FIRST AMENDMENT TO THE AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF DRIFTWOOD ABSOLUTE RETURN FUND LTD.
DRAFT — Circulated July 15, 2024
Prepared by: Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036
Subject to the consent of Limited Partners holding not less than 66⅔% of aggregate Limited Partner Capital Commitments pursuant to Section 14.01 of the Original Agreement
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PREAMBLE
This First Amendment (this "Amendment") to the Amended and Restated Limited Partnership Agreement dated as of March 15, 2017 (as the same may have been supplemented or modified prior to the date hereof, the "Original Agreement" or the "A&R LPA") of Driftwood Absolute Return Fund Ltd., a Cayman Islands exempted limited partnership registered under Cayman Islands Registration No. ELP-87234 (the "Partnership" or the "Fund"), is entered into as of [●], 2024 (the "Amendment Effective Date"), by and among:
Driftwood Capital Management LLC, a Delaware limited liability company, having its principal office at 680 Lexington Avenue, 31st Floor, New York, NY 10022 (EIN: 82-4917653), in its capacity as General Partner of the Partnership (the "General Partner" or "GP"); and
The Limited Partners identified on the signature pages hereto and on the books and records of the Partnership (collectively, the "Limited Partners" or "LPs," and individually, a "Limited Partner" or an "LP").
The Delaware registered agent of the General Partner is Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, DE 19801. The Cayman Islands registered agent of the Partnership is Archipelago Corporate Services Ltd., P.O. Box 2681, George Town, Grand Cayman, KY1-1111, Cayman Islands. The principal office of the Fund is located at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1104, Cayman Islands.
The General Partner and the Limited Partners are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS:
A. Original Agreement. The Partnership was formed and the Original Agreement was duly executed and delivered on March 15, 2017. The Original Agreement governs the formation, affairs, management, rights, and obligations of the General Partner and the Limited Partners with respect to the Partnership and has been in continuous force and effect since its execution.
B. Key Person Designation. Section 8.04(a) of the Original Agreement designated Marcus J. Whitmore as the sole "Key Person" of the Partnership. Mr. Whitmore serves as the Founder, Chief Investment Officer, and Managing Member (holding ninety percent (90%) of the membership interests) of Driftwood Capital Management LLC, the General Partner. Mr. Whitmore has been the primary investment decision-maker of the Fund since its inception and has been instrumental in directing the investment strategy, portfolio construction, and risk management activities of the Partnership.
C. Key Person Event. On June 3, 2024, Mr. Whitmore suffered a severe hemorrhagic stroke rendering him unable to devote substantially all of his professional time and attention to the affairs of the Partnership within the meaning of Section 8.04(b) of the Original Agreement. Pursuant to Section 8.04(b) of the Original Agreement, a "Key Person Event" was deemed to have occurred on June 10, 2024 (i.e., following the expiration of seven (7) consecutive calendar days during which Mr. Whitmore was unable to devote substantially all of his professional time to the affairs of the Partnership). In accordance with Section 8.04(c) of the Original Agreement, the General Partner notified all forty-seven (47) Limited Partners of record of the occurrence of the Key Person Event by written notice dated June 14, 2024, which notice was delivered within the five (5) business day notification deadline prescribed by Section 8.04(c) of the Original Agreement (the applicable deadline being June 17, 2024).
D. Investment Period Suspension. Upon the occurrence of the Key Person Event on June 10, 2024, the Investment Period was immediately suspended pursuant to the terms of Section 8.04(c) of the Original Agreement. During such suspension, no new investments may be made by or on behalf of the Partnership, and follow-on investments in existing portfolio companies have been capped at Twenty-Eight Million Seven Hundred Thousand Dollars ($28,700,000), representing one percent (1.0%) of the assets under management of the Partnership as of May 31, 2024, in accordance with the limitations imposed by Section 8.04(c) of the Original Agreement.
E. Cure Period. Section 8.04(c) of the Original Agreement provides for a ninety (90) calendar day cure period (the "Cure Period") commencing on the date of the Key Person Event. The Cure Period commenced on June 10, 2024 and is scheduled to expire on September 8, 2024. During the Cure Period, the General Partner may propose one or more Successor Key Persons for approval by the Limited Partners in accordance with the consent procedures set forth in Section 14.01 of the Original Agreement.
F. Successor Key Person Proposal. In connection with the exercise of its rights under Section 8.04(c) during the Cure Period, the General Partner hereby proposes to designate (i) Elaine R. Sato, Deputy Chief Investment Officer and Managing Member (holding ten percent (10%) of the membership interests) of Driftwood Capital Management LLC, and (ii) Jonathan K. Huang, Head of Credit Strategies of Driftwood Capital Management LLC, as joint Successor Key Persons of the Partnership. Ms. Sato has served as Deputy Chief Investment Officer since the Fund's inception in 2017 and has had direct responsibility for portfolio management, trade execution, and investment analytics. Mr. Huang has served as Head of Credit Strategies since 2019 and has had primary responsibility for the Partnership's credit-oriented investment activities, including distressed debt, structured credit, and event-driven credit strategies.
G. Purpose of Amendment. The Parties desire to amend the Original Agreement to: (i) redefine the term "Key Person" to designate the Successor Key Persons in place of Mr. Whitmore; (ii) modify the Key Person Event trigger and cure mechanics to reflect the transition to a dual Key Person structure; (iii) establish an Investment Committee to provide enhanced governance and oversight over the Partnership's investment activities; (iv) reduce the follow-on investment cap applicable during a Key Person Event suspension or a Replacement Period; (v) designate Mr. Whitmore as Senior Advisor to the Partnership; (vi) reallocate the carried interest among the General Partner's principals to reflect the revised roles and responsibilities; and (vii) make certain conforming, technical, and related changes to the Original Agreement as necessary or appropriate to effectuate the foregoing amendments.
