1024-00002 · Driftwood Absolute Return Fund Ltd · Correspondence

lp-notification-letter-key-person-event.docx DOCUMENT Funds

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DRIFTWOOD CAPITAL MANAGEMENT LLC 680 Lexington Avenue, 31st Floor New York, NY 10022

Telephone: (212) 554-8800 Facsimile: (212) 554-8801

June 14, 2024

Via Email and Overnight Courier

To All Limited Partners of Driftwood Absolute Return Fund Ltd.

Re: Notice of Key Person Event Pursuant to Section 8.04 of the Amended & Restated Limited Partnership Agreement of Driftwood Absolute Return Fund Ltd., dated March 15, 2017

Dear Limited Partners:

Driftwood Capital Management LLC ("DCM"), a Delaware limited liability company, in its capacity as General Partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), a Cayman Islands exempted limited partnership registered with the Registrar of Exempted Limited Partnerships under Registration No. ELP-87234, is writing to you pursuant to the notification obligation set forth in Section 8.04(c) of the Amended & Restated Limited Partnership Agreement of the Fund, dated March 15, 2017 (the "A&R LPA"). The A&R LPA is governed by and construed in accordance with the laws of the State of Delaware.

The purpose of this notice is to formally notify all forty-seven (47) limited partners of the Fund (collectively, the "Limited Partners," and each, a "Limited Partner") that a Key Person Event, as that term is defined in Section 8.04(b) of the A&R LPA, has occurred. This notice sets forth the circumstances giving rise to the Key Person Event, the consequences thereof under the A&R LPA, the applicable cure mechanics, the General Partner's intended next steps, and relevant contact information for inquiries. We urge each Limited Partner to review this notice carefully and in its entirety and to consult with its own legal and financial advisors as it deems appropriate.

The facts and circumstances surrounding this Key Person Event, as well as the rights and obligations of the General Partner and the Limited Partners arising therefrom, are described in detail below.

1. Description of the Key Person Event

1.1 Identification of the Key Person

Section 8.04(a) of the A&R LPA designates Marcus J. Whitmore as the sole "Key Person" of the Fund. Mr. Whitmore is the Founder, Chief Investment Officer, and Managing Member of DCM, holding a ninety percent (90%) ownership interest in DCM. Mr. Whitmore has served continuously as the Key Person of the Fund since the Fund's inception on March 15, 2017. In that capacity, Mr. Whitmore has been principally responsible for the formulation and execution of the Fund's investment strategy, the allocation of capital across the Fund's multi-strategy mandate, and the overall management and direction of the Fund's affairs. His designation as the sole Key Person under the A&R LPA reflects the central and irreplaceable role that Mr. Whitmore has played in the investment management of the Fund since its founding.

1.2 Incapacitating Event

The General Partner regrets to inform the Limited Partners that on June 3, 2024, Mr. Whitmore suffered a severe hemorrhagic stroke. He was admitted to Lenox Hill Medical Center in New York, New York, where he underwent emergency surgical intervention. Mr. Whitmore remains hospitalized at Lenox Hill Medical Center as of the date of this notice and is currently undergoing intensive rehabilitation under the care of his medical team.

Based on information provided to DCM by Mr. Whitmore's attending physicians, the projected minimum recovery period is twelve (12) to eighteen (18) months, and the prognosis with respect to Mr. Whitmore's ability to return to his professional duties remains uncertain at this time. While the General Partner is hopeful for Mr. Whitmore's recovery and wishes to express its deep concern and support for Mr. Whitmore and his family, the General Partner acknowledges that, since June 3, 2024, Mr. Whitmore has been unable to devote substantially all of his professional time to the affairs of the Fund, and there is no reasonable basis on which to expect that he will be able to resume such duties in the near term.

The General Partner has been in regular communication with Mr. Whitmore's family members and medical team and will continue to monitor his condition closely. Out of respect for Mr. Whitmore's privacy, the General Partner will not disclose additional details of his medical condition beyond what is necessary to fulfill its obligations under the A&R LPA.

1.3 Trigger Date

Section 8.04(b) of the A&R LPA provides, in relevant part, that a Key Person Event shall be deemed to have occurred if the Key Person is "unable to devote substantially all of his professional time to the affairs of the Partnership for a period of seven (7) consecutive calendar days" and such absence is not the subject of prior written notice to the Limited Partners.

Mr. Whitmore's incapacity commenced on June 3, 2024, and has continued without interruption through the date of this notice. Accordingly, the seven (7) consecutive calendar day threshold prescribed by Section 8.04(b) was met on June 10, 2024. No prior written notice was given to the Limited Partners regarding Mr. Whitmore's absence, as the nature of the medical emergency did not permit advance notification.

The Key Person Event is therefore deemed to have occurred effective June 10, 2024 (the "Key Person Event Date").

2. Consequences of the Key Person Event Under Section 8.04(c)

The occurrence of a Key Person Event triggers a number of material consequences under the A&R LPA, each of which is described below. The General Partner has taken, and will continue to take, all steps necessary to ensure compliance with the provisions of Section 8.04(c) and related sections of the A&R LPA.

