U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. 1)
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-12
THE TOPIARY FUND
FOR BENEFIT PLAN INVESTORS (BPI) LLC
(Name of Registrant as Specified In Its Limited Liability Company Agreement)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
EXPLANATORY NOTE
This Proxy Statement is organized as follows:
1. Letter to Members of The Topiary Fund for Benefit Plan Investors (BPI)
LLC (the "Topiary Fund")
2. Questions and Answers regarding the proposed Reorganization of the
Topiary Fund into Hatteras Multi-Strategy TEI Fund, L.P. (the "Hatteras Fund")
3. Notice of Special Meeting of Members of the Topiary Fund
4. Proxy Statement regarding the proposed Reorganization of the Topiary
Fund into the Hatteras Fund
In addition, the investors in the Topiary Fund will be given copies of
the Confidential Offering Memorandum, dated September 20, 2006, of the
Hatteras Fund (as filed as part of the Hatteras Fund's Registration Statement
on Form N-2), the limited partnership agreement of the Hatteras Fund and the
annual report of the Hatteras Fund for the year ended March 31, 2007 (as filed
as part of the Hatteras Fund's Annual Report on Form N-CSR), each of which
have been filed with the Securities and Exchange Commission in accordance with
the requirements of the Investment Company Act of 1940. Investors will also be
given copies of the Form ADV of the Hatteras Investment Manager and the
Hatteras Fund's Privacy Policy.
THE TOPIARY FUND FOR BENEFIT PLAN INVESTORS (BPI) LLC
345 Park Avenue
New York, New York 10154
(212) 454-3000
August 15, 2007
Dear Member:
You are cordially invited to attend a special member meeting (the
"Special Meeting") of The Topiary Fund for Benefit Plan Investors (BPI) LLC
(the "Topiary Fund") to be held on Friday, September 21, 2007 at 9:00 a.m.
Before the meeting, I would like to provide you with additional background and
ask for your vote on an important proposal affecting the Topiary Fund.
The proposal you will be asked to consider at the meeting, as further
described in the enclosed Proxy Statement, is the proposed reorganization of
the Topiary Fund (the "Reorganization") involving the acquisition of
substantially all of the assets and certain liabilities of the Topiary Fund by
the Hatteras Multi-Strategy TEI Fund, L.P. (the "Hatteras Fund") in exchange
for limited partnership interests of the Hatteras Fund, which has an
investment objective and investment policies similar to those of the Topiary
Fund. The members (each, a "Member") of the Topiary Fund will not bear the
costs directly associated with the Reorganization.
The Hatteras Fund commenced operations in April 2005 and had net assets
of approximately $130 million at March 31, 2007 (compared with the Topiary
Fund's assets of approximately $86 million at that date). Like the Topiary
Fund, the Hatteras Fund is designed for tax-exempt and tax-deferred investors.
The Hatteras Fund's investment manager is Hatteras Investment Partners LLC
("Hatteras Investment Manager"), which maintains its principal place of
business in Raleigh, North Carolina, and its general partner is Hatteras
Investment Management LLC, an affiliate of the Hatteras Investment Manager
(the "Hatteras General Partner").
The Board of Directors of the Topiary Fund believes the Reorganization is
in the best interests of the Topiary Fund and its Members, and unanimously
recommends that you vote "For" the proposed Reorganization (and the
reorganization involving the Topiary Master Fund and the Hatteras Master Fund
(each as defined in the Proxy Statement)).
I encourage you to carefully review the enclosed materials, which explain
this proposal in more detail. As a Member, your vote is important, and we hope
that you will respond today to ensure that your interest in the Topiary Fund
(each, an "Interest") will be represented at the Special Meeting. You may vote
in one of the following ways:
o By calling us toll-free at 1 (877) 456-6399;
o By Internet at www.2voteproxy.com;
o By returning the enclosed proxy card in the postage-paid envelope;
or
o In person at the Special Meeting.
As always, we appreciate your support.
Sincerely,
Pamela Kiernan
President and Chief Executive Officer
Please vote now. Your vote is important.
To avoid the wasteful and unnecessary expense of further solicitation, we urge
you to promptly indicate your voting instructions on the enclosed proxy card,
date and sign it and return it in the envelope provided, or record your voting
instructions by telephone or via the internet, no matter how large or small
your holdings may be. If you submit a properly executed proxy but do not
indicate how you wish your Interest to be voted, your Interest will be voted
"For" the Reorganization. If your Interest is held through a broker, you must
provide voting instructions to your broker about how to vote your Interest in
order for your broker to vote your Interest at the Special Meeting.
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IMPORTANT NOTICE
As an investor in the Topiary Fund, you previously certified that you
qualified as a "Qualified Client" under the Investment Advisers Act of 1940
and an "Accredited Investor" under the Securities Act of 1933. Satisfaction of
both requirements was a condition to your investment in the Topiary Fund.
The Hatteras Fund imposes similar requirements on its investors. As described
on page 40 of the enclosed proxy statement, investors in the Topiary Fund who
can no longer satisfy such requirements will not be eligible to participate in
the Reorganization. If you do not meet both of these two requirements, as
described on page 40 of the proxy statement, please promptly notify the
Topiary Fund. Investors who indicate that they do not meet both of these
requirements may be contacted by a representative of DB Investment Managers,
Inc. to discuss their investment. See "Information About the Reorganization -
Eligible Participants."
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QUESTIONS & ANSWERS
We recommend that you read the complete Proxy Statement. For your
convenience, we have provided a brief overview of the issues to be considered
at the Special Meeting.
Q: Why is a meeting of Members being held?
A: You are being asked to approve the reorganization (the "Reorganization")
involving The Topiary Fund for Benefit Plan Investors (BPI) LLC ("Topiary
Fund") and the Hatteras Multi-Strategy TEI Fund, L.P. ("Hatteras Fund"), a
fund that pursues an investment objective and investment policies similar to
those of the Topiary Fund. If the proposed Reorganization is approved and
completed, you will become a limited partner (each, a "Limited Partner" or a
"Partner") of the Hatteras Fund and the Topiary Fund will be terminated as a
limited liability company under Delaware law and deregistered as an investment
company under the Investment Company Act of 1940.
Q: How does the Board of Directors suggest that I vote?
A: After consideration of the facts they believed relevant, the Board of
Directors of the Topiary Fund (the "Topiary Fund Board") has determined that
the proposed Reorganization is in the best interests of the Members of the
Topiary Fund and recommends that you cast your vote "For" the proposed
Reorganization. The Topiary Fund Board anticipates that Members of the Topiary
Fund will benefit from the expected operating efficiencies resulting from the
larger net asset size of the combined fund, the combined fund's prospects for
growth which make it a more viable long-term investment product and the fact
that, if the Reorganization is not approved, DB Investment Managers, Inc.
("DBIM") will recommend that the Topiary Fund be liquidated and, if the
Directors approve the liquidation, Members would not receive their final share
of the liquidation proceeds until 2010 or later. The Topiary Fund Board also
considered the similar investment objectives and policies of the Topiary Fund
and the Hatteras Fund in reaching its decision to recommend that Members vote
in favor of the proposed Reorganization.
Q: How will the Reorganization affect me?
A: If Members of the Topiary Fund approve the proposed Reorganization,
substantially all the assets and liabilities of the Topiary Fund will be
combined with those of the Hatteras Fund, a capital account (each, a "Capital
Account") will be set up in your name at the Hatteras Fund and you will
receive a Limited Partnership Interest in the Hatteras Fund. The value of your
investment in the Hatteras Fund will be based on, and equal to the value of,
the capital account that you held in the Topiary Fund as of the Valuation
Time, as described in the Proxy Statement. However, due to the larger size of
the combined fund, a Member of the Topiary Fund will hold a smaller percentage
of ownership in the Hatteras Fund than he or she held in the Topiary Fund
prior to the Reorganization. The Hatteras Fund also currently has a higher fee
expense ratio than the Topiary Fund, so Members would incur higher operating
expenses.
Q: Will the privileges I enjoy as a Member of the Topiary Fund change after
the Reorganization?
A: Your rights as a Member in the Topiary Fund will be substantially similar
to your rights as a Limited Partner in the Hatteras Fund and the investor
services available to you after the Reorganization will be substantially the
same. Members may have more opportunities to participate in tender offers as
the Hatteras Fund conducts tender offers generally on a quarterly basis and
for approximately 5% of its Limited Partnership Interests while the Topiary
Fund conducts tender offers on a semi-annual basis for approximately 15% of
its Interests.
Q: Who will advise the Hatteras Fund once the Reorganization is completed?
A: Hatteras Investment Partners LLC (the "Hatteras Investment Manager") will
serve as the investment manager and Hatteras Investment Management LLC (the
"Hatteras General Partner") will serve as the general partner of the Hatteras
Fund after the Reorganization.
Please refer to the Proxy Statement and the enclosed materials for a detailed
explanation of the proposed Reorganization and for a more complete description
of the Hatteras Fund.
Q: Will I have to pay any sales load, commission or other similar fee in
connection with the Reorganization?
A: No, you will not pay any sales load, commission or other similar fee in
connection with the Reorganization. However, immediately prior to the
effective date of the Reorganization, any accrued Incentive Allocations will
be reallocated from the Capital Accounts of Topiary Fund Members to the
Capital Account of DBIM. Further, Members of the Topiary Fund who acquire
Limited Partnership Interests in the Hatteras Fund may be subject to a
placement fee in connection with any additional purchases of Limited
Partnership Interests. See "Summary -- Fees and Expenses" in the Proxy
Statement.
Q: Will I have to pay any repurchase fee if I wish to withdraw all of the
Limited Partnership Interests that I receive in the Hatteras Fund as a result
of the Reorganization?
A: No. Although a Partner in the Hatteras Fund who participates in a tender
offer may be subject to a repurchase fee payable to the Hatteras Fund equal to
5% of the amount requested if such Partner has been a Partner for less than 12
months prior to the relevant valuation date, the Members of the Topiary Master
Fund who receive Limited Partnership Interests pursuant to the Reorganization
shall be credited by the Hatteras Fund with, and shall carry over, the holding
period of their Interests for all purposes including the calculation of any
repurchase fee.
Q: How do operating expenses paid by the Hatteras Fund compare to those
payable by the Topiary Fund?
A: The operating expenses paid by the Hatteras Fund are higher than those
payable by the Topiary Fund.
As of March 31, 2007, DBIM contractually capped the operating expense ratio of
the Topiary Fund at 1.75% (the "Topiary Fund Expense Limitation Agreement").
However, DBIM has informed the Directors that it will not renew the Topiary
Fund Expense Limitation Agreement for the fiscal year beginning April 1, 2008.
Based on the current assets of the Topiary Fund, DBIM has estimated that the
annual expense ratio following the expiration of the Topiary Fund Expense
Limitation Agreement will be approximately 1.96%. The Hatteras Investment
Manager and the Hatteras General Partner have agreed to cap the Hatteras
Fund's operating expense ratio (excluding certain investment related expenses
such as foreign tax withholdings and line of credit interest expenses
("Investment Related Expenses")) at 2.35% through November 1, 2008 (the
"Hatteras Fund Expense Limitation"). Pursuant to the Hatteras Fund Expense
Limitation, the Hatteras Fund will carry forward, for a period not to exceed
(3) three years, any expenses in excess of the Hatteras Fund Expense
Limitation and repay the Hatteras Investment Manager such amounts, provided
the Hatteras Fund is able to effect such reimbursement and remain in
compliance with the Hatteras Fund Expense Limitation. As of June 30, 2007, the
Hatteras Fund's net expense ratio was 2.19%.
The Topiary Fund Board has considered the operating expenses of both the
Topiary Fund and the Hatteras Fund as described above, the fact that DBIM will
not renew the Topiary Fund Expense Limitation Agreement and the fact that, if
the Reorganization is not approved, DBIM will propose that the Topiary Fund be
liquidated with Members receiving their entire liquidation proceeds on or
after 2010 (as described more fully below). On the basis of these
considerations, the Topiary Fund Board determined that the higher operating
expense ratio of the Hatteras Fund is justified and in the best interests of
Members as the combined fund's net operating expense ratio will be more stable
than the Topiary Fund's expense ratio, which will dramatically increase as its
assets decline from, among other things, liquidation and distributions to
Members, repurchase offers and/or from increases in levels of operating
expenses.
Q: What will I have to do to have a Capital Account in the Hatteras Fund? What
happens to my Capital Account if the Reorganization is approved?
A: If the Reorganization is approved, a Capital Account will be set up in your
name and your interest (each, an "Interest") in the Topiary Fund automatically
will be converted into a Limited Partnership Interest in the Hatteras Fund,
and we will send you written confirmation that this change has taken place.
The value of the Capital Account that you will hold in the Hatteras Fund will
be based on, and equal to the value of, the Capital Account that you held in
the Topiary Fund. No certificates for Limited Partnership Interests will be
issued in connection with the Reorganization.
Please refer to the Proxy Statement and the enclosed materials for a detailed
explanation of the proposed Reorganization and for a more complete description
of the Hatteras Fund.
Q: Will I have to pay any federal taxes as a result of the Reorganization?
A: In general, the Topiary Fund will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the transfer of substantially all
of its assets and liabilities in exchange for Limited Partnership Interests in
the Hatteras Fund or as a result of its liquidation, and you will generally
not recognize any gain or loss upon your receipt of a Limited Partnership
Interest in the Hatteras Fund in connection with the Reorganization.
Q: Will all investors in the Topiary Fund participate in the Reorganization?
A: Investors in the Topiary Fund will be eligible to participate in the
Reorganization provided they continue to qualify as a "Qualified Client" under
the Investment Advisers Act of 1940 and an "Accredited Investor" under the
Securities Act of 1933. Such investors will also be required to satisfy the
Hatteras Fund's "Know Your Client requirements" and to provide the Hatteras
Fund with additional information in connection therewith. See "Information
About the Reorganization" on page 43 of the attached proxy statement. If you
do not meet these three requirements, please promptly notify the Topiary Fund.
Q: Can I withdraw my Interest before the Reorganization takes place?
A: No, the Topiary Fund is not contemplating conducting any offers to
repurchase Interests from Members.
Q: How do I vote my proxy?
A: You may cast your vote by mail, telephone or internet or in person at the
Special Meeting of Members. To vote by mail, please mark your vote on the
enclosed proxy card and sign, date and return the card in the postage-paid
envelope provided. To vote by telephone or over the internet, please have the
proxy card in hand and call the telephone number or go to the website address
listed on the enclosed form and follow the instructions.
Q: When will the Reorganization occur?
A: If all of the required approvals are obtained with respect to the
Reorganization, it is anticipated that the Reorganization will occur on
September 30, 2007.
Q: What if the Reorganization is approved by Members but I do not wish to
remain a Partner of the Hatteras Fund?
A: If the Reorganization is approved by Members but you do not wish to remain
a Partner of the Hatteras Fund, at the earliest, you may submit a request to
tender all or a portion of your Limited Partnership Interest in the tender
offer conducted by the Hatteras Fund as of March 31, 2008. However, if the
March 31, 2008 tender offer is oversubscribed, the Hatteras Fund may
repurchase only a pro-rata portion of the Limited Partnership Interests that
are tendered. See "Comparison of the Topiary Fund and the Hatteras
Fund--Purchase, Investor Suitability, Withdrawal, Transfer and Valuation of
Interests" for more detailed information.
Q: What will happen to the Topiary Fund if the Reorganization is not approved
by its Members at the Special Meeting?
A: If the Reorganization is not approved, DBIM will recommend that the Topiary
Fund be liquidated and, if the Directors approve the liquidation, the Topiary
Fund will be liquidated and dissolved. In such event, although Members of the
Topiary Fund are expected to receive a majority of the liquidation proceeds in
2008, Members of the Topiary Fund may not receive their entire liquidation
proceeds until 2010 (or potentially later). See "Summary -- Background and
Reasons for the Proposed Reorganization" in the Proxy Statement.
Q: Whom do I contact for further information?
A: You can contact your financial adviser for further information. You may
also call PFPC Inc., our proxy solicitation firm at 1 (877) 456-6399.
Important additional information about the proposal is set forth in the
accompanying Proxy Statement. Please read it carefully.
Please refer to the Proxy Statement and the enclosed materials for a detailed
explanation of the proposed Reorganization and for a more complete description
of the Hatteras Fund.
THE TOPIARY FUND FOR BENEFIT PLAN INVESTORS (BPI) LLC
345 Park Avenue
New York, New York 10154
(212) 454-3000
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON SEPTEMBER 21, 2007
To the Members:
This is to notify you that a Special Meeting of Members (the "Special
Meeting") of The Topiary Fund for Benefit Plan Investors (BPI) LLC (the
"Topiary Fund") will be held on Friday, September 21, 2007 at 9:00 a.m.,
Eastern time, at the offices of the Topiary Fund at 345 Park Avenue, New York,
New York 10154, for the following purposes:
1. To consider a proposal to approve a Reorganization pursuant to which
the Topiary Fund would transfer substantially all of its assets and
certain liabilities to the Hatteras Multi-Strategy TEI Fund, L.P. (the
"Hatteras Fund") in exchange solely for limited partnership interests of
the Hatteras Fund, which will be distributed by the Topiary Fund to the
holders of its interests (each, an "Interest") in complete liquidation
thereof; and
2. To transact such other business as may properly be presented at the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors of the Topiary Fund has fixed the close of
business on August 1, 2007 as the record date for determination of the members
(each, a "Member") of the Topiary Fund entitled to notice of, and to vote at,
the Special Meeting and any adjournments or postponements thereof.
It is very important that your voting instructions be received prior to
the Special Meeting date. Instructions for an Interest held of record in the
name of a nominee, such as a broker-dealer or director of an employee benefit
plan, may be subject to earlier cut-off dates established by such
intermediaries for receipt of such instructions.
Your vote is important regardless of the size of your holdings in the
Topiary Fund. Whether or not you expect to be present at the Special Meeting,
please complete and sign the enclosed proxy card and return it promptly in the
enclosed envelope. Certain Members may also vote by telephone or over the
internet; please see page 50 of the enclosed Proxy Statement for details. If
you vote by proxy and then desire to change your vote or vote in person at the
Special Meeting, you may revoke your proxy at any time prior to the votes
being tallied at the Special Meeting. Please refer to the section of the
enclosed Proxy Statement entitled "Voting Information and Requirements--Manner
of Voting" for more information.
By Order of the Board of Directors,
John H. Kim
Secretary
New York, New York
August 15, 2007
PROXY STATEMENT
THE TOPIARY FUND FOR BENEFIT PLAN INVESTORS (BPI) LLC
345 Park Avenue
New York, New York 10154
(212) 454-3000
This Proxy Statement is furnished to you as a member (each, a "Member")
of The Topiary Fund for Benefit Plan Investors (BPI) LLC (the "Topiary Fund").
A special meeting of the Members of the Topiary Fund (the "Special Meeting")
will be held at the offices of the Topiary Fund, at 345 Park Avenue, New York,
New York 10154, on Friday, September 21, 2007 at 9:00 a.m., Eastern time, to
consider the items that are listed below and discussed in greater detail
elsewhere in this Proxy Statement. Members of record of the Topiary Fund as of
the close of business on August 1, 2007 (the "Record Date") are entitled to
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof. This Proxy Statement, proxy card and accompanying
Notice of Special Meeting of Members were first sent or given to members of
the Topiary Fund on or about August 15, 2007. Whether or not you expect to
attend the Special Meeting or any adjournment or postponement thereof, the
Board of Directors of the Topiary Fund (the "Topiary Fund Board") requests
that Members vote their interests (each, an "Interest") by completing and
returning the enclosed form of proxy. After consideration of the factors they
believed relevant, the Topiary Fund Board has determined that the proposed
Reorganization is in the best interests of the Members of the Topiary Fund and
recommends that you vote "For" the proposed Reorganization (and the
reorganization involving the Topiary Master Fund and the Hatteras Master Fund
(each as defined below)).
The purposes of the Special Meeting are:
1. To consider a proposal to approve a reorganization (the
"Reorganization"), including the Agreement and Plan of Reorganization
attached to this Proxy Statement as Exhibit A and the Agreement and Plan
of Reorganization relating to the Topiary Master Fund (as defined below)
and the Hatteras Master Fund (as defined below), pursuant to which the
Topiary Fund would transfer substantially all of its assets and
liabilities to the Hatteras Multi-Strategy TEI Fund, L.P. (the "Hatteras
Fund") in exchange solely for limited partnership interests ("Limited
Partnership Interests") of the Hatteras Fund, which will be distributed
by the Topiary Fund to the holders of its Interests in complete
liquidation thereof; and
2. To transact such other business as may properly be presented at the
Special Meeting or any adjournment or postponement thereof.
The Topiary Fund is a closed-end investment company that has registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Topiary Fund has invested substantially all of its investable assets in The
Topiary Offshore Fund for Benefit Plan Investors (BPI) LDC, a Cayman Islands
limited duration company (the "Topiary Offshore Fund"). The Topiary Offshore
Fund in turn has invested substantially all of its assets in The Topiary
Master Fund for Benefit Plan Investors (BPI) LLC (the "Topiary Master Fund"),
a registered investment company with the same objectives as the Topiary Fund.
The Reorganization involves the transfer of substantially all of the
Topiary Fund's assets (including its investments held through the Topiary
Master Fund) to the Hatteras Fund and the assumption by the Hatteras Fund of
certain of the Topiary Fund's liabilities. The Boards of Directors of the
Topiary Fund and the Topiary Master Fund, which consist of the same three
independent directors, have approved the Reorganization. For purposes of this
Proxy Statement, unless otherwise indicated, references to the Topiary Fund
include its investment in the Topiary Master Fund and references to the
Topiary Fund Board include the board of directors of the Topiary Master Fund.
The Hatteras Fund is organized with a similar structure as the Topiary
Fund. Under this structure, the Hatteras Fund has invested substantially all
of its assets in the Hatteras Multi-Strategy Offshore Fund, LDC, a Cayman
Islands limited duration company (the "Hatteras Offshore Fund"). The Hatteras
Offshore Fund in turn invests substantially all of its assets in the Hatteras
Master Fund, L.P. (the "Hatteras Master Fund"), which is also registered under
the 1940 Act and has the same investment objective as the Hatteras Fund.
1
The Topiary Fund Board and the Board of Directors of the Hatteras Fund
(the "Hatteras Fund Board") have each approved the Reorganization.
If the Topiary Fund's Members approve the Reorganization, the Topiary
Fund will transfer substantially all of its assets and liabilities to the
Hatteras Fund. The Hatteras Fund will simultaneously issue Limited Partnership
Interests to the Hatteras Fund having a value equal to the net assets of the
Topiary Fund being acquired by the Hatteras Fund and determined as of
September 30, 2007 (the "Valuation Time"). Immediately thereafter, the Topiary
Fund will distribute these Limited Partnership Interests of the Hatteras Fund
to its Members and such Members will be admitted as Partners of the Hatteras
Fund. After distributing these Limited Partnership Interests, the Topiary Fund
will be dissolved and terminated as a limited liability company under Delaware
law and deregistered as an investment company under the 1940 Act. As a result
of the Reorganization, a Member of the Topiary Fund will have a capital
account (each, a "Capital Account") with the Hatteras Fund with a value based
on, and equal to, the value of their Capital Account with the Topiary Fund
but, due to the larger size of the combined fund, will hold a smaller
percentage of ownership in the combined fund than such Member held in the
Topiary Fund prior to the Reorganization. After the Reorganization, the
Hatteras Fund will continue to operate as a registered closed-end investment
company.
This Proxy Statement sets forth concisely information Members of the
Topiary Fund should know before voting on the Reorganization. Please read it
carefully and retain it for future reference.
The following documents, each having been filed with the Securities and
Exchange Commission (the "SEC"), accompany this Proxy Statement:
o the Confidential Offering Memorandum dated September 20, 2006 of the
Hatteras Fund (the "Hatteras Fund Offering Memorandum");
o the Annual Report of the Hatteras Fund for the year ended March 31,
2007 (the "Hatteras Fund Annual Report");
o the Limited Partnership Agreement of the Hatteras Fund (the
"Hatteras Fund Limited Partnership Agreement");
o the Form ADV of the Hatteras Investment Manager; and
o the Privacy Policy of the Hatteras Fund.
You previously have been sent copies of the Topiary Fund's current prospectus
dated July 26, 2006 (the "Topiary Fund Prospectus") and its Annual Report for
the year ended March 31, 2007.
The Funds are subject to the informational requirements of the 1940 Act
and, in accordance therewith, file reports and other information with the SEC.
Copies of the foregoing and any more recent reports filed after the date
hereof may be obtained without charge by calling or writing:
The Topiary Fund For Benefit Plan Investors (BPI) LLC Hatteras Multi-Strategy TEI Fund, L.P.
345 Park Avenue 8540 Colonnade Center Drive
New York, New York 10154 Suite 401
(212) 454-3000 Raleigh, North Carolina 27615
(919) 846-2324
2
You also may view or obtain these documents from the SEC:
In Person: At the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC
20549. Call 1 (202) 551-8090 for hours of operation
By Mail: Public Reference Section
Office of Consumer Affairs and Information Services
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
(duplicating fee required)
By E-mail: publicinfo@sec.gov
------------------
(duplicating fee required)
By Internet: www.sec.gov
The Topiary Fund Board knows of no business other than that discussed
above that will be presented for consideration at the Special Meeting. If any
other matter is properly presented, it is the intention of the persons named
in the enclosed proxy to vote in accordance with their best judgment.
No person has been authorized to give any information or make any
representation not contained in this Proxy Statement and, if so given or made,
such information or representation must not be relied upon as having been
authorized. This Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which,
or to any person to whom, it is unlawful to make such offer or solicitation.
The date of this Proxy Statement is August 15, 2007.
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TABLE OF CONTENTS
Page
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SUMMARY......................................................................................................5
The Proposed Reorganization..............................................................................5
Background and Reasons for the Proposed Transaction......................................................6
Investment Objectives and Principal Investment Strategies................................................8
Fees and Expenses........................................................................................9
Federal Tax Consequences................................................................................12
Purchase, Investor Suitability, Withdrawal, Transfer and Valuation of Interests.........................12
COMPARISON OF THE TOPIARY FUND AND THE HATTERAS FUND........................................................15
Comparison of Investment Objectives and Strategy........................................................15
Principal and Other Investment Risks....................................................................15
Investment Objectives and Principal Investment Strategies...............................................23
Performance Information.................................................................................32
Management of the Funds.................................................................................33
Other Service Providers.................................................................................35
Sales Charges, Placement Agent and Investor Servicing Fees..............................................36
Purchase, Investor Suitability, Withdrawal, Transfer and Valuation of Interests.........................37
FINANCIAL HIGHLIGHTS........................................................................................40
INFORMATION ABOUT THE REORGANIZATION........................................................................40
Eligible Participants...................................................................................40
General 40
Terms of the Reorganization Agreement...................................................................41
Section 15(f) of the Investment Company Act of 1940.....................................................42
Reasons for the Reorganization..........................................................................42
Material U.S. Federal Income Tax Consequences of the Reorganization.....................................45
Expenses of the Reorganization..........................................................................45
Capital Accounts........................................................................................46
Legal Matters...........................................................................................46
OTHER INFORMATION...........................................................................................46
Capitalization..........................................................................................46
Member/Limited Partner Information......................................................................46
Member/Limited Partner Rights and Obligations...........................................................46
Member/Limited Partner Proposals........................................................................47
Solicitation of Proxies.................................................................................47
VOTING INFORMATION AND REQUIREMENTS.........................................................................48
General.................................................................................................48
Member Approval.........................................................................................48
Manner of Voting........................................................................................49
FORM OF AGREEMENT AND PLAN OF REORGANIZATION (FEEDER FUNDS)................................................A-1
4
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and is qualified in its entirety by reference to the more
complete information contained herein. Members should read the entire Proxy
Statement carefully.
Each of the Topiary Fund and the Hatteras Fund is a closed-end management
investment company registered with the SEC. The Topiary Fund is organized as a
limited liability company under the laws of the State of Delaware. The
Hatteras Fund is organized as a limited partnership under the laws of the
State of Delaware. The Topiary Fund's investment objective is to generate
consistent long-term appreciation and returns across all market cycles by
investing substantially all of its assets, through its indirect investment in
the Topiary Master Fund, in the securities of approximately 50 to 100
privately placed investment vehicles, typically referred to as hedge funds,
managed pursuant to various alternative or non-traditional investment
strategies ("Investment Funds"). The Topiary Fund is designed for investment
by tax-exempt and tax-deferred investors. The Hatteras Fund's investment
objective is to generate consistent long-term appreciation and returns across
all market cycles. Substantially all of the Hatteras Fund's assets are
invested indirectly in the Hatteras Master Fund, in a structure which is
similar to the Topiary Fund's investment in the Topiary Master Fund. The
Hatteras Fund seeks to allocate its assets among at least 20 advisors (each,
an "Advisor"), generally through investments in a wide range of investment
vehicles managed by the Advisors utilizing one or more of six investment
strategies. As of March 31, 2007, the Hatteras Master Fund had allocated its
assets to 79 Advisors and a total of 93 underlying investment entities. Like
the Topiary Fund, the Hatteras Fund is designed for investment by tax-exempt
and tax-deferred investors.
The Topiary Fund's Interests are registered under the Securities Act of
1933, as amended (the "Securities Act"), and are publicly offered on a
continuous basis but are subject to substantial limits on transferability and
resale. The Hatteras Fund's Limited Partnership Interests have not been and
will not be registered under the Securities Act and are offered continuously
on a private placement basis. The Topiary Fund has adopted a policy of
conducting offers to repurchase approximately 15% of its Interests from
investors twice a year. The Hatteras Fund conducts tender offers generally on
a quarterly basis and for approximately 5% of its Limited Partnership
Interests (but in no event more than 20% of its Limited Partnership Interests
per quarter).
The Proposed Reorganization
The Topiary Fund Board, all of the Directors of which are not "interested
persons" of the Topiary Fund (as defined in the 1940 Act) (the "independent
Directors"), has unanimously approved the Reorganization, including an
Agreement and Plan of Reorganization (the "Feeder Fund Reorganization
Agreement") which sets forth the terms of the Reorganization. The Topiary Fund
Board has also unanimously approved an Agreement and Plan of Reorganization
relating to the Topiary Master Fund and the Hatteras Master Fund (the "Master
Fund Reorganization Agreement") and an Agreement and Plan of Reorganization
relating to the Topiary Offshore Fund and the Hatteras Offshore Fund (the
"Offshore Fund Reorganization Agreement" and together with the Feeder Fund
Reorganization Agreement and the Master Fund Reorganization Agreement, the
"Reorganization Agreement"). The Hatteras Fund Board, including its
independent Directors, has also unanimously approved the Reorganization and
the Reorganization Agreement. Subject to approval by the Topiary Fund Members,
the Reorganization Agreement provides for:
o the transfer of substantially all the assets and liabilities of the
Topiary Fund to the Hatteras Fund in exchange for Limited
Partnership Interests of the Hatteras Fund;
o the distribution of such Limited Partnership Interests to the
Topiary Fund's Members; and
o the dissolution and termination of the Topiary Fund.
If the proposed Reorganization is approved and completed, the Topiary
Fund's Members would hold Limited Partnership Interests of the Hatteras Fund
with an aggregate value based on, and equal to, the aggregate value of the
Topiary Fund Interests owned as of the Valuation Time.
5
Background and Reasons for the Proposed Transaction
Prior to the quarterly meeting of the Topiary Fund Board held on March 8,
2007, DBIM distributed to the Directors a presentation summarizing its
assessment of the prospects for attracting additional assets to support the
growth of the Topiary Fund. In that report, DBIM analyzed the factors that had
adversely impacted the distribution of the Topiary Fund and the reasons why
DBIM had concluded it would be unable to successfully market a retail-oriented
fund (such as the Topiary Fund) under existing market conditions.
At the March 8, 2007 meeting of the Topiary Fund Board, senior management
of DBIM reviewed their deliberations relating to the Topiary Fund and their
consideration of alternatives to the liquidation of the Topiary Fund,
including merging the Topiary Fund into an affiliated fund, transferring the
Topiary Fund management to a third party adviser and/or amending its
structure. The DBIM representatives noted the Topiary Fund's relatively high
expense ratio and the fact that DBIM had subsidized the Topiary Fund since its
inception but did not plan to continue such subsidization after April 1, 2008.
The DBIM representatives further indicated that they had not, at that time,
identified a viable alternative to liquidation and, accordingly, had concluded
that, under the current circumstances, liquidation of the Topiary Fund was in
investors' overall best interests. The Directors discussed DBIM's
recommendation and requested additional information from DBIM but took no
action with respect to the liquidation proposal.
Subsequent to the March 8, 2007 meeting, DBIM was approached by Hatteras
Investment Partners LLC (the "Hatteras Investment Manager"), which proposed a
reorganization of the Topiary Fund and the Hatteras Fund, citing the Funds'
similar structures, investment objectives, investment strategies and target
investor pool. DBIM then reviewed the general nature of the proposal with the
Board of Directors of the Topiary Fund, which requested DBIM to undertake,
with counsel, a due diligence review of the Hatteras Fund and the Hatteras
Fund Manager, including (without limitation) their organizational structure,
financial position and investment operations. DBIM reported its findings to
the Board of Directors of the Topiary Fund and their independent counsel
during several meetings and in various memoranda which the Topiary Fund Board
had the opportunity to review in consultation with their independent counsel.
DBIM also conducted on-site due diligence with the Hatteras Investment Manager
at its offices in North Carolina, where DBIM met with the investment and
operations personnel of the Hatteras Investment Manager.
At an in-person meeting held on May 29, 2007, the Topiary Fund Board met
with the President and Chief Operating Officer of the Hatteras Fund and
continued its consideration of the proposed Reorganization. After considering
all factors it considered relevant, the Topiary Fund Board unanimously
approved the Reorganization subject to the Board's approval of the contractual
arrangements to be negotiated with the Hatteras Fund and its affiliates
regarding the Reorganization. On July 24, 2007, the Topiary Fund's Board of
Directors approved the Reorganization documentation and authorized proceeding
with the Reorganization. At the same time, the Board of Directors of the
Topiary Master Fund, which consists of the same members as the Topiary Fund
Board, also authorized the participation by the Topiary Master Fund in the
Reorganization. The Board of Directors of the Topiary Fund and the Topiary
Master Fund were represented by independent legal counsel throughout their
consideration of the Reorganization.
In approving the Reorganization, the Topiary Fund Board determined that
participation in the Reorganization is in the best interests of the Topiary
Fund and its Members and that the Interests of the Members of the Topiary Fund
will not be diluted as a result of the Reorganization. If the Reorganization
is approved by Members, a Capital Account with the Hatteras Fund will be
established for each Member of the Topiary Fund with a value based on, and
equal to, the value of such Member's Capital Account with the Topiary Fund.
However, because the combined fund will have a larger asset base, a Member of
the Topiary Fund will hold a lower ownership percentage in the combined fund
after the Reorganization than such Member held in the Topiary Fund immediately
prior to the Reorganization.
The factors considered by the Topiary Fund Board with regard to the
Reorganization include, but are not limited to, the following:
6
o The similarity of the investment objectives and policies of the
Topiary Fund and the Hatteras Fund. See "Comparison of the Topiary
Fund and the Hatteras Fund--Investment Objectives and Principal
Investment Strategies."
o The expectation that the combined fund will achieve certain
operating efficiencies from its larger net asset size and will be a
more viable long-term investment product than the Topiary Fund.
o The operating expenses of the Hatteras Fund are higher than those of
the Topiary Fund. As of March 31, 2007, DBIM contractually capped
the operating expense ratio of the Topiary Fund at 1.75% (the
"Topiary Fund Expense Limitation Agreement"). DBIM has informed the
Topiary Fund Board that it will not renew the Topiary Fund Expense
Limitation Agreement for the fiscal year beginning April 1, 2008.
Based on the current assets of the Topiary Fund, DBIM has estimated
that the annual expense ratio following the expiration of the
Topiary Fund Expense Limitation Agreement will be approximately
1.96%. The Hatteras Investment Manager and the Hatteras General
Partner have agreed to cap the Hatteras Fund's operating expense
ratio (excluding certain investment related expenses such as foreign
tax withholdings and line of credit interest expenses ("Investment
Related Expenses")) at 2.35% through November 1, 2008. As of June
30, 2007, the Hatteras Fund's net expense ratio was 2.19%.
The Topiary Fund Board has considered the operating expenses of both
the Topiary Fund and the Hatteras Fund as described above, the fact
that DBIM will not renew the Topiary Fund Expense Limitation
Agreement and the fact that, if the Reorganization is not approved,
DBIM will propose that the Topiary Fund be liquidated. If the
Topiary Fund Board approves the liquidation, Members would receive
their entire liquidation proceeds on or after 2010 (as described
more fully below). On the basis of these considerations, the Topiary
Fund Board has determined that the higher operating expense ratio of
the Hatteras Fund is justified and in the best interests of Members
as the combined fund's net operating expense ratio will be more
stable than the Topiary Fund's expense ratio, which will
dramatically increase as its assets decline from, among other
things, liquidation and distributions to Members, repurchase offers
and/or from increases in levels of operating expenses.
o The confirmation from DBIM to the Topiary Fund Board that there will
not be imposed an "unfair burden" (as such term is defined under
Section 15(f) of the 1940 Act) on the Topiary Fund as a result of
the Reorganization.
o The composition, experience and expertise of the investment team
that will manage the combined fund and the team's investment style
and strategies (as described below under "Comparison of the Topiary
Fund and the Hatteras Fund--Investment Objectives and Principal
Investment Strategies"). See "Management of the Funds."
o The relative performance histories of each Fund.
o The Hatteras Fund's distribution program and focus on
retail-oriented accounts.
o The fact that the costs associated with the Reorganization
attributable to Topiary Fund will be borne by DBIM, the Hatteras
Investment Manager or their respective affiliates and, in any event,
will not be borne by Members.
o The organization and financial stability of the Hatteras Investment
Manager and the Hatteras General Partner.
o The Hatteras Investment Manager's and the Hatteras General Partner's
compliance program.
o The fact that DBIM considered another potential acquiror of the
Topiary Fund but ultimately determined that such a transaction was
not feasible.
7
o The fact that, if the Reorganization is not approved by Members,
DBIM will propose to the Topiary Fund Board that the Topiary Fund be
liquidated and deregistered as an investment company under the 1940
Act. DBIM has informed the Board of Directors that the Topiary Fund
would not be a viable investment if it did not increase its asset
base, and that, under current market conditions, DBIM has
experienced difficulty in increasing the Topiary Fund's assets, as
described in more detail above. If the Topiary Fund were to
liquidate, Members would receive interim liquidation payments as the
Fund redeemed its investments. DBIM believes that Members would not
receive their final share of the proceeds from the liquidation until
the Topiary Fund is able to fully redeem all of its underlying
investments, which is estimated to occur in 2010 (or potentially
later).
The approval determinations were made on the basis of each Director's
business judgment after consideration of all of the factors taken as a whole,
although individual Directors may have placed different weight on various
factors and assigned different degrees of materiality to various conclusions.
The Topiary Fund Board unanimously recommends that you vote "For" the
Reorganization.
Investment Objectives and Principal Investment Strategies
Set forth below is information regarding the investment objectives and
principal investment strategies of both the Topiary Fund and the Hatteras
Fund. More detailed information is set forth under the heading "Comparison of
the Topiary Fund and the Hatteras Fund" and in the attached copy of the
accompanying Hatteras Fund's confidential offering memorandum (the "Hatteras
Fund Offering Memorandum").
Investment Objectives. The primary investment objective of the Topiary
Fund is to generate consistent long-term appreciation and returns across all
market cycles. None of the name of the Topiary Fund, the Topiary Offshore
Fund, or the Topiary Master Fund, any aspect of the Topiary Fund's, the
Topiary Offshore Fund's, or the Topiary Master Fund's investment program, or
the portfolio allocation range described below is a fundamental investment
policy of the Topiary Fund, and each can be changed by the Topiary Fund's
Board without Member approval.
The Hatteras Fund's investment objective is to generate consistent
long-term appreciation and returns across all market cycles. The Hatteras
Fund's investment objective is non-fundamental and may be changed by the
Hatteras Fund Board without the approval of the limited partners (each, a
"Limited Partner" or a "Partner"). Except as otherwise stated in the Hatteras
Fund Offering Memorandum, the investment policies, asset allocation ranges,
strategies and restrictions of the Hatteras Fund are not fundamental and may
be changed by the Hatteras Fund Board without the approval of Limited
Partners. The combined fund will pursue the Hatteras Fund's investment
objective.
Principal Investment Strategies. The Topiary Fund attempts to achieve its
investment objective by investing all or substantially all of its investable
assets, through the Topiary Offshore Fund, in the Topiary Master Fund, which
invests in the securities of approximately 50 to 100 Investment Funds managed
pursuant to various alternative or non-traditional investment strategies,
which may be viewed as encompassing four broadly defined primary categories:
Relative Value; Event Driven; Equity Long/Short; and Global Macro. The actual
number of Investment Funds is determined in the absolute discretion of DBIM.
The Topiary Master Fund generally limits investments in any one Investment
Fund in its portfolio to no more than 10% of the Topiary Fund's assets.
To achieve its investment objective, the Hatteras Fund provides its
Limited Partners with access to a broad range of investment strategies and
asset categories, trading advisors and overall asset allocation services
typically available on a collective basis to larger institutions through an
investment of substantially all of its assets in the Hatteras Offshore Fund,
which in turn invests substantially all of its assets in the Hatteras Master
Fund. The Hatteras Master Fund will seek to allocate the proceeds among at
least 20 Advisors, generally through investments in a wide range of investment
vehicles ("Advisor Funds") managed by the Advisors utilizing one or more of
six investment strategies: Opportunistic Equity, Enhanced Fixed Income,
Absolute Return, Energy/Natural Resources, Private Equity and Real Estate, the
last two strategies of which are not part of the Topiary Fund's investment
program (although the Topiary Fund may be indirectly exposed to private equity
and/or real estate strategies through investments made by an Investment Fund
in such sectors).
8
In addition to the Hatteras Fund, the Hatteras Diversified Strategies
Fund, LP, Hatteras Diversified Strategies Offshore Fund, Ltd., Hatteras
Multi-Strategy Fund I, LP, Hatteras Multi-Strategy Institutional Fund, LP and
Hatteras Multi-Strategy TEI Institutional Fund, LP, the last three of which
are registered under the 1940 Act as closed-end investment companies, invest
all or substantially all of their assets in the Hatteras Master Fund.
The combined fund's principal investment strategies will be those of the
Hatteras Fund.
Comparison. Both the Hatteras Fund and the Topiary Fund share the same
primary investment objective which is to generate consistent long-term
appreciation and returns across all market cycles. The investment strategies
used by each Fund are also similar but not identical. The Topiary Fund
attempts to achieve its investment objective by investing all or substantially
all of its investable assets, through the Topiary Offshore Fund, in the
Topiary Master Fund, which invests in the securities of approximately 50 to
100 Investment Funds managed pursuant to various alternative or
non-traditional investment strategies, as described above. To achieve its
investment objective, the Hatteras Fund, through its indirect investment in
the Hatteras Master Fund, seeks to allocate the proceeds among at least 20
Advisors, generally through investments in a wide range of investment vehicles
managed by the Advisors utilizing one or more of six investment strategies,
including Private Equity and Real Estate which are not part of the Topiary
Fund's investment program. As of March 31, 2007, the Hatteras Fund had
allocated its assets to 79 Advisors and a total of 93 underlying investment
entities. Both the Topiary Fund and the Hatteras Fund are designed for
investment by tax-exempt and tax-deferred investors. Both of the Topiary Fund
and the Hatteras Fund are non-diversified and, therefore, subject to the risks
associated with investing in a small number of issuers. See "Comparison of the
Topiary Fund and the Hatteras Fund--Principal and Other Investment Risks."
The combined fund will use the Hatteras Fund's policies.
Fees and Expenses
If the Reorganization is approved and completed, holders of Interests in
the Topiary Fund will receive Limited Partnership Interests in the Hatteras
Fund.
9
Fee Table for of the Hatteras Fund, the Topiary Fund
and the Pro Forma Combined Fund as of March 31, 2007 (unaudited)
The fee tables below provide information about the fees and expenses
attributable to the Interests of the Topiary Fund and the Limited Partnership
Interests of the Hatteras Fund and the estimated pro forma fees and expenses
attributable to the Limited Partnership Interests of the Pro Forma combined
fund, assuming the Reorganization had taken place on March 31, 2007. Future
fees and expenses may be greater or less than those indicated below.
Interests/Limited Partnership Interests
---------------------------------------------
Actual Pro Forma
--------------------------------------------
Hatteras Topiary Combined
Fund Fund Fund
----------- ------------- --------------
Member/Limited Partner Fees (fees paid directly from
a Member's/Limited Partner's investment)(a):
Maximum Sales Charge (Load) (as a percentage of
offering price) None 2.50%(a) None
Maximum Placement Fee (as a percentage of offering
price) ............................................ 2.00%(b) None 2.00%(b)
Maximum Early Withdrawal Charge........................ 5.00%(c) None 5.00%(c)
Annual Fund Operating Expenses (as a percentage of net
assets attributable to Interests/Limited Partnership
Interests):
Investment Management Fees............................. 1.00%(d) 1.00%(e) 1.00%(d)
Administrative Fee..................................... See (g) 0.08%(e) See (g)
Investor Servicing Fee................................. 0.75%(f) None 0.75%(f)
Other Expenses......................................... 0.89%(g) 0.87%(h)(i) 0.58%(g)
Total Annual Expenses.................................. 2.64%(j) 1.95% 2.33%(j)
----------- ------------- --------------
Waivers/Reimbursement.................................. 0.00%(k) (0.20)%(l) 0.00%(k)
----------- ------------- --------------
----------- ------------- --------------
Net Annual Expenses.................................... 2.64% 1.75% 2.33%
----------- ------------- --------------
Incentive Allocation................................... 0.50%(m) 0.22%(n) 0.50%(m)
----------- ------------- --------------
Net Annual Expenses and Incentive Allocation........... 2.94% 1.97% 2.83%
=========== ============= ===============
(footnotes appear on page 11)
10
--------------------------------------
(a) The sales charge is subject to waivers for certain types of investors.
See "Subscription for Interests" in the Topiary Fund's Prospectus.
(b) Investors are charged a placement fee of 2.00% for investments in the
amount of $100,000 to $499,999, 1.50% for investments in the amount of
$500,000 to $999,999 and 1.00% for investments of $1,000,000 or more, as
more fully described under the heading "Placement Fee" in the Hatteras
Fund Offering Memorandum. Under a right of accumulation offered by the
Hatteras Fund, the amount of each additional investment in the Hatteras
Fund by a Partner will be aggregated with the amount of the Partner's
initial investment and any other additional investments by the Partner in
determining the applicable placement fee. The right of accumulation also
applies to investments in the Hatteras Fund by a Partner's spouse and
investments for certain related accounts. The placement fee is paid to
the Hatteras Fund's placement agent of the Limited Partnership Interests.
(c) A Partner participating in a repurchase offer may be subject to a
repurchase fee payable to the Hatteras Fund equal to 5% of the amount
requested if such Partner has been a Partner for less than 12 months
prior to the valuation date.
(d) The Hatteras Fund and the Hatteras Offshore Fund do not pay the Hatteras
Investment Manager a Management Fee directly, but the Partners bear an
indirect share of this fee through the Hatteras Fund's investment in the
Hatteras Master Fund through the Hatteras Offshore Fund. For its
provision of services to the Hatteras Master Fund, the Hatteras
Investment Manager receives an annual Management Fee, payable monthly in
arrears, equal to 1.00% of the Hatteras Master Fund's net assets
determined as of month end.
(e) Although neither the Topiary Fund nor the Topiary Offshore Fund pay any
direct investment management or advisory fee, the Topiary Fund and the
Topiary Offshore Fund bear, as a result of their investment in the
Topiary Master Fund, their allocable portion of the 1.00% Investment
Management Fee and 0.08% Administrative Fee charged to the Topiary Master
Fund.
(f) The Investor Servicing Fees payable to the Hatteras Investment Manager is
borne pro rata by all Partners of the Hatteras Fund
(g) Includes organizational expenses, insurance costs, directors' fees and
the Hatteras Fund's portion of the Hatteras Master Fund's total expenses,
including administrative expenses. Directors' fees, insurance costs and
other costs have been allocated pro rata among the Hatteras Master Fund
and all of its feeder funds (including the Hatteras Fund). Partners also
indirectly bear a portion of the asset-based fees, performance and
incentive fees or allocations and other expenses incurred by the Hatteras
Master Fund as an investor in Advisor Funds or Advisor Accounts.
(h) Reflects all expected ordinary operating expenses of the Topiary Fund,
and the Topiary Fund's allocable portion of all expected ordinary
expenses of the Topiary Master Fund, other than the Investment Management
Fee and the Administrative Fee. The expenses of the offering of Interests
were amortized over a twelve month period beginning upon commencement of
the Topiary Fund's operations and ending September 30, 2005. The
organizational expenses of the Topiary Fund, the Topiary Offshore Fund,
and the Topiary Master Fund were paid by DBIM. The Topiary Offshore Fund
is expected to have minimal expenses, and DBIM, or an affiliate of DBIM,
has agreed to bear all operating expenses of the Topiary Offshore Fund.
(i) "Other Expenses" are based on estimated amounts for the current fiscal
year based on amounts incurred in the fiscal year of the Topiary Fund
ended March 31, 2007.
(j) As of June 30, 2007, the Hatteras Fund's net expense ratio was 2.19%.
(k) The Hatteras Investment Manager has contractually agreed to waive its
Investor Servicing Fee and/or reimburse Other Expenses for the period
November 1, 2005 through November 1, 2008, so that the Total Annual
Expenses (excluding Investment Related Expenses) for this period will not
exceed 2.35% for the Hatteras Fund (the "Hatteras Fund Expense
Limitation"). The Hatteras Fund will carry forward, for a period not to
exceed (3) three years from the date on which a waiver or reimbursement
is made by the Hatteras Investment Manager, any expenses in excess of the
Expense Limitation and repay the Hatteras Investment Manager such
amounts, provided the Hatteras Fund is able to effect such reimbursement
and remain in compliance with the Hatteras Fund Expense Limitation
disclosed in the then effective confidential offering memorandum of the
Hatteras Fund.
(1) Pursuant to the Expense Limitation Agreement, DBIM has contractually
agreed to waive and/or reimburse the Topiary Fund's expenses to the
extent necessary to ensure that the Topiary Fund's annualized expenses
(excluding the Incentive Allocation, if any) will not exceed 1.75%. The
initial term of the Expense Limitation Agreement ended on March 31, 2005
and has been renewed for additional one-year terms now ending on March
31, 2008. DBIM has given written notice to the Topiary Fund and the
Topiary Master Fund that the Expense Limitation Agreement will not be
renewed for the fiscal year beginning April 1, 2008.
(m) The Hatteras General Partner will be allocated a Performance Allocation
that is equal to 10% of the excess of the new net profits of the Hatteras
Fund (calculated annually or upon the withdrawal of Limited Partnership
Interests of the Hatteras Fund by a Partner) over the yield-to-maturity
of the 90-day U.S. Treasury Bill as reported by the Wall Street Journal
for the last business day of the preceding calendar year of the Hatteras
Fund.
(n) An Incentive Allocation of 10% of the net profits in excess of the
Hurdle, if any, of the Capital Account of each Member will be made to
DBIM in respect of such Capital Account with respect to each Performance
Period. The Incentive Allocation will be applied on a "high water mark"
basis such that in the event a Capital Account incurs a net loss with
respect to one Performance Period, no Incentive Allocation will be made
for any subsequent Performance Period until such net loss is first
recovered (taking into account interim repurchases, if any). Immediately
prior to the effective date of the Reorganization, any accrued Incentive
Allocations will be reallocated from the Capital Accounts of Topiary Fund
Members to the Capital Account of DBIM.
