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  • 1. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 1 of 29 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 FLETCHER INTERNATIONAL, LTD. Case No. 12-12796 (REG) Debtor. SCHEDULES OF ASSETS AND LIABILITIES OF FLETCHER INTERNATIONAL, LTD.01:12547781.9 
  • 2. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 2 of 29 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 FLETCHER INTERNATIONAL, LTD. Case No. 12-12796 (REG) Debtor. GLOBAL NOTES AND STATEMENT OF LIMITATIONS, METHODOLOGY, AND DISCLAIMERS REGARDING THE DEBTOR’S SCHEDULES OF ASSETS AND LIABILITIES AND STATEMENT OF FINANCIAL AFFAIRS The above-captioned debtor and debtor in possession (the “Debtor”), with the assistance of its counsel and advisors, has prepared its schedules of assets and liabilities (the “Schedules”) and statement of financial affairs (the “Statement”) pursuant to section 521 of title 11 of the United States Code (the “Bankruptcy Code”) and Rule 1007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). The Schedules and Statement are unaudited. The Debtor has made reasonable efforts to ensure that the Schedules and Statement are accurate and complete based on information that was known and available to it at the time of preparation. Subsequent information or discovery may result in material changes to these Schedules and Statement, and inadvertent errors or omissions may exist in the Schedules and Statement. Furthermore, the financial and other information underlying the Schedules and Statement and the prepetition transactions in which the Debtor engaged are subject to ongoing review, investigation and analysis by the Debtor, the results of which may necessitate adjustments that may have a material impact on the Schedules and Statement taken as a whole. Moreover, because the Schedules and Statement contain unaudited information that is subject to further review and potential adjustment, there can be no assurance that these Schedules and Statement are wholly accurate and complete. Nothing contained in the Schedules and Statement shall constitute a waiver of any right of the Debtor, including the Debtor’s right to amend these Schedules and Statement and any right with respect to any issues relating to reclassification or recharacterization of claims or equity interests, equitable subordination, defenses and/or causes of action arising under the provisions of chapter 5 of the Bankruptcy Code and applicable law. These Global Notes and Statement of Limitations, Methodology and Disclaimers Regarding the Debtor’s Schedules and Statement (the “Global Notes”) are incorporated by reference in, and comprise an integral part of, the Schedules and Statement, and should be referred to and reviewed in connection with any review of the Schedules and Statement. Global Notes for the Schedules and Statement 1. Bankruptcy Case. On June 29, 2012 (the “Petition Date”), the Debtor filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, Case No. 12-12769 (REG).01:12547781.9 
  • 3. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 3 of 29 2. Amendments. The Debtor reserves its right to amend and/or supplement the Schedules and Statement in all respects at any time as may be necessary or appropriate, including, without limitation, the right to dispute or to assert offsets or defenses to any claim reflected on the Schedules and Statement as to amount, to liability, or to classification, or to otherwise subsequently designate any claim as “disputed,” “contingent,” or “unliquidated.” 3. Dates. Unless otherwise indicated, the information provided is as of close of business on the Petition Date. The claims listed in the Schedules arose or were incurred on various dates. The Debtor does not list a specific date of occurrence for each and every claim. 4. Excluded Assets and Liabilities. The Debtor may have excluded certain immaterial assets and liabilities. 