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XL CAPITAL PARTNERS I, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
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DATED AS OF
MAY 31, 2001
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TABLE OF CONTENTS
PAGE
ARTICLE 1 Certain Defined Terms...............................................1
1.1. DEFINED TERMS...................................................1
ARTICLE 2 Formation, Name and Place of Business; Purpose and Limitation on
Operations; Term; Conversion to Corporate Form......................8
2.1. FORMATION.......................................................8
2.2. NAME............................................................8
2.3. PRINCIPAL OFFICE................................................8
2.4. PURPOSE.........................................................8
2.5. ORGANIZATIONAL CERTIFICATES AND OTHER FILINGS;
LIMITATIONS ON CONDUCT OF BUSINESS..............................8
2.6. TERM............................................................9
2.7. REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS...............9
2.8. FISCAL YEAR.....................................................10
2.9. ALTERNATIVE INVESTMENT STRUCTURE................................10
ARTICLE 3 General Partner; Relationship with XL Capital.......................10
3.1. GENERAL PARTNER; MANAGEMENT OF GENERAL PARTNER..................10
3.2. NO COMPENSATION OF GENERAL PARTNER; EXPENSES....................11
3.3. ADMINISTRATIVE SERVICES.........................................11
3.4. SERVICES BY XL CAPITAL; CHARGES AND EXPENSES....................11
3.5. RELATED PARTNERSHIPS............................................11
ARTICLE 4 Limited Partners....................................................11
4.1. INITIAL LIMITED PARTNER.........................................11
4.2. ADDITIONAL LIMITED PARTNERS.....................................12
4.3. LIST OF LIMITED PARTNERS........................................12
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4.4. NO MANAGEMENT BY LIMITED PARTNERS...............................12
4.5. LIMITATION ON TRANSFER OF LIMITED PARTNERS' UNITS...............12
4.6. LIABILITIES OF THE LIMITED PARTNERS;............................13
ARTICLE 5 Powers of General Partner; Prohibited Transactions and
Restrictions; Duties of General Partner; Liabilities;
Indemnification and Contribution....................................13
5.1. POWERS..........................................................13
5.2. RESTRICTIONS ON THE AUTHORITY OF THE GENERAL PARTNER............14
5.3. DUTIES..........................................................14
5.4. LIABILITY OF THE GENERAL PARTNER................................15
5.5. EXCULPATION, INDEMNIFICATION AND CONTRIBUTION...................15
5.6. GENERAL PARTNER LOANS...........................................15
ARTICLE 6 Capital Contributions and Accounts; No Further Contributions
Required; Interest; Accounting and Valuation........................16
6.1. CAPITAL CONTRIBUTIONS AND ACCOUNTS..............................16
6.2. SUBSEQUENT CLOSINGS.............................................17
6.3. FURTHER CAPITAL CONTRIBUTIONS...................................18
6.4. DEFAULTING LIMITED PARTNER......................................18
6.5. INTEREST........................................................19
6.6. ACCOUNTING PERIODS AND TAXABLE YEARS............................19
ARTICLE 7 Allocations.........................................................19
7.1. ALLOCATION OF PROFITS AND LOSSES; OTHER ALLOCATIONS.............19
7.2. SPECIAL ALLOCATION PROVISIONS...................................20
7.3. TAX ALLOCATIONS.................................................21
7.4. ALLOCATION AMONG LIMITED PARTNERS; TRANSFERS....................21
7.5. TAX ELECTIONS...................................................21
7.6. OTHER ALLOCATION PROVISIONS.....................................21
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7.7. TAX ADVANCES....................................................21
ARTICLE 8 Distributions; Withdrawal...........................................22
8.1. GENERAL PARTNER DISCRETION......................................22
8.2. DISTRIBUTIONS...................................................22
8.3. NON-CASH DISTRIBUTIONS..........................................23
8.4. WITHHOLDING.....................................................23
8.5. WITHDRAWAL......................................................23
8.6. REQUIRED WITHDRAWAL.............................................23
ARTICLE 9 Transferability of Interests; Vesting; Termination of Employment...24
9.1. RESTRICTIONS AND CONDITIONS ON TRANSFERS OF UNITS...............24
9.2. ASSIGNEES.......................................................25
9.3. SUBSTITUTED LIMITED PARTNERS....................................25
9.4. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY OF
LIMITED PARTNER.................................................26
9.5. DISPOSITION OF GENERAL PARTNER'S INTEREST.......................28
ARTICLE 10 Term and Dissolution of the Partnership............................28
10.1. EVENTS CAUSING DISSOLUTION.....................................28
10.2. WINDING UP.....................................................28
10.3. FINAL DISTRIBUTION.............................................29
ARTICLE 11 Books and Records; Accounting; Appraisal; Tax Matters
and Elections......................................................30
11.1. BOOKS AND RECORDS..............................................30
11.2. ACCOUNTING BASIS; FISCAL YEAR..................................30
11.3. BANK ACCOUNTS..................................................30
11.4. APPRAISAL......................................................30
11.5. REPORTS........................................................31
11.6. TAX MATTERS AND ELECTIONS......................................31
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ARTICLE 12 Miscellaneous Provisions...........................................31
12.1. POWER OF ATTORNEY..............................................31
12.2. AMENDMENTS OF THIS AGREEMENT...................................32
12.3. ARBITRATION....................................................34
12.4. NOTICES........................................................34
12.5. BINDING PROVISIONS.............................................34
12.6. GOVERNING LAW..................................................34
12.7. JURISDICTION; VENUE............................................34
12.8. COUNTERPARTS...................................................35
12.9. SEPARABILITY OF PROVISIONS.....................................35
12.10. ENTIRE AGREEMENT..............................................35
12.11. PARAGRAPH TITLES..............................................35
12.12. WAIVER OF RIGHT OF PARTITION AND ACCOUNTING...................35
12.13. EFFECTIVENESS.................................................35
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
XL CAPITAL PARTNERS I, L.P.
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, (this
"Agreement") of XL CAPITAL PARTNERS I, L.P., an exempted limited partnership
registered under the laws of the Cayman Islands (the "Partnership") is made this
31st day of May 2001, by and among XL Capital Partners Corporation, a Cayman
Islands company, as general partner hereunder (the "General Partner"), the
Initial Limited Partner (as described in Section 4.1 hereof) and the persons who
have signed this Agreement and have been admitted as additional limited partners
hereunder (the "Limited Partners") (the General Partner and the Limited Partners
are collectively referred to as the "Partners").
W I T N E S S E T H :
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WHEREAS, the General Partner and the Initial Limited Partner
have entered into an agreement of limited partnership dated March 15, 2001 and
formed an exempted limited partnership under the laws of the Cayman Islands
under the name of XL Capital Partners I, L.P.;
WHEREAS, the parties hereto desire to enter into this Amended
and Restated Limited Partnership Agreement of the Partnership to permit the
withdrawal of the Initial Limited Partner and the admission of the additional
Limited Partners who have signed this Agreement and have been admitted as
additional Limited Partners hereunder and further to make the modifications
hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree to amend and restate the Limited Partnership Agreement of the
Partnership in its entirety to read as follows:
ARTICLE 1
CERTAIN DEFINED TERMS
1.1. DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
Act The Exempted Limited Partnership Law (2001
Revision) of the Cayman Islands, as revised or
amended from time to time
Additional Share As defined in Section 9.4(e)
Affiliate Any person or entity that controls, is
controlled by, or is under common control
with, any other person or entity
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Agreement This Amended and Restated Agreement of Limited
Partnership, as it may be amended, modified or
supplemented from time to time
Alternative Investment Vehicle As defined in Section 2.9
Board Board of Directors of the General Partner
appointed from time to time by XL Capital as
the sole shareholder of the General Partner
Capital Account As defined in Section 6.1(d)
Capital Contributions Amounts contributed to the Partnership or any
Alternative Investment Vehicle by the Partners
Carried Interest As defined in 7.1(a)(i)
Carrying Value With respect to any Partnership asset, the
asset's adjusted basis for United States
federal income tax purposes, except that the
Carrying Values of all Partnership assets
shall be adjusted to equal their respective
fair market values (as determined by the
General Partner), in accordance with the rules
set forth in Treasury Regulations Section
1.704-1(b)(2)(iv)(f), except as otherwise
provided herein, immediately prior to: (a) the
date of the distribution of more than a DE
MINIMIS amount of Partnership property (other
than a PRO RATA distribution) to a Partner; or
(b) the date of the acquisition of any
additional interests in the Partnership by any
new or existing Partner in exchange for more
than a DE MINIMUS capital contribution;
PROVIDED that adjustments pursuant to clauses
(a) and (b) above shall be made only if the
General Partner determines in its sole
discretion that such adjustments are necessary
or appropriate to reflect the relative
economic interests of the Partners. The
Carrying Value of any Partnership asset
distributed to any Partner shall be adjusted
immediately prior to such distribution to
equal its Fair Market Value. The Carrying
Value of Partnership assets shall be adjusted
by depreciation and amortization as computed
for book purposes as provided in Treasury
Regulation Section 1.704-1(b)(2)(iv)(g).
Cause (i) The conviction of the Limited Partner
of a felony involving moral turpitude
or dishonesty, or
(ii) The Limited Partner, in carrying out
his or her duties for the XL Group has
been guilty of (a) gross negligence or
(b) willful misconduct; provided,
however, that any act or failure to act
by the Limited Partner shall not
constitute Cause if such act or failure
to act was committed, or omitted, by
the Limited Partner in good faith and
in a manner he or she reasonably
believed to be in the overall best
interests of the XL Group. The
determination of whether the Limited
Partner acted in good faith and that
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he or she reasonably believed such action to
be in the XL Group's overall best interest
will be made in the reasonable judgment of the
General Counsel of XL Capital or, if the
General Counsel shall have an actual or
potential conflict of interest, the
Compensation Committee, or the Board of
Directors of XL Capital, or
(iii) The Limited Partner's continued willful
refusal to obey any appropriate policy
or requirement duly adopted by the
Chief Executive Officer or board of
directors of any member of the XL Group
and the continuance of such refusal
after the receipt of notice
Closing The date of the initial closing of the
Partnership
Code United States Internal Revenue Code of 1986,
as amended
Commitment Period The period from the Closing to the earlier of
(i) the date of full investment in Investments
and the fifth anniversary of the Closing;
PROVIDED, that the General Partner may extend
this period for up to one year in respect of
transactions that have been identified by the
General Partner prior to such date, PROVIDED,
FURTHER that the General Partner may terminate
the Commitment Period at any time in its sole
discretion.
