1024-00002 · Driftwood Absolute Return Fund Ltd · Correspondence

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PRIVILEGED & CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Counsellors at Law 1585 Broadway, 34th Floor New York, NY 10036 Tel: (212) 554-7800

Fax: (212) 554-7801

www.calderwoodharkness.com

August 2, 2024

Via Email and Sundial Data Systems

Helen M. Calloway, Esq. Partner, Investment Funds Group Wexford Crane & Albright LLP 51 West 52nd Street, 40th Floor New York, NY 10019

Re: First Amendment to the Amended & Restated Limited Partnership Agreement of Driftwood Absolute Return Fund Ltd. (Cayman Registration No. ELP-87234) — Response to IAC Counsel Comments

Our Matter No.: 1024-00002

Dear Helen:

I. Introduction and Purpose

I write on behalf of Calderwood & Harkness LLP, counsel to Driftwood Capital Management LLC ("DCM" or the "General Partner"), the general partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), in response to the detailed written comments submitted by Wexford Crane & Albright LLP ("WCA"), dated July 31, 2024, on the draft First Amendment (the "First Amendment") to the Amended & Restated Limited Partnership Agreement of DARF, dated as of March 15, 2017 (the "A&R LPA").

As you are aware, the draft First Amendment was circulated to all forty-seven (47) limited partners of the Fund on July 15, 2024, together with the Successor Key Person Proposal and the Form of LP Written Consent. The circulation was undertaken in accordance with the notice and consent solicitation procedures set forth in Section 14.01 of the A&R LPA.

We wish to express our appreciation for the thoughtful and constructive engagement of WCA and the members of the Investor Advisory Committee (the "IAC") throughout this process. In particular, the productive discussion that took place at the IAC meeting held on July 29, 2024, was extremely helpful in focusing the areas of agreement and identifying the limited points requiring further clarification. As you know, that meeting was chaired by Diana Cortland of the Northvale Public Employees' Retirement System and attended by IAC members Richard Oshima (Sycamore Endowment Partners LP), Catherine Mercer (Velthorn Institutional Fund of Funds III, L.P.), Thomas Ashworth (Bridlewood Family Office Holdings Ltd.), and Nadia Al-Rashid (Atlas Sovereign Wealth Advisory LLC). Their active participation and candid feedback have been invaluable in shaping the revisions discussed herein.

The purpose of this letter is threefold: (a) to address each of the comments raised by WCA in its July 31 comment letter; (b) to confirm the areas in which the General Partner and the IAC (through its counsel) have reached agreement; and (c) to identify any outstanding points that require further discussion or the circulation of specific drafting language.

We are mindful of the timeline that governs this process. The LP Consent Deadline is August 23, 2024, which represents forty (40) calendar days from the July 15, 2024 circulation date, as provided in the consent solicitation notice. Additionally, the ninety (90)-calendar-day Cure Period triggered by the Key Person Event expires on September 8, 2024, pursuant to Section 8.04(b) of the A&R LPA. Both of these deadlines underscore the importance of achieving timely resolution of the outstanding matters so that the consent solicitation can proceed on schedule and the governance transition can be effectuated within the contractual framework.

For the avoidance of doubt, the relevant factual context is as follows. The Key Person Event was triggered on June 10, 2024, following the medical incapacitation of Marcus J. Whitmore, the Fund's founder, Chief Investment Officer, and sole Key Person under Section 8.04(a) of the A&R LPA. Mr. Whitmore suffered a hemorrhagic stroke on June 3, 2024, and was determined by his attending physicians to be unable to resume his duties as CIO for an indefinite period, constituting a "Disability" under Section 1.01(dd) of the A&R LPA. Written notification of the Key Person Event was delivered by the General Partner to all limited partners on June 14, 2024, which was within the five (5)-business-day contractual notification deadline of June 17, 2024, as required by Section 8.04(b). As a consequence of the Key Person Event, the Investment Period is currently suspended and follow-on investments are capped at $28.7 million, representing 1.0% of assets under management ("AUM"), in accordance with Section 8.04(c)(ii).

We address each of WCA's comments in the order presented in the July 31 comment letter.

II. Successor Key Person Designation — Agreed

We are pleased to confirm that, as discussed at the July 29 IAC meeting and reflected in WCA's comment letter, there is no objection from the IAC to the designation of Elaine R. Sato and Jonathan K. Huang as joint Successor Key Persons under the proposed amended Section 8.04(a) of the A&R LPA.

Ms. Sato currently serves as Deputy Chief Investment Officer and is a Managing Member of DCM, holding a 10% membership interest. She brings nineteen (19) years of investment management experience, including her prior role as Senior Portfolio Manager at Brindoval Global Investments Ltd., where she managed a $1.8 billion equity long/short portfolio. Ms. Sato has been with DCM since the Fund's inception and has direct oversight of the equity long/short and event-driven books, which together represent approximately 58% of the Fund's current net asset value.

Mr. Huang currently serves as Head of Credit Strategies at DCM and brings sixteen (16) years of investment management experience, including his prior tenure as a Partner at Ashford Credit Partners LP, where he co-managed a $2.4 billion credit relative value fund. Mr. Huang has been with DCM for seven years and is responsible for the credit relative value portfolio, which represents approximately 34% of the Fund's current net asset value.

The IAC members expressed comfort with Ms. Sato's demonstrated track record in managing the equity long/short and event-driven strategies and with Mr. Huang's expertise in the credit relative value space. Together, they possess the breadth of investment knowledge and the operational familiarity necessary to lead the Fund through the governance transition.

We further confirm that the combined capital commitments of the proposed Successor Key Persons provide meaningful alignment of interest with the limited partners. Specifically, Ms. Sato's capital commitment is $14.35 million, representing approximately 0.5% of AUM, and Mr. Huang's capital commitment is $8.61 million, representing approximately 0.3% of AUM, for a combined total of $22.96 million, or approximately 0.8% of AUM. These commitments are reflective of substantial personal economic alignment with the performance of the Fund.

The designation of the Successor Key Persons requires the affirmative written consent of limited partners holding not less than 66⅔% of aggregate limited partner capital commitments (excluding the General Partner's co-investment), as set forth in Section 14.01(b)(iii) of the A&R LPA. The voting threshold is accordingly $1,865.50 million of the $2,798.25 million in voting limited partner commitments. Based on the feedback received from the IAC members at the July 29 meeting, as well as informal indications received from several additional limited partners, the General Partner is optimistic that this consent threshold will be comfortably achieved within the August 23, 2024 deadline.

III. 180-Day Replacement Period Mechanics (Amended Section 8.04)

We acknowledge WCA's comments requesting clarification of the mechanics of the 180-day Replacement Period that would be triggered upon the loss of one (but not both) of the Successor Key Persons following the effective date of the First Amendment. We address each sub-comment in turn.

A. WCA Comment 1: GP Notice Requirement for Commencement of Replacement Period

WCA has requested that the 180-day Replacement Period not commence automatically upon the occurrence of a triggering event (i.e., the loss of one Successor Key Person), but rather that it commence only upon written notice from the General Partner delivered to all limited partners within five (5) business days of the triggering event.

GP Response: The General Partner agrees with this comment. The revised draft of the First Amendment will specify that, upon the loss of one (but not both) of the Successor Key Persons by reason of death, Disability, resignation, termination for Cause, or other cessation of active involvement in the management of the Fund, the General Partner shall deliver written notice to all limited partners within five (5) business days of the occurrence of such triggering event. The 180-day Replacement Period will commence on the date of delivery of such notice (the "Replacement Period Commencement Date"), rather than on the date of the triggering event itself. This modification ensures that the limited partners receive prompt and definitive notification and that the timeline for the Replacement Period is anchored to an objectively verifiable date.

B. WCA Comment 2: IAC Consultation on Replacement Candidates

WCA has requested that during the 180-day Replacement Period, any proposed replacement Successor Key Person be subject to consultation with the IAC (though not a formal veto right) prior to the General Partner's circulation of a replacement proposal to the limited partners for consent.

GP Response: The General Partner agrees with this comment in principle. The revised draft will provide that, prior to circulating any proposed replacement of a lost Successor Key Person to the limited partners for consent under Section 14.01, the General Partner shall consult with the IAC in good faith regarding the qualifications, experience, and suitability of the proposed replacement candidate. Such consultation shall include, at a minimum, the delivery of the proposed replacement candidate's curriculum vitae, a summary of his or her relevant experience, and the proposed terms of his or her economic participation in the General Partner, in each case not less than ten (10) business days prior to the circulation of the replacement proposal to the limited partners.

It is understood and agreed, however, that the IAC's role in this process is consultative and advisory in nature and does not constitute a consent right, veto right, or approval right separate from, or in addition to, the ≥ 66⅔% limited partner consent mechanism set forth in Section 14.01(b)(iii) of the A&R LPA. The governance structure of the Fund is predicated on the limited partners exercising their consent rights directly, and the IAC consultation process is intended to facilitate informed decision-making by the limited partner base rather than to create an additional layer of governance authority. We believe this approach appropriately balances the IAC's legitimate interest in being consulted on key personnel decisions with the fundamental consent architecture of the A&R LPA.

