Certain LCM Transaction Matters
The Master Fund
and a newly created wholly-owned subsidiary of the Master Fund,
Tetragon Capital Management LLC (“TCM”), have entered
into a definitive agreement with Calyon New York Branch and certain
of its affiliates (collectively, “Calyon”) under which
TCM will acquire Lyon Capital Management LLC (“LCM”)
and the Master Fund will acquire certain collateralized loan
obligations (“CLOs”) securities (the “Purchase
Transaction”).
In connection
with the Purchase Transaction, (i) Polygon Management LP
(“PM”), an affiliate of the Investment Manager, will
purchase from TCM 25% of the limited liability company interests of
LCM (the “Joint Venture Interests”) and (ii) LCM will
enter into an operating services agreement (the “Operational
Infrastructure Agreement”) with the Services Providers, which
are also affiliates of the Investment Manager, as the exclusive
providers to LCM of operational, financial control, trade
execution, legal, compliance, administration, payroll, employee
benefits, strategic planning and other operational infrastructure
services, as requested by LCM. The Investment Manager will continue
to be responsible for the management of all of the Master
Fund’s investments, including LCM, in all respects. Under the
Operational Infrastructure Agreement, the Services Providers will
be entitled to compensation for such services based on an
allocation of costs relating to the services provided by them to
LCM; no mark-up will be applied to the cost allocation. The
independent auditors of the Master Fund and TFG will review the
cost allocation methodology and will audit the application of such
methodology to costs (although they will not evaluate the
reasonableness of the relative allocations used). The Operational
Infrastructure Agreement (i) will be terminable by LCM at any time
for cause, if there is a change of control of the Service Providers
and at certain intervals without cause, in each case with the
approval of the Board of Directors of the Master Fund (including
with the vote of a majority of the Directors that are not
interested in such transaction), in addition to other termination
provisions, and (ii) will contain indemnification and exculpation
provisions in favor of the Services Providers on substantially the
same terms as are contained in the Services Agreement. In the event
that the Operational Infrastructure Agreement is terminated for
cause by LCM, the Joint Venture Interests held by PM will be
forfeited and will revert to TCM.
The material
facts as to any Director’s interest in the purchase and sale
of the Joint Venture Interests and the matters contemplated by the
Operational Infrastructure Agreement have been disclosed to the
Directors. The Master Fund obtained an opinion from a recognized
investment bank that the purchase price to be paid by the Master
Fund and TCM for the assets in the Purchase Transaction is fair to
the Master Fund from a financial point of view after giving effect
to the purchase and sale of the of the Joint Venture Interests and
the Operational Infrastructure Agreement. This opinion was provided
to the Directors. The Independent Directors, with the advice of
independent counsel, reviewed the proposed terms of the Joint
Venture Interests and the Operational Infrastructure Agreement,
and, along with the remaining Directors, voted unanimously to
approve the sale of the Joint Venture Interests to PM and the entry
by LCM into the Operational Infrastructure Agreement with the
Services Providers.