Execution Copy
Pricing Agreement
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
As Representatives of the several
Underwriters named in Schedule I hereto,
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281
August 9, 2002
Ladies and Gentlemen:
XL Capital Ltd, a Cayman Islands exempted limited company (the "Company"),
proposes, subject to the terms and conditions stated herein and in the
Underwriting Agreement, dated August 9, 2002 (the "Underwriting Agreement"),
between the Company on the one hand and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc., on the other hand, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") the Shares
specified in Schedule II hereto (the "Designated Shares") consisting of Firm
Shares and any Optional Shares the Underwriters may elect to purchase. Each of
the provisions of the Underwriting Agreement is incorporated herein by reference
in its entirety, and shall be deemed to be a part of this Agreement to the same
extent as if such provisions had been set forth in full herein; and each of the
representations and warranties set forth therein shall be deemed to have been
made at and as of the date of this Pricing Agreement, except that each
representation and warranty which refers to the Prospectus in Section 2 of the
Underwriting Agreement shall be deemed to be a representation or warranty as of
the date of the Underwriting Agreement in relation to the Prospectus (as therein
defined), and also a representation and warranty as of the date of this Pricing
Agreement in relation to the Prospectus relating to the Designated Shares which
are the subject of this Pricing Agreement. Each reference to the Representatives
herein and in the provisions of the Underwriting Agreement so incorporated by
reference shall be deemed to refer to you. Unless otherwise defined herein,
terms defined in the Underwriting Agreement are used herein as therein defined.
The Representatives designated to act on behalf of the Representatives and on
behalf of each of the Underwriters of the Designated Shares pursuant to Section
12 of the Underwriting Agreement and the address of the Representatives referred
to in such Section 12 are set forth in Schedule II hereto.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Designated Shares, in the form
heretofore delivered to you is now proposed to be filed with the Commission.
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the time and place
and at the purchase price to the Underwriters set forth in
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Schedule II hereto, the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto, and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional Shares,
as provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company at the purchase price to the Underwriters set forth in
Schedule II hereto that portion of the number of Optional Shares as to which
such election shall have been exercised.
The Company hereby grants to each of the Underwriters the right to purchase
at their election up to the number of Optional Shares set forth opposite the
name of such Underwriter in Schedule I hereto on the terms referred to in the
paragraph above for the sole purpose of covering over-allotments in the sale of
the Firm Shares. Any such election to purchase Optional Shares may be exercised
by written notice from the Representatives to the Company given within a period
of 20 calendar days after the date of this Pricing Agreement, setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by the Representatives, but
in no event earlier than the First Time of Delivery or, unless the
Representatives and the Company otherwise agree in writing, no earlier than two
or later than ten business days after the date of such notice.
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If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and one for each of the Representatives plus
one for each counsel counterparts hereof, and upon acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof,
including the provisions of the Underwriting Agreement incorporated herein by
reference, shall constitute a binding agreement between each of the Underwriters
and the Company. It is understood that your acceptance of this letter on behalf
of each of the Underwriters is or will be pursuant to the authority set forth in
a form of Agreement among Underwriters, the form of which shall be submitted to
the Company for examination, upon request, but without warranty on the part of
the Representatives as to the authority of the signers thereof.
Very truly yours,
XL CAPITAL LTD
By: /s/ Jerry de St. Paer
-----------------------------------------
Name: Jerry de St. Paer
Title: Executive Vice President &
Chief Financial Officer
Accepted as of the date hereof:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ Gregory Lang
--------------------------------------
Name: Gregory Lang
Title: Vice President
For themselves and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
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SCHEDULE I
Underwriter Number of Firm Maximum Number
Shares to be of Optional
Purchased Shares Which
-------------- May be
Purchased
---------------
Merrill Lynch, Pierce, Fenner & Smith 1,050,000 157,500
Incorporated
Salomon Smith Barney Inc. 1,050,000 157,500
A.G. Edwards & Sons, Inc. 1,033,000 154,950
Goldman, Sachs & Co. 1,033,000 154,950
