AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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XL CAPITAL LTD
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 98-0191098
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
XL HOUSE
ONE BERMUDIANA ROAD CT CORPORATION SYSTEM
HAMILTON HM11 111 EIGHTH AVENUE
BERMUDA NEW YORK, NEW YORK 10011
(441) 292-8515 (212) 590-9200
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive office) including area code, of agent for service)
COPIES TO:
PAUL S. GIORDANO, ESQ. IMMANUEL KOHN, ESQ.
EXECUTIVE VICE PRESIDENT, GARY W. WOLF, ESQ.
GENERAL COUNSEL AND SECRETARY CAHILL GORDON & REINDEL
XL CAPITAL LTD 80 PINE STREET
(414) 292-8515 NEW YORK, NEW YORK 10005-1702
(212) 701-3000
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Approximate date of commencement of proposed sale to the public: From time to
time after the registration statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [X]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
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XL Capital Ltd Class A
Ordinary Shares (2) 1,000,000 $89.38 $89,380,000 $21,363.01
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended
and based on the average of the high and low prices reported for the Class
A Ordinary Shares on January 14, 2002, which was $89.380 per share, as
reported on the consolidated reporting system of the New York Stock
Exchange.
(2) Includes XL Capital Ltd Ordinary Share Purchase Rights which are issued
with the XL Capital Ltd Ordinary Shares for no additional consideration.
PROSPECTUS
XL CAPITAL LTD
DIVIDEND REINVESTMENT AND
SHARE PURCHASE PLAN
1,000,000 CLASS A ORDINARY SHARES
With this prospectus, we are offering participation in our Dividend
Reinvestment and Share Purchase Plan to record holders of our Class A Ordinary
Shares (which are sometimes referred to in this prospectus as Ordinary Shares).
We have appointed Mellon Bank, N.A. as the Administrator of the Plan. The Plan
provides a simple, convenient and low-cost means of investing in our Ordinary
Shares.
PLAN HIGHLIGHTS:
o You may participate in the Plan if you currently are a registered
owner of our Ordinary Shares.
o You may purchase additional Ordinary Shares by automatically
reinvesting all or a portion of the cash dividends paid on your
Ordinary Shares.
o You may purchase additional Ordinary Shares by making additional cash
investments of up to $200,000 annually, with a minimum investment of
$25.00.
o You may deposit your Ordinary Shares certificates, at no cost, with
the Administrator for safekeeping.
PURCHASE PRICE:
o For purchases of shares on the open market, whether with reinvested
dividends or additional cash investments, 100% of the weighted average
of all shares purchased for the Plan for the relevant investment date.
o For purchases of newly issued shares with reinvested dividends, 100%
of the three day average trading price on the NYSE immediately
preceding the dividend payment date.
o For purchases of newly issued shares with additional cash investments,
100% of the average trading price on the NYSE on the relevant
investment date.
We have the sole discretion to determine whether shares purchased under
the Plan will come from the authorized but unissued Ordinary Shares or from
shares purchased on the open market by the Administrator. We may also change the
prices at which shares may be purchased, in which case Plan participants will be
notified of the new prices. Please see "Commonly Asked Questions--What is the
source and price of shares purchased under the Plan?" for more information.
Our Ordinary Shares are traded on the NYSE under the ticker symbol "XL".
NEITHER THE 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.
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THE DATE OF THIS PROSPECTUS IS JANUARY 18, 2002
TABLE OF CONTENTS
PAGE
PLAN OVERVIEW
Information About XL Capital .................................................. 1
Plan Overview ................................................................. 1
KEY FEATURES OF THE PLAN ............................................................ 2
COMMONLY ASKED QUESTIONS
How can I participate in the Plan? ............................................ 3
How do I get started? ......................................................... 3
What is the source and price of shares purchased under the Plan? .............. 3
How and when are dividends reinvested? ........................................ 3
How do I make additional investments? ......................................... 4
When will shares be purchased with additional cash investments? ............... 4
Will I receive certificates for shares purchased? ............................. 4
What is safekeeping? .......................................................... 4
Can I get certificates if I want them? ........................................ 4
How can I transfer or give gifts of shares? ................................... 4
How do I sell shares? ......................................................... 5
What are the costs? ........................................................... 5
What about taxes? ............................................................. 5
How can I vote my shares? ..................................................... 5
What provisions are made for non-U.S residents? ............................... 5
How will I keep track of my investments? ...................................... 6
How would I terminate my participation? ....................................... 6
Can the Plan be modified, terminated or suspended? ............................ 6
What happens if there are share splits, share dividends or other distributions? 6
Can I lose my eligibility to participate? ..................................... 6
What if I have questions about the Plan? ...................................... 6
MISCELLANEOUS
Use of Proceeds ............................................................... 8
Certain Tax Considerations .................................................... 8
Cautionary Note Regarding Forward-Looking Statements .......................... 14
Where You Can Find More Information ........................................... 15
Incorporation of Documents by Reference ....................................... 15
Experts ....................................................................... 16
Enforcement of Civil Liabilities Under United States Federal Securities Laws .. 16
PLAN SERVICE FEES ................................................................... 17
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 securities 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.
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.