5. Insiders. For purposes of completing the Schedules and Statement, the Debtor has identified an “Insider” as an individual or entity that, among other things, (a) has served as either an officer or director of the Debtor, (b) was in control of the Debtor, (c) was a partnership in which the Debtor is a general partner, (d) was a general partner of the Debtor, (e) was a relative of a general partner, director, officer, or person in control of the Debtor, (f) was or is an affiliate, or insider of an affiliate as if such affiliate were the Debtor, or (g) was a managing agent of the Debtor. Individuals or entities listed as “Insiders” have been included for informational purposes only. The Debtor does not take any position with respect to (i) such person or entity’s influence over the control of the Debtor, (ii) the management responsibilities or functions of such individual or entity, (iii) the decision-making or corporate authority of such individual or entity, or (iv) whether such individual or entity is legally an “Insider” under applicable bankruptcy or non-bankruptcy law. 6. Summary of Significant Accounting and Reporting Policies. The following is a summary of certain significant accounting and reporting policies of the Debtor that have been employed in the preparation of the Schedules and Statement: (a) Basis of Presentation. The Schedules and Statement reflect information pertaining to the financial position and results of operations of the Debtor only and do not reflect the consolidation of the Debtor’s non-debtor subsidiaries, The Aesop Fund Ltd. (the “Aesop Fund”) and Fletcher International Partners L.P. (“FIPLP”) for which the Debtor has employed the equity method of accounting. (b) Use of Estimates. The preparation of the Schedules and Statement required the Debtor to make estimates that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities on the date of the Schedules and Statement and the reported amounts of revenues and expenses during the reporting periods. (c) Investment Valuation. The Debtor maintains an investment portfolio that consists of various privately purchased securities in publicly-traded companies. The Debtor records these investments at estimated fair value01:12547781.9  -2-
  • 4. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 4 of 29 based on estimated fair value determinations made by the Debtor’s third party valuation advisor, Quantal International, Inc. (“Quantal”). (d) Securities Transactions and Related Income and Expenses. Purchases and sales of securities and the related income and expenses are recorded on a trade-date basis. Realized gains and losses on securities transactions are based on the first-in-first-out method. Unrealized changes in the fair value of the Debtor’s investment portfolio during the reporting period are reflected in the Debtor’s results of operations as unrealized gains and losses. Dividend income and dividends on securities sold short are recorded in the results of operations on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. (e) Causes of Action. The Debtor believes that it may possess certain claims and causes of action against various parties. Additionally, the Debtor may possess contingent claims in the form of various avoidance actions it could commence under the provisions of the Bankruptcy Code and other applicable non-bankruptcy laws. The Debtor has not set forth all causes of action against third parties as assets in its Schedules and Statement. The Debtor reserves all rights with respect to any claims, causes of action or avoidance actions it may have and nothing contained in these Global Notes or the Schedules and Statement shall be deemed a waiver of any such claims, avoidance actions or causes of action or in any way prejudice or impair the assertion of such claims. 7. Classifications. Listing a claim (a) on Schedule D as “secured,” (b) on Schedule E as “priority” or (c) on Schedule F as “unsecured non-priority,” or listing a contract on Schedule G as “executory” or “unexpired,” respectively, does not constitute an admission by the Debtor of the legal rights of the claimant, or a waiver of the Debtor’s right to re-characterize or reclassify such claim, contract or lease. In particular, the Debtor reserves the right to amend the Schedules and Statement to re-characterize or reclassify any such claim, contract or lease. 8. Disputed, Contingent and/or Unliquidated Claims. Schedules D, E and F permit the Debtor to designate a claim as “disputed,” “contingent” and/or “unliquidated.” Any failure to designate a claim on the Debtor’s Schedules as “disputed,” “contingent” or “unliquidated” does not constitute an admission by the Debtor that such amount is not “disputed,” “contingent” or “unliquidated” or that such claim is not subject to objection. The Debtor reserves the right to dispute, or assert offsets or defenses to, any claim reflected on these Schedules as to amount, liability or classification or to otherwise subsequently designate any claim as “disputed,” “contingent” or “unliquidated.” Listing a claim does not constitute an admission of liability by the Debtor. 9. Schedule A - Real Property. The Debtor does not own any real property. 10. Schedule B - Personal Property. Personal property owned by the Debtor is listed in Schedule B. Except as otherwise noted, personal property is scheduled at the value that the Debtor carried on its books as of the Petition Date.01:12547781.9  -3-
