We speculated quite a bit on the eventual fate of Amaranth and its many characters after its melt-down. A hedge fund guru and loyal reader forwards me today a copy of Amaranth's Summer 2001 Offering Memorandum for Amaranth International Limited, the Bermuda entity that served as a "master feeder" fund to Amaranth's Delaware entity. To wit:
Amaranth International Limited (the “Fund”) is a Bermuda exempted mutual fund company, incorporated on 2 January 1998, the investment objective of which is to maximize expected returns on a risk-adjusted basis. The Fund will seek to achieve its investment objective by investing, directly or indirectly, substantially all of its capital in a Delaware limited liability company (the “Master Fund”), which has an investment objective identical to that of the Fund. The Master Fund is expected to employ a diverse group of trading strategies, within which it may trade a broad range of equity and debt securities, commodities, derivatives and other financial instruments on a global basis. The Fund cannot assure any of its Shareholders that its investment objective will be achieved. The securities and strategies which the Fund and the Master Fund utilize present special and significant risks which investors should carefully consider in conjunction with their investment, legal and tax advisors. There can be no assurance that the Fund or the Master Fund will meet its objectives (or avoid losses). See “RISK FACTORS.”
It is an older document, and many revisions could have been made in the interim, but some interesting features come out on further examination. Join us, dear reader, in contemplating these and descring, (but for a moment) the strange world of restricted redemptions.
Of course, redemptions were an interesting point given the eventual fate of Amaranth.
Redemptions
No Shareholder will have the right to redeem any of its Shares except as described below.
A Shareholder may request the redemption of its Shares as of the first anniversary of the last day of the month those Shares were purchased by the Shareholder and on each anniversary thereafter (each such day being a “Redemption Date”) by notifying the Administrator in writing at least 90 days prior to the Redemption Date.
Furthermore, a Shareholder may request the redemption of a portion of its Shares as of December 31 of any year (each such day also being a “Redemption Date”), up to that number of Shares held by such Shareholder as have an aggregate Net Asset Value equal to 90% of the amount estimated by the Fund to represent the cumulative net increase in the Net Asset Value per Share of that Shareholder’s Shares from the date(s) of their purchase through the last day of that calendar year (less any amounts previously so redeemed) by notifying the Administrator in writing by November 30 of the year in question.
A Shareholder may also request the redemption of all or a portion of its Shares as of the last day of each of January, April, July and October of any year (each such day also being a "Redemption Date") by notifying the Administrator in writing at least 45 days prior to the proposed Redemption Date, provided that the Fund will not permit the redemption on such basis of more than 7.5% of the 20 Net Asset Value attributable to the total Shares outstanding on any such Redemption Date, excluding any Shares being contemporaneously redeemed under either of the two preceding paragraphs on such Redemption Date. In the event that the Administrator receives aggregate redemption requests on this basis in excess of such limit, the redemption amounts will be determined by reference to the relative numbers of Shares held by those Shareholders requesting redemption, rather than by reference to the relative amounts of the redemption requests. Accordingly, the maximum dollar amount a Shareholder will be able to redeem under this paragraph will be determined by multiplying the total dollar amount available for redemption by all Shareholders under this paragraph by a fraction, the numerator of which is the total number of Shares held by such Shareholder on such Redemption Date (prior to giving effect to any redemption under this paragraph), and the denominator of which is the total number of Shares held by all Shareholders so requesting redemption under this paragraph on such Redemption Date (prior to giving effect to any redemption under this paragraph). In the event that a Shareholder has requested redemption of less than the maximum dollar amount available for redemption by such Shareholder under this paragraph, the available amount not redeemed by such Shareholder will be made available for redemption by the other Shareholders so requesting redemption on such Redemption Date, and the additional amount redeemable by any such other Shareholder will be determined by multiplying the total additional amount available for redemption by all such other Shareholders by a fraction, the numerator of which is the total number of Shares held by such other Shareholder on such Redemption Date (prior to giving effect to any redemption under this paragraph), and the denominator of which is the total number of Shares held by all such other Shareholders on such Redemption Date (prior to giving effect to any redemption under this paragraph). Quarterly redemptions under this paragraph are subject to a redemption fee of 2.5% of the redemption proceeds. All such redemption fees will be deducted from the amount withdrawn and will be retained by the Fund.