PLAN OVERVIEW
INFORMATION ABOUT XL CAPITAL
In this prospectus, unless the context otherwise requires, "we," "us,"
"our," and "XL Capital" refers to 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 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.XL Capital.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."
PLAN OVERVIEW
The Dividend Reinvestment and Share Purchase Plan (the "Plan") offers you
a variety of convenient services to make it easier for you to invest in the
Class A Ordinary Shares of XL Capital. The Plan has various features and you can
choose the Plan features that meet your investment needs. The terms and
conditions of the Plan are set forth in this prospectus. XL Capital has
appointed Mellon Bank, N.A. (the "Administrator") to administer the Plan, and
certain administrative support will be provided to the Administrator by Mellon
Investor Services, a registered transfer agent. Together, the Administrator and
its affiliates will purchase and hold Ordinary Shares for Plan participants,
keep records, send statements and perform other duties required by the Plan.
The Plan is designed for long-term investors who wish to invest and build
their share ownership over time. The Plan offers a convenient and economical
means to own shares. XL Capital will pay all costs in connection with the
purchase of shares on your behalf under the Plan. UNLIKE AN INDIVIDUAL STOCK
BROKERAGE ACCOUNT, THE TIMING OF PURCHASES AND SALES IS SUBJECT TO THE
PROVISIONS OF THE PLAN, AS DISCUSSED IN THE QUESTIONS NUMBERED 1 THROUGH 21.
Only registered holders of XL Capital Class A Ordinary Shares can
participate in the Plan. If you are a beneficial owner of shares in a brokerage
account and wish to reinvest your dividends, you can request that your shares
become registered in your own name, or make arrangements with your broker or
nominee to participate on your behalf. The Plan provides you with the
opportunity to reinvest dividends and an alternative to traditional methods of
purchasing, holding and selling our Ordinary Shares.
Read on for a more detailed description of the features of our Dividend
Reinvestment and Share Purchase Plan. If you would like to participate in the
Plan, you can enroll online via Investor ServiceDirect(SM) or by completing the
enclosed Enrollment Form and mailing it to the Administrator in the envelope
provided. Please see question number 21 for information on how to access
Investor ServiceDirect(SM).
1
KEY FEATURES OF THE PLAN
WHO CAN PARTICIPATE
All registered owners of XL Capital Class A Ordinary Shares are eligible
to participate in the Plan.
ADDITIONAL CASH INVESTMENTS
As a Plan participant, you can buy XL Capital Ordinary Shares without
paying the fees and commissions typically charged by stockbrokers for small
transactions. XL Capital will pay all costs in connection with the purchase of
shares on your behalf under the Plan. You can purchase up to $200,000 annually
with a minimum purchase requirement of $25.00 per investment. You may pay by
check or have your payment automatically deducted from your bank account.
CONVENIENT SHARE SALES
You can sell XL Capital Ordinary Shares and pay fees lower than those
typically charged by stockbrokers for small transactions.
FULL INVESTMENT
Full investment of your funds is possible because you will be credited
with both whole shares and fractional shares. Dividends will be paid not only on
whole shares but also proportionately on fractional shares.
DIVIDEND REINVESTMENT
You can reinvest all or a portion of your dividends in additional XL
Capital Ordinary Shares, or the Administrator will remit any dividends to you
either by check or by automatic deposit to a bank account you designate.
SHARE SAFEKEEPING
You can deposit your XL Capital Ordinary Shares certificates with the
Administrator for safekeeping, at no cost to you. You can also request
withdrawal of any or all of your whole shares at any time and a certificate for
those shares will be sent to you.
GIFTS AND OTHER SHARE TRANSFERS
You can make gifts or other transfers of XL Capital Ordinary Shares you
hold in your Plan account.
TRANSACTION REPORTING
You will receive a notice after each transaction showing the details and
the share balance in your Plan account.
2
COMMONLY ASKED QUESTIONS
1. HOW CAN I PARTICIPATE IN THE PLAN?
If you own XL Capital Ordinary Shares and the shares are registered in your
name, you may participate immediately. If your shares are held for you in a
brokerage account, you may participate by instructing your broker to
transfer your Ordinary Shares into your own name, or make arrangements with
the broker to participate on your behalf. If you live outside the U.S.,
please refer to question number 15.
2. HOW DO I GET STARTED?
You can get started in the Plan by enrolling online through Investor
ServiceDirect(SM), or by completing the enclosed Enrollment Form, along
with the items required, and mailing them to the Administrator in the
envelope provided. Your participation will begin promptly after your
authorization is received. Once you have enrolled, your participation
continues automatically, as long as you wish. Please see question number 21
for information on how to access Investor ServiceDirect(SM).
3. WHAT IS THE SOURCE AND PRICE OF SHARES PURCHASED UNDER THE PLAN?
XL Capital has the sole discretion to determine whether shares purchased
under the Plan will come from its authorized but unissued Ordinary Shares
or from shares purchased on the open market by the Administrator. XL
Capital may also choose to sell treasury shares under the Plan, in which
event such shares will be sold for the same prices as authorized but
unissued Ordinary Shares.
The price of authorized but unissued Ordinary Shares purchased with
reinvested dividends will be 100% of the average of the high and low
trading prices of the Ordinary Shares on the New York Stock
Exchange--Composite Transactions for the three trading days immediately
preceding the dividend payment date. The price of authorized but unissued
Ordinary Shares purchased with additional cash investments will be 100% of
the average of the high and low trading prices of the Ordinary Shares on
the New York Stock Exchange--Composite Transactions for the respective
investment date.