  • 5. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 5 of 29 (a) Schedule B-2 – Checking, Savings or Other Financial Accounts. In addition to the Cash amounts presented in Schedule B-2, the Debtor’s account with JPMorgan Chase Bank, N.A. holds 182,000 shares in COM21, Inc., that the Debtor believes has zero value and the ownership of which is undetermined. (b) Schedule B-13 – Stock and Interests in Incorporated and Unincorporated Businesses. Schedule B-13 reflects the Debtor’s inventory of private investments in public securities. For investments scheduled in B-13, the amount presented represents the estimated fair value of each security based on fair value estimates provided to the Debtor by Quantal. These assets are maintained in custodial accounts, which are disclosed in response to Statement Question 12. The Debtor also listed its ownership interest (at book value) in the Aesop Fund, its wholly owned subsidiary, on Schedule B-13. (c) Schedule B-21 – Other Contingent and Unliquidated Claims of Every Nature, Including Tax Refunds, Counterclaims of the Debtor, and Rights to Setoff Claims. The Debtor is a plaintiff in two pending lawsuits that are also listed in response to Statement Question 4(a): Fletcher International, Ltd. v. ION Geophysical Corporation f/k/a Input/Output, Inc., and ION International S.ar.l  Breach of Contract and Tortious Interference with Contract or Business Relations  Case number 5109-CS, Delaware Chancery Court Fletcher International, Ltd. v. Robin Lee McMahon and Roy Bailey as Joint Official Liquidators for FIA Leveraged Fund, and FIA Leveraged Fund  Declaratory Judgment for Promissory Note  Case number 651806-2012, Supreme Court of New York 11. Schedule D – Creditors Holding Secured Claims. Credit Suisse Securities USA LLC (together with certain of its affiliated entities) (“Credit Suisse”), the Debtor’s former prime broker, has asserted a lien against certain Debtor assets being held at Credit Suisse and has contended that these assets constitute cash collateral under section 363 of the Bankruptcy Code. After several weeks of negotiations, on August 31, 2012, the Debtor and Credit Suisse entered into, subject to court approval, the Stipulation and Final Order by and Between Fletcher International, Ltd. and Credit Suisse (A) Authorizing the Use of Cash Collateral Pursuant to 11 U.S.C. § 363, (B) Governing Return of Assets to the Debtor, (C) Granting Adequate Protection to Credit Suisse Pursuant to 11 U.S.C. §§ 105(a), 361, 362 and 363, and (D) Allowing Set off by Credit Suisse (the “Cash Collateral Stipulation”).01:12547781.9  -4-
  • 6. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 6 of 29 Schedule D sets forth the legal costs Credit Suisse purportedly incurred pre-petition in relation to the termination of its prime brokerage relationship with the Debtor and the liquidation of certain assets to satisfy the Debtor’s margin and swap obligations to Credit Suisse. Credit Suisse is asserting that these fees are the Debtor’s responsibility based on the Debtor’s indemnification obligations under its customer agreements with Credit Suisse. The Debtor has reserved its right to dispute this assertion and assert any other defenses the Debtor has to Credit Suisse’s claims. As a result, Credit Suisse’s claim is presented as “contingent,” “unliquidated” and “disputed.” 12. Schedule E – Creditors Holding Unsecured Priority Claims. The Debtor had no pre-petition employees, but retained two consultants, Stewart Turner and Stuart MacGregor, to perform key functions for the Debtor. The Debtor’s two consultants were paid on a monthly basis prior to the Petition Date. For the purposes of Schedule E, the Debtor has taken the position that the June 2012 fees payable to the Debtor’s consultants prior to the Petition Date are priority employee claims. The Debtor has checked “disputed” based on belief that a portion of the pre-petition work related to entities other than the Debtor. 