The Directors may, at their sole discretion, waive part or all of any of the above notice periods or redemption fees, if any, or agree to different Redemption Dates. Each Share will be redeemed at a price equal to the Net Asset Value per Share of the relevant Series being redeemed on the Redemption Date, subject to (i) a charge, if applicable, to be determined at the sole discretion of the Fund, for the expenses of liquidating a proportionate share of the Fund’s assets, (ii) other reserves for contingencies as the Directors, at their sole discretion, deem appropriate, and (iii) adjustments to the value of the Shares being redeemed to reflect such Shares’ proportionate share of increases and decreases in the Net Asset Value of the Fund occurring after the Redemption Date, if the Directors elect the Deferred Redemption System described below (the “Redemption Price per Share”).
The Fund has the right to require the redemption of a particular Shareholder's Shares of any Series, for any reason or no reason at any time a t the sole discretion of the Directors, upon not less than 30 days' written notice. If a Shareholder's Shares are so redeemed, the Bye- laws provide that the Redemption Price per Share payable in respect of such Shares shall be the Net Asset Value per Share of the relevant Series as of the date fixed for the redemption thereof in the notice of mandatory redemption served on the relevant Shareholder by the Fund, adjusted as described above on the same basis as the Redemption Price per Share payable in respect of a redemption requested by the Shareholder.
Redemption proceeds will be paid in cash, by check or wire transfer, or securities or both, as the Fund may at its sole discretion determine. Under normal circumstances, 90% of redemption proceeds will be paid by the Fund to a redeeming Shareholder within 30 days of the relevant Redemption Date, with the balance paid promptly after the completion of the Fund’s audit for the calendar year in which the Redemption Date falls. The amount of such balance is subject to adjustment to reflect any revision of the relevant Net Asset Value per Share between the initial 21 payment of redemption proceeds and the payment of such balance. Redemption proceeds or the part thereof which is paid in cash will be paid in U.S. Dollars, unless the Fund otherwise agrees. See “RISK FACTORS, Valuation Risk.” No interest shall be payable by the Fund with respect to any redemption proceeds.
The Fund may adopt the “Deferred Redemption System” if, as of any Redemption Date, the Fund’s funds are committed directly or indirectly to one or more trading entities that do not permit immediate withdrawal of funds or there exists a state of affairs which, in the opinion of the Fund, constitutes circumstances wherein liquidation by the Fund of its investments is not reasonable or practicable, or would be prejudicial to the Fund. If the Deferred Redemption System is adopted:
a) The Fund will attempt to withdraw from its investments, as of the earliest date on or after the relevant Redemption Date upon which the Fund is permitted to do so, the portion thereof allocable to the Shares of the Shareholder being redeemed;
b) Within 30 days following the relevant Redemption Date, the Shareholder will be entitled to receive an amount of cash, securities or both, as determined by the Fund at its sole discretion, equal to (i) the Shareholder’s proportionate share of all cash, and the fair market value of all marketable securities, held by the Fund as of the Redemption Date, less (ii) its share of the Fund's liabilities as of the Redemption Date and any reserves for contingencies;
c) Any outstanding redemption proceeds due to the redeeming Shareholder following steps (a) and (b) above will be paid within 30 days after the Fund receives the proceeds from the liquidation of Fund investments representing the redeeming Shareholder’s proportionate share thereof. The Bye-laws do not obligate the Directors, when they determine which Fund investments to liquidate in order to satisfy a Shareholder redemption request, to partially liquidate any investments allocable to the Shares being redeemed by the redeeming Shareholder. In any event, the Fund will pay at least 80% of the amount due to a redeeming Shareholder within one year following the relevant Redemption Date and will seek to pay any outstanding balance as soon as is reasonably practicable, thereafter; and
d) The value of the Shares being redeemed will be subject to a “Liquidating Adjustment” representing a credit or charge for such Shareholder’s proportionate share of any increase or decrease in the Net Asset Value of the Fund from the relevant Redemption Date through to the date upon which the Fund liquidates investments for the purpose of satisfying such Shareholder’s redemption request. Under Bermuda law, the Fund cannot redeem its Ordinary Shares if to do so would result in the issued share capital of the Fund being less than the required minimum capital of U.S. $12,000.