C. WCA Comment 3: Consequences of Failure to Replace Within 180 Days

WCA has requested clarification of the consequences if no replacement Successor Key Person is proposed by the General Partner, or if a proposed replacement fails to obtain the requisite limited partner consent, within the 180-day Replacement Period.

GP Response: The General Partner agrees with the framework discussed at the July 29 IAC meeting and confirmed in the WCA comment letter. Specifically, if no replacement Successor Key Person is approved by the limited partners within the 180-day Replacement Period following the loss of one of the two Successor Key Persons, the remaining Successor Key Person shall continue to serve as the sole Key Person, and the Fund shall enter a "Single Key Person Period." During a Single Key Person Period, the General Partner shall provide enhanced reporting to the IAC, including quarterly letters to the IAC summarizing portfolio performance, risk metrics, material portfolio changes, and personnel developments. Importantly, the commencement of a Single Key Person Period shall not, in and of itself, trigger an automatic suspension of the Investment Period, provided that the remaining Successor Key Person continues to be actively engaged in the management of the Fund's portfolio on a full-time basis.

This framework reflects the consensus reached at the July 29 IAC meeting, at which the IAC members acknowledged that the loss of one of two Successor Key Persons, while significant, should not automatically result in the drastic consequence of Investment Period suspension, provided that the remaining Successor Key Person is capable and committed. The enhanced quarterly reporting obligation during the Single Key Person Period provides the IAC and the limited partners with additional transparency and information to monitor the situation. Clarifying language reflecting this understanding will be added to amended Section 8.04(d) of the First Amendment.

D. WCA Comment 4: Loss of Both Successor Key Persons — Mirror of Original § 8.04(c)

WCA has requested that, if both Successor Key Persons are simultaneously lost or if the remaining Successor Key Person is lost during a Single Key Person Period, the consequences shall mirror those set forth in the original Section 8.04(c) of the A&R LPA — namely, immediate suspension of the Investment Period, commencement of a ninety (90)-calendar-day Cure Period, and potential Fund wind-down if the Cure Period expires without resolution.

GP Response: The General Partner agrees. This was always the intended framework, and we appreciate the IAC's request for explicit language to remove any ambiguity. The revised draft will include express language providing that, upon the loss of both Successor Key Persons (whether simultaneously or sequentially, including as a result of the loss of the sole remaining Successor Key Person during a Single Key Person Period), the consequences set forth in Section 8.04(c) of the A&R LPA shall apply in full, including: (i) immediate suspension of the Investment Period; (ii) commencement of a ninety (90)-calendar-day Cure Period; (iii) limitation of new and follow-on investments during the Cure Period as provided therein; and (iv) the right of limited partners holding not less than 66⅔% of aggregate capital commitments to direct the dissolution and winding-up of the Fund if the Cure Period expires without the designation and approval of a new Key Person. This language will be added to amended Section 8.04(e) for the avoidance of doubt.

IV. Investment Committee Structure (New Section 8.05)

We acknowledge WCA's comments regarding the scope and authority of the three-member Investment Committee proposed to be established under new Section 8.05 of the A&R LPA. As set forth in the draft First Amendment, the Investment Committee would be composed of Ms. Sato (as Chair), Mr. Huang, and one independent member to be designated by the IAC.

A. WCA Comment 5: Independent Member Role and Consent Threshold

WCA has requested that the IAC-designated independent member of the Investment Committee have a meaningful role, including an affirmative vote requirement for any single investment exceeding a specified threshold.

GP Response: The General Partner has given careful consideration to this comment and proposes the following framework. The independent member shall have a consultative role with respect to all investment decisions brought before the Investment Committee, and shall have full access to Investment Committee meeting materials, presentations, and discussions for all such decisions. In addition, the independent member shall have an affirmative consent right — that is, a right to approve or disapprove — with respect to any single new investment or follow-on investment that would result in notional exposure exceeding $50 million.

The $50 million threshold has been selected with reference to the Fund's current net asset value of approximately $2.87 billion, representing approximately 1.7% of NAV. In the General Partner's view, this threshold strikes an appropriate balance between, on the one hand, providing the independent member with a meaningful governance role on the most significant individual investment decisions, and, on the other hand, preserving the operational efficiency and nimbleness that are essential to the Fund's investment strategy. Setting the threshold at a level that captures only the largest individual investments ensures that the day-to-day portfolio management and execution functions are not impeded by a requirement to obtain the independent member's consent for routine trades, hedging activity, or modest position adjustments.

For investments at or below the $50 million notional threshold, the independent member would participate fully in Investment Committee discussions and would have the right to raise concerns and provide input, but would not possess a blocking right. The General Partner believes that this structure provides investors with a substantial additional layer of oversight on material investment decisions while respecting the operational realities of managing a multi-strategy absolute return portfolio.

B. WCA Comment 6: Designation, Term, and Removal of Independent Member

WCA has requested clarity on the process for designating and replacing the independent Investment Committee member, including term length and removal mechanics.

GP Response: The General Partner agrees with the framework proposed by WCA and offers the following specific terms, which will be reflected in new Section 8.05(c) of the First Amendment:

(i) Designation. The independent member shall be designated by a majority vote of the IAC members (determined by headcount, not by capital commitment). The IAC currently consists of five (5) members: Northvale Public Employees' Retirement System ($310 million commitment), Sycamore Endowment Partners LP ($275 million commitment), Velthorn Institutional Fund of Funds III, L.P. ($220 million commitment), Bridlewood Family Office Holdings Ltd. ($185 million commitment), and Atlas Sovereign Wealth Advisory LLC ($150 million commitment). Accordingly, three (3) affirmative votes shall be required for the designation of the independent member.

(ii) Term. The independent member shall serve for a renewable two (2)-year term, commencing on the date of his or her designation and continuing until the earlier of (a) the expiration of the two-year term, (b) his or her resignation, (c) his or her removal by the IAC, or (d) his or her death or incapacity. Upon the expiration of a two-year term, the IAC may re-designate the incumbent independent member for an additional two-year term or designate a replacement, in each case by majority vote.

(iii) Removal. The independent member may be removed at any time, with or without cause, by a majority vote of the IAC members.

(iv) Independence Qualification. The independent member shall not be, at the time of designation or at any time during his or her service, an employee, officer, director, partner, member, or affiliate of the General Partner, DCM, or any limited partner of the Fund. The independent member shall certify his or her independence at the time of designation and annually thereafter.

We believe these provisions establish a clear and workable governance framework for the independent member position. Qualifying language consistent with the foregoing will be added to new Section 8.05(c) of the First Amendment.

C. WCA Comment 7: Availability of Investment Committee Minutes to the IAC

WCA has requested that Investment Committee meeting minutes be made available to the IAC upon request.

GP Response: The General Partner agrees, subject to the following parameters. Summary minutes of each Investment Committee meeting, reflecting the agenda items discussed, the decisions taken, and the voting record of the members on each decision, shall be prepared by the Secretary of the Investment Committee and made available to the IAC upon written request. Such minutes shall be provided within fifteen (15) business days of the relevant Investment Committee meeting.

The General Partner reserves the right to redact from such minutes any proprietary trading strategies, position-level detail (including specific security names, sizing, and timing), and any other information the disclosure of which, in the General Partner's reasonable judgment, could be competitively harmful to the Fund or its limited partners. The intent is to provide the IAC with meaningful insight into the Investment Committee's decision-making process and governance practices while preserving the confidentiality of the Fund's proprietary investment approach. We are confident that this framework appropriately addresses the IAC's legitimate oversight interest.

V. Follow-On Investment Cap Reduction

We acknowledge WCA's comment supporting the proposed reduction of the follow-on investment cap during any future Key Person Event from 1.0% of AUM to 0.5% of AUM. The existing 1.0% cap, which currently limits follow-on investments to $28.7 million during the present Key Person Event, was viewed by several IAC members at the July 29 meeting as unduly generous for periods of governance uncertainty.

WCA Comment 8: Dynamic Calculation of Follow-On Cap

WCA has requested that the reduced cap be calculated as 0.5% of the Fund's net asset value ("NAV") at the time of any future Key Person Event, rather than being fixed at $14.35 million, in order to account for potential changes in AUM over time.

GP Response: The General Partner agrees that this is a sensible and practical improvement. The revised First Amendment will provide that the follow-on investment cap during any future Key Person Event shall be 0.5% of the Fund's NAV as of the most recent monthly valuation date reported by Pinnacle Fund Services (Cayman) Ltd. (the Fund's administrator), rather than a fixed dollar amount. This approach ensures that the cap scales appropriately with the size of the Fund and remains proportionate regardless of whether the Fund's AUM increases or decreases between now and any future Key Person Event. The General Partner accepts this revision without qualification.