11
Examples:
These examples assume that an investor invests $10,000 in the relevant
Fund for the time periods indicated, that the investment has a 5% return each
year, that the investor pays the sales charges, if any, that apply and that
the Fund's operating expenses remain the same. These assumptions are not meant
to indicate that the investor will receive a 5% annual rate of return. The
annual return may be more or less than the 5% used in these examples. Although
actual costs may be higher or lower, based on these assumptions, an investor's
costs would be:
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------
Hatteras Fund $462 $1,004 $1,572 $3,114
Topiary Fund $423 $787 $1,219 $2,418
Combined Fund (a) $431 $913 $1,420 $2,813
-------------------------
(a) Assuming the Reorganization had taken place on March 31, 2007.
Federal Tax Consequences
In general, the Topiary Fund will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the transfer of substantially all
of its assets and liabilities in exchange for Limited Partnership Interests in
the Hatteras Fund or as a result of its liquidation, and Members of the
Topiary Fund generally will not recognize any gain or loss for U.S. federal
income tax purposes upon the receipt of a Limited Partnership Interest in the
Hatteras Fund in connection with the Reorganization.
For more information about the U.S. federal income tax consequences of
the Reorganization, see "Material U.S. Federal Income Tax Consequences of the
Reorganization."
Purchase, Investor Suitability, Withdrawal, Transfer and Valuation of
Interests
Procedures for the purchase, withdrawal, transfer and valuation of
interests and the investor suitability requirements of the Topiary Fund and
the Hatteras Fund are substantially similar.
Purchase. Generally, the minimum initial investment in the Topiary Fund
is $25,000 and initial and subsequent purchases of Interests generally are
accepted monthly. The Hatteras Fund generally accepts initial and additional
subscriptions as of the first business day of each calendar month. Partners
must purchase at least $100,000 of Limited Partnership Interests. The minimum
additional investment by existing Partners is $25,000. The Hatteras General
Partner has agreed to waive the minimum initial investment in the Hatteras
Fund with respect to Members of the Topiary Fund who acquire Limited
Partnership Interests in the Reorganization.
Investor Suitability. Each prospective investor in the Topiary Fund (and
Members who subscribe for additional Interests) is required to certify that
he/she is: (i) an "accredited investor" as defined in Regulation D under the
Securities Act; and (ii) a "qualified client" as defined in Rule 205-3 of the
Advisers Act. In addition, because the Topiary Fund is designed for investment
primarily by tax-exempt and tax-deferred investors, investors must qualify as
tax-exempt or tax-deferred for U.S. federal income tax purposes.
Generally, investors in the Hatteras Fund, like investors in the Topiary
Fund, must be "accredited investors" and "qualified clients" as those terms
are defined above and under applicable federal securities laws. Certain
employees of the Hatteras Investment Manager and its affiliates may also
acquire Limited Partnership Interests. In addition, like Interests in the
Topiary Fund, Limited Partnership Interests in the Hatteras Fund are offered
only to investors that qualify as tax-exempt or tax-deferred for U.S. federal
income tax purposes. Investors in the Hatteras Fund are also required to
satisfy the Hatteras Fund's "Know Your Client" requirements and to provide the
Hatteras Fund with additional information in connection therewith.
12
Withdrawals. The Topiary Fund has adopted a general policy under which it
offers to repurchase Interests from Members on a semi-annual basis and for up
to approximately 15% of the Topiary Fund's Interests at their net asset value.
A Member who tenders some but not all of the Member's Interest for repurchase
will be required to maintain a minimum Capital Account balance of $25,000. If
the value of Interests tendered for repurchase exceeds the value the Topiary
Fund intended to repurchase, the Topiary Fund will repurchase Interests on a
pro rata basis, and tendering Members will not have all of their tendered
Interests repurchased by the Topiary Fund.
The Hatteras Fund generally conducts repurchase offers quarterly as of
March 31, June 30, September 30 and December 31 of each year. In each
repurchase offer, the Hatteras Fund intends to offer to repurchase
approximately 5% of its Limited Partnership at their net asset value as of the
relevant date (but in no event to exceed 20% of the Limited Partnership
Interests per quarter). If the value of Limited Partnership Interests tendered
for repurchase exceeds the value the Hatteras Fund intended to repurchase, the
Hatteras Fund will repurchase Limited Partnership Interests on a pro rata
basis, and tendering Limited Partners will not have all of their tendered
Limited Partnership Interests repurchased by the Hatteras Fund. The Hatteras
Fund may charge Partners participating in a repurchase offer a repurchase fee
payable to the Hatteras Fund equal to 5% of the amount requested if such
Partner has been a Partner for less than 12 months prior to the relevant
Valuation Date. The Hatteras General Partner has agreed that the Members of
the Topiary Fund who acquire Limited Partnership Interests as a result of the
Reorganization shall be credited by the Hatteras Fund with, and shall carry
over, the holding period of their Topiary Fund Interests for all purposes
including the calculation of any repurchase fee.
Transfer. Interests held by Members in the Topiary Fund as well as
Limited Partnership Interests in the Hatteras Fund held by Partners may be
transferred only (i) by operation of law pursuant to the death, divorce,
bankruptcy, insolvency, or dissolution of a Member/Limited Partner or (ii)
under extremely limited circumstances, with the written consent of the
relevant Fund's Board (which may be withheld in its sole and absolute
discretion).
The Topiary Fund Board generally will not consider consenting to a
transfer unless the transfer is (i) one in which the tax basis of the Interest
in the hands of the transferee is determined, in whole or in part, by
reference to its tax basis in the hands of the transferring Member (e.g.,
certain gifts and contributions to family entities) or (ii) to members of the
transferring Member's immediate family (siblings, spouse, parents, and
children). Notice to the Topiary Fund of any proposed transfer must include
evidence satisfactory to the Topiary Fund Board that the proposed transferee,
at the time of transfer, meets any requirements imposed by the Topiary Fund
with respect to investor eligibility and suitability.
Unless counsel to the Hatteras Fund confirms that the transfer will not
cause the Hatteras Fund to be treated as a "publicly traded partnership"
taxable as a corporation, the Hatteras Fund Board generally will not consider
consenting to a transfer of a Limited Partnership Interest (or portion
thereof) unless the transfer is: (i) one in which the tax basis of the Limited
Partnership Interest in the hands of the transferee is determined, in whole or
in part, by reference to its tax basis in the hands of the transferring
Partner (e.g., certain transfers to affiliates, gifts and contributions to
family entities); (ii) to members of the transferring Partner's immediate
family siblings, spouse, parents, or children); or (iii) a distribution from a
qualified retirement plan or an individual retirement account.
Valuation. The net asset value of the Topiary Fund, the Topiary Offshore
Fund and the Topiary Master Fund equal the value of the assets of the Topiary
Fund, the Topiary Offshore Fund and the Topiary Master Fund, respectively,
less all of each entity's respective liabilities, including accrued fees and
expenses. In computing its net asset value, the Topiary Fund values its
interest in the Topiary Offshore Fund at the value of the Topiary Offshore
Fund's interest in the Topiary Master Fund, and the Topiary Offshore Fund
values its interest in the Topiary Master Fund at the net asset value provided
by the Topiary Master Fund to the Topiary Offshore Fund and the Topiary Fund.
The Topiary Master Fund Board has approved procedures pursuant to which
the Topiary Master Fund will value its investments in Investment Funds at fair
value. As a general matter, the fair value of the Topiary Master Fund's
interest in an Investment Fund represents the amount that the Topiary Master
Fund could reasonably expect to receive from an Investment Fund if the Topiary
Master Fund's interest were redeemed at the time of valuation, based on
information reasonably available at the time the valuation is made and that
the Topiary Master Fund believes to be reliable. In the event that an
Investment Fund does not report a month-end value to the Master Fund on a
timely basis, the Topiary Master Fund will determine the fair value of such
Investment Fund based on the most
13
recent final or estimated value reported by the Investment Fund, as well any
other relevant information available at the time the Topiary Master Fund
values its portfolio.
The net asset value ("NAV") of the Hatteras Fund will equal the value of
the total assets of the Hatteras Fund, and the assets of the Hatteras Offshore
Fund and the Hatteras Master Fund, respectively, attributable to the Hatteras
Fund less all of each entity's respective liabilities, including accrued fees
and expenses, attributable to the Hatteras Fund. In computing its NAV, the
Hatteras Fund will value its interest in the Hatteras Offshore Fund at the
value of the Hatteras Offshore Fund's interest in the Hatteras Master Fund,
and the Hatteras Offshore Fund will value its interest in the Hatteras Master
Fund at the NAV provided by the Hatteras Master Fund to the Hatteras Offshore
Fund and the Hatteras Fund.
The Hatteras Investment Manager oversees the valuation of the Hatteras
Master Fund's investments, including interests in the Advisor Funds, in
accordance with written policies and procedures that the Hatteras Master Fund
Board has approved for purposes of determining the fair value of securities
held by the Hatteras Master Fund, including the fair value of the Hatteras
Master Fund's investments in Advisor Funds. As a general principle, the fair
valuation of a security reflects the amount that the Hatteras Investment
Manager determines that the Hatteras Master Fund might reasonably expect to
receive for the security upon the sale or redemption of the security at the
time the valuation is made, based on information reasonably available at the
time the valuation is made and that the Hatteras Investment Manager believes
to be reliable. In the case of a security issued by an Advisor Fund, this
would typically be equal to the amount that the Hatteras Master Fund might
reasonably expect to receive from the Advisor Fund if the Hatteras Master
Fund's interest were redeemed on the date as of which it was valued (without
accounting for any early redemption fees or lock-up periods that may be
applicable to the Hatteras Master Fund's interest). The Hatteras Investment
Manager makes this determination based on the valuation most recently provided
by the Advisor Fund in accordance with the policies the Advisor Fund has
established, which may constitute the Advisor Fund's best estimate at the time
based upon data then available, as well as any other relevant information
reasonably available at the time of the valuation of the Hatteras Master
Fund's portfolio.
14
COMPARISON OF THE TOPIARY FUND
AND THE HATTERAS FUND
Comparison of Investment Objectives and Strategy
Both the Hatteras Fund and the Topiary Fund share the same primary
investment objective which is to generate consistent long-term appreciation
and returns across all market cycles.
The investment strategies that DBIM employs in investing the Topiary
Fund's assets may be viewed as encompassing four broadly defined primary
categories: Relative Value; Event Driven; Equity Long/Short; and Global Macro.
The Advisor Funds in which the Hatteras Fund invests utilize one or more of
six investment strategies: Opportunistic Equity, Enhanced Fixed Income,
Absolute Return, Energy/Natural Resources, Private Equity and Real Estate, the
last two strategies of which are not part of the Topiary Fund's investment
program (although the Topiary Fund may be indirectly exposed to private equity
and/or real estate strategies through investments made by an Investment Fund
in such sectors). The Topiary Fund generally limits investments in any one
Investment Fund in its portfolio to no more than 10% of the Topiary Fund's
assets. The Hatteras Fund does not similarly limit its investments but does
have a policy whereby it shall not invest capital which, at the time invested,
represents more than 10% of an Advisor Fund's assets. In implementing its
investment strategy, the Topiary Fund invests in securities of approximately
50 to 100 Investment Funds. The Hatteras Fund invests in at least 20 Advisors,
generally through investments in a investment vehicles managed by the
Advisors. As of March 31, 2007, the Topiary Master Fund had investments in 49
Investment Funds and the Hatteras Master Fund had allocated its assets to 79
Advisors and a total of 93 underlying investment entities.
Principal and Other Investment Risks
Because of their similar investment objectives, many of the risks
associated with an investment in the Hatteras Fund are substantially similar
to those associated with an investment in the Topiary Fund. Such risks include
market and selection risk, borrowing and leverage risk, as well as the risks
associated with investing in alternative investment vehicles, foreign
securities, convertible securities or in derivatives, illiquid and restricted
securities, Rule 144A securities and securities lending. Additional
information regarding the risks associated with an investment in the Hatteras
Fund is set forth in the Hatteras Fund Offering Memorandum that accompanies
this Proxy Statement.
Each Fund's investment program is speculative and entails substantial
risks. There can be no guarantee that interests of the combined fund will not
lose value. As with any fund, the value of the combined fund's investments,
and, therefore, the value of its interests, may fluctuate. These changes may
occur because a particular market in which the combined fund invests is rising
or falling. Interests in each Fund are subject to substantial restrictions on
transferability and resale. Each Fund may offer to repurchase its interests,
but an interest in either Fund will not be redeemable at a Member's/Limited
Partner's option nor will it be exchangeable for interests, units, or shares
of any other fund, because each Fund is a closed-end investment company.
The Topiary Fund's performance depends upon the performance of the
Investment Funds in the Topiary Master Fund's portfolio and DBIM's ability to
select, allocate, and reallocate effectively the Topiary Master Fund's assets
among them. Likewise, the Hatteras Fund's performance depends upon the
performance of the Advisors among whom the Hatteras Master Fund has allocated
assets and the Hatteras Investment Manager's ability to select, allocate, and
reallocate effectively the Hatteras Master Fund's assets among them. Both the
Investment Funds in which the Topiary Master Fund invests and the Advisors to
which the Hatteras Master Fund allocates assets, invest in and actively trade
securities, commodities and other financial instruments using a variety of
strategies and investment techniques that may involve significant risks. An
investment adviser of an Investment Fund or an Advisor may use investment
strategies that differ from its past practices and are not fully disclosed to
DBIM or the Hatteras Investment Manager, respectively, and that involve risks
that are not anticipated by DBIM or the Hatteras Investment Manager. The
following are the main investment risks associated with the Hatteras Fund and,
therefore, also with the combined fund:
Limited Operating History. The Hatteras Fund, the Hatteras Offshore Fund
and the Hatteras Master Fund are recently organized and have a limited
operating history. However, personnel of the Hatteras Investment
15
Manager have experience in managing private investment funds that invest in
unregistered investment companies or separate accounts whose investment
advisers are hedge fund managers. In addition, the Hatteras Investment Manager
may serve as investment manager for other registered closed-end investment
companies and pooled investment vehicles, not registered with the SEC, that
also invest through the Hatteras Master Fund. Nonetheless, the Hatteras Fund
may not succeed in meeting its objective, and the Hatteras Fund's net asset
value may decrease.
Lack Of Operating History of Advisor Funds. Certain Advisor Funds may be
newly formed entities that have no operating histories. In such cases, the
Hatteras Investment Manager may evaluate the past investment performance of
the applicable Advisors or of their personnel. However, this past investment
performance may not be indicative of the future results of an investment in an
Advisor Fund. Although the Hatteras Investment Manager, its affiliates and
their personnel have considerable experience evaluating the performance of
alternative asset managers and providing manager selection and asset
allocation services to clients, the Hatteras Fund's investment program should
be evaluated on the basis that there can be no assurance that the Hatteras
Investment Manager's assessments of Advisors, and in turn their assessments of
the short-term or long-term prospects of investments, will prove accurate.
Thus, the Hatteras Fund may not achieve its investment objective and the
Hatteras Fund's net asset value may decrease.
Master/Feeder Structure. The Hatteras Master Fund may accept investments
from other investors (including other feeder funds), in addition to the
Hatteras Fund. The Hatteras Master Fund currently has other investors that are
feeder funds managed by the Hatteras Investment Manager, and it may have
additional investors in the future, including feeder funds managed by the
Hatteras Investment Manager or an affiliate thereof. Because each feeder fund
can set its own transaction minimums, feeder-specific expenses, and other
conditions, one feeder fund could offer access to the Hatteras Master Fund on
more attractive terms, or could experience better performance, than another
feeder fund. Smaller feeder funds may be harmed by the actions of larger
feeder funds. For example, a larger feeder fund will have more voting power
than the Hatteras Fund over the operations of the Hatteras Master Fund. If
other feeder funds tender for a significant portion of their interests in a
repurchase offer, the assets of the Hatteras Master Fund will decrease. This
could cause the Hatteras Fund's expense ratio to increase to the extent
contributions to the Hatteras Master Fund do not offset the cash outflows.
Pending Patent Application. Man-Glenwood Lexington TEI, LLC, or an
affiliate thereof ("MG"), has filed a patent application (the "Patent
Application") relating to a structure that interposes a Cayman Islands entity
between a registered investment company and underlying master fund. The Patent
Application was published on February 2, 2006. The likelihood that MG will be
successful in obtaining a valid patent cannot be assessed at this time.
However, the Hatteras Fund cannot rule out the possibility that a valid U.S.
patent with claims broad enough to cover the foregoing could at some future
date pose the risk that the Hatteras Investment Manager or an affiliate may
have to negotiate a mutually agreeable license to such structure, which will
impose additional costs on the Hatteras Fund and the Partners, or, in the
absence of such mutually agreeable license, that the Hatteras Fund may have to
be dissolved and liquidated. In such event, Partners would have their Limited
Partnership Interests liquidated and such liquidation may result in the loss
of some of their investment.
Dependence on the Hatteras Investment Manager and the Advisors. The
Hatteras Investment Manager will invest assets of the Hatteras Master Fund
through the Advisors, and the Hatteras Investment Manager has the sole
authority and responsibility for the selection of the Advisors. The success of
the Hatteras Master Fund depends upon the ability of the Hatteras Investment
Manager to develop and implement investment strategies that achieve the
investment objective of the Hatteras Fund, the Hatteras Offshore Fund and the
Hatteras Master Fund, and upon the ability of the Advisors to develop and
implement strategies that achieve their respective investment objectives.
Partners will have no right or power to participate in the management or
control of the Hatteras Fund, the Hatteras Offshore Fund, the Hatteras Master
Fund or the Advisor Funds, and will not have an opportunity to evaluate the
specific investments made by the Advisor Funds or the Advisors, or the terms
of any such investments.
Control Positions. Advisor Funds may take control positions in companies.
The exercise of control over a company imposes additional risks of liability
for environmental damage, product defects, failure to supervise and other
types of liability related to business operations. In addition, the act of
taking a control position, or seeking to take such a position, may itself
subject an Advisor Fund to litigation by parties interested in blocking it
from taking that position. If those liabilities were to arise, or such
litigation were to be resolved in a manner adverse to the Advisor Funds, the
Advisor Funds likely would suffer losses on their investments.
16
Non-Diversified Status. The Hatteras Fund is "non-diversified" under the
1940 Act. That means that the Hatteras Fund is not subject to limitations
under the 1940 Act on the percentage of its assets that may be invested in the
securities of any one issuer, market segment or Advisor Fund. The Hatteras
Fund's net asset value may therefore experience greater volatility than that
of an investment company that is subject to such limitations. This policy
gives the Hatteras Fund more flexibility to invest in the obligations of a
single borrower or issuer than if it were a "diversified" fund.
Industry Concentration Risk. Advisor Funds generally are not subject to
industry concentration restrictions on their investments and, in some cases,
may invest 25% or more of the value of their total assets in a single industry
or group of related industries. Although the Hatteras Fund does not believe it
is likely to occur given the nature of its investment program, it is possible
that, at any given time, the assets of Advisor Funds in which the Hatteras
Master Fund has invested will, in the aggregate, be invested in a single
industry or group of related industries constituting 25% or more of the value
of their combined total assets. However, because these circumstances may
arise, the Hatteras Fund is subject to greater investment risk to the extent
that a significant portion of its assets may at some times be invested,
indirectly through investments the Hatteras Master Fund makes in the Advisor
Funds, in the securities of issuers engaged in similar businesses that are
likely to be affected by the same market conditions and other
industry-specific risk factors. Advisor Funds are not generally required to
provide current information regarding their investments to their investors
(including the Hatteras Fund). Thus, the Hatteras Fund and the Hatteras
Investment Manager may not be able to determine at any given time whether or
the extent to which Advisor Funds, in the aggregate, have invested 25% or more
of their combined assets in any particular industry.
Repurchase Offers. The Hatteras Fund will offer to purchase only a small
portion of its Limited Partnership Interests (generally each quarter), and
there is no guarantee that Partners will be able to sell all of the Limited
Partnership Interests that they desire to sell in any particular repurchase
offer. If a repurchase offer is oversubscribed, the Hatteras Fund will
repurchase only a pro rata portion of the Interest tendered by each Partner.
The potential for proration may cause some investors to tender more Limited
Partnership Interests for repurchase than they wish to have repurchased.
The Hatteras Fund's assets consist primarily of its interest in the
Hatteras Master Fund (held through its investment in the Hatteras Offshore
Fund). Accordingly, the Hatteras Fund will be required to liquidate a portion
of its interest in the Hatteras Master Fund in order to fund repurchases. In
order to liquidate its interest in the Hatteras Master Fund, the Hatteras
Offshore Fund (which is effectively controlled by the Hatteras Fund's Board)
must accept repurchase offers made by the Hatteras Master Fund and distribute
the proceeds of such repurchases to the Hatteras Fund.
The Hatteras Fund's repurchase policy will have the effect of decreasing
the size of the Hatteras Fund over time from what it otherwise would have
been. Such a decrease may therefore force the Hatteras Master Fund to sell
assets it would not otherwise sell. It may also reduce the investment
opportunities available to the Hatteras Master Fund and cause its expense
ratio to increase. In addition, because of the limited market for the Hatteras
Master Fund's private equity, real estate and venture capital investments, the
Hatteras Master Fund may be forced to sell its more liquid securities in order
to meet cash requirements for repurchases. This may have the effect of
substantially increasing the Hatteras Master Fund's ratio of illiquid
investments to liquid investments for the remaining investors.
Payment for repurchased Limited Partnership Interests may require the
Hatteras Master Fund to liquidate portfolio holdings earlier than the Hatteras
Investment Manager would otherwise liquidate these holdings, potentially
resulting in losses, and may increase the Hatteras Master Fund's portfolio
turnover. The Hatteras Investment Manager intends to take measures (subject to
such policies as may be established by the Hatteras Fund Board) to attempt to
avoid or minimize potential losses and turnover resulting from the repurchase
of Limited Partnership Interests.
If a Partner tenders all of its Limited Partnership Interest (or a
portion of its Limited Partnership Interest) in connection with a repurchase
offer made by the Hatteras Fund, that tender may not be rescinded by the
Partner after the date on which the repurchase offer terminates. However,
although the amount payable to the Partner will be based on the value of the
Hatteras Master Fund's assets as of the repurchase date, the value of Limited
Partnership Interests that are tendered by Partners generally will not be
determined until a date approximately one month later.
17
Thus, a Partner will not know its repurchase price until after it has
irrevocably tendered its Limited Partnership Interest.
Limited Liquidity; In-Kind Distributions. Limited Partnership Interests
in the Hatteras Fund provide limited liquidity since Partners will not be able
to redeem Limited Partnership Interests on a daily basis because the Hatteras
Fund is a closed-end fund. In addition, with very limited exceptions, Limited
Partnership Interests are not transferable, and liquidity will be provided
only through repurchase offers made from time to time by the Hatteras Fund.
Limited Partnership Interests in the Hatteras Fund are therefore suitable only
for investors who can bear the risks associated with the limited liquidity of
Limited Partnership Interests and should be viewed as a long-term investment.
The Hatteras Fund expects to distribute cash to the Partners for Limited
Partnership Interests that are repurchased. However, there can be no assurance
that the Hatteras Fund will have sufficient cash to pay for Limited
Partnership Interests that are being repurchased or that it will be able to
liquidate investments at favorable prices to pay for repurchased Limited
Partnership Interests. Advisor Funds may be permitted to redeem their
interests in-kind. Thus, upon the Hatteras Fund's withdrawal of all or a
portion of its interest in the Hatteras Master Fund, the Hatteras Master Fund
may liquidate certain holdings in Advisor Funds. The Advisor Funds may pay the
Hatteras Fund redemption proceeds in securities that are illiquid or difficult
to value. In these circumstances, the Hatteras Investment Manager would seek
to dispose of these securities in a manner that is in the best interests of
the Hatteras Fund. The Hatteras Fund does not intend to make in-kind
distributions to the Partners.
In addition, in extreme cases, the Hatteras Fund may not be able to
complete repurchases if the Hatteras Master Fund is unable to repurchase a
portion of the Hatteras Fund's interests in the Hatteras Master Fund, held
through the Hatteras Offshore Fund, due to the Hatteras Master Fund's holding
of illiquid investments.
Reliance on Key Personnel of the Hatteras Investment Manager. The
Hatteras Fund's ability to identify and invest in attractive opportunities is
dependent upon the Hatteras Investment Manager. If one or more of the key
individuals leaves the Hatteras Investment Manager, the Hatteras Investment
Manager may not be able to hire qualified replacements at all, or may require
an extended time to do so. This could prevent the Hatteras Fund from achieving
its investment objective.
Absence of Liability. Subject to any limitations imposed by the Federal
securities laws, neither the Hatteras General Partner nor the Hatteras
Investment Manager shall be liable to the Hatteras Fund or any of the Partners
for any loss or damage occasioned by any act or omission in the performance of
their respective services as such in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
Anti-Money Laundering. If the Hatteras Fund, the Hatteras Investment
Manager or any governmental agency believes that the Hatteras Fund has sold
Limited Partnership Interests to, or is otherwise holding assets of, any
person or entity that is acting, directly or indirectly, in violation of U.S.,
international or other anti-money laundering laws, rules, regulations,
treaties or other restrictions, or on behalf of any suspected terrorist or
terrorist organization, suspected drug trafficker, or senior foreign political
figure(s) suspected of engaging in corruption, the Hatteras Fund, the Hatteras
Investment Manager or such governmental agency may freeze the assets of such
person or entity invested in the Hatteras Fund or suspend the repurchase of
Limited Partnership Interests. The Hatteras Fund may also be required to, or
deem it necessary or advisable to, remit or transfer those assets to a
governmental agency, in some cases with prior notice to the investor.
Conflicts of Interest. The Hatteras Investment Manager and its
affiliates, as well as many of the Advisors and their respective affiliates,
provide investment advisory and other services to clients other than the
Hatteras Fund, the Hatteras Offshore Fund, the Hatteras Master Fund, Advisor
Funds and Advisor Accounts. In addition, investment professionals associated
with the Hatteras Investment Manager or Advisors may carry on investment
activities for their own accounts and the accounts of family members
(collectively with other accounts managed by the Hatteras Investment Manager
and its affiliates, "Other Accounts"). As a result of the foregoing, the
Hatteras Investment Manager and Advisors will be engaged in substantial
activities other than on behalf of the Hatteras Master Fund, the Hatteras
Offshore Fund and the Hatteras Fund and may have differing economic shares in
respect of such activities and may have conflicts of interest in allocating
investment opportunities, and their time, between the Hatteras Master Fund,
the Hatteras Offshore Fund, the Hatteras Fund and Other Accounts.
18
However, it is the policy of the Hatteras Investment Manager, and
generally, the Hatteras Investment Manager believes it is also the policy of
the Advisors, that investment decisions for the Hatteras Master Fund, Advisor
Funds, Advisor Accounts and Other Accounts be made based on a consideration of
their respective investment objectives and policies, and other needs and
requirements affecting each account that they manage and that investment
transactions and opportunities be fairly allocated among their clients,
including the Hatteras Master Fund, the Hatteras Offshore Fund, the Hatteras
Fund and Advisor Funds.
Delayed Schedule K-1s. It is unlikely that the Hatteras Fund will be able
to provide final Schedules K-1 to Partners for any given fiscal year until
significantly after April 15 of the following year. The Hatteras General
Partner will endeavor to provide Partners with estimates of the taxable income
or loss allocated to their investment in the Hatteras Fund on or before such
date, but final Schedule K-1s will not be available until later than April 15.
Partners will be required to obtain extensions of the filing date for their
income tax returns at the Federal, state and local levels.
Legal, Tax and Regulatory. Legal, tax and regulatory changes could occur
that may materially adversely affect the Hatteras Fund. For example, the
regulatory and tax environment for derivative instruments in which Advisors
may participate is evolving, and changes in the regulation or taxation of
derivative instruments may materially adversely affect the value of derivative
instruments held by the Hatteras Fund and the ability of the Hatteras Fund to
pursue its trading strategies. Similarly, the regulatory environment for
leveraged investors and for hedge funds generally is evolving, and changes in
the direct or indirect regulation of leveraged investors or hedge funds may
materially adversely affect the ability of the Hatteras Fund to pursue its
investment objective or strategies. Increased regulatory oversight and other
legislation or regulation relating to hedge fund managers, hedge funds and
funds of hedge funds could result. Such legislation or regulation could pose
additional risks and result in material adverse consequences to the Advisor
Funds or the Hatteras Fund and/or limit potential investment strategies that
would have otherwise been used by the Advisors or the Hatteras Fund in order
to seek to obtain higher returns.
Certain tax risks associated with an investment in the Hatteras Fund are
discussed in "Taxes" in the Hatteras Fund's Offering Memorandum and in
"Certain Tax Considerations" in the Hatteras Fund's SAI.
Special Risks of Fund of Funds Structure
No Registration. Advisor Funds generally will not be registered as
investment companies under the 1940 Act and, therefore, the Hatteras Master
Fund will not have the benefit of various protections afforded by the 1940 Act
with respect to its investments in Advisor Funds. Although the Hatteras
Investment Manager expects to receive information from each Advisor regarding
its investment performance and investment strategy on a regular basis, in most
cases the Hatteras Investment Manager has little or no means of independently
verifying this information. An Advisor may use proprietary investment
strategies that are not fully disclosed to the Hatteras Investment Manager,
which may involve risks under some market conditions that are not anticipated
by the Hatteras Investment Manager. In addition, many Advisors will not be
registered as investment advisers under the Advisers Act in reliance on
certain exemptions from registration under that 1940 Act. In such cases,
Advisors will not be subject to various disclosure requirements and rules that
would apply to registered investment advisers.
Multiple Levels of Fees and Expenses. Although in many cases investor
access to the Advisor Funds may be limited or unavailable, an investor who
meets the conditions imposed by an Advisor Fund may be able to invest directly
with the Advisor Fund. By investing in Advisor Funds indirectly through the
Hatteras Fund, the Hatteras Offshore Fund and the Hatteras Master Fund, the
investor bears asset-based fees and performance-based fees and allocations.
Moreover, an investor in the Hatteras Fund bears a proportionate share of the
fees and expenses of the Hatteras Fund, the Hatteras Offshore Fund and the
Hatteras Master Fund (including organizational and private placement expenses,
operating costs, sales charges, brokerage transaction expenses, and
administrative fees) and, indirectly, similar expenses of the Advisor Funds.
Thus, an investor in the Hatteras Fund may be subject to higher operating
expenses than if he or she invested in an Advisor Fund directly or in a
closed-end fund which did not utilize a "fund of funds" structure.
Certain of the Advisor Funds may be subject to a performance-based fee or
allocation, irrespective of the performance of other Advisor Funds and the
Hatteras Fund generally. Accordingly, an Advisor to an Advisor Fund with
positive performance may receive performance-based compensation from the
Advisor Fund, and thus indirectly
19
from the Hatteras Fund and its Partners, even if the Hatteras Fund's overall
performance is negative. Generally, fees payable to Advisors of the Advisor
Funds will range from 1% to 2% (annualized) of the average net asset value
("NAV") of the Hatteras Fund's investment. In addition, certain Advisors
charge an incentive allocation or fee generally ranging from 10% to 20% of an
Advisor Fund's net profits, although it is possible that such ranges may be
exceeded for certain Advisors. The performance-based compensation received by
an Advisor also may create an incentive for that Advisor to make investments
that are riskier or more speculative than those that it might have made in the
absence of the performance-based allocation. Such compensation may be based on
calculations of realized and unrealized gains made by the Advisor without
independent oversight.
Investment in the Hatteras Offshore Fund. The Hatteras Offshore Fund is
not registered under the 1940 Act, and is not subject to the investor
protections offered thereby. The Hatteras Fund, as an investor in the Hatteras
Offshore Fund, will not have the protections offered to investors in
registered investment companies. However, the Hatteras Fund will control the
Hatteras Offshore Fund.
Changes in United States and/or Cayman Islands Law. If there are changes
in the laws of the United States and/or the Cayman Islands, under which the
Hatteras Fund and the Hatteras Offshore Fund, respectively, are organized, so
as to result in the inability of the Hatteras Fund and/or the Hatteras
Offshore Fund to operate, there may be a substantial effect on the Partners.
For example, if Cayman Islands law changes such that the Hatteras Offshore
Fund must conduct business operations within the Cayman Islands, or pay taxes,
investors in the Hatteras Fund would likely suffer decreased investment
returns. If Cayman Islands law, which limits the duration of a limited
duration company to 30 years, were to change such that, at the end of 30
years, the Hatteras Fund could not replace the Hatteras Offshore Fund with
another identical limited duration company, the structure of the Hatteras Fund
would be affected, potentially adversely. Such changes could also result in
the inability of the Hatteras Fund to operate on a going-forward basis,
resulting in the Hatteras Fund being liquidated.
Regulatory Change. The Hatteras Fund's structure is consistent with a
pIosition taken by the staff of the SEC with respect to a non-affiliated
investment company allowing a structure whereby the Hatteras Fund will invest
in the Hatteras Master Fund via the Hatteras Offshore Fund. To the extent that
the views of the SEC staff, which do not represent the views of the SEC
itself, were to change, the structure of the Hatteras Fund's investment in the
Hatteras Master Fund could be adversely affected, possibly affecting the
treatment of unrelated business taxable income ("UBTI").
Subject to obtaining any required regulatory approval, the Hatteras Fund
may determine to invest its assets directly in non-U.S. investment funds that
are classified as passive foreign investment companies ("PFICs") for U.S.
federal income tax purposes. The Hatteras Fund may pursue such an investment
approach only if it believes that it could avoid generating UBTI by making
such investments and the approach is approved by the Hatteras Fund's Board.
The Hatteras Fund will provide Partners with at least 90 days' notice before
implementing such a change.
Investment Managers Invest Independently. The Advisors generally invest
wholly independently of one another and may at times hold economically
offsetting positions. To the extent that the Advisors do, in fact, hold such
positions, the Hatteras Master Fund's portfolio, considered as a whole, may
not achieve any gain or loss despite incurring fees and expenses in connection
with such positions. Furthermore, it is possible that from time to time,
various Advisors selected by the Hatteras Investment Manager may be competing
with each other for the same positions in one or more markets. In any such
situations, the Hatteras Fund could indirectly incur certain transaction costs
without accomplishing any net investment result.
Liquidity Constraints of Advisor Funds. Since the Hatteras Master Fund
may make additional investments in or effect withdrawals from an Advisor Fund
only at certain times pursuant to limitations set forth in the governing
documents of the Advisor Fund, the Hatteras Fund from time to time may have to
invest a greater portion of its assets temporarily in money market securities
than it otherwise might wish to invest and may have to borrow money to
repurchase Interests. The Hatteras Master Fund may not be able to withdraw its
investment in an Advisor Fund promptly after it has made a decision to do so.
This may adversely affect the Hatteras Fund's investment return or increase
the Hatteras Fund's expenses.
Advisor Funds may be permitted to redeem their interests in-kind. Thus,
upon the Hatteras Master Fund's withdrawal of all or a portion of its interest
in an Advisor Fund, it may receive securities that are illiquid or difficult
20
to value. In these circumstances, the Hatteras Investment Manager would seek
to dispose of these securities in a manner that is in the best interests of
the Hatteras Fund and does not intend to distribute securities to Partners.
Advisor Account Allocations. Subject to applicable law, the Hatteras
Master Fund may on occasion allocate its assets to an Advisor by retaining the
Advisor to manage an Advisor Account for the Hatteras Master Fund, rather than
invest in an Advisor Fund. It is possible, given the leverage at which certain
of the Advisors will trade, that the Hatteras Master Fund could lose more in
an Advisor Account that is managed by a particular Advisor than the Hatteras
Master Fund has allocated to such Advisor to invest. This risk may be avoided
if the Hatteras Master Fund, instead of retaining an Advisor to manage a
separate account comprised of a designated portion of the Hatteras Fund's
assets, creates a separate investment vehicle for which an Advisor will serve
as general partner and in which the Hatteras Master Fund will be the sole
limited partner. Use of this structure, however, involves various expenses,
and there is no requirement that separate investment vehicles be created for
Advisor Accounts. Advisor Accounts will be subject to the investment policies
and restrictions of the Hatteras Master Fund, as well as the provisions of the
1940 Act and the rules thereunder (including, without limitation, the approval
of the Advisor in accordance with the 1940 Act).
Valuation of Advisor Funds. The valuation of the Hatteras Master Fund's
investments in Advisor Funds is ordinarily determined based upon valuations
calculated by the Hatteras Administrator (as defined below), based on
information provided by the Advisors of such Advisor Funds. Although the
Hatteras Investment Manager reviews the valuation procedures used by all
Advisors, neither the Hatteras Investment Manager nor the Hatteras
Administrator can confirm or review the accuracy of valuations provided by
Advisors or their administrators.
If an Advisor's valuations are consistently delayed or inaccurate, the
Hatteras Investment Manager generally will consider whether the Advisor Fund
continues to be an appropriate investment for the Hatteras Master Fund. The
Hatteras Master Fund may be unable to sell interests in such an Advisor Fund
quickly, and could therefore be obligated to continue to hold such interests
for an extended period of time. In such a case, such interests would continue
to be valued without the benefit of the Advisor's valuations, and the Hatteras
Investment Manager may determine to discount the value of the interests or
value them at zero, if deemed to be the fair value of such holding. Revisions
to the Hatteras Fund's gain and loss calculations will be an ongoing process,
and no appreciation or depreciation figure can be considered final until the
annual audits of Advisor Funds are completed.
Dilution. If an Advisor limits the amount of capital that may be
contributed to an Advisor Fund by the Hatteras Master Fund, additional sales
of Limited Partnership Interests of the Hatteras Fund will dilute the
participation of existing Partners in the indirect returns to the Hatteras
Fund from such Advisor Fund.
Turnover. The Hatteras Master Fund's activities involve investment in the
Advisor Funds, which may invest on the basis of short-term market
considerations. The turnover rate within the Advisor Funds may be significant,
potentially involving negative tax implications and substantial brokerage
commissions, and fees. The Hatteras Master Fund will have no control over this
turnover. As a result of this turnover, it is anticipated that the Hatteras
Master Fund's income and gains, if any, will be primarily derived from
ordinary income and short-term capital gains. In addition, the withdrawal of
the Hatteras Master Fund from an Advisor Fund could involve expenses to the
Hatteras Master Fund under the terms of the Hatteras Master Fund's investment.
Indemnification of Advisor Funds. The Advisors often have broad
indemnification rights and limitations on liability. The Hatteras Master Fund
may also agree to indemnify certain of the Advisor Funds and their Advisors
from any liability, damage, cost, or expense arising out of, among other
things, certain acts or omissions relating to the offer or sale of the shares
of the Advisor Funds.
Indirect Investment in Advisor Funds. Any transaction by which the
Hatteras Master Fund indirectly gains exposure to an Advisor Fund by the
purchase of a swap or other contract is subject to special risks. The Hatteras
Master Fund's use of such instruments can result in volatility, and each type
of instrument is subject to special risks. Indirect investments generally will
be subject to transaction and other fees that will reduce the value of the
Hatteras Master Fund's investment in an Advisor Fund. There can be no
assurance that the Hatteras Master Fund's indirect investment in an Advisor
Fund will have the same or similar results as a direct investment in the
Advisor Fund, and the Hatteras Master Fund's value may decrease as a result of
such indirect investment.
21
Investments in Non-Voting Securities. Unlike registered investment
companies such as the Hatteras Master Fund, Advisor Funds generally are not
obligated to disclose the contents of their portfolios. This lack of
transparency may make it difficult for the Hatteras Investment Manager to
monitor whether holdings of the Advisor Funds cause the Hatteras Master Fund
to be above specified levels of ownership in certain asset classes. To avoid
adverse regulatory consequences in such a case, the Hatteras Master Fund may
be purchasing its interest in an Advisor Fund in non-voting form (i.e.,
through the purchase, where applicable, of non-voting securities).
Additionally, for regulatory reasons, the Hatteras Master Fund may need to
limit the amount of voting securities in a particular Advisor Fund. To the
extent the Hatteras Master Fund holds non-voting securities of an Advisor
Fund, it will not be able to vote on matters that require the approval of the
investors in the Advisor Fund. This restriction could diminish the influence
of the Hatteras Master Fund in an Advisor Fund and adversely affect its
investment in the Advisor Fund, which could result in unpredictable and
potentially adverse effects on the Hatteras Fund and its Partners.
Control over Advisors. The Hatteras Investment Manager will invest in
Advisor Funds that the Hatteras Investment Manager believes will generally,
and in the aggregate, be managed in a manner consistent with the Hatteras
Fund's investment objective and strategy. The Hatteras Investment Manager does
not and will not control the Advisors; however, and there can be no assurances
that an Advisor will manage its Advisor Funds in such a manner.
Investment-Related Risks
General Economic and Market Conditions. The success of the Hatteras
Fund's investment program may be affected by general economic and market
conditions, such as interest rates, availability of credit, inflation rates,
economic uncertainty, changes in laws, and national and international
political circumstances. These factors may affect the level and volatility of
securities prices and the liquidity of investments held by Hatteras Master
Fund in the Advisor Funds and Advisor Accounts and, thus, the Hatteras Fund's
investments. Unexpected volatility or illiquidity could impair the Hatteras
Fund's profitability or result in losses.
Highly Volatile Markets. Price movements of forwards, futures and other
derivative contracts in which an Advisor Fund's or Advisor Account's assets
may be invested are influenced by, among other things, interest rates,
changing supply and demand relationships, trade, fiscal, monetary and exchange
control programs and policies of governments, and national and international
political and economic events and policies. The prices of commodities
contracts and all derivative instruments, including futures and options, can
be highly volatile. In addition, governments from time to time intervene,
directly and by regulation, in certain markets, particularly those in
currencies, financial instruments, futures and options. Such intervention
often is intended directly to influence prices and may, together with other
factors, cause all of such markets to move rapidly in the same direction
because of, among other things, interest rate fluctuations. Advisor Funds and
Advisor Accounts are also subject to the risk of the failure of any exchanges
on which their positions trade or of the clearinghouses for those exchanges.
Natural Resource and Precious Metal Investments. Advisor Funds and
Advisor Accounts may make investments in natural resources and precious
metals, and thus may be susceptible to economic, business or other
developments that affect those industries. Natural resources historically have
been subject to substantial price fluctuations over short periods of time.
Their prices are affected by various factors, including economic conditions,
political events, natural disasters, exploration and development success or
failure, and technological changes. In addition, certain natural resources are
geographically concentrated, and events in those parts of the world in which
such concentration exists may affect their values. The price of gold and other
precious metals are affected by unpredictable international monetary and
political policies such as currency devaluations or revaluations, economic and
social conditions within a country, trade imbalances, or trade or currency
restrictions between countries. Markets therefore are volatile at times, and
there may be sharp fluctuations in prices even during periods of rising
prices.
Risks of Securities Activities of the Advisors. The Advisors will invest
and trade in a variety of different securities, and utilize a variety of
investment instruments and techniques. Each security and each instrument and
technique involves the risk of loss of capital. While the Hatteras Investment
Manager will attempt to moderate these risks, there can be no assurance that
the Hatteras Master Fund's investment activities will be successful or that
the Partners will not suffer losses.
22
Limits of Risk Disclosures. The above discussions of the various risks
that are associated with the Hatteras Master Fund, the Hatteras Offshore Fund,
the Hatteras Fund, the Limited Partnership Interests and the Advisor Funds are
not, and are not intended to be, a complete enumeration or explanation of the
risks involved in an investment in the Hatteras Fund. Prospective investors
should read this entire Proxy Statement and the Hatteras Fund's Offering
Memorandum and SAI and the Limited Partnership Agreement of the Hatteras Fund
and consult with their own advisors. In addition, as the Hatteras Fund's
investment program changes or develops over time, an investment in the
Hatteras Fund may be subject to risk factors not currently contemplated or
described in this Proxy Statement or the Hatteras Fund's Offering Memorandum.
Investment Objectives and Principal Investment Strategies
Topiary Fund. The Topiary Fund's, the Topiary Offshore Fund's, and the
Topiary Master Fund's investment objective is to generate long-term capital
appreciation. The Topiary Fund attempts to achieve its investment objective by
investing substantially all of its investable assets in the Topiary Offshore
Fund, which has the same investment objectives as the Topiary Fund. The
Topiary Offshore Fund in turn invests all or substantially all of its
investable assets in the Topiary Master Fund, which in turn invests
substantially all of its assets, either directly or indirectly, in
approximately 50 to 100 Investment Funds to be managed pursuant to various
alternative or non-traditional investment strategies. The actual number of
Investment Funds is determined in the absolute discretion of DBIM. The Topiary
Fund's investment objective may be changed by the Topiary Fund's Board without
the vote of a majority of the Topiary Fund's outstanding voting securities.
To the extent permitted by applicable regulations or as expressly
provided in the Topiary Fund Prospectus, none of the name of the Topiary Fund,
the Topiary Offshore Fund, or the Topiary Master Fund, any aspect of the
Topiary Fund's, the Topiary Offshore Fund's, or the Topiary Master Fund's
investment program, or the portfolio allocation range described below will be
a fundamental investment policy of the Topiary Fund, and each can be changed
by the Topiary Fund's Board without Member approval. In the event of such a
change, Members would receive prior notice. The Investment Funds in which the
Topiary Master Fund invests may pursue various investment strategies and are
subject to special risks.
Relative Value Category. Relative Value strategies generally seek to
produce returns without taking on specific market exposures. Investment Funds
employing Relative Value strategies seek to achieve attractive risk-adjusted
returns through the use of both long and short positions in fixed income
and/or equity instruments, attempting to exploit pricing inefficiencies that
occur in the markets from time to time. Relative Value Investment Funds may
employ Convertible Arbitrage, Fixed Income Arbitrage, and Quantitative Market
Neutral Equity strategies.
Event Driven Category. Event Driven strategies generally seek to produce
returns based on anticipated outcomes of company specific or transaction
specific situations, such as a corporate merger, corporate restructuring, or
pending bankruptcy. Event Driven Investment Funds may employ Multi-Event
(formerly Merger/Risk Arbitrage), Bankruptcy/Distressed, and
Multi-Strategy/Rotational strategies.
Equity Long/Short Category. Equity Long/Short strategies generally seek
to produce returns from investments in the global equity markets. These
strategies are generally focused on absolute returns and trade based on the
manager's beliefs about specific equity markets, regions, sectors, and/or
securities. Although these strategies involve both long and short positions,
most managers will have a directional bias. Equity Long/Short Investment Funds
may employ Opportunistic, Global-International, Sector Specific, and
Short-Biased strategies.
Global Macro. Global Macro strategies generally focus on macro-economic
opportunities across numerous markets and instruments. Investments may be made
in cash, securities, futures contracts, derivative contracts, or options in
the equity, fixed income, currency, or commodity markets. Global Macro
Investment Funds may employ Discretionary or Systematic strategies.
DBIM employs a two-step process in structuring the Topiary Master Fund's
portfolio of Investment Funds. First, DBIM determines an allocation for the
Topiary Master Fund's assets across the universe of potential hedge fund
strategies, seeking to achieve a portfolio composition that demonstrates
volatility that is lower than the broad-based equity market and returns that
are not correlated to either the broad-based equity or bond markets. Using
data
23
categorizing and analyzing the historical returns of select managers within
each strategy in each category discussed above, DBIM employs a number of
quantitative modeling techniques in conjunction with fundamental research
analysis to ascertain an optimized allocation of the Topiary Master Fund
assets among primary categories and underlying strategies.
Second, DBIM identifies and evaluates potential investments based on
specific quantitative, qualitative, and due diligence criteria. Upon
completion of its review, DBIM selects appropriate Investment Funds. The
Topiary Master Fund may invest in Investment Funds either directly or
indirectly by purchasing a structured note or other derivative instrument
linked to such Investment Fund.
The Topiary Master Fund intends generally to limit investments in any one
Investment Fund in its portfolio to no more than 10% of the Topiary Fund's
assets.
Hatteras Fund. The Hatteras Fund's investment objective is to generate
consistent long-term appreciation and returns across all market cycles. To
achieve its investment objective, the Hatteras Fund provides its Limited
Partners with access to a broad range of investment strategies and asset
categories, trading advisors and overall asset allocation services typically
available on a collective basis to larger institutions through an investment
of substantially all of its assets in the Hatteras Offshore Fund. The Hatteras
Offshore Fund in turn invests substantially all of its assets in the Hatteras
Master Fund. The Hatteras Offshore Fund serves solely as an intermediate
entity through which the Hatteras Fund invests in the Hatteras Master Fund.
The Hatteras Offshore Fund makes no independent investment decisions and has
no investment or other discretion over the investable assets.
Although it is not required to do so, the Hatteras Master Fund will seek
to allocate the proceeds among at least 20 Advisors, generally through Advisor
Funds managed by the Advisors, with the objective of adding additional
Advisors as the Hatteras Master Fund's assets grow and the need to diversify
among additional Advisors increases.
The investment strategies in which the Advisors will invest are Private
Equity and Real Estate (which are not part of the Topiary Fund's investment
program, although the Topiary Fund may be indirectly exposed to private equity
and/or real estate strategies through investments made by an Investment Fund
in such sectors), Opportunistic Equity, Enhanced Fixed Income, Absolute Return
and Energy/Natural Resources. The Hatteras Fund will generally not allocate
more than 15% of its assets to Private Equity investment strategies and 15% of
its assets to Real Estate investment strategies.
Private Equity. Private Equity investing seeks to generate capital
appreciation through investments in private companies in need of capital. The
Private Equity strategy seeks to profit from, among other things, the
inefficiencies inherent in these markets through valuation and due diligence
analysis of available business opportunities. Over time, the Hatteras Master
Fund will attempt to invest in a group of Advisor Funds that vary widely:
sector, size, stage (venture, mezzanine, etc.), duration, liquidity, and the
extent to which the Advisors take an active role in managing and operating the
business. Additionally, it is expected that Advisor Funds will engage in both
direct investment and co-investment private equity deals. The Hatteras
Investment Manager believes that the key capabilities necessary to
successfully structure private equity transactions include, among other
things, comprehensive business operations analysis; competitive industry
landscape analysis; legal, environmental and other contingent liability
analysis; ability to gauge management skill and effectiveness; ability to
align interests of company management and the Advisor Fund; and ability to
ascertain the optimal financing vehicle and structure. Finally, the eventual
success or failure of Private Equity investing ultimately hinges on the
ability of Advisors to attract and develop a steady flow of quality investment
opportunities to analyze.
Securities issued by private partnerships investing in private equity
investments may be more illiquid than securities issued by other Advisor Funds
generally, because the partnerships' underlying private equity investments may
tend to be less liquid than other types of investments. The Hatteras
Investment Manager anticipates that it will invest primarily in investments
that are not as illiquid as private equity partnerships, and therefore the
Hatteras Master Fund may have little, if any, capital allocated to such
partnerships, until the Hatteras Investment Manager determines that, among
other things, the Hatteras Master Fund is large enough to have gained
appropriate diversification. In addition, the Hatteras Investment Manager
anticipates that attractive opportunities to invest in
24
private equity partnerships will typically occur only periodically, as the
Advisors in this asset class often only raise capital for new partnerships
when existing partnerships are substantially invested.
