SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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[ ] Preliminary Proxy Statement
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BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
XL CAPITAL LTD
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(Name of Registrant as Specified in Its Charter)
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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XL CAPITAL LTD
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NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2002
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Hamilton, Bermuda
April 5, 2002
TO THE CLASS A SHAREHOLDERS OF XL CAPITAL LTD:
Notice is Hereby Given that the Annual General Meeting of Class A
Shareholders ("Shareholders") of XL CAPITAL LTD (the "Company") will be held at
the Executive Offices of the Company, XL House, One Bermudiana Road, Hamilton HM
11, Bermuda, on Friday, May 10, 2002 at 8:30 a.m. local time for the following
purposes:
1. To elect six Class I Directors to hold office until 2005;
2. To appoint PricewaterhouseCoopers LLP, New York, New York, to act as
the independent auditors of the Company for the fiscal year ending
December 31, 2002;
3. To approve the amendment and restatement of the Company's 1991
Performance Incentive Program;
4. To approve the Company's Employee Share Purchase Plan; and
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only Shareholders of record, as shown by the transfer books of the Company
at the close of business on March 25, 2002, are entitled to notice of and to
vote at the Annual General Meeting.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE RETURN ENVELOPE
FURNISHED FOR THAT PURPOSE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU
MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. A PROXY NEED
NOT BE A SHAREHOLDER OF THE COMPANY. YOUR SHARES WILL BE VOTED WITH THE
INSTRUCTIONS CONTAINED IN THE PROXY STATEMENT. IF NO INSTRUCTION IS GIVEN, YOUR
SHARES WILL BE VOTED "FOR" ITEMS 1 THROUGH 4 (INCLUSIVE) IN THE PROXY.
By Order of The Board of Directors,
Paul S. Giordano
SECRETARY
XL CAPITAL LTD
XL HOUSE, ONE BERMUDIANA ROAD, HAMILTON HM 11, BERMUDA
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PROXY STATEMENT
FOR
THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2002
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April 5, 2002
The accompanying proxy is solicited by the Board of Directors of XL CAPITAL
LTD (the "Company") to be voted at the Annual General Meeting of Class A
Shareholders ("Shareholders") of the Company to be held on May 10, 2002 and any
adjournments thereof.
When such proxy is properly executed and returned, the Class A Ordinary
Shares, par value U.S.$0.01 per share ("Ordinary Shares" or "Shares"), of the
Company it represents will be voted at the meeting on the following: (1) the
election of the six nominees for Class I Directors identified herein; (2) the
appointment of PricewaterhouseCoopers LLP, New York, New York ("Auditors"), to
act as the independent auditors of the Company for the fiscal year ending
December 31, 2002; (3) to approve the amendment and restatement of the Company's
1991 Performance Incentive Plan; (4) to approve the Company's Employee Share
Purchase Plan; and (5) such other business as may properly come before the
meeting or any adjournments thereof.
Any Shareholder giving a proxy has the power to revoke it prior to its
exercise by notice of revocation to the Secretary of the Company in writing, by
voting in person at the Annual General Meeting or by execution of a subsequent
proxy, provided that such action is taken in sufficient time to permit the
necessary examination and tabulation of the subsequent proxy or revocation
before the vote is taken.
Shareholders of record as of the close of business on March 25, 2002 will
be entitled to vote at the meeting. As of March 25, 2002, there were 135,524,453
outstanding Ordinary Shares entitled to vote at the meeting, with each Share
entitling the holder of record on such date to one vote (subject to certain
limitations set forth in the Company's Articles of Association--see "Beneficial
Ownership").
This Proxy Statement, the attached Notice of Annual General Meeting and the
accompanying proxy card are first being mailed to Shareholders on or about April
5, 2002.
Other than the approval of the minutes of the 2001 Annual General Meeting,
the Company knows of no specific matter to be brought before the Annual General
Meeting, which is not referred to in this Notice of Meeting. If any such matter
comes before the meeting, including any Shareholder proposal properly made, the
proxy holders will vote proxies in accordance with their judgment.
Directors will be elected at the Annual General Meeting by a majority of
the votes cast at the meeting by the holders of Shares represented in person or
by proxy at the meeting, provided there is a quorum (consisting of holders of at
least fifty percent (50%) of the outstanding Shares being present in person or
by proxy). Approval of the appointment of the Auditors and the other matters
referred to in Items 1 through 4 above will be by similar vote.
1
BENEFICIAL OWNERSHIP
The following table lists the beneficial ownership of each person or group
who, as of a recent date, owned, to the Company's knowledge, more than five
percent of the Company's Ordinary Shares outstanding. The table is based upon
information contained in filings with the Securities and Exchange Commission.
PERCENTAGE OF
NUMBER OUTSTANDING
NAME AND ADDRESS OF SHARES SHARES (1)
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Capital Research & Management 9,911,000 7.5%
630 Fifth Avenue, New York, NY 10111-0121
Janus Capital Corporation 8,977,000 6.8%
100 Fillmore Street, Denver, CO 80206-4923
Jennison Associates LLC 6,746,000 5.1%
466 Lexington Avenue, New York, NY 10017-3151
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(1) Each Ordinary Share has one vote, except that if, and so long as, the
Controlled Shares (as hereinafter defined) of any person constitute ten
percent (10%) or more of the issued Ordinary Shares, the voting rights with
respect to the Controlled Shares owned by such person shall be limited, in
the aggregate, to a voting power of approximately ten percent (10%),
pursuant to a formula specified in the Company's Articles of Association.
"Controlled Shares" include, among other things, all Ordinary Shares that
such person is deemed to beneficially own directly, indirectly or
constructively (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934).
BOARD OF DIRECTORS
The Company's Articles of Association provide that the Board of Directors
(sometimes referred to as the "Board") shall be divided into three classes
designated Class I, Class II and Class III, each class consisting as nearly as
possible of one-third of the total number of Directors constituting the entire
Board of Directors.
The term of office for each Director in Class I expires at the Annual
General Meeting of the Company in 2002; the term of office for each Director in
Class II expires at the Annual General Meeting in 2003; and the term of office
for each Director in Class III expires at the Annual General Meeting in 2004;
and at each Annual General Meeting the successors of the class of Directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the Annual General Meeting to be held in the third year following
the year of their election.
In fiscal 2001, there were five meetings of the Board and all incumbent
Directors, other than Mr. Glauber, attended at least 75% of such meetings and of
the meetings held by all committees of the Board of which they were a member.
Mr. Glauber attended 73% of the meetings of the Board and committees of the
Board of which he was a member.
The Board of Directors has established four standing committees: an Audit
Committee, a Compensation Committee, a Nominating and Corporate Governance
Committee and a Finance Committee.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors meets with the Company's
independent auditors to discuss the scope and results of their audit and to
review the Company's financial reporting, accounting and control systems. The
Audit Committee also reviews the Company's reserving methodology and reserves.
Each year the Audit Committee recommends to the Board an independent auditing
firm to audit the financial statements of the Company. Messrs. Thornton
(Chairman), Jeanbart, Rance, Dr. Thrower and Sir Brian Corby comprise the Audit
Committee. The Audit Committee met five times during fiscal 2001.
COMPENSATION COMMITTEE
The Compensation Committee reviews the performance and compensation of
senior corporate officers, establishes overall employee compensation policies
and recommends to the Board of Directors major compensation programs. The
Compensation Committee also recommends to the Board restricted stock and option
awards under the Company's stock incentive plans and benefits under other
compensation plans of the Company. No member of the Compensation Committee is a
member of management or eligible for compensation from the Company other than as
a Director unless the Board of Directors determines that such compensation will
not affect the independence of the Committee member. Messrs. Weiser (Chairman),
Glauber, Comey and Loudon comprised the Compensation Committee in 2001. The
Compensation Committee met five times during fiscal 2001.
2
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee makes recommendations to
the Board as to nominations for the Board (including qualifications and criteria
for Board and Committee memberships) and compensation for Board and Committee
members, as well as structural, governance and procedural matters. The
Nominating and Corporate Governance Committee also reviews shareholder
proposals, the performance of the Board, tenure and retirement policies of the
Board and the Company's succession planning. Messrs. Esposito (Chairman),
Clements, Loudon and O'Hara and Dr. Parker comprise the Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance Committee met five
times during fiscal 2001.
FINANCE COMMITTEE
The Finance Committee establishes and recommends the financial policies of
the Company and reviews the Company's capital management practices, dividend
policy, mergers, acquisitions and divestitures, significant strategic
investments and new business initiatives, as well as overall investment policy
and performance. Messrs. Loudon (Chairman), Bornhuetter, Butt, Esposito,
Glauber, O'Hara, Dr. Parker, Senter, Thornton and Weiser comprise the Finance
Committee. The Finance Committee met five times during fiscal 2001.
DIRECTORS COMPENSATION
During fiscal 2001, all Directors (except for the Chairman of the Board and
Directors who are also employees of the Company) received an annual fee of
$35,000, plus $3,000 per meeting, including informational meetings. Committee
Chairmen also received an additional annual fee of $3,000 and all Committee
members received an attendance fee of $1,500 per meeting. Prior to the beginning
of each fiscal year, Directors may elect to defer all or part of the Board
annual retainer in increments of $5,000. Deferred payments are credited in the
form of share units, calculated by dividing 110 percent of the deferred payment
by the market value of the Company's Shares at the beginning of the fiscal year,
in accordance with the terms of the Company's Directors Stock & Option Plan, as
amended. Alternatively, Directors may elect to receive their annual retainers in
the form of Shares having a value equal to their annual fees.
The following Directors elected to defer all or a portion of their annual
retainer for fiscal 2001:
SHARE
AMOUNT UNITS
DIRECTORS DEFERRED CREDITED
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Ronald L. Bornhuetter ........ $35,000 440
Michael A. Butt .............. $35,000 440
Robert Clements .............. $35,000 440
Ian Heap ..................... $25,000 314
John Loudon .................. $15,000 189
Daniel McNamara .............. $35,000 440
Robert S. Parker ............. $35,000 440
John Thornton ................ $35,000 440
Ellen E. Thrower ............. $20,000 251
John W. Weiser ............... $35,000 440
On March 9, 2001, all non-employee Directors were granted 5,000 options
exercisable at $80.00 per share (the fair market value on March 9, 2001)
pursuant to the terms of the 1991 Performance Incentive Program, as amended and
restated. In addition, a Retirement Plan for Non-Employee Directors (the
"Retirement Plan") was implemented effective July 1, 1994, to provide the
Directors with a pension on the termination of service for a period equal to the
time served as a Director. The amount to be paid to each Director was to equal
the annual retainer at the date of termination of service multiplied by the
number of years served on the Board. Except in the case of one Director for whom
the plan continues, the Retirement Plan was terminated in 1997 and, under the
Company's Stock Plan for Non-employee Directors (the "Stock Plan"), the present
value of the accrued benefits of each Director under the Retirement Plan was
converted into an equivalent amount of Ordinary Share units (each unit
corresponding to one Ordinary Share). In addition, under the Stock Plan, as of
December 1 of each year, Ordinary Share units are credited to the account of
each non-employee Director (other than the Directors who continue to accrue
benefits under the Retirement Plan). The number of Ordinary Share units credited
each year is equal to the annual retainer fee divided by the fair market value
of an Ordinary Share on each December 1. Benefits under the Stock Plan will be
distributed in the form of Ordinary Shares following termination of a
non-employee Director's service on the Board.
3
Michael P. Esposito, Jr.'s annual compensation as Chairman of the Board
with respect to fiscal 2001 comprised a salary of $425,000, pension
contributions of $42,500, bonus of $750,000, a grant of 37,500 options at an
exercise price of $80 per share, 24,867 reload options at an exercise price of
$76.90 per share and a restricted stock award of 6,500 shares.
CERTAIN TRANSACTIONS
Certain Shareholders and their affiliates, including the employers of or
entities otherwise associated with certain of the Directors, have purchased
insurance, reinsurance or other services from the Company's subsidiaries. The
Company and its affiliates in the ordinary course of business enter into
insurance, reinsurance and other transactions with companies in which the
Company has a direct or indirect equity interest.
As of December 31, 2001 (i) a subsidiary of the Company owned an
approximately 26.7% interest in Measurisk LLC ("Measurisk"), a New York limited
liability company, of which Mr. Glauber is an officer, director and shareholder
of one of Measurisk's members, and (ii) the Company owned approximately 12.9% of
the shares of Annuity and Life Re (Holdings) Ltd ("AL Re"), of which Messrs.
Esposito and O'Hara are directors.
The Company had a consulting agreement with Michael A. Butt, a Director of
the Company, for a one-year period from December 31, 1998. Mr. Butt's agreement
was extended for an additional two years effective January 1, 2000 and expired
on January 1, 2002. The consulting agreement provided that the duties and time
commitments shall be as mutually agreed by the Company and Mr. Butt. Under the
consulting agreement, Mr. Butt was entitled to an annual consulting fee of
$535,000 and certain other benefits. Pursuant to this consulting agreement, Mr.
Butt remains subject to non-competition covenants for a period of 24 months from
termination. The Company and Mr. Butt have agreed to extend the term of this
consulting agreement to January 1, 2003.
In connection with the acquisition in 1999 of NAC Re Corporation ("NAC Re")
by the Company, NAC Re entered into a settlement agreement and a consulting
agreement with Ronald L. Bornhuetter, who had been Chairman of the Board and
Chief Executive Officer of NAC Re and who became a Director of the Company.
Under the terms of the settlement agreement, NAC Re agreed to pay to Mr.
Bornhuetter, as a supplemental pension, $162,892 per year beginning in August
1999 for his lifetime and, upon his death, 50% of that amount per year to his
surviving spouse for her lifetime. In addition, the settlement agreement
provides that Mr. Bornhuetter is entitled to the continuance of certain employee
benefits. Under the consulting agreement, the duties of Mr. Bornhuetter included
rendering advice relating to the integration of NAC Re and the Company, and NAC
Re paid to Mr. Bornhuetter a fee of $250,000 per year, plus reimbursement of
expenses and an office allowance. The consulting agreement expired on July 1,
2001.
The Company has provided to Mr. O'Hara, a Director and the President and
Chief Executive Officer of the Company, a facility to borrow up to $1 million
from the Company. This facility does not bear interest unless Mr. O'Hara
terminates his employment with the Company, at which time the interest will be
the applicable United States Federal rate for long-term loans determined in
accordance with Section 1274(d) of the United States Internal Revenue Code of
1986, as amended. The facility requires repayment of amounts drawn in ten annual
installments. In calendar year 2001, the largest amount outstanding under this
facility was $540,000.
In December 2001, Mr. O'Hara received an advance of $1.2 million from the
Company in connection with certain tax payments falling due when Mr. O'Hara was
precluded by Company policy from buying or selling shares of the Company. This
advance did not carry interest, and Mr. O'Hara repaid this amount in full on
February 26, 2002.
In 2001, a limited partnership, XL Capital Partners I L.P. (the
"Partnership"), was formed. The general partner of the Partnership is a newly
formed wholly owned subsidiary of the Company (the "General Partner"). All of
the limited partners of the Partnership are current or former senior officers or
Directors of the Company or its subsidiaries (the "Limited Partners").
The stated purpose of the Partnership is to achieve long-term capital
appreciation for its investors through a portfolio of investments, including
without limitation, private equity, venture capital and hedge funds; equity and
equity-related securities of all types; investments in debt securities,
preferred shares and other financial instruments; and securities issued by
companies providing financial guarantee, insurance and reinsurance contracts.
Generally, the Partnership is expected to co-invest in investments made by the
Company or its subsidiaries, substantially on the same terms as the similar
investments made by the Company.
4
The aggregate capital commitment of the Partnership is $49,075,000, of
which $8,654,343 was invested as at December 31, 2001. The capital commitment of
the General Partner is $39,260,000 and the capital commitments of the Limited
Partners, in the aggregate, is $9,815,000. To date, 50% of the Limited Partners'
aggregate capital commitments have been called. Organizational expenses relating
to the Partnership are paid by the General Partner.
Distributions will generally be made as follows (after each Partner
receives an amount equal to 40% of the allocations of taxable income made to
such Partner): (i) first, 100% to the General Partner until it has received an
amount equal to its capital contribution plus an amount equal to 10% (per annum)
of the General Partner's capital contribution; (ii) second, to the Limited
Partners until they have received an amount equal to their respective capital
contributions; and (iii) third, 90% to the Limited Partners and 10% to the
General Partner.
