PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
ENGAGEMENT CLOSING MEMORANDUM
Matter No. 1024-00002
CALDERWOOD & HARKNESS LLP 1585 Broadway, 34th Floor New York, NY 10036
September 2, 2024
INTERNAL MEMORANDUM
This memorandum is an internal attorney work product of Calderwood & Harkness LLP, prepared for inclusion in the matter file. It is protected by the attorney-client privilege, the work product doctrine, and applicable rules of professional responsibility. This memorandum is not intended for distribution to any party outside of Calderwood & Harkness LLP without the prior written authorization of the Responsible Partner. Nothing herein constitutes a continuing obligation of the firm beyond the scope of the closed engagement.
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP ("C&H" or the "Firm") was engaged on June 11, 2024 by Driftwood Capital Management LLC ("DCM"), in its capacity as General Partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), to advise on the legal implications of, and governance response to, a key-person event triggered by the sudden medical incapacitation of Marcus J. Whitmore, the Fund's founder, Chief Investment Officer, and sole designated Key Person under Section 8.04 of the Amended and Restated Agreement of Limited Partnership, dated as of March 15, 2017 (the "A&R LPA"). The engagement arose under circumstances requiring immediate attention: Whitmore suffered a severe hemorrhagic stroke on June 3, 2024, and the contractual Key Person Event was deemed triggered on June 10, 2024 upon expiration of the seven-consecutive-calendar-day threshold set forth in Section 8.04(b) of the A&R LPA, thereby suspending the Fund's Investment Period and initiating a 90-calendar-day Cure Period expiring September 8, 2024.
The scope of the engagement, as set forth in the engagement letter dated June 11, 2024, encompassed the following principal workstreams: (i) comprehensive analysis of Section 8.04 key-person clause mechanics and the contractual consequences flowing from the triggering event; (ii) preparation and review of the limited partner notification required under Section 8.04(c); (iii) development and recommendation of a successor governance framework, including the designation of successor Key Persons and the establishment of an Investment Committee; (iv) drafting and negotiation of the First Amendment to the A&R LPA (the "First Amendment") to implement the successor governance framework; and (v) solicitation and tabulation of limited partner consents as required under the A&R LPA for approval of the successor Key Persons and the related amendments.
All engagement objectives were achieved within the contractual Cure Period and in compliance with all applicable provisions of the A&R LPA, Delaware law, and Cayman Islands regulatory requirements. Thirty-eight (38) of the Fund's forty-seven (47) limited partners delivered written consents representing $2,412.8 million of LP capital commitments, or approximately 86.2% of voting LP commitments — well in excess of the 66⅔% supermajority threshold required under Section 8.04(c). The First Amendment to the A&R LPA became effective on August 26, 2024, designating Elaine R. Sato and Jonathan K. Huang as joint Successor Key Persons, establishing a three-member Investment Committee, transitioning Marcus J. Whitmore to a Senior Advisor role without governance authority, and implementing a revised carried interest allocation among the principals of DCM. The Cure Period deadline of September 8, 2024 was thereby mooted by the successful completion of the successor governance process thirteen (13) calendar days in advance.
The engagement is closed as of September 2, 2024. The matter status is: closed_completed. No outstanding legal issues, open work items, or continuing obligations of the Firm remain as of the date of this memorandum.
II. CLIENT AND FUND IDENTIFICATION
A. The Fund
The client entity for this engagement is Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted limited partnership registered under the Exempted Limited Partnership Act (As Revised) of the Cayman Islands. The Fund's key identifying information and structural details are set forth below.
Full Legal Name: Driftwood Absolute Return Fund Ltd.
Entity Type: Cayman Islands exempted limited partnership
Cayman Registration Number: ELP-87234
Registered Office: 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands
Cayman Registered Agent: Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands
Investment Strategy: The Fund pursues a multi-strategy absolute return mandate, deploying capital across three primary strategy verticals: (i) equity long/short, (ii) event-driven (including merger arbitrage, activist situations, and special situations), and (iii) credit relative value. The Fund maintains a sector focus on the financial services industry, with particular emphasis on asset management and banking subsectors. The Fund's strategy is implemented on a global basis, with the majority of risk exposure concentrated in North American and Western European markets.
Fund Inception Date: March 15, 2017
Assets Under Management (as of May 31, 2024): $2.87 billion (net asset value basis)
Number of Limited Partners: 47
Fund Administrator: Pinnacle Fund Services (Cayman) Ltd.
Independent Auditor: Graystone & Whitfield LLP
Prime Broker: Halcyon Securities International Ltd.
Governing Law of A&R LPA: The A&R LPA is governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflicts of law.
The Fund's investor base consists of institutional investors, including public and corporate pension funds, university endowments, sovereign wealth-affiliated entities, family offices, and institutional fund-of-funds vehicles. The Fund does not accept investments from natural persons other than through institutional vehicles.
