of inclusion of XL's RPII in the income
of United States shareholders, unless an exception applies, the term "United
States shareholder" includes all U.S. persons who beneficially own any amount
(rather than 10% or more) of XL's stock. XL will be treated as a CFC if such
persons are treated as owning 25% or more of the stock of XL.
In determining the "United States shareholders" of XL, stock of XL held
indirectly by U.S. persons through XL Capital Ltd or any other non-U.S. entity
is treated as held by United States shareholders, but the constructive ownership
rules of section 958(b) of the Code do not apply. Accordingly, U.S. persons
holding options to subscribe for unissued shares of XL Capital Ltd are not
treated as "United States shareholders" of XL.
RPII EXCEPTIONS. The special RPII rules do not apply if (A) direct and
indirect insureds and persons related to such insureds, whether or not U.S.
persons, are treated as owning less than 20% of the voting power and less than
20% of the value of the stock of XL, (B) RPII, determined on a gross basis, is
less than 20% of XL's gross insurance income for the taxable year, (C) XL elects
to be taxed on its RPII as if the RPII were effectively connected with the
conduct of a United States trade or business, or (D) XL elects to be treated as
a United States corporation. Where none of these exceptions applies, each United
States person owning or treated as owning stock in XL Capital Ltd (and
therefore, indirectly, in XL) on the last day of XL Capital Ltd's fiscal year
will be required to include in its gross income for United States federal income
tax purposes its share of the RPII for the entire taxable year, determined as if
all such RPII were distributed proportionately only to such United States
shareholders at that date, but limited by XL's current-year earnings and profits
and by the U.S. shareholder's share, if any, of prior-year deficits in earnings
and profits.
COMPUTATION OF RPII. In order to determine how much RPII XL Capital Ltd
has earned in each fiscal year, XL Capital Ltd may obtain and rely upon
information from its insureds to determine whether any of the insureds or
persons related to such insureds own shares of XL Capital Ltd and are U.S.
persons. For any year in which XL's gross RPII is 20% or more of XL's gross
insurance income for the year, XL Capital Ltd may also seek information from its
shareholders as to whether beneficial owners of Class A Ordinary Shares at the
end of the year are United States persons so that the RPII may be determined and
apportioned among such persons; to the extent XL Capital Ltd is unable to
determine whether a beneficial owner of shares is a U.S. person XL Capital Ltd
may assume that such owner is not a U.S. person, thereby increasing the per
share RPII amount for all U.S. shareholders.
If, as believed, RPII is less than 20% of gross insurance income, U.S.
shareholders will not be required to include RPII in their taxable income. The
amount of RPII includable in the income of a U.S. shareholder is based upon the
net RPII income for the year after deducting related expenses such as losses,
loss reserves and operating expenses.
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APPORTIONMENT OF RPII TO U.S. SHAREHOLDERS. Every U.S. person who owns
Class A Ordinary Shares on the last day of any fiscal year of XL Capital Ltd in
which XL's gross insurance income constituting RPII for that year equals or
exceeds 20% of XL's gross insurance income should expect that for such year it
will be required to include in gross income its share of XL's RPII for the
entire year, whether or not distributed even though it may not have owned the
shares for the entire year. A U.S. person who owns Class A Ordinary Shares
during such fiscal year but not on the last day of the fiscal year is not
required to include in gross income any part of XL's RPII.
BASIS ADJUSTMENTS. A U.S. shareholder's tax basis in its Class A Ordinary
Shares will be increased by the amount of any RPII that the shareholder includes
in income. The shareholder may exclude from income the amount of any
distributions by XL Capital Ltd to the extent of the RPII included in income for
the year in which the distribution was paid or for any prior year. The U.S.
shareholder's tax basis in its Class A Ordinary Shares will be reduced by the
amount of such distributions that are excluded from income.
DISPOSITIONS OF CLASS A ORDINARY SHARES. Code section 1248 provides that
if a U.S. person owns 10% or more of the voting shares of a corporation that is
a CFC, any gain from the sale or exchange of the shares may be treated as
ordinary income to the extent of the CFC's earnings and profits during the
period that the shareholder held the shares (with certain adjustments). 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. income tax
or information return that it would normally file for the taxable year in which
the disposition occurs. Code section 953(c)(7) generally provides that section
1248 also will apply to the sale or exchange of shares in a foreign corporation
that earns RPII if the foreign corporation would be taxed as an insurance
company if it were a domestic corporation, regardless of whether the shareholder
is a 10% shareholder or whether RPII constitutes 20% or more of the
corporation's gross insurance income. Existing Treasury Department regulations
do not address whether Code section 1248 and the requirement to file Form 5471
would apply when the foreign corporation (such as XL Capital Ltd) is not a CFC
but the foreign corporation has a subsidiary (such as XL) that is a CFC or that
would be taxed as an insurance company if it were a domestic corporation.
XL Capital Ltd believes, based on the advice of counsel, that Code section
1248 and the requirement to file Form 5471 will not apply to dispositions of
Class A Ordinary Shares because XL Capital Ltd does not have any 10%
shareholders and XL Capital Ltd is not directly engaged in the insurance
business, and that the proposed regulations issued by the U.S. Treasury
Department should be interpreted in this manner. There can be no assurance,
however, that the IRS will interpret the proposed regulations in this manner or
that the Treasury Department will not amend the proposed regulations to provide
that Code section1248 and the requirement to file Form 5471 will apply to
dispositions of Class A Ordinary Shares.
If the IRS or Treasury Department were to take such action, XL Capital Ltd
would notify shareholders that Code section 1248 and the requirement to file
Form 5471 will apply to dispositions of Class A Ordinary Shares. Thereafter, XL
Capital Ltd will send a notice after the end of each calendar year to all
persons who were shareholders during the year notifying them that Code section
1248 and the requirement to file Form 5471 apply to dispositions of Class A
Ordinary Shares. XL Capital Ltd will attach to this notice a copy of Form 5471
completed with all Company information and instructions for completing the
shareholder information.
UNCERTAINTY AS TO APPLICATION OF RPII. The RPII provisions of the Code
have never been interpreted by the courts or the U.S. Treasury Department.
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
RPII by the IRS, the courts or otherwise, might have retroactive effect. The
description of RPII herein is therefore qualified. Accordingly, the meaning of
the RPII provisions and the application thereof to XL Capital Ltd and its
subsidiaries is uncertain. 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." In addition, there can be no assurance that the
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amounts of the RPII inclusions will not be subject to adjustment based upon
subsequent IRS examination. Each U.S. person who is considering an investment in
Class A Ordinary Shares should consult his tax advisor as to the effects of
these uncertainties.
PASSIVE FOREIGN INVESTMENT COMPANIES. Sections 1291 through 1298 of the
Code contain special rules applicable with respect to foreign corporations that
are "passive foreign investment companies" ("PFICs"). In general, a foreign
corporation will be a PFIC if 75% or more of its income constitutes "passive
income" or 50% or more of its assets produce passive income. If XL Capital Ltd
were to be characterized as a PFIC, its United States shareholders would be
subject to a penalty tax at the time of their sale of (or receipt of an "excess
distribution" with respect to) its shares. 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 stock during the three preceding
taxable years (or shorter period during which the taxpayer held the stock). In
general, the penalty tax is equivalent to an interest charge on taxes that are
deemed due during the period the United States 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 taxed in equal portions throughout the
holder's period of ownership. The interest charge is equal to the applicable
rate imposed on underpayments of U.S. federal income tax for such period.
The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business . . . ." This 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.
XL Capital Ltd believes, based on the advice of counsel, that it and its
wholly-owned direct and indirect subsidiaries, taken as a whole, are
predominantly engaged in an insurance business and do not have financial
reserves in excess of the reasonable needs of their insurance business. The PFIC
statutory provisions (unlike the RPII provisions of the Code) contain a
look-through rule that states that, for purposes of determining whether a
foreign corporation is a PFIC, such foreign 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 stock. While no explicit guidance is provided by the
statutory language, XL Capital Ltd believes that under the look-through rule XL
Capital Ltd would be deemed to own the assets and to have received the income of
its insurance and investment subsidiaries directly for purposes of determining
whether XL Capital Ltd qualifies for the aforementioned insurance exception. XL
Capital Ltd believes, based upon the advice of counsel, that its interpretation
of the PFIC rules, including the look-through rule is consistent with the
legislative intention generally to exclude bona fide insurance companies from
the application of PFIC provisions; there can, of course, be no assurance as to
what positions the IRS or a court might take in the future. Although each of XL
Capital Ltd's investment subsidiaries meets the definition of a PFIC, if XL
Capital Ltd is not a PFIC, the PFIC statutory provisions state that a
shareholder of XL Capital Ltd will not be treated as a shareholder of such
investment subsidiaries for PFIC tax purposes as long as the shareholder does
not own 50% or more of the value of XL Capital Ltd's shares.
However, no regulations interpreting the substantive PFIC provisions have
yet been issued. Therefore, substantial uncertainty exists with respect to their
application or their possible retroactivity. Each U.S. person who is considering
an investment in Class A Ordinary Shares should consult his tax advisor as to
the effects of these rules.
OTHER. Dividends paid by XL Capital Ltd to U.S. corporate shareholders
will not be eligible for the dividends received deduction provided by section
243 of the Code.
Except as discussed below with respect to backup withholding, dividends
paid by XL Capital Ltd will not be subject to a U.S. withholding tax.
Information reporting to the IRS by paying agents and custodians located
in the U.S. will be required with respect to payments of dividends on the Class
A Ordinary Shares to U.S. persons. Thus, a holder of
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Class A Ordinary Shares may be subject to backup withholding with respect
to dividends paid by such persons, unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact; or (b) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is not
an additional tax and may be credited against a holder's regular U.S. federal
income tax liability.
Subject to certain exceptions, persons that are not U.S. persons will be
subject to U.S. federal income tax on dividend distributions with respect to,
and gain realized from the sale or exchange of, Class A Ordinary Shares only if
such dividends or gains are effectively connected with the conduct of a trade or
business within the United States.
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UNDERWRITING
We and the underwriters for the offering named below have entered into an
underwriting agreement with respect to the Class A Ordinary Shares being
offered. Subject to certain conditions, each underwriter has severally agreed to
purchase the number of Class A Ordinary Shares indicated in the following table.
Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Banc of America
Securities LLC, Credit Suisse First Boston Corporation, J.P. Morgan Securities
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are the
representatives of the underwriters.
UNDERWRITERS NUMBER OF SHARES
------------ -----------------
Goldman, Sachs & Co. ...................................... 3,797,000
Morgan Stanley & Co. Incorporated ......................... 1,898,500
Banc of America Securities LLC ............................ 474,625
Credit Suisse First Boston Corporation .................... 474,625
J.P. Morgan Securities Inc. ............................... 474,625
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................... 474,625
ABN AMRO Rothschild LLC ................................... 58,000
Credit Lyonnais Securities (USA) Inc. ..................... 58,000
Dowling & Partners Securities, LLC ........................ 58,000
Dresdner Kleinwort Wasserstein Securities LLC ............. 58,000
Fox-Pitt, Kelton Inc. ..................................... 58,000
Keefe, Bruyette & Woods, Inc. ............................. 58,000
Robertson Stephens, Inc. .................................. 58,000
---------
Total ............................................ 8,000,000
=========
The underwriters are committed to take and pay for all of the shares being
offered, if any are taken, other than the shares covered by the option described
below unless and until such option is exercised.
If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to buy up to an additional
1,200,000 shares from us to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following table shows the per share and total underwriting discounts
to be paid to the underwriters by us. Such amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase 1,200,000
additional shares.
PAID BY XL CAPITAL LTD NO EXERCISE FULL EXERCISE
--------------------- ------------ ------------
Per Share .................... $ 3.34 $ 3.34
Total ........................ $ 26,720,000 $ 30,728,000
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $2.00 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
The Class A Ordinary Shares are listed on the New York Stock Exchange
under the symbol "XL".
We have agreed with the underwriters not to sell, contract to sell or
otherwise dispose of or hedge any of our Class A Ordinary Shares or securities
convertible into or exchangeable for Class A Ordinary Shares during the period
from the date of this prospectus supplement continuing through the date 60 days
after the date of this prospectus supplement, except with the prior written
consent of Goldman, Sachs & Co. This
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agreement does not apply to any existing employee benefit plans. XL Capital
Ltd's Chairman of the Board and its Chief Executive Officer have agreed, subject
to certain exceptions, including for the sale of a portion of the Class A
Ordinary Shares owned by such director and officer, not to offer, sell, contract
to sell or otherwise dispose of any Class A Ordinary Shares, without the prior
consent of Goldman, Sachs & Co., until the date that is 30 days after the date
of this prospectus supplement.
In connection with this offering, the underwriters may purchase and sell
Class A Ordinary Shares in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from us in the offering. The underwriters
may close out any covered short position by either exercising their option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the overallotment option. "Naked"short sales are any
sales in excess of such option. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the Class A Ordinary Shares in the open market
after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of certain bids or purchases made for
the purpose of preventing or retarding a decline in the market price of the
Class A Ordinary Shares while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover short positions and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of our Class
A Ordinary Shares and, together with the imposition of the penalty bids, may
stabilize, maintain or otherwise affect the market price of the Class A Ordinary
Shares. As a result, the price of the Class A Ordinary Shares may be higher than
the price that otherwise might exist in the open market. If these activities are
commenced, they may be discontinued by the underwriters at any time. These
transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
We estimate that our share of the total expenses of this offering,
excluding underwriting discounts will be approximately $1,280,000.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The underwriters have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The underwriters may, from time to time in the future, engage in
transactions with and perform services for us in the ordinary course of their
business. Affiliates of certain of the underwriters are agents and lenders under
certain of our revolving credit facilities and letter of credit facilities, for
which they have received customary compensation. The underwriters have agreed to
reimburse us for certain expenses in connection with this offering.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Cahill Gordon &
Reindel, New York, New York and by Paul S. Giordano, Executive Vice President
and General Counsel of XL Capital Ltd. Certain legal matters with respect to the
securities under the laws of the Cayman Islands will be passed upon for us by
Hunter & Hunter, Grand Cayman, Cayman Islands. Certain legal matters will be
passed upon for the underwriters by Simpson Thacher & Bartlett, New York, New
York. Simpson Thacher & Bartlett has from time to time in the past provided
legal services to XL Capital Ltd and its affiliates.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides a
"safe harbor" for forward-looking statements. This prospectus supplement and the
accompanying prospectus, our Annual Report to Shareholders, any proxy statement,
any other Form 10-Q, Form 10-K or Form 8-K of ours or any other written or oral
statements made by or on behalf of us may include forward-looking statements
which reflect our current views with respect to future events and financial
performance. Such statements include forward-looking statements both with
respect to us in general, and the insurance, reinsurance and financial products
and services sectors in particular (both as to underwriting and investment
matters). Statements which include the words "expect", "intend", "plan",
"believe", "project", "anticipate", "will", and similar statements of a future
or forward-looking nature identify forward-looking statements for purposes of
the PSLRA or otherwise.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. We believe that these factors include, but are not limited to, the
following: (i) the size of our claims may change due to the preliminary nature
of reports and estimates of loss and damage; (ii) the timely and full
recoverability of reinsurance placed by us with third parties; (iii) the
projected amount of ceded reinsurance recoverables and the ratings and
creditworthiness of reinsurers may change; (iv) the timing of claims payments
being faster or the receipt of reinsurance recoverables being slower than
anticipated by us; (v) ineffectiveness or obsolescence of our business strategy
due to changes in current or future market conditions; (vi) increased
competition on the basis of pricing, capacity, coverage terms or other factors;
(vii) greater frequency or severity of claims and loss activity, including as a
result of natural or man-made catastrophic events, than our underwriting,
reserving or investment practices anticipate based on historical experience or
industry data; (viii) developments in the world's financial and capital markets
which adversely affect the performance of our investments and our access to such
markets; (ix) availability of borrowings and letters of credit under our credit
facilities; (x) changes in regulation or tax laws applicable to us, our
subsidiaries, brokers or customers; (xi) acceptance of our products and
services, including new products and services; (xii) changes in the
availability, cost or quality of reinsurance; (xiii) changes in the distribution
or placement of risks due to increased consolidation of insurance and
reinsurance brokers; (xiv) loss of key personnel; (xv) the effects of mergers,
acquisitions and divestitures, including, without limitation, the Winterthur
International acquisition; (xvi) changes in rating agency policies or practices;
(xvii) changes in accounting policies or practices; (xviii) changes in general
economic conditions, including inflation, foreign currency exchange rates and
other factors; and (xix) the effects of business disruption or economic
contraction due to terrorism or other hostilities. The foregoing review of
important factors should not be construed as exhaustive and should be read in
conjunction with the other cautionary statements that are included herein or
elsewhere. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
developments or otherwise.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
supplement the information we file with the SEC, which means that we can
disclose important information to you by referring to another document filed
separately with the SEC. The information that we file after the date of this
prospectus supplement with the SEC will automatically update and supersede this
information. We incorporate by reference into this prospectus supplement the
documents listed below and under "Incorporation of Documents by Reference" in
the accompanying prospectus, and any future filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended.
o Current Report on Form 8-K filed on October 29, 2001; and
o Quarterly Report on Form 10-Q for the period ended September 30, 2001,
filed on October 29, 2001.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus supplement shall be considered to
be modified or superseded for purposes of this prospectus supplement to the
extent that a statement contained in this prospectus supplement or in any
subsequently filed document that is or is considered to be incorporated by
reference modifies or supersedes such statement. Any statement that is modified
or superseded will not, except as so modified or superseded, constitute a part
of this prospectus supplement.You may request a copy of any of the documents
which are
S-19
incorporated by reference in this prospectus supplement or the accompanying
prospectus, other than exhibits which are not specifically incorporated by
reference into such documents, and XL Capital Ltd's constitutional documents, at
no cost, by writing or telephoning us at the following:
Investor Relations
XL Capital Ltd
XL House
One Bermudiana Road
Hamilton, Bermuda HM11
Telephone: (441) 292-8515
S-20
[This page intentionally left blank.]
PROSPECTUS
$1,500,000,000
XL CAPITAL LTD
ORDINARY SHARES
PREFERENCE ORDINARY SHARES
DEBT SECURITIES
ORDINARY SHARE WARRANTS
ORDINARY SHARE PURCHASE CONTRACTS
ORDINARY SHARE PURCHASE UNITS
XL FINANCE (UK) PLC
SENIOR DEBT SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED BY XL CAPITAL LTD
XL CAPITAL TRUST I
XL CAPITAL TRUST II
XL CAPITAL TRUST III
TRUST PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED TO THE
EXTENT PROVIDED IN THIS PROSPECTUS BY XL CAPITAL LTD
--------------------------------------------------------------------------------
The following are types of securities that may be offered and sold under this
prospectus:
o XL Capital Ltd Ordinary Shares o XL Capital Ordinary Share Purchase Units
o XL Capital Ltd Preference Ordinary Shares o XL Finance (UK) plc Senior Debt Securities
o XL Capital Ltd Debt Securities o Trust Preferred Securities
o XL Capital Ltd Ordinary Share Warrants o XL Capital Ltd Subordinated Deferrable
o XL Capital Ltd Ordinary Share Purchase Contracts Interest Debentures
A prospectus supplement, which must accompany this prospectus, will describe the
securities XL Capital Ltd, XL Finance (UK) plc and/or the trusts are offering
and selling, as well as the specific terms of the securities. Those terms may
include, among others, as applicable:
o Maturity o Redemption terms
o Interest rate o Conversion terms
o Dividend rate o Listing on a securities exchange
o Sinking fund terms o Amount payable at maturity
o Ranking
-------------------------------------------------------------------------------
NEITHER SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
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 securities may be offered in amounts, at prices and on terms determined at
the time of offering. The securities may be sold directly to you, through agents
which XL Capital Ltd, XL Finance (UK) plc and/or the applicable trust may elect,
or through underwriters and dealers which XL Capital Ltd, XL Finance (UK) plc
and/or the applicable trust may select. If XL Capital Ltd, XL Finance (UK) plc
and/or the applicable trust use agents, underwriters or dealers to sell the
securities, XL Capital Ltd, XL Finance (UK) plc and/or the applicable trust, as
applicable, will name them and describe their compensation in a prospectus
supplement.
October 25, 2001
TABLE OF CONTENTS
PAGE
----
About This Prospectus .............................................................................. 2
Where You Can Find More Information ................................................................ 2
Incorporation of Documents by Reference ............................................................ 3
XL Capital Ltd ..................................................................................... 4
XL Finance (UK) plc ................................................................................ 5
The Trusts ......................................................................................... 5
Use of Proceeds .................................................................................... 6
Accounting Treatment Relating to Trust Securities .................................................. 6
Ratio of Earnings to Fixed Charges and Preference Ordinary Share Dividends ......................... 6
General Description of the Offered Securities ...................................................... 7
Description of XL Capital Share Capital ............................................................ 7
Description of XL Capital Preference Ordinary Shares ............................................... 7
Description of XL Capital Ordinary Shares .......................................................... 11
Description of XL Capital Ordinary Share Warrants .................................................. 13
Description of XL Capital Ordinary Share Purchase Contracts and Ordinary Share Purchase Units ...... 15
Description of XL Capital Debt Securities .......................................................... 15
Description of XL Finance (UK) plc Senior Debt Securities .......................................... 28
Description of the Trust Preferred Securities ...................................................... 39
Description of the Trust Preferred Securities Guarantee ............................................ 53
Description of the Subordinated Deferrable Interest Debentures ..................................... 56
Plan of Distribution ............................................................................... 64
Legal Matters ...................................................................................... 65
Experts ............................................................................................ 65
Enforcement of Civil Liabilities Under United States Federal Securities Laws ....................... 66
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this prospectus or
the accompanying prospectus supplement and, if given or made, such information
or representation must not be relied upon as having been authorized by XL
Capital Ltd, XL Finance (UK) plc, the trusts or any underwriter, dealer or
agent. Neither this prospectus nor the accompanying prospectus supplement
constitutes an offer to sell or a solicitation of an offer to buy securities in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
In this prospectus, and in the accompanying prospectus supplement, unless
the context requires otherwise, "we," "us" and "our" refer to XL Capital Ltd and
its subsidiaries, "XL Capital" refers to XL Capital Ltd and not any of its
subsidiaries, "XL Finance" refers to XL Finance (UK) plc and "XL Capital trusts"
or the "trusts" refer, collectively, to XL Capital Trust I, XL Capital Trust II
and XL Capital Trust III.
1
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that XL Capital Ltd,
XL Finance (UK) plc, and the trusts filed with the Securities and Exchange
Commission (the "SEC") utilizing a "shelf" registration process, relating to:
(i) XL Capital Ltd's ordinary shares, preference ordinary shares, debt
securities, ordinary share warrants, ordinary share purchase
contracts, ordinary share purchase units, subordinated deferrable
interest debentures, guarantees of XL Finance senior debt securities
and guarantees of trust preferred securities;
(ii) XL Finance (UK) plc's senior debt securities; and
(iii) the trust preferred securities of XL Capital Trust I, XL Capital
Trust II and XL Capital Trust III described in this prospectus.
Under this shelf process, XL Capital Ltd, XL Finance (UK) plc, and the
trusts may sell the securities described in this prospectus in one or more
offerings up to a total initial offering price of $1,500,000,000. This
prospectus provides you with a general description of the securities that XL
Capital Ltd, XL Finance (UK) plc and the trusts may offer. This prospectus does
not contain all of the information set forth in the registration statement as
permitted by the rules and regulations of the SEC. For additional information
regarding XL Capital Ltd, XL Finance (UK) plc or the trusts and the offered
securities, please refer to the registration statement. Each time XL Capital
Ltd, XL Finance (UK) plc or a trust sells securities it will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find More Information."