H. LP Consent. Section 14.01 of the Original Agreement provides that amendments to the Original Agreement require the prior written consent of Limited Partners holding not less than sixty-six and two-thirds percent (66⅔%) of the aggregate Limited Partner Capital Commitments (excluding the General Partner's co-investment). As of the date of circulation of this Amendment, the aggregate Limited Partner Capital Commitments for voting purposes are Two Billion Seven Hundred Ninety-Eight Million Two Hundred Fifty Thousand Dollars ($2,798,250,000), being the total fund net asset value of Two Billion Eight Hundred Seventy Million Dollars ($2,870,000,000) less the General Partner co-investment of Fifty-Seven Million Four Hundred Thousand Dollars ($57,400,000) attributable to Mr. Whitmore and Fourteen Million Three Hundred Fifty Thousand Dollars ($14,350,000) attributable to Ms. Sato, each in their respective capacities as Managing Members of the General Partner. The required consent threshold is One Billion Eight Hundred Sixty-Five Million Five Hundred Thousand Dollars ($1,865,500,000), representing sixty-six and two-thirds percent (66⅔%) of Two Billion Seven Hundred Ninety-Eight Million Two Hundred Fifty Thousand Dollars ($2,798,250,000).
I. Governing Law. The Original Agreement and this Amendment are governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law thereof that would result in the application of the laws of any other jurisdiction.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Defined Terms
All capitalized terms used in this Amendment and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Original Agreement. In addition to the defined terms set forth elsewhere in this Amendment, the following terms shall have the meanings set forth below when used in this Amendment and, from and after the Amendment Effective Date, when used in the Original Agreement as amended hereby:
"Amendment" means this First Amendment to the Amended and Restated Limited Partnership Agreement of Driftwood Absolute Return Fund Ltd., as the same may be further amended, modified, or supplemented from time to time in accordance with the terms hereof and the Original Agreement.
"Amendment Effective Date" means the first date on which the conditions to effectiveness set forth in Article VII of this Amendment have been satisfied or waived, being the date on which the General Partner has received the requisite written consents of Limited Partners as described in Section 7.1 hereof, and on which this Amendment becomes effective and binding upon all Parties.
"Independent Member" means the independent member of the Investment Committee designated by the Investor Advisory Committee pursuant to Section 8.05(a)(iii) of the Original Agreement (as amended hereby), as more fully described in Section 3.3 of this Amendment.
"Investment Committee" has the meaning set forth in Section 8.05 of the Original Agreement (as amended hereby), as more fully described in Article III of this Amendment.
"Replacement Period" has the meaning set forth in Section 8.04(c)(ii) of the Original Agreement (as amended hereby), as more fully described in Section 2.3(b) of this Amendment.
"Senior Advisor" has the meaning set forth in Section 8.04(f) of the Original Agreement (as amended hereby), as more fully described in Section 2.6 of this Amendment.
"Single Key Person Departure" has the meaning set forth in Section 8.04(b) of the Original Agreement (as amended hereby), as more fully described in Section 2.2 of this Amendment.
"Successor Key Person" means each of Elaine R. Sato and Jonathan K. Huang, designated as such pursuant to this Amendment.
Section 1.2 — Interpretation
The Original Agreement, as amended by this Amendment, shall be read and construed as a single integrated instrument. All references in the Original Agreement to "this Agreement," "herein," "hereof," "hereunder," and words of similar import shall, from and after the Amendment Effective Date, be deemed to refer to the Original Agreement as amended by this Amendment. In the event of any conflict, inconsistency, or ambiguity between any provision of this Amendment and any provision of the Original Agreement, the provisions of this Amendment shall govern and control in all respects. References in this Amendment to "Sections" and "Schedules" are references to sections of and schedules to the Original Agreement, as amended hereby, unless the context otherwise requires or unless otherwise expressly stated. The rules of construction and interpretation set forth in Section 1.02 of the Original Agreement shall apply to this Amendment, mutatis mutandis.
ARTICLE II — AMENDMENT OF SECTION 8.04 (KEY PERSON)
Section 2.1 — Amendment of Section 8.04(a) — Definition of Key Person
Section 8.04(a) of the Original Agreement is hereby deleted in its entirety and replaced with the following:
"(a) Key Person. 'Key Person' shall mean each of Elaine R. Sato and Jonathan K. Huang (each, a 'Successor Key Person' and collectively, the 'Key Persons'). Both Key Persons must be actively involved in the management of the Partnership's investment activities on a substantially full-time basis (meaning the devotion of substantially all of such Key Person's professional time to the affairs of the Partnership, subject to reasonable and customary exceptions for board memberships, charitable activities, personal investment activities, and other activities that do not materially interfere with such Key Person's duties) for the Key Person requirement established by this Section 8.04 to be satisfied. For the avoidance of doubt, Marcus J. Whitmore shall no longer be designated as a Key Person for any purpose under this Agreement and shall have no rights, obligations, or duties in such capacity from and after the Amendment Effective Date."
Section 2.2 — Amendment of Section 8.04(b) — Key Person Event Trigger
Section 8.04(b) of the Original Agreement is hereby deleted in its entirety and replaced with the following:
"(b) Key Person Event; Single Key Person Departure.
(i) A 'Key Person Event' shall be deemed to have occurred if both Key Persons cease to devote substantially all of their respective professional time and attention to the affairs of the Partnership, whether by reason of death, permanent disability (as determined by a licensed physician reasonably acceptable to the General Partner), voluntary departure, termination for cause (as defined in the applicable employment or engagement agreement of such Key Person), or other incapacity, for a continuous and uninterrupted period of seven (7) consecutive calendar days. A Key Person Event shall trigger the consequences set forth in Section 8.04(c)(i).
(ii) If only one Key Person ceases to devote substantially all of his or her professional time and attention to the affairs of the Partnership for a continuous and uninterrupted period of seven (7) consecutive calendar days, whether by reason of death, permanent disability, voluntary departure, termination for cause, or other incapacity (a 'Single Key Person Departure'), the provisions of Section 8.04(c)(ii) shall apply in lieu of the full Key Person Event consequences set forth in Section 8.04(c)(i). For the avoidance of doubt, a Single Key Person Departure shall not, by itself, constitute a Key Person Event unless and until the conditions set forth in Section 8.04(c)(ii) give rise to a deemed Key Person Event."