B. The General Partner
Full Legal Name: Driftwood Capital Management LLC
Entity Type: Delaware limited liability company
Employer Identification Number (EIN): 82-4917653
Principal Office: 680 Lexington Avenue, 31st Floor, New York, NY 10022
Delaware Registered Agent: Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, Delaware 19801
Managing Members: DCM is managed by two Managing Members. As of the date of the Key Person Event, the membership interests and management responsibilities were allocated as follows:
(a) Marcus J. Whitmore — Managing Member, holding a 90% membership interest in DCM. Whitmore served as founder and Chief Investment Officer of DCM and the Fund from inception, and was the sole designated Key Person under Section 8.04(a) of the A&R LPA.
(b) Elaine R. Sato — Managing Member, holding a 10% membership interest in DCM. Sato served as Deputy Chief Investment Officer of DCM and was responsible for day-to-day co-management of the Fund's equity long/short and event-driven strategy books, as well as risk oversight functions.
DCM is registered as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. DCM serves as both the General Partner and the investment manager of the Fund.
III. ENGAGEMENT TEAM AND FEE ARRANGEMENT
A. Calderwood & Harkness LLP Engagement Team
The following attorneys of Calderwood & Harkness LLP's Funds & Asset Management practice group were assigned to this matter and performed substantive work during the engagement:
Graham Sutherland served as the Responsible Partner for the engagement and maintained oversight of all legal analysis, strategic recommendations, client communications, and substantive deliverables throughout the matter. Mr. Sutherland personally led the negotiation with Wexford Crane & Albright LLP on behalf of the Investor Advisory Committee and participated in the July 29, 2024 IAC meeting. Pamela Cross served as the Billing Partner and was responsible for all billing and engagement economics matters. Stephen Adler served as the Lead Associate and was principally responsible for the preparation of all memoranda, the drafting of the First Amendment, the LP consent solicitation process, and the tabulation of LP consents. Theresa Kim served as the Working Associate and supported all research, drafting, and document management functions throughout the engagement.
B. Fee Arrangement
The Firm's engagement was subject to an hourly billing arrangement, with an aggregate fee cap of $385,000 for the entirety of the engagement. The applicable billing rates were as follows:
• Partner rate: $1,650 per hour
• Associate rate: $895 per hour
The billing partner for the engagement was Pamela Cross. The engagement letter was dated June 11, 2024, and was addressed to Elaine R. Sato, in her capacity as Deputy Chief Investment Officer of DCM. The engagement letter was countersigned by Ms. Sato on behalf of DCM and returned to the Firm on the same date. All fees incurred during the engagement were within the aggregate fee cap.
C. Counterparty Counsel
The Investor Advisory Committee of the Fund retained independent legal counsel in connection with its review and negotiation of the successor governance framework and the First Amendment. The details of counterparty counsel are as follows:
Firm: Wexford Crane & Albright LLP, 51 West 52nd Street, 40th Floor, New York, NY 10019
Lead Partner: Helen M. Calloway, Partner, Investment Funds Group
Senior Associate: David Pineda, Senior Associate, Investment Funds Group
Wexford Crane & Albright LLP ("WCA") represented the interests of the Investor Advisory Committee throughout the review and negotiation period described in Section V.C below. WCA's representation was limited to the IAC and did not extend to any individual limited partner or to the limited partner body as a whole. The costs of WCA's representation were borne by the Fund in accordance with the IAC expense reimbursement provisions set forth in Section 9.04 of the A&R LPA.
IV. BACKGROUND: THE KEY-PERSON EVENT
A. Marcus J. Whitmore — Profile
Marcus J. Whitmore is the founder, Chief Investment Officer, and controlling Managing Member (90% membership interest) of Driftwood Capital Management LLC. Whitmore established DCM and the Fund in 2017 following a distinguished career spanning twenty-eight (28) years in multi-strategy institutional investing. Prior to founding DCM, Whitmore served as Managing Director and Head of Multi-Strategy Investing at Veltrano Asset Partners LLC from 2004 to 2016, where he oversaw a multi-billion-dollar allocation across equity long/short, event-driven, and credit strategies within the financial services sector. Before joining Veltrano, Whitmore served as a Portfolio Manager at Fieldstone Capital Advisors LP from 1996 to 2004, where he managed equity long/short portfolios focused on the banking and specialty finance sectors.
Whitmore was the sole designated "Key Person" under Section 8.04(a) of the A&R LPA. His designation as the sole Key Person reflected his central role in the Fund's investment process, including his direct management of the largest strategy books, his sole authority over portfolio construction and risk limits at the fund level, and his personal relationships with many of the Fund's largest institutional investors. Whitmore's capital commitment to the Fund was $57.4 million, representing 2.0% of the Fund's assets under management as of May 31, 2024. His carried interest entitlement, prior to the amendment described herein, was 18% of the General Partner's 20% incentive allocation — equivalent to 3.6% of the Fund's net new profits above the high-water mark.