Each Limited Partner's interest in profits from the Partnership (in excess
of that portion based solely on his or her capital commitment) is subject to
vesting 25% a year with the first such portion vesting in 2002. Unless waived by
the General Partner, vesting is conditioned on continued employment with the
Company or its subsidiaries. However, if employment is terminated due to death
or disability, such Limited Partner's interest will fully vest, and if
employment of a Limited Partner is terminated for cause, no additional interest
will vest.
As of December 31, 2001, the following executive officers and directors of
the Company made the limited partner commitments indicated parenthetically after
their respective names: Mr. O'Hara ($500,000); Mr. Lusardi ($400,000); Mr.
Greetham ($300,000); Mr. Bruce Connell ($400,000); Mr. Paul Giordano ($200,000);
Mr. Henry Keeling ($400,000); Ms. Fiona Luck ($400,000); Mr. Bornhuetter
($200,000); Mr. Butt ($200,000); Mr. Clements ($200,000); Sir Brian Corby
($200,000); Mr. Esposito ($500,000); Mr. Jeanbart ($200,000); Mr. Loudon
($200,000); Dr. Parker ($50,000); Mr. Rance ($50,000); Mr. Senter ($200,000);
Mr. Thornton ($200,000); and Dr. Thrower ($50,000).
As of December 31, 2001, the Partnership has made, among others, the
following investments: (i) $1.5 million of Mutual Risk Management Ltd.'s ("MRM")
9 3/8% convertible exchangeable debentures due 2006 (the "MRM Debentures") and
(ii) $5,000,000 in Highfields Capital II LP Fund, a hedge fund ("Highfields").
The Company has invested $51.0 million principal amount in the MRM
Debentures. The Company also received warrants to purchase up to 1,632,043 MRM
common shares at an initial exercise price of $7.00 per share. During fiscal
2001, certain of the Company's executive officers and Directors have been
members of the Board of Directors of MRM. In addition, the Company holds a
minority stake in the hedge fund manager of Highfields and had invested
approximately $176.5 million in funds managed by this management company as of
December 31, 2001. In March 2002, the Partnership invested in 90,000 Series A
convertible voting preferred shares of Primus Guaranty Ltd. ("Primus") for a
purchase price of $2,250,000. The Company also invested in 2,910,000 Series A
Convertible voting preferred shares of Primus for a purchase price of $72.75
million. In addition, the Company received warrants to purchase 11,317,972
common shares of Primus at an exercise price of $0.6481 per common share.
Michael P. Esposito, Jr. is Chairman of the Board of Directors of Primus
Guaranty and Robert R. Lusardi is also a member of the Board of Directors of
Primus Guaranty. Mr. Lusardi is also a member of the Board of Directors of
Primus Financial Products, Inc. and Primus Re, Ltd., both of which are wholly
owned subsidiaries of Primus Guaranty.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own more than 10% of a registered class of the Company's equity
securities to file with the Securities and Exchange Commission (the "SEC") and
the NYSE reports on Forms 3, 4 and 5 concerning their ownership of the common
stock and other equity securities of the Company.
The Company believes that all of its officers and directors and those
greater-than-10% Shareholders that filed any reports, filed all of such reports
on a timely basis during the year ended December 31, 2001, with the exception of
one Form 4 filing for each of Brian O'Hara and Michael A. Butt that were filed
after their dates due.
5
I. ELECTION OF DIRECTORS
At the Annual General Meeting, six Class I Directors are to be elected to
hold office until the 2005 Annual General Meeting of Shareholders. All of the
nominees are currently serving as Directors and were appointed or elected in
accordance with the Company's Articles of Association. The Directors of the
Company will continue to serve in accordance with their previously appointed or
elected terms.
Unless authority is withheld by the Shareholders, it is the intention of
the persons named in the enclosed proxy to vote for the nominees listed below.
All of the nominees have consented to serve if elected, but if any becomes
unavailable to serve, the persons named as proxies may exercise their discretion
to vote for a substitute nominee. The name, principal occupation and other
information concerning each Director is set forth below.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES.
NOMINEES FOR WHOM PROXIES WILL BE VOTED
NOMINEES FOR CLASS I DIRECTORS FOR TERMS TO EXPIRE IN 2005:
Ronald L. Bornhuetter, age 69, has been a Director of the Company since
June 1999. Mr. Bornhuetter acted as a Consultant to NAC Re from 1999 to 2001 and
served as Chairman of Denham Syndicate Management Limited from 1997 to 2001. Mr.
Bornhuetter served as Chairman of NAC Re from 1993 until 1999 and Chairman of
the Board of NAC Reinsurance Corporation (now known as XLReinsurance America
Inc.) from 1990 until 1999, having served as a director of both companies since
August 1985. From November 1996 through December 1998, he also served as Chief
Executive Officer of NAC Re. From August 1985 through October 1996 he also
served as President of NAC Re. Prior to joining NAC Re, Mr. Bornhuetter was Vice
President-Finance of General Re Corporation and Senior Vice President and
Comptroller of its subsidiary, General Reinsurance Corporation, having served as
Chief Financial Officer of the Group from 1966 to 1985. Mr. Bornhuetter also
served as director of Frontier Inc. until May 2001. He is a Fellow and former
President of the Casualty Actuarial Society; a member and former President of
the American Academy of Actuaries and also served as Chairman of the Actuarial
Standards Board. He is also a member of the International Actuarial Association,
and a former Vice President and head of the U.S. delegation to its Ruling
Council. He is also a member of ASTIN and AFIR. He served as Chairman of The
Reinsurance Association of America from 1993 to 1994. He is a director of
Cybersettle.com Inc. ("Cybersettle") and was a Director of Denham Syndicate
Management Limited from 1997-2001 and was a director of NAC Reinsurance
International Limited from 1994 to 2000. He is presently a Trustee of The
College of Wooster, Wooster, Ohio, a director of the Underwriter Insurance
Company Ltd. and R.K. Carvill Ltd. and a volunteer director of International
Executive Service Corporation.
Michael P. Esposito, Jr., age 62, has been Chairman of the Board since 1995
and a Director of the Company since 1986. Mr. Esposito was Co-Chairman of
Inter-Atlantic Capital Partners, Inc. from 1998 to 2000. Mr. Esposito served as
Chief Corporate Compliance, Control and Administration Officer of The Chase
Manhattan Corporation from 1991 to 1995, having previously served as Executive
Vice President and Chief Financial Officer from 1987 to 1991. Mr. Esposito
served as a director of Mid Ocean Limited from 1995 to 1998 and currently serves
as a director of Annuity and Life Re (Holdings), Ltd., and Forest City
Enterprises.
Robert R. Glauber, age 62, has been a Director of the Company since August
1998. Mr. Glauber served as a director of Mid Ocean Limited and has been the
President and Chief Executive Officer of the National Association of Securities
Dealers, Inc. since November, 2000. Mr. Glauber was a Lecturer at the John F.
Kennedy School of Government, Harvard University, in Cambridge, Massachusetts,
from 1992 until November 2000. Mr. Glauber formerly was the Under Secretary at
the U.S. Treasury Department, Washington, D.C., a Director of various Dreyfus
Corp. investment funds and the Federal Reserve Bank of Boston and was Professor
of Business Administration at the Harvard Business School. Mr. Glauber is a
director of Moody's Corporation, Inc., the National Association of Securities
Dealers, Inc., and an officer and director of Measurisk LLC.
Paul Jeanbart, age 62, has been a Director of the Company since August
1998. Mr. Jeanbart has been the Chief Executive Officer of Rolaco Group of
Companies since 1977. Mr. Jeanbart also serves as a director of Rolaco Holdings
S.A., Club Mediterranee S.A., Semiramis Hotel Co., Delta International Bank S.A.
and SODEXHO Alliance S.A. and as President of Hotels Intercontinental Geneva,
S.A. Mr. Jeanbart served as a director of Mid Ocean Limited from 1994 to 1998.
6
Cyril Rance, age 67, has been a Director of the Company since 1990. Mr.
Rance served as President and Chief Executive Officer of the Bermuda Fire &
Marine Insurance Co. Ltd. from 1985 to 1990. Mr. Rance has also had a long and
varied career in civic and government service. Mr. Rance also serves as a
director of several investment, real estate and insurance companies located in
Bermuda. He is currently the chairman of the advisory board of The Salvation
Army in Bermuda.
Ellen E. Thrower, age 55, has been a Director of the Company since December
1995. Dr. Thrower was President and Chief Executive Officer of The College of
Insurance since 1988 until 2001. In 2002 The College of Insurance merged with
St. John's University and changed its name to The School of Risk Management,
Insurance and Actuarial Science. Dr. Thrower is Executive Director of this
school. Dr. Thrower also serves as a director on the Boards of Pennsylvania
National, SCOR U.S. Corporation and United Educators Risk Retention Group, Inc.
DIRECTORS WHOSE TERMS OF OFFICE DO NOT EXPIRE AT THIS MEETING
CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2003:
Dale R. Comey, age 60, has been a Director of the Company since November
2001. He was Executive Vice President at the corporate headquarters of the ITT
Corporation from 1990 to 1996, where he was responsible for directing the
operations of several ITT business units, including ITT Hartford and ITT
Financial Corporation. Mr. Comey also served as President of Hartford Fire
Insurance Company from 1988 to 1990. Before that, Mr. Comey, a graduate of the
University of Connecticut, was President and Chief Operating Officer of ITT
Hartford Fire Insurance Company. He joined ITT as an actuarial trainee in 1965
after serving in the United States Army.
Sir Brian Corby, age 72, has been a Director of the Company since August
1998. Sir Brian served as Chief Executive Officer of Prudential Corporation plc
from 1982 to 1990 and as Chairman of Prudential Corporation plc from 1990 to
1995. Among other positions he has held are President of the Confederation of
British Industry, President of the Geneva Association and a director of the Bank
of England. Sir Brian served as a director of Mid Ocean Limited from 1995 to
1998. Sir Brian served as the Chairman of XL Brockbank Group plc from 1997 to
1999 and is also Chairman of East of England Inward Investment Agency,
Cambridge, England and a director of Pan Holding SA, Luxembourg.
Brian M. O'Hara, age 53, has been President and Chief Executive Officer of
the Company since 1994 and a Director of the Company since 1986, having
previously served as Vice Chairman of the Company from 1987 to 1994. He has also
served as Chairman of XL Insurance (Bermuda) Ltd since December 1995, having
served as Chairman, President and Chief Executive Officer from 1994, as
President and Chief Executive Officer from 1992, and as President and Chief
Operating Officer from 1986. Mr. O'Hara served as a director of Mid Ocean
Limited and currently serves as a director of Annuity and Life Re (Holdings),
Ltd. and Bermuda Commercial Bank Limited and as a Trustee of The School of Risk
Management, Insurance and Actuarial Science.
John T. Thornton, age 64, has been a Director of the Company since 1988.
Mr. Thornton has served as Executive Vice President and Chief Financial Officer
of Wells Fargo & Company (formerly Norwest Corporation) from 1987 to November
1998. Mr. Thornton served as Executive Vice President and Financial Executive of
Wells Fargo & Co. from December 1998 until November 1999. Mr. Thornton has been
engaged in real estate development and investments from December 1999 to
present.
John W. Weiser, age 70, has been a Director of the Company since 1986. Mr.
Weiser served as Senior Vice President and director of Bechtel Group, Inc. from
1980 to 1998. Mr. Weiser also served as President of Bechtel Enterprises, Inc.
from 1988 to 1992 and as General Counsel of Bechtel Group, Inc. from 1980 to
1988 and from 1992 to 1994 and has been a director of Fremont Group Inc. from
1986 and is currently a Director of GRX Technologies Inc. He is currently
Chairman of the Board of The Graduate Theological Union.
NOMINEES FOR CLASS III DIRECTORS FOR TERMS TO EXPIRE IN 2004:
Michael A. Butt, age 59, has been a Director of the Company since August
1998. Mr. Butt was formerly a director and the President and Chief Executive
Officer of Mid Ocean Limited from June 1993 until its merger with the Company's
predecessor company in August of 1998. Mr. Butt has served as a director of the
Instituto Nazionale di Assicurazioni, Rome from November 1993 to December 1997,
and the Bank of N.T. Butterfield & Son, Ltd. from October 1996 to December 2001.
From 1992 to April 1993, Mr. Butt served as a director of Phoenix Securities
Limited, a private investment banking firm based in London. From 1987 to 1992,
he was a director of BAT Industries and Chairman
7
and Chief Executive Officer of Eagle Star Holdings Plc and Eagle Star Insurance
Company. From 1982 to 1986, Mr. Butt was Chairman of Sedgwick Limited and Vice
Chairman of Sedgwick Group Plc.
John Loudon, age 66, has been a Director of the Company since 1992. Mr.
Loudon has been Chairman of Caneminster Ltd., a British investment company,
since 1991 and previously served as Chairman of Warrior International Limited
from 1988 to 1991. Mr. Loudon also serves as a director of Heineken N.V., Derby
Trust plc, Exel plc, XL London Market Group plc (formerly known as XL Brockbank
Group plc), and Simon Murray & Company Limited.
Robert S. Parker, age 64, has been a Director of the Company since 1991.
Dr. Parker is currently Dean Emeritus and the Robert S. Parker Chaired Professor
of the McDonough School of Business at Georgetown University. He served as Dean
of the School of Business Administration from 1986 to 1998. Previously he was a
partner at McKinsey & Company, Inc. Dr. Parker also serves as a director of
Middlesex Mutual Assurance Company.
Alan Z. Senter, age 60, has been a Director of the Company since 1986. Mr.
Senter is presently Chairman of AZ Senter Consulting LLC, a financial advisory
firm he founded in 1993, managed from 1993 to 1994, and from 1996 to the
present. Mr. Senter served as Executive Vice President and Chief Financial
Officer of Nynex Corporation from 1994 to 1997. Mr. Senter served as a director
and Executive Vice President and Chief Financial Officer of International
Specialty Products and GAF Corporation from 1992 to 1993. Mr. Senter previously
served as the Vice President and Senior Financial Officer of Xerox Corporation
from 1990 to 1992. Mr. Senter also serves as a director of Genysys SA, The US
Army Science Board and the Theater Development Fund.
8
EQUITY SECURITIES OWNED BENEFICIALLY AS OF FEBRUARY 28, 2002
The following table summarizes the beneficial ownership as of February 28,
2002 of the Shares of the Company by each Director and executive officer of the
Company for the year ended December 31, 2001, and all such Directors and
executive officers of the Company as a group.
NUMBER OF NUMBER OF
SHARES OPTIONS (1) TOTAL (2)
---------- ---------- ---------
Ronald L. Bornhuetter (3) ......... 88,860 264,709 353,569
Nicholas M. Brown, Jr. ............ 26,537 217,807 244,344
Michael A. Butt ................... 187,294 81,355 268,649
Robert Clements (4) ............... 58,619 26,993 85,612
Dale Comey ........................ -- 5,000 5,000
Brian Corby ....................... 5,624 11,000 16,624
Jerry de St. Paer ................. 13,000 10,000 23,000
Michael P. Esposito, Jr. (5) ...... 131,196 183,763 314,959
Robert R. Glauber ................. 12,553 16,000 28,553
Christopher V. Greetham (6) ....... 21,000 115,001 136,001
Paul Jeanbart (7) ................. 128,651 19,066 147,717
John Loudon ....................... 6,128 26,000 32,128
Robert R. Lusardi (8) ............. 16,600 247,168 263,768
Brian M. O'Hara ................... 342,099 740,146 1,082,245
Robert S. Parker .................. 7,002 26,000 33,002
Cyril Rance ....................... 8,347 26,000 34,347
Alan Z. Senter .................... 9,570 22,893 32,463
John T. Thornton .................. 21,547 19,661 41,208
Ellen E. Thrower .................. 4,320 24,000 28,320
John W. Weiser (9) ................ 36,303 26,000 62,303
1,125,250 2,108,562 3,233,812
-----------
(1) Includes Shares issuable upon exercise of outstanding options exercisable
within 60 days.
(2) To the Company's knowledge, no Director or executive officer had a
beneficial ownership interest in excess of one percent of the outstanding
Shares as of February 28, 2002. As a group, all Directors and executive
officers of the Company had a beneficial ownership interest in
approximately 3% of the outstanding Shares on the basis of the number of
outstanding Shares as of February 28, 2002.
(3) Includes 22,372 Shares that Mr. Bornhuetter owns indirectly.
(4) Includes 12,258 Shares that Mr. Clements owns indirectly.
(5) Includes 8,779 Shares that Mr. Esposito owns indirectly and 48,000 options
assigned to members of his family.
(6) Includes 2,000 Shares that Mr. Greetham owns indirectly.