Defaulting Limited Partner As defined in Section 6.4
Disability A disability which meets the criteria under
the XL Group Long Term Disability Plan
Disabling Event The transfer or assignment of the General
Partner's interest in the Partnership, or the
withdrawal, death, insanity, retirement,
bankruptcy, commencement of liquidation
proceedings, resignation, insolvency,
dissolution or winding up of the General
Partner. For purposes of this definition, the
term "bankruptcy" shall be deemed to include
the following: (i) the General Partner (A)
making an assignment for the benefit of
creditors, (B) filing a voluntary petition in
bankruptcy, (C) being adjudged as bankrupt or
insolvent or having entered against it an
order for relief in any bankruptcy or
insolvency proceeding, (D) filing a petition
or answer seeking for itself any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or
similar relief under any statute, law or
regulation, (E) filing an answer or other
pleading admitting or failing to contest the
material allegations of a petition filed
against him in any proceeding of this nature
or (F) seeking, consenting or acquiescing in
the appointment of a trustee, receiver or
liquidator of the General Partner or of all or
any substantial part of its properties or (ii)
if, 120 days after the commencement of any
proceeding against the General Partner seeking
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or
similar
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relief under any statute, law or regulation,
the proceeding has not been dismissed, or if
within 90 days after the appointment without
its consent or acquiescence of a trustee,
receiver or liquidator of the General Partner
or of all or any substantial part of its
properties, the appointment is not vacated or
stayed, or if within 90 days after the
expiration of any such stay, the appointment
is not vacated
Dissolution Sale All sales and liquidations by or on behalf of
the Partnership of its assets in connection
with or in contemplation of the winding-up of
the Partnership
Event of Dissolution As defined in Section 10.1
Final Distribution The distribution described in Section 10.3
Fiscal Year As defined in Section 2.8
Fixed Return Cumulative (but not compound) preferred annual
return on the General Partner's aggregate
Capital Contribution equal to 10%
General Partner XL Capital Partners Corporation, a Cayman
Islands company, as general partner of the
Partnership
General Partner's Capital As defined in Section 5.5
Contribution
Immediate Family Member With respect to any natural person, such
person's spouse, children, grandchildren,
parents and siblings
Initial Limited Partner Huntlaw Nominees Ltd, as the Initial Limited
Partner of the Partnership
Initial Payment 50% of the amount subscribed for
Investment Committee As defined in Section 5.4.
Investment Company Act The Investment Company Act of 1940, as
amended, and the rules and regulations
promulgated thereunder
Investment As defined in Section 2.4
Limited Partner Payment The aggregate amount of the Capital
Contribution of each Limited Partner which is
to be paid upon execution and delivery of the
Subscription Agreement
Limited Partners Persons who have been admitted as limited
partners to the Partnership pursuant to their
purchase of Units as set forth in the Register
of the Partnership
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Memorandum The Confidential Private Placement Memorandum
dated March 2001, relating to the Partnership,
as amended or supplemented from time to time
Nonrecourse Deductions As defined in U.S. Treasury Regulations
Section 1.704-2(b). The amount of Partnership
Nonrecourse Deductions for a fiscal year
equals the net increase, if any, in the amount
of Partnership minimum gain during that fiscal
year, determined according to the provisions
of Treasury Regulations Section 1.704-2(c)
Partner Nonrecourse Debt An amount with respect to each partner
Minimum Gain nonrecourse debt (as defined in Treasury
Regulations Section 1.704-2(b)(4)) equal to
the Partnership Minimum Gain that would result
if such partner nonrecourse debt were treated
as a nonrecourse liability (as defined in
Treasury Regulations Section 1.752-1(a)(2))
determined in accordance with Treasury
Regulations Section 1.704-2(i)(3)
Partner Nonrecourse Deductions As defined in Treasury Regulations
Section 1.704-2(i)(2)
Partners The General Partner and the Limited Partners,
collectively
Partnership XL Capital Partners I, L.P., the exempted
limited partnership formed in accordance with
this Agreement and under the laws of the
Cayman Islands
Partnership Minimum Gain As defined in Treasury Regulations Section
1.704-2(b)(2) and 1.704-2(d)
Person Any individual, partnership, corporation,
limited liability company, unincorporated
organization or association, trust (including
the trustees thereof, in their capacity as
such), government (or agency or political
subdivision thereof) or other entity
Pro Rata Share As defined in Section 9.4(e)
Profits and Losses For each fiscal year or other period, the
taxable income or loss of the Partnership, or
particular items thereof, determined in
accordance with the accounting method used by
the Partnership for United States federal
income tax purposes with the following
adjustments: (a) all items hereof of income,
gain, loss or deduction allocated pursuant to
Section 7.2 shall not be taken into account in
computing such taxable income or loss; (b) any
income of the Partnership that is exempt from
federal income taxation and not otherwise
taken into account in computing Profits and
Losses shall be added to such taxable income
or loss; (c) if the Carrying
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Value of any asset differs from its adjusted
tax basis for federal income tax purposes, any
gain or loss resulting from a disposition of
such asset shall be determined with reference
to such Carrying Value; (d) upon an adjustment
to the Carrying Value of any asset pursuant to
the definition of Carrying Value (other than
an adjustment with respect to depreciation or
amortization), the amount of the adjustment
shall be included as gain or loss in computing
such taxable income or loss; (e) except for
items in (a) above, any expenditures of the
Partnership not deductible in computing
taxable income or loss, not properly
capitalizable and not otherwise taken into
account in computing Profits and Losses
pursuant to this definition shall be treated
as deductible items
Reference Rate The rate of interest per annum publicly
announced from time to time by The Chase
Manhattan Bank (or its successor) as its prime
rate in effect at its principal office in New
York City or, if no such rate is announced,
the rate quoted from time to time by a New
York money center bank selected by the General
Partner.
Register The register of the contributions of the
Partners maintained at the registered office
of the Partnership in accordance with the Act.
Representative Any executor, administrator, trustee,
committee, guardian, conservator or
representative appointed by a court of
competent jurisdiction to act on behalf of a
Limited Partner or the estate of a Limited
Partner
Tax Advances As defined in Section 7.7
Transfer As defined in Section 9.1(a)
Transfer Application Written and dated notification of a Transfer
of all or any portion of the Units of a
Limited Partner referred to in Section 9.2
Transferring Limited Partner As defined in Section 9.1(c)
Treasury Regulations United States treasury regulations promulgated
under the Code
Units Units of limited partnership interests in the
Partnership representing the entire rights
owned by a Limited Partner, including the
right to a share of the Profits and Losses of
the Partnership, as offered pursuant to the
Memorandum
Unpaid Capital Commitment As to any Partner as of any time, an amount
equal to: (i) such Partner's capital
commitment, minus (ii) the aggregate amount of
such Partner's Capital Contributions (and
capital contributions to any Alternative
Investment Vehicle) (but not additional
amounts thereon pursuant to Section 6.2) made
at or prior to such time.
Unvested Interest The unvested portion of each Limited Partner's
interest in the Partnership, determined in
accordance with Section 9.4(a)
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Vesting Schedule The schedule according to which a Limited
Partner's interest in the Partnership
generally will vest, as set forth in Section
9.4(a)
XL Capital XL Capital Ltd, a Cayman Islands company
XL Group XL Capital and its subsidiaries and Affiliates
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ARTICLE 2
FORMATION, NAME AND PLACE OF BUSINESS;
PURPOSE AND LIMITATION ON OPERATIONS; TERM;
CONVERSION TO CORPORATE FORM
2.1. FORMATION. The parties hereto continue a limited partnership
formed on March 15, 2001 pursuant to the Act.
2.2. NAME. The name of the Partnership shall be "XL Capital Partners
I, L.P." The General Partner is authorized to make any variations in the
Partnership's name which the General Partner may deem necessary or advisable,
PROVIDED (a) that such name shall contain the words "Limited Partnership" or the
letters "L.P." or the equivalent translation thereof and any other designation
required by applicable law and (b) that the General Partner shall notify the
Registrar of Limited Partnerships in the Cayman Islands of any such change of
name in accordance with the Act. All Partnership business shall be conducted in
such name of the Partnership.
2.3. PRINCIPAL OFFICE. The Partnership shall maintain its principal
office at, and its affairs shall be conducted from, Bermuda or such place or
places as the General Partner may, with notice to the Limited Partners, decide.
2.4. PURPOSE. The purpose of the Partnership is to (a) achieve
long-term capital appreciation for its investors through a portfolio of
investments, including without limitation, private equity, venture capital and
hedge funds; equity and equity-related securities of all types; investments in
debt securities, preferred shares and other financial instruments; and
securities issued by companies providing financial guarantee, insurance and
reinsurance contracts. These investments are referred to collectively as the
"Investments;" and (b) to engage in any other business activities that may be
lawful in or from within the Cayman Islands and to engage in any other business
or activity that now or hereafter may be necessary, incidental, proper,
advisable or convenient to accomplish the foregoing purposes (including, without
limitation, obtaining financing) and that is not forbidden by the law of the
jurisdiction in which the Partnership engages in that business.
2.5. ORGANIZATIONAL CERTIFICATES AND OTHER FILINGS; LIMITATIONS ON
CONDUCT OF BUSINESS. (a) The General Partner has executed and caused to be filed
with the Registrar of Exempted Limited Partnerships in the Cayman Islands a
registration statement pursuant to Section 9 of the Act containing information
required by the Act. The General Partner may cause the Partnership to qualify as
a foreign limited partnership (or a partnership in which the Limited Partner has
limited liability) in any other jurisdiction.
(b) If requested by the General Partner, the Limited Partners shall
promptly execute all certificates and other documents consistent with the terms
of this Agreement necessary for the General Partner to accomplish all filing,
recording, publishing and other acts as may be appropriate to comply with all
requirements for (i) the formation and operation of a limited partnership under
the laws of the Cayman Islands, (ii) the operation of the Partnership as an
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entity or partnership in which the Limited Partners have limited liability, in
all jurisdictions where the Partnership proposes to operate and (iii) all other
filings required to be made by the Partnership.
(c) The General Partner shall use its best efforts to cause the
Partnership to maintain the limited liability of the Limited Partners. The
General Partner shall cause the Partnership to be qualified or registered under
assumed or fictitious names or foreign limited partnership statutes or similar
laws in any jurisdiction in which the Partnership owns property or transacts
business to the extent such qualification or registration is necessary or, in
the judgment of the General Partner, advisable in order to protect the limited
liability of the Limited Partners or to permit the Partnership to lawfully own
property or transact business, and shall cause the Partnership not to own
property or transact business in any such jurisdiction until it is so qualified
or registered. The General Partner shall execute, file and publish all such
certificates, notices, statements or other instruments necessary to permit the
Partnership lawfully to own property and conduct business as a limited
partnership in all jurisdictions where the Partnership elects to own property or
transact business and to maintain the limited liability of the Limited Partners.
2.6. TERM. The Partnership shall continue until the close of business
on December 31, 2027, or upon earlier termination by the General Partner. The
Partnership is also subject to termination upon the occurrence of certain
specific events as set forth in Section 10.1 hereof. Upon the dissolution of the
Partnership, its liabilities are to be paid in the order provided herein. The
General Partner shall cause Partnership assets to be sold in such manner as the
General Partner, in its sole discretion, may determine. The General Partner may,
to the extent permitted by applicable law, purchase from the Partnership any
Partnership investments upon which there are significant restrictions or for
which another purchaser willing to pay fair market value is not readily
obtainable. The fair market value of any such investment shall be determined in
good faith by the General Partner at the time of the transfer and shall be
deemed fair and reasonable and not a violation of the General Partner's
fiduciary duty to the Partnership, absent manifest error. Pending sale of
Partnership assets, the General Partner shall have the right to continue to
operate and otherwise to deal with Partnership assets. After the payment of the
debts and liabilities of the Partnership and the setting up of reasonable
reserves, the remaining proceeds of the liquidation shall be distributed to the
Partners in proportion to their capital accounts in the Partnership.