Real Estate. The Real Estate strategy consists generally of investing in
Advisor Funds that are: (1) registered investment companies or managers that
invest in real estate investment trusts (commonly known as "REITs"); and (2)
private partnerships that make direct investments in (i) existing or newly
constructed income-producing properties, including office, industrial, retail,
and multi-family residential properties, (ii) raw land, which may be held for
development or for the purpose of appreciation, and/or (iii) timber (whether
directly or through a REIT or other Advisor Fund). This strategy derives
performance from accurately valuing the future income-producing capacity of a
real estate property from its location, condition and previous operating
history (cash flow, occupancy rates and expenses) relative to other fixed
income or yield alternatives.
REITs seek to optimize share value and increase cash flows by acquiring
and developing new projects, upgrading existing properties or renegotiating
existing arrangements to increase rental rates and occupancy levels. REITs
must distribute 90% of their net earnings to investors in order to benefit
from a special tax structure, which means they may pay high dividends. The
value of a particular REIT can be affected by such factors as its need for
cash flow, the skill of its management team, and defaults by its lessees or
borrowers or the current interest rate environment relative to the yield being
generated by a particular REIT. To a much lesser extent, conventional mortgage
loans, participating mortgage loans, common or preferred stock of companies
whose operations involve real estate (i.e., that primarily own or manage real
estate), and collateralized mortgage obligations will be used as the
investment vehicle of choice.
Advisors whose Advisor Funds are private partnerships that invest in real
estate typically offer the opportunity to generate high absolute returns, but
without the liquidity offered by REITs. These Advisors will invest mainly in
established properties with existing rent and expense schedules or in newly
constructed properties with predictable cash flows or in which a seller agrees
to provide certain minimum income levels. On occasion, these Advisors may
invest in raw land, which may be acquired for appreciation or development
purposes. These Advisors typically provide their investors with a current
yield (generally from rental or lease income on properties) and will often
seek to generate capital gains through the sale of properties. However, these
Advisors often do not provide their investors with the right to redeem their
investment in the Advisor Fund; thus the investors only gain liquidity in
their investment though the distribution of rental income and the ultimate
liquidation or sale of real estate assets held by the Advisor Fund.
Advisor Funds may additionally invest in foreign real estate or real
estate-related investments. The Hatteras Master Fund will consider the special
risks involved in foreign investing before investing in foreign real estate
and will not invest unless an underlying Advisor Fund has exhibited prior
expertise in the foreign markets in which it invests.
Securities issued by private partnerships investing in real estate may be
more illiquid than securities issued by other Advisor Funds generally, because
the partnerships' underlying real estate investments may tend to be less
liquid than other types of investments. The Hatteras Investment Manager
anticipates that it will invest primarily in investments that are not as
illiquid as private real estate partnerships, and therefore the Hatteras
Master Fund may have little, if any, capital allocated to such partnerships,
until the Hatters Investment Manager determines that, among other things, the
Hatteras Master Fund is large enough to have gained appropriate
diversification. In addition, the Hatteras Investment Manager anticipates that
attractive opportunities to invest in private real estate partnerships will
typically occur only periodically, as the Advisors in this asset class often
only raise capital for new partnerships when existing partnerships are
substantially invested.
Opportunistic Equity. The Opportunistic Equity Portfolio will be composed
of Advisor Funds that predominantly invest in all global markets, including
the U.S. domestic markets, and predominantly invest in equity securities.
While the Opportunistic Equity strategy will consist of Advisor Funds that
trade predominantly in equity securities, certain of the Advisors chosen may
additionally invest all or a portion of the Advisor Funds in debt instruments.
These Advisors will opportunistically allocate capital to those markets
around the globe which present the best opportunities for profit based on
either the Advisor's fundamental company valuation analysis or perceived
25
macroeconomic shifts. To achieve an appropriately broad range of investments,
the Hatteras Master Fund may employ more than one Opportunistic Equity
Advisor, each of which will typically focus on particular geographical markets
in a general set of market capitalization ranges and/or employ a particular
style of investing.
Long/Short Public Equity. The Long/Short Public Equity strategy primarily
involves investments in publicly traded equity instruments in developed
countries (generally). This strategy involves identifying securities that are
mispriced relative to related securities, groups of securities, or the overall
market. Advisors that manage Long/Short Public Equity Advisor Funds generally
derive performance by establishing offsetting positions (a "long" and "short"
position) based on perceived disparities in the relative values of the
positions or portfolio of positions. Unlike "long only" managers, Long/Short
Public Equity Advisors will almost always have "short" positions in stocks,
and may also use a variety of other tools designed to enhance performance
(e.g., leverage), mitigate risk and/or protect profits (e.g., market "puts"
and "calls," etc.). However, to be included in this asset class, a Long/Short
Public Equity Advisor will have to be "net short" biased (i.e., in general,
generate returns that have a negative correlation to the overall equity
markets) or be "market neutral" (i.e., attempts to offset its "long" position
with a corresponding "short" position so that there is no "net long" or "net
short" position). On occasion, a manager within the strategy may run a net
"long" position; provided, however, that the net "long" position will
typically be less than those included in the traditional "long" equity
portfolio.
The Long/Short Public Equity Advisor Funds included in the Opportunistic
Equity may be "market neutral" or have a net "short" bias. As a result, these
Advisor Funds typically tend to have little, if any, or negative correlation
with traditional equity investments (as contrasted with Long/Short Public
Equity Advisors in a long equity portfolio, which will have a "net long" bias
and thus would likely have a positive correlation to the broad equity markets
or subsets thereof). A "net short" bias Advisor may utilize an equity index
hedge to offset the impact of systemic equity risk on the Advisor Fund's short
stock position. In addition, hedging can be accomplished through short sales
and/or the use of index options and futures or other derivative products.
Leverage may also be employed by the Advisors to enhance the risk/reward
profile of the portfolio, although leverage also can increase the risk of
greater portfolio losses. Short-selling relies on, among other things,
fundamental analysis, in-depth knowledge of accounting, an understanding of
public market pricing and/or industry research.
Investments may represent short-term trading opportunities or a
longer-term fundamental judgment on the relative performance of a security.
The Hatteras Investment Manager believes key capabilities in long/short equity
investing are in-depth fundamental and regulatory analysis, industry
experience, and/or valuation and financial modeling. It is important to note
that an Advisor may employ all or a portion of these capabilities in
constructing its portfolio. There can be no assurance that any such hedging
techniques will be successful or that the hedging employed by the Advisor will
not have the negative effect of lowering overall returns, or creating losses,
in the portfolio or with respect to the applicable position.
Global Macro. Advisors utilizing Global Macro strategies typically seek
to generate income and/or capital appreciation through a portfolio of
investments focused on macro-economic opportunities across numerous markets
and instruments. These strategies may include positions in the cash, currency,
futures and forward markets. These managers employ such approaches as
long/short strategies, warrant and option arbitrage, hedging strategies,
inter- and intra-market equity spread trading, futures, options and currency
trading, and emerging markets (debt and equity) and other special situation
investing. Trading positions are generally held both long and/or short in both
U.S. and non-U.S. markets. Global Macro strategies are generally categorized
as either discretionary or systematic in nature and may assume aggressive
investment postures with respect to position concentrations, use of leverage,
portfolio turnover, and the various investment instruments used.
With a broader global scope, returns to the Global Macro strategy
generally exhibit little to no correlation with the broader domestic equity
and bond markets. There can be no assurance that any such hedging techniques
will be successful or that the hedging employed by the Advisor will not have
the negative effect of lowering overall returns, or creating losses, in the
portfolio or with respect to the applicable position.
Short Selling. The Short Selling strategy involves selling short the
stock of companies whose fundamentals, liability profile and/or growth
prospects do not support current public market valuations. A short sale
involves the sale of a security that the Advisor Fund does not own with the
expectation of purchasing the same security (or a security exchangeable
therefor) at a later date at a lower price. To make delivery to the buyer, the
Advisor Fund
26
must borrow the security, and the Advisor Fund is obligated to return the
security to the lender (which is accomplished by a later purchase of the
security by the Advisor Fund) and to pay any dividends paid on the borrowed
security over the term of the loan. In the U.S., when a short sale is made,
the seller generally must leave the proceeds thereof with the broker and
deposit with the broker an amount of cash or securities sufficient under
applicable margin regulations and the requirements of the broker (which may be
higher) to collateralize its obligation to replace the borrowed securities
that have been sold. If short sales are effected in foreign stocks, such
transactions may be governed by local law. A short sale involves the
theoretically unlimited risk of an increase in the market price of the
security that would result in a theoretically unlimited loss. Short-selling
can be used to capitalize on any divergence between the long-term value of a
stock and the short-term pricing by capital markets of the same stock. Advisor
Funds may combine short-selling with an equity index hedge to offset the
impact of systemic equity risk on the Advisor Fund's short stock position.
Short-selling relies on, among other things, fundamental analysis, in-depth
knowledge of accounting, an understanding of public market pricing and/or
industry research. There can be no assurance that any such hedging techniques
will be successful or that the hedging employed by the Advisor will not have
the negative effect of lowering overall returns, or creating losses, in the
portfolio or with respect to the applicable position.
Enhanced Fixed Income. Enhanced Fixed Income strategies seek to provide
superior risk-adjusted investment performance by focusing on less efficient
areas of the global fixed income markets (including certain sectors of the
U.S. fixed income markets). In general, this strategy encompasses High Yield,
Distressed, and Global Debt investing (including, among other things, in
emerging markets). To achieve an appropriately broad allocation of
investments, the Hatteras Master Fund may employ more than one Advisor in each
Enhanced Fixed Income strategy, with the objective of gaining diversification
in geography (to minimize the economic or currency risk of a particular
country or region), credit quality, issuers, industrial segment and/or other
factors important to generate a broad portfolio. It is important to note that
some or all of these factors may not be included in the construction of this
portion of the portfolio.
High Yield Debt. The High Yield Debt strategy involves investing
predominantly in the debt of financially troubled, or stressed, companies.
These companies are generally experiencing financial difficulties that have
either led to a default on their indebtedness or increased the likelihood of
default. A default may be related to missing a payment of interest or
principal when due ("payment default"), which is generally considered a major
default, or more minor events of default, such as breaking a financial ratio
(e.g., if the debt instrument requires a 2:1 cash flow to debt payment ratio,
having a ratio of less than 2:1). These more minor events of default may be
waived by the creditor (generally the trustee of the bond issuance), but
evidence an increased likelihood that the issuer will not be able to pay the
indebtedness when due. Thus, in the event that a company is experiencing
financial difficulties (which is generally the case), the Hatteras Investment
Manager believes it is important to determine the following: (1) the capital
structure of the company (particularly debt that is senior to the debt
issuance being considered); (2) the asset base of the company (what would be
realized in a distressed liquidation mode that is generally less than what the
assets would be worth in a more orderly disposition); and (3) would this
liquidation cover senior obligations and generate sufficient proceeds to repay
the debt instrument being purchased. This would represent the liquidation
value of the company and give the High Yield Debt Advisor the "downside" case.
In addition, the High Yield Debt Advisor would analyze the company to
determine the ability of the company to correct any operational difficulties,
weather a recession or downturn in its industry or otherwise return to
operational health. This requires strong fundamental analysis to determine the
company's current health, its prospects for returning to financial health
based on current trends or management plans, and the current and prospective
operational and economic environment ("fundamental analysis"). In other
contexts, a high yield instrument may be one that is issued by a company that
still is an investment grade company (but typically in the lower end of
investment grade) but may have a specific contingent liability clouding its
horizon (e.g., underfunded pension obligations), be in an industry that is
experiencing significant turmoil or is in a troubled region of the world, etc.
Thus, the Hatteras Investment Manager believes a critical aspect of investing
in high yield fixed income instruments is analyzing these type and other types
of exogenous events. High Yield Debt Advisors will generally consider, among
other factors, the price of the security, the prospects of the issuer, the
company's history, management and current conditions when making investment
decisions. It is important to note that some or all of these factors may not
be included in the construction of this portion of the portfolio.
High Yield Debt Advisors may deal in and with restricted or marketable
securities and a significant portion of a High Yield Debt Advisor's portfolio
may be invested in restricted securities that may not be registered and for
27
which a market may not be readily available (i.e., not freely traded).
Investments may involve both U.S. and non-U.S. entities and may utilize
leverage.
High yield debt securities generally trade at discounts (sometimes
substantial discounts) to par value because many investors are either
prohibited from, or willingly avoid, investing due to the complexity of
determining the securities' true risk/reward profile. Accordingly, High Yield
Debt Advisor Funds typically experience significantly more volatility and risk
than traditional fixed income Advisor Funds. To mitigate some of this risk, a
High Yield Advisor may use certain hedging tools, such as "shorting"
securities in other portions of the capital structure (e.g., being "long" the
high yield debt position and "short" the issuer's common stock) in order to
mitigate the risk associated with an investment in the company (which may well
be highly leveraged). There can be no assurance that any such hedging
techniques will be successful or that the hedging employed by the Advisor will
not have the negative effect of lowering overall returns, or creating losses,
in the portfolio or with respect to the applicable position.
Distressed Securities. Distressed Securities strategies entail investing
in the debt of companies experiencing significant financial or operational
difficulties that often lead to bankruptcies, exchange offers, workouts,
financial reorganizations, and other special credit event-related situations.
These companies are generally experiencing even greater difficulties than
companies in the "high yield" category. These securities generally trade at
significant discounts to par value, because of these difficulties and because
certain classes of investors are precluded, based on their investment
mandates, from holding low-credit instruments. Profits are generally made
based on two kinds of mispricings: (1) fundamental or intrinsic value; and (2)
relative value between comparable securities. The main competencies required
to successfully implement these strategies lie in correctly valuing the
intricacies of distressed businesses and industries as well as in adequately
assessing the period over which the capital will be invested.
Distressed Securities Advisors may seek to identify distressed securities
in general or focus on one particular segment of the market (such as the
senior secured debt sector, subordinated notes, trade claims or distressed
real estate obligations) depending on their expertise and prior experience.
Additionally, Distressed Securities Advisor Funds may be diversified across
passive investments in the secondary market, participations in merger and
acquisition activity, or active participation in a re-capitalization or
restructuring plan. It is important to note that some or all of these factors
may not be included in the construction of this portion of the portfolio.
Distressed Securities Advisors may actively attempt to modify or improve a
restructuring plan with the intent of improving the value of such securities
upon consummation of a restructuring. Additionally, they may take an active
role and seek representation in management on a board of directors or a
creditors' committee. In order to achieve these objectives, Distressed
Securities Advisors may purchase, sell, exchange, or otherwise deal in and
with restricted or marketable securities including, without limitation, any
type of debt security, preferred or common stock, warrants, options, and
hybrid instruments. A significant portion of a Distressed Securities Advisor's
portfolio may be invested in restricted securities that may not be registered
and for which a market may not be readily available, and therefore a
significant portion of the portfolio may not be freely traded. Investments may
involve both U.S. and non-U.S. entities and may utilize leverage. In addition,
a Distressed Securities Advisor may use certain hedging tools, such as
"shorting" securities in other portions of the capital structure (e.g., being
"long" the distressed securities position and "short" the issuer's common
stock) in order to mitigate the risk associated with an investment in an
otherwise "troubled" company. There can be no assurance that any such hedging
techniques will be successful or that the hedging employed by the Advisor will
not have the negative effect of lowering overall returns, or creating losses,
in the portfolio or with respect to the applicable position.
Distressed Securities Advisor Funds typically experience significantly
more volatility and risk than traditional fixed income Advisor Funds.
Global/Emerging Market Debt. Global/Emerging Market Debt investing
involves purchasing debt securities including bonds, notes and debentures
issued predominantly by non-U.S. corporations; debt securities issued
predominantly by non-U.S. Governments; or debt securities guaranteed by
non-U.S. Governments or any agencies thereof. The strategy will generally
consist of Advisor Funds investing in global fixed income portfolios and/or
emerging markets debt securities. Given the markets in which it invests, a
significant portion of a Global Debt Advisor's portfolio may be invested in
restricted securities that may not be registered and for which a market may
not be readily available, and therefore a significant portion of the portfolio
may not be freely traded. Further, an investment in bonds issued by foreign
governments or corporations may carry significant geo-political risks, legal
28
risks, currency risks (significant devaluations) and liquidity risks (lack of
developed trading markets), among other things.
The Hatteras Master Fund may invest in more than one Global Debt Advisor,
with a goal of gaining diversification among macroeconomic risks, specific
geographic market risk, currency risk, credit risk, and/or interest rate risk.
It is important to note that some or all of these factors may not be included
in the construction of this portion of the portfolio.
Given liquidity issues, currency risk, credit risk, interest rate risk
and geo-political risks, Global Debt Advisor Funds typically experience
significantly more volatility and risk than traditional fixed income Advisor
Funds. To mitigate some of this risk, a Global Debt Advisor may use certain
hedging tools, such as "shorting" securities in other portions of the capital
structure (e.g., being "long" the global debt position and "short" the
issuer's common stock) or buying protection for a decline in the native
currency or the US dollar in order to mitigate the risk associated with an
investment in a particular Global Debt security. There can be no assurance
that any such hedging techniques will be successful or that the hedging
employed by the Advisor will not have the negative effect of lowering overall
returns, or creating losses, in the portfolio or with respect to the
applicable position.
Absolute Return. The following strategies comprise the "Absolute Return"
asset class, an asset class that is defined herein as having a relatively low
or negative correlation to the equity markets. In addition, certain strategies
within this asset class may have less volatility through the use of arbitrage
based strategies and hedging tools (e.g., "market" puts and calls, etc.). With
respect to the Absolute Return" Class, the Hatteras Master Fund may invest in
an Advisor Fund that utilizes one or more of the following strategies:
Convertible Arbitrage. The Convertible Arbitrage strategy typically
involves the purchase of a convertible debt or preferred equity instrument (an
instrument that is effectively a bond or has a fixed obligation of repayment
with an embedded equity option, non-detachable warrants or an equity-linked or
equity-indexed note) concurrent with the short sale of, or a short
over-the-counter derivative position in, the common stock of the issuer of
such debt instrument. Investment returns are driven by a combination of an
attractive coupon or dividend yield, interest on the short position and the
level of the underlying stock's volatility (which directly affects the option
value of the security's conversion feature). The Hatteras Investment Manager
believes that convertible arbitrage necessitates rigorous analysis to
determine the portion of the value of the convertible security that is
composed of equity-like elements and the portion that is composed of debt-like
elements. The Hatteras Investment Manager believes that some of the key
capabilities necessary to successfully run a convertible arbitrage portfolio
include, among other things: reviewing the convertible market for attractive
investment opportunities, accurately modeling the conversion option value, and
in-depth fundamental credit analysis in building and managing the convertible
arbitrage portfolio.
The Hatteras Master Fund may invest in one or more Advisors with exposure
in the convertible arbitrage strategy to provide greater diversification
across markets (U.S. and non-U.S. issues), sectors, credit ratings, and market
capitalizations.
Merger Arbitrage. The Merger Arbitrage strategy involves taking short and
long investment positions in the stock of acquiring and target companies upon
the announcement of an acquisition offer. Acquisitions are typically paid for
in stock, cash or a combination thereof. Thus, when an acquisition is
announced, the acquiring company ("Acquiror") will establish a price per share
of the company being acquired ("Target") in cash (per share cash price), stock
(a share ratio is established) or a combination thereof. Typically, the Target
traded for less than the price being paid (in either cash or stock) prior to
the announcement. When the announcement is made, the Target's stock price will
typically increase but still trade at a discount to the price being offering
by the Acquiror. This discount--and the size of the discount--is principally a
function of three factors: (1) the risk that the acquisition will close; (2)
the time frame for closing (i.e., the time value of money); and (3) the amount
of liquidity or capital being deployed by merger arbitrageurs and other
investors. Accordingly, if a merger arbitrageur or investor believes that the
risk of the acquisition not closing is not significant relative to the returns
that can be generated by the "spread" between the current stock price of the
Target and the price being offered by the Acquiror, the merger arbitrageur or
investor will generally buy shares of the Target and "short" shares of the
Acquiror in a stock for stock transaction. When the deal closes, the risk
premium vanishes and the Advisor's profit is the spread.
29
Acquisitions sometimes fail because the U.S. government, European Union
or some other governmental entity does not approve of aspects of a transaction
due to anti-trust concerns, tax reasons, subsequent disagreements between the
Acquiror or Target as to management transition or corporate governance matters
or changing market conditions. Accordingly, the Hatteras Investment Manager
believes that key factors in the successful implementation of merger arbitrage
are expertise in regulatory areas such as antitrust, tax, and general
corporate law; corporate governance; fundamental analysis and valuation; the
ability to assess the probability of a successful outcome; and the ability to
access superior market intelligence.
This strategy is more cyclical than many other strategies, since it
requires a supply of corporate mergers and acquisitions to deploy capital.
From the middle part of 2000 to the middle part of 2003, activity within this
strategy was limited. There can be no assurance that any such hedging
techniques will be successful or that the hedging employed by the Advisor will
not have the negative effect of lowering overall returns, or creating losses,
in the portfolio or with respect to the applicable position.
Event Driven Arbitrage. Event Driven Arbitrage centers on investing in
securities of companies facing a major corporate event. The goal is to
identify securities with a favorable risk-reward ratio based on the
probability that a particular event will occur. Such events include, but are
not limited to corporate events, such as restructurings, spin-offs and
significant litigation (e.g., tobacco litigation).
Opportunities in this area are created by the reluctance of traditional
investors to assume the risk associated with certain corporate events. This
strategy is research intensive and requires continual review of announced and
anticipated events. In addition, the analysis required differs significantly
from conventional securities analysis, and many investors may be ill-equipped
to analyze certain types of situations or respond to them in a timely manner.
There can be no assurance that any such hedging techniques will be successful
or that the hedging employed by the Advisor will not have the negative effect
of lowering overall returns, or creating losses, in the portfolio or with
respect to the applicable position.
Fixed Income Arbitrage. Fixed Income Arbitrage is designed to identify
and exploit anomalous (typically based on historical trading ranges) spreads
in the prices of functionally equivalent or substitutable securities. Such
disparities, or spreads, are often created by imbalances in supply and demand
of different types of issues (for example, agencies relative to U.S.
Treasuries). A combination of macroeconomic analysis, political risk analysis,
analysis of government policy and sophisticated financial modeling is often
used to identify pricing anomalies. A typical arbitrage position consists of a
long position in the higher yield, and therefore lower priced, security and a
short position in the lower yield, higher priced security. For example,
agencies of a similar duration of U.S. Treasuries have over time established a
relatively well defined trading range and carry a higher interest rate or
yield. When agencies trade at a discount to this range (e.g., when there is
discussion about whether agencies should continue to receive a U.S. government
guarantee), agencies will trade at a higher than normal discount to U.S.
Treasuries (reflected by a higher current yield in agencies). Accordingly, the
Advisor will buy the agencies "long" and then "short" the U.S. Treasuries.
When the spread narrows or becomes more in line with historical norms, the
Advisor generates a profit by closing its position. In general, these fixed
income investments are structured with the expectation that they will be
non-directional and independent of the absolute levels of interest rates. As
this interest rate exposure is hedged out, these strategies generally exhibit
little to no correlation to the broader equity and bond markets. There can be
no assurance that any such hedging techniques will be successful or that the
hedging employed by the Advisor will not have the negative effect of lowering
overall returns, or creating losses, in the portfolio or with respect to the
applicable position.
Fixed Income Arbitrage may also include buying fixed income or yield
bearing instruments "long" with a higher coupon or yield and "shorting" a
shorter duration instrument with a lower coupon. The Advisor makes a "spread"
on the difference between the higher yielding "long" position and the lower
yielding "short" position. Investment banks may allow an Advisor to use
significant leverage in these positions (particularly if the instruments are
investment grade corporate securities or government securities). The principal
risk in this strategy is rising interest rates, which often result in a
greater decline in the value of the "long" position than in the "short"
position. In such a case, the Advisor will either have to provide additional
collateral to the investment bank lender or close the position at a loss.
Depending on the level of leverage and the duration of the "long" position,
the resulting loss of capital could be significant.
30
Volatility Arbitrage. This strategy entails the use of derivative
investments and can be used on both a stand-alone basis and as a hedging
strategy in conjunction with other investment strategies. As a stand-alone
strategy, exchange traded domestic or global index options and/or options on
futures contracts are used to exploit anomalies in the pricing of volatilities
in related assets. There are several well-defined related securities and/or
asset classes that Volatility Arbitrage Advisors typically follow to determine
when they are out of their historical trading ranges. By continually
monitoring these relationships, the Advisor can identify when the securities
or asset classes trade out of their normal trading range and can put a trade
on when there has not been a fundamental, or exogenous, change in the
relationship. For example, in 2002 market index volatility reached levels not
seen since the 1930's; once it was determined that the volatility indices for
these markets were trading significantly above their historical trading bands,
many managers put on positions that were net "short" volatility. This strategy
thus seeks to profit when overall market index volatility declines, reverting
back to a more normal historical range. As an adjunct strategy, these same
derivative instruments can be used to manage risk and enhance returns on
investments made utilizing other strategies. Use of derivatives often relies
on extensive quantitative modeling, volatility estimation and proprietary
in-house trading models. There can be no assurance that any such hedging
techniques will be successful or that the hedging employed by the Advisor will
not have the negative effect of lowering overall returns, or creating losses,
in the portfolio or with respect to the applicable position.
Statistical Arbitrage. Statistical Arbitrage strategies seek to profit
from offsetting long and short positions in stocks or groups of related stocks
exhibiting pricing inefficiencies that are identified through the use of
mathematical models. The strategy primarily seeks out these inefficiencies by
comparing the historical statistical relationships between related pairs of
securities (e.g. intra-industry or competitor companies). Once identified, the
Advisor will establish both long and short positions and will often utilize
leverage as the identified discrepancies are usually very slight in nature. A
strong reliance on computer-driven analysis and relatively minute pricing
inefficiencies are what typically separate this strategy from a more
traditional long/short equity strategy. Though typically market neutral in
nature, a statistical arbitrage portfolio's gross long and short positions may
be significantly large and portfolio turnover can often be high.
In addition to identifying related pairs of securities, statistical
arbitrageurs will also seek out inefficiencies in market index constructions.
This index arbitrage strategy is designed to profit from temporary
discrepancies between the prices of the stocks comprising an index and the
price of a futures contract on that index. For example, by buying the 500
stocks comprising the S&P 500 index and simultaneously selling an S&P 500
futures contract, an investor can profit when the futures contract is
expensive relative to the underlying basket of stocks based on statistical
analysis. Like all arbitrage opportunities, index arbitrage opportunities
typically disappear once the opportunity becomes better-known and other
investors act on it. Index arbitrage can involve large transaction costs
because of the need to simultaneously buy and sell many different stocks and
futures, and so leverage is often applied. In addition, sophisticated computer
programs are typically needed to keep track of the large number of stocks and
futures involved.
While Statistical Arbitrage typically relies on quantitative,
computer-driven models, some subjective investment decisions are required of
the manager when selecting securities to be "long" and "short." The Investment
Manager believes that the key requirement to profit in this strategy is strong
fundamental company and industry analysis. An Advisor who is able to more
clearly discern closely related pairs of securities will likely outperform
trading the strategy over time. There can be no assurance that any such
hedging techniques will be successful or that the hedging employed by the
Advisor will not have the negative effect of lowering overall returns, or
creating losses, in the portfolio or with respect to the applicable position.
Energy/Natural Resources. The Energy strategy consists generally of
investing in Advisor Funds that are: (1) registered investment companies or
managers that invest in publicly-traded energy companies; and (2) private
partnerships that make direct investments in private or (sometimes) smaller
publicly traded energy companies. The types of companies included within the
"energy" sector will include a diverse range of energy industry sectors,
including: oilfield service and equipment manufacturing sectors, exploration
and production, technology, pipelines and storage, and power generation and
transmission.
The Hatteras Investment Manager believes that the key capabilities
necessary to successfully run the energy strategy include, among other things,
comprehensive business operations analysis; competitive industry landscape
analysis; accurate energy asset valuation; commodities valuation and market
analysis; legal,
31
environmental and other contingent liability analysis; ability to gauge
management skill and effectiveness; ability to align interests of company
management and the Advisor Fund; and ability to ascertain the optimal
financing vehicle and structure.
Generally, the Energy Advisors will engage in longer-term investments
with lower portfolio turnover than many of the other investment strategies.
Additionally, it is anticipated that the Energy strategy's returns may exhibit
relatively low correlation to the returns of the broader equity and bond
markets as well as the other investment strategies in the Hatteras Fund.
Securities issued by private partnerships investing in energy or natural
resources may be more illiquid than securities issued by other Advisor Funds
generally, because the partnerships' underlying energy and natural resources
investments may tend to be less liquid than other types of investments. The
Hatteras Investment Manager anticipates that it will invest primarily in
investments that are not as illiquid as such partnerships, and therefore the
Hatteras Master Fund may have little, if any, capital allocated to such
partnerships, until the Hatteras Investment Manager determines that, among
other things, the Hatteras Master Fund is large enough to have gained
appropriate diversification. In addition, the Hatteras Investment Manager
anticipates that attractive opportunities to invest in private energy or
natural resources partnerships will typically occur only periodically, as the
Advisors in this asset class often only raise capital for new partnerships
when existing partnerships are substantially invested.
In addition, the Hatteras Master Fund may invest in other natural
resources, such as timberlands, basic metals (e.g., iron, aluminum, and
copper), precious metals (e.g. gold, silver, platinum and palladium) and other
basic commodities. The Hatteras Investment Manager believes that all
non-energy related investing will account for a modest portion of the overall
portfolio.
The Hatteras Fund's investment objective is non-fundamental and may be
changed by the Hatteras Fund Board without the approval of the Limited
Partners. Except as otherwise stated in the Hatteras Fund's Offering
Memorandum, the investment policies, asset allocation ranges, strategies and
restrictions of the Hatteras Fund are not fundamental and may be changed by
the Hatteras Fund Board without the approval of Limited Partners.
Combined Fund. The combined fund's investment objective and principal
investment strategies will be those of the Hatteras Fund.
Performance Information
The following tables illustrate the past performance of an investment in
each Fund. The information shows you how each Fund's performance has varied
year by year and provides some indication of the risks of investing in each
Fund. Past performance is not predictive of future performance. For more
information concerning the performance of the Topiary Fund, please refer to
the Topiary Fund Prospectus, the Topiary Fund SAI, and the Topiary Fund Annual
Report. For more information concerning the performance of the Hatteras Fund,
please refer to the Hatteras Fund Offering Memorandum and the Hatteras Fund
Annual Report.
Topiary Fund
Average Annual Total Return
----------------------------------------------------- --------------------------------
Interests
----------------------------------------------------- ---------------- ---------------
With Sales Without Sales
Period Charge*(%) Charge(%)
----------------------------------------------------- ---------------- ---------------
One Year Ended
March 31, 2007 3.98% 6.65%
----------------------------------------------------- ---------------- ---------------
Period From October 1, 2004 (commencement of
operations) through March 31, 2006 7.72% 8.82%
----------------------------------------------------- ---------------- ---------------
* Assumes the maximum applicable sales charge.
32
Hatteras Fund
Average Annual Total Return
-------------------------------------------------- ------------------------------------------
Limited Partnership Interests
-------------------------------------------------- --------------------- --------------------
With Placement Fee* Without Placement
Period (%) Fee(%)
-------------------------------------------------- --------------------- --------------------
One Year Ended
March 31, 2007 5.31% 7.46%
-------------------------------------------------- --------------------- --------------------
Period From April 1, 2005 (commencement of
operations) through March 31, 2006 7.80% 10.00%
-------------------------------------------------- --------------------- --------------------
* Assumes the maximum applicable placement fee.
Total return and yield figures are based on a Fund's historical
performance and are not intended to indicate future performance. A Fund's
total return and yield will vary depending on market conditions, the
securities comprising a Fund's portfolio, a Fund's operating expenses and the
amount of realized and unrealized net capital gains or losses during the
period. The value of an investment in the Hatteras Fund or the Topiary Fund
will fluctuate and an investor's shares, when redeemed, may be worth more or
less than their original cost.
The combined fund will be named the Hatteras Multi-Strategy TEI Fund,
L.P. following the Reorganization. Because the combined fund will most closely
resemble the Hatteras Fund, the Hatteras Fund will be the accounting survivor
of the Reorganization. As such, the combined fund will assume the performance
history of the Hatteras Fund at the closing of the Reorganization.
Management of the Funds
Topiary Fund. DBIM, a registered investment adviser with headquarters at
345 Park Avenue, New York, New York 10154, provides investment supervisory
services to the Topiary Master Fund, including serving as investment adviser
for the Topiary Master Fund. DBIM is performing services as Topiary Fund
Management. Topiary Fund Management is the marketing name of the fund of hedge
funds activities of RREEF Alternative Investments, which itself is the brand
name of the overall alternative investments business of Deutsche Bank AG. As
the Topiary Master Fund's investment adviser, DBIM makes the Topiary Master
Fund's investment decisions. DBIM buys and sells securities for the Topiary
Master Fund and conducts the research that leads to the purchase and sale
decisions. As necessary, DBIM is also responsible for selecting brokers and
dealers and for negotiating brokerage commissions and dealer charges or other
transaction costs. Subject to the general supervision of the Topiary Master
Fund Board and in accordance with the investment objective, policies, and
restrictions of the Topiary Master Fund, DBIM provides the Topiary Master Fund
with ongoing investment guidance, policy direction, and monitoring of the
Topiary Master Fund pursuant an investment management agreement (the "Topiary
Investment Management Agreement") at an annual rate of 1.00% of the Topiary
Master Fund's average daily net assets. The Topiary Investment Management
Agreement may be terminated by the Topiary Master Fund Board, by a majority
vote of the Members, or by DBIM.
A discussion regarding the basis for the Topiary Master Fund Board's
approval of the Topiary Investment Management Agreement is available in the
Topiary Fund's most recent semi-annual report to Members for the period ended
September 30, 2006.
The Topiary Fund Management team is primarily responsible for the
investment management of the Topiary Master Fund with respect to DBIM. The
team is comprised of a group of analysts with responsibility for performing
due diligence and analysis on Investment Fund investments and for the
portfolio management of the Topiary Master Fund. A senior analyst is
responsible for the day-to-day investment management of the Topiary Master
Fund and is supported by a back-up analyst. Mr. Steven L. Bossi is Global Head
of Topiary Fund Management for RREEF Alternative Investments and is primarily
responsible for management of the Topiary Management team and the investment
management and development of DBIM's multi-manager hedge fund products. Mr.
Bossi also manages a RREEF Alternative Investments multi-strategy fund of
funds and is lead analyst
33
for several relative value and event-driven strategies. Mr. Bossi joined DBIM
in 2001 after nine years of experience as president and chief operating
officer of AI International Corporation, an investment advisory firm, where he
actively managed global investments in traditional and alternative markets,
including equity, fixed income, emerging markets, distressed securities,
merger arbitrage, convertible arbitrage, and private equity securities. Prior
to that, Mr. Bossi was a fixed income portfolio manager at Aetna Life &
Casualty. Mr. Bossi received a B.S. from the University of Connecticut and an
M.B.A. from the University of Chicago.
The Topiary Fund's SAI provides additional information about the
portfolio manager's investments in the Topiary Fund, a description of the
compensation structure, and information regarding other accounts managed by
the portfolio manager and such portfolio managers' ownership of securities in
the Topiary Fund.
Hatteras Fund. The Hatteras General Partner, a Delaware limited liability
company, serves as the general partner of the Hatteras Fund and the Hatteras
Master Fund. The Hatteras General Partner has irrevocably delegated to the
Hatteras Fund Board its rights and powers to monitor and oversee the business
affairs of the Hatteras Fund, including the complete and exclusive authority
to oversee and establish policies regarding the management, conduct and
operation of the Hatteras Fund's business.
The Hatteras Investment Manager is responsible for providing day-to-day
investment management services to the Hatteras Master Fund, subject to the
ultimate supervision of and subject to any policies established by the
Hatteras Master Fund Board, pursuant to the terms of an investment management
agreement with the Hatteras Master Fund (the "Hatteras Investment Management
Agreement"). Under the Hatteras Investment Management Agreement, the Hatteras
Investment Manager is responsible for developing, implementing and supervising
the Hatteras Master Fund's investment program and receives for its services
monthly compensation at the annual rate of 1.00% of the month-end net assets
of the Hatteras Master Fund. Its principal place of business is located at
8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615, Telephone (919)
846-2324, Facsimile (919) 846-3433. The Hatteras Investment Manager is
registered as an investment adviser under the Advisers Act. As of June 30,
2007, the Hatteras Investment Manager had approximately $625 million of assets
under management.
A discussion regarding the basis for the Hatteras Master Fund Board's
approval of the Hatteras Master Fund's Investment Management Agreement is
available in the Hatteras Fund's most recent annual report to Limited Partners
for the fiscal year ended March 31, 2007.
The Topiary Investment Management Agreement and the Hatteras Investment
Management Agreement are substantially similar.
The following individuals are the members of the investment committee of
the Hatteras Investment Manager and other officers of the Hatteras Investment
Manager primarily responsible for selecting Advisors on behalf of the Hatteras
Investment Manager and allocating the Hatteras Master Fund's assets among
them:
Mr. David B. Perkins is the President and Managing Principal of the
Hatteras Investment Manager and is the co-founder and Managing Partner of
CapFinancial Partners, LLC. Mr. Perkins has 17 years experience in investment
management consulting and focuses on institutional and private client
relations. Mr. Perkins' responsibilities as a member of the Hatteras
Investment Manager's portfolio management team include identification of
strategies, allocation and optimization of investment strategies, risk
management, process development and control, manager selection and due
diligence, tactical and strategic asset allocation decisions, as well as
strategic planning. While at CapFinancial Partners, LLC his primary
responsibilities included strategic and tactical asset allocation and
investment manager search and selection, including alternative investment
strategies, and performance reporting. Prior to joining the Investment Manager
in 2003, Mr. Perkins served as Managing Partner at Wachovia Securities
Financial Network, Inc. from June 2002 to September 2003 and as Managing
Principal of CapTrust Financial Advisors, LLC from October 1997 to June 2002.
Mr. Perkins received his B.A. degree from the University of North Carolina at
Charlotte and earned his Certified Investment Management Analyst designation
at the Wharton School of the University of Pennsylvania. He also earned his
Certified Investment Strategist designation through the Stern School of
Business at New York University. Mr. Perkins is a member of the Investment
Management Consultants Association and was elected to the Who's Who of
Investment Management Consulting in 1999. Mr. Perkins is also a member of the
Chartered Alternative Investment Analyst Association where he earned the
designation of Chartered Alternative Investment Analyst.
34
Mr. Mark W. Yusko is a Principal of the Hatteras Investment Manager and
Principal of Morgan Creek Capital Management, LLC. Mr. Yusko provides a full
range of portfolio management functions for the Hatteras Fund. Mr. Yusko's
responsibilities include identification of investment strategies, portfolio
construction decisions, manager selection and due diligence, as well as
tactical and strategic asset allocation decisions. Previously, Mr. Yusko was
the Chief Investment Officer at the University of North Carolina in Chapel
Hill, North Carolina ("UNC") and the President and Chief Executive Officer for
UNC Management Co., LLC. Prior to UNC, Mr. Yusko served as Director of
Investments at the University of Notre Dame. Mr. Yusko received his B.S.
degree, with honors, in Biology and Chemistry from the University of Notre
Dame and a MBA in Accounting and Finance from the University of Chicago.
Mr. Joshua E. Parrott, CAIA, is Director of Risk Management for the
Hatteras Investment Manager. His primary responsibilities include risk
management and manager due diligence. Prior to joining the Hatteras Investment
Manager, Mr. Parrott was employed at Dialectic Capital Management in New York
where he assisted in portfolio analysis and the launch of a long/short equity
hedge fund. Prior to Dialectic, Mr. Parrott was employed by Morgan Stanley
where he provided alternative investment strategies and portfolio management
for high net worth individuals. Mr. Parrott began his career at Bear, Stearns
& Company specializing in restricted securities transactions for institutions
and high net worth individuals. Mr. Parrott received his B.S. degree from the
University of Vermont. Mr. Parrott holds the Series 7, 66 and 31 licenses and
is a candidate for the Professional Risk Manager certification. Mr. Parrott is
a member of the North Carolina Society of Financial Analysts.
The Statement of Additional Information of the Hatteras Fund provides
additional information about the compensation of the Hatteras Fund's portfolio
managers, other accounts managed by such managers, and such managers'
ownership of securities in the Hatteras Fund.
Morgan Creek Capital Management, LLC ("Morgan Creek") is a non-managing
member of the Hatteras Investment Manager and the Hatteras General Partner.
Pursuant to the respective operating agreements of those entities, Morgan
Creek is entitled to receive an allocation to its capital account equal to a
percentage of any management or incentive fees received by the Hatteras
Investment Manager from the funds its manages and incentive allocations
received by the Hatteras General Partner from the funds for which it serves as
general partner. Morgan Creek is also entitled to a portion of sales proceeds
in the event of a sale of the Hatteras Investment Manager. Morgan Creek
provides the Hatteras Investment Manager with portfolio construction, asset
allocation, manager sourcing, portfolio oversight and ongoing due diligence.
Combined Fund. Following the Reorganization, the Hatteras General Partner
will serve as the general partner and the Hatteras Investment Manager will
serve as the investment manager to the combined fund pursuant to the Hatteras
Investment Management Agreement.
Other Service Providers
Topiary Fund. DWS Scudder Distributors, Inc. ("Scudder"), 222 South
Riverside Plaza, Attn: Correspondence 27th Floor, Chicago, IL 60606-1048, is
the distributor of the Interests pursuant to an Underwriting Agreement between
the Topiary Fund and the Distributor.
PFPC Inc,. located at 301 Bellevue Parkway, Wilmington, Delaware 19809
("PFPC), serves as the administrator, transfer agent and custodian of the
Topiary Fund, the Topiary Offshore Fund, and the Topiary Master Fund and
provides investor services, including services relating to transfer agency,
processing of subscriptions, and account-related functions, among other
services. For its services to the Topiary Fund and the Topiary Master Fund,
the Topiary Master Fund pays PFPC, and the Topiary Fund as an indirect
investor in the Topiary Master Fund bears, an administrative fee at an annual
rate equal to 0.08% of the Topiary Master Fund's month-end net assets.
PricewaterhouseCoopers LLP serves as the independent registered public
accounting firm of the Topiary Fund and the Topiary Master Fund.
PricewaterhouseCoopers LLP's principal business address is located at 300
Madison Avenue, New York, New York 10017.
35
Sidley Austin LLP, 787 Seventh Avenue, New York, New York 10019, serves
as legal counsel to the Topiary Fund and the Topiary Master Fund. Walkers,
Walker House, P.O. Box 265GT, Mary Street, George Town, Grand Cayman, Cayman
Islands, acts as legal counsel to the Topiary Offshore Fund.
Hatteras Fund. CapFinancial Partners, LLC, an affiliate of the Hatteras
Investment Manager and the Hatteras Fund, currently serves as a non-exclusive
Placement Agent (as defined below) for the Hatteras Fund pursuant to a
Placement Agreement. RBC Dain Rauscher, Inc., Morgan Stanley & Co.,
Incorporated, Morgan Stanley DW, Inc., The Strategic Financial Alliance, Inc.,
and Morgan Keegan & Co., Inc. also currently serve as Placement Agents for the
Hatteras Fund pursuant to Placement Agreements.
UMB Fund Services, Inc. (the "Hatteras Administrator") serves as
administrator and custodian to the Hatteras Fund, the Hatteras Offshore Fund
and the Hatteras Master Fund, pursuant to separate administration agreements.
The Hatteras Master Fund pays the Hatteras Administrator a monthly
administration fee out of the Hatteras Master Fund's assets, which is
indirectly borne by the Hatteras Fund as an investor in the Hatteras Master
Fund. Each of the Hatteras Fund and the Hatteras Offshore Fund are charged
directly for certain services provided to them by the Hatteras Administrator,
including taxation services.
Deloitte & Touche LLP serves as the Fund's independent registered public
accounting firm. Its principal business address is 1700 Market Street, 25th
Floor, Philadelphia, Pennsylvania 19103.
Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996, acts as counsel to the Hatteras Fund
and Hatteras Master Fund. Walkers, Walker House, P.O. Box 265GT, Mary Street,
George Town, Grand Cayman, Cayman Islands, acts as legal counsel to the
Hatteras Offshore Fund.
Combined Fund. Following the Reorganization, the Hatteras Fund's current
service providers will service the combined fund.
Sales Charges, Placement Agent and Investor Servicing Fees
Topiary Fund. Investments may be subject to a sales charge of up to 2.5%,
subject to waiver or adjustment in the sole discretion of Scudder. Without
limiting the foregoing, the sales charge is expected to be waived for certain
institutional investors and certain persons associated with DBIM or its
affiliates. The sales charge will be added to each prospective investor's
purchase amount, and will not constitute part of a Member's capital
contribution to the Topiary Fund or part of the assets of the Topiary Fund.
Investors in the Topiary Fund are not charged any placement agent fees or
investor servicing fees.
Hatteras Fund. Placement agents (who may be affiliated with the General
Partner) (each, a "Placement Agent") are entitled to a placement fee of 2.00%
for investments in the amount of $100,000 to $499,999, 1.50% for investments
in the amount of $500,000 to $999,999 and 1.00% for investments of $1,000,000
or more. The placement fee will be applied by one of two methods, as
determined by the applicable Placement Agent. The Placement Agent may: (1)
have the placement fee deducted from the amount provided, so that for example,
if the investor provides $100,000, $2,000 will generally be deducted as a
placement fee and $98,000 will be invested in the Hatteras Fund; or (2) treat
the placement fee as an addition to, and not a deduction from, the
subscription amount; so that, for example, if the investor invests $100,000 in
the Hatteras Fund, the investor will generally be charged a $2,000 placement
fee in addition to the $100,000 invested. Under a right of accumulation
offered by the Hatteras Fund, the amount of each additional investment in the
Hatteras Fund by a Partner will be aggregated with the amount of the Partner's
initial investment and any other additional investments by the Partner in
determining the applicable placement fee. The right of accumulation also
applies to investments in the Hatteras Fund by a Partner's spouse and
investments for certain related accounts. The placement fee does not
constitute a capital contribution made by a Partner to the Hatteras Fund or
part of the assets of the Hatteras Fund. The placement fee may be waived or
reduced for certain investors at the sole discretion of the applicable
Placement Agent in consultation with the Hatteras General Partner and is
expected to be waived, without limitation, for the Hatteras General Partner
and its
36
affiliates and their respective directors, partners, principals, officers and
employees as well as for certain other strategic investors.
In consideration for investor services, the Hatteras Fund will pay
Hatteras Investment Partners, LLC (in such capacity, the "Servicing Agent") an
investor servicing fee at the annual rate of 0.75% of the net asset value of
the Limited Partnership Interests beneficially owned by customers of the
Servicing Agent or any service provider who has entered into a service
provider agreement with the Servicing Agent. The investor servicing fees
payable to the Servicing Agent will be borne by all Partners of the Hatteras
Fund pro rata. The Servicing Agent may waive to all investors (on a pro rata
basis) or pay to service providers all or a portion of the investor servicing
fee in its sole discretion.
Combined Fund. Following the Reorganization, the combined fund will be
subject to the Hatteras Fund's placement agent fees and investor servicing
fees, as described above.
For more information on the Topiary Fund's fees and service providers or
the Hatteras Fund's fees and service providers see the Topiary Fund Prospectus
or the Hatteras Fund Offering Memorandum, respectively (a copy of which
accompanies this Proxy Statement).
Purchase, Investor Suitability, Withdrawal, Transfer and Valuation of
Interests
Procedures for the purchase, withdrawal, transfer and valuation of
interests of the Topiary Fund and the Hatteras Fund as well as investor
eligibility requirements for both Funds are substantially similar. Investors
should refer to the Hatteras Fund Offering Memorandum and the Topiary Fund
Prospectus for the specific procedures applicable to purchases and
withdrawals. In addition to the policies described below, certain fees may be
assessed in connection with the purchase and withdrawal of interests, although
no such fees will be assessed as part of the Reorganization. See "Summary--Fee
and Expenses" above. The following discussion describes the policies and
procedures related to the purchase, withdrawal, transfer and valuation of
interests of the Hatteras Fund, which policies and procedures will be used by
the combined fund.
Purchase. The Hatteras Fund accepts initial and additional subscriptions
as of the first business day of each calendar month or at such other times as
may be determined by the Hatteras General Partner. Partners must purchase at
least $100,000 of Limited Partnership Interests (including any applicable
placement fee), although the Hatteras General Partner will waive such minimum
purchase requirement for Members of the Topiary Fund who acquire Limited
Partnership Interests as a result of the Reorganization. The minimum
additional investment by existing Partners is $25,000 of Limited Partnership
Interests.
The Hatteras Fund reserves the right to reject any offer to purchase
Limited Partnership Interests and the Hatteras Investment Manager may, in its
sole discretion, suspend subscriptions for Interests at any time and from time
to time.
Investor Suitability. Limited Partnership Interests are sold only to
persons that are "Qualified Clients" within the meaning of the Advisers Act.
Such term includes, in general: (i) a natural person or company (other than,
among other things, a company that is required to be registered under the 1940
Act but is not registered) that has a net worth (together, in the case of a
natural person, with assets held jointly with a spouse) of more than
$1,500,000; (ii) persons who have at least $750,000 under the Hatteras
Investment Manager's or its affiliates' management, including any amount
invested in the Hatteras Fund; and (iii) certain employees of the Hatteras
Investment Manager and its affiliates.
Limited Partnership Interests may also only be sold to persons who are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended. Generally, this includes natural persons whose net
worth is in excess of $1,000,000, or whose individual income for the past two
years exceeds $200,000 for each year (with his or her spouse, $300,000) and
who has a reasonable expectation of reaching the same income level in the
current year. It also includes companies whose total assets exceed $5,000,000.
37
In addition, Limited Partnership Interests are offered only to investors
that are U.S. persons for U.S. federal income tax purposes. A person is
considered a U.S. person for U.S. federal income tax purposes if the person
is: (i) a citizen or resident of the United States; (ii) a corporation,
partnership (including an entity treated as a corporation or partnership for
U.S. federal income tax purposes) or other entity (other than an estate or
trust) created or organized under the laws of the United States, any state
therein or the District of Columbia; (iii) an estate (other than a foreign
estate defined in Section 7701(a)(31)(A) of the Internal Revenue Code of 1986,
as amended (the "Code")); or (iv) a trust, if a court within the United States
is able to exercise primary supervision over its administration and one or
more U.S. persons have the authority to control all substantial decisions of
such trust. Finally, Limited Partnership Interests will only be offered to
investors that are tax-exempt or tax-deferred entities for U.S. federal income
tax purposes.
Investors in the Hatteras Fund are also required to satisfy the Hatteras
Fund's "Know Your Client" requirements and to provide the Hatteras Fund with
additional information in connection therewith.
Withdrawals. The Hatteras Fund intends to make quarterly offers to
repurchase the Limited Partnership Interests unless the Hatteras Fund Board
determines, in its complete and absolute discretion, that any such offer would
not be in the Hatteras Fund's and the Partners' best interest.
Each repurchase offer ordinarily will be limited to the repurchase of
approximately 5% of the Limited Partnership Interests (but in no event to
exceed the repurchase of more than 20% of the Limited Partnership Interests
per quarter). A Partner that participates in a repurchase offer with a
Valuation Date (as defined below) occurring prior to the end of the 12th month
of its admission to the Hatteras Fund will be subject to a penalty payable to
the Hatteras Fund equal to 5% of the amount requested to be repurchased, to be
netted against withdrawal proceeds. The minimum value of a repurchase is
$50,000, subject to the discretion of the Hatteras General Partner to allow
otherwise. A Partner whose Limited Partnership Interest, or a portion thereof,
is repurchased by the Hatteras Fund will not be entitled to a return of any
placement fee that was charged in connection with the Partner's purchase of
the Limited Partnership Interest.