2.1 Suspension of the Investment Period

Pursuant to Section 8.04(c) of the A&R LPA, the Investment Period of the Fund is immediately suspended as of the Key Person Event Date. The suspension of the Investment Period took effect automatically upon the occurrence of the Key Person Event on June 10, 2024, and no further action by the General Partner or the Limited Partners was required to effectuate such suspension.

During the period of suspension, the General Partner shall not make any new investments on behalf of the Fund. For the avoidance of doubt, "new investments" refers to the deployment of Fund capital into positions, securities, instruments, or strategies in which the Fund did not hold an existing position as of the Key Person Event Date. The General Partner acknowledges this restriction and confirms that no new investments have been made, or will be made, on behalf of the Fund during the suspension of the Investment Period, except as expressly permitted under Section 2.2 below.

2.2 Follow-On Investment Cap

During the suspension of the Investment Period, the A&R LPA permits the General Partner to make follow-on investments in existing portfolio positions, subject to a quantitative cap. Specifically, Section 8.04(c) provides that follow-on investments shall not exceed 1.0% of the Fund's assets under management as of the most recently completed calendar month prior to the Key Person Event Date.

As of May 31, 2024, the Fund's assets under management totaled $2.87 billion (two billion, eight hundred seventy million United States dollars), as reported by the Fund's administrator, Pinnacle Fund Services (Cayman) Ltd. Accordingly, the maximum aggregate amount available for follow-on investments in existing portfolio positions during the suspension of the Investment Period is $28.7 million (twenty-eight million, seven hundred thousand United States dollars) (the "Follow-On Cap").

The General Partner will track and report all follow-on investments made during the suspension period and will not exceed the Follow-On Cap without the prior written consent of Limited Partners holding at least 66⅔% of the aggregate limited partner capital commitments, as required by the A&R LPA.

2.3 Existing Portfolio Management

Notwithstanding the suspension of the Investment Period and the limitations on new and follow-on investments described above, the General Partner will continue to manage, monitor, and, where appropriate, dispose of the Fund's existing portfolio positions in the ordinary course of business. This includes, without limitation, the rebalancing of existing positions, hedging activities with respect to existing exposures, the exercise of rights attaching to existing securities (including, without limitation, voting rights, conversion rights, and rights to participate in tender offers or exchange offers), and the orderly liquidation of positions as market conditions and the best interests of the Fund and the Limited Partners may require.

The Fund's prime brokerage relationship with Halcyon Securities International Ltd. and the Fund's administrative services arrangement with Pinnacle Fund Services (Cayman) Ltd. remain in full force and effect and are unaffected by the Key Person Event. The General Partner does not anticipate any disruption to the Fund's operational infrastructure or counterparty relationships as a result of the Key Person Event.

3. Cure Period

3.1 Commencement and Duration

Section 8.04(c) of the A&R LPA provides for a cure period of ninety (90) calendar days (the "Cure Period") commencing on the Key Person Event Date. The Cure Period is intended to afford the General Partner a reasonable period of time in which to propose one or more Successor Key Persons for approval by the Limited Partners, and to take such other actions as may be necessary or appropriate to address the Key Person Event.

The Cure Period commenced on June 10, 2024 and, absent extension in accordance with Section 3.3 below, will expire on September 8, 2024.

3.2 Cure Mechanics — Successor Key Person Proposal

During the Cure Period, the General Partner may propose one or more individuals as successor key persons (each, a "Successor Key Person") for approval by the Limited Partners. Under Section 8.04(c) of the A&R LPA, approval of any Successor Key Person requires the prior written consent of Limited Partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate limited partner capital commitments, excluding the capital commitments held by the General Partner or any of its affiliates through the GP vehicle (the "Required LP Consent").

As of the date hereof, the relevant capital commitment figures for purposes of calculating the Required LP Consent are as follows:

Accordingly, in order for a Successor Key Person to be duly approved, Limited Partners holding capital commitments of at least $1,865.50 million (one billion, eight hundred sixty-five million, five hundred thousand United States dollars) must deliver their written consent in the form to be prescribed by the General Partner. The General Partner expects to circulate a formal Successor Key Person Proposal, together with a proposed amendment to the A&R LPA and a form of LP written consent, within the timeframe described in Section 5 below.

3.3 Consequences if Cure Period Expires Without Approval

In the event that no Successor Key Person is approved by the Required LP Consent within the Cure Period, Section 8.04(c) of the A&R LPA provides that Limited Partners holding a majority-in-interest of the aggregate limited partner capital commitments may, at their election, take either of the following actions:

(i) Extension of the Cure Period. Limited Partners holding a majority-in-interest may elect to extend the Cure Period by up to an additional ninety (90) calendar days (i.e., through December 7, 2024, if the full extension is granted), in order to allow the General Partner additional time to propose and obtain approval for one or more Successor Key Persons; or

(ii) Orderly Wind-Down. Limited Partners holding a majority-in-interest may elect to commence an orderly wind-down of the Fund in accordance with the wind-down provisions set forth in Article XII of the A&R LPA.