Section 2.3 — Amendment of Section 8.04(c) — Consequences of Key Person Events
Section 8.04(c) of the Original Agreement is hereby deleted in its entirety and replaced with the following:
"(c) Consequences of Key Person Events; Single Key Person Departure.
(a) Section 8.04(c)(i) — Full Key Person Event (Both Key Persons).
"(c)(i) Full Key Person Event. If a Key Person Event has occurred (i.e., both Key Persons have ceased to devote substantially all of their respective professional time and attention to the affairs of the Partnership as provided in Section 8.04(b)(i)), the following consequences shall apply:
(A) Suspension of Investment Period. The Investment Period shall be immediately and automatically suspended, effective as of the date on which the Key Person Event is deemed to have occurred. During such suspension, no new investments shall be made by or on behalf of the Partnership.
(B) Follow-On Investment Cap. Notwithstanding the suspension of the Investment Period, the General Partner may authorize follow-on investments in existing portfolio companies; provided, that the aggregate amount of all such follow-on investments during the period of suspension shall not exceed Fourteen Million Three Hundred Fifty Thousand Dollars ($14,350,000), representing zero point five percent (0.5%) of the assets under management of the Partnership as of the date on which such Key Person Event occurred.
(C) Notice to Limited Partners. The General Partner shall notify all Limited Partners of the Key Person Event in writing within five (5) business days of the date on which the Key Person Event is deemed to have occurred. Such notice shall describe the circumstances giving rise to the Key Person Event and shall state the date on which the Investment Period suspension became effective.
(D) Cure Period. A ninety (90) calendar day cure period (the 'Cure Period') shall commence on the date on which the Key Person Event is deemed to have occurred. During the Cure Period, the General Partner may propose one or more replacement Key Persons for approval by the Limited Partners. Any such proposal shall be submitted in writing to all Limited Partners and shall include such information regarding the qualifications, experience, and proposed role of each proposed replacement Key Person as the General Partner, acting in good faith, deems relevant and appropriate. The designation of any replacement Key Person shall require the prior written consent of Limited Partners holding not less than sixty-six and two-thirds percent (66⅔%) of aggregate Limited Partner Capital Commitments (excluding the General Partner's co-investment), solicited and obtained in accordance with Section 14.01.
(E) Expiration of Cure Period Without Cure. If no replacement Key Person is approved by the requisite Limited Partners within the Cure Period, then, within thirty (30) calendar days following the expiration of the Cure Period, Limited Partners holding a majority-in-interest of the aggregate Limited Partner Capital Commitments (excluding the General Partner's co-investment) may elect, by written notice delivered to the General Partner, to either: (1) extend the Cure Period by up to ninety (90) additional calendar days on such terms and conditions as such Limited Partners may specify; or (2) direct the General Partner to commence an orderly wind-down of the Fund in accordance with Section 12.01 of this Agreement. If no such election is made within such thirty (30) calendar day period, the Cure Period shall be deemed to have been extended by ninety (90) additional calendar days, and upon the expiration of such extended Cure Period without the approval of a replacement Key Person, the General Partner shall promptly commence an orderly wind-down of the Fund."
(b) Section 8.04(c)(ii) — Single Key Person Departure (One Key Person).
"(c)(ii) Single Key Person Departure. If only one Key Person ceases to devote substantially all of his or her professional time and attention to the affairs of the Partnership (a Single Key Person Departure as defined in Section 8.04(b)(ii)), the following consequences shall apply:
(A) No Automatic Suspension. The Investment Period shall not be automatically suspended solely by reason of a Single Key Person Departure.
(B) Replacement Period. A one-hundred-eighty (180) calendar day period (the 'Replacement Period') shall commence on the date on which the Single Key Person Departure is deemed to have occurred (i.e., upon the expiration of seven (7) consecutive calendar days of inability). During the Replacement Period, the General Partner shall use commercially reasonable efforts to identify and propose a replacement Key Person for approval by the Limited Partners in accordance with the consent procedures and threshold set forth in Section 8.04(c)(i)(D) above.
(C) Notice to Limited Partners. The General Partner shall notify all Limited Partners of the Single Key Person Departure in writing within five (5) business days of the date on which the Single Key Person Departure is deemed to have occurred. Such notice shall describe the circumstances of the departure and outline the General Partner's plan for identifying a replacement Key Person.
(D) Investment Committee Approval Required. During the Replacement Period, all new investment decisions (i.e., commitments to new portfolio investments not previously approved or in the pipeline prior to the Single Key Person Departure) shall require the prior approval of the Investment Committee established under Section 8.05 of this Agreement. For the avoidance of doubt, the remaining Key Person shall continue to serve as a member of the Investment Committee and shall participate in all investment decisions during the Replacement Period.
(E) Follow-On Investment Cap. Follow-on investments during the Replacement Period shall be capped at Fourteen Million Three Hundred Fifty Thousand Dollars ($14,350,000), representing zero point five percent (0.5%) of the assets under management of the Partnership as of the date of the Single Key Person Departure.
(F) Deemed Full Key Person Event. If no replacement Key Person is approved by the requisite Limited Partners within the one-hundred-eighty (180) calendar day Replacement Period, a full Key Person Event under Section 8.04(c)(i) shall be deemed to have occurred automatically on the calendar day immediately following the expiration of the Replacement Period, and the consequences set forth in Section 8.04(c)(i) (including, without limitation, the immediate suspension of the Investment Period and the commencement of a ninety (90) calendar day Cure Period) shall apply from and after such date."
Section 2.4 — Amendment of Section 8.04(d) — LP Consent for Replacement Key Persons
Section 8.04(d) of the Original Agreement is hereby amended and restated to read in its entirety as follows:
"(d) LP Consent for Replacement Key Persons. The consent threshold for any future designation of one or more replacement Key Persons, whether proposed in connection with a full Key Person Event under Section 8.04(c)(i) or a Single Key Person Departure under Section 8.04(c)(ii), shall be sixty-six and two-thirds percent (66⅔%) of aggregate Limited Partner Capital Commitments, excluding the General Partner's co-investment. All consents shall be solicited in writing and obtained in accordance with the procedures set forth in Section 14.01 of this Agreement. The General Partner shall provide all Limited Partners with such information concerning each proposed replacement Key Person as the Limited Partners may reasonably request, including biographical information, professional qualifications, investment track record, and any actual or potential conflicts of interest."