Morgan Stanley & Co. Incorporated 1,033,000 154,950
UBS Warburg LLC 1,033,000 154,950
Wachovia Securities, Inc. 1,033,000 154,950
Banc of America Securities LLC 30,000 4,500
Bear, Stearns & Co. Inc. 30,000 4,500
Deutsche Bank Securities Inc. 30,000 4,500
H&R Block Financial Advisors, Inc. 30,000 4,500
HSBC Securities (USA) Inc. 30,000 4,500
J.P. Morgan Securities Inc. 30,000 4,500
Legg Mason Wood Walker, Incorporated 30,000 4,500
Lehman Brothers Inc. 30,000 4,500
McDonald Investments Inc., a KeyCorp Company 30,000 4,500
Quick & Reilly, Inc. 30,000 4,500
RBC Dain Rauscher Inc. 30,000 4,500
Raymond James & Associates, Inc. 30,000 4,500
Charles Schwab & Co., Inc. 30,000 4,500
TD Securities (USA) Inc. 30,000 4,500
U.S. Bancorp Piper Jaffray Inc. 30,000 4,500
Wells Fargo Securities, LLC 30,000 4,500
ABN AMRO Incorporated 15,000 2,250
Advest, Inc. 15,000 2,250
BB&T Capital Markets, A division of Scott and Stringfellow, Inc. 15,000 2,250
BNY Capital Markets, Inc. 15,000 2,250
Robert W. Baird & Co. Incorporated 15,000 2,250
Crowell, Weedon & Co. 15,000 2,250
Credit Suisse First Boston Corporation 15,000 2,250
D.A. Davidson & Co. 15,000 2,250
Fahnestock & Co. Inc. 15,000 2,250
Fifth Third Securities, Inc. 15,000 2,250
J.J.B. Hilliard, W.L. Lyons, Inc. 15,000 2,250
Janney Montgomery Scott LLC 15,000 2,250
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Mesirow Financial, Inc. 15,000 2,250
Morgan Keegan & Company, Inc. 15,000 2,250
NatCity Investments, Inc. 15,000 2,250
SWS Securities, Inc. 15,000 2,250
Stifel, Nicolaus & Company, Incorporated 15,000 2,250
--------- ---------
Total........................................................... 8,000,000 1,200,000
========= =========
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SCHEDULE II
Title of Designated Shares:
8.00% Series A Preference Ordinary Shares
Number of Designated Shares:
Number of Firm Shares: 8,000,000
Maximum Number of Optional Shares: 1,200,000
Initial Offering Price to Public:
$25.00 per Share, plus accrued dividends, if any, from August 14,
2002.
Purchase Price by Underwriters:
$24.2125 per Share, plus accrued dividends, if any, from August 14,
2002.
Commission Payable to Underwriters:
3.15% per Share
Date from which dividends will accumulate:
August 14, 2002
Form of Designated Shares:
Book-entry only form represented by one or more global securities
deposited with The Depository Trust Company ("DTC") or its designated
custodian, to be made available for checking by the Representatives at
least 24 hours prior to the Time of Delivery.
Specified Funds for Payment of Purchase Price:
Federal (same day) funds.
Describe any lock-up provisions with respect to the Designated Shares:
During the period beginning from the date hereof and continuing
until the date 30 days after the date of this Pricing Agreement, the
Company will not offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder with regard to the Firm Shares and
the Optional Shares, if any, any Shares of the Company or any retail
preference ordinary shares of the Company or any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Shares, any such retail preference ordinary shares or any
such convertible or exchangeable securities, without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Smith Barney Inc., on behalf of the Underwriters.
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Time of Delivery:
10:00 A.M. (New York City time), August 14, 2002.
Time of Delivery Location:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Names and Addresses of Representatives:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281
Attn: Financial Institutions Group, 7th Fl.
Facsimile No. 212-449-1987
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Attention: General Counsel
Facsimile No. 212-816-7912
Liquidation Preference:
$25 per share
Redemption Provisions:
The Designated Shares are not redeemable prior to August 14,
2007, except as described below. On and after August 14, 2007, the
Company, at its option, upon not less than 30 nor more than 60 days
prior written notice, may redeem the Designated Shares, in whole at
any time or in part from time to time, for cash at a redemption price
of $25 per share, plus accrued and unpaid dividends, if any, to the
date of redemption, without interest on such unpaid dividends. At any
time prior to August 14, 2007, if the Company shall have:
o submitted to the holders of its ordinary shares a proposal for
an amalgamation, consolidation, merger, arrangement,
reconstruction, reincorporation, deregistration or any other
similar transaction involving the Company that requires, or
o submitted any proposal for any other matter that, as a result
of any change in Cayman Islands law after the date of this
Pricing Agreement (whether by enactment or official
interpretation) requires,
in each case, a vote of the holders of the Designated Shares at the
time outstanding voting separately as a single class (alone or with
one or more class or series of preference ordinary shares), then the
Company will have the option upon not less than
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30 nor more than 60 days' prior written notice to redeem all of the
outstanding Designated Shares for cash at a redemption price of $26
per share, plus accrued and unpaid dividends, if any, to the date of
redemption, without interest on such unpaid dividends.