B. Incapacitation Event
On June 3, 2024, Marcus J. Whitmore suffered a severe hemorrhagic stroke at his residence in New York City. Whitmore was transported to Lenox Hill Medical Center in New York, where he was admitted for emergency treatment and subsequently commenced an intensive neurorehabilitation program. According to information conveyed to DCM by Whitmore's immediate family and treating physicians, the attending neurological team projected a minimum recovery period of twelve (12) to eighteen (18) months, with an uncertain prognosis regarding Whitmore's ability to return to full-time professional activity. As of the date of this memorandum, Whitmore remains in a rehabilitation setting and has not resumed any professional duties with respect to DCM or the Fund.
The severity and sudden onset of Whitmore's medical condition meant that no advance notice was given to DCM, the limited partners, or any service provider prior to the incapacitation. DCM's Deputy CIO, Elaine R. Sato, assumed day-to-day operational and investment management responsibilities for the Fund on an interim basis effective June 3, 2024, subject to the contractual constraints described below.
C. Key-Person Event Trigger Analysis
Section 8.04(b) of the A&R LPA provides, in relevant part, as follows:
A "Key Person Event" shall be deemed to have occurred if a Key Person designated pursuant to Section 8.04(a) is "unable to devote substantially all of his professional time and attention to the affairs of the Partnership for a period of seven (7) consecutive calendar days," absent the prior written notice of such Key Person delivered to the General Partner and each member of the Investor Advisory Committee setting forth the anticipated duration and reason for such absence.
No prior written notice was delivered by Whitmore, as his incapacitation was sudden and unexpected. The incapacitation commenced on June 3, 2024. The seven-consecutive-calendar-day period prescribed by Section 8.04(b) elapsed at 11:59 p.m. (Eastern Time) on June 9, 2024, and accordingly the Key Person Event was deemed triggered as of the close of business on June 10, 2024 (the first business day following the expiration of the seven-day period). The C&H engagement team confirmed this trigger date through a detailed analysis of the A&R LPA's definitions and day-count conventions, as set forth in the Key-Person Event Analysis Memorandum delivered to DCM on June 13, 2024.
D. Contractual Consequences (Section 8.04(c))
Upon the occurrence of the Key Person Event, Section 8.04(c) of the A&R LPA imposed the following immediate and automatic consequences:
(i) Suspension of the Investment Period. The Fund's Investment Period was immediately suspended. During the suspension, DCM was prohibited from making any new investments on behalf of the Fund. For purposes of this provision, a "new investment" was defined as any acquisition of a position not held in the Fund's portfolio as of the date of the Key Person Event.
(ii) Follow-On Investment Cap. Follow-on investments in existing portfolio positions were permitted, but were capped at an aggregate of $28.7 million (1.0% of AUM as of the most recent month-end preceding the Key Person Event, calculated as 1.0% of $2.87 billion).
(iii) LP Notification Requirement. The General Partner was required to notify all limited partners of the Fund in writing within five (5) business days of the occurrence of the Key Person Event. Given the Key Person Event trigger date of June 10, 2024 (a Monday), the five-business-day notification deadline fell on June 17, 2024 (the following Monday).
(iv) Commencement of the 90-Day Cure Period. A Cure Period of ninety (90) calendar days commenced on June 10, 2024, expiring on September 8, 2024. During the Cure Period, the General Partner was afforded the opportunity to propose one or more Successor Key Persons, subject to approval by limited partners holding not less than 66⅔% of aggregate LP capital commitments (excluding the GP co-investment).
(v) Failure to Cure. If no Successor Key Person was approved by the requisite supermajority of limited partners within the Cure Period, the A&R LPA provided that limited partners holding a majority-in-interest could elect either (a) to extend the Cure Period by up to ninety (90) additional calendar days, or (b) to commence an orderly wind-down of the Fund.
E. LP Consent Voting Mechanics
The approval threshold for designation of Successor Key Persons under Section 8.04(c) required the affirmative written consent of limited partners holding not less than 66⅔% of aggregate LP capital commitments, with the GP co-investment excluded from the denominator. The applicable calculations were as follows:
• Total Fund AUM (May 31, 2024): $2,870,000,000
• Less: Marcus J. Whitmore GP co-investment: ($57,400,000)
• Less: Elaine R. Sato co-investment (as Managing Member of GP entity): ($14,350,000)
• Voting LP Capital Commitments: $2,798,250,000
• Required Consent Threshold (66⅔%): $1,865,500,000
The foregoing calculation was confirmed in the Key-Person Event Analysis Memorandum and was consistent with the methodology specified in Section 14.01 of the A&R LPA for the computation of LP voting percentages.
V. DETAILED MATTER TIMELINE
A. Phase 1: Initial Response (June 10–17, 2024)
June 10, 2024 — Key Person Event Deemed Triggered. As described in Section IV.C above, the Key Person Event under Section 8.04(b) of the A&R LPA was deemed triggered as of June 10, 2024, upon expiration of the seven-consecutive-calendar-day period during which Whitmore was unable to devote substantially all of his professional time and attention to the affairs of the Fund. The Investment Period was automatically suspended, and the 90-calendar-day Cure Period commenced running.
