AMENDED AND RESTATED CARRIED INTEREST ALLOCATION AGREEMENT
by and among
ARDENT CAPITAL GP III LLC a Delaware limited liability company
ARDENT CAPITAL HOLDINGS LLC a Delaware limited liability company
ARDENT GP INTERMEDIATE LLC a Delaware limited liability company
and
THE PARTICIPANTS NAMED HEREIN
Dated as of February 28, 2024
AMENDED AND RESTATED CARRIED INTEREST ALLOCATION AGREEMENT
This AMENDED AND RESTATED CARRIED INTEREST ALLOCATION AGREEMENT (this "Agreement") is entered into as of February 28, 2024 (the "Effective Date"), by and among:
(i) Ardent Capital GP III LLC, a Delaware limited liability company (the "General Partner" or "GP");
(ii) Ardent Capital Holdings LLC, a Delaware limited liability company ("HoldCo");
(iii) Ardent GP Intermediate LLC, a Delaware limited liability company ("GP Intermediate");
(iv) Marcus Aldridge, an individual residing in the State of New York ("Aldridge");
(v) Priya Narayanan, an individual residing in the State of New York ("Narayanan");
(vi) Robert Hsiao, an individual residing in the State of Connecticut ("Hsiao");
(vii) Elena Marchetti, an individual residing in the State of New York ("Marchetti"); and
(viii) Samuel Okonkwo, an individual residing in the State of New York ("Okonkwo").
Each of Aldridge, Narayanan, Hsiao, Marchetti, and Okonkwo is referred to herein individually as a "Participant" and collectively as the "Participants." The General Partner, HoldCo, GP Intermediate, and each Participant are collectively referred to herein as the "Parties" and individually as a "Party."
RECITALS
WHEREAS:
A. Ardent Capital Partners III LP, a Delaware limited partnership (the "Fund"), was formed on March 15, 2019 pursuant to a Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware for the purpose of making control investments in middle-market industrial and business-services companies. The Fund has total capital commitments of Two Billion Eight Hundred Million Dollars ($2,800,000,000) from forty-seven (47) limited partners. As of September 30, 2023, approximately One Billion Nine Hundred Sixty Million Dollars ($1,960,000,000), representing seventy percent (70%) of total commitments, had been called from the limited partners, and the Fund had invested approximately One Billion Eight Hundred Eighty Million Dollars ($1,880,000,000) across eleven (11) active portfolio companies. The term of the Fund expires on December 31, 2029, subject to two (2) one-year extension periods exercisable by the General Partner in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of the Fund (as defined below);
B. The General Partner is the sole general partner of the Fund and has made a general partner commitment to the Fund in the aggregate amount of Forty-Two Million Dollars ($42,000,000), representing one and one-half percent (1.5%) of total Fund commitments. The General Partner's principal office is located at 590 Madison Avenue, 28th Floor, New York, New York 10022. The General Partner's registered agent in the State of Delaware is Prestige Registered Agents LLC, located at 850 New Burton Road, Suite 201, Dover, Delaware 19904;
C. Ardent Capital Management LLC, a Delaware limited liability company (the "Management Company" or "ManCo"), serves as the investment adviser and manager of the Fund and is registered with the United States Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended (CRD #298417);
D. The Participants (together with David Kellner and Joanna Trask, as defined below) previously entered into that certain Carried Interest Allocation Agreement dated as of April 15, 2019 (the "Original Agreement"), governing the allocation and distribution of carried interest among the five (5) original principals of the Ardent Capital platform, with the following carried interest allocation percentages: Marcus Aldridge — thirty-five percent (35%); Priya Narayanan — thirty percent (30%); David Kellner — fifteen percent (15%); Joanna Trask — twelve percent (12%); and Robert Hsiao — eight percent (8%);
E. In connection with a comprehensive restructuring of the Management Company and a realignment of economics among the principals of the Fund (the "Restructuring"), the Parties have formed Ardent Capital Holdings LLC ("HoldCo"), a Delaware limited liability company (EIN 93-1847225; Delaware File No. 7948231, Certificate of Formation filed March 1, 2024), and Ardent GP Intermediate LLC ("GP Intermediate"), a Delaware limited liability company (EIN 93-1847231; Delaware File No. 7948237, Certificate of Formation filed March 1, 2024), thereby creating a holding-company structure pursuant to which HoldCo is the sole member of both the Management Company and GP Intermediate, and GP Intermediate is the sole member of the General Partner;