The General Partner will provide the Limited Partners with timely notice and information regarding the status of the Cure Period and the Successor Key Person Proposal process, so that the Limited Partners may make an informed decision in the event that the Cure Period approaches expiration without a duly approved Successor Key Person.

4. Interim Governance and Management

4.1 Continuing Management by DCM

The General Partner wishes to assure the Limited Partners that the Fund's day-to-day investment management and risk oversight functions continue to operate without material disruption. In the absence of Mr. Whitmore, the following senior members of DCM's investment team are overseeing the Fund's affairs:

• Elaine R. Sato, Deputy Chief Investment Officer and Managing Member (10%) of DCM, has assumed primary responsibility for the oversight of the Fund's day-to-day investment management and risk oversight functions. Ms. Sato has been with DCM since its inception and has over twenty years of experience in multi-strategy absolute return investment management. Ms. Sato is in regular communication with the Fund's prime broker, administrator, and other service providers, and is coordinating the General Partner's response to the Key Person Event.

• Jonathan K. Huang, Head of Credit Strategies at DCM, continues to manage the Fund's credit relative value portfolio, which represents a significant component of the Fund's overall investment strategy. Mr. Huang has managed the credit relative value strategy since 2019 and has over fifteen years of experience in credit markets.

The Fund's investment strategy — a multi-strategy absolute return approach encompassing equity long/short, event-driven, and credit relative value strategies, with a particular sector focus on asset management and banking — remains unchanged, subject to the Investment Period suspension and the related restrictions on new and follow-on investments described in Section 2 above. The General Partner is committed to maintaining the Fund's existing risk parameters and investment disciplines during this period.

4.2 Fund Performance and Financial Position

The General Partner believes it is appropriate to provide the Limited Partners with a summary of the Fund's current financial position and recent performance, so that the Limited Partners have adequate context in which to evaluate the Key Person Event and the General Partner's proposed course of action. The following data is as of May 31, 2024, unless otherwise indicated:

The Fund is currently performing above its high-water mark and generating positive returns on both a gross and net basis year-to-date. The General Partner will continue to report the Fund's performance and financial condition to the Limited Partners in accordance with the Fund's customary reporting schedule and will provide supplemental reporting as appropriate during the pendency of the Key Person Event.

4.3 Service Providers

The Fund's key service provider relationships remain in full force and effect and are unaffected by the Key Person Event. For the Limited Partners' reference, the Fund's current service providers are as follows:

Fund Administrator: Pinnacle Fund Services (Cayman) Ltd. 2nd Floor, Century Yard, Cricket Square George Town, Grand Cayman, KY1-1205 Cayman Islands

Auditor: Graystone & Whitfield LLP 6th Floor, Anderson Square George Town, Grand Cayman, KY1-1104 Cayman Islands

Prime Broker: Halcyon Securities International Ltd. 25 Cabot Square, Canary Wharf London E14 4QA United Kingdom

Cayman Registered Agent: Archipelago Corporate Services Ltd. P.O. Box 2681 George Town, Grand Cayman, KY1-1111 Cayman Islands

All service provider arrangements, including the Fund's prime brokerage agreement, fund administration agreement, audit engagement, and registered agent agreement, remain in full force and effect. The General Partner has notified each of the foregoing service providers of the Key Person Event and the suspension of the Investment Period, and each has confirmed its continued engagement with the Fund.

5. Intended Next Steps by the General Partner

5.1 Successor Key Person Proposal

The General Partner intends to propose one or more Successor Key Persons for approval by the Limited Partners within the Cure Period. The General Partner is currently evaluating candidates for the Successor Key Person role, taking into account the requirements of the A&R LPA, the Fund's investment strategy and risk profile, and the interests of the Limited Partners.

The General Partner expects to circulate a formal Successor Key Person Proposal (the "Proposal"), together with a proposed amendment to the A&R LPA reflecting the designation of one or more Successor Key Persons and a form of LP written consent, within approximately thirty (30) days of the date of this notice (i.e., on or about July 14, 2024). The Proposal will address successor governance arrangements in detail, including, without limitation, any proposed modifications to Section 8.04 and related provisions of the A&R LPA, the qualifications and experience of the proposed Successor Key Person(s), and any changes to DCM's organizational structure or ownership that may be necessitated by the Key Person Event.

The General Partner will use its commercially reasonable best efforts to ensure that the Proposal is comprehensive, transparent, and responsive to the concerns and interests of the Limited Partners.

5.2 Investor Advisory Committee Engagement

The General Partner intends to engage with the Investor Advisory Committee (the "IAC"), which was established pursuant to Section 9.02 of the A&R LPA, in connection with the review and evaluation of the Successor Key Person Proposal. The IAC serves in an advisory capacity to the General Partner on matters relating to conflicts of interest, governance, and such other matters as may be referred to it under the A&R LPA or by agreement of the parties.

