efc7-2002_6217033formprem14a.htm
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed
by
the Registrant þ
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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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):
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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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):
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(4)
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Proposed
maximum aggregate value of transaction:
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Total
fee paid:
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Fee
paid previously with preliminary
materials.
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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.
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(1)
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(2)
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Form,
Schedule or Registration Statement No.:
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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
[ ], 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:
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By
calling us toll-free at 1 (877)
456-6399;
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By
Internet at www.2voteproxy.com;
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By
returning the enclosed proxy card in the postage-paid envelope;
or
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In
person at the Special Meeting.
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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.
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 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.
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.
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 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.
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.
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 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, 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
[ ], 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 [ ],
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.
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:
·
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the
Confidential Offering Memorandum dated September 20, 2006 of the
Hatteras
Fund (the “Hatteras Fund Offering
Memorandum”);
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·
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the
Annual Report of the Hatteras Fund for the year ended March 31, 2007
(the
“Hatteras Fund Annual Report”);
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the
Limited Partnership Agreement of the Hatteras Fund (the “Hatteras Fund
Limited Partnership Agreement”);
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|
the
Form ADV of the Hatteras Investment Manager;
and
|
·
|
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
345
Park Avenue
New
York, New York 10154
(212)
454-3000
|
Hatteras
Multi-Strategy TEI Fund, L.P.
8540
Colonnade Center Drive
Suite
401
Raleigh,
North Carolina 27615
(919)
846-2324
|
|
|
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 [ ], 2007.
TABLE
OF CONTENTS
|
|
|
Page
|
|
|
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
|
44
|
Expenses
of the Reorganization
|
45
|
Capital
Accounts
|
45
|
Legal
Matters
|
45
|
|
|
OTHER
INFORMATION
|
45
|
|
|
Capitalization
|
45
|
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
|
47
|
|
|
General
|
47
|
Member
Approval
|
48
|
Manner
of Voting
|
49
|
|
|
FORM
OF AGREEMENT AND PLAN OF REORGANIZATION
|
A-1
|
|
|
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:
·
|
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;
|
·
|
the
distribution of such Limited Partnership Interests to the Topiary
Fund’s
Members; and
|
·
|
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.
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:
·
|
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.”
|
·
|
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.
|
·
|
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 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.
·
|
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.
|
·
|
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.”
|
·
|
The
relative performance histories of each
Fund.
|
·
|
The
Hatteras Fund’s distribution program and focus on retail-oriented
accounts.
|
·
|
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.
|
·
|
The
organization and financial stability of the Hatteras Investment Manager
and the Hatteras General Partner.
|
·
|
The
Hatteras Investment Manager’s and the Hatteras General Partner’s
compliance program.
|
·
|
The
fact that DBIM considered another potential acquiror of the Topiary
Fund
but ultimately determined that such a transaction was not
feasible.
|
·
|
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).
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.
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
|
|
|
|
|
|
|
|
|
|
|
|
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 (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
|
|
|
|
|
|
|
|
|
|
Waivers/Reimbursement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Annual
Expenses
|
|
|
|
|
|
|
|
|
|
Incentive
Allocation
|
|
|
|
|
|
|
|
|
|
Net
Annual Expenses and Incentive Allocation
|
|
|
|
|
|
|
|
|
|
(footnotes
appear on page 11)
|
__________________________________________________________
|
|
(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.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 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 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.
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 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.
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. 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.
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 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 position 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 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.
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.
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 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 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 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 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 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 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.
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.
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,
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
|
Period
|
With
Sales
Charge*(%)
|
Without
Sales
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.
Hatteras
Fund
Average
Annual Total Return
|
Limited
Partnership Interests
|
Period
|
With
Placement Fee* (%)
|
Without
Placement 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 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.
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.
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”) and 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 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.
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, 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.
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
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:
·
|
the
approval of the Reorganization by the Topiary Fund’s
Members;
|
·
|
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;
|
·
|
the
receipt of all necessary approvals, consents, registrations and exemptions
under federal, state and local
laws;
|
·
|
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;
|
·
|
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;
|
·
|
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:
·
|
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.