Section 2.5 — Addition of Section 8.04(e) — Cure of Current Key Person Event
The following new Section 8.04(e) is hereby added to the Original Agreement immediately following Section 8.04(d):
"(e) Cure of June 10, 2024 Key Person Event. The Parties hereby acknowledge and agree that the First Amendment to this Agreement, dated as of the Amendment Effective Date, constitutes a cure of the Key Person Event that occurred on June 10, 2024, in connection with the incapacity of Marcus J. Whitmore. Upon the Amendment Effective Date:
(i) the suspension of the Investment Period imposed pursuant to Section 8.04(c) of this Agreement (as in effect prior to the Amendment Effective Date) shall terminate and the Investment Period shall resume in full, subject to the terms and conditions of this Agreement as amended by the First Amendment;
(ii) the ninety (90) calendar day Cure Period that commenced on June 10, 2024 (and that was scheduled to expire on September 8, 2024) shall be deemed fully satisfied and shall be of no further force or effect; and
(iii) all limitations on investment activity imposed during the period of suspension (including, without limitation, the follow-on investment cap) shall cease to apply, and the General Partner (acting through the Key Persons and, as applicable, the Investment Committee) shall be authorized to make new and follow-on investments on behalf of the Partnership in accordance with this Agreement as amended hereby."
Section 2.6 — Addition of Section 8.04(f) — Senior Advisor Designation
The following new Section 8.04(f) is hereby added to the Original Agreement immediately following the new Section 8.04(e):
"(f) Senior Advisor Designation.
(i) Marcus J. Whitmore is hereby designated as 'Senior Advisor' to the Partnership, effective as of the Amendment Effective Date. The Senior Advisor designation is honorary and advisory in nature and is intended solely to recognize Mr. Whitmore's historical contributions to the Partnership as its Founder and former Chief Investment Officer.
(ii) For the avoidance of doubt, the Senior Advisor shall have: (A) no governance authority with respect to the Partnership or the General Partner; (B) no voting rights with respect to any matter submitted to the General Partner, the Investment Committee, the Investor Advisory Committee, or the Limited Partners for approval; (C) no authority to bind the Partnership, the General Partner, or any Limited Partner to any obligation, commitment, or agreement; and (D) no role in investment decision-making, portfolio management, trade execution, or any other operational activity of the Partnership. The Senior Advisor shall not be deemed an officer, director, employee, or agent of the Partnership or the General Partner.
(iii) The Senior Advisor designation may be revoked at any time by the General Partner, acting with the prior approval of a majority of the members of the Investment Committee, upon written notice to Mr. Whitmore. No reason need be given for such revocation, and no consent of the Limited Partners shall be required therefor.
(iv) Mr. Whitmore's Capital Commitment of Fifty-Seven Million Four Hundred Thousand Dollars ($57,400,000), representing two percent (2.0%) of the assets under management of the Partnership, shall remain subject to the terms and conditions of this Agreement (as amended hereby), including, without limitation, the redemption, withdrawal, lock-up, and transfer provisions set forth in Articles V, VI, and VII hereof. Nothing in this Section 8.04(f) shall be construed to modify, accelerate, or waive any provision of this Agreement governing the redemption or withdrawal of the Senior Advisor's Capital Commitment.
(v) The Senior Advisor shall not be deemed a 'Key Person' for any purpose under this Agreement, including, without limitation, for purposes of Section 8.04(a), Section 8.04(b), Section 8.04(c), or Section 8.04(d). A change in the Senior Advisor's status, involvement, health, or availability shall not, in and of itself, constitute a Key Person Event or a Single Key Person Departure."
ARTICLE III — ADDITION OF SECTION 8.05 (INVESTMENT COMMITTEE)
Section 3.1 — Section 8.05(a) — Establishment and Composition
The following new Section 8.05 is hereby added to the Original Agreement immediately following Section 8.04 (as amended hereby):
"Section 8.05 Investment Committee.
(a) Establishment and Composition. An Investment Committee of the Partnership (the 'Investment Committee') is hereby established, effective as of the Amendment Effective Date. The Investment Committee shall serve as a standing governance body of the Partnership and shall exercise the authority and discharge the responsibilities set forth in this Section 8.05.
The Investment Committee shall consist of three (3) members, as follows:
(i) Elaine R. Sato, who shall serve as Chair of the Investment Committee;
(ii) Jonathan K. Huang, who shall serve as a member of the Investment Committee; and
(iii) One (1) independent member (the 'Independent Member'), to be designated by the Investor Advisory Committee (the 'IAC') established under Section 9.02 of this Agreement, in accordance with the provisions of Section 8.05(c) below."
Section 3.2 — Section 8.05(b) — Authority and Responsibilities
"(b) Authority and Responsibilities. The Investment Committee shall have the following authority and responsibilities:
(i) New Investment Approvals. The Investment Committee shall review and approve all new investment commitments proposed by the General Partner that exceed a threshold to be determined by the General Partner from time to time (but in no event less than the minimum threshold set forth in Schedule C to this Agreement, as such schedule may be established and amended from time to time by the General Partner with the approval of the Investment Committee). The General Partner shall submit a written investment memorandum to the Investment Committee in advance of any proposed investment commitment subject to this paragraph, and the Investment Committee shall have a reasonable period of time (not to exceed ten (10) business days, unless otherwise agreed by the General Partner and the Investment Committee) to review and act upon such proposal.
(ii) Risk Management Oversight. The Investment Committee shall oversee the risk management framework of the Partnership, including the review of portfolio-level and position-level risk metrics, concentration limits, counterparty exposure, liquidity management, and stress testing methodologies. The General Partner shall provide the Investment Committee with such risk reports and analytics as the Investment Committee may reasonably request, in a format and at a frequency to be determined by the Investment Committee in consultation with the General Partner.