--------------
WHERE YOU CAN FIND MORE INFORMATION
We, the trusts and XL Finance have filed with the SEC under the Securities
Act of 1933, as amended (the "Securities Act"), a combined registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "registration statement") relating to the offered securities.
XL CAPITAL
XL Capital is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy and information statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and copied
at prescribed rates at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains a website that contains reports, proxy and information statements and
other information. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The website address is http://www.sec.gov. In
addition, such material can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
XL FINANCE (UK) plc
XL Finance (UK) plc is not currently subject to the information reporting
requirements of the Exchange Act. XL Finance (UK) plc is a newly formed entity
and currently has no operations and only minimal capitalization. XL Finance (UK)
plc is directly and indirectly wholly owned by XL Capital. The obligations of XL
Finance (UK) plc under its senior debt securities will be fully and
unconditionally guaranteed by XL Capital. See "Description of XL Finance (UK)
plc Senior Debt Securities."
2
THE TRUSTS
None of the trusts is currently subject to the information reporting
requirements of the Exchange Act. No separate financial statements of the trusts
have been included herein. We do not believe that such financial statements
would be material to holders of the trust preferred securities because:
(i) all of the voting securities of the trusts will be owned, directly or
indirectly, by XL Capital, a reporting company under the Exchange Act,
(ii) the trusts have no independent operations and exist for the sole
purpose of issuing securities representing undivided beneficial
interests in the assets of the applicable trust and investing the
proceeds thereof in the subordinated deferrable interest debentures
issued by XL Capital and
(iii) the obligations of each trust under the trust securities are fully
and unconditionally guaranteed by XL Capital to the extent that the
trust has funds available to meet such obligations.
See "The Trusts," "Description of the Trust Preferred Securities,"
"Description of the Trust Preferred Securities Guarantees" and "Description of
the Subordinated Deferrable Interest Debentures."
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows XL Capital to "incorporate by reference" into this
prospectus the information it files with the SEC, which means that it can
disclose important information to you by referring to another document filed
separately with the SEC. The information that XL Capital files after the date of
the initial registration statement and prior to the effectiveness of the
registration statement shall be deemed to be incorporated by reference into this
prospectus. The information that XL Capital files after the date of this
prospectus with the SEC will automatically update and supersede this
information. XL Capital incorporates by reference into this prospectus the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Exchange Act.
o Annual Report on Form 10-K for the year ended December 31, 2000, filed
on March 29, 2001;
o Quarterly Report on Form 10-Q for the period ended June 30, 2001,
filed on August 14, 2001;
o Quarterly Report on Form 10-Q for the period ended March 31, 2001,
filed on May 15, 2001;
o Current Report on Form 8-K filed on February 23, 2001;
o Current Reports on Form 8-K filed on May 18, 2001;
o Current Report on Form 8-K filed on July 27, 2001;
o Current Report on Form 8-K filed on August 9, 2001;
o Current Report on Form 8-K filed on September 5, 2001;
o Current Report on Form 8-K filed on September 11, 2001;
o Current Report on Form 8-K filed on September 17, 2001;
o Current Report on Form 8-K filed on October 4, 2001; and
o Proxy Statement dated April 6, 2001, filed on April 6, 2001.
3
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document that is or is
considered to be incorporated by reference modifies or supersedes such
statement. Any statement that is modified or superseded shall not, except as so
modified or superseded, constitute a part of this prospectus.
You may request a copy of any of the documents which are incorporated by
reference in this prospectus, other than exhibits which are not specifically
incorporated by reference into such documents, and XL Capital's, XL Finance's
and the Trusts' constitutional documents, at no cost, by writing or telephoning
us at the following:
Investor Relations
XL Capital Ltd
XL House
One Bermudiana Road
Hamilton, Bermuda HM11
Telephone: (441) 292-8515
None of XL Capital, XL Finance or the trusts have authorized anyone to
give any information or make any representation about XL Capital, XL Finance or
the trusts that is different from, or in addition to, that contained in this
prospectus or in any of the materials that XL Capital, XL Finance or the trusts
have incorporated by reference into this document. Therefore, if anyone does
give you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document, unless the information specifically
indicates that another date applies.
XL CAPITAL LTD
We are a leading provider of insurance and reinsurance coverages and
financial products and services to industrial, commercial and professional
service firms, insurance companies and other enterprises on a worldwide basis.
We were incorporated with limited liability under the Cayman Islands
Companies Law on March 16, 1998, as EXEL Merger Company Ltd. We were formed as a
result of the merger of EXEL Merger Company Ltd, EXEL Limited and Mid Ocean
Limited on August 7, 1998, and were renamed EXEL Limited on that date. This
merger was accounted for as a purchase business combination. EXEL and Mid Ocean
were companies that were incorporated in the Cayman Islands in 1986 and 1992,
respectively. At a special general meeting held on February 1, 1999, the
shareholders of EXEL Limited approved a resolution changing the name of EXEL
Limited to XL Capital Ltd.
On June 18, 1999, we merged with NAC Re Corp., a Delaware corporation that
was organized in 1985, in a stock merger. The NAC merger was accounted for as a
pooling of interests under U.S. generally accepted accounting principles.
Accordingly, all prior period information contained or incorporated by reference
in this prospectus includes the results of NAC as though it had always been a
part of XL Capital. Following the merger, we changed our fiscal year end from
November 30 to December 31 as a conforming pooling adjustment. On July 25, 2001,
we completed the acquisition of certain of the operations of Winterthur
International from Winterthur Swiss Insurance Company, an indirect subsidiary of
the Credit Suisse Group. Although the Winterthur International acquisition
closed on July 25, 2001, it will be given effect as if it closed on July 1,
2001.
We are incorporated in the Cayman Islands. Our principal executive offices
are located at XL House, One Bermudiana Road, Hamilton, Bermuda HM11. Our
telephone number is (441) 292-8515. Our website
4
is www.xlcapital.com. The information contained on our website is not
incorporated by reference into this prospectus.
You can obtain additional information about us in the reports and other
documents incorporated by reference in this prospectus. See "Where You Can Find
More Information" and "Incorporation of Documents by Reference."
XL FINANCE (UK) PLC
XL Finance (UK) plc was incorporated as a public limited company under the
laws of England and Wales on August 29, 2001 under the number 4278406. XL
Finance (UK) plc is a wholly owned subsidiary of XL Capital Ltd. XL Finance (UK)
plc has not engaged in any activities other than those incidental to its
formation and will not have any operations other than the issuance of senior
debt securities, if any, and the lending or the contributing of the proceeds of
such senior debt securities to XL Capital Ltd or its subsidiaries and activities
incidental to or connected with the foregoing. XL Finance (UK) plc's registered
offices are located at 35 Basinghall Street, London EC2Y 5DB, England.
THE TRUSTS
Each of XL Capital Trust I, XL Capital Trust II and XL Capital Trust III
is a statutory business trust formed under Delaware law pursuant to (i) a
separate declaration of trust, executed by XL Capital Ltd, as sponsor for such
trust (the "sponsor"), and the trustees (as defined herein) as of that date of
such trust and (ii) the filing of a separate certificate of trust with the
Delaware Secretary of State. The declaration of trust of each trust will be
amended and restated in its entirety (as so amended and restated, the
"declaration") substantially in the form filed as an exhibit to the registration
statement of which this prospectus forms a part.
Each trust exists for the exclusive purposes of (i) issuing and selling
the trust preferred securities representing preferred undivided beneficial
interests in the assets of such trust and trust common securities representing
common undivided beneficial interests in the assets of such trust (the "trust
common securities" and, together with the trust preferred securities, the "trust
securities"), (ii) investing the gross proceeds of the trust securities in a
series of subordinated deferrable interest debentures and (iii) engaging in only
those other activities necessary or incidental thereto.
All of the trust common securities will be directly or indirectly owned by
XL Capital Ltd. The trust common securities will rank equal with, and payments
will be made thereon pro rata, with the trust preferred securities except that
upon an event of default under the declaration, the rights of the holders of the
trust common securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the trust preferred securities. XL Capital Ltd will, directly or
indirectly, acquire trust common securities in an aggregate liquidation amount
equal to 3% of the total capital of each trust. Each trust has a term of
approximately 55 years, but may terminate earlier as provided in the applicable
declaration.
Each trust's business and affairs will be conducted by the trustees (the
"trustees") appointed by XL Capital Ltd, as the direct or indirect holder of all
the trust common securities. The holder of the trust common securities will be
entitled to appoint, remove or replace any of, or increase or reduce the number
of, the trustees of a trust. The duties and obligations of such trustees shall
be governed by the declaration of such trust, the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), and the Delaware Business Trusts Act. A
majority of the trustees (the "regular trustees") of each trust will be persons
who are employees or officers of or affiliated with XL Capital Ltd.
One trustee of each trust will be a financial institution which will be
unaffiliated with XL Capital Ltd and which shall act as property trustee and as
indenture trustee for purposes of the Trust Indenture Act, pursuant to the terms
set forth in a prospectus supplement (the "property trustee"). In addition,
unless the property trustee maintains a principal place of business in the State
of Delaware, and otherwise meets the
5
requirements of applicable law, another trustee of each trust will have its
principal place of business or reside in the State of Delaware (the "Delaware
Trustee"). XL Capital Ltd will pay all fees, expenses, debts and obligations
(other than the trust securities) related to the trusts and the offering of
trust securities. The office of the Delaware trustee for each trust in the State
of Delaware is First Union Trust Company, National Association, One Rodney
Square, 920 King Street, Suite 102, Wilmington, Delaware 19801. The principal
place of business of each trust shall be c/o XL Capital Ltd, XL House, One
Bermudiana Road, Hamilton HM11, Bermuda (telephone number (441) 292-8515).
USE OF PROCEEDS
Except as may otherwise be described in the prospectus supplement relating
to an offering of securities, the net proceeds from the sale of the securities
included in this Prospectus will be used for general corporate purposes. Each
trust will invest all proceeds received from the sale of its trust securities in
a particular series of subordinated deferrable interest debentures of XL
Capital, which will use such funds for general corporate purposes. Any specific
allocation of the net proceeds of an offering of securities to a specific
purpose will be determined at the time of such offering and will be described in
the related prospectus supplement.
ACCOUNTING TREATMENT RELATING TO TRUST SECURITIES
The financial statements of each trust that has issued trust securities
will be consolidated with XL Capital Ltd's financial statements, with the trust
preferred securities of each trust shown on XL Capital Ltd's consolidated
financial statements as XL Capital Ltd obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely subordinated debt
securities of XL Capital Ltd. XL Capital Ltd's financial statements will include
a footnote that discloses, among other things, that the sole asset of each trust
included therein consists of subordinated deferrable interest debentures of XL
Capital Ltd, and will specify the designation, principal amount, interest rate
and maturity date of such subordinated deferrable interest debentures.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE ORDINARY SHARE DIVIDENDS
The ratio of earnings to fixed charges and ratio of earnings to combined
fixed charges and preference ordinary share dividends of XL Capital for each of
the periods indicated is as follows:
FISCAL YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 2001 2000 1999 1998 1997 1996
---------------- ----- ----- ----- ----- -----
Ratio of Earnings to
Fixed Charges.......................... 12.5x 11.0x 10.5x 18.9x 25.3x 20.0x
Ratio of Earnings to
Combined Fixed Charges
and Preference Ordinary
Share Dividends........................ 12.5x 11.0x 10.5x 18.9x 25.3x 20.0x
We have computed the foregoing ratios by dividing (i) income from
continuing operations before income taxes and minority interest, plus fixed
charges, less equity income in unconsolidated affiliates, capitalized interest
and minority interest by (ii) fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred financing
costs), capitalized interest, minority interest and the portion of operating
lease rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals). Because XL Capital Ltd had no outstanding
preference ordinary shares during any of the periods presented, the ratio of
earning to fixed charges is identical to the ratio of earnings to combined fixed
charges and preference ordinary share dividends for each of the periods
presented.
XL Finance (UK) plc and the trusts had no operations during the periods
set forth above.
6
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
XL Capital may offer from time to time under this prospectus, separately
or together:
o ordinary shares,
o preference ordinary shares,
o unsecured senior or subordinated debt securities,
o warrants to purchase ordinary shares of XL Capital Ltd,
o ordinary share purchase contracts and
o ordinary share purchase units, each representing ownership of an
ordinary share purchase contract and, as security for the holder's
obligation to purchase ordinary shares under the share purchase
contract, any of (1) senior debt securities of XL Finance (UK) plc,
fully and unconditionally guaranteed by XL Capital, (2) debt
obligations of third parties, including U.S. Treasury securities or
(3) preferred securities of a trust.
XL Finance (UK) plc may offer from time to time under this Prospectus
unsecured senior debt securities, which will be fully and unconditionally
guaranteed by XL Capital.
Each trust may offer from time to time under this Prospectus trust
preferred securities representing undivided beneficial interests in their
respective assets, which will be fully and unconditionally guaranteed to the
extent described in this prospectus by XL Capital.
The aggregate initial offering price of the offered securities will not
exceed $1,500,000,000.
DESCRIPTION OF XL CAPITAL SHARE CAPITAL
GENERAL
The Articles of Association and Memorandum of Association of XL Capital
provide that its authorized share capital is US$9,999,900 divided into
999,990,000 ordinary shares, par value $0.01 per share. The XL Capital ordinary
shares are currently divided into two classes: Class A Ordinary Shares and Class
B Ordinary Shares (together, the "ordinary shares").
As of September 30, 2001, XL Capital's issued and outstanding shares were
as follows:
CLASS OF STOCK SHARES
-------------- -------
Class A Ordinary Shares ................................ 124,513,107
Class B Ordinary Shares ................................ 0
All issued and outstanding shares are fully paid and nonassessable.
DESCRIPTION OF XL CAPITAL PREFERENCE ORDINARY SHARES
GENERAL
In this section, references to "XL Capital," "we," "our" or "us" refer
solely to XL Capital Ltd and not its subsidiaries.
We are authorized to issue up to 999,990,000 ordinary shares of our
company, par value $0.01 per share. Without prejudice to any special rights
previously conferred on the holders of existing shares, the
7
board of directors has the power to issue our ordinary shares with such
preferred, deferred or other special rights, terms or conditions, or such
restrictions, whether in regard to dividends, voting, return of share capital,
exchange for other classes of shares, exchangeability for other securities or
otherwise as the board of directors may from time to time determine.
The following is a description of certain general terms and provisions of
the preference ordinary shares that, following appropriate resolutions of the
board of directors, we may issue with preferred rights ("preference ordinary
shares"). The particular terms of any class or series of preference ordinary
shares will be described in the applicable prospectus supplement. The applicable
prospectus supplement may also state that any of the terms set forth herein are
inapplicable to such series of preference ordinary shares.
The following summary of terms of our preference ordinary shares is not
complete. You should refer to the provisions of our Memorandum of Association,
our Articles of Association and the terms of each class or series of the
preference ordinary shares which will be filed with the SEC at or prior to the
time of issuance of such class or series of the preference ordinary shares and
described in the applicable prospectus supplement.
TERMS
The terms of each series of preference ordinary shares will be described
in any prospectus supplement related to such series of preference ordinary
shares.
The board of directors in approving the issuance of a class or series of
preference ordinary shares shall determine, and the applicable prospectus
supplement will set forth with respect to such class or series, the following:
o whether dividends on that class or series of preference ordinary
shares will be cumulative or non-cumulative;
o the dividend rate and rights in respect of dividends on the preference
ordinary shares of that class or series;
o the liquidation preference per share of that class or series of
preference ordinary shares, if any;
o the voting powers, if any, of the preference ordinary shares of that
class or series;
o any redemption and sinking fund provisions applicable to that class or
series of preference ordinary shares;
o any conversion provisions applicable to that class or series of
preference ordinary shares; and
o the terms of any other preferences or other rights and limitations, if
any, applicable to that class or series of preference ordinary shares.
DIVIDENDS
Holders of preference ordinary shares will be entitled to receive, when,
as and if declared by the board of directors, cash dividends at the rates and on
the dates as set forth in the applicable prospectus supplement. Except as set
forth below, no dividends will be declared or paid on any class or series of
preference ordinary shares unless full dividends for all classes or series of
preference ordinary shares which have the same rank as, or rank senior to, such
class or series of preference ordinary shares (including cumulative dividends
still owing, if any) have been or contemporaneously are declared and paid. When
those dividends are not paid in full, dividends will be declared pro rata so
that the amount of dividends declared per share on that class or series of
preference ordinary shares and on each other class or series of preference
ordinary shares having the same rank as, or ranking senior to, that class or
series of preference ordinary shares will in all cases bear to each other the
same ratio that accrued dividends per share on that class or
8
series of preference ordinary shares and the other preference ordinary shares
bear to each other. In addition, generally, unless all dividends on the
preference ordinary shares have been paid, no dividends will be declared or paid
on the ordinary shares and generally we may not redeem or purchase any ordinary
shares.
VOTING RIGHTS
The holders of the preference ordinary shares shall not, except as
required by law or as set forth in the applicable prospectus supplement, have
any right or power to vote on any question or in any proceeding or to be
represented at, or to receive notice of, any meeting of shareholders. On any
matters on which the holders of the preference ordinary shares shall be entitled
to vote, they shall be entitled to one vote for each share held.
Unless otherwise stated in the applicable prospectus supplement, if six or
more full quarterly dividends (whether consecutive or not) on any series of
preference ordinary shares shall be in arrears, then during the period, which we
refer to herein as the "voting period," the holders of a majority of the
outstanding preference ordinary shares of all series represented in person or by
proxy at any meeting of our shareholders held for the election of directors
during such voting period, shall be entitled, as a class, to the exclusion of
the holders of all other classes of our shares, to elect two of our directors,
each preference ordinary share entitling the holder thereof to one vote.
Any director who shall have been elected by holders of preference ordinary
shares, or by any director so elected as herein contemplated, may be removed at
any time during a voting period, either for or without cause, by, and only by,
the affirmative votes of the holders of record of a majority of the outstanding
preference ordinary shares of all series given at a special meeting of such
shareholders called for the purpose. Any vacancy thereby created may be filled
during such voting period by the holders of preference ordinary shares of all
series, present in person or represented by proxy at such meeting. Any director
elected by holders of preference ordinary shares, or by any director so elected
as herein contemplated, who dies, resigns or otherwise ceases to be a director
shall, except as otherwise provided in the preceding sentence, be replaced by
the remaining director theretofore elected by the holders of preference ordinary
shares. At the end of the voting period, the holders of preference ordinary
shares of all series shall be automatically divested of all voting power vested
in them under this provision but subject always to the subsequent vesting of
voting power in the holders of preference ordinary shares in the event of any
similar cumulated arrearage in payment of quarterly dividends occurring
thereafter. The term of all directors elected pursuant to this provision shall
in all events expire at the end of the voting period.
RANKING
The preference ordinary shares will rank prior to our ordinary shares.
Without the requisite vote of holders of the preference ordinary shares, as
described above under "-- Voting Rights," no class or series of capital shares
can be created ranking senior to the preference ordinary shares as to dividend
rights or liquidation preference.
LIQUIDATION RIGHTS
In the event of our liquidation, dissolution or winding up, the holders of
preference ordinary shares of each series are entitled to receive out of our
assets available for distribution to shareholders, before any distribution of
assets is made to holders of ordinary shares or any other class or series of our
capital shares (including any preferred shares) which is junior as to
liquidation rights to our preference ordinary shares of such series, liquidating
distributions in the amount set forth in the applicable prospectus supplement,
plus dividends accrued and accumulated but unpaid to the date of such
distribution. If, upon our liquidation, dissolution or winding up, the amounts
payable with respect to our preference ordinary shares of such series and any of
our other preference ordinary shares ranking as to any such distribution on a
parity with our preference ordinary shares of such series are not paid in full,
the holders of our preference ordinary shares of such series and of such of our
other preference ordinary shares will share ratably in any such distribution
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of assets in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of preference ordinary
shares will not be entitled to any further participation in any distribution of
assets by us. Neither our consolidation or merger with another corporation nor a
sale or transfer of all or part of our assets for cash or securities shall be
considered a liquidation, dissolution or winding up of us.
REDEMPTION PROVISIONS
The preference ordinary shares of each series will have such optional or
mandatory redemption terms, if any, as shall be set forth in the applicable
prospectus supplement.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which any series of our preference
ordinary shares is convertible into ordinary shares or exchangeable into debt
securities will be set forth in the applicable prospectus supplement relating to
such series of preference ordinary shares. Such terms will include:
(1) in the case such series of preference ordinary shares is convertible
into ordinary shares:
(a) the number of ordinary shares into which preference ordinary shares of
such series are convertible;
(b) the conversion price (or manner of calculation thereof);
(c) the conversion period;
(d) provisions as to whether conversion will be at the option of the
holders of such series of preference ordinary shares or at our option
or automatic;
(e) the events requiring an adjustment of the conversion price; and
(f) provisions affecting conversion in the event of the redemption of such
series of preference ordinary shares; and
(2) in the case such series of preference ordinary shares is exchangeable
into debt securities:
(a) the principal amount of debt securities into which preference ordinary
shares of such series are exchangeable;
(b) the exchange period; and
(c) provisions as to whether the exchange will be at the option of the
holders of such series of preference ordinary shares or at our option
or automatic.
MISCELLANEOUS
Our preference ordinary shares will have no preemptive rights. All of our
preference ordinary shares, upon payment in full therefor, will be fully paid
and nonassessable.
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DESCRIPTION OF XL CAPITAL ORDINARY SHARES
GENERAL
In this section, references to "XL Capital," "we," "our" or "us" refer
solely to XL Capital Ltd and not its subsidiaries.
The following description of our ordinary shares is a summary. This
summary is not complete and is subject to the complete text of applicable laws
and our Memorandum and Articles of Association.
VOTING
The holders of our Class A Ordinary Shares are entitled to one vote per
share while our Class B Ordinary Shares carry no voting rights. Our Articles of
Association restrict the voting power of any shareholder to less than
approximately 10% of total voting power.
Under the Cayman Islands Companies Law (2001 Second Revision) (the "Law")
and our Memorandum and Articles of Association, some matters, such as altering
the Memorandum or the Articles of Association, changing the name of a company,
voluntarily winding up a company or removing a director, require approval of
shareholders by a special resolution. A special resolution is a resolution (1)
passed by a majority of not less than two-thirds of such shareholders as, being
entitled to do so, vote in person or by proxy at a general meeting or (2)
approved in writing by all shareholders entitled to vote at a general meeting of
the company.
DIVIDEND RIGHTS
Subject to the Law and any rights and restrictions of any other class or
series of shares, the Board of Directors may from time to time declare dividends
on the shares issued and authorize payment of the dividends out of our profit
realized or unrealized or out of monies otherwise available for dividends in
accordance with the Law. The Board of Directors may declare that any dividend be
paid wholly or partly by the distribution of our shares and/or specific assets.
RIGHTS UPON LIQUIDATION
Upon our liquidation, after the payments to be made in accordance with the
Law and the full amounts that holders of any issued shares ranking senior to the
ordinary shares as to distribution on liquidation or winding up are entitled to
receive have been paid or set aside for payment, the holders of the ordinary
shares are entitled to receive, pro rata, any remaining assets available for
distribution to the holders of ordinary shares. The liquidator may deduct from
the amount payable in respect of those ordinary shares any liabilities the
holder has to or with us. The assets received by the holders of ordinary shares
in a liquidation may consist in whole or in part of property. That property is
not required to be of the same kind for all shareholders.