The current members of the IAC are as follows:

• Diana Cortland — Chief Investment Officer, Northvale Public Employees' Retirement System (IAC Chair)

• Richard Oshima — Director of Alternative Investments, Sycamore Endowment Partners LP

• Catherine Mercer — Managing Director, Velthorn Institutional Fund of Funds III, L.P.

• Thomas Ashworth — Principal, Bridlewood Family Office Holdings Ltd.

• Nadia Al-Rashid — Senior Portfolio Manager, Atlas Sovereign Wealth Advisory LLC

The General Partner will schedule a meeting of the IAC promptly following the circulation of the Proposal and will provide the IAC with all materials and information reasonably necessary for its review. The General Partner welcomes the IAC's input and counsel on the Successor Key Person Proposal and related governance matters, and will give due consideration to the IAC's recommendations in finalizing the Proposal for submission to the full Limited Partner group.

5.3 LP Communication

The General Partner is committed to maintaining open and transparent communication with the Limited Partners throughout the Cure Period and beyond. The General Partner will provide periodic updates to the Limited Partners regarding the status of the Cure Period, the progress of the Successor Key Person Proposal process, and the Fund's portfolio and financial condition. Such updates will be delivered via email and, where appropriate, via telephone or video conference.

Limited Partners who wish to receive additional information, discuss the Key Person Event, or schedule a call with the General Partner's representatives should contact the individuals identified in Section 7 below.

6. Timeliness of This Notice

Section 8.04(c) of the A&R LPA requires the General Partner to notify all Limited Partners in writing within five (5) business days of the occurrence of a Key Person Event. The Key Person Event Date is June 10, 2024. Counting five (5) business days from June 10, 2024 (excluding weekends and holidays), the contractual notification deadline is June 17, 2024.

This notice is dated and delivered on June 14, 2024, which is within the five (5) business day notification period prescribed by Section 8.04(c) of the A&R LPA. Accordingly, this notice is timely under the terms of the A&R LPA.

7. Counsel and Inquiries

DCM has engaged Calderwood & Harkness LLP, a New York-based law firm, as fund counsel in connection with the Key Person Event and the matters described in this notice. Calderwood & Harkness LLP is advising the General Partner with respect to its obligations under the A&R LPA, the preparation of the Successor Key Person Proposal, and related governance and transactional matters.

Limited Partners with questions regarding this notice, the Key Person Event, the Cure Period, or any related matters are encouraged to contact:

Elaine R. Sato Deputy Chief Investment Officer Driftwood Capital Management LLC 680 Lexington Avenue, 31st Floor New York, NY 10022 Telephone: (212) 554-8810

Email: esato@driftwoodcap.com

Graham Sutherland Partner Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036 Telephone: (212) 798-4200

Email: gsutherland@calderwoodharkness.com

8. Reservations and Disclaimers

This notice is provided pursuant to and in accordance with the A&R LPA and is intended solely to fulfill the General Partner's notification obligations under Section 8.04(c) thereof. This notice is not intended to constitute, and shall not be construed as, a solicitation of any consent, vote, or approval from any Limited Partner, nor as an offer, invitation, or recommendation to take any action of any kind.

The General Partner expressly reserves all of its rights, powers, and privileges under the A&R LPA, including, without limitation, the right to propose one or more Successor Key Persons, the right to seek amendments to the A&R LPA in accordance with Section 14.01 thereof, and the right to take all actions that the General Partner deems necessary or appropriate to protect the interests of the Fund and the Limited Partners during the pendency of the Key Person Event and the Cure Period.

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the A&R LPA.

This notice shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law, consistent with the governing law provisions set forth in Section 15.07 of the A&R LPA.

Very truly yours,

DRIFTWOOD CAPITAL MANAGEMENT LLC as General Partner of Driftwood Absolute Return Fund Ltd.

By: ________

Name: Elaine R. Sato

Title: Deputy Chief Investment Officer

Date: June 14, 2024

This notice has been sent to all 47 Limited Partners of Driftwood Absolute Return Fund Ltd. via email and overnight courier.

A copy of this notice has been provided to the Fund's registered agent, Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands.

Item	Amount
Total Fund NAV (as of May 31, 2024)	$2,870.00 million
Less: Marcus J. Whitmore capital commitment (via GP vehicle)	($57.40 million)
Less: Elaine R. Sato capital commitment (via GP vehicle)	($14.35 million)
Aggregate LP Capital Commitments for Voting Purposes	$2,798.25 million
Required LP Consent (66⅔% of Aggregate LP Capital Commitments)	$1,865.50 million
Metric	Value
Net Asset Value (NAV)	$2.87 billion
NAV Per Unit	$150.53
Year-to-Date Gross Return	+7.2%
Year-to-Date Net Return (after 2/20 fee structure)	+5.4%
High-Water Mark Per Unit (set December 31, 2023)	$142.67
Gross Exposure	$5.31 billion (1.85× gross leverage)
Net Exposure	$1.72 billion (0.60× net)