2.7. REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS. The address of
the Partnership's registered office in the Cayman Islands shall be at the
offices of Huntlaw Corporate Services Ltd., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇▇▇,
75 Fort Street, Grand Cayman, Cayman Islands, and the address of its principal
place of business shall be c/o XL Capital Ltd, ▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇ ▇▇, ▇▇▇▇▇▇▇. Such registered office and principal place of business
may be changed by the General Partner; PROVIDED that the General Partner and its
Affiliates shall notify the Limited Partners of such change within a reasonable
period of time thereafter; and PROVIDED FURTHER that the registered office shall
always be in the Cayman Islands. The Partnership may from time to time have such
other place or places of business within or outside the Cayman Islands as may be
determined by the General Partner.
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2.8. FISCAL YEAR. The fiscal year ("Fiscal Year") of the Partnership
shall be the calendar year or, in the case of the first and last fiscal years of
the Partnership, the fraction thereof commencing on the Closing or ending on the
date on which the winding-up of the Partnership is completed, as the case may
be. The taxable year of the Partnership shall be determined under Section 706 of
the Code. The General Partner shall have the authority to change the ending date
of the Fiscal Year if the General Partner shall determine that such change is
necessary or appropriate; PROVIDED that the General Partner shall promptly give
notice of any such change to the Limited Partners.
2.9. ALTERNATIVE INVESTMENT STRUCTURE. (a) If the General Partner
determines in good faith that for legal, tax, regulatory or other reasons it is
in the best interests of some or all of the Partners that an Investment be made
through an alternative investment structure, the General Partner shall be
permitted to structure the making of all or any portion of such Investment
outside of the Partnership, by requiring any Partner or Partners to make such
Investment either directly (which shall not include a general partner interest
or other similar interest) or indirectly through a partnership or other vehicle
(other than the Partnership) that will invest on a parallel basis (and on
effectively the same economic terms) with or in lieu of the Partnership, as the
case may be (any such structure or vehicle, an "Alternative Investment
Vehicle"). The Partners investing through such Alternative Investment Vehicle
shall be required to make capital contributions to such Alternative Investment
Vehicle to the same extent, for the same purposes and on the same terms and
conditions as Partners are required to make Capital Contributions to the
Partnership, and such capital contributions shall reduce the Unpaid Capital
Commitments of the Limited Partners to the same extent as if Capital
Contributions were made to the Partnership with respect thereto. Each Partner
shall have the same economic interest in all material respects in Investments
made pursuant to this Section 2.9 as such Partner would have if such Investment
had been made solely by the Partnership, and the other terms of such Alternative
Investment Vehicle shall be substantially identical in all material respects to
those of the Partnership, to the maximum extent applicable; PROVIDED that such
Alternative Investment Vehicle (or the entity in which such Alternative
Investment Vehicle invests) shall provide for the limited liability of the
Limited Partners as a matter of the organizational documents of such Alternative
Investment Vehicle (or the entity in which such Alternative Investment Vehicle
invests) and as a matter of local law; PROVIDED, FURTHER, that the General
Partner or an Affiliate thereof will serve as the general partner or in some
other similar fiduciary capacity with respect to such Alternative Investment
Vehicle.
(b) If the Partnership makes an Investment through an Alternative
Investment Vehicle the General Partner may make a distribution to Limited
Partners in order to permit them to fund the Alternative Investment Vehicle.
ARTICLE 3
GENERAL PARTNER; RELATIONSHIP WITH XL CAPITAL
3.1. GENERAL PARTNER; MANAGEMENT OF GENERAL PARTNER. XL Capital
Partners Corporation shall be the sole general partner of the Partnership. The
General Partner shall have complete control of the Partnership's business. Such
control shall be exercised by XL Capital
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Partners Corporation, in its capacity as general partner of the Partnership, by
the appropriate officers of the General Partner or their designees or agents.
3.2. NO COMPENSATION OF GENERAL PARTNER; EXPENSES. (a) No compensation
shall be paid by the Partnership to the General Partner for its services as
General Partner thereof, other than reimbursement for out-of-pocket expenses
incurred in the course of conducting the business of the Partnership. The
General Partner shall be reimbursed for (i) fees paid to others for Partnership
accounting and communication services and (ii) certain other fees and expenses
(including those paid to consultants, attorneys, accountants or other
professionals) incurred by it on behalf of the Partnership, including, but not
limited to, all fees and expenses of litigation and tax audits of the
Partnership and for the outside valuation of securities or property obtained by
the Partnership.
(b) The costs and expenses incurred on behalf of the Partnership with
respect to the organization of the Partnership, pre-offering activities and
offering activities and the selling of Units including, but not limited to,
travel, telephone, postage, legal and accounting expenses, shall be paid by the
General Partner. Except as otherwise provided herein to the contrary, the
Partnership shall bear all other expenses of its operations including fees and
expenses of attorneys, accountants and experts, commitment and investment
banking fees, and interest and all expenses related to investments or potential
investments and to the acquisition, holding and sale or other disposition of
investments.
3.3. ADMINISTRATIVE SERVICES. The day-to-day operations of the
Partnership may be managed by XL Capital pursuant to such administrative
services arrangements as the General Partner may enter into.
3.4. SERVICES BY XL CAPITAL; CHARGES AND EXPENSES. In connection with
the investment activities of the Partnership, the XL Group may co-invest or have
business relationships with, and may be entitled to receive certain fees,
commissions or other benefits from, purchasers, sellers and portfolio companies
(including other investment partnerships, funds or pooled investment vehicles)
in connection with services rendered to these companies, including insurance and
re-insurance services, strategic and financial services, and other lending,
which fees may be higher or lower than competitive market rates.
3.5. RELATED PARTNERSHIPS. The General Partner and any of its
Affiliates in the future may serve as the general partner of other partnerships
formed for the benefit of officers, employees, partners and directors of the XL
Group, which partnerships may have the same or a similar purpose and may invest
or propose to invest in the same types of investments as the Partnership.
ARTICLE 4
LIMITED PARTNERS
4.1. INITIAL LIMITED PARTNER. (a) The Initial Limited Partner has
become such only for the purpose of organizing the Partnership and has
contributed $10.00 to the Partnership as a
12
Capital Contribution. Upon the admission of one or more Limited Partners to the
Partnership at the Closing, the Initial Limited Partner shall (i) receive a
return of any capital contribution made by it in such capacity to the
Partnership, (ii) withdraw as the Initial Limited Partner of the Partnership and
(iii) have no further right, interest or obligation of any kind whatsoever as a
Partner in the Partnership.
(b) Unless the context otherwise specifically requires, references in
this Agreement to the Limited Partners, their capital and their rights and
obligations shall not be references to the Initial Limited Partner.
4.2. ADDITIONAL LIMITED PARTNERS. (a) The General Partner is
authorized to admit Limited Partners to the Partnership pursuant to the terms of
this Agreement and upon execution and delivery by each Limited Partner of a
subscription agreement and such other documents as the General Partner deems
necessary or advisable, each in form satisfactory to the General Partner,
relating to the Units or any other limited partnership interests in the
Partnership. The manner of the offering of the Units or such other limited
partnership interests, the terms and conditions under which subscriptions for
such Units or other limited partnership interests shall be accepted, and the
manner of and conditions to the sale of Units or other limited partnership
interests to subscribers therefor shall be as provided in this Agreement and the
various subscription agreements between the Partnership and each Limited
Partner, and subject to any provisions of any of them. A person shall be
admitted as a Limited Partner upon acceptance of the subscription agreement by
or on behalf of the Partnership and on the day his or her admission is reflected
on the Register of the Partnership. Upon such admission the Limited Partner
shall become a party to and be bound by the terms and conditions of this
Agreement. The admission of additional Limited Partners hereunder shall not
cause the dissolution of the Partnership.
(b) The General Partner shall make such other adjustment to the
interests of such new Limited Partners as are appropriate and required to
properly reflect the interest of such new Limited Partner and interests of the
Partners existing prior to the admission of such new Limited Partner including
such amendments as are necessary to reflect the economic arrangements of the
Partners including allocations of Profits and Losses and the manner in which
distributions are shared among the Partners.
4.3. LIST OF LIMITED PARTNERS. The name, residence and business
address of each Limited Partner and the amount of such Limited Partner's Capital
Contribution shall be set forth in the Register of the Partnership.
4.4. NO MANAGEMENT BY LIMITED PARTNERS. No Limited Partner as such
shall take part in the management of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. Limited Partners shall not participate in any
investment decisions made on behalf of the Partnership.
4.5. LIMITATION ON TRANSFER OF LIMITED PARTNERS' UNITS. Except as set
forth in Article 9 herein, no Limited Partner shall, directly or indirectly,
Transfer any Units.
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4.6. LIABILITIES OF THE LIMITED PARTNERS; LIMITED LIABILITY. Except as
provided by the Act or other applicable law and subject to any obligations
expressly set forth herein, including, without limitation, the obligations to
make Capital Contributions pursuant to Article 6 and to indemnify the
Partnership and the General Partner as provided in Section 7.7, no Limited
Partner shall have any personal liability whatsoever in its capacity as a
Limited Partner to the Partnership, to any of the Partners, or to the creditors
of the Partnership, for the debts, liabilities, contracts, or other obligations
of the Partnership or for any losses of the Partnership. No Limited Partner, as
such, shall have any fiduciary duty to any other Partner, the Partnership or any
other party.
ARTICLE 5
POWERS OF GENERAL PARTNER; PROHIBITED TRANSACTIONS
AND RESTRICTIONS; DUTIES OF GENERAL PARTNER; LIABILITIES; THE INVESTMENT
COMMITTEE; INDEMNIFICATION AND CONTRIBUTION
5.1. POWERS. (a) In addition to and not in limitation of any rights
and powers conferred by law or other provisions of this Agreement, and except as
limited, restricted or prohibited by the express provisions of this Agreement,
the General Partner shall have and may exercise on behalf of the Partnership all
powers and rights necessary, proper, convenient or advisable to effectuate and
carry out the purpose and business of the Partnership. These powers shall
include, without limitation, the following powers:
(i) to borrow money in the name of the Partnership for use in
the Partnership business, and, if security is required
therefor, to mortgage or subject to any other security
device any portion of the assets of the Partnership, to
obtain replacements of any mortgage or other security
device, and to prepay, in whole or in part, refinance,
increase, modify, consolidate or extend any mortgage or
other security device;
(ii) to enter into transactions and make investments with or
through Affiliates of the General Partner and to participate
in transactions sponsored or managed by Affiliates of the
General Partner or in customers of such Affiliates;
(iii) to purchase interests in customers of Affiliates of the
General Partner, or in which Affiliates of the General
Partner have an interest, including, but not limited to,
limited partnership interests in limited partnerships in
which such Affiliates serve as general partner;
(iv) to make temporary investments of Partnership capital in all
types of securities, including, without limitation, deposits
with members of the XL Group, short-term government and
agency securities, certificates of deposit, interest-bearing
deposits in banks, securities issued by or on behalf of
countries, states, municipalities and their
instrumentalities, prime-grade commercial paper, repurchase
agreements
14
with respect to any of the foregoing, and prime-grade
commercial paper issued by other investment companies;
(v) to buy and sell securities and open brokerage and other
accounts with entities including with Affiliates of the
General Partner;
(vi) to enter into contracts (including, without limitation,
insurance policies and contracts, of any type and coverage)
and make commitments on behalf of the Partnership and, in
general, to do and perform everything which may be
necessary, advisable, suitable or proper for the conduct of
the Partnership's business and for the carrying out of the
purposes and objects herein before enumerated, including the
delegation to any person or persons of such functions and
authority as the General Partner may determine; and
(vii) to employ attorneys and accountants to represent and audit
the books of the Partnership, which attorneys and
accountants may also serve as counsel and auditors to the
General Partner and any of its Affiliates.