(7) Includes 125,644 Shares owned by Oryx Finance Limited in which Mr. Jeanbart
has an indirect interest.
(8) Includes as options 40,500 Shares issuable upon the exercise of a warrant
dated as of December 1, 1997 purchased by Mr. Lusardi from the Company. The
warrant may be exercised in whole or in part from time to time at an
exercise price equal to $61.50 per share until the close of business on
November 30, 2007.
(9) Includes 7,000 options assigned to a family partnership. Does not include
7,000 shares held by a charitable foundation as to which Mr. Weiser has
voting and/or investment power and as to which he disclaims beneficial
ownership.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation of the five most highly
compensated executive officers of the Company for services paid for or rendered
with respect to the Company and its subsidiaries in all capacities for the
Company's last three fiscal years:
LONG-TERM COMPENSATION
------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------- ----------------------- ----------------------------
OTHER RESTRICTED SECURITIES LONG-TERM
ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARD OPTIONS PAYOUTS COMPENSATION(2)
--------------------------- ----- ------- -------- --------------- --------- -------- ---------- -----------------
Brian M. O'Hara (3) 2001 $1,000,000 $1,000,000 $140,004 $988,910 75,000 -- $100,000
President and Chief 2000 $900,000 $950,000 $148,826 -- -- -- $90,000
Executive Officer of 1999 $750,000 $1,750,000 $132,924 -- 150,000 -- $75,000
the Company
Nicholas M. Brown, Jr. (4) 2001 $650,000 $450,000 $39,032 $380,350 50,000 -- $55,232
Executive Vice President 2000 $645,833 $450,000 -- -- -- -- $25,703
of the Company and 1999 $625,000 $210,000 -- $1,000,000 101,000 $294,000 $1,054,568
Chief Executive of
Insurance Operations
Robert R. Lusardi 2001 $550,000 $450,000 $150,500 $760,700 60,000 -- $55,000
Executive Vice
President of 2000 $500,000 $450,000 $183,355 -- -- -- $50,000
the Company and Chief 1999 $400,000 $750,000 $171,342 -- 85,000 -- $40,000
Executive of Financial
Products and Services
Operations
Christopher V. Greetham 2001 $345,000 $630,000 $94,593 $304,280 40,000 -- $34,500
Executive Vice President 2000 $315,000 $462,000 $114,664 -- -- -- $31,500
and Chief Investment 1999 $300,000 $625,000 $78,188 $100,000 40,000 -- $30,000
Officer of the Company
Jerry de St. Paer (5) 2001 $344,102 $850,000 $141,571 $1,014,000 30,000 -- $60,000
Executive Vice
President, Chief
Financial Officer and
Treasurer of the Company
--------
(1) Mr. O'Hara received $96,000 for housing expenses in each of fiscal years
2001, 2000 and 1999. Mr. Lusardi received $144,000 for housing expenses in
each of fiscal years 2001, 2000 and 1999. Mr. Greetham received $66,000 for
housing expenses in each of fiscal years 2001, 2000 and 1999. Mr. de St.
Paer received $132,000 for housing expenses in fiscal year 2001.
(2) All other compensation relates to contributions to the Company's Pension
Plans except, with respect to Mr. Brown, it also includes a $1,000,000
sign-on bonus upon the completion of the Company's merger with NAC Re, and
Mr. de St. Paer, who received a relocation allowance of $20,000.
(3) See "Board of Directors--Certain Transactions."
(4) Includes compensation for the period prior to the merger with NAC Re.
(5) Mr. de St. Paer commenced employment with the Company on February 20, 2001.
Mr. de St. Paer's bonus includes a signing bonus of $400,000.
10
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table shows the options granted in the last fiscal year to
the five most highly compensated executive officers of the Company together with
the potential realizable value at assumed rates of return:
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATIO OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------------------- ----------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE PRICE
NAME AND PRINCIPAL POSITION GRANTED(1) LAST FISCAL YEAR (PER SHARE)(2) EXPIRATION DATE 5% 10%
--------------------------- ----------- ----------------- ------------- --------------- ---------- ----------
Brian M. O'Hara 73,750 0.2% $80.00 March 3, 2011 $3,710,478 $9,403,081
President and Chief 1,250(3) March 3, 2011 $62,889 $159,374
Executive Officer of
the Company
Nicholas M. Brown, Jr 50,000 0.2% $80.00 March 3, 2011 $2,515,579 $6,374,970
Executive Vice
President of the
Company and Chief
Executive Officer of
Insurance Operations
Robert R. Lusardi 58,750 0.2% $80.00 March 3, 2011 $2,955,805 $7,490,590
Executive Vice 1,250(3) March 3, 2011 $62,889 $159,374
President of the
Company and Chief
Executive Officer of
Financial Products
and Services Operations
Christopher C.V. Greetham 40,000 0.1% $80.00 March 3, 2011 $2,012,463 $5,099,996
Executive Vice
President of the
Company and Chief
Investment Officer of
the Company
Jerry de St. Paer 30,000 0.1% $80.00 March 3, 2011 $1,509,347 $3,824,982
Executive Vice
President, Chief
Company and Chief
Financial Officer and
Treasurer of
the Company
----------
(1) All options were granted under the Company's 1991 Performance Incentive
Program.
(2) Market price at date of grant.
(3) Incentive stock options were granted under the 1991 Performance Incentive
Program.
11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows the options exercised during the last fiscal year
by the five most highly compensated executive officers of the Company together
with the number and value of unexercised options at December 31, 2001:
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN THE
SHARES UNDERLYING OPTIONS AT MONEY OPTIONS
ACQUIRED IMPLIED VALUE DECEMBER 31, 2001 AT DECEMBER 31, 2001
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------------------------- ----------- ------------ ------------------------ ------------------------
Brian M. O'Hara 70,610 $2,426,744 715,175/206,758 $31,964,850/$6,398,600
President and Chief
Executive Officer of
the Company
Nicholas M. Brown, Jr. 103,750 $4,979,466 201,140/148,517 $8,529,918/$4,492,996
Executive Vice
President of the
Company and Chief
Executive Officer of
Insurance Operations
Robert R. Lusardi -- -- 227,167/88,333 $7,089,877/$1,853,453
Executive Vice
President of the
Company and Chief
Executive Officer of
Financial Products
and Services Operations
Christopher C.V. Greetham -- -- 101,667/53,333 $3,886,197/$1,005,853
Executive Vice
President and Chief
Investment Officer of
the Company
Jerry de St. Paer -- -- --/30,000 $--/$400,000
Executive Vice
President, Chief
Financial Officer and Treasurer
of the Company
---------
* No options have adjustable exercise prices.
12
RESTRICTED STOCK GRANTS
The following table shows the restricted stock grants held by the five most
highly compensated executive officers of the Company as at December 31, 2001:
NO. OF RESTRICTED VALUE OF RESTRICTED
STOCK GRANTS AT STOCK GRANTS AT
DECEMBER 31, 2001 DECEMBER 31, 2001
NAME AND PRINCIPAL POSITION VESTED/UNVESTED VESTED/UNVESTED
-------------------------- ------------------ ------------------------
Brian M. O'Hara 212,800/20,000 $19,441,408/$1,827,200
President and Chief Executive Officer of the Company
Nicholas M. Brown, Jr. 33,300/10,000 $3,042,288/$913,600
Executive Vice President of the Company and Chief
Executive Officer of Insurance Operations
Robert R. Lusardi 21,400/16,600 $1,955,104/$1,516,576
Executive Vice President of the Company and Chief
Executive Officer of Financial Products
and Services Operations
Christopher C.V. Greetham 12,600/6,400 $1,151,136/$584,704
Executive Vice President and Chief Investment
Officer of the Company
Jerry de St. Paer --/13,000 $--/$1,187,680
Executive Vice President, Chief Financial Officer and
Treasurer of the Company
RETIREMENT PLAN
The Company, through a subsidiary, has a non-contributory defined benefit
pension plan covering all employees of certain of its subsidiaries in the U.S.
Benefits are computed on the basis of a specified percentage of the individual's
average total compensation, which includes salary and annual bonus awards for
the thirty-six months of highest total compensation during the employee's last
ten years of service. Benefits are computed on the basis of a "life and ten-year
certain" annuity. The Company also maintains a Benefits Equalization Plan
authorizing payment from the general funds of any benefits calculated under
provisions of the Retirement Plan that are otherwise above the limitations
provided by the Internal Revenue Code. As of January 1, 2002 these defined
benefit plans were frozen, with no additional benefit accruals other than
increases for cost of living adjustments.
The following table shows the estimated annual benefits payable upon normal
retirement for specified average total compensation and years of credited
service under the Retirement Plan and the Benefits Equalization Plan. Amounts
disclosed are not subject to deduction for Social Security or other offset
amounts.
PENSION PLAN TABLE
YEARS OF CREDITED SERVICE
----------------------------------------------------------------------------
AVERAGE TOTAL
COMPENSATION 15 20 25 30 35
-------------- ----------------------------------------------------------------------------
$200,000 ................................. 45,338 60,450 72,563 84,675 84,675
$400,000 ................................. 93,338 124,450 149,563 174,675 174,675
$600,000 ................................. 141,338 188,450 226,563 264,675 264,675
$800,000 ................................. 189,338 252,450 303,563 354,675 354,675
$1,000,000 ............................... 237,338 316,450 380,563 444,675 444,675
$1,200,000 ............................... 285,338 380,450 457,563 534,675 534,675
$1,400,000 ............................... 333,338 444,450 534,563 624,675 624,675
Mr. Brown currently has five full years of Credited Service and will have
23 years of Credited Service at Normal Retirement Age under the retirement
plans. Current Compensation Covered is the equivalent of the salary reported in
the Summary Compensation Table for fiscal 2001 and annual bonus for 2000 (and
actually paid in 2001). See "Existing Employment Agreements and Termination of
Employment and Change-in-Control Arrangements" for a description of the
supplemental pension payable to Mr. Brown upon his retirement.
13
EXISTING EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS OF NAMED EXECUTIVE OFFICERS
EMPLOYMENT AGREEMENTS
The Company or one of its subsidiaries has entered into employment
agreements with two of its named executive officers: Nicholas M. Brown, Jr.,
Executive Vice President of the Company and Chief Executive of Insurance
Operations, and Jerry de St. Paer, Executive Vice President, Chief Financial
Officer and Treasurer of the Company.
Mr. Brown entered into a new employment agreement with the Company as of
April 1, 2002. Mr. Brown's employment agreement provides that he will be
employed as the Chief Executive of Insurance Operations for the Company, an
Executive Vice President of the Company, and Chief Executive Officer of XL
Insurance, Inc. The agreement with Mr. Brown also provides for (i) a
continuation of his base salary at the rate in effect on the date of the
agreement, subject to annual review for possible increases at the discretion of
the Compensation Committee; (ii) annual bonus as approved by the Compensation
Committee based on corporate, individual and business unit performance measures
established by the Compensation Committee, with target annual bonus equal to 90%
of base salary; (iii) a special bonus payable as soon as practicable after the
effective date of the agreement in the amount of US$2,600,000; (iv) eligibility
on the same basis as comparable executives to participate in the Company's 1991
Performance Incentive Program, as determined in the discretion of the
administrator of that program; and (v) the right to participate in such other
employee benefit or fringe benefit programs for senior officers as are in effect
from time to time. The term of the employment agreement with Mr. Brown will
expire on January 1, 2005. Mr. Brown has agreed to certain confidentiality,
noncompetition and nonsolicitation provisions set forth in the agreement.
If Mr. Brown's employment is terminated by the Company without cause (as
defined) or by Mr. Brown for good reason (as defined), in either case within 2
years following a change in control (as defined), or his employment is
terminated by the Company in connection with or anticipation of a change in
control within one year prior to the date on which a change in control occurs,
he will be entitled to (i) his then-current base salary through the date of
termination; (ii) a cash lump sum payment equal to (x) two times his base salary
and (y) two times the highest of the largest annual bonus awarded in the three
year period preceding the year in which the change in control occurs or the
targeted annual bonus for the year of such termination; (iii) an amount equal to
the higher of his annual bonus actually awarded in the year immediately
preceding the year of the change in control or his targeted annual bonus for the
year of termination, prorated for the period actually worked in the year of
termination; (iv) accelerated vesting as of the date of termination of all stock
options or restricted shares held by him to the extent specified in the
applicable agreements; (v) continued participation for up to two years in
employee benefit and fringe benefit programs of the Company; (vi) accelerated
vesting of accrued benefits under the Company's pension plans; and (vii)
continued participation under the Company's pension plans for two years
following termination of employment. Mr. Brown will also be entitled to gross-up
payments in the event excise taxes are imposed on him under Section 280G of the
United States Internal Revenue Code, as set forth in the agreement.
In the event that Mr. Brown's employment is terminated by the Company not
for cause (other than in the circumstances described above) or Mr. Brown
terminates his employment (other than in the circumstances described above)
following the failure to appoint or reappoint him to the positions described
above, the assignment of duties to him that are inconsistent with his positions,
the relocation of his place of employment, or material breach by the Company of
the agreement, which, in any such case, is not cured as provided in the
agreement, Mr. Brown will receive the following: (i) his then-current base
salary through the date of termination; (ii) a cash lump sum payment equal to
(x) the amount of his base salary which would have been payable over the
following two years and (y) two times (or one times if the date of termination
is after January 1, 2003) the higher of targeted annual bonus for the year of
termination or the bonus actually awarded for the immediately preceding year;
(iii) a pro rata bonus for the year of termination in an amount determined by
the Compensation Committee, based on actual achievement of corporate, business
unit and individual performance results; (iv) vesting of stock options and
restricted shares held by him as specified in the applicable agreements; and (v)
continued participation in employee benefit programs and fringe benefit programs
for the remainder of the stated term of the agreement (or two years if shorter).
In the event of Mr. Brown's death or disability, he (or his estate) would
receive a pro rata bonus, accelerated vesting of stock options and restricted
stock, accelerated vesting under the Company's pension plans, and base salary
for six months after termination.
14
Mr. Brown and the Company have also entered into a supplemental pension
agreement. The supplemental pension agreement provides that Mr. Brown will
receive a supplemental pension, beginning on the later of his termination of
employment or the date he attains age 50, equal to 50% of his final average
compensation, including base salary and regular annual bonus at target. Such
supplemental pension benefits will be reduced by benefits payable to Mr. Brown
under the defined benefit plans of the Company or its affiliates or under the
defined benefit plans of Mr. Brown's prior employers. Any retirement benefit
that is payable prior to age 60 shall be reduced by 5% per year to reflect its
expected period of payment. This benefit will be payable to Mr. Brown for his
lifetime and, following his death, 50% of such amount would be payable to his
surviving spouse, if any, for her lifetime.
Mr. de St. Paer's employment agreement provides for (i) a base salary which
is subject to review for increase annually; (ii) an annual bonus pursuant to the
Company's incentive compensation plan as determined by the Compensation
Committee of the Board and stock option and restricted share grants pursuant to
the Company's performance incentive program; (iii) reimbursement for or payment
of certain travel, living and other expenses; and (iv) the right to participate
in such other employee or fringe benefit programs for senior executives as are
in effect from time to time. Mr. de St. Paer's employment agreement expires on
March 1, 2004 and will be automatically extended for additional one year periods
unless the Company or Mr. de St. Paer provides written notice at least three
months prior to the then scheduled expiration date. Mr. de St. Paer has agreed
to certain confidentiality, noncompetition and nonsolicitation provisions set
forth in the agreement.
Mr. de St. Paer's agreement further provides that, in the event of
termination of his employment prior to the expiration date by reason of death or
disability, Mr. de St. Paer (or in the case of death, Mr. de St. Paer's spouse
or estate) is entitled to receive his then current base salary through the end
of the sixth month after the month in which his employment is terminated. Mr. de
St. Paer's estate shall be entitled to any annual bonus awarded but not yet paid
and a PRO RATA
bonus for the year of death in an amount determined by the Compensation
Committee. Mr. de St. Paer's estate shall also be entitled to accelerated
vesting of his rights under any option or restricted share grants and pension
plans.
In the event of termination of his employment without cause prior to a
Change in Control (as defined in his employment agreement), Mr. de St. Paer will
be entitled to his then current base salary through the date on which
termination occurs, and (i) if termination occurs after March 1, 2003, a cash
lump sum payment equal to two times his then current base salary and the higher
of (x) his annual bonus for the year of termination and (y) the annual bonus
actually awarded in the year immediately preceding the year of termination; or
(ii) if termination occurs on or prior to March 1, 2003, a cash lump sum payment
equal to two times his then current base salary and two times the annual bonus
for the year of termination, and accelerated vesting of his stock options and
restricted shares; as well as any annual bonus earned but not yet awarded and
rights under any option or restricted share grants.