DRIFTWOOD CAPITAL MANAGEMENT LLC 680 Lexington Avenue, 31st Floor New York, NY 10022
Telephone: (212) 554-8800 Facsimile: (212) 554-8801
June 14, 2024
Via Email and Overnight Courier
To All Limited Partners of Driftwood Absolute Return Fund Ltd.
Re: Notice of Key Person Event Pursuant to Section 8.04 of the Amended & Restated Limited Partnership Agreement of Driftwood Absolute Return Fund Ltd., dated March 15, 2017
Dear Limited Partners:
Driftwood Capital Management LLC ("DCM"), a Delaware limited liability company, in its capacity as General Partner of Driftwood Absolute Return Fund Ltd. ("DARF" or the "Fund"), a Cayman Islands exempted limited partnership registered with the Registrar of Exempted Limited Partnerships under Registration No. ELP-87234, is writing to you pursuant to the notification obligation set forth in Section 8.04(c) of the Amended & Restated Limited Partnership Agreement of the Fund, dated March 15, 2017 (the "A&R LPA"). The A&R LPA is governed by and construed in accordance with the laws of the State of Delaware.
The purpose of this notice is to formally notify all forty-seven (47) limited partners of the Fund (collectively, the "Limited Partners," and each, a "Limited Partner") that a Key Person Event, as that term is defined in Section 8.04(b) of the A&R LPA, has occurred. This notice sets forth the circumstances giving rise to the Key Person Event, the consequences thereof under the A&R LPA, the applicable cure mechanics, the General Partner's intended next steps, and relevant contact information for inquiries. We urge each Limited Partner to review this notice carefully and in its entirety and to consult with its own legal and financial advisors as it deems appropriate.
The facts and circumstances surrounding this Key Person Event, as well as the rights and obligations of the General Partner and the Limited Partners arising therefrom, are described in detail below.
1. Description of the Key Person Event
1.1 Identification of the Key Person
Section 8.04(a) of the A&R LPA designates Marcus J. Whitmore as the sole "Key Person" of the Fund. Mr. Whitmore is the Founder, Chief Investment Officer, and Managing Member of DCM, holding a ninety percent (90%) ownership interest in DCM. Mr. Whitmore has served continuously as the Key Person of the Fund since the Fund's inception on March 15, 2017. In that capacity, Mr. Whitmore has been principally responsible for the formulation and execution of the Fund's investment strategy, the allocation of capital across the Fund's multi-strategy mandate, and the overall management and direction of the Fund's affairs. His designation as the sole Key Person under the A&R LPA reflects the central and irreplaceable role that Mr. Whitmore has played in the investment management of the Fund since its founding.
1.2 Incapacitating Event
The General Partner regrets to inform the Limited Partners that on June 3, 2024, Mr. Whitmore suffered a severe hemorrhagic stroke. He was admitted to Lenox Hill Medical Center in New York, New York, where he underwent emergency surgical intervention. Mr. Whitmore remains hospitalized at Lenox Hill Medical Center as of the date of this notice and is currently undergoing intensive rehabilitation under the care of his medical team.
Based on information provided to DCM by Mr. Whitmore's attending physicians, the projected minimum recovery period is twelve (12) to eighteen (18) months, and the prognosis with respect to Mr. Whitmore's ability to return to his professional duties remains uncertain at this time. While the General Partner is hopeful for Mr. Whitmore's recovery and wishes to express its deep concern and support for Mr. Whitmore and his family, the General Partner acknowledges that, since June 3, 2024, Mr. Whitmore has been unable to devote substantially all of his professional time to the affairs of the Fund, and there is no reasonable basis on which to expect that he will be able to resume such duties in the near term.
The General Partner has been in regular communication with Mr. Whitmore's family members and medical team and will continue to monitor his condition closely. Out of respect for Mr. Whitmore's privacy, the General Partner will not disclose additional details of his medical condition beyond what is necessary to fulfill its obligations under the A&R LPA.
1.3 Trigger Date
Section 8.04(b) of the A&R LPA provides, in relevant part, that a Key Person Event shall be deemed to have occurred if the Key Person is "unable to devote substantially all of his professional time to the affairs of the Partnership for a period of seven (7) consecutive calendar days" and such absence is not the subject of prior written notice to the Limited Partners.
Mr. Whitmore's incapacity commenced on June 3, 2024, and has continued without interruption through the date of this notice. Accordingly, the seven (7) consecutive calendar day threshold prescribed by Section 8.04(b) was met on June 10, 2024. No prior written notice was given to the Limited Partners regarding Mr. Whitmore's absence, as the nature of the medical emergency did not permit advance notification.
The Key Person Event is therefore deemed to have occurred effective June 10, 2024 (the "Key Person Event Date").
2. Consequences of the Key Person Event Under Section 8.04(c)
The occurrence of a Key Person Event triggers a number of material consequences under the A&R LPA, each of which is described below. The General Partner has taken, and will continue to take, all steps necessary to ensure compliance with the provisions of Section 8.04(c) and related sections of the A&R LPA.
2.1 Suspension of the Investment Period