STOCK PLANS
Our incentive stock plan, the "1991 Performance Incentive Program,"
provides for grants of non-qualified or incentive stock options, restricted
stock awards, performance shares, performance units and stock appreciation
rights ("SARs"). The plan is administered by the Compensation Committee of the
Board of Directors. Stock options may be granted with or without SARs. Grant
prices are established by the Compensation Committee at the date of grant.
Options and SARs have a life of not longer than 10 years and vest as set forth
by the Compensation Committee at the time of grant.
Restricted stock awards issued under the 1991 Performance Incentive
Program plan vest over such period as the Compensation Committee may approve.
These shares contained certain restrictions, prior to vesting, relating to,
among other things, forfeiture in the event of termination of employment and
transferability. Restricted stock issued under the plan totaled 77,472 shares,
113,100 shares and 147,836 shares in
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2000, 1999 and 1998, respectively. Restricted stock awards granted by NAC Re
Corp. prior to our merger with it amounted to 3,627 shares and 23,700 shares in
1999 and 1998, respectively. Vesting for such shares generally occurs over a
six-year period.
We also have stock plans in place for our non-employee directors. All
options vest immediately on the grant date. All options granted to non-employee
directors are granted under the 1991 Performance Incentive Program. Directors
may also make an irrevocable election preceding the beginning of each fiscal
year to defer cash compensation that would otherwise be payable as his or her
annual retainer in increments of $5,000 or receive their annual retainer fee
currently in the form of shares instead of cash. Any deferred payments will be
credited in the form of shares calculated by dividing 110% of the deferred
payment by the market value of our stock on the date the fees would otherwise be
payable. The shares are distributed in accordance with the terms of the plan.
Shares issued under the plan totaled 7,846, nil and 2,737 in 2000, 1999 and
1998, respectively.
A second stock plan, intended to replace the directors' "Retirement Plan
for Non-Employee Directors," provides for the issuance of share units determined
by dividing the annual retainer by the market price of our ordinary shares on
December 1 of each year. These units receive dividends in the form of additional
units equal to the cash value divided by the market price on the payment date.
Share units totaling 13,237, 1,217 and 5,531 were issued in 2000, 1999 and 1998,
respectively.
The majority of the options granted pursuant to our several option plans
expire 10 years from the date of grant.
In 1999, we adopted our 1999 Performance Incentive Plan under which
1,250,000 options were available and issued to employees who were not directors
or executive officers. Our 1999 Performance Incentive Plan is substantially
similar to our 1991 Performance Incentive Program.
SHARE RIGHTS PLAN
Rights to purchase ordinary shares (the "Rights") were distributed as a
dividend at the rate of one Right for each ordinary share held of record as of
the close of business on October 31, 1998. Each Right entitles holders of
ordinary shares to buy one ordinary share at an exercise price of $350. The
Rights would be exercisable, and would detach from the ordinary shares, only if
a person or group were to acquire 20% or more of our outstanding ordinary
shares, or were to announce a tender or exchange offer that, if consummated,
would result in a person or group beneficially owning 20% or more of ordinary
shares. Upon a person or group without prior approval of the Board of Directors
acquiring 20% or more of ordinary shares, each Right would entitle the holder
(other than such an acquiring person or group) to purchase ordinary shares (or,
in certain circumstances, ordinary shares of the acquiring person) with a value
of twice the Rights exercise price upon payment of the Rights exercise price. We
will be entitled to redeem the Rights at $0.01 per Right at any time until the
close of business on the tenth day after the Rights become exercisable. The
Rights will expire at the close of business on September 30, 2008, and do not
initially have a fair value. We have initially reserved 119,073,878 authorized
ordinary shares for issue upon exercise of Rights.
CLASSIFIED BOARD
Our Board of Directors is divided into three classes that are elected for
staggered three-year terms. A director may be removed by the shareholders
without cause only by special resolution of the total voting power of our issued
shares determined in accordance with our Articles of Association.
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DESCRIPTION OF XL CAPITAL ORDINARY SHARE WARRANTS
GENERAL
In this section, references to "XL Capital," "we," "our" or "us" refer
solely to XL Capital Ltd and not its subsidiaries.
XL Capital may issue ordinary share warrants independently or together
with any securities offered by any prospectus supplement and such ordinary share
warrants may be attached to or separate from such securities. Each series of
ordinary share warrants will be issued under a separate warrant agreement to be
entered into between XL Capital and a bank or trust company, as warrant agent,
all as set forth in the applicable prospectus supplement. The warrant agent will
act solely as our agent in connection with the certificates representing the
ordinary share warrants and will not assume any obligation or relationship of
agency or trust for or with any holders of ordinary share warrant certificates
or beneficial owners of ordinary share warrants.
The following summaries of certain provisions of the warrant agreement and
ordinary share warrant certificate are not complete. You should look at the
warrant agreement relating to, and the common stock warrant certificate
representing, a series of ordinary share warrants.
The applicable prospectus supplement may also state that any of the terms
set forth herein are inapplicable to such series. Ordinary share warrants for
the purchase of ordinary shares will be offered and exercisable for U.S. dollars
only and will be in registered form only.
TERMS
An applicable prospectus supplement will set forth and describe other
specific terms regarding each series of ordinary share warrants offered hereby,
including:
(1) the offering price;
(2) the number of ordinary shares purchasable upon exercise of each such
ordinary share warrant and the price at which such number of ordinary
shares may be purchased upon such exercise;
(3) the date on which the right to exercise such ordinary share warrants
shall commence and the date on which such right shall expire; and
(4) any other terms of such ordinary share warrants.
EXERCISE OF ORDINARY SHARE WARRANTS
Each ordinary share warrant will entitle the holder thereof to purchase
such ordinary shares at such exercise price as shall in each case be set forth
in, or calculable from, the prospectus supplement relating to the offered
ordinary share warrants. After the close of business on the expiration date of
each ordinary share warrant or such later date to which such expiration date may
be extended by us, unexercised ordinary share warrants will become void.
Ordinary share warrants may be exercised by delivering to the warrant
agent payment as provided in the applicable prospectus supplement of the amount
required to purchase the ordinary shares purchasable upon such exercise,
together with certain information set forth on the reverse side of the ordinary
share warrant certificate. Upon receipt of such payment and the ordinary share
warrant certificate properly completed and duly executed at the corporate trust
office of the warrant agent or any other office indicated in the applicable
prospectus supplement, we will, as soon as practicable, issue and deliver the
ordinary shares purchasable upon such exercise. If fewer than all of the
ordinary share warrants represented by
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such ordinary share certificate are exercised, a new ordinary share warrant
certificate will be issued for the remaining amount of ordinary share warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The warrant agreement for a series of ordinary share warrants may be
amended or supplemented without the consent of the holders of the ordinary share
warrants issued thereunder to effect changes that are not inconsistent with the
provisions of the ordinary share warrants and that do not adversely affect the
interests of the holders of the ordinary share warrants.
ORDINARY SHARE WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable prospectus supplement, the
exercise price of, and the number of ordinary shares covered by, an ordinary
share warrant are subject to adjustment in certain events, including:
(1) the issuance of ordinary shares as a dividend or distribution on the
ordinary shares;
(2) certain subdivisions and combinations of the ordinary shares;
(3) the issuance to all holders of ordinary shares of certain rights or
warrants entitling them to subscribe for or purchase ordinary shares,
at less than the current market value, as defined in the applicable
warrant agreement for such series of ordinary share warrants; and
(4) the distribution to all holders of ordinary shares of certain
evidences of our indebtedness or assets, other than certain cash
dividends and distributions described below.
No adjustment in the exercise price of, and the number of ordinary shares
covered by, an ordinary share warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from retained earnings. No
adjustment will be required unless such adjustment would require a change of at
least one percent in the exercise price and exercise rate then in effect;
provided, however, that any such adjustment not so made will be carried forward
and taken into account in any subsequent adjustment; provided, further, that any
such adjustment not so made shall be made no later than three years after the
occurrence of the event requiring such adjustment to be made or carried forward.
Except as stated above, the exercise price of, and the number of ordinary shares
covered by, an ordinary share warrant will not be adjusted for the issuance of
ordinary shares or any securities convertible into or exchangeable for ordinary
shares, or securities carrying the right to purchase any of the foregoing.
In the case of:
(1) a reclassification or change of the ordinary shares;
(2) certain consolidation or merger events involving us; or
(3) a sale or conveyance to another corporation of our property and assets
as an entirety or substantially as an entirety,
in each case as a result of which holders of our ordinary shares shall be
entitled to receive stock, securities, other property or assets (including cash)
with respect to or in exchange for such ordinary shares, the holders of the
ordinary share warrants then outstanding will be entitled thereafter to convert
such ordinary share warrants into the kind and amount of ordinary shares and
other securities or property which they would have received upon such
reclassification, change, consolidation, merger, sale or conveyance had such
ordinary share warrants been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance.
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DESCRIPTION OF XL CAPITAL ORDINARY SHARE PURCHASE
CONTRACTS AND ORDINARY SHARE PURCHASE UNITS
XL Capital may issue share purchase contracts, representing contracts
obligating holders to purchase from XL Capital, and obligating XL Capital to
sell to the holders, a specified number of ordinary shares at a future date or
dates. The price per ordinary share may be fixed at the time the share purchase
contracts are issued or may be determined by reference to a specific formula set
forth in the share purchase contracts. The share purchase contracts may be
issued separately or as a part of share purchase units consisting of a share
purchase contract and, as security for the holder's obligations to purchase the
ordinary shares under the share purchase contracts, either (1) senior debt
securities of XL Finance (UK) plc, fully and unconditionally guaranteed by us,
(2) debt obligations of third parties, including U.S. Treasury securities, or
(3) preferred securities of an XL Capital Trust. The share purchase contracts
may require us to make periodic payments to the holders of the share purchase
units or vice versa, and such payments may be unsecured or prefunded on some
basis. The share purchase contracts may require holders to secure their
obligations in a specified manner and in certain circumstances we may delivery
newly issued prepaid share purchase contracts upon release to a holder of any
collateral securing such holder's obligations under the original share purchase
contract.
The applicable prospectus supplement will describe the terms of any share
purchase contracts or share purchase units and, if applicable, prepaid share
purchase contracts. The description in the prospectus supplement will not
purport to be complete and will be qualified in its entirety by reference to (1)
the share purchase contracts, (2) the collateral arrangements and depositary
arrangements, if applicable, relating to such share purchase contracts or share
purchase units and (3) if applicable, the prepaid share purchase contracts and
the document pursuant to which such prepaid share purchase contracts will be
issued.
DESCRIPTION OF XL CAPITAL DEBT SECURITIES
GENERAL
In this section, references to "XL Capital," "we," "our" or "us" refer
solely to XL Capital Ltd and not its subsidiaries.
XL Capital may issue debt securities from time to time in one or more
series, under one or more indentures, each dated as of a date on or prior to the
issuance of the debt securities to which it relates. Senior debt securities and
subordinated debt securities may be issued pursuant to separate indentures, a
senior indenture and a subordinated indenture, respectively, in each case
between us and a trustee qualified under the Trust Indenture Act. The form of
such indentures have been filed as an exhibit to the registration statement of
which this prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time. The senior indenture and the subordinated
indenture, as amended or supplemented from time to time, are sometimes referred
to individually as an "indenture" and collectively as the "indentures." Each
indenture will be subject to and governed by the Trust Indenture Act. The
aggregate principal amount of debt securities which may be issued under each
indenture will be unlimited and each indenture will set forth the specific terms
of any series of debt securities or provide that such terms shall be set forth
in, or determined pursuant to, an authorizing resolution, as defined in the
applicable prospectus supplement, and/or a supplemental indenture, if any,
relating to such series.
The statements made below relating to the debt securities and the
indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the applicable indenture and any
applicable U.S. federal income tax considerations as well as any applicable
modifications of or additions to the general terms described below in the
applicable prospectus supplement. The applicable prospectus supplement may also
state that any of the terms set forth herein are inapplicable to such series of
debt securities.
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TERMS
The debt securities will be our unsecured obligations.
The senior debt securities will rank equal in right of payment with all
our other unsecured and unsubordinated indebtedness.
The subordinated debt securities will be subordinated in right of payment
to the prior payment in full of all our senior indebtedness, which is defined in
the section called "Ranking of Debt Securities" below.
The specific terms of each series of debt securities will be set forth in
the applicable prospectus supplement relating thereto, including the following,
as applicable:
(1) the title of such debt securities and whether such debt securities are
senior debt securities or subordinated debt securities and, if
subordinated debt securities, the specific subordination provisions
applicable thereto;
(2) the aggregate principal amount of such debt securities and any limit
on such aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount thereof)
at which such debt securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or,
if applicable, the portion of the principal amount of such debt
securities that is convertible into ordinary shares or preference
ordinary shares or the method by which any such portion shall be
determined;
(4) if convertible into ordinary shares or preference ordinary shares, the
terms on which such debt securities are convertible, including the
initial conversion price, the conversion period, any events requiring
an adjustment of the applicable conversion price and any requirements
relating to the reservation of such ordinary shares or preference
ordinary shares for purposes of conversion;
(5) the date(s), or the method for determining such date or dates, on
which the principal of such debt securities will be payable and, if
applicable, the terms on which such maturity may be extended;
(6) the rate(s) (which may be fixed or floating), or the method by which
such rate or rates shall be determined, at which such debt securities
will bear interest, if any;
(7) the date(s), or the method for determining such date or dates, from
which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon
which interest shall be calculated if other than that of a 360-day
year of twelve 30-day months;
(8) the place(s) where the principal of and interest, if any, on such debt
securities will be payable, where such debt securities may be
surrendered for registration of transfer or exchange and where notices
or demands to or upon us in respect of such debt securities and the
applicable indenture may be served;
(9) the period(s), if any, within which, the price or prices at which and
the other terms and conditions upon which such debt securities may,
pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at our option;
16
(10) our obligation, if any, to redeem, repay or purchase such debt
securities pursuant to any sinking fund (as defined in the applicable
indenture) or analogous provision or at the option of a holder
thereof, and the period or periods within which, the price or prices
at which and the other terms and conditions upon which such debt
securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligations;
(11) if other than U.S. dollars, the currency or currencies in which the
principal of and interest, if any, on such debt securities are
denominated and payable, which may be a foreign currency or units of
two or more foreign currencies or a composite currency or currencies,
and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of or interest, if any, on
such debt securities may be determined with reference to an index,
formula or other method (which index, formula or method may, but need
not be, based on the yield on or trading price of other securities,
including United States Treasury securities, or on a currency,
currencies, currency unit or units, or composite currency or
currencies) and the manner in which such amounts shall be determined;
(13) whether the principal of or interest, if any, on the debt securities
of the series are to be payable, at our election or a holder thereof,
in a currency or currencies, currency unit or units or composite
currency or currencies other than that in which such debt securities
are denominated or stated to be payable and the period or periods
within which, and the terms and conditions upon which, such election
may be made;
(14) provisions, if any, granting special rights to the holders of debt
securities of the series upon the occurrence of such events as may be
specified;
(15) any deletions from, modifications of or additions to the events of
default or our covenants with respect to debt securities of the
series, whether or not such events of default or covenants are
consistent with the events of default or covenants described herein;
(16) whether debt securities of the series are to be issuable initially in
temporary global form and whether any debt securities of the series
are to be issuable in permanent global form and, if so, whether
beneficial owners of interests in any such security in permanent
global form may exchange such interests for debt securities of such
series and of like tenor of any authorized form and denomination and
the circumstances under which any such exchanges may occur, if other
than in the manner provided in the applicable indenture, and, if debt
securities of the series are to be issuable as a global security, the
identity of the depository for such series;
(17) the applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable indenture to the debt securities of the
series;
(18) if exchangeable into another series of debt securities, the terms on
which such debt securities are exchangeable; and
(19) any other terms of the series of debt securities and any additions,
deletions or modifications to the applicable indenture.
If the applicable prospectus supplement provides, the debt securities may
be issued at a discount below their principal amount and provide for less than
the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof. In such cases, all material U.S. federal
income tax considerations will be described in the applicable prospectus
supplement.
Except as may be set forth in the applicable prospectus supplement, the
debt securities will not contain any provisions that would limit our ability to
incur indebtedness or that would afford holders of debt
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securities protection in the event of a highly leveraged transaction involving
us or in the event of a change in control. The applicable prospectus supplement
will contain information with respect to any deletions from, modifications of or
additions to the events of default or covenants described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
We will issue the debt securities of each series only in registered form,
without coupons, in denominations of $1,000, or in such other currencies or
denominations as may be set forth in the applicable indenture or specified in,
or pursuant to, an authorizing resolution and/or supplemental indenture, if any,
relating to such series of debt securities.
The principal of and interest, if any, on any series of debt securities
will be payable at the corporate trust office of the trustee, the address of
which will be stated in the applicable prospectus supplement. However, at our
option, interest payment may be made by check mailed to the address of the
person entitled thereto as it appears in the applicable register for such debt
securities.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series:
o will be exchangeable for any authorized denomination of other debt
securities of the same series and of a like aggregate principal amount
and tenor upon surrender of such debt securities at the trustee's
corporate trust office or at the office of any registrar designated by
us for such purpose; and
o may be surrendered for registration of transfer or exchange thereof at
the corporate trust office of the trustee or at the office of any
registrar designated by us for such purpose.
No service charge will be made for any registration of transfer or
exchange, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with certain transfers and
exchanges. We may act as registrar and may change any registrar without notice.
CERTAIN COVENANTS
The applicable prospectus supplement will describe any material covenants
in respect of a series of debt securities that are not described in this
prospectus.
PROVISIONS APPLICABLE TO ALL DEBT SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, senior
debt securities and the subordinated debt securities will include the provisions
described below.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We may not (1) consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, (2) permit any person to consolidate with or merge into us or (3)
permit any person to convey, transfer, sell or lease that person's properties
and assets substantially as an entirety to us unless:
o in the case of (1) and (2) above, if we are not the surviving person,
the surviving person assumes the payment of the principal of, premium,
if any, and interest on the debt securities and the performance of our
other covenants under the applicable indenture, and
o in all cases, immediately after giving effect to the transaction, no
event of default, and no event that, after notice or lapse of time or
both, would become an event of default, will have occurred and be
continuing.
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PROVISIONS APPLICABLE TO SENIOR DEBT SECURITIES ONLY
Unless otherwise indicated in the applicable prospectus supplement, senior
debt securities will include the provisions described below.
The following is a term used in the indentures relating to the senior debt
securities.
A "change in control" will be deemed to have occurred at such time as:
(1) any person, including any syndicate or group deemed to be a "person"
under Section 13(d)(3) of the Exchange Act, acquires beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our
capital stock entitling the person to exercise 50% or more of the
total voting power of all shares of our capital stock that is entitled
to vote generally in elections of directors, other than an acquisition
by us, any of our subsidiaries or any of our employee benefit plans
and other than any transaction contemplated by the second bullet point
of clause (2) below; or
(2) we merge or consolidate with or into any other person (other than
subsidiary), any merger of another person (other than a subsidiary)
into us, or we convey, sell, transfer or lease all or substantially
all of our assets to another person (other than a subsidiary), other
than any transaction:
o that does not result in a reclassification, conversion, exchange or
cancellation of outstanding ordinary shares (other than the
cancellation of any of our outstanding ordinary shares held by the
person with whom we merge or consolidate), or
o pursuant to which the holders of our ordinary shares immediately prior
to the transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of directors
of the continuing or surviving corporation immediately after the
transaction, or
o which is effected solely to change our jurisdiction of incorporation
and results in a reclassification, conversion or exchange of our
outstanding ordinary shares solely into shares of common stock of the
surviving entity.
However, a change in control will not be deemed to have occurred if either
(A) in the case of debt securities that are convertible into ordinary
shares of XL Capital, the closing price for our ordinary shares for any five
trading days within the period of 10 consecutive trading days ending immediately
after the later of the change in control or the public announcement of the
change in control, in the case of a change in control relating to an acquisition
of capital stock, or the period of 10 consecutive trading days ending
immediately before the change in control, in the case of a change in control
relating to a merger, consolidation or asset sale, equals or exceeds 105% of the
average of the closing prices for such convertible debt securities on each of
such trading days or
(B) all of the consideration (excluding cash payments for fractional
shares and cash payments made pursuant to dissenters' appraisal rights) in a
merger or consolidation otherwise constituting a change in control under clause
(1) and/or clause (2) above consists of shares of common stock traded on a
national securities exchange or quoted on the Nasdaq National Market (or will be
so traded or quoted immediately following the merger or consolidation).
19
RANKING OF DEBT SECURITIES
GENERAL
We currently conduct substantially all of our operations through our
subsidiaries and our subsidiaries generate substantially all of our operating
income and cash flow. As a result, distributions and advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, as well as our
subsidiaries' financial condition and operating and regulatory requirements, may
limit our ability to obtain cash from our subsidiaries that we require to pay
our debt service obligations. For a description of certain regulatory
restrictions on the payment of dividends by our subsidiaries, see Note 18 of the
Notes to Consolidated Financial Statements of XL Capital incorporated by
reference to our Form 10K for the year ended December 31, 2000. In addition,
holders of the debt securities will have a junior position to the claims of
creditors of our subsidiaries on their assets and earnings.
Senior debt securities
The senior debt securities will be our unsecured unsubordinated
obligations and will:
o rank equal in right of payment with all our other unsecured and
unsubordinated indebtedness;
o be effectively subordinated in right of payment to all our secured
indebtedness to the extent of the value of the assets securing such
indebtedness; and
o be effectively subordinated to all of our subsidiaries' indebtedness
and all mandatorily redeemable preferred stock of our subsidiaries.
Except as otherwise set forth in the applicable senior indenture or
specified in an authorizing resolution and/or supplemental indenture, if any,
relating to a series of senior debt securities to be issued, there will be no
limitations in any senior indenture on the amount of additional indebtedness
which may rank equal with the senior debt securities or on the amount of
indebtedness, secured or otherwise, which may be incurred or preferred stock
which may be issued by any of our subsidiaries.
SUBORDINATED DEBT SECURITIES
The subordinated debt securities will be our unsecured subordinated
obligations. Unless otherwise provided in the applicable prospectus supplement,
the payment of principal of, interest on and all other amounts owing in respect
of the subordinated debt securities will be subordinated in right of payment to
the prior payment in full in cash of principal of, interest on and all other
amounts owing in respect of all of our senior indebtedness. Upon any payment or
distribution of our assets of any kind or character, whether in cash, property
or securities, to creditors upon any total or partial liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors or
marshaling of our assets or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to us or our property, whether
voluntary or involuntary, all principal of, interest on and all other amounts
due or to become due shall be paid, first, to all senior indebtedness in full in
cash, or such payment duly provided for to the satisfaction of the holders of
senior indebtedness, before any payment or distribution of any kind or character
is made on account of any principal of, interest on or other amounts owing in
respect of the subordinated debt securities, or for the acquisition of any of
the subordinated debt securities for cash, property or otherwise.
If any default occurs and is continuing in the payment when due, whether
at maturity, upon any redemption, by declaration or otherwise, of any principal
of, interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any senior indebtedness, no payment of
any kind or character shall be made by or on behalf of us or any other person on
our or their behalf with respect to any principal of, interest on or other
amounts owing in respect of the subordinated debt securities or to acquire any
of the subordinated debt securities for cash, property or otherwise.
20
If any other event of default occurs and is continuing with respect to any
senior indebtedness, as such event of default is defined in the instrument
creating or evidencing such senior indebtedness, permitting the holders of such
senior indebtedness then outstanding to accelerate the maturity thereof and if
the representative (as defined in the applicable indenture) for the respective
issue of senior indebtedness gives written notice of the event of default to the
trustee (a "default notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the trustee receives notice from
the representative for the respective issue of senior indebtedness terminating
the blockage period (as defined below), during the 179 days after the delivery
of such default notice (the "blockage period"), neither we nor any other person
on its behalf shall:
(1) make any payment of any kind or character with respect to any
principal of, interest on or other amounts owing in respect of the
subordinated debt securities; or
(2) acquire any of the subordinated debt securities for cash, property or
otherwise.