The price of Ordinary Shares purchased on the open market, whether with
reinvested dividends or additional cash investments, will be 100% of the
weighted average of all shares purchased for the Plan for the respective
investment date.
XL Capital may change the prices at which Ordinary Shares may be purchased,
in which case the Plan participants will be notified of the new prices.
Dividends are reinvested at no cost to you. XL Capital will pay all of the
costs in connection with your purchase of shares with reinvested dividends
or with additional cash payments.
4. HOW AND WHEN ARE DIVIDENDS REINVESTED?
You may choose to reinvest all or a portion of the dividends on XL Capital
Ordinary Shares you own in additional XL Capital Ordinary Shares.
You may change your election at any time by notifying the Administrator. To
be effective with respect to a particular dividend, any such election or
change must be received by the Administrator on or before the record date
for that dividend.
Of course, you may choose not to reinvest any of your dividends, in which
case the Administrator will remit any dividends to you by check or
electronic deposit.
The Administrator will invest dividends in whole and fractional Ordinary
Shares on the dividend payment date. No interest will be paid on funds held
by the Administrator pending investment.
3
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. Dividends have been paid on a quarterly basis. 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.
5. HOW DO I MAKE ADDITIONAL INVESTMENTS?
If you already own XL Capital Ordinary Shares and are enrolled in the Plan
and want to make additional purchases, you may authorize an individual
automatic deduction from your bank account through Investor
ServiceDirect(SM) or you may send a check to the Administrator for each
purchase. Submit your check with the contribution form on your Plan
statement and mail it to the Administrator at the address specified on the
statement. Or, if you wish to make regular monthly purchases, you may
authorize automatic monthly deductions from your bank account. This feature
enables you to make ongoing investments in an amount that is comfortable
for you, without having to write a check. Additional cash investments are
subject to a minimum purchase requirement of $25.00 per investment and a
maximum of $200,000 annually.
6. WHEN WILL SHARES BE PURCHASED WITH ADDITIONAL CASH INVESTMENTS?
Upon receipt of the funds, the Administrator will invest additional cash
investments in whole and fractional shares as promptly as practicable, at
least once every five business days. No interest will be paid on funds held
by the Administrator pending investment.
7. WILL I RECEIVE CERTIFICATES FOR SHARES PURCHASED?
No, because the Plan provides for share safekeeping. For your convenience,
shares purchased under the Plan will be maintained by the Administrator in
your name in non-certificated (book entry) form. You may, however, request
a stock certificate from the Administrator at any time, free of charge.
8. WHAT IS SAFEKEEPING?
Ordinary Shares that you buy under the Plan will be maintained in your Plan
account in non-certificated form for safekeeping.
If you own XL Capital Ordinary Shares in certificated form, you may deposit
your certificates for those shares with the Administrator free of charge.
Certificates forwarded to the Administrator by registered mail will be
automatically covered by an Administrator blanket bond up to the first
$100,000 of value. Safekeeping protects your shares against loss, theft or
accidental destruction. Safekeeping also provides a convenient way for you
to keep track of your shares. Only shares held in safekeeping may be sold
through the Plan.
9. CAN I GET CERTIFICATES IF I WANT THEM?
Yes. If you should ever want a stock certificate for all or a portion of
the whole shares in your Plan account, the Administrator will send one to
you, upon your request. The Administrator will mail a certificate to you
within four business days of your request.
10. HOW CAN I TRANSFER OR GIVE GIFTS OF SHARES?
You may transfer or give gifts of XL Capital Ordinary Shares held in your
Plan account to anyone you choose by contacting the Administrator and
requesting a Gift/Transfer Form. After the transfer or gift purchase is
completed, upon your request, the Administrator will send you a
non-negotiable gift announcement, which you can present to the recipient. A
notice indicating the transfer of XL Capital Ordinary Shares will also be
forwarded to the recipient.
4
11. HOW DO I SELL SHARES?
You can sell your Plan shares at any time by contacting the Administrator.
Your sale request will be processed and your shares will, subject to market
conditions and other factors, generally be sold within 24 hours of receipt
and processing of your request. Please note that the Administrator cannot
and does not guarantee the actual sale date or price, nor can it stop or
cancel any outstanding sales or issuance requests. All requests are final.
The Administrator will mail a check to you (less applicable sales fees as
set forth on the Plan fee schedule) on settlement date, which is three
business days after your shares have been sold.
Alternatively, you may choose to sell your shares through a stockbroker of
your choice, in which case you would have to request a certificate for your
shares from the Administrator prior to such sale. See question number 9 for
instructions on how to obtain a certificate.
12. WHAT ARE THE COSTS?
There is no fee for enrolling in or reinvesting dividends through the Plan
or for the purchase of shares with additional cash investments. XL Capital
will pay any brokerage commission, or other fees or expenses incurred in
connection with purchases of shares on your behalf. Participation is
voluntary and you may discontinue your participation at any time. However,
there are fees associated with some of the Plan's services. Please refer to
the Plan fee schedule for more information on fees.