13. Schedule F – Creditors Holding Unsecured non-Priority Claims. Schedule F lists the unsecured non-priority claims as represented in the Debtor’s books and records. To the extent the items listed in Schedule F represent amounts payable to service providers, it is unclear in many instances whether the related services were actually performed on behalf of the Debtor or, alternatively, were for the benefit of Fletcher Asset Management, LLC (“FAM”), the Debtor’s investment manager, other affiliates of the Debtor or other unaffiliated entities. As such, the Debtor has checked “disputed” for all of these claims. The Debtor is continuing to research the nature of services provided by these potential claimants. Certain other claims listed on Schedule F relate to intercompany obligations that may be subject to reclassification, recharacterization or other modification. Accordingly, the Debtor has checked “disputed” for these claims. 14. Schedule G – Unexpired Leases and Executory Contracts. While reasonable effort has been made to ensure the accuracy of Schedule G regarding executory contracts and unexpired leases, inadvertent errors or omissions may cause Schedule G to be inaccurate. The Debtor hereby reserves all of its rights to dispute the validity, status or enforceability of any contract or lease set forth on Schedule G that may have expired or may have been modified, amended, or supplemented from time to time by various amendments, restatements, waivers, estoppel certificates, letters and other documents, instruments, and agreements which may not be listed on Schedule G. Certain of the contracts and leases listed on Schedule G may contain certain renewal options, guarantees of payment, options to purchase, rights of first refusal, and other miscellaneous rights. Such rights, powers, duties and obligations are not set forth on Schedule G. Certain of the executory agreements may not have been memorialized in writing and could be subject to dispute. In addition, the Debtor may have entered into various other types of agreements in the ordinary course of its business, including supplemental agreements, amendments/letter agreements, title agreements and confidentiality agreements. Such documents may also not be set forth on Schedule G. The Debtor reserves all of its rights to dispute or challenge the characterization of the structure of any transaction, or any document or instrument01:12547781.9  -5-
  • 7. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 7 of 29 (including without limitation, any intercompany agreement) related to a creditor’s claim. In the ordinary course of business, the Debtor may have entered into agreements, written or oral, for the provision of certain services on a month-to-month or at-will basis. Such contracts may not be included on Schedule G. However, the Debtor reserves the right to assert that such agreements constitute executory contracts. Certain of the Debtor’s investments listed on Schedule B-13 may have as a component of or form part of one or more executory contracts. Any agreements related to the investments listed on Schedule B-13 have not been set forth on Schedule G, and the Debtor incorporates Schedule B-13 into Schedule G to the extent that such investments have as a component of or form part of one or more executory contracts. 15. Statement Question 3 – Payments to Creditors. (a) Statement Question 3(b). The Debtor’s response to Statement Question 3(b) pertains only to payments to creditors not identified as Insiders during the 90 days immediately preceding the Petition Date based on review of the cash activity in the Debtor’s pre-petition operating account with HSBC US Private Bank (“HSBC”). The non-Insider parties listed therein include, without limitation, the Debtor’s professional service providers, consultants and other vendors. The Debtor’s response to Statement Question 3(b) does not include certain disbursements made from the Debtor’s prime brokerage account with Credit Suisse during the 90 days preceding the Petition Date, which are listed in response to Statement Question 13. The Debtor’s response to Statement Question 3(b) also excludes certain payments made on behalf of the Debtor by Fletcher International, Inc. (“Fletcher Delaware”) on June 29, 2012, prior the commencement of the Debtor’s bankruptcy proceedings, in the amount of $288,183.32 to fund certain pre-petition professional fees and retainers. These payments made on behalf of the Debtor were treated as an intercompany loan from Fletcher Delaware and