For the avoidance of doubt, the current follow-on investment cap of $28.7 million (representing 1.0% of $2.87 billion AUM) remains in effect during the present Key Person Event and will continue to apply until the First Amendment becomes effective upon receipt of the requisite limited partner consents. The reduced cap of 0.5% of NAV will apply only to future Key Person Events occurring after the effective date of the First Amendment.

VI. Carried Interest Reallocation and Whitmore Vesting Schedule

We acknowledge WCA's comments on the revised Schedule A (Carried Interest Allocation) attached to the draft First Amendment and on the proposed modifications to Mr. Whitmore's vesting schedule.

A. Carried Interest Reallocation

The proposed reallocation of carried interest among the members of the General Partner is as follows:

As shown in the table above, the aggregate General Partner incentive allocation remains at 20% of fund profits. The reallocation reflects the transfer of meaningful economic participation to Ms. Sato and Mr. Huang, commensurate with their expanded roles and responsibilities as Successor Key Persons, while retaining a reduced allocation for Mr. Whitmore in recognition of his founding role and continued advisory involvement.

WCA Comment 9: Confirmation of LP Economic Terms

WCA has requested confirmation that the reallocation is an internal General Partner matter and does not alter the aggregate 20% incentive allocation borne by the limited partners or the 6% annualized hurdle rate with full catch-up.

GP Response: Confirmed. The reallocation of carried interest among the members of DCM is entirely an internal matter within the General Partner's carried interest pool and does not modify, increase, or otherwise affect the economic terms applicable to the limited partners. Specifically:

(a) The aggregate incentive allocation payable by the Fund to the General Partner remains at 20% of net profits above the hurdle rate, as set forth in Section 5.02(b) of the A&R LPA;

(b) The annual management fee remains at 2.0% of committed capital during the Investment Period and 2.0% of invested capital (at cost) following the expiration or suspension of the Investment Period, as set forth in Section 5.01 of the A&R LPA;

(c) The 6% annualized hurdle rate with full catch-up (i.e., 100% of profits between 6% and 7.5% to the General Partner until equalized at a 20/80 split) is unchanged, as set forth in Section 5.02(b)(ii) of the A&R LPA; and

(d) The high-water mark of $142.67 per unit, established as of December 31, 2023, continues in effect, as set forth in Section 5.02(c) of the A&R LPA.

The limited partners' economic relationship with the Fund is in all respects unaffected by the carried interest reallocation.

B. Whitmore Vesting Schedule

WCA Comment 10: Mechanics of Modified Vesting

WCA has requested details on the mechanics of Mr. Whitmore's modified vesting schedule, as described in the draft First Amendment.

GP Response: The modified vesting schedule applies to Mr. Whitmore's reduced 9% share of the General Partner's carried interest allocation, on a go-forward basis from the effective date of the First Amendment. The mechanics are as follows:

(a) "Accrued Carried Interest" Defined. For purposes of the modified vesting schedule, "accrued carried interest" means the carried interest attributable to Mr. Whitmore's allocation (at his reduced 9% rate) as of the effective date of the First Amendment, calculated by reference to the realized and unrealized gains of the Fund above the high-water mark as of such date.

(b) Immediate Vesting — 50%. Fifty percent (50%) of Mr. Whitmore's accrued carried interest as of the effective date of the First Amendment shall vest immediately upon the effective date. This immediate vesting covers all carry accrued through the amendment effective date and is intended to recognize Mr. Whitmore's contributions to the Fund's performance through the date of his incapacitation.

(c) Deferred Vesting — 50%. The remaining fifty percent (50%) of Mr. Whitmore's accrued carried interest as of the effective date of the First Amendment, together with all future carried interest attributable to Mr. Whitmore's 9% allocation that accrues after the effective date, shall vest ratably over thirty-six (36) months from June 10, 2024 (the date of the Key Person Event). Vesting shall occur in equal monthly installments, commencing on July 10, 2024 and continuing through June 10, 2027, with each monthly installment representing 1/36th of the deferred amount.

(d) Acceleration. For the avoidance of doubt, all unvested carried interest shall vest in full upon the earliest to occur of (i) Mr. Whitmore's death; (ii) a dissolution and winding-up of the Fund; or (iii) a Change of Control of the General Partner, as defined in Section 1.01(p) of the A&R LPA.

WCA Comment 11: Bad Actor Clawback / Forfeiture Provision

WCA has requested the inclusion of a "bad actor" clawback provision, pursuant to which all of Mr. Whitmore's unvested carried interest would be forfeited if he engages in willful misconduct, fraud, or material breach of his Senior Advisor obligations.

GP Response: The General Partner agrees to the inclusion of a forfeiture trigger for Mr. Whitmore's unvested carried interest. Specifically, the revised draft will provide that all unvested carried interest attributable to Mr. Whitmore's allocation shall be immediately and irrevocably forfeited upon a determination by the General Partner (acting through the Investment Committee, with the independent member participating) that Mr. Whitmore has engaged in:

(i) willful misconduct in connection with the affairs of the Fund or the General Partner;

(ii) fraud, including any misrepresentation or omission of material fact; or

(iii) gross negligence in the performance of his duties as Senior Advisor.

The General Partner notes that Mr. Whitmore's "Senior Advisor" designation carries no governance authority and is primarily honorary and advisory in nature, as discussed further in Section VII below. Nonetheless, the forfeiture provision provides an important additional layer of investor protection by ensuring that Mr. Whitmore's continued economic participation is contingent upon his compliance with fundamental standards of conduct. Proposed drafting language for this provision will be circulated together with the revised draft.

VII. Whitmore Senior Advisor Designation

WCA Comment 12: Limitations on Senior Advisor Role

WCA has requested confirmation that Mr. Whitmore's "Senior Advisor" designation confers no voting rights, no signing authority, no authority to bind the Fund or the General Partner, and no access to proprietary position-level data except on a need-to-know basis as determined by the Investment Committee.

GP Response: The General Partner agrees and confirms each of these limitations. Mr. Whitmore's Senior Advisor role is intended solely to preserve institutional knowledge transfer during the transition period and to allow the Successor Key Persons to consult Mr. Whitmore, at their discretion, on matters within his areas of expertise, including market context, historical portfolio positioning, and investor relationships. The Senior Advisor designation is not a governance position and does not include any of the following:

(a) any voting rights on any matter relating to the management, operations, or governance of the Fund or the General Partner;

(b) any signing authority or power of attorney on behalf of the Fund, the General Partner, or any of their respective affiliates;

(c) any authority to bind the Fund or the General Partner in any contract, agreement, or other arrangement with any third party;

(d) any authority to direct or instruct the Investment Committee, the portfolio management team, or any employee or agent of the General Partner; or

(e) any automatic right of access to proprietary position-level data, trade blotters, risk reports, or other confidential investment information. Access to such information shall be provided only on a need-to-know basis as determined by the Investment Committee in its sole discretion.

Appropriate limiting language reflecting the foregoing will be incorporated into the First Amendment as part of the definition of "Senior Advisor" in a new Section 1.01(vv) and in the substantive provisions of amended Section 8.04.

VIII. GP Fiduciary Obligations During Future Key Person Events

WCA Comment 13: Express Fiduciary Duty Acknowledgment

WCA has requested that the First Amendment include an express acknowledgment that, during any future Key Person Event or Replacement Period, the General Partner's fiduciary duties under applicable Delaware law (including the duties of loyalty and care) are not diminished, suspended, or waived, and that the General Partner shall act in the best interests of the limited partners in managing the portfolio during any period of Investment Period suspension or limited activity.

GP Response: The General Partner agrees to the inclusion of such a statement. The General Partner acknowledges that its fiduciary obligations under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101 et seq., and under the A&R LPA, including but not limited to the implied covenant of good faith and fair dealing and the duties of loyalty and care to the extent not modified by the A&R LPA, are not diminished, suspended, modified, or waived during a Key Person Event, a Replacement Period, or a Single Key Person Period. The First Amendment will include a confirming statement to this effect.

The General Partner notes, however, that the existing exculpation and indemnification provisions of the A&R LPA — specifically, Section 10.01 (Exculpation) and Section 10.02 (Indemnification) — remain in full force and effect and are not modified by the First Amendment. The inclusion of the fiduciary duty acknowledgment is not intended to, and shall not be construed to, alter the standard of liability applicable to the General Partner or its members under Sections 10.01 and 10.02.

WCA Comment 14: Enhanced Reporting During Key Person Events

WCA has requested that the General Partner provide enhanced reporting during any future Key Person Event, including: (i) monthly portfolio summary letters to the IAC; (ii) prompt notice of any material adverse change in portfolio value exceeding 5% of NAV; and (iii) disclosure of any material counterparty or prime broker issues.