13. WHAT ABOUT TAXES?
The full fair market value of the shares on the date purchased with
reinvested dividends will be taxable as dividend income to you. In addition
to the reinvested dividends being taxable, the amount of brokerage
commissions, mark-ups or other fees or expenses incurred by XL Capital on
your behalf in connection with purchases of XL Capital Ordinary Shares on
the open market will also be taxable as dividend income to you in the year
the shares are purchased.
Dividends paid to corporate shareholders will not be eligible for the
corporate dividends received deduction.
Your tax basis in the additional shares acquired under the XL Plan will be
equal to the purchase price of such shares and your holding period for the
shares will commence on the date following purchase.
The Administrator will send a Form 1099-DIV to you and the Internal Revenue
Service after each year end reporting all dividend income you received
during the year on your XL Capital Ordinary Shares (consisting of all
dividends and applicable additional income, and transaction or trading fees
paid on your behalf by XL Capital). If you sell shares through the Plan,
the Administrator will send a Form 1099-B to you and the Internal Revenue
Service after year end, showing the total proceeds of the transactions. We
recommend that you keep your transaction statements, which are helpful for
record keeping and tax purposes.
Please refer to the section "Certain Tax Considerations" for further
information.
14. HOW CAN I VOTE MY SHARES?
You will receive proxy material for all of your shares, and your shares
will be voted in accordance with your direction. If you wish, you may vote
your shares in person at shareholder meetings.
15. WHAT PROVISIONS ARE MADE FOR NON-U.S. RESIDENTS?
Cash investments from non-U.S. residents must be in United States currency
and will be invested in the same manner as investments from other
participants. Each participant is responsible for reviewing the applicable
laws of his or her country of residence prior to investing in XL Capital
Ordinary Shares.
5
You should determine if there are any laws or governmental regulations that
would prohibit your participation in the Plan. XL Capital reserves the
right to terminate participation of any stockholder if it deems it
advisable under any foreign laws or regulations. Dividends on XL Capital
Ordinary Shares generally will not be subject to U.S. withholding tax.
Please refer to the section "Certain Tax Considerations" for further
information.
16. HOW WILL I KEEP TRACK OF MY INVESTMENTS?
The Administrator will send a transaction notice or statement confirming
the details of each transaction you make. If you continue to have shares
held in the Plan but have no transactions, the Administrator will send you
a statement only upon your request.
17. HOW WOULD I TERMINATE MY PARTICIPATION?
You may discontinue the reinvestment of your dividends at any time by
giving notice to the Administrator. To be effective for a given dividend
payment, the Administrator must receive notice before the record date of
that dividend. The Administrator will continue to hold your shares unless
you request a certificate for any full shares and a check for any
fractional share. You may also request the sale of all or part of any such
shares. See question number 11.
18. CAN THE PLAN BE MODIFIED, TERMINATED OR SUSPENDED?
XL Capital reserves the right to suspend, modify or terminate the Plan at
any time. You will receive notice of any such suspension, modification or
termination. XL Capital also reserves the right, subject to taking any
required legal action, to amend the Plan at any time to permit
participation in the Plan by persons who are not registered owners of our
Ordinary Shares. Both the Administrator and we reserve the right to change
any administrative procedures of the Plan.
XL Capital may also change the prices at which Ordinary Shares may be
purchased, in which case the Plan participants will be notified of the new
prices.
19. WHAT HAPPENS IF THERE ARE SHARE SPLITS, SHARE DIVIDENDS OR OTHER
DISTRIBUTIONS?
In the event dividends are paid in XL Capital Ordinary Shares, or if shares
are distributed in connection with any split of our shares or similar
transaction, your account will be adjusted to reflect the receipt of the
Ordinary Shares so paid or distributed.
20. CAN I LOSE MY ELIGIBILITY TO PARTICIPATE?
XL Capital reserves the right to deny, suspend or terminate participation
by a shareholder who is using the Plan for purposes inconsistent with the
intended purpose of the Plan or for any other reason. In such event, XL
Capital will notify you and the Administrator will continue to safekeep
your shares but will no longer accept additional investments or reinvest
your dividends. The Administrator will sell your shares or issue a
certificate to you upon your request.
XL Capital may also aggregate all Plan accounts that it believes to be
under common control or management or to have common ultimate beneficial
ownership and to return any amounts (without interest) in excess of the
investment limitation applicable to a single account received in respect of
all such accounts.
21. WHAT IF I HAVE QUESTIONS ABOUT THE PLAN?
Any questions you have about purchasing or selling or any other services
offered by the Plan, should be made directly to the Administrator, through
the following:
6
INTERNET
You can obtain information about your XL Capital account on-line via
Investor ServiceDirect(SM). To gain access, you will require a password which
you may establish when you visit the website. If you have forgotten your
password, call 1-877-978-7778 to have it reset.
To access Investor ServiceDirect(SM) please visit the Mellon Investor
Services website at:
www.melloninvestor.com
TELEPHONE
Telephone stockholder customer service, including sale of shares,
toll-free within the United States and Canada:
1-800-756-3353 (in the United States and Canada)
1-800-231-5469 (for the hearing impaired) (TDD)
1-201-329-8660 (outside of the United States and Canada)
An automated voice response system is available 24 hours a day, 7 days a
week. CUSTOMER SERVICE REPRESENTATIVES are available from 9:00 a.m. to 7:00
p.m., Eastern Standard Time, Monday through Friday (except holidays).