Pursuant to Section 8.04(c) of the A&R LPA, the Investment Period of the Fund is immediately suspended as of the Key Person Event Date. The suspension of the Investment Period took effect automatically upon the occurrence of the Key Person Event on June 10, 2024, and no further action by the General Partner or the Limited Partners was required to effectuate such suspension.
During the period of suspension, the General Partner shall not make any new investments on behalf of the Fund. For the avoidance of doubt, "new investments" refers to the deployment of Fund capital into positions, securities, instruments, or strategies in which the Fund did not hold an existing position as of the Key Person Event Date. The General Partner acknowledges this restriction and confirms that no new investments have been made, or will be made, on behalf of the Fund during the suspension of the Investment Period, except as expressly permitted under Section 2.2 below.
2.2 Follow-On Investment Cap
During the suspension of the Investment Period, the A&R LPA permits the General Partner to make follow-on investments in existing portfolio positions, subject to a quantitative cap. Specifically, Section 8.04(c) provides that follow-on investments shall not exceed 1.0% of the Fund's assets under management as of the most recently completed calendar month prior to the Key Person Event Date.
As of May 31, 2024, the Fund's assets under management totaled $2.87 billion (two billion, eight hundred seventy million United States dollars), as reported by the Fund's administrator, Pinnacle Fund Services (Cayman) Ltd. Accordingly, the maximum aggregate amount available for follow-on investments in existing portfolio positions during the suspension of the Investment Period is $28.7 million (twenty-eight million, seven hundred thousand United States dollars) (the "Follow-On Cap").
The General Partner will track and report all follow-on investments made during the suspension period and will not exceed the Follow-On Cap without the prior written consent of Limited Partners holding at least 66⅔% of the aggregate limited partner capital commitments, as required by the A&R LPA.
2.3 Existing Portfolio Management
Notwithstanding the suspension of the Investment Period and the limitations on new and follow-on investments described above, the General Partner will continue to manage, monitor, and, where appropriate, dispose of the Fund's existing portfolio positions in the ordinary course of business. This includes, without limitation, the rebalancing of existing positions, hedging activities with respect to existing exposures, the exercise of rights attaching to existing securities (including, without limitation, voting rights, conversion rights, and rights to participate in tender offers or exchange offers), and the orderly liquidation of positions as market conditions and the best interests of the Fund and the Limited Partners may require.
The Fund's prime brokerage relationship with Halcyon Securities International Ltd. and the Fund's administrative services arrangement with Pinnacle Fund Services (Cayman) Ltd. remain in full force and effect and are unaffected by the Key Person Event. The General Partner does not anticipate any disruption to the Fund's operational infrastructure or counterparty relationships as a result of the Key Person Event.
3. Cure Period
3.1 Commencement and Duration
Section 8.04(c) of the A&R LPA provides for a cure period of ninety (90) calendar days (the "Cure Period") commencing on the Key Person Event Date. The Cure Period is intended to afford the General Partner a reasonable period of time in which to propose one or more Successor Key Persons for approval by the Limited Partners, and to take such other actions as may be necessary or appropriate to address the Key Person Event.
The Cure Period commenced on June 10, 2024 and, absent extension in accordance with Section 3.3 below, will expire on September 8, 2024.
3.2 Cure Mechanics — Successor Key Person Proposal
During the Cure Period, the General Partner may propose one or more individuals as successor key persons (each, a "Successor Key Person") for approval by the Limited Partners. Under Section 8.04(c) of the A&R LPA, approval of any Successor Key Person requires the prior written consent of Limited Partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate limited partner capital commitments, excluding the capital commitments held by the General Partner or any of its affiliates through the GP vehicle (the "Required LP Consent").
As of the date hereof, the relevant capital commitment figures for purposes of calculating the Required LP Consent are as follows:
Accordingly, in order for a Successor Key Person to be duly approved, Limited Partners holding capital commitments of at least $1,865.50 million (one billion, eight hundred sixty-five million, five hundred thousand United States dollars) must deliver their written consent in the form to be prescribed by the General Partner. The General Partner expects to circulate a formal Successor Key Person Proposal, together with a proposed amendment to the A&R LPA and a form of LP written consent, within the timeframe described in Section 5 below.
3.3 Consequences if Cure Period Expires Without Approval
In the event that no Successor Key Person is approved by the Required LP Consent within the Cure Period, Section 8.04(c) of the A&R LPA provides that Limited Partners holding a majority-in-interest of the aggregate limited partner capital commitments may, at their election, take either of the following actions:
(i) Extension of the Cure Period. Limited Partners holding a majority-in-interest may elect to extend the Cure Period by up to an additional ninety (90) calendar days (i.e., through December 7, 2024, if the full extension is granted), in order to allow the General Partner additional time to propose and obtain approval for one or more Successor Key Persons; or