GP Response: The General Partner responds to each element of this request as follows:

(i) Monthly Portfolio Summary Letters. Agreed. During any Key Person Event or Replacement Period (and, as noted in Section III.C above, on a quarterly basis during any Single Key Person Period), the General Partner shall provide monthly portfolio summary letters to the IAC. Such letters shall include, at a minimum, a summary of portfolio performance (gross and net), NAV per unit, portfolio exposure by strategy, material changes in portfolio composition, and any material developments relevant to the Fund's operations.

(ii) Material Adverse Change Notification. Agreed. The General Partner shall provide prompt written notice to the IAC of any material adverse change in the Fund's portfolio value that results in a decline of 5% or more of NAV, measured on a month-to-month basis or, during periods of heightened volatility, on a weekly basis. Such notice shall be delivered within two (2) business days of the General Partner's becoming aware of such decline and shall include a summary of the contributing factors.

(iii) Prime Broker Disruption Disclosure. The General Partner agrees to disclose to the IAC any material disruption in the Fund's prime brokerage relationship with Halcyon Securities International Ltd., or with any successor prime broker, that could reasonably be expected to affect the Fund's operations, including but not limited to any reduction or withdrawal of margin financing, any limitation on the Fund's ability to execute trades or settle transactions, or any credit event affecting the prime broker. The General Partner reserves the right, however, to manage ordinary-course prime brokerage communications, routine margin calls, and administrative matters without IAC notification, as such matters arise frequently in the normal course of a multi-strategy fund's operations and do not, individually, rise to the level of materiality warranting IAC notice.

The General Partner will prepare appropriate drafting language for each of these enhanced reporting obligations and include them in the revised draft.

IX. Summary of Agreed Revisions and Outstanding Points

A. Agreed Revisions

For ease of reference, we summarize below the revisions that have been agreed between the General Partner and the IAC (through its counsel) and that will be incorporated into the revised draft of the First Amendment:

1. GP Notice for Replacement Period. Five (5)-business-day written notice requirement from the General Partner to all limited partners upon the loss of one Successor Key Person, with the 180-day Replacement Period commencing on the date of such notice.

2. IAC Consultation on Replacement Candidates. Non-binding, good faith consultation with the IAC regarding any proposed replacement Successor Key Person prior to circulation to the limited partners for consent.

3. Single Key Person Period. If no replacement is approved within 180 days, the remaining Successor Key Person continues as sole Key Person, with enhanced quarterly reporting to the IAC, but without automatic Investment Period suspension.

4. Loss of Both Successor Key Persons. Explicit mirroring of original Section 8.04(c) consequences (immediate Investment Period suspension, 90-day Cure Period, and potential wind-down) for the loss of both Successor Key Persons, whether simultaneously or sequentially.

5. Independent Investment Committee Member Consent Right. Affirmative consent right for the IAC-designated independent Investment Committee member on any single new investment or follow-on investment exceeding $50 million in notional exposure.

6. Independent Member Designation and Term. Designation by majority vote of the IAC (headcount), renewable two (2)-year term, removal by majority IAC vote, independence qualification.

7. Investment Committee Minutes. Summary minutes of Investment Committee meetings to be made available to the IAC upon request within fifteen (15) business days, subject to redaction of proprietary trading strategies and position-level detail.

8. Dynamic Follow-On Cap. Follow-on investment cap during any future Key Person Event to be calculated as 0.5% of NAV at the time of the triggering event (based on the most recent monthly valuation by Pinnacle Fund Services (Cayman) Ltd.), rather than a fixed dollar amount.

9. Bad Actor Forfeiture. Forfeiture of all unvested carried interest attributable to Mr. Whitmore's allocation upon willful misconduct, fraud, or gross negligence.

10. Senior Advisor Limitations. Express limitation of the Senior Advisor designation to an advisory/honorary role, with no governance, voting, signing, or binding authority, and with information access at the Investment Committee's discretion.

11. Fiduciary Duty Acknowledgment. Express statement that the General Partner's fiduciary obligations under Delaware law and the A&R LPA are not diminished during a Key Person Event, Replacement Period, or Single Key Person Period.

12. Enhanced Reporting During Key Person Events. Monthly portfolio summary letters to the IAC; prompt notice of material adverse changes exceeding 5% of NAV; disclosure of material prime brokerage disruptions.

B. Outstanding Points

Based on the discussions to date and the foregoing analysis, only two (2) points remain outstanding:

1. Drafting Language for $50 Million Investment Committee Consent Threshold. The precise drafting language for the independent member's affirmative consent right on investments exceeding $50 million in notional exposure has not yet been circulated. The General Partner will prepare and circulate proposed language to WCA within three (3) business days of this letter.

2. Definition of "Material" for Prime Broker Disruption Disclosure. The parties have agreed on the obligation to disclose material prime broker disruptions but have not yet settled on the precise definition of "material" in this context. This definitional question will be discussed between Stephen Adler of Calderwood & Harkness and David Pineda of Wexford Crane & Albright, with the objective of reaching agreement in advance of the circulation of the revised draft.

No other outstanding points have been identified by either party. If WCA is aware of any additional matters not addressed in this letter, we respectfully request that they be raised promptly so that they may be incorporated into the revised drafting timeline.

X. Revised Draft Circulation Timeline

In light of the foregoing, the General Partner proposes the following timeline for the completion and circulation of the revised draft of the First Amendment:

• By August 5, 2024: Calderwood & Harkness to circulate proposed drafting language for the $50 million Investment Committee consent threshold and the "material" prime broker disruption definition to WCA.

• By August 7, 2024: Calderwood & Harkness to circulate a revised draft of the First Amendment incorporating all agreed changes described in Section IX.A above to WCA.

• By August 12, 2024: WCA to provide confirmation of the revised draft or any further comments within five (5) business days of receipt.

• By August 14, 2024 (target): Circulation of the final form First Amendment and updated consent materials to all limited partners, if the revised draft is confirmed without further changes.

• August 23, 2024: LP Consent Deadline (40 calendar days from the July 15, 2024 initial circulation).

• September 8, 2024: Expiration of the 90-calendar-day Cure Period under Section 8.04(b) of the A&R LPA.

We recognize that the timeline is compressed, and we appreciate WCA's willingness to engage expeditiously. The General Partner is committed to providing the revised materials within the timeframes described above and is available for any interim discussions that may be helpful. It is our strong hope that the final form of the First Amendment can be agreed promptly, allowing sufficient time for the General Partner to engage with the remaining limited partners who have not yet submitted their written consents and to achieve the requisite 66⅔% threshold well in advance of the August 23 deadline.

XI. Closing

We wish to express our sincere gratitude to you and to David Pineda for the constructive, professional, and collaborative manner in which WCA has engaged on behalf of the IAC throughout this process. We also extend our thanks to the IAC members — Diana Cortland, Richard Oshima, Catherine Mercer, Thomas Ashworth, and Nadia Al-Rashid — for their active participation in the July 29 meeting and for the thoughtful feedback that has materially improved the First Amendment.

The General Partner remains committed to achieving a smooth governance transition that protects investor interests, preserves the Fund's investment capabilities, and maintains the culture of transparency and alignment that has characterized the Fund since its inception. We are encouraged by the breadth and depth of the agreement reached on the key issues, and we are confident that the remaining outstanding points can be resolved swiftly.

We note that the Fund's investment performance has remained strong during the transition period. As of May 31, 2024, the Fund had generated a year-to-date net return of +5.4% (net of all fees and expenses), and the Fund's NAV stood at $2.87 billion. This performance is a testament to the capabilities of Ms. Sato, Mr. Huang, and the broader DCM investment team, and it provides the limited partners with confidence that the proposed governance transition will not diminish the Fund's ability to generate attractive risk-adjusted returns.

Please do not hesitate to contact me directly at (212) 554-7823 or at g.sutherland@calderwoodharkness.com with any questions regarding this letter or to arrange a further call at your convenience. Stephen Adler is also available to coordinate directly with David Pineda on the outstanding definitional and drafting matters.