Notwithstanding anything herein to the contrary, in no event will a
blockage period extend beyond 179 days from the date the payment on the
subordinated debt securities was due and only one such blockage period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any blockage period with
respect to the senior indebtedness shall be, or be made, the basis for
commencement of a second blockage period by the representative of such senior
indebtedness whether or not within a period of 360 consecutive days unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such blockage period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
The subordinated indentures will not restrict the amount of our or our
subsidiaries' senior indebtedness or other indebtedness. As a result of the
foregoing provisions, in the event of our insolvency, holders of the
subordinated debt securities may recover ratably less than our general
creditors.
"senior indebtedness," unless otherwise specified in one or more
applicable supplemental indentures or approved pursuant to a board resolution in
accordance with the applicable indenture, means, with respect to us,
(1) the principal (including redemption payments), premium, if any,
interest and other payment obligations in respect of (A) our
indebtedness for money borrowed and (B) our indebtedness evidenced by
securities, debentures, bonds, notes or other similar instruments
issued by us, including any such securities issued under any deed,
indenture or other instrument to which we are a party (including, for
the avoidance of doubt, indentures pursuant to which senior debt
securities have been or may be issued);
(2) all of our capital lease obligations;
(3) all of our obligations issued or assumed as the deferred purchase
price of property, all of our conditional sale obligations, all of our
hedging agreements and agreements of a similar nature thereto and all
agreements relating to any such agreements, and all of our obligations
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
(4) all of our obligations for reimbursement on any letter of credit,
banker's acceptance, security purchase facility or similar credit
transaction;
21
(5) all obligations of the type referred to in clauses (1) through (4)
above of other persons for the payment of which we are responsible or
liable as obligor, guarantor or otherwise;
(6) all obligations of the type referred to in clauses (1) through (5)
above of other persons secured by any lien on any of our property or
asset (whether or not such obligation is assumed by us) and
(7) any deferrals, amendments, renewals, extensions, modifications and
refundings of all obligations of the type referred to in clauses (1)
through (6) above, in each case whether or not contingent and whether
outstanding at the date of effectiveness of the applicable indenture
or thereafter incurred,
except, in each case, for the subordinated debt securities and any such other
indebtedness or deferral, amendment, renewal, extension, modification or
refunding that contains express terms, or is issued under a deed, indenture or
other instrument, which contains express terms, providing that it is subordinate
to or ranks equal with the subordinated debt securities.
Such senior indebtedness shall continue to be senior indebtedness and be
entitled to the benefits of the subordination provisions of the applicable
indenture irrespective of any amendment, modification or waiver of any term of
such senior indebtedness and notwithstanding that no express written
subordination agreement may have been entered into between the holders of such
senior indebtedness and the trustee or any of the holders.
DISCHARGE
Under the terms of the indenture, we will be discharged from any and all
obligations in respect of the debt securities of any series and the applicable
indenture (except in each case for certain obligations to register the transfer
or exchange of debt securities, replace stolen, lost or mutilated debt
securities, maintain paying agencies and hold moneys for payment in trust) if we
deposit with the applicable trustee, in trust, moneys or U.S. government
obligations in an amount sufficient to pay all the principal of, and interest
on, the debt securities of such series on the dates such payments are due in
accordance with the terms of such debt securities.
In addition, unless the applicable prospectus supplement and supplemental
indenture provide otherwise, we may elect either (1) to defease and be
discharged from any and all obligations with respect to such debt securities
("defeasance") or (2) to be released from our obligations with respect to such
debt securities under certain covenants in the applicable indenture, and any
omission to comply with such obligations will not constitute a default or an
event of default with respect to such debt securities ("covenant defeasance"):
(1) by delivering all outstanding debt securities of such series to the
trustee for cancellation and paying all sums payable by it under such
debt securities and the indenture with respect to such series; or
(2) after giving notice to the trustee of our intention to defease all of
the debt securities of such series, by irrevocably depositing with the
trustee or a paying agent
(a) in the case of any debt securities of any series denominated in U.S.
dollars, cash or U.S. government obligations sufficient to pay all
principal of and interest on such debt securities; and
(b) in the case of any debt securities of any series denominated in any
currency other than U.S. dollars, an amount of the applicable currency
in which the debt securities are denominated sufficient to pay all
principal of and interest on such debt securities.
22
Such a trust may only be established if, among other things:
(1) the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under or any material
agreement or instrument to which we are a party or by which we are
bound;
(2) no event of default or event which with notice or lapse of time or
both would become an event of default with respect to the debt
securities to be defeased will have occurred and be continuing on the
date of establishment of such a trust after giving effect to such
establishment and, with respect to defeasance only, no bankruptcy
proceeding with respect to us will have occurred and be continuing at
any time during the period ending on the 91st day after such date; and
(3) we have delivered to the trustee an opinion of counsel (as specified
in the applicable supplemental indenture) to the effect that the
holders will not recognize income, gain or loss for United States
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to United States federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance, must
refer to and be based upon a letter ruling of the Internal Revenue
Service received by us, a Revenue Ruling published by the Internal
Revenue Service or a change in applicable United States federal income
tax law occurring after the date of the applicable supplemental
indenture.
In the event we effect covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any event of default, other than an event of default with respect
to any covenant as to which there has been covenant defeasance, the government
obligations on deposit with the trustee will be sufficient to pay amounts due on
such debt securities at the time of the stated maturity but may not be
sufficient to pay amounts due on such debt securities at the time of the
acceleration resulting from such event of default.
MODIFICATION AND WAIVER
We, when authorized by a board resolution, and the trustee may modify,
amend and/or supplement the applicable indenture and the applicable debt
securities with the consent of the holders of not less than a majority in
principal amount of the outstanding debt securities of all series affected
thereby (voting as a single class); provided, however, that such modification,
amendment or supplement may not, without the consent of each holder of the debt
securities affected thereby:
(1) change the stated maturity of the principal of or any installment of
interest with respect to the debt securities;
(2) reduce the principal amount of, or the rate of interest on, the debt
securities;
(3) change the currency of payment of principal of or interest on the debt
securities;
(4) change the redemption provisions, if any, of any debt securities in
any manner adverse to the holders of such series of debt securities;
(5) impair the right to institute suit for the enforcement of any payment
on or with respect to the debt securities;
(6) reduce the above-stated percentage of holders of the debt securities
of any series necessary to modify or amend the indenture relating to
such series;
23
(7) modify the foregoing requirements or reduce the percentage of
outstanding debt securities necessary to waive any covenant or past
default;
(8) in the case of any subordinated indenture, modify the subordination
provisions thereof in a manner adverse to the holders of subordinated
debt securities of any series then outstanding; or
(9) in the case of any convertible debt securities, adversely affect the
right to convert the debt securities into ordinary shares or
preference ordinary shares in accordance with the provisions of the
applicable indenture.
Holders of not less than a majority in principal amount of the outstanding
debt securities of all series affected thereby (voting as a single class) may
waive certain past defaults and may waive compliance by us with any provision of
the indenture relating to such debt securities (subject to the immediately
preceding sentence); PROVIDED, HOWEVER, that:
(1) without the consent of each holder of debt securities affected
thereby, no waiver may be made of a default in the payment of the
principal of or interest on any debt security; and
(2) only the holders of a majority in principal amount of debt securities
of a particular series may waive compliance with a provision of the
indenture relating to such series or the debt securities of such
series having applicability solely to such series.
We, when authorized by a board resolution, and the trustee may amend or
supplement the indentures or waive any provision of such indentures and the debt
securities without the consent of any holders of debt securities in some
circumstance, including:
o to cure any ambiguity, omission, defect or inconsistency;
o to make any change that does not, in the good faith opinion of our
board of directors and the trustee, adversely affect the interests of
holders of such debt securities in any material respect.
o to provide for the assumption of our obligations under the applicable
indenture by a successor upon any merger, consolidation or asset
transfer permitted under the applicable indenture;
o to provide any security for or guarantees of such debt securities;
o to add events of default with respect to such debt securities;
o to add covenants that would benefit the holders of such debt
securities or to surrender any rights or powers we have under the
applicable indenture;
o to make any change necessary for the registration of the debt
securities under the Securities Act or to comply with the Trust
Indenture Act of 1939, or any amendment thereto, or to comply with any
requirement of the SEC in connection with the qualification of the
applicable indenture under the Trust Indenture Act of 1939; provided,
however, that such modification or amendment does not, in the good
faith opinion of our board of directors and the trustee, adversely
affect the interests of the holders of such debt securities in any
material respect;
o to provide for uncertificated debt securities in addition to or in
place of certificated debt securities or to provide for bearer debt
securities;
o to add to or change any of the provisions of the applicable indenture
to such extent as shall be necessary to permit or facilitate the
issuance of the debt securities in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
24
o to change or eliminate any of the provisions of the applicable
indenture, PROVIDED, HOWEVER, that any such change or elimination
shall become effective only when there is no debt security outstanding
of any series created prior to the execution of such supplemental
indenture which is entitled to the benefit of such provision;
o to establish the form or terms of debt securities of any series as
permitted by the applicable indenture; or
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the debt securities of one or more
series and to add to or change any of the provisions of the applicable
indenture as shall be necessary to provide for or facilitate the
administration of the trusts under the applicable indenture by more
than one trustee, pursuant to the requirements of the applicable
indenture.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are "events of default" with respect to any series of
debt securities issued thereunder:
(1) failure to pay interest on any debt securities of such series within
60 days of when due or principal of any debt securities of such series
when due (including any sinking fund installment);
(2) failure to perform any other agreement contained in the debt
securities of such series or the indenture relating to such series
(other than an agreement relating solely to another series of debt
securities) for 60 days after notice; and
(3) certain events of bankruptcy, insolvency or reorganization with
respect to us.
Additional or different events of default, if any, applicable to the
series of debt securities in respect of which this prospectus is being delivered
will be specified in the applicable prospectus supplement.
The trustee under such indenture shall, within 90 days after the
occurrence of any default (the term "default" to include the events specified
above without grace or notice) with respect to any series of debt securities
actually known to it, give to the holders of such debt securities notice of such
default; PROVIDED, HOWEVER, that, except in the case of a default in the payment
of principal of or interest on any of the debt securities of such series or in
the payment of a sinking fund installment, the trustee for such series shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the holders of such debt
securities; and PROVIDED, FURTHER, that in the case of any default of the
character specified in clause (2) above with respect to debt securities of such
series, no such notice to holders of such debt securities will be given until at
least 30 days after the occurrence thereof. We shall certify to the trustee
quarterly as to whether any default exists.
In the case of an event of default, other than an event of default
resulting from bankruptcy, insolvency or reorganization, with respect to any
series of debt securities shall occur and be continuing, the trustee for such
series or the holders of at least 25% in aggregate principal amount of the debt
securities of such series then outstanding, by notice in writing to us (and to
the trustee for such series if given by the holders of the debt securities of
such series), will be entitled to declare all unpaid principal of and accrued
interest on such debt securities then outstanding to be due and payable
immediately.
In the case of an event of default resulting from certain events of
bankruptcy, insolvency or reorganization, all unpaid principal of and accrued
interest on all debt securities of such series then outstanding shall be due and
payable immediately without any declaration or other act on the part of the
trustee for such series or the holders of any debt securities of such series.
25
Such acceleration may be annulled and past defaults (except, unless
theretofore cured, a default in payment of principal of or interest on the debt
securities of such series) may be waived by the holders of a majority in
principal amount of the debt securities of such series then outstanding upon the
conditions provided in the applicable indenture.
No holder of the debt securities of any series issued thereunder may
pursue any remedy under such indenture unless the trustee for such series shall
have failed to act after, among other things, notice of an event of default and
request by holders of at least 25% in principal amount of the debt securities of
such series of which the event of default has occurred and the offer to the
trustee for such series of indemnity satisfactory to it; provided, however, that
such provision does not affect the right to sue for enforcement of any overdue
payment on such debt securities.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which the debt securities of any
series will be convertible into ordinary shares or preference ordinary shares or
upon which the senior debt securities of any series will be exchangeable into
another series of debt securities will be set forth in the prospectus supplement
relating thereto. Such terms will include the conversion or exchange price (or
manner of calculation thereof), the conversion or exchange period, provisions as
to whether conversion or exchange will be at the option of the holders of such
series of debt securities or at our option or automatic, the events requiring an
adjustment of the conversion or exchange price and provisions affecting
conversion or exchange in the event of the redemption of such series of debt
securities.
THE TRUSTEE
The trustee for each series of debt securities will be State Street Bank
and Trust Company. Each indenture will contain certain limitations on a right of
the trustee, as our creditor, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee will be permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.
The holders of a majority in principal amount of all outstanding debt
securities of a series (or if more than one series is affected thereby, of all
series so affected, voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy or
power available to the trustee for such series or all such series so affected.
In case an event of default shall occur (and shall not be cured) under any
indenture relating to a series of debt securities and is actually known to a
responsible officer of the trustee for such series, such trustee shall exercise
such of the rights and powers vested in it by such indenture and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of his own affairs. Subject to such
provisions, the trustee will not be under any obligation to exercise any of its
rights or powers under the applicable indenture at the request of any of the
holders of debt securities unless they shall have offered to the trustee
security and indemnity satisfactory to it.
GOVERNING LAW
The indentures and the debt securities will be governed by the laws of the
State of New York.
GLOBAL SECURITIES; BOOK-ENTRY SYSTEM
We may issue the debt securities of any series in whole or in part in the
form of one or more global securities to be deposited with, or on behalf of, a
depository (the "depository") identified in the prospectus supplement relating
to such series. Global securities, if any, issued in the United States are
expected to be deposited with The Depository Trust Company ("DTC"), as
depository. Global securities will be issued in fully registered form and may be
issued in either temporary or permanent form. Unless and until it is exchanged
in whole or in part for the individual debt securities represented thereby, a
global security may not be trans-
26
ferred except as a whole by the depository for such global security to a nominee
of such depository or by a nominee of such depository to such depository or
another nominee of such depository or by such depository or any nominee of such
depository to a successor depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to any
series of debt securities will be described in the prospectus supplement
relating to such series. We expect that unless otherwise indicated in the
applicable prospectus supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a global security, the depository for such global
security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual debt securities
represented by such global security to the accounts of persons that have
accounts with such depository ("participants"). Such accounts will be designated
by the underwriters, dealers or agents with respect to such debt securities or
by us if such debt securities are offered directly by us. Ownership of
beneficial interests in such global security will be limited to participants or
persons that may hold interests through participants.
We expect that, pursuant to procedures established by DTC, ownership of
beneficial interests in any global security with respect to which DTC is the
depository will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
beneficial interests of participants) and records of participants (with respect
to beneficial interests of persons who hold through participants). Neither we
nor the trustee will have any responsibility or liability for any aspect of the
records of DTC or for maintaining, supervising or reviewing any records of DTC
or any of its participants relating to beneficial ownership interests in the
debt securities. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to own, pledge or transfer beneficial
interest in a global security.
So long as the depository for a global security or its nominee is the
registered owner of such global security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the debt
securities represented by such global security for all purposes under the
applicable indenture. Except as described below or in the applicable prospectus
supplement, owners of beneficial interest in a global security will not be
entitled to have any of the individual debt securities represented by such
global security registered in their names, will not receive or be entitled to
receive physical delivery of any such debt securities in definitive form and
will not be considered the owners or holders thereof under the applicable
indenture. Beneficial owners of debt securities evidenced by a global security
will not be considered the owners or holders thereof under the applicable
indenture for any purpose, including with respect to the giving of any
direction, instructions or approvals to the trustee thereunder. Accordingly,
each person owning a beneficial interest in a global security with respect to
which DTC is the depository must rely on the procedures of DTC and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable indenture. We understand that, under existing industry practice, if
it requests any action of holders or if an owner of a beneficial interest in a
global security desires to give or take any action which a holder is entitled to
give or take under the applicable indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners through such
participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, and any interest on, individual debt securities
represented by a global security registered in the name of a depository or its
nominee will be made to or at the direction of the depository or its nominee, as
the case may be, as the registered owner of the global security under the
applicable indenture. Under the terms of the applicable indenture, we and the
trustee may treat the persons in whose name debt securities, including a global
security, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither we nor the trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of debt securities (including principal and interest). We believe, however, that
it is currently the policy of DTC to immediately credit the accounts of
27
relevant participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant global security as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in such global security held
through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in street name, and will be the
responsibility of such participants. Redemption notices with respect to any debt
securities represented by a global security will be sent to the depository or
its nominee. If less than all of the debt securities of any series are to be
redeemed, we expect the depository to determine the amount of the interest of
each participant in such debt securities to be redeemed to be determined by lot.
None of us, the trustee, any paying agent or the registrar for such debt
securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global security for such debt securities or for maintaining any
records with respect thereto.
Neither we nor the trustee will be liable for any delay by the holders of
a global security or the depository in identifying the beneficial owners of debt
securities and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of a global security or
the depository for all purposes. The rules applicable to DTC and its
participants are on file with the SEC.
If a depository for any debt securities is at any time unwilling, unable
or ineligible to continue as depository and a successor depository is not
appointed by us within 90 days, we will issue individual debt securities in
exchange for the global security representing such debt securities. In addition,
we may at any time and in our sole discretion, subject to any limitations
described in the prospectus supplement relating to such debt securities,
determine not to have any of such debt securities represented by one or more
global securities and in such event we will issue individual debt securities in
exchange for the global security or securities representing such debt
securities. Individual debt securities so issued will be issued in denominations
of $1,000 and integral multiples thereof.
All moneys paid by us to a paying agent or a trustee for the payment of
the principal of or interest on any debt security which remain unclaimed at the
end of two years after such payment has become due and payable will be repaid to
us, and the holder of such debt security thereafter may look only to us for
payment thereof.
DESCRIPTION OF XL FINANCE (UK) PLC SENIOR DEBT SECURITIES
GENERAL
In this section, references to "XL Finance," "we," "our" or "us" refer
solely to XL Finance (UK) plc.
XL Finance (UK) plc may issue senior debt securities from time to time in
one or more series, under one or more indentures, each dated as of a date on or
prior to the issuance of the senior debt securities to which it relates. Senior
debt securities may be issued pursuant to a senior indenture between us and a
trustee qualified under the Trust Indenture Act. The form of such indentures
have been filed as an exhibit to the registration statement of which this
prospectus is a part, subject to such amendments or supplements as may be
adopted from time to time. The senior indenture, as amended or supplemented from
time to time, is sometimes referred to as an "indenture." The indenture will be
subject to and governed by the Trust Indenture Act. The aggregate principal
amount of senior debt securities which may be issued under the indenture will be
unlimited and the indenture will set forth the specific terms of any series of
senior debt securities or provide that such terms shall be set forth in, or
determined pursuant to, an authorizing resolution, as defined in the applicable
prospectus supplement, and/or a supplemental indenture, if any, relating to such
series.
The statements made below relating to the senior debt securities and the
indenture are summaries of the anticipated provisions thereof, do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the indenture and any applicable U.S. federal
income
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tax considerations as well as any applicable modifications of or additions to
the general terms described below in the applicable prospectus supplement. The
applicable prospectus supplement may also state that any of the terms set forth
herein are inapplicable to such series of senior debt securities.
TERMS
The senior debt securities will be the direct, unsecured and
unsubordinated obligations of XL Finance (UK) plc and will be unconditionally
guaranteed by XL Capital Ltd, the guarantor. The senior debt securities will
rank equal in right of payment with all of XL Finance's other unsecured and
unsubordinated indebtedness.
The specific terms of each series of senior debt securities will be set
forth in the applicable prospectus supplement relating thereto, including the
following, as applicable:
(1) the title of such senior debt securities;
(2) the aggregate principal amount of such senior debt securities and any
limit on such aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount thereof)
at which such senior debt securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount
thereof payable upon declaration of acceleration of the maturity
thereof, or, if applicable, the portion of the principal amount of
such senior debt securities that is convertible into XL Capital's
ordinary shares or XL Capital's preference ordinary shares or the
method by which any such portion shall be determined;
(4) if convertible into XL Capital's ordinary shares or XL Capital's
preference ordinary shares, the terms on which such senior debt
securities are convertible, including the initial conversion price,
the conversion period, any events requiring an adjustment of the
applicable conversion price and any requirements relating to the
reservation of such XL Capital's ordinary shares or XL Capital's
preference ordinary shares for purposes of conversion;
(5) the date(s), or the method for determining such date or dates, on
which the principal of such senior debt securities will be payable
and, if applicable, the terms on which such maturity may be extended;
(6) the rate(s) (which may be fixed or floating), or the method by which
such rate or rates shall be determined, at which such senior debt
securities will bear interest, if any;
(7) the date(s), or the method for determining such date or dates, from
which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon
which interest shall be calculated if other than that of a 360-day
year of twelve 30-day months;
(8) the place(s) where the principal of and interest, if any, on such
senior debt securities will be payable, where such senior debt
securities may be surrendered for registration of transfer or exchange
and where notices or demands to or upon XL Finance in respect of such
senior debt securities and the indenture may be served;
(9) the period(s), if any, within which, the price or prices at which and
the other terms and conditions upon which such senior debt securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at XL Finance's option;
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(10) XL Finance's obligation, if any, to redeem, repay or purchase such
senior debt securities pursuant to any sinking fund (as defined in the
indenture) or analogous provision or at the option of a holder
thereof, and the period or periods within which, the price or prices
at which and the other terms and conditions upon which such senior
debt securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to such obligations;
(11) if other than U.S. dollars, the currency or currencies in which the
principal of and interest, if any, on such senior debt securities are
denominated and payable, which may be a foreign currency or units of
two or more foreign currencies or a composite currency or currencies,
and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of or interest, if any, on
such senior debt securities may be determined with reference to an
index, formula or other method (which index, formula or method may,
but need not be, based on the yield on or trading price of other
securities, including United States Treasury securities, or on a
currency, currencies, currency unit or units, or composite currency or
currencies) and the manner in which such amounts shall be determined;
(13) whether the principal of or interest, if any, on the senior debt
securities of the series are to be payable, at our election or a
holder thereof, in a currency or currencies, currency unit or units or
composite currency or currencies other than that in which such senior
debt securities are denominated or stated to be payable and the period
or periods within which, and the terms and conditions upon which, such
election may be made;
(14) provisions, if any, granting special rights to the holders of senior
debt securities of the series upon the occurrence of such events as
may be specified;
(15) any deletions from, modifications of or additions to the events of
default or our covenants with respect to debt securities of the
series, whether or not such events of default or covenants are
consistent with the events of default or covenants described herein;
(16) whether senior debt securities of the series are to be issuable
initially in temporary global form and whether any senior debt
securities of the series are to be issuable in permanent global form
and, if so, whether beneficial owners of interests in any such
security in permanent global form may exchange such interests for
senior debt securities of such series and of like tenor of any
authorized form and denomination and the circumstances under which any
such exchanges may occur, if other than in the manner provided in the
indenture, and, if senior debt securities of the series are to be
issuable as a global security, the identity of the depository for such
series;
(17) the applicability, if any, of the defeasance and covenant defeasance
provisions of the indenture to the senior debt securities of the
series; and
(18) any other terms of the series of senior debt securities and any
additions, deletions or modifications to the indenture.
If the applicable prospectus supplement provides, the senior debt
securities may be issued at a discount below their principal amount and provide
for less than the entire principal amount thereof to be payable upon declaration
of acceleration of the maturity thereof. In such cases, all material U.S.
federal income tax considerations will be described in the applicable prospectus
supplement.