If Mr. de St. Paer is terminated (i) by the Company without cause within
the 24-month period following a Change in Control and, if the Change in Control
is stockholder approval of an Event (as defined in his employment agreement),
prior to a termination of the agreement to effect the Event (the "Post-Change
Period"); (ii) by Mr. de St. Paer for Good Reason (as defined in his employment
agreement) during the post-Change Period; or (iii) in connection with or
anticipation of a Change in Control within one year prior to the date on which a
Change in Control occurs; he will be entitled to (i) his then-current base
salary through the date on which termination occurs; (ii) a cash lump sum
payment equal to (x) two times his then current base salary and (y) two times
the largest annual bonus awarded in each of the three years preceding the year
in which the Change in Control occurs, provided that such bonus is at least
equal to the targeted annual bonus for the year of such termination; (iii) an
amount equal to the higher of (x) his annual bonus actually awarded in the year
immediately preceding the year of termination and (y) his annual bonus for the
year of termination, pro rated by a fraction for the number of months or days
actually worked in the year of termination. Mr. de St. Paer will also be
entitled to rights under any option or restricted share grants. In addition, Mr.
de St. Paer will be entitled to gross-up payments in the event excise taxes are
imposed on him under Section 280G of the United States Internal Revenue Code, as
set forth in the agreement.
CHANGE IN CONTROL ARRANGEMENTS
All grants of restricted shares and share options under the Company's
incentive compensation plans automatically vest upon a Change in Control (as
defined in such plans).
15
COMPENSATION COMMITTEE REPORT
In 2001, the Company updated its compensation principles and practices. The
practices and principles received extensive internal vetting and were approved
in principle by the Board. The practices and principles take into account, among
other matters, the Company's recent rapid increase in size and its expansion
into new geographic areas and new types of businesses. The Company's objective
is to be competitive in the several markets in which it operates, in order to
attract, retain and motivate the superior staff needed to be the business leader
and employer of choice.
The practices and principles maintain the Company's general principles of
favoring performance-based compensation, with a more disciplined link to
performance and more differentiation in pay to match performance.
The competitiveness of the compensation packages is tested in the relevant
markets; salary is generally set at median levels and variable factors are
designed so that top-performers are targeted to receive total compensation well
above market median. The Company also provides pension and other benefits and
perquisites.
In order to afford an opportunity for all employees of the Company and its
participating subsidiaries to purchase shares of the Company, the Board approved
for submission to shareholders an Employee Share Purchase Plan.
GLOBAL INCENTIVE COMPENSATION PLAN
In 1999, the Company reviewed its incentive compensation plans and policies
in light of its growth and expansion from a single business in one location to
several businesses operating in a number of locations throughout the world.
Implementation of the Global Incentive Compensation Plan (the "Plan") began with
the Company's operations in Bermuda and Ireland in 1999 and will encompass its
other subsidiaries as soon as practicable. Subsidiaries to which the Plan does
not yet apply generally continue to operate under plans specific to their
markets or plans in effect prior to their acquisition by the Company.
Annual incentive compensation under the Plan takes the form of a corporate
cash bonus pool allocated on the basis of corporate, business unit and
individual performance. The corporate bonus pool is funded based on four
weighted performance measures: (i) growth in cash earnings per share--40%; (ii)
cash return on tangible equity--30%; (iii) total return on tangible equity--20%;
and (iv) growth in book value per share, including dividends paid and excluding
unrealized appreciation or depreciation of investments--10%. Performance is
determined 65% on the Company's absolute performance against target rates in
excess of a risk free rate of return approved by the Compensation Committee and
35% on the Company's relative performance as compared to a peer group of
companies. The peer group is determined annually with the Compensation
Committee's approval and includes leading property and casualty and financial
guaranty insurers and reinsurers.
Long-term incentive compensation under the Plan seeks to align management
with the interests of the Company's shareholders to create shareholder value
over time. Long-term incentives under the Plan are annual stock option awards
and periodic restricted stock grants, generally vesting equally over three and
four years, respectively. The Compensation Committee approves stock option award
guidelines that generally remain in place for three years. The guidelines are
based on competitive practices and stock dilution considerations. Individual
awards within the guidelines are determined by level of responsibility,
corporate, business unit and individual performance, and other relevant factors.
Restricted stock typically will be granted every two or three years at levels up
to 20% of the value of an annual stock option award. Stock options and
restricted stock also may be granted in connection with new hires, personnel
retention following mergers or acquisitions, or in other special circumstances.
2001 COMPENSATION REVIEW
The tragic events of September 11 had two major consequences on the
Company's compensation decisions for 2001. First, the imbalance in supply and
demand for the Company's insurance and reinsurance products in the aftermath of
the catastrophe led to the creation of several new companies in Bermuda. Those
companies in turn were actively recruiting to fill their rosters, with the
Company's superior staff as a natural target. Therefore, on management's
recommendation, the Committee accelerated consideration of grants of restricted
stock and approved grants of 200,000 restricted shares in the aggregate in
January 2002 to such officers of the Company (other than Messrs. O'Hara, Brown,
Keeling, Lusardi) and employees as Mr. O'Hara recommended.
16
The terrorist attack also caused, as announced, major losses for the
Company. Since the calculations of the bonus pool under the Plan are based on
financial results, those results, giving effect to the losses, would have
generated a very limited bonus pool. Yet in the view of the Committee and the
Board, the Company's management and staff had performed well before the attack
and responded effectively to its impact. Among the many positive factors in
management's performance for the year were the successful integration of
Winterthur International, the acquisition of the majority holding in Le Mans Re,
the continued expansion of the financial products and services business and
excellent positioning of the Company for a resurging market. The market, as
evidenced by the stock price, also appeared strongly to approve of management's
efforts.
The Committee concluded that the severity of the September 11 losses, i.e.
the loss of four airliners in one day, the total loss of two major structures
and the attendant losses of their tenant enterprises, was extraordinary. The
Committee therefore recommended to the Board that the actual calculations under
the Plan be averaged with hypothetical calculations as if the attack had not
occurred. That averaging resulted in a bonus pool approximately half of what it
would have been absent the catastrophe. Incentive compensation was calculated on
that average basis.
The September 11 losses were unique, but nevertheless underscore the
inflexibility of the current Plan, with its simple reliance on calculable
financial results. The Company has expanded into businesses with catastrophic
losses, which can bring significant swings into the incentive compensation
calculations. The Committee has asked the Company to develop a revised Plan,
retaining the better elements of the current Plan but adding elements that would
allow the Plan as a whole to measure more accurately management's effectiveness
in building value for shareholders.
CHIEF EXECUTIVE OFFICER AND CHAIRMAN'S COMPENSATION
The Compensation Committee continues to believe that Mr. O'Hara is doing an
excellent job. He has set a clear strategic direction and is guiding its
implementation. The financial products and services business is growing at a
measured pace; the Winterthur International integration is progressing well, as
is the majority holding in Le Mans Re. The Company is very well positioned to
take advantage of the market turn; its financial position is strong, and the
spirit of its staff is excellent.
The Chairman's compensation has been significantly increased to reflect the
fact that that position has evolved into one that is approaching full-time. When
Mr. Esposito was elected, it was on the understanding that the position would
require between one-third and one-half of his time. The Company's geographic
expansion and its extension
into new areas, in particular financial products and services, have caused Mr.
O'Hara to rely increasingly on Mr. Esposito, who has resigned other positions to
allow him to devote more time and energy to the Company.
COMPENSATION COMMITTEE
John W. Weiser, Chairman
Robert R. Glauber
Dale R. Comey
John Loudon
17
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly dollar change in the
cumulative total Shareholder return over a ten year period on the Company's
Shares (assuming reinvestment of dividends) from June 1991 through December 2001
as compared to the cumulative total return of the Standard & Poor's 500 Stock
Index and the cumulative total return of the Standard & Poor's Property Casualty
Index. This graph assumes the investment of $100 in June 1991. The Company's
shares were listed on the New York Stock Exchange on July 19, 1991.
[REPRESENTATION OF DATA IN LINE GRAPH IN PRINTED PIECE.]
XL Capital S&P 500 S&P Prop and Casualty
Jul 91 100 100 100
Dec 91 128.53 110.19 106.93
Jun 92 124.22 109.45 102.92
Dec 92 164.92 118.54 121.88
Jun 93 169.22 124.3 124.52
Dec 93 158.34 130.42 117.11
Jun 94 139.72 126.02 111.75
Dec 94 145.17 132.14 119.75
Jun 95 194.12 158.82 131.82
Dec 95 230.4 181.75 159.12
Jun 96 270.24 200.09 164.41
Dec 96 294.48 223.46 189.69
Jun 97 416.52 269.5 232.9
Dec 97 506.77 298.01 271.8
Jun 98 628.81 350.76 283.35
Dec 98 613.9 383.17 250.28
Jun 99 469.15 430.6 242.25
Dec 99 438.6 463.8 183.07
Jun 00 466.24 461.81 174.22
Dec 00 761.83 421.59 279.28
Jun 01 724.35 393.38 283.25
Dec 01 814.53 371.55 252.6
* The performance shown above is not necessarily indicative of future price
performance.
AUDIT COMMITTEE REPORT
The primary purpose of the Audit Committee of the Board of Directors is to
assist the Board of Directors in fulfilling its responsibilities to oversee the
participation of management in the financial reporting process of the Company
and the role and responsibilities of the independent auditors, who report
directly to the Audit Committee. The Audit Committee comprises five independent
directors and operates under a written charter adopted and approved by the Board
of Directors on May 12, 2001, which is attached as Appendix A hereto. It is not
the responsibility of the Audit Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditors, as appropriate. It is
also not the responsibility of the Audit Committee to assure compliance with
laws and regulations and the Company's Code of Ethics or to set or determine the
adequacy of the Company's reserves.
Based on the Audit Committee's review of the audited financial statements,
its discussions with management regarding the audited financial statements, its
receipt of written disclosures and the letter from independent auditors required
by Independence Standards Board Standard No. 1, its discussions with the
independent auditor regarding such auditor's independence, the audited financial
statements, the matters required to be discussed by the Statement on Auditing
Standards 61 as amended and other matters the Audit Committee deemed relevant
and appropriate, the Audit Committee recommended to the Board of Directors that
the Company's audited financial statements for the fiscal year ended December
31, 2001 be included in the Company's Annual Report on Form 10-K for such fiscal
year.
AUDIT COMMITTEE
John T. Thornton, Chairman
Brian Corby
Paul Jeanbart
Cyril Rance
Ellen E. Thrower
18
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements for
the year ended December 31, 2001 and for the review of the financial statements
included in the Company's Quarterly Reports on Form 10-Q during the year ended
December 31, 2001 were approximately $4.2 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP billed $3.5 million for professional services
rendered to the Company for information technology services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2001. These fees primarily related to the continuation of
projects commenced in 1999 and 2000.
ALL OTHER FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for services
rendered to the Company, other than the services described above under "Audit
Fees" and "Financial Information Systems Design and Implementation Fees", for
the fiscal year ended December 31, 2001 were $7.0 million. Included in this
amount is $1.3 million of fees related to other attestation services that
comprised the audits for insurance statutory and regulatory purposes in the
various jurisdictions in which the Company operates, and the provision of
certain opinions relating to the Company's filings with the SEC, including
opinions delivered to securities underwriters in connection with various equity
and debt offerings during fiscal year 2001. This attestation work is in addition
to the amounts included in "Audit Fees" above. Of the remaining fees in this
category, approximately $4.7 million related to due diligence, merger and
integration-related services in connection with the Company's acquisition of
Winterthur International during fiscal year 2001.
GENERAL
The Audit Committee considered whether the provision of information
technology consulting services relating to financial information systems design
and implementation and other non-audit services performed by the independent
auditors is compatible with maintaining PricewaterhouseCoopers LLP's
independence.
II. APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee and the Board of Directors have recommended the
appointment of PricewaterhouseCoopers LLP, New York, New York, as the
independent auditors of the Company for the fiscal year ending December 31,
2002. Representatives of the firm are expected to be present at the Annual
General Meeting with an opportunity to make a statement if they desire to do so
and to be available to respond to appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPOINT
PRICEWATERHOUSECOOPERS LLP, NEW YORK, NEW YORK.
19
III. AMENDMENT AND RESTATEMENT OF THE 1991 PERFORMANCE
INCENTIVE PROGRAM
The Board of Directors of the Company has amended and restated the XL
Capital Ltd 1991 Performance Incentive Program (the "Program"), subject to
Shareholder approval.
The principal amendments to the Program are as follows. The maximum number
of shares available for grant under the Program have been increased by 8,000,000
shares, resulting in a total of approximately 10,000,000 shares available for
grant if such increase is approved. The number of shares that can be issued as
restricted shares, performance shares and performance units under the Program,
(I.E. awards other than stock options and stock appreciation rights) after March
8, 2002 will be limited to 1,000,000. Consistent with the Company's longstanding
policies, the Program has also been formally amended to provide that stock
options cannot be issued with an exercise price per share less than the fair
market value per share at the date of grant, stock options cannot have a term
longer than 10 years, and stock options and stock appreciation rights will not
be repriced without shareholder approval.
The shareholders are now requested to approve the amendment and restatement
of the Program. The following summary of the amended and restated Program is
qualified in its entirety by express reference to the Program, which is attached
as Appendix B to this proxy statement.
GENERAL
The Program is intended to provide incentives to attract, retain and
motivate employees and directors of the Company and its subsidiaries and
affiliates in order to achieve the Company's long-term growth and profitability
objectives. The Program will provide for the grant to eligible employees and
directors of stock options, share appreciation rights ("SARs"), restricted
stock, performance shares, and performance units (the "Awards"). An additional
8,000,000 shares of Common Stock have been reserved for issuance under the
Program (of which during a calendar year (i) the maximum number of shares with
respect to which options and SARs may be granted to an individual participant
under the Program will be 5,000,000 shares, and (ii) the performance shares,
performance units, and restricted stock granted to an individual participant
intended to qualify as performance-based compensation shall be not more than the
equivalent of 150,000 shares), subject to anti-dilution adjustments in the event
of certain changes in the Company's capital structure, as described below.
Shares issued pursuant to the Program will be either authorized but unissued
shares or treasury shares.
ELIGIBILITY AND ADMINISTRATION
Officers and other employees of the Company and its subsidiaries and
affiliates and directors of the Company will be eligible to be granted Awards
under the Program. The Program will be administered by the Compensation
Committee or such other Board committee or subcommittee (or the entire Board) as
may be designated by the Board (the "Committee"). The Committee will determine
which eligible employees and directors receive Awards, the types of Awards to be
received and the terms and conditions thereof. The Committee will have authority
to waive conditions relating to an Award or accelerate vesting of Awards. The
actual number of employees who will receive awards under the Program cannot be
determined because selection for participation in the Program is in the sole
discretion of the Committee.
AWARDS
Incentive stock options ("ISOs") intended to qualify for special tax
treatment in accordance with the Code and nonqualified stock options not
intended to qualify for special tax treatment under the Code may be granted for
such number of shares of Common Stock as the Committee determines. The Committee
will be authorized to set the terms relating to an option, including the
exercise price and the time and method of exercise. The terms of ISOs will
comply with the provisions of Section 422 of the Code. ISOs may only be granted
to employees.
Awards of restricted stock will be subject to such restrictions on
transferability and other restrictions, if any, as the Committee may impose.
Such restrictions will lapse under circumstances as the Committee may determine.
Except as otherwise determined by the Committee, eligible employees granted
restricted stock will have all of the rights of a stockholder, including the
right to vote restricted stock and receive dividends thereon.
Performance shares and performance units will provide for future issuance
of shares or payment of cash, respectively, to the recipient upon the attainment
of corporate performance goals established by the Committee over
20
specified performance periods. Prior to payment of performance shares or
performance units, the Committee will certify that the performance objectives
were satisfied. Performance objectives may vary from employee to employee.
If the Committee determines that an award of performance shares,
performance units or restricted stock should qualify under the performance-based
compensation exception to the $1 million cap on deductibility under Section
162(m) of the Code, the grant, vesting and/or settlement of such awards shall be
contingent upon achievement of pre-established performance goals based on one or
more of the following business criteria for the Company, on a consolidated
basis, and/or for specified subsidiaries or business units of the Company
(except with respect to the total stockholder return and earnings per share
criteria): earnings per share; revenues; cash flow; cash flow return on
investment; return on assets; return on investment; return on capital; return on
equity; economic value added; operating margin; net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees, and
extraordinary or special items; operating earnings; total stockholder return;
and any of the above goals as compared to the performance of a published or
special index deemed applicable by the Committee including, but not limited to,
the Standard & Poor's 500 Stock Index.