June 11, 2024 — Engagement Opened. Calderwood & Harkness LLP was formally engaged by DCM on June 11, 2024. The engagement letter was executed by Elaine R. Sato on behalf of DCM and by Graham Sutherland on behalf of C&H. Matter No. 1024-00002 was assigned. The engagement team was assembled immediately, and an initial conference call was held with Ms. Sato and DCM's General Counsel to receive a factual briefing on the circumstances of Whitmore's incapacitation and to discuss preliminary legal considerations.
June 11–13, 2024 — Legal Analysis and Internal Memorandum. The C&H engagement team undertook a comprehensive analysis of the key-person clause mechanics under Section 8.04 of the A&R LPA, the contractual consequences of the Key Person Event, and the applicable provisions of Delaware law governing limited partnerships. This analysis included a review of the entire A&R LPA, with particular focus on the definitions of "Key Person," "Key Person Event," "Investment Period," "Cure Period," and "Successor Key Person," as well as the voting and consent provisions set forth in Article XIV. The team also analyzed the interplay between the key-person provisions and the Fund's investment management agreement and related side letters with certain institutional limited partners. The Key-Person Event Analysis Memorandum was prepared and delivered to DCM on June 13, 2024. The memorandum confirmed the trigger date, outlined the contractual consequences, identified the applicable deadlines, and set forth a recommended course of action for the Cure Period.
June 14, 2024 — LP Notification Letter. The LP Notification Letter was finalized, reviewed, and approved by C&H. The letter was signed by Elaine R. Sato in her capacity as Deputy Chief Investment Officer of DCM and distributed to all forty-seven (47) limited partners of the Fund via email (with contemporaneous hard copy via overnight courier). The notification disclosed the following: (i) the occurrence of the Key Person Event; (ii) the nature of the triggering circumstance (medical incapacitation of Marcus J. Whitmore); (iii) the automatic suspension of the Investment Period; (iv) the follow-on investment cap of $28.7 million; (v) the commencement of the 90-day Cure Period expiring September 8, 2024; and (vi) DCM's intention to propose Successor Key Persons during the Cure Period. The LP Notification Letter was sent three (3) business days in advance of the contractual deadline of June 17, 2024, ensuring full compliance with the timing requirements of Section 8.04(c).
B. Phase 2: Successor Governance Framework Development (June 17–July 15, 2024)
Following the delivery of the LP Notification Letter, the C&H engagement team commenced the development of a comprehensive successor governance framework. This workstream involved extensive consultation with Elaine R. Sato and other senior members of DCM's investment team, a review of industry best practices for key-person succession in institutional hedge fund structures, and an analysis of the expectations and concerns likely to be raised by the Fund's institutional limited partner base and the Investor Advisory Committee.
Successor Governance Framework Memorandum. C&H prepared and delivered to DCM a detailed Successor Governance Framework Memorandum setting forth the Firm's analysis and recommendations. The principal recommendations were as follows:
(a) Designation of Joint Successor Key Persons. C&H recommended the designation of Elaine R. Sato and Jonathan K. Huang as joint Successor Key Persons under an amended Section 8.04. The recommendation was based on the complementary expertise and track records of the two individuals, their existing roles within DCM's investment process, and the need to demonstrate to the LP base that the Fund's multi-strategy mandate could be sustained without reliance on a single individual. The joint designation structure was also designed to address anticipated LP concerns regarding concentration of authority in a sole Key Person — the very structure that had created the vulnerability exposed by Whitmore's incapacitation.
(b) Establishment of a Three-Member Investment Committee. C&H recommended the creation of a formal Investment Committee under a new Section 8.05 of the A&R LPA. The Investment Committee was to be composed of three members: Sato (as Chair), Huang, and one independent member to be designated by the Investor Advisory Committee. The inclusion of an IAC-designated independent member was intended to enhance governance credibility and LP confidence, and to provide an institutional check on investment decision-making in the absence of Whitmore.
(c) Revised Key-Person Clause Mechanics. C&H recommended a revision to the key-person clause to reflect the joint designation structure. Specifically, the loss of one Successor Key Person would trigger a 180-day Replacement Period — during which the remaining Successor Key Person and the Investment Committee could continue to manage the Fund — rather than an automatic Investment Period suspension. Only the loss of both Successor Key Persons would trigger the automatic Investment Period suspension and standard cure mechanics previously applicable under Section 8.04. This tiered approach was designed to provide operational continuity while preserving meaningful LP protections.
(d) Reduced Follow-On Investment Cap. C&H recommended that the follow-on investment cap during any future Key Person Event be reduced from $28.7 million (1.0% of AUM) to $14.35 million (0.5% of AUM). This reduction was recommended as a concession to LP interests and in recognition of the fact that the establishment of the Investment Committee and the designation of two Successor Key Persons provided a more robust governance structure that warranted a correspondingly tighter investment restriction during any future disruption.
(e) Marcus J. Whitmore — Senior Advisor Designation. C&H recommended that Whitmore be transitioned to a "Senior Advisor" role with no governance authority under the A&R LPA as amended. Whitmore would retain no voting rights, no investment approval authority, and no management decision-making power with respect to the Fund. This designation was intended to preserve Whitmore's association with the Fund in a manner appropriate to his medical circumstances while making clear to the LP base that active governance authority had been fully transferred to the Successor Key Persons and the Investment Committee.