were memorialized in a note payable to Fletcher Delaware and are discussed more fully in the Debtor’s response to Statement Question 9 below. These amounts were transferred from Fletcher Delaware’s bank account directly to the Debtor’s insolvency counsel and its Bermuda counsel. (b) Statement Question 3(c). The Debtor’s response to Statement Question 3(c) reflects all payments to parties identified as Insiders that occurred within one year of the Petition Date, excluding any payments in respect of redemptions, distributions, subscriptions, investments and/or transfers in- kind. Those excluded items are set forth in the Debtor’s response to Statement Question 10(a).01:12547781.9  -6-
  • 8. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 8 of 29 16. Statement Question 9 – Payments to Professionals for Bankruptcy Advice. On June 29, 2012, prior to the commencement of the Debtor’s bankruptcy proceedings, a payment was made in the amount of $21,317.70 to Appleby (Bermuda) Limited (“Appleby”) for certain fees incurred (at least in part) in connection with the Debtor’s bankruptcy filing, and a $200,000 retainer payment was made to Young Conaway Stargatt & Taylor, LLP (“Young Conaway”) in connection with Young Conaway’s representation of the Debtor in its chapter 11 proceeding. As set forth in Note 15(a) above, the funds paid to Appleby and Young Conaway were the proceeds of a loan from Fletcher Delaware to the Debtor, but the funds were paid directly from Fletcher Delaware’s bank account to the professionals. As of the Debtor’s bankruptcy filing, Young Conaway had drawn approximately $30,000 from its pre-petition retainer to apply against fees incurred in connection with the Debtor’s chapter 11 proceeding. 17. Statement Question 10(a) – Other Transfers. The Debtor has reflected all distributions to and redemptions from the Debtor’s shareholders as well all subscriptions and investments by the Debtor in its subsidiaries in response to Statement Question 10(a). All parties listed in response to Statement Question 10(a) are treated as Insiders as qualified by Note 5. The Debtor’s response to Statement Question 10(a) should be read in conjunction with the Debtor’s response to Statement Question 3(c). General During the period from June 30, 2010 through June 29, 2012 (the “Look Back Period”), approximately $259.9 million in cash and other assets was transferred from the Debtor to the four Insider entities listed below:  $16.3 million in cash was transferred to BRG Investments, LLC (“BRG”);  $141.0 million in cash and other assets were transferred to Fletcher Income Arbitrage Fund Ltd. (“Arbitrage”);  $102.4 million in cash and other assets were transferred to Fletcher Delaware; and  $0.005 million in cash was transferred to the Aesop Fund. Based on information made available to the Debtor by its consultants, the following is a summary of the transfers made to the four entities listed above during the Look Back Period: BRG According to the Debtor’s books and records, the Debtor funded approximately $16.3 million in cash through one or more investments in BRG in June 2008. Upon information and belief, among its other potential pursuits, BRG is engaged in the production and distribution of motion pictures. The Debtor’s holdings in BRG were subsequently transferred to Fletcher Delaware as an in-kind transfer as part of the April 22 Transactions (as discussed and defined below).01:12547781.9  -7-
  • 9. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 9 of 29 Arbitrage In August 2010, the Debtor transferred approximately $4.5 million of cash in partial satisfaction of an intercompany note payable to Arbitrage. In February 2012, following various redemption requests tendered to FIA Leveraged Fund (“Leveraged”) by certain Louisiana-based public pension plans (the “Louisiana Pension Systems”) that invested in Leveraged, Arbitrage made a compulsory redemption of Arbitrage shares held by Leveraged in the amount of $136.1 million. This redemption resulted in a request by Arbitrage that the Debtor redeem certain shares in the Debtor that Arbitrage then held. In response, the Debtor transferred assets comprised of various investments in and claims against United Community Banks, Inc. (“UCBI”), which were valued by the Debtor at approximately $136.1 million, to a newly-formed, wholly-owned subsidiary, FILB Co-Investments, LLC (“FILB-CI”). The Debtor then transferred the shares in FILB-CI to Arbitrage in purported