NONTRANSFERABILITY
Unless otherwise set forth by the Committee in an award agreement, Awards
will generally not be transferable by the participant other than by will or the
laws of descent and distribution and will be exercisable during the lifetime of
the participant only by such participant or his or her guardian or legal
representative.
CAPITAL STRUCTURE CHANGES
In the event of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations, exchanges of shares, spin-offs, liquidations,
reclassifications or other similar changes in the capitalization of the Company,
the number of shares of common stock available for grant under the Program shall
be adjusted proportionately or otherwise by the Board of Directors, and where
deemed appropriate, the number of shares covered by outstanding stock options,
the number of performance shares and shares of restricted stock outstanding, and
the option price of outstanding stock options shall be similarly adjusted.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may, at any time and from time to
time, suspend or terminate the Program in whole or amend it from time to time in
such respects as the Board of Directors of the Company may deem appropriate;
provided, however, that, without the consent of an affected participant, no
amendment, suspension, or termination of the Program may adversely affect the
rights of such participant under any award theretofore granted to him or her.
MARKET VALUE
The per share closing price of the Company's Shares on April 1, 2002 was
$92.51.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences of the Program, based upon current provisions of the Code, the
Treasury regulations promulgated thereunder and administrative and judicial
interpretation thereof, and does not address the consequences under any state,
local or foreign tax laws.
STOCK OPTIONS
In general, the grant of an option will not be a taxable event to the
recipient and it will not result in a deduction to the Company. The tax
consequences associated with the exercise of an option and the subsequent
disposition of shares of common stock acquired on the exercise of such option
depend on whether the option is a nonqualified stock option or an ISO.
Upon the exercise of a nonqualified stock option, the participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of common stock received upon exercise over the exercise price. If
the participant is employed by a United States subsidiary, the subsidiary will
generally be able to claim a deduction in an equivalent amount. Any gain or loss
upon a subsequent sale or exchange of the shares of common
21
stock will be capital gain or loss, long-term or short-term, depending on the
holding period for the shares of common stock.
Generally, a participant will not recognize ordinary taxable income at the
time of exercise of an ISO and no deduction will be available to the
participant's employer, provided the option is exercised while the participant
is an employee or within three months following termination of employment
(longer, in the case of disability or death). If an ISO granted under the
Program is exercised after these periods, the exercise will be treated for
United States federal income tax purposes as the exercise of a nonqualified
stock option. Also, an ISO granted under the Program will be treated as a
nonqualified stock option to the extent it (together with other ISOs granted to
the participant by the Company) first becomes exercisable in any calendar year
for shares of common stock having a fair market value, determined as of the date
of grant, in excess of $100,000.
If shares of common stock acquired upon exercise of an ISO are sold or
exchanged more than one year after the date of exercise and more than two years
after the date of grant of the option, any gain or loss will be long-term
capital gain or loss. If shares of common stock acquired upon exercise of an ISO
are disposed of prior to the expiration of these one-year or two-year holding
periods (a "Disqualifying Disposition"), the participant will recognize ordinary
income at the time of disposition, and the participant's employer will generally
be entitled to a deduction, in an amount equal to the excess of the fair market
value of the shares of common stock at the date of exercise over the exercise
price. Any additional gain will be treated as capital gain, long-term or
short-term, depending on how long the shares of common stock have been held.
Although the exercise of an ISO as described above would not produce
ordinary taxable income to the participant, it would result in an increase in
the participant's alternative minimum taxable income and may result in an
alternative minimum tax liability.
If an option is exercised through the use of shares of common stock
previously owned by the participant, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to such previously owned shares
upon such exercise. The amount of any built-in gain on the previously owned
shares generally will not be recognized until the new shares acquired on the
option exercise are disposed of in a sale or other taxable transaction.
RESTRICTED STOCK
A participant who receives shares of restricted stock will generally
recognize ordinary income at the time that they "vest", I.E., either when they
are not subject to a substantial risk of forfeiture or when they are freely
transferable. The amount of ordinary income so recognized will be the fair
market value of the common stock at the time the income is recognized
(determined without regard to any restrictions other than restrictions which by
their terms will never lapse), less the amount, if any, paid for the stock. This
amount is generally deductible for federal income tax purposes by the
participant's employer. Dividends paid with respect to common stock that is
non-vested will be ordinary compensation income to the participant (and
generally deductible by the employer). Any gain or loss upon a subsequent sale
or exchange of the shares of common stock, measured by the difference between
the sale price and the fair market value on the date restrictions lapse, will be
capital gain or loss, long-term or short-term, depending on the holding period
for the shares of common stock. The holding period for this purpose will begin
on the date following the date restrictions lapse.
In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to any restrictions other
than restrictions that by their terms will never lapse), and the participant's
employer will generally be entitled to a corresponding deduction. Dividends paid
with respect to shares as to which a proper Section 83(b) election has been made
will not be deductible. If a Section 83(b) election is made and the restricted
stock is subsequently forfeited, the participant will not be entitled to any
offsetting tax deduction.
SARS AND OTHER AWARDS
With respect to SARs, performance shares, and performance units, generally,
when a participant receives payment with respect to any such Award granted to
him or her under the Program, the amount of cash and the fair
22
market value of any other property received will be ordinary income to such
participant and will be allowed as a deduction for federal income tax purposes
to the employer.
DEDUCTIBILITY LIMIT ON COMPENSATION IN EXCESS OF $1 MILLION
Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid (including, unless an exception applies, compensation
otherwise deductible in connection with Awards granted under the Program) by a
public company to a "covered employee" (I.E., the chief executive officer and
four other most highly compensated executive officers of the Company) to no more
than $1 million. The Company currently intends to structure stock options
granted under the Program to comply with an exception to non-deductibility under
Section 162(m) of the Code in order to maximize the tax deductions available to
United States based subsidiaries of the Company.
NEW PROGRAM BENEFITS
The amount of benefits that will be granted under the Program cannot be
determined at this time.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND AND
RESTATE THE PROGRAM.
23
IV. PROPOSAL TO ADOPT THE EMPLOYEE SHARE PURCHASE PLAN
The Company's Board of Directors has adopted the Employee Share Purchase
Plan pursuant to which employees of the Company and its designated subsidiaries
may be entitled to purchase ordinary shares of the Company. The Employee Share
Purchase Plan is intended to enhance the Company's ability to attract and retain
employees and to better enable such persons to participate in the long-term
success and growth of the Company.
The material features of the Employee Share Purchase Plan are described
below, but this description is only a summary and is qualified in its entirety
by reference to the actual text of the Employee Share Purchase Plan. A copy of
the Employee Share Purchase Plan is attached as Appendix C hereto.
ADMINISTRATION
The Employee Share Purchase Plan will be administered by a committee of the
Board of Directors of the Company (the "Committee").
Subject to the express provisions of the Employee Share Purchase Plan, the
Committee has the power to determine the terms and conditions of each offering
of shares to employees thereunder. The Committee also has authority to adopt and
revise rules, guidelines and practices governing the plan, to interpret the
terms and provisions of the plan and any offering made thereunder, and to
otherwise supervise the administration of the plan.
STOCK SUBJECT TO THE PLAN
A total of 1,225,000 ordinary shares of the Company are reserved for
issuance under the Employee Share Purchase Plan, subject to equitable adjustment
by the Committee in the event of stock dividends, recapitalizations and other
similar corporate events.
ELIGIBILITY
All employees of the Company or any of its participating subsidiaries who
have been employed for at least six months (or another period determined by the
Committee not in excess of two years) will be eligible to purchase stock under
the plan. The participating subsidiaries will be those designated by the
Committee to participate in the Employee Share Purchase Plan.
OPERATION OF THE PLAN
The plan is designed to qualify as an "employee share purchase plan" under
Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
The plan will allow participating employees to purchase ordinary shares of the
Company through payroll withholding. The plan provides for consecutive six month
offering periods (or other periods of not more than 27 months as determined by
the Committee) under which participating employees can elect to have amounts
withheld from their total compensation during the offering period and applied to
purchase ordinary shares of the Company at the end of the period. Unless
otherwise determined by the Committee before an offering period, the purchase
price will be the lesser of 85% of the fair market value of ordinary shares of
the Company at the beginning or end of the offering period. Unless otherwise
determined by the Committee, the maximum number of shares that may be purchased
by an employee in any offering is 1,000 shares. In addition, applicable Code
limitations specify, in general, that a participant's right to purchase stock
under the plan cannot accrue at a rate in excess of $25,000 (based on the value
at the beginning of the applicable offering periods) per calendar year.
AMENDMENTS AND TERMINATION
The Employee Share Purchase Plan will terminate when all shares authorized
to be issued under it have been exhausted. The Board of Directors may
discontinue the Employee Share Purchase Plan at any time and may amend it from
time to time. Amendments may be made without shareholder approval except as
required to satisfy Section 423 of the Code.
NEW PLAN BENEFITS
The amount of benefits payable in the future under the Employee Share
Purchase Plan is not currently determinable and, as of the date of this
prospectus, no stock has been granted under this plan.
24
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the U.S. federal income tax
consequences to participants in the plan and to the Company, based upon current
provisions of the Code and the regulations and rulings thereunder, and does not
address the consequences under state, local, foreign or any other applicable tax
laws. A participating employee in the plan will not recognize income at the time
a purchase right is granted at the beginning of an offering period or when the
employee purchases shares at the end of the offering period. However, the
employee will be taxed on amounts withheld from salary under the plan as if
actually received, and a participating subsidiary that employs the employee will
generally be entitled to a corresponding income tax deduction.
If a participating employee disposes of shares purchased pursuant to the
plan after one year from the end of the applicable offering period and two years
from the beginning of the applicable offering period, the employee must include
in gross income as compensation (as ordinary income and not as capital gain) for
the taxable year of disposition an amount equal to the lesser of (a) the excess
of the fair market value of the shares at the beginning of the applicable
offering period over the purchase price computed on the first day of the
offering period or (b) the excess of the fair market value of the shares at the
time of disposition over their purchase price. Thus, if the one and two year
holding periods described above are met, the participating employee's ordinary
compensation income will be limited to the discount available on the first day
of the applicable offering period. If the amount recognized upon such a
disposition by way of sale or exchange of the shares exceeds the purchase price
plus the amount, if any, included in income as ordinary compensation income, the
excess will be long-term capital gain. If the one and two year holding periods
described above are met, the Company and its participating subsidiaries will not
be entitled to any income tax deduction.
If the participating employee disposes of shares within one year from the
end of the applicable offering period or two years from the beginning of the
offering period, the employee will recognize ordinary income at the time of
disposition which will equal the excess, if any, of the fair market value of the
shares on the date the participating employee purchases the shares (i.e., the
end of the applicable offering period) over the amount paid for the shares. A
participating subsidiary that employs the employee will generally be entitled to
a corresponding income tax deduction.
The excess, if any, of the amount recognized on disposition of the shares
over their fair market value on the date of purchase (I.E., the end of the
applicable offering period) will be short-term capital gain, unless the
participating employee's holding period for the shares (which will begin at the
time of purchase at the end of the offering period) is more than one year. If
the participating employee disposes of the shares for less than the purchase
price for the shares, the difference between the amount recognized and such
purchase price will be a long- or short-term capital loss, depending upon the
holding period for the shares.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL
TO ADOPT THE EMPLOYEE SHARE PURCHASE PLAN.
25
V. SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Shareholder proposals intended for inclusion in the Proxy Statement for the
2003 Annual General Meeting of Shareholders should be sent to the Company's
Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda and must be
received by December 7, 2002. In addition, if a shareholder intends to present a
proposal at the 2003 Annual General Meeting other than pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, and if the proposal is not received
by the Company's Secretary by February 20, 2003, then the proxies designated by
the Board of Directors of the Company for the 2003 Annual General Meeting of
Shareholders may vote in their discretion on any such proposal any Shares for
which they have been appointed proxies without mention of such matter in the
Proxy Statement for such meeting or on the proxy card for such meeting.
Any Shareholder entitled to vote at a meeting may nominate persons for
election as Directors if written notice of such intent is delivered or mailed,
postage prepaid, and received by the Secretary at the principal executive
offices of the Company not less than 5 days nor more than 21 days before the
date appointed for such meeting. The shareholder notice must include the
following information about the proposed nominee: (a) name, age, and business
and residence addresses; (b) principal occupation or employment; (c) class and
number of Shares or securities of the Company beneficially owned; and (d) any
other information required to be disclosed in solicitations of proxies pursuant
to Regulation 14A of the Securities Exchange Act of 1934, including the proposed
nominee's written consent to serve if elected. The notice must also include
information on the Shareholder making the nomination, including such
Shareholder's name and address as it appears on the Company's books and the
class and number of Shares of the Company beneficially owned. The nomination of
any person not made in compliance with the foregoing procedures shall be
disregarded.
26
VI. OTHER MATTERS
While management knows of no other issues, if any other matters properly
come before the meeting, it is the intention of the persons named in the
accompanying proxy form to vote the proxy in accordance with their judgment on
such matters.
PROXY SOLICITATION
The Company will bear the cost of this solicitation of proxies. Proxies may
be solicited by Directors, officers and employees of the Company and its
subsidiaries without receiving additional compensation. In addition to the
foregoing, the Company has retained Georgeson & Company Inc. to assist in the
solicitation of proxies for a fee of approximately $10,000 plus reasonable
out-of-pocket expenses and disbursements of that firm. Upon request, the Company
will also reimburse brokers and others holding stock in their names, or in the
names of nominees, for forwarding proxy materials to their principals.
THE COMPANY WILL FURNISH, WITHOUT CHARGE TO ANY SHAREHOLDER, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K THAT IT FILES WITH THE SECURITIES AND EXCHANGE
COMMISSION. A COPY OF THIS REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE COMPANY'S SECRETARY AT XL HOUSE, ONE
BERMUDIANA ROAD, HAMILTON HM 11, BERMUDA.
As ordered,
Brian M. O'Hara
PRESIDENT AND CHIEF EXECUTIVE OFFICER
27
APPENDIX A
XL CAPITAL LTD
AUDIT COMMITTEE CHARTER
ORGANIZATION
The Board of Directors shall designate annually an Audit Committee
comprised of three or more Directors, each of whom is independent of management
and the Company and free of any relationship which, in the opinion of the Board
of Directors, would interfere with the Director's exercise of independent
judgment as a Committee member. The Audit Committee shall comply with all
applicable rules and regulations of the New York Stock Exchange.
PURPOSE
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibilities to oversee the participation of
management and the independent auditors in the financial reporting process of
the Company. Without limiting the foregoing, it is not the responsibility of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. This is the responsibility of
management and the independent auditors. It is also not the responsibility of
the Audit Committee to assure compliance with laws and regulations and the
Company's Code of Ethics or to set or determine the adequacy of the Company's
reserves.
MEETINGS
The Committee shall meet at least four times each year, or more frequently
as circumstances dictate. In order to foster open communications, the Committee
shall meet at least annually with management, the director of the internal audit
department and the independent auditors in separate executive sessions to
discuss any matters that the Committee or each of these groups believes should
be discussed privately.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company's independent auditors are ultimately accountable to the Board
of Directors and the Audit Committee, and the Board of Directors and the Audit
Committee have the ultimate authority and responsibility to select, evaluate,
and, where appropriate, replace the independent auditors. Additionally, the
Audit Committee shall:
o Obtain from the independent auditors each year a formal written
statement delineating all relationships between the auditors and the
Company;
o Periodically engage in a dialogue with and require disclosure from the
independent auditors regarding all relationships or services that may
impact the objectivity and independence of the auditors; and
o Recommend that the Board of Directors take appropriate action in
response to the outside auditor's report to satisfy itself of the
outside auditor's independence.
RESPONSIBILITIES
The Audit Committee shall:
Review with Company management and the independent auditors the proposed
overall plan and scope of the Company's annual audit, the adequacy of the
Company's system of internal controls, and the Company's audited financial
statements and related disclosures.
Discuss with the independent auditors their judgments about the quality,
not just the acceptability, of the Company's accounting principles as applied in
its financial reporting and any recommendations made by the Company's
independent auditors concerning its system of internal controls.
Approve the fees and expenses of the independent auditors in connection
with the Company's annual audit and review the fees and expenses of the
independent auditors in connection with services rendered apart from the annual
audit.