(f) Carried Interest Reallocation and Vesting. C&H recommended a reallocation of the carried interest entitlements among the principals of DCM to reflect the shift in governance responsibility, with a corresponding vesting schedule for Whitmore's residual carried interest, as detailed in Section VI.E below.
Drafting of the First Amendment. Based on the approved governance framework, C&H drafted the First Amendment to the A&R LPA, incorporating all of the recommended structural changes. C&H also prepared the Successor Key Person Proposal and Consent Solicitation Letter to the limited partners (the "Successor Proposal Letter"), which set forth the rationale for the proposed successor governance framework, summarized the key terms of the First Amendment, and enclosed the Form of LP Written Consent.
July 15, 2024 — Circulation to Limited Partners. The Successor Proposal Letter, the draft First Amendment, and the Form of LP Written Consent were circulated to all forty-seven (47) limited partners on July 15, 2024. The consent solicitation established a deadline of August 23, 2024 — forty (40) calendar days from the date of circulation — for the return of executed LP consent forms.
C. Phase 3: IAC Review and Negotiation (July 15–August 5, 2024)
IAC Briefing. In advance of the IAC's review of the Successor Proposal and draft First Amendment, C&H prepared a comprehensive IAC Briefing Memorandum. The memorandum was distributed to the five members of the Investor Advisory Committee, who collectively represented $1,140 million in capital commitments to the Fund. The IAC members, their affiliations, and their respective capital commitments were as follows:
The IAC Briefing Memorandum described the circumstances of the Key Person Event, the contractual consequences, the successor governance framework recommended by C&H and adopted by DCM, the key terms of the proposed First Amendment, and the consent solicitation process and timeline. The memorandum also included background information on the proposed Successor Key Persons, including their professional experience, roles at DCM, capital commitments to the Fund, and proposed carried interest allocations.
July 29, 2024 — IAC Meeting. A formal meeting of the Investor Advisory Committee was held on July 29, 2024 by videoconference. The meeting was attended by all five IAC members and their respective representatives, as well as Graham Sutherland and Stephen Adler of C&H (on behalf of DCM) and Helen M. Calloway and David Pineda of Wexford Crane & Albright LLP (as counsel to the IAC). Elaine R. Sato and Jonathan K. Huang of DCM also participated in portions of the meeting to present their respective backgrounds, investment philosophies, and plans for the ongoing management of the Fund. The IAC meeting lasted approximately two and one-half hours and included a detailed discussion of the proposed governance framework, the qualifications of the Successor Key Persons, the scope of the independent Investment Committee member's authority, and the LP consent solicitation process.
WCA Comments and Negotiation. Following the IAC meeting, Wexford Crane & Albright LLP, acting on behalf of the IAC, submitted written comments on the draft First Amendment. The principal areas of comment and negotiation included the following:
(i) 180-Day Replacement Period Mechanics. WCA sought clarification and additional specificity regarding the mechanics of the 180-day Replacement Period triggered by the loss of one Successor Key Person, including the process for identifying and proposing a replacement, the voting threshold applicable to the replacement, and the consequences of a failure to replace within the 180-day period. C&H responded with proposed language establishing a structured replacement process, including a requirement that the General Partner submit a replacement proposal to the IAC within sixty (60) days, followed by a full LP consent solicitation within the remaining period.
(ii) Scope of IAC-Designated Independent Investment Committee Member's Authority. WCA advocated for enhanced authority for the IAC-designated independent member of the Investment Committee, including a veto right over investments exceeding a specified threshold. C&H, after consultation with DCM, agreed to grant the independent member a consultative role and a negative consent right on any single investment exceeding 5% of the Fund's NAV, but resisted the imposition of a general veto right, which C&H advised would be inconsistent with the General Partner's fiduciary obligations and the Fund's operational requirements.
(iii) Follow-On Investment Cap Reduction. WCA endorsed the proposed reduction of the follow-on investment cap from 1.0% to 0.5% of AUM during any future Key Person Event. No further negotiation was required on this point.
(iv) Whitmore Carried Interest Vesting Schedule. WCA raised concerns regarding the pace of Whitmore's residual carried interest vesting, seeking to extend the vesting period from thirty-six (36) months to forty-eight (48) months. After negotiation, the parties agreed to retain the thirty-six (36) month vesting period, subject to a provision that any unvested carried interest would be forfeited if Whitmore were to compete with the Fund (a non-compete carve-out applicable to the vesting period).
(v) GP Fiduciary Obligations During Future Key Person Events. WCA requested the inclusion of an express statement in the First Amendment confirming the GP's ongoing fiduciary obligations to the limited partners during any future Key Person Event. C&H agreed to the inclusion of a confirmatory provision, noting that such obligations already existed under Delaware law and the A&R LPA but acknowledging that an express restatement would provide additional comfort to the LP base.