(iii) Investment Strategy Changes. The Investment Committee shall review and approve any material changes to the Partnership's investment strategy, including, without limitation: (A) changes to the Partnership's sector focus (which, as of the Amendment Effective Date, includes asset management and banking); (B) changes to the Partnership's leverage parameters (which, as of the Amendment Effective Date, are 1.85x gross leverage and 0.60x net leverage); and (C) changes to the Partnership's hedging policies and procedures. For purposes of this paragraph, a "material change" shall mean any change that would reasonably be expected to have a significant impact on the risk-return profile of the Partnership or that would deviate from the investment strategy described in the Partnership's current offering memorandum and other marketing materials.
(iv) Replacement Period Authority. During any Replacement Period under Section 8.04(c)(ii) of this Agreement, all new investment decisions (including commitments to new portfolio investments and material modifications to existing investments) shall require the prior approval of a majority of the members of the Investment Committee. For the avoidance of doubt, this requirement shall be in addition to, and not in lieu of, any other approval or consent requirement set forth in this Agreement.
(v) Meetings and Records. The Investment Committee shall meet no less frequently than once per calendar month, either in person or by telephone, video conference, or other means of contemporaneous communication. Special meetings may be called by the Chair or by any two (2) members upon not less than two (2) business days' prior written notice. The Investment Committee shall maintain written minutes of all of its meetings and proceedings, including a record of all actions taken and the vote of each member on each matter submitted to the Investment Committee for approval. Such minutes shall be made available to the IAC and, upon reasonable request, to any Limited Partner."
Section 3.3 — Section 8.05(c) — Independent Member
"(c) Independent Member.
(i) Designation. The IAC shall designate the Independent Member within thirty (30) calendar days of the Amendment Effective Date. If the IAC fails to designate the Independent Member within such thirty (30) calendar day period, the General Partner may designate a temporary Independent Member to serve until such time as the IAC makes its designation; provided, that such temporary Independent Member shall satisfy the independence requirements set forth in clause (ii) below.
(ii) Independence Requirements. The Independent Member shall not be, and shall not have been at any time during the three (3) year period preceding the date of his or her designation, an employee, officer, director, partner, member, manager, or affiliate of the General Partner, any Key Person, the Senior Advisor, or any of their respective family members, trusts, or controlled entities. The Independent Member shall not have any material business or financial relationship with the General Partner or any Key Person that would reasonably be expected to impair his or her ability to exercise independent judgment in the discharge of his or her duties as a member of the Investment Committee.
(iii) Service and Removal. The Independent Member shall serve at the pleasure of the IAC and may be removed and replaced by the IAC at any time, with or without cause, upon written notice to the General Partner. The Independent Member may also resign at any time upon not less than thirty (30) calendar days' prior written notice to the IAC and the General Partner.
(iv) Access to Information. The General Partner shall provide the Independent Member with access to such information regarding the Partnership's investments, portfolio, operations, financial condition, and risk profile as is reasonably necessary for the discharge of the Independent Member's duties as a member of the Investment Committee. The Independent Member shall be subject to the confidentiality and non-disclosure provisions of Section 13.02 of this Agreement and shall execute such confidentiality agreements as the General Partner may reasonably require."
Section 3.4 — Section 8.05(d) — Voting; Quorum
"(d) Voting; Quorum.
(i) Each member of the Investment Committee shall have one (1) vote on each matter submitted to the Investment Committee for approval. No member may delegate his or her voting rights or appoint a proxy to vote on his or her behalf except with the prior written consent of all other members of the Investment Committee.
(ii) A quorum for the transaction of business at any meeting of the Investment Committee shall consist of at least two (2) members, one of whom must be either Elaine R. Sato or Jonathan K. Huang (or, following the designation of a replacement Key Person in accordance with Section 8.04, such replacement Key Person).
(iii) Actions of the Investment Committee shall be taken by the affirmative vote of a majority of the members present at a duly convened meeting at which a quorum is present. In the event of a tie vote, the Chair shall not have a casting or tie-breaking vote, and the matter shall be deemed not approved.
(iv) Notwithstanding the foregoing, during any Replacement Period under Section 8.04(c)(ii), the quorum requirement for all meetings of the Investment Committee shall be all three (3) members, and all actions during such period shall require the unanimous vote of the three (3) members. If a quorum cannot be established during a Replacement Period because the position of a departing Key Person on the Investment Committee is vacant, the General Partner shall appoint a temporary member to serve on the Investment Committee for the sole purpose of establishing a quorum during the Replacement Period, subject to the approval of the IAC."
Section 3.5 — Section 8.05(e) — Vacancies
"(e) Vacancies.
(i) If either Elaine R. Sato or Jonathan K. Huang ceases to serve on the Investment Committee for any reason (including, without limitation, death, permanent disability, voluntary resignation, or removal), the provisions of Section 8.04(c)(ii) (Single Key Person Departure) shall apply as if a Single Key Person Departure had occurred, and the Replacement Period and related procedures set forth therein shall be triggered.
(ii) If the Independent Member ceases to serve on the Investment Committee for any reason, the IAC shall designate a replacement Independent Member within thirty (30) calendar days of the date on which such vacancy occurs. If the IAC fails to designate a replacement within such thirty (30) calendar day period, the General Partner may designate a temporary replacement Independent Member, subject to the independence requirements set forth in Section 8.05(c)(ii), to serve until such time as the IAC makes its designation.
(iii) The General Partner shall promptly notify all Limited Partners and the IAC of any vacancy on the Investment Committee and the steps being taken to fill such vacancy."