Except as may be set forth in the applicable prospectus supplement, the
senior debt securities will not contain any provisions that would limit our
ability to incur indebtedness or that would afford holders of senior debt
securities protection in the event of a highly leveraged transaction involving
us. The applicable prospectus supplement will contain information with respect
to any deletions from, modifications of or addi
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tions to the events of default or covenants described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
XL Finance will issue the senior debt securities of each series only in
registered form, without coupons, in denominations of $1,000, or in such other
currencies or denominations as may be set forth in the indenture or specified
in, or pursuant to, an authorizing resolution and/or supplemental indenture, if
any, relating to such series of senior debt securities.
The principal of and interest, if any, on any series of senior debt
securities will be payable at the corporate trust office of the trustee, the
address of which will be stated in the applicable prospectus supplement.
However, at our option, interest payment may be made by check mailed to the
address of the person entitled thereto as it appears in the applicable register
for such senior debt securities.
Subject to certain limitations imposed upon senior debt securities issued
in book-entry form, the senior debt securities of any series:
o will be exchangeable for any authorized denomination of other senior
debt securities of the same series and of a like aggregate principal
amount and tenor upon surrender of such senior debt securities at the
trustee's corporate trust office or at the office of any registrar
designated by us for such purpose; and
o may be surrendered for registration of transfer or exchange thereof at
the corporate trust office of the trustee or at the office of any
registrar designated by us for such purpose.
No service charge will be made for any registration of transfer or
exchange, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with certain transfers and
exchanges. We may act as registrar and may change any registrar without notice.
CERTAIN COVENANTS
The applicable prospectus supplement will describe any material covenants
in respect of a series of senior debt securities that are not described in this
prospectus.
Unless otherwise indicated in a prospectus supplement, senior debt
securities will include the provisions described below.
GUARANTEE
Payment of principal, premium, if any, and interest on the senior debt
securities will be fully guaranteed on an unsecured and unsubordinated basis by
XL Capital Ltd. The guarantee will be a direct and unconditional obligation of
XL Capital Ltd, ranking equally and ratably in right of payment with all other
existing and future unsecured and unsubordinated obligations of XL Capital,
other than obligations preferred by law.
MERGER, CONSOLIDATION OR SALE OF ASSETS
XL Capital may not, and will not permit us to, (1) consolidate with or
merge into any other person or convey, transfer, sell or lease our properties
and assets substantially as an entirety to any person, (2) permit any person to
consolidate with or merge into us or XL Capital, as the case may be, or (3)
permit any person to convey, transfer, sell or lease that person's properties
and assets substantially as an entirety to us or XL Capital, unless:
o in the case of (1) and (2) above, if we or XL Capital, as the case may
be, are not the surviving person, such surviving person is a
corporation organized and existing under the laws of the
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United States of America (including any State thereof or the District
of Columbia), the United Kingdom, the Cayman Islands, Bermuda or any
country which is, on the date of the applicable prospectus supplement
and supplemental indenture, a member of the Organization of Economic
Development and the surviving person assumes the due and punctual
payment pursuant to the senior debt securities, the indenture and the
guarantee of the principal of, premium, if any, and interest on the
senior debt securities and the performance of our other covenants and
obligations under the applicable indenture, the guarantee and the
senior notes, and
o in all cases, immediately after giving effect to the transaction and
treating any indebtedness which becomes an obligation of us, XL
Capital or a designated subsidiary (as defined in the applicable
prospectus supplement and supplemental indenture) as a result of such
transaction as having been incurred by us, XL Capital or such
designated subsidiary at the time of such transaction, no event of
default, and no event that, after notice or lapse of time or both,
would become an event of default, will have occurred and be
continuing.
RANKING OF DEBT SECURITIES
GENERAL
The senior debt securities will be the direct, unsecured and
unsubordinated obligations of XL Finance (UK) plc and will be unconditionally
guaranteed by XL Capital, the guarantor. The senior debt securities will rank
equal in right of payment with all of XL Finance's other unsecured and
unsubordinated indebtedness.
XL Capital currently conducts substantially all of its operations through
its subsidiaries and its subsidiaries generate substantially all of its
operating income and cash flow. As a result, distributions and advances from its
subsidiaries are the principal source of funds necessary to meet its debt
service obligations (including the guarantees of the senior debt securities).
Contractual provisions or laws, as well as its subsidiaries' financial condition
and operating and regulatory requirements, may limit its ability to obtain cash
from its subsidiaries that it requires to pay its debt service obligations. For
a description of certain regulatory restrictions on the payment of dividends by
its subsidiaries, see Note 18 of the Notes to Consolidated Financial Statements
of XL Capital incorporated by reference to its Form 10K for the year ended
December 31, 2000. In addition, holders of the senior debt securities will have
a junior position to the claims of creditors of XL Capital's subsidiaries on
their assets and earnings.
Except as otherwise set forth in the applicable senior indenture or
specified in an authorizing resolution and/or supplemental indenture, if any,
relating to a series of senior debt securities to be issued, there will be no
limitations in any senior indenture on the amount of additional indebtedness
which may rank equal with the senior debt securities or on the amount of
indebtedness, secured or otherwise, which may be incurred or preferred stock
which may be issued by any of XL Finance's subsidiaries.
DISCHARGE AND DEFEASANCE
Under the terms of the applicable senior indenture, XL Finance will be
discharged from any and all obligations in respect of the senior debt securities
of any series and XL Capital will be discharged from any and all obligations in
respect of the guarantees of the senior debt securities (except in each case for
certain obligations to register the transfer or exchange of senior debt
securities, replace stolen, lost or mutilated senior debt securities, maintain
paying agencies and hold moneys for payment in trust) if XL Finance or XL
Capital deposits with the senior debt securities trustee, in trust, moneys or
U.S. government obligations in an amount sufficient to pay all the principal of,
and interest on, the senior debt securities of such series on the dates such
payments are due in accordance with the terms of such senior debt securities.
In addition, unless the prospectus supplement and supplemental indenture
provide otherwise, we and XL Capital may elect either (1) to defease and be
discharged from any and all obligations with respect to such senior debt
securities and the guarantee by XL Capital ("defeasance") or (2) to be released
from our and its obligations with respect to such senior debt securities under
certain covenants, and any omission to
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comply with such obligations will not constitute a default or an event of
default with respect to such senior debt securities ("covenant defeasance"):
(1) by delivering all outstanding debt securities of such series to the
trustee for cancellation and paying all sums payable by it under such
senior debt securities and the indenture with respect to such series;
or
(2) after giving notice to the trustee of our intention to defease certain
covenants or all of the senior debt securities of such series, by
irrevocably depositing with the trustee or a paying agent
(a) in the case of any senior debt securities of any series denominated in
U.S. dollars, cash or U.S. government obligations sufficient to pay
all principal of and interest on such senior debt securities; and
(b) in the case of any senior debt securities of any series denominated in
any currency other than U.S. dollars, an amount of the applicable
currency in which the senior debt securities are denominated
sufficient to pay all principal of and interest on such senior debt
securities.
Such a trust may only be established if, among other things:
(1) the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under or any material
agreement or instrument to which we or XL Capital, as the case may be,
is a party or by which we or XL Capital is bound;
(2) no event of default or event which with notice or lapse of time or
both would become an event of default with respect to the senior debt
securities to be defeased will have occurred and be continuing on the
date of establishment of such a trust after giving effect to such
establishment and, with respect to defeasance only, no bankruptcy
proceeding with respect to us or XL Capital will have occurred and be
continuing at any time during the period ending on the 91st day after
such date; and
(3) we and XL Capital have delivered to the trustee an opinion of counsel
(as specified in the applicable supplemental indenture) to the effect
that the holders will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case
of defeasance, must refer to and be based upon a letter ruling of the
Internal Revenue Service received by us and XL Capital, a Revenue
Ruling published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the
date of the applicable supplemental indenture.
In the event we or XL Capital effect covenant defeasance with respect to
any senior debt securities and such senior debt securities are declared due and
payable because of the occurrence of any event of default, other than an event
of default with respect to any covenant as to which there has been covenant
defeasance, the government obligations on deposit with the trustee will be
sufficient to pay amounts due on such senior debt securities at the time of the
stated maturity but may not be sufficient to pay amounts due on such senior debt
securities at the time of the acceleration resulting from such event of default.
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MODIFICATION AND WAIVER
XL Finance and XL Capital, when authorized by a board resolution, and the
trustee may modify, amend and/or supplement the applicable indenture and the
terms of the applicable series of senior debt securities and the related
guarantees by XL Capital with the consent of the holders of not less than a
majority in principal amount of the outstanding senior debt securities of all
series affected thereby (voting as a single class); provided, however, that such
modification, amendment or supplement may not, without the consent of each
holder of the senior debt securities affected thereby:
(1) change the stated maturity of the principal of, or any premium or any
installment of interest with respect to the senior debt securities;
(2) reduce the principal amount of, or the rate (or modify the calculation
of such principal amount or rate) of interest on, or any additional
amounts with respect to, or any premium payable upon the redemption
of, any senior debt securities;
(3) change the currency of payment of principal of or interest on the
senior debt securities;
(4) change the redemption provisions, if any, of any senior debt
securities in any manner adverse to the holders of such series of
senior debt securities;
(5) impair the right to institute suit for the enforcement of any payment
on or with respect to the senior debt securities;
(6) reduce the above-stated percentage of holders of the senior debt
securities of any series necessary to modify or amend the indenture
relating to such series;
(7) modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any covenant or
past default;
(8) waive certain covenants of the senior debt securities except to
increase any percentage vote required or to provide that other
provisions of such indenture cannot be modified or waived without the
consent of the holder of any senior debt securities affected thereby;
(9) in the case of any convertible senior debt securities, adversely
affect the right to convert the senior debt securities in accordance
with the provisions of the applicable indenture;
(10) release XL Capital from any of its obligations under the applicable
indenture or the related guarantees otherwise than in accordance with
the terms of the applicable indenture; or
(11) modify or change any provision of the applicable indenture or the
related definitions affecting the ranking of the applicable series of
senior debt securities or the related guarantees in a manner which
adversely affects the holders of such senior debt securities.
Holders of not less than a majority in principal amount of the outstanding
senior debt securities of all series affected thereby (voting as a single class)
may waive certain past defaults and may waive compliance by us and XL Capital
with any provision of the indenture relating to such senior debt securities
(subject to the immediately preceding sentence); provided, however, that:
(1) without the consent of each holder of senior debt securities affected
thereby, no waiver may be made of a default in the payment of the
principal of or interest on any senior debt security; and
(2) in respect of a covenant or provision of the indenture that cannot be
modified or amended without the consent of each holder of the senior
debt securities affected.
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We, XL Capital and the trustee may amend or supplement the indentures or
waive any provision of such indentures and the senior debt securities without
the consent of any holders of senior debt securities in some circumstance,
including:
o to cure any ambiguity, omission, defect or inconsistency;
o to make any change that does not, in the good faith opinion of the
board of directors of us, XL Capital and the trustee, adversely affect
the interests of holders of such senior debt securities in any
material respect;
o to provide for the assumption of our or XL Capital's obligations under
the applicable indenture by a successor upon any merger, consolidation
or asset transfer permitted under the applicable indenture;
o to provide any security for or additional guarantees of such senior
debt securities;
o to add events of default with respect to such senior debt securities;
o to add covenants of ours or XL Capital that would benefit the holders
of such senior debt securities or to surrender any rights or powers we
or XL Capital have under the applicable indenture;
o to make any change necessary for the registration of the senior debt
securities and the guarantee under the Securities Act or to comply
with the Trust Indenture Act of 1939, or any amendment thereto, or to
comply with any requirement of the SEC in connection with the
qualification of the applicable indenture under the Trust Indenture
Act of 1939; provided, however, that such modification or amendment
does not, in the good faith opinion of our or XL Capital's Board of
Directors and the trustee, adversely affect the interests of the
holders of such senior debt securities in any material respect;
o to provide for uncertificated senior debt securities and guarantees in
addition to or in place of certificated senior debt securities and
guarantees or to provide for bearer senior debt securities and
guarantees;
o to add to or change any of the provisions of the applicable indenture
to such extent as shall be necessary to permit or facilitate the
issuance of the senior debt securities in bearer form, registrable or
not registrable as to principal, and with or without interest coupons;
o to change or eliminate any of the provisions of the applicable
indenture, provided, however, that any such change or elimination
shall become effective only when there is no senior debt security
outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such
provision;
o to establish the form or terms of senior debt securities of any series
or the related guarantees as permitted by the applicable indenture; or
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the senior debt securities of one or
more series and to add to or change any of the provisions of the
applicable indenture as shall be necessary to provide for or
facilitate the administration of the trusts under the applicable
indenture by more than one trustee, pursuant to the requirements of
the applicable indenture.
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EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are "events of default" with respect to any series of
senior debt securities issued thereunder:
(1) failure to pay interest on any senior debt securities of such series
within 60 days of when due or principal of any senior debt securities
of such series when due (including any sinking fund installment);
(2) failure by us or XL Capital to perform any other covenant or agreement
contained in the senior debt securities of such series or the
indenture or guarantees relating to such series (other than an
agreement relating solely to another series of senior debt securities)
for 60 days after notice;
(3) certain events of bankruptcy, insolvency or reorganization with
respect to us or XL Capital; and
(4) the guarantees related to such series of senior debt securities cease
to be in full force and effect or are declared to be null and void and
unenforceable or are found to be invalid, in each case by a court of
competent jurisdiction in a final non-appealable judgment, or XL
Capital denies its liability under such guarantees (other than by
reason of release of XL Capital in accordance with the terms of the
applicable indenture).
Additional or different events of default, if any, applicable to the
series of senior debt securities in respect of which this prospectus is being
delivered will be specified in the applicable prospectus supplement.
The trustee under such indenture shall, within 90 days after the
occurrence of any default (the term "default" to include the events specified
above without grace or notice) with respect to any series of senior debt
securities actually known to it, give to the holders of such senior debt
securities notice of such default; provided, however, that, except in the case
of a default in the payment of principal of or interest on any of the senior
debt securities of such series or in the payment of a sinking fund installment,
the trustee for such series shall be protected in withholding such notice if it
in good faith determines that the withholding of such notice is in the interest
of the holders of such senior debt securities; and provided, further, that in
the case of any default of the character specified in clause (2) above with
respect to senior debt securities of such series, no such notice to holders of
such senior debt securities will be given until at least 30 days after the
occurrence thereof. We shall certify to the trustee within 120 days after the
end of each fiscal year as to whether any default exists.
In the case of an event of default, other than an event of default
resulting from bankruptcy, insolvency or reorganization, with respect to any
series of senior debt securities shall occur and be continuing, the trustee for
such series or the holders of at least 25% in aggregate principal amount of the
senior debt securities of such series then outstanding, by notice in writing to
us (and to the trustee for such series if given by the holders of the senior
debt securities of such series), will be entitled to declare all unpaid
principal of and accrued interest on such senior debt securities then
outstanding to be due and payable immediately.
In the case of an event of default resulting from certain events of
bankruptcy, insolvency or reorganization, all unpaid principal of and accrued
interest on all senior debt securities of such series then outstanding shall be
due and payable immediately without any declaration or other act on the part of
the trustee for such series or the holders of any senior debt securities of such
series.
Such acceleration may be annulled and past defaults (except, unless
theretofore cured, a default in payment of principal of or interest on the
senior debt securities of such series) may be waived by the holders of a
majority in principal amount of the senior debt securities of such series then
outstanding upon the conditions provided in the applicable indenture.
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No holder of the senior debt securities of any series issued thereunder
may pursue any remedy under such indenture unless the trustee for such series
shall have failed to act after, among other things, notice of an event of
default and request by holders of at least 25% in principal amount of the senior
debt securities of such series of which the event of default has occurred and
the offer to the trustee for such series of indemnity satisfactory to it;
PROVIDED, HOWEVER, that such provision does not affect the right to sue for
enforcement of any overdue payment on such senior debt securities.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which the senior debt securities of
any series will be convertible into XL Capital's ordinary shares or preference
ordinary shares or upon which the senior debt securities of any series will be
exchangeable into another series of debt securities will be set forth in the
prospectus supplement relating thereto. Such terms will include the conversion
or exchange price (or manner of calculation thereof), the conversion or exchange
period, provisions as to whether conversion or exchange will be at the option of
the holders of such series of senior debt securities or at our option or
automatic, the events requiring an adjustment of the conversion or exchange
price and provisions affecting conversion in the event of the redemption of such
series of senior debt securities.
THE TRUSTEE
The trustee for each series of senior debt securities will be State Street
Bank and Trust Company. The indenture will contain certain limitations on a
right of the trustee, as our creditor, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
Subject to the terms of the applicable indenture, the holders of a
majority in principal amount of all outstanding senior debt securities of a
series (or if more than one series is affected thereby, of all series so
affected, voting as a single class) will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy or power
available to the trustee for such series or all such series so affected.
In case an event of default shall occur (and shall not be cured) under any
indenture relating to a series of senior debt securities and is actually known
to a responsible officer of the trustee for such series, such trustee shall
exercise such of the rights and powers vested in it by such indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
Subject to such provisions, the trustee will not be under any obligation to
exercise any of its rights or powers under the applicable indenture at the
request of any of the holders of senior debt securities unless they shall have
offered to the trustee security and indemnity satisfactory to it.
GOVERNING LAW
The indentures and the debt securities will be governed by the laws of the
State of New York.
GLOBAL SECURITIES; BOOK-ENTRY SYSTEM
We may issue the senior debt securities of any series and the related
guarantees in whole or in part in the form of one or more global securities to
be deposited with, or on behalf of, the depository identified in the prospectus
supplement relating to such series. Global securities, if any, issued in the
United States are expected to be deposited with DTC, as depository. Global
securities will be issued in fully registered form and may be issued in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual senior debt securities represented thereby, a global
security may not be transferred except as a whole by the depository for such
global security to a nominee of such depository or by a nominee of such
depository to such depository or another nominee of such depository or by such
depository or any nominee of such depository to a successor depository or any
nominee of such successor.
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The specific terms of the depository arrangement with respect to any
series of senior debt securities will be described in the prospectus supplement
relating to such series. We expect that unless otherwise indicated in the
applicable prospectus supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a global security, the depository for such global
security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual senior debt securities
represented by such global security to the accounts of participants. Such
accounts will be designated by the underwriters, dealers or agents with respect
to such senior debt securities or by us if such senior debt securities are
offered directly by us. Ownership of beneficial interests in such global
security will be limited to participants or persons that may hold interests
through participants.
We expect that, pursuant to procedures established by DTC, ownership of
beneficial interests in any global security with respect to which DTC is the
depository will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
beneficial interests of participants) and records of participants (with respect
to beneficial interests of persons who hold through participants). None of us,
XL Capital or the trustee will have any responsibility or liability for any
aspect of the records of DTC or for maintaining, supervising or reviewing any
records of DTC or any of its participants relating to beneficial ownership
interests in the senior debt securities. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a global security.
So long as the depository for a global security or its nominee is the
registered owner of such global security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the debt
securities represented by such global security for all purposes under the
applicable indenture. Except as described below or in the applicable prospectus
supplement, owners of beneficial interest in a global security will not be
entitled to have any of the individual senior debt securities represented by
such global security registered in their names, will not receive or be entitled
to receive physical delivery of any such senior debt securities in definitive
form and will not be considered the owners or holders thereof under the
applicable indenture. Beneficial owners of senior debt securities evidenced by a
global security will not be considered the owners or holders thereof under the
applicable indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the trustee thereunder. Accordingly,
each person owning a beneficial interest in a global security with respect to
which DTC is the depository must rely on the procedures of DTC and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable indenture. We understand that, under existing industry practice, if
it requests any action of holders or if an owner of a beneficial interest in a
global security desires to give or take any action which a holder is entitled to
give or take under the applicable indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners through such
participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, and any interest on, individual senior debt
securities represented by a global security registered in the name of a
depository or its nominee will be made to or at the direction of the depository
or its nominee, as the case may be, as the registered owner of the global
security under the applicable indenture. Under the terms of the applicable
indenture, we and the trustee may treat the persons in whose name senior debt
securities, including a global security, are registered as the owners thereof
for the purpose of receiving such payments. Consequently, neither we nor the
trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of senior debt securities (including principal and
interest). We believe, however, that it is currently the policy of DTC to
immediately credit the accounts of relevant participants with such payments, in
amounts proportionate to their respective holdings of beneficial interests in
the relevant global security as shown on the records of DTC or its nominee. We
also expect that payments by participants to owners of beneficial interests in
such global security
38
held through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in street name, and will be the
responsibility of such participants. Redemption notices with respect to any
senior debt securities represented by a global security will be sent to the
depository or its nominee. If less than all of the senior debt securities of any
series are to be redeemed, we expect the depository to determine the amount of
the interest of each participant in such senior debt securities to be redeemed
to be determined by lot. None of us, XL Capital, the trustee, any paying agent
or the registrar for such senior debt securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such senior debt
securities or for maintaining any records with respect thereto.
None of us, XL Capital or the trustee will be liable for any delay by the
holders of a global security or the depository in identifying the beneficial
owners of senior debt securities and we and the trustee may conclusively rely
on, and will be protected in relying on, instructions from the holder of a
global security or the depository for all purposes. The rules applicable to DTC
and its participants are on file with the SEC.
If a depository for any senior debt securities is at any time unwilling,
unable or ineligible to continue as depository and a successor depository is not
appointed by us within 90 days, we will issue individual senior debt securities
in exchange for the global security representing such senior debt securities. In
addition, we may at any time and in our sole discretion, subject to any
limitations described in the prospectus supplement relating to such senior debt
securities, determine not to have any of such senior debt securities represented
by one or more global securities and in such event we will issue individual
senior debt securities in exchange for the global security or securities
representing such senior debt securities. Individual senior debt securities so
issued will be issued in denominations of $1,000 and integral multiples thereof.
All moneys paid by us or XL Capital to a paying agent or a trustee for the
payment of the principal of or interest on any senior debt security which remain
unclaimed at the end of two years after such payment has become due and payable
will be repaid to us or XL Capital, as the case may be, and the holder of such
senior debt security thereafter may look only to us for payment thereof.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
Each trust may issue only one series of trust preferred securities having
terms described in the prospectus supplement relating thereto. The declaration
of each trust authorizes the regular trustees of such trust to issue on behalf
of such trust one series of trust preferred securities. Each declaration will be
qualified as an indenture under the Trust Indenture Act. The trust preferred
securities will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights or
such restrictions as shall be set forth in each declaration or made part of each
declaration by the Trust Indenture Act and the Delaware Business Trust Act. The
following summary of the principal terms and provisions of the trust preferred
securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the applicable prospectus supplement, the
applicable declaration (the forms of which are filed as exhibits to the
registration statement and the accompanying prospectus are a part), the Delaware
Business Trust Act and the Trust Indenture Act.
GENERAL
The declaration of each trust will authorize the regular trustees, on
behalf of such trust, to issue the trust preferred securities, which will
represent preferred undivided beneficial interests in the assets of such trust,
and the trust common securities, which represent common undivided beneficial
interests in the assets of the trust. All of the trust common securities will be
owned directly or indirectly by XL Capital.
The trust common securities will rank equally, and payments will be made
thereon on a PRO RATA basis, with the trust preferred securities, except that
upon the occurrence and during the continuation of a declaration event of
default, the rights of the holders of the trust common securities to receive
payment of periodic
39
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights to payment of the holders of the trust preferred
securities.
The declaration of each trust will not permit the issuance by such trust
of any securities other than the trust securities or the incurrence of any
indebtedness by such trust.