IN WRITING
You may also write to the Administrator at the following address.
Send correspondence and all requests except Additional Cash Investments
to:
MELLON INVESTOR SERVICES
P.O. BOX 3338
SOUTH HACKENSACK, NJ 07606-1938
Send Additional Cash Investments only to:
MELLON INVESTOR SERVICES
INVESTMENT SERVICES
P.O. BOX 382009
PITTSBURGH, PA 15250-8009
Be sure to include your name, address, daytime phone number, social
security or tax I.D. number and a reference to XL Capital on all correspondence.
NOTE: THE XL CAPITAL LTD DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN IS
DESIGNED FOR THE LONG-TERM INVESTOR AND DOES NOT AFFORD THE SAME FLEXIBILITY AS
A STOCKBROKER'S ACCOUNT.
Neither XL Capital nor the Administrator will be liable for any act they
do in good faith or for any good faith omission to act.
Neither XL Capital nor the Administrator can assure you a profit or
protect you against a loss on the shares you purchase under the Plan.
XL CAPITAL ORDINARY SHARES ARE LISTED ON THE
NEW YORK STOCK EXCHANGE AND TRADE UNDER THE TICKER SYMBOL "XL".
7
MISCELLANEOUS
USE OF PROCEEDS
If shares are purchased on the open market, we will not receive any
proceeds. If purchases of shares are made directly from us, we intend to use the
net proceeds for general corporate purposes, which may include share repurchases
and acquisitions. Any such share repurchases will be based on prevailing market
conditions.
CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of XL Capital and its Bermuda
insurance and reinsurance subsidiaries (the "Insurance Subsidiaries") and the
taxation of shareholders of XL Capital 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 and the Insurance Subsidiaries--Bermuda" and
"Taxation of Shareholders--Bermuda Taxation" is based upon the advice of Bermuda
legal counsel, (ii) under "Taxation of XL Capital and the Insurance
Subsidiaries--Cayman Islands" and "Taxation of Shareholders--Cayman Islands
Taxation" is based upon the advice of Hunter and Hunter, Cayman Islands legal
counsel, and (iii) under "Taxation of XL Capital and the Insurance
Subsidiaries--United States" and "Taxation of Shareholders--United States
Taxation of 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 "related
person insurance income" ("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's business or activities). The summary is based upon current law and is
for general information only. The tax treatment of a holder of XL Capital
Ordinary Shares, or of a person treated as a holder of XL Capital 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 XL Capital
Ordinary Shares. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF OWNING
XL CAPITAL ORDINARY SHARES.
TAXATION OF XL CAPITAL AND THE INSURANCE SUBSIDIARIES
BERMUDA
The Insurance Subsidiaries have 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 and the Insurance Subsidiaries 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 the Insurance Subsidiaries. XL Capital, 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 and the
Insurance Subsidiaries are required to pay certain annual Bermuda government
fees and the Insurance Subsidiaries, additionally, are required to pay certain
business fees as insurers under The Insurance Act 1978 of Bermuda. Currently
there is no Bermuda withholding tax on dividends paid by the Insurance
Subsidiaries to XL Capital.
CAYMAN ISLANDS
Under current Cayman Islands law, XL Capital is not obligated to pay any
taxes in the Cayman Islands on its income or gains. XL Capital has received an
undertaking from the Governor-in-Council of the
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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 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.
Under current law no tax will be payable on the transfer or other disposition of
the shares of XL Capital. The Cayman Islands currently impose stamp duties on
certain categories of documents; however, the current operations of XL Capital
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.
UNITED STATES
XL Capital and the Insurance Subsidiaries take the position 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 treasury regulations or court decisions, there can be no assurance
that the Internal Revenue Service ("IRS") will not contend successfully that XL
Capital or one or more of its subsidiaries, including the Insurance
Subsidiaries, 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 treasury 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 income tax and making certain
other adjustments.
Under the income tax treaty between Bermuda and the United States (the
"Treaty"), a foreign corporation 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 does not believe that any of the Insurance
Subsidiaries have a permanent establishment in the United States. An Insurance
Subsidiary would not be entitled to the benefits of the Treaty if (i) less than
50% of XL Capital's stock were beneficially owned, directly or indirectly, by
Bermuda residents or U.S. citizens or residents, or (ii) such subsidiary'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. There can be no assurances that each of the Insurance
Subsidiaries will be eligible for Treaty benefits because of factual and legal
uncertainties regarding the residency and citizenship of XL Capital's
shareholders.
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 with respect to risks located in the United
States. The rates of tax applicable to premiums paid to a Bermuda insurance
company are 4% for casualty insurance premiums and 1% for reinsurance premiums.
In general, premiums paid to the Insurance Subsidiaries for periods prior to
1990 were exempt from the excise tax.