(b) Any person not a party to this Agreement dealing with the
Partnership shall be entitled to rely conclusively upon the power and authority
of any officer or director of the General Partner to bind the Partnership in all
respects, and to execute agreements, instruments and other writings on behalf of
and in the name of the Partnership.
5.2. RESTRICTIONS ON THE AUTHORITY OF THE GENERAL PARTNER. Without the
approval of a majority in interest of the Limited Partners, the General Partner
shall not have the authority to alter the purpose of the Partnership.
5.3. DUTIES. (a) Other than with respect to temporary investments, and
after setting aside suitable reserves, the General Partner shall use its
reasonable efforts to invest the Capital Contributions of the Partners and
reinvest the revenues of the Partnership in accordance with the purposes of the
Partnership, monitor the investments of the Partnership and manage the related
affairs of the Partnership.
(b) Except as otherwise expressly provided herein, the General Partner
shall take all action that may be necessary or appropriate for the continuation
of the Partnership's valid existence as a limited partnership under the laws of
the Cayman Islands, and for the acquisition, holding and disposition, in
accordance with the provisions of this Agreement and applicable laws and
regulations, of the investments of the Partnership.
(c) The General Partner shall prepare or cause to be prepared and
shall file on or before the due date (or any extension thereof) any United
States federal, state or local tax returns required to be filed by the
Partnership. The General Partner shall cause the Partnership to pay, from
Partnership funds, any taxes payable by the Partnership.
(d) The General Partner shall be under a fiduciary duty and obligation
to conduct the affairs of the Partnership in the best interests of the
Partnership, including the safekeeping and use of all Partnership funds and
assets (whether or not in the immediate possession or control of
15
the General Partner) for the benefit of the Partnership. The General Partner
shall at all times act with integrity and good faith and exercise due diligence
in all activities relating to the conduct of the business of the Partnership and
in resolving conflicts of interest.
(e) The General Partner may delegate or assign any action that may be
or is required to be taken by the General Partner to any third party, including
without limitation, an Affiliate of the General Partner.
5.4. INVESTMENT COMMITTEE. All investment decisions by the General
Partner shall be subject to the approval of a committee consisting of three to
four members (the "Investment Committee"), two of whom will be outside directors
of an Affiliate of the XL Group.
5.5. LIABILITY OF THE GENERAL PARTNER. Except as may be required by
the Act, the General Partner shall not be required to contribute to the capital
of the Partnership any funds in excess of 4.0 times the Limited Partners'
aggregate Capital Contributions (the "General Partner's Capital Contribution").
Neither the General Partner nor any of its Affiliates shall have any personal
liability for the return or repayment of the Capital Contributions of any
Limited Partner.
5.6. EXCULPATION, INDEMNIFICATION AND CONTRIBUTION. Neither the
General Partner, any of its officers, directors, representatives or agents, nor
any member of the Investment Committee, nor any partners or principals of the XL
Group (including any directors, officers, employees, agents or Affiliates
thereof) nor any person who controls the General Partner or the XL Group (a
"control person") within the meaning of Section 15 of the Securities Act of
1933, as amended, shall be liable to the Partnership or the Limited Partners for
any act or failure to act relating in any way to the Partnership, its assets,
business or affairs so long as such act or failure to act does not (i) have a
material adverse effect on the Partnership and (ii) constitute such person's
willful misconduct, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Partnership or such person's office. The
General Partner and its officers, directors, agents, representatives, and
members of the Investment Committee, and any partners or principals of the XL
Group (including any directors, officers, employees, agents and Affiliates
thereof) and control persons shall be indemnified by the Partnership to the
fullest extent permitted by law for any and all losses, claims, damages and
expenses arising out of or incurred in connection with any claim, action or
demand against the General Partner, the Partnership or any such indemnified
person relating to the Partnership, its assets, business or affairs (including,
without limitation, attorneys' fees and expenses and any amounts paid in
settlement or compromise of any such claim, action or demand); PROVIDED,
HOWEVER, that the foregoing indemnification shall not apply if a court of
competent jurisdiction makes a final decision that such claim, action or demand
resulted directly from such indemnified person's willful misconduct, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Partnership or such person's office.
5.7. GENERAL PARTNER LOANS. Notwithstanding the provisions of Section
3.4, in the event that the Partnership at any time lacks sufficient funds to
meet its financial obligations, the General Partner shall have the right to, but
shall not be required to, lend money to the Partnership on terms, including
interest rates, that are fair and reasonable to the Partnership (but in no event
less than the rate required under United States tax law to avoid compensation
income to the
16
Limited Partners) without any approval of the Limited Partners. The General
Partner may execute written agreements governing any such loans on behalf of the
Partnership.
ARTICLE 6
CAPITAL CONTRIBUTIONS AND ACCOUNTS; NO FURTHER
CONTRIBUTIONS REQUIRED; INTEREST; ACCOUNTING AND VALUATION
6.1. CAPITAL CONTRIBUTIONS AND ACCOUNTS. (a) Subscriptions for Units
shall be accepted or rejected by the General Partner as it determines in its
sole discretion. Each Unit represents a capital commitment of $25,000. The
minimum Capital Contribution of each Limited Partner is one Unit ($25,000), or
such fractional Unit as permitted in the General Partner's sole discretion.
Additional whole Units may be purchased up to a maximum Capital Contribution as
determined on a case-by-case basis by the General Partner in its sole
discretion. The Initial Payment is due and payable upon execution and delivery
of the related subscription agreement unless the General Partner shall specify
one or more other dates on which the Initial Payment shall be due. The General
Partner may invest such Capital Contributions in temporary investments until
needed to fund one or more Partnership investments. Any Capital Contributions
made to the Partnership by a Limited Partner must be paid in cash. The
obligation of a Limited Partner to pay its Initial Payment Amount in full shall
be limited by the provisions of this Section 6.1 and Section 9.4. The General
Partner may decide not to make or participate in any further investments at any
time in its sole discretion.
(b) The remaining portion of each Limited Partner's Commitment shall
be due upon a call date to be determined in the sole discretion of the General
Partner. The Fund shall provide each Limited Partner with a written notice at
least 20 days prior to the date of draw down (each, a "Capital Draw"); provided
that the General Partner may not call more than 25% of a Limited Partner's
Commitment (in addition to the Initial Payment) prior to the date designated by
XL Capital for the payment of annual bonuses in 2002. Any Capital Contributions
made to the Fund by a Limited Partner must be paid in cash.
(c) Pending the making of investments for which the Partnership
requires capital, payments for the purchase price of each Limited Partner's
Units may be invested in temporary investments as the General Partner
determines. Amounts invested in temporary investments may not be subject to
redemption by Limited Partners, although income earned from temporary
investments may be distributed to the Limited Partners in the General Partner's
sole discretion. The General Partner shall dispose of temporary investments from
time to time as needed to fund specific Partnership investments or otherwise
fund Partnership expenses. Amounts held at the end of the Investment Period that
have not been used for Partnership purposes and which the Partnership has not
allocated for future use shall be distributed to the Limited Partners in
proportion to their allocable share of amounts originally contributed to the
Partnership.
(d) The General Partner shall contribute to the capital of the
Partnership an amount equal to 4.0 the aggregate amount contributed by the
Limited Partners. The General Partner shall make its Capital Contributions at
the time the Partnership funds its investments or otherwise to fund
17
Partnership
expenses. The General Partner's Capital Contribution shall receive the benefit
of a preferred return (the "Fixed Return"), at the rate of 10% per annum.
(e) A separate capital account (the "Capital Account") shall be
established and maintained for each Partner. The Capital Account of each Partner
shall be credited with such Partner's Capital Contributions, all Profits
allocated to such Partner pursuant to Section 7.1 and any items of income or
gain which are specially allocated pursuant to Section 7.2; and shall be debited
with all Losses allocated to such Partner pursuant to Section 7.1, any items of
loss or deduction of the Partnership specially allocated to such Partner
pursuant to Section 7.2, and all cash and the Carrying Value of any property
(net of liabilities assumed by such Partner and the liabilities to which such
property is subject) distributed by the Partnership to such Partner. To the
extent not provided for in the preceding sentence, the Capital Accounts of the
Partners shall be adjusted and maintained in accordance with the rules of
Treasury Regulations Section 1.704-1(b)(2)(iv), as the same may be amended or
revised; PROVIDED that such adjustment and maintenance does not have a material
adverse effect on the economic interests of the Partners. Any references in any
section of this Agreement to the Capital Account of a Partner shall be deemed to
refer to such Capital Account as the same may be credited or debited from time
to time as set forth above. In the event of any Transfer of any interest in the
Partnership in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
(f) METHOD OF FUNDING; NO COMPENSATION OR LOANS. Capital Contributions
shall be made by check or wire transfer of immediately available funds or such
other method as may be acceptable to the General Partner, to the account
specified in the related Payment Notice. Other than as set forth in this Section
6.4, no Partner shall be entitled to any interest or compensation by reason of
its Capital Contributions or by reason of serving as a Partner. No Partner shall
be required to lend any funds to the Partnership; PROVIDED that the General
Partner may in its sole discretion make loans to the Partnership on arms'-length
terms based on the Reference Rate or the cost of borrowing such funds by XL
Capital.
(g) Upon the termination of the Commitment Period, a Limited Partner
will not be required to make any further Capital Contributions to the
Partnership, except to the extent necessary to (i) cover certain expenses borne
by the Partnership and (ii) make follow-on Investments in existing Investments
of the Partnership in an aggregate amount of up to 25% of the Partnership's
aggregate capital commitments from the Partners. In no event will a Limited
Partner be required to fund at any time an amount in excess of his or her
undrawn capital commitment at such time.
6.2. SUBSEQUENT CLOSINGS. The General Partner may, in its sole
discretion, admit additional Limited Partners or permit any existing Limited
Partner to increase its Capital Contribution at one or more subsequent closings
("Subsequent Closings"), provided that no Subsequent Closing shall occur after
the six-month anniversary of the Closing. No additional Limited Partner shall be
admitted to the Partnership unless such Limited Partner has executed a
subscription agreement in the form provided to it by the General Partner (and
which subscription agreement has been accepted by the General Partner) and the
conditions set forth in Sections 9.1, 9.2 and 9.3 are satisfied (with such
conditions being interpreted as applying to the admission of
18
an additional Limited Partner rather than an assignment or transfer of an
interest in the Partnership). Each Limited Partner that is admitted or increases
its Capital Contribution at a Subsequent Closing shall also make an additional
contribution and/or payment, if any, determined by the General Partner in its
sole discretion that represents the increase in the value of investments held by
the Partnership, if any, plus an additional amount thereon at the rate
calculated by the General Partner from the date of the initial closing. Limited
Partners who are admitted to the Partnership after the Closing or who increase
their commitments will be treated generally as if such subscriptions had been
accepted at the date of the first closing.