·
|
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.
·
|
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 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.”
·
|
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.
·
|
The
costs associated with the Reorganization attributable to the Hatteras
Fund
will be absorbed by DBIM, the Hatteras Investment Manager or their
respective affiliates and 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.
·
|
The
inability of the Topiary Fund to fully redeem from 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. 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). If the Reorganization is not approved by members, 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.
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 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.
|
|
|
|
Topiary
Fund
|
|
|
|
Interests
|
|
$ |
|
|
Hatteras
Fund
|
|
|
|
|
Limited
Partnership Interests
|
|
$ |
|
|
Pro
Forma Hatteras Combined Fund
|
|
|
|
|
Limited
Partnership Interests
|
|
$ |
|
|
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 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 [ ],
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
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:
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 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.
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
[ ], 2007
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 ________________
(“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 limited 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, 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 limited
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
limited partnership interests in the Hatteras Master Fund will be distributed
to
members of the Topiary Master Fund in complete liquidation of such 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 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. 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 liquidation and termination of the Topiary
Fund.
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 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 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 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).
(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 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.
(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 the documents incorporated therein by
reference 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. Each of the Proxy Statement and
the documents incorporated therein by reference 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, 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 the documents incorporated therein by reference 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 the
documents incorporated therein by reference 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 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
limited 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, and upon the
effectiveness of the Hatteras Fund Registration Statement, 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 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).
(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, 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 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 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.
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;
(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
any
federal securities Law 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 in connection
with the consummation of the transactions herein contemplated, except such
as
have been obtained or made under the 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder and Delaware Law and
except such as may be required under state securities Laws.
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 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:
(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
any
federal securities Law 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 in connection
with the consummation of the transactions herein contemplated, except such
as
have been obtained or made under the 1933 Act, 1934 Act and the 1940 Act
and the
applicable rules and regulations of the SEC thereunder and Delaware Law and
except such as may be required under state securities Laws.
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, 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
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 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 ___________, ____; 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 _________, ____; 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,
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, 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
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.
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.
“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.
“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.
“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]
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.
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THE
TOPIARY FUND FOR
BENEFIT PLAN INVESTORS (BPI) LLC |
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HATTERAS
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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. |
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for purposes of Article VII and
Paragraphs
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HATTERAS
INVESTMENT
PARTNERS, LLC |
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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 ________________
(“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 limited 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, 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 limited 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 limited 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”).
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
XII
THE
REORGANIZATION
12.1 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.
12.2 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 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.
12.3 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.
12.4 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 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. 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.
12.5 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 liquidation and termination
of the
Topiary Master Fund.
12.6 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.
12.7 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
XIII
VALUATION
13.1 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.
13.2 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.
13.3 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.
13.4 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 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.
13.5 Valuation
Time. The valuation time shall be the close of regular trading on
the New York Stock Exchange (“NYSE”) on the last 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
XIV
EFFECTIVE
TIME AND CLOSING
14.1 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”).
14.2 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 federal funds
at the
Effective Time pursuant to instructions provided by the Hatteras Master
Fund.
14.3 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.
14.4 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
XV
REPRESENTATIONS
AND WARRANTIES
15.1 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 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.
(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.
(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.
(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 the documents incorporated therein
by
reference 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. Each of the Proxy Statement and
the documents incorporated therein by reference 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 the documents incorporated therein by reference 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 the documents incorporated therein by reference 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.
(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.
15.2 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 limited 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 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, and
upon
the effectiveness of the Hatteras Master Fund Registration Statement, 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.
(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 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.
ARTICLE
XVI
COVENANTS
AND AGREEMENTS
16.1 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.
16.2 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.
16.3 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
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).
16.4 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.
16.5 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.
16.6 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.
16.7 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.
16.8 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.
16.9 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.
16.10 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.
16.11 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.
16.12 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.
16.13 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.
16.14 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
XVII
CONDITIONS
PRECEDENT
17.1 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;
(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
any federal securities Law 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 in connection
with the consummation of the transactions herein contemplated, except such
as
have been obtained or made under the 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder and Delaware Law and
except such as may be required under state securities Laws.
