PROSPECTUS
$1,010,834,000
[COMPANY'S LOGO]
Zero-Coupon Convertible Debentures Due May 23,
2021 and Class A Ordinary Shares issuable upon conversion
of the Debentures
---------------
The selling securityholders named on page 45 are registering up to
$1,010,834,000 of their debentures and the ordinary shares issuable upon
conversion of the debentures.
The debentures are:
o unsecured;
o unsubordinated;
o convertible into our ordinary shares under the circumstances described
in this prospectus;
o redeemable by us for cash on or after May 23, 2004 at the redemption
price described in this prospectus;
o redeemable at the option of holders on May 23, 2002, May 23, 2004, May
23, 2006, May 23, 2008, May 23, 2011 and May 23, 2016 at the purchase
price described in this prospectus; and
o redeemable at the option of holders under certain specified change of
control events as described in this prospectus.
Our ordinary shares are listed on the New York Stock Exchange under the
symbol "XL". On November 27, 2001, the closing price of our ordinary shares as
reported on the New York Stock Exchange was $92.50 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
See "Risk Factors" beginning on page 13 of this prospectus to read about
important factors you should consider before buying the debentures or our
ordinary shares.
---------------
The date of this prospectus is November 29, 2001.
---------------
TABLE OF CONTENTS
Prospectus
ABOUT THIS PROSPECTUS........................................................3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS...................4
AVAILABLE INFORMATION........................................................5
INCORPORATION OF DOCUMENTS BY REFERENCE......................................5
SUMMARY......................................................................7
RISK FACTORS................................................................13
USE OF PROCEEDS.............................................................13
RATIOS OF EARNINGS TO FIXED CHARGES.........................................14
PRICE RANGE OF ORDINARY SHARES AND DIVIDENDS................................14
DESCRIPTION OF DEBENTURES...................................................15
DESCRIPTION OF ORDINARY SHARES..............................................36
CERTAIN CAYMAN ISLANDS AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....39
SELLING SECURITYHOLDERS.....................................................45
PLAN OF DISTRIBUTION........................................................51
ENFORCEMENT OF CIVIL LIABILITIES............................................53
LEGAL MATTERS...............................................................53
EXPERTS.....................................................................53
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY UNITED
STATES FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
ABOUT THIS PROSPECTUS
This prospectus constitutes part of a registration statement on Form S-3
that we filed with the SEC using a "shelf" registration process. Under this
shelf process, any selling securityholder may sell any combination of the
securities described in this prospectus in one or more offerings up to a total
dollar amount of proceeds of $1,010,834,000. This prospectus provides you with a
general description of the securities the selling securityholders may offer.
Each time the selling securityholders sell securities, we or the selling
securityholders will provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus supplement may also
add, update, or change information contained in this prospectus. You should read
both this prospectus and any prospectus supplement together with additional
information described under the heading "Available Information."
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides a
"safe harbor" for forward-looking statements. This prospectus, our most recent
annual report on Form 10-K, our Annual Report to Stockholders, any of our proxy
statements, Forms 10-K, Forms 10-Q or Forms 8-K or any other of our written or
oral statements made by or on behalf of us may include forward-looking
statements which reflect our current views with respect to future events and
financial performance. Such statements include forward-looking statements both
with respect to XL Capital and the insurance and reinsurance sectors in general
(both as to underwriting and investment matters). Statements which include the
words "expect", "intend", "plan", "believe", "project", "anticipate", "will",
and similar statements of a future or forward-looking nature identify
forward-looking statements for purposes of the PSLRA or otherwise.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. We believe that these factors include, but are not limited to, the
following:
o the size of our claims may change due to the preliminary nature of
reports and estimates of loss and damage;
o the timely and full recoverability of reinsurance placed by us with
third parties;
o the projected amount of ceded reinsurance recoverables and the ratings
and creditworthiness of reinsurers may change;
o the timing of claims payments being faster or the receipt of
reinsurance recoverables being slower than anticipated by us;
o ineffectiveness or obsolescence of our business strategy due to
changes in current or future market conditions;
o increased competition on the basis of pricing, capacity, coverage
terms or other factors;
o greater frequency or severity of claims and loss activity, including
as a result of natural or man-made catastrophic events, than our
underwriting, reserving or investment practices anticipate based on
historical experience or industry data;
o developments in the world's financial and capital markets which
adversely affect the performance of our investments;
o availability of borrowings and letters of credit under our credit
facilities;
o changes in regulation or tax laws applicable to us, our subsidiaries,
brokers or customers;
o acceptance of our products and services, including new products and
services;
o changes in the availability, cost or quality of reinsurance;
o changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers;
o loss of key personnel;
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o the effects of mergers, acquisitions and divestitures, including,
without limitation, the Winterthur International acquisition;
o changes in rating agency policies or practices;
o changes in accounting policies or practices;
o changes in general economic conditions, including inflation, foreign
currency exchange rates and other factors; and
o the effects of business disruption or economic contraction due to
terrorism or other hostilities.
The foregoing review of important factors should not be construed as
exhaustive and should be read in conjunction with the other cautionary
statements that are included or incorporated by reference herein or elsewhere.
We undertake no obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments or
otherwise.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith file reports, proxy and information
statements and other information with the SEC. Such reports, proxy statements
and other information can be inspected and copied at prescribed rates at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC also maintains a website that
contains reports, proxy and information statements and other information. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. The website address is http://www.sec.gov. In addition, such material can
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring to another document filed separately with the
SEC. The information that XL Capital files after the date of the initial
registration statement and prior to the effectiveness of the registration
statement shall be deemed to be incorporated by reference into this prospectus.
The information that XL Capital files after the date of this prospectus with the
SEC will automatically update and supersede this information. XL Capital
incorporates by reference into this prospectus the documents listed below and
any future filings made with the SEC under sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act.
o Annual Report on Form 10-K for the year ended December 31, 2000, filed
on March 29, 2001;
o Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
filed on May 15, 2001, June 30, 2001, filed on August 14, 2001 and
September 30, 2001, filed on October 29, 2001;
o Current Reports on Form 8-K dated February 16, 2001, filed on February
23, 2001, dated May 17, 2001, filed on May 18, 2001, dated May 18,
2001, filed on May 18, 2001, dated July 25, 2001, filed on July 27,
2001, dated July 25, 2001, filed on August 9, 2001, dated September 4,
2001, filed on September 5, 2001, dated September 7, 2001, filed on
September 11, 2001, dated September 13, 2001, filed on September 17,
2001, dated October 4, 2001, filed on October 4, 2001, dated October
29, 2001, filed on October 29, 2001 and dated November 1, 2001, filed
on November 2, 2001; and
o Proxy Statement dated April 6, 2001, filed on April 6, 2001.
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Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document that is or is
considered to be incorporated by reference modifies or supersedes such
statement. Any statement that is modified or superseded shall not, except as so
modified or superseded, constitute a part of this prospectus.
You may request a copy of any of the documents which are incorporated by
reference in this prospectus, other than exhibits which are not specifically
incorporated by reference into such documents, and our Articles of Association
and Memorandum of Association, at no cost, by writing or telephoning us at the
following:
Investor Relations
XL Capital Ltd
XL House
One Bermudiana Road
Hamilton, Bermuda HM11
Telephone: (441) 292-8515
UNTIL FEBRUARY 27, 2002, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Prospective investors should
consider carefully the information set forth in this prospectus under the
heading "Risk Factors" beginning on page 14 and the documents incorporated in
this prospectus by reference. All selling securityholders must deliver a
prospectus at or prior to the time of any sale of the Debentures or the Ordinary
Shares issuable upon conversion of the Debentures. In this prospectus, unless
the context requires otherwise, "XL Capital," "we," "us," and "our" refer to XL
Capital Ltd and its subsidiaries.
XL CAPITAL
We are a leading provider of insurance and reinsurance coverages and
financial products and services to industrial, commercial and professional
service firms, insurance companies and other enterprises on a worldwide basis.
We were incorporated with limited liability under the Cayman Islands
Companies Law on March 16, 1998, as EXEL Merger Company Ltd. We were formed as a
result of the merger of EXEL Merger Company Ltd, EXEL Limited and Mid Ocean
Limited on August 7, 1998, and were renamed EXEL Limited on that date. This
merger was accounted for as a purchase business combination. EXEL and Mid Ocean
were companies that were incorporated in the Cayman Islands in 1986 and 1992,
respectively. At a special general meeting held on February 1, 1999, the
shareholders of EXEL Limited approved a resolution changing the name of EXEL
Limited to XL Capital Ltd.
We are incorporated in the Cayman Islands. Our principal executive offices
are located at XL House, One Bermudiana Road, Hamilton, Bermuda HM11. Our
telephone number is (441) 292-8515. Our website is www.xlcapital.com. The
information contained on our website is not incorporated by reference into this
prospectus.
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The Offering
Debentures......................... $1,010,834,000 aggregate principal
amount at maturity of Zero-Coupon
Convertible Debentures Due May 23,
2021, subject to an upward
adjustment in the event there is an
upward interest adjustment.
Issue Price........................ Each Debenture was issued at a
price of $593.57 per Debenture and
an initial principal amount at
maturity of $1,000 per Debenture,
subject to an upward adjustment in
the event there is an upward
interest adjustment.
Maturity........................... May 23, 2021.
Ranking............................ The Debentures are unsecured and
unsubordinated obligations of XL
Capital and rank equal in right of
payment with all of our other
unsecured and unsubordinated
indebtedness.
Interest Adjustment................ If the average of the sale prices
of our Ordinary Shares is less than
or equal to 60% of the Accreted
Conversion Price of the Debentures
for any 20 out of the last 30
trading days ending five days prior
to any repurchase date, then the
yield-to-maturity on the Debentures
will be subject to an upward
interest adjustment to the
applicable Reset Rate for the
subsequent six-month period. The
upward interest adjustment will
result in the interest rate on the
Debentures being equivalent to the
per annum Reset Rate during any
period in which such adjustment is
in effect. If an upward interest
adjustment is in effect and the
average of the sale prices of our
Ordinary Shares is less than or
equal to 60% of the Accreted
Conversion Price of the Debentures
for 20 out of the last 30 trading
days of such semi-annual period
ending on the fifth day preceding
November 23 and May 23, as
applicable, then the applicable
Reset Rate in effect shall remain
in effect for the next succeeding
six-month period. If an upward
interest adjustment is then in
effect and the average of the sale
prices of our Ordinary Shares is
greater than 60% of the Accreted
Conversion Price of the Debentures
for 20 out of the last 30 trading
days of any semi-annual period
ending on the fifth day preceding
November 23 and May 23, as
applicable, then the interest rate
on the Debentures will revert to
2.625% per annum for the subsequent
six-month period, and no upward
interest adjustment will apply to
any subsequent semi-annual period
ending on or prior to the next
succeeding repurchase date.
The "applicable Reset Rate" for any
such six-month period in which
there is an upward interest
adjustment will be equal to the
rate (the "Reference Fixed Rate")
that would, in the judgment of the
Reset Rate Agent (as defined in
this prospectus) and one other
independent investment bank, result
in a trading price of par with a
hypothetical issue of senior,
non-convertible, fixed rate debt
securities of XL Capital with (i) a
final maturity equal to the term
from the current repurchase date
with respect to which the
applicable Reset Rate is determined
until the next repurchase date;
(ii) an aggregate principal amount
equal to the then Accreted Value of
the Debentures; and (iii)
provisions that are, insofar as
would be practicable for an issue
of senior, non-convertible,
fixed-rate debt securities,
substantially identical to those of
the Debentures. In no case,
however,
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will the applicable Reset Rate ever
be greater than 10% without our
prior written consent. Also, if the
Reset Rate Agent determines in its
sole judgment that there is no
suitable Reference Fixed Rate, the
applicable rate of accretion for
that period will be the applicable
rate of accretion then in effect,
such rate of accretion to remain in
effect until the Reset Rate Agent
determines that there is a suitable
Reference Fixed Rate at which time
the Reset Rate Agent shall
determine a new applicable Reset
Rate for the period ending on the
next Reset Rate determination date.
The applicable Reset Rate for a
Debenture that is subject to an
upward interest adjustment shall be
determined as to any period for
which such adjustment is applicable
until a new applicable Reset Rate
is in effect or until the original
accretion rate is again in effect.
If an upward interest adjustment is
in effect for a particular
semi-annual period, we will pay a
portion of the interest adjustment
as cash interest at a annualized
rate of 0.25% per annum (0.125% per
semi-annual period) of the Accreted
Value and the remaining interest
will be accrued and payable at
maturity. As a result, during any
semi-annual period in which an
upward interest adjustment is in
effect, the Debentures will accrete
interest at a rate equal to the
applicable Reset Rate less 0.25%.
Cash Interest Payment.............. We will not pay cash interest on
the Debentures prior to maturity
unless an upward interest
adjustment is in effect. If an
upward interest adjustment is in
effect for a particular semi-annual
period, we will pay a portion of
the interest adjustment as cash
interest at the rate of 0.25% per
annum (0.125% for each semi-annual
period) of the Accreted Value at
the beginning of the applicable
semi- annual period. Cash interest,
if any, will be paid semi- annually
on each November 23 or May 23 to
the holders of record of the
Debentures as of the record date.
Conversion Rights.................. Holders may convert their
Debentures prior to stated
maturity:
(i) during any conversion period if
the closing sale price of our
Ordinary Shares for a period of at
least 20 trading days in the period
of 30 consecutive trading days
ending on the first day of such
conversion period is more than 110%
of the Accreted Conversion Price
per Ordinary Share on the first day
of the conversion period, then the
Debentures are convertible at the
applicable conversion rate, subject
to adjustment under certain
circumstances. A conversion period
will be the period from and
including the thirtieth trading day
in a fiscal quarter to but not
including the thirtieth trading day
in the immediately following fiscal
quarter. The "Accreted Conversion
Price" as of any day will equal the
Accreted Value of a Debenture
divided by the number of Ordinary
Shares issuable upon conversion of
such Debenture on that day.