redemption of shares in the Debtor held by Arbitrage. Additionally, two transfers totaling $0.4 million were made by the Debtor in May and June 2012, which were recorded in the Debtor’s books and records as shareholder redemptions from Arbitrage. Fletcher Delaware During the Look Back Period, cash and assets valued at approximately $102.5 million were transferred from the Debtor to Fletcher Delaware through 55 separate transactions. These transfers can generally be summarized into the following five categories:  The transfer of approximately $44.1 million (5 transactions) of cash and other assets as part of a series of transactions that occurred as part of the April 22 Transactions (as discussed and defined below);  Various transfers of cash totaling $40.9 million (32 transactions) from the Debtor to Fletcher Delaware that were recorded as shareholder redemptions;  Various transfers of assets pledged by the Debtor to Asset Holding Company 5, LLC (“AHC5”), an affiliate of Fletcher Delaware, pursuant to the Guaranty and Pledge Agreement (as discussed and defined below), which totaled approximately $8.5 million (11 transactions). Prior to the Petition Date, these transfers were recorded by the Debtor as shareholder redemptions by Fletcher Delaware;  The forgiveness of a note receivable due to the Debtor from Fletcher Delaware in the amount of $6.6 million (1 transaction) on January 1, 2011, which was treated as a shareholder redemption by Fletcher Delaware; and  Various transfers of securities valued by the Debtor at $2.4 million (6 transactions) from the Debtor to Fletcher Delaware that were recorded as shareholder redemptions.01:12547781.9  -8-
  • 10. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 10 of 29 The April 22 Transactions On April 22, 2012, the boards of directors of the Debtor, Fletcher Delaware and Arbitrage adopted a series of resolutions approving the following transactions (the “April 22 Transactions”):  The Debtor repurchased a majority of its common stock from Fletcher Delaware by delivering assets valued by the Debtor at approximately $44.1 million, comprised of cash of $2.2 million and various securities valued at $41.9 million (which are listed as part of the Debtor’s response to Statement Question 10(a)), to Fletcher Delaware;  Fletcher Delaware accepted the $44.1 million of cash and securities from the Debtor and delivered shares of purportedly equal value back to the Debtor; and  Fletcher Delaware then transferred its remaining shares in the Debtor to Arbitrage in exchange for a purportedly equal value of Fletcher Delaware shares held by Arbitrage. The Debtor has been advised by its former Bermuda counsel that the purported transfer of Fletcher Delaware’s shares of the Debtor to Arbitrage was not recorded in the Debtor’s Register of Members, and accordingly, Fletcher Delaware continues to hold legal title to 100% of the shares in the Debtor. For this reason, among others, the validity and ownership implications of the April 22 Transactions are subject to dispute. The AHC5 Transfers In connection with the acquisition of certain assets from an affiliate of UCBI by Fletcher Delaware, on April 30, 2010 (the “UCBI Transaction”), the Debtor entered into a guaranty and pledge agreement with AHC5 (as borrower) and Fletcher Delaware (as guarantor) (the “Guaranty and Pledge Agreement”), pursuant to which the Debtor agreed to pledge approximately $15.6 million in marketable securities on behalf of AHC5 as collateral to secure certain obligations of AHC5 and its subsidiaries (the “Carrying Costs”) under the definitive agreements for the UCBI Transaction. Pursuant to the terms of the Guaranty and Pledge Agreement, the pledged securities were transferred to accounts controlled by UCBI and utilized to fund the Carrying Costs. During the period subsequent to the execution of the Guaranty and Pledge Agreement, the pledged securities were substantially converted to cash and portions of that cash have been utilized to fund the Carrying Costs under the UCBI Transaction for the benefit of AHC5 and its subsidiaries. Prior to the Petition Date, the Debtor’s historical accounting practice was to record periodic funding of the Carrying Costs from the UCBI accounts as redemptions of shares held in the Debtor by Fletcher Delaware. As described above, during the Look Back Period, approximately $8.5 million was redeemed from the Debtor in connection with the funding of the Carrying Costs.01:12547781.9  -9-