F. David Kellner ("Kellner") is retiring from the Ardent Capital platform effective March 31, 2024 and transitioning to the role of Senior Advisor. Pursuant to the terms of (i) that certain Separation and Release Agreement dated as of February 28, 2024 by and between the Management Company and Kellner (the "Kellner Separation Agreement"), and (ii) that certain Carry Retention and Clawback Side Letter dated as of February 28, 2024 by and between the General Partner and Kellner (the "Kellner Carry Side Letter"), Kellner retains one hundred percent (100%) of his vested carried interest in the Fund, equal to Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000) as of September 30, 2023 (calculated as fifteen percent (15%) of the Accrued Carried Interest (as defined below) of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000)), subject to the terms and conditions set forth herein and in the Kellner Carry Side Letter;
G. Joanna Trask ("Trask") is departing the Ardent Capital platform effective April 15, 2024. Pursuant to the terms of (i) that certain Separation and Release Agreement dated as of February 28, 2024 by and between the Management Company and Trask (the "Trask Separation Agreement"), and (ii) that certain Carry Retention and Clawback Side Letter dated as of February 28, 2024 by and between the General Partner and Trask (the "Trask Carry Side Letter"), Trask retains sixty percent (60%) of her vested carried interest in the Fund, equal to Six Million Three Hundred Seven Thousand Two Hundred Dollars ($6,307,200) as of September 30, 2023, and has forfeited (x) forty percent (40%) of her vested carried interest, equal to Four Million Two Hundred Four Thousand Eight Hundred Dollars ($4,204,800), and (y) one hundred percent (100%) of her unvested carried interest;
H. In connection with the Restructuring, Elena Marchetti and Samuel Okonkwo, next-generation principals of the Ardent Capital platform, are being admitted as Participants under this Agreement and granted carried interest allocations as set forth herein, subject to the vesting requirements described in Article IV;
I. The Limited Partner Advisory Committee of the Fund (the "LPAC") consented to the Restructuring on February 14, 2024 pursuant to Section 9.4 of the Amended and Restated Agreement of Limited Partnership of the Fund dated as of June 30, 2019 (as amended, the "LPA"). Amendment No. 1 to the LPA was duly executed by the General Partner and the requisite number of limited partners on February 28, 2024, giving effect to the structural changes contemplated by the Restructuring; and
J. The Parties desire to amend and restate the Original Agreement in its entirety to reflect the revised carried interest allocations, the carve-outs for the Departing Participants (as defined below), the vesting schedules applicable to the next-generation principals, and the updated clawback and escrow provisions, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
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ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Accrued Carried Interest" means, as of any date of determination, the aggregate amount of Carried Interest that has accrued for the benefit of the General Partner (and, by extension, the Participants and the Departing Participants) based on the fair value of the Fund's portfolio but that has not yet been distributed. As of September 30, 2023, the Accrued Carried Interest was Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000). The Accrued Carried Interest shall be recalculated quarterly in connection with the Fund's quarterly valuation process conducted by Broadleaf Consulting Group in accordance with ASC 820.
"Carried Interest" or "Carry" means twenty percent (20%) of the Net Profits of the Fund, as determined and distributable pursuant to the terms of the LPA, including the waterfall provisions set forth in Article II of this Agreement.
"Carry Escrow" means, with respect to each Participant and each Departing Participant, the escrow account maintained by the General Partner (or its designee) into which thirty percent (30%) of all Carried Interest distributions to such person are deposited and held as security for such person's Clawback Obligation, as more fully described in Article VI.
"Catch-Up" means the allocation described in Section 2.3, pursuant to which, after the limited partners have received the Preferred Return, one hundred percent (100%) of incremental Net Profits shall be allocated to the General Partner until the General Partner has received an amount equal to twenty percent (20%) of cumulative Net Profits (including the Catch-Up itself). The Catch-Up is a full (i.e., 100%) catch-up provision.
"Cause" has the meaning ascribed to such term in each Participant's employment agreement or service agreement with the Management Company or HoldCo, as applicable.
"Change of Control" means (a) any transaction or series of related transactions resulting in a change of more than fifty percent (50%) of the direct or indirect equity interests in the General Partner, HoldCo, or the Management Company; (b) a merger, consolidation, or similar business combination involving the General Partner, HoldCo, or the Management Company in which the existing equity holders of such entity immediately prior to such transaction do not hold at least fifty percent (50%) of the equity interests in the surviving entity; or (c) a sale of all or substantially all of the assets of the General Partner, HoldCo, or the Management Company.
