Execution Copy
Pricing Agreement
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Morgan Stanley & Co. Incorporated
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
November 13, 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 November 13, 2002 (the "Underwriting Agreement"),
between the Company on the one hand and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated, 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
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.
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
Morgan Stanley & Co. Incorporated
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ Kerry Cannella
-----------------------------
Name: Kerry Cannella
Title: Vice President
For themselves and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
SCHEDULE I
Underwriter Number of Firm Maximum Number
Shares to be of Optional
Purchased Shares Which
May be
Purchased
Merrill Lynch, Pierce, Fenner & Smith 1,150,000 172,500
Incorporated
Morgan Stanley & Co. Incorporated 1,150,000 172,500
A.G. Edwards & Sons, Inc. 1,140,000 171,000
Goldman, Sachs & Co. 1,140,000 171,000
Salomon Smith Barney Inc. 1,140,000 171,000
UBS Warburg LLC 1,140,000 171,000
Wachovia Securities, Inc. 1,140,000 171,000
Banc of America Securities LLC 200,000 30,000
Bear, Stearns & Co. Inc. 200,000 30,000
Credit Suisse First Boston Corporation 200,000 30,000
Deutsche Bank Securities Inc. 200,000 30,000
Lehman Brothers Inc. 200,000 30,000
H&R Block Financial Advisors, Inc. 50,000 7,500
HSBC Securities (USA) Inc. 50,000 7,500
J.P. Morgan Securities Inc. 50,000 7,500
Legg Mason Wood Walker, Incorporated 50,000 7,500
McDonald Investments Inc., a KeyCorp Company 50,000 7,500
Quick & Reilly, Inc. 50,000 7,500
RBC Dain Rauscher Inc. 50,000 7,500
Raymond James & Associates, Inc. 50,000 7,500
Charles Schwab & Co., Inc. 50,000 7,500
TD Waterhouse Investor Services, Inc. 50,000 7,500
U.S. Bancorp Piper Jaffray Inc. 50,000 7,500
Wells Fargo Investment Services, LLC. 50,000 7,500
ABN AMRO Incorporated 25,000 3,750
Advest, Inc. 25,000 3,750
BB&T Capital Markets, A division of Scott and Stringfellow, Inc. 25,000 3,750
BNY Capital Markets, Inc. 25,000 3,750
Robert W. Baird & Co. Incorporated 25,000 3,750
Crowell, Weedon & Co. 25,000 3,750
D.A. Davidson & Co. 25,000 3,750
Fahnestock & Co. Inc. 25,000 3,750
Fifth Third Securities, Inc. 25,000 3,750
J.J.B. Hilliard, W.L. Lyons, Inc. 25,000 3,750
Janney Montgomery Scott LLC 25,000 3,750
Mesirow Financial, Inc. 25,000 3,750
Morgan Keegan & Company, Inc. 25,000 3,750
NatCity Investments, Inc. 25,000 3,750
SWS Securities, Inc. 25,000 3,750
Stifel, Nicolaus & Company, Incorporated 25,000 3,750
Total........................................................... 10,000,000 1,500,000
========== =========
SCHEDULE II
Title of Designated Shares:
7 5/8% Series B Preference Ordinary Shares
Number of Designated Shares:
Number of Firm Shares: 10,000,000
Maximum Number of Optional Shares: 1,500,000
Initial Offering Price to Public:
$25.00 per Share, plus accrued dividends, if any, from November 18, 2002.
Purchase Price by Underwriters:
$24.2125 per Share, plus accrued dividends, if any, from November 18, 2002.
Commission Payable to Underwriters:
3.15% per Share
Date from which Dividends will Accumulate:
November 18, 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, issue 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 Morgan Stanley & Co.
Incorporated, on behalf of the Underwriters. For the purposes of the
foregoing, the term "retail preference ordinary shares" shall not
include preference ordinary shares sold as part of a unit with stock
purchase contracts or similar securities pursuant to which the holders
thereof are obligated to purchase ordinary shares of the Company.
Time of Delivery:
10:00 A.M. (New York City time), November 18, 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
Morgan Stanley & Co. Incorporated
1585 Broadway - 2nd Floor
New York, New York 10036
Attention: Steve Anderson
Facsimile No. 212-761-0781
Liquidation Preference:
$25 per share
Redemption Provisions:
The Designated Shares are not redeemable prior to November 18, 2007,
except as described below. On and after November 18, 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 November 18, 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 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 November 13, 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 B Preference Shares - Tax Redemption" in the
Prospectus Supplement, dated November 13, 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 B Preference Shares
- Tax Redemption" in the Prospectus Supplement, dated November 13, 2002,
with respect to the Designated Shares (the "Prospectus Supplement").
Dividend Rate:
7.625% of the liquidation preference per annum (equal to $1.90625 per
share)
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 that are also in arrears and have such a right, 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 B Preference Shares -
Additional Amounts" in the Prospectus Supplement.