  • 11. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 11 of 29 The Transfers of Cash to Fletcher Delaware Approximately $40.7 million of cash was transferred from the Debtor to Fletcher Delaware through 32 transactions, which occurred from July 1, 2010 through April 18, 2012. These transfers of cash were treated by the Debtor as shareholder redemptions by Fletcher Delaware. The Transfers of Other Securities to Fletcher Delaware Securities valued by the Debtor at approximately $2.4 million were transferred from the Debtor to Fletcher Delaware through 6 transactions, which occurred on May 6, 2011. These transfers of securities (which are detailed in the Debtor’s response to Statement Question 10(a)) were treated by the Debtor as shareholder redemptions by Fletcher Delaware. The Aesop Fund The Debtor invested $0.005 million in cash in its wholly owned subsidiary, the Aesop Fund, in December of 2011. 18. Statement Question 11 – Closed Financial Accounts. The Debtor listed all financial accounts and investment positions, which it closed, sold or otherwise transferred during the one-year period preceding the Petition Date in its response to Statement Question 11. This includes any sales, expiries and/or transfers of the Debtor’s investment positions that occurred during the one-year period. The Debtor did not list its brokerage account with Credit Suisse as a “closed account” due to the fact that the account still held cash and securities on the Petition Date. 19. Statement Question 12 – Safe Deposit Boxes. A number of the Debtor’s assets are securities that are maintained in custodial accounts. The Debtor has identified its three custodial accounts in response to Statement Question 12: (i) custodial account with HSBC (“HSBC Custody Account”); and (ii) its prime brokerage account with Credit Suisse Securities (USA) LLC (“Credit Suisse Prime Brokerage Account”). The Debtor has included in its response to Statement Question 12 the identification of the contents of the respective custodial accounts as reflected on the statements issued most recent to the Petition Date. The Debtor reserves all of its rights with respect to the ownership of the items included in such custodial accounts. The Debtor’s response to Statement Question 12 is incorporated into the Debtor’s Schedule B. Any omission of the Debtor’s property included in its response to Statement Question 12 from Schedule B is inadvertent and shall not be deemed a waiver of any interest in such property the Debtor has. HSBC and Credit Suisse have been directed by the Debtor that, pending the appointment of a Chapter 11 Trustee, HSBC and Credit Suisse may not transfer, sell, move or otherwise dispose of any of the Debtor’s assets held in the HSBC Custody Account or Credit Suisse Prime Brokerage Account, respectively, without the express authorization of the Bankruptcy Court.01:12547781.9  - 10 -
  • 12. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 12 of 29 20. Statement Question 13 – Setoffs. In June 2012, Credit Suisse, terminated its customer agreement with the Debtor and liquidated the Debtor’s holdings of ION Geophysical Corporation (“ION”) Series D-1 and Series D-2 Cumulative Preferred Stock for approximately $39.5 million in aggregate proceeds. Through a series of transactions occurring between June 20 and June 29, 2012, Credit Suisse setoff approximately $37.8 million of the proceeds from the liquidation of the Debtor’s holdings of ION to satisfy various margin and swap obligations owed to Credit Suisse. 21. Statement Question 18(a) – Business in Which the Debtor is a Partner or Owns More Than 5%. As of the Petition Date, the Debtor held a 100% ownership interest in the Aesop Fund and a 76% ownership interest in FIPLP, both of which are dormant investment funds. The Debtor’s investment in the Aesop Fund has been in existence since December of 2009, and, upon information and belief, the Debtor’s interest in FIPLP precedes the six year look back period contemplated in Statement Question 18(a). Based on information provided by the Debtor’s consultants, the Debtor’s response to Statement Question 18(a) reflects that it previously had a 5% or greater ownership interest in the following entities: (i) BRG (from June 2008 until April 2012) and (ii) Vanquish Fund Ltd. (from February 2010 to July 2011). 