Pursuant to the declaration of such trust, the property trustee will own
and hold the subordinated deferrable interest debentures for the benefit of
trust and the holders of the trust securities. The payment of distributions out
of money held by each trust, and payments upon redemption of the trust preferred
securities or liquidation of such trust, will be guaranteed by XL Capital as
described under "Description of the Trust Preferred Securities Guarantee."
The trust preferred guarantee trustee will hold the trust preferred
securities guarantee for the benefit of the holders of such trust preferred
securities. Each trust preferred securities guarantee will not cover payment of
distributions on such trust preferred securities when the applicable trust does
not have sufficient available funds in the property account to make such
distributions.
TERMS
The specific terms of the trust preferred securities of each trust will be
set forth in the applicable prospectus supplement relating thereto, including
the following, as applicable:
(1) the distinctive designation of such trust preferred securities;
(2) the number of trust preferred securities issued by such trust;
(3) the annual distribution rate (or method of determining such rate) for
trust preferred securities issued by such trust and the date or dates
upon which such distributions will be payable on a quarterly basis to
holders of trust preferred securities are outstanding;
(4) whether distributions on trust preferred securities issued by such
trust shall be cumulative and, in the case of trust preferred
securities having cumulative distribution rights, the date(s) or
method of determining the date(s) from which distributions on trust
preferred securities issued by such trust will be cumulative;
(5) the amount(s) which will be paid out of the assets of such trust to
purchase or redeem trust preferred securities issued by such trust and
the price(s) at which, the period(s) within which, and the terms and
conditions upon which trust preferred securities issued by such trust
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation;
(6) the voting rights, if any, of trust preferred securities issued by
such trust in addition to those required by law, including any
requirement for the approval by the holders of trust preferred
securities, or of trust preferred securities issued by one or more
trusts, or of both, as a condition to specified action or amendments
to the declaration of such trust; and
(7) any other relevant rights, preferences, privileges, limitations or
restriction of trust preferred securities issued by such trust not
inconsistent with the declaration of such trust or with applicable
law.
All trust preferred securities offered hereby will be guaranteed by XL
Capital to the extent described under "Description of the Trust Preferred
Securities Guarantees" below.
Any applicable United States federal income tax considerations applicable
to any offering of trust preferred securities will be described in the
prospectus supplement relating thereto.
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In connection with the issuance of trust preferred securities, each trust
will issue one series of trust common securities. The declaration of each trust
authorizes the regular trustees of such trust to issue on behalf of such trust
one series of trust common securities having terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be set
forth therein. The terms of the trust common securities issued by a trust will
be substantially identical to the terms of the trust preferred securities issued
by such trust and the trust common securities will rank equal, and payments will
be made thereon PRO RATA, with the trust preferred securities except that, upon
an event of default under the declaration, the rights of the holders of the
common securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the trust preferred securities. All of the trust common securities of
a trust will be directly or indirectly owned by XL Capital.
DISTRIBUTIONS
Unless the applicable prospectus supplement and applicable supplemental
indenture provide otherwise, XL Capital will have the right under the indenture
to defer payments of interest on the subordinated deferrable interest debentures
by extending the interest payment period from time to time on the subordinated
deferrable interest debentures which, if exercised, would defer quarterly
distributions on the trust preferred securities (though such distributions would
continue to accrue interest since interest would continue to accrue on the
subordinated deferrable interest debentures) during any such extended interest
payment period.
In the event that XL Capital exercises this right, then during the term of
such deferral XL Capital shall not:
(a) declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock,
(b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by XL Capital
which rank equal with or junior to the subordinated deferrable
interest debentures, and
(c) make any guarantee payments (other than pursuant to the trust
preferred securities guarantee) with respect to the foregoing.
Notwithstanding the foregoing restrictions, XL Capital will be permitted,
in any event, to make dividend, redemption, liquidation and guarantee payments
on capital stock, and interest, principal, redemption and guarantee payments on
debt securities issued by XL Capital ranking equal with or junior to
subordinated deferrable interest debentures, where the payment is made by way of
securities (including capital stock) that rank junior to the securities on which
such payment is being made.
Prior to the termination of any such extension period, XL Capital may
further extend the interest payment period; provided, however, that such
extension period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity of
the subordinated deferrable interest debentures.
Upon the termination of any extension period and the payment of all
amounts then due, XL Capital may select a new extension period as if no
extension period had previously been declared, subject to the above
requirements. See "-- Voting Rights" below and "Description of the Subordinated
Deferrable Interest Debentures -- Interest" and " -- Option to Extend Interest
Payment Period."
If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the trust preferred
securities, if funds are available therefor, as they appear on the books and
records of such trust on the record date immediately following the termination
of such extension period.
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Distributions on the trust preferred securities of each trust must be paid
on the dates payable to the extent that such trust has funds available for the
payment of such distributions in the property account. Each trust's funds
available for distribution to the holders of the trust preferred securities will
be limited to payments received under the subordinated deferrable interest
debentures. See "Description of the Subordinated Deferrable Interest
Debentures." The payment of distributions out of moneys held by each trust will
be guaranteed by XL Capital as described under "Description of the Trust
Preferred Securities Guarantee."
Distributions on the trust preferred securities will be payable to the
holders thereof as they appear on the books and records of the applicable trust
on the relevant record dates, which, as long as the trust preferred securities
remain in book-entry only form, will be one business day (as defined herein)
prior to the relevant payment dates, which payment dates correspond to the
interest payment dates on the subordinated deferrable interest debentures. Such
distributions will be paid through the property trustee, who will hold amounts
received in respect of the subordinated deferrable interest debentures in the
property account for the benefit of such trust and the holders of trust
securities.
Subject to any applicable laws and regulations and the provisions of the
applicable declaration, each such payment will be made as described under "--
Book-Entry Only Issuance -- The Depository Trust Company" below.
In the event the trust preferred securities did not continue to remain in
book-entry only form, the regular trustees will have the right to select
relevant record dates which shall be at least one business day, but less than 60
business days, prior to the relevant payment dates.
In the event that any date on which distributions are to be made on the
trust preferred securities is not a business day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a business day (and without any interest or other payment in respect of any
such delay) except that if such business day is in the next succeeding calendar
year, such payment will be made on the immediately preceding business day, in
each case with the same force and effect as if made on such date. A "business
day" shall mean any day other than a Saturday, Sunday or other day on which
banking institutions in New York, New York are authorized or required by law to
close.
MANDATORY AND OPTIONAL REDEMPTION
Unless provided otherwise in the applicable prospectus supplement, upon
the repayment of the subordinated deferrable interest debentures, whether at
maturity or upon acceleration, redemption or otherwise, the proceeds from such
repayment or payment will simultaneously be applied to redeem trust securities
on a PRO RATA basis having an aggregate liquidation amount equal to the
aggregate principal amount of the subordinated deferrable interest debentures so
repaid or redeemed at the redemption price; provided, however, that except in
the case of payments upon maturity, holders of trust securities shall be given
not less than 30 nor more than 60 days' notice of such redemption. See "--
Redemption Procedures" and "Description of the Subordinated Deferrable Interest
Debentures." In the event that fewer than all of the outstanding trust preferred
securities are to be redeemed, the trust preferred securities will be redeemed
as described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
DISTRIBUTION UPON THE OCCURRENCE OF A SPECIAL EVENT. If, at any time, a
Tax Event or an Investment Company Event (each, as defined below, a "Special
Event") shall occur and be continuing, the applicable trust shall, except in the
circumstances described below under "Redemption Upon the Occurrence of a Tax
Event," be dissolved with the result that, after satisfaction of liabilities to
creditors, subordinated deferrable interest debentures, with an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the trust securities,
would be distributed to the holders of the trust securities, in liquidation of
such holders' interests in such trust on a PRO RATA basis, within 90 days
following
42
the occurrence of such Special Event; PROVIDED, HOWEVER, that in the case of the
occurrence of a Tax Event, as a condition of such termination, dissolution and
distribution, the regular trustees shall have received an opinion from a
nationally recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that neither such trust nor the
holders of the trust securities will recognize any gain or loss for United
States federal income tax purposes as a result of such termination and
dissolution of such trust and the distribution of the subordinated deferrable
interest debentures; and PROVIDED, FURTHER, that, if there is available to such
trust the opportunity to eliminate, within such 90-day period, the Special Event
by taking some ministerial action, such as filing a form or making an election,
or pursuing some other similar reasonable measure, which has no adverse effect
on the trust, XL Capital or the holders of the trust securities, the trust will
pursue such measure in lieu of dissolution.
If subordinated deferrable interest debentures are distributed to the
holders of the trust preferred securities, then XL Capital will use its best
efforts to have the subordinated deferrable interest debentures listed on such
securities exchange as the trust preferred securities are then listed, if any.
After the date for any distribution of subordinated deferrable interest
debentures upon termination of a trust, (i) the trust preferred securities and
trust preferred securities guarantee will no longer be deemed to be outstanding,
(ii) the depositary or its nominee, as the record holder of such trust preferred
securities, will receive a registered global certificate or certificates
representing subordinated deferrable interest debentures to be delivered upon
such distribution and (iii) any certificates representing trust preferred
securities not held by the depositary or its nominee will be deemed to represent
subordinated deferrable interest debentures having an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, such trust preferred securities, until such
certificates are presented to XL Capital or its agent for transfer or
reissuance.
There can be no assurance as to the market prices for the subject trust
preferred securities or the subordinated deferrable interest debentures that may
be distributed in exchange for the trust preferred securities if a termination
and liquidation of a trust were to occur. Accordingly, the trust preferred
securities that an investor may purchase, whether pursuant to the offer hereby
or in the secondary market, or the subordinated deferrable interest debentures
that the investor may receive on termination and liquidation of a trust, may
trade at a discount to the price that the investor paid to purchase the trust
preferred securities.
REDEMPTION UPON THE OCCURRENCE OF A TAX EVENT. If, in the case of the
occurrence and continuation of a Tax Event, the applicable regular trustees
shall have been informed by such tax counsel that a No Recognition Opinion
cannot be delivered, then XL Capital shall have the right, upon not less than 30
nor more than 60 days' notice, to redeem the subordinated deferrable interest
debentures in whole or in part for cash within 90 days following the occurrence
of such Tax Event at a price equal to the sum of
(x) 100% of the principal amount of the subordinated deferrable interest
debentures to be redeemed and
(y) accrued and unpaid interest thereon to the date fixed for redemption,
and,
following such redemption, trust securities with an aggregate liquidation amount
equal to the aggregate principal amount of the subordinated deferrable interest
debentures so redeemed shall be redeemed by the trust at the redemption price on
a PRO RATA basis; PROVIDED, HOWEVER, that, if there is available to XL Capital
or the trust the opportunity to eliminate, within such 90-day period, the Tax
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure which has no adverse
effect on the trust, XL Capital or the holders of the trust securities, XL
Capital or the trust will pursue such measure in lieu of redemption.
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DEFINITIONS. As used herein the following terms have the meanings specified
below:
"INVESTMENT COMPANY EVENT" means that XL Capital has provided the regular
trustees with an opinion from a nationally recognized independent counsel
experienced in practice under the 1940 Act (as hereinafter defined) to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstantial risk that the trust is or
will be considered an "investment company" which is required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
Change in 1940 Act Law becomes effective on or after the date of this
prospectus.
"TAX EVENT" means that XL Capital Ltd has provided the regular trustees
with an opinion from a nationally recognized independent tax counsel experienced
in such matters (a "Dissolution Tax Opinion") to the effect that, on or after
the date of the applicable prospectus supplement, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority, in each
case which amendment or change is enacted, promulgated, issued or announced or
which interpretation is issued or announced or which action is taken, on or
after the date of the applicable prospectus, there is more than an insubstantial
risk that (i) such trust is, or will be within 90 days of the date thereof,
subject to United States federal income tax with respect to interest accrued or
received on the subordinated deferrable interest debentures, or (ii) such trust
is, or will be within 90 days of the date thereof, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
REDEMPTION PROCEDURES
A trust may not redeem fewer than all of the outstanding trust preferred
securities unless all accrued and unpaid distributions have been paid on all
applicable trust securities for all quarterly distribution periods terminating
on or prior to the date of redemption.
If a Trust gives a notice of redemption in respect of the trust preferred
securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that XL Capital has paid to the
property trustee a sufficient amount of cash in connection with the related
redemption or maturity of the subordinated deferrable interest debentures, such
trust will irrevocably deposit with the depositary funds sufficient to pay the
applicable redemption price and will give the depositary irrevocable
instructions and authority to pay the redemption price to the holders of trust
preferred securities. See "-- Book-Entry Only Issuance -- The Depository Trust
Company."
If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of the
trust preferred securities so called for redemption will cease, except the right
of the holders of such trust preferred securities to receive the redemption
price, but without interest on such redemption price.
In the event that any date fixed for redemption of such trust preferred
securities is not a business day, then payment of the redemption price payable
on such date will be made on the next succeeding day which is a business day
(and without any interest or other payment in respect of any such delay), except
that, if such business day falls in the next calendar year, such payment will be
made on the immediately preceding business day.
44
In the event that payment of the redemption price in respect of the trust
preferred securities is improperly withheld or refused and not paid either by a
trust or by XL Capital pursuant to the related trust preferred securities
guarantee, distributions on the trust preferred securities will continue to
accrue, from the original redemption date to the actual date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the redemption price.
In the event that fewer than all of the outstanding trust preferred
securities are to be redeemed, the trust preferred securities will be redeemed
as described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), XL Capital or its affiliates
may, at any time and from time to time, purchase outstanding trust preferred
securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON TERMINATION
In the event of any voluntary or involuntary termination, dissolution or
winding-up of a trust, the holders of the trust preferred securities at that
time will be entitled to receive out of the assets of such trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the liquidation amount plus accrued and unpaid distributions
thereon to the date of payment (the "liquidation distribution"), unless, in
connection with such termination, dissolution or winding-up, subordinated
deferrable interest debentures in an aggregate principal amount equal to the
aggregate liquidation amount of, with an interest rate identical to the
distribution rate of, and bearing accrued and unpaid interest equal to accrued
and unpaid distributions on, the trust preferred securities, have been
distributed on a pro rata basis to the holders of trust preferred securities in
exchange for such trust preferred securities.
If, upon any such termination, dissolution or winding-up, the liquidation
distribution can be paid only in part because such trust has insufficient assets
available to pay in full the aggregate liquidation distribution, then the
amounts payable directly by such trust on the trust preferred securities shall
be paid on a PRO RATA basis. The holders of the trust common securities will be
entitled to receive distributions upon any such dissolution PRO RATA with the
holders of the trust preferred securities, except that if a declaration event of
default has occurred and is continuing, the trust preferred securities shall
have a preference over the trust common securities with regard to such
distributions.
Pursuant to the applicable declaration, a trust shall terminate
(i) on the expiration of the term of such trust,
(ii) upon the bankruptcy of XL Capital or the holder of the applicable
trust common securities,
(iii) upon the filing of a certificate of dissolution or its
equivalent with respect to XL Capital or the holder of the common
securities or the revocation of the charter of XL Capital or the
holder of such trust common securities and the expiration of 90
days after the date of revocation without a reinstatement
thereof,
(iv) upon the distribution of the subordinated deferrable interest
debentures following the occurrence of a Special Event,
(v) upon the entry of a decree of a judicial dissolution of XL
Capital or the holder of the common securities or such trust or
(vi) upon the redemption of all of the trust securities.
45
DECLARATION EVENTS OF DEFAULT
An event of default under an applicable indenture (an "indenture event of
default") (see "Description of the Subordinated Deferrable Interest Debentures
-- Events of Default") constitutes an event of default under the applicable
declaration with respect to the trust securities (a "Declaration Event of
Default"); PROVIDED, HOWEVER, that pursuant to such declaration, the holder of
the trust common securities will be deemed to have waived any declaration event
of default with respect to such trust common securities or its consequences
until all declaration events of default with respect to such trust preferred
securities have been cured, waived or otherwise eliminated.
Until such declaration events of default with respect to the trust
preferred securities have been so cured, waived or otherwise eliminated, the
applicable property trustee will be deemed to be acting solely on behalf of the
holders of the trust preferred securities and only the holders of such trust
preferred securities will have the right to direct the property trustee with
respect to certain matters under such declaration, and therefore the indenture.
If a declaration event of default with respect to the trust preferred
securities is waived by holders of trust preferred securities, such waiver will
also constitute the waiver of such declaration event of default with respect to
the trust common securities for all purposes under the declaration, without any
further act, vote or consent of the holders of the trust common securities.
During the existence of a declaration event of default, the applicable
property trustee, as the sole holder of the subordinated deferrable interest
debentures, will have the right under the indenture to declare the principal of,
and interest on, the subordinated deferrable interest debentures to be
immediately due and payable.
If a declaration event of default occurs that results from the failure of
XL Capital to pay principal of or interest on the subordinated deferrable
interest debentures when due, during the continuance of such an event of default
a holder of trust preferred securities may institute a legal proceeding directly
against XL Capital to obtain payment of such principal or interest on
subordinated deferrable interest debentures having a principal amount equal to
the aggregate liquidation amount of the trust preferred securities owned of
record by such holder. The holders of trust preferred securities will not be
able to exercise directly against XL Capital any other remedy available to the
property trustee unless the property trustee first fails to do so.
VOTING RIGHTS
Except as provided below and except as provided under the Delaware
Business Trust Act, the Trust Indenture Act and under "Description of the Trust
Preferred Securities Guarantee -- Amendments and Assignment" below, and except
as otherwise required by law and the declaration, and the applicable prospectus
supplement, the holders of the trust preferred securities will have no voting
rights. In the event that XL Capital elects to defer payments of interest on
the subordinated deferrable interest debentures as described above under
"-- Distributions," the holders of the trust preferred securities do not have
the right to appoint a special representative or trustee or otherwise act to
protect their interests.
Subject to the requirement of the property trustee obtaining a tax opinion
as set forth below, the holders of a majority in aggregate liquidation amount of
the trust preferred securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the property
trustee, or to direct the exercise of any trust or power conferred upon the
property trustee under the applicable declaration, including the right to direct
such property trustee, as the holder of the subordinated deferrable interest
debentures, to:
(i) direct the time, method and place of conducting any proceeding
for any remedy available to the subordinated debt trustee (as
hereinafter defined) under the indenture with respect to the
subordinated deferrable interest debentures,
46
(ii) waive any past indenture event of default which is waivable under
the indenture,
(iii) exercise any right to rescind or annul a declaration that the
principal of all the subordinated deferrable interest debentures
shall be due and payable, or
(iv) consent to any amendment, modification or termination of the
indenture or the subordinated deferrable interest debentures,
where such consent shall be required; PROVIDED, HOWEVER, that
where a consent under the indenture would require the consent of
the holders of greater than a majority in principal amount of
subordinated deferrable interest debentures affected thereby (a
"super-majority"), only the holders of at least the proportion in
liquidation amount of the trust preferred securities which the
relevant super-majority represents of the aggregate principal
amount of the subordinated deferrable interest debentures may
direct such property trustee to give such consent.
If the property trustee fails to enforce its rights under the applicable
declaration (including, without limitation, its rights, powers and privileges as
the holder of the subordinated deferrable interest debentures under the
indenture), a holder of trust preferred securities may to the extent permitted
by applicable law institute a legal proceeding directly against any person to
enforce the property trustee's rights under such declaration without first
instituting any legal proceeding against the property trustee or any other
person or entity.
Following and during the continuance of a declaration event of default
that results from the failure of XL Capital to pay principal of or interest on
the subordinated deferrable interest debentures when due, a holder of trust
preferred securities may also proceed directly against XL Capital, without first
waiting to determine if the property trustee has enforced its rights under the
declaration, to obtain payment of such principal or interest on subordinated
deferrable interest debentures having a principal amount equal to the aggregate
liquidation amount of the trust preferred securities owned of record by such
holder.
The property trustee shall notify all holders of the trust preferred
securities of any notice of default received from the subordinated debt trustee
with respect to the subordinated deferrable interest debentures. Such notice
shall state that such indenture event of default also constitutes a declaration
event of default.
The property trustee shall not take any action described in clauses (i),
(ii), (iii) or (iv) above unless the property trustee has obtained an opinion of
independent tax counsel to the effect that, as a result of such action, the
trust will not be classified as other than a grantor trust for United States
federal income tax purposes and each holder of trust securities will be treated
as owning an undivided beneficial interest in the subordinated deferrable
interest debentures.
In the event the consent of the property trustee, as the holder of the
subordinated deferrable interest debentures, is required under the indenture
with respect to any amendment, modification or termination of the indenture, the
property trustee shall request the direction of the holders of the trust
securities with respect to such amendment, modification or termination.
The property trustee shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the trust preferred securities and, if no declaration event of default has
occurred and is continuing, a majority in liquidation amount of the trust common
securities, voting together as a single class, provided that where a consent
under the indenture would require the consent of a super-majority, such property
trustee may only give such consent at the direction of the holders of at least
the proportion in liquidation amount of the trust preferred securities and trust
common securities, respectively, which the relevant super-majority represents of
the aggregate principal amount of the subordinated deferrable interest
debentures outstanding.
A waiver of an indenture event of default will constitute a waiver of the
corresponding declaration event of default.
47
Any required approval or direction of holders of trust preferred
securities may be given at a separate meeting of holders of trust preferred
securities convened for such purpose, at a meeting of all of the holders of
trust securities or pursuant to written consent. The applicable regular trustees
will cause a notice of any meeting at which holders of trust preferred
securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record of
trust preferred securities. Each such notice will include a statement setting
forth:
(i) the date of such meeting or the date by which such action is to
be taken,
(ii) a description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the holders of trust preferred securities will be
required for the trust to redeem and cancel trust preferred securities or
distribute subordinated deferrable interest debentures in accordance with the
declaration.
Notwithstanding that holders of trust preferred securities are entitled to
vote or consent under any of the circumstances described above, any of the trust
preferred securities that are owned at such time by XL Capital or any entity
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, XL Capital, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
Holders of the trust preferred securities will have no rights to appoint
or remove the trustees, who may be appointed, removed or replaced solely by XL
Capital, as the direct or indirect holder of all the trust common securities.
MODIFICATION OF THE DECLARATION
Each declaration may be amended or modified if approved and executed by a
majority of the regular trustees (or if there are two or fewer such regular
trustees, by all of the regular trustees); PROVIDED, HOWEVER, that if any
proposed amendment provides for:
(i) any action that would adversely affect the powers, preferences or
special rights of the trust securities, whether by way of
amendment to such declaration or otherwise or
(ii) the dissolution, winding-up or termination of the applicable
trust other than pursuant to the terms of such declaration,
then the holders of the trust securities as a single class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such trust securities affected thereby; PROVIDED, HOWEVER, that a
reduction of the principal amount or the distribution rate, or a change in the
payment dates or maturity of the trust preferred securities, shall not be
permitted without the consent of each holder of trust preferred securities.
In the event any amendment or proposal referred to in clause (i) above
would adversely affect only the trust preferred securities or the trust common
securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
trust securities. In addition, if any such proposed amendment or modification
affects the rights, powers, duties, obligations or immunities of the applicable
property trustee or the applicable Delaware Trustee, such amendment or
modification shall also require the written approval of the applicable property
trustee or the applicable Delaware Trustee, as the case may be.
48
Notwithstanding the foregoing, no amendment or modification may be made to
any declaration if such amendment or modification would (i) cause the applicable
trust to be classified for purposes of United States federal income taxation as
other than a grantor trust, (ii) reduce or otherwise adversely affect the powers
of the applicable property trustee in contravention of the Trust Indenture Act
or (iii) cause such trust to be deemed to be an "investment company" which is
required to be registered under the 1940 Act.
EXPENSES AND TAXES
In each declaration, XL Capital has agreed to pay for all debts and other
obligations (other than with respect to the trust securities) and all costs and
expenses of the applicable trust (including costs and expenses relating to the
organization of such trust, the fees and expenses of the trustees and the costs
and expenses relating to the operation of such trust) and to pay any and all
taxes and all costs and expenses with respect thereto (other than United States
withholding taxes) to which such trust might become subject.
The foregoing obligations of each trust under the applicable declaration
are for the benefit of, and shall be enforceable by, the property trustee and
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (a "Creditor") whether or not such Creditor has received notice thereof.
Such property trustee and any such Creditor may enforce such obligations
of such trust directly against XL Capital, and XL Capital has irrevocably waived
any right or remedy to require that the property trustee or any such Creditor
take any action against such trust or any other person before proceeding against
XL Capital. XL Capital has also agreed in such declaration to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing agreement of XL Capital.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
A trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, unless, with the
consent of a majority of the regular trustees and without the consent of the
holders of the trust securities, the Delaware Trustee or the property trustee:
(i) such successor entity either
(x) expressly assumes all of the obligations of the trust with
respect to the trust securities or
(y) substitutes for the trust securities other securities having
substantially the same terms as the trust securities (the
"successor securities") so long as the successor securities rank
the same as the trust securities rank in priority with respect to
distributions and payments upon termination, liquidation,
redemption, maturity and otherwise,
(ii) XL Capital expressly acknowledges a trustee of such successor
entity which possesses the same powers and duties as the property
trustee as the holder of the subordinated deferrable interest
debentures,
(iii) if the trust preferred securities are at such time listed on any
national securities exchange or with another organization, the
successor securities will be listed, upon notification of
issuance, on any national securities exchange or other
organization on which the trust preferred securities are then
listed,
(iv) such merger, consolidation, amalgamation or replacement does not
cause the trust preferred securities (including any successor
securities) to be downgraded by any nationally recognized
statistical rating organization,
(v) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the
holders of the trust preferred securities (including any succes-
49
sor securities) in any material respect (other than with respect
to any dilution of the holders' interest in the successor
entity),
(vi) such successor entity has a purpose identical to that of the
trust,
(vii) prior to such merger, consolidation, amalgamation or
replacement, XL Capital has received an opinion from independent
counsel to the trust experienced in such matters to the effect
that
(A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the
holders of the trust preferred securities (including any
successor securities) in any material respect (other than with
respect to any dilution of the holders' interest in the successor
entity), and
(B) following such merger, consolidation, amalgamation or
replacement, neither the trust nor such successor entity will be
required to register as an investment company under the 1940 Act,
and
(viii) XL Capital guarantees the obligations of such successor entity
under the successor securities at least to the extent provided by
the trust preferred securities guarantee.
Notwithstanding the foregoing, the trust shall not, except with the consent of
holders of 100% in liquidation amount of the trust securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it if
such consolidation, amalgamation, merger or replacement would cause the trust or
the successor entity to be classified for United States federal income tax
purposes as other than a grantor trust for United States federal income tax
purposes and any holder of trust securities not to be treated as owning an
undivided beneficial interest in the subordinated deferrable interest
debentures.
GLOBAL SECURITIES; BOOK-ENTRY SYSTEM
A trust may issue the trust preferred securities of any series in whole or
in part in the form of one or more global securities to be deposited with, or on
behalf of, the depository identified in the prospectus supplement relating to
such series. Global securities, if any, issued in the United States are expected
to be deposited with DTC, as depository. Global securities will be issued in
fully registered form and may be issued in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual trust
preferred securities represented thereby, a global security may not be
transferred except as a whole by the depository for such global security to a
nominee of such depository or by a nominee of such depository to such depository
or another nominee of such depository or by such depository or any nominee of
such depository to a successor depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to any
series of trust preferred securities will be described in the prospectus
supplement relating to such series. Each trust expects that unless otherwise
indicated in the applicable prospectus supplement, the following provisions will
apply to depository arrangements.
Upon the issuance of a global security, the depository for such global
security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual trust preferred
securities represented by such global security to the accounts of participants.
Such accounts will be designated by the underwriters, dealers or agents with
respect to such trust preferred securities or by the applicable trust if such
trust preferred securities are offered directly by such trust. Ownership of
beneficial interests in such global security will be limited to participants or
persons that may hold interests through participants.
Each trust expects that, pursuant to procedures established by DTC,
ownership of beneficial interests in any global security with respect to which
DTC is the depository will be shown on, and the transfer of that
50
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to beneficial interests of participants) and records of
participants (with respect to beneficial interests of persons who hold through
participants). Neither a trust, XL Capital Ltd or any trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC or any of its
participants relating to beneficial ownership interests in the trust preferred
securities. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to own, pledge or transfer beneficial
interest in a global security.
So long as the depository for a global security or its nominee is the
registered owner of such global security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the trust
preferred securities represented by such global security for all purposes under
the applicable declaration. Except as described below or in the applicable
prospectus supplement, owners of beneficial interest in a global security will
not be entitled to have any of the individual trust preferred securities
represented by such global security registered in their names, will not receive
or be entitled to receive physical delivery of any such trust preferred
securities in definitive form and will not be considered the owners or holders
thereof under the applicable declaration. Beneficial owners of trust preferred
securities evidenced by a global security will not be considered the owners or
holders thereof under the applicable declaration for any purpose, including with
respect to the giving of any direction, instructions or approvals to the trustee
thereunder. Accordingly, each person owning a beneficial interest in a global
security with respect to which DTC is the depository must rely on the procedures
of DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interests, to exercise any rights
of a holder under the applicable declaration. We understand that, under existing
industry practice, if it requests any action of holders or if an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the applicable declaration, DTC
would authorize the participants holding the relevant beneficial interest to
give or take such action, and such participants would authorize beneficial
owners through such participants to give or take such actions or would otherwise
act upon the instructions of beneficial owners holding through them.
Distribution payments on individual trust preferred securities represented
by a global security registered in the name of a depository or its nominee will
be made to or at the direction of the depository or its nominee, as the case may
be, as the registered owner of the global security under the applicable
declaration. Under the terms of the applicable declaration, a trust, XL Capital
Ltd or any relevant trustee may treat the persons in whose name trust preferred
securities, including a global security, are registered as the owners thereof
for the purpose of receiving such payments. Consequently, neither a trust, XL
Capital nor any trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of trust preferred securities. Each
trust believes, however, that it is currently the policy of DTC to immediately
credit the accounts of relevant participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant global security as shown on the records of DTC or its nominee. Each
trust also expects that payments by participants to owners of beneficial
interests in such global security held through such participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such participants. Redemption
notices with respect to any trust preferred securities represented by a global
security will be sent to the depository or its nominee. If less than all of the
trust preferred securities of any series are to be redeemed, each trust expects
the depository to determine the amount of the interest of each participant in
such trust preferred securities to be redeemed to be determined by lot. Neither
a trust, XL Capital Ltd, any trustee, any paying agent nor the registrar for
such trust preferred securities will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global security for such trust preferred securities
or for maintaining any records with respect thereto.
Neither a trust, XL Capital nor any trustee will be liable for any delay
by the holders of a global security or the depository in identifying the
beneficial owners of trust preferred securities and such trust, XL Capital Ltd
and any relevant trustee may conclusively rely on, and will be protected in
relying on, instruc-
51
tions from the holder of a global security or the depository for all purposes.
The rules applicable to DTC and its participants are on file with the SEC.
If a depository for any trust preferred securities is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by the applicable trust within 90 days, such trust
will issue individual trust preferred securities in exchange for the global
security representing such trust preferred securities. In addition, the regular
trustees (after consultation with XL Capital Ltd) may at any time, subject to
any limitations described in the prospectus supplement relating to such trust
preferred securities, determine not to have any of such trust preferred
securities represented by one or more global securities and in such event the
applicable trust will issue individual trust preferred securities in exchange
for the global security or securities representing such trust preferred
securities.
All moneys paid by a trust to a paying agent or a trustee for the payment
of distributions on any trust preferred security which remain unclaimed at the
end of two years after such payment has become due and payable will be repaid to
such trust, and the holder of such trust preferred security thereafter may look
only to such trust for payment thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, prior to the occurrence of a default with respect to
the trust securities and after the curing of all such defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the relevant declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the property trustee is under no obligation
to exercise any of the powers vested in it by such declaration at the request of
any holder of the trust preferred securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby; but the foregoing shall not relieve the property trustee,
upon the occurrence of a declaration event of default, from exercising the
rights and powers vested in it by the such declaration. The property trustee
also serves as the subordinated deferrable interest debentures trustee under the
indenture and as the preferred guarantee trustee under the trust preferred
securities guarantee.
REGISTRAR AND TRANSFER AGENT
In the event that the trust preferred securities do not remain in
book-entry only form, the property trustee will act as paying agent and may
designate an additional or substitute paying agent at any time. Registration of
transfers of trust preferred securities will be effected without charge by or on
behalf of the relevant trust, but upon payment (with the giving of such
indemnity as the regular trustees may require) in respect of any tax or other
government charges which may be imposed in relation to it. The trust will not be
required to register or cause to be registered the transfer of trust preferred
securities after such trust preferred securities have been called for
redemption.
GOVERNING LAW
Each declaration and the trust preferred securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The regular trustees are authorized and directed to operate the trusts in
such a way so that the trusts will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized for United States
federal income tax purposes as other than a grantor trust. XL Capital Ltd is
authorized and directed to conduct its affairs so that the subordinated
deferrable interest debentures will be treated as indebtedness of XL Capital Ltd
for United States federal income tax purposes. In this connection, the regular
trustees and XL Capital Ltd are authorized to take any action, not inconsistent
with applicable law, the declarations or the Memorandum of Association and
Articles of Association of XL Capital Ltd, that each of the regular trustees and
XL Capital Ltd determines in their discretion to be necessary or desirable
52
for such purposes, as long as such action does not materially and adversely
affect the interests of the holders of the trust preferred securities. Holders
of the trust preferred securities will have no preemptive rights.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the trust preferred
securities guarantee that will be executed and delivered by XL Capital for the
benefit of the holders from time to time of the trust preferred securities. Each
trust preferred securities guarantee will be qualified as an indenture under the
Trust Indenture Act. State Street Bank and Trust Company will act as the trust
preferred guarantee trustee. The terms of each trust preferred securities
guarantee will be those set forth therein and those made part thereof by the
Trust Indenture Act. The following summary does not purport to be complete and
is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the trust preferred securities guarantee (the form of
which is filed as an exhibit to the registration statement of which this
prospectus forms a part) and the Trust Indenture Act. Each trust preferred
securities guarantee will be held by the trust preferred guarantee trustee for
the benefit of the holders of the trust preferred securities of the applicable
trust.
GENERAL
Pursuant to each trust preferred securities guarantee, XL Capital will
irrevocably and unconditionally agree to pay in full to the holders of the trust
preferred securities issued by a trust the guarantee payments (as defined
herein) (without duplication of amounts theretofore paid by such trust), to the
extent not paid by such trust, regardless of any defense, right of set-off or
counterclaim that such trust may have or assert.
The following payments or distributions with respect to the trust
preferred securities issued by a trust to the extent not paid or made by such
trust (the "guarantee payments") will be subject to the trust preferred
securities guarantee thereon (without duplication):
(i) any accrued and unpaid distributions that are required to be paid
on such trust preferred securities, to the extent such trust has
funds available therefor,
(ii) the redemption price, which includes all accrued and unpaid
distributions to the date of the redemption, to the extent such
trust has funds available therefor, with respect to any trust
preferred securities called for redemption by such trust and
(iii) upon a voluntary or involuntary termination, dissolution or
winding-up of such trust (other than in connection with the
distribution of subordinated deferrable interest debentures to
the holders of trust preferred securities in exchange for trust
preferred securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such trust preferred securities to the
date of payment, to the extent such trust has funds available
therefor, and
(b) the amount of assets of such trust remaining available for
distribution to holders of trust preferred securities in
liquidation of such trust.
XL Capital's obligation to make a guarantee payment may be satisfied by
direct payment of the required amounts by XL Capital to the holders of trust
preferred securities or by causing the applicable trust to pay such amounts to
such holders.
Each trust preferred securities guarantee will be a full and unconditional
guarantee of the guarantee payments with respect to the trust preferred
securities issued by the applicable trust from the time of issuance of the trust
preferred securities, but will not apply to the payment of distributions and
other payments on such trust preferred securities when the property trustee does
not have sufficient funds in such property account to make such distributions or
other payments. If XL Capital does not make interest pay-
53
ments on the subordinated deferrable interest debentures held by the property
trustee, such trust will not make distributions on the trust preferred
securities issued by such trust and will not have funds available therefor.
XL Capital has also agreed separately to guarantee the obligations of the
trust with respect to the trust common securities (the "trust common securities
guarantee") to the same extent as the trust preferred securities guarantee,
except that upon the occurrence and during the continuation of an indenture
event of default, holders of trust preferred securities shall have priority over
holders of trust common securities with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF XL CAPITAL
In each trust preferred securities guarantee, XL Capital will covenant
that, so long as the trust preferred securities issued by the relevant trust
remain outstanding, if there shall have occurred and is continuing any event
that constitutes an event of default under such trust preferred securities
guarantee or the declaration of such trust, then XL Capital shall not:
(a) declare or pay any dividend on, or make any distribution with
respect to, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of its capital stock,
(b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by XL
Capital which rank equal with or junior to the subordinated
deferrable interest debentures and
(c) make any guarantee payments (other than pursuant to the trust
preferred securities guarantee) with respect to the foregoing.
However, the foregoing restriction will not apply to any
dividend, redemption, liquidation, interest, principal or
guarantee payments by XL Capital where the payment is made by way
of securities (including capital stock) that rank junior to the
securities on which such dividend, redemption, interest,
principal or guarantee payment is being made.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of trust preferred securities (in which case no
consent will be required), each trust preferred securities guarantee may be
amended only with the prior approval of the holders of not less than a majority
in liquidation amount of the outstanding trust preferred securities issued by
the relevant trust. The manner of obtaining any such approval of holders of such
trust preferred securities will be set forth in the applicable prospectus
supplement. All guarantees and agreements contained in a trust preferred
securities guarantee shall bind the successors, assigns, receivers, trustees and
representatives of XL Capital and shall inure to the benefit of the preferred
guarantee trustee and the holders of the trust preferred securities then
outstanding of the relevant trust.
TERMINATION OF THE TRUST PREFERRED SECURITIES GUARANTEE
Each trust preferred securities guarantee will terminate and be of no
further force and effect as to the trust preferred securities issued by the
applicable trust upon full payment of the redemption price of all trust
preferred securities of such trust, or upon distribution of the subordinated
deferrable interest debentures by such trust to the holders of the trust
preferred securities of such trust, and will terminate completely upon full
payment of the amounts payable upon liquidation of such trust. Each trust
preferred securities guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of trust preferred
securities must repay to such trust or XL Capital, or their successors, any sums
paid to them under such trust preferred securities or the trust preferred
securities guarantee.
54
EVENTS OF DEFAULT
An event of default under a trust preferred securities guarantee will
occur upon the failure of XL Capital to perform any of its payment or other
obligations thereunder.
The holders of a majority in liquidation amount of the trust preferred
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trust preferred guarantee trustee in
respect of such trust preferred securities guarantee or to direct the exercise
of any trust or power conferred upon the trust preferred guarantee trustee under
such trust preferred securities guarantee. If the trust preferred guarantee
trustee fails to enforce such trust preferred securities guarantee, any holder
of trust preferred securities may institute a legal proceeding directly against
XL Capital to enforce the preferred guarantee trustee's rights under such trust
preferred securities guarantee, without first instituting a legal proceeding
against the relevant trust, the trust preferred guarantee trustee or any other
person or entity. In addition, any record holder of trust preferred securities
relating to such trust shall have the right, which is absolute and
unconditional, to proceed directly against XL Capital to obtain guarantee
payments, without first waiting to determine if the trust preferred guarantee
trustee has enforced such trust preferred security guarantee or instituting a
legal proceeding against the trust which issued such trust preferred securities,
the trust preferred guarantee trustee or any other person or entity.
STATUS AND RANKING OF THE TRUST PREFERRED SECURITIES GUARANTEE
XL Capital's obligations under the trust preferred securities guarantee to
make the guarantee payments will constitute an unsecured obligation of XL
Capital and will rank
(i) subordinate and junior in right of payment to all other
liabilities of XL Capital, including the subordinated deferrable
interest debentures, except those liabilities of XL Capital
expressly made equal with or subordinate to the guarantee
payments by their terms,
(ii) equal with the most senior preferred stock issued from time to
time by XL Capital and with any guarantee now or hereafter
entered into by XL Capital in respect of any preferred stock of
any subsidiary or affiliate of XL Capital and
(iii) senior to XL Capital's common stock.
The terms of the trust preferred securities provide that each holder of trust
preferred securities issued by such trust by acceptance thereof agrees to the
subordination provisions and other terms of the trust preferred securities
guarantee relating thereto.
Each trust preferred securities guarantee will constitute a guarantee of
payment and not of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity). Each trust preferred securities guarantee will be deposited with the
trust preferred guarantee trustee to be held for the benefit of the holders of
the trust preferred securities of the relevant trust. Except as otherwise noted
herein, such trust preferred guarantee trustee has the right to enforce the
trust preferred securities guarantee on behalf of the holders of such trust
preferred securities. Each trust preferred securities guarantee will not be
discharged except by payment of the guarantee payments in full (without
duplication of amounts theretofore paid by the such trust).
XL Capital's obligations under the trust preferred securities guarantee
with respect to the trust preferred securities issued by each trust, taken
together with its obligations under the declaration for each trust, the
subordinated deferrable interest debentures purchased by such trust and the
indenture, in the aggregate will provide a full and unconditional guarantee by
XL Capital of payments due on the trust preferred securities issued by each
trust.
55
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The trust preferred guarantee trustee, prior to the occurrence of a
default with respect to a trust preferred securities guarantee and after the
curing of all such defaults that may have occurred, undertakes to perform only
such duties as are specifically set forth in such trust preferred securities
guarantee and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the trust preferred guarantee trustee is under no
obligation to exercise any of the powers vested in it by the trust preferred
securities guarantee at the request of any holder of trust preferred securities,
unless offered reasonable indemnity against the costs, expenses and liabilities
which might be incurred thereby; but the foregoing shall not relieve the trust
preferred guarantee trustee, upon the occurrence of an event of default under
the trust preferred securities guarantee, from exercising the rights and powers
vested in it by the trust preferred securities guarantee. The trust preferred
guarantee trustee also serves as property trustee under the declaration for each
trust and as trustee of the indenture relating to the subordinated deferrable
interest debentures.
GOVERNING LAW
Each trust preferred securities guarantee will be governed by, and
construed in accordance with, the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEFERRABLE INTEREST DEBENTURES
Subordinated deferrable interest debentures may be issued from time to
time in one or more series under an indenture (the "indenture") to be entered
into XL Capital and State Street Bank and Trust Company, as trustee (the
"subordinated debt trustee"). The terms of the subordinated deferrable interest
debentures will include those stated in the indenture and in any supplemental
indenture hereto (as defined below) and those made part of the indenture by
reference to the Trust Indenture Act. The following summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the indenture, which is filed as an
exhibit to the registration statement of which this prospectus forms a part, and
the Trust Indenture Act. Whenever particular provisions or defined terms in the
indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein.
GENERAL
The subordinated deferrable interest debentures will be unsecured,
subordinated obligations of XL Capital. The indenture does not limit the
aggregate principal amount of subordinated deferrable interest debentures which
may be issued thereunder and provides that the subordinated deferrable interest
debentures may be issued from time to time in one or more series. The
subordinated deferrable interest debentures are issuable pursuant to an
indenture supplemental to the indenture or a resolution of XL Capital's board of
directors or a special committee thereof (each, a "supplemental indenture").
In the event subordinated deferrable interest debentures are issued to a
trust or a trustee of such trust in connection with the issuance of trust
securities by such trust, such subordinated deferrable interest debentures
subsequently may be distributed pro rata the holders of the trust securities in
connection with the termination of such trust upon the occurrence of certain
events described in the prospectus supplement relating to the trust securities.
Only one series of subordinated deferrable interest debentures will be issued to
a trust or a trustee of such trust in connection with the issuance of trust
securities by such trust.
Reference is made to the indenture, any supplemental indenture and any
prospectus supplement for the following terms of the series of subordinated
deferrable interest debentures being offered thereby:
(i) the specific title of such subordinated deferrable interest
debentures;
(ii) any limit on the aggregate principal amount of such subordinated
deferrable interest debentures;
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(iii) the date or dates on which the principal of such subordinated
deferrable interest debentures is payable and the right, if any,
to extend such date or dates;
(iv) the rate or rates at which such subordinated deferrable interest
debentures will bear interest or the method of determination of
such rate or rates;
(v) the date or dates from which such interest shall accrue, the
interest payment dates on which such interest will be payable or
the manner of determination of such interest payment dates and
the record dates for the determination of holders to whom
interest is payable on any such interest payment dates;
(vi) the right, if any, to extend the interest payment periods and the
duration of such extension;
(vii) the period or periods within which, the price or prices at
which, and the terms and conditions upon which, such subordinated
deferrable interest debentures may be redeemed, in whole or in
part, at the option of XL Capital;
(viii) the right and/or obligation, if any, of XL Capital to redeem or
purchase such subordinated deferrable interest debentures
pursuant to any sinking fund or analogous provisions or at the
option of the holder thereof and the period(s)during which, the
price(s) at which, and the terms and conditions upon which, such
subordinated deferrable interest debentures shall be redeemed or
purchased, in whole or in part, pursuant to such right and/or
obligation;
(ix) the terms of subordination;
(x) if other than denominations of $25 or any integral multiple
thereof, the denominations in which such subordinated deferrable
interest debentures shall be issuable;
(xi) any and all other terms with respect to such series; and
(xii) whether such subordinated deferrable interest debentures are
issuable as a global security, and in such case, the identity of
the depositary.
The indenture does not contain any provisions that afford holders of
subordinated deferrable interest debentures protection in the event of a highly
leveraged transaction involving XL Capital.
SUBORDINATION
The subordinated deferrable interest debentures will be subordinated and
junior in right of payment to certain other indebtedness of XL Capital to the
extent set forth in the indenture, any supplemental indenture and any prospectus
supplement.
CERTAIN COVENANTS
If subordinated deferrable interest debentures are issued to a trust or a
trustee of such trust in connection with the issuance of trust securities by
such trust and
(i) there shall have occurred and be continuing any event that would
constitute an event of default under the indenture or
(ii) XL Capital shall be in default with respect to its payment of any
obligations under the related trust preferred securities guarantee or
trust common securities guarantee, and such default shall be
continuing,
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then XL Capital shall not:
(a) declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock,
(b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by XL Capital
which rank equal with or junior to such subordinated deferrable
interest debentures and
(c) make any guarantee payments (other than pursuant to the trust
preferred security guarantees) with respect to the foregoing.
If subordinated deferrable interest debentures are issued to a trust or a
trustee of such trust in connection with the issuance of trust securities by
such trust and XL Capital shall have given notice of its election to defer
payments of interest on such subordinated deferrable interest debentures by
extending the interest payment period as provided in the indenture or any
supplemental indenture and such period, or any extension thereof, shall be
continuing, then XL Capital shall not:
(a) declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock,
(b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by XL Capital
which rank equal with or junior to such subordinated deferrable
interest debentures and
(c) make any guarantee payments (other than pursuant to the trust
preferred security guarantees) with respect to the foregoing.
Notwithstanding the foregoing restrictions, XL Capital will be permitted,
in any event, to make dividend, redemption, liquidation and guarantee payments
on capital stock, and interest, principal, redemption and guarantee payments on
debt securities issued by XL Capital ranking equal with or junior to
subordinated deferrable interest debentures, where the payment is made by way of
securities (including capital stock) that rank junior to the securities on which
such payment is being made.
In the event subordinated deferrable interest debentures are issued to a
trust or a trustee of such trust in connection with the issuance of trust
securities of such trust, for so long as such trust securities remain
outstanding, XL Capital will covenant:
(i) to directly or indirectly maintain 100% ownership of the trust common
securities of such trust; PROVIDED, HOWEVER, that any permitted
successor of XL Capital under the indenture may succeed to XL
Capital's ownership of such trust common securities,
(ii) not to cause, as sponsor of such trust, or to permit, as holder of the
trust common securities of such trust, the termination, dissolution or
winding-up of such trust, except in connection with a distribution of
the subordinated deferrable interest debentures as provided in the
declaration of such trust and in connection with certain mergers,
consolidations or amalgamations as permitted by the declaration of
such trust,
(iii) to use its reasonable efforts to cause such trust
(a) to remain a statutory business trust, except in connection with the
distribution of subordinated deferrable interest debentures to the
holders of trust securities in liquidation of such trust, the
redemption of all of the trust securities of such trust, or certain
mergers, consolidations or amalgamations, each as permitted by the
declaration of such trust, and
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(b) to otherwise continue not to be classified as an association taxable
as a corporation or partnership for United States federal income tax
purposes and
(iv) to use reasonable efforts to cause each holder of trust securities of
such trust to be treated as owning an undivided beneficial interest in
the subordinated deferrable interest debentures issued to such trust.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Subordinated deferrable interest debentures of each series will be issued
in registered form and in either certificated form or represented by one or more
global securities. If not represented by one or more global securities,
subordinated deferrable interest debentures may be presented for registration of
transfer (with the form of transfer endorsed thereon duly executed) or exchange
at the office of the debt registrar or at the office of any transfer agent
designated by XL Capital for such purpose with respect to any series of
subordinated deferrable interest debentures and referred to in an applicable
prospectus supplement, without service charge and upon payment of any taxes and
other governmental charges as described in the indenture or any supplemental
indenture.
Such transfer or exchange will be effected upon the debt registrar or such
transfer agent, as the case may be, being satisfied with the documents of title
and identity of the person making the request. XL Capital has appointed the
subordinated debt trustee as debt registrar with respect to each series of
subordinated deferrable interest debentures.
If a prospectus supplement or supplemental indenture refers to any
transfer agents (in addition to the debt registrar) initially designated by XL
Capital with respect to any series of subordinated deferrable interest
debentures, XL Capital may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that XL Capital will be required to maintain a
transfer agent in each place of payment for such series. XL Capital may at any
time designate additional transfer agents with respect to any series of
subordinated deferrable interest debentures.
In the event of any redemption in part, XL Capital shall be required to:
(i) issue, register the transfer of or exchange any subordinated
deferrable interest debentures during a period beginning at the
opening of business 15 days before any selection for redemption of
subordinated deferrable interest debentures of like tenor and of the
series of which such subordinated deferrable interest debentures are a
part, and ending at the close of business on the earliest date on
which the relevant notice of redemption is deemed to have been given
to all holders of subordinated deferrable interest debentures of like
tenor and of such series to be redeemed and
(ii) register the transfer of or exchange any subordinated deferrable
interest debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any subordinated deferrable interest
debentures being redeemed in part.
Payment and Paying Agents
Unless otherwise indicated in an applicable prospectus supplement,
(i) payment of principal of and premium, if any, on any subordinated
deferrable interest debentures will be made only against surrender to
the paying agent of such subordinated deferrable interest debentures;
(ii) principal of, any premium, if any, and interest, if any, on
subordinated deferrable interest debentures will be payable, subject
to any applicable laws and regulations, at the office of such paying
agent or paying agents as XL Capital may designate from time to time,
except that, at the option
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of XL Capital, payment of any interest may be made by check mailed to
the address of the person entitled thereto as such address shall
appear in the debt register with respect to such subordinated
deferrable interest debentures; and
(iii) payment of interest on a subordinated deferrable interest debenture
on any interest payment date will be made to the person in whose name
such subordinated deferrable interest debenture (or predecessor
security) is registered at the close of business on the regular record
date for such interest payment.
The subordinated debt trustee will act as paying agent with respect to
each series of subordinated deferrable interest debentures. XL Capital may at
any time designate additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any paying agent
acts, except that XL Capital will be required to maintain a paying agent in each
place of payment for each series of subordinated deferrable interest debentures.
All moneys paid by XL Capital to a paying agent for the payment of the
principal of or premium or interest, if any, on any subordinated deferrable
interest debentures of any series which remain unclaimed at the end of two years
after such principal or premium or interest, if any, shall have become due and
payable will be repaid to XL Capital and the holder of such subordinated
deferrable interest debentures will thereafter look only to XL Capital for
payment thereof.
GLOBAL SECURITIES
If any subordinated deferrable interest debentures of a series are
represented by one or more global securities (each, a "global security"), the
applicable prospectus supplement and supplemental indenture will describe the
circumstances, if any, under which beneficial owners of interests in any such
global security may exchange such interests for subordinated deferrable interest
debentures of such series and of like tenor and principal amount in any
authorized form and denomination. Principal of and any premium, if any, and
interest on a global security will be payable in the manner described in the
applicable prospectus supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of subordinated deferrable interest debentures to be
represented by a global security will be described in the applicable prospectus
supplement and supplemental indenture.
MODIFICATION OF THE INDENTURE
The indenture contains provisions permitting XL Capital and the
subordinated debt trustee, with the consent of the holders of not less than a
majority in principal amount of the subordinated deferrable interest debentures
of each series which are affected by the modification, to modify the indenture
or any supplemental indenture affecting that series or the rights of the holders
of that series of subordinated deferrable interest debentures; PROVIDED,
HOWEVER, that no such modification may, without the consent of the holder of
each outstanding subordinated deferrable interest debenture affected thereby,
(i) extend the fixed maturity of any subordinated deferrable interest
debentures of any series, or reduce the principal amount thereof, or
reduce the rate or extend the time for payment of interest thereon, or
reduce any premium payable upon the redemption thereof;
(ii) reduce the percentage of subordinated deferrable interest debentures
the holders of which are required to consent to any such supplemental
indenture;
(iii) change the amount or time of any payment required by any sinking fund
provisions of any subordinated deferrable interest debentures;
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(iv) make any change that materially adversely affects the rights of a
holder of subordinated deferrable interest debentures to require XL
Capital to purchase a subordinated deferrable interest debenture in
accordance with the terms thereof and the applicable indenture;
(v) waive a default in the payment of the principal of or interest, if
any, on any subordinated deferrable interest debenture; or
(vi) make any subordinated deferrable interest debenture payable in money
or securities other than as stated in such subordinated deferrable
interest debenture.
In addition, XL Capital and the subordinated debt trustee may execute,
without the consent of any holder of subordinated deferrable interest
debentures, any supplemental indenture for certain other usual purposes
including:
o to cure any ambiguity, omission, defect or inconsistency;
o to make any change that does not, in the good faith opinion of XL
Capital's board of directors and the subordinated debt trustee,
adversely affect the interests of holders of such subordinated
deferrable interest debentures in any material respect;
o to provide for the assumption of XL Capital's obligations under the
indenture by a successor upon any merger, consolidation or asset
transfer permitted under the indenture;
o to establish the form or terms of any series of subordinated
deferrable interest debentures as permitted by the indenture;
o to add events of default with respect to such subordinated deferrable
interest debentures;
o to add covenants that would benefit the holders of the subordinated
deferrable interest debentures or to surrender any rights or powers XL
Capital has under the indenture;
o to make any change necessary for the registration of the subordinated
deferrable interest debentures under the Securities Act or to comply
with the Trust Indenture Act of 1939, or any amendment thereto, or to
comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act of 1939;
PROVIDED, HOWEVER, that such modification or amendment does not, in
the good faith opinion of XL Capital's board of directors and the
subordinated debt trustee, adversely affect the interests of the
holders of the subordinated deferrable interest debentures in any
material respect;
o to add to or change any of the provisions of the indenture to such
extent as shall be necessary to permit or facilitate the issuance of
the subordinated deferrable interest debentures in bearer form,
registrable or not registrable as to principal, and with or without
interest coupons;
o to change or eliminate any of the provisions of the indenture,
PROVIDED, HOWEVER, that any such change or elimination shall become
effective only when there are no subordinated deferrable interest
debentures outstanding of any series created prior to the execution of
such supplemental indenture which is entitled to the benefit of such
provision;
o to establish the form or terms of subordinated deferrable interest
debentures of any series as permitted by the indenture; or
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the subordinated deferrable interest
debentures of one or more series and to add to or change any of the
provisions of the indenture as shall be necessary to provide for or
facilitate the admin-
61
istration of the trusts under the indenture by more than one
subordinated debt trustee, pursuant to the requirements of the
indenture.
Events of default
With respect to a particular series of subordinated deferrable interest
debentures, the indenture provides (or the supplemental indenture for such
series will provide) that any one or more of the following described events
which has occurred and is continuing constitutes an "event of default" with
respect to such series of subordinated deferrable interest debentures:
(a) failure to pay interest on the subordinated deferrable interest
debentures of such series within 60 days of when due or principal of
any debt securities of such series when due (including any sinking
fund payment); or
(b) failure to perform any other agreement contained in the subordinated
deferrable interest debentures of such series or the indenture
relating to such series (other than an agreement relating solely to
another series of subordinated deferrable interest debentures) for 90
days after notice has been given to XL Capital; or
(c) certain events of bankruptcy, insolvency or reorganization of XL
Capital; or
(d) in the event subordinated deferrable interest debentures are issued to
a trust or a trustee of such trust in connection with the issuance of
trust securities by such trust, the voluntary or involuntary
dissolution, winding-up or termination of such trust, except in
connection with the distribution of subordinated deferrable interest
debentures to the holders of trust securities in liquidation of such
trust, the redemption of all of the trust securities of such trust, or
certain mergers, consolidations or amalgamations, each as permitted by
the declaration of such trust.
The holders of a majority in aggregate outstanding amount of any series of
subordinated deferrable interest debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
subordinated debt trustee for the series. The subordinated debt trustee or the
holders of not less than 25% in aggregate outstanding principal amount of any
particular series of the subordinated deferrable interest debentures may declare
the principal and interest, if any, accrued to the date of acceleration
immediately due and payable upon an event of default with respect to such
series, but the holders of a majority in aggregate outstanding principal amount
of such series may annul such declaration and waive the default with respect to
such series if the event of default has been cured, the rescission would not
conflict with any judgment or decree and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any applicable premium has been deposited with the subordinated debt trustee. If
an event of default results from the failure of XL Capital to pay when due
principal of or interest on the subordinated deferrable interest debentures
issued to a trust, during the continuance of such an event of default a holder
of trust preferred securities issued by such trust may immediately institute a
legal proceeding directly against XL Capital to obtain payment of such principal
or interest on subordinated deferrable interest debentures having a principal
amount equal to the aggregate liquidation amount of the trust preferred
securities owned of record by such holder.
The holders of a majority in aggregate outstanding principal amount of any
series of subordinated deferrable interest debentures affected thereby may, on
behalf of the holders of all the subordinated deferrable interest debentures of
such series, waive any past default, except:
(i) a default in the payment of principal, premium, if any, or interest
(unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the
subordinated debt trustee) or
62
(ii) a default in the covenants described in the first or second paragraph
under "-- Certain Covenants" above.
CONSOLIDATION, MERGER AND SALE
The indenture contains a covenant which restricts the ability of XL
Capital to merge or consolidate with or into any other corporation, sell or
convey all or substantially all of its assets to any person, firm or corporation
or otherwise engage in restructuring transactions unless (i) either XL Capital
is the successor or, if XL Capital is not the surviving person, the surviving
person assumes by supplemental indenture all of the obligations of XL Capital
under the subordinated deferrable interest debentures and the indenture; and
(ii) immediately after giving effect to such transaction, no event of default
shall have occurred and be continuing.
DEFEASANCE AND DISCHARGE
Under the terms of the indenture, XL Capital will be discharged from any
and all obligations in respect of the subordinate deferrable interest debentures
of any series (except in each case for certain obligations to register the
transfer or exchange of subordinated deferrable interest debentures, replace
stolen, lost or mutilated subordinated deferrable interest debentures, maintain
paying agencies and hold moneys for payment in trust) if either (i) all
subordinated deferrable interest debentures of such series previously
authenticated and delivered have been delivered to the trustee for cancellation
(subject to certain provisions of the indenture), or (ii) XL Capital deposits
with the subordinated debt trustee, in trust, moneys or U.S. government
obligations in an amount sufficient to pay all the principal of, and interest
on, the subordinated deferrable interest debentures of such series on the dates
such payments are due in accordance with the terms of such subordinated
deferrable interest debentures.
GOVERNING LAW
The indenture and the subordinated deferrable interest debentures will be
governed by, and construed in accordance with, the internal laws of the State of
New York.
INFORMATION CONCERNING THE SUBORDINATED DEBT TRUSTEE
The subordinated debt trustee, prior to default, undertakes to perform
only such duties as are specifically set forth in the indenture or any
supplemental indenture and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provision, the subordinated debt trustee is under no
obligation to exercise any of the powers vested in it by the indenture or any
supplemental indenture at the request of any holder of subordinated deferrable
interest debentures, unless offered reasonable indemnity by such holder against
the costs, expenses and liabilities which might by incurred thereby. The
subordinated debt trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the subordinated debt trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
XL Capital and certain of its affiliates maintain a deposit account and
banking relationship with the subordinated debt trustee. The subordinated debt
trustee serves as trustee under other indentures pursuant to which unsecured
debt securities of XL Capital are outstanding.
MISCELLANEOUS
XL Capital will have the right at all times to assign any of its rights or
obligations under the indenture or any supplemental indenture to a direct or
indirect wholly-owned subsidiary of XL Capital; PROVIDED, HOWEVER, that in the
event of any such assignment, XL Capital will remain liable for all of its
obligations thereunder. Subject to the foregoing, the indenture and any
supplemental indenture will be binding upon and inure to the benefit of the
parties thereto and their respective successors and assigns. The indenture
provides that it may not otherwise be assigned by the parties thereto.
63
PLAN OF DISTRIBUTION
XL Capital, XL Finance and the trusts may sell the securities in any of
three ways: (1) through underwriters or dealers; (2) directly to a limited
number of institutional purchasers or to a single purchaser; or (3) through
agents. Any such dealer or agent, in addition to any underwriter, may be deemed
to be an underwriter within the meaning of the Securities Act of 1933, as
amended. The terms of the offering of the securities with respect to which this
prospectus is being delivered will be set forth in the applicable prospectus
supplement and will include:
o the name or names of any underwriters, dealers or agents;
o the purchase price of such securities and the proceeds to XL Capital,
XL Finance and/or the applicable trusts from such sale;
o any underwriting discounts and other items constituting underwriters'
compensation;
o the public offering price; and
o any discounts or concessions which may be allowed or reallowed or paid
to dealers and any securities exchanges on which the securities may be
listed.
If underwriters are used in the sale of securities, such securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price or at varying prices determined at the time of
sale. The securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by one or more
underwriters acting alone. Unless otherwise set forth in the applicable
prospectus supplement, the obligations of the underwriters to purchase the
securities described in the applicable prospectus supplement will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such securities if any are so purchased by them. Any public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
The securities may be sold directly by XL Capital, XL Finance (UK) plc
and/or the applicable trusts or through agents designated by XL Capital, XL
Finance (UK) plc and/or the applicable trusts from time to time. Any agents
involved in the offer or sale of the securities in respect of which this
prospectus is being delivered, and any commissions payable by XL Capital, XL
Finance (UK) plc or the applicable trusts to such agents, will be set forth in
the applicable prospectus supplement. Unless otherwise indicated in the
applicable prospectus supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If dealers are utilized in the sale of any securities, XL Capital, XL
Finance (UK) plc and/or the applicable trusts will sell the securities to the
dealers, as principals. Any dealer may resell the securities to the public at
varying prices to be determined by the dealer at the time of resale. The name of
any dealer and the terms of the transaction will be set forth in the prospectus
supplement with respect to the securities being offered.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms, which we refer to herein as the "remarketing firms,"
acting as principals for their own accounts or as XL Capital's, XL Finance (UK)
plc's or the applicable trust's agents, as applicable. Any remarketing firm will
be identified and the terms of its agreement, if any, with XL Capital, XL
Finance (UK) plc or the applicable trust and its compensation will be described
in the applicable prospectus supplement. Remarketing firms may be deemed to be
underwriters, as that term is defined in the Securities Act of 1933, as amended,
in connection with the securities remarketed thereby.
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If so indicated in the applicable prospectus supplement, XL Capital, XL
Finance (UK) plc or the applicable trust will authorize agents, underwriters or
dealers to solicit offers by certain specified institutions to purchase the
securities to which this prospectus and the applicable prospectus supplement
relates from XL Capital, XL Finance (UK) plc or the applicable trust at the
public offering price set forth in the applicable prospectus supplement, plus,
if applicable, accrued interest, pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject only to those conditions set forth in the applicable
prospectus supplement, and the applicable prospectus supplement will set forth
the commission payable for solicitation of such contracts.
Underwriters will not be obligated to make a market in any securities. No
assurance can be given regarding the activity of trading in, or liquidity of,
any securities.
Agents, dealers, underwriters and remarketing firms may be entitled, under
agreements entered into with XL Capital, XL Finance (UK) plc or the applicable
trusts to indemnification by XL Capital, XL Finance (UK) plc or the applicable
trust against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribution to payments they may be
required to make in respect thereof. Agents, dealers, underwriters and
remarketing firms may be customers of, engage in transactions with, or perform
services for, XL Capital, XL Finance (UK) plc and/or the applicable trusts in
the ordinary course of business.
Each series of securities will be a new issue and, other than the ordinary
shares, which are listed on the New York Stock Exchange, will have no
established trading market. We may elect to list any series of securities on an
exchange, and in the case of the ordinary shares, on any additional exchange,
but, unless otherwise specified in the applicable prospectus supplement, we
shall not be obligated to do so. No assurance can be given as to the liquidity
of the trading market for any of the securities.
Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for, us and our subsidiaries
(including XL Finance (UK) plc and the Trusts) in the ordinary course of
business.
LEGAL MATTERS
Certain legal matters with respect to the securities will be passed upon
for us by Cahill Gordon & Reindel, New York, New York. Certain legal matters
with respect to the securities under the laws of the Cayman Islands will be
passed upon for us by Hunter & Hunter, Grand Cayman, Cayman Islands. Certain
English legal matters will be passed upon for XL Finance (UK) plc and XL Capital
by Slaughter & May, London, England. Certain matters of Delaware law relating to
the validity of the trust preferred securities will be passed upon on behalf of
the trusts by Richards, Layton & Finger, P.A., Wilmington, Delaware, special
Delaware counsel to the trusts.
EXPERTS
The consolidated financial statements of XL Capital and our subsidiaries
as of December 31, 2000 and 1999 and for the three years ended December 31,
2000, incorporated by reference in this prospectus from our Annual Report on
Form 10-K for the year ended December 31, 2000, have been audited by
PricewaterhouseCoopers LLP, independent auditors, as stated in their report,
which is incorporated herein by reference.
The consolidated financial statements of Winterthur International as of
and for December 31, 2000, incorporated by reference in this prospectus from our
current report on Form 8-K, dated July 25, 2001, filed on August 9, 2001, have
been audited by KPMG Audit Plc, independent auditors, as stated in their report,
which is incorporated in this prospectus by reference.
65
ENFORCEMENT OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
XL Capital is a Cayman Islands company. XL Finance is a public limited
company under the laws of England and Wales. In addition, some of their
respective officers and directors, as well as some of the experts named in this
prospectus, reside outside the United States, and all or much of their assets
are or may be located in jurisdictions outside of the United States. Therefore,
investors may have difficulty effecting service of process within the United
States upon those persons or recovering against XL Capital, XL Finance or them
on judgments of United States courts, including judgments based upon the civil
liability provisions of the United States federal securities laws. However,
investors may serve XL Capital or XL Finance with process in the United States
with respect to actions against it arising out or of in connection with
violations of United States federal securities laws relating to offers and sales
of the securities covered by this prospectus by serving CT Corporation System,
111 Eighth Avenue, New York, New York 10011, its United States agent irrevocably
appointed for that purpose.
XL Capital has been advised by Hunter & Hunter, its Cayman Islands
counsel, that although there is no statutory enforcement in the Cayman Islands
of judgments obtained in the courts of the United States of America (or any
political subdivision thereof), a final and conclusive judgment in personam of
such courts having competent jurisdiction for a debt or definite sum of money
would be recognized and enforced by the courts of the Cayman Islands by
originating action on such judgment provided that the debt or sum of money is
not a sum payable in respect of taxes or other charges of a like nature or in
respect of a fine or other similar penalty and provided that the judgment was
obtained without fraud or without breaching the principles of natural justice in
the Cayman Islands or in contravention of Cayman Islands public policy. A Cayman
Islands court may stay proceedings if concurrent proceedings are being brought
elsewhere.
66
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No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
XL Capital Ltd .............................................................................. S-2
Recent Developments ......................................................................... S-3
The Offering ................................................................................ S-5
Use of Proceeds ............................................................................. S-5
Summary Consolidated Financial,
Operating and Supplemental Data .......................................................... S-6
Capitalization .............................................................................. S-8
Price Range of Ordinary Shares and Dividends ................................................ S-9
Certain Tax Considerations .................................................................. S-10
Underwriting ................................................................................ S-17
Legal Matters ............................................................................... S-18
Cautionary Note Regarding Forward-
Looking Statements ....................................................................... S-19
Incorporation of Documents
by Reference ............................................................................. S-19
Prospectus
About This Prospectus ....................................................................... 2
Where You Can Find More Information ......................................................... 2
Incorporation of Documents by Reference ..................................................... 3
XL Capital Ltd .............................................................................. 4
XL Finance (UK) plc ......................................................................... 5
The Trusts .................................................................................. 5
Use of Proceeds ............................................................................. 6
Accounting Treatment Relating to Trust Securities ........................................... 6
Ratio of Earnings to Fixed Charges and Preference Ordinary Share Dividends .................. 6
General Description of the Offered Securities ............................................... 7
Description of XL Capital Share Capital ..................................................... 7
Description of XL Capital
Preference Ordinary Shares ............................................................... 7
Description of XL Capital Ordinary Shares ................................................... 11
Description of XL Capital Ordinary
Share Warrants ........................................................................... 13
Description of XL Capital Ordinary Share Purchase Contracts and Ordinary Share Purchase Units 15
Description of XL Capital Debt Securities ................................................... 15
Description of XL Finance (UK) plc
Senior Debt Securities ................................................................... 28
Description of the Trust Preferred Securities ............................................... 39
Description of the Trust Preferred
Securities Guarantee ..................................................................... 53
Description of the Subordinated
Deferrable Interest Debentures ........................................................... 56
Plan of Distribution ........................................................................ 64
Legal Matters ............................................................................... 65
Experts ..................................................................................... 65
Enforcement of Civil Liabilities
Under United States Federal Securities Laws .............................................. 66
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8,000,000 Shares
XL CAPITAL LTD
Class A Ordinary Shares
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[XL LOGO]
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GOLDMAN, SACHS & CO.
MORGAN STANLEY
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
JPMORGAN
MERRILL LYNCH & CO.
Representatives of the Underwriters
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