(ii) Orderly Wind-Down. Limited Partners holding a majority-in-interest may elect to commence an orderly wind-down of the Fund in accordance with the wind-down provisions set forth in Article XII of the A&R LPA.
The General Partner will provide the Limited Partners with timely notice and information regarding the status of the Cure Period and the Successor Key Person Proposal process, so that the Limited Partners may make an informed decision in the event that the Cure Period approaches expiration without a duly approved Successor Key Person.
4. Interim Governance and Management
4.1 Continuing Management by DCM
The General Partner wishes to assure the Limited Partners that the Fund's day-to-day investment management and risk oversight functions continue to operate without material disruption. In the absence of Mr. Whitmore, the following senior members of DCM's investment team are overseeing the Fund's affairs:
•  Elaine R. Sato, Deputy Chief Investment Officer and Managing Member (10%) of DCM, has assumed primary responsibility for the oversight of the Fund's day-to-day investment management and risk oversight functions. Ms. Sato has been with DCM since its inception and has over twenty years of experience in multi-strategy absolute return investment management. Ms. Sato is in regular communication with the Fund's prime broker, administrator, and other service providers, and is coordinating the General Partner's response to the Key Person Event.
•  Jonathan K. Huang, Head of Credit Strategies at DCM, continues to manage the Fund's credit relative value portfolio, which represents a significant component of the Fund's overall investment strategy. Mr. Huang has managed the credit relative value strategy since 2019 and has over fifteen years of experience in credit markets.
The Fund's investment strategy — a multi-strategy absolute return approach encompassing equity long/short, event-driven, and credit relative value strategies, with a particular sector focus on asset management and banking — remains unchanged, subject to the Investment Period suspension and the related restrictions on new and follow-on investments described in Section 2 above. The General Partner is committed to maintaining the Fund's existing risk parameters and investment disciplines during this period.
4.2 Fund Performance and Financial Position
The General Partner believes it is appropriate to provide the Limited Partners with a summary of the Fund's current financial position and recent performance, so that the Limited Partners have adequate context in which to evaluate the Key Person Event and the General Partner's proposed course of action. The following data is as of May 31, 2024, unless otherwise indicated:
The Fund is currently performing above its high-water mark and generating positive returns on both a gross and net basis year-to-date. The General Partner will continue to report the Fund's performance and financial condition to the Limited Partners in accordance with the Fund's customary reporting schedule and will provide supplemental reporting as appropriate during the pendency of the Key Person Event.
4.3 Service Providers
The Fund's key service provider relationships remain in full force and effect and are unaffected by the Key Person Event. For the Limited Partners' reference, the Fund's current service providers are as follows:
Fund Administrator: Pinnacle Fund Services (Cayman) Ltd. 2nd Floor, Century Yard, Cricket Square George Town, Grand Cayman, KY1-1205 Cayman Islands
Auditor: Graystone & Whitfield LLP 6th Floor, Anderson Square George Town, Grand Cayman, KY1-1104 Cayman Islands
Prime Broker: Halcyon Securities International Ltd. 25 Cabot Square, Canary Wharf London E14 4QA United Kingdom
Cayman Registered Agent: Archipelago Corporate Services Ltd. P.O. Box 2681 George Town, Grand Cayman, KY1-1111 Cayman Islands
All service provider arrangements, including the Fund's prime brokerage agreement, fund administration agreement, audit engagement, and registered agent agreement, remain in full force and effect. The General Partner has notified each of the foregoing service providers of the Key Person Event and the suspension of the Investment Period, and each has confirmed its continued engagement with the Fund.
5. Intended Next Steps by the General Partner
5.1 Successor Key Person Proposal
The General Partner intends to propose one or more Successor Key Persons for approval by the Limited Partners within the Cure Period. The General Partner is currently evaluating candidates for the Successor Key Person role, taking into account the requirements of the A&R LPA, the Fund's investment strategy and risk profile, and the interests of the Limited Partners.
The General Partner expects to circulate a formal Successor Key Person Proposal (the "Proposal"), together with a proposed amendment to the A&R LPA reflecting the designation of one or more Successor Key Persons and a form of LP written consent, within approximately thirty (30) days of the date of this notice (i.e., on or about July 14, 2024). The Proposal will address successor governance arrangements in detail, including, without limitation, any proposed modifications to Section 8.04 and related provisions of the A&R LPA, the qualifications and experience of the proposed Successor Key Person(s), and any changes to DCM's organizational structure or ownership that may be necessitated by the Key Person Event.
The General Partner will use its commercially reasonable best efforts to ensure that the Proposal is comprehensive, transparent, and responsive to the concerns and interests of the Limited Partners.
5.2 Investor Advisory Committee Engagement
The General Partner intends to engage with the Investor Advisory Committee (the "IAC"), which was established pursuant to Section 9.02 of the A&R LPA, in connection with the review and evaluation of the Successor Key Person Proposal. The IAC serves in an advisory capacity to the General Partner on matters relating to conflicts of interest, governance, and such other matters as may be referred to it under the A&R LPA or by agreement of the parties.