6.3. FURTHER CAPITAL CONTRIBUTIONS. No Limited Partner shall be
required to purchase additional Units or make any Capital Contribution to the
Partnership in excess of such Limited Partner's Unpaid Capital Commitment. After
all Capital Contributions have been made and all contributions, including
required General Partner contributions, have been invested by the Partnership,
if the General Partner determines it to be in the best interests of the
Partnership, the Partnership may, subject to subsection 4.2(b), offer existing
or new Limited Partners the opportunity to make additional contributions to the
Partnership's capital on a PRO RATA basis, as determined by the General Partner.
6.4. DEFAULTING LIMITED PARTNER. (a) If any Limited Partner fails to
make, when due, any portion of the Capital Contribution required to be
contributed by such Limited Partner pursuant to this Agreement or such Limited
Partner's Subscription Agreement or to make any other payment required to be
made by such Limited Partner hereunder or thereunder when required to be made,
then the General Partner may provide written notice of such failure to such
Limited Partner. If such Limited Partner fails to make such Capital Contribution
or other payment within ten (10) Business Days after receipt of such notice,
then, (i) such Limited Partner shall be deemed a "Defaulting Limited Partner"
and (ii) the following Sections 6.4(b) through (e) shall apply; PROVIDED that
the General Partner in its sole discretion may choose not to designate a Limited
Partner as a Defaulting Limited Partner and may agree to waive or permit the
cure of any default by a Defaulting Limited Partner, subject to such conditions
as the General Partner and the Defaulting Limited Partner may agree on.
(b) A Defaulting Limited Partner shall forfeit to the General Partner,
as recompense for damages suffered, as follows: (i) with respect to such Limited
Partner's Pro Rata Share and related distributions, the General Partner shall
assess a 25% reduction, (ii) with respect to such Limited Partner's interest in
the vested portion of the Additional Share, the General Partner shall assess a
25% reduction and (iii) the General Partner shall cause such Defaulting Limited
Partner to be excluded from any vote of the Limited Partners. Any proceeds
forfeited by the Defaulting Limited Partner pursuant to the preceding sentence
shall be distributed to the General Partner.
(c) The General Partner may, in its sole discretion cancel such
Defaulting Limited Partner's right to make further Capital Contributions and
allocate such right to the General Partner or one of its Affiliates, and the
Defaulting Limited Partner shall not be permitted to make any further Capital
Contributions to the Partnership in the event of such cancellation.
19
(d) No right, power or remedy conferred upon the General Partner in
this Section 6.4 shall be exclusive, and each such right, power or remedy shall
be cumulative and in addition to every other right, power or remedy whether
conferred in this Section 6.4 or now or hereafter available at law or in equity
or by statute or otherwise. No course of dealing between the General Partner and
any Defaulting Limited Partner and no delay in exercising any right, power or
remedy conferred in this Section 6.4 or now or hereafter existing at law or in
equity or by statute or otherwise shall operate as a waiver or otherwise
prejudice any such right, power or remedy.
(e) The powers conferred upon the General Partner in this Article VI
shall not limit any actions available at law or in equity or by statute that the
General Partner may undertake against a Defaulting Limited Partner. Each Limited
Partner acknowledges by its execution of a Subscription Agreement that it has
been admitted to the Partnership in reliance upon the terms of this Agreement,
that the General Partner may have no adequate remedy at law for a breach hereof
and that damages resulting from a breach hereof may be impossible to ascertain
at the time hereof or of such breach.
6.5. INTEREST. No Limited Partner shall receive interest on amounts
credited to such Limited Partner's Capital Account.
6.6. ACCOUNTING PERIODS AND TAXABLE YEARS. An accounting period and
taxable year shall mean the calendar year, or, in the case of the first and last
accounting period and taxable year of the Partnership, the fraction thereof
commencing on the Closing or ending on the date on which the winding-up of the
Partnership is completed, as the case may be. The taxable year of the
Partnership shall be determined under Section 706 of the Code. The General
Partner shall have the authority to change the ending date of the fiscal Year if
the General Partner shall determine that such change is necessary or
appropriate; PROVIDED that the General Partner shall promptly give notice of any
such change to the Limited Partners.
ARTICLE 7
ALLOCATIONS
7.1. ALLOCATION OF PROFITS AND LOSSES; OTHER ALLOCATIONS. (a) Except
as otherwise provided in this Agreement, Profits, Losses and, to the extent
necessary, individual items of income, gain, loss or deduction, of the
Partnership shall be allocated among the Partners in a manner such that the
Capital Account of each Partner, immediately after making such allocation, is,
as nearly as possible, equal (proportionately) to (i) the distributions that
would be made to such Partner pursuant to Section 8.2(a) if the Partnership were
dissolved, its affairs wound up and its assets sold for cash equal to their
Carrying Value, all Partnership liabilities were satisfied (limited with respect
to each nonrecourse liability to the Carrying Value of the assets securing such
liability), and the net assets of the Partnership were distributed in accordance
with Sections 8.2(a) to the Partners immediately after making such allocation,
MINUS (ii) such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical
sale of assets.
20
(b) As provided further in Section 9.4(a), allocations of Profits and
Losses which would otherwise be made to a Limited Partner pursuant to the
foregoing may instead be made to the General Partner with respect to the
Unvested Interest of such Limited Partner whose employment with a member of the
XL Group has terminated other than due to such Limited Partner's death or
Disability.
7.2. SPECIAL ALLOCATION PROVISIONS. Notwithstanding anything to the
contrary in this Agreement, the following special allocations shall be made:
(a) MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision in
this Article 7, if there is a net decrease in Partnership Minimum Gain or
Partner Nonrecourse Debt Minimum Gain (determined in accordance with the
principles of Treasury Regulations Sections 1.704-2(d) and 1.704-2(i)) during
any Partnership taxable year, the Partners shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to their respective shares of such net decrease during such
year, determined pursuant to Treasury Regulations Sections 1.704-2(g) and
1.704-2(i)(5). The items to be so allocated shall be determined in accordance
with Treasury Regulations Section 1.704-2(f). This Section 7.2(a) is intended to
comply with the minimum gain chargeback requirements in such Treasury
Regulations Sections and shall be interpreted consistently therewith; including
that no chargeback shall be required to the extent of the exceptions provided in
Treasury Regulations Sections 1.704-2(f) and 1.704-2(i)(4).
(b) QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations, or distributions described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership
income and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate the deficit balance in his or her Capital Account
created by such adjustments, allocations or distributions as promptly as
possible.
(c) GROSS INCOME ALLOCATION. In the event any Limited Partner has a
deficit Capital Account at the end of any Fiscal Year which is in excess of the
amount such Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Limited Partner shall be specially allocated items of
Partnership income and gain in the amount of such excess as quickly as possible,
PROVIDED that an allocation pursuant to this Section 7.2(c) shall be made only
if and to the extent that a Limited Partner would have a deficit Capital Account
in excess of such amount after all other allocations provided for in this
Article 7 have been tentatively made as if Section 7.2(a) and this Section
7.2(c) were not in this Agreement.
(d) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be allocated
10% to the General Partner and 90% among the Limited Partners in accordance with
their respective Capital Account balances.
(e) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions for
any taxable period shall be allocated to the Partner who bears the economic risk
of loss with respect to the
21
liability to which such Partner Nonrecourse Deductions are attributable in
accordance with U.S. Treasury Regulations Section 1.704-2(j).
7.3. TAX ALLOCATIONS. For applicable income tax purposes only, each
item of income, gain, loss and deduction of the Partnership shall be allocated
among the Partners in the same manner as the corresponding items of Profits and
Losses and specially allocated items are allocated for Capital Account purposes;
provided that in the case of any Partnership asset, the Carrying Value of which
differs from its adjusted tax basis for United States federal income tax
purposes, income, gain, loss and deduction with respect to such asset shall be
allocated solely for income tax purposes in accordance with the principles of
Sections 704(b) and (c) of the Code (in any manner determined by the General
Partner) so as to take account of the difference between Carrying Value and
adjusted basis of such asset.
7.4. ALLOCATION AMONG LIMITED PARTNERS; TRANSFERS. (a) Profits and
Losses allocated to Limited Partners shall be apportioned among each Limited
Partner based upon a fraction, the numerator of which is the Capital
Contributions by such Limited Partner (or his or her predecessor in interest)
and the denominator of which is the aggregate Capital Contributions of all
Limited Partners, taking into account any change in such ratio during the
period.
(b) In the event of a permitted Transfer of a Unit or the termination
or reduction of a Partner's interest in the Partnership during a taxable year of
the Partnership, allocations of income, gain, loss, deductions and credits of
the Partnership shall be based on an interim closing of the Partnership's books.
7.5. TAX ELECTIONS. The General Partner is hereby authorized and
empowered to make on behalf and in the name of the Partnership any election, and
to prepare or have prepared, to execute or have executed and to file, on behalf
and in the name of the Partnership, any returns, applications and other
instruments and documents, under the Code and the Treasury Regulations
thereunder, as in effect from time to time, which the General Partner determines
in its sole discretion are desirable or advisable in connection with determining
such allocations.
7.6. OTHER ALLOCATION PROVISIONS. The foregoing provisions and the
other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and
shall be interpreted and applied in a manner consistent with such regulations.
Sections 7.1 to 7.6 may be amended at any time by the General Partner if
necessary, in the opinion of the General Partner, to comply with such
regulations.
7.7. TAX ADVANCES. To the extent the General Partner reasonably
determines that the Partnership is required by law to withhold or to make tax
payments on behalf of or with respect to any Partner ("Tax Advances"), the
General Partner may withhold such amounts and make such tax payments as so
required. All Tax Advances (together with interest thereon at the Reference Rate
if such Tax Advance took the form of a tax payment rather than withholding) made
on behalf of a Partner shall, at the option of the General Partner, (i) be paid
promptly to the Partnership by the Partner on whose behalf such Tax Advances
were made or (ii) be repaid by reducing the amount of the current or next
succeeding distribution or distributions which would
22
otherwise have been made to such Partner or, if such distributions are not
sufficient for that purpose, by so reducing the proceeds of liquidation
otherwise payable to such Partner. Whenever the General Partner selects option
(ii) pursuant to the preceding sentence for repayment of a Tax Advance by a
Partner, for all other purposes of this Agreement such Partner shall be treated
as having received all distributions (whether before or upon liquidation)
unreduced by the amount of such Tax Advance. Each Partner hereby agrees to
indemnify and hold harmless the Partnership and the other Partners from and
against any liability (including, without limitation, any liability for taxes,
penalties, additions to tax, interest or failure to withhold taxes) with respect
to income attributable to or distributions or other payments to such Partner.