"Clawback Obligation" means the obligation of each Participant (and each Departing Participant with respect to such Departing Participant's retained Carried Interest) to return previously distributed Carried Interest to the Fund as required under Section 10.3 of the LPA and Article VI of this Agreement, to the extent that the Fund's overall returns fall below the levels necessary to support prior Carried Interest distributions.
"Departing Participant" means each of David Kellner and Joanna Trask.
"Departing Participant Carve-Out" means, collectively, the Kellner Retained Carry and the Trask Retained Carry, representing the retained vested Carried Interest allocable to the Departing Participants as set forth in Article V.
"Disability" means a physical or mental condition that renders a Participant unable to perform the essential functions of such Participant's duties for a period of one hundred eighty (180) consecutive days or for an aggregate of two hundred seventy (270) days during any twelve (12)-month period, as determined by a physician mutually acceptable to HoldCo and the affected Participant (or such Participant's legal representative).
"Effective Date" means February 28, 2024.
"Fund" means Ardent Capital Partners III LP, a Delaware limited partnership (EIN 84-3291057), as governed by the LPA.
"General Partner" means Ardent Capital GP III LLC, a Delaware limited liability company (EIN 84-3291063).
"Go-Forward Carry" means all Carried Interest attributable to future appreciation (or depreciation) of Fund investments accruing after the Effective Date, excluding the Departing Participant Carve-Out. For the avoidance of doubt, Go-Forward Carry includes both (a) the Carried Interest attributable to appreciation of existing Fund investments that accrues after the Effective Date and (b) the Carried Interest attributable to investments made by the Fund after the Effective Date.
"GP Intermediate" means Ardent GP Intermediate LLC, a Delaware limited liability company (EIN 93-1847231; Delaware File No. 7948237).
"Gross MOIC" means the gross multiple on invested capital, calculated as the ratio of (a) the sum of Realized Proceeds and Unrealized Value to (b) total invested capital. As of September 30, 2023, the Gross MOIC was 1.42x.
"HoldCo" means Ardent Capital Holdings LLC, a Delaware limited liability company (EIN 93-1847225; Delaware File No. 7948231).
"HoldCo LLC Agreement" means the Limited Liability Company Agreement of Ardent Capital Holdings LLC dated as of February 28, 2024, as the same may be amended from time to time.
"Investment Period" means the period commencing on June 30, 2019 and ending on June 30, 2025, during which the Fund may make new investments and draw down capital commitments for such purpose, as set forth in the LPA.
"Kellner Carry Side Letter" means that certain Carry Retention and Clawback Side Letter dated as of February 28, 2024 by and between the General Partner and Kellner, governing the specific terms and conditions of the Kellner Retained Carry.
"Kellner Retained Carry" means Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), being fifteen percent (15%) of the Accrued Carried Interest of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000) as of September 30, 2023, subject to adjustment for subsequent appreciation and depreciation of Fund investments attributable to the period during which Kellner was an active principal of the Ardent Capital platform, as more fully described in Section 5.1.
"LPA" means the Amended and Restated Agreement of Limited Partnership of Ardent Capital Partners III LP dated as of June 30, 2019, as amended by Amendment No. 1 thereto dated February 28, 2024, and as the same may be further amended, restated, supplemented, or modified from time to time.
"LPAC" means the Limited Partner Advisory Committee of the Fund, as constituted pursuant to Section 9.4 of the LPA.
"Management Company" or "ManCo" means Ardent Capital Management LLC, a Delaware limited liability company (CRD #298417; EIN 84-3291070).
"Managing Members" means Marcus Aldridge and Priya Narayanan, in their capacities as the managing members of HoldCo.
"Net IRR" means the net internal rate of return, calculated in accordance with the methodology set forth in the LPA and customary industry practice. As of September 30, 2023, the Net IRR was 14.7%.
"Net Profits" has the meaning ascribed to such term in Section 5.1(a) of the LPA, and generally means the aggregate profits of the Fund after return of contributed capital to the limited partners and satisfaction of the Preferred Return.
"Original Agreement" means the Carried Interest Allocation Agreement dated as of April 15, 2019 by and among the General Partner, Marcus Aldridge, Priya Narayanan, David Kellner, Joanna Trask, and Robert Hsiao.
"Participant" means each of Aldridge, Narayanan, Hsiao, Marchetti, and Okonkwo, and "Participants" means all of them collectively. For the avoidance of doubt, the Departing Participants are not Participants as defined herein, except to the extent expressly provided in Article V.