22. Statement Question 19 – Books, Records and Financial Statements. (a) Statement Question 19(a) – Listing of Bookkeepers and Accountants Who Have Supervised the Keeping of Books of Account and Records of the Debtor. In the two years immediately preceding the Petition Date, the Debtor utilized the services of Duhallow Financial Services (“Duhallow”), RF Services LLC (“RFS”), and Stuart MacGregor (consultant to the Debtor) to supervise the keeping of books of account and records of the Debtor. Upon information and belief, Duhallow and RF are comprised of employees that serve or have served as officers, directors and/or consultants of the Debtor and its affiliates as well as general staff that provide services to the Debtor and the Debtor’s affiliates. (b) Statement Question 19(b) – Listing of All Firms or Individuals who Have Audited the Books of Account and Records, or Prepared a Financial Statement of the Debtor. In the two years immediately preceding the Petition Date, the Debtor’s auditor was Eisner Amper, LLP, and, during that same timeframe, the following firms and individuals prepared a financial statement of the Debtor: Stuart MacGregor (consultant to Debtor), Duhallow, RFS and SS&C Fund Services, LLC (“SS&C”), the Debtor’s administrator. Upon information and belief, SS&C has not provided finalized financial statements for the Debtor since it issued the financial statements as of and for the period ended June 30, 2011.01:12547781.9  - 11 -
  • 13. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 13 of 29 (c) Statement Question 19(c) – Listing of All Firms or Individuals Who Were in Possession of Books of Account and Records of the Debtor as of the Petition Date. The following is a summary of the parties that were in possession of the Debtor’s books and records as of the Petition Date:  Stuart MacGregor, as consultant to the Debtor;  HSBC, as custodian to the Debtor, held certain books and records and other property of the Debtor related to the Debtor’s investments;  Credit Suisse, as prime broker, held certain cash and securities, which were valued by the Debtor at approximately $7.6 million as of the Petition Date;  FAM was in control of various hardcopy and electronic documents comprising the Debtor’s books and records; and  Appleby Corporate Services, in its capacity as Corporate Secretary for the Debtor, was in possession of certain books and records of the Debtor. (d) Statement Question 19(d) – Listing of all Financial Institutions, Creditors, and Other Parties, Including Mercantile and Trade Agencies, to Whom a Financial Statement Was Issued By the Debtor. Within the past two years, the Debtor has provided financial statements to (i) its affiliates, Fletcher Delaware, Arbitrage and FAM, (ii) Credit Suisse, in its capacity as prime broker, (iii) representatives of the Louisiana Pension Systems, and (iv) representatives of Ernst & Young, LLP, as advisor to the Louisiana Pension Systems. 23. Statement Question 20 – Inventories. As of the Petition Date, the Debtor’s investment inventory consisted primarily of various privately purchased securities in publicly- traded companies. The securities and underlying investment agreements have historically generally been held in custody by third party brokers or custodians. The Debtor receives statements from these institutions on a monthly basis and has access to online reporting to track its investments and any trading activity that may impact the Debtor’s inventory. Mr. MacGregor, one of the Debtor’s consultants, is the primary person responsible for reviewing the inventory on a monthly basis and recording its effects on the Debtor’s financial statements. Mr. MacGregor relies on third-party statements and monthly trading activity recorded through the Debtor’s Antares trading platform that feeds into the Debtor’s Total Return accounting information system to reconcile the quantity of shares held in each of the Debtor’s investments, quantities purchased or sold during an applicable period and the cost basis of investments. To determine the estimated fair value for each investment, the Debtor relies on third-party valuations prepared by Quantal. This process is performed on a monthly basis.01:12547781.9  - 12 -
  • 14. 12-12796-reg Doc 104 Filed 09/24/12 Entered 09/24/12 20:14:51 Main Document Pg 14 of 29 24. Statement Question 23 – Withdrawals from a partnership or distributions from a corporation. To avoid duplication, the Debtor’s response to Statement Questions 3(c) and 10(a) are incorporated herein by reference.01:12547781.9  - 13 -
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