ARTICLE 8
DISTRIBUTIONS; WITHDRAWAL
8.1. GENERAL PARTNER DISCRETION. Distributions may be made in cash or
in kind in the General Partner's sole discretion. The General Partner may in its
sole discretion offer Limited Partners the right to elect whether to receive
cash or in kind distributions in connection with any distribution and, following
any such election, may (but shall not be required to) make a distribution to
some Limited Partners in cash and to others in kind. The General Partner shall
have no obligation to make cash or non-cash distributions to the Limited
Partners prior to termination of the Partnership, and may invest the earnings on
and proceeds of any of the Partnership's investments in temporary investments in
its sole discretion. The General Partner in its sole discretion shall determine
the aggregate amount of and payment dates for any cash and non-cash
distributions to Partners after establishing such reasonable reserves as the
General Partner deems appropriate in its sole discretion for working capital,
contingencies or other items and for the satisfaction of liabilities (including,
without limitation, contingent liabilities and the Fixed Return) as they come
due or may come due.
8.2. DISTRIBUTIONS. (a) Distributions from the Partnership generally
shall be made in the following order and priority:
(i) first, 100% to the General Partner until the amount received
by the General Partner is equal to the General Partner's
Fixed Return;
(ii) second, 100% to the General Partner until the General
Partner has received an amount from that distribution (not
including the amount received in (i) above) equal to the
Capital Contributions made by the General Partner;
(iii) third, 100% to the Limited Partners until the Limited
Partners have received an amount equal to the Limited
Partners' Capital Contributions; and
(iv) thereafter, 90% to the Limited Partners and 10% to the
General Partner.
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Provided that for the avoidance of doubt nothing in this Agreement shall be
construed as giving a Limited Partner a direct interest in the assets of the
Partnership or any particular asset of the Partnership.
(b) Distributions to Limited Partners shall be apportioned among each
Limited Partner based upon a fraction, the numerator of which is the Capital
Contributions by such Limited Partner (or his or her predecessor in interest)
and the denominator of which is the aggregate Capital Contributions of all
Limited Partners.
(c) Notwithstanding Section 8.2(a), amounts otherwise distributable to
the Partners shall be paid instead to the Partners (other than any Defaulting
Limited Partners, regardless of their tax status) such that in a fiscal year
each Partner has received an amount equal to 40% of the allocations of taxable
income made (or to be made) to such Partner pursuant to Section 7.3; PROVIDED
that the General Partner may, at its sole discretion, vary the amounts
distributed pursuant to this Section 8.2(c); PROVIDED, FURTHER, that the timing
of any distribution, pursuant to this Section 8.2(c) shall be determined by the
General Partner in its sole discretion. The amount distributable to any Partner
pursuant to any clause of Section 8.2 shall be reduced by the amount distributed
to such Partner pursuant to this Section 8.2(c) and the amount so distributed
under this Section 8.2(c) shall be deemed to have been distributed to the extent
of such reduction pursuant to such clause of Section 8.2 for purposes of making
the calculations required by Sections 8.2.
(d) As provided further in Section 9.4(a), distributions which would
otherwise be made to a Limited Partner pursuant to the foregoing may instead be
made to the General Partner with respect to the Unvested Interest of such
Limited Partner whose employment with a member of the XL Group has terminated
other than due to such Limited Partner's death or Disability.
8.3. NON-CASH DISTRIBUTIONS. Whenever possible non-cash distributions,
including distributions under Sections 10.3(a) and (b), shall be made PRO RATA
among the Partners in accordance with the terms of Section 8.2. The value of any
non-cash assets that are distributed shall be determined by the General Partner
in accordance with Section 11.4 hereof.
8.4. WITHHOLDING. The Partnership shall withhold from any amounts
otherwise distributable to any Partner the amounts required by law to be
withheld for income tax or other purposes; any amounts so withheld shall be
treated as having been distributed to such Partner for all purposes of this
Agreement.
8.5. WITHDRAWAL. No Partner shall have the right to withdraw such
Partner's Capital Contribution or any part thereof from the Partnership or to
receive a return of such Partner's Capital Contribution or any part thereof
except upon termination and dissolution of the Partnership, except as may be
permitted by the General Partner in its sole discretion.
8.6. REQUIRED WITHDRAWAL. (a) A Limited Partner may be required to
withdraw from the Partnership if the General Partner determines, in its sole
discretion, that such withdrawal is necessary or advisable because (i) by virtue
of that Limited Partner's interest in the Partnership, the Partnership is
reasonably likely to be subject to any reporting requirement under the
24
Securities Exchange Act of 1934, as amended, (ii) the Limited Partner is no
longer employed by a member of the XL Group or, in the case of Immediate Family
Members, is no longer an Immediate Family Member of an employee of the XL Group
or (iii) by virtue of that Limited Partner's interest in the Partnership, the
Partnership is likely to experience a significant delay, extraordinary expense
or other material adverse effect on the Partnership or any of its Affiliates or
any of its investments or prospective investments.
(b) Withdrawals pursuant to this Section 8.6 shall be effected by the
Partnership's purchase of the Limited Partner's interest in the Partnership at a
price equal to the fair market value of such interests as determined from time
to time by the General Partner in its sole discretion.
ARTICLE 9
TRANSFERABILITY OF INTERESTS; VESTING;
TERMINATION OF EMPLOYMENT
9.1. RESTRICTIONS AND CONDITIONS ON TRANSFERS OF UNITS. (a) No direct
or indirect sale, exchange, transfer, assignment, pledge, creation of a security
interest in, or encumbrance on, or other disposition by a Limited Partner of all
or any portion of such Limited Partner's Units or any economic interest therein
(including without limitation by means of any participation or swap transaction
(each, a "Transfer")) shall be made except, with the prior written consent of
the General Partner (which consent may be withheld in the sole discretion of the
General Partner), and then only to Immediate Family Members of the transferor
Limited Partner, trusts or to other investment vehicles established for the
benefit of the Limited Partner or his or her Immediately Family Members or to
the General Partner. The General Partner may not transfer any of its interest in
the Partnership.
(b) Any Transfer otherwise permitted under this Article 9 may only be
made if:
(i) such transfer would not violate the Securities Act or any
state securities or "Blue Sky" or other securities laws
applicable to the Partnership or the interest to be
transferred;
(ii) such transfer, when added to the total of all other
transfers of interests within the preceding twelve months,
would not result in the Partnership being considered to have
terminated within the meaning of Section 708 of the Code;
(iii) such transfer would not cause the Partnership to become
subject to the Investment Company Act; and
(iv) such transfer would not cause the Partnership to be treated
as a "publicly traded partnership" within the meaning of
Section 7704 of the Code and the Treasury Regulations
promulgated thereunder.
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(c) The General Partner, each Limited Partner, the Partnership and
their respective officers, directors, agents and control persons shall be
indemnified by a Limited Partner (the "Transferring Limited Partner") to the
fullest extent permitted by law for any and all losses, claims, damages and
expenses arising out of or reasonably incurred in connection with any claim,
action or demand against the General Partner, the Partnership or any such
indemnified person relating to the Partnership, its properties, business or
affairs (including, without limitation, attorneys' fees and expenses and any
amounts paid in settlement or compromise of any such claim, action or demand)
against expenses for which the Partnership, the General Partner or such other
person has not otherwise been reimbursed (including attorneys' fees, judgments,
fines and amounts paid in settlement) actually and reasonably incurred by them
in connection with such action, suit or proceeding and arising out of, relating
to, or in connection with, any Transfer of all or any portion of such
Transferring Limited Partner's Units, or in connection with the admission of a
substituted Limited Partner to the Partnership; PROVIDED, HOWEVER, that the
foregoing indemnification shall not apply if a court of competent jurisdiction
makes a final decision that such claim, action or demand resulted primarily from
such indemnified person's willful misconduct, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the Partnership or
such person's office.
(d) Subject to Section 6.1 and Section 9.4, no Unit may be subdivided
into fractional Units.
9.2. ASSIGNEES. (a) The Partnership shall not recognize for any
purpose any purported Transfer of all or any portion of the Units of a Limited
Partner unless the provisions of Section 9.1 shall have been complied with and
there shall have been filed with the Partnership a Transfer Application, in form
satisfactory to the General Partner, executed and acknowledged by both the
seller, transferor or assignor and the purchaser, transferee or assignee and
such Transfer Application contains the acceptance by the purchaser, transferee
or assignee of all of the terms and provisions of this Agreement, represents
that such Transfer was made in accordance with all applicable laws and
regulations and contains the purchaser's, transferee's or assignee's power of
attorney identical to that provided in Section 12.1 and, in addition, appoints
the General Partner his or her attorney-in-fact to execute this Agreement on
behalf of such purchaser, transferee or assignee. Any Transfer shall be
recognized by the Partnership as effective as of the date on which such Transfer
Application is filed with the Partnership.
(b) Any Limited Partner who shall assign all of his or her Units shall
not cease to be a Limited Partner unless and until a substituted Limited Partner
is admitted in his or her stead.
(c) A person who is the assignee of all or any portion of the Units of
a Limited Partner, but does not become a substituted Limited Partner and desires
to make a further assignment of such Units, shall be subject to all the
provisions of this Article 9 to the same extent and in the same manner as any
Limited Partner desiring to effect a Transfer of his or her Units.
9.3. SUBSTITUTED LIMITED PARTNERS. (a) No Limited Partner shall have
the right to substitute a purchaser, assignee, transferee, donee, heir, legatee,
distributee or other recipient of all or any portion of such Limited Partner's
Units as a Limited Partner in his or her place. Any such purchaser, assignee,
transferee, donee, heir, legatee, distributee or other recipient of ▇▇▇▇▇
▇▇
▇▇▇▇▇ ▇▇ admitted to the Partnership as a substituted Limited Partner only with
the consent of the General Partner, which consent shall be granted or withheld
in the sole and absolute discretion of the General Partner and may be
arbitrarily withheld, and executed by all necessary parties and recorded, as and
to the extent required by law, in the proper records of each jurisdiction in
which such recordation is necessary to qualify the Partnership to conduct
business or to preserve the limited liability of the Limited Partners. The
Limited Partners hereby consent to the admission of a substituted Limited
Partner whose admission has been consented to by the General Partner. Any such
consent by the General Partner and the Limited Partners may be evidenced by the
execution by the General Partner of an amendment to this Agreement on its behalf
and on behalf of all Limited Partners evidencing the admission of such person as
a Limited Partner and the making of any filing required by law.
(b) To the extent required by law, the General Partner shall file an
amended certificate of limited partnership with the appropriate authorities of
each jurisdiction in which the Partnership transacts business for the purpose of
adding as substituted Limited Partners all assignees of Units previously
approved by the General Partner for admission as substituted Limited Partners
and deleting any person who is no longer a Limited Partner or reflecting
accurately Capital Contributions of the Limited Partners or to receive any
interest thereon.
(c) No person shall become a substituted Limited Partner until such
person shall have delivered a Transfer Application as provided in Section 9.2(a)
and become a party to this Agreement. For the purpose of allocating profits,
losses and distributable cash, a person shall be treated as having become, and
as appearing in the records of the Partnership as, a Limited Partner on such
date as the Transfer to such person was recognized by the Partnership pursuant
to Section 9.2(a).