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:
(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.
17.2 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 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
any federal securities Law 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 in connection
with the consummation of the transactions herein contemplated, except such
as
have been obtained or made under the 1933 Act, 1934 Act and the 1940 Act
and the
applicable rules and regulations of the SEC thereunder and Delaware Law and
except such as may be required under state securities Laws.
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 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.
17.3 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
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
XVIII
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
XIX
AMENDMENTS
AND TERMINATION
19.1 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 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.
19.2 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 ___________, ____; 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 _________, ____; 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
XX
PUBLICITY;
CONFIDENTIALITY
20.1 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.
20.2 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
XXI
MISCELLANEOUS
21.1 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.
21.2 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):
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
21.3 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).
21.4 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.
21.5 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.
21.6 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.
21.7 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.
21.8 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.
21.9 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).
21.10 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
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.
21.11 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.
21.12 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
XXII
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.
“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.
“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.
“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]
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.
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THE
TOPIARY FUND FOR
BENEFIT PLAN INVESTORS (BPI) LLC |
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HATTERAS
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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. |
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for purposes of Article VII and
Paragraphs
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HATTERAS
INVESTMENT
PARTNERS, LLC |
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EXHIBIT
C
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 ________________ (“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
limited 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 limited partnership interests in the Hatteras Master Fund will be
distributed to members of the Topiary Master Fund in complete liquidation
of
such 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 limited 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 limited 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
XXIII
THE
REORGANIZATION
23.1 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.
23.2 Assets.
(a) Attached
hereto as Schedule 1.2 is a schedule of the Assets and Liabilities of the
Topiary Cayman Fund as of __________.
23.3 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, 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.
23.4 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.
23.5 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 liquidation and termination of the Topiary
Cayman Fund.
23.6 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.
ARTICLE
XXIV
VALUATION
24.1 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.
24.2 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.
24.3 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.
24.4 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.
24.5 Valuation
Time. The valuation time shall be the close of regular trading on
the New York Stock Exchange (“NYSE”) on the last 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
XXV
EFFECTIVE
TIME AND CLOSING
25.1 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”).
25.2 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.
25.3 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.
25.4 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
XXVI
REPRESENTATIONS
AND WARRANTIES
26.1 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).
(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 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 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.
26.2 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, 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 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.
(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 or
facts have arisen which either individually or in the aggregate have had
a
Material Adverse Effect on the Hatteras Cayman Fund.
ARTICLE
XXVII
COVENANTS
AND AGREEMENTS
27.1 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.
27.2 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.
27.3 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.
27.4 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
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.
27.5 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.
27.6 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.
27.7 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.
27.8 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.
27.9 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.
27.10 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 day of the Closing to be properly prepared and filed and all
required information provided to the members of the Topiary Cayman
Fund.
ARTICLE
XXVIII
CONDITIONS
PRECEDENT
28.1 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;
(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 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.
28.2 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;
(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
(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.
28.3 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
XXIX
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
XXX
AMENDMENTS
AND TERMINATION
30.1 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.
30.2 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 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 ___________, ____; 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 _________, ____; 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
XXXI
PUBLICITY;
CONFIDENTIALITY
31.1 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.
31.2 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 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
XXXII
MISCELLANEOUS
32.1 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.
32.2 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):
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
32.3 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 signatory of
the
waiving Party).
32.4 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.
32.5 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.
32.6 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.
32.7 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.
32.8 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.
32.9 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).
32.10 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).
32.11 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.
32.12 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
XXXIII
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.
“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
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.
“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]
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.
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TOPIARY
OFFSHORE FUND FOR
BENEFIT PLAN INVESTORS (BPI) LLC |
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By:
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Name: |
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Title: |
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HATTERAS
MULTI-STRATEGY OFFSHORE FUND, LDC |
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By:
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Name: |
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Title: |
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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. |
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By:
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Name:
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Title:
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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 |
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By:
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Name:
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Title:
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