In addition, the Company shall have the option to redeem for cash
the Designated Shares at any time, in whole or in part, upon not less
than 30 nor more than 60 days' prior written notice, at a redemption
price of $25 per share, plus accrued and unpaid dividends, if any, to
the date of redemption, without interest on such unpaid dividends, if
there is a "change in tax law" that would require the Company or any
successor company to pay additional amounts with respect to the
Designated Shares on the next succeeding dividend payment date, and
the payment of those additional amounts cannot be avoided by the use
of any reasonable measures available to the Company or any successor
company. For the purposes of this provision, a "change in tax law"
shall be (a) a change in or amendment to laws, regulations or rulings
of any jurisdiction, political subdivision or taxing authority
described in the next sentence, (b) a change in the official
application or interpretation of those laws, regulations or rulings,
or (c) any execution of or amendment to any treaty affecting taxation
to which any jurisdiction, political subdivision or taxing authority
described in the next sentence is party after August 9, 2002. The
jurisdictions, political subdivisions and taxing authorities referred
to in the previous sentence are (a) the Cayman Islands or any
political subdivision or governmental authority of or in the Cayman
Islands with the power to tax, (b) any jurisdiction from or through
which the Company or its paying agent is making payments on the
Designated Shares or any political subdivision or governmental
authority of or in that jurisdiction with the power to tax, or (c) any
other jurisdiction in which the Company or its successor company is
organized or generally subject to taxation or any political
subdivision or governmental authority of or in that jurisdiction with
the power to tax, as more fully described under the caption
"Description of the Series A Preference Shares - Tax Redemption" in
the Prospectus Supplement, dated August 9, 2002, with respect to the
Designated Shares.
Furthermore, the Company shall have the option to redeem for cash
the Designated Shares at any time, in whole or in part, upon not less
than 30 nor more than 60 days' prior written notice, at a redemption
price of $25 per share, plus accrued and unpaid dividends, if any, to
the date of redemption, without interest on such unpaid dividends, if
the entity formed by a consolidation, merger or amalgamation involving
the Company or the entity to which the Company conveys, transfers or
leases substantially all of its properties and assets is required to
pay additional amounts in respect of any tax, assessment or
governmental charge imposed on any holder of Designated Shares as a
result of a change in tax law that occurred after the date of the
consolidation, merger, amalgamation, conveyance, transfer or lease and
the payment of those amounts cannot be avoided by the use of any
reasonable measures available to the Company or such successor, as
more fully described under the caption "Description of the Series A
Preference Shares - Tax Redemption" in the Prospectus Supplement,
dated August 9, 2002, with respect to the Designated Shares (the
"Prospectus Supplement").
Dividend Rate:
8.00% of the liquidation preference per annum (equal to $2.00 per
share)
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Dividend Payment Dates:
March 31, June 30, September 30 and December 31 of each year,
beginning December 31, 2002
Conversion Provisions:
None
Other Terms:
Generally, the Shares have no voting rights. Whenever dividends
payable on the Shares are in arrears (whether or not such dividends
have been earned or declared) in an aggregate amount equivalent to
dividends for six full dividend periods (whether or not consecutive),
the holders of Shares, voting as a single class with all other series
of the preference ordinary shares, will have the right to elect two
persons who will then be appointed as additional directors to the
Company's Board of Directors. Whenever all arrearages in dividends on
the Shares have been paid in full, then the right of holders of the
Shares to be represented by directors will cease (but subject always
to the same provision for the vesting of such rights in the case of
any future arrearages in an amount equivalent to dividends for six
full dividend periods). Without the sanction of a special resolution
passed by the holders of the Shares, the Company may not take any
action which would vary the rights attached to the Shares unless the
Shares have been previously redeemed or called for redemption.
Payments on the Shares shall be made free and clear of and
without deduction or withholding for or on account of any present or
future taxes, assessments or other governmental charges imposed by any
jurisdiction, political subdivision or taxing authority described in
the second paragraph under "Redemption Provisions", unless the
deduction or withholding of such taxes, assessments or other
governmental charges is required by law, regulations or rulings or the
application or official interpretation of such law, regulations or
rulings. In that event, the Company shall pay or cause to be paid
additional amounts to the registered holders of the Shares as
additional dividends to make up for any deduction or withholding for
any present or future taxes, assessments or other governmental charges
imposed by any jurisdiction, political subdivision or taxing authority
described in the second paragraph under "Redemption Provisions" in
respect of any amounts that the Company or a successor company must
pay with respect to the Shares, so that the net amounts paid to the
holders of the Shares, after that deduction or withholding, shall
equal the respective amounts that would have been receivable by such
holders had no such withholding or deduction been required. However,
the Company shall not be obligated to pay additional amounts to any
holder in limited circumstances, as more fully described under the
caption "Description of the Series A Preference Shares - Additional
Amounts" in the Prospectus Supplement.