All negotiated revisions were finalized and incorporated into the execution version of the First Amendment. Graham Sutherland of C&H issued a formal response letter to Helen M. Calloway of WCA, confirming the agreed-upon resolutions and the final form of the First Amendment, on August 5, 2024.
D. Phase 4: LP Consent Solicitation and Amendment Execution (August 5–26, 2024)
Following the finalization of the execution version of the First Amendment, DCM redistributed the final form of the First Amendment to all limited partners on August 5, 2024, together with an updated Consent Solicitation Letter reflecting the negotiated revisions. LP consent forms were to be returned to Calderwood & Harkness LLP, Attention: Stephen Adler, at 1585 Broadway, 34th Floor, New York, NY 10036, or by email to the designated matter address.
The consent solicitation period ran from August 5, 2024 through the consent deadline of August 23, 2024. During this period, the C&H engagement team responded to inquiries from limited partners and their counsel regarding the terms of the First Amendment and the consent process, and coordinated with DCM's investor relations team to facilitate timely responses to LP due diligence requests.
August 19, 2024 — Consent Threshold Met. As of August 19, 2024, the required LP consent threshold was met and exceeded. Thirty-eight (38) of the Fund's forty-seven (47) limited partners delivered executed written consents to C&H, representing aggregate LP capital commitments of $2,412.8 million. This amount constituted approximately 86.2% of the voting LP commitments of $2,798.25 million, well in excess of the 66⅔% supermajority threshold of $1,865.50 million required under Section 8.04(c) of the A&R LPA. The consent threshold was achieved four (4) calendar days in advance of the August 23, 2024 deadline.
GP Closing Certificate and Consent Tabulation. C&H prepared the GP Closing Certificate and Consent Tabulation, which set forth a detailed schedule of all LP consents received, the capital commitment represented by each consenting limited partner, and the calculation of the aggregate consenting percentage. The GP Closing Certificate was reviewed and signed by Elaine R. Sato in her capacity as Deputy Chief Investment Officer of DCM, certifying the accuracy of the tabulation and confirming that all conditions precedent to the effectiveness of the First Amendment had been satisfied.
August 26, 2024 — First Amendment Effective. The First Amendment to the A&R LPA became effective on August 26, 2024. The execution version was signed by DCM (by Elaine R. Sato as authorized signatory) and countersigned by the Fund. Copies of the executed First Amendment were delivered to all limited partners, the Investor Advisory Committee, the Fund's administrator, auditor, and prime broker, and the Cayman registered agent.
E. Phase 5: Engagement Closure (August 26–September 2, 2024)
Following the effectiveness of the First Amendment on August 26, 2024, the C&H engagement team completed all remaining post-closing administrative matters, including the finalization and filing of all matter documents, the delivery of original and copies of executed documents to the appropriate parties, and the confirmation of notifications to Fund service providers. The Cure Period deadline of September 8, 2024 was mooted by the effectiveness of the First Amendment thirteen (13) calendar days in advance.
September 2, 2024 — Engagement Formally Closed. The engagement was formally closed as of September 2, 2024. The matter status was updated to: closed_completed. No outstanding legal issues, open work items, or continuing obligations of the Firm remain as of the date of this memorandum.
VI. SUMMARY OF KEY OUTCOMES
A. Successor Key Person Designations
The First Amendment to the A&R LPA designates the following individuals as joint Successor Key Persons under amended Section 8.04:
Elaine R. Sato
• Title: Deputy Chief Investment Officer and Managing Member (10%) of DCM
• Experience: 19 years of institutional investment management experience. Ms. Sato joined Driftwood Capital Management at inception in 2017 and has served as Deputy CIO since that time. Prior to Driftwood, she served as Senior Portfolio Manager at Brindoval Global Investments Ltd. from 2010 to 2017, where she managed equity long/short and event-driven portfolios focused on financial services equities. From 2005 to 2010, she served as an analyst at Broadmark Capital Group LLC.
• Portfolio Responsibility: Oversees equity long/short and event-driven strategy books; co-manages fund-level risk oversight and portfolio construction.
• Capital Commitment to the Fund: $14.35 million (0.5% of AUM)
Jonathan K. Huang
• Title: Head of Credit Strategies, DCM
• Experience: 16 years of institutional investment management experience. Mr. Huang joined Driftwood Capital Management in 2019. Prior to Driftwood, he served as Partner at Ashford Credit Partners LP from 2013 to 2019, where he managed a portfolio of credit relative value strategies. From 2008 to 2013, he served as Vice President at Meridian Structured Finance LLC, where he focused on structured credit and distressed debt.
• Portfolio Responsibility: Manages the Fund's credit relative value portfolio, including investment-grade and high-yield credit, structured products, and distressed situations.
• Capital Commitment to the Fund: $8.61 million (0.3% of AUM)
Both Sato and Huang are jointly designated as Successor Key Persons. Both must remain active and devote substantially all of their professional time and attention to the affairs of the Fund in order to avoid triggering the successor key-person provisions described in Section VI.B below.