The current members of the IAC are as follows:
•  Diana Cortland — Chief Investment Officer, Northvale Public Employees' Retirement System (IAC Chair)
•  Richard Oshima — Director of Alternative Investments, Sycamore Endowment Partners LP
•  Catherine Mercer — Managing Director, Velthorn Institutional Fund of Funds III, L.P.
•  Thomas Ashworth — Principal, Bridlewood Family Office Holdings Ltd.
•  Nadia Al-Rashid — Senior Portfolio Manager, Atlas Sovereign Wealth Advisory LLC
The General Partner will schedule a meeting of the IAC promptly following the circulation of the Proposal and will provide the IAC with all materials and information reasonably necessary for its review. The General Partner welcomes the IAC's input and counsel on the Successor Key Person Proposal and related governance matters, and will give due consideration to the IAC's recommendations in finalizing the Proposal for submission to the full Limited Partner group.
5.3 LP Communication
The General Partner is committed to maintaining open and transparent communication with the Limited Partners throughout the Cure Period and beyond. The General Partner will provide periodic updates to the Limited Partners regarding the status of the Cure Period, the progress of the Successor Key Person Proposal process, and the Fund's portfolio and financial condition. Such updates will be delivered via email and, where appropriate, via telephone or video conference.
Limited Partners who wish to receive additional information, discuss the Key Person Event, or schedule a call with the General Partner's representatives should contact the individuals identified in Section 7 below.
6. Timeliness of This Notice
Section 8.04(c) of the A&R LPA requires the General Partner to notify all Limited Partners in writing within five (5) business days of the occurrence of a Key Person Event. The Key Person Event Date is June 10, 2024. Counting five (5) business days from June 10, 2024 (excluding weekends and holidays), the contractual notification deadline is June 17, 2024.
This notice is dated and delivered on June 14, 2024, which is within the five (5) business day notification period prescribed by Section 8.04(c) of the A&R LPA. Accordingly, this notice is timely under the terms of the A&R LPA.
7. Counsel and Inquiries
DCM has engaged Calderwood & Harkness LLP, a New York-based law firm, as fund counsel in connection with the Key Person Event and the matters described in this notice. Calderwood & Harkness LLP is advising the General Partner with respect to its obligations under the A&R LPA, the preparation of the Successor Key Person Proposal, and related governance and transactional matters.
Limited Partners with questions regarding this notice, the Key Person Event, the Cure Period, or any related matters are encouraged to contact:
Elaine R. Sato Deputy Chief Investment Officer Driftwood Capital Management LLC 680 Lexington Avenue, 31st Floor New York, NY 10022 Telephone: (212) 554-8810
Email: esato@driftwoodcap.com
Graham Sutherland Partner Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036 Telephone: (212) 798-4200
Email: gsutherland@calderwoodharkness.com
8. Reservations and Disclaimers
This notice is provided pursuant to and in accordance with the A&R LPA and is intended solely to fulfill the General Partner's notification obligations under Section 8.04(c) thereof. This notice is not intended to constitute, and shall not be construed as, a solicitation of any consent, vote, or approval from any Limited Partner, nor as an offer, invitation, or recommendation to take any action of any kind.
The General Partner expressly reserves all of its rights, powers, and privileges under the A&R LPA, including, without limitation, the right to propose one or more Successor Key Persons, the right to seek amendments to the A&R LPA in accordance with Section 14.01 thereof, and the right to take all actions that the General Partner deems necessary or appropriate to protect the interests of the Fund and the Limited Partners during the pendency of the Key Person Event and the Cure Period.
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the A&R LPA.
This notice shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law, consistent with the governing law provisions set forth in Section 15.07 of the A&R LPA.
Very truly yours,
DRIFTWOOD CAPITAL MANAGEMENT LLC as General Partner of Driftwood Absolute Return Fund Ltd.
By: ________
Name: Elaine R. Sato
Title: Deputy Chief Investment Officer
Date: June 14, 2024
This notice has been sent to all 47 Limited Partners of Driftwood Absolute Return Fund Ltd. via email and overnight courier.
A copy of this notice has been provided to the Fund's registered agent, Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands.
Item | Amount
Total Fund NAV (as of May 31, 2024) | $2,870.00 million
Less: Marcus J. Whitmore capital commitment (via GP vehicle) | ($57.40 million)
Less: Elaine R. Sato capital commitment (via GP vehicle) | ($14.35 million)
Aggregate LP Capital Commitments for Voting Purposes | $2,798.25 million
Required LP Consent (66⅔% of Aggregate LP Capital Commitments) | $1,865.50 million
Metric | Value
Net Asset Value (NAV) | $2.87 billion
NAV Per Unit | $150.53
Year-to-Date Gross Return | +7.2%
Year-to-Date Net Return (after 2/20 fee structure) | +5.4%
High-Water Mark Per Unit (set December 31, 2023) | $142.67
Gross Exposure | $5.31 billion (1.85× gross leverage)
Net Exposure | $1.72 billion (0.60× net)

DRIFTWOOD CAPITAL MANAGEMENT LLC 680 Lexington Avenue, 31st Floor New York, NY 10022

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