We look forward to receiving your confirmation or further comments on the revised draft promptly following its circulation.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Graham Sutherland Partner, Funds & Asset Management Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036 Tel: (212) 554-7823

Email: g.sutherland@calderwoodharkness.com

cc: David Pineda, Senior Associate, Wexford Crane & Albright LLP (via email) cc: Stephen Adler, Lead Associate, Calderwood & Harkness LLP cc: Theresa Kim, Working Associate, Calderwood & Harkness LLP cc: Elaine R. Sato, Deputy CIO, Driftwood Capital Management LLC (via separate cover)

DCM Member	Prior Allocation (% of GP Carry)	Proposed Allocation (% of GP Carry)	Prior Allocation (% of Fund Profits)	Proposed Allocation (% of Fund Profits)
Marcus J. Whitmore	18%	9%	3.6%	1.8%
Elaine R. Sato	1.5%	7%	0.3%	1.4%
Jonathan K. Huang	0.5%	4%	0.1%	0.8%
Total (GP-Level)	20%	20%	4.0%	4.0%

PRIVILEGED & CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Counsellors at Law 1585 Broadway, 34th Floor New York, NY 10036 Tel: (212) 554-7800
Fax: (212) 554-7801
www.calderwoodharkness.com
August 2, 2024
Via Email and Sundial Data Systems
Helen M. Calloway, Esq. Partner, Investment Funds Group Wexford Crane & Albright LLP 51 West 52nd Street, 40th Floor New York, NY 10019
Re: First Amendment to the Amended & Restated Limited Partnership Agreement of Driftwood Absolute Return Fund Ltd. (Cayman Registration No. ELP-87234) — Response to IAC Counsel Comments
Our Matter No.: 1024-00002
Dear Helen:
I. Introduction and Purpose
I write on behalf of Calderwood & Harkness LLP, counsel to Driftwood Capital Management LLC ("DCM" or the "General Partner"), the general partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), in response to the detailed written comments submitted by Wexford Crane & Albright LLP ("WCA"), dated July 31, 2024, on the draft First Amendment (the "First Amendment") to the Amended & Restated Limited Partnership Agreement of DARF, dated as of March 15, 2017 (the "A&R LPA").
As you are aware, the draft First Amendment was circulated to all forty-seven (47) limited partners of the Fund on July 15, 2024, together with the Successor Key Person Proposal and the Form of LP Written Consent. The circulation was undertaken in accordance with the notice and consent solicitation procedures set forth in Section 14.01 of the A&R LPA.
We wish to express our appreciation for the thoughtful and constructive engagement of WCA and the members of the Investor Advisory Committee (the "IAC") throughout this process. In particular, the productive discussion that took place at the IAC meeting held on July 29, 2024, was extremely helpful in focusing the areas of agreement and identifying the limited points requiring further clarification. As you know, that meeting was chaired by Diana Cortland of the Northvale Public Employees' Retirement System and attended by IAC members Richard Oshima (Sycamore Endowment Partners LP), Catherine Mercer (Velthorn Institutional Fund of Funds III, L.P.), Thomas Ashworth (Bridlewood Family Office Holdings Ltd.), and Nadia Al-Rashid (Atlas Sovereign Wealth Advisory LLC). Their active participation and candid feedback have been invaluable in shaping the revisions discussed herein.
The purpose of this letter is threefold: (a) to address each of the comments raised by WCA in its July 31 comment letter; (b) to confirm the areas in which the General Partner and the IAC (through its counsel) have reached agreement; and (c) to identify any outstanding points that require further discussion or the circulation of specific drafting language.
We are mindful of the timeline that governs this process. The LP Consent Deadline is August 23, 2024, which represents forty (40) calendar days from the July 15, 2024 circulation date, as provided in the consent solicitation notice. Additionally, the ninety (90)-calendar-day Cure Period triggered by the Key Person Event expires on September 8, 2024, pursuant to Section 8.04(b) of the A&R LPA. Both of these deadlines underscore the importance of achieving timely resolution of the outstanding matters so that the consent solicitation can proceed on schedule and the governance transition can be effectuated within the contractual framework.
For the avoidance of doubt, the relevant factual context is as follows. The Key Person Event was triggered on June 10, 2024, following the medical incapacitation of Marcus J. Whitmore, the Fund's founder, Chief Investment Officer, and sole Key Person under Section 8.04(a) of the A&R LPA. Mr. Whitmore suffered a hemorrhagic stroke on June 3, 2024, and was determined by his attending physicians to be unable to resume his duties as CIO for an indefinite period, constituting a "Disability" under Section 1.01(dd) of the A&R LPA. Written notification of the Key Person Event was delivered by the General Partner to all limited partners on June 14, 2024, which was within the five (5)-business-day contractual notification deadline of June 17, 2024, as required by Section 8.04(b). As a consequence of the Key Person Event, the Investment Period is currently suspended and follow-on investments are capped at $28.7 million, representing 1.0% of assets under management ("AUM"), in accordance with Section 8.04(c)(ii).
We address each of WCA's comments in the order presented in the July 31 comment letter.
II. Successor Key Person Designation — Agreed
We are pleased to confirm that, as discussed at the July 29 IAC meeting and reflected in WCA's comment letter, there is no objection from the IAC to the designation of Elaine R. Sato and Jonathan K. Huang as joint Successor Key Persons under the proposed amended Section 8.04(a) of the A&R LPA.
Ms. Sato currently serves as Deputy Chief Investment Officer and is a Managing Member of DCM, holding a 10% membership interest. She brings nineteen (19) years of investment management experience, including her prior role as Senior Portfolio Manager at Brindoval Global Investments Ltd., where she managed a $1.8 billion equity long/short portfolio. Ms. Sato has been with DCM since the Fund's inception and has direct oversight of the equity long/short and event-driven books, which together represent approximately 58% of the Fund's current net asset value.
Mr. Huang currently serves as Head of Credit Strategies at DCM and brings sixteen (16) years of investment management experience, including his prior tenure as a Partner at Ashford Credit Partners LP, where he co-managed a $2.4 billion credit relative value fund. Mr. Huang has been with DCM for seven years and is responsible for the credit relative value portfolio, which represents approximately 34% of the Fund's current net asset value.
The IAC members expressed comfort with Ms. Sato's demonstrated track record in managing the equity long/short and event-driven strategies and with Mr. Huang's expertise in the credit relative value space. Together, they possess the breadth of investment knowledge and the operational familiarity necessary to lead the Fund through the governance transition.
We further confirm that the combined capital commitments of the proposed Successor Key Persons provide meaningful alignment of interest with the limited partners. Specifically, Ms. Sato's capital commitment is $14.35 million, representing approximately 0.5% of AUM, and Mr. Huang's capital commitment is $8.61 million, representing approximately 0.3% of AUM, for a combined total of $22.96 million, or approximately 0.8% of AUM. These commitments are reflective of substantial personal economic alignment with the performance of the Fund.
The designation of the Successor Key Persons requires the affirmative written consent of limited partners holding not less than 66⅔% of aggregate limited partner capital commitments (excluding the General Partner's co-investment), as set forth in Section 14.01(b)(iii) of the A&R LPA. The voting threshold is accordingly $1,865.50 million of the $2,798.25 million in voting limited partner commitments. Based on the feedback received from the IAC members at the July 29 meeting, as well as informal indications received from several additional limited partners, the General Partner is optimistic that this consent threshold will be comfortably achieved within the August 23, 2024 deadline.
III. 180-Day Replacement Period Mechanics (Amended Section 8.04)
We acknowledge WCA's comments requesting clarification of the mechanics of the 180-day Replacement Period that would be triggered upon the loss of one (but not both) of the Successor Key Persons following the effective date of the First Amendment. We address each sub-comment in turn.
A. WCA Comment 1: GP Notice Requirement for Commencement of Replacement Period
WCA has requested that the 180-day Replacement Period not commence automatically upon the occurrence of a triggering event (i.e., the loss of one Successor Key Person), but rather that it commence only upon written notice from the General Partner delivered to all limited partners within five (5) business days of the triggering event.
GP Response: The General Partner agrees with this comment. The revised draft of the First Amendment will specify that, upon the loss of one (but not both) of the Successor Key Persons by reason of death, Disability, resignation, termination for Cause, or other cessation of active involvement in the management of the Fund, the General Partner shall deliver written notice to all limited partners within five (5) business days of the occurrence of such triggering event. The 180-day Replacement Period will commence on the date of delivery of such notice (the "Replacement Period Commencement Date"), rather than on the date of the triggering event itself. This modification ensures that the limited partners receive prompt and definitive notification and that the timeline for the Replacement Period is anchored to an objectively verifiable date.
B. WCA Comment 2: IAC Consultation on Replacement Candidates
WCA has requested that during the 180-day Replacement Period, any proposed replacement Successor Key Person be subject to consultation with the IAC (though not a formal veto right) prior to the General Partner's circulation of a replacement proposal to the limited partners for consent.
GP Response: The General Partner agrees with this comment in principle. The revised draft will provide that, prior to circulating any proposed replacement of a lost Successor Key Person to the limited partners for consent under Section 14.01, the General Partner shall consult with the IAC in good faith regarding the qualifications, experience, and suitability of the proposed replacement candidate. Such consultation shall include, at a minimum, the delivery of the proposed replacement candidate's curriculum vitae, a summary of his or her relevant experience, and the proposed terms of his or her economic participation in the General Partner, in each case not less than ten (10) business days prior to the circulation of the replacement proposal to the limited partners.