B. Revised Key Person Clause (Amended Section 8.04)
The First Amendment revises Section 8.04 of the A&R LPA as follows:
(a) Redefinition of "Key Person." The term "Key Person" is redefined to mean Elaine R. Sato and Jonathan K. Huang, jointly.
(b) Loss of One Successor Key Person. The loss of one Successor Key Person (whether by death, disability, resignation, termination, or other departure) triggers a 180-day Replacement Period. During the Replacement Period, the remaining Successor Key Person and the Investment Committee may continue to manage the Fund's investment activities without automatic suspension of the Investment Period. The General Partner must submit a replacement proposal to the IAC within sixty (60) days and conduct a full LP consent solicitation for the proposed replacement within the Replacement Period. If no replacement is approved within the 180-day period, the Investment Period is automatically suspended and standard cure mechanics apply.
(c) Loss of Both Successor Key Persons. The loss of both Successor Key Persons triggers an automatic suspension of the Investment Period and the commencement of a standard 90-day Cure Period, consistent with the mechanics previously applicable under Section 8.04 as originally drafted.
(d) Reduced Follow-On Investment Cap. The follow-on investment cap during any future Key Person Event is reduced from $28.7 million (1.0% of AUM) to $14.35 million (0.5% of AUM).
C. Investment Committee (New Section 8.05)
The First Amendment establishes a new Section 8.05 of the A&R LPA, creating a three-member Investment Committee. The Investment Committee is composed of the following members:
(a) Elaine R. Sato — Chair
(b) Jonathan K. Huang — Member
(c) One independent member — to be designated by the Investor Advisory Committee pursuant to Section 9.02 of the A&R LPA, as amended. The independent member shall have a consultative role and a negative consent right on any single investment exceeding 5% of the Fund's NAV, as negotiated with the IAC and its counsel.
The Investment Committee is responsible for approving all new investments and material portfolio decisions during the Investment Period and during any Replacement Period triggered by the loss of one Successor Key Person. The establishment of the Investment Committee is intended to provide an additional layer of governance oversight and institutional credibility in the absence of Whitmore.
D. Marcus J. Whitmore — Senior Advisor Designation
Under the First Amendment, Marcus J. Whitmore is designated as a "Senior Advisor" to the Fund and DCM. This designation is honorific and consultative only. As Senior Advisor, Whitmore retains no governance authority under the A&R LPA as amended. Specifically:
• Whitmore has no voting rights in respect of any Fund or GP matter.
• Whitmore has no investment approval authority and may not authorize or direct any investment or divestment by or on behalf of the Fund.
• Whitmore has no management decision-making power with respect to the operations or administration of the Fund or DCM.
The Senior Advisor designation is intended to preserve Whitmore's association with the Fund in a manner appropriate to his medical circumstances, and to provide for the possibility of future consultative engagement should Whitmore's health improve sufficiently. The designation does not create any employment or independent contractor relationship and carries no compensation other than the residual carried interest entitlement described in Section VI.E below.
E. Carried Interest Reallocation
The First Amendment implements a reallocation of carried interest entitlements among the principals of DCM, effective as of the date of the First Amendment, as follows:
The GP-level total incentive allocation remains unchanged at 20% of net new profits above the high-water mark. The reallocation reflects the shift in governance responsibility and active management authority from Whitmore to Sato and Huang.
Whitmore Carry Vesting Schedule. Under the First Amendment, Whitmore's residual 9% carried interest allocation is subject to the following vesting schedule:
• Fifty percent (50%) of accrued carried interest vested immediately upon effectiveness of the First Amendment.
• The remaining fifty percent (50%) vests ratably on a monthly basis over a period of thirty-six (36) months, commencing June 10, 2024 (the date of the Key Person Event).
• Any unvested carried interest is subject to forfeiture in the event Whitmore engages in competitive activity during the vesting period, as defined in the First Amendment.
F. Fund Financial Context at Time of Event
The following financial data, drawn from the Fund's records as of May 31, 2024 (the most recent month-end prior to the Key Person Event), provides context for the materiality of the engagement and the investment constraints imposed during the Key Person Event:
• Net Asset Value (May 31, 2024): $2.87 billion
• Gross Exposure: $5.31 billion (1.85× gross leverage to NAV)
• Net Exposure: $1.72 billion (0.60× net exposure to NAV)
• Year-to-Date Gross Return: +7.2%
• Year-to-Date Net Return: +5.4% (after application of the 2/20 fee structure)
• Management Fee: 2.0% of NAV per annum ($57.4 million per year; $14.35 million per quarter)
• Incentive Allocation: 20% of net new profits above the high-water mark, subject to a 6% annualized hurdle rate with full catch-up
• High-Water Mark per Unit: $142.67 (set as of December 31, 2023)
• Current NAV per Unit: $150.53
The Fund's leverage profile, the breadth of its strategy mandate, and the magnitude of its assets under management underscored the urgency of the successor governance process and the importance of maintaining LP confidence throughout the Cure Period.