9
TAXATION OF SHAREHOLDERS
The following summary sets forth certain United States federal income tax
considerations related to the purchase, ownership and disposition of XL Capital
Ordinary Shares. Unless otherwise stated, this summary deals only with
shareholders that are United States Persons (as defined below) who hold their
XL Capital 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 XL Capital 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
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and any relevant administrative rulings or pronouncements
or judicial decisions, all as in effect on the date hereof and as currently
interpreted, and does not take into account possible changes in such tax laws or
interpretations thereof, which may apply retroactively. This discussion does not
include any description of the tax laws of any state or local governments within
the United States, or of any foreign government, that may be applicable to the
XL Capital Ordinary Shares or the shareholders. Persons considering making an
investment in XL Capital 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 XL Capital 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 XL Capital
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 are not subject to Cayman Islands withholding
tax.
BERMUDA TAXATION
Currently, there is no Bermuda withholding tax on dividends paid by XL
Capital to shareholders who are not ordinarily resident in Bermuda.
UNITED STATES TAXATION OF US. SHAREHOLDERS
RELATED PERSON INSURANCE INCOME. The following discussion generally is
applicable only if the RPII of a non-U.S. insurance subsidiary of XL Capital,
determined on a gross basis, is 20% or more of the subsidiary's gross insurance
income for the taxable year. The following discussion generally would not apply
for any fiscal year in which the subsidiary's RPII falls below the 20%
threshold. XL Capital believes that the gross RPII of each of its non-U.S.
insurance subsidiaries as a percentage of gross insurance income is, and will
continue to be, below the 20% threshold.
10
CLASSIFICATION OF XL CAPITAL AND ITS NON-U.S. SUBSIDIARIES AS CONTROLLED
FOREIGN CORPORATIONS. 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
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 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 by reference to its
non-U.S. insurance subsidiaries on an unconsolidated basis, without reference to
the income of investment subsidiaries. XL Capital 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 its non-U.S. insurance subsidiaries 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 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 Capital's stock. A non-U.S. insurance subsidiary of XL
Capital will be treated as a CFC if such persons are treated as owning 25% or
more of the stock of such subsidiary.
In determining the "United States shareholders" of XL's non-U.S. insurance
subsidiaries, stock held indirectly by U.S. persons through XL Capital 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 are not treated as "United States shareholders" of XL's non-U.S.
insurance subsidiaries.
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 a non-U.S. insurance subsidiary of XL Capital,
(B) RPII, determined on a gross basis, is less than 20% of such subsidiary's
gross insurance income for the taxable year, (C) such subsidiary 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) such subsidiary 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 (and
therefore, indirectly, in XL's non-U.S. insurance subsidiaries) on
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the last day of XL Capital'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 the insurance subsidiary'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's non-U.S.
insurance subsidiaries have earned in each fiscal year, XL Capital 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 and are
U.S. persons. For any year in which the gross RPII of a non-U.S. insurance
subsidiary of XL Capital is 20% or more of such subsidiary's gross insurance
income for the year, XL Capital may also seek information from its shareholders
as to whether beneficial owners of XL Capital 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 is unable to determine
whether a beneficial owner of shares is a U.S. person XL Capital 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.
APPORTIONMENT OF RPII TO U.S. SHAREHOLDERS. Every U.S. person who owns XL
Capital Ordinary Shares on the last day of any fiscal year of XL Capital in
which the gross insurance income of a non-U.S. insurance subsidiary of XL
Capital constituting RPII for that year equals or exceeds 20% of such
subsidiary's gross insurance income should expect that for such year it will be
required to include in gross income its share of such subsidiary'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 XL Capital 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 such subsidiary's RPII.
BASIS ADJUSTMENTS. A U.S. shareholder's tax basis in its XL Capital
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 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 XL Capital Ordinary Shares will be reduced by the
amount of such distributions that are excluded from income.
DISPOSITIONS OF XL Capital 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) is not a CFC but
the foreign corporation has a subsidiary that is a CFC or that would be taxed as
an insurance company if it were a domestic corporation.
XL Capital believes, based on the advice of counsel, that Code section 1248
and the requirement to file Form 5471 will not apply to dispositions of
XL Capital Ordinary Shares because XL Capital does not have any 10% shareholders
and XL Capital 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
12
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 section 1248 and the requirement to
file Form 5471 will apply to dispositions of XL Capital Ordinary Shares.
If the IRS or Treasury Department were to take such action, XL Capital
would notify shareholders that Code section 1248 and the requirement to file
Form 5471 will apply to dispositions of XL Capital Ordinary Shares. Thereafter,
XL Capital 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 XL Capital Ordinary
Shares. XL Capital 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 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 amounts of the
RPII inclusions will not be subject to adjustment based upon subsequent IRS
examination. Each U.S. person 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 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 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 believes that under the look through rule
XL Capital 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 qualifies for the aforementioned insurance exception. XL
Capital 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 gener-
13
ally 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's investment
subsidiaries meets the definition of a PFIC, if XL Capital is not a PFIC, the
PFIC statutory provisions state that a shareholder of XL Capital 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'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 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 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 XL
Capital Ordinary Shares to U.S. persons. Thus, a holder of XL Capital 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, XL Capital Ordinary Shares only
if such dividends or gains are effectively connected with the conduct of a trade
or business within the United States.