ARTICLE IV — AMENDMENT OF SECTION 14.01 (AMENDMENTS)
Section 4.1 — Conforming Amendment to Section 14.01
Section 14.01 of the Original Agreement is hereby amended by adding the following proviso at the end of the first sentence thereof:
"; provided, however, that, notwithstanding anything herein to the contrary, any amendment, modification, waiver, or supplement to Section 8.04 (Key Person), Section 8.05 (Investment Committee), or Schedule A (Carried Interest Allocation) of this Agreement shall require the prior written consent of (A) Limited Partners holding not less than sixty-six and two-thirds percent (66⅔%) of aggregate Limited Partner Capital Commitments (excluding the General Partner's co-investment), and (B) a majority of the members of the Investor Advisory Committee established under Section 9.02 of this Agreement. This enhanced consent requirement is intended to ensure that the IAC has a meaningful procedural role in any future changes to the governance provisions of this Agreement relating to the Key Person structure, the Investment Committee, and the economic arrangements among the General Partner's principals, and shall apply in addition to any other consent or approval requirements set forth in this Agreement."
For the avoidance of doubt, the foregoing proviso shall not apply to this Amendment (which is being adopted pursuant to the consent procedures set forth in Section 14.01 of the Original Agreement as in effect prior to the Amendment Effective Date) but shall apply to all future amendments, modifications, waivers, and supplements to the specified provisions adopted from and after the Amendment Effective Date.
ARTICLE V — AMENDMENT OF SCHEDULE A (CARRIED INTEREST ALLOCATION)
Section 5.1 — Restatement of Schedule A
Schedule A to the Original Agreement (Carried Interest Allocation) is hereby deleted in its entirety and replaced with the revised Schedule A set forth in Exhibit A attached to this Amendment and incorporated herein by reference. The revised Schedule A shall be effective as of the Amendment Effective Date and shall govern the allocation of the General Partner's incentive allocation from and after such date, subject to the transitional provisions set forth in Sections 5.3 and 5.4 below.
Section 5.2 — Revised Carried Interest Allocation
The General Partner's incentive allocation (the "Carried Interest") shall remain at twenty percent (20%) of net new profits above the high-water mark (which, as of December 31, 2023, is One Hundred Forty-Two Dollars and Sixty-Seven Cents ($142.67) per unit), subject to a six percent (6%) per annum annualized preferred return hurdle rate with full catch-up, all in accordance with the terms and mechanics set forth in the Original Agreement (as amended hereby).
The internal allocation of the Carried Interest among the principals of the General Partner shall be revised as set forth in the following table:
The revised internal allocation reflects the transfer of investment management responsibilities from Mr. Whitmore to Ms. Sato and Mr. Huang in connection with the Key Person transition contemplated by this Amendment. The total Carried Interest percentage payable by the Partnership to the General Partner remains unchanged at twenty percent (20%) of net new profits, and the Limited Partners' share of net new profits remains unchanged at eighty percent (80%).
Section 5.3 — Whitmore Carry Vesting Schedule
The carried interest entitlement of Mr. Whitmore that has accrued but remains unrealized as of the date of the Key Person Event (June 10, 2024) (the "Accrued Whitmore Carry") shall vest in accordance with the following schedule:
(a) Immediately Vested Carry. Fifty percent (50%) of the Accrued Whitmore Carry shall vest immediately as of the Amendment Effective Date (the "Immediately Vested Carry"). The Immediately Vested Carry shall be payable to Mr. Whitmore in accordance with the distribution provisions of the Original Agreement (as amended hereby), including, without limitation, the timing, priority, and clawback provisions set forth therein.
(b) Deferred Carry. The remaining fifty percent (50%) of the Accrued Whitmore Carry (the "Deferred Carry") shall vest ratably over a period of thirty-six (36) months commencing on June 10, 2024, with one thirty-sixth (1/36th) of the Deferred Carry vesting on the last calendar day of each calendar month during such thirty-six (36) month period. Vested portions of the Deferred Carry shall be payable to Mr. Whitmore in accordance with the distribution provisions of the Original Agreement (as amended hereby).
(c) Forfeiture Events. Any unvested portion of the Deferred Carry shall be subject to immediate and automatic forfeiture, without any further action by any Party, upon the occurrence of any of the following events:
(i) Mr. Whitmore breaches any non-competition, non-solicitation, or confidentiality obligation owed to the General Partner, the Partnership, or any Limited Partner, whether arising under the General Partner's operating agreement, any employment or consulting agreement, or applicable law;
(ii) Mr. Whitmore is terminated or removed as Senior Advisor for "cause" (as determined by the General Partner, acting with the approval of a majority of the Investment Committee, in good faith and in the exercise of reasonable judgment); or
(iii) Mr. Whitmore voluntarily withdraws, redeems, or requests the return of all or any portion of his Capital Commitment of Fifty-Seven Million Four Hundred Thousand Dollars ($57,400,000) prior to the scheduled expiration of the term of the Partnership (or any extension thereof).
(d) Go-Forward Carry. Mr. Whitmore's go-forward carried interest allocation of nine percent (9%) of the General Partner's twenty percent (20%) incentive allocation shall accrue on net new profits generated from and after the Amendment Effective Date, calculated from the high-water mark in effect on such date and subject to the same hurdle rate, catch-up, clawback, and distribution provisions applicable to the carried interest allocations of the other principals of the General Partner. For the avoidance of doubt, Mr. Whitmore's go-forward carried interest allocation shall not be subject to the vesting schedule set forth in paragraphs (a) through (c) above but shall be subject to the standard vesting and clawback provisions of the Original Agreement (as amended hereby) applicable to all principals.
Section 5.4 — Sato and Huang Carry
The carried interest allocations of Ms. Sato and Mr. Huang are hereby revised as follows, effective as of the Amendment Effective Date:
(a) Sato Carry. Ms. Sato's carried interest allocation is increased from one and one-half percent (1.5%) to seven percent (7%) of the General Partner's twenty percent (20%) incentive allocation, effective as of the Amendment Effective Date. Ms. Sato's revised allocation shall accrue on net new profits generated from and after the Amendment Effective Date, calculated from the high-water mark in effect on such date, and shall be subject to the standard clawback, high-water mark, hurdle rate, catch-up, and vesting provisions of the Original Agreement (as amended hereby). For the avoidance of doubt, Ms. Sato's pre-Amendment carried interest entitlements with respect to profits accrued prior to the Amendment Effective Date shall be unaffected by this Amendment and shall continue to be governed by the terms of the Original Agreement as in effect immediately prior to the Amendment Effective Date.