It is understood and agreed, however, that the IAC's role in this process is consultative and advisory in nature and does not constitute a consent right, veto right, or approval right separate from, or in addition to, the ≥ 66⅔% limited partner consent mechanism set forth in Section 14.01(b)(iii) of the A&R LPA. The governance structure of the Fund is predicated on the limited partners exercising their consent rights directly, and the IAC consultation process is intended to facilitate informed decision-making by the limited partner base rather than to create an additional layer of governance authority. We believe this approach appropriately balances the IAC's legitimate interest in being consulted on key personnel decisions with the fundamental consent architecture of the A&R LPA.
C. WCA Comment 3: Consequences of Failure to Replace Within 180 Days
WCA has requested clarification of the consequences if no replacement Successor Key Person is proposed by the General Partner, or if a proposed replacement fails to obtain the requisite limited partner consent, within the 180-day Replacement Period.
GP Response: The General Partner agrees with the framework discussed at the July 29 IAC meeting and confirmed in the WCA comment letter. Specifically, if no replacement Successor Key Person is approved by the limited partners within the 180-day Replacement Period following the loss of one of the two Successor Key Persons, the remaining Successor Key Person shall continue to serve as the sole Key Person, and the Fund shall enter a "Single Key Person Period." During a Single Key Person Period, the General Partner shall provide enhanced reporting to the IAC, including quarterly letters to the IAC summarizing portfolio performance, risk metrics, material portfolio changes, and personnel developments. Importantly, the commencement of a Single Key Person Period shall not, in and of itself, trigger an automatic suspension of the Investment Period, provided that the remaining Successor Key Person continues to be actively engaged in the management of the Fund's portfolio on a full-time basis.
This framework reflects the consensus reached at the July 29 IAC meeting, at which the IAC members acknowledged that the loss of one of two Successor Key Persons, while significant, should not automatically result in the drastic consequence of Investment Period suspension, provided that the remaining Successor Key Person is capable and committed. The enhanced quarterly reporting obligation during the Single Key Person Period provides the IAC and the limited partners with additional transparency and information to monitor the situation. Clarifying language reflecting this understanding will be added to amended Section 8.04(d) of the First Amendment.
D. WCA Comment 4: Loss of Both Successor Key Persons — Mirror of Original § 8.04(c)
WCA has requested that, if both Successor Key Persons are simultaneously lost or if the remaining Successor Key Person is lost during a Single Key Person Period, the consequences shall mirror those set forth in the original Section 8.04(c) of the A&R LPA — namely, immediate suspension of the Investment Period, commencement of a ninety (90)-calendar-day Cure Period, and potential Fund wind-down if the Cure Period expires without resolution.
GP Response: The General Partner agrees. This was always the intended framework, and we appreciate the IAC's request for explicit language to remove any ambiguity. The revised draft will include express language providing that, upon the loss of both Successor Key Persons (whether simultaneously or sequentially, including as a result of the loss of the sole remaining Successor Key Person during a Single Key Person Period), the consequences set forth in Section 8.04(c) of the A&R LPA shall apply in full, including: (i) immediate suspension of the Investment Period; (ii) commencement of a ninety (90)-calendar-day Cure Period; (iii) limitation of new and follow-on investments during the Cure Period as provided therein; and (iv) the right of limited partners holding not less than 66⅔% of aggregate capital commitments to direct the dissolution and winding-up of the Fund if the Cure Period expires without the designation and approval of a new Key Person. This language will be added to amended Section 8.04(e) for the avoidance of doubt.
IV. Investment Committee Structure (New Section 8.05)
We acknowledge WCA's comments regarding the scope and authority of the three-member Investment Committee proposed to be established under new Section 8.05 of the A&R LPA. As set forth in the draft First Amendment, the Investment Committee would be composed of Ms. Sato (as Chair), Mr. Huang, and one independent member to be designated by the IAC.
A. WCA Comment 5: Independent Member Role and Consent Threshold
WCA has requested that the IAC-designated independent member of the Investment Committee have a meaningful role, including an affirmative vote requirement for any single investment exceeding a specified threshold.
GP Response: The General Partner has given careful consideration to this comment and proposes the following framework. The independent member shall have a consultative role with respect to all investment decisions brought before the Investment Committee, and shall have full access to Investment Committee meeting materials, presentations, and discussions for all such decisions. In addition, the independent member shall have an affirmative consent right — that is, a right to approve or disapprove — with respect to any single new investment or follow-on investment that would result in notional exposure exceeding $50 million.
The $50 million threshold has been selected with reference to the Fund's current net asset value of approximately $2.87 billion, representing approximately 1.7% of NAV. In the General Partner's view, this threshold strikes an appropriate balance between, on the one hand, providing the independent member with a meaningful governance role on the most significant individual investment decisions, and, on the other hand, preserving the operational efficiency and nimbleness that are essential to the Fund's investment strategy. Setting the threshold at a level that captures only the largest individual investments ensures that the day-to-day portfolio management and execution functions are not impeded by a requirement to obtain the independent member's consent for routine trades, hedging activity, or modest position adjustments.
For investments at or below the $50 million notional threshold, the independent member would participate fully in Investment Committee discussions and would have the right to raise concerns and provide input, but would not possess a blocking right. The General Partner believes that this structure provides investors with a substantial additional layer of oversight on material investment decisions while respecting the operational realities of managing a multi-strategy absolute return portfolio.
B. WCA Comment 6: Designation, Term, and Removal of Independent Member
WCA has requested clarity on the process for designating and replacing the independent Investment Committee member, including term length and removal mechanics.
GP Response: The General Partner agrees with the framework proposed by WCA and offers the following specific terms, which will be reflected in new Section 8.05(c) of the First Amendment:
(i) Designation. The independent member shall be designated by a majority vote of the IAC members (determined by headcount, not by capital commitment). The IAC currently consists of five (5) members: Northvale Public Employees' Retirement System ($310 million commitment), Sycamore Endowment Partners LP ($275 million commitment), Velthorn Institutional Fund of Funds III, L.P. ($220 million commitment), Bridlewood Family Office Holdings Ltd. ($185 million commitment), and Atlas Sovereign Wealth Advisory LLC ($150 million commitment). Accordingly, three (3) affirmative votes shall be required for the designation of the independent member.
(ii) Term. The independent member shall serve for a renewable two (2)-year term, commencing on the date of his or her designation and continuing until the earlier of (a) the expiration of the two-year term, (b) his or her resignation, (c) his or her removal by the IAC, or (d) his or her death or incapacity. Upon the expiration of a two-year term, the IAC may re-designate the incumbent independent member for an additional two-year term or designate a replacement, in each case by majority vote.
(iii) Removal. The independent member may be removed at any time, with or without cause, by a majority vote of the IAC members.
(iv) Independence Qualification. The independent member shall not be, at the time of designation or at any time during his or her service, an employee, officer, director, partner, member, or affiliate of the General Partner, DCM, or any limited partner of the Fund. The independent member shall certify his or her independence at the time of designation and annually thereafter.
We believe these provisions establish a clear and workable governance framework for the independent member position. Qualifying language consistent with the foregoing will be added to new Section 8.05(c) of the First Amendment.
C. WCA Comment 7: Availability of Investment Committee Minutes to the IAC
WCA has requested that Investment Committee meeting minutes be made available to the IAC upon request.
GP Response: The General Partner agrees, subject to the following parameters. Summary minutes of each Investment Committee meeting, reflecting the agenda items discussed, the decisions taken, and the voting record of the members on each decision, shall be prepared by the Secretary of the Investment Committee and made available to the IAC upon written request. Such minutes shall be provided within fifteen (15) business days of the relevant Investment Committee meeting.
The General Partner reserves the right to redact from such minutes any proprietary trading strategies, position-level detail (including specific security names, sizing, and timing), and any other information the disclosure of which, in the General Partner's reasonable judgment, could be competitively harmful to the Fund or its limited partners. The intent is to provide the IAC with meaningful insight into the Investment Committee's decision-making process and governance practices while preserving the confidentiality of the Fund's proprietary investment approach. We are confident that this framework appropriately addresses the IAC's legitimate oversight interest.
V. Follow-On Investment Cap Reduction
We acknowledge WCA's comment supporting the proposed reduction of the follow-on investment cap during any future Key Person Event from 1.0% of AUM to 0.5% of AUM. The existing 1.0% cap, which currently limits follow-on investments to $28.7 million during the present Key Person Event, was viewed by several IAC members at the July 29 meeting as unduly generous for periods of governance uncertainty.
WCA Comment 8: Dynamic Calculation of Follow-On Cap