G. LP Consent Results
The results of the LP consent solicitation are summarized as follows:
• Total Limited Partners in Fund: 47
• Total Consenting Limited Partners: 38
• Consenting LP Capital Commitments: $2,412.8 million
• Voting LP Capital Commitments (denominator): $2,798.25 million
• Percentage of Voting LP Commitments Consenting: 86.2% ($2,412.8M ÷ $2,798.25M)
• Required Consent Threshold (66⅔%): $1,865.50 million
• Date Consent Threshold Achieved: August 19, 2024
• Consent Deadline: August 23, 2024
• Effective Date of First Amendment: August 26, 2024
The robust level of LP support — 86.2%, well in excess of the required 66⅔% — reflected broad institutional confidence in the successor governance framework developed and recommended by C&H and adopted by DCM. Nine (9) limited partners did not deliver consent forms by the deadline; however, no limited partner submitted an affirmative objection to the proposed amendments.
VII. DOCUMENT INDEX — KEY ENGAGEMENT DELIVERABLES
The following documents were produced, reviewed, or received by Calderwood & Harkness LLP during the course of this engagement. All documents are maintained in the matter file under Matter No. 1024-00002 in accordance with the Firm's document retention policy.
VIII. DOCUMENT RETENTION INSTRUCTIONS
All matter files generated in connection with Matter No. 1024-00002 shall be retained in accordance with the Calderwood & Harkness LLP standard document retention policy (Firm Policy No. RM-2022-04, as amended). Specific retention instructions for this engagement are as follows:
1. Electronic Files. All electronic files, including drafts, correspondence, memoranda, research, and work product, shall be maintained on the Firm's secure document management system (Vireo Data Systems) under Matter No. 1024-00002. Electronic files shall be retained for a period of not less than ten (10) years from the date of engagement closure, unless otherwise instructed by the Responsible Partner or required by applicable law or regulation.
2. Hard Copy Originals. Original executed copies of the First Amendment to the A&R LPA and the GP Closing Certificate and Consent Tabulation shall be stored in the Firm's secure records vault (Vault Reference: NY-V-2024-0871). Access to vault materials is restricted to authorized personnel and requires Responsible Partner approval.
3. LP Consent Forms. Copies of all executed LP consent forms received during the consent solicitation period shall be maintained in the matter file (both electronic and hard copy). Original executed consent forms have been delivered to DCM for its records.
4. Client Access. DCM, as the client, is authorized to receive copies of all engagement deliverables upon request. Originals of the executed First Amendment have been delivered to DCM. Requests for additional copies or access to matter files should be directed to the Responsible Partner.
5. Cayman Registered Agent. Archipelago Corporate Services Ltd., as the Fund's Cayman Islands registered agent, is to be furnished with copies of the executed First Amendment and such other documents as may be required for the Fund's statutory records and regulatory filings in the Cayman Islands. DCM has been advised to coordinate directly with Archipelago for this purpose.
6. Confidentiality. All matter files remain subject to the attorney-client privilege, the work product doctrine, and the Firm's confidentiality obligations. No matter files shall be disclosed to any third party without the prior written consent of the client and the approval of the Responsible Partner, except as required by applicable law, regulation, or court order.
IX. OUTSTANDING MATTERS AND POST-CLOSING NOTES
As of the date of this memorandum, there are no outstanding legal issues or open work items requiring further action by Calderwood & Harkness LLP. The engagement has been fully completed, and the Firm has no continuing obligations in connection with Matter No. 1024-00002.
The following post-closing observations are noted for the record:
1. Ongoing GP Compliance. The General Partner (DCM) is responsible for ongoing compliance with the provisions of the A&R LPA as amended by the First Amendment. This includes, without limitation, the designation of the IAC-nominated independent member of the Investment Committee pursuant to amended Section 9.02, the implementation and operation of the Investment Committee under new Section 8.05, and compliance with the revised key-person provisions of amended Section 8.04. These are ongoing obligations of DCM and do not require any further involvement of C&H absent a new engagement.
2. Whitmore Carry Vesting. The vesting of Marcus J. Whitmore's residual carried interest — 50% ratable over 36 months from June 10, 2024 — is to be administered by DCM in accordance with the terms of the First Amendment. C&H has no ongoing role in the administration or monitoring of the vesting schedule absent a further engagement.
3. Fund Service Provider Notifications. DCM has confirmed that the following Fund service providers have been notified of the First Amendment and the change in key personnel: Pinnacle Fund Services (Cayman) Ltd. (fund administrator), Graystone & Whitfield LLP (auditor), and Halcyon Securities International Ltd. (prime broker). C&H reviewed and confirmed the adequacy of these notifications prior to engagement closure.
4. Future Key-Person Events. Any future key-person event, successor designation, or further amendment to the A&R LPA would fall outside the scope of the closed engagement and would require a new engagement with C&H or other counsel selected by DCM.
5. Regulatory Considerations. No Cayman Islands regulatory filings arising from the amendment were identified as being due during the engagement period. DCM has been advised to consult with Cayman Islands counsel and the Fund's registered agent regarding any future statutory or regulatory filings that may be required as a result of the change in key personnel or the amendment of the partnership agreement.