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, 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", "estimate", "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 from the terrorist loss events at the
World Trade Center and in Washington, D.C. and Pennsylvania on September 11,
2001 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) our estimates of our exposure to Enron may
change due to the still developing nature of the situation with respect to Enron
and the related bankruptcy proceedings; (vi) ineffective-
14
ness or obsolescence of our business strategy due to changes in current or
future market conditions; (vii) increased competition on the basis of pricing,
capacity, coverage terms or other factors; (viii) 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; (ix) developments in
the world's financial and capital markets which adversely affect the performance
of our investments and our access to such markets; (x) availability of
borrowings and letters of credit under our credit facilities; (xi) changes in
regulation or tax laws applicable to us, our subsidiaries, brokers or customers;
(xii) acceptance of our products and services, including new products and
services; (xiii) changes in the availability, cost or quality of reinsurance;
(xiv) changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; (xv) loss of key personnel;
(xvi) the effects of mergers, acquisitions and divestitures including, without
limitation, the Winterthur International acquisition; (xvii) changes in rating
agency policies or practices; (xviii) changes in accounting policies or
practices; (xix) changes in general economic conditions, including inflation,
foreign currency exchange rates and other factors; and (xx) 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Reports, proxy statements and other information concerning XL Capital can
also be inspected and copied at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below 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
until we sell all of the securities:
o Our Annual Report on Form 10-K for the year ended December 31, 2000;
o Our Quarterly Reports on Forms 10-Q for the quarters ended March 31,
2001, June 30, 2001 and September 30, 2001;
o Our Current Reports on Forms 8-K dated February 23, 2001, May 18,
2001, July 27, 2001, August 9, 2001, September 5, 2001, September 11,
2001, September 17, 2001, October 4, 2001, October 29, 2001, November
2, 2001, January 4, 2002, January 7, 2002, January 11, 2002, and
January 14, 2002;
o Our Proxy Statement dated April 6, 2001, filed on April 6, 2001;
o The description of our Ordinary Shares as set forth in our
Registration Statement on Form S-3 (File No. 333-72018) under the
heading "Description of XL Capital Ordinary Shares";
15
o The description of our Ordinary Share Purchase Rights as set forth in
our Registration Statement on Form S-3 under the heading "Description
of XL Capital Ordinary Shares-Share Rights Plan" (File No. 333-72018).
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
XL Capital Ltd
XL House
One Bermudiana Road
Hamilton, Bermuda HM11
Telephone: (441) 292-8515
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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.
ENFORCEMENT OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS
XL Capital is a Cayman Islands company. In addition, some of its 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 the United States. Therefore, investors may have
difficulty effecting service of process within the United States upon those
persons or recovering against XL Capital 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
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.
16
PLAN SERVICE FEES
Reinvestment of quarterly dividend No charge
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Purchase of shares with additional investments via check No charge
or automatic debit of bank account
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Transfer of shares No charge
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Certificate safekeeping No charge
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Withdrawal or certificate issuance No charge
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Sale of shares (full or partial) $15.00 per transaction
-----------------------------------------------------------------------------------------------------------------------------------
Trading fee for market sales $ .12 per share
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Original or current year duplicate statement No charge
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Prior year duplicate statement $20.00
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Bounced checks or rejected automatic debit $35.00 per
of bank account occurrence
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XL CAPITAL LTD DIVIDEND
REINVESTMENT AND SHARE PURCHASE PLAN
EFFECTIVE JANUARY 18, 2002
17
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses incurred in
connection with the distribution of the securities being registered (all amounts
are estimated, except the SEC registration fee).
SEC registration fee .................................... $21,363.00
New York Stock Exchange listing fee ..................... 15,000.00
Printing expenses ....................................... 10,000.00
Legal fees and expenses ................................. 100,000.00
Accounting fees and expenses ............................ 25,000.00
Administrator fees and expenses ......................... 35,000.00
Miscellaneous ........................................... 10,000.00
----------
Total ................................................. $216,363.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 109 of our Articles of Association, incorporated by reference to
Exhibit 3.2 to our Annual Report on Form 10-K for the year ended December 31,
2000 filed on March 29, 2001, contains provisions with respect to
indemnification of our directors and officers. The general effect of these
provisions is to provide for the indemnity by XL Capital of an officer,
director, employee or agent of XL Capital for threatened, pending or completed
actions, suits or proceedings (other than an action by or in the right of XL
Capital) brought against such indemnified person by reason of the fact that such
person was an officer, director, employee or agent of XL Capital, if such
indemnified person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to our best interest and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful.
The Articles of Association also provide for the indemnification of such
person against expenses actually and reasonably incurred in connection with
suits brought by or in the right of XL Capital by reason of the fact that such
indemnified person is an officer, director, employee or agent of XL Capital if
such indemnified person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to our best interest; provided, however, that
no such indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for willful
neglect or default in the performance of his or her duty to us unless and only
to the extent that the Grand Court of the Cayman Islands or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Grand Court or other such court shall deem proper.
To the extent that such indemnified person shall be successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
Our directors and officers are also provided with indemnification against
certain liabilities pursuant to a directors and officers liability insurance
policy.
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ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
3.1 Memorandum of Association of XL Capital Ltd (incorporated by reference to
Exhibit 3.1 to XL Capital's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on March 29, 2001).
3.2 Articles of Association of XL Capital Ltd (incorporated by reference to
Exhibit 3.2 to XL Capital's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on March 29, 2001).