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Review annually with the General Counsel and the Compliance Director the
Company's Code of Ethics, as well as the administration, training, monitoring
and auditing of the related Compliance Program.
Review any exceptions to the Company's Code of Ethics and the actions
management has taken to resolve the exceptions.
Review with the Company's General Counsel any legal, regulatory and
environmental matters that may have a material impact on the Company's financial
statements.
Review the activities of the Company's internal audit department, including
the proposed annual audit plan, periodic progress reports on the status of the
plan, and summaries of any significant issues raised during the performance of
internal audits.
Review the reserving methodology and process of the Company and the
Company's reserves, together with internal or external actuarial reports or
studies.
Review and assess the adequacy of the Audit Committee Charter on an annual
basis.
Review and assess compliance with all applicable rules and regulations of
the Securities and Exchange Commission and the New York Stock Exchange
specifically applicable to the composition and responsibilities of the Audit
Committee.
Review the effects of new and proposed accounting standards applicable to
the Company.
Perform such other activities as the Committee or the Board of Directors
may from time to time deem necessary or appropriate.
A-2
APPENDIX B
XL CAPITAL LTD
1991 PERFORMANCE INCENTIVE PROGRAM
AS AMENDED AND RESTATED EFFECTIVE MARCH 8, 2002
I. INTRODUCTION
A. PURPOSE OF THE PROGRAM
XL Capital Ltd (the "Company") has established the Program to further its
long-term financial success by offering stock, and stock-based compensation, to
employees and directors of the Company whereby they can share in achieving and
sustaining such success. The Program also provides a means to attract and retain
the executive talent needed to achieve the Company's long-term growth and
profitability objectives.
B. DEFINITIONS
When used in the Program, the following terms shall have the meanings set
forth below:
"Award(s)" shall mean Performance Shares, Restricted Stock, Incentive Stock
Options, Nonstatutory Stock Options, Stock Appreciation Rights or Performance
Units granted under the Program.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall be deemed to have occurred if and when any
person, meaning an individual, a partnership, or other group or association as
defined in Sections 13(d) and 14(d) of the United States Securities Exchange Act
of 1934 (other than a group of which the Grantee is a member or which has been
organized by the Grantee for the purpose of making such acquisition), acquires,
directly or indirectly, 40 percent or more of the combined voting power of the
outstanding securities of the Company having a right to vote in the election of
directors. Ownership of 40 percent or more of the combined voting power of the
outstanding securities of the Company by any person controlled directly or
indirectly by the Company shall not be deemed a Change of Control of the
Company.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the entire Board or the Compensation Committee, or
such other committee or subcommittee of the Board as may be designated by the
Board to administer the Program.
"Common Stock" shall mean the ordinary shares of the Company, par value of
$0.01 per share, and may be either stock previously authorized but unissued, or
stock required by the Company.
"Company" shall mean XL Capital Ltd, a Cayman Islands corporation, any
other entity in which XL Capital Ltd owns 20% or more of the ordinary voting
power or equity, and any successor in a reorganization or similar transaction.
"Disability" shall mean the inability of a Participant to perform the
services normally rendered due to any physical or mental impairment that can be
expected to be of either permanent or indefinite duration, as determined by the
Committee on the basis of appropriate medical evidence, and that results in the
Participant's Termination of Employment; provided, however, that with respect to
any Participant who has entered into an employment agreement with the Company,
the term of which has not expired at the time a determination concerning
Disability is to be made, Disability shall have the meaning attributed in such
employment agreement.
"Fair Market Value" shall mean with respect to a given day, the closing
sales price of Common Stock, as reported by such responsible reporting service
as the Committee may select, or if there were no transactions in the Common
Stock on such day, then the last preceding day of which transactions took place.
The foregoing notwithstanding, the Committee may determine the Fair Market Value
in such other manner as it may deem more appropriate for Program purposes or as
is required by applicable laws or regulations.
B-1
"Incentive Stock Option" or "ISO" shall mean a right to purchase the
Company's Common Stock which is intended to comply with the terms and conditions
for an incentive stock option as set forth in Section 422 of the Code, or such
other sections of the Code as may be in effect from time to time.
"Nonstatutory Stock Option" or "NQSO" shall mean a right to purchase the
Company's Common Stock which is not intended to comply with the terms and
conditions for a tax-qualified stock option, as set forth in Section 422 of the
Code, or such other sections of the Code as may be in effect from time to time.
"Participant" shall mean any employee of the Company and any member of the
Board (whether or not an employee of the Company) who, in the judgment of the
Committee, is in a position to make a substantial contribution to the
management, growth, and success of the Company and is thus designated by the
Committee to receive an Award.
"Performance Goal" shall mean any financial, statistical or other measure
selected by the Committee, including without limitation (a) the attainment of a
specified financial or statistical objective or (b) the performance of the
Company relative to a peer group as applicable to a specific Performance Period.
"Performance Period" shall mean a period set by the Committee over which
Performance Shares or Performance Units may be earned. There may be more than
one Performance Period in existence at any one time, and the duration of
Performance Periods may differ from each other.
"Performance Shares" shall mean Common Stock granted to a Participant with
respect to a Performance Period under Article III of the Program, together with
any other rights attached thereto or associated therewith including without
limitation any right to receive cash in connection therewith.
"Performance Unit" shall mean a cash award made pursuant to Section VI of
the Program.
"Program" shall mean the Company's 1991 Performance Incentive Program.
"Restricted Stock" shall mean a share of common stock granted to a
Participant under Article IV of the Plan. Restricted Stock awards entitle the
Participant to receive shares of Common Stock which have certain restrictions
that lapse upon satisfaction of conditions imposed by the Committee at the time
of award.
"Retirement" shall mean, except as otherwise set forth in an Award
agreement, a Participant's Termination of Employment by reason of the
Participant's retirement at his normal retirement date, pursuant to and in
accordance with a pension, retirement or similar plan or other regular
retirement practice of the Company, or in accordance with the early retirement
provisions thereof.
"Stock Appreciation Rights" or "SARs" shall mean a contingent right granted
to a Participant with respect to Stock Options granted under Article V of the
Plan, which grants the Participant the right to receive the difference between
the Fair Market Value of the Common Stock on the date of exercise and the price
at which the SAR was granted.
"Termination of Employment" shall mean a cessation of the employee-employer
relationship between a Participant and the Company for any reason or, in the
case of a member of the Board, termination of the director's service on the
Board for any reason.
II. PROGRAM ADMINISTRATION
A. ADMINISTRATION
The Program shall be administered by the Committee. Subject to the express
provisions of the Program, the Committee shall have full and exclusive authority
to interpret the Program, to prescribe, amend and rescind rules and regulations
relating to the Program and to make all other determinations deemed necessary or
advisable in the implementation and administration of the Program; provided,
however, that subject to the express provisions hereof or unless required by
applicable law or regulation, no action of the Committee shall adversely affect
the terms and conditions of any Award made to, or any rights hereunder or under
any grant letter of, any Participant, without such Participant's consent. The
Committee's interpretation and construction of the Program shall be conclusive
and binding on all persons, including the Company and all Participants.
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B. PARTICIPATION
The Committee may, from time to time, make all determinations with respect
to selection of Participants and the Award or Awards to be granted to each
Participant. In making such determinations, the Committee may take into account
the nature of the services rendered or expected to be rendered by the respective
Participants, their present and potential contributions to the Company's success
and such other factors as the Committee in its discretion shall deem relevant.
C. MAXIMUM NUMBER OF SHARES AVAILABLE
Subject to adjustment as provided under Article II, Paragraph D of the
Program, (i) the maximum number of shares which may be granted under the Program
after March 8, 2002 is 10,000,000 shares plus shares which subsequently become
available as a result of forfeitures, cancellation or expiration of options or
restricted stock granted under the Program or separate agreements entered into
before the effective date of the Program, and (ii) of such maximum number of
shares, no more than an aggregate of 1,000,000 shares may be granted as
Performance Shares, Restricted Stock or Performance Units after March 8, 2002
under the Program. In the event that a stock option issued under the Program
expires or is terminated unexercised as to any shares covered thereby, or shares
are forfeited for any reason under the Program, such shares shall thereafter be
again available for issuance under the Program, and the number of shares
surrendered in payment of any exercise or purchase price of any stock option or
other Award under the Program will again be available for Awards (other than
Incentive Stock Options) under the Program. At the Committee's discretion, these
shares may be granted as stock options, Performance Shares, Restricted Stock,
Stock Appreciation Rights or any combination of these provided that the combined
total number of shares granted does not exceed the overall share authorization
described above.
Subject to adjustment as provided under Article II, Paragraph D of the
Program, (i) the maximum number of shares of Common Stock with respect to which
stock options and Stock Appreciation Rights may be granted during a calendar
year to any Participant under the Program shall be 5,000,000 shares, and (ii)
with respect to Performance Shares, Performance Units or Restricted Shares
intended to qualify, as set forth in Article VII, as performance-based
compensation within the meaning of Section 162(m) of the Code, the maximum
number of shares of Common Stock (or amount of cash in the case of Performance
Units) subject to such awards granted during a calendar year to any Participant
under the Program shall be the equivalent of 150,000 shares.
No Incentive Stock Options shall be granted after March 8, 2012.
D. ADJUSTMENTS
In the event of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations, exchanges of shares, spin-offs, liquidations,
reclassifications or other similar changes in the capitalization of the Company,
the number of shares of Common Stock available for grant under this Program
shall be adjusted proportionately or otherwise by the Board, and where deemed
appropriate, the number of shares covered by outstanding stock options, the
number of Performance Share and Restricted Stock shares outstanding, and the
option price of outstanding stock options shall be similarly adjusted. Also, in
instances where another corporation or other business entity is acquired by the
Company, and the Company has assumed outstanding employee option grants under a
prior existing plan of acquired entity, similar adjustments are permitted at the
discretion of the Committee. In the event of any other change affecting the
Common Stock reserved under the Program, such adjustment, if any, as may be
deemed equitable by the Board, shall be made to give proper effect to such
event.
E. REGISTRATION CONDITIONS
1. Unless issued pursuant to a registration statement, under the U.S.
Securities Act of 1933, as amended, no shares shall be issued to a Participant
under the Program unless the Participant represents and agrees with the Company
that such shares are being acquired for investment and not with a view to the
resale or distribution thereof, or such other documentation as may be required
by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with such
Act.
2. Any restriction on the resale of shares shall be evidenced by the
following legend on the stock certificate or such other legend as the Company
deems appropriate.
B-3
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The shares cannot be offered,
transferred or sold unless (a) a registration statement under such Act is in
effect with respect to such shares, or (b) a written opinion from counsel
acceptable to the Company is obtained to the effect that no such registration is
required. The Company reserves the right to refuse the transfer of such shares
until such conditions have been fulfilled. The Articles of Association of the
Company contain other restrictions on share transfers."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (or such other legend deemed appropriate by the
Company) shall also bear such a legend unless, in the opinion of counsel or the
Company, the securities represented thereby need no longer be subject to the
restriction contained herein. The provisions of this paragraph shall be binding
upon all subsequent holders of certificates bearing such legend.
F. COMMITTEE ACTION
The Committee may, through Award agreements, limit its discretion under
this Program. To the extent such discretion is not specifically waived in an
Award agreement, the Committee shall retain such discretion.
G. NO OPTION OR SAR REPRICING WITHOUT SHAREHOLDER APPROVAL
Except as provided in Article II.D hereof relating to certain antidilution
adjustments, unless the approval of shareholders of the Company is obtained,
ISOs, NQSOs and SARs issued under the Program shall not be amended to lower
their exercise prices and ISOs, NQSOs and SARs issued under the Plan will not be
exchanged for other stock options or SARs with lower exercise prices.
III. PERFORMANCE SHARES
A. GRANT OF PERFORMANCE SHARES
After selecting Participants who will receive Awards of Performance Shares
for a given Performance Period, the Committee shall inform each such Participant
of the Award to be granted to the Participant at the completion of the
Performance Period, and the applicable terms and conditions of the Award.
The Committee shall cause to be issued to each Participant a grant letter
specifying the number of Performance Shares equal to his Award and the number of
Performance Shares which may be awarded subject to the terms and conditions of
such grant letter and the Program.
B. ESTABLISHMENT OF PERFORMANCE GOALS
1. The Committee shall establish the Performance Goals for each Performance
Period. The Committee any also establish a schedule for such Performance Period
setting forth the percentage of the Performance Share Award which will be
earned, based on the extent to which the Performance Goals for such Performance
Period are actually achieved, the date on which Performance Shares awarded
hereunder shall vest, or the date on which such Performance Shares shall be
forfeited (in whole or in part) by the Company for failure to meet the
Performance Goals, shall be as specified by the Committee.
2. As promptly as practical after each Performance Period, the Committee
shall determine whether, or the extent to which, the Performance Goals have been
achieved. Based on such determination, the Participant shall be deemed to have
earned the Performance Shares awarded to him, or a percentage thereof as
provided in any schedule established by the Committee. In addition, the
Committee may, from time to time during a Performance Period and consistent with
the terms and conditions of applicable Awards and Performance Goals, determine
that all or a portion of the Performance Shares awarded to one or more
Participants have been earned.
3. If during the course of a Performance Period, there should occur, in the
opinion of the Committee, significant changes in economic conditions or in the
nature of the operations of the Company, or any other pertinent changes which
the Committee did not foresee or accurately predict the extent of in
establishing the Performance Goals for such Performance Period and which, in the
Committee's sole judgment, have, or are expected to have, a substantial effect
on the performance of the Company during such Performance Period, the Committee
may make such adjustment to the Performance Goals or measurement of such
Performance Goals as the Committee, in its sole judgment, may deem appropriate.
B-4
C. TERMINATION OF EMPLOYMENT
In the event of a Participant's Termination of Employment prior to
satisfaction of conditions related to outstanding Performance Share Awards for
reasons other than discharge or resignation, the Participant or the
Participant's estate or beneficiary, in the sole discretion of the Committee,
may be entitled to receive from Performance Shares held by the Corporation a pro
rata number of shares with respect to that Performance Share Award, or such
larger portion of the Award, as the Committee shall determine. In the event of
Termination of Employment due to resignation or discharge, the Award will be
cancelled, and the Participant shall not be entitled to any further
consideration with respect to the forfeited Performance Shares, subject to the
discretion of the Committee to release restrictions on all or any part of an
Award.
IV. RESTRICTED STOCK
A. GRANT OF RESTRICTED STOCK
1. Following the selection of Participants who will receive a Restricted
Stock Award, the Committee shall inform each Participant of the number of
Restricted Stock shares granted to the Participant and the terms and applicable
conditions of the Award.
2. Each certificate for Restricted Stock shall be registered in the name of
the Participant and deposited together with a stock power endorsed in blank,
with the Company.
B. OTHER TERMS AND CONDITIONS
Company stock, when awarded pursuant to a Restricted Stock Award, will be
represented by a stock certificate registered in the name of the Participant who
is granted the Restricted Stock Award. Such certificate shall be deposited
together with a stock power endorsed in blank with the Company. The Participant
shall be entitled to receive dividends and all other distributions during the
restriction period and shall have all shareholder's rights with respect to such
stock, if any, with the exception that: (1) the Participant may not transfer
ownership of the shares during the restriction period except by will or the laws
of descent and distribution, (2) the Participant will not be entitled to
delivery of the stock certificate during the restriction period, (3) the Company
will retain custody of the stock during the restriction period, and (4), a
breach of a restriction or a breach of the terms and conditions established by
the Committee pursuant to the Restricted Stock Award will cause a forfeiture of
the Restricted Stock shares. The Committee may impose additional restrictions,
terms, or conditions upon the Restricted Stock Award.
C. RESTRICTED STOCK AWARD AGREEMENT
Each Restricted Stock Award shall be evidenced by a Restricted Stock Award
Agreement in such form and containing such terms and conditions not inconsistent
with the provisions of the Program as the Committee from time to time shall
approve.
D. TERMINATION OF EMPLOYMENT
In the event of a Participant's Termination of Employment prior to
satisfaction of conditions related to outstanding Restricted Stock Awards for
reasons other than discharge or resignation, the Participant or the
Participant's estate or beneficiary, in the sole discretion of the Committee,
may be entitled to receive from Restricted Stock shares held by the Corporation
a pro rata number of shares with respect to that Restricted Stock Award, or such
larger portion of the Restricted Stock Award, as the Committee shall determine.
In the event of Termination of Employment due to resignation or discharge, all
Restricted Stock shares held by the Company shall be forfeited, and the
Participant shall not be entitled to any further consideration with respect to
the forfeited Restricted Stock shares, subject to the discretion of the
Committee to release of restrictions on all or any part of an Award, or unless
otherwise stated in the Restricted Stock Agreement.
E. PAYMENT FOR RESTRICTED STOCK
Restricted Stock Awards may be made by the Committee under which the
Participant shall, upon payment of the par value, or, in the alternative, under
which the Participant shall pay all (or any lesser amount than all) of the Fair
Market Value of the stock, determined as of the date the Restricted Stock Award
is made, receive a Restricted
B-5
Stock Award. If payment is required, such purchase price shall be paid as
provided in the Restricted Stock Award Agreement.
V. STOCK OPTIONS
A. STOCK OPTION TERMS AND CONDITIONS
All stock options granted to Participants under the Program shall be
evidenced by agreements which shall be subject to applicable provisions of the
Program, and such other provisions as the Committee may adopt, including the
following provisions:
1. PRICE: The option price per share of Nonstatutory Stock Options
(NQSOs) and Incentive Stock Options (ISOs) shall not be less than 100
percent of the Fair Market Value of a share of Common Stock on the
date of grant.
2. PERIOD: An ISO shall not be exercisable for a term longer than ten
years from date of its grant. NQSOs shall have a term not longer than
ten years from the date of grant.
3. TIME OF EXERCISE: The Committee may prescribe the timing of the
exercise of the stock option and any minimums and installment
provisions and may accelerate the time at which a stock option becomes
exercisable.
4. EXERCISE PROCEDURES: A stock option, or portion thereof, shall be
exercised by delivery of a written notice of exercise to the Company,
and payment of the full price of the shares being purchased.
5. PAYMENT: The price of an exercised stock option, or portion thereof,
may be paid:
a. in cash or by check, bank draft or money order payable to the
order of the Company; or
b. through the delivery of shares of Common Stock owned by the
Participant, having an aggregate Fair Market Value as determined
on the date of exercise equal to the option price; or
c. by a combination of both a and b above. The Committee may impose
such limitations and prohibitions on the use of any shares of
Common Stock to exercise a stock option as it deems appropriate.
6. SPECIAL RULE FOR INCENTIVE STOCK OPTIONS: Notwithstanding any other
provisions of the Program, the aggregate Fair Market Value of the
shares of Common Stock, determined as of the time the stock option is
granted, for which the Participant may first exercise Incentive Stock
Options in any calendar year shall not exceed U.S. $100,000 or such
other individual employee grant limit as may be in effect under the
Code.
7. EFFECT OF LEAVES OF ABSENCE: It shall not be considered a Termination
of Employment when a Participant is placed by the Company on military
leave, sick leave or other bona fide leave of absence. In case of such
leave of absence, the employment relationship for Program purposes
shall be continued until the later of the date when such leave of
absence equals ninety days or when the Participant's right to
reemployment with the Company shall no longer be guaranteed either by
statute or contract.
8. TERMINATION OF EMPLOYMENT: In the event of Termination of Employment,
the following provisions shall apply unless waived by the Committee,
or as otherwise specifically provided in the Stock Option Agreement:
a. Discharge for Cause: All outstanding options shall be cancelled.
b. Termination Other Than for Cause: Unless and except as otherwise
specified in a Participant's agreement, all options shall expire
on the earlier of (i) 90 days following the Termination of
Employment or (ii) the expiration of the full term of the option.
Notwithstanding the foregoing, the Committee may rescind the right to
exercise stock options following Termination of Employment if the Participant
has been found to be directly or indirectly engaged in any activity which is in
competition with the Company or otherwise adverse to or not in the best interest
of the Company. Further, no option agreement for ISOs may extend their exercise
period beyond the time allowed by the Code.
B. STOCK APPRECIATION RIGHTS (SARS)
1. Stock options granted under the Program may be granted with Stock
Appreciation Rights attached on a one-to-one basis. SARs are subject to all
terms and conditions of the related stock options. SARs may only be granted
B-6
in connection with a stock option, and as such are subject to the limit on
shares authorized under Article II, Paragraph C. A Stock Appreciation Right
shall entitle the Participant to receive from the Company an amount equal to the
positive difference between the Fair Market Value of a share of Common Stock on
the exercise of the Stock Appreciation Right and the exercise price of the
related stock option.
2. Stock Appreciation Rights will be subject to all applicable provisions
of the Program, as well as any other provisions the Committee may adopt. The
exercise of an SAR will result in the cancellation of the related stock option,
and options so cancelled shall not be available for future awards under the
Program. The exercise, expiration, forfeiture or other termination of a stock
option will result in termination of the attached SAR.
VI. PERFORMANCE UNIT AWARDS
A. Each Award shall be subject to the limitations and terms provided in the
Program. A new Award may commence on the first anniversary date of the preceding
Award. The Committee shall grant to each Participant in a Performance Unit Award
a number of units with a target cash value as shall be established by the
Committee prior to the first year of each Performance Period.
B. To allow for recognition of significant individual contributions to the
Company's performance, individual awards of Performance Units may be granted to
new Participants during the first year of a Performance Period, at the
discretion of the Committee.
C. Performance Unit Awards for each Participant shall be recommended by the
Chief Executive Officer and submitted to the Committee for approval.
Participants will generally be notified of their individual Performance Unit
Award within the first six months of a Performance Period.
D. Performance Goals for each Performance Period will be recommended by the
Chief Executive Officer of the Company, and submitted to the Committee for
approval.
E. Once a Performance Period has begun and Performance Goals have been
established, they may not be changed for that Performance Period except in the
event of:
1. A significant acquisition of another business concern by the Company,
as deemed by the Committee;
2. A disposition of a significant part of the business by the Company, as
deemed by the Committee;
3. An external calamitous event, such as a natural disaster, which has a
significant effect on the Company, as determined by the Committee;
4. Any significant changes due to legislation, as deemed by the
Committee; or
5. Any other extraordinary event, as deemed by the Committee.
F. A performance valuation schedule shall be recommended by the Chief
Executive Officer of the Company and approved by the Committee before grants are
made under the Program. The Committee shall approve or modify the proposed
schedule which will contain various levels of performance and corresponding
Performance Unit values.
G. At the end of a Performance Period, the Committee shall review actual
performance and determine the Award payouts, if any.
H. In the event of a Participant's Termination of Employment prior to the
satisfaction of conditions related to outstanding Performance Unit Awards for
reasons other than discharge or resignation, the Participant, or the
Participant's estate or beneficiary, in the sole discretion of the Committee,
may be entitled to receive a pro-rata distribution of outstanding Performance
Unit Awards. In the event of Termination of Employment due to resignation or
discharge, all Awards will be cancelled, and the Participant shall not be
entitled to any further consideration with respect to the forfeited Performance
Units, subject to the discretion of the Committee.
VII. PERFORMANCE AWARDS
A. PERFORMANCE AWARDS GRANTED TO DESIGNATED PARTICIPANTS
If the Committee determines that an award of Performance Shares,
Performance Units or Restricted Stock to be granted to a Participant should
qualify as "performance-based compensation" for purposes of Section 162(m) of
B-7
the Code, the grant, vesting and/or settlement of such award shall be contingent
upon achievement of preestablished performance goals and other terms set forth
in this Article VII.A.
1. PERFORMANCE GOALS GENERALLY. The performance goals for such awards
("Performance Awards") shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such criteria,
as specified by the Committee consistent with this Article VII.A. Performance
goals shall be objective and shall otherwise meet the requirements of Section
162(m) of the Code and regulations thereunder (including Regulation 1.162-27 and
successor regulations thereto). The Committee may determine that such
Performance Awards shall be granted, vested and/or settled upon achievement of
any one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, vesting and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
2. BUSINESS CRITERIA. One or more of the following business criteria for
the Company, on a consolidated basis, and/or for specified subsidiaries or
business units of the Company (except with respect to the total stockholder
return and earnings per share criteria), shall be used by the Committee in
establishing performance goals for such Performance Awards: (1) earnings per
share; (2) revenues; (3) cash flow; (4) cash flow return on investment; (5)
return on assets, return on investment, return on capital, return on equity; (6)
economic value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees, and
extraordinary or special items; operating earnings; (9) total stockholder
return; and (10) any of the above goals as compared to the performance of a
published or special index deemed applicable by the Committee including, but not
limited to, the Standard & Poor's 500 Stock Index.
3. PERFORMANCE PERIOD. Timing for Established Performance Goals.
Achievement of performance goals in respect of such Performance Awards shall be
measured over a performance period, as specified by the Committee. Performance
goals shall be established not later than 90 days after the beginning of any
performance period applicable to such Performance Awards, or at such other date
as may be required or permitted for "performance-based compensation" under
Section 162(m) of the Code.
4. SETTLEMENT OF PERFORMANCE AWARDS. Other Terms. Settlement of such
Performance Awards shall be in cash, Common Stock or other property, in the
discretion of the Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with such Performance
Awards, but may not exercise discretion to increase any such amount payable to a
the Participant in respect of a Performance Award subject to this Article VII.A.
The Committee shall specify the circumstances in which such Performance Awards
shall be paid or forfeited in the event of Termination of Employment by the
Participant prior to the end of a performance period or settlement of
Performance Awards.
B. WRITTEN DETERMINATION
All determinations by the Committee as to the establishment of performance
goals or potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Article VII.A. shall be
made in writing in the case of any award intended to qualify under Section
162(m) of the Code.
VIII. GENERAL PROVISIONS
A. AMENDMENT AND TERMINATION OF PROGRAM
The Board may, at any time and from time to time, suspend or terminate the
Program in whole or amend it from time to time in such respects as the Board may
deem appropriate; provided, however, that, without the consent of an affected
Participant, no amendment, suspension, or termination of the Program may
adversely affect the rights of such Participant under any Award theretofore
granted to him or her.
B. GOVERNMENT AND OTHER REGULATIONS
The right of the Company to issue Awards under the Program shall be subject
to all applicable laws, rules and regulations, and to such approvals by any
government agencies as may be required.
B-8
C. OTHER COMPENSATION PLANS AND PROGRAMS
The Program shall not be deemed to preclude the implementation by Company
of other compensation plans or programs which may be in effect from time to
time.
D. MISCELLANEOUS PROVISIONS
1. NO RIGHT TO CONTINUE EMPLOYMENT: Nothing in the Program or in any Award
confers upon any Participant the right to continue in the employ of the Company
or interferes with or restricts in any way the rights of the Company to
discharge any Participant at any time for any reason whatsoever, with or without
cause.
2. NON-TRANSFERABILITY: Except as otherwise determined by the Committee and
set forth in the applicable Award Agreement, prior to being earned under
Articles III, IV, or VI, or being exercised under Article V, no right or
interest of any Participant in any Award under the Program shall be (a)
assignable or transferable, except by will or the laws of descent and
distribution or a valid beneficiary designation taking effect at death made in
accordance with procedures established by the Committee, or (b) liable for, or
subject to, any lien, obligation or liability, except to the extent that
Non-Qualified Stock Options may be pledged as security in a margin account for
their exercise.
3. DESIGNATION OF BENEFICIARY: A Participant, in accordance with procedures
established by the Committee, may designate a person or persons to receive, in
the event of the Participant's death, (a) any payments with respect to which the
Participant would then be entitled, and (b) the right to continue to participate
in the Program to the extent of such Participant's outstanding Awards. Such
designation shall be made upon forms supplied by and delivered to the Company
and may be revoked in writing.
4. WITHHOLDING TAXES: The Company may require a payment from a Participant
to cover applicable withholding for income and employment taxes. The Company
reserves the right to offset such tax payment from any other funds which may be
due the Participant by the Company.
5. PROGRAM EXPENSES: Any expenses of administering the Program shall be
borne by the Company.
6. CONSTRUCTION OF PROGRAM: The interpretation of the Program and the
application of any rules implemented hereunder shall be determined solely in
accordance with the laws of the State of New York.
7. UNFUNDED PROGRAM: The Program shall be unfunded, and the Company shall
not be required to segregate any assets which may at any time be represented by
Awards. Any liability of the Company to any person with respect to an Award
under this Program shall be based solely upon any obligations which may be
created by this Program: no such obligation of the Company shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.
8. BENEFIT PLAN COMPUTATIONS: Any benefits received or amounts paid to a
Participant with respect to any Award granted under the Program shall not have
any effect on the level of benefits provided to or received by any Participant,
or the Participant's estate or beneficiary, as part of any employee benefit plan
(other than the Program) of the Company.
9. PRONOUNS, SINGULAR AND PLURAL: The masculine may be read as feminine,
the singular as plural and the plural as singular as necessary to give effect to
the Program.
E. EFFECTIVE DATES
The amendment and restatement of the Program will become effective on
approval by the Board of the Company, subject to shareholder approval. All
outstanding Awards shall remain in effect until all outstanding awards have been
earned, have been exercised or repurchased, have expired or have been cancelled.
B-9
APPENDIX C
XL CAPITAL LTD
EMPLOYEE SHARE PURCHASE PLAN
1. PURPOSE
The purpose of this Plan is to provide an opportunity for employees of XL
Capital Ltd (the "Company") and its Participating Subsidiaries, to purchase
ordinary shares of the Company and thereby to have an additional incentive to
contribute to the prosperity of the Company. It is the intention of the Company
that the Plan qualify as an "employee share purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"), although the Company
makes no undertaking nor representation to maintain such qualification.
2. DEFINITIONS
The following terms, when used in the Plan, shall have the following
meanings:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to a particular section of the Code include any successor
provisions.
(c) "Committee" means the committee appointed by the Board of Directors to
administer the Plan pursuant to the provisions of Section 3(a) below.
(d) "Common Stock" means the ordinary shares, par value US$0.01 per share, of
the Company.
(e) "Company" means XL Capital Ltd, a Cayman Islands corporation.
(f) "Fair Market Value" on a particular date means the mean between the highest
and lowest sales prices of a share of Common Stock on the principal stock
exchange or stock market on which the Common Stock may be listed or
admitted to trading. If there were no sales on such date, the respective
prices on the most recent prior day on which sales were reported shall be
used. If the foregoing method of determining fair market value should be
inconsistent with Section 423 of the Code, "Fair Market Value" shall be
determined by the Committee in a manner consistent with Section 423 of the
Code and shall mean the value as so determined.
(g) "Offering" means a period, designated by the Committee in accordance with
the provisions of Section 6 of the Plan, on the first day of which options
will be granted to eligible employees pursuant to Section 8(a) of the Plan
and on the last day of which such options will be deemed exercised or will
expire, as applicable, in accordance with Section 8(b) of the Plan.
(h) "Participant" or "Participating Employee" means an employee of the Company
or a Participating Subsidiary who is eligible to participate in an Offering
under the Plan pursuant to Section 5 below and who elects to participate in
such Offering in accordance with Section 6 below.
(i) "Participating Subsidiary" means, with respect to an Offering under the
Plan, a Subsidiary the employees of which are authorized by the Committee
as provided in Section 5 below to participate in such Offering.
(j) "Plan" means the XL Capital Ltd Employee Share Purchase Plan set forth
herein, as amended from time to time.
(k) "Parent" means a parent corporation as defined in Section 424(e) of the
Code, including a corporation, which becomes such a parent in the future.
(l) "Subsidiary" means a subsidiary corporation as defined in Section 424(f) of
the Code, including a corporation, which becomes such a subsidiary in the
future.
(m) "Total Compensation" means, with respect to any Offering, the cash
compensation received by a Participating Employee from the Company or a
Participating Subsidiary for services, including overtime, premium pay,
commissions and annual bonus, in each case prior to reduction for pre-tax
contributions made to a plan or salary reduction contributions to a plan
excludable from income under Sections 125 or 402(g) of the Code.
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Notwithstanding the foregoing, "Total Compensation" shall not include
severance pay, stay-on bonuses, retirement income, welfare benefits or
income derived from share options, share appreciation rights or other
equity-based compensation.
3. ADMINISTRATION
(a) The Plan shall be administered by a committee of the Board consisting
of two or more directors appointed from time to time by the Board.
(b) Subject to the provisions of the Plan, the powers of the Committee
shall include having the authority, in its discretion, to:
(i) define, prescribe, amend and rescind rules, regulations,
procedures, terms and conditions relating to the Plan; and
(ii) interpret, administer and construe the Plan and make all other
determinations necessary or advisable for the administration of
the Plan, including but not limited to correcting defects,
reconciling inconsistencies and resolving ambiguities.
(c) The interpretation by the Committee of the terms and conditions of the
Plan, and its administration of the Plan, and all action taken by the Committee,
shall be final, binding and conclusive on the Company, its stockholders,
Subsidiaries, all Participants and employees, and upon their respective
successors and assigns, and upon all other persons claiming under or through any
of them.
(d) Members of the Board, members of the Committee and persons to whom
authority is delegated under Section 3(e) below acting under this Plan shall be
fully protected in relying in good faith upon the advice of counsel and shall
incur no liability except for gross or willful misconduct in the performance of
their duties.
(e) The Committee may delegate its authority to administer the Plan to any
individuals as the Committee may determine and such individuals shall serve
solely at the pleasure of the Committee. Any individuals who are authorized by
the Committee to administer the Plan shall have the full power to act on behalf
of the Committee, but shall at all times be subordinate to the Committee and the
Committee shall retain ultimate authority for the administration of the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) Subject to paragraph (c) below, the aggregate number of shares of
Common Stock that may be sold under the Plan is 1,225,000 shares of Common
Stock.
(b) If the number of shares of Common Stock that Participating Employees
become entitled to purchase is greater than the number of shares of Common Stock
that are offered in a particular Offering or that remain available under the
Plan, the available shares of Common Stock shall be allocated by the Committee
among such Participating Employees in such manner as it deems fair and
equitable.
(c) In the event of any change in the Common Stock, through
recapitalization, merger, consolidation, stock dividend or split, combination or
exchange of shares, spin-off or otherwise, the Committee may make such equitable
adjustments in the Plan and the then outstanding Offerings as it deems necessary
and appropriate including, but not limited to, changing the number of shares of
Common Stock reserved under the Plan, and the purchase price of shares in the
current Offering; provided that any such adjustments shall be consistent with
Sections 423 and 424 of the Code.
(d) Shares of Common Stock which are to be delivered under the Plan may be
obtained by the Company from its treasury, by purchasing such shares on the open
market or from private sources, or by issuing authorized but unissued shares of
its Common Stock. Shares of authorized but unissued Common Stock may not be
delivered under the Plan if the purchase price thereof is less than the par
value (if any) of the Common Stock at the time. The Committee may (but need not)
provide at any time or from time to time (including without limitation upon or
in contemplation of a change in control) for a number of shares of Common Stock
equal in number to the number of shares then subject to options under this Plan
to be issued or transferred to, or acquired by, a trust (including but not
limited to a grantor trust) for the purpose of satisfying the Company's
obligations under such options, and, unless prohibited by applicable law, such
shares held in trust shall be considered authorized and issued shares with full
dividend and voting rights, notwithstanding that the options to which such
shares relate might not be exercisable at the time.
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5. ELIGIBILITY
(a) All employees of the Company and any Participating Subsidiaries
designated by the Committee from time to time will be eligible to participate in
the Plan, in accordance with and subject to such rules and regulations as the
Committee may prescribe; provided, however, that (a) such rules shall comply
with the requirements of the Code (including but not limited to Section
423(b)(3), (4) and (8) thereof), (b) the Committee may (but need not) in its
discretion exclude employees who have been employed by the Company or a
Participating Subsidiary less than two years and/or highly compensated employees
within the meaning of Section 414(q) of the Code from being eligible to
participate in the Plan or any Offering, but unless and until otherwise
determined by the Committee, only employees who have been employed less than six
months will be excluded, and (c) no employee may be granted an option under the
Plan if such employee, immediately after the option is granted, owns stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of his employer corporation or any Parent or Subsidiary (with the rules
of Section 424(d) of the Code applicable in determining the stock ownership of
an employee, and stock which the employee may purchase under outstanding
options, whether or not such options qualify for the special tax treatment
afforded by Section 421 (a) of the Code, shall be treated as stock owned by the
employee), and (d) all Participating Employees shall have the same rights and
privileges under the Plan except for differences which may be mandated by local
law and which are consistent with Section 423(b)(5) of the Code.
6. OFFERINGS; PARTICIPATION
The Company may make Offerings of up to 27 months' duration each, to
eligible employees to purchase shares of Common Stock under the Plan, until all
shares authorized to be delivered under the Plan have been exhausted or until
the Plan is sooner terminated by the Board. Subject to the preceding sentence,
the number, commencement date and duration of any Offerings shall be determined
by the Committee in its sole discretion; provided that, unless the Committee
determines otherwise, (a) the first Offering shall commence on July 1, 2002 and
shall terminate on December 31, 2002, and (b) a new six-month Offering shall
commence immediately after the end of the previous Offering. The duration of any
Offering need not be the same as the duration of any other Offering, and more
than one Offering may commence or terminate on the same date if the Committee so
provides. Subject to such rules and procedures as the Committee may prescribe,
an eligible employee may elect to participate in an Offering at such time(s) as
the Committee may permit by authorizing a payroll deduction (to the extent
permitted by applicable local law) for such purpose in one percent increments of
up to a maximum of twenty percent of his or her Total Compensation with respect
to such Offering or such lesser amount as the Committee may prescribe.
Participant elections may be made in any manner deemed appropriate by the
Committee from time to time, including by voice response or through the
internet. The Committee may (but need not) permit employee contributions to be
made by means other than payroll deductions, provided that in no event shall an
employee's contributions (excluding interest, if any, credited pursuant to
Section 7(a) below) from all sources in any Offering exceed twenty percent of
his or her Total Compensation with respect to such Offering or such lesser
amount as the Committee may prescribe. The Committee may at any time suspend or
accelerate the completion of an Offering if required by law or deemed by the
Committee to be in the best interests of the Company, including in the event of
a change in ownership or control of the Company or any Subsidiary.
7. PAYROLL DEDUCTIONS
(a) The Company will maintain payroll deduction accounts on its books for
all Participating Employees, and may (but need not, unless required by
applicable law) credit such accounts with interest if (and only if) the
Committee so directs at such rate (if any) as the Committee may prescribe. All
employee contributions and any interest thereon which the Committee may
authorize in accordance with the preceding sentence shall be credited to such
accounts. Employee contributions and any interest credited to the payroll
deduction accounts of Participating Employees need not, unless required by
applicable law, be segregated from other corporate funds and, to the extent
permitted by applicable law, may be used for any corporate purpose.
(b) At such times as the Committee may permit and subject to such rules and
procedures as the Committee may prescribe, a Participating Employee may suspend
his or her payroll deduction during an Offering, or may withdraw the balance of
his or her payroll deduction account and thereby withdraw from participation in
an Offering.
(c) Any balance remaining in an employee's payroll deduction account after
shares have been purchased in an Offering pursuant to Section 8(b) below will be
refunded to the Participating Employee. Upon termination of the
C-3
Plan, all amounts in the accounts of Participating Employees shall be carried
forward into their payroll deduction accounts under a successor plan, if any, or
refunded to them, as the Committee may decide.
(d) In the event of the termination of a Participating Employee's
employment for any reason, his or her participation in any Offering under the
Plan shall cease, no further amounts shall be deducted pursuant to the Plan and
the balance in the employee's account shall be paid as soon as practicable
following such termination of employment to the employee, or, in the event of
the employee's death, to the employee's beneficiary designated under this Plan
or, in the absence of such a beneficiary designation, to the employee's estate.
8. PURCHASE; LIMITATIONS
(a) Subject to Section 5 above and within the limitations of Section 8(d)
below, each person who is an eligible employee of the Company or a Participating
Subsidiary on the first day of an Offering under the Plan is hereby granted an
option, on the first day of such Offering, to purchase a number of whole and/or
partial shares of Common Stock at the end of such Offering determined by
dividing twenty percent (or such lesser percentage as may be specified by the
Committee as the maximum employee contribution percentage in such Offering) of
such employee's Total Compensation with respect to such Offering, plus such
interest (if any) as the Committee may authorize to be credited during such
Offering in accordance with Section 7(a) above, by 85 percent of the Fair Market
Value of a share of Common Stock on the first date of such Offering or on the
last date of such Offering, whichever is lower, provided that in no event shall
the number of shares of Common Stock that may be purchased under any such option
exceed 1,000 shares or such higher or lower number of whole or partial shares as
the Committee may have specified in advance of such Offering as the maximum
amount of stock which may be purchased by an employee in such Offering. The
purchase price of such shares under such options shall be determined in
accordance with Section 8(c) below. The Company's obligation to sell and deliver
Common Stock in any Offering or pursuant to any such option shall be subject to
the approval of any governmental authority whose approval the Committee
determines it is necessary or advisable to obtain in connection with the
authorization, issuance, offer or sale of such Common Stock.
(b) As of the last day of the Offering, the payroll deduction account of
each Participating Employee shall be totaled. Subject to the provisions of
Section 7(b) above and 8(d) below, if such account contains sufficient funds as
of that date to purchase one or more whole or partial shares of Common Stock at
the price determined under Section 8(c) below, the Participating Employee shall
be conclusively deemed to have exercised the option granted pursuant to Section
8(a) above for as many whole or partial shares of Common Stock as the amount of
his or her payroll deduction account (including any contributions made by means
other than payroll deductions and including any interest credited to the
account) at the end of the Offering can purchase (but in no event for more than
the total number of shares that are subject to the option); such employee's
account will be charged for the amount of the purchase and for all purposes
under the Plan the employee will be deemed to have acquired the shares on that
date; and either a stock certificate representing such shares will be issued to
him or her, or the Company's record keeper will make an entry on its books and
records evidencing that such shares have been duly issued or transferred as of
that date, as the Committee may direct. Notwithstanding any provision of the
Plan to the contrary, unless otherwise determined by the Committee, fractional
shares may be purchased under the Plan. Any option granted pursuant to Section
8(a) above which is not deemed exercised as of the last day of the Offering in
accordance with the foregoing provisions of this Section 8(b) shall expire on
that date.
(c) Unless the Committee determines before the first day of an Offering
that a higher price that complies with Section 423 of the Code shall apply, the
price at which shares of Common Stock may be purchased under each option granted
pursuant to Section 8(a) above shall be the lesser of (i) an amount equal to 85
percent of the Fair Market Value of the Common Stock at the time such option is
granted, or (ii) an amount equal to 85 percent of the Fair Market Value of the
Common Stock at the time such option is exercised.
(d) In addition to any other limitations set forth in the Plan, no employee
may be granted an option under the Plan which permits his or her rights to
purchase stock under the Plan, and any other stock purchase plan of his or her
employer corporation and its Parent and Subsidiary that is qualified under
Section 423 of the Code, to accrue at a rate which exceeds US$25,000 of the Fair
Market Value of such stock (determined at the time such option is granted) for
each calendar year in which the option is outstanding at any time. The Committee
may further limit the amount of Common Stock that may be purchased by any
employee during an Offering in accordance with Section 423(b)(5) of the Code.
C-4
9. NO TRANSFER
(a) No option, right or benefit under the Plan may be transferred by any
employee, whether by will, the laws of descent and distribution, or otherwise,
and all options, rights and benefits under the Plan may be exercised during an
employee's lifetime only by such employee.
(b) Book entry accounts and certificates for shares of Common Stock
purchased under the Plan may be maintained or registered, as the case may be,
only in the name of the Participating Employee or, if such employee so indicates
on his or her payroll deduction authorization form, in his or her name jointly
with a member of his or her family, with right of survivorship.
10. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
With respect to employees of the Company or any Subsidiary who reside or
work outside the United States, the Committee may, in its sole discretion, adopt
rules or procedures relating to the operation and administration of the Plan to
accommodate the specific requirements of local laws and procedures. Without
limiting the generality of the foregoing, the Committee is specifically
authorized to adopt rules and procedures regarding handling of payroll
deductions, payment of interest, conversion of local currency, payroll tax,
withholding procedures and handling of stock certificates which vary with local
requirements. The Committee may also, where it deems it appropriate, establish
one or more separate plans to reflect such amended or varied rules and
procedures.
11. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective when adopted by the Board, provided that
the stockholders of the Company approve it within 12 months thereafter. If not
so approved by shareholders, the Plan shall be null, void and of no force or
effect. If so approved, the Plan shall remain in effect until all shares
authorized to be issued or transferred hereunder have been exhausted or until
the Plan is sooner terminated by the Board of Directors, and may continue in
effect thereafter with respect to any options outstanding at the time of such
termination if the Board of Directors so provides.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Plan may be amended by the Board of Directors, without shareholder
approval, at any time and in any respect, unless shareholder approval of the
amendment in question is required under Section 423 of the Code. The Plan may
also be terminated at any time by the Board of Directors.
13. GENERAL PROVISIONS
(a) Nothing contained in this Plan shall be deemed to confer upon any
person any right to continue as an employee of or to be associated in any other
way with the Company for any period of time or at any particular rate of
compensation.
(b) No person shall have any rights as a stockholder of the Company with
respect to any shares optioned under the Plan until such shares are issued or
transferred to him or her.
(c) All expenses of adopting and administering the Plan shall be borne by
the Company, and none of such expenses shall be charged to any employee.
(d) The Plan shall be governed by and construed under the laws of the State
of New York, without giving effect to the principles of conflict of laws of that
State.
(e) The Company shall not be under any obligation to issue Common Stock
upon the exercise of any option unless and until the Company has determined
that: (i) it and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.
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[LOGO] XL CAPITAL 2002 ANNUAL GENERAL MEETING
MAY 10, 2002
HAMILTON, BERMUDA
THERE ARE THREE WAYS TO VOTE YOUR PROXY
TELEPHONE INTERNET MAIL
This method is available for Visit the Internet website at Simply complete, sign and date
residents of the U.S. and Canada. http:// proxy.georgeson.com. Enter your Proxy Card and return it
On a touch tone telephone, call the COMPANY NUMBER AND CONTROL in the postage-paid envelope.
TOLL FREE 1 o 800 o 786 o 5337, 24 NUMBER shown below and follow the If you are delivering your
hours a day, 7 days a week. You instructions on your screen. proxy by telephone or the
will be asked to enter ONLY the Available until 5 p.m. Eastern Time Internet, please do not mail
CONTROL NUMBER shown below. Have on Thursday, May 9, 2002. your Proxy Card.
your Proxy Card ready, then follow
the pre-recorded instructions.
Available until 5 p.m. Eastern Time
on Thursday, May 9, 2002.
------------------------------ -----------------------------------
COMPANY NUMBER CONTROL NUMBER
------------------------------ -----------------------------------
TO DELIVER YOUR PROXY BY MAIL, PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
[X] PLEASE MARK YOUR
VOTE AS INDICATED
IN THIS EXAMPLE.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 THROUGH 4
(INCLUSIVE.)
FOR AGAINST FOR AGAINST ABSTAIN
1.To elect the following six Nominees as [ ] [ ] 2. To appoint PricewaterhouseCoopers LLP, New York [ ] [ ] [ ]
Class I Directors to hold office until 2005: to act as the Independent Auditors of the Company
for the fiscal year ending December 31, 2002.
(01) R. Bornhuetter (02) M.P. Esposito
(03) R.R. Glauber (04) P. Jeanbart 3. To approve the amendment and restatement of the FOR AGAINST ABSTAIN
(05) C. Rance (06) E.E. Thrower Company's 1991 Performance Incentive Program. [ ] [ ] [ ]
INSTRUCTION: To withhold authority to vote for any nominee
listed, write that nominee's name in the space provided 4. To approve the Company's Employee Share FOR AGAINST ABSTAIN
below: Purchase Plan. [ ] [ ] [ ]
---------------------------------------------------------
DATE: --------------------------,2002
-------------------------------------
-------------------------------------
SIGNATURE(S)
IMPORTANT: Please sign exactly as
your name(s) appear(s) hereon. If
you are acting as
attorney-in-fact, corporate
officer, or in a fiduciary
capacity, please indicate the
capacity in which you are signing.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
PROXY
XL CAPITAL LTD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Shareholder of XL Capital Ltd hereby appoints Brian M. O'Hara
or, failing him, Paul S. Giordano to be its proxy and to vote for the
undersigned on all matters arising at the meeting or any adjournment thereof and
to represent the undersigned at the Annual General Meeting of Shareholders of XL
Capital Ltd to be held on May 10, 2002 in Hamilton, Bermuda.
THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED
HEREIN. IF NO INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" ITEMS 1
THROUGH 4 (INCLUSIVE) ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY
DESCRIBED IN THE NOTICE OF SUCH MEETING AND THE ACCOMPANYING PROXY STATEMENT,
RECEIPT OF WHICH ARE ACKNOWLEDGED. THE UNDERSIGNED RATIFIES AND CONFIRMS ALL
THAT SAID PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF.
(Continued, and to be marked, dated and signed, on the other side)
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SEE REVERSE SIDE
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