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focused on ABN's expected return and the venture's transaction
costs. These negotiations culminated in various agreements,
which we refer to collectively as "the Bermuda Agreement".
Mr. Matthews and Mr. den Baas agreed that AlliedSignal would
pay all of the partnership's expenses and that AlliedSignal would
pay ABN a return, which we refer to as ABN's "specified return",
equal to ABN's funding costs (i.e., approximately LIBOR) plus 75
b.p. on funds advanced to the partnership. ABN's specified
return consisted of income allocations, and AlliedSignal's direct
payments, to ABN. In essence, the direct payments would equal
the difference between the specified return and the income
allocations. The precise amount of the specified return would
depend on the amount of ABN funds held by the partnership and the
amount of time that the partnership held such funds.
AlliedSignal and ABN also agreed that ABN would receive partial
repayment during the partnership's existence (i.e., August 1990
and March 1991) and full repayment by May 1992.
Mr. den Baas wanted AlliedSignal to pay "up-front" $5
million of the specified return. Mr. Matthews, however, wanted
to delay the payment as long as possible to ensure ABN's
adherence to the venture's scheduled steps. Mr. den Baas and Mr.
Matthews discussed various ways to characterize and structure
AlliedSignal's direct payments to ABN. Ultimately, they decided
to characterize some of these payments as "premiums". They
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