(b) Huang Carry. Mr. Huang's carried interest allocation is increased from one-half of one percent (0.5%) to four percent (4%) of the General Partner's twenty percent (20%) incentive allocation, effective as of the Amendment Effective Date. Mr. Huang's revised allocation shall accrue on net new profits generated from and after the Amendment Effective Date, calculated from the high-water mark in effect on such date, and shall be subject to the standard clawback, high-water mark, hurdle rate, catch-up, and vesting provisions of the Original Agreement (as amended hereby). For the avoidance of doubt, Mr. Huang's pre-Amendment carried interest entitlements with respect to profits accrued prior to the Amendment Effective Date shall be unaffected by this Amendment and shall continue to be governed by the terms of the Original Agreement as in effect immediately prior to the Amendment Effective Date.
ARTICLE VI — REPRESENTATIONS AND ACKNOWLEDGMENTS
Section 6.1 — GP Representations
The General Partner hereby represents and warrants to the Limited Partners as follows, as of the date hereof and as of the Amendment Effective Date:
(a) The General Partner has the full power, authority, and legal capacity to execute and deliver this Amendment on behalf of the Partnership and to perform its obligations hereunder. The execution, delivery, and performance of this Amendment by the General Partner have been duly authorized by all necessary action on the part of the General Partner, including, without limitation, the approval of its Managing Members. Ms. Sato, acting in her capacity as Deputy Chief Investment Officer and Managing Member of the General Partner, is authorized to execute this Amendment on behalf of the General Partner.
(b) The execution and delivery of this Amendment by the General Partner and the consummation of the transactions contemplated hereby do not and will not: (i) conflict with, or result in a breach or violation of, any provision of the Original Agreement (as in effect prior to the Amendment Effective Date), the certificate of registration of the Partnership, or the operating agreement of the General Partner; (ii) violate any applicable law, rule, regulation, judgment, order, or decree of any court or governmental authority having jurisdiction over the General Partner or the Partnership; or (iii) conflict with, result in a breach of, constitute a default under, or give rise to any right of termination, cancellation, or acceleration under, any material agreement, contract, instrument, or obligation to which the General Partner or the Partnership is a party or by which any of their respective assets or properties are bound.
(c) The General Partner has complied in all material respects with the notice, disclosure, and procedural requirements of the Original Agreement in connection with the Key Person Event, the Cure Period, the proposal of the Successor Key Persons, and the solicitation of Limited Partner consent to this Amendment.
Section 6.2 — Acknowledgment of Key Person Event Cure
Each Limited Partner executing this Amendment (or delivering a separate written consent in the form attached hereto as Exhibit B) hereby acknowledges and agrees that, upon the Amendment Effective Date, the Key Person Event that occurred on June 10, 2024, in connection with the incapacity of Marcus J. Whitmore, shall be deemed cured and fully resolved, and the Investment Period shall resume in full as provided in Section 2.5 of this Amendment (new Section 8.04(e) of the Original Agreement). Each such Limited Partner further acknowledges and agrees that, from and after the Amendment Effective Date, the Key Person requirement shall be satisfied by the active involvement of both Elaine R. Sato and Jonathan K. Huang in accordance with amended Section 8.04(a) of the Original Agreement.
Section 6.3 — Acknowledgment of Senior Advisor Designation
Each Limited Partner executing this Amendment (or delivering a separate written consent) hereby acknowledges and agrees that Marcus J. Whitmore shall serve as Senior Advisor to the Partnership on the terms and conditions set forth in new Section 8.04(f) of the Original Agreement (as added by Section 2.6 of this Amendment), with no governance authority, no voting rights, no authority to bind the Partnership or any Party, and no role in investment decision-making. Each such Limited Partner further acknowledges and agrees that Mr. Whitmore's carried interest entitlement shall be subject to the revised allocation and vesting schedule set forth in Article V of this Amendment, including the vesting, forfeiture, and go-forward provisions described therein.
Section 6.4 — Acknowledgment of Fund Administrator, Auditor, and Prime Broker
The Parties hereby acknowledge that: (a) Pinnacle Fund Services (Cayman) Ltd. continues to serve as the Fund Administrator of the Partnership; (b) Graystone & Whitfield LLP continues to serve as the independent Auditor of the Partnership; and (c) Halcyon Securities International Ltd. continues to serve as the Prime Broker of the Partnership. This Amendment does not amend, modify, terminate, or otherwise affect any administration agreement, audit engagement letter, prime brokerage agreement, or other agreement between the Partnership and any of the foregoing service providers, and all such agreements shall remain in full force and effect in accordance with their respective terms.
ARTICLE VII — CONDITIONS TO EFFECTIVENESS
Section 7.1 — LP Consent Condition
This Amendment shall become effective on the first date (the Amendment Effective Date) on which the General Partner has received duly executed written consents from Limited Partners holding, in the aggregate, not less than sixty-six and two-thirds percent (66⅔%) of the aggregate Limited Partner Capital Commitments (excluding the General Partner's co-investment of Seventy-One Million Seven Hundred Fifty Thousand Dollars ($71,750,000), comprising Mr. Whitmore's Capital Commitment of $57,400,000 and Ms. Sato's Capital Commitment of $14,350,000). The aggregate Limited Partner Capital Commitments for purposes of determining the consent threshold are Two Billion Seven Hundred Ninety-Eight Million Two Hundred Fifty Thousand Dollars ($2,798,250,000). The required consent threshold is One Billion Eight Hundred Sixty-Five Million Five Hundred Thousand Dollars ($1,865,500,000).