"Participant Percentage" means, with respect to each Participant, the percentage of the Go-Forward Carry allocable to such Participant, as set forth in Section 3.1.
"Preferred Return" means the cumulative annual return of eight percent (8%) per annum, compounded annually, on contributed capital to which the limited partners of the Fund are entitled prior to any distribution of Carried Interest, as set forth in Section 5.1(a)(ii) of the LPA.
"Realized Proceeds" means the aggregate realized proceeds (including cash, publicly traded securities at fair market value on the date of distribution, and other property) received by the Fund from the disposition, sale, or other realization event with respect to Fund investments. As of September 30, 2023, Realized Proceeds were Four Hundred Forty-Five Million Dollars ($445,000,000).
"Restructuring" has the meaning set forth in Recital E.
"Trask Carry Side Letter" means that certain Carry Retention and Clawback Side Letter dated as of February 28, 2024 by and between the General Partner and Trask, governing the specific terms and conditions of the Trask Retained Carry.
"Trask Retained Carry" means Six Million Three Hundred Seven Thousand Two Hundred Dollars ($6,307,200), being sixty percent (60%) of Trask's vested Carried Interest of Ten Million Five Hundred Twelve Thousand Dollars ($10,512,000) as of September 30, 2023, subject to adjustment for subsequent appreciation and depreciation of Fund investments attributable to the period during which Trask was an active principal of the Ardent Capital platform, as more fully described in Section 5.2.
"Unrealized Value" means the aggregate fair value of unrealized Fund investments, as determined in accordance with the Fund's valuation policy and ASC 820 by Broadleaf Consulting Group (the Fund's independent valuation advisor) on a quarterly basis. As of September 30, 2023, the Unrealized Value was Two Billion Three Hundred Thirty Million Dollars ($2,330,000,000).
"Vested Carry" means, with respect to each Participant, the portion of the Carried Interest allocable to such Participant that has become non-forfeitable in accordance with the vesting provisions set forth in Article IV.
Section 1.2 — Interpretation
Unless the context otherwise requires: (a) words importing the singular shall include the plural and vice versa; (b) words importing any gender shall include all genders; (c) references to "including" shall mean "including, without limitation"; (d) references to any statute, regulation, or other legal enactment shall include any amendment, modification, or re-enactment thereof; (e) references to any agreement or instrument shall include all exhibits, schedules, and annexes thereto and all amendments, supplements, modifications, and restatements thereof; (f) the words "hereof," "herein," "hereto," and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) references to an "Article," "Section," "Exhibit," or "Schedule" shall refer to an Article, Section, Exhibit, or Schedule of this Agreement; and (h) section headings and the table of contents are for convenience of reference only and shall not affect the interpretation of this Agreement.
Section 1.3 — Incorporation of LPA Terms
To the extent not otherwise defined herein, capitalized terms used in this Agreement shall have the meanings ascribed to them in the LPA. In the event of any conflict between the provisions of this Agreement and the provisions of the LPA with respect to the waterfall mechanics, clawback obligations, or distribution timing as between the Fund and its partners, the LPA shall control. With respect to the allocation of Carried Interest among the Participants and the Departing Participants, this Agreement shall control.
ARTICLE II — CARRIED INTEREST WATERFALL
Section 2.1 — Carried Interest Rate
The General Partner is entitled to receive Carried Interest equal to twenty percent (20%) of the Net Profits of the Fund, calculated and distributed in accordance with the waterfall provisions set forth in the LPA and this Article II. For the avoidance of doubt, the Carried Interest rate of twenty percent (20%) is a term of the LPA and is not subject to modification by this Agreement. The Carried Interest is the aggregate amount distributable to the General Partner as a "carried interest" or "incentive allocation" from the Net Profits of the Fund.
Section 2.2 — Preferred Return
No Carried Interest shall be distributable to the General Partner unless and until the limited partners of the Fund have received cumulative distributions equal to (a) a return of all contributed capital and (b) a cumulative compounded annual return of eight percent (8%) per annum on their contributed capital (the "Preferred Return"). The Preferred Return shall be calculated on a whole-Fund basis in accordance with the methodology set forth in Section 5.1(a)(ii) of the LPA, using the date on which each capital contribution was made by the limited partners as the commencement date for the compounding period applicable to such contribution. Interest on the Preferred Return shall compound annually on each December 31, or, with respect to any partial year, on the applicable distribution date.