Suspension of Dealings
Notwithstanding anything contained herein to the contrary, either the Directors or the Trading Advisor may suspend dealings in Shares in certain circumstances as described under “GENERAL INFORMATION.” No Shares will be issued, valued or redeemed during such suspension.
Going back to the General Information reference we find:
Suspension of Valuations and Dealings
Either the Directors or the Trading Advisor may suspend Net Asset Value per Share calculations for the whole or any part of a period during which any exchange or over-the-counter market on which any significant portion of the investments of the Fund or the Master Fund are listed, traded or dealt in is closed (other than customary weekend and holiday closing) or trading on any such exchange or market is restricted; or there is a temporary operational or other communications breakdown or when circumstances exist as a result of which, in the opinion of the Directors or the Trading Advisor, the accurate valuation of the Fund’s investments (i.e., primarily its investments in the Master Fund) is not possible. No Shares shall be issued or redeemed during such suspension. (Emphasis mine).
And if the fund, god forbid, might have to be dissolved?
Share Rights
The capital of the Fund is divided into Participating Shares and Ordinary Shares, all with a par value of U.S.$1 each. The holders of such shares shall have the following rights:(a) The holders of Ordinary Shares and the Class B Participating Shares shall be entitled to receive notice of, to attend and to vote at general meetings of the Fund. Holders of Ordinary Shares are not entitled to a dividend or any other distribution or to any payment in a winding up that exceeds the par value thereof. The Ordinary Shares are not redeemable whether at the option of the Fund or the holder(s) thereof.
(b) In the event of a winding up or dissolution of the Fund, whether voluntary or involuntary or for the reorganization or otherwise or upon a distribution of capital, the holders of the Participating Shares will be entitled to all surplus assets of the Fund after payment of the par value of the Ordinary Shares. Furthermore, the holders of the Participating Shares will be entitled to dividends as the Directors may from time to time declare and the Shareholders will have the right to have their Shares redeemed based on their Net Asset Value per Share (see “SHARES OF THE FUND, Redemptions”). Details of the voting rights of the holders of the Shares are set out under “Voting Rights” below.
Term of the Master Fund, Dissolution, and Liquidation
The managing member may, at its sole discretion, dissolve the Master Fund at any time. In any event, the Master Fund will dissolve on December 31, 2037, or upon the withdrawal, bankruptcy, or dissolution of the last remaining managing member, unless a majority in interest of the remaining members vote to continue the Master Fund.
When the Master Fund is dissolved, the managing member will cause its assets to be liquidated (except to the extent that the managing member elects to distribute assets in-kind) and, after paying debts and expenses and establishing such reserves for contingent or potential liabilities as the managing member, at its sole discretion, deems proper, distributed to the members of the Master Fund in proportion to their respective capital accounts.
There was, as I recall, some question about liability for the Brian Hunter's of the world. Have no fear, Brian Hunter, (absent fraud):
Indemnification
The Limited Liability Company Agreement provides that the managing member will not be liable to the Master Fund or any member thereof for claims or losses other than those occurring by reason of the managing member’s bad faith, fraud, gross negligence or reckless or intentional misconduct, or by reason of actions so found by a court of competent jurisdiction, after entry of final judgment, to have been taken by the managing member without a reasonable belief that they were properly authorized by the Limited Liability Company Agreement. The managing member will not be personally liable for the return or payment of all or any portion of the capital of or profits allocable to any member of the Master Fund, which payments will be made solely from the assets of the Master Fund.
The Limited Liability Company Agreement further provides that the Master Fund will indemnify, defend, and hold harmless the managing member, its Affiliates and, at the discretion of the managing member, the Master Fund’s agents, employees, advisors and consultants from and against any losses arising as a result of business or activities undertaken on behalf of the Master Fund, other than such losses as result from the bad faith, fraud, gross negligence or reckless or intentional misconduct of such parties, or the violation by such parties of such lesser standard of conduct as under applicable law prevents that indemnification, or as a result of actions so found by a court of competent jurisdiction, after entry of a final judgment, to have been taken without a reasonable belief that they were properly authorized by the Limited Liability Company Agreement. All such rights of indemnification shall survive the dissolution of the Master Fund.