9.4. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY OF LIMITED
PARTNER. (a) GENERALLY. If a Limited Partner's employment with a member of the
XL Group is terminated for any reason (other than termination of employment for
Cause or due to such Limited Partner's death or Disability), then the General
Partner shall have the right, exercisable in its sole discretion by written
notice sent by certified mail (or its equivalent) or via overnight courier to
such Limited Partner (or his or her Representative) within 30 days following
such termination of employment, to allocate and distribute Profits and Losses
that are realized after the date of termination in respect of the unvested
portion of such Limited Partner's interest in the Partnership (the "Unvested
Interest"), including allocations pursuant to Article 8 and distributions
pursuant to Article 9, to the General Partner. Vested Interest shall be
determined according to the schedule set forth below (the "Vesting Schedule").
The General Partner shall conclusively determine in its sole and absolute
discretion the closing date for purposes of the Vesting Schedule.
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PERCENTAGE OF VESTED
ON OR AFTER BUT PRIOR TO INTEREST IN ADDITIONAL SHARE
--------------------------------------------------------------------------------------------------------------------
Immediately First Anniversary of Closing 0.00%
First Anniversary of Closing Second Anniversary of Closing 25.00%
Second Anniversary of Closing Third Anniversary of Closing 50.00%
Third Anniversary of Closing Fourth Anniversary of Closing 75.00%
Fourth Anniversary of Closing N/A 100.00%
The Limited Partner whose employment has been terminated shall
continue to receive an allocation and distribution of profits and losses on his
or her Units equal to the aggregate of (i) such Limited Partner's Pro Rata Share
and (ii) the vested portion of such Limited Partner's Additional Share of such
profits and losses as of the termination date. In such event of termination, the
Limited Partner shall not be required to return to the Partnership any cash or
assets that were distributed prior to the date of termination.
(b) TERMINATION FOR CAUSE. Upon a Limited Partner's termination of
employment by the XL Group for Cause, the General Partner shall have the right,
exercisable in its sole discretion, to purchase such Limited Partner's Units
including (i) such Limited Partner's Pro Rata Share and (ii) the vested portion
of such Limited Partner's Additional Share of Units at the lower of their cost
price or fair market value as determined by the General Partner in its sole
discretion.
(c) TERMINATION DUE TO DEATH OR DISABILITY. Upon a Termination due to
death or Disability, a Limited Partner's interest in the Additional Share shall
immediately vest in full. Such departed Limited Partner shall therefore be
entitled to share fully in distributions and allocations of Partnership profits
and losses equal to the aggregate of (i) such Limited Partner's Pro Rata Share
and (ii) the full amount of such Limited Partner's Additional Share.
(d) If a Limited Partner's employment with any member of the XL Group
is terminated for any reason (including death), the Partnership shall have the
right to require that Limited Partner to withdraw from the Partnership in
accordance with Section 8.6(a). Upon such withdrawal, the Partnership shall
purchase the Limited Partner's Units in accordance with Section 8.6(b).
(e) RELATED DEFINITIONS
(i) A Limited Partner's "Pro Rata Share" of profits is such
Limited Partners share of profits based upon the percentage
that his or her capital commitments represent of the total
capital commitments to the Partnership;
(ii) A Limited Partner's "Additional Share" of profits is such
Limited Partner's share in excess of the Pro Rata Share and
includes such Limited Partner's pro rata share of the
profits on the General Partner's Commitment.
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(iii) A "Limited Partner" for purposes of reference to employment
shall be the individual employee of the XL Group to whom a
Limited Partner Interest was originally offered,
notwithstanding any subscription by, or transfer to, a
Immediate Family Member or other Person in accordance with
this Agreement at the request of such individual employee of
the XL Group.
9.5. DISPOSITION OF GENERAL PARTNER'S INTEREST. The General Partner
shall not dispose of its interest in the Partnership as a general partner. No
disposition of the General Partner's interest shall be effective, and the
General Partner shall not cease to be a general partner of the Partnership.
ARTICLE 10
TERM AND DISSOLUTION OF THE PARTNERSHIP
10.1. EVENTS CAUSING DISSOLUTION. The Partnership shall be dissolved
upon the expiration of its term as set forth in Section 2.6 hereof, or sooner
upon the happening of any of the following events (each an "Event of
Dissolution"):
(a) the resignation, withdrawal, dissolution, bankruptcy commencement
of liquidation proceedings or insolvency of the General Partner or the
occurrence of any other event that causes the General Partner to cease to be a
general partner of the Partnership under the Act; PROVIDED that the Partnership
shall not be dissolved or required to be wound up upon the happening of such
event if at the time of such event there is at least one remaining general
partner of the Partnership and such remaining general partner carries on the
business of the Partnership or within 90 days after such event, all remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of one or more additional
general partners; or
(b) the conversion of the Partnership to corporate form pursuant to
Section 2.6 hereof. Upon dissolution, the General Partner shall file a notice of
dissolution with the Registrar of Exempted Limited Partnership in accordance
with the Act. The Partnership shall not be dissolved until the assets of the
Partnership have been distributed as provided in Section 11.2, and the notice of
dissolution has been filed by the General Partner as aforesaid.
10.2. WINDING UP. Upon the occurrence of an Event of Dissolution, the
Partnership shall be wound up and liquidated The General Partner or, if there is
no general partner or following an Event of Dissolution, a liquidator appointed
by XL Capital, shall proceed with the Dissolution Sale and the Final
Distribution. In the Dissolution Sale, the General Partner or such liquidator
shall use its best efforts to reduce to cash and cash equivalent items such
assets of the Partnership as the General Partner or such liquidator shall deem
it advisable to sell, subject to obtaining fair value for such assets and any
tax or other legal considerations (including legal restrictions on the ability
of a Limited Partner to hold any assets to be distributed in kind).
29
10.3. FINAL DISTRIBUTION. After the Dissolution Sale, the proceeds
thereof and the other assets of the Partnership shall be distributed in one or
more installments in the following order of priority:
(a) to satisfy all creditors of the Partnership, including the payment
of the expenses of the winding-up, liquidation and dissolution of the
Partnership and in accordance with the terms agreed among them and otherwise on
a pro rata basis, Partners who are creditors (other than with respect to
distributions owing to them or to former Partners hereunder) either by the
payment thereof or the making of reasonable provision therefor, which shall
include establishing reserves, in amounts determined by the General Partner or
such liquidator, which the General Partner or such liquidator may deem necessary
to meet any other obligations or liabilities (whether contingent, unforeseen or
otherwise) of the Partnership other than to the Partners or former partners in
respect of distributions owing to them hereunder, which reserves may be paid
over by the General Partner or such liquidator to any attorney at law or other
acceptable party, as escrow agent, to be held for disbursement in payment of any
such liabilities or obligations. At the expiration of such period as shall be
deemed advisable by the General Partner or such liquidator, any balance shall be
distributed in accordance with this Section 10.3; and
(b) The remaining proceeds, if any, plus any remaining assets of the
Partnership, shall be applied and distributed to the Partners as soon as
practicable, in accordance with the positive balances of the Partners' Capital
Accounts, as determined after taking into account all adjustments to Capital
Accounts for the Partnership taxable year during which the liquidation occurs;
PROVIDED that liquidating distributions shall be made in the same manner as
distributions under Section 8.2 (other than Section 8.2(c)) if such
distributions would result in the Partners receiving a different amount than
would have been received pursuant to a liquidating distribution based on Capital
Account balances. The General Partner or such liquidator shall use its
reasonable best efforts to sell the assets of the Partnership and distribute the
proceeds therefrom in cash to the Partners. Notwithstanding the foregoing, if
assets other than cash are to be distributed, such distribution shall be subject
to the provisions of Section 8.2. To the extent deemed desirable by the General
Partner or such liquidator, distributions may be made into a liquidating trust
or other appropriate entity, and reserves may be established for contingencies;
PROVIDED, HOWEVER that the time during which distributions may be withheld by
such trust or other entity may not extend beyond the term of the Partnership
pursuant to Section 2.6 without the consent of a majority in interest of the
Limited Partners, unless such distribution would be illegal. For purposes of the
application of this Section 10.3 and determining Capital Accounts on
liquidation, all unrealized gains, losses and accrued income and deductions of
the Partnership shall be treated as realized and recognized immediately before
the date of distribution. If a Limited Partner shall, upon the advice of
counsel, determine that there is a reasonable likelihood that any distribution
in kind of an asset would cause such Limited Partner to be in violation of any
law, regulation or order, such Limited Partner and the General Partner or the
liquidator shall each use its best efforts to make alternative arrangements for
the sale or transfer into an escrow account of any such distribution on mutually
agreeable terms.
30
ARTICLE 11
BOOKS AND RECORDS; ACCOUNTING;
APPRAISAL; TAX MATTERS AND ELECTIONS
11.1. BOOKS AND RECORDS. The General Partner shall keep or cause to be
kept complete and appropriate records and books of account of the Partnership
and the Register. The books and records of the Partnership, including
information relating to the sale by the General Partner or any of its Affiliates
of securities, property, goods or services to the Partnership, shall be
maintained by the General Partner at the office of the Partnership or of the
General Partner and shall be available for examination there by any Limited
Partner or his or her duly authorized Representatives at any and all reasonable
times for any purpose reasonably related to the Limited Partner's interest as a
limited partner of the Partnership, subject to certain reasonable limitations,
to address concerns with respect to, among other things, the confidentiality of
certain information. Such information shall be used only for a purpose
reasonably related to the Limited Partner's interest as a limited partner of the
Partnership. The Register shall reflect the name and address of each of the
Partners, the amount and date of the Capital Contribution or Contributions of
each Partner and the amount and date of any payment to any of the Limited
Partners representing a return of any part of their Capital Contributions in the
event of any such distribution. The Register shall be open to inspection by the
public during normal business hours in the Cayman Islands. The Partnership may
maintain such other books and records and may provide such financial or other
statements as the General Partner in its sole discretion deems advisable.
11.2. ACCOUNTING BASIS; FISCAL YEAR. The books and records and the
financial statements and reports of the Partnership shall be kept on such basis
as the General Partner shall determine. The fiscal year of the Partnership shall
be the calendar year.
11.3. BANK ACCOUNTS. The General Partner shall maintain the
Partnership bank accounts and brokerage accounts, and withdrawals shall be made
only in the regular course of the Partnership business on such signature or
signatures as the General Partner may determine. Temporary investments are
deemed activities in the ordinary course of Partnership business.
11.4. APPRAISAL. If at any time the value of one or more non-cash
assets of the Partnership is required to be determined under this Agreement, the
General Partner shall value such assets, taking into account all relevant
factors, including without limitation restrictions on transfer, other legal or
contractual restrictions and the costs and expenses of disposition of such
assets. In the sole discretion of the General Partner, the valuation of any
non-cash assets may be made by independent third parties appointed by the
General Partner and deemed qualified by the General Partner to render an opinion
as to the value of Partnership assets, using such methods and considering such
information relating to such assets as such persons may deem appropriate. The
valuation of Partnership assets reflected in an appraisal made in good faith by
the General Partner or any adviser or consultant retained for such purpose shall
be conclusive and binding on the Limited Partners.
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11.5. REPORTS. Within 180 days after the end of each fiscal year, or
as soon as practicable thereafter, the General Partner shall send to each person
who was a Limited Partner at any time during the fiscal year then ended (i) such
tax information as shall be necessary for the preparation by such Limited
Partner of his or her United States federal and state income tax returns; (ii) a
report of the investment activities of the Partnership during such year; and
(iii) financial statements of the Partnership audited by its accountants.