"Accreted Value" means, as of any
date, the sum of the issue price of
the Debentures and the accrued and
unpaid interest as of such date
(excluding any accrued and unpaid
interest payable as cash interest);
(ii) during the five business-day
period beginning 10 business days
following any 10 consecutive
trading-day period in which the
average of the trading prices (as
defined in this prospectus) for a
De-
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benture was less than 95% of the
average closing sale prices of our
Ordinary Shares multiplied by the
number of shares into which such
Debenture is convertible for that
period, then the Debentures are
convertible into Ordinary Shares at
the applicable conversion rate;
provided, however, if at
conversion, the closing price of
the Ordinary Shares is greater than
100% of the Accreted Conversion
Price but less than or equal to
110% of the Accreted Conversion
Price, then the holders will
receive, in lieu of Ordinary Shares
based on the applicable conversion
rate, cash or Ordinary Shares, or a
combination of both cash and
Ordinary Shares, with a value equal
to the then Accreted Value of the
Debentures;
(iii) if the Debentures have been
called for redemption, then such
Debentures are convertible at the
applicable conversion rate, subject
to adjustment under certain
circumstances;
(iv) during such period, if any,
that the credit rating assigned to
the Debentures by Standard & Poor's
Ratings Services, a division of
McGraw Hill Companies, Inc., is
below a specified level, or if such
rating agency is not rating the
Debentures, then the Debentures are
convertible at the applicable
conversion rate, subject to
adjustment under certain
circumstances; and
(v) upon the occurrence of
specified corporate transactions
described under "Description of
Debentures--Conversion Rights,"
then the Debentures are convertible
at the applicable conversion rate,
subject to adjustment under certain
circumstances.
For each Debenture surrendered for
conversion, a holder will receive
5.9467 Ordinary Shares. This is
equivalent to an initial conversion
price of $99.81 per Ordinary Share
based on the issue price of the
Debentures. The conversion rate may
be adjusted under certain
circumstances, but will not be
adjusted for accrued interest. Upon
conversion, holders will not
receive any cash payment
representing accrued interest.
Instead, accrued interest will be
deemed paid by the Ordinary Shares
received by holders on conversion.
Debentures called for redemption
may be surrendered for conversion
until the close of business one
business day prior to the
redemption date.
Redemption of the Debentures at
Our Option..................... On or after May 23, 2004, we may
redeem for cash all or part of the
Debentures at any time, upon not
less than 15 nor more than 60 days'
notice by mail to holders of the
Debentures, for a price equal to
the Accreted Value plus accrued and
unpaid cash interest, if any, on
such redemption date.
Purchase of Debentures at Your Option... You have the right to require us to
repurchase the Debentures on May
23, 2002, May 23, 2004, May 23,
2006, May 23, 2008, May 23, 2011
and May 23, 2016, each a repurchase
date. In each case, the repurchase
price payable will be equal to the
Accreted Value plus accrued and
unpaid cash interest, if any, on
such repurchase date. We may choose
to pay the repurchase price in cash
or Ordinary Shares or a combination
of cash and
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Ordinary Shares. If we elect to pay
the repurchase price in Ordinary
Shares or a combination of cash and
Ordinary Shares, we must notify
holders not less than 20 days prior
to the repurchase date. The
Ordinary Shares will be valued at
100% of the average closing sales
price for five trading days ending
on the third day prior to the
repurchase date.
Change in Control.................. If we undergo a Change in Control
(as defined in this prospectus),
you will have the option to require
us to repurchase all of your
Debentures not previously called
for redemption or any portion
thereof for cash or, at our option,
Ordinary Shares (which are valued
at 95% of the average closing sales
prices of our Ordinary Shares for
the five trading days immediately
preceding the third trading day
prior to the repurchase date). We
will pay a repurchase price equal
to the Accreted Value plus accrued
and unpaid cash interest, if any,
on the repurchase date.
Events of Default.................. If there is an event of default on
the Debentures, an amount equal to
the Accreted Value plus accrued and
unpaid cash interest, if any, may
be declared immediately due and
payable. These amounts
automatically become due and
payable in some circumstances. The
following are events of default
with respect to the Debentures (in
the bullet points below references
to "our" means XL Capital Ltd and
not any of its subsidiaries):
o our failure for 30 days to pay
when due any cash interest on the
Debentures (after any upward
interest adjustment);
o our failure to pay principal of
the Debentures and accrued interest
(including any interest payable
pursuant to an upward interest
adjustment) at maturity, upon
redemption, repurchase or following
a Change in Control, when the same
becomes due and payable;
o our default under any of our
other instruments of indebtedness
with an outstanding principal
amount of $100,000,000 or more,
individually or in the aggregate,
which has caused the holders of
such indebtedness to declare such
indebtedness due and payable prior
to its stated maturity;
o our default in the payment of
principal or premium under any of
our other instruments of
indebtedness, which default is in
an aggregate principal amount
exceeding $100,000,000 and
continues unremedied or unwaived
for more than 30 business days;
o our failure to comply with any of
our covenants or agreements in the
Debentures or the Indenture for 60
days after written notice by the
Trustee or by the holders of at
least 25% in aggregate principal
amount of all outstanding
Debentures affected by that
failure; and
o some events involving bankruptcy,
insolvency or reorganization of XL
Capital.
Tax................................... Each holder has agreed in the
Indenture, for United States
federal income
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tax purposes, to treat the
Debentures as "contingent payment
debt instruments" and to be bound
by our application of the Treasury
regulations that govern contingent
payment debt instruments, including
our determination that the rate at
which interest will be deemed to
accrue for United States federal
income tax purposes will be 7.64%,
which is the rate comparable to the
rate at which we would borrow on a
noncontingent, nonconvertible
borrowing. Based on the agreement,
(i) each holder is required to
accrue interest on a constant yield
to maturity basis at that rate,
with the result that a holder will
recognize taxable income
significantly in excess of cash
received while the Debentures are
outstanding and (ii) a holder will
recognize ordinary income upon a
conversion of a Debenture into
Ordinary Shares equal to the
excess, if any, between the value
of the stock received on the
conversion and the sum of the
original purchase price of the
Holder's Debenture and accrued but
unpaid interest.
The proper application of the
regulations that govern contingent
payment debt instruments to a
holder of a Debenture is uncertain
in a number of respects, and if our
treatment were successfully
challenged by the Internal Revenue
Service, it might be determined
that, among other differences, a
holder should have accrued interest
income at a lower rate, should not
have recognized income or gain upon
the conversion, and should not have
recognized ordinary income upon a
taxable disposition of its
Debenture.
EACH INVESTOR SHOULD CONSULT ITS
TAX ADVISOR REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF AN INVESTMENT IN
THE DEBENTURES AND WHETHER AN
INVESTMENT IN THE DEBENTURES IS
ADVISABLE IN LIGHT OF THE AGREED
UPON TAX TREATMENT AND THE
INVESTOR'S PARTICULAR TAX
SITUATION.
Use of Proceeds.................... We will not receive any of the
proceeds from the sale by any
selling securityholder of the
Debentures or the Ordinary Shares
issuable upon conversion of the
Debentures.
Book Entry Form.................... The Debentures have been issued in
book-entry form and are represented
by permanent global certificates
deposited with a custodian for and
registered in the name of a nominee
of The Depository Trust Company,
commonly known as DTC, in New York,
New York. Beneficial interests in
any of the Debentures are shown on,
and transfers are effected only
through, records maintained by DTC
and its direct and indirect
participants and any such interest
may not be exchanged for
certificated Debentures, except in
limited circumstances.
Trading............................ The Debentures are not listed on
any securities exchange or included
in any automated quotation system.
Our Ordinary Shares are traded on
the New York Stock Exchange under
the symbol "XL".
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase any Debentures.
An active trading market for the Debentures may not develop
We cannot assure you that an active trading market for the Debentures will
develop or as to the liquidity or sustainability of any such market, the ability
of the holders to sell their Debentures or the price at which holders of the
Debentures will be able to sell their Debentures. Future trading prices of the
Debentures will depend on many factors, including, among other things,
prevailing interest rates, the market for similar securities, the price of our
Ordinary Shares, our performance and other factors.
The amount you must include in your income for United States federal income
tax purposes will exceed the amount of cash interest you receive
While the proper tax treatment of a holder of the Debentures is uncertain,
we and each holder have agreed in the Indenture to treat the Debentures as
"contingent payment debt instruments" and to be bound by our application of the
Treasury regulations that govern contingent payment debt instruments. Pursuant
to this agreement, a holder will be required to accrue interest on a constant
yield to maturity basis at a rate comparable to the rate at which we would
borrow in a noncontingent, nonconvertible borrowing (7.64%). However, the proper
application of the regulations that govern contingent payment debt instruments
to a holder of a Debenture is uncertain in a number of respects, and if our
treatment were successfully challenged by the Internal Revenue Service, it might
be determined that, among other differences, a holder should have accrued
interest income at a lower rate, should not have recognized income or gain upon
the conversion, and should not have recognized ordinary income upon a taxable
disposition of its Debenture. A holder will recognize taxable income
significantly in excess of cash received while the Debentures are outstanding.
In addition, under the Indenture, a holder will recognize ordinary income, if
any, upon a sale, exchange, conversion or redemption of the Debentures at a
gain. See "Certain Cayman Islands and United States Federal Income Tax
Consequences."
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by any selling
securityholder of the Debentures or the Ordinary Shares issuable upon conversion
of the Debentures.
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RATIOS OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated is
as follows:
Fiscal Year Ended December 31,
Nine Months Ended
September 30, 2001 2000 1999 1998 1997 1996
---------------------- ---- ---- ---- ---- ----
* 11.0x 10.5x 18.9x 25.3x 20.0x
----------
* For the nine months ended September 30, 2001, earnings were insufficient to
cover fixed charges by $611.4 million.
We have computed the ratio of earnings to fixed charges by dividing (i)
income from continuing operations before income taxes and minority interest,
plus fixed charges, less equity income in unconsolidated affiliates, capitalized
interest and minority interest by (ii) fixed charges. Fixed charges consist of
interest expense on all indebtedness (including amortization of deferred
financing costs), capitalized interest, minority interest and the portion of
operating lease rental expense that is representative of the interest factor
(deemed to be one-third of operating lease rentals).
PRICE RANGE OF ORDINARY SHARES AND DIVIDENDS
Our Ordinary Shares are listed and traded on the New York Stock Exchange
under the symbol "XL". The following table provides, for the calendar quarters
indicated, the high and low closing sales prices per share on the New York Stock
Exchange for the periods shown below as reported on the New York Stock Exchange
Composite Tape and the quarterly cash dividends declared per Ordinary Share.
Cash Dividends
Period High Low Declared
------ ---- --- --------------
1999:
First Quarter.................................... $75.188 $56.750 $0.44
Second Quarter................................... 66.500 56.750 0.44
Third Quarter.................................... 57.688 42.188 0.44
Fourth Quarter................................... 58.063 44.938 0.44
2000:
First Quarter.................................... 55.375 39.563 0.45
Second Quarter................................... 61.000 45.750 0.45
Third Quarter.................................... 78.188 54.938 0.45
Fourth Quarter................................... 88.563 69.375 0.45
2001:
First Quarter.................................... 88.500 67.250 0.46
Second Quarter................................... 84.100 65.400 0.46
Third Quarter ................................... 82.010 62.000 0.46
Fourth Quarter (through November 26, 2001)....... 96.120 79.500 0.46
The declaration and payment of future dividends by us will be at the
discretion of our Board of Directors and will depend upon many factors,
including our earnings, financial condition, business needs, capital and surplus
requirements of our operating subsidiaries and regulatory restrictions.
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DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture (which we refer to in this
prospectus as the "Indenture") between the Company and State Street Bank and
Trust Company, as trustee (which we refer to in this prospectus as the
"Trustee").
In this section, references to "XL Capital," "we," "our" or "us" refer
solely to XL Capital Ltd and not its subsidiaries.
General
The Debentures:
o are unsecured and unsubordinated obligations of XL Capital;
o are limited to an aggregate principal amount at maturity of
$1,010,834,000, plus accrued interest pursuant to any interest
adjustments;
o will mature on May 23, 2021; and
o rank equally in right of payment with all of our other unsecured and
unsubordinated indebtedness.
The Debentures were issued at a price to investors of $593.57 per
Debenture. We will not pay cash interest on the Debentures unless an upward
interest adjustment becomes payable. The maturity value of each Debenture may
exceed $1,000 in the event an upward interest adjustment becomes payable on the
Debentures. The issue price represents a yield to maturity of 2.625% per annum
unless an upward interest adjustment occurs. The Debentures were issued only in
denominations of $1,000 principal amount and multiples of $1,000 principal
amount.
You have the option to convert your Debentures into our Ordinary Shares at
a conversion rate of 5.9467 Ordinary Shares per Debenture. This is equivalent to
an initial conversion price of $99.81 per Ordinary Share based on the issue
price of the Debentures. The conversion rate is subject to adjustment if certain
events occur. Upon conversion, you will receive only Ordinary Shares. You will
not receive any cash payment for interest adjustments, if any, to the conversion
date.
Each holder has agreed in the Indenture, for United States federal income
tax purposes, to treat the Debentures as "contingent payment debt instruments"
and to be bound by our application of the Treasury regulations that govern
contingent payment debt instruments, including our determination that the rate
at which interest will be deemed to accrue for United States federal income tax
purposes will be 7.64%, which is the rate comparable to the rate at which we
would borrow on a noncontingent, nonconvertible borrowing. Accordingly, each
holder will be required to accrue interest on a constant yield to maturity basis
at that rate, with the result that a holder will recognize taxable income
significantly in excess of cash received while the Debentures are outstanding.
In addition, a holder will recognize ordinary income upon a conversion of a
Debenture into our Ordinary Shares equal to the excess, if any, between the
value of the Ordinary Shares received on the conversion and the sum of the
original purchase price of the holder's Debenture and accrued but unpaid
interest. However, the proper application of the regulations that govern
contingent payment debt instruments to a holder of a Debenture is uncertain in a
number of respects, and if our treatment were successfully challenged by the
Internal Revenue Service, it might be determined that, among other differences,
a holder should have accrued interest income at a lower rate, should not have
recognized income or gain upon the conversion, and should not have recognized
ordinary income upon a taxable disposition of its Debenture.
-15-
EACH INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE TAX TREATMENT OF
AN INVESTMENT IN THE DEBENTURES AND WHETHER AN INVESTMENT IN THE DEBENTURES IS
ADVISABLE IN LIGHT OF THE AGREED UPON TAX TREATMENT AND THE INVESTOR'S
PARTICULAR TAX SITUATION.
Interest Adjustment
If the average of the sale prices of our Ordinary Shares is less than or
equal to 60% of the Accreted Conversion Price of the Debentures for any 20 out
of the last 30 trading days ending five days prior to any repurchase date, then
the yield-to-maturity on the Debentures will be subject to an upward interest
adjustment to the applicable Reset Rate for the subsequent six-month period. The
upward interest adjustment will result in the interest rate on the Debentures
being equivalent to the applicable Reset Rate. If an upward interest adjustment
is in effect and the average of the sale prices of our Ordinary Shares is less
than or equal to 60% of the Accreted Conversion Price of the Debentures for 20
out of the last 30 trading days of such semi-annual period ending on the fifth
day preceding November 23 or May 23, as applicable, then the applicable Reset
Rate in effect shall remain in effect for the next succeeding six-month period.
If an upward interest adjustment is in effect and the average of the sale prices
of our Ordinary Shares is greater than 60% of the Accreted Conversion Price of
the Debentures for 20 out of the last 30 trading days of any semi-annual period
ending on the fifth day preceding November 23 or May 23, as applicable, then the
interest rate on the Debentures will revert to 2.625% per annum for the
subsequent six-month period, and an upward interest adjustment will not apply to
any subsequent semi-annual period ending on or prior to the next succeeding
repurchase date.
If an upward interest adjustment is in effect for a particular semi-annual
period, we will pay a portion of the interest adjustment as cash interest at a
rate of 0.25% per annum (0.125% per semi-annual period) of the Accreted Value
and the remaining interest will be accrued and payable at maturity or earlier
redemption. As a result, following any such upward interest adjustment, and for
so long as such upward interest adjustment is in effect, the Debentures will
accrete interest at a rate equal to the applicable Reset Rate less 0.25%.
The "sale price" of our Ordinary Shares on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average asked prices) on that date as reported on the New
York Stock Exchange or, if our Ordinary Shares are not listed on the New York
Stock Exchange, then as reported by the Nasdaq system.
The "applicable Reset Rate" for any such six-month period, as determined by
the Reset Rate Agent (as defined below), will be equal to the rate (the
"Reference Fixed Rate") that would, in the sole judgment of the Reset Rate
Agent, result in a trading price of par with a hypothetical issue of senior,
non-convertible, fixed rate debt securities of XL Capital with:
(i) a final maturity equal to the term from the current repurchase date on
which the applicable Reset Rate is determined until the next
repurchase date;
(ii) an aggregate principal amount equal to the accreted issue price of the
Debentures; and
(iii) provisions that are, insofar as would be practicable for an issue of
senior, non-convertible, fixed-rate debt securities, substantially
identical to those of the Debentures.
In no case, however, will the applicable Reset Rate ever be greater than
10% per annum without our prior written consent. Also, if the Reset Rate Agent
determines in its sole judgment that there is no suitable Reference Fixed Rate,
the applicable rate of accretion for that period will be the applicable rate of
accretion then in effect.
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In the event of any upward interest adjustment, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information or publish the information on our Web site or through such
other public medium as we may use at that time.
Reset Rate Agent; Determinations Conclusive
Goldman, Sachs & Co. will act as the Reset Rate Agent. For the
determination of the applicable Reset Rate, the Reset Rate Agent shall seek
indicative reference rates from one other nationally recognized investment bank.
The determination of any applicable Reset Rate shall be made by the Reset Rate
Agent by averaging the indicative reference rates obtained by Goldman, Sachs &
Co. and such other investment bank. The determination of any applicable Reset
Rate by the Reset Rate Agent will be conclusive and binding upon us, the Reset
Rate Agent, the Trustee and the holders of the Debentures, in the absence of
manifest error.
The Reset Rate Agent may be removed at any time with or without cause by us
giving at least sixty (60) days' written notice to the Reset Rate Agent;
provided that the Reset Rate Agent may not be removed by us without cause for a
period of six months after the date of this prospectus. The Reset Rate Agent may
resign at any time upon giving at least thirty (30) days' written notice to us.
A successor Reset Rate Agent will be appointed by us.
Interest
We will not pay cash interest on the Debentures unless there is an upward
interest adjustment. Interest will be based on a 360-day year comprised of
twelve 30-day months, and will be payable semi-annually on November 23 and May
23. Cash interest as a result of an upward interest adjustment will be paid at
the rate of 0.25% per annum (0.125% per semi-annual period). Cash interest
following an upward interest adjustment will be paid at a rate of 2.625% per
annum on the Debentures during any period in which an upward interest adjustment
is in effect. The record date for the payment of cash interest to holders will
be November 8 and May 8 of each year. We will give notice to the holders of the
Debentures, no later than 30 days prior to each record date, of the amount of
cash interest to be paid as of the next interest payment date. We will pay
interest on the Debentures by wire transfer of federal (same-day) funds or check
mailed to the address of the registered holders of the Debentures as of the
record date relating to each interest payment date.
You should be aware that interest that accrues for the period you hold the
Debentures must be included in your gross income for United States federal
income tax purposes in accordance with the Treasury regulations that govern debt
instruments providing for contingent payments. For more information, see "Risk
Factors--The amount you must include in your income for United States federal
income tax purposes will exceed the amount of cash interest you receive" and the
discussion below in the section captioned "Certain Cayman Islands and United
States Federal Income Tax Consequences."
Redemption Rights
We must repay the Debentures at their stated maturity on May 23, 2021,
unless earlier redeemed. The circumstances in which we may, or we are required
to, redeem the Debentures prior to their stated maturity are described below.
We will have the right to redeem the Debentures in whole or in part, at any
time or from time to time, on or after May 23, 2004 upon 15 to 60 days' notice
by mail, for a cash price equal to the Accreted Value plus accrued and unpaid
cash interest, if any, up to the redemption date.
The table below shows the redemption prices of the Debentures at May 23,
2004, at each following May 23 prior to maturity and at maturity on May 23,
2021, assuming that an upward interest adjustment does not occur. The prices
reflect the Accreted Value calculated through each date. The redemption prices
of a Deben-
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ture redeemed between these dates would include an additional increase in the
Accreted Value since the immediately preceding date in the table to the actual
redemption date.
Redemption Date Accrued Interest Redemption Price
--------------- ---------------- ----------------
May 23, 2004................... -- $641.88
May 23, 2005................... $16.96 $658.84
May 23, 2006................... $17.40 $676.24
May 23, 2007................... $17.87 $694.11
May 23, 2008................... $18.34 $712.45
May 23, 2009................... $18.83 $731.28
May 23, 2010................... $19.32 $750.60
May 23, 2011................... $19.83 $770.43
May 23, 2012................... $20.36 $790.79
May 23, 2013................... $20.90 $811.69
May 23, 2014................... $21.44 $833.13
May 23, 2015................... $22.02 $855.15
May 23, 2016................... $22.59 $877.74
May 23, 2017................... $23.20 $900.94
May 23, 2018................... $23.80 $924.74
May 23, 2019................... $24.44 $949.18
May 23, 2020................... $25.08 $974.26
May 23, 2021................... $25.74 $1,000.00
If we decide to redeem fewer than all of the outstanding Debentures, the
Trustee will select the Debentures to be redeemed by lot, on a pro rata basis or
by another method the Trustee considers fair and appropriate.
If the Trustee selects a portion of your Debenture for partial redemption
and you convert a portion of the same Debenture, the converted portion will be
deemed to be from the portion selected for redemption. Each Debenture will be
redeemed in whole.
In the event of any redemption in part, we will not be required to:
o issue, register the transfer of or exchange any Debenture during a
period beginning at the opening of business 15 days before any
selection of Debentures for redemption and ending at the close of
business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Debentures
to be so redeemed and
o register the transfer of or exchange any Debenture so selected for
redemption, in whole or in part, except the unredeemed portion of any
Debenture being redeemed in part.
Conversion Rights
Subject to the conditions described below, holders may convert their
Debentures into our Ordinary Shares at a conversion ratio of 5.9467 Ordinary
Shares per $1,000 principal amount at maturity of Debentures (equivalent to an
initial conversion price of $99.81 per Ordinary Share). The conversion ratio and
the equivalent conversion price in effect at any given time are referred to in
this prospectus as the "applicable conversion rate" and the "applicable
conversion price," respectively, and will be subject to adjustment as described
below. If a Debenture has been called for redemption, holders will be entitled
to convert such Debenture from the date of notice of the redemption until the
close of business on the business day immediately preceding the date of
redemption. A holder may convert fewer than all of such holder's Debentures so
long as the Debentures converted are an integral multiple of $1,000 principal
amount.
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Holders may surrender their Debentures for conversion into our Ordinary
Shares prior to stated maturity:
o during any conversion period (as defined below) if the closing sale
price of our Ordinary Shares for at least 20 trading days in the 30
trading-day period ending on the first day of such conversion period
is more than 110% of the Accreted Conversion Price per Ordinary Share
on the first day of the conversion period; or
o during the five business-day period following any 10 consecutive
trading-day period in which the average of the trading prices (as
defined below) for a Debenture was less than 95% of the average
closing sales price of our Ordinary Shares multiplied by the number of
shares into which such Debenture is convertible for that period, then
the Debentures are convertible into Ordinary Shares at the conversion
rate; provided, however, if at conversion, the closing price of the
Ordinary Shares is greater than 100% of the Accreted Conversion Price
but less than or equal to 110% of the Accreted Conversion Price, then
the holders may receive, in lieu of Ordinary Shares based on the
applicable conversion rate, cash or Ordinary Shares, or a combination
of both cash and Ordinary Shares, with a value equal to the then
Accreted Value of the Debentures on the conversion date (the "Accreted
Value Conversion"); or
o if we have called such holders' Debentures for redemption; or
o during such period, if any, that the credit rating assigned to the
Debentures by Standard & Poor's is below a specified level, or if such
rating agency is not rating the Debentures; or
o upon the occurrence and continuance of specified corporate
transactions.
Conversion Upon Satisfaction of Market Price Condition
A holder may surrender any of its Debentures for conversion into our
Ordinary Shares during any conversion period if the closing sale prices of our
Ordinary Shares on the principal national securities exchange on which the
Ordinary Shares are listed, for a period of at least 20 trading days in the
period of 30 consecutive trading days ending on the first day of such conversion
period, is more than 110% of the Accreted Conversion Price per Ordinary Share on
the first day of the conversion period. The Accreted Conversion Price per
Ordinary Share as of any day will equal the Accreted Value of the Debentures
divided by the number of Ordinary Shares issuable upon conversion of the
Debentures on that day. A conversion period will be the period from and
including the thirtieth trading day in a fiscal quarter to but not including the
thirtieth trading day in the immediately following fiscal quarter.
The conversion agent, which is State Street Bank and Trust Company, will,
on our behalf, determine daily if the Debentures are convertible as a result of
the market price of our Ordinary Shares and notify us and the Trustee.
Conversion Upon Satisfaction of Trading Price Condition
A holder may surrender any of its Debentures for conversion into our
Ordinary Shares during the five business-day period beginning 10 business days
following any 10 consecutive trading-day period in which the average of the
trading prices for a Debenture was less than 95% of the average closing sales
price of our Ordinary Shares multiplied by the number of shares into which such
Debenture is convertible for that period; provided, however, that if at
conversion, the closing price of the Ordinary Shares is greater than 100% of the
Accreted Conversion Price but less than or equal to 110% of the Accreted
Conversion Price, then the holders will receive, in lieu of Ordinary Shares
based on the applicable conversion rate, cash or Ordinary Shares, or a
combination of both cash and Ordinary Shares, with a value equal to the then
Accreted Value of the Debentures. If
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there is an Accreted Value Conversion, we may choose to pay the Accreted Value
in cash or Ordinary Shares or a combination of cash and Ordinary Shares, in
which event the Ordinary Shares will be valued at 100% of the average closing
sales prices for the five trading days ending on the third day prior to the date
of conversion. If we elect to pay all or a portion of the Accreted Value upon an
Accreted Value Conversion in Ordinary Shares, we must notify holders not less
than five business days prior to the beginning of the five day period in which
holders can convert pursuant to an Accreted Value Conversion.
The "trading price" of the Debentures on any date of determination means
the average of the secondary market bid quotations per Debenture obtained by
State Street Bank and Trust Company for $10,000,000 principal amount at maturity
of the Debentures at approximately 3:30 p.m., New York City time, on such
determination date from three independent nationally recognized securities
dealers we select, provided that if at least three such bids cannot reasonably
be obtained by State Street Bank and Trust Company, but two such bids are
obtained, then the average of the two bids shall be used, and if only one such
bid can reasonably be obtained by State Street Bank and Trust Company, this one
bid shall be used. If State Street Bank and Trust Company cannot reasonably
obtain at least one bid for $10,000,000 principal amount at maturity of the
Debentures from a nationally recognized securities dealer or in our reasonable
judgment, the bid quotations are not indicative of the secondary market value of
the Debentures, then the trading price of the Debentures will equal (a) the
then-applicable conversion rate of the Debentures multiplied by (b) the closing
price on the New York Stock Exchange of our Ordinary Shares on such
determination date; provided that State Street Bank and Trust Company shall not
determine the trading price of the Debentures unless requested by us; and
provided, further, that we shall have no obligation to make such request unless
a holder of Debentures provides us with reasonable evidence that the trading
price of the Debenture may be less than 95% of the average closing sales price
of our Ordinary Shares multiplied by the number of shares into which such
Debentures are convertible for that period ("parity value"); and at which time,
we shall instruct State Street Bank and Trust Company to determine the trading
price of the Debentures beginning on the next trading day on each successive
trading day until the trading price is greater than or equal to 95% of the
parity value of the Debentures. State Street Bank and Trust Company shall be
entitled to select the appropriate method for determining the trading price of
the Debentures and shall be entitled to all of the rights of the trustee set
forth in the Indenture in connection with any such determination. Any such
determination shall be conclusive absent manifest error. A conversion period
will be the five trading days beginning 10 business days following the 10th
consecutive trading day on which the average of the trading prices of a
Debenture was less than 95% of the average closing sales price of our Ordinary
Shares multiplied by the number of shares into which such Debenture is
convertible for that period.
Conversion Upon Notice of Redemption
A holder may surrender for conversion any of the Debentures called for
redemption at any time prior to the close of business one business day prior to
the redemption date, even if it is not otherwise convertible at such time. If a
holder has already delivered a purchase notice or a change in control purchase
notice with respect to a Debenture, however, the holder may not surrender that
Debenture for conversion until the holder has withdrawn the notice in accordance
with the Indenture.
Conversion Upon Credit Rating Event
A holder may surrender any of its Debentures for conversion during any
period in which the credit rating assigned to the Debentures by Standard &
Poor's is below BBB+, if the credit rating assigned to the Debentures is
suspended or withdrawn by such rating agency or if such rating agency is not
rating the Debentures.
Conversion Upon Specified Corporate Transactions
Even if the market price condition described above has not occurred, if we
elect to:
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o distribute to all holders of our Ordinary Shares certain rights
entitling them to purchase, for a period expiring within 60 days,
Ordinary Shares at less than the quoted price at the time or
o distribute to all holders of our Ordinary Shares our assets, debt
securities or certain rights to purchase our securities, which
distribution has a per share value exceeding 12.5% of the closing
price of Ordinary Shares on the day preceding the declaration date for
such distribution,
we must notify the holders of Debentures at least 20 days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their Debentures for conversion at any time until the earlier of
close of business on the business day prior to the ex-dividend date or our
announcement that such distribution will not take place. No adjustment to the
ability of a holder to convert will be made if the holder will otherwise
participate in the distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our Ordinary Shares would be converted into cash,
securities or other property, a holder may surrender Debentures for conversion
at any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual date of such
transaction. If we are a party to a consolidation, merger or binding share
exchange pursuant to which our Ordinary Shares are converted into cash,
securities or other property, then at the effective time of the transaction, the
right to convert a Debenture into Ordinary Shares will be changed into a right
to convert it into the kind and amount of cash, securities or other property
which the holder would have received if the holder had converted its Debentures
immediately prior to the transaction. If the transaction also constitutes a
"Change in Control," as defined below, the holder can require us to purchase all
or a portion of its Debentures as described under " --Change in Control."
The initial conversion rate is 5.9467 Ordinary Shares for each $1,000
principal amount at maturity of Debentures. This is equivalent to an initial
conversion price of $99.81 per Ordinary Share based on the issue price of the
Debentures. You will not receive any cash payment representing accrued interest
upon conversion of a Debenture. Instead, upon conversion we will deliver to the
holders a fixed number of Ordinary Shares and any cash payment to account for
fractional shares. The cash payment for fractional shares will be based on the
closing price of our Ordinary Shares on the trading day immediately prior to the
conversion date. Delivery of Ordinary Shares will be deemed to satisfy our
obligation to pay the principal amount of the Debentures, including any accrued
interest. Accrued interest will be deemed paid in full rather than canceled,
extinguished or forfeited. We will not adjust the conversion ratio to account
for the accrued interest.
If you wish to exercise your conversion right, you must deliver an
irrevocable conversion notice, together, if the Debentures are in certificated
form, with the certificated security, to the conversion agent, which is State
Street Bank and Trust Company who will, on your behalf, convert the Debentures
into Ordinary Shares. You may obtain copies of the required form of the
conversion notice from the conversion agent.
Upon a conversion, based on our treatment of the Debentures for United
States federal income tax purposes, as discussed above, a holder would be
required to recognize ordinary income upon a conversion of a Debenture into our
Ordinary Shares equal to the excess, if any, between the value of the stock
received on the conversion and the sum of the original purchase price of the
holder's Debenture and any accrued but unpaid interest. For a more detailed
discussion, see "Certain Cayman Islands and United States Federal Income Tax
Consequences."
The conversion rate will be subject to adjustment upon the following
events:
o the payment of dividends and other distributions to all holders of our
Ordinary Shares payable exclusively in our Ordinary Shares on our
Ordinary Shares;
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o the issuance to all holders of our Ordinary Shares of rights or
warrants that allow the holders to purchase Ordinary Shares at less
than the current market price; provided that no adjustment will be
made if holders of the Debentures may participate in the transaction
on a basis and with notice that our board of directors determines to
be fair and appropriate or in some other cases;
o subdivisions or combinations of our Ordinary Shares;
o the payment of dividends and other distributions to all holders of our
Ordinary Shares consisting of our debt, securities or assets or
certain rights to purchase our securities, except for those rights or
warrants referred to in the second bullet clause above and dividends
and other distributions paid exclusively in cash, provided that no
adjustment will be made if all holders of the Debenture may
participate in the transactions;
o the payment to holders of our Ordinary Shares in respect of a tender
or exchange offer, other than an odd-lot offer, by us or any of our
subsidiaries for our Ordinary Shares to the extent that the offer
involves aggregate consideration that, together with (1) any cash and
the fair market value of any other consideration payable in respect of
any tender offer by us or any of our subsidiaries for shares of our
Ordinary Shares consummated within the preceding 12 months not
triggering a conversion price adjustment and (2) all-cash
distributions to all or substantially all stockholders made within the
preceding 12 months not triggering a conversion price adjustment,
exceeds an amount equal to 12.5% of the market capitalization of our
Ordinary Shares on the expiration date of the tender offer; and
o the distribution to all or substantially all stockholders of all-cash
distributions in an aggregate amount that, together with (1) any cash
and the fair market value of any other consideration payable in
respect of any tender offer by us or any of our subsidiaries for
shares of our Ordinary Shares consummated within the preceding 12
months not triggering a conversion price adjustment and (2) all other
all-cash distributions to all or substantially all stockholders made
within the preceding 12 months not triggering a conversion price
adjustment, exceeds an amount equal to 12.5% of the market
capitalization of our Ordinary Shares on the business day immediately
preceding the day on which we declare the distribution.
There shall not be any adjustment to the conversion rate as a result of:
o the issuance of rights,
o the distribution of separate certificates representing rights,
o the exercise or redemption of rights in accordance with any rights
agreement, or
o the termination or invalidation of rights,
in each case, pursuant to our Rights Plan dated as of September 1998 filed
as an exhibit to our annual report which is incorporated herein by
reference or any other rights plan of XL Capital.
The applicable conversion price will not be adjusted:
o upon the issuance of any Ordinary Shares pursuant to any present or
future plan providing for the reinvestment of dividends or interest
payable on our securities and the investment of additional optional
amounts in Ordinary Shares under any plan;
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o upon the issuance of any Ordinary Shares or options or rights to
purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of or assumed by us or
any of our subsidiaries; or
o upon the issuance of any Ordinary Shares pursuant to any option,
warrant, right, or exercisable, exchangeable or convertible security
outstanding as of the date the Debentures were first issued.
We may increase the conversion rate as permitted by law for at least 20
days, so long as the increase is irrevocable during the period. No adjustment in
the applicable conversion price will be required unless the adjustment would
require an increase or decrease of at least 1% of the applicable conversion
price. If the adjustment is not made because the adjustment does not change the
applicable conversion price by more than 1%, then the adjustment that is not
made will be carried forward and taken into account in any future adjustment.
Except as specifically described above, the applicable conversion price will not
be subject to adjustment in the case of the issuance of any Ordinary Shares, or
securities convertible into or exchangeable for Ordinary Shares.
If a holder submits its Debenture for conversion after we have elected to
exercise our option to pay cash interest instead of accruing interest if we are
required to make a cash payment pursuant to an upward interest adjustment,
between a record date and the opening of business on the next interest payment
date (except for Debentures or portions of Debentures called for redemption on a
redemption date occurring during the period from the close of business on a
record date and ending on the opening of business on the first business day
after the next interest payment date, or if this interest payment date is not a
business day, the second business day after the interest payment date), such
holder must pay funds equal to the interest payable on the converted principal
amount.
Repurchase Rights
Holders have the right to require us to repurchase the Debentures on May
23, 2002, May 23, 2004, May 23, 2006, May 23, 2008, May 23, 2011 and May 23,
2016, each a repurchase date. We will be required to repurchase any outstanding
Debentures for which you deliver a written repurchase notice to the paying
agent, which is State Street Bank and Trust Company. This notice must be
delivered during the period beginning at any time from the opening of business
on the date that is 20 business days prior to the relevant repurchase date until
the close of business on the last day prior to the repurchase date. If the
repurchase notice is given and withdrawn during the period, we will not be
obligated to repurchase the related Debentures. Our repurchase obligation will
be subject to some additional conditions.
The repurchase price payable will be equal to the Accreted Value plus
accrued and unpaid cash interest, if any, on such repurchase date. The
repurchase prices of a Debenture (assuming that an upward interest adjustment
does not occur) as of each of the repurchase dates will be:
o $609.25 per Debenture on May 23, 2002
o $641.88 per Debenture on May 23, 2004
o $676.24 per Debenture on May 23, 2006
o $712.45 per Debenture on May 23, 2008
o $770.43 per Debenture on May 23, 2011
o $877.74 per Debenture on May 23, 2016
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We may choose to pay the repurchase price in cash or Ordinary Shares or a
combination of cash and Ordinary Shares. For a discussion of the tax treatment
of a holder receiving cash, Ordinary Shares or any combination thereof, see
"Certain Cayman Islands and United States Federal Income Tax Consequences."
If we choose to pay the repurchase price in whole or in part in Ordinary
Shares or a combination of cash and Ordinary Shares, we will be required to give
notice on a date not less than 20 business days prior to each repurchase date to
all holders at their addresses shown in the register of the registrar, and to
beneficial owners as required by applicable law (i.e., if no notice is given, we
will pay the repurchase price with cash), stating, among other things:
o whether we will pay the repurchase price of the Debentures in cash, in
Ordinary Shares, or any combination thereof, specifying the
percentages of each;
o if we elect to pay with Ordinary Shares, the method of calculating the
price of our Ordinary Shares; and
o the procedures that holders must follow to require us to repurchase
their Debentures.
If we pay with Ordinary Shares, they will be valued at 100% of the average
closing sales prices of our Ordinary Shares for the five trading days ending on
the third trading day prior to the repurchase date.
Simultaneously with such notice of repurchase, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information or publish the information on our Web site or through such
other public medium as we may use at that time.
A holder's notice electing to require us to repurchase such holder's
Debentures must state:
o if certificated Debentures have been issued, the Debentures
certificate numbers, or if not certificated, your notice must comply
with appropriate DTC procedures;
o the portion of the principal amount of Debentures to be repurchased,
in multiples of $1,000;
o that the Debentures are to be repurchased by us pursuant to the
applicable provisions of the Debentures; and
o in the event we elect, pursuant to the notice that we are required to
give, to pay the repurchase price in Ordinary Shares, in whole or in
part, but the repurchase price is ultimately to be paid to the holder
entirely in cash because any of the conditions to payment of the
repurchase price or portion of the repurchase price in Ordinary Shares
is not satisfied prior to the close of business on the last day prior
to the repurchase date, as described below, whether the holder elects:
(1) to withdraw the repurchase notice as to some or all of the
Debentures to which it relates, or
(2) to receive cash in respect of the entire repurchase price for all
Debentures or portions of Debentures subject to the repurchase
notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder will be deemed to
have elected to receive cash in respect of the entire repurchase price for all
Debentures subject to the repurchase notice in these circumstances. For a
discussion of the tax treatment of a holder receiving cash instead of our
Ordinary Shares, see "Certain Cayman Islands and United States Federal Income
Tax Consequences."
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You may withdraw any repurchase notice by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the last day
prior to the repurchase date. The notice of withdrawal must state:
o the principal amount of the withdrawn Debentures;
o if certificated Debentures have been issued, the certificate numbers
of the withdrawn Debentures, or if not certificated, your notice must
comply with appropriate DTC procedures; and
o the principal amount, if any, which remains subject to the repurchase
notice.
If we elect to pay the repurchase price, in whole or in part, in Ordinary
Shares, the number of Ordinary Shares to be delivered by us will be equal to the
portion of the repurchase price to be paid in Ordinary Shares divided by the
market price of one of our Ordinary Shares as determined by us in our repurchase
notice. We will pay cash based on the market price for all fractional shares.
The "market price" means the average of the sale prices of our Ordinary
Shares for the five trading day period ending on the third business day prior to
the applicable repurchase date (if the third business day prior to the
applicable repurchase date is a trading day, or if not, then on the last trading
day prior to the third business day), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the five-trading day period and ending on the repurchase date, of
some events that would result in an adjustment of the conversion rate with
respect to our Ordinary Shares.
The "sale price" of our Ordinary Shares on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average asked prices) on that date as reported in composite
transactions for the principal U.S. securities exchange on which our Ordinary
Shares are traded or, if our Ordinary Shares are not listed on a U.S. national
or regional securities exchange, as reported by the Nasdaq system.
Because the market price of our Ordinary Shares is determined prior to the
applicable repurchase date, holders of Debentures bear the market risk with
respect to the value of our Ordinary Shares to be received from the date the
market price is determined to the repurchase date. We may pay the repurchase
price or any portion of the repurchase price in Ordinary Shares only if the
information necessary to calculate the market price is published in a daily
newspaper of national circulation.
Upon determination of the actual number of Ordinary Shares to be paid upon
redemption of the Debentures, we will disseminate a press release through Dow
Jones & Company, Inc. or Bloomberg Business News containing this information or
publish the information on our Web site or through such other public medium as
we may use at that time.
A holder must either effect book-entry transfer or deliver the Debentures,
together with necessary endorsements, to the office of the paying agent after
delivery of the repurchase notice to receive payment of the repurchase price. A
holder will receive payment on the repurchase date or the time of book-entry
transfer or the delivery of the Debentures. If the paying agent holds money or
securities sufficient to pay the repurchase price of the Debentures on the
business day following the repurchase date, then:
o the Debentures will cease to be outstanding;
o interest, including any interest payable pursuant to an interest
adjustment (including any cash interest) will cease to accrue; and
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o all other rights of the holder will terminate.
This will be the case whether or not book-entry transfer of the Debentures
is made or whether or not the Debenture is delivered to the paying agent.
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act which may be applicable at the time. We will file
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the Debentures at your option.
Ranking
The Debentures are our unsecured and unsubordinated obligations and rank
equal with all of our existing and future unsecured and unsubordinated
indebtedness.
We currently conduct substantially all our operations through our
subsidiaries and our subsidiaries generate substantially all of our operating
income and cash flow. As a result, distributions and advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, as well as our
subsidiaries' financial condition and operating and regulatory requirements, may
limit our ability to obtain cash from our subsidiaries that we require to pay
our debt service obligations, including cash payments on the Debentures. In
addition, holders of the Debentures will have a junior position to the claims of
creditors of our subsidiaries on their assets and earnings. As of September 30,
2001, our subsidiaries had approximately $705.0 million of indebtedness, without
giving effect to the anticipated use of proceeds, to which the Debentures would
have been structurally subordinated.
Change in Control
If a Change in Control as defined below occurs, a holder of Debentures will
have the right, at its option, to require us to repurchase all of its Debentures
not previously called for redemption, or any portion of the principal amount
thereof that is equal to $1,000 or an integral multiple of $1,000. The price we
are required to pay is equal to the Accreted Value plus accrued and unpaid cash
interest, if any, on the repurchase date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in Ordinary Shares valued at 95% of the average of the
closing sales prices of our Ordinary Shares for five trading days immediately
preceding the third trading day prior to the repurchase date. We may only pay
the repurchase price in our Ordinary Shares if we satisfy the conditions
provided in the Indenture.
Within 30 days after the occurrence of a Change in Control, we are
obligated to give to the holders of the Debentures notice of the Change in
Control and of the repurchase right arising as a result of the Change in
Control. We must also deliver a copy of this notice to the Trustee. To exercise
the repurchase right, a holder of the Debentures must deliver on or before the
30th day after the date of our notice irrevocable written notice to the Trustee
of the holder's exercise of its repurchase right, together with the Debentures
with respect to which the right is being exercised. We are required to
repurchase the Debentures on the date that is 45 days after the date of our
notice.
A Change in Control will be deemed to have occurred at the time after the
Debentures are originally issued that any of the following occurs:
(1) any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, acquires beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our capital
stock entitling the person to exercise 50% or more of the total voting
power of all shares of our capital stock that is entitled to vote generally
in elections of directors, other than an acquisition by us, any of our
subsidi-
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aries or any of our employee benefit plans and other than any transaction
contemplated by the second bullet point of clause (2) below; or
(2) we merge or consolidate with or into any other person (other than
a subsidiary), any merger of another person (other than a subsidiary) into
us, or we convey, sell, transfer or lease all or substantially all of our
assets to another person (other than a subsidiary), other than any
transaction:
o that does not result in a reclassification, conversion, exchange or
cancellation of outstanding Ordinary Shares (other than the
cancellation of any of our outstanding Ordinary Shares held by the
person with whom we merge or consolidate), or
o pursuant to which the holders of our Ordinary Shares immediately prior
to the transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of directors
of the continuing or surviving corporation immediately after the
transaction, or
o which is effected solely to change our jurisdiction of incorporation
and results in a reclassification, conversion or exchange of
outstanding shares of our Ordinary Shares solely into shares of common
stock of the surviving entity.
However, a Change in Control will not be deemed to have occurred if either:
(A) the closing price per Ordinary Share for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of the Change in Control or the public announcement of the Change
in Control, in the case of a Change in Control relating to an acquisition
of capital stock, or the period of 10 consecutive trading days ending
immediately before the Change in Control, in the case of Change in Control
relating to a merger, consolidation or asset sale, equals or exceeds 105%
of the conversion price of the Debentures in effect on each of those
trading days or
(B) all of the consideration (excluding cash payments for fractional
shares and cash payments made pursuant to dissenters' appraisal rights) in
a merger or consolidation otherwise constituting a Change in Control under
clause (1) and/or clause (2) above consists of shares of common stock
traded on a national securities exchange or quoted on the Nasdaq National
Market (or will be so traded or quoted immediately following the merger or
consolidation) and as a result of the merger or consolidation the
Debentures become convertible into such shares of common stock.
For purposes of these provisions:
o the conversion price is equal to $1,000 divided by the conversion
rate;
o whether a person is a "beneficial owner" will be determined in
accordance with Rule 13d-3 under the Exchange Act; and
o "person" includes any syndicate or group that would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of prescribed
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to the holders
of Debentures. We will comply with this rule to the extent it applies at that
time.
The definition of Change in Control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our and our subsidiaries' assets. There is no precise, established defini-
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tion of the phrase "substantially all" under applicable law. Accordingly, the
ability of a holder of Debentures to require us to repurchase its Debentures as
a result of the conveyance, transfer, sale, lease or other disposition of less
than all of our and our subsidiaries' assets may be uncertain.
The foregoing provisions would not necessarily provide the holders of
Debentures with protection if we are involved in a highly leveraged or other
transaction that may adversely affect the holders.
We have, and may in the future incur, other indebtedness with similar
change in control provisions permitting its holders to accelerate or to require
us to repurchase our indebtedness upon the occurrence of similar events or on
some specified dates. If we fail to repurchase the Debentures when required
following a Change in Control, we will be in default under the Indenture whether
or not repurchase is permitted by the related subordination provisions.
Merger and Sales of Assets by XL Capital
We may not (1) consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, (2) permit any person to consolidate with or merge into us or (3)
permit any person to convey, transfer, sell or lease that person's properties
and assets substantially as an entirety to us unless:
o in the case of (1) and (2) above, if we are not the surviving person,
the surviving person assumes the payment of the principal of, premium,
if any, and interest on the Debentures and the performance of our
other covenants under the Indenture, and
o in all cases, immediately after giving effect to the transaction, no
Event of Default, and no event that, after notice or lapse of time or
both, would become an Event of Default, will have occurred and be
continuing.
Events of Default
The following are events of default with respect to the Debentures:
o default for 30 days in payment of any interest installment due and
payable on the Debentures (after any upward interest adjustment);
o default in payment of principal of the Debentures and accrued interest
(including any interest payable pursuant to any upward interest
adjustment) at maturity, upon redemption, repurchase or following a
Change in Control, when the same becomes due and payable;
o default by us under any instrument or instruments under which there is
or may be secured or evidenced any of our indebtedness (other than the
Debentures) having an outstanding principal amount of $100,000,000 (or
its equivalent in any other currency or currencies) or more,
individually or in the aggregate, that has caused the holders thereof
to declare such indebtedness to be due and payable prior to its stated
maturity, unless such declaration has been rescinded within 30 days;
o default in the payment of the principal or premium, if any, of any
bond, debenture, note or other evidence of our indebtedness, in each
case for money borrowed, or in the payment of principal or premium, if
any, under any mortgage, indenture, agreement or instrument under
which there may be issued or by which there may be secured or
evidenced any indebtedness of us for money borrowed, which default for
payment of principal or premium, if any, is in an aggregate principal
amount exceeding $100,000,000 (or its equivalent in any other currency
or
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currencies) when such indebtedness becomes due and payable (whether at
maturity, upon redemption or acceleration or otherwise), if such
default shall continue unremedied or unwaived for more than 30
business days after the expiration of any grace period or extension of
the time for payment applicable thereto;
o default in our performance of any other covenants or agreements in
respect of the Debentures contained in the Indenture or the Debentures
for 60 days after written notice to us by the Trustee or to us and the
Trustee by the holders of at least 25% in aggregate principal amount
of the Debentures then outstanding; and
o certain events of bankruptcy, insolvency and reorganization of XL
Capital.
The Indenture requires that we file annually with the Trustee a certificate
describing any Default by us in the performance of any conditions or covenants
that has occurred under the Indenture and its status. We must give the Trustee
written notice within 30 days of any default under the Indenture that could
mature into an Event of Default described in the fourth or fifth clause above.
The Indenture provides that if an Event of Default occurs and is continuing
with respect to the Debentures, either the Trustee or the registered holders of
at least 25% in aggregate principal amount of the Debentures, may declare the
Accreted Value plus accrued and unpaid cash interest, if any, on the Debentures
to be due and payable immediately. If an Event of Default relating to some
events or bankruptcy, insolvency or reorganization occurs, the issue price plus
accrued interest on the Debentures will become immediately due and payable
without any action on the part of the Trustee or any holder. At any time after a
declaration of acceleration, but before a judgment or decree for payment of
money has been obtained, if all Events of Default with respect to the Debentures
have been cured (other than the nonpayment of principal of the Debentures which
has become due solely by reason of the declaration of acceleration) then the
declaration of acceleration shall be automatically annulled and rescinded.
A holder of Debentures may pursue any remedy under the Indenture only if:
o the holder gives the Trustee written notice of a continuing event of
default for the Debentures;
o the holders of at least 25% in principal amount of the outstanding
Debentures make a written request to the Trustee to pursue the remedy;
o the holder offers to the Trustee indemnity reasonably satisfactory to
the Trustee;
o the Trustee fails to act for a period of 60 days after receipt of
notice and offer of indemnity; and
o during that 60-day period, the holders of a majority in principal
amount of the Debentures do not give the Trustee a direction
inconsistent with the request.
This provision does not, however, affect the right of a holder of
Debentures to sue for enforcement of payment of the principal of or interest,
including liquidated damages, on the holder's Debenture on or after the
respective due dates expressed in its Debenture or the holder's right to convert
its Debenture in accordance with the Indenture.
The Trustee is entitled under the Indenture, subject to the duty of the
Trustee during a Default to act with the required standard of care, to be
indemnified before proceeding to exercise any right or power under the Indenture
at the direction of the registered holders of the Debentures or which requires
the Trustee to expend or risk its own funds or otherwise incur any financial
liability. The Indenture also provides that the registered hold-
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ers of a majority in principal amount of the outstanding Debentures (or of all
debt securities affected, voting as one class) may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to that
series of debt securities. The Trustee, however, may refuse to follow any such
direction that conflicts with law or the Indenture, is unduly prejudicial to the
rights of other registered holders of that series of debt securities, or would
involve the Trustee in personal liability.
The Indenture provides that while the Trustee generally must mail notice of
a default or Event of Default to the registered holders of the debt securities
of any series issued under the Indenture within 90 days of occurrence, the
Trustee may withhold notice of any Default or Event of Default (except in
payment on the debt securities) if the Trustee in good faith determines that the
withholding of such notice is in the interest of the registered holders of that
series of debt securities.
Withholding Taxes
All amounts payable (whether in respect of principal, interest or
otherwise) in respect of the Debentures will be made free and clear of and
without withholding or deduction for or on account of any present or future
taxes, duties, levies, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of the Cayman Islands or any political
subdivision thereof or any authority or agency therein or thereof having power
to tax, unless the withholding or deduction of such taxes, duties, levies,
assessments or governmental charges is required by law. In that event, we will
pay, or cause to be paid, such additional amounts as may be necessary in order
that the net amounts receivable by the holder after such withholding or
deduction shall equal the respective amounts which would have been receivable by
such holder in the absence of such withholding or deduction; except that no such
additional amounts shall be payable in relation to any payment in respect of any
of the Debentures:
o to, or to a third party on behalf of, a person who is liable for such
taxes, duties, levies, assessments or governmental charges in respect
of such Debenture by reason of his having some connection with
(including, without limitation, being a citizen of, being incorporated
or engaged in a trade or business in, or having a residence or
principal place of business or other presence in) the Cayman Islands
other than (a) the mere holding of such Debenture or (b) the receipt
of principal, interest or other amount in respect such Debenture; or
o presented for payment more than 30 days after the Relevant Date (as
defined below), except to the extent that the relevant holder would
have been entitled to such additional amounts on presenting the same
for payment on or before the expiry of such period of thirty days; or
o on account of any inheritance, gift, estate, personal property, sales,
or transfer or similar taxes duties, levies, assessments or similar
governmental charges; or
o on account of any taxes, duties, levies, assessments or governmental
charges that are payable otherwise than by withholding from payments
in respect of such Debenture.
The "Relevant Date" means, in respect of any payment, the date on which
such payment first becomes due and payable, but if the full amount of the moneys
payable has not been received by the Trustee on or prior to such due date, it
means the first date on which, the full amount of such moneys having been so
received and being available for payment to holders, notice to that effect shall
have been duly given to the holders of the Debentures.
If we become subject generally at any time to any taxing jurisdiction other
than or in addition to the Cayman Islands, references in this section to the
Cayman Islands shall be read and construed as references to such other
jurisdiction(s) and/or to the Cayman Islands.
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In the event that any deduction or withholding on account of tax is
required to be made, or is made, in connection with any European Union directive
on the taxation of savings implementing the conclusions of the ECOFIN Council
meeting of November 26-27, 2000, or any law implementing or complying with, or
introduced in order to conform to, such directive, no additional amounts shall
be payable or paid by XL Capital to any holder in respect of the Debentures.
Any reference in this section to "principal" and/or "interest" in respect
of the Debentures shall be deemed also to refer to any additional amounts which
may be payable under this section. Unless the context otherwise requires, any
reference in this section to "principal" shall include any premium payable in
respect of a Debenture, any redemption amount and any other amounts in the
nature of principal payable pursuant to this section and "interest" shall
include all amounts payable pursuant to this section and any other amounts in
the nature of interest payable pursuant to this section.
Modification and Waiver
We may amend or supplement the Indenture if the holders of a majority in
principal amount of the Debentures consent to it. Without the consent of the
holder of each Debenture, however, no modification may:
o reduce the amount of Debentures whose holders must consent to an
amendment, supplement or waiver;
o reduce the rate or accrual of interest or change the time for payment
of interest on the Debentures;
o reduce the calculation of the value of our Ordinary Shares to which
reference is made in determining whether an interest adjustment will
be made on the Debentures, or change the method by which this value is
calculated;
o reduce the issue price, the principal amount of the Debentures or
change its final stated maturity;
o reduce the redemption or repurchase price of the Debentures or change
the time at which the Debentures may or must be redeemed or
repurchased;
o make payments on the Debentures payable in currency other than as
originally stated in the Debentures;
o impair the holder's right to institute suit for the enforcement of any
payment on the Debentures;
o make any change in the percentage of principal amount of Debentures
necessary to waive compliance with some provisions of the Indenture or
to make any change in this provision for modification;
o waive a continuing default or event of default regarding any payment
on the Debentures; or
o adversely affect the conversion or repurchase provisions of the
Debentures.
We may amend or supplement the Indenture or waive any provision of it
without the consent of any holders of Debentures in some circumstances,
including:
o to cure any ambiguity, omission, defect or inconsistency;
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o to provide for the assumption of our obligations under the Indenture
by a successor upon any merger, consolidation or asset transfer
permitted under the Indenture;
o to provide for uncertificated Debentures in addition to or in place of
certificated Debentures or to provide for bearer Debentures;
o to provide any security for or guarantees of the Debentures;
o to comply with any requirement to effect or maintain the qualification
of the Indenture under the Trust Indenture Act of 1939;
o to add covenants that would benefit the holders of Debentures or to
surrender any rights we have under the Indenture;
o to add events of default with respect to the Debentures; or
o to make any change that does not adversely affect any outstanding
Debentures of any series in any material respect.