Limited Partnership Interests will be repurchased at their net asset
value determined as of approximately March 31, June 30, September 30 and
December 31, as applicable (each such date, a "Valuation Date"). Partners
tendering Limited Partnership Interests for repurchase will be asked to give
written notice of their intent to do so by the date specified in the notice
describing the terms of the applicable repurchase offer, which date will be
approximately 65 days prior to the date of repurchase by the Hatteras Fund.
Partners who tender may not have all of the tendered Limited Partnership
Interest repurchased by the Hatteras Fund. The Hatteras Fund may elect to
repurchase less than the full amount that a Partner requests to be
repurchased. If a repurchase offer is oversubscribed, the Hatteras Fund will
repurchase only a pro rata portion of the amount tendered by each Partner. The
Hatteras Fund anticipates that it will make repurchase offers with Valuation
Dates on or about June 30, September 30, December 31 and March 31 of each
year.
The Hatteras Fund Board, in its complete and absolute discretion, may
under certain circumstances elect to postpone, suspend or terminate an offer
to repurchase Limited Partnership Interests.
A Partner who tenders for repurchase only a portion of its Limited
Partnership Interest will be required to maintain a minimum account balance of
$100,000. If a Partner tenders a portion of its Limited Partnership Interest
and the repurchase of that portion would cause the Partner's account balance
to fall below this required minimum, the Hatteras Fund reserves the right to
reduce the portion of the Limited Partnership Interest to be purchased from
the Partner so that the required minimum balance is maintained. Such minimum
Capital Account balance requirement may also be waived by the Hatteras General
Partner in its sole discretion, subject to applicable federal securities laws.
The Hatteras Fund will generally pay the value of the Limited Partnership
Interests repurchased (or as discussed below, 90% of such value if the entire
Limited Partnership Interest owned by a Partner is repurchased) approximately
90 days after the Valuation Date. This amount will be subject to adjustment
within 45 days after completion of the annual audit of the Hatteras Fund's
financial statements for the fiscal year in which the repurchase is effected.
If the entire Limited Partnership Interest owned by a Partner is repurchased,
the Partner will receive an initial payment equal to 90% of the estimated
value of the Limited Partnership Interest (after adjusting for fees,
38
expenses, reserves or other allocations or redemption charges) approximately
90 days after the Valuation Date, subject to audit adjustment, and the balance
due will be determined and paid within 45 days after completion of the
Hatteras Fund's annual audit.
The Hatteras General Partner has agreed that the Members of the Topiary
Fund who acquire Limited Partnership Interests as a result of the
Reorganization shall be credited by the Hatteras Fund with, and shall carry
over, the holding period of their Topiary Fund Interests for all purposes
including the calculation of any repurchase fee.
Valuation. The Net Asset Value (the "NAV") of the Hatteras Fund, the
Hatteras Offshore Fund and the Hatteras Master Fund will equal the value of
the total assets of the Hatteras Fund, the Hatteras Offshore Fund and the
Hatteras Master Fund, respectively, less all of each entity's respective
liabilities, including accrued fees and expenses. In computing its NAV, the
Hatteras Fund will value its interest in the Hatteras Offshore Fund at the
value of the Hatteras Offshore Fund's interest in the Hatteras Master Fund,
and the Hatteras Offshore Fund will value its interest in the Hatteras Master
Fund at the NAV provided by the Hatteras Master Fund to the Hatteras Offshore
Fund and the Hatteras Fund.
The Hatteras Investment Manager will oversee the valuation of the
Hatteras Master Fund's investments, including in interests in the Advisor
Funds, in accordance with written policies and procedures (the "Valuation
Procedures") that the Hatteras Master Fund Board has approved for purposes of
determining the fair value of securities held by the Hatteras Master Fund,
including the fair value of the Hatteras Master Fund's investments in Advisor
Funds. As a general principle, the fair valuation of a security reflects the
amount that the Hatteras Investment Manager determines that the Hatteras
Master Fund might reasonably expect to receive for the security upon the sale
or redemption of the security at the time the valuation is made, based on
information reasonably available at the time the valuation is made and that
the Hatteras Investment Manager believes to be reliable. In the case of a
security issued by an Advisor Fund, this would typically be equal to the
amount that the Hatteras Master Fund might reasonably expect to receive from
the Advisor Fund if the Hatteras Master Fund's interest were redeemed on the
date as of which it was valued (without accounting for any early redemption
fees or lock-up periods that may be applicable to the Hatteras Master Fund's
interest). The Hatteras Investment Manager makes this determination based on
the valuation most recently provided by the Advisor Fund in accordance with
the policies the Advisor Fund has established, which may constitute the
Advisor Fund's best estimate at the time based upon data then available, as
well as any other relevant information reasonably available at the time of the
valuation of the Hatteras Master Fund's portfolio.
Prior to an investment by the Hatteras Master Fund in any Advisor Fund,
the Hatteras Investment Manager will conduct a due diligence review of the
valuation methodologies used by the Advisor Fund. As a general matter, Advisor
Funds selected by the Hatteras Master Fund will use market value when
available, and otherwise will use principles of fair value applied in good
faith. The Hatteras Investment Manager will consider whether it is
appropriate, in light of all relevant circumstances, to value Limited
Partnership Interests at the NAV as reported at the time of valuation, or
whether to adjust such value to reflect a premium or discount. Although the
procedures approved by the Hatteras Fund Board provide that the Hatteras
Investment Manager will review the valuations provided by the Advisors,
neither the Hatteras Investment Manager nor the Hatteras Board will be able to
confirm independently the accuracy of valuations provided by such Advisors
(which are unaudited).
The Valuation Procedures approved by the Hatteras Fund Board provide
that, where deemed appropriate by the Hatteras Investment Manager and
consistent with the 1940 Act, investments in Advisor Funds may be valued at
cost. Cost would be used initially in valuing Advisor Funds and thereafter
only when cost is determined to best approximate the fair value of the
particular security under consideration. For example, cost may not be
appropriate when the Hatteras Master Fund is aware of sales of similar
securities to third parties at different prices or in other circumstances
where cost may not approximate fair value (which could include situations
where there are no sales to third parties). In such a situation, the Hatteras
Master Fund's investment will be revalued in a manner that the Hatteras
Investment Manager, in accordance with the Valuation Procedures, determines in
good faith best reflects approximate market value. The Hatteras Fund Board
will be responsible for ensuring that the Valuation Procedures are fair to the
Hatteras Master Fund and consistent with applicable regulatory guidelines.
39
In general, fair value represents a good faith approximation of the
current value of an asset and will be used when there is no public market or
possibly no market at all for the asset. The fair values of one or more assets
may not be the prices at which those assets are ultimately sold. In such
circumstances, the Hatteras Investment Manager and/or the Hatteras Fund Board,
in consultation with the Hatteras Administrator, will reevaluate the Hatteras
Fund's fair value methodology to determine, what, if any, adjustments should
be made to the methodology.
For more information regarding the above, please see the sections
"Summary - The Offering," "Investor Qualifications," "Repurchase Offers,"
"Transfers of Interest" and "Calculation of Net Asset Value" in the Hatteras
Fund Offering Memorandum.
FINANCIAL HIGHLIGHTS
Financial highlights for the Limited Partnership Interests of the
Hatteras Fund may be found in the Hatteras Fund's annual report, a copy of
which accompanies this Proxy Statement. The Topiary Fund Prospectus is
available upon request.
INFORMATION ABOUT THE REORGANIZATION
Eligible Participants
As a condition to their investment in the Topiary Fund, Topiary Fund
Members previously certified that they qualified as both "Qualified Clients"
under the Advisers Act and "Accredited Investors" under the Securities Act.
The Hatteras Fund imposes similar requirements on its investors. Accordingly,
in order to be eligible to receive Limited Partnership Interests in the
Hatteras Fund, Members of the Topiary Fund must likewise continue to qualify
as both "Qualified Clients" and "Accredited Investors" (see "Comparison of the
Topiary Fund and the Hatteras Fund--Purchase, Investor Suitability,
Withdrawal, Transfer and Valuation of Interests" at page 37 for more detailed
information).
As described above, a "Qualified Client" includes, in general: (i) a
natural person or company (other than, among other things, a company that is
required to be registered under the 1940 Act but is not registered) that has a
net worth (together, in the case of a natural person, with assets held jointly
with a spouse) of more than $1,500,000; (ii) persons who have at least
$750,000 under the Hatteras Investment Manager's or its affiliates'
management, including any amount invested in the Hatteras Fund; and (iii)
certain employees of the Hatteras Investment Manager and its affiliates. An
"accredited investor" includes natural persons whose net worth is in excess of
$1,000,000, or whose individual income for the past two years exceeds $200,000
for each year (with his or her spouse, $300,000) and who has a reasonable
expectation of reaching the same income level in the current year. It also
includes companies whose total assets exceed $5,000,000.
The Proxy Card that accompanies this Proxy Statement contains a statement
that, by signing on the appropriate signature line on such Proxy Card, Topiary
Fund Members confirm that there have been no changes in their "Qualified
Client" and "Accredited Investor" status since they made their initial
certification to the Topiary Fund. Investors who do not meet both of these
requirements will not be eligible to participate in the Reorganization.
General
Under the Reorganization Agreement, the Topiary Fund will transfer
substantially all of its assets and liabilities to the Hatteras Fund in
exchange for Limited Partnership Interests of the Hatteras Fund. For more
details about the Reorganization Agreement, see Appendix A--"Form of Agreement
and Plan of Reorganization." Generally, the assets transferred by the Topiary
Fund to the Hatteras Fund will equal (a) all investments of the Topiary Fund
held in its portfolio as of the close of regular trading on the New York Stock
Exchange on the business day prior to the Closing Date (the "Valuation Time"),
and (b) all other assets owned directly or indirectly by the Topiary Fund as
of such time. The Limited Partnership Interests of the Hatteras Fund received
by the Topiary Fund Members will have the same aggregate net asset value as
the aggregate net asset value of the Topiary Fund as of the Valuation Time.
See "Calculation of Net Asset Value" in the Hatteras Fund Offering Memorandum
for information concerning the calculation of net asset value. Such Limited
Partnership will then be distributed on a
40
proportionate basis to the Members of the Topiary Fund in liquidation of the
Topiary Fund in return for such Members' proportional interests in the Topiary
Fund and such Members will be admitted as Partners of the Hatteras Fund. Then,
as soon as practicable after the Closing Date (as defined in Appendix A), the
Topiary Fund will be dissolved under applicable state law and deregistered as
an investment company under the 1940 Act.
The distribution of Hatteras Fund Limited Partnership Interests to the
Topiary Fund Members will be accomplished by opening new Capital Accounts on
the books of the Hatteras Fund in the names of the Topiary Fund Members and
transferring to those Capital Accounts the Limited Partnership Interests in
the Hatteras Fund. Such newly-opened Capital Accounts on the books of the
Hatteras Fund will represent for each Topiary Fund Member the respective pro
rata share of the Interest in the Hatteras Fund that the Topiary Fund receives
under the terms of the Reorganization Agreement. See "Terms of the
Reorganization Agreement" below.
Accordingly, as a result of the Reorganization, each Topiary Fund Member
will own an Interest in the Hatteras Fund having an aggregate NAV immediately
after the Closing Date equal to the aggregate NAV of that Member's Topiary
Fund Interest immediately prior to the Closing Date. The Reorganization will
not result in dilution of either Fund's NAV. However, as a result of the
Reorganization, a Member of the Topiary Fund or Limited Partner of the
Hatteras Fund will hold a reduced percentage of ownership in the larger
combined fund than the investor did in either of the Funds.
No sales charge or fee of any kind will be assessed to the Topiary Fund
Members in connection with their receipt of Interests in the Hatteras Fund in
the Reorganization. However, immediately prior to the effective date of the
Reorganization, any accrued Incentive Allocations will be reallocated from the
Capital Accounts of Topiary Fund Members to the Capital Account of DBIM.
Further, withdrawals made after the Reorganization may be subject to
repurchase fees, although Members of the Topiary Fund who acquire Limited
Partnership Interests as a result of the Reorganization shall be credited by
the Hatteras Fund with, and shall carry over, the holding period of their
Topiary Fund Interests for all purposes including the calculation of any
redemption fee.
The Hatteras Investment Manager has agreed to pay to DBIM in connection
with the Reorganization an annual fee equal to 0.15% of the net asset value of
the Capital Accounts held by former Topiary Fund Members with the Hatteras
Fund. The Hatteras Investment Manager will pay such fee to DBIM monthly in
arrears commencing on October 31, 2007 and ending on September 30, 2009.
Terms of the Reorganization Agreement
Pursuant to the Reorganization Agreement, the Hatteras Fund will acquire
substantially all of the assets and certain liabilities of the Topiary Fund on
the Closing Date in consideration for Limited Partnership Interests in the
Topiary Fund.
On the Closing Date, the Topiary Fund will transfer to the Hatteras Fund
substantially all of its assets in exchange solely for Limited Partnership
Interests in the Hatteras Fund that are equal in value to the value as of the
Valuation Time of the net assets of the Topiary Fund transferred to the
Hatteras Fund, as determined in accordance with the Hatteras Fund's valuation
procedures or such other valuation procedures as shall be mutually agreed upon
by the parties, and the assumption by the Hatteras Fund of substantially all
of the liabilities of the Hatteras Fund provided for in an agreed upon
schedule prior to the Closing Date.
The Topiary Fund expects to distribute the Limited Partnership Interests
in the Hatteras Fund to the Members of the Topiary Fund promptly after the
Closing Date. Upon distribution of such Limited Partnership Interests, all
outstanding Interests of the Topiary Fund will be withdrawn in accordance with
Delaware law. Thereafter, the Topiary Fund will be dissolved under Delaware
law.
The Hatteras Fund and the Topiary have made certain standard
representations and warranties to each other regarding capitalization, status
and conduct of business.
Unless waived in accordance with the Reorganization Agreement, the
obligations of the parties to the Reorganization Agreement are conditioned
upon, among other things:
41
o the approval of the Reorganization by the Topiary Fund's Members;
o the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the
transactions contemplated by the Reorganization Agreement;
o the receipt of all necessary approvals, consents, registrations and
exemptions under federal, state and local laws;
o the truth in all material respects as of the Closing Date of the
representations and warranties of the parties and performance and
compliance in all material respects with the parties' agreements,
obligations and covenants required by the Reorganization Agreement;
o the effectiveness under applicable law of the registration statement
of the Hatteras Fund and the absence of any stop orders under the
Securities Act pertaining thereto;
o the receipt of opinions of counsel.
The Reorganization Agreement may be terminated or amended by the mutual
consent of the parties either before or after approval thereof by the Members
of the Topiary Fund.
The Topiary Fund Board recommends that you vote to approve the
Reorganization (and the reorganization involving the Topiary Master Fund and
the Hatteras Master Fund), as it believes the Reorganization is in the best
interests of the Topiary Fund's members (as described more fully in "Reasons
for the Reorganization" below) and that the interests of existing Members of
the Topiary Fund will not be diluted with respect to net asset value as a
result of consummation of the proposed Reorganization.
Section 15(f) of the Investment Company Act of 1940
In connection with the Reorganization, the Hatteras Investment Manager
and DBIM have agreed to comply with Section 15(f) of the 1940 Act. Section
15(f) provides in substance that when a sale of securities or a controlling
interest in an investment adviser to an investment company occurs or when an
investment company is consolidated with another investment company, the
investment adviser to the predecessor fund or any of its affiliated persons
may receive any amount or benefit in connection with the transaction so long
as two conditions are satisfied. The first condition of Section 15(f) is that
during the three-year period following the consummation of a transaction, at
least 75% of the investment company's board must not be "interested persons"
(as defined in the 1940 Act) of the investment adviser or predecessor adviser.
The Hatteras Fund Board currently meets this test and is expected to do so
after the Reorganization is completed. Second, an "unfair burden" (as defined
in the 1940 Act) must not be imposed on the investment company as a result of
the transaction relating to the sale of such interest, or any express or
implied terms, conditions or understandings applicable thereto. The term
"unfair burden" (as defined in the 1940 Act) includes any arrangement during
the two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any "interested person" (as defined in
the 1940 Act) of such an adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, or on behalf of the investment company (other
than bona fide ordinary compensation as principal underwriter for the
investment company). The Hatteras Fund Investment Manager and DBIM have agreed
to conduct, and use reasonable best efforts to cause their respective
affiliates to conduct, their respective businesses in compliance with the
conditions of Section 15(f) in relation to the Hatteras Fund.
Reasons for the Reorganization
The factors considered by the Topiary Fund Board with regard to the
Reorganization include, but are not limited to, the following:
42
o The investment objectives and policies of the Topiary Fund and the
Hatteras Fund are similar. See "Comparison of the Topiary Fund and
the Hatteras Fund--Investment Objectives and Principal Investment
Strategies."
Through the Reorganization, Members will be invested in a
combined fund with similar objectives and strategies. As a
result, the style and risk/return profile of the combined fund
will remain comparable to those of the Members' current
investment.
o The expectation that the combined fund will achieve certain
operating efficiencies from its larger net asset size.
The larger net asset size of the combined fund should permit
the combined fund to achieve certain economies of scale as
certain costs can be spread over a larger asset base, and the
larger combined fund may achieve greater portfolio diversity,
potentially lower portfolio transaction costs and will be a
more viable long-term investment product than the Topiary Fund.
o The expectation that, although the operating expenses of the
combined fund will be higher than those payable by the Topiary Fund,
the combined fund will have a projected net operating expense ratio
that will be more stable than that of the Topiary Fund with the
expiration of the Expense Limitation Agreement.
As of March 31, 2007, DBIM contractually capped the operating
expense ratio of the Topiary Fund at 1.75% (the "Topiary Fund
Expense Limitation Agreement"). DBIM has informed the Topiary
Fund Board that it will not renew the Topiary Fund Expense
Limitation Agreement for the fiscal year beginning April 1,
2008. Based on the current assets of the Topiary Fund, DBIM has
estimated that the annual expense ratio following the
expiration of the Topiary Fund Expense Limitation Agreement
will be approximately 1.96%. The Hatteras Investment Manager
and the Hatteras General Partner have agreed to cap the
Hatteras Fund's operating expense ratio (excluding certain
investment related expenses such as foreign tax withholdings
and line of credit interest expenses ("Investment Related
Expenses")) at 2.35% through November 1, 2008. As of June 30,
2007, the Hatteras Fund's net expense ratio was 2.19%.
The Topiary Fund Board has considered the operating expenses of
both the Topiary Fund and the Hatteras Fund as described above,
the fact that DBIM will not renew the Topiary Fund Expense
Limitation Agreement and the fact that, if the Reorganization
is not approved, DBIM will propose that the Topiary Fund be
liquidated. If the Topiary Fund Board approves the liquidation,
Members would receive their entire liquidation proceeds on or
after 2010 (as described more fully below). On the basis of
these considerations, the Topiary Fund Board has determined
that the higher operating expense ratio of the Hatteras Fund is
justified and in the best interests of Members as the combined
fund's net operating expense ratio will be more stable than the
Topiary Fund's expense ratio, which will dramatically increase
as its assets decline from, among other things, liquidation and
distributions to Members, repurchase offers and/or from
increases in levels of operating expenses. See "Summary--Fees
and Expenses."
o The confirmation from DBIM to the Topiary Fund Board that there will
not be imposed an "unfair burden" (as such term is defined under
Section 15(f) of the 1940 Act) on the Topiary Fund as a result of
the Reorganization.
o The composition, experience and expertise of the investment team
that will manage the combined fund and the team's investment style
and strategies (as described above under "Comparison of the Topiary
Fund and the Hatteras Fund--Investment Objectives and Principal
Investment Strategies"). See "Management of the Funds."
43
o The relative performance histories of each Fund.
The Board reviewed the relative performance of each Fund over
different time periods compared with each other and to the
relative benchmarks applicable to each Fund. Because the
combined fund will most closely resemble the Hatteras Fund, the
Hatteras Fund will be the accounting survivor of the
Reorganization. As such, the combined fund will assume the
performance history of the Hatteras Fund at the closing of the
Reorganization.
o The Hatteras Fund's and the Hatteras Investment Manager's
distribution program and focus on high net worth, retail-oriented
accounts.
o The costs associated with the Reorganization attributable to the
Topiary Fund will be borne by DBIM, the Hatteras Investment Manager
or their respective affiliates and, in any event, will not be borne
by Members.
Members of the Topiary Fund will not bear any costs associated
with the Reorganization, including proxy solicitation expenses
and sales charges. Proxy solicitation expenses include legal
fees, printing, packaging and postage--all of which will be
covered by DBIM, the Hatteras Investment Manager or their
respective affiliates. Members will not have to pay any sales
charge on the Hatteras Fund Limited Partnership Interests
received in the Reorganization.
o The organization and financial stability of the Hatteras Investment
Manager and the Hatteras General Partner.
o The Hatteras Investment Manager's and the Hatteras General Partner's
compliance program.
o The fact that DBIM considered another potential acquiror of the
Topiary Fund but ultimately determined that such a transaction was
not feasible.
o The inability of the Topiary Fund to fully redeem its underlying
investments before 2010 (or potentially later) if the Reorganization
is not approved.
If the Reorganization is not approved by Members, DBIM will
propose to the Topiary Fund Board that Topiary Fund be
liquidated, terminated as a Delaware limited liability company
and deregistered as an investment company under the 1940 Act.
DBIM has informed the Board of Directors that the Topiary Fund
would not be a viable investment if it did not increase its
asset base, and that, under current market conditions, DBIM has
experienced difficulty in increasing the Topiary Fund's assets,
as described in more detail herein. Certain of the Topiary
Fund's investments in Investment Funds are subject to
side-pockets or lock-up periods that prevent the Topiary Fund
from liquidating such investments before 2010 (or potentially
later). As a result, if the Topiary Fund were to liquidate,
Members would receive interim liquidation payments as the Fund
redeemed its investments. DBIM believes that Members would not
receive their final share of the proceeds from the liquidation
until 2010 (or potentially later). Therefore, if the
Reorganization is not approved by Members and the Topiary Fund
is liquidated, a Member will not receive the Member's final
share of the proceeds from the liquidation until 2010 (or
potentially later).
For these and other reasons, the Topiary Fund Board unanimously concluded
that, based upon the factors and determinations summarized above, consummation
of the Reorganization is in the best interests of the Topiary Fund and its
Members and that the interest of the Members of the Topiary Fund will not be
diluted with respect to net asset value as a result of the Reorganization. The
approval determinations were made on the basis of each Director's business
judgment after consideration of all of the factors taken as a whole, although
individual Directors may have placed different weight on various factors and
assigned different degrees of materiality to various conclusions.
44
Material U.S. Federal Income Tax Consequences of the Reorganization
The following is a general summary of the material anticipated U.S.
federal income tax consequences of the Reorganization. The discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, court decisions, published positions of the IRS and other
applicable authorities, all as in effect on the date hereof and all of which
are subject to change or differing interpretations (possibly with retroactive
effect). The discussion is limited to U.S. persons who hold Interests in the
Topiary Fund as capital assets for U.S. federal income tax purposes. This
discussion is also limited to Members of the Topiary Fund who are exempt from
U.S. federal income taxation, and this summary does not address all of the
U.S. federal income tax consequences that may be relevant to a particular
investor or to investors who may be subject to special treatment under U.S.
federal income tax laws. No assurance can be given that the IRS would not
assert, or that a court would not sustain, a position contrary to any of the
tax aspects described below. Members must consult their own tax advisers as to
the U.S. federal income tax consequences of the Reorganization, as well as the
effects of state, local and non-U.S. tax laws.
As noted above, as part of the Reorganization the Topiary Fund will
contribute substantially all of its assets and liabilities to the Hatteras
Fund in exchange for Limited Partnership Interests in the Hatteras Fund (the
"Contribution"). Section 721 of the Code provides that, in general, no gain or
loss is recognized to a person contributing property to a partnership in
exchange for an interest in such partnership. However, the nonrecognition
treatment under Section 721 of the Code does not apply to a contribution of
property to a partnership that is classified as an "investment company" under
the Code.
If the Hatteras Fund is not an "investment company" for purposes of
Section 721 of the Code, the Contribution will qualify under Section 721 of
the Code as a tax-free exchange and, accordingly, neither the Topiary Fund nor
its Members will recognize gain or loss for U.S. federal income tax purposes
as a result of the Contribution. Alternatively, it is possible that the
Hatteras Fund will be considered an "investment company" for purposes of
Section 721 of the Code and the Topiary Fund would recognize gain (but not
loss) to the extent that the fair market value of property contributed to the
Hatteras Fund exceeded its tax basis. Even in such a circumstance, the Members
of the Topiary Fund, as U.S. tax-exempt persons, would not be required to pay
U.S. federal income tax on their allocable share of any gain recognized by the
Topiary Fund (provided that such Member did not purchase its Interests in the
Topiary Fund with borrowed funds that constitute "acquisition indebtedness"
within the meaning of Section 514 of the Code) because the Contribution will
not generate "unrelated business taxable income" for U.S. federal income tax
purposes.
After the Contribution, the Topiary Fund will distribute Limited
Partnership Interests in the Hatteras Fund to its Members in complete
liquidation of the Topiary Fund. Section 731 of the Code provides that, as a
general rule, neither a partnership nor a partner recognizes gain or loss on
the distribution by the partnership of property, other than money, to a
partner. As a result, Members of the Topiary Fund will not recognize gain or
loss upon the distribution by the Topiary Fund of Limited Partnership
Interests in the Hatteras Fund to such Members. The tax basis of a Limited
Partnership Interest in the Hatteras Fund received in the Reorganization by a
Member of the Topiary Fund will equal the tax basis of the Interest in the
Topiary Fund exchanged by such Member, reduced or increased by any net
decrease or increase in the Member's share of liabilities as a result of the
Reorganization.
Expenses of the Reorganization
DBIM, the Hatteras Investment Manager or their respective affiliates will
pay the expenses incurred by the Topiary Fund in connection with the
preparation of this Proxy Statement, including all direct and indirect
expenses and out-of-pocket costs. DBIM, the Hatteras Investment Manager or
their respective affiliates will bear the direct and indirect expenses
incurred by the Topiary Fund in connection with the liquidation and
dissolution of the Topiary Fund, including all direct and indirect expenses
and out-of-pocket costs (excluding any brokerage or trading expenses of
securities sold by the Topiary Fund prior to the Reorganization).
Expenses incurred in connection with the Reorganization include, but are
not limited to: all costs related to the preparation and distribution of
materials distributed to each Fund's Board, including legal and accounting
costs; all expenses incurred in connection with the preparation of the
Reorganization Agreement and a proxy statement on Schedule 14A; legal and
audit fees in connection with the Reorganization; the costs of printing and
distributing this
45
Proxy Statement; auditing fees associated with inclusion of each Fund's
financial statements in the Schedule 14A; portfolio transfer taxes (if any);
and any similar expenses incurred in connection with the Reorganization.
Capital Accounts
If the Reorganization is approved, the Hatteras Fund will establish a
Capital Account for each Topiary Fund Member which will have a net asset value
equal to such Member's Capital Account in the Topiary Fund as of the Closing
Date.
Legal Matters
Certain legal matters concerning the federal income tax consequences of
the Reorganization will be passed on by Sidley Austin LLP, which serves as
counsel to the Topiary Fund, and Drinker Biddle & Reath LLP, which serves as
counsel to the Hatteras Fund.
OTHER INFORMATION
Capitalization
The following table sets forth as of March 31, 2007: (i) the unaudited
capitalization of the Topiary Fund; (ii) the unaudited capitalization of the
Hatteras Fund; and (iii) the unaudited pro forma combined capitalization of
the Hatteras Fund assuming the Reorganization has been approved. The
capitalizations are likely to be different when the Reorganization is
scheduled to be completed as a result of monthly purchases of interests and
withdrawal activity.
Fund Net Assets
---------------------------------------------- --------------------
Topiary Fund
Interests $ 85,501,029
====================
Hatteras Fund
Limited Partnership Interests $ 130,287,981
====================
Pro Forma Hatteras Combined Fund
Limited Partnership Interests $ 215,789,010
====================
Member/Limited Partner Information
As of March 31, 2007, there was approximately $85,501,029 outstanding in
capital of the Topiary Fund and $86,731,090 outstanding in capital of the
Topiary Master Fund. As of such date, the Directors and officers of the
Topiary Fund did not own any Interests in the Topiary Fund. As of March 31,
2007, DBIM, indirectly through an affiliate, beneficially owned $124,483 of
the Topiary Fund and $1,230,061.42, or approximately 1.42%, of the Topiary
Master Fund. This ownership reflects such affiliate's initial contribution of
approximately $25,000,000 in capital to the Topiary Master Fund prior to the
Interests in the Topiary Fund being publicly offered. As of March 31, 2007, no
person was known by the Topiary Fund to own beneficially or of record 5% or
more of the Topiary Fund.
As of March 31, 2007, there was approximately $130,287,981 outstanding in
capital of the Hatteras Fund and $432,119,739 outstanding in capital of the
Hatteras Master Fund. As of such date, the Directors and officers of the
Topiary Fund owned no Limited Partnership Interests in the Hatteras Fund. As
of March 31, 2007, no person was known by the Hatteras Fund to own
beneficially or of record 5% or more of the Hatteras Fund.
Member/Limited Partner Rights and Obligations
The Topiary Fund and the Hatteras Fund are different entities and, thus,
governed by different organizational documents. The Limited Partnership
Interests of the Hatteras Fund to be distributed to Members of the Topiary
Fund will have the legal characteristics with respect to such matters as
voting rights, assessibility, and
46
transferability as are described in the Offering Memorandum of the Hatteras
Fund that is enclosed with this proxy statement.
The Topiary Fund is a limited liability company organized under the laws
of the State of Delaware. The Hatteras Fund is a limited partnership organized
under the laws of the State of Delaware. Under its organizational documents,
there is no limit on the amount of capital contributions that the Hatteras
Fund is authorized to accept.
The Hatteras Fund will continue indefinitely until terminated.
With respect to each Fund, the Interests/Limited Partnership Interests
within such Fund have equal dividend, distribution, liquidation, and voting
rights. Each Fund bears its own expenses related to its distribution of
Interests/Limited Partnership Interests (and other expenses such as investor
or administrative services).
There are no preemptive rights in connection with Interests/Limited
Partnership Interests of the Topiary Fund or the Hatteras Fund. When issued in
accordance with the provisions of their respective offering documents (and, in
the case of Limited Partnership Interests of the Hatteras Fund, issued in the
connection with the Reorganization), all Interests/Limited Partnership
Interests are fully paid and non-assessable.
The foregoing is only a summary of certain rights of Members/Limited
Partners under the organizational documents governing the Topiary Fund and the
Hatteras Fund and under applicable state law, and is not a complete
description of provisions contained in those sources. Members should refer to
the provisions of those documents and state law directly for a more thorough
description.
Member/Limited Partner Proposals
The Topiary Fund and the Hatteras Fund do not hold regular annual
meetings of Members/Limited Partners in any year in which the 1940 Act does
not require Members/Limited Partners to act upon any of the following matters:
(i) election of Directors; (ii) approval of a management agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. In the event the Reorganization is not completed, the
Topiary Fund does not intend to hold future regular annual or special meetings
of its Members unless required by the 1940 Act. Any Member who wishes to
submit proposals for consideration at a meeting of Members of the Topiary Fund
should send such proposal to the Secretary of the Topiary Fund, 345 Park
Avenue, New York, New York 10154. Any Limited Partner who wishes to submit
proposals for consideration at a meeting of Limited Partners of the Hatteras
Fund should send such proposal to the secretary of the Hatteras Fund, 8540
Colonnade Center Drive, Suite 401, Raleigh, NC 27615. To be considered for
presentation at a Members'/Limited Partners' meeting, rules promulgated by the
SEC require that, among other things, a Member's/Limited Partner's proposal
must be received at the offices of the Fund a reasonable time before a
solicitation is made. Timely submission of a proposal does not necessarily
mean that such proposal will be included.
Solicitation of Proxies
Solicitation of proxies is being made on behalf of the Topiary Fund and
the Topiary Fund Board primarily by the mailing of the Notice and this Proxy
Statement with its enclosures on or about August 15, 2007. Topiary Fund
Members whose Interests are held by nominees such as brokers can vote their
proxies by contacting their respective nominee. In addition to the
solicitation of proxies by mail, employees of the Topiary Fund and its
affiliates as well as dealers or their representatives may, without additional
compensation, solicit proxies in person or by mail, telephone, facsimile or
oral communication. The Topiary Fund has retained PFPC Inc., a professional
proxy solicitation firm, to assist with any necessary solicitation of proxies.
Topiary Fund Members may receive a telephone call from PFPC Inc. asking them
to vote. The proxy solicitation expenses in connection with the Reorganization
are estimated to be approximately $11,000 for the Topiary Fund, all of which
will be borne by DBIM, or its affiliates.
Brokerage firms and others will be reimbursed for their expenses in
forwarding solicitation material to the beneficial owners of Interests of the
Topiary Fund. Representatives of DBIM and its affiliates and other
47
representatives of the Topiary Fund may also solicit proxies. Questions about
the proposal should be directed to PFPC Inc. at 1 (877) 456-6399.
PFPC Inc. and its agents will assist with the mailing and tabulation
effort and may also solicit proxies by contacting Members by telephone.
VOTING INFORMATION AND REQUIREMENTS
General
This Proxy Statement is furnished in connection with the proposed
Reorganization of the Topiary Fund into the Hatteras Fund and the solicitation
of proxies by and on behalf of the Topiary Fund Board for use at the Special
Meeting of Members of the Topiary Fund. The Special Meeting will be held on
Friday, September 21, 2007 at 9:00 a.m., Eastern time, at the offices of the
Topiary Fund at 345 Park Avenue, New York, New York 10154, or at such later
time as is made necessary by adjournment or postponement.
As of March 31, 2007, the Topiary Fund had the following number of
Members and capital:
Number of Members Capital
------------------------------------ -----------------
558 $85,501,029
Only Members of record on August 1, 2007 will be entitled to notice of
and to vote at the Special Meeting. Each Member shall be entitled to cast a
number of votes equivalent to such Member's Fund Percentage. A Member's Fund
Percentage is determined by dividing the balance of such Member's Capital
Account as of the commencement of such Fiscal Period by the sum of the Capital
Accounts of all of the Members as of the commencement of such Fiscal Period.
The Topiary Master Fund is concurrently asking its members to approve the
Offshore Fund Reorganization Agreement and the Master Fund Reorganization
pursuant to terms substantially similar to this Reorganization. As disclosed
in the Topiary Fund Prospectus, whenever the Topiary Fund as an investor in
the Topiary Master Fund, through the Topiary Offshore Fund, is requested to
vote on matters pertaining to the Topiary Master Fund, the Topiary Offshore
Fund will pass its voting rights to the Topiary Fund, and the Topiary Fund
will hold a meeting of its Members and vote its interest in the Topiary Master
Fund, through the Topiary Offshore Fund, for or against such matters
proportionately to the instructions to vote for or against such matters
received from the Members. Thus, the Topiary Offshore Fund will not vote on
Topiary Master Fund matters without the instruction of the Members of the
Topiary Fund. Accordingly, the Topiary Offshore Fund will vote "For" the
proposed Master Fund Reorganization in proportion to the votes of Topiary Fund
Members "For" such reorganization. Moreover, a Member who votes "For" the
proposed Reorganization involving the Topiary Fund and the Hatteras Fund will
be considered to have voted "For" the Offshore Fund Reorganization Agreement.
Member Approval
Approval by the Topiary Fund of the proposed Reorganization will require
the affirmative vote of Members holding a majority of the total number of
votes eligible to be cast. If the Members fail to approve the proposed
Reorganization, the Reorganization will not occur. The Topiary Fund Board has
fixed the close of business on August 1, 2007 as the Record Date for the
determination of Members entitled to notice of, and to vote at, the Special
Meeting.
If a proxy authorization ("Proxy") is properly given in time for a vote
at the Special Meeting (either by returning the paper Proxy card or by
submitting a Proxy by telephone or over the internet), the votes of the
Topiary Fund represented thereby will be voted at the Special Meeting in
accordance with the Member's instructions. The Proxy grants discretion to the
persons named therein, as proxies, to take such further action as they may
determine to be appropriate in connection with any other matter, which may
properly come before the Special Meeting, or any
48
adjournments or postponements thereof. The Topiary Fund Board does not
currently know of any matter to be considered at the Special Meeting other
than the matters set forth in the Notice of Special Meeting of Members.
The presence in person or by proxy of Members holding a majority of the
total number of votes eligible to be cast by all Members as of the Record Date
shall constitute a quorum at any meeting.
The persons named as proxies may, whether or not a quorum is present,
propose one or more adjournments or postponements of the Special Meeting on
behalf of the Topiary Fund without further notice to permit further
solicitation of Proxies, provided such persons determine that an adjournment
or postponement and additional solicitation are reasonable and in the interest
of the Members of the Topiary Fund, after consideration of all relevant
factors, including the nature of the relevant proposal, the percentage of
votes then cast, the percentage of negative votes then cast, the nature of the
proposed solicitation activities and the nature of the reasons for such
solicitation. Any such adjournment or postponement will require the
affirmative vote of the holders of a majority of the Interests of the Topiary
Fund present in person or by proxy and entitled to vote at the session of the
Special Meeting to be adjourned or postponed. Those proxies that are
instructed to vote in favor of the Reorganization, will vote in favor of any
such adjournment or postponement, and those proxies that are instructed to
vote against the Reorganization, will vote against any such adjournment or
postponement, as applicable.
All properly executed Proxies received prior to the Special Meeting will
be voted in accordance with the instructions marked thereon or otherwise as
provided therein. For purposes of determining the presence of a quorum for
transacting business at the Special Meeting and determining whether sufficient
votes have been received for approval of any proposal to be acted upon at the
Special Meeting, abstentions may, in the discretion of the Topiary Fund, be
treated as interests that are present at the Special Meeting and entitled to
vote on the matter, but that have not been voted. Unless instructions to the
contrary are marked, properly executed Proxies will be voted "For" the
approval of the proposed Reorganization. Abstentions and broker non-votes
(i.e., where a nominee such as a broker holding Interests for beneficial
owners votes on certain matters pursuant to discretionary authority or
instructions from beneficial owners, but with respect to one or more proposals
does not receive instructions from beneficial owners or does not exercise
discretionary authority) will be counted as present for purposes of a quorum
but would have the same effect as votes "Against" the Reorganization.
Broker-dealer firms holding Interests in "street name" for the benefit of
their customers and clients will request the instructions of such customers
and clients on how to vote their Interests on each proposal before the Special
Meeting. The NYSE has taken the position that broker-dealers that are members
of the NYSE and that have not received instructions from a customer prior to
the date specified in the broker-dealer firms' request for voting instructions
may not vote such customer's Interest on the Reorganization proposal. A signed
proxy card or other authorization by a beneficial owner of an Interest that
does not specify how the beneficial owner's Interest are to be voted on a
proposal may be deemed to be an instruction to vote such Interest in favor of
the applicable proposal.
Members do not have any rights of dissention if they vote "Against" the
Reorganization. If the proposed Reorganization is approved by the Topiary Fund
Members, all of the Topiary Fund's Members, regardless if they voted "For" or
"Against" the Reorganization, will receive Limited Partnership Interests in
the Hatteras Fund in exchange for their Interests in the Topiary Fund.
Manner of Voting
Topiary Fund Members may vote by appearing in person at the Special
Meeting, by returning the enclosed Proxy card or by casting their vote via
telephone or the internet using the instructions provided on the enclosed
Proxy card. Any Member who has given a Proxy, whether in written form, by
telephone or over the internet, may revoke it at any time prior to its
exercise by submitting a subsequent written, telephonic or electronic vote, by
giving written notice of revocation to the Secretary of the Topiary Fund, or
by voting in person at the Special Meeting.
Voting by Mail. To vote by mail, you should date and sign the Proxy card
included with this Proxy Statement, indicate your vote on the proposal, and
return the form in the envelope provided.
49
Voting by Telephone. There are two convenient methods to vote by
telephone. If telephone voting is available for your account, a toll-free
telephone number will be printed on your Proxy card. Prior to calling, you
should read this Proxy Statement and have your Proxy card at hand. (Please
note, however, that telephone voting may not be available to Members whose
Interests are held by a broker or other intermediary on the Member's behalf.)
First, you may use the automated touch-tone voting method by calling the
toll-free number provided on the Proxy card. At the prompt, follow the menu.
Second, a separate toll-free number is provided on the Proxy card for
Members who wish to speak to a telephone representative directly and give
verbal instructions. The telephone representative will assist the Member with
the voting process. The representative will not be able to assist a Member
with information that is not contained in this Proxy Statement, and the
representative will not make recommendations on how to vote on the proposal.
A written confirmation of your telephone instructions will be mailed
within 72 hours. You should immediately call 1 (877) 456-6399 toll-free
between 9 A.M. and 6 P.M. Monday through Friday Eastern time if no
confirmation is received or if your instructions have not been properly
reflected.
Internet Voting. To vote over the internet, please log on to
www.vote.proxy-direct.com and click on the proxy voting button. Prior to
logging on, you should read this Proxy Statement and have your Proxy card at
hand. After logging on, follow the instructions on the screen. If you receive
more than one Proxy card, you may vote them during the same session. (Please
note, however, that internet voting may not be available a Member whose
Interest is held by a broker or other intermediary on such Member's behalf.)
Additional Information. Members voting their Proxies by telephone or over
the internet need not return their Proxy card by mail.
A person submitting votes by telephone or over the internet is deemed to
represent that he or she is authorized to vote on behalf of all owners of the
account, including spouses or other joint owners. By using the telephone or
the internet to submit voting instructions, the Member is authorizing PFPC
Inc., a proxy solicitation firm, and its agents, to execute a Proxy to vote
the Member's Interests at the Special Meeting as the Member has indicated.
The Topiary Fund believes that the procedures for authorizing the
execution of a Proxy by telephone or over the internet set forth above are
reasonably designed to ensure that the identity of the Member casting the vote
is accurately determined and that the voting instructions of the Member are
accurately recorded.
You are requested to fill in, sign and return the enclosed Proxy card
promptly even if you expect to be present in person at the meeting since you
can always reverse your vote at the Special Meeting and unexpected
circumstances might prevent you from attending. No postage is necessary if
mailed in the United States.
August 15, 2007
50
-----------------------------------------
PROXY TABULATOR EVERY MEMBER'S VOTE IS IMPORTANT
P.O. BOX 859232 *** 4 EASY WAYS TO VOTE YOUR PROXIES ***
BRAINTREE, MA 02185-9232 -----------------------------------------
CALL: To vote by phone call toll-free 1-800-830-3542 and follow
the recorded instructions.
------------------------- LOG-ON: Vote on the internet at www.2voteproxy.com and follow the
on-screen instructions.
MAIL: Return the signed proxy card in the enclosed envelope.
------------------------- FAX: 1-781-930-4943 24 hours a day, 7 days a week. If voting
via fax, please be sure to sign your card and fax BOTH
SIDES of the proxy card.
SPECIAL MEETING OF MEMBERS ON SEPTEMBER 21, 2007
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE TOPIARY FUND FOR BENEFIT PLAN INVESTORS (BPI) LLC
The undersigned hereby appoints Pamela Kiernan, Marielena Glassman and Charles
Pirao as proxies, each with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned the votes
equivalent to the undersigned's Fund Percentage at the Special Meeting of
Members of The Topiary Fund for Benefit Plan Investors (BPI) LLC (the "Topiary
Fund") to be held at the offices of the Topiary Fund at 345 Park Avenue, New
York, New York 10154 on September 21, 2007 at 9:00 A.M. and any adjournments
or postponements thereof. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Members and the Proxy Statement dated August 15,
2007, and hereby instructs said proxies to vote said Fund Percentage as
indicated herein. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Special Meeting or any
adjournments or postponements thereof. The presence in person or by proxy of
Members of the Topiary Fund holding a majority of the total number of votes
eligible to be cast by all Members as of the Record Date shall constitute a
quorum at any meeting. The undersigned hereby revokes any proxy previously
given.
PLEASE MARK, SIGN, DATE AND RETURN THE VOTING
INSTRUCTIONS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE, IF YOU DO NOT WISH TO VOTE BY
INTERNET OR BY PHONE.
Dated ______________________
________________________________________________
Signature(s) of Participant(s)
________________________________________________
Note: Signature(s) should agree with the name(s)
printed herein. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full name as such. If a
corporation, please sign in full corporate
name by president or other authorized officer.
If a partnership, please sign in partnership
name by authorized person.
BPI
Please fill in box (es) as shown using black or blue ink or number 2 pencil.
PLEASE DO NOT USE FINE POINT PENS. [X]
THE PROXY FOR WHICH VOTING INSTRUCTIONS ARE BEING REQUESTED IS BEING
SOLICITED BY THE BOARD OF DIRECTORS OF THE FUND WHO RECOMMENDS A VOTE
"FOR" THE PROPOSAL.
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The voting instruction will be voted as marked. IF NOT MARKED,
THIS VOTING INSTRUCTION WILL BE VOTED "FOR" THE PROPOSAL.
FOR AGAINST ABSTAIN
Proposal 1: To approve an Agreement and Plan of Reorganization pursuant [ ] [ ] [ ]
to which The Topiary Fund for Benefit Plan Investors (BPI) LLC
(the "Topiary Fund") would transfer all of its assets and
certain liabilities to the Hatteras Multi-Strategy TEI Fund,
L.P. (the "Hatteras Fund"), in exchange for limited
partnership interests of the Hatteras Fund.
Proposal 2: To approve an Agreement and Plan of Reorganization pursuant [ ] [ ] [ ]
to which The Topiary Master Fund for Benefit Plan Investors
(BPI) LLC would transfer all of its assets and certain
liabilities to the Hatteras Master Fund, L.P. (the "Hatteras
Master Fund"), in exchange for limited partnership interests
of the Hatteras Master Fund.
In the discretion of such proxies, upon such other business as
may properly come before the meeting or any adjournment or
postponement thereof.
IMPORTANT NOTICE
As an investor in the Topiary Fund, you previously certified
that you qualified as a "Qualified Client" under the Investment
Advisers Act of 1940 and an "Accredited Investor" under the
Securities Act of 1933. Satisfaction of both requirements was a
condition to your investment in the Topiary Fund.
The Hatteras Fund imposes similar requirements on its
investors. As described on page 40 of the enclosed Proxy
Statement, investors in the Topiary Fund who can no longer
satisfy such requirements will not be eligible to participate
in the Reorganization. By signing on the reverse side of this
proxy card, the undersigned confirms that there have been no
changes in his/her "Qualified Client" and "Accredited Investor"
status since he/she made his/her initial certification to the
Topiary Fund.
PLEASE SIGN AND DATE ON THE REVERSE SIDE
BPI
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APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________, 2007, by and between the Topiary Fund for Benefit Plan Investors
(BPI) LLC, a Delaware limited liability company (the "Topiary Fund"), and
Hatteras Multi-Strategy TEI Fund, L.P., a Delaware limited partnership
("Hatteras Fund" and together with the Topiary Fund, the "Parties" and each a
"Party"). DB Investment Managers, Inc., a Delaware corporation ("DBIM"), joins
this Agreement solely for purposes of paragraphs 1.3, 4.1(i), 5.1, 5.10, 5.11,
5.12, 5.13, 9.2, 10.5 and Article VII; Hatteras Investment Partners, LLC., a
Delaware limited liability company ("HIP"), joins this Agreement solely for
purposes of paragraphs 4.2(i), 5.1, 5.10, 5.11, 9.2, 10.5 and Article VII.
Capitalized terms not otherwise defined herein shall have the meaning set
forth in Article XI hereof.
RECITALS:
The Topiary Fund issues limited liability company interests (the "Topiary
Interests"). The Hatteras Fund issues partnership interests (the "Hatteras
Interests").
The Parties wish to conclude a series of business combination
transactions under the terms set forth in this Agreement in which: (1) all of
the Assets of the Topiary Fund will be transferred to the Hatteras Fund in
exchange for Hatteras Interests and the assumption by the Hatteras Fund of all
of the Topiary Fund's Liabilities, and (2) Hatteras Interests will be
distributed to members of the Topiary Fund in complete liquidation of such
Fund such members will be admitted as limited partners of the Hatteras Fund,
all upon the terms and conditions set forth in this Agreement (the
"Reorganization").
The Topiary Master Fund For Benefit Plan Investors (BPI) LLC (the
"Topiary Master Fund") and Hatteras Master Fund, L.P. (the "Hatteras Master
Fund") have entered into an Agreement and Plan of Reorganization of even date
hereof (the "Master Fund Agreement"), a copy of which is attached as Exhibit A
hereto. The Master Fund Agreement contemplates a series of business
combination transactions in which certain of the assets of the Topiary Master
Fund will be transferred to the Hatteras Master Fund in exchange for
partnership interests in the Hatteras Master Fund and the assumption by the
Hatteras Master Fund of certain of the Topiary Master Fund's liabilities; and
partnership interests in the Hatteras Master Fund will be distributed to
members of the Topiary Master Fund in complete liquidation of such fund and
such members will be admitted as limited partners of the Hatteras Master Fund,
as more fully set forth in the Master Fund Agreement (the "Master Fund
Reorganization").
The Topiary Offshore Fund for Benefit Plan Investors (BPI) LDC (the
"Topiary Cayman Fund") and Hatteras Multi-Strategy Offshore Fund, LDC (the
"Hatteras Cayman Fund") have entered into an Agreement and Plan of
Reorganization of even date hereof (the "Cayman Fund Agreement"), a copy of
which is attached as Exhibit B hereto. The Cayman Fund Agreement contemplates
a series of business combination transactions in which certain of the assets
of the Topiary Cayman Fund will be transferred to the Hatteras Cayman Fund in
exchange
for shares in the Hatteras Cayman Fund and the assumption by the Hatteras
Cayman Fund of certain of the Topiary Cayman Fund's liabilities; and shares in
the Hatteras Cayman Fund will be distributed to shareholders of the Topiary
Cayman Fund in complete liquidation of such fund, as more fully set forth in
the Cayman Fund Agreement (the "Cayman Fund Reorganization").
The Board of Directors of the Topiary Fund (the "Topiary Board"),
including a majority of directors who are not "interested persons" (as defined
in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the
"1940 Act")) ("Topiary Independent Directors") of the Topiary Fund, based on
representations from and information provided by officers of DBIM has
determined that: (1) participation in the Reorganization is in the best
interests of the Topiary Fund, and (2) the interests of existing members of
the Topiary Fund will not be diluted as a result of its effecting the
Reorganization.
The Board of Directors of Hatteras Fund (the "Hatteras Board"), including
a majority of directors who are not "interested persons" (as defined in
Section 2(a)(19) of the 1940 Act ("Hatteras Independent Directors") of
Hatteras Fund, based on representations from and information provided by
officers of HIP has determined that: (1) participation in the Reorganization
is in the best interests of the Hatteras Fund, and (2) the interests of
existing limited partners of the Hatteras Fund will not be diluted as a result
of its effecting the Reorganization.