11.6. TAX MATTERS AND ELECTIONS. (a) Each Limited Partner hereby
appoints and designates the General Partner as tax matters partner of the
Partnership, as such term is defined under the Code, and hereby agrees that any
action taken by the General Partner in connection with audits of the Partnership
under the Code shall be binding upon the Limited Partners. Each Limited Partner
further agrees that he or she shall not treat any Partnership item on his or her
individual income tax return in a manner inconsistent with the treatment of the
item on the Partnership's tax return and that he or she shall not act
independently with respect to tax audits or tax litigation affecting the
Partnership, unless, in either case, previously authorized to do so in writing
by the General Partner, which authorization may be withheld in the sole
discretion of the General Partner.
(b) As such tax matters partner, the General Partner may cause the
Partnership to make all elections required or permitted to be made by the
Partnership under the Code (including an election under Section 754 thereof
permitting the adjustment in basis of Partnership assets upon the occurrence of
certain events, such as a sale of Units or the death of a Limited Partner) and
not otherwise expressly provided for in this Agreement. Notwithstanding the
foregoing, the Partnership will elect to be treated as a partnership for United
States federal income tax purposes, and no election to the contrary shall be
made.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1. POWER OF ATTORNEY. Each Limited Partner hereby irrevocably
constitutes and appoints the General Partner, with full power of substitution to
its Affiliates or successors permitted hereunder, the true and lawful
attorney-in-fact and agent of such Limited Partner, to execute, acknowledge,
verify, swear to, deliver, record and file, in its or its assignee's name, place
and stead, all in accordance with the terms of this Agreement, all instruments,
documents and certificates which may from time to time be required by the laws
of the Cayman Islands, any other jurisdiction in which the Partnership conducts
or plans to conduct its affairs in the future, or any political subdivision or
agency thereof to effectuate, implement and continue the valid existence and
affairs of the Partnership, including, without limitation, the power and
authority to verify, swear to, acknowledge, deliver, record and file:
(i) all certificates and other instruments, including any
amendments to this Agreement, which the General Partner
deems appropriate to form, qualify or continue the
Partnership as a limited partnership (or a partnership in
which the
32
limited partners have limited liability) in the Cayman
Islands and all other jurisdictions in which the Partnership
conducts or plans to conduct its affairs,
(ii) any amendments to this Agreement or any other agreement or
instrument which the General Partner deems appropriate to
(A) effect the addition, substitution or removal of any
Limited Partner or General Partner pursuant to this
Agreement or (B) effect any other amendment or modification
to this Agreement, but only if such amendment or
modification is duly adopted in accordance with the terms
hereof,
(iii) all conveyances and other instruments which the General
Partner deems appropriate to reflect the dissolution and
termination of the Partnership pursuant to the terms hereof,
(iv) all instruments relating to transfers of interests of
Limited Partners or to the admission of any substitute
Limited Partner undertaken as permitted hereunder,
(v) all certificates of assumed name and such other certificates
and instruments as may be necessary under the fictitious or
assumed name statutes from time to time in effect in the
Cayman Islands and all other jurisdictions in which the
Partnership conducts or plans to conduct its affairs, and
(vi) any other instruments determined by the General Partner to
be necessary or appropriate in connection with the proper
conduct of the business of the Partnership and which do not
adversely affect the interests of any of the Limited
Partners.
Such attorney-in-fact and agent shall not, however, have the right, power or
authority to amend or modify this Agreement when acting in such capacities,
except to the extent authorized herein. This power of attorney shall terminate
upon the bankruptcy, dissolution, disability or incompetence of the General
Partner. The power of attorney granted herein shall be deemed to be coupled with
an interest, shall be irrevocable, shall survive and not be affected by the
dissolution, bankruptcy or legal disability of any Limited Partner and shall
extend to its successors and assigns; and may be exercisable by such
attorney-in-fact and agent for all Limited Partners (or any of them) by listing
all (or any) of such Limited Partners required to execute any such instrument,
and executing such instrument acting as attorney-in-fact. Any Person dealing
with the Partnership may conclusively presume and rely upon the fact that any
instrument referred to above, and that is executed by such attorney-in-fact and
agent, is authorized, regular and binding, without further inquiry. If required,
each Limited Partner shall execute and deliver to the General Partner within
five days after the receipt of a request therefor, such further designations,
powers of attorney or other instruments as the General Partner shall reasonably
deem necessary for the purposes hereof.
12.2. AMENDMENTS OF THIS AGREEMENT. (a) Except for any amendment to
this Agreement made pursuant to Section 12.2(c), an amendment to this Agreement
may be proposed by the General Partner by submitting to all Limited Partners the
text of such amendment and a
33
statement of the purpose of such amendment. Subject to paragraph (c) below, the
proposed amendment shall be deemed adopted 15 days after the General Partner
submits such notice, unless Limited Partners holding two-thirds of outstanding
Units have, by the end of such notice period, delivered their written
disapproval thereof to the General Partner.
(b) Notwithstanding any other provision of this Section to the
contrary, no amendment may:
(i) expand the obligations of any Partner under this Agreement
or convert the Units of any Limited Partner into the
interest of a General Partner or adversely affect the
limited liability of any Limited Partner, in each case
without the approval of such Partner;
(ii) amend Section 6.3 or this Section 12.2 without the approval
of all Partners; or
(iii) modify the method provided in Article 7 or 8 of determining
and allocating or distributing, as the case may be, Profits
and Losses and distributable cash;
without the approval of the General Partner and Limited Partners holding a
majority of the outstanding Units that are adversely affected by such
modification.
(c) In addition to any amendments otherwise authorized hereby, this
Agreement may be amended from time to time by the General Partner without the
consent of any of the Limited Partners to add to the representations, duties or
obligations of the General Partner or surrender any right or power granted to
the General Partner herein; to cure any ambiguity or correct or supplement any
provisions hereof which may be inconsistent with any other provision hereof, or
correct any printing, stenographic or clerical errors or omissions; to admit one
or more additional Limited Partners or one or more substituted Limited Partners,
or withdraw one or more Limited Partners, in accordance with the terms of this
Agreement; PROVIDED that no amendment shall be adopted pursuant to this
subsection (c) unless (x) in the case of any amendment referred to in clause (i)
or (ii) of this subsection, such amendment would not adversely alter the
interest of a Limited Partner in connection with the allocation of any income,
gains or losses or distributions or the timing thereof without the consent of
such Partner, and (y) such amendment would not, in the opinion of counsel for
the Partnership (which opinion the Limited Partners are legally entitled to rely
on), alter, or result in the alteration of, the limited liability of the Limited
Partners or the status of the Partnership as a partnership for federal income
tax purposes. The General Partner shall send each Limited Partner a copy of any
amendment adopted pursuant to this paragraph (c).
(d) Upon the adoption of any amendment to this Agreement, such
amendment (or an amended restated Agreement) shall be executed by the General
Partner for itself and on behalf of the Limited Partners pursuant to the power
of attorney granted in Section 12.1, and, if such amendment affects the
certificate of limited partnership of the Partnership under the Act, or any
other filing made in any other state, the General Partner, pursuant to the power
of attorney granted in Section 12.1, shall execute and file proper amendments
and filings in the Cayman
34
Islands and in each jurisdiction in which such action is necessary for the
Partnership to conduct business or to preserve the limited liability of the
Limited Partners.
12.3. ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with or relating to this Agreement or any breach or alleged breach
hereof shall (to the extent not prohibited by governing law) be determined and
settled by arbitration in Bermuda pursuant to the rules then in effect of the
American Arbitration Association. Any award rendered shall be final and
conclusive upon the parties and a judgment thereon may be entered in the courts
of Bermuda.
12.4. NOTICES. Except as otherwise specifically provided herein, All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered, sent by
electronic mail, or mailed, registered mail, first-class postage paid, if to any
Limited Partner, at such Limited Partner's address or such Limited Partner's
electronic mail address as set forth in such Limited Partner's Subscription
Agreements, if to the Partnership, to the General Partner, c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇ ▇▇, Bermuda, or to the General
Partner by facsimile at (▇▇▇) ▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, or to such
other person, electronic mail address or address as any Limited Partner shall
have last designated by notice to the General Partner, and in the case of a
change in address by the General Partner, by notice to the Limited Partners. Any
notice shall be deemed to have been duly given if personally delivered, sent by
electronic mail or sent by the mails and shall be deemed received, unless
earlier received, (A) if sent by certified or registered mail, return receipt
requested, when actually received, (B) if sent by overnight mail or courier,
when actually received, (C) if sent by facsimile transmission, on the date sent
provided confirmatory notice is sent by first-class mail, postage prepaid, (D)
if delivered by electronic mail, when sent and (E) if delivered by hand, on the
date of receipt.
12.5. BINDING PROVISIONS. The covenants and agreements contained
herein shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective parties hereto.
12.6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Cayman Islands, without regard to principles
of conflict of laws. In particular, the Partnership is formed pursuant to the
Act, and the rights and liabilities of the Partners shall be as provided
therein, except as herein otherwise expressly provided.
12.7. JURISDICTION; VENUE. (a) Any action or proceeding against the
parties relating in any way to this Agreement may be brought and enforced in the
courts of Bermuda, and the parties irrevocably submit to the non-exclusive
jurisdiction of the foregoing courts in respect of any such action or
proceeding. The parties irrevocably waive, to the fullest extent permitted by
law, any objection that they may now or hereafter have to the laying of venue of
any such action or proceeding in the courts of Bermuda and any claim that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.
(b) IN ADDITION, EACH OF THE PARTIES HERETO (IN ITS OWN BEHALF AND, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS EQUITY
35
HOLDERS) WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR
ARISING OUT OF THIS AGREEMENT
12.8. COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that not all the parties have signed the
same counterpart. The General Partner may execute any document by facsimile
signature of a duly authorized officer.
12.9. SEPARABILITY OF PROVISIONS. If for any reason any provision or
provisions hereof that are not material to the purposes or business of the
Partnership or the Limited Partners' Units are determined to be invalid and
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement that are valid.
12.10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties. This Agreement supersedes any prior agreement or
understanding among the parties and may not be modified or amended in any manner
other than as set forth herein.
12.11. PARAGRAPH TITLES. Article, section and paragraph titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
12.12. WAIVER OF RIGHT OF PARTITION AND ACCOUNTING. Each Partner
hereby waives its right of partition and accounting.
12.13. EFFECTIVENESS. This Agreement shall become effective as of the
day and year first above written upon execution hereof by the General Partner
and the Initial Limited Partner and, as to each additional Limited Partner, when
the prescribed subscription hereto by such party has been accepted by the
General Partner.
(Signatures to follow)
36
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as a deed on the date first above written.
GENERAL PARTNER:
XL CAPITAL PARTNERS CORPORATION
By: _________________________________________________
Title:
Name:
INITIAL LIMITED PARTNER:
_____________________________________________________
________________, solely to reflect his withdrawal
ADDITIONAL LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as
limited partners of the Partnership pursuant to powers
of attorney now and hereafter executed in favor of and
delivered to the General Partner.
By: GENERAL PARTNER, as Attorney-in-Fact:
XL CAPITAL PARTNERS CORPORATION
By: ________________________________________
Title:
Name: