Here's The 'Schmuck Insurance' Contract That Carl Icahn Just Mentioned On CNBC...

It's all out being put out there now.

The feud between hedge fund managers Bill Ackman and Carl Icahn reached a fevered pitch yesterday, when Carl Icahn told Bloomberg TV's Trish Regan that Ackman was "disingenuous" in his short against multi-level marketing firm, Herbalife.

Last night, Ackman responded simply by detailing the root of he and Icahn's animosity, a 2003 deal over Hallwood Realty.

At the time, Ackman's hedge fund, Gotham Partners, was going bust. He needed to do a deal so he called up Carl Icahn and offered to sell him shares of Hallwood for $80 a share. It was trading at $60, but Ackman thought it was worth $140.

The deal was, if Icahn sold the shares within 3 years and made a profit of 10% or more, he and Ackman would split the proceeds. To ensure that the deal went off without a hitch, Ackman and Icahn signed a 10 page agreement they called "schmuck insurance." (Read it here)

From the contract:

“COVERED PROFITS” means 50% of the net amount (after reasonable commissions, legal expenses and regulatory filing fees and expenses) derived by Purchaser and its Affiliates on the sale or other transfer of a Covered Unit in excess of the sum of: (i) $80.00 plus (ii) interest thereon accruing on a daily basis at a rate of 10% per annum (equitably adjusted for splits, stock dividends and similar events). For example: if Purchaser derives net proceeds of $100 on the sale of one Covered Unit that it has held for 18 months, then the “Covered Profit” on that Covered Unit would be $4.00 computed as follows:

$80.00 + $12.00 (accrued interest) = $92.00
$100.00 - $92.00 = $8.00
$8.00 x 50% = $4.00

Ultimately, the two didn't argue about the math. They argued about the meaning of the world "sale." A year after Icahn and Ackman sealed this deal, another company bought Hallwood for $137 a share. Ackman called Icahn for Gotham's money, and Icahn said no arguing that he never sold the shares.

Ackman countered that Icahn didn't have the shares anymore and had made money so....It was time to go to Court.

In 2011, Icahn lost and had to pay Gotham $9 million plus legal fees:

In the event that any Seller Indemnified Person brings a legal action against Purchaser in order to enforce its right to such indemnification, if it is ultimately determined by a final non-appealable order of a court of competent jurisdiction that: (i) such Seller Indemnified Person is so entitled to indemnification, then such Seller Indemnified Person asserting such claim shall also be entitled to recover the reasonable cost and expense of counsel incurred in asserting such claim and bringing such action against Purchaser; or (ii) such Seller Indemnified Person has not prevailed in any such action, then such Seller Indemnified Person shall pay to Purchaser the reasonable cost and expense of counsel incurred by Purchaser and its Affiliates in defending such claim.

Ackman admits that after the whole battle was through, Icahn called him to shake hands and be friends.

That obviously did not happen.

Here's the full contract.

Icahn/Ackman agreement by