NOW THEREFORE, in consideration of the mutual promises, representations,
and warranties made herein, covenants and agreements hereinafter contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Parties, and DBIM and HIP to the extent indicated
above, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. In accordance with Title 6 of the Delaware Code
(the "Delaware Law") and the limited liability company operating agreement of
the Topiary Fund as each may be amended from time to time (the "Topiary
Governing Documents"), at the Effective Time (as defined below), upon the
terms and subject to the conditions of this Agreement, and on the basis of the
representations and warranties contained herein, the Topiary Fund shall
assign, deliver and otherwise transfer all of the Assets, subject to all of
the Liabilities, to the Hatteras Fund, and the Hatteras Fund shall assume all
of the Liabilities. In consideration of the foregoing, the Hatteras Fund shall
at the Effective Time deliver to the Topiary Fund Hatteras Interests equal in
value to the Assets, net of Liabilities computed as of the Valuation Time (as
defined below) in the manner set forth in paragraph 2.1. At and after the
Effective Time, all of the Assets shall become and be included in the assets
of the Hatteras Fund and the Liabilities shall become and be the liabilities
of and shall attach to the Hatteras Fund. At and after the Effective Time, the
Liabilities may be enforced only against the Hatteras Fund to the same extent
as if such Liabilities had been incurred by the Hatteras Fund subject to any
defense and/or set off that the Topiary Fund was entitled to assert
immediately
App A - 2
prior to the Effective Time and further subject to any defense and/or setoff
that the Hatteras Fund may from time to time be entitled to assert.
1.2 Assets.
(a) Attached hereto as Schedule 1.2 is a schedule of the Assets and
Liabilities of the Topiary Fund as of __________.
1.3 Assumption of Liabilities. The Topiary Fund will, to the extent
permissible and consistent with its own investment objectives and policies,
use its best efforts to discharge all of the Liabilities prior to or at the
Effective Time (which such effort shall include, without limitation, a payment
of estimated monthly expenses as of the date hereof). The Hatteras Fund will
assume all of the Liabilities of the Topiary Fund. If prior to the Effective
Time either Party identifies a Liability that the Parties mutually agree
should not be assumed by the Hatteras Fund, such Liability shall be excluded
from the definition of Liabilities hereunder and shall be listed on a Schedule
of Excluded Liabilities to be signed by the Parties at the Closing (the
"Excluded Liabilities"). Certain Liabilities that would otherwise be listed as
Excluded Liabilities may be assumed by the Hatteras Fund on the condition that
HIP and the Hatteras Fund be indemnified in writing to their reasonable
satisfaction by DBIM against any and all losses, claims, damages or liability
to which HIP and the Hatteras Fund may become subject as a result of assuming
such Liability. The Hatteras Fund shall not assume any Liability for any
obligation of the Topiary Fund to file reports with the SEC, Internal Revenue
Service or other regulatory or tax authority covering any reporting period
ending prior to or at the Effective Time with respect to the Topiary Fund.
1.4 Distribution of Hatteras Interests. Immediately upon receipt, the
Topiary Fund will distribute the Hatteras Interests received by the Topiary
Fund from the Hatteras Fund pursuant to paragraph 1.1, pro rata to the record
holders of Topiary Interests in the Topiary Fund determined as of the
Valuation Time in complete liquidation of the Topiary Fund. Such distribution
will be accomplished by an instruction, signed by an appropriate officer of
the Topiary Fund, to transfer the Hatteras Interests then credited to the
Topiary Fund's account on the Books and Records of the Hatteras Fund and to
open accounts on the Books and Records of the Hatteras Fund established and
maintained by the Hatteras Fund's administrator in the names of members of the
Topiary Fund and representing the respective pro rata Hatteras Interests due
to such member. All issued and outstanding Topiary Interests will be cancelled
promptly and the holders thereof shall cease to be members of the Topiary
Fund. Any such Topiary Interests issued and outstanding prior to such
cancellation shall thereafter represent only the right to receive the Hatteras
Interests issued to the Topiary Fund in accordance with paragraph 1.1 above.
1.5 Liquidation of the Topiary Fund. As soon as conveniently practicable
after the distribution of the Hatteras Interests pursuant to paragraph 1.4 has
been made, the Topiary Fund shall take, in accordance with Delaware Law, the
1940 Act and the Topiary Governing Documents, all such other steps as may be
necessary or appropriate to effect a complete dissolution, liquidation and
termination of the Topiary Fund.
App A - 3
1.6 Incentive Allocation. Immediately prior to the Effective Time, any
accrued Incentive Allocations shall be reallocated from the capital accounts
of Topiary Fund members to the capital account of DBIM.
1.7 Transfer Taxes. Any transfer taxes payable on issuance of Hatteras
Interests in a name other than that of the record holder of the Topiary
Interests on the Topiary Fund's Books and Records shall be paid by the Person
to whom such Hatteras Interests are issued and transferred, as a condition of
that transfer.
ARTICLE II
VALUATION
2.1 Net Asset Value of the Topiary Fund. The net asset value of the
Topiary Fund shall be the net asset value computed as of the Valuation Time
using the valuation procedures described in the Hatteras Fund Registration
Statement.
2.2 Net Asset Value of the Hatteras Fund. The net asset value of the
Hatteras Fund shall be the net asset value computed as of the Valuation Time
using the valuation procedures set forth in the Hatteras Fund Registration
Statement.
2.3 Calculation of Percentage Interests. The percentage of Hatteras
Interests to be issued to each Topiary member in connection with the
Reorganization shall be determined based upon the value of each member's
percentage interest in the Topiary Fund as of the Valuation Time.
2.4 Joint Direction of Calculation. All computations of net asset value
and the value of securities transferred under this Article II shall be made by
UMB Fund Services, Inc. and PFPC Inc. under the joint direction of the
following entities, in accordance with their regular practice and the
requirements of the 1940 Act: (a) DBIM, the investment adviser to the Topiary
Master Fund; and (b) HIP, the investment adviser to the Hatteras Master Fund.
The Topiary Fund and the Hatteras Fund agree to use all commercially
reasonable efforts to resolve prior to the Valuation Time any material pricing
differences between the prices of portfolio securities determined in
accordance with the pricing policies and procedures of the Topiary Fund and
those determined in accordance with the pricing policies and procedures of the
Hatteras Fund.
2.5 Valuation Time. The valuation time shall be the close of regular
trading on the New York Stock Exchange ("NYSE") on the last Business Day of
the month immediately preceding the Effective Time, or such earlier or later
date and time as may be mutually agreed in writing by an authorized officer of
each of the Parties (the "Valuation Time").
App A - 4
ARTICLE III
EFFECTIVE TIME AND CLOSING
3.1 Effective Time and Closing. Subject to the terms and conditions set
forth herein, the Reorganization shall occur prior to the opening of business
on October 1, 2007, or on such other date as may be mutually agreed in writing
by an authorized officer of each Party (the "Effective Time"). To the extent
any Assets are, for any reason, not transferred at the Effective Time, the
Topiary Fund shall cause such Assets to be transferred in accordance with this
Agreement at the earliest practical date thereafter. The closing of the
Reorganization will take place at the offices of Drinker Biddle & Reath LLP,
One Logan Square, 18th and Cherry Streets, Philadelphia, PA 19103, or at such
other place as may be mutually agreed in writing by an authorized officer of
each Party, at the Effective Time (the "Closing").
3.2 Transfer and Delivery of Assets. The Topiary Fund shall direct PFPC
Trust Company ("PFPC"), as custodian for the Topiary Fund, to deliver to the
Hatteras Fund at the Closing a certificate of an authorized officer certifying
that: (a) PFPC delivered the Assets of the Topiary Fund to the Hatteras Fund
at the Effective Time; and (b) all necessary taxes in connection with the
delivery of such Assets, including all applicable foreign, federal and state
stock transfer stamps and any other stamp duty taxes, if any, have been paid
or provision (as reasonably estimated) for payment has been made. At least
three Business Days prior to the Effective Time, PFPC shall present for
examination those Assets represented by certificate or other written
instrument to those Persons who have primary responsibility for the
safekeeping of the assets of the Hatteras Fund at UMB N.A. ("UMB"), with the
principal place of business at 1010 Grand Boulevard, Kansas City, Missouri
64106, as custodian of the Hatteras Fund. At the Effective Time, the Topiary
Fund shall endorse and deliver, or transfer by appropriate transfer or
assignment documents, such certificates and other written instruments as of
the Effective Time for the account of the Hatteras Fund in proper form for
transfer and in such condition as to constitute good delivery thereof in
accordance with the customs of brokers. PFPC shall deliver other Assets to
those Persons who have primary responsibility for the safekeeping of the
Hatteras Fund at UMB as of the Effective Time by book entry, in accordance
with the customary practices of UMB Bank and of each securities depository (as
defined in Rule 17f-4 and Rule 17f-7 under the 1940 Act) in which such Assets
are held. Any cash to be transferred by the Topiary Fund to the Hatteras Fund
shall be delivered by wire transfer of federal funds at the Effective Time
pursuant to instructions provided by the Hatteras Fund.
3.3 Hatteras Fund Capital Account. The Hatteras Fund shall deliver to the
Secretary of the Topiary Fund at the Closing a confirmation evidencing that:
(a) the Hatteras Fund has established on its Books and Records a Hatteras Fund
capital account for the record holders of Topiary Interests pursuant to
paragraph 1.1 prior to the actions contemplated by paragraph 1.4, and (b) the
appropriate amount of Hatteras Interests have been credited to the accounts of
record holders of Topiary Interests on the Books and Records of the Hatteras
Fund pursuant to paragraph 1.4.
3.4 Postponement of Valuation Time and Effective Time. If immediately
prior to the Valuation Time, in the judgment of an appropriate officer of the
Topiary Fund or Hatteras
App A - 5
Fund, as applicable, accurate appraisal of the value of the net assets of the
Topiary Fund or Hatteras Fund is impracticable, the Valuation Time and
Effective Time for the Reorganization shall be postponed until such date as
may be mutually agreed in writing by an authorized officer of each Party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Topiary Fund. The Topiary Fund
hereby represents and warrants to the Hatteras Fund as follows, which
representations and warranties shall be true and correct on the date hereof:
(a) The Topiary Fund is a limited liability company duly organized,
validly existing and in good standing under the Laws of the State of Delaware
and is duly qualified, licensed or admitted to do business and is in good
standing as a foreign association under the Laws of each jurisdiction in which
the nature of the business conducted by it makes such qualification, licensing
or admission necessary, except in such jurisdictions where the failure to be
so qualified, licensed or admitted and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Topiary Fund. The
Topiary Fund has full power under the Topiary Governing Documents to conduct
its business as it is now being conducted and to own the properties and assets
it now owns. The Topiary Fund has all necessary authorizations, licenses and
approvals from any applicable Governmental or Regulatory Body necessary to
carry on its business as such business is now being carried on except where
the failure to so obtain would not have a Material Adverse Effect on the
Topiary Fund.
(b) The execution, delivery and performance of this Agreement by the
Topiary Fund and the consummation of the transactions contemplated herein have
been duly and validly authorized by the Topiary Board, and the Topiary Board
has approved the Reorganization and has resolved to recommend the
Reorganization to the members of the Topiary Fund and to call a special
meeting of holders of the Topiary Fund for the purpose of approving this
Agreement and the Reorganization contemplated thereby. Other than the approval
by the requisite vote of the members of the outstanding Topiary Interests in
accordance with the provisions of the Topiary Governing Documents, applicable
Delaware Law and the 1940 Act, no other action on the part of the Topiary Fund
or its members is necessary to authorize the execution, delivery and
performance of this Agreement by the Topiary Fund or the consummation of the
Reorganization contemplated herein. This Agreement has been duly and validly
executed and delivered by the Topiary Fund, and assuming due authorization,
execution and delivery hereof by the Hatteras Fund, is a legal, valid and
binding obligation of the Topiary Fund, enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other Laws relating to or affecting creditors' rights, to
general equity principles and to any limitations on indemnity as may be
required under federal and state securities Laws).
App A - 6
(c) The authorized capital of the Topiary Fund consists of an
unlimited amount of limited liability company membership interests. The
Topiary Interests have been duly established and represent undivided interests
in the Topiary Fund. There are no outstanding options, warrants or other
rights of any kind to acquire from the Topiary Fund equity interests of or
securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any such additional interests, nor is
the Topiary Fund committed to issue any share appreciation or similar rights
or options, warrants, rights or securities in connection with any Topiary
Interests. The Topiary Fund has no share certificates outstanding.
(d) Except for the Topiary Cayman Fund and the Topiary Master Fund,
the Topiary Fund has no subsidiaries.
(e) Except for consents, approvals, or waivers to be received prior
to the Effective Time, including requisite approval by the members of the
Topiary Fund, the execution, delivery and performance of this Agreement by the
Topiary Fund does not, and the consummation of the transactions contemplated
herein will not: (i) violate or conflict with the terms, conditions or
provisions of the Topiary Governing Documents, or of any material contract,
agreement, indenture, instrument, or other undertaking to which it is a party
or by which it is bound, (ii) result in the acceleration of any obligation, or
the imposition of any penalty, under any material agreement, indenture,
instrument, contract, lease or other undertaking to which the Topiary Fund is
a party or by which it is bound, (iii) result in a breach or violation by the
Topiary Fund of any terms, conditions, or provisions of any Law or Order, or
(iv) require any consent or approval of, filing with or notice to, any
Governmental or Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Topiary Fund
has delivered to the Hatteras Fund true and complete copies of the
audited statements of assets and liabilities of the Topiary Fund as of
March 31, 2007 or a later date if available prior to the date hereof, and
the related audited schedules of investments, statements of income and
changes in net assets and financial highlights for the periods then
ended.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Topiary Fund as of the respective dates
thereof and for the respective periods covered thereby.
(iii) To the best of the Topiary Fund's Knowledge, except as
reflected or reserved against in the statement of assets and liabilities
included in the Topiary Fund's audited financial statements as of March
31, 2007 or in the notes thereto, or as previously disclosed in writing
to the Hatteras Fund, there are no liabilities against, relating to or
affecting the Topiary Fund or any of its properties and assets, other
than those incurred in the ordinary course of business consistent with
past
App A - 7
practice, which, individually or in the aggregate, would have a Material
Adverse Effect on the Topiary Fund or its properties or assets. In
particular, since March 31, 2007 to the best of the Topiary Fund's
Knowledge and except (i) as disclosed in writing to the Hatteras Fund or
in the Topiary Fund Registration Statement and (ii) for the transactions
contemplated by this Agreement, there has not been any change in the
financial condition, properties, assets, liabilities or business of the
Topiary Fund that would have a Material Adverse Effect on the Topiary
Fund or its properties or assets other than changes occurring in the
ordinary course of business.
(iv) As of the date hereof, except as previously disclosed to
the Hatteras Fund in writing or as disclosed in the Topiary Fund
Registration Statement, and except as have been corrected as required by
applicable Law, and to the best of the Topiary Fund's Knowledge, there
have been no material miscalculations of the net asset value of the
Topiary Fund during the twelve-month period preceding the date hereof
which would have a Material Adverse Effect on the Topiary Fund or its
properties or assets, and all such calculations have been made in
accordance with the Topiary Fund's valuation policies as stated in the
Topiary Fund Registration Statement and the applicable provisions of the
1940 Act.
(g) The minute books and other similar records of the Topiary Fund
as made available to the Hatteras Fund prior to the execution of this
Agreement contain a true and complete record in all material respects of all
action taken at all meetings and by all written consents in lieu of meetings
of the members of the Topiary Fund, the Topiary Board and committees of the
Topiary Board. The member records and other similar records of the Topiary
Fund as made available to the Hatteras Fund prior to the execution of this
Agreement accurately reflect all record transfers prior to the execution of
this Agreement in the interests of the Topiary Fund.
(h) The Topiary Fund has maintained, or caused to be maintained on
its behalf, in all material respects, all Books and Records required of a
registered investment company in compliance with the requirements of Section
31 of the 1940 Act and rules thereunder.
(i) Except as set forth in writing to the Hatteras Fund and HIP,
there is no Action or Proceeding pending against the Topiary Fund or DBIM
(with respect to the Topiary Fund) or, to the best of the Topiary Fund's or
DBIM's Knowledge, threatened against, relating to or affecting, the Topiary
Fund, or DBIM (with respect to the Topiary Fund) other than any notices naming
or received by the Topiary Fund relating to the patent application filed by
Man-Glenwood Lexington TEI, LLC or an affiliate thereof.
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Topiary Fund in
connection with the negotiation, execution or performance of this Agreement or
any other agreement contemplated hereby, or the consummation of the
transactions contemplated hereby, is or will be entitled to any broker's or
finder's or similar fees or other commissions as a result of the consummation
of such transactions.
App A - 8
(k) The Topiary Fund is registered with the SEC as a closed-end
management investment company under the 1940 Act, and its registration with
the SEC as such an investment company is in full force and effect.
(l) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Topiary Fund
required by Law to have been filed by such date (including any extensions)
have been filed and are correct in all material respects, and all federal and
other taxes shown as due on such returns and reports have been paid or
provision has been made on the Topiary Fund's Books and Records for the
payment thereof and, to the best of the Topiary Fund's Knowledge, no such
return is currently under audit or has been threatened with an audit and no
assessment has been asserted with respect to such returns. To the Topiary
Fund's Knowledge, there are no levies, liens, or other encumbrances relating
to taxes existing, threatened or pending with respect to the properties or
assets of the Topiary Fund. As of the date hereof, the Topiary Fund has
adequately provided for all tax liabilities on its Books and Records.
(m) Topiary Fund is and at all times has been properly characterized
for federal and state income tax purposes as a partnership and has not been an
association or publicly traded partnership subject to tax as a corporation.
(n) All issued and outstanding Topiary Interests have been offered
and sold in compliance in all material respects with applicable registration
requirements of the 1933 Act, state securities Laws, and are registered under
the Laws of all jurisdictions in which registration is or was required, except
as may have been previously disclosed to the Hatteras Fund in writing. Such
registrations are, in all material respects, complete, current and have been
continuously effective, and all fees required to be paid have been paid. The
Topiary Fund is not subject to any "stop order" and is, and was, fully
qualified to sell its interests in each jurisdiction in which such interests
are being, or were, registered and sold.
(o) The Topiary Fund Registration Statement, including amendments
and supplements thereto, and each registration statement used at all times
during the past three years prior to the date of this Agreement conform, or
conformed at the time of its or their use, in all material respects to the
applicable requirements of the 1940 Act, the 1933 Act and the rules and
regulations of the SEC thereunder, and do not, or did not, as of their dates
of filing with the SEC, include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not materially misleading. The Topiary Fund currently complies in
all material respects with all investment objectives, policies, guidelines and
restrictions and any compliance procedures established by the Topiary Fund.
(p) The proxy statement (the "Proxy Statement") to be filed by the
Topiary Fund in connection with this Agreement and any amendment or supplement
thereto, each comply or will comply in all material respects with the
applicable requirements of the 1934 Act and the 1940 Act and the applicable
rules and regulations of the SEC thereunder on the mailing date of such Proxy
Statement. The Proxy Statement and any amendment or supplement thereto,
insofar as each relates to the Topiary Fund, does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein,
App A - 9
in light of the circumstances under which they were made, not materially
misleading on the mailing date of such Proxy Statement; provided, however,
that the Topiary Fund makes no representations or warranties as to the
information contained in the Proxy Statement and any amendment or supplement
thereto in reliance upon and in conformity with information relating to the
Hatteras Fund and furnished by the Hatteras Fund to the Topiary Fund
specifically for use in connection with the Proxy Statement and any amendment
or supplement thereto.
(q) Except as previously disclosed in writing to the Hatteras Fund,
at the Effective Time, the Topiary Fund will have good and marketable title to
its Assets and full right, power, and authority to sell, assign, transfer and,
upon delivery and payment for the Assets, deliver such Assets, free and clear
of all liens, mortgages, pledges, encumbrances, charges, claims and equities,
and subject to no restrictions on the subsequent transfer thereof (other than
any Assets consisting of restricted securities).
(r) The Topiary Fund has adopted and implemented written policies
and procedures in accordance and that comply with Rule 38a-1 under the 1940
Act.
(s) The Topiary Fund has a substantial preexisting business
relationship with each of its members and a reasonable belief that each member
is sophisticated and knowledgeable in business and financial matters and is
capable of evaluating the merits and risks of purchasing a Hatteras Interest.
(t) The Topiary Fund has, since its inception, complied in all
material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Topiary Fund.
(u) The Topiary Fund has a reasonable belief that each of its
members is an "accredited investor" as defined in Rule 501 under the 1933 Act
and a "qualified client" as defined in Rule 205-3 under the Investment
Advisers Act of 1940, as amended.
(v) Except as disclosed in writing to the Hatteras Fund, to the best
of the Topiary Fund's Knowledge, no events have occurred and no issues,
conditions or facts have arisen which either individually or in the aggregate
have had a Material Adverse Effect on the Topiary Fund.
4.2 Representations and Warranties of the Hatteras Fund. The Hatteras
Fund hereby represents and warrants to the Topiary Fund, as follows, which
representations and warranties shall be true and correct on the date hereof:
(a) The Hatteras Fund is a limited partnership duly organized,
validly existing and in good standing under the Laws of the State of Delaware
and is duly qualified, licensed or admitted to do business and is in good
standing as a foreign association under the Laws of each jurisdiction in which
the nature of the business conducted by it makes such qualification, licensing
or admission necessary, except in such jurisdictions where the failure to be
so qualified, licensed or admitted and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Hatteras Fund. The
Hatteras Fund has full power under its Amended and Restated Limited
Partnership Agreement, as amended from time to time (the "Hatteras Governing
App A - 10
Documents") to conduct its business as it is now being conducted and to own
the properties and assets it now owns. The Hatteras Fund has all necessary
authorizations, licenses and approvals from any applicable Governmental or
Regulatory Body necessary to carry on its business as such business is now
being carried on except authorizations, licenses and approvals that the
failure to so obtain would not have a Material Adverse Effect on the Hatteras
Fund.
(b) The execution, delivery and performance of this Agreement by the
Hatteras Fund and the consummation of the transactions contemplated herein
have been duly and validly authorized by the Hatteras Board and the Hatteras
Board has approved the Reorganization. No other action on the part of the
Hatteras Fund or its limited partners is necessary to authorize the execution,
delivery and performance of this Agreement by the Hatteras Fund or the
consummation of the Reorganization. This Agreement has been duly and validly
executed and delivered by the Hatteras Fund, and assuming due authorization,
execution and delivery hereof by the Topiary Fund, is a legal, valid and
binding obligation of the Hatteras Fund, enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other Laws relating to or affecting creditors' rights, to
general equity principles and to any limitations on indemnity as may be
required under federal and state securities Laws).
(c) The authorized capital of the Hatteras Fund consists of an
unlimited amount of partnership interests. There are no outstanding options,
warrants or other rights of any kind to acquire from the Hatteras Fund any
equity interests of the Hatteras Fund or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any right to
acquire, any such additional interests, nor is the Hatteras Fund committed to
issue any share appreciation or similar rights or options, warrants, rights or
securities. The Hatteras Fund has no share certificates outstanding.
(d) Except for the Hatteras Cayman Fund and the Hatteras Master
Fund, the Hatteras Fund has no subsidiaries.
(e) Except for consents, approvals, waivers or amendments to be
received prior to the Effective Time, including member approval by the Topiary
Fund, the execution, delivery and performance of this Agreement by the
Hatteras Fund does not, and the consummation of the transactions contemplated
herein will not: (i) violate or conflict with the terms, conditions or
provisions of the Hatteras Governing Documents, or of any material contract,
agreement, indenture, instrument, or other undertaking to which it is a party
or by which it is bound, (ii) result in the acceleration of any obligation, or
the imposition of any penalty, under any material agreement, indenture,
instrument, contract, lease or other undertaking to which the Hatteras Fund is
a party or by which it is bound, (iii) result in a breach or violation by the
Hatteras Fund of any terms, conditions, or provisions of any Law or Order, or
(iv) require any consent or approval of, filing with or notice to, any
Governmental or Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Hatteras Fund
has delivered to the Topiary Fund true and complete copies of the audited
statements of
App A - 11
assets and liabilities of the Hatteras Fund, dated as of March 31, 2007
or a later date if available prior to the date hereof.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Hatteras Fund as of the respective dates
thereof and for the respective periods covered thereby.
(iii) To the best of the Hatteras Fund's Knowledge, except as
reflected or reserved against in the statement of assets and liabilities
included in the Hatteras Fund's audited financial statements as of March
31, 2007, or in the notes thereto, or as previously disclosed in writing
to the Topiary Fund, there are no liabilities against, relating to or
affecting the Hatteras Fund or any of its properties and assets, other
than those incurred in the ordinary course of business consistent with
past practice, which, individually or in the aggregate, would have a
Material Adverse Effect on the Hatteras Fund or its properties or assets.
In particular, since March 31, 2007, to the best of the Hatteras Fund's
Knowledge and except as disclosed in writing to the Topiary Fund or in
the Hatteras Fund's Registration Statement, there has not been any change
in the financial condition, properties, assets, liabilities or business
of the Hatteras Fund that would have a Material Adverse Effect on the
Hatteras Fund or its properties or assets other than changes occurring in
the ordinary course of business.
(iv) As of the date hereof and during the twelve-month period
preceding the date hereof, except as previously disclosed to the Topiary
Fund in writing or as disclosed in the Hatteras Fund's Registration
Statement, and except as have been corrected as required by applicable
Law, and to the best of the Hatteras Fund's Knowledge, there have been no
material miscalculations of the net asset value of the Hatteras Fund
which would have a Material Adverse Effect on the Hatteras Fund or its
properties or assets, and all such calculations have been made in
accordance with the applicable provisions of the 1940 Act.
(g) The minute books and other similar records of the Hatteras Fund
as made available to the Topiary Fund prior to the execution of this Agreement
contain a true and complete record in all material respects of all action
taken at all meetings and by all written consents in lieu of meetings of the
limited partners of the Hatteras Fund, the Hatteras Board and committees of
the Hatteras Board.
(h) The Hatteras Fund has maintained, or caused to be maintained on
its behalf, in all material respects, all Books and Records required of a
registered investment company in compliance with the requirements of Section
31 of the 1940 Act and rules thereunder.
(i) Except as set forth in writing to the Topiary Fund and DBIM,
there is no Action or Proceeding pending against the Hatteras Fund, HIP (with
respect to the Hatteras Fund) or, to the best of the Hatteras Fund's or HIP's
Knowledge, threatened against, relating to or affecting, the Hatteras Fund or
HIP (with respect to the Hatteras Fund).
App A - 12
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Hatteras Fund in
connection with the negotiation, execution or performance of this Agreement or
any other agreement contemplated hereby, or the consummation of the
transactions contemplated hereby, is or will be entitled to any broker's or
finder's or similar fees or other commissions as a result of the consummation
of such transactions.
(k) The Hatteras Fund is registered with the SEC as a closed-end
management investment company under the 1940 Act, and its registration with
the SEC as such an investment company is in full force and effect.
(l) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Hatteras Fund
required by Law to have been filed by such date (including any extensions)
have been filed and are correct in all material respects, and all federal and
other taxes shown as due on such returns and reports have been paid or
provision has been made on the respective Fund's Books and Records for the
payment thereof and, to the best of the Hatteras Fund's Knowledge, no such
return is currently under audit or has been threatened with an audit and no
assessment has been asserted with respect to such returns. To the Hatteras
Fund's Knowledge, there are no levies, liens, or other encumbrances relating
to taxes existing, threatened or pending with respect to the properties or
assets of the Hatteras Fund. As of the date hereof, the Hatteras Fund has
adequately provided for all tax liabilities on its Books and Records.
(m) Hatteras Fund is and at all times has been properly
characterized for federal and state income tax purposes as a partnership and
has not been an association or publicly traded partnership subject to tax as a
corporation.
(n) All issued and outstanding Hatteras Interests have been offered
and sold in compliance in all material respects with applicable registration
requirements of state securities Laws, are registered under the Laws of all
jurisdictions in which registration is or was required, except as may have
been previously disclosed to the Topiary Fund in writing. Such registrations
are, in all material respects, complete, current and have been continuously
effective, and all fees required to be paid have been paid. The Hatteras Fund
is not subject to any "stop order" and is, and was, fully qualified to sell
its interests in each jurisdiction in which such interests are being, or were,
registered and sold.
(o) The Hatteras Interests to be issued and delivered to the Topiary
Fund (and to be distributed immediately thereafter to its members) pursuant to
the terms of this Agreement will have been duly authorized at the Effective
Time and no partner of the Hatteras Fund shall have any statutory or
contractual preemptive right of subscription or purchase in respect thereof.
(p) The Hatteras Fund Registration Statement, including amendments
and supplements thereto, and each registration statement of the Hatteras Fund
used at all times during the past three years prior to the date of this
Agreement, conform, or conformed at the time of its use, in all material
respects to the applicable requirements of the 1940 Act and the rules and
regulations of the SEC thereunder, and do not, or did not, as of their dates
of filing,
App A - 13
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading. The Hatteras Fund currently complies in all material
respects with all investment objectives, policies, guidelines and restrictions
and any compliance procedures established by the Hatteras Fund.
(q) The Hatteras Fund has adopted and implemented written policies
and procedures in accordance and that comply with Rule 38a-1 under the 1940
Act.
(r) The Hatteras Fund has, since its inception, complied in all
material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Hatteras Fund.
(s) Except as disclosed in writing to the Topiary Fund, to the best
of the Hatteras Fund's Knowledge, no events have occurred and no issues,
conditions or facts have arisen which either individually or in the aggregate
have had a Material Adverse Effect on the Hatteras Fund.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. After the date of this Agreement and at or prior
to the Effective Time, the Topiary Fund and the Hatteras Fund will conduct the
businesses of the Topiary Fund and the Hatteras Fund, respectively, only in
the ordinary course and in accordance with this Agreement and the current
registration statement of the Topiary Fund or the Hatteras Fund, as
applicable. It is understood that such ordinary course of business shall
include (a) payment of customary distributions; (b) purchases and tenders; and
(c) the continued good faith performance by the investment adviser,
administrator, distributor and other service providers of their respective
responsibilities in accordance with their agreements with the Topiary Fund or
the Hatteras Fund, as applicable, and applicable Law. No Party shall take any
action that would, or would reasonably be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect.
5.2 Members' Meeting. The Topiary Fund will call, convene and hold a
meeting of members of the Topiary Fund as soon as practicable, in accordance
with applicable Law and the Topiary Governing Documents, for the purpose of
approving this Agreement and the transactions contemplated herein as set forth
in the Proxy Statement, and for such other purposes as may be necessary or
desirable. In the event that insufficient votes are received from members, the
meeting may be adjourned as permitted under the Topiary Governing Documents
and applicable Law in order to permit further solicitation of proxies.
5.3 Proxy Statement. The Topiary Fund and the Hatteras Fund each will
cooperate with the other in the preparation of the Proxy Statement and cause
the Proxy Statement to be filed with the SEC in a form satisfactory to the
Hatteras Fund and the Topiary Fund and their
App A - 14
respective counsel as promptly as practicable. The Topiary Fund will cause the
Proxy Statement to be delivered to members of the Topiary Funds entitled to
vote on this Agreement and the transactions contemplated herein in accordance
with the Topiary Governing Documents. Each Party will provide the materials
and information necessary to prepare the Proxy Statement, in connection with
the member meeting of the Topiary Fund to consider the approval of this
Agreement and the transactions contemplated herein. If, at any time prior to
the Effective Time, a Party becomes aware of any untrue statement of material
fact or omission to state a material fact required to be stated therein or
necessary to make the statements made not misleading in light of the
circumstances under which they were made, the Party discovering the item shall
notify the other Party and the Parties shall cooperate in promptly preparing,
filing and clearing with the SEC and, if appropriate, distributing to members
appropriate disclosure with respect to the item. Prior to filing the Proxy
Statement or any amendment or supplement thereto, the Topiary Fund will afford
the Hatteras Fund and the Hatteras Independent Directors a reasonable
opportunity to review and comment thereon, and will obtain the Hatteras Fund's
consent to the filing thereof (such consent will not be unreasonably
withheld).
5.4 Information.
(a) The Topiary Fund and the Hatteras Fund will furnish to one
another, and the other's accountants, legal counsel and other representatives,
throughout the period prior to and up to the Effective Time, all documents and
other information concerning the Topiary Fund and the Hatteras Fund,
respectively, and their business and properties as may reasonably be requested
by the other Party. Each Party shall make its employees and officers available
on a mutually convenient basis to provide an explanation of any documents or
information provided hereunder to the extent, if any, that such Party's
employees are familiar with such documents or information.
(b) Beginning with the commencement of this Agreement, by or on the
fifteenth Business Day of each month ending prior to the Effective Time, the
Topiary Fund will provide the Hatteras Fund with the prior month's accrued
liability/expense account reconciliation, monthly statement, trial balance,
income statement, balance sheet and schedule of investments.
5.5 Notice of Material Changes. Each Party will notify the other Party of
any event causing a Material Adverse Effect to such Party as soon as
practicable following such Party's Knowledge of any event causing such a
Material Adverse Effect.
5.6 Financial Statements. At the Closing, the Topiary Fund will deliver
to the Hatteras Fund an unaudited statement of assets and liabilities of the
Topiary Fund, together with a schedule of portfolio investments as of and for
the interim period ending at the Valuation Time. These financial statements
will present fairly the financial position and portfolio investments of the
Topiary Fund as of the Valuation Time in conformity with U.S. generally
accepted accounting principles applied on a consistent basis, and there will
be no material contingent liabilities of the Topiary Fund not disclosed in
said financial statements. These financial statements shall be certified by
the treasurer of the Topiary Fund as, to the best of his or her Knowledge,
complying with the requirements of the preceding sentence. At the
App A - 15
Closing, the Hatteras Fund will deliver to the Topiary Fund an unaudited
statement of assets and liabilities of the Hatteras Fund (including a schedule
of portfolio investments) meeting the requirements of the preceding three
sentences, except that they shall be certified by the Hatteras Fund's
treasurer.
5.7 Other Necessary Action. The Topiary Fund and the Hatteras Fund will
each take all necessary action and use its reasonable best efforts to complete
all filings, obtain all governmental and other consents and approvals and
satisfy any other provision required for consummation of the transactions
contemplated by this Agreement.
5.8 Books and Records. Upon reasonable notice, each Party will make
available to the other Party for review any Books and Records which are
reasonably requested by such other Party in connection with this
Reorganization.
5.9 Issued Interests. The Hatteras Interests to be issued and delivered
to the Topiary Fund (and to be distributed immediately thereafter to its
members) pursuant to this Agreement, will have been duly authorized at the
Effective Time. No partner of the Hatteras Fund shall have any statutory or
contractual preemptive right of subscription or purchase in respect thereof.
The members of the Topiary Fund shall not pay any placement fee in connection
with the Reorganization. The members of the Topiary Fund who receive Hatteras
Interests pursuant to this Agreement shall be credited by the Hatteras Fund
with, and shall carry over, the holding period of their Topiary Fund interests
for all purposes including the calculation of any redemption fee. Such members
shall not carry over or be credited with any loss carryforwards. In addition,
Hatteras Interests received pursuant to this Agreement shall be included in
determining any placement fee reductions (e.g., under a rights of accumulation
arrangement) on purchases of Hatteras Interests after the Reorganization.
5.10 Section 15(f). The Hatteras Fund and HIP shall from and after the
Effective Time use their reasonable best efforts so that for a period of three
years after the Effective Time, at least 75% of the Hatteras Board are not
"interested persons" (as defined in Section 2(a)(19) of the 1940 Act) of HIP
or DBIM. In addition, the Hatteras Fund, HIP and DBIM from and after the
Effective Time, shall refrain from imposing or seeking to impose for a period
of two years after the Effective Time, any "unfair burden" on the Hatteras
Fund (within the meaning of the 1940 Act) as a result of the transactions
contemplated by this Agreement or any terms, conditions or understandings
applicable thereto.
5.11 General Solicitation. Neither the Topiary Fund nor DBIM will engage
in any form of general solicitation or advertising in performing its duties
under this Agreement or otherwise in connection with the Reorganization. This
prohibition includes, but is not limited to, any mass mailing, any
advertisement, article or notice published in any magazine, newspaper or
newsletter, and any seminar or meeting where the attendees are invited by any
mass mailing, general solicitation or advertising. Related to this
prohibition, neither the Topiary Fund nor DBIM will mention the Hatteras Fund,
HIP or the Reorganization in any public medium, including any newspaper, on
radio or television, by electronic communication, or otherwise. This provision
shall not prohibit the solicitation of members of the Topiary Fund undertaken
in connection with the Proxy Statement to the extent consistent with
Regulation D under the 1933 Act.
App A - 16
5.12 Tax Information. DBIM and the Topiary Fund will provide the Hatteras
Fund correct information as to the adjusted tax basis of the Topiary Fund's
assets, the tax basis of the capital accounts of its members, the tax
identification of its members and such other tax information as the Hatteras
Fund shall reasonably request.
5.13 Reporting. The Parties agree that the Hatteras Fund is the larger
fund and that its current limited partners will own more than 50% of the
Hatteras Fund after the Reorganization. Accordingly, pursuant to Section 708
of the Internal Revenue Code of 1986, as amended, the Topiary Fund shall
terminate and its taxable year will end on the day of the Closing. DBIM shall
cause the tax returns for all periods ending on or before the day of the
Closing to be properly prepared and filed and all required information
provided to the members of the Topiary Fund.
5.14 Insurance. The Topiary Fund has agreed to maintain for a reasonable
period of time after the Closing D&O coverage for the Topiary Independent
Directors on terms and amounts no less favorable than those in effect on the
date of or immediately before Closing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of the Topiary Fund. The
obligation of the Topiary Fund to conclude the transactions provided for
herein shall be subject, at its election, to the performance by the Hatteras
Fund of all of the obligations to be performed by it hereunder at or before
the Effective Time, and, in addition thereto, to the following further
conditions unless waived by the Topiary Fund in writing:
(a) All representations and warranties of the Hatteras Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Hatteras Fund shall be given a period of the lesser of: (1) 10 Business Days
from the date on which any such representation or warranty shall not be true
and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Hatteras Fund shall have furnished to the Topiary Fund the
opinion of Drinker Biddle & Reath LLP dated as of the Effective Time,
substantially to the effect that:
(i) the Hatteras Fund is a limited partnership, validly
existing and in good standing under Delaware Law, and has power under the
Hatteras Governing Documents to conduct its business and own its assets
as described in its currently effective registration statement on Form
N-2;
(ii) the Hatteras Fund is registered with the SEC under the
1940 Act as a closed-end management investment company and to the
knowledge of such counsel its registration with the SEC is in full force
and effect;
App A - 17
(iii) to the knowledge of such counsel, the Hatteras Interests
to be issued and delivered by the Hatteras Fund pursuant to this
Agreement have been duly authorized for issuance and no preemptive rights
exist with respect to any such interests or the issue or delivery
thereof;
(iv) to the knowledge of such counsel, there are no material
legal proceedings pending against the Hatteras Fund except as disclosed
in Annex A;
(v) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by the
Hatteras Fund and, assuming due authorization, execution and delivery by
the Topiary Fund, constitutes a valid and legally binding obligation of
the Hatteras Fund, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other
Laws relating to or affecting creditors' rights generally and to general
equity principles;
(vi) the execution and delivery of this Agreement by the
Hatteras Fund did not and the performance by the Hatteras Fund of this
Agreement will not conflict with or result in a material breach of the
terms or provisions of, or constitute a material default under, the
Hatteras Governing Documents or any material agreement or instrument
known to such counsel to which the Hatteras Fund is a party or by which
the Hatteras Fund may be bound;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material violation by the Hatteras Fund of
any terms, conditions, or provisions of the 1940 Act or Delaware Law; and
(viii) to the knowledge of such counsel, no consent, approval,
authorization, or other action by or filing with any Governmental or
Regulatory Body is required under Applicable Laws in connection with the
consummation of the transactions herein contemplated.
As used in such opinion, the term "Applicable Laws" means those state
laws of the State of Delaware and federal laws of the United States which, in
such counsel's experience and without independent investigation, are normally
applicable to transactions of the type contemplated by this Agreement
(provided that the term "Applicable Laws" shall not include federal or state
securities or blue sky laws or any rules or regulations thereunder (including,
without limitation, the 1933 Act, the 1934 Act and the 1940 Act and the
respective rules and regulations thereunder)).
In rendering such opinion, Drinker Biddle & Reath LLP may rely upon
certificates of officers of the Hatteras Fund and of public officials as to
matters of fact.
Such opinion may rely on the opinion of other counsel to the extent set
forth in such opinion, provided such other counsel is reasonably acceptable to
the Topiary Fund; and shall
App A - 18
state that such opinion is solely for the benefit of the Topiary Fund and its
directors and officers and the Hatteras Fund and its directors and officers.
(c) The Hatteras Fund shall have furnished to the Topiary Fund a
certificate of the Hatteras Fund, signed by the president and treasurer of the
Hatteras Fund, dated as of the Effective Time, to the effect that they have
examined the Proxy Statement and this Agreement and that:
(i) the representations and warranties of the Hatteras Fund in
this Agreement are true and correct in all material respects on and as of
the Effective Time and the Hatteras Fund has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
the Hatteras Fund, there has been no Material Adverse Effect on the
business or properties of the Hatteras Fund (other than changes in the
ordinary course of business, including, without limitation, distributions
in the ordinary course and changes in net asset value), except as set
forth in or contemplated in the Proxy Statement.
(d) At the Valuation Time and Effective Time, except as previously
disclosed to the Topiary Fund in writing, and except as have been corrected as
required by applicable Law, and to the best of the Hatteras Fund's Knowledge,
there shall have been no material miscalculations of the net asset value of
the Hatteras Fund during the twelve-month period preceding the Valuation Time
and Effective Time, and all such calculations shall have been made in
accordance with the applicable provisions of the 1940 Act. At the Valuation
Time and Effective Time, all liabilities chargeable to the Hatteras Fund which
are required to be reflected in the net asset value of the Hatteras Fund in
accordance with applicable Law will be reflected in the net asset value of the
Hatteras Fund.
(e) The Secretary of the Topiary Fund shall have received the
confirmation from the Hatteras Fund required under paragraph 3.3 of this
Agreement.
(f) The Hatteras Fund shall have duly executed and delivered to the
Topiary Fund such assumptions of Liabilities and other instruments as the
Topiary Fund may reasonably deem necessary or desirable to evidence the
transactions contemplated by this Agreement, including the assumption of all
of the Liabilities of the Topiary Fund, other than the Excluded Liabilities.
(g) The Topiary Fund shall have completed to its satisfaction its
due diligence review of the Hatteras Fund.
6.2 Conditions Precedent to Obligations of the Hatteras Fund. The
obligation of the Hatteras Fund to conclude the transactions provided for
herein shall be subject, at its election, to the performance by the Topiary
Fund of all of the obligations to be performed by it hereunder at or before
the Effective Time, and, in addition thereto, to the following further
conditions unless waived by the Hatteras Fund in writing:
App A - 19
(a) All representations and warranties of the Topiary Fund contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Topiary Fund shall be given a period of the lesser of: (1) 10 Business Days
from the date on which any such representation or warranty shall not be true
and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Topiary Fund shall have furnished to the Hatteras Fund the
opinion of Sidley Austin LLP dated as of the Effective Time, substantially to
the effect that:
(i) the Topiary Fund is a limited liability company, validly
existing and in good standing under Delaware Law, and has power under the
Topiary Governing Documents to conduct its business and own its assets as
described in its currently effective registration statement on Form N-2;
(ii) the Topiary Fund is registered with the SEC under the 1940
Act as a closed-end management investment company and to the knowledge of
such counsel its registration with the SEC is in full force and effect;
(iii) to the knowledge of such counsel, there are no material
legal proceedings pending against the Topiary Fund except as set forth in
Annex A;
(iv) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by the
Topiary Fund and, assuming due authorization, execution and delivery by
the Hatteras Fund, constitutes a valid and legally binding obligation of
the Topiary Fund, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other
Laws relating to or affecting creditors' rights generally and to general
equity principles;
(v) to the knowledge of such counsel, as of the date of its
mailing, the Proxy Statement complies as to form in all material respects
with the applicable requirements of the 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder;
(vi) and the performance by the Topiary Fund of this Agreement
will not result in a material breach of the terms or provisions of, or
constitute a material default under, the Topiary Governing Documents or
any material agreement or instrument known to such counsel to which the
Topiary Fund is a party or by which the Topiary Fund may be bound;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material violation by the Topiary Fund of
any terms, conditions, or provisions of the 1940 Act or Delaware Law; and
App A - 20
(viii) to the knowledge of such counsel, no consent, approval,
authorization or other action by or filing with any Governmental or
Regulatory Body is required under Applicable Laws in connection with the
consummation of the transactions herein contemplated.
As used in such opinion, the term "Applicable Laws" means those state
laws of the State of New York, the State of Delaware and federal laws of the
United States which, in such counsel's experience and without independent
investigation, are normally applicable to transactions of the type
contemplated by this Agreement (provided that the term "Applicable Laws" shall
not include federal or state securities or blue sky laws or any rules or
regulations thereunder (including, without limitation, the 1933 Act, the 1934
Act and the 1940 Act and the respective rules and regulations thereunder)).
In rendering such opinion, Sidley Austin LLP may rely upon certificates
of officers of the Topiary Fund and of public officials as to matters of fact.
Such opinion (i) shall state that while such counsel have not verified,
and are not passing upon and do not assume responsibility for, the accuracy,
completeness or fairness of any portion of the Proxy Statement or any
amendment thereof or supplement thereto, they have generally reviewed and
discussed certain information furnished therein with respect to the Topiary
Fund with certain officers of the Topiary Fund and that in the course of such
review and discussion no facts came to the attention of such counsel which
caused them to believe that, on the mailing date of the Proxy Statement and
any amendment thereof or supplement thereto and only insofar as they relate to
the information furnished with respect to the Topiary Fund, the Proxy
Statement or any amendment thereof or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
(ii) may rely on the opinion of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably acceptable to the Hatteras
Fund; and (iii) shall state that such opinion is solely for the benefit of the
Hatteras Fund and its directors and officers.
(c) The Topiary Fund shall have furnished to the Hatteras Fund the
unaudited statements required by paragraph 5.6.
(d) The Topiary Fund shall have furnished to the Hatteras Fund a
certificate of Topiary Fund, signed by the president and treasurer of the
Topiary Fund, dated as of the Effective Time, to the effect that they have
examined the Proxy Statement (and any supplement thereto) and this Agreement
and that:
(i) the representations and warranties of the Topiary Fund in
this Agreement are true and correct in all material respects on and as of
the Effective Time and the Topiary Fund has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
the Topiary Fund, there has been no Material Adverse Effect on the
business or properties of the Topiary Fund (other than changes in the
ordinary course of business, including,
App A - 21
without limitation, distributions in the ordinary course and changes in
net asset value), except as set forth in or contemplated in the Proxy
Statement (or any supplement thereto).
(e) The Topiary Fund shall have duly executed and delivered to the
Hatteras Fund, such bills of sale, assignments, certificates and other
instruments of transfer, including transfer instructions to the Topiary Fund's
custodian and instructions to the Hatteras Fund's administrator ("Transfer
Documents") as the Hatteras Fund may reasonably deem necessary or desirable to
evidence the transfer to the Hatteras Fund of all of the right, title and
interest of the Topiary Fund in and to the Assets of the Topiary Fund. The
Assets of the Topiary Fund shall be accompanied by all necessary state stock
transfer stamps or cash for the appropriate purchase price therefor.
(f) The Hatteras Fund shall have received: (i) a certificate of an
authorized signatory of PFPC, as custodian for the Topiary Fund, stating that
the Assets of the Topiary Fund have been delivered to the Hatteras Fund; (ii)
a certificate of an authorized signatory from UMB, as custodian for the
Hatteras Fund, stating that the Assets of the Topiary Fund have been received;
and (iii) a certificate of an authorized signatory of the Topiary Fund
confirming that the Topiary Fund has delivered its records containing the
names and addresses of the record holders of the Topiary Fund and the
percentage of ownership of Topiary Interests owned by each such holder as of
the close of business at the Valuation Time.
(g) At the Valuation Time and Effective Time, except as previously
disclosed to the Hatteras Fund in writing, and except as have been corrected
as required by applicable Law, and to the best of the Topiary Fund's
Knowledge, there shall have been no material miscalculations of the net asset
value of the Topiary Fund during the twelve-month period preceding the
Valuation Time and Effective Time, and all such calculations shall have been
made in accordance with the applicable provisions of the 1940 Act. At the
Valuation Time and Effective Time, all Liabilities chargeable to the Topiary
Fund which are required to be reflected in the net asset value of the Topiary
Fund in accordance with applicable Law will be reflected in the net asset
value of the Topiary Fund.
(h) The Hatteras Fund shall have completed to its satisfaction its
due diligence review of the Topiary Fund.
(i) Each Party has received assurance that: (1) no claims for
damages (liquidated or otherwise) will arise as a result of termination of any
service provider contracts; and (2) a final invoice with respect to each
service provider contract that has been terminated will be delivered within 30
calendar days of the Closing.
6.3 Other Conditions Precedent. Unless waived in writing by the Parties
with the consent of their respective boards of managers/directors, the
consummation of the Reorganization is subject to the fulfillment, prior to or
at the Effective Time, of each of the following conditions:
(a) This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
interests of the Topiary
App A - 22
Fund in accordance with the provisions of the Topiary Governing Documents,
applicable Delaware Law and the 1940 Act. Notwithstanding anything herein to
the contrary, neither the Topiary Fund nor the Hatteras Fund may waive the
conditions set forth in this paragraph 6.3(a).
(b) The Master Fund Reorganization shall have been approved by the
requisite vote of the holders of the outstanding interests of the Topiary
Master Fund in accordance with applicable Delaware Law and the 1940 Act.
Notwithstanding anything herein to the contrary, neither the Topiary Fund nor
the Hatteras Fund may waive the conditions set forth in this paragraph 6.3(b).
(c) At the Effective Time, the SEC shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, and there shall be no
proceedings pending that would seek to enjoin the consummation of the
transactions contemplated by this Agreement under Section 25(c) of the 1940
Act. No Action or Proceeding against the Topiary Fund or the Hatteras Fund or
their respective officers or managers/directors shall be threatened in writing
or pending before any court or other Governmental or Regulatory Body in which
it will seek, or seeks to restrain or prohibit any of the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE VII
EXPENSES
The Topiary Fund and the Hatteras Fund will not bear any fees or expenses
in connection with the transactions contemplated by this Agreement; provided,
however, that any redemption charges or similar fees incurred in connection
with liquidating portfolio securities of the Topiary Fund will be borne by the
Topiary Fund and/or DBIM as the Topiary Fund and DBIM shall agree. Except as
noted above, the responsibility for payment of all of the fees and expenses in
connection with entering into and carrying out the transactions contemplated
by this Agreement, whether or not the transactions contemplated hereby are
concluded, shall be allocated between DBIM and HIP (or any Affiliate thereof)
as DBIM and HIP shall agree.
ARTICLE VIII
AMENDMENTS AND TERMINATION
8.1 Amendments. The Parties may amend this Agreement in such manner as
may be agreed upon, whether before or after the meeting of members of the
Topiary Fund at which action upon this Agreement and the transactions
contemplated hereby is to be taken; provided, however, that after the
requisite approval of the members of the Topiary Fund has been obtained, this
Agreement shall not be amended or modified so as to change the provisions with
App A - 23
respect to the transactions herein contemplated in any manner that would
materially and adversely affect the rights of such members without their
further approval. Nothing in this paragraph 8.1 shall be construed to prohibit
the Parties from amending this Agreement to change the Valuation Time or
Effective Time.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Effective
Time:
(a) by the mutual written consent of the Parties;
(b) by the Topiary Fund (i) following a material breach by the
Hatteras Fund of any of its representations, warranties or covenants contained
in this Agreement, provided that the Hatteras Fund shall have been given a
period of the lesser of: (1) 10 Business Days from the date of the occurrence
of such material breach; and (2) the number of Business Days remaining before
the Closing to cure such breach and shall have failed to do so; (ii) if any of
the conditions set forth in paragraphs 6.1 and 6.3 are not satisfied as
specified in said paragraphs on or before December 31, 2007; or (iii) upon the
occurrence of an event which has a Material Adverse Effect upon the Hatteras
Fund;
(c) by the Hatteras Fund (i) following a material breach by the
Topiary Fund of any of its representations, warranties or covenants contained
in this Agreement, provided that the Topiary Fund shall have been given a
period of the lesser of: (1) 10 Business Days from the date of the occurrence
of such material breach; and (2) the number of Business Days remaining before
the Closing to cure such breach and shall have failed to do so; (ii) if any of
the conditions set forth in paragraphs 6.2 and 6.3 are not satisfied as
specified in said paragraphs on or before December 31, 2007; or (iii) upon the
occurrence of an event which has a Material Adverse Effect upon the Topiary
Fund;
If a Party terminates this Agreement in accordance with this
paragraph 8.2, in the absence of willful default there shall be no liability
for damages on the part of any Party, or the managers/directors or officers of
such Party. In the event of willful default, all remedies at Law or in equity
of the Party adversely affected shall survive.