WCA has requested that the reduced cap be calculated as 0.5% of the Fund's net asset value ("NAV") at the time of any future Key Person Event, rather than being fixed at $14.35 million, in order to account for potential changes in AUM over time.
GP Response: The General Partner agrees that this is a sensible and practical improvement. The revised First Amendment will provide that the follow-on investment cap during any future Key Person Event shall be 0.5% of the Fund's NAV as of the most recent monthly valuation date reported by Pinnacle Fund Services (Cayman) Ltd. (the Fund's administrator), rather than a fixed dollar amount. This approach ensures that the cap scales appropriately with the size of the Fund and remains proportionate regardless of whether the Fund's AUM increases or decreases between now and any future Key Person Event. The General Partner accepts this revision without qualification.
For the avoidance of doubt, the current follow-on investment cap of $28.7 million (representing 1.0% of $2.87 billion AUM) remains in effect during the present Key Person Event and will continue to apply until the First Amendment becomes effective upon receipt of the requisite limited partner consents. The reduced cap of 0.5% of NAV will apply only to future Key Person Events occurring after the effective date of the First Amendment.
VI. Carried Interest Reallocation and Whitmore Vesting Schedule
We acknowledge WCA's comments on the revised Schedule A (Carried Interest Allocation) attached to the draft First Amendment and on the proposed modifications to Mr. Whitmore's vesting schedule.
A. Carried Interest Reallocation
The proposed reallocation of carried interest among the members of the General Partner is as follows:
As shown in the table above, the aggregate General Partner incentive allocation remains at 20% of fund profits. The reallocation reflects the transfer of meaningful economic participation to Ms. Sato and Mr. Huang, commensurate with their expanded roles and responsibilities as Successor Key Persons, while retaining a reduced allocation for Mr. Whitmore in recognition of his founding role and continued advisory involvement.
WCA Comment 9: Confirmation of LP Economic Terms
WCA has requested confirmation that the reallocation is an internal General Partner matter and does not alter the aggregate 20% incentive allocation borne by the limited partners or the 6% annualized hurdle rate with full catch-up.
GP Response: Confirmed. The reallocation of carried interest among the members of DCM is entirely an internal matter within the General Partner's carried interest pool and does not modify, increase, or otherwise affect the economic terms applicable to the limited partners. Specifically:
(a) The aggregate incentive allocation payable by the Fund to the General Partner remains at 20% of net profits above the hurdle rate, as set forth in Section 5.02(b) of the A&R LPA;
(b) The annual management fee remains at 2.0% of committed capital during the Investment Period and 2.0% of invested capital (at cost) following the expiration or suspension of the Investment Period, as set forth in Section 5.01 of the A&R LPA;
(c) The 6% annualized hurdle rate with full catch-up (i.e., 100% of profits between 6% and 7.5% to the General Partner until equalized at a 20/80 split) is unchanged, as set forth in Section 5.02(b)(ii) of the A&R LPA; and
(d) The high-water mark of $142.67 per unit, established as of December 31, 2023, continues in effect, as set forth in Section 5.02(c) of the A&R LPA.
The limited partners' economic relationship with the Fund is in all respects unaffected by the carried interest reallocation.
B. Whitmore Vesting Schedule
WCA Comment 10: Mechanics of Modified Vesting
WCA has requested details on the mechanics of Mr. Whitmore's modified vesting schedule, as described in the draft First Amendment.
GP Response: The modified vesting schedule applies to Mr. Whitmore's reduced 9% share of the General Partner's carried interest allocation, on a go-forward basis from the effective date of the First Amendment. The mechanics are as follows:
(a) "Accrued Carried Interest" Defined. For purposes of the modified vesting schedule, "accrued carried interest" means the carried interest attributable to Mr. Whitmore's allocation (at his reduced 9% rate) as of the effective date of the First Amendment, calculated by reference to the realized and unrealized gains of the Fund above the high-water mark as of such date.
(b) Immediate Vesting — 50%. Fifty percent (50%) of Mr. Whitmore's accrued carried interest as of the effective date of the First Amendment shall vest immediately upon the effective date. This immediate vesting covers all carry accrued through the amendment effective date and is intended to recognize Mr. Whitmore's contributions to the Fund's performance through the date of his incapacitation.
(c) Deferred Vesting — 50%. The remaining fifty percent (50%) of Mr. Whitmore's accrued carried interest as of the effective date of the First Amendment, together with all future carried interest attributable to Mr. Whitmore's 9% allocation that accrues after the effective date, shall vest ratably over thirty-six (36) months from June 10, 2024 (the date of the Key Person Event). Vesting shall occur in equal monthly installments, commencing on July 10, 2024 and continuing through June 10, 2027, with each monthly installment representing 1/36th of the deferred amount.
(d) Acceleration. For the avoidance of doubt, all unvested carried interest shall vest in full upon the earliest to occur of (i) Mr. Whitmore's death; (ii) a dissolution and winding-up of the Fund; or (iii) a Change of Control of the General Partner, as defined in Section 1.01(p) of the A&R LPA.
WCA Comment 11: Bad Actor Clawback / Forfeiture Provision
WCA has requested the inclusion of a "bad actor" clawback provision, pursuant to which all of Mr. Whitmore's unvested carried interest would be forfeited if he engages in willful misconduct, fraud, or material breach of his Senior Advisor obligations.
GP Response: The General Partner agrees to the inclusion of a forfeiture trigger for Mr. Whitmore's unvested carried interest. Specifically, the revised draft will provide that all unvested carried interest attributable to Mr. Whitmore's allocation shall be immediately and irrevocably forfeited upon a determination by the General Partner (acting through the Investment Committee, with the independent member participating) that Mr. Whitmore has engaged in:
(i) willful misconduct in connection with the affairs of the Fund or the General Partner;
(ii) fraud, including any misrepresentation or omission of material fact; or
(iii) gross negligence in the performance of his duties as Senior Advisor.
The General Partner notes that Mr. Whitmore's "Senior Advisor" designation carries no governance authority and is primarily honorary and advisory in nature, as discussed further in Section VII below. Nonetheless, the forfeiture provision provides an important additional layer of investor protection by ensuring that Mr. Whitmore's continued economic participation is contingent upon his compliance with fundamental standards of conduct. Proposed drafting language for this provision will be circulated together with the revised draft.
VII. Whitmore Senior Advisor Designation
WCA Comment 12: Limitations on Senior Advisor Role
WCA has requested confirmation that Mr. Whitmore's "Senior Advisor" designation confers no voting rights, no signing authority, no authority to bind the Fund or the General Partner, and no access to proprietary position-level data except on a need-to-know basis as determined by the Investment Committee.
GP Response: The General Partner agrees and confirms each of these limitations. Mr. Whitmore's Senior Advisor role is intended solely to preserve institutional knowledge transfer during the transition period and to allow the Successor Key Persons to consult Mr. Whitmore, at their discretion, on matters within his areas of expertise, including market context, historical portfolio positioning, and investor relationships. The Senior Advisor designation is not a governance position and does not include any of the following:
(a) any voting rights on any matter relating to the management, operations, or governance of the Fund or the General Partner;
(b) any signing authority or power of attorney on behalf of the Fund, the General Partner, or any of their respective affiliates;
(c) any authority to bind the Fund or the General Partner in any contract, agreement, or other arrangement with any third party;
(d) any authority to direct or instruct the Investment Committee, the portfolio management team, or any employee or agent of the General Partner; or
(e) any automatic right of access to proprietary position-level data, trade blotters, risk reports, or other confidential investment information. Access to such information shall be provided only on a need-to-know basis as determined by the Investment Committee in its sole discretion.
Appropriate limiting language reflecting the foregoing will be incorporated into the First Amendment as part of the definition of "Senior Advisor" in a new Section 1.01(vv) and in the substantive provisions of amended Section 8.04.
VIII. GP Fiduciary Obligations During Future Key Person Events
WCA Comment 13: Express Fiduciary Duty Acknowledgment
WCA has requested that the First Amendment include an express acknowledgment that, during any future Key Person Event or Replacement Period, the General Partner's fiduciary duties under applicable Delaware law (including the duties of loyalty and care) are not diminished, suspended, or waived, and that the General Partner shall act in the best interests of the limited partners in managing the portfolio during any period of Investment Period suspension or limited activity.
GP Response: The General Partner agrees to the inclusion of such a statement. The General Partner acknowledges that its fiduciary obligations under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101 et seq., and under the A&R LPA, including but not limited to the implied covenant of good faith and fair dealing and the duties of loyalty and care to the extent not modified by the A&R LPA, are not diminished, suspended, modified, or waived during a Key Person Event, a Replacement Period, or a Single Key Person Period. The First Amendment will include a confirming statement to this effect.
The General Partner notes, however, that the existing exculpation and indemnification provisions of the A&R LPA — specifically, Section 10.01 (Exculpation) and Section 10.02 (Indemnification) — remain in full force and effect and are not modified by the First Amendment. The inclusion of the fiduciary duty acknowledgment is not intended to, and shall not be construed to, alter the standard of liability applicable to the General Partner or its members under Sections 10.01 and 10.02.
WCA Comment 14: Enhanced Reporting During Key Person Events