3.3 Rights Agreement, dated as of September 11, 1998, between XL Capital Ltd
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated
by reference to Exhibit 3.3 to XL Capital's Annual Report on Form 10-K for
the year ended December 31, 2000 filed on March 29, 2001).
5.1 Opinion of Hunter & Hunter.*
23.1 Consent of Hunter & Hunter (included as part of Exhibit 5.1).
23.2 Consent of Cahill Gordon & Reindel*
23.3 Consent of PricewaterhouseCoopers LLP.*
23.4 Consent of KPMG Audit Plc.*
23.5 Consent of Ernst & Young LLP*
24.1 Powers of Attorney of the Registrants (included on a signature page).
99.1 Appointments of CT Corporation System as U.S. agent for Service of
Process.*
-----------
*Filed herewith.
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
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PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT each person whose signature appears
below does hereby constitute and appoint Brian M. O'Hara, Paul S. Giordano and
Jerry de St. Paer, and each of them, as his true and lawful attorney-in-fact and
agent and in his name, place, and stead, and in any and all capacities, to sign
his name to the Registration Statement of XL Capital Ltd, a Cayman Islands
company, on Form S-3 under the Securities Act of 1933, as amended, and to any
and all amendments or supplements thereto (including any post-effective
amendments, including any registration statement filed under Rule 462(b) under
the Securities Act of 1933), with all exhibits thereto and other documents in
connection therewith and to cause the same to be filed with the Securities and
Exchange Commission, granting unto said attorneys and each of them full power
and authority to do and perform any act and thing necessary and proper to be
done in the premises, as fully and to all intents and purposes as the
undersigned could do if personally present, and the undersigned hereby ratifies
and confirms all that said attorneys or any one of them shall lawfully do or
cause to be done by virtue hereof.
SIGNATURE DATE
/s/ RONALD L. BORNHUETTER January 18, 2002
--------------------------------------
Ronald L. Bornhuetter
/s/ MICHAEL A. BUTT January 18, 2002
--------------------------------------
Michael A. Butt
/s/ ROBERT CLEMENTS January 18, 2002
--------------------------------------
Robert Clements
/s/ SIR BRIAN CORBY January 18, 2002
--------------------------------------
Sir Brian Corby
/s/ MICHAEL P. ESPOSITO, JR. January 18, 2002
--------------------------------------
Michael P. Esposito, Jr.
/s/ ROBERT R. GLAUBER January 18, 2002
--------------------------------------
Robert R. Glauber
/s/ PAUL JEANBART January 18, 2002
--------------------------------------
Paul Jeanbart
/s/ JOHN LOUDON January 18, 2002
--------------------------------------
John Loudon
/s/ ROBERT S. PARKER January 18, 2002
--------------------------------------
Robert S. Parker
/s/ CYRIL RANCE January 18, 2002
--------------------------------------
Cyril Rance
/s/ ALAN Z. SENTER January 18, 2002
--------------------------------------
Alan Z. Senter
/s/ JOHN T. THORNTON January 18, 2002
--------------------------------------
John T. Thornton
/s/ ELLEN E. THROWER January 18, 2002
--------------------------------------
Ellen E. Thrower
/s/ JOHN W. WEISER January 18, 2002
--------------------------------------
John W. Weiser
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Hamilton and Country of Bermuda, on January 18,
2002.
XL CAPITAL LTD
By: /s/ JERRY DE ST. PAER
---------------------
Jerry de St. Paer
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- -----
/s/ BRIAN M. O'HARA President, Chief Executive Officer and Director January 18, 2002
-------------------------
Brian M. O'Hara
/s/ JERRY DE ST. PAER Executive Vice President and Chief Financial January 18, 2002
-------------------------
Jerry de St. Paer Officer (Principal Financial Officer and
Principal Accounting Officer)
/s/ MICHAEL P. ESPOSITO, JR.* Chairman and Director January 18, 2002
-------------------------
Michael P. Esposito, Jr.
/s/ RONALD L. BORNHUETTER* Director January 18, 2002
-------------------------
Ronald L. Bornhuetter
/s/ MICHAEL A. BUTT* Director January 18, 2002
-------------------------
Michael A. Butt
/s/ ROBERT CLEMENTS* Director January 18, 2002
-------------------------
Robert Clements
/s/ SIR BRIAN CORBY* Director January 18, 2002
-------------------------
Sir Brian Corby
/s/ ROBERT R. GLAUBER* Director January 18, 2002
-------------------------
Robert R. Glauber
/s/ PAUL JEANBART* Director January 18, 2002
-------------------------
Paul Jeanbart
/s/ JOHN LOUDON* Director January 18, 2002
-------------------------
John Loudon
/s/ ROBERT S. PARKER* Director January 18, 2002
-------------------------
Robert S. Parker
II-5
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CYRIL RANCE* Director January 18, 2002
-------------------------
Cyril Rance
/s/ ALAN Z. SENTER* Director January 18, 2002
-------------------------
Alan Z. Senter
/s/ JOHN T. THORNTON* Director January 18, 2002
-------------------------
John T. Thornton
/s/ ELLEN E. THROWER* Director January 18, 2002
-------------------------
Ellen E. Thrower
/s/ JOHN W. WEISER* Director January 18, 2002
-------------------------
John W. Weiser
*By: /s/ JERRY DE ST. PAER
---------------------
Attorney-in-Fact
II-6