The holders of a majority in principal amount of the outstanding Debentures
may waive any existing or past default or Event of Default. Those holders may
not, however, waive any default or event of default in any payment on any
Debenture or compliance with a provision that cannot be amended or supplemented
without the consent of each holder affected.
Calculations in Respect of Debentures
We are responsible for making all calculations called for under the
Debentures, except for such calculations made by the Reset Rate Agent. These
calculations include, but are not limited to, determinations of the market
prices of the Debentures and of our Ordinary Shares, any accrued interest
payable on the Debentures, the Accreted Value of the Debentures, and the
Accreted Conversion Price of the Debentures. We will make all these calculations
in good faith and, absent manifest error, our calculations will be final and
binding on holders of Debentures. We will provide a schedule of our calculations
to the Trustee, and the Trustee is entitled to rely upon the accuracy of our
calculations without independent verification. The Trustee will forward our
calculations to any holder of Debentures upon the request of that holder.
Governing Law
The Indenture and the Debentures are governed by, and construed in
accordance with, the laws of the State of New York.
Trustee
State Street Bank and Trust Company is the Trustee, registrar, conversion
agent and paying agent.
If an Event of Default occurs and is continuing, the Trustee is required to
use the degree of care and skill of a prudent man in the conduct of his own
affairs. The Trustee will become obligated to exercise any of its powers under
the Indenture at the request of any of the holders of any Debentures only after
those holders have offered the Trustee indemnity reasonably satisfactory to it.
If the Trustee becomes one of our creditors, it will be subject to
limitations in the Indenture on its rights to obtain payment of claims or to
realize on some property received for any such claim, as security or otherwise.
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The Trustee is permitted to engage in other transactions with us. If, however,
it acquires any conflicting interest, it must eliminate that conflict or resign.
Form, Exchange, Registration and Transfer
We issued the Debentures in registered form, without interest coupons. We
will not charge a service charge for any registration of transfer or exchange of
the Debentures. We may, however, require the payment of any tax or other
governmental charge payable for that registration.
Debentures are exchangeable for other Debentures, for the same Accreted
Value and for the same terms but in different authorized denominations in
accordance with the Indenture. Holders may present Debentures for registration
of transfer at the office of the security registrar or any transfer agent we
designate. The security registrar or transfer agent will effect the transfer or
exchange when it is satisfied with the documents of title and identity of the
person making the request.
We have appointed the Trustee as security registrar for the Debentures. We
may at any time rescind that designation or approve a change in the location
through which any registrar acts. We are required to maintain an office or
agency for transfers and exchanges in each place of payment. We may at any time
designate additional registrars for the Debentures.
In the case of any redemption, the security registrar will not be required
to register the transfer or exchange of any Debentures either:
o during a period beginning 15 business days prior to the mailing of the
relevant notice of redemption and ending on the close of business on
the day of mailing of the notice, or
o if the Debentures have been called for redemption in whole or in part,
except the unredeemed portion of any Debentures being redeemed in
part.
Payment and Paying Agents
Payments on the Debentures will be made in U.S. dollars at the office of
the Trustee. At our option, however, we may make payments by check mailed to the
holder's registered address or, with respect to global Debentures, by wire
transfer. We will make any required interest payments to the person in whose
name each Debenture is registered at the close of business on the record date
for the interest payment.
The Trustee has been designated as our paying agent for payments on the
Debentures. We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which
any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the
Trustee and paying agent shall pay to us upon written request any money held by
them for payments on the Debentures that remain unclaimed for two years after
the date upon which that payment has become due. After payment to us, holders
entitled to the money must look to us for payment. In that case, all liability
of the Trustee or paying agent with respect to that money will cease.
Notices
Except as otherwise described herein, notice to registered holders of the
Debentures will be given by mail to the addresses as they appear in the security
register. Notices will be deemed to have been given on the date of such mailing.
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Replacement of Debentures
We will replace any Debentures that become mutilated, destroyed, stolen or
lost at the expense of the holder upon delivery to the Trustee of the mutilated
Debentures or evidence of the loss, theft or destruction satisfactory to us and
the Trustee. In the case of a lost, stolen or destroyed Debentures, indemnity
satisfactory to the Trustee and us may be required at the expense of the holder
of the Debentures before a replacement note will be issued.
Payment of Stamp and Other Taxes
We will pay all stamp and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the Debentures. We will not be
required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
Book-Entry System
The Debentures are represented by one or more global securities (each a
"Global Security"). Each Global Security has been deposited with, or on behalf
of, DTC and has been registered in the name of a nominee of DTC. Except under
circumstances described below, the Debentures will not be issued in definitive
form.
Ownership of beneficial interests in a Global Security is limited to
persons that have accounts with DTC or its nominee ("participants") or persons
that may hold interests through participants. Ownership of beneficial interests
in a Global Security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of persons other than participants). The laws of some states
require that some purchasers of securities take physical delivery of the
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Security.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the Debentures represented by that Global Security for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Security will not be entitled to have the Debentures represented by
that Global Security registered in their names, will not receive or be entitled
to receive physical delivery of the Debentures in definitive form, and will not
be considered the owners or holders thereof under the Indenture. Principal and
interest payments, if any, on the Debentures registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the relevant Global Security. Neither XL Capital, the
Trustee, any paying agent or the registrar for the Debentures will have any
responsibility or liability for any aspect of the records relating to nor
payments made on account of beneficial interests in a Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest, if any, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant Global Security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a Global Security held through these participants will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of the participants.
If DTC is at any time unwilling or unable to continue as a depositary and a
successor depositary is not appointed by us within 90 days, we will issue the
Debentures in definitive form in exchange for the entire Global Security for the
Debentures. In addition, we may at any time and in our sole discretion determine
not to have the Debentures represented by a Global Security and, in such event,
will issue the Debentures in definitive form in
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exchange for the entire Global Security relating to the Debentures. In any such
instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of the Debentures represented
by the Global Security equal in principal amount to the beneficial interest and
to have the Debentures registered in its name. Debentures so issued in
definitive form will be issued as registered Debentures in denominations of
$1,000 and integral multiples thereof, unless otherwise specified by us.
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DESCRIPTION OF ORDINARY SHARES
We are a Cayman Islands exempted liability company. Our authorized share
capital is $9,999,900 divided into 999,990,000 ordinary shares, par value $0.01.
The ordinary shares are currently divided into two classes: Class A ordinary
shares ("Ordinary Shares") and Class B ordinary shares. As of November 9, 2001,
there were 134,168,793 Ordinary Shares outstanding and no Class B ordinary
shares outstanding.
The following description of our Ordinary Shares is a summary. This summary
is not complete and is subject to the complete text of our Memorandum of
Association and our Articles of Association.
Voting
The holders of our Class A ordinary shares are entitled to one vote per
share while our Class B ordinary shares carry no voting rights. Our Articles of
Association restrict the voting power of any shareholder to less than
approximately 10% of total voting power.
Under the Cayman Islands Companies Law (2001 Revision) (the "Law") and our
Memorandum and Articles of Association, some matters, such as altering the
Memorandum or the Articles of Association, changing the name of a company,
voluntarily winding up a company or removing a director, require approval of
shareholders by a special resolution. A special resolution is a resolution:
o passed by a majority of not less than two-thirds of such shareholders,
as being entitled to do so, vote in person or by proxy at a general
meeting or
o approved in writing by all shareholders entitled to vote at a general
meeting of the company.
Our Articles of Association restrict the voting power of any shareholder to
less than approximately 10% of total voting power.
Dividend Rights
Subject to the Law and any rights and restrictions of any other class or
series of shares, the Board of Directors may, from time to time, declare
dividends on the shares issued and authorize payment of the dividends out of our
profit realized or unrealized or out of monies otherwise available for dividends
in accordance with the Law. The Board of Directors may declare that any dividend
be paid wholly or partly by the distribution of our shares and/or specific
assets.
Our declaration and payment of future dividends will be at the discretion
of our Board of Directors and will depend upon many factors, including our
earnings, financial condition, business needs, and the capital and surplus
requirements of our operating subsidiaries and regulatory restrictions.
As a holding company, our principal source of income is dividends or other
statutorily permissible payments from our subsidiaries. The ability of our
subsidiaries to pay such dividends is limited by the applicable laws and
regulations of the Cayman Islands, the United States, and the United Kingdom,
including the Society of Lloyd's.
Rights Upon Liquidation
Upon our liquidation, after the payments to be made in accordance with the
Law and the full amounts that holders of any issued shares ranking senior to the
Ordinary Shares as to distribution on liquidation or winding up are entitled to
receive have been paid or set aside for payment, the holders of the Ordinary
Shares are entitled to receive, pro rata, any remaining assets available for
distribution to the holders of Ordinary Shares. The
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liquidator may deduct from the amount payable in respect of those Ordinary
Shares any liabilities the holder has to or with us. The assets received by the
holders of Ordinary Shares in a liquidation may consist in whole or in part of
property. That property is not required to be of the same kind for all
shareholders.
Stock Plans
Our incentive stock plan, the "1991 Performance Incentive Program,"
provides for grants of non-qualified or incentive stock options, restricted
stock awards, performance shares, performance units and stock appreciation
rights ("SARs"). The plan is administered by the Compensation Committee of the
Board of Directors. Stock options may be granted with or without SARs. Grant
prices are established by the Compensation Committee at the date of grant.
Options and SARs have a life of not longer than 10 years and vest as set forth
by the Compensation Committee at the time of grant.
Restricted stock awards issued under the 1991 Performance Incentive Program
plan vest over such period as the Compensation Committee may approve. These
shares contained certain restrictions, prior to vesting, relating to, among
other things, forfeiture in the event of termination of employment and
transferability. Restricted stock issued under the plan totaled 77,472 shares,
113,100 shares and 147,836 shares in 2000, 1999 and 1998, respectively.
Restricted stock awards granted by NAC Re Corp. prior to our merger with it
amounted to 3,627 shares and 23,700 shares in 1999 and 1998, respectively.
Vesting for such shares generally occurs over a six-year period.
We also have stock plans in place for our non-employee directors. All
options vest immediately on the grant date. All options granted to non-employee
directors are granted under the 1991 Performance Incentive Program. Directors
may also make an irrevocable election preceding the beginning of each fiscal
year to defer cash compensation that would otherwise be payable as his or her
annual retainer in increments of $5,000 or receive their annual retainer fee
currently in the form of shares instead of cash. Any deferred payments will be
credited in the form of shares calculated by dividing 110% of the deferred
payment by the market value of our stock on the date the fees would otherwise be
payable. The shares are distributed in accordance with the terms of the plan.
Shares issued under the plan totaled 7,846, nil and 2,737 in 2000, 1999 and
1998, respectively.
A second stock plan, intended to replace the directors' "Retirement Plan
for Non-Employee Directors," provides for the issuance of share units determined
by dividing the annual retainer by the market price of our Ordinary Shares on
December 1 of each year. These units receive dividends in the form of additional
units equal to the cash value divided by the market price on the payment date.
Share units totaling 13,237, 1,217 and 5,531 were issued in 2000, 1999 and 1998,
respectively.
The majority of the options granted pursuant to our several option plans
expire 10 years from the date of grant.
In 1999, we adopted our 1999 Performance Incentive Plan under which
1,250,000 options were available and issued to employees who were not directors
or executive officers. Our 1999 Performance Incentive Plan is substantially
similar to our 1991 Performance Incentive Program.
Share Rights Plan
Rights to purchase Ordinary Shares (the "Rights") were distributed as a
dividend at the rate of one Right for each Ordinary Share held of record as of
the close of business on October 31, 1998. Each Right entitles holders of
Ordinary Shares to buy one Ordinary Share at an exercise price of $350. The
Rights would be exercisable, and would detach from the Ordinary Shares, only if
a person or group were to acquire 20% or more of our outstanding Ordinary
Shares, or were to announce a tender or exchange offer that, if consummated,
would result in a person or group beneficially owning 20% or more of Ordinary
Shares. Upon a person or group without prior approval of the Board acquiring 20%
or more of Ordinary Shares, each Right would entitle the holder (other than such
an acquiring person or group) to purchase Ordinary Shares (or, in certain
circumstances, Ordinary Shares of the acquiring person) with a value of twice
the Rights exercise price upon payment of the Rights
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exercise price. We will be entitled to redeem the Rights at $0.01 per Right at
any time until the close of business on the tenth day after the Rights become
exercisable. The Rights will expire at the close of business on September 30,
2008, and do not initially have a fair value. We have initially reserved
119,073,878 authorized Ordinary Shares for issue upon exercise of Rights.
Classified Board
Our Board of Directors is divided into three classes that are elected for
staggered three-year terms. A director may be removed by the shareholders
without cause only by special resolution of the total voting power of our issued
shares determined in accordance with our Articles of Association.
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CERTAIN CAYMAN ISLANDS AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Cayman Islands
The Cayman Islands at present impose no taxes on income, profits, capital
gains or appreciations of XL Capital. There are also currently no taxes imposed
in the Cayman Islands on income, profits, capital gains or appreciations of the
holders of the Debentures nor any taxes on the holders of the Debentures in the
nature of estate duty or capital transfer tax. Further, as an exempted company,
we have obtained an undertaking from the Cayman Islands Government authorities
that, for a period of twenty years from the date of our incorporation, no law
which is enacted in the Cayman Islands imposing any tax on profit, income,
capital gains or appreciations will apply to us and that, for the same period of
twenty years, no taxes on profit, income, capital gains or appreciations nor any
tax in the nature of estate duty or inheritance tax will be payable on the
Ordinary Shares, Debentures or other obligations of XL Capital.
United States
This discussion describes the material United States federal income tax
consequences to holders of the Debentures. It applies to you only if you acquire
Debentures and you hold your Debentures as capital assets for United States
federal income tax purposes. This section does not apply to you if you are a
member of a class of holders subject to special rules, such as:
o a dealer in securities or currencies,
o a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings,
o a bank,
o a life insurance company,
o a tax-exempt organization,
o a person treated as a partnership for United States federal income tax
purposes,
o a person that owns Debentures that are a hedge or that are hedged
against interest rate risks,
o a person that owns Debentures as part of a straddle or conversion
transaction for United States federal income tax purposes, or
o a person whose functional currency for United States federal income
tax purposes is not the U.S. dollar.