ARTICLE IX
PUBLICITY; CONFIDENTIALITY
9.1 Publicity. Any public announcements or similar publicity with respect
to this Agreement or the transactions contemplated herein will be made at such
time and in such manner as the Parties mutually shall agree in writing,
provided that nothing herein shall prevent either Party from making such
public announcements as may be required by Law, in which case the Party
issuing such statement or communication shall advise the other Party prior to
such issuance.
9.2 Confidentiality. (a) The Parties, HIP and DBIM (for purposes of this
paragraph 9.2, the "Protected Persons") will hold, and will cause their board
members, officers,
App A - 24
employees, representatives, agents and Affiliated Persons to hold, in strict
confidence, and not disclose to any other Person, and not use in any way
except in connection with the transactions herein contemplated, without the
prior written consent of the other Protected Persons, all confidential
information obtained from the other Protected Persons in connection with the
transactions contemplated by this Agreement, except such information may be
disclosed: (i) to Governmental or Regulatory Bodies, and, where necessary, to
any other Person in connection with the obtaining of consents or waivers as
contemplated by this Agreement; (ii) if required by court order or decree or
applicable Law; (iii) if it is publicly available through no act or failure to
act of such Party; (iv) if it was already known to such Party on a
non-confidential basis on the date of receipt; (v) during the course of or in
connection with any litigation, government investigation, arbitration, or
other proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (vi) if it is otherwise expressly
provided for herein.
(b) In the event of a termination of this Agreement, the Parties,
HIP and DBIM agree that they along with their board members, employees,
representative agents and Affiliated Persons shall, and shall cause their
Affiliates to, except with the prior written consent of the other Protected
Persons, keep secret and retain in strict confidence, and not use for the
benefit of itself or themselves, nor disclose to any other Persons, any and
all confidential or proprietary information relating to the other Protected
Persons and their related parties and Affiliates, whether obtained through
their due diligence investigation, this Agreement or otherwise, except such
information may be disclosed: (i) if required by court order or decree or
applicable Law; (ii) if it is publicly available through no act or failure to
act of such Party; (iii) if it was already known to such Party on a
non-confidential basis on the date of receipt; (iv) during the course of or in
connection with any litigation, government investigation, arbitration, or
other proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (v) if it is otherwise expressly
provided for herein.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including any schedules delivered
pursuant hereto, which are a part hereof) constitutes the entire agreement of
the Parties with respect to the matters covered by this Agreement. This
Agreement supersedes any and all prior understandings, written or oral,
between the Parties and may be amended, modified, waived, discharged or
terminated only by an instrument in writing signed by an authorized executive
officer of the Party against which enforcement of the amendment, modification,
waiver, discharge or termination is sought.
10.2 Notices. All notices or other communications under this Agreement
shall be in writing and sufficient if delivered personally, by overnight
courier, by facsimile, telecopied (if confirmed) or sent via registered or
certified mail, postage prepaid, return receipt requested,
App A - 25
addressed as follows (notices or other communication sent via e-mail shall not
constitute notice):
If to the Topiary Fund or DBIM:
The Topiary Fund for Benefit Plan Investors (BPI) LLC
345 Park Avenue
New York, NY 10154
Attention: John H. Kim, Esq.
Telephone No.: (212) 454-3000
Facsimile No.: (732) 460-6825
E-mail: john.kim@db.com
With copies (which shall not constitute notice) to:
Sidley Austin LLP (counsel to the Topiary Fund)
787 Seventh Avenue
New York, NY 10019
Attention: John A. MacKinnon, Esq.
Telephone No.: (212) 839-5400
Facsimile No.: (212) 839-5599
E-mail: jmackinnon@sidley.com
If to Hatteras Fund or HIP:
Hatteras Multi-Strategy TEI Fund, L.P.
8540 Colonnade Center Drive
Suite 401
Raleigh, NC 27615
Attention: J. Michael Fields
Telephone No.: (919) 846-2324
Facsimile No.: (919) 846-3433
E-mail: mike.fields@hatterasip.com
With a copy (which shall not constitute notice) to:
Drinker Biddle & Reath LLP (counsel to Hatteras Fund)
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
Attention: Michael P. Malloy, Esq.
Telephone No.: (215) 988-2978
Facsimile No.: (215) 988-2757
E-mail: Michael.Malloy@dbr.com
10.3 Waiver. The failure of either Party hereto to enforce at any time
any of the provisions of this Agreement shall in no way be construed to be a
waiver of any such
App A - 26
provision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of either Party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach. Except as provided in paragraph
6.3(a), a Party may waive any condition to its obligations hereunder (such
waiver to be in writing and authorized by an authorized officer of the waiving
Party).
10.4 Assignment. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations hereunder
shall be made by either Party without the written consent of the other Party.
Nothing herein express or implied is intended to or shall confer any rights,
remedies or benefits upon any Person other than the Parties hereto.
10.5 Survival. Except as provided in the next sentence, the respective
representations, warranties and covenants contained in this Agreement and in
any certificates or other instruments exchanged at the Effective Time as
provided in Article VI hereto shall not survive the consummation of the
transactions contemplated hereunder. The covenants in paragraphs 1.3, 1.5,
5.6, 5.10, 5.11, 9.2, 10.9, and this paragraph 10.5 and Article VII shall
survive the consummation of the transactions contemplated hereunder.
10.6 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.7 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to its
principles of conflicts of Laws.
10.9 Further Assurances. Subject to the terms and conditions herein
provided, each of the Parties hereto shall use its reasonable best efforts to
take, or cause to be taken, such action to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do,
or cause to be done, all things necessary, proper or advisable under the
provisions of this Agreement and under applicable Law to consummate and make
effective the Fund Transactions contemplated by this Agreement, including,
without limitation, delivering and/or causing to be delivered to the other
Party hereto each of the items required under this Agreement as a condition to
such Party's obligations hereunder. In addition, the Topiary Fund make
available the Hatteras Fund at and any time after the Closing upon reasonable
notice, the Books and Records of the Topiary Fund (regardless of whose
possession they are in).
10.10 Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in Persons not Parties (including, without limitation, any
investor in the Hatteras Fund or the Topiary Fund) except that the Topiary
Independent Directors are intended third-party beneficiaries of the provisions
of paragraph 1.3 herein.
App A - 27
10.11 Validity. Whenever possible, each provision and term of this
Agreement shall be interpreted in a manner to be effective and valid, but if
any provision or term of this Agreement is held to be prohibited by Law or
invalid, then such provision or term shall be ineffective only in the
jurisdiction or jurisdictions so holding and only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
10.12 Effect of Facsimile Signature. A facsimile signature of an
authorized officer of a Party hereto on any Transfer Document shall have the
same effect as if executed in the original by such officer.
ARTICLE XI
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Action or Proceeding" means any action, suit or proceeding by any
Person, or any investigation or audit by any Governmental or Regulatory Body.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such first Person.
"Agreement" has the meaning specified in the preamble.
"Assets" means all properties and assets of every kind and description
whatsoever, including, without limitation, all cash, cash equivalents,
securities, claims (whether absolute or contingent, known or unknown, accrued
or unaccrued and including, but not limited to, any claims that the Topiary
Fund may have against DBIM) and receivables (including dividend and interest
receivable), goodwill and other intangible property, and all interests,
rights, privileges and powers, owned by the Topiary Fund, and any prepaid
expenses shown on the Topiary Fund's books at the Valuation Time, excluding
(a) the estimated costs of extinguishing any Excluded Liability; (b) any
reserves for payment of expenses incurred in the month ending immediately
prior to the Effective Time, and (c) the Topiary Fund's rights under this
Agreement.
"Books and Records" means the Topiary Fund's or the Hatteras Fund's
accounts, books, records or other documents (including but not limited to
minute books, stock transfer ledgers, financial statements, tax returns and
related work papers and letters from accountants, and other similar records)
required to be maintained by the Topiary Fund or the Hatteras Fund, as
applicable, pursuant to Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3
thereunder.
"Business Day" means a day other than Saturday, Sunday or a day on which
banks located in New York City are authorized or obligated to close.
"Cayman Fund Agreement" has the meaning specified in the recitals.
App A - 28
"Cayman Fund Reorganization" has the meaning specified in the recitals.
"Closing" has the meaning specified in paragraph 3.1.
"DBIM" has the meaning specified in the preamble.
"Delaware Law" has the meaning specified in paragraph 1.1.
"Effective Time" has the meaning specified in paragraph 3.1.
"Excluded Liabilities" has the meaning specified in paragraph 1.3.
"Governmental or Regulatory Body" means any court, tribunal, or
government or political subdivision, whether federal, state, county, local or
foreign, or any agency, authority, official or instrumentality of any such
government or political subdivision.
"Hatteras Board" has the meaning specified in the recitals.
"Hatteras Cayman Fund" has the meaning specified in the recitals.
"Hatteras Fund" has the meaning specified in the preamble.
"Hatteras Fund Registration Statement" means the current registration
statement on Form N-2 of the Hatteras Fund, as supplemented from time to time.
"Hatteras Governing Documents" has the meaning specified in paragraph
4.2(a).
"Hatteras Independent Directors" has the meaning specified in the
recitals.
"Hatteras Interests" has the meaning specified in the recitals.
"Hatteras Master Fund" has the meaning specified in the recitals.
"HIP" has the meaning specified in the preamble.
"Investment Fund" means any privately placed investment vehicle,
typically referred to as a hedge fund.
"Knowledge" means (i) with respect to the Topiary Fund, the actual
knowledge after reasonable inquiry of the Topiary Fund's directors or
officers, or DBIM in its capacity as a service provider to the Topiary Fund
and (ii) with respect to the Hatteras Fund, the actual knowledge after
reasonable inquiry of the Hatteras Fund's directors or officers, or HIP in its
capacity as a service provider to the Hatteras Fund.
"Law" means any law, statute, rule, regulation or ordinance of any
Governmental or Regulatory Body.
App A - 29
"Liabilities" means all liabilities and obligations reflected on an
unaudited statement of assets and liabilities of the Topiary Fund prepared by
DBIM as of the Valuation Time in accordance with U.S. generally accepted
accounting principles consistently applied from the prior audited reporting
period and reviewed and approved by the respective treasurers of the Hatteras
Fund and the Topiary Fund at the Effective Time. "Liabilities" does not
include, and the Hatteras Fund shall not assume, (i) any Excluded Liabilities,
(ii) any claim for damages (liquidated or otherwise) as a result of the
Topiary Fund's termination of its agreements with any of its service
providers, whether prior to or after the Closing, or (iii) liabilities
relating to invoices from services providers representing services rendered to
the Topiary Fund after the Effective Time. For the avoidance of doubt, as set
forth in paragraph 1.6, any Topiary Fund incentive allocation will be assessed
and allocated immediately prior to the Effective Time. Therefore, Liabilities
will not include any accruals for incentive allocations.
"Master Fund Agreement" has the meaning specified in the recitals.
"Master Fund Reorganization" has the meaning specified in the recitals.
"Material Adverse Effect" as to any Person means a material adverse
effect on the business, results of operations or financial condition of such
Person. For purposes of this definition, a decline in net asset value of the
Topiary Fund or the Hatteras Fund arising out of its investment operations or
declines in market values of securities in its portfolio, the discharge of
liabilities, or the redemption of interests in such fund, shall not constitute
a "Material Adverse Effect."
"NYSE" has the meaning specified in paragraph 2.5.
"1940 Act" has the meaning specified in the recitals.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Order" means any writ, judgment, decree, injunction or similar order of
any Government or Regulatory Body, in each case whether preliminary or final.
"Party" and "Parties" each has the meaning specified in the preamble.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or other
entity.
"PFPC" has the meaning specified in paragraph 3.2.
"Protected Persons" has the meaning specified in paragraph 9.2.
App A - 30
"Proxy Statement" has the meaning specified in paragraph 4.1(p).
"Reorganization" has the meaning specified in the recitals.
"SEC" means the U.S. Securities and Exchange Commission.
"Topiary Board" has the meaning specified in the recitals.
"Topiary Cayman Fund" has the meaning specified in the recitals.
"Topiary Fund" has the meaning specified in the preamble.
"Topiary Fund Registration Statement" means the current registration
statement on Form N-2 of the Topiary Fund as supplemented from time to time.
"Topiary Governing Documents" has the meaning specified in paragraph 1.1.
"Topiary Independent Directors" has the meaning specified in the
recitals.
"Topiary Interests" has the meaning specified in the recitals.
"Topiary Master Fund" has the meaning specified in the recitals.
"Transfer Documents" has the meaning specified in paragraph 6.2(e).
"UMB" has the meaning specified in paragraph 3.2.
"Valuation Time" has the meaning specified in paragraph 2.5.
[SIGNATURE PAGE FOLLOWS]
App A - 31
IN WITNESS WHEREOF, the Parties and DBIM and HIP have caused this
Agreement to be duly executed and delivered by their duly authorized officers,
as of the day and year first above written.
THE TOPIARY FUND FOR BENEFIT PLAN
INVESTORS (BPI) LLC
By: ________________________________
Name:
Title:
HATTERAS MULTI-STRATEGY TEI FUND, L.P.
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 1.3, 4.1(i), 5.1, 5.10, 5.11, 5.12, 5.13, 9.2 and 10.5
DB INVESTMENT MANAGERS, INC.
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 4.2(i), 5.1, 5.10, 5.11, 9.2 and 10.5
HATTERAS INVESTMENT PARTNERS, LLC
By: ________________________________
Name:
Title:
App A - 32
Exhibit A
---------
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________, 2007, by and between the Topiary Master Fund for Benefit Plan
Investors (BPI) LLC, a Delaware limited liability company (the "Topiary Master
Fund"), and Hatteras Master Fund, L.P., a Delaware limited partnership
("Hatteras Master Fund" and together with the Topiary Master Fund, the
"Parties" and each a "Party"). DB Investment Managers, Inc., a Delaware
corporation ("DBIM"), joins this Agreement solely for purposes of paragraphs
1.3, 4.1(i), 5.1, 5.10, 5.11, 5.12, 5.13, 9.2, 10.5 and Article VII; Hatteras
Investment Partners, LLC., a Delaware limited liability company ("HIP"), joins
this Agreement solely for purposes of paragraphs 4.2(i), 5.1, 5.10, 5.11, 9.2,
10.5 and Article VII. Capitalized terms not otherwise defined herein shall
have the meaning set forth in Article XI hereof.
RECITALS:
The Topiary Master Fund issues limited liability company interests (the
"Topiary Interests"). The Hatteras Master Fund issues partnership interests
(the "Hatteras Interests").
The Parties wish to conclude a series of business combination
transactions under the terms set forth in this Agreement in which: (1) all of
the Assets of the Topiary Master Fund will be transferred to the Hatteras
Master Fund in exchange for Hatteras Interests and the assumption by the
Hatteras Master Fund of all of the Topiary Master Fund's Liabilities, and (2)
Hatteras Interests will be distributed to members of the Topiary Master Fund
in complete liquidation of such Fund and such members will be admitted as
limited partners of the Hatteras Master Fund, all upon the terms and
conditions set forth in this Agreement (the "Reorganization").
The Topiary Fund for Benefit Plan Investors (BPI) LLC (the "Topiary
Feeder Fund") and Hatteras Multi-Strategy TEI Fund, L.P. (the "Hatteras Feeder
Fund") have entered into an Agreement and Plan of Reorganization of even date
hereof (the "Feeder Fund Agreement"). The Feeder Fund Agreement contemplates a
series of business combination transactions in which certain of the assets of
the Topiary Feeder Fund will be transferred to the Hatteras Feeder Fund in
exchange for partnership interests in the Hatteras Feeder Fund and the
assumption by the Hatteras Feeder Fund of certain of the Topiary Feeder Fund's
liabilities; and partnership interests in the Hatteras Feeder Fund will be
distributed to members of the Topiary Feeder Fund in complete liquidation of
such fund and such members will be admitted as limited partners of the
Hatteras Feeder Fund, as more fully set forth in the Feeder Fund Agreement
(the "Feeder Fund Reorganization").
The Board of Directors of the Topiary Master Fund (the "Topiary Board"),
including a majority of directors who are not "interested persons" (as defined
in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the
"1940 Act")) ("Topiary Independent
Directors") of the Topiary Master Fund, based on representations from and
information provided by officers of DBIM, has determined that: (1)
participation in the Reorganization is in the best interests of the Topiary
Master Fund, and (2) the interests of existing members of the Topiary Master
Fund will not be diluted as a result of its effecting the Reorganization.
The Board of Directors of Hatteras Master Fund (the "Hatteras Board"),
including a majority of directors who are not "interested persons" (as defined
in Section 2(a)(19) of the 1940 Act ("Hatteras Independent Directors") of
Hatteras Master Fund, based on representations from and information provided
by officers of HIP has determined that: (1) participation in the
Reorganization is in the best interests of the Hatteras Master Fund, and (2)
the interests of existing limited partners of the Hatteras Master Fund will
not be diluted as a result of its effecting the Reorganization.
NOW THEREFORE, in consideration of the mutual promises, representations,
and warranties made herein, covenants and agreements hereinafter contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Parties, and DBIM and HIP to the extent indicated
above, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. In accordance with Title 6 of the Delaware Code
(the "Delaware Law") and the limited liability company operating agreement of
the Topiary Master Fund as each may be amended from time to time (the "Topiary
Governing Documents"), at the Effective Time (as defined below), upon the
terms and subject to the conditions of this Agreement, and on the basis of the
representations and warranties contained herein, the Topiary Master Fund shall
assign, deliver and otherwise transfer all of the Assets, subject to all of
the Liabilities, to the Hatteras Master Fund, and the Hatteras Master Fund
shall assume all of the Liabilities. In consideration of the foregoing, the
Hatteras Master Fund shall at the Effective Time deliver to the Topiary Master
Fund Hatteras Interests equal in value to the Assets, net of Liabilities
computed as of the Valuation Time (as defined below) in the manner set forth
in paragraph 2.1. At and after the Effective Time, all of the Assets shall
become and be included in the assets of the Hatteras Master Fund and the
Liabilities shall become and be the liabilities of and shall attach to the
Hatteras Master Fund. At and after the Effective Time, the Liabilities may be
enforced only against the Hatteras Master Fund to the same extent as if such
Liabilities had been incurred by the Hatteras Master Fund subject to any
defense and/or set off that the Topiary Master Fund was entitled to assert
immediately prior to the Effective Time and further subject to any defense
and/or setoff that the Hatteras Master Fund may from time to time be entitled
to assert.
1.2 Assets.
(a) Attached hereto as Schedule 1.2(a) is a schedule of the Assets
and Liabilities of the Topiary Master Fund as of __________. Prior to the
execution of this Agreement, the Hatteras Master Fund has provided the Topiary
Master Fund with a copy of the
Ex A - 2
current investment objective, investment policies, principal investment
strategies, and restrictions applicable to the Hatteras Master Fund and the
Hatteras Master Fund will provide the Topiary Master Fund with a written
notice of any changes thereto as of the Valuation Time. The Topiary Master
Fund reserves the right to sell any of the Assets listed on Schedule 1.2(a)
prior to the Valuation Time but will not, without the prior approval of the
Hatteras Master Fund, make any additional investments in Investment Funds.
(b) Attached hereto as Schedule 1.2(b) is a schedule of Assets as of
_______ which the Hatteras Master Fund, in its sole discretion does not want
to hold. The Topiary Master Fund will, to the extent permissible and
consistent with its own investment objectives and policies and the fiduciary
duties of DBIM, dispose of such investments prior to the Valuation Time. In
addition, if it is determined that the portfolios of the two Parties, when
aggregated, would contain investments exceeding certain percentage limitations
to which the Hatteras Master Fund is or will be subject with respect to such
investments as disclosed in the Hatteras Master Fund Registration Statement,
the Topiary Master Fund will, if requested by the Hatteras Master Fund and, to
the extent permissible and consistent with its own investment objectives and
policies and the fiduciary duties of DBIM, dispose of a sufficient amount of
such investments as may be necessary to avoid violating such limitations as of
the Effective Time.
1.3 Assumption of Liabilities. The Topiary Master Fund will, to the
extent permissible and consistent with its own investment objectives and
policies, use its best efforts to discharge all of the Liabilities prior to or
at the Effective Time (which such effort shall include, without limitation, a
payment of estimated monthly expenses as of the date hereof). The Hatteras
Master Fund will assume all of the Liabilities of the Topiary Master Fund. If
prior to the Effective Time either Party identifies a Liability that the
Parties mutually agree should not be assumed by the Hatteras Master Fund, such
Liability shall be excluded from the definition of Liabilities hereunder and
shall be listed on a Schedule of Excluded Liabilities to be signed by the
Parties at the Closing (the "Excluded Liabilities"). Certain Liabilities that
would otherwise be listed as Excluded Liabilities may be assumed by the
Hatteras Master Fund on the condition that HIP and the Hatteras Master Fund be
indemnified in writing to their reasonable satisfaction by DBIM against any
and all losses, claims, damages or liability to which HIP and the Hatteras
Master Fund may become subject as a result of assuming such Liability. The
Hatteras Master Fund shall not assume any Liability for any obligation of the
Topiary Master Fund to file reports with the SEC, Internal Revenue Service or
other regulatory or tax authority covering any reporting period ending prior
to or at the Effective Time with respect to the Topiary Master Fund.
1.4 Distribution of Hatteras Interests. Immediately upon receipt, the
Topiary Master Fund will distribute the Hatteras Interests received by the
Topiary Master Fund from the Hatteras Master Fund pursuant to paragraph 1.1,
pro rata to the record holders of Topiary Interests in the Topiary Master Fund
determined as of the Valuation Time in complete liquidation of the Topiary
Master Fund excluding the affiliate of DBIM which holds Topiary Interests in
the Topiary Master Fund, which entity shall be paid in cash an amount equal to
the net asset value of its capital account at the Valuation Time. Such
distribution will be accomplished by an instruction, signed by an appropriate
officer of the Topiary Master Fund, to transfer the Hatteras Interests then
credited to the Topiary Master Fund's account on the
Ex A - 3
Books and Records of the Hatteras Master Fund and to open accounts on the
Books and Records of the Hatteras Master Fund established and maintained by
the Hatteras Master Fund's administrator in the names of members of the
Topiary Master Fund and representing the respective pro rata Hatteras
Interests due to such member. All issued and outstanding Topiary Interests
will be cancelled promptly and the holders thereof shall cease to be members
of the Topiary Master Fund. Any such Topiary Interests issued and outstanding
prior to such cancellation shall thereafter represent only the right to
receive the Hatteras Interests issued to the Topiary Master Fund in accordance
with paragraph 1.1 above.
1.5 Liquidation of the Topiary Master Fund. As soon as conveniently
practicable after the distribution of the Hatteras Interests pursuant to
paragraph 1.4 has been made, the Topiary Master Fund shall take, in accordance
with Delaware Law, the 1940 Act and the Topiary Governing Documents, all such
other steps as may be necessary or appropriate to effect a complete
dissolution, liquidation and termination of the Topiary Master Fund.
1.6 Incentive Allocation. Immediately prior to the Effective Time, any
accrued Incentive Allocations shall be reallocated from the capital accounts
of Topiary Master Fund members to the capital account of DBIM.
1.7 Transfer Taxes. Any transfer taxes payable on issuance of Hatteras
Interests in a name other than that of the record holder of the Topiary
Interests on the Topiary Master Fund's Books and Records shall be paid by the
Person to whom such Hatteras Interests are issued and transferred, as a
condition of that transfer.
ARTICLE II
VALUATION
2.1 Net Asset Value of the Topiary Master Fund. The net asset value of
the Topiary Master Fund shall be the net asset value computed as of the
Valuation Time using the valuation procedures described in the Hatteras Master
Fund Registration Statement.
2.2 Net Asset Value of the Hatteras Master Fund. The net asset value of
the Hatteras Master Fund shall be the net asset value computed as of the
Valuation Time using the valuation procedures set forth in the Hatteras Master
Fund Registration Statement.
2.3 Calculation of Percentage Interests. The percentage of Hatteras
Interests to be issued to each Topiary member in connection with the
Reorganization shall be determined based upon the value of each member's
percentage interest in the Topiary Master Fund as of the Valuation Time.
2.4 Joint Direction of Calculation. All computations of net asset value
and the value of securities transferred under this Article II shall be made by
UMB Fund Services, Inc. and PFPC Inc. under the joint direction of the
following entities, in accordance with their regular practice and the
requirements of the 1940 Act: (a) DBIM, the investment adviser to the Topiary
Master Fund; and (b) HIP, the investment adviser to the Hatteras Master Fund.
The Topiary Master Fund and the Hatteras Master Fund agree to use all
commercially reasonable
Ex A - 4
efforts to resolve prior to the Valuation Time any material pricing
differences between the prices of portfolio securities determined in
accordance with the pricing policies and procedures of the Topiary Master Fund
and those determined in accordance with the pricing policies and procedures of
the Hatteras Master Fund.
2.5 Valuation Time. The valuation time shall be the close of regular
trading on the New York Stock Exchange ("NYSE") on the last Business Day of
the month immediately preceding the Effective Time, or such earlier or later
date and time as may be mutually agreed in writing by an authorized officer of
each of the Parties (the "Valuation Time").
ARTICLE III
EFFECTIVE TIME AND CLOSING
3.1 Effective Time and Closing. Subject to the terms and conditions set
forth herein, the Reorganization shall occur prior to the opening of business
on October 1, 2007, or on such other date as may be mutually agreed in writing
by an authorized officer of each Party (the "Effective Time"). To the extent
any Assets are, for any reason, not transferred at the Effective Time, the
Topiary Master Fund shall cause such Assets to be transferred in accordance
with this Agreement at the earliest practical date thereafter. The closing of
the Reorganization will take place at the offices of Drinker Biddle & Reath
LLP, One Logan Square, 18th and Cherry Streets, Philadelphia, PA 19103, or at
such other place as may be mutually agreed in writing by an authorized officer
of each Party, at the Effective Time (the "Closing").
3.2 Transfer and Delivery of Assets. The Topiary Master Fund shall direct
PFPC Trust Company ("PFPC"), as custodian for the Topiary Master Fund, to
deliver to the Hatteras Master Fund at the Closing a certificate of an
authorized officer certifying that: (a) PFPC delivered the Assets of the
Topiary Master Fund to the Hatteras Master Fund at the Effective Time; and (b)
all necessary taxes in connection with the delivery of such Assets, including
all applicable foreign, federal and state stock transfer stamps and any other
stamp duty taxes, if any, have been paid or provision (as reasonably
estimated) for payment has been made. At least three Business Days prior to
the Effective Time, PFPC shall present for examination those Assets
represented by certificate or other written instrument to those Persons who
have primary responsibility for the safekeeping of the assets of the Hatteras
Master Fund at UMB N.A. ("UMB"), with the principal place of business at 1010
Grand Boulevard, Kansas City, Missouri 64106, as custodian of the Hatteras
Master Fund. At the Effective Time, the Topiary Master Fund shall endorse and
deliver, or transfer by appropriate transfer or assignment documents, such
certificates and other written instruments as of the Effective Time for the
account of the Hatteras Master Fund in proper form for transfer and in such
condition as to constitute good delivery thereof in accordance with the
customs of brokers. PFPC shall deliver other Assets to those Persons who have
primary responsibility for the safekeeping of the Hatteras Master Fund at UMB
as of the Effective Time by book entry, in accordance with the customary
practices of UMB Bank and of each securities depository (as defined in Rule
17f-4 and Rule 17f-7 under the 1940 Act) in which such Assets are held. Any
cash to be transferred by the Topiary Master Fund to the Hatteras Master Fund
shall be delivered by wire transfer of
Ex A - 5
federal funds at the Effective Time pursuant to instructions provided by the
Hatteras Master Fund.
3.3 Hatteras Master Fund Capital Account. The Hatteras Master Fund shall
deliver to the Secretary of the Topiary Master Fund at the Closing a
confirmation evidencing that: (a) the Hatteras Master Fund has established on
its Books and Records a Hatteras Master Fund capital account for the record
holders of Topiary Interests pursuant to paragraph 1.1 prior to the actions
contemplated by paragraph 1.4, and (b) the appropriate amount of Hatteras
Interests have been credited to the accounts of record holders of Topiary
Interests on the Books and Records of the Hatteras Master Fund pursuant to
paragraph 1.4.
3.4 Postponement of Valuation Time and Effective Time. If immediately
prior to the Valuation Time, in the judgment of an appropriate officer of the
Topiary Master Fund or Hatteras Master Fund, as applicable, accurate appraisal
of the value of the net assets of the Topiary Master Fund or Hatteras Master
Fund is impracticable, the Valuation Time and Effective Time for the
Reorganization shall be postponed until such date as may be mutually agreed in
writing by an authorized officer of each Party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Topiary Master Fund. The
Topiary Master Fund hereby represents and warrants to the Hatteras Master Fund
as follows, which representations and warranties shall be true and correct on
the date hereof:
(a) The Topiary Master Fund is a limited liability company duly
organized, validly existing and in good standing under the Laws of the State
of Delaware and is duly qualified, licensed or admitted to do business and is
in good standing as a foreign association under the Laws of each jurisdiction
in which the nature of the business conducted by it makes such qualification,
licensing or admission necessary, except in such jurisdictions where the
failure to be so qualified, licensed or admitted and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Topiary Master Fund.
The Topiary Master Fund has full power under the Topiary Governing Documents
to conduct its business as it is now being conducted and to own the properties
and assets it now owns. The Topiary Master Fund has all necessary
authorizations, licenses and approvals from any applicable Governmental or
Regulatory Body necessary to carry on its business as such business is now
being carried on except where the failure to so obtain would not have a
Material Adverse Effect on the Topiary Master Fund.
(b) The execution, delivery and performance of this Agreement by the
Topiary Master Fund and the consummation of the transactions contemplated
herein have been duly and validly authorized by the Topiary Board, and the
Topiary Board has approved the Reorganization and has resolved to recommend
the Reorganization to the members of the Topiary Master Fund and to call a
special meeting of holders of the Topiary Master Fund for the purpose of
approving this Agreement and the Reorganization contemplated thereby. Other
Ex A - 6
than the approval by the requisite vote of the members of the outstanding
Topiary Interests in accordance with the provisions of the Topiary Governing
Documents, applicable Delaware Law and the 1940 Act, no other action on the
part of the Topiary Master Fund or its members is necessary to authorize the
execution, delivery and performance of this Agreement by the Topiary Master
Fund or the consummation of the Reorganization contemplated herein. This
Agreement has been duly and validly executed and delivered by the Topiary
Master Fund, and assuming due authorization, execution and delivery hereof by
the Hatteras Master Fund, is a legal, valid and binding obligation of the
Topiary Master Fund, enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other Laws
relating to or affecting creditors' rights, to general equity principles and
to any limitations on indemnity as may be required under federal and state
securities Laws).
(c) The authorized capital of the Topiary Master Fund consists of an
unlimited amount of limited liability company membership interests. The
Topiary Interests have been duly established and represent undivided interests
in the Topiary Master Fund. There are no outstanding options, warrants or
other rights of any kind to acquire from the Topiary Master Fund equity
interests of or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such
additional interests, nor is the Topiary Master Fund committed to issue any
share appreciation or similar rights or options, warrants, rights or
securities in connection with any Topiary Interests. The Topiary Master Fund
has no share certificates outstanding.
(d) The Topiary Master Fund has no subsidiaries.
(e) Except for consents, approvals, waivers or amendments to be
received prior to the Effective Time, including requisite approval by the
members of the Topiary Master Fund, the execution, delivery and performance of
this Agreement by the Topiary Master Fund does not, and the consummation of
the transactions contemplated herein will not: (i) violate or conflict with
the terms, conditions or provisions of the Topiary Governing Documents, or of
any material contract, agreement, indenture, instrument, or other undertaking
to which it is a party or by which it is bound, (ii) result in the
acceleration of any obligation, or the imposition of any penalty, under any
material agreement, indenture, instrument, contract, lease or other
undertaking to which the Topiary Master Fund is a party or by which it is
bound, (iii) result in a breach or violation by the Topiary Master Fund of any
terms, conditions, or provisions of any Law or Order, or (iv) require any
consent or approval of, filing with or notice to, any Governmental or
Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Topiary
Master Fund has delivered to the Hatteras Master Fund true and complete
copies of the audited statements of assets and liabilities of the Topiary
Master Fund as of March 31, 2007 or a later date if available prior to
the date hereof, and the related audited schedules of investments,
statements of income and changes in net assets and financial highlights
for the periods then ended.
Ex A - 7
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Topiary Master Fund as of the respective
dates thereof and for the respective periods covered thereby.
(iii) To the best of the Topiary Master Fund's Knowledge,
except as reflected or reserved against in the statement of assets and
liabilities included in the Topiary Master Fund's audited financial
statements as of March 31, 2007 or in the notes thereto, or as previously
disclosed in writing to the Hatteras Master Fund, there are no
liabilities against, relating to or affecting the Topiary Master Fund or
any of its properties and assets, other than those incurred in the
ordinary course of business consistent with past practice, which,
individually or in the aggregate, would have a Material Adverse Effect on
the Topiary Master Fund or its properties or assets. In particular, since
March 31, 2007 to the best of the Topiary Master Fund's Knowledge and
except (i) as disclosed in writing to the Hatteras Master Fund or in the
Topiary Master Fund Registration Statement and (ii) for the transactions
contemplated by this Agreement, there has not been any change in the
financial condition, properties, assets, liabilities or business of the
Topiary Master Fund that would have a Material Adverse Effect on the
Topiary Master Fund or its properties or assets other than changes
occurring in the ordinary course of business.
(iv) As of the date hereof, except as previously disclosed to
the Hatteras Master Fund in writing or as disclosed in the Topiary Master
Fund Registration Statement, and except as have been corrected as
required by applicable Law, and to the best of the Topiary Master Fund's
Knowledge, there have been no material miscalculations of the net asset
value of the Topiary Master Fund during the twelve-month period preceding
the date hereof which would have a Material Adverse Effect on the Topiary
Master Fund or its properties or assets, and all such calculations have
been made in accordance with the Topiary Master Fund's valuation policies
as stated in the Topiary Master Fund Registration Statement and the
applicable provisions of the 1940 Act.
(g) The minute books and other similar records of the Topiary Master
Fund as made available to the Hatteras Master Fund prior to the execution of
this Agreement contain a true and complete record in all material respects of
all action taken at all meetings and by all written consents in lieu of
meetings of the members of the Topiary Master Fund, the Topiary Board and
committees of the Topiary Board. The member records and other similar records
of the Topiary Master Fund as made available to the Hatteras Master Fund prior
to the execution of this Agreement accurately reflect all record transfers
prior to the execution of this Agreement in the interests of the Topiary
Master Fund.
(h) The Topiary Master Fund has maintained, or caused to be
maintained on its behalf, in all material respects, all Books and Records
required of a registered investment company in compliance with the
requirements of Section 31 of the 1940 Act and rules thereunder.
Ex A - 8
(i) Except as set forth in writing to the Hatteras Master Fund and
HIP, there is no Action or Proceeding pending against the Topiary Master Fund
or DBIM (with respect to the Topiary Master Fund) or, to the best of the
Topiary Master Fund's or DBIM's Knowledge, threatened against, relating to or
affecting, the Topiary Master Fund, or DBIM (with respect to the Topiary
Master Fund) other than any notices naming or received by the Topiary Master
Fund relating to the patent application filed by Man-Glenwood Lexington TEI,
LLC or an affiliate thereof.
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Topiary Master Fund
in connection with the negotiation, execution or performance of this Agreement
or any other agreement contemplated hereby, or the consummation of the
transactions contemplated hereby, is or will be entitled to any broker's or
finder's or similar fees or other commissions as a result of the consummation
of such transactions.
(k) The Topiary Master Fund is registered with the SEC as a
closed-end management investment company under the 1940 Act, and its
registration with the SEC as such an investment company is in full force and
effect.
(l) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Topiary Master
Fund required by Law to have been filed by such date (including any
extensions) have been filed and are correct in all material respects, and all
federal and other taxes shown as due on such returns and reports have been
paid or provision has been made on the Topiary Master Fund's Books and Records
for the payment thereof and, to the best of the Topiary Master Fund's
Knowledge, no such return is currently under audit or has been threatened with
an audit and no assessment has been asserted with respect to such returns. To
the Topiary Master Fund's Knowledge, there are no levies, liens, or other
encumbrances relating to taxes existing, threatened or pending with respect to
the properties or assets of the Topiary Master Fund. As of the date hereof,
the Topiary Master Fund has adequately provided for all tax liabilities on its
Books and Records including, without limitation, any withholding taxes with
respect to The Topiary Offshore Fund for Benefit Plan Investors (BPI) LDC.
(m) Topiary Master Fund is and at all times has been properly
characterized for federal and state income tax purposes as a partnership and
has not been an association or publicly traded partnership subject to tax as a
corporation.
(n) All issued and outstanding Topiary Interests have been offered
and sold in compliance in all material respects with applicable registration
requirements of state securities Laws, and are registered under the Laws of
all jurisdictions in which registration is or was required, except as may have
been previously disclosed to the Hatteras Master Fund in writing. Such
registrations are, in all material respects, complete, current and have been
continuously effective, and all fees required to be paid have been paid. The
Topiary Master Fund is not subject to any "stop order" and is, and was, fully
qualified to sell its interests in each jurisdiction in which such interests
are being, or were, registered and sold.
Ex A - 9
(o) The Topiary Master Fund Registration Statement, including
amendments and supplements thereto, and each registration statement used at
all times during the past three years prior to the date of this Agreement
conform, or conformed at the time of its or their use, in all material
respects to the applicable requirements of the 1940 Act and the rules and
regulations of the SEC thereunder, and do not, or did not, as of their dates
of filing with the SEC, include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not materially misleading. The Topiary Master Fund currently
complies in all material respects with all investment objectives, policies,
guidelines and restrictions and any compliance procedures established by the
Topiary Master Fund.
(p) The proxy statement (the "Proxy Statement") to be filed by the
Topiary Master Fund in connection with this Agreement and any amendment or
supplement thereto, each comply or will comply in all material respects with
the applicable requirements of the 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder on the mailing date of
such Proxy Statement. The Proxy Statement and any amendment or supplement
thereto, insofar as each relates to the Topiary Master Fund, does not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not materially misleading on the
mailing date of such Proxy Statement; provided, however, that the Topiary
Master Fund makes no representations or warranties as to the information
contained in the Proxy Statement and any amendment or supplement thereto in
reliance upon and in conformity with information relating to the Hatteras
Master Fund and furnished by the Hatteras Master Fund to the Topiary Master
Fund specifically for use in connection with the Proxy Statement and any
amendment or supplement thereto.
(q) Except as previously disclosed in writing to the Hatteras Master
Fund, at the Effective Time, the Topiary Master Fund will have good and
marketable title to its Assets and full right, power, and authority to sell,
assign, transfer and, upon delivery and payment for the Assets, deliver such
Assets, free and clear of all liens, mortgages, pledges, encumbrances,
charges, claims and equities, and subject to no restrictions on the subsequent
transfer thereof (other than any Assets consisting of restricted securities).
(r) The Topiary Master Fund has adopted and implemented written
policies and procedures in accordance and that comply with Rule 38a-1 under
the 1940 Act.
(s) The Topiary Master Fund has a substantial preexisting business
relationship with each of its members and a reasonable belief that each member
is sophisticated and knowledgeable in business and financial matters and is
capable of evaluating the merits and risks of purchasing a Hatteras Interest.
(t) The Topiary Master Fund has, since its inception, complied in
all material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Topiary Master Fund.
Ex A - 10
(u) The Topiary Master Fund has a reasonable belief that each of its
members is an "accredited investor" as defined in Rule 501 under the 1933 Act
and a "qualified client" as defined in Rule 205-3 under the Investment
Advisers Act of 1940, as amended.
(v) Except as disclosed in writing to the Hatteras Master Fund, to
the best of the Topiary Master Fund's Knowledge, no events have occurred and
no issues, conditions or facts have arisen which either individually or in the
aggregate have had a Material Adverse Effect on the Topiary Master Fund.
4.2 Representations and Warranties of the Hatteras Master Fund. The
Hatteras Master Fund hereby represents and warrants to the Topiary Master
Fund, as follows, which representations and warranties shall be true and
correct on the date hereof:
(a) The Hatteras Master Fund is a limited partnership duly
organized, validly existing and in good standing under the Laws of the State
of Delaware and is duly qualified, licensed or admitted to do business and is
in good standing as a foreign association under the Laws of each jurisdiction
in which the nature of the business conducted by it makes such qualification,
licensing or admission necessary, except in such jurisdictions where the
failure to be so qualified, licensed or admitted and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Hatteras Master Fund.
The Hatteras Master Fund has full power under its Amended and Restated Limited
Partnership Agreement, as amended from time to time (the "Hatteras Governing
Documents") to conduct its business as it is now being conducted and to own
the properties and assets it now owns. The Hatteras Master Fund has all
necessary authorizations, licenses and approvals from any applicable
Governmental or Regulatory Body necessary to carry on its business as such
business is now being carried on except authorizations, licenses and approvals
that the failure to so obtain would not have a Material Adverse Effect on the
Hatteras Master Fund.
(b) The execution, delivery and performance of this Agreement by the
Hatteras Master Fund and the consummation of the transactions contemplated
herein have been duly and validly authorized by the Hatteras Board and the
Hatteras Board has approved the Reorganization. No other action on the part of
the Hatteras Master Fund or its limited partners is necessary to authorize the
execution, delivery and performance of this Agreement by the Hatteras Master
Fund or the consummation of the Reorganization. This Agreement has been duly
and validly executed and delivered by the Hatteras Master Fund, and assuming
due authorization, execution and delivery hereof by the Topiary Master Fund,
is a legal, valid and binding obligation of the Hatteras Master Fund,
enforceable in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other Laws relating to or affecting
creditors' rights, to general equity principles and to any limitations on
indemnity as may be required under federal and state securities Laws).
(c) The authorized capital of the Hatteras Master Fund consists of
an unlimited amount of partnership interests. There are no outstanding
options, warrants or other rights of any kind to acquire from the Hatteras
Master Fund any equity interests of the Hatteras Master Fund or securities
convertible into or exchangeable for, or which otherwise confer on
Ex A - 11
the holder thereof any right to acquire, any such additional interests, nor is
the Hatteras Master Fund committed to issue any share appreciation or similar
rights or options, warrants, rights or securities. The Hatteras Master Fund
has no share certificates outstanding.
(d) The Hatteras Master Fund has no subsidiaries.
(e) Except for consents, approvals, waivers or amendments to be
received prior to the Effective Time, including member approval by the Topiary
Master Fund, the execution, delivery and performance of this Agreement by the
Hatteras Master Fund does not, and the consummation of the transactions
contemplated herein will not: (i) violate or conflict with the terms,
conditions or provisions of the Hatteras Governing Documents, or of any
material contract, agreement, indenture, instrument, or other undertaking to
which it is a party or by which it is bound, (ii) result in the acceleration
of any obligation, or the imposition of any penalty, under any material
agreement, indenture, instrument, contract, lease or other undertaking to
which the Hatteras Master Fund is a party or by which it is bound, (iii)
result in a breach or violation by the Hatteras Master Fund of any terms,
conditions, or provisions of any Law or Order, or (iv) require any consent or
approval of, filing with or notice to, any Governmental or Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Hatteras
Master Fund has delivered to the Topiary Master Fund true and complete
copies of the audited statements of assets and liabilities of the
Hatteras Master Fund, dated as of March 31, 2007 or a later date if
available prior to the date hereof.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Hatteras Master Fund as of the respective
dates thereof and for the respective periods covered thereby.
(iii) To the best of the Hatteras Master Fund's Knowledge,
except as reflected or reserved against in the statement of assets and
liabilities included in the Hatteras Master Fund's audited financial
statements as of March 31, 2007, or in the notes thereto, or as
previously disclosed in writing to the Topiary Master Fund, there are no
liabilities against, relating to or affecting the Hatteras Master Fund or
any of its properties and assets, other than those incurred in the
ordinary course of business consistent with past practice, which,
individually or in the aggregate, would have a Material Adverse Effect on
the Hatteras Master Fund or its properties or assets. In particular,
since March 31, 2007, to the best of the Hatteras Master Fund's Knowledge
and except as disclosed in writing to the Topiary Master Fund or in the
Hatteras Master Fund's Registration Statement, there has not been any
change in the financial condition, properties, assets, liabilities or
business of the Hatteras Master Fund that would have a Material Adverse
Effect on the Hatteras Master Fund or its properties or assets other than
changes occurring in the ordinary course of business.
Ex A - 12
(iv) As of the date hereof and during the twelve-month period
preceding the date hereof, except as previously disclosed to the Topiary
Master Fund in writing or as disclosed in the Hatteras Master Fund's
Registration Statement, and except as have been corrected as required by
applicable Law, and to the best of the Hatteras Master Fund's Knowledge,
there have been no material miscalculations of the net asset value of the
Hatteras Master Fund which would have a Material Adverse Effect on the
Hatteras Master Fund or its properties or assets, and all such
calculations have been made in accordance with the applicable provisions
of the 1940 Act.
(g) The minute books and other similar records of the Hatteras
Master Fund as made available to the Topiary Master Fund prior to the
execution of this Agreement contain a true and complete record in all material
respects of all action taken at all meetings and by all written consents in
lieu of meetings of the limited partners of the Hatteras Master Fund, the
Hatteras Board and committees of the Hatteras Board.
(h) The Hatteras Master Fund has maintained, or caused to be
maintained on its behalf, in all material respects, all Books and Records
required of a registered investment company in compliance with the
requirements of Section 31 of the 1940 Act and rules thereunder.
(i) Except as set forth in writing to the Topiary Master Fund and
DBIM, there is no Action or Proceeding pending against the Hatteras Master
Fund, HIP (with respect to the Hatteras Master Fund) or, to the best of the
Hatteras Master Fund's or HIP's Knowledge, threatened against, relating to or
affecting, the Hatteras Master Fund or HIP (with respect to the Hatteras
Master Fund).
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Hatteras Master
Fund in connection with the negotiation, execution or performance of this
Agreement or any other agreement contemplated hereby, or the consummation of
the transactions contemplated hereby, is or will be entitled to any broker's
or finder's or similar fees or other commissions as a result of the
consummation of such transactions.
(k) The Hatteras Master Fund is registered with the SEC as a
closed-end management investment company under the 1940 Act, and its
registration with the SEC as such an investment company is in full force and
effect.
(l) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Hatteras Master
Fund required by Law to have been filed by such date (including any
extensions) have been filed and are correct in all material respects, and all
federal and other taxes shown as due on such returns and reports have been
paid or provision has been made on the respective Fund's Books and Records for
the payment thereof and, to the best of the Hatteras Master Fund's Knowledge,
no such return is currently under audit or has been threatened with an audit
and no assessment has been asserted with respect to such returns. To the
Hatteras Master Fund's Knowledge, there are no levies, liens, or other
encumbrances relating to taxes existing, threatened or pending with respect to
Ex A - 13
the properties or assets of the Hatteras Master Fund. As of the date hereof,
the Hatteras Master Fund has adequately provided for all tax liabilities on
its Books and Records.
(m) Hatteras Master Fund is and at all times has been properly
characterized for federal and state income tax purposes as a partnership and
has not been an association or publicly traded partnership subject to tax as a
corporation.
(n) All issued and outstanding Hatteras Interests have been offered
and sold in compliance in all material respects with applicable registration
requirements of state securities Laws, are registered under the Laws of all
jurisdictions in which registration is or was required, except as may have
been previously disclosed to the Topiary Master Fund in writing. Such
registrations are, in all material respects, complete, current and have been
continuously effective, and all fees required to be paid have been paid. The
Hatteras Master Fund is not subject to any "stop order" and is, and was, fully
qualified to sell its interests in each jurisdiction in which such interests
are being, or were, registered and sold.
(o) The Hatteras Interests to be issued and delivered to the Topiary
Master Fund (and to be distributed immediately thereafter to its members)
pursuant to the terms of this Agreement will have been duly authorized at the
Effective Time and no partner of the Hatteras Master Fund shall have any
statutory or contractual preemptive right of subscription or purchase in
respect thereof.
(p) The Hatteras Master Fund Registration Statement, including
amendments and supplements thereto, and each registration statement of the
Hatteras Master Fund used at all times during the past three years prior to
the date of this Agreement, conform, or conformed at the time of its use, in
all material respects to the applicable requirements of the 1940 Act and the
rules and regulations of the SEC thereunder, and do not, or did not, as of
their dates of filing, include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not materially misleading. The Hatteras Master Fund currently complies
in all material respects with all investment objectives, policies, guidelines
and restrictions and any compliance procedures established by the Hatteras
Master Fund.
(q) The Hatteras Master Fund has adopted and implemented written
policies and procedures in accordance and that comply with Rule 38a-1 under
the 1940 Act.
(r) The Hatteras Master Fund has, since its inception, complied in
all material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Hatteras Master Fund.
(s) Except as disclosed in writing to the Topiary Master Fund, to
the best of the Hatteras Master Fund's Knowledge, no events have occurred and
no issues, conditions or facts have arisen which either individually or in the
aggregate have had a Material Adverse Effect on the Hatteras Master Fund.
Ex A - 14
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. After the date of this Agreement and at or prior
to the Effective Time, the Topiary Master Fund and the Hatteras Master Fund
will conduct the businesses of the Topiary Master Fund and the Hatteras Master
Fund, respectively, only in the ordinary course and in accordance with this
Agreement and the current registration statement of the Topiary Master Fund or
the Hatteras Master Fund, as applicable. It is understood that such ordinary
course of business shall include (a) payment of customary distributions; (b)
purchases and tenders; and (c) the continued good faith performance by the
investment adviser, administrator, distributor and other service providers of
their respective responsibilities in accordance with their agreements with the
Topiary Master Fund or the Hatteras Master Fund, as applicable, and applicable
Law. In order to facilitate the transfer of Assets at the Effective Time, HIP
may request in writing that DBIM use its commercially reasonable best efforts,
subject to its fiduciary duty, to limit or cease portfolio trading on behalf
of the Topiary Master Fund for a period of up to three months prior to the
Valuation Time. DBIM agrees that it will accommodate such requests to the
extent such trading restrictions are consistent with the investment
objectives, policies and strategies of the Topiary Master Fund and consistent
with fulfilling its fiduciary obligations as an investment adviser. No Party
shall take any action that would, or would reasonably be expected to, result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue in any material respect.