WCA has requested that the General Partner provide enhanced reporting during any future Key Person Event, including: (i) monthly portfolio summary letters to the IAC; (ii) prompt notice of any material adverse change in portfolio value exceeding 5% of NAV; and (iii) disclosure of any material counterparty or prime broker issues.
GP Response: The General Partner responds to each element of this request as follows:
(i) Monthly Portfolio Summary Letters. Agreed. During any Key Person Event or Replacement Period (and, as noted in Section III.C above, on a quarterly basis during any Single Key Person Period), the General Partner shall provide monthly portfolio summary letters to the IAC. Such letters shall include, at a minimum, a summary of portfolio performance (gross and net), NAV per unit, portfolio exposure by strategy, material changes in portfolio composition, and any material developments relevant to the Fund's operations.
(ii) Material Adverse Change Notification. Agreed. The General Partner shall provide prompt written notice to the IAC of any material adverse change in the Fund's portfolio value that results in a decline of 5% or more of NAV, measured on a month-to-month basis or, during periods of heightened volatility, on a weekly basis. Such notice shall be delivered within two (2) business days of the General Partner's becoming aware of such decline and shall include a summary of the contributing factors.
(iii) Prime Broker Disruption Disclosure. The General Partner agrees to disclose to the IAC any material disruption in the Fund's prime brokerage relationship with Halcyon Securities International Ltd., or with any successor prime broker, that could reasonably be expected to affect the Fund's operations, including but not limited to any reduction or withdrawal of margin financing, any limitation on the Fund's ability to execute trades or settle transactions, or any credit event affecting the prime broker. The General Partner reserves the right, however, to manage ordinary-course prime brokerage communications, routine margin calls, and administrative matters without IAC notification, as such matters arise frequently in the normal course of a multi-strategy fund's operations and do not, individually, rise to the level of materiality warranting IAC notice.
The General Partner will prepare appropriate drafting language for each of these enhanced reporting obligations and include them in the revised draft.
IX. Summary of Agreed Revisions and Outstanding Points
A. Agreed Revisions
For ease of reference, we summarize below the revisions that have been agreed between the General Partner and the IAC (through its counsel) and that will be incorporated into the revised draft of the First Amendment:
1. GP Notice for Replacement Period. Five (5)-business-day written notice requirement from the General Partner to all limited partners upon the loss of one Successor Key Person, with the 180-day Replacement Period commencing on the date of such notice.
2. IAC Consultation on Replacement Candidates. Non-binding, good faith consultation with the IAC regarding any proposed replacement Successor Key Person prior to circulation to the limited partners for consent.
3. Single Key Person Period. If no replacement is approved within 180 days, the remaining Successor Key Person continues as sole Key Person, with enhanced quarterly reporting to the IAC, but without automatic Investment Period suspension.
4. Loss of Both Successor Key Persons. Explicit mirroring of original Section 8.04(c) consequences (immediate Investment Period suspension, 90-day Cure Period, and potential wind-down) for the loss of both Successor Key Persons, whether simultaneously or sequentially.
5. Independent Investment Committee Member Consent Right. Affirmative consent right for the IAC-designated independent Investment Committee member on any single new investment or follow-on investment exceeding $50 million in notional exposure.
6. Independent Member Designation and Term. Designation by majority vote of the IAC (headcount), renewable two (2)-year term, removal by majority IAC vote, independence qualification.
7. Investment Committee Minutes. Summary minutes of Investment Committee meetings to be made available to the IAC upon request within fifteen (15) business days, subject to redaction of proprietary trading strategies and position-level detail.
8. Dynamic Follow-On Cap. Follow-on investment cap during any future Key Person Event to be calculated as 0.5% of NAV at the time of the triggering event (based on the most recent monthly valuation by Pinnacle Fund Services (Cayman) Ltd.), rather than a fixed dollar amount.
9. Bad Actor Forfeiture. Forfeiture of all unvested carried interest attributable to Mr. Whitmore's allocation upon willful misconduct, fraud, or gross negligence.
10. Senior Advisor Limitations. Express limitation of the Senior Advisor designation to an advisory/honorary role, with no governance, voting, signing, or binding authority, and with information access at the Investment Committee's discretion.
11. Fiduciary Duty Acknowledgment. Express statement that the General Partner's fiduciary obligations under Delaware law and the A&R LPA are not diminished during a Key Person Event, Replacement Period, or Single Key Person Period.
12. Enhanced Reporting During Key Person Events. Monthly portfolio summary letters to the IAC; prompt notice of material adverse changes exceeding 5% of NAV; disclosure of material prime brokerage disruptions.
B. Outstanding Points
Based on the discussions to date and the foregoing analysis, only two (2) points remain outstanding:
1. Drafting Language for $50 Million Investment Committee Consent Threshold. The precise drafting language for the independent member's affirmative consent right on investments exceeding $50 million in notional exposure has not yet been circulated. The General Partner will prepare and circulate proposed language to WCA within three (3) business days of this letter.
2. Definition of "Material" for Prime Broker Disruption Disclosure. The parties have agreed on the obligation to disclose material prime broker disruptions but have not yet settled on the precise definition of "material" in this context. This definitional question will be discussed between Stephen Adler of Calderwood & Harkness and David Pineda of Wexford Crane & Albright, with the objective of reaching agreement in advance of the circulation of the revised draft.
No other outstanding points have been identified by either party. If WCA is aware of any additional matters not addressed in this letter, we respectfully request that they be raised promptly so that they may be incorporated into the revised drafting timeline.
X. Revised Draft Circulation Timeline
In light of the foregoing, the General Partner proposes the following timeline for the completion and circulation of the revised draft of the First Amendment:
• By August 5, 2024: Calderwood & Harkness to circulate proposed drafting language for the $50 million Investment Committee consent threshold and the "material" prime broker disruption definition to WCA.
• By August 7, 2024: Calderwood & Harkness to circulate a revised draft of the First Amendment incorporating all agreed changes described in Section IX.A above to WCA.
• By August 12, 2024: WCA to provide confirmation of the revised draft or any further comments within five (5) business days of receipt.
• By August 14, 2024 (target): Circulation of the final form First Amendment and updated consent materials to all limited partners, if the revised draft is confirmed without further changes.
• August 23, 2024: LP Consent Deadline (40 calendar days from the July 15, 2024 initial circulation).
• September 8, 2024: Expiration of the 90-calendar-day Cure Period under Section 8.04(b) of the A&R LPA.
We recognize that the timeline is compressed, and we appreciate WCA's willingness to engage expeditiously. The General Partner is committed to providing the revised materials within the timeframes described above and is available for any interim discussions that may be helpful. It is our strong hope that the final form of the First Amendment can be agreed promptly, allowing sufficient time for the General Partner to engage with the remaining limited partners who have not yet submitted their written consents and to achieve the requisite 66⅔% threshold well in advance of the August 23 deadline.
XI. Closing
We wish to express our sincere gratitude to you and to David Pineda for the constructive, professional, and collaborative manner in which WCA has engaged on behalf of the IAC throughout this process. We also extend our thanks to the IAC members — Diana Cortland, Richard Oshima, Catherine Mercer, Thomas Ashworth, and Nadia Al-Rashid — for their active participation in the July 29 meeting and for the thoughtful feedback that has materially improved the First Amendment.
The General Partner remains committed to achieving a smooth governance transition that protects investor interests, preserves the Fund's investment capabilities, and maintains the culture of transparency and alignment that has characterized the Fund since its inception. We are encouraged by the breadth and depth of the agreement reached on the key issues, and we are confident that the remaining outstanding points can be resolved swiftly.
We note that the Fund's investment performance has remained strong during the transition period. As of May 31, 2024, the Fund had generated a year-to-date net return of +5.4% (net of all fees and expenses), and the Fund's NAV stood at $2.87 billion. This performance is a testament to the capabilities of Ms. Sato, Mr. Huang, and the broader DCM investment team, and it provides the limited partners with confidence that the proposed governance transition will not diminish the Fund's ability to generate attractive risk-adjusted returns.
Please do not hesitate to contact me directly at (212) 554-7823 or at g.sutherland@calderwoodharkness.com with any questions regarding this letter or to arrange a further call at your convenience. Stephen Adler is also available to coordinate directly with David Pineda on the outstanding definitional and drafting matters.
We look forward to receiving your confirmation or further comments on the revised draft promptly following its circulation.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Graham Sutherland Partner, Funds & Asset Management Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036 Tel: (212) 554-7823
Email: g.sutherland@calderwoodharkness.com
cc: David Pineda, Senior Associate, Wexford Crane & Albright LLP (via email) cc: Stephen Adler, Lead Associate, Calderwood & Harkness LLP cc: Theresa Kim, Working Associate, Calderwood & Harkness LLP cc: Elaine R. Sato, Deputy CIO, Driftwood Capital Management LLC (via separate cover)
DCM Member | Prior Allocation (% of GP Carry) | Proposed Allocation (% of GP Carry) | Prior Allocation (% of Fund Profits) | Proposed Allocation (% of Fund Profits)
Marcus J. Whitmore | 18% | 9% | 3.6% | 1.8%
Elaine R. Sato | 1.5% | 7% | 0.3% | 1.4%
Jonathan K. Huang | 0.5% | 4% | 0.1% | 0.8%
Total (GP-Level) | 20% | 20% | 4.0% | 4.0%

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