The summary below does not address all of the tax consequences that may be
relevant to a holder of the Debentures. In particular, it does not address:
o the U.S. federal estate, gift or alternative minimum tax consequences
of the purchase, ownership or disposition of the Debentures,
o state, local or foreign tax consequences of the purchase, ownership or
disposition of the Debentures, or
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o federal (except in respect of Non-U.S. Holders (as defined below)),
state, local or foreign tax consequences of owning or disposing of our
Ordinary Shares.
Accordingly, you should consult your tax advisor regarding the tax
consequences of purchasing, owning and disposing of the Debentures and our
Ordinary Shares in light of your own circumstances.
If a partnership holds the Debentures, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner in a partnership holding the Debentures, you
should consult your tax advisors.
This discussion is based on the Internal Revenue Code of 1986, as amended,
its legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
No statutory, administrative or judicial authority directly addresses the
treatment of the Debentures or instruments similar to the Debentures for United
States federal income tax purposes. No rulings have been sought or are expected
to be sought from the Internal Revenue Service (the "IRS") with respect to any
of the United States federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. As a
result, no assurance can be given that the IRS will agree with the tax
characterizations and the tax consequences described below.
We urge prospective investors to consult their tax advisors with respect to
the tax consequences to them of the purchase, ownership and disposition of the
Debentures and our Ordinary Shares in light of their own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in United States federal or
other tax laws.
Classification of the Debentures
Pursuant to the terms of the Indenture, each holder of the Debentures
agreed, for United States federal income tax purposes, to treat the Debentures
as indebtedness for United States federal income tax purposes subject to the
regulations governing contingent payment debt instruments and to be bound by our
application of those regulations to the Debentures, including our determination
of the rate at which interest will be deemed to accrue on the Debentures for
United States federal income tax purposes. The remainder of this discussion
assumes that the Debentures will be treated in accordance with that agreement
and our determinations. However, the proper application of the regulations
governing contingent payment debt instruments to a holder of a Debenture is
uncertain in a number of respects, and no assurance can be given that the IRS
will not assert that the Debentures should be treated differently or that such
an assertion would not prevail. Such treatment could affect the amount, timing
and character of income, gain or loss in respect of an investment in the
Debentures. In particular, it might be determined that a holder should have
accrued interest income at a lower rate, should not have recognized income or
gain upon the conversion, and should not have recognized ordinary income upon a
taxable disposition of its Debentures.
U.S. Holders
This discussion applies to U.S. Holders.
You are a U.S. holder if you are a beneficial owner of a Debenture and you
are, for United States federal income tax purposes:
o a citizen or resident of the United States,
o a domestic corporation,
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o an estate whose income is subject to United States federal income tax
regardless of its source, or
o a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
You are a non-U.S. Holder, and should see "Treatment of Non-U.S. Holders"
below, if you are a beneficial owner of a Debenture and you are, for United
States federal income tax purposes:
o a nonresident alien individual,
o a foreign corporation, or
o a foreign estate or trust that is not subject to United States federal
income taxation on its worldwide income.
Under the rules governing contingent payment debt obligations, a U.S.
Holder generally will be required to accrue interest income on the Debentures,
in the amounts described below, regardless of whether the U.S. Holder uses the
cash or accrual method of tax accounting. Accordingly, U.S. Holders would likely
be required to include interest in taxable income in each year in excess of the
accruals on the Debentures for non-tax purposes and in excess of any contingent
interest payments actually received in that year.
A U.S. Holder must accrue an amount of original issue discount as ordinary
income for United States federal income tax purposes, for each accrual period
prior to and including the maturity date of the Debentures that equals:
o the product of (i) the adjusted issue price (as defined below) of the
Debentures as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the Debentures,
adjusted for the length of the accrual period;
o divided by the number of days in the accrual period; and
o multiplied by the number of days during the accrual period that the
U.S. Holder held the Debentures.
The issue price of a Debenture is the first price at which a substantial
amount of the Debentures is sold to the public, excluding bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a Debenture is its
issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below and
decreased by the projected amounts of any payments with respect to the
Debentures.
Under the rules governing contingent payment debt obligations, we are
required to establish the "comparable yield" for the Debentures. We have
determined that the comparable yield for the Debentures is the annual yield we
would incur, as of the initial issue date, on a fixed rate nonconvertible debt
security with no contingent payments, but with terms and conditions otherwise
comparable to those of the Debentures including the level of subordination,
term, timing of payments and general market conditions, but excluding any
adjustments for liquidity or the riskiness of the contingencies with respect to
the Debentures. Accordingly, we have determined the comparable yield to be 7.64%
compounded semi-annually.
We are required to provide to U.S. Holders, solely for United States
federal income tax purposes, a schedule of the projected amounts of payments on
the Debentures. This schedule must produce the comparable
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yield. Our determination of the projected payment schedule for the Debentures
includes estimates for payments of contingent interest and an estimate for a
payment at maturity taking into account the conversion feature. U.S. Holders may
obtain the projected payment schedule by submitting a written request for it to
XL Capital at the address set forth in "Incorporation of Documents by
Reference."
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT
DETERMINED FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF A U.S.
HOLDER'S INTEREST ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF THE
DEBENTURES FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND DO NOT
CONSTITUTE A PROJECTION OR REPRESENTATION REGARDING THE ACTUAL AMOUNTS
PAYABLE TO U.S. HOLDERS OF THE DEBENTURES.
Adjustments to Interest Accruals on the Debentures
If a U.S. Holder receives actual payments with respect to the Debentures in
a taxable year that in the aggregate exceed the total amount of projected
payments for that taxable year, the U.S. Holder would incur a "net positive
adjustment" equal to the amount of such excess. The U.S. Holder would treat the
"net positive adjustment" as additional interest income for the taxable year.
For this purpose, the payments in a taxable year include the fair market value
of property received in that year.
If a U.S. Holder receives actual payments with respect to the Debentures in
a taxable year that in the aggregate are less than the amount of the projected
payments for that taxable year, the U.S. Holder would incur a "net negative
adjustment" equal to the amount of such deficit. This adjustment will (a) reduce
the U.S. Holder's interest income on the Debentures for that taxable year, and
(b) to the extent of any excess after the application of (a), give rise to an
ordinary loss to the extent of the U.S. Holder's interest income on the
Debentures during prior taxable years, reduced to the extent such interest was
offset by prior net negative adjustments.
Sale, Exchange, Conversion or Redemption
Generally, the sale or exchange of a Debenture, or the redemption of a
Debenture for cash, will result in taxable gain or loss to a U.S. Holder. In
addition, as described above, our calculation of the comparable yield and the
schedule of projected payments for the Debentures includes the receipt of stock
upon conversion of a Debenture into our Ordinary Shares as a contingent payment
with respect to the Debentures. Accordingly, we intend to treat the receipt of
our Ordinary Shares by a U.S. Holder upon the conversion of a Debenture, or upon
the redemption of a Debenture where we elect to pay in Ordinary Shares, as a
contingent payment. As described above, holders are generally bound by our
determination of the comparable yield and the schedule of projected payments.
Under this treatment, a sale or exchange, or such a conversion or redemption,
also will result in taxable gain or loss to the U.S. Holder. The amount of gain
or loss on a taxable sale, exchange, conversion or redemption will equal the
difference between:
o the amount of cash plus the fair market value of any other property
received by the U.S. Holder, including the fair market value of any
Ordinary Shares received, and
o the U.S. Holder's adjusted tax basis in the Debentures. A U.S.
Holder's adjusted tax basis in a Debenture generally will equal the
U.S. Holder's original purchase price for the Debentures, increased by
any original issue discount previously accrued by the U.S. Holder
(determined without regard to any positive or negative adjustments to
interest accruals described above), and decreased by the amount of any
projected payments on the Debentures. Gain recognized upon a sale,
exchange, conversion or redemption of a Debenture generally will be
treated as ordinary interest income; any loss will be ordinary loss to
the extent of interest previously included in income, and thereafter,
capital loss (which will be long-term if the Debenture is held for
more than one year). The deductibility of net capital losses is
subject to limitations.
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A U.S. Holder's tax basis in our Ordinary Shares received upon a conversion
of a Debenture or upon a holder's exercise of a put right that we elect to pay
in Ordinary Shares will equal the then current fair market value of such
Ordinary Shares. The U.S. Holder's holding period for the Ordinary Shares
received will commence on the day after the date of conversion or redemption.
Constructive Dividends
If at any time we make a distribution of property to our shareholders that
would be taxable to the shareholders as a dividend for United States federal
income tax purposes and, in accordance with the anti-dilution provisions of the
Debentures, the exchange rate of the Debentures is increased, such increase may
be deemed to be the payment of a taxable dividend to holders of the Debentures.
For example, an increase in the exchange rate in the event of distribution
of our evidence of indebtedness or our assets or an increase in the event of an
extraordinary cash dividend will generally result in deemed dividend treatment
to holders of the Debentures, but generally an increase in the event of share
dividends or the distribution of rights to subscribe for our Ordinary Shares
will not.
Treatment of Non-U.S. Holders
Payments on the Debentures or the Ordinary Shares to a non-U.S. Holder, or
gain realized on the sale, exchange or redemption of the Debentures or the
Ordinary Shares by a non-U.S. Holder, will not be subject to U.S. federal income
or withholding tax, as the case may be, unless such income is effectively
connected with a trade or business conducted by such non-U.S. Holder in the
United States, or, in the case of gain, such non-U.S. Holder is a nonresident
alien individual who holds the Debentures or Ordinary Shares, as the case may
be, as a capital asset and who is present in the United States more than 182
days in the taxable year of the sale and certain other conditions are met.
U.S. trade or business income of a non-U.S. Holder will generally be
subject to regular United States federal income tax in the same manner as if it
were realized by a U.S. Holder. Non-U.S. Holders that realize U.S. trade or
business income with respect of the Debentures or Ordinary Shares should consult
their tax advisors as to the treatment of such income or gain.
Back-up Withholding and Information Reporting
U.S. Holders
Payments of interest or dividends made by us on, or the proceeds of the
sale or other disposition of, the Debentures or Ordinary Shares may be subject
to information reporting and United States federal backup withholding tax at the
rate of 31% if the recipient of such payment fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
allowable as a credit against the holder's United States federal income tax,
provided that the required information is furnished to the IRS.
Non-U.S. Holders
A non-U.S. Holder may be required to comply with certification procedures
to establish that the holder is not a U.S. person in order to avoid backup
withholding tax and information reporting requirements.
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Proposed European Union Tax Directive
The European Union is currently considering proposals for a new directive
regarding the taxation of savings income. Subject to a number of important
conditions being met, it is proposed that Member States be required to provide
to the tax authorities of another Member State details of payments of interest
or other similar income paid by an issuer within its jurisdiction to an
individual resident in that other Member State, subject to the right of certain
Member States to opt instead for a withholding system for a transitional period
in relation to such payments. Accordingly, it is possible that payments on the
Debentures may be subject to withholding tax under this directive. In such
event, XL Capital would not make any additional payments to Holders to
compensate them for the amounts so withheld.
THE PROPER TAX TREATMENT OF A HOLDER OF DEBENTURES IS HIGHLY UNCERTAIN IN A
NUMBER OF RESPECTS. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF AN
INVESTMENT IN THE DEBENTURES AND WHETHER AN INVESTMENT IN THE DEBENTURES IS
ADVISABLE IN LIGHT OF THE AGREED UPON TAX TREATMENT AND THE HOLDER'S PARTICULAR
TAX SITUATION.
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SELLING SECURITYHOLDERS
The Debentures were originally issued by us and sold by Goldman, Sachs &
Co., Deutsche Banc Alex. Brown Inc. and Dresdner Kleinwort Wasserstein LLC (the
"Initial Purchasers") in a transaction exempt from the registration requirements
of the Securities Act to persons reasonably believed by the Initial Purchasers
to be "qualified institutional buyers" as defined by Rule 144A under the
Securities Act. The selling securityholders may from time to time offer and sell
pursuant to this prospectus any or all of the Debentures listed below and our
Ordinary Shares issued upon conversion of such Debentures. When we refer to the
"selling securityholders" in this prospectus, we mean those persons listed in
the table below, as well as the permitted pledgees, donees, assignees,
transferees, successors and others who later hold any of the selling
securityholders' interests.
The table below sets forth the name of each selling securityholder, the
principal amount at maturity of Debentures, as of November 28, 2001, that each
selling securityholder may offer pursuant to this prospectus and the number of
our Ordinary Shares into which such Debentures are convertible. Unless set forth
below, none of the selling securityholders has, or within the past three years
has had, any material relationship with us or any of our predecessors or
affiliates.
We have prepared the table below based on information given to us by the
selling securityholders on or prior to November 28, 2001. However, any or all of
the Debentures or our Ordinary Shares listed below may be offered for sale
pursuant to this prospectus by the selling securityholders from time to time.
Accordingly, no estimate can be given as to the amounts of Debentures or our
Ordinary Shares that will be held by the selling securityholders upon
consummation of any such sales. In addition, the selling securityholders listed
in the table below may have acquired, sold or transferred, in transactions
exempt from the registration requirements of the Securities Act, some or all of
their Debentures since the date as of which the information in the table is
presented.
Information about the selling securityholders may change over time. Any
changed information will be set forth in prospectus supplements. From time to
time, additional information concerning ownership of the Debentures and our
Ordinary Shares may rest with certain holders thereof not named in the table
below and of whom we are unaware.
Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
Tribeca Investments, L.L.C......... 20,000,000 2.0 118,934 *
Continental Casualty Company....... 4,300,000 * 25,571 *
J.P. Morgan Securities Inc......... 14,500,000 1.4 86,228 *
RAM Trading Ltd.................... 5,000,000 * 29,734 *
SAM Investments LDC................ 50,000,000 5.0 297,335 *
Royal Bank of Canada............... 9,000,000 * 53,520 *
Lord Abbett Bond Debenture Fund,
Inc............................. 12,500,000 1.2 74,334 *
CFFX, LLC.......................... 11,000,000 1.1 65,414 *
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Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
Global Bermuda Limited Partnership. 3,000,000 * 17,840 *
Lakeshore International Ltd........ 14,000,000 1.4 83,254 *
MedAmerica Insurance c/o Income
Research & Management........... 2,900,000 * 17,245 *
MedAmerica New York Insurance c/o
Income Research & Management.... 1,200,000 * 7,136 *
Blue Cross Blue Shield of
Rochester c/o Income Research &
Management...................... 4,400,000 * 26,166 *
Van Kampen Harbor Fund............. 10,000,000 1.0 59,467 *
Putnam Convertible Income-Growth
Trust........................... 9,110,000 * 54,174 *
Putnam Variable Trust-Putnam VT
Global Asset Allocation Fund.... 320,000 * 1,903 *
Putnam Convertible Opportunities and
Income Trust.................... 320,000 * 1,903 *
Putnam Asset Allocation
Funds-Balanced Portfolio........ 1,210,000 * 7,196 *
Putnam Asset Allocation
Funds-Conservative Portfolio.... 940,000 * 5,590 *
Lincoln National Global Asset
Allocation Fund, Inc............ 150,000 * 892 *
Museum of Fine Arts, Boston........ 30,000 * 178 *
Parker-Hannifin Corporation........ 250,000 * 1,487 *
Zola Partners, LP.................. 1,000,000 * 5,947 *
HSBC Ttee Zola Managed Trust....... 1,100,000 * 6,541 *
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Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
Lyxor Master Fund.................. 900,000 * 5,352 *
JMG Triton Offshore Fund, LTD...... 15,000,000 1.5 89,201 *
Sage Capital....................... 200,000 * 1,189 *
D.E. Shaw Investments, L.P......... 8,200,000 * 48,763 *
D.E. Shaw Valence, L.P............. 32,800,000 3.3 195,052 *
R(2) Investments, LDC.............. 8,000,000 * 47,574 *
Highbridge International LLC....... 59,000,000 5.8 350,855 *
NCMIC Insurance Co................. 500,000 * 2,973 *
The Reciprocal of America.......... 575,000 * 3,419 *
Primex, Ltd........................ 325,000 * 1,933 *
OHIC Insurance Co.................. 825,000 * 4,906 *
Princeton Insurance Co............. 3,000,000 * 17,840 *
Healthcare Underwriters
Mutual Insurance Co............. 1,400,000 * 8,325 *
Medical Liability Mutual
Insurance Co.................... 42,000,000 4.2 249,761 *
Mag Mutual Insurance Co............ 400,000 * 2,379 *
Landesbank Schleswig-Holstein
International S.A............... 30,000,000 3.0 178,401 *
Purchase Associates, L.P........... 559,000 * 3,324 *
Commonfund Event Driven Company c/o IBT
Fund Services (Cayman).......... 67,000 * 398 *
Levco Alternative Fund, Ltd........ 2,114,000 * 12,571 *
Continental Assurance Company Separate
Account (E)..................... 700,000 * 4,163 *
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Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
Alta Partners Holdings, LDC........ 8,000,000 * 47,574 *
Aristeia Partners, L.P............. 2,575,000 * 15,313 *
Aristeia International, Limited.... 7,425,000 * 44,154 *
OFIVM.............................. 20,000,000 2.0 118,934 *
Citi JL, Ltd....................... 88,000 * 523 *
Credit Suisse Asset Management..... 3,000,000 * 17,840 *
KBC Financial Products USA Inc..... 10,000,000 1.0 59,467 *
Lincoln National Convertible Securities
Fund............................ 3,250,000 * 19,327 *
AIG Soundshore Strategic Holding
Fund Ltd........................ 10,895,000 1.1 64,789 *
AIG Soundshore Opportunity Holding
Fund Ltd........................ 13,105,000 1.3 77,932 *
Wilmington Trust Company as owner
trustee for the Forrestal Funding
Master Trust.................... 40,200,000 4.0 239,057 *
Merrill Lynch Insurance Group...... 800,000 * 4,757 *
Ohio Bureau of Workers
Compensation.................... 437,000 * 2,599 *
Independence Blue Cross............ 688,000 * 4,091 *
AXIS Capital Management Ltd........ 21,300,000 2.1 126,665 *
Goldman Sachs and Company.......... 1,355,000 * 8,058 *
Morgan Stanley & Co., Inc.......... 10,000,000 1.0 59,467 *
Lincoln National Convertible Securities
Fund............................ 3,250,000 * 19,327 *
Credit Industriel D'Alsace Et De
Lorraine........................ 26,000,000 2.6 154,614 *
Deutsche Banc Alex. Brown Inc...... 58,000,000 5.7 344,909 *
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Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
BNP Paribas Equity Strategies SNC
LP.............................. 5,143,000 * 30,584 *
Banca Del Gottardo Lugano /
Switzerland..................... 17,654,000 1.8 104,983 *
CooperNeff Convertible Strategies Fund,
L.P............................. 857,000 * 5,096 *
Societe Generale................... 50,541,000 5.0 300,552 *
UBS AG London Branch............... 79,500,000 7.9 472,763 *
Salomon Smith Barney Inc........... 8,930,000 * 53,104 *
Wolverine Trading, L.P............. 10,000,000 1.0 59,467 *
Nicholas Applegate Investment Grade
Convertible..................... 11,000 * 65 *
Susquehanna Capital Group.......... 7,500,000 * 44,600 *
AIG Soundshore Holdings Ltd........ 7,500,000 * 44,600 *
Tokai Asia Ltd..................... 20,000,000 19.8 118,934 *
First Union Securities Inc......... 10,000,000 1.0 59,467 *
BTES - Convertible Arb............. 2,500,000 * 14,867 *
BTPO - Growth vs Value............. 6,000,000 * 35,680 *
Cheyne Capitol Management
Limited......................... 2,000,000 * 11,893 *
Newport Investments Inc............ 1,700,000 * 10,109 *
Alpha U.S. Sub Fund VIII, LLC...... 600,000 * 3,568 *
Deephaven Domestic Convertible Trading
Ltd............................. 22,700,000 2.3 134,990 *
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Aggregate Principal Percentage Number of Our Percentage of
Amount at Maturity of Ordinary Shares Our Ordinary
of Debentures That Debentures That May be Sold Shares
Name May be Sold Outstanding (1) Outstanding (2)
----------------------------------- ------------------- ----------- ---------------- ---------------
All other holders of Debentures or
future transferees, pledgees,
donees, assignees or successors
of any such holders(3)(4)....... 134,535,000 13.3 800,039 *
Total.............................. 1,010,834,000 100.0 6,011,127 4.5
* Less than one percent (1%).
(1) Assumes conversion of all of the holder's Debentures at a conversion rate
of 5.9467 Ordinary Shares per $1,000 principal amount at maturity of the
Debentures. This conversion rate is subject to adjustment, however, as
described under "Description of the Debentures--Conversion Rights." As a
result, the number of our Ordinary Shares issuable upon conversion of the
Debentures may increase or decrease in the future. Does not include our
Ordinary Shares that may be issued by us upon purchase of the Debentures by
us at the option of the holder.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act, using 134,168,793
Ordinary Shares outstanding as of November 9, 2001. In calculating this
amount for each holder, we treated as outstanding the number of our
Ordinary Shares issuable upon conversion of all of that holder's
Debentures, but we did not assume conversion of any other holder's
Debentures. Does not include our Ordinary Shares that may be issued by us
upon purchase of the Debentures by us at the option of the holder.
(3) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(4) Assumes that any other holders of Debentures, or any future pledgees,
donees, assignees, transferees or successors of or from any such other
holders of Debentures, do not beneficially own any of our Ordinary Shares
other than the Ordinary Shares issuable upon conversion of the Debentures
at the initial conversion rate.
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PLAN OF DISTRIBUTION
We are registering the Debentures and our Ordinary Shares covered by this
prospectus to permit holders to conduct public secondary trading of these
securities from time to time after the date of this prospectus. We have agreed,
among other things, to bear all expenses, other than underwriting discounts and
selling commissions, in connection with the registration and sale of the
Debentures and our Ordinary Shares covered by this prospectus.
We will not receive any of the proceeds from the offering of the Debentures
or our Ordinary Shares by the selling securityholders. We have been advised by
the selling securityholders that the selling securityholders may sell all or a
portion of the Debentures and our Ordinary Shares beneficially owned by them and
offered hereby from time to time:
o directly; or
o through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, commissions or concessions from
the selling securityholders or from the purchasers of the Debentures
and our Ordinary Shares for whom they may act as agent.
The Debentures and our Ordinary Shares may be sold from time to time in one
or more transactions at:
o fixed prices, which may be changed;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
These prices will be determined by the holders of the securities or by agreement
between these holders and underwriters or dealers who may receive fees or
commissions in connection with the sale. The aggregate proceeds to the selling
securityholders from the sale of the Debentures or our Ordinary Shares offered
by them hereby will be the purchase price of the Debentures or our Ordinary
Shares less discounts and commissions, if any.
The sales described in the preceding paragraph may be effected in
transactions:
o on any national securities exchange or quotation service on which the
Debentures and our Ordinary Shares may be listed or quoted at the time
of sale, including the New York Stock Exchange in the case of the
Ordinary Shares;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
o through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the Debentures and our Ordinary Shares or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in
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short sales of the Debentures and our Ordinary Shares in the course of hedging
their positions. The selling securityholders may also sell the Debentures and
our Ordinary Shares short and deliver Debentures and our Ordinary Shares to
close out short positions, or loan or pledge Debentures and our Ordinary Shares
to broker-dealers that in turn may sell the Debentures and our Ordinary Shares.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriters,
broker-dealer or agent regarding the sale of the Debentures and our Ordinary
Shares by the selling securityholders. Selling securityholders may not sell any,
or may not sell all, of the Debentures and our Ordinary Shares offered by them
pursuant to this prospectus. In addition, we cannot assure you that a selling
securityholder will not transfer, devise or gift the Debentures and our Ordinary
Shares by other means not described in this prospectus. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than pursuant to this prospectus.
Our outstanding Ordinary Shares are listed for trading on the New York
Stock Exchange.
The selling securityholders and any broker and any broker-dealers, agents
or underwriters that participate with the selling securityholders in the
distribution of the Debentures or our Ordinary Shares may be deemed to be
"underwriters" within the meaning of the Securities Act. In this case, any
commissions received by these broker-dealers, agents or underwriters and any
profit on the resale of the Debentures or our Ordinary Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act. In addition, any profits realized by the selling securityholders may be
deemed to be underwriting commissions.
The Debentures were issued and sold in May 2001 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the Initial Purchasers to be "qualified institutional buyers," as
defined in Rule 144A under the Securities Act. We have agreed to indemnify the
initial purchasers and each selling securityholder, and each selling
securityholder has agreed to indemnify us, the initial purchasers and each other
selling securityholder, against specified liabilities arising under the
Securities Act.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the Debentures and the underlying Ordinary Shares
by the selling securityholders and any such other person. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the Debentures and the underlying Ordinary Shares to
engage in market-making activities with respect to the particular Debentures and
the underlying Ordinary Shares being distributed for a period of up to five
business days prior to the commencement of the distribution. This may affect the
marketability of the Debentures and the underlying Ordinary Shares and the
ability of any person or entity to engage in market-making activities with
respect to the Debentures and the underlying Ordinary Shares.
We will use our reasonable best efforts to keep the registration statement
of which this prospectus is a part effective until the earlier of:
o the date when all Debentures and the underlying Ordinary Shares
offered hereunder have been disposed of in accordance with the
registration statement;
o the expiration of the period referred to in Rule 144(k) of the Act
with respect to all Debentures and the underlying Ordinary Shares held
by persons that are not affiliates of XL Capital;
o the date when there are no outstanding Debentures or underlying
Ordinary Shares; or
o two years from the date the registration statement is declared
effective.
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Our obligation to keep the registration statement to which this prospectus
relates effective is subject to specified, permitted exceptions. In these cases,
we may prohibit offers and sales of the Debentures and our Ordinary Shares
pursuant to the registration statement to which this prospectus relates.
ENFORCEMENT OF CIVIL LIABILITIES
We are a Cayman Islands exempted limited company. We have consented in the
Indenture to jurisdiction in the United States federal and state courts in The
City of New York and to service of process in The City of New York in any legal
suit, action or proceeding brought to enforce any rights under or with respect
to the Indenture and the Debentures. Accordingly, any judgment against us in
respect of the Indenture or the Debentures, including for civil liabilities
under the United States federal securities laws, obtained in any United States
federal or state court may have to be enforced in the courts of the Cayman
Islands.
We have been advised by Hunter & Hunter, our Cayman Islands counsel, that
although there is no statutory enforcement in the Cayman Islands of judgments
obtained in the courts of the United States of America (or any political
subdivision thereof), a final and conclusive judgment in personam of such courts
having competent jurisdiction for a debt or definite sum of money would be
recognized and enforced by the courts of the Cayman Islands by originating
action on such judgment provided that the debt or sum of money is not a sum
payable in respect of taxes or other charges of a like nature or in respect of a
fine or other similar penalty and provided that the judgment was obtained
without fraud or without breaching the principles of natural justice in the
Cayman Islands or in contravention of Cayman Islands public policy. A Cayman
Islands court may stay proceedings if concurrent proceedings are being brought
elsewhere.
LEGAL MATTERS
Certain U.S. legal matters with respect to the Debentures are being passed
upon for us by Cahill Gordon & Reindel, New York, New York. Certain legal
matters with respect to the Ordinary Shares under the laws of the Cayman Islands
are being passed upon for us by Hunter & Hunter, Grand Cayman, Cayman Islands.
EXPERTS
The consolidated financial statements of XL Capital and our subsidiaries as
of December 31, 2000 and 1999 and for the three years ended December 31, 2000,
incorporated by reference in this prospectus from our Annual Report on Form 10-K
for the year ended December 31, 2000 have been audited by PricewaterhouseCoopers
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference.
The consolidated financial statements of Winterthur International as of and
for December 31, 2000, incorporated by reference in this prospectus from our
current report on Form 8-K dated July 25, 2001, filed on August 9, 2001, have
been audited by KPMG Audit Plc, independent auditors, as stated in their report,
which is incorporated in this prospectus by reference.
---------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the Debentures and Ordinary Shares offered hereby, but
only under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
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