5.2 Members' Meeting. The Topiary Master Fund will call, convene and hold
a meeting of members of the Topiary Master Fund as soon as practicable, in
accordance with applicable Law and the Topiary Governing Documents, for the
purpose of approving this Agreement and the transactions contemplated herein
as set forth in the Proxy Statement, and for such other purposes as may be
necessary or desirable. In the event that insufficient votes are received from
members, the meeting may be adjourned as permitted under the Topiary Governing
Documents and applicable Law in order to permit further solicitation of
proxies.
5.3 Proxy Statement. The Topiary Master Fund and the Hatteras Master Fund
each will cooperate with the other in the preparation of the Proxy Statement
and cause the Proxy Statement to be filed with the SEC in a form satisfactory
to the Hatteras Master Fund and the Topiary Master Fund and their respective
counsel as promptly as practicable. The Topiary Master Fund will cause the
Proxy Statement to be delivered to members of the Topiary Master Funds
entitled to vote on this Agreement and the transactions contemplated herein in
accordance with the Topiary Governing Documents. Each Party will provide the
materials and information necessary to prepare the Proxy Statement, in
connection with the member meeting of the Topiary Master Fund to consider the
approval of this Agreement and the transactions contemplated herein. If, at
any time prior to the Effective Time, a Party becomes aware of any untrue
statement of material fact or omission to state a material fact required to be
stated therein or necessary to make the statements made not misleading in
light of the circumstances under which they were made, the Party discovering
the item shall notify the other Party and the Parties shall cooperate in
promptly preparing, filing and clearing with the SEC and, if appropriate,
distributing to members appropriate disclosure with respect to the item. Prior
to filing the Proxy Statement or any amendment or supplement thereto, the
Topiary Master Fund
Ex A - 15
will afford the Hatteras Master Fund and the Hatteras Independent Directors a
reasonable opportunity to review and comment thereon, and will obtain the
Hatteras Master Fund's consent to the filing thereof (such consent will not be
unreasonably withheld).
5.4 Information.
(a) The Topiary Master Fund and the Hatteras Master Fund will
furnish to one another, and the other's accountants, legal counsel and other
representatives, throughout the period prior to and up to the Effective Time,
all documents and other information concerning the Topiary Master Fund and the
Hatteras Master Fund, respectively, and their business and properties as may
reasonably be requested by the other Party. Each Party shall make its
employees and officers available on a mutually convenient basis to provide an
explanation of any documents or information provided hereunder to the extent,
if any, that such Party's employees are familiar with such documents or
information.
(b) Beginning with the commencement of this Agreement, by or on the
fifteenth Business Day of each month ending prior to the Effective Time, the
Topiary Master Fund will provide the Hatteras Master Fund with the prior
month's accrued liability/expense account reconciliation, monthly statement,
trial balance, income statement, balance sheet and schedule of investments.
5.5 Notice of Material Changes. Each Party will notify the other Party of
any event causing a Material Adverse Effect to such Party as soon as
practicable following such Party's Knowledge of any event causing such a
Material Adverse Effect.
5.6 Financial Statements. At the Closing, the Topiary Master Fund will
deliver to the Hatteras Master Fund an unaudited statement of assets and
liabilities of the Topiary Master Fund, together with a schedule of portfolio
investments as of and for the interim period ending at the Valuation Time.
These financial statements will present fairly the financial position and
portfolio investments of the Topiary Master Fund as of the Valuation Time in
conformity with U.S. generally accepted accounting principles applied on a
consistent basis, and there will be no material contingent liabilities of the
Topiary Master Fund not disclosed in said financial statements. These
financial statements shall be certified by the treasurer of the Topiary Master
Fund as, to the best of his or her Knowledge, complying with the requirements
of the preceding sentence. At the Closing, the Hatteras Master Fund will
deliver to the Topiary Master Fund an unaudited statement of assets and
liabilities of the Hatteras Master Fund (including a schedule of portfolio
investments) meeting the requirements of the preceding three sentences, except
that they shall be certified by the Hatteras Master Fund's treasurer.
5.7 Other Necessary Action. The Topiary Master Fund and the Hatteras
Master Fund will each take all necessary action and use its reasonable best
efforts to complete all filings, obtain all governmental and other consents
and approvals and satisfy any other provision required for consummation of the
transactions contemplated by this Agreement.
5.8 Books and Records. Upon reasonable notice, each Party will make
available to the other Party for review any Books and Records which are
reasonably requested by such other Party in connection with this
Reorganization.
Ex A - 16
5.9 Issued Interests. The Hatteras Interests to be issued and delivered
to the Topiary Master Fund (and to be distributed immediately thereafter to
its members) pursuant to this Agreement, will have been duly authorized at the
Effective Time. No partner of the Hatteras Master Fund shall have any
statutory or contractual preemptive right of subscription or purchase in
respect thereof. The members of the Topiary Master Fund shall not pay any
placement fee in connection with the Reorganization. The members of the
Topiary Master Fund who receive Hatteras Interests pursuant to this Agreement
shall be credited by the Hatteras Master Fund with, and shall carry over, the
holding period of their Topiary Master Fund interests for all purposes
including the calculation of any redemption fee. Such members shall not carry
over or be credited with any loss carryforwards. In addition, Hatteras
Interests received pursuant to this Agreement shall be included in determining
any placement fee reductions (e.g., under a rights of accumulation
arrangement) on purchases of Hatteras Interests after the Reorganization.
5.10 Section 15(f). The Hatteras Master Fund and HIP shall from and after
the Effective Time use their reasonable best efforts so that for a period of
three years after the Effective Time, at least 75% of the Hatteras Board are
not "interested persons" (as defined in Section 2(a)(19) of the 1940 Act) of
HIP or DBIM. In addition, the Hatteras Master Fund, HIP and DBIM from and
after the Effective Time, shall refrain from imposing or seeking to impose for
a period of two years after the Effective Time, any "unfair burden" on the
Hatteras Master Fund (within the meaning of the 1940 Act) as a result of the
transactions contemplated by this Agreement or any terms, conditions or
understandings applicable thereto.
5.11 General Solicitation. Neither the Topiary Master Fund nor DBIM will
engage in any form of general solicitation or advertising in performing its
duties under this Agreement or otherwise in connection with the
Reorganization. This prohibition includes, but is not limited to, any mass
mailing, any advertisement, article or notice published in any magazine,
newspaper or newsletter, and any seminar or meeting where the attendees are
invited by any mass mailing, general solicitation or advertising. Related to
this prohibition, neither the Topiary Master Fund nor DBIM will mention the
Hatteras Master Fund, HIP or the Reorganization in any public medium,
including any newspaper, on radio or television, by electronic communication,
or otherwise. This provision shall not prohibit the solicitation of members of
the Topiary Master Fund undertaken in connection with the Proxy Statement to
the extent consistent with Regulation D under the 1933 Act.
5.12 Tax Information. DBIM and the Topiary Master Fund will provide the
Hatteras Master Fund correct information as to the adjusted tax basis of the
Topiary Master Fund's assets, the tax basis of the capital accounts of its
members, the tax identification of its members and such other tax information
as the Hatteras Master Fund shall reasonably request.
5.13 Reporting. The Parties agree that the Hatteras Master Fund is the
larger fund and that its current limited partners will own more than 50% of
the Hatteras Master Fund after the Reorganization. Accordingly, pursuant to
Section 708 of the Internal Revenue Code of 1986, as amended, the Topiary
Master Fund shall terminate and its taxable year will end on the day of the
Closing. DBIM shall cause the tax returns for all periods ending on or before
the day of the Closing to be properly prepared and filed and all required
information provided to the members of the Topiary Master Fund.
Ex A - 17
5.14 Insurance. The Topiary Master Fund has agreed to maintain for a
reasonable period of time after the Closing D&O coverage for the Topiary
Independent Directors on terms and amounts no less favorable than those in
effect on the date of or immediately before Closing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of the Topiary Master Fund. The
obligation of the Topiary Master Fund to conclude the transactions provided
for herein shall be subject, at its election, to the performance by the
Hatteras Master Fund of all of the obligations to be performed by it hereunder
at or before the Effective Time, and, in addition thereto, to the following
further conditions unless waived by the Topiary Master Fund in writing:
(a) All representations and warranties of the Hatteras Master Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Hatteras Master Fund shall be given a period of the lesser of: (1) 10 Business
Days from the date on which any such representation or warranty shall not be
true and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Hatteras Master Fund shall have furnished to the Topiary
Master Fund the opinion of Drinker Biddle & Reath LLP dated as of the
Effective Time, substantially to the effect that:
(i) the Hatteras Master Fund is a limited partnership, validly
existing and in good standing under Delaware Law, and has power under the
Hatteras Governing Documents to conduct its business and own its assets
as described in its currently effective registration statement on Form
N-2;
(ii) the Hatteras Master Fund is registered with the SEC under
the 1940 Act as a closed-end management investment company and to the
knowledge of such counsel its registration with the SEC is in full force
and effect;
(iii) to the knowledge of such counsel, the Hatteras Interests
to be issued and delivered by the Hatteras Master Fund pursuant to this
Agreement have been duly authorized for issuance and no preemptive rights
exist with respect to any such interests or the issue or delivery
thereof;
(iv) to the knowledge of such counsel, there are no material
legal proceedings pending against the Hatteras Master Fund except as
disclosed in Annex A;
Ex A - 18
(v) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by the
Hatteras Master Fund and, assuming due authorization, execution and
delivery by the Topiary Master Fund, constitutes a valid and legally
binding obligation of the Hatteras Master Fund, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws relating to or affecting
creditors' rights generally and to general equity principles;
(vi) the execution and delivery of this Agreement by the
Hatteras Master Fund did not and the performance by the Hatteras Master
Fund of this Agreement will not conflict with or result in a material
breach of the terms or provisions of, or constitute a material default
under, the Hatteras Governing Documents or any material agreement or
instrument known to such counsel to which the Hatteras Master Fund is a
party or by which the Hatteras Master Fund may be bound;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material violation by the Hatteras Master
Fund of any terms, conditions, or provisions of the 1940 Act or Delaware
Law; and
(viii) to the knowledge of such counsel, no consent, approval,
authorization, or other action by or filing with any Governmental or
Regulatory Body is required under Applicable Laws in connection with the
consummation of the transactions herein contemplated.
As used in such opinion, the term "Applicable Laws" means those state
laws of the State of Delaware and federal laws of the United States which, in
such counsel's experience and without independent investigation, are normally
applicable to transactions of the type contemplated by this Agreement
(provided that the term "Applicable Laws" shall not include federal or state
securities or blue sky laws or any rules or regulations thereunder (including,
without limitation, the 1933 Act, the 1934 Act and the 1940 Act and the
respective rules and regulations thereunder)).
In rendering such opinion, Drinker Biddle & Reath LLP may rely upon
certificates of officers of the Hatteras Master Fund and of public officials
as to matters of fact.
Such opinion may rely on the opinion of other counsel to the extent set
forth in such opinion, provided such other counsel is reasonably acceptable to
the Topiary Master Fund; and shall state that such opinion is solely for the
benefit of the Topiary Master Fund and its directors and officers and the
Hatteras Master Fund and its directors and officers.
(c) The Hatteras Master Fund shall have furnished to the Topiary
Master Fund a certificate of the Hatteras Master Fund, signed by the president
and treasurer of the Hatteras Master Fund, dated as of the Effective Time, to
the effect that they have examined the Proxy Statement and this Agreement and
that:
Ex A - 19
(i) the representations and warranties of the Hatteras Master
Fund in this Agreement are true and correct in all material respects on
and as of the Effective Time and the Hatteras Master Fund has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
the Hatteras Master Fund, there has been no Material Adverse Effect on
the business or properties of the Hatteras Master Fund (other than
changes in the ordinary course of business, including, without
limitation, distributions in the ordinary course and changes in net asset
value), except as set forth in or contemplated in the Proxy Statement.
(d) At the Valuation Time and Effective Time, except as previously
disclosed to the Topiary Master Fund in writing, and except as have been
corrected as required by applicable Law, and to the best of the Hatteras
Master Fund's Knowledge, there shall have been no material miscalculations of
the net asset value of the Hatteras Master Fund during the twelve-month period
preceding the Valuation Time and Effective Time, and all such calculations
shall have been made in accordance with the applicable provisions of the 1940
Act. At the Valuation Time and Effective Time, all liabilities chargeable to
the Hatteras Master Fund which are required to be reflected in the net asset
value of the Hatteras Master Fund in accordance with applicable Law will be
reflected in the net asset value of the Hatteras Master Fund.
(e) The Secretary of the Topiary Master Fund shall have received the
confirmation from the Hatteras Master Fund required under paragraph 3.3 of
this Agreement.
(f) The Hatteras Master Fund shall have duly executed and delivered
to the Topiary Master Fund such assumptions of Liabilities and other
instruments as the Topiary Master Fund may reasonably deem necessary or
desirable to evidence the transactions contemplated by this Agreement,
including the assumption of all of the Liabilities of the Topiary Master Fund,
other than the Excluded Liabilities.
(g) The Topiary Master Fund shall have completed to its satisfaction
its due diligence review of the Hatteras Master Fund.
6.2 Conditions Precedent to Obligations of the Hatteras Master Fund. The
obligation of the Hatteras Master Fund to conclude the transactions provided
for herein shall be subject, at its election, to the performance by the
Topiary Master Fund of all of the obligations to be performed by it hereunder
at or before the Effective Time, and, in addition thereto, to the following
further conditions unless waived by the Hatteras Master Fund in writing:
(a) All representations and warranties of the Topiary Master Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Topiary Master Fund shall be given a period of the lesser of: (1) 10 Business
Ex A - 20
Days from the date on which any such representation or warranty shall not be
true and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Topiary Master Fund shall have furnished to the Hatteras
Master Fund the opinion of Sidley Austin LLP dated as of the Effective Time,
substantially to the effect that:
(i) the Topiary Master Fund is a limited liability company,
validly existing and in good standing under Delaware Law, and has power
under the Topiary Governing Documents to conduct its business and own its
assets as described in its currently effective registration statement on
Form N-2;
(ii) the Topiary Master Fund is registered with the SEC under
the 1940 Act as a closed-end management investment company and to the
knowledge of such counsel its registration with the SEC is in full force
and effect;
(iii) to the knowledge of such counsel, there are no material
legal proceedings pending against the Topiary Master Fund except as set
forth in Annex A;
(iv) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by the
Topiary Master Fund and, assuming due authorization, execution and
delivery by the Hatteras Master Fund, constitutes a valid and legally
binding obligation of the Topiary Master Fund, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws relating to or affecting
creditors' rights generally and to general equity principles;
(v) to the knowledge of such counsel, as of the date of its
mailing, the Proxy Statement complies as to form in all material respects
with the applicable requirements of the 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder;
(vi) the execution and delivery of this Agreement by the
Topiary Master Fund did not and the performance by the Topiary Master
Fund of this Agreement will not result in a material breach of the terms
or provisions of, or constitute a material default under, the Topiary
Governing Documents or any material agreement or instrument known to such
counsel to which the Topiary Master Fund is a party or by which the
Topiary Master Fund may be bound;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material violation by the Topiary Master
Fund of any terms, conditions, or provisions of the 1940 Act or Delaware
Law; and
(viii) to the knowledge of such counsel, no consent, approval,
authorization or other action by or filing with any Governmental or
Regulatory Body
Ex A - 21
is required under Applicable Laws in connection with the consummation of
the transactions herein contemplated.
As used in such opinion, the term "Applicable Laws" means those state
laws of the State of New York, the State of Delaware and federal laws of the
United States which, in such counsel's experience and without independent
investigation, are normally applicable to transactions of the type
contemplated by this Agreement (provided that the term "Applicable Laws" shall
not include federal or state securities or blue sky laws or any rules or
regulations thereunder (including, without limitation, the 1933 Act, the 1934
Act and the 1940 Act and the respective rules and regulations thereunder)).
In rendering such opinion, Sidley Austin LLP may rely upon certificates
of officers of the Topiary Master Fund and of public officials as to matters
of fact.
Such opinion (i) shall state that while such counsel have not verified,
and are not passing upon and do not assume responsibility for, the accuracy,
completeness or fairness of any portion of the Proxy Statement or any
amendment thereof or supplement thereto, they have generally reviewed and
discussed certain information furnished therein with respect to the Topiary
Master Fund with certain officers of the Topiary Master Fund and that in the
course of such review and discussion no facts came to the attention of such
counsel which caused them to believe that, on the mailing date of the Proxy
Statement and any amendment thereof or supplement thereto and only insofar as
they relate to the information furnished with respect to the Topiary Master
Fund, the Proxy Statement or any amendment thereof or supplement thereto
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) may rely on the opinion of other counsel to the extent
set forth in such opinion, provided such other counsel is reasonably
acceptable to the Hatteras Master Fund; and (iii) shall state that such
opinion is solely for the benefit of the Hatteras Master Fund and its
directors and officers and the Topiary Master Fund and its directors and
officers.
(c) The Topiary Master Fund shall have furnished to the Hatteras
Master Fund the unaudited statements required by paragraph 5.6.
(d) The Topiary Master Fund shall have furnished to the Hatteras
Master Fund a certificate of Topiary Master Fund, signed by the president and
treasurer of the Topiary Master Fund, dated as of the Effective Time, to the
effect that they have examined the Proxy Statement (and any supplement
thereto) and this Agreement and that:
(i) the representations and warranties of the Topiary Master
Fund in this Agreement are true and correct in all material respects on
and as of the Effective Time and the Topiary Master Fund has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
the Topiary Master Fund, there has been no Material Adverse Effect on the
business or properties of the Topiary Master Fund (other than changes in
the ordinary course of
Ex A - 22
business, including, without limitation, distributions in the ordinary
course and changes in net asset value), except as set forth in or
contemplated in the Proxy Statement (or any supplement thereto).
(e) The Topiary Master Fund shall have duly executed and delivered
to the Hatteras Master Fund, such bills of sale, assignments, certificates and
other instruments of transfer, including transfer instructions to the Topiary
Master Fund's custodian and instructions to the Hatteras Master Fund's
administrator ("Transfer Documents") as the Hatteras Master Fund may
reasonably deem necessary or desirable to evidence the transfer to the
Hatteras Master Fund of all of the right, title and interest of the Topiary
Master Fund in and to the Assets of the Topiary Master Fund. The Assets of the
Topiary Master Fund shall be accompanied by all necessary state stock transfer
stamps or cash for the appropriate purchase price therefor.
(f) The Hatteras Master Fund shall have received: (i) a certificate
of an authorized signatory of PFPC, as custodian for the Topiary Master Fund,
stating that the Assets of the Topiary Master Fund have been delivered to the
Hatteras Master Fund; (ii) a certificate of an authorized signatory from UMB,
as custodian for the Hatteras Master Fund, stating that the Assets of the
Topiary Master Fund have been received; and (iii) a certificate of an
authorized signatory of the Topiary Master Fund confirming that the Topiary
Master Fund has delivered its records containing the names and addresses of
the record holders of the Topiary Master Fund and the percentage of ownership
of Topiary Interests owned by each such holder as of the close of business at
the Valuation Time.
(g) At the Valuation Time and Effective Time, except as previously
disclosed to the Hatteras Master Fund in writing, and except as have been
corrected as required by applicable Law, and to the best of the Topiary Master
Fund's Knowledge, there shall have been no material miscalculations of the net
asset value of the Topiary Master Fund during the twelve-month period
preceding the Valuation Time and Effective Time, and all such calculations
shall have been made in accordance with the applicable provisions of the 1940
Act. At the Valuation Time and Effective Time, all Liabilities chargeable to
the Topiary Master Fund which are required to be reflected in the net asset
value of the Topiary Master Fund in accordance with applicable Law will be
reflected in the net asset value of the Topiary Master Fund.
(h) The Hatteras Master Fund shall have completed to its
satisfaction its due diligence review of the Topiary Master Fund.
(i) Each Party has received assurance that: (1) no claims for
damages (liquidated or otherwise) will arise as a result of termination of any
service provider contracts; and (2) a final invoice with respect to each
service provider contract that has been terminated will be delivered within 30
calendar days of the Closing.
6.3 Other Conditions Precedent. Unless waived in writing by the Parties
with the consent of their respective boards of managers/directors, the
consummation of the Reorganization is subject to the fulfillment, prior to or
at the Effective Time, of each of the following conditions:
Ex A - 23
(a) This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
interests of the Topiary Master Fund in accordance with the provisions of the
Topiary Governing Documents, applicable Delaware Law and the 1940 Act.
Notwithstanding anything herein to the contrary, neither the Topiary Master
Fund nor the Hatteras Master Fund may waive the conditions set forth in this
paragraph 6.3(a).
(b) The Feeder Fund Reorganization shall have been approved by the
requisite vote of the holders of the outstanding interests of the Topiary
Feeder Fund in accordance with applicable Delaware Law and the 1940 Act.
Notwithstanding anything herein to the contrary, neither the Topiary Master
Fund nor the Hatteras Master Fund may waive the conditions set forth in this
paragraph 6.3(b).
(c) At the Effective Time, the SEC shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, and there shall be no
proceedings pending that would seek to enjoin the consummation of the
transactions contemplated by this Agreement under Section 25(c) of the 1940
Act. No Action or Proceeding against the Topiary Master Fund or the Hatteras
Master Fund or their respective officers or managers/directors shall be
threatened in writing or pending before any court or other Governmental or
Regulatory Body in which it will seek, or seeks to restrain or prohibit any of
the transactions contemplated by this Agreement or to obtain damages or other
relief in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE VII
EXPENSES
The Topiary Master Fund and the Hatteras Master Fund will not bear any
fees or expenses in connection with the transactions contemplated by this
Agreement; provided, however, that any redemption charges or similar fees
incurred in connection with liquidating portfolio securities of the Topiary
Master Fund will be borne by the Topiary Master Fund and/or DBIM as the
Topiary Master Fund and DBIM shall agree. Except as noted above, the
responsibility for payment of all of the fees and expenses in connection with
entering into and carrying out the transactions contemplated by this
Agreement, whether or not the transactions contemplated hereby are concluded,
shall be allocated between DBIM and HIP (or any Affiliate thereof) as DBIM and
HIP shall agree.
ARTICLE VIII
AMENDMENTS AND TERMINATION
8.1 Amendments. The Parties may amend this Agreement in such manner as
may be agreed upon, whether before or after the meeting of members of the
Topiary Master Fund at which action upon this Agreement and the transactions
contemplated hereby is to be taken; provided, however, that after the
requisite approval of the members of the Topiary Master
Ex A - 24
Fund has been obtained, this Agreement shall not be amended or modified so as
to change the provisions with respect to the transactions herein contemplated
in any manner that would materially and adversely affect the rights of such
members without their further approval. Nothing in this paragraph 8.1 shall be
construed to prohibit the Parties from amending this Agreement to change the
Valuation Time or Effective Time.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Effective
Time:
(a) by the mutual written consent of the Parties;
(b) by the Topiary Master Fund (i) following a material breach by
the Hatteras Master Fund of any of its representations, warranties or
covenants contained in this Agreement, provided that the Hatteras Master Fund
shall have been given a period of the lesser of: (1) 10 Business Days from the
date of the occurrence of such material breach; and (2) the number of Business
Days remaining before the Closing to cure such breach and shall have failed to
do so; (ii) if any of the conditions set forth in paragraphs 6.1 and 6.3 are
not satisfied as specified in said paragraphs on or before December 31, 2007;
or (iii) upon the occurrence of an event which has a Material Adverse Effect
upon the Hatteras Master Fund;
(c) by the Hatteras Master Fund (i) following a material breach by
the Topiary Master Fund of any of its representations, warranties or covenants
contained in this Agreement, provided that the Topiary Master Fund shall have
been given a period of the lesser of: (1) 10 Business Days from the date of
the occurrence of such material breach; and (2) the number of Business Days
remaining before the Closing to cure such breach and shall have failed to do
so; (ii) if any of the conditions set forth in paragraphs 6.2 and 6.3 are not
satisfied as specified in said paragraphs on or before December 31, 2007; or
(iii) upon the occurrence of an event which has a Material Adverse Effect upon
the Topiary Master Fund;
If a Party terminates this Agreement in accordance with this
paragraph 8.2, in the absence of willful default there shall be no liability
for damages on the part of any Party, or the managers/directors or officers of
such Party. In the event of willful default, all remedies at Law or in equity
of the Party adversely affected shall survive.
ARTICLE IX
PUBLICITY; CONFIDENTIALITY
9.1 Publicity. Any public announcements or similar publicity with respect
to this Agreement or the transactions contemplated herein will be made at such
time and in such manner as the Parties mutually shall agree in writing,
provided that nothing herein shall prevent either Party from making such
public announcements as may be required by Law, in which case the Party
issuing such statement or communication shall advise the other Party prior to
such issuance.
Ex A - 25
9.2 Confidentiality. (a) The Parties, HIP and DBIM (for purposes of this
paragraph 9.2, the "Protected Persons") will hold, and will cause their board
members, officers, employees, representatives, agents and Affiliated Persons
to hold, in strict confidence, and not disclose to any other Person, and not
use in any way except in connection with the transactions herein contemplated,
without the prior written consent of the other Protected Persons, all
confidential information obtained from the other Protected Persons in
connection with the transactions contemplated by this Agreement, except such
information may be disclosed: (i) to Governmental or Regulatory Bodies, and,
where necessary, to any other Person in connection with the obtaining of
consents or waivers as contemplated by this Agreement; (ii) if required by
court order or decree or applicable Law; (iii) if it is publicly available
through no act or failure to act of such Party; (iv) if it was already known
to such Party on a non-confidential basis on the date of receipt; (v) during
the course of or in connection with any litigation, government investigation,
arbitration, or other proceedings based upon or in connection with the subject
matter of this Agreement, including, without limitation, the failure of the
transactions contemplated hereby to be consummated; or (vi) if it is otherwise
expressly provided for herein.
(b) In the event of a termination of this Agreement, the Parties,
HIP and DBIM agree that they along with their board members, employees,
representative agents and Affiliated Persons shall, and shall cause their
Affiliates to, except with the prior written consent of the other Protected
Persons, keep secret and retain in strict confidence, and not use for the
benefit of itself or themselves, nor disclose to any other Persons, any and
all confidential or proprietary information relating to the other Protected
Persons and their related parties and Affiliates, whether obtained through
their due diligence investigation, this Agreement or otherwise, except such
information may be disclosed: (i) if required by court order or decree or
applicable Law; (ii) if it is publicly available through no act or failure to
act of such Party; (iii) if it was already known to such Party on a
non-confidential basis on the date of receipt; (iv) during the course of or in
connection with any litigation, government investigation, arbitration, or
other proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (v) if it is otherwise expressly
provided for herein.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including any schedules delivered
pursuant hereto, which are a part hereof) constitutes the entire agreement of
the Parties with respect to the matters covered by this Agreement. This
Agreement supersedes any and all prior understandings, written or oral,
between the Parties and may be amended, modified, waived, discharged or
terminated only by an instrument in writing signed by an authorized executive
officer of the Party against which enforcement of the amendment, modification,
waiver, discharge or termination is sought.
10.2 Notices. All notices or other communications under this Agreement
shall be in writing and sufficient if delivered personally, by overnight
courier, by facsimile, telecopied (if
Ex A - 26
confirmed) or sent via registered or certified mail, postage prepaid, return
receipt requested, addressed as follows (notices or other communication sent
via e-mail shall not constitute notice):
If to the Topiary Master Fund or DBIM:
The Topiary Master Fund for Benefit Plan Investors (BPI) LLC
345 Park Avenue
New York, NY 10154
Attention: John H. Kim, Esq.
Telephone No.: (212) 454-3000
Facsimile No.: (732) 460-6825
E-mail: john.kim@db.com
With copies (which shall not constitute notice) to:
Sidley Austin LLP (counsel to the Topiary Master Fund)
787 Seventh Avenue
New York, NY 10019
Attention: John A. MacKinnon, Esq.
Telephone No.: (212) 839-5400
Facsimile No.: (212) 839-5599
E-mail: jmackinnon@sidley.com
If to Hatteras Master Fund or HIP:
Hatteras Master Fund, L.P.
8540 Colonnade Center Drive
Suite 401
Raleigh, NC 27615
Attention: J. Michael Fields
Telephone No.: (919) 846-2324
Facsimile No.: (919) 846-3433
E-mail: mike.fields@hatterasip.com
With a copy (which shall not constitute notice) to:
Drinker Biddle & Reath LLP (counsel to Hatteras Master Fund):
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
Attention: Michael P. Malloy, Esq.
Telephone No.: (215) 988-2978
Facsimile No.: (215) 988-2757
E-mail: Michael.Malloy@dbr.com
Ex A - 27
10.3 Waiver. The failure of either Party hereto to enforce at any time
any of the provisions of this Agreement shall in no way be construed to be a
waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of either Party thereafter to
enforce each and every such provision. No waiver of any breach of this
Agreement shall be held to be a waiver of any other or subsequent breach.
Except as provided in paragraph 6.3(a), a Party may waive any condition to its
obligations hereunder (such waiver to be in writing and authorized by an
authorized officer of the waiving Party).
10.4 Assignment. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations hereunder
shall be made by either Party without the written consent of the other Party.
Nothing herein express or implied is intended to or shall confer any rights,
remedies or benefits upon any Person other than the Parties hereto.
10.5 Survival. Except as provided in the next sentence, the respective
representations, warranties and covenants contained in this Agreement and in
any certificates or other instruments exchanged at the Effective Time as
provided in Article VI hereto shall not survive the consummation of the
transactions contemplated hereunder. The covenants in paragraphs 1.3, 1.5,
5.6, 5.10, 5.11, 9.2, 10.9, and this paragraph 10.5 and Article VII shall
survive the consummation of the transactions contemplated hereunder.
10.6 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.7 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to its
principles of conflicts of Laws.
10.9 Further Assurances. Subject to the terms and conditions herein
provided, each of the Parties hereto shall use its reasonable best efforts to
take, or cause to be taken, such action to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do,
or cause to be done, all things necessary, proper or advisable under the
provisions of this Agreement and under applicable Law to consummate and make
effective the Fund Transactions contemplated by this Agreement, including,
without limitation, delivering and/or causing to be delivered to the other
Party hereto each of the items required under this Agreement as a condition to
such Party's obligations hereunder. In addition, the Topiary Master Fund make
available the Hatteras Master Fund at and any time after the Closing upon
reasonable notice, the Books and Records of the Topiary Master Fund
(regardless of whose possession they are in).
10.10 Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in Persons not Parties (including, without limitation, any
investor in the Hatteras Master
Ex A - 28
Fund or the Topiary Master Fund) except that the Topiary Independent Directors
are intended third-party beneficiaries of the provisions of paragraph 1.3
herein.
10.11 Validity. Whenever possible, each provision and term of this
Agreement shall be interpreted in a manner to be effective and valid, but if
any provision or term of this Agreement is held to be prohibited by Law or
invalid, then such provision or term shall be ineffective only in the
jurisdiction or jurisdictions so holding and only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
10.12 Effect of Facsimile Signature. A facsimile signature of an
authorized officer of a Party hereto on any Transfer Document shall have the
same effect as if executed in the original by such officer.
ARTICLE XI
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Action or Proceeding" means any action, suit or proceeding by any
Person, or any investigation or audit by any Governmental or Regulatory Body.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such first Person.
"Agreement" has the meaning specified in the preamble.
"Assets" means all properties and assets of every kind and description
whatsoever, including, without limitation, all cash, cash equivalents,
securities, claims (whether absolute or contingent, known or unknown, accrued
or unaccrued and including, but not limited to, any claims that the Topiary
Master Fund may have against DBIM) and receivables (including dividend and
interest receivable), goodwill and other intangible property, and all
interests, rights, privileges and powers, owned by the Topiary Master Fund,
and any prepaid expenses shown on the Topiary Master Fund's books at the
Valuation Time, excluding (a) the estimated costs of extinguishing any
Excluded Liability; (b) any reserves for payment of expenses incurred in the
month ending immediately prior to the Effective Time, (c) the Topiary Master
Fund's rights under this Agreement, and (d) the Deutsche Bank Seed Investment.
"Books and Records" means the Topiary Master Fund's or the Hatteras
Master Fund's accounts, books, records or other documents (including but not
limited to minute books, stock transfer ledgers, financial statements, tax
returns and related work papers and letters from accountants, and other
similar records) required to be maintained by the Topiary Master Fund or the
Hatteras Master Fund, as applicable, pursuant to Section 31(a) of the 1940 Act
and Rules 31a-1 to 31a-3 thereunder.
Ex A - 29
"Business Day" means a day other than Saturday, Sunday or a day on which
banks located in New York City are authorized or obligated to close.
"Closing" has the meaning specified in paragraph 3.1.
"DBIM" has the meaning specified in the preamble.
"Delaware Law" has the meaning specified in paragraph 1.1.
"Deutsche Bank Seed Investment" means the investment made by an affiliate
of DBIM in the Topiary Master Fund.
"Effective Time" has the meaning specified in paragraph 3.1.
"Excluded Liabilities" has the meaning specified in paragraph 1.3.
"Feeder Fund Agreement" has the meaning specified in the recitals.
"Feeder Fund Reorganization" has the meaning specified in the recitals.
"Governmental or Regulatory Body" means any court, tribunal, or
government or political subdivision, whether federal, state, county, local or
foreign, or any agency, authority, official or instrumentality of any such
government or political subdivision.
"Hatteras Board" has the meaning specified in the recitals.
"Hatteras Feeder Fund" has the meaning specified in the recitals.
"Hatteras Governing Documents" has the meaning specified in paragraph
4.2(a).
"Hatteras Independent Directors" has the meaning specified in the
recitals.
"Hatteras Interests" has the meaning specified in the recitals.
"Hatteras Master Fund" has the meaning specified in the preamble.
"Hatteras Master Fund Registration Statement" means the current
registration statement on Form N-2 of the Hatteras Master Fund, as
supplemented from time to time.
"HIP" has the meaning specified in the preamble.
"Investment Fund" means any privately placed investment vehicle,
typically referred to as a hedge fund.
Ex A - 30
"Knowledge" means (i) with respect to the Topiary Master Fund, the actual
knowledge after reasonable inquiry of the Topiary Master Fund's directors or
officers, or DBIM in its capacity as a service provider to the Topiary Master
Fund and (ii) with respect to the Hatteras Master Fund, the actual knowledge
after reasonable inquiry of the Hatteras Master Fund's directors or officers,
or HIP in its capacity as a service provider to the Hatteras Master Fund.
"Law" means any law, statute, rule, regulation or ordinance of any
Governmental or Regulatory Body.
"Liabilities" means all liabilities and obligations reflected on an
unaudited statement of assets and liabilities of the Topiary Master Fund
prepared by DBIM as of the Valuation Time in accordance with U.S. generally
accepted accounting principles consistently applied from the prior audited
reporting period and reviewed and approved by the respective treasurers of the
Hatteras Master Fund and the Topiary Master Fund at the Effective Time.
"Liabilities" also includes any liabilities based on any statutory,
contractual, quasi-contractual, or other equitable claims for relief,
including claims of unjust enrichment, asserted by any Investment Fund (or any
of its assigns, successors, or other entities acting on its behalf) in which
the Topiary Master Fund was invested at any time prior to and including the
Effective Date, seeking to recover all or any portion of a distribution from
an Investment Fund, including withdrawal or redemption proceeds, which such
Investment Fund claims it made to the Topiary Master Fund in error, or any
damages or other monetary relief asserted by an Investment Fund arising from
or relating to such distributions. "Liabilities" does not include, and the
Hatteras Master Fund shall not assume, (i) any Excluded Liabilities, (ii) any
claim for damages (liquidated or otherwise) as a result of the Topiary Master
Fund's termination of its agreements with any of its service providers,
whether prior to or after the Closing or (iii) liabilities relating to
invoices from services providers representing services rendered to the Topiary
Master Fund after the Effective Time. For the avoidance of doubt, as set forth
in paragraph 1.6, any Topiary Master Fund incentive allocation will be
assessed and allocated immediately prior to the Effective Time. Therefore,
Liabilities will not include any accruals for incentive allocations.
"Material Adverse Effect" as to any Person means a material adverse
effect on the business, results of operations or financial condition of such
Person. For purposes of this definition, a decline in net asset value of the
Topiary Master Fund or the Hatteras Master Fund arising out of its investment
operations or declines in market values of securities in its portfolio, the
discharge of liabilities, or the redemption of interests in such fund, shall
not constitute a "Material Adverse Effect."
"NYSE" has the meaning specified in paragraph 2.5.
"1940 Act" has the meaning specified in the recitals.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
Ex A - 31
"Order" means any writ, judgment, decree, injunction or similar order of
any Government or Regulatory Body, in each case whether preliminary or final.
"Party" and "Parties" each has the meaning specified in the preamble.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or other
entity.
"PFPC" has the meaning specified in paragraph 3.2.
"Protected Persons" has the meaning specified in paragraph 9.2.
"Proxy Statement" has the meaning specified in paragraph 4.1(p).
"Reorganization" has the meaning specified in the recitals.
"SEC" means the U.S. Securities and Exchange Commission.
"Topiary Board" has the meaning specified in the recitals.
"Topiary Feeder Fund" has the meaning specified in the recitals.
"Topiary Governing Documents" has the meaning specified in paragraph 1.1.
"Topiary Independent Directors" has the meaning specified in the
recitals.
"Topiary Interests" has the meaning specified in the recitals.
"Topiary Master Fund" has the meaning specified in the preamble.
"Topiary Master Fund Registration Statement" means the current
registration statement on Form N-2 of the Topiary Master Fund as supplemented
from time to time.
"Transfer Documents" has the meaning specified in paragraph 6.2(e).
"UMB" has the meaning specified in paragraph 3.2.
"Valuation Time" has the meaning specified in paragraph 2.5.
[SIGNATURE PAGE FOLLOWS]
Ex A - 32
IN WITNESS WHEREOF, the Parties and DBIM and HIP have caused this
Agreement to be duly executed and delivered by their duly authorized officers,
as of the day and year first above written.
TOPIARY MASTER FUND FOR BENEFIT
PLAN INVESTORS (BPI) LLC
By: ________________________________
Name:
Title:
HATTERAS MASTER FUND, L.P.
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 1.3, 4.1(i), 5.1, 5.10, 5.11, 5.12, 5.13, 9.2 and 10.5
DB INVESTMENT MANAGERS, INC.
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 4.2(i), 5.1, 5.10, 5.11, 9.2 and 10.5
HATTERAS INVESTMENT PARTNERS, LLC
By: ________________________________
Name:
Title:
Ex A - 33
Exhibit B
---------
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________, 2007, by and between the Topiary Offshore Fund for Benefit Plan
Investors (BPI) LDC, a Cayman Islands limited duration company (the "Topiary
Cayman Fund"), and Hatteras Multi-Strategy Offshore Fund, LDC, a Cayman
Islands limited duration company ("Hatteras Cayman Fund" and together with the
Topiary Cayman Fund, the "Parties" and each a "Party"). DB Investment
Managers, Inc., a Delaware corporation ("DBIM"), joins this Agreement solely
for purposes of paragraphs 1.3, 4.1(h), 5.1, 5.8, 5.9, 5.10, 9.2, 10.5 and
Article VII; Hatteras Investment Partners, LLC., a Delaware limited liability
company ("HIP"), joins this Agreement solely for purposes of paragraphs
4.2(h), 5.1, 5.8, 5.9, 9.2, 10.5 and Article VII. Capitalized terms not
otherwise defined herein shall have the meaning set forth in Article XI
hereof.
RECITALS:
The Topiary Cayman Fund has issued a preferred share (the "Topiary
Preferred Share") and issues ordinary shares (the "Topiary Ordinary Shares"
and, together with the Topiary Preferred Share, the "Topiary Shares"). The
Hatteras Cayman Fund has issued a preferred share (the "Hatteras Preferred
Share") and issues ordinary shares (the "Hatteras Ordinary Shares" and,
together with the Hatteras Preferred Share, the "Hatteras Shares").
The Parties wish to conclude a series of business combination
transactions under the terms set forth in this Agreement in which: (1) all of
the Assets of the Topiary Cayman Fund will be transferred to the Hatteras
Cayman Fund in exchange for Hatteras Ordinary Shares and the assumption by the
Hatteras Cayman Fund of all of the Topiary Cayman Fund's Liabilities, (2)
Hatteras Ordinary Shares will be distributed to the holders of Topiary
Ordinary Shares, and (3) the Topiary Cayman Fund will distribute $1.00 to DBIM
as the record holder of the Topiary Preferred Share in complete liquidation of
the Topiary Cayman Fund, all upon the terms and conditions set forth in this
Agreement (the "Reorganization").
The Topiary Master Fund For Benefit Plan Investors (BPI) LLC (the
"Topiary Master Fund") and Hatteras Master Fund, L.P. (the "Hatteras Master
Fund") have entered into an Agreement and Plan of Reorganization of even date
hereof (the "Master Fund Agreement"). The Master Fund Agreement contemplates a
series of business combination transactions in which certain of the assets of
the Topiary Master Fund will be transferred to the Hatteras Master Fund in
exchange for partnership interests in the Hatteras Master Fund and the
assumption by the Hatteras Master Fund of certain of the Topiary Master Fund's
liabilities; and partnership interests in the Hatteras Master Fund will be
distributed to members of the Topiary Master Fund in complete liquidation of
such fund and such members will be admitted as limited partners of the
Hatteras Master Fund, as more fully set forth in the Master Fund Agreement
(the "Master Fund Reorganization").
The Topiary Fund for Benefit Plan Investors (BPI) LLC (the "Topiary
Feeder Fund") and Hatteras Multi-Strategy TEI Fund, L.P., (the "Hatteras
Feeder Fund") have entered into an Agreement and Plan of Reorganization of
even date hereof (the "Feeder Fund Agreement"). The Feeder Fund Agreement
contemplates a series of business combination transactions in which certain of
the assets of the Topiary Feeder Fund will be transferred to the Hatteras
Feeder Fund in exchange for partnership interests in the Hatteras Feeder Fund
and the assumption by the Hatteras Feeder Fund of certain of the Topiary
Feeder Fund's liabilities; and partnership interests in the Hatteras Feeder
Fund will be distributed to members of the Topiary Feeder Fund in complete
liquidation of such fund, as more fully set forth in the Feeder Fund Agreement
(the "Feeder Fund Reorganization").
NOW THEREFORE, in consideration of the mutual promises, representations,
and warranties made herein, covenants and agreements hereinafter contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Parties, and DBIM and HIP to the extent indicated
above, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. In accordance with the Companies Law of the
Cayman Islands (the "Cayman Law") and the Memorandum and Articles of
Association of the Topiary Cayman Fund as each may be amended from time to
time (the "Topiary Governing Documents"), at the Effective Time (as defined
below), upon the terms and subject to the conditions of this Agreement, and on
the basis of the representations and warranties contained herein, the Topiary
Cayman Fund shall assign, deliver and otherwise transfer all of the Assets,
subject to all of the Liabilities, to the Hatteras Cayman Fund, and the
Hatteras Cayman Fund shall assume all of the Liabilities. In consideration of
the foregoing, the Hatteras Cayman Fund shall at the Effective Time deliver to
the Topiary Cayman Fund Hatteras Ordinary Shares equal in value to the Assets,
net of Liabilities computed as of the Valuation Time (as defined below) in the
manner set forth in paragraph 2.1. At and after the Effective Time, all of the
Assets shall become and be included in the assets of the Hatteras Cayman Fund
and the Liabilities shall become and be the liabilities of and shall attach to
the Hatteras Cayman Fund. At and after the Effective Time, the Liabilities may
be enforced only against the Hatteras Cayman Fund to the same extent as if
such Liabilities had been incurred by the Hatteras Cayman Fund subject to any
defense and/or set off that the Topiary Cayman Fund was entitled to assert
immediately prior to the Effective Time and further subject to any defense
and/or setoff that the Hatteras Cayman Fund may from time to time be entitled
to assert.
1.2 Assets.
(a) Attached hereto as Schedule 1.2 is a schedule of the Assets and
Liabilities of the Topiary Cayman Fund as of __________.
1.3 Assumption of Liabilities. The Topiary Cayman Fund will use its best
efforts to discharge all of the Liabilities prior to or at the Effective Time
(which such effort shall include,
Ex B - 2
without limitation, a payment of estimated monthly expenses as of the date
hereof). The Hatteras Cayman Fund will assume all of the Liabilities of the
Topiary Cayman Fund. If prior to the Effective Time either Party identifies a
Liability that the Parties mutually agree should not be assumed by the
Hatteras Cayman Fund, such Liability shall be excluded from the definition of
Liabilities hereunder and shall be listed on a Schedule of Excluded
Liabilities to be signed by the Parties at the Closing (the "Excluded
Liabilities"). Certain Liabilities that would otherwise be listed as Excluded
Liabilities may be assumed by the Hatteras Cayman Fund on the condition that
HIP and the Hatteras Cayman Fund be indemnified in writing to their reasonable
satisfaction by DBIM against any and all losses, claims, damages or liability
to which HIP and the Hatteras Cayman Fund may become subject as a result of
assuming such Liability. The Hatteras Cayman Fund shall not assume any
Liability for any obligation of the Topiary Cayman Fund to file reports with
the SEC, Internal Revenue Service or other regulatory or tax authority
covering any reporting period ending prior to or at the Effective Time with
respect to the Topiary Cayman Fund.
1.4 Distribution of Hatteras Ordinary Shares. Immediately upon receipt,
the Topiary Cayman Fund will distribute the Hatteras Ordinary Shares received
by the Topiary Cayman Fund from the Hatteras Cayman Fund pursuant to paragraph
1.1, to the holders of the Topiary Ordinary Shares. Simultaneously, the
Topiary Cayman Fund will distribute $1.00 to DBIM as record holder of the
Topiary Preferred Share in complete liquidation of the Topiary Cayman Fund.
Such distribution will be accomplished by an instruction, signed by the
managing member of the Topiary Cayman Fund, to transfer the Hatteras Ordinary
Shares then credited to the Topiary Cayman Fund's account on the Books and
Records of the Hatteras Cayman Fund and to open accounts on the Books and
Records of the Hatteras Cayman Fund established and maintained by the Hatteras
Cayman Fund's administrator in the names of the holders of record of Topiary
Ordinary Shares representing the Hatteras Ordinary Shares due to such
shareholder. All issued and outstanding Topiary Shares will be cancelled
promptly. Any such Topiary Ordinary Share issued and outstanding prior to such
cancellation shall thereafter represent only the right to receive the Hatteras
Ordinary Shares issued to the Topiary Cayman Fund in accordance with paragraph
1.1 above.
1.5 Liquidation of the Topiary Cayman Fund. As soon as conveniently
practicable after the distribution of the Hatteras Shares pursuant to
paragraph 1.4 has been made, the Topiary Cayman Fund shall take, in accordance
with Cayman Law and the Topiary Governing Documents, all such other steps as
may be necessary or appropriate to effect a complete dissolution, liquidation
and termination of the Topiary Cayman Fund.
1.6 Transfer Taxes. Any transfer taxes payable on issuance of Hatteras
Ordinary Shares in a name other than that of the Topiary Feeder Fund shall be
paid by the Person to whom such Hatteras Ordinary Shares are issued and
transferred, as a condition of that transfer.
Ex B - 3
ARTICLE II
VALUATION
2.1 Net Asset Value of the Topiary Cayman Fund. The net asset value of
the Topiary Cayman Fund shall be the net asset value computed as of the
Valuation Time using the valuation procedures described in the Hatteras Fund
Registration Statement.
2.2 Net Asset Value of the Hatteras Cayman Fund. The net asset value of
the Hatteras Cayman Fund shall be the net asset value computed as of the
Valuation Time using the valuation procedures set forth in the Hatteras Fund
Registration Statement.
2.3 Calculation of Number of Shares. The number of Hatteras Ordinary
Shares to be issued to each holder of Topiary Ordinary Shares in connection
with the Reorganization shall be determined based upon the value of each
shareholder's Topiary Ordinary Shares as of the Valuation Time.
2.4 Joint Direction of Calculation. All computations of net asset value
and the value of securities transferred under this Article II shall be made by
UMB Fund Services, Inc. and PFPC Inc. under the joint direction of the
following entities, in accordance with their regular practice and the
requirements of the 1940 Act: (a) DBIM, the investment adviser to the Topiary
Master Fund; and (b) HIP, the investment adviser to the Hatteras Master Fund.
The Topiary Cayman Fund and the Hatteras Cayman Fund agree to use all
commercially reasonable efforts to resolve prior to the Valuation Time any
material pricing differences between the prices of portfolio securities
determined in accordance with the pricing policies and procedures of the
Topiary Cayman Fund and those determined in accordance with the pricing
policies and procedures of the Hatteras Cayman Fund.
2.5 Valuation Time. The valuation time shall be the close of regular
trading on the New York Stock Exchange ("NYSE") on the last Business Day of
the month immediately preceding the Effective Time, or such earlier or later
date and time as may be mutually agreed in writing by an authorized officer of
each of the Parties (the "Valuation Time").
Ex B - 4
ARTICLE III
EFFECTIVE TIME AND CLOSING
3.1 Effective Time and Closing. Subject to the terms and conditions set
forth herein, the Reorganization shall occur prior to the opening of business
on October 1, 2007, or on such other date as may be mutually agreed in writing
by an authorized officer of each Party (the "Effective Time"). To the extent
any Assets are, for any reason, not transferred at the Effective Time, the
Topiary Cayman Fund shall cause such Assets to be transferred in accordance
with this Agreement at the earliest practical date thereafter. The closing of
the Reorganization will take place at the offices of Drinker Biddle & Reath
LLP, One Logan Square, 18th and Cherry Streets, Philadelphia, PA 19103, or at
such other place as may be mutually agreed in writing by an authorized officer
of each Party, at the Effective Time (the "Closing").
3.2 Transfer and Delivery of Assets. The Topiary Cayman Fund shall direct
PFPC Trust Company ("PFPC"), as custodian for the Topiary Cayman Fund, to
deliver to the Hatteras Cayman Fund at the Closing a certificate of an
authorized officer certifying that: (a) PFPC delivered the Assets of the
Topiary Cayman Fund to the Hatteras Cayman Fund at the Effective Time; and (b)
all necessary taxes in connection with the delivery of such Assets, including
all applicable foreign, federal and state stock transfer stamps and any other
stamp duty taxes, if any, have been paid or provision (as reasonably
estimated) for payment has been made. At least three Business Days prior to
the Effective Time, PFPC shall present for examination those Assets
represented by certificate or other written instrument to those Persons who
have primary responsibility for the safekeeping of the assets of the Hatteras
Cayman Fund at UMB N.A. ("UMB"), with the principal place of business at 1010
Grand Boulevard, Kansas City, Missouri 64106, as custodian of the Hatteras
Cayman Fund. At the Effective Time, the Topiary Cayman Fund shall endorse and
deliver, or transfer by appropriate transfer or assignment documents, such
certificates and other written instruments as of the Effective Time for the
account of the Hatteras Cayman Fund in proper form for transfer and in such
condition as to constitute good delivery thereof in accordance with the
customs of brokers. PFPC shall deliver other Assets to those Persons who have
primary responsibility for the safekeeping of the Hatteras Cayman Fund at UMB
as of the Effective Time by book entry, in accordance with the customary
practices of UMB Bank and of each securities depository (as defined in Rule
17f-4 and Rule 17f-7 under the 1940 Act) in which such Assets are held. Any
cash to be transferred by the Topiary Cayman Fund to the Hatteras Cayman Fund
shall be delivered by wire transfer of federal funds at the Effective Time
pursuant to instructions provided by the Hatteras Cayman Fund.