The deadline for the receipt of written consents from the Limited Partners (the "Consent Deadline") shall be August 23, 2024 (being forty (40) calendar days from the date of circulation of this Amendment on July 15, 2024). If the required consents have not been received by the Consent Deadline, this Amendment shall be null and void and of no force or effect, unless the General Partner, in its sole discretion, elects to extend the Consent Deadline by written notice to all Limited Partners; provided, that no such extension shall extend the Consent Deadline beyond September 8, 2024 (the date on which the Cure Period under the Original Agreement is scheduled to expire).
Section 7.2 — No Regulatory Impediment
This Amendment shall not become effective if, on the proposed Amendment Effective Date, the effectiveness thereof would violate any applicable law, statute, rule, regulation, or order of any court, governmental authority, or regulatory body having jurisdiction over the Partnership, the General Partner, or any Limited Partner. The General Partner shall use commercially reasonable efforts to identify and resolve any such regulatory impediment prior to the Amendment Effective Date and shall promptly notify all Limited Partners of any such impediment and the steps being taken to resolve it.
Section 7.3 — Delivery of Consents
Written consents of the Limited Partners shall be delivered to the following address:
Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036
Attention: Stephen Adler, Lead Associate, Funds & Asset Management
Telephone: (212) 555-4800
Email: sadler@calderwoodharkness.com
Consents may be delivered by hand delivery, nationally recognized overnight courier service, or electronic transmission (including portable document format (PDF) transmitted via email). The General Partner shall maintain a register of all consents received and shall promptly notify all Limited Partners once the required consent threshold has been reached and the Amendment Effective Date has been established.
ARTICLE VIII — MISCELLANEOUS PROVISIONS
Section 8.1 — Effect of Amendment
Except as expressly amended, modified, or supplemented by this Amendment, the Original Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. On and after the Amendment Effective Date, each reference in the Original Agreement to "this Agreement," "herein," "hereof," "hereunder," and words of similar import, and each reference to the Original Agreement in any other document, instrument, or agreement executed or delivered in connection with the Original Agreement, shall be deemed a reference to the Original Agreement as amended by this Amendment.
Section 8.2 — Governing Law
This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law thereof that would cause the application of the laws of any other jurisdiction. For the avoidance of doubt, the Partnership remains a Cayman Islands exempted limited partnership, and matters relating to the formation, registration, existence, dissolution, and winding-up of the Partnership as an entity shall continue to be governed by the Exempted Limited Partnership Act (As Revised) of the Cayman Islands and other applicable laws of the Cayman Islands. Each Party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery declines to accept jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware) for the resolution of any dispute arising out of or relating to this Amendment, and each Party hereby irrevocably waives any objection to venue in any such court.
Section 8.3 — Severability
If any provision of this Amendment shall be held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Amendment shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein, so long as the economic and legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon a determination that any provision is invalid, illegal, or unenforceable, the Parties shall negotiate in good faith to modify this Amendment so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner.
Section 8.4 — Entire Agreement
This Amendment, together with the Original Agreement (as amended hereby), the Exhibits and Schedules attached hereto and thereto, and the other documents and instruments executed and delivered in connection herewith and therewith, constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous negotiations, representations, warranties, commitments, offers, proposals, agreements, and understandings, whether oral or written, relating to the subject matter hereof. No Party has relied on any representation or warranty of any other Party in connection with the execution and delivery of this Amendment except as expressly set forth herein.
Section 8.5 — Counterparts
This Amendment may be executed in any number of counterparts, each of which when executed and delivered shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Execution and delivery of this Amendment by exchange of electronic signatures (including Brightwater Software or similar electronic signature technology) or facsimile or portable document format (PDF) copies of signature pages shall be deemed an original execution and delivery for all purposes. No Party shall raise the use of electronic signatures or PDF transmission as a defense to the formation of a contract or the enforceability of this Amendment.
Section 8.6 — Headings
The headings of the articles, sections, and subsections of this Amendment are inserted for convenience of reference only and shall not be deemed to constitute a part hereof or affect the meaning, construction, or interpretation of any provision of this Amendment.
Section 8.7 — No Third-Party Beneficiaries
Nothing in this Amendment, express or implied, is intended to or shall confer upon any person other than the Parties hereto (and their respective successors, assigns, and permitted transferees) any rights, remedies, obligations, or liabilities of any nature whatsoever, and no person other than the Parties hereto shall be deemed a third-party beneficiary of this Amendment or any provision hereof; provided, however, that Marcus J. Whitmore shall be a third-party beneficiary of the provisions of Section 2.6 hereof (new Section 8.04(f) of the Original Agreement) and Article V hereof solely to the extent of his rights as Senior Advisor and with respect to his carried interest entitlements as set forth therein.
Section 8.8 — Notices
All notices, requests, demands, consents, and other communications required or permitted to be given under this Amendment shall be in writing and shall be given in accordance with the notice provisions set forth in the Original Agreement. The following notice addresses shall apply to the Parties and their respective counsel:
Notices to the General Partner:
Driftwood Capital Management LLC 680 Lexington Avenue, 31st Floor New York, NY 10022
Attention: Elaine R. Sato, Deputy Chief Investment Officer
Telephone: (212) 555-7200
Email: esato@driftwoodcap.com
With a copy (which shall not constitute notice) to Fund Counsel:
Calderwood & Harkness LLP 1585 Broadway, 34th Floor New York, NY 10036
Attention: Graham Sutherland, Partner
Telephone: (212) 555-4700
Email: gsutherland@calderwoodharkness.com
Notices to the Investor Advisory Committee:
c/o Wexford Crane & Albright LLP 51 West 52nd Street, 40th Floor New York, NY 10019
Attention: Helen M. Calloway, Partner
Telephone: (212) 555-3100
Email: hcalloway@wexfordcrane.com
Notices to Limited Partners:
To the respective addresses set forth on the books and records of the Partnership.
Section 8.9 — Further Assurances
Each Party agrees to execute and deliver such additional documents, instruments, and agreements, and to take such further actions, as may be reasonably necessary or appropriate to effectuate the purposes and intent of this Amendment, including, without limitation, the filing or registration of any amendments, supplements, or other documents with the Registrar of Exempted Limited Partnerships in the Cayman Islands or any other governmental authority, as may be required by applicable law.
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