3.3 Hatteras Cayman Fund Capital Account. The Hatteras Cayman Fund shall
deliver to the managing member of the Topiary Cayman Fund at the Closing a
confirmation evidencing that: (a) the Hatteras Cayman Fund has established on
its Books and Records a Hatteras Cayman Fund account for the Topiary Feeder
Fund pursuant to paragraph 1.1 prior to the actions contemplated by paragraph
1.4, and (b) the appropriate amount of Hatteras Ordinary Shares have been
credited to the account of the Topiary Feeder Fund on the Books and Records of
the Hatteras Cayman Fund pursuant to paragraph 1.4.
Ex B - 5
3.4 Postponement of Valuation Time and Effective Time. If immediately
prior to the Valuation Time, in the judgment of the managing member of the
Topiary Cayman Fund or Hatteras Cayman Fund, as applicable, accurate appraisal
of the value of the net assets of the Topiary Cayman Fund or Hatteras Cayman
Fund is impracticable, the Valuation Time and Effective Time for the
Reorganization shall be postponed until such date as may be mutually agreed in
writing by an authorized officer of each Party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Topiary Cayman Fund. The
Topiary Cayman Fund hereby represents and warrants to the Hatteras Cayman Fund
as follows, which representations and warranties shall be true and correct on
the date hereof:
(a) The Topiary Cayman Fund is a limited duration company duly
organized, validly existing and in good standing under the Laws of the Cayman
Islands and is duly qualified, licensed or admitted to do business and is in
good standing as a foreign association under the Laws of each jurisdiction in
which the nature of the business conducted by it makes such qualification,
licensing or admission necessary, except in such jurisdictions where the
failure to be so qualified, licensed or admitted and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Topiary Cayman Fund.
The Topiary Cayman Fund has full power under the Topiary Governing Documents
to conduct its business as it is now being conducted and to own the properties
and assets it now owns. The Topiary Cayman Fund has all necessary
authorizations, licenses and approvals from any applicable Governmental or
Regulatory Body necessary to carry on its business as such business is now
being carried on except where the failure to so obtain would not have a
Material Adverse Effect on the Topiary Cayman Fund.
(b) The execution, delivery and performance of this Agreement by the
Topiary Cayman Fund and the consummation of the transactions contemplated
herein have been duly and validly authorized by the managing member of the
Topiary Cayman Fund. Other than the approval by the managing member of the
Topiary Cayman Fund in accordance with the provisions of the Topiary Governing
Documents and applicable Cayman Law, no other action on the part of the
Topiary Cayman Fund or its shareholders is necessary to authorize the
execution, delivery and performance of this Agreement by the Topiary Cayman
Fund or the consummation of the Reorganization contemplated herein. This
Agreement has been duly and validly executed and delivered by the Topiary
Cayman Fund, and assuming due authorization, execution and delivery hereof by
the Hatteras Cayman Fund, is a legal, valid and binding obligation of the
Topiary Cayman Fund, enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other Laws
relating to or affecting creditors' rights, to general equity principles and
to any limitations on indemnity as may be required under federal and state
securities Laws).
Ex B - 6
(c) The authorized capital of the Topiary Cayman Fund consists of
499,999,999 Topiary Ordinary Shares, par value $0.0001 per share and one
Topiary Preferred Share, par value $0.0001 per share. The Topiary Shares have
been duly established. There are no outstanding options, warrants or other
rights of any kind to acquire from the Topiary Cayman Fund equity interests of
or securities convertible into or exchangeable for, or which otherwise confer
on the holder thereof any right to acquire, any such additional interests, nor
is the Topiary Cayman Fund committed to issue any share appreciation or
similar rights or options, warrants, rights or securities in connection with
any Topiary Shares. The Topiary Cayman Fund has no share certificates
outstanding.
(d) Except for the Topiary Master Fund, the Topiary Cayman Fund has
no subsidiaries.
(e) Except for consents, approvals, or waivers to be received prior
to the Effective Time, the execution, delivery and performance of this
Agreement by the Topiary Cayman Fund does not, and the consummation of the
transactions contemplated herein will not: (i) violate or conflict with the
terms, conditions or provisions of the Topiary Governing Documents, or of any
material contract, agreement, indenture, instrument, or other undertaking to
which it is a party or by which it is bound, (ii) result in the acceleration
of any obligation, or the imposition of any penalty, under any material
agreement, indenture, instrument, contract, lease or other undertaking to
which the Topiary Cayman Fund is a party or by which it is bound, (iii) result
in a breach or violation by the Topiary Cayman Fund of any terms, conditions,
or provisions of any Law or Order, or (iv) require any consent or approval of,
filing with or notice to, any Governmental or Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Topiary
Cayman Fund has delivered to the Hatteras Cayman Fund true and complete
copies of the audited statements of assets and liabilities of the Topiary
Cayman Fund as of March 31, 2007 or a later date if available prior to
the date hereof, and the related audited schedules of investments,
statements of income and changes in net assets and financial highlights
for the periods then ended.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Topiary Cayman Fund as of the respective
dates thereof and for the respective periods covered thereby.
(iii) To the best of the Topiary Cayman Fund's Knowledge,
except as reflected or reserved against in the statement of assets and
liabilities included in the Topiary Cayman Fund's audited financial
statements as of March 31, 2007 or in the notes thereto, or as previously
disclosed in writing to the Hatteras Cayman Fund, there are no
liabilities against, relating to or affecting the Topiary Cayman Fund or
any of its properties and assets, other than those incurred in the
ordinary course of business consistent with past practice, which,
individually or in the aggregate, would have a
Ex B - 7
Material Adverse Effect on the Topiary Cayman Fund or its properties or
assets. In particular, since March 31, 2007 to the best of the Topiary
Cayman Fund's Knowledge and except (i) as disclosed in writing to the
Hatteras Cayman Fund and (ii) for the transactions contemplated by this
Agreement, there has not been any change in the financial condition,
properties, assets, liabilities or business of the Topiary Cayman Fund
that would have a Material Adverse Effect on the Topiary Cayman Fund or
its properties or assets other than changes occurring in the ordinary
course of business.
(iv) As of the date hereof, except as previously disclosed to
the Hatteras Cayman Fund in writing, and except as have been corrected as
required by applicable Law, and to the best of the Topiary Cayman Fund's
Knowledge, there have been no material miscalculations of the net asset
value of the Topiary Cayman Fund during the twelve-month period preceding
the date hereof which would have a Material Adverse Effect on the Topiary
Cayman Fund or its properties or assets, and all such calculations have
been made in accordance with the valuation policies as stated in the
Topiary Fund Registration Statement and the applicable provisions of the
1940 Act.
(g) The minute books and other similar records of the Topiary Cayman
Fund as made available to the Hatteras Cayman Fund prior to the execution of
this Agreement contain a true and complete record in all material respects of
all action taken at all meetings and by all written consents in lieu of
meetings of the shareholders of the Topiary Cayman Fund and the Topiary Cayman
Fund's managing member. The shareholder records and other similar records of
the Topiary Cayman Fund as made available to the Hatteras Cayman Fund prior to
the execution of this Agreement accurately reflect all record transfers prior
to the execution of this Agreement in the Topiary Shares.
(h) Except as set forth in writing to the Hatteras Cayman Fund and
HIP, there is no Action or Proceeding pending against the Topiary Cayman Fund
or DBIM (with respect to the Topiary Cayman Fund) or, to the best of the
Topiary Cayman Fund's or DBIM's Knowledge, threatened against, relating to or
affecting, the Topiary Cayman Fund, or DBIM (with respect to the Topiary
Cayman Fund) other than any notices naming or received by the Topiary Cayman
Fund relating to the patent application filed by Man-Glenwood Lexington TEI,
LLC or an affiliate thereof.
(i) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Topiary Cayman Fund
in connection with the negotiation, execution or performance of this Agreement
or any other agreement contemplated hereby, or the consummation of the
transactions contemplated hereby, is or will be entitled to any broker's or
finder's or similar fees or other commissions as a result of the consummation
of such transactions.
(j) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Topiary Cayman
Fund required by Law to have been filed by such date (including any
extensions) have been filed and are correct in all material respects, and all
federal and other taxes shown as due on such returns and reports have been
paid or provision has been made on the Topiary Cayman Fund's Books and Records
for
Ex B - 8
the payment thereof and, to the best of the Topiary Cayman Fund's Knowledge,
no such return is currently under audit or has been threatened with an audit
and no assessment has been asserted with respect to such returns. To the
Topiary Cayman Fund's Knowledge, there are no levies, liens, or other
encumbrances relating to taxes existing, threatened or pending with respect to
the properties or assets of the Topiary Cayman Fund. As of the date hereof,
the Topiary Cayman Fund has adequately provided for all tax liabilities on its
Books and Records.
(k) All issued and outstanding Topiary Shares have been offered and
sold in compliance in all material respects with applicable registration
requirements of state securities Laws, and are registered under the Laws of
all jurisdictions in which registration is or was required, except as may have
been previously disclosed to the Hatteras Cayman Fund in writing. Such
registrations are, in all material respects, complete, current and have been
continuously effective, and all fees required to be paid have been paid. The
Topiary Cayman Fund is not subject to any "stop order" and is, and was, fully
qualified to sell its shares in each jurisdiction in which such shares are
being, or were, registered and sold.
(l) Except as previously disclosed in writing to the Hatteras Cayman
Fund, at the Effective Time, the Topiary Cayman Fund will have good and
marketable title to its Assets and full right, power, and authority to sell,
assign, transfer and, upon delivery and payment for the Assets, deliver such
Assets, free and clear of all liens, mortgages, pledges, encumbrances,
charges, claims and equities, and subject to no restrictions on the subsequent
transfer thereof (other than any Assets consisting of restricted securities).
(m) The Topiary Cayman Fund has, since its inception, complied in
all material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Topiary Cayman Fund.
(n) The Topiary Fund has a reasonable belief that each of its
shareholders is an "accredited investor" as defined in Rule 501 under the 1933
Act and a "qualified client" as defined in Rule 205-3 under the Investment
Advisers Act of 1940, as amended.
(o) Except as disclosed in writing to the Hatteras Cayman Fund, to
the best of the Topiary Cayman Fund's Knowledge, no events have occurred and
no issues, conditions or facts have arisen which either individually or in the
aggregate have had a Material Adverse Effect on the Topiary Cayman Fund.
4.2 Representations and Warranties of the Hatteras Cayman Fund. The
Hatteras Cayman Fund hereby represents and warrants to the Topiary Cayman
Fund, as follows, which representations and warranties shall be true and
correct on the date hereof:
(a) The Hatteras Cayman Fund is a limited duration company duly
organized, validly existing and in good standing under the Laws of the Cayman
Islands and is duly qualified, licensed or admitted to do business and is in
good standing as a foreign association under the Laws of each jurisdiction in
which the nature of the business conducted by it makes such qualification,
licensing or admission necessary, except in such jurisdictions where the
failure to be so qualified, licensed or admitted and in good standing would
not,
Ex B - 9
individually or in the aggregate, have a Material Adverse Effect on its
properties or assets or the properties or assets of the Hatteras Cayman Fund.
The Hatteras Cayman Fund has full power under its Memorandum and Articles of
Association, as amended from time to time (the "Hatteras Governing Documents")
to conduct its business as it is now being conducted and to own the properties
and assets it now owns. The Hatteras Cayman Fund has all necessary
authorizations, licenses and approvals from any applicable Governmental or
Regulatory Body necessary to carry on its business as such business is now
being carried on except authorizations, licenses and approvals that the
failure to so obtain would not have a Material Adverse Effect on the Hatteras
Cayman Fund.
(b) The execution, delivery and performance of this Agreement by the
Hatteras Cayman Fund and the consummation of the transactions contemplated
herein have been duly and validly authorized by the managing member of the
Hatteras Cayman Fund. Except for consents, approvals, waivers or amendments to
be received prior to the Effective Time, no other action on the part of the
Hatteras Cayman Fund or its shareholders is necessary to authorize the
execution, delivery and performance of this Agreement by the Hatteras Cayman
Fund or the consummation of the Reorganization. This Agreement has been duly
and validly executed and delivered by the Hatteras Cayman Fund, and assuming
due authorization, execution and delivery hereof by the Topiary Cayman Fund,
is a legal, valid and binding obligation of the Hatteras Cayman Fund,
enforceable in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other Laws relating to or affecting
creditors' rights, to general equity principles and to any limitations on
indemnity as may be required under federal and state securities Laws).
(c) The authorized capital of the Hatteras Cayman Fund consists of
499,999,999 Hatteras Ordinary Shares, par value $0.0001 per share and one
Hatteras Preferred Share, par value $0.0001 per share. The Hatteras Shares
have been duly established. There are no outstanding options, warrants or
other rights of any kind to acquire from the Hatteras Cayman Fund equity
interests of or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such
additional interests, nor is the Hatteras Cayman Fund committed to issue any
share appreciation or similar rights or options, warrants, rights or
securities in connection with any Hatteras Shares. The Hatteras Cayman Fund
has no share certificates outstanding.
(d) Except for the Hatteras Master Fund, the Hatteras Cayman Fund
has no subsidiaries.
(e) Except for consents, approvals, waivers or amendments to be
received prior to the Effective Time, the execution, delivery and performance
of this Agreement by the Hatteras Cayman Fund does not, and the consummation
of the transactions contemplated herein will not: (i) violate or conflict with
the terms, conditions or provisions of the Hatteras Governing Documents, or of
any material contract, agreement, indenture, instrument, or other undertaking
to which it is a party or by which it is bound, (ii) result in the
acceleration of any obligation, or the imposition of any penalty, under any
material agreement, indenture, instrument, contract, lease or other
undertaking to which the Hatteras Cayman Fund is a party or by which it is
bound, (iii) result in a breach or violation by the Hatteras Cayman Fund of
any
Ex B - 10
terms, conditions, or provisions of any Law or Order, or (iv) require any
consent or approval of, filing with or notice to, any Governmental or
Regulatory Body.
(f)
(i) Prior to the execution of this Agreement, the Hatteras
Cayman Fund has delivered to the Topiary Cayman Fund true and complete
copies of the audited statements of assets and liabilities of the
Hatteras Cayman Fund, dated as of March 31, 2007 or a later date if
available prior to the date hereof.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally
accepted accounting principles, consistently applied throughout the
periods then ended, and fairly present the financial condition and
results of operations of the Hatteras Cayman Fund as of the respective
dates thereof and for the respective periods covered thereby.
(iii) To the best of the Hatteras Cayman Fund's Knowledge,
except as reflected or reserved against in the statement of assets and
liabilities included in the Hatteras Cayman Fund's audited financial
statements as of March 31, 2007, or in the notes thereto, or as
previously disclosed in writing to the Topiary Cayman Fund, there are no
liabilities against, relating to or affecting the Hatteras Cayman Fund or
any of its properties and assets, other than those incurred in the
ordinary course of business consistent with past practice, which,
individually or in the aggregate, would have a Material Adverse Effect on
the Hatteras Cayman Fund or its properties or assets. In particular,
since March 31, 2007, to the best of the Hatteras Cayman Fund's Knowledge
and except as disclosed in writing to the Topiary Cayman Fund, there has
not been any change in the financial condition, properties, assets,
liabilities or business of the Hatteras Cayman Fund that would have a
Material Adverse Effect on the Hatteras Cayman Fund or its properties or
assets other than changes occurring in the ordinary course of business.
(iv) As of the date hereof and during the twelve-month period
preceding the date hereof, except as previously disclosed to the Topiary
Cayman Fund in writing, and except as have been corrected as required by
applicable Law, and to the best of the Hatteras Cayman Fund's Knowledge,
there have been no material miscalculations of the net asset value of the
Hatteras Cayman Fund which would have a Material Adverse Effect on the
Hatteras Cayman Fund or its properties or assets, and all such
calculations have been made in accordance with the applicable provisions
of the 1940 Act.
(g) The minute books and other similar records of the Hatteras
Cayman Fund as made available to the Topiary Cayman Fund prior to the
execution of this Agreement contain a true and complete record in all material
respects of all action taken at all meetings and by all written consents in
lieu of meetings of the shareholders of the Hatteras Cayman Fund and the
managing member of the Hatteras Cayman Fund.
Ex B - 11
(h) Except as set forth in writing to the Topiary Cayman Fund and
DBIM, there is no Action or Proceeding pending against the Hatteras Cayman
Fund, HIP (with respect to the Hatteras Cayman Fund) or, to the best of the
Hatteras Cayman Fund's or HIP's Knowledge, threatened against, relating to or
affecting, the Hatteras Cayman Fund or HIP (with respect to the Hatteras
Cayman Fund).
(i) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Hatteras Cayman
Fund in connection with the negotiation, execution or performance of this
Agreement or any other agreement contemplated hereby, or the consummation of
the transactions contemplated hereby, is or will be entitled to any broker's
or finder's or similar fees or other commissions as a result of the
consummation of such transactions.
(j) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Hatteras Cayman
Fund required by Law to have been filed by such date (including any
extensions) have been filed and are correct in all material respects, and all
federal and other taxes shown as due on such returns and reports have been
paid or provision has been made on the respective Fund's Books and Records for
the payment thereof and, to the best of the Hatteras Cayman Fund's Knowledge,
no such return is currently under audit or has been threatened with an audit
and no assessment has been asserted with respect to such returns. To the
Hatteras Cayman Fund's Knowledge, there are no levies, liens, or other
encumbrances relating to taxes existing, threatened or pending with respect to
the properties or assets of the Hatteras Cayman Fund. As of the date hereof,
the Hatteras Cayman Fund has adequately provided for all tax liabilities on
its Books and Records.
(k) All issued and outstanding Hatteras Shares have been offered and
sold in compliance in all material respects with applicable registration
requirements of state securities Laws, are registered under the Laws of all
jurisdictions in which registration is or was required, except as may have
been previously disclosed to the Topiary Cayman Fund in writing. Such
registrations are, in all material respects, complete, current and have been
continuously effective, and all fees required to be paid have been paid. The
Hatteras Cayman Fund is not subject to any "stop order" and is, and was, fully
qualified to sell its shares in each jurisdiction in which such shares are
being, or were, registered and sold.
(l) The Hatteras Shares to be issued and delivered to the Topiary
Cayman Fund (and to be distributed immediately thereafter to the Topiary
Feeder Fund) pursuant to the terms of this Agreement will have been duly
authorized at the Effective Time and no shareholder of the Hatteras Cayman
Fund shall have any statutory or contractual preemptive right of subscription
or purchase in respect thereof.
(m) The Hatteras Cayman Fund has, since its inception, complied in
all material respects with all applicable laws, rules and regulations, except
where such noncompliance could not reasonably be expected to have a Material
Adverse Effect on the Hatteras Cayman Fund.
(n) Except as disclosed in writing to the Topiary Cayman Fund, to
the best of the Hatteras Cayman Fund's Knowledge, no events have occurred and
no issues, conditions
Ex B - 12
or facts have arisen which either individually or in the aggregate have had a
Material Adverse Effect on the Hatteras Cayman Fund.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. After the date of this Agreement and at or prior
to the Effective Time, the Topiary Cayman Fund and the Hatteras Cayman Fund
will conduct the businesses of the Topiary Cayman Fund and the Hatteras Cayman
Fund, respectively, only in the ordinary course and in accordance with this
Agreement. It is understood that such ordinary course of business shall
include (a) payment of customary distributions; and (b) the continued good
faith performance by the investment adviser, administrator, distributor and
other service providers of their respective responsibilities in accordance
with their agreements with the Topiary Cayman Fund or the Hatteras Cayman
Fund, as applicable, and applicable Law. No Party shall take any action that
would, or would reasonably be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect.
5.2 Information.
(a) The Topiary Cayman Fund and the Hatteras Cayman Fund will
furnish to one another, and the other's accountants, legal counsel and other
representatives, throughout the period prior to and up to the Effective Time,
all documents and other information concerning the Topiary Cayman Fund and the
Hatteras Cayman Fund, respectively, and their business and properties as may
reasonably be requested by the other Party. Each Party shall make its
employees and officers available on a mutually convenient basis to provide an
explanation of any documents or information provided hereunder to the extent,
if any, that such Party's employees are familiar with such documents or
information.
(b) Beginning with the commencement of this Agreement, by or on the
fifteenth Business Day of each month ending prior to the Effective Time, the
Topiary Cayman Fund will provide the Hatteras Cayman Fund with the prior
month's accrued liability/expense account reconciliation, monthly statement,
trial balance, income statement, balance sheet and schedule of investments.
5.3 Notice of Material Changes. Each Party will notify the other Party of
any event causing a Material Adverse Effect to such Party as soon as
practicable following such Party's Knowledge of any event causing such a
Material Adverse Effect.
5.4 Financial Statements. At the Closing, the Topiary Cayman Fund will
deliver to the Hatteras Cayman Fund an unaudited statement of assets and
liabilities of the Topiary Cayman Fund, together with a schedule of portfolio
investments as of and for the interim period ending at the Valuation Time.
These financial statements will present fairly the financial position and
portfolio investments of the Topiary Cayman Fund as of the Valuation Time in
conformity with U.S. generally accepted accounting principles applied on a
consistent
Ex B - 13
basis, and there will be no material contingent liabilities of the Topiary
Cayman Fund not disclosed in said financial statements. These financial
statements shall be certified by an officer of the managing member of the
Topiary Cayman Fund as, to the best of his or her Knowledge, complying with
the requirements of the preceding sentence. At the Closing, the Hatteras
Cayman Fund will deliver to the Topiary Cayman Fund an unaudited statement of
assets and liabilities of the Hatteras Cayman Fund (including a schedule of
portfolio investments) meeting the requirements of the preceding three
sentences, except that they shall be certified by an officer of the Hatteras
Cayman Fund's managing member.
5.5 Other Necessary Action. The Topiary Cayman Fund and the Hatteras
Cayman Fund will each take all necessary action and use its reasonable best
efforts to complete all filings, obtain all governmental and other consents
and approvals and satisfy any other provision required for consummation of the
transactions contemplated by this Agreement.
5.6 Books and Records. Upon reasonable notice, each Party will make
available to the other Party for review any Books and Records which are
reasonably requested by such other Party in connection with this
Reorganization.
5.7 Issued Shares. The Hatteras Shares to be issued and delivered to the
Topiary Cayman Fund (and to be distributed immediately thereafter to its
shareholder) pursuant to this Agreement, will have been duly authorized at the
Effective Time. No shareholder of the Hatteras Cayman Fund shall have any
statutory or contractual preemptive right of subscription or purchase in
respect thereof. The shareholders of the Topiary Cayman Fund shall not pay any
placement fee in connection with the Reorganization.
5.8 General Solicitation. Neither the Topiary Cayman Fund nor DBIM will
engage in any form of general solicitation or advertising in performing its
duties under this Agreement or otherwise in connection with the
Reorganization. This prohibition includes, but is not limited to, any mass
mailing, any advertisement, article or notice published in any magazine,
newspaper or newsletter, and any seminar or meeting where the attendees are
invited by any mass mailing, general solicitation or advertising. Related to
this prohibition, neither the Topiary Cayman Fund nor DBIM will mention the
Hatteras Cayman Fund, HIP or the Reorganization in any public medium,
including any newspaper, on radio or television, by electronic communication,
or otherwise.
5.9 Tax Information. DBIM and the Topiary Cayman Fund will provide the
Hatteras Cayman Fund correct information as to the adjusted tax basis of the
Topiary Cayman Fund's assets, the tax basis of the capital accounts of its
members, the tax identification of its members and such other tax information
as the Hatteras Cayman Fund shall reasonably request.
5.10 Reporting. The Parties agree that the Hatteras Cayman Fund is the
larger fund and that its current shareholders will own more than 50% of the
Hatteras Cayman Fund after the Reorganization. Accordingly, pursuant to
Section 708 of the Internal Revenue Code of 1986, as amended, the Topiary
Cayman Fund shall terminate and its taxable year will end on the day of the
Closing. DBIM shall cause the tax returns for all periods ending on or before
the
Ex B - 14
day of the Closing to be properly prepared and filed and all required
information provided to the members of the Topiary Cayman Fund.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of the Topiary Cayman Fund. The
obligation of the Topiary Cayman Fund to conclude the transactions provided
for herein shall be subject, at its election, to the performance by the
Hatteras Cayman Fund of all of the obligations to be performed by it hereunder
at or before the Effective Time, and, in addition thereto, to the following
further conditions unless waived by the Topiary Cayman Fund in writing:
(a) All representations and warranties of the Hatteras Cayman Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Hatteras Cayman Fund shall be given a period of the lesser of: (1) 10 Business
Days from the date on which any such representation or warranty shall not be
true and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Hatteras Cayman Fund shall have furnished to the Topiary
Cayman Fund the opinion of Walkers dated as of the Effective Time,
substantially to the effect that:
(i) the Hatteras Cayman Fund is a limited duration company,
validly existing and in good standing under Cayman Law, and has power
under the Hatteras Governing Documents to conduct its business and own
its assets;
(ii) the Hatteras Ordinary Shares to be issued and delivered by
the Hatteras Cayman Fund pursuant to this Agreement have been duly
authorized for issuance and no preemptive rights exist with respect to
any such interests or the issue or delivery thereof;
(iii) except as disclosed in writing to the Topiary Cayman
Fund, such counsel knows of no material legal proceedings pending or
threatened against the Hatteras Cayman Fund;
(iv) this Agreement was duly authorized, executed and delivered
under the applicable Laws of the Cayman Islands by the Hatteras Cayman
Fund and, assuming due authorization, execution and delivery by the
Topiary Cayman Fund, constitutes a valid and legally binding obligation
of the Hatteras Cayman Fund, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other Laws relating to or affecting creditors' rights generally and
to general equity principles;
Ex B - 15
(v) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material breach of the terms or provisions
of, or constitute a material default under, the Hatteras Governing
Documents or any material agreement or instrument known to such counsel
to which the Hatteras Cayman Fund is a party or by which any properties
belonging to the Hatteras Cayman Fund may be bound;
(vi) the execution and delivery of this Agreement did not and the
consummation of the transactions herein contemplated will not conflict
with or result in a material violation by the Hatteras Cayman Fund of any
terms, conditions, or provisions of any federal securities Law or Cayman
Law; and
(vii) to the Knowledge of such counsel, no consent, approval,
authorization, or other action by or filing with any Governmental or
Regulatory Body is required in connection with the consummation of the
transactions herein contemplated, except such as have been obtained or
made under Cayman Law.
In rendering such opinion, Walkers may rely upon certificates of officers
of the Hatteras Cayman Fund and of public officials as to matters of fact.
Such opinion may rely on the opinion of other counsel to the extent set
forth in such opinion, provided such other counsel is reasonably acceptable to
the Topiary Cayman Fund; and shall state that such opinion is solely for the
benefit of the Topiary Cayman Fund and its managing member.
(c) The Hatteras Cayman Fund shall have furnished to the Topiary
Cayman Fund a certificate of the Hatteras Cayman Fund, signed by the managing
member of the Hatteras Cayman Fund, dated as of the Effective Time, to the
effect that they have examined this Agreement and that:
(i) the representations and warranties of the Hatteras Cayman
Fund in this Agreement are true and correct in all material respects on
and as of the Effective Time and the Hatteras Cayman Fund has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
the Hatteras Cayman Fund, there has been no Material Adverse Effect on
the business or properties of the Hatteras Cayman Fund (other than
changes in the ordinary course of business, including, without
limitation, distributions in the ordinary course and changes in net asset
value), except as set forth in or contemplated in the Proxy Statement.
(d) At the Valuation Time and Effective Time, except as previously
disclosed to the Topiary Cayman Fund in writing, and except as have been
corrected as required by applicable Law, and to the best of the Hatteras
Cayman Fund's Knowledge, there shall have been no material miscalculations of
the net asset value of the Hatteras Cayman Fund
Ex B - 16
during the twelve-month period preceding the Valuation Time and Effective
Time, and all such calculations shall have been made in accordance with the
applicable provisions of the 1940 Act. At the Valuation Time and Effective
Time, all liabilities chargeable to the Hatteras Cayman Fund which are
required to be reflected in the net asset value of the Hatteras Cayman Fund in
accordance with applicable Law will be reflected in the net asset value of the
Hatteras Cayman Fund.
(e) The managing member of the Topiary Cayman Fund shall have
received the confirmation from the Hatteras Cayman Fund required under
paragraph 3.3 of this Agreement.
(f) The Hatteras Cayman Fund shall have duly executed and delivered
to the Topiary Cayman Fund such assumptions of Liabilities and other
instruments as the Topiary Cayman Fund may reasonably deem necessary or
desirable to evidence the transactions contemplated by this Agreement,
including the assumption of all of the Liabilities of the Topiary Cayman Fund,
other than the Excluded Liabilities.
(g) The Topiary Cayman Fund shall have completed to its satisfaction
its due diligence review of the Hatteras Cayman Fund.
6.2 Conditions Precedent to Obligations of the Hatteras Cayman Fund. The
obligation of the Hatteras Cayman Fund to conclude the transactions provided
for herein shall be subject, at its election, to the performance by the
Topiary Cayman Fund of all of the obligations to be performed by it hereunder
at or before the Effective Time, and, in addition thereto, to the following
further conditions unless waived by the Hatteras Cayman Fund in writing:
(a) All representations and warranties of the Topiary Cayman Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force
and effect as if made at and as of the Effective Time; provided that the
Topiary Cayman Fund shall be given a period of the lesser of: (1) 10 Business
Days from the date on which any such representation or warranty shall not be
true and correct in all material respects; and (2) the number of Business Days
remaining before the Closing to cure such condition.
(b) The Topiary Cayman Fund shall have furnished to the Hatteras
Cayman Fund the opinion of Walkers dated as of the Effective Time,
substantially to the effect that:
(i) the Topiary Cayman Fund is a limited duration company,
validly existing and in good standing under Cayman Law, and has power
under the Topiary Governing Documents to conduct its business and own its
assets;
(ii) except as disclosed in writing to the Hatteras Cayman
Fund, such counsel knows of no material legal proceedings pending or
threatened against the Topiary Cayman Fund;
Ex B - 17
(iii) this Agreement was duly authorized, executed and
delivered under the applicable Laws of the Cayman Islands by the Topiary
Cayman Fund and, assuming due authorization, execution and delivery by
the Hatteras Cayman Fund, constitutes a valid and legally binding
obligation of the Topiary Cayman Fund, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other Laws relating to or affecting creditors' rights
generally and to general equity principles;
(iv) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material breach of the terms or provisions
of, or constitute a material default under, the Topiary Governing
Documents or any material agreement or instrument known to such counsel
to which the Topiary Cayman Fund is a party or by which any properties
belonging to the Topiary Cayman Fund may be bound;
(v) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not
conflict with or result in a material violation by the Topiary Cayman
Fund of any terms, conditions, or provisions of Cayman Law; and
(vi) to the Knowledge of such counsel, no consent, approval,
authorization or other action by or filing with any Governmental or
Regulatory Body is required in connection with the consummation of the
transactions herein contemplated, except such as have been obtained or
made under Cayman Law.
In rendering such opinion, Walkers may rely upon certificates of officers
of the Topiary Cayman Fund and of public officials as to matters of fact.
Such opinion may rely on the opinion of other counsel to the extent set
forth in such opinion, provided such other counsel is reasonably acceptable to
the Hatteras Cayman Fund; and shall state that such opinion is solely for the
benefit of the Hatteras Cayman Fund and its managing member.
(c) The Topiary Cayman Fund shall have furnished to the Hatteras
Cayman Fund the unaudited statements required by paragraph 5.4.
(d) The Topiary Cayman Fund shall have furnished to the Hatteras
Cayman Fund a certificate of Topiary Cayman Fund, signed by the managing
member of the Topiary Cayman Fund, dated as of the Effective Time, to the
effect that they have examined this Agreement and that:
(i) the representations and warranties of the Topiary Cayman
Fund in this Agreement are true and correct in all material respects on
and as of the Effective Time and the Topiary Cayman Fund has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Effective Time; and
Ex B - 18
(ii) since the date of the most recent financial statements of
the Topiary Cayman Fund, there has been no Material Adverse Effect on the
business or properties of the Topiary Cayman Fund (other than changes in
the ordinary course of business, including, without limitation,
distributions in the ordinary course and changes in net asset value),
except as set forth in or contemplated in the Proxy Statement (or any
supplement thereto).
(e) The Topiary Cayman Fund shall have duly executed and delivered
to the Hatteras Cayman Fund, such bills of sale, assignments, certificates and
other instruments of transfer, including transfer instructions to the Topiary
Cayman Fund's custodian and instructions to the Hatteras Cayman Fund's
administrator ("Transfer Documents") as the Hatteras Cayman Fund may
reasonably deem necessary or desirable to evidence the transfer to the
Hatteras Cayman Fund of all of the right, title and interest of the Topiary
Cayman Fund in and to the Assets of the Topiary Cayman Fund. The Assets of the
Topiary Cayman Fund shall be accompanied by all necessary state stock transfer
stamps or cash for the appropriate purchase price therefor.
(f) The Hatteras Cayman Fund shall have received: (i) a certificate
of an authorized signatory of PFPC, as custodian for the Topiary Cayman Fund,
stating that the Assets of the Topiary Cayman Fund have been delivered to the
Hatteras Cayman Fund; (ii) a certificate of an authorized signatory from UMB,
as custodian for the Hatteras Cayman Fund, stating that the Assets of the
Topiary Cayman Fund have been received; and (iii) a certificate of an
authorized signatory of the Topiary Cayman Fund confirming that the Topiary
Cayman Fund has delivered its records containing the names and addresses of
the record holders of the Topiary Cayman Fund and the number of Topiary Shares
owned by each such holder as of the close of business at the Valuation Time.
(g) At the Valuation Time and Effective Time, except as previously
disclosed to the Hatteras Cayman Fund in writing, and except as have been
corrected as required by applicable Law, and to the best of the Topiary Cayman
Fund's Knowledge, there shall have been no material miscalculations of the net
asset value of the Topiary Cayman Fund during the twelve-month period
preceding the Valuation Time and Effective Time, and all such calculations
shall have been made in accordance with the applicable provisions of the 1940
Act. At the Valuation Time and Effective Time, all Liabilities chargeable to
the Topiary Cayman Fund which are required to be reflected in the net asset
value of the Topiary Cayman Fund in accordance with applicable Law will be
reflected in the net asset value of the Topiary Cayman Fund.
(h) The Hatteras Cayman Fund shall have completed to its
satisfaction its due diligence review of the Topiary Cayman Fund.
(i) Each Party has received assurance that: (1) no claims for
damages (liquidated or otherwise) will arise as a result of termination of any
service provider contracts; and (2) a final invoice with respect to each
service provider contract that has been terminated will be delivered within 30
calendar days of the Closing.
Ex B - 19
6.3 Other Conditions Precedent. Unless waived in writing by the Parties
with the consent of their respective managing members, the consummation of the
Reorganization is subject to the fulfillment, prior to or at the Effective
Time, of each of the following conditions:
(a) Each of the Master Fund Reorganization and the Feeder Fund
Reorganization shall have been approved by the requisite vote of the holders
of the outstanding interests of the Topiary Master Fund and the Topiary Feeder
Fund, respectively, in accordance with applicable Law and the 1940 Act.
Notwithstanding anything herein to the contrary, neither the Topiary Cayman
Fund nor the Hatteras Cayman Fund may waive the conditions set forth in this
paragraph 6.3(a).
(b) No Action or Proceeding against the Topiary Cayman Fund or the
Hatteras Cayman Fund or their respective managing members shall be threatened
in writing or pending before any court or other Governmental or Regulatory
Body in which it will seek, or seeks to restrain or prohibit any of the
transactions contemplated by this Agreement or to obtain damages or other
relief in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE VII
EXPENSES
The Topiary Cayman Fund and the Hatteras Cayman Fund will not bear any
fees or expenses in connection with the transactions contemplated by this
Agreement; provided, however, that any redemption charges or similar fees
incurred in connection with liquidating portfolio securities of the Topiary
Cayman Fund will be borne by the Topiary Cayman Fund and/or DBIM as the
Topiary Cayman Fund and DBIM shall agree. Except as noted above, the
responsibility for payment of all of the fees and expenses in connection with
entering into and carrying out the transactions contemplated by this
Agreement, whether or not the transactions contemplated hereby are concluded,
shall be allocated between DBIM and HIP (or any Affiliate thereof) as DBIM and
HIP shall agree.
ARTICLE VIII
AMENDMENTS AND TERMINATION
8.1 Amendments. The Parties may amend this Agreement in such manner as
may be agreed upon, whether before or after the meeting of members of the
Topiary Cayman Fund at which action upon this Agreement and the transactions
contemplated hereby is to be taken. Nothing in this paragraph 8.1 shall be
construed to prohibit the Parties from amending this Agreement to change the
Valuation Time or Effective Time.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Effective
Time:
Ex B - 20
(a) by the mutual written consent of the Parties;
(b) by the Topiary Cayman Fund (i) following a material breach by
the Hatteras Cayman Fund of any of its representations, warranties or
covenants contained in this Agreement, provided that the Hatteras Cayman Fund
shall have been given a period of the lesser of: (1) 10 Business Days from the
date of the occurrence of such material breach; and (2) the number of Business
Days remaining before the Closing to cure such breach and shall have failed to
do so; (ii) if any of the conditions set forth in paragraphs 6.1 and 6.3 are
not satisfied as specified in said paragraphs on or before December 31, 2007;
or (iii) upon the occurrence of an event which has a Material Adverse Effect
upon the Hatteras Cayman Fund;
(c) by the Hatteras Cayman Fund (i) following a material breach by
the Topiary Cayman Fund of any of its representations, warranties or covenants
contained in this Agreement, provided that the Topiary Cayman Fund shall have
been given a period of the lesser of: (1) 10 Business Days from the date of
the occurrence of such material breach; and (2) the number of Business Days
remaining before the Closing to cure such breach and shall have failed to do
so; (ii) if any of the conditions set forth in paragraphs 6.2 and 6.3 are not
satisfied as specified in said paragraphs on or before December 31, 2007; or
(iii) upon the occurrence of an event which has a Material Adverse Effect upon
the Topiary Cayman Fund;
If a Party terminates this Agreement in accordance with this
paragraph 8.2, in the absence of willful default there shall be no liability
for damages on the part of any Party, or the managers/directors or officers of
such Party. In the event of willful default, all remedies at Law or in equity
of the Party adversely affected shall survive.
ARTICLE IX
PUBLICITY; CONFIDENTIALITY
9.1 Publicity. Any public announcements or similar publicity with respect
to this Agreement or the transactions contemplated herein will be made at such
time and in such manner as the Parties mutually shall agree in writing,
provided that nothing herein shall prevent either Party from making such
public announcements as may be required by Law, in which case the Party
issuing such statement or communication shall advise the other Party prior to
such issuance.
9.2 Confidentiality. (a) The Parties, HIP and DBIM (for purposes of this
paragraph 9.2, the "Protected Persons") will hold, and will cause their board
members, managing members, officers, employees, representatives, agents and
Affiliated Persons to hold, in strict confidence, and not disclose to any
other Person, and not use in any way except in connection with the
transactions herein contemplated, without the prior written consent of the
other Protected Persons, all confidential information obtained from the other
Protected Persons in connection with the transactions contemplated by this
Agreement, except such information may be disclosed: (i) to Governmental or
Regulatory Bodies, and, where necessary, to any other Person in connection
with the obtaining of consents or waivers as contemplated by this Agreement;
(ii) if required by court order or decree or applicable Law; (iii) if it is
publicly
Ex B - 21
available through no act or failure to act of such Party; (iv) if it was
already known to such Party on a non-confidential basis on the date of
receipt; (v) during the course of or in connection with any litigation,
government investigation, arbitration, or other proceedings based upon or in
connection with the subject matter of this Agreement, including, without
limitation, the failure of the transactions contemplated hereby to be
consummated; or (vi) if it is otherwise expressly provided for herein.
(b) In the event of a termination of this Agreement, the Parties,
HIP and DBIM agree that they along with their board members, managing members,
employees, representative agents and Affiliated Persons shall, and shall cause
their Affiliates to, except with the prior written consent of the other
Protected Persons, keep secret and retain in strict confidence, and not use
for the benefit of itself or themselves, nor disclose to any other Persons,
any and all confidential or proprietary information relating to the other
Protected Persons and their related parties and Affiliates, whether obtained
through their due diligence investigation, this Agreement or otherwise, except
such information may be disclosed: (i) if required by court order or decree or
applicable Law; (ii) if it is publicly available through no act or failure to
act of such Party; (iii) if it was already known to such Party on a
non-confidential basis on the date of receipt; (iv) during the course of or in
connection with any litigation, government investigation, arbitration, or
other proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (v) if it is otherwise expressly
provided for herein.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including any schedules delivered
pursuant hereto, which are a part hereof) constitutes the entire agreement of
the Parties with respect to the matters covered by this Agreement. This
Agreement supersedes any and all prior understandings, written or oral,
between the Parties and may be amended, modified, waived, discharged or
terminated only by an instrument in writing signed by an authorized executive
officer of the Party against which enforcement of the amendment, modification,
waiver, discharge or termination is sought.
10.2 Notices. All notices or other communications under this Agreement
shall be in writing and sufficient if delivered personally, by overnight
courier, by facsimile, telecopied (if confirmed) or sent via registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows (notices or other communication sent via e-mail shall not constitute
notice):
Ex B - 22
If to the Topiary Cayman Fund or DBIM:
Topiary Offshore Fund for Benefit Plan Investors LDC
345 Park Avenue
New York, NY 10154
Attention: John H. Kim, Esq.
Telephone No.: (212) 454-3000
Facsimile No.: (732) 460-6825
E-mail: john.kim@db.com
With copies (which shall not constitute notice) to:
Sidley Austin LLP (counsel to the Topiary Cayman Fund)
787 Seventh Avenue
New York, NY 10019
Attention: John A. MacKinnon, Esq.
Telephone No.: (212) 839-5400
Facsimile No.: (212) 839-5599
E-mail: jmackinnon@sidley.com
If to Hatteras Cayman Fund or HIP:
Hatteras Multi-Strategy Offshore Fund, LDC
8540 Colonnade Center Drive
Suite 401
Raleigh, NC 27615
Attention: J. Michael Fields
Telephone No.: (919) 846-2324
Facsimile No.: (919) 846-3433
E-mail: mike.fields@hatterasip.com
With a copy (which shall not constitute notice) to:
Drinker Biddle & Reath LLP (counsel to Hatteras Cayman Fund)
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
Attention: Michael P. Malloy, Esq.
Telephone No.: (215) 988-2978
Facsimile No.: (215) 988-2757
E-mail: Michael.Malloy@dbr.com
10.3 Waiver. The failure of either Party hereto to enforce at any time
any of the provisions of this Agreement shall in no way be construed to be a
waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of either Party thereafter to
enforce each and every such provision. No waiver of any breach of
Ex B - 23
this Agreement shall be held to be a waiver of any other or subsequent breach.
Except as provided in paragraph 6.3(a), a Party may waive any condition to its
obligations hereunder (such waiver to be in writing and authorized by an
authorized signatory of the waiving Party).
10.4 Assignment. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations hereunder
shall be made by either Party without the written consent of the other Party.
Nothing herein express or implied is intended to or shall confer any rights,
remedies or benefits upon any Person other than the Parties hereto.
10.5 Survival. Except as provided in the next sentence, the respective
representations, warranties and covenants contained in this Agreement and in
any certificates or other instruments exchanged at the Effective Time as
provided in Article VI hereto shall not survive the consummation of the
transactions contemplated hereunder. The covenants in paragraphs 1.3, 1.5,
5.6, 5.8, 5.09, 9.2, 10.9, and this paragraph 10.5 and Article VII shall
survive the consummation of the transactions contemplated hereunder.
10.6 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.7 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to its
principles of conflicts of Laws.
10.9 Further Assurances. Subject to the terms and conditions herein
provided, each of the Parties hereto shall use its reasonable best efforts to
take, or cause to be taken, such action to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do,
or cause to be done, all things necessary, proper or advisable under the
provisions of this Agreement and under applicable Law to consummate and make
effective the Fund Transactions contemplated by this Agreement, including,
without limitation, delivering and/or causing to be delivered to the other
Party hereto each of the items required under this Agreement as a condition to
such Party's obligations hereunder. In addition, the Topiary Cayman Fund make
available the Hatteras Cayman Fund at and any time after the Closing upon
reasonable notice, the Books and Records of the Topiary Cayman Fund
(regardless of whose possession they are in).
10.10 Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in Persons not Parties (including, without limitation, any
investor in the Hatteras Cayman Fund or the Topiary Cayman Fund).
10.11 Validity. Whenever possible, each provision and term of this
Agreement shall be interpreted in a manner to be effective and valid, but if
any provision or term of this Agreement is held to be prohibited by Law or
invalid, then such provision or term shall be ineffective only in the
jurisdiction or jurisdictions so holding and only to the extent of such
Ex B - 24
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
10.12 Effect of Facsimile Signature. A facsimile signature of an
authorized officer of a Party hereto on any Transfer Document shall have the
same effect as if executed in the original by such officer.
ARTICLE XI
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Action or Proceeding" means any action, suit or proceeding by any
Person, or any investigation or audit by any Governmental or Regulatory Body.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such first Person.
"Agreement" has the meaning specified in the preamble.
"Assets" means all properties and assets of every kind and description
whatsoever, including, without limitation, all cash, cash equivalents,
securities, claims (whether absolute or contingent, known or unknown, accrued
or unaccrued and including, but not limited to, any claims that the Topiary
Cayman Fund may have against DBIM) and receivables (including dividend and
interest receivable), goodwill and other intangible property, Books and
Records, and all interests, rights, privileges and powers, owned by the
Topiary Cayman Fund, and any prepaid expenses shown on the Topiary Cayman
Fund's books at the Valuation Time, excluding (a) the estimated costs of
extinguishing any Excluded Liability; (b) any reserves for payment of expenses
incurred in the month ending immediately prior to the Effective Time, and (c)
the Topiary Cayman Fund's rights under this Agreement.
"Books and Records" means the Topiary Cayman Fund's or the Hatteras
Cayman Fund's accounts, books, records or other documents (including but not
limited to minute books, stock transfer ledgers, financial statements, tax
returns and related work papers and letters from accountants, and other
similar records) required to be maintained by the Topiary Cayman Fund or the
Hatteras Cayman Fund, as applicable, pursuant to Section 31(a) of the 1940 Act
and Rules 31a-1 to 31a-3 thereunder.
"Business Day" means a day other than Saturday, Sunday or a day on which
banks located in New York City are authorized or obligated to close.
"Cayman Law" has the meaning specified in paragraph 1.1.
"Closing" has the meaning specified in paragraph 3.1.
Ex B - 25
"DBIM" has the meaning specified in the preamble.
"Effective Time" has the meaning specified in paragraph 3.1.
"Excluded Liabilities" has the meaning specified in paragraph 1.3.
"Feeder Fund Agreement" has the meaning specified in the recitals.
"Feeder Fund Reorganization" has the meaning specified in the recitals.
"Governmental or Regulatory Body" means any court, tribunal, or
government or political subdivision, whether federal, state, county, local or
foreign, or any agency, authority, official or instrumentality of any such
government or political subdivision.
"Hatteras Cayman Fund" has the meaning specified in the preamble.
"Hatteras Fund Registration Statement" means the current registration
statement on Form N-2 of the Hatteras Feeder Fund, as supplemented from time
to time.
"Hatteras Governing Documents" has the meaning specified in paragraph
4.2(a).
"Hatteras Master Fund" has the meaning specified in the recitals.
"Hatteras Ordinary Shares" has the meaning specified in the recitals.
"Hatteras Preferred Share" has the meaning specified in the recitals.
"Hatteras Shares" has the meaning specified in the recitals.
"HIP" has the meaning specified in the preamble.
"Investment Fund" means any privately placed investment vehicle,
typically referred to as a hedge fund.
"Knowledge" means (i) with respect to the Topiary Cayman Fund, the actual
knowledge after reasonable inquiry of the Topiary Cayman Fund's directors or
officers, or DBIM in its capacity as a service provider to the Topiary Cayman
Fund and (ii) with respect to the Hatteras Cayman Fund, the actual knowledge
after reasonable inquiry of the Hatteras Cayman Fund's directors or officers,
or HIP in its capacity as a service provider to the Hatteras Cayman Fund.
"Law" means any law, statute, rule, regulation or ordinance of any
Governmental or Regulatory Body.
"Liabilities" means all liabilities and obligations reflected on an
unaudited statement of assets and liabilities of the Topiary Cayman Fund
prepared by DBIM as of the Valuation Time in accordance with U.S. generally
accepted accounting principles consistently applied from the
Ex B - 26
prior audited reporting period and reviewed and approved by the respective
treasurers of the Hatteras Cayman Fund and the Topiary Cayman Fund at the
Effective Time. "Liabilities" does not include, and the Hatteras Cayman Fund
shall not assume, (i) any Excluded Liabilities, (ii) any claim for damages
(liquidated or otherwise) as a result of the Topiary Cayman Fund's termination
of its agreements with any of its service providers, whether prior to or after
the Closing, or (iii) liabilities relating to invoices from services providers
representing services rendered to the Topiary Master Fund after the Effective
Time.
"Master Fund Agreement" has the meaning specified in the recitals.
"Master Fund Reorganization" has the meaning specified in the recitals.
"Material Adverse Effect" as to any Person means a material adverse
effect on the business, results of operations or financial condition of such
Person. For purposes of this definition, a decline in net asset value of the
Topiary Cayman Fund or the Hatteras Cayman Fund arising out of its investment
operations or declines in market values of securities in its portfolio, the
discharge of liabilities, or the redemption of interests in such fund, shall
not constitute a "Material Adverse Effect."
"NYSE" has the meaning specified in paragraph 2.4.
"1940 Act" means the Investment Company Act of 1940, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Order" means any writ, judgment, decree, injunction or similar order of
any Government or Regulatory Body, in each case whether preliminary or final.
"Party" and "Parties" each has the meaning specified in the preamble.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or other
entity.
"PFPC" has the meaning specified in paragraph 3.2.
"Protected Persons" has the meaning specified in paragraph 9.2.
"Proxy Statement" means the proxy statement filed or to be filed with the
SEC by the Topiary Feeder Fund in connection with the Feeder Reorganization.
"Reorganization" has the meaning specified in the recitals.
"SEC" means the U.S. Securities and Exchange Commission.
Ex B - 27
"Topiary Cayman Fund" has the meaning specified in the preamble.
"Topiary Fund Registration Statement" means the current registration
statement on Form N-2 of the Topiary Feeder Fund as supplemented from time to
time.
"Topiary Governing Documents" has the meaning specified in paragraph 1.1.
"Topiary Master Fund" has the meaning specified in the recitals.
"Topiary Ordinary Shares" has the meaning specified in the recitals.
"Topiary Preferred Share" has the meaning specified in the recitals.
"Topiary Shares" has the meaning specified in the recitals.
"Transfer Documents" has the meaning specified in paragraph 6.2(e).
"UMB" has the meaning specified in paragraph 3.2.
"Valuation Time" has the meaning specified in paragraph 2.4.
[SIGNATURE PAGE FOLLOWS]
Ex B - 28
IN WITNESS WHEREOF, the Parties and DBIM and HIP have caused this
Agreement to be duly executed and delivered by their duly authorized officers,
as of the day and year first above written.
TOPIARY OFFSHORE FUND FOR BENEFIT
PLAN INVESTORS (BPI) LDC
By: ________________________________
Name:
Title:
HATTERAS MULTI-STRATEGY OFFSHORE FUND, LDC
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 1.3, 4.1(h), 5.1, 5.8, 5.9, 5.10, 9.2 and 10.5
DB INVESTMENT MANAGERS, INC.
By: ________________________________
Name:
Title:
Solely for purposes of Article VII and
Paragraphs 4.2(h), 5.1, 5.8, 5.9, 9.2 and 10.5
HATTERAS INVESTMENT PARTNERS, LLC
By: ________________________________
Name:
Title:
Ex B - 29