Section 2.3 — Catch-Up
After the limited partners have received full satisfaction of the Preferred Return as described in Section 2.2, one hundred percent (100%) of all incremental Net Profits shall be allocated and distributed to the General Partner until the General Partner has received an aggregate amount equal to twenty percent (20%) of all cumulative Net Profits of the Fund, inclusive of the Catch-Up amount itself (the "Catch-Up"). This is a full catch-up provision, meaning that the General Partner receives the entirety of the profit allocation during the Catch-Up period until the twenty-percent Carried Interest entitlement has been fully achieved on a cumulative basis. For the avoidance of doubt, the Catch-Up is calculated on a whole-Fund, aggregate basis (not on an investment-by-investment basis), consistent with the European-style waterfall set forth in the LPA.
Section 2.4 — Residual Split
After full satisfaction of the Catch-Up as described in Section 2.3, all remaining Net Profits of the Fund shall be allocated and distributed eighty percent (80%) to the limited partners (pro rata in accordance with their respective capital commitments) and twenty percent (20%) to the General Partner. This 80/20 residual split shall continue for all Net Profits distributed during the remaining term of the Fund, subject to any adjustments required under the LPA for clawback or subsequent loss allocations.
Section 2.5 — Mechanics of Distribution
All distributions of Carried Interest shall flow through the organizational structure as follows:
(a) Fund to General Partner. Net Profits constituting Carried Interest shall be distributed by the Fund to the General Partner in accordance with the waterfall provisions of the LPA.
(b) General Partner to GP Intermediate. The General Partner shall promptly distribute all Carried Interest received from the Fund to GP Intermediate, its sole member.
(c) GP Intermediate to HoldCo. GP Intermediate shall promptly distribute all Carried Interest received from the General Partner to HoldCo, its sole member.
(d) HoldCo to Participants and Departing Participants. HoldCo shall distribute Carried Interest received from GP Intermediate to the individual Participants in accordance with their respective Participant Percentages (as set forth in Section 3.1) and to the Departing Participants in accordance with the Departing Participant Carve-Out (as set forth in Article V), in each case subject to the escrow requirements of Article VI and any applicable withholding under Section 8.4.
(e) Timing. Each intermediate entity (the General Partner, GP Intermediate, and HoldCo) shall effect the distributions described in this Section 2.5 within fifteen (15) business days of receipt of the upstream distribution, unless a longer period is required for the computation of applicable escrow withholdings, tax withholdings, or the allocation between the Go-Forward Carry and the Departing Participant Carve-Out.
ARTICLE III — ALLOCATION OF CARRIED INTEREST AMONG PARTICIPANTS
Section 3.1 — Post-Restructuring Participant Percentages
Effective as of the Effective Date, after giving effect to the departures of the Departing Participants, the forfeiture and reallocation of Trask's forfeited Carried Interest, and the admission of Marchetti and Okonkwo as Participants, the Carried Interest constituting Go-Forward Carry shall be allocated among the Participants in the following percentages (each, a "Participant Percentage"):
For purposes of clarity, the aggregate twenty-seven percent (27%) of the Carry previously allocated to the Departing Participants under the Original Agreement (Kellner: 15%; Trask: 12%) has been redistributed as follows: seven percent (7%) to Aldridge, six percent (6%) to Narayanan, six percent (6%) to Hsiao, four percent (4%) to Marchetti, and four percent (4%) to Okonkwo. The Participant Percentages set forth in this Section 3.1 apply solely to the Go-Forward Carry and do not affect the Departing Participant Carve-Out described in Article V.
Section 3.2 — Notional Carry Allocations Based on Accrued Carried Interest
Based on the Accrued Carried Interest of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000) as of September 30, 2023, and excluding the Departing Participant Carve-Out (the aggregate of which is Nineteen Million Four Hundred Forty-Seven Thousand Two Hundred Dollars ($19,447,200)), the post-Restructuring notional allocations attributable to the Go-Forward Carry are set forth below for illustrative purposes:
The foregoing notional amounts are presented for illustrative purposes only and reflect the application of the Participant Percentages to the total Accrued Carried Interest as of September 30, 2023. Actual distributions of Carried Interest to each Participant will be determined based on the Participant Percentages applied to the Go-Forward Carry at the time of each distribution, subject to the carve-outs for the Kellner Retained Carry and the Trask Retained Carry described in Article V and the escrow requirements of Article VI. The notional amounts are subject to change based on subsequent appreciation and depreciation of Fund investments and the timing and amounts of Fund distributions.
Section 3.3 — Adjustments to Participant Percentages
The Participant Percentages set forth in Section 3.1 may be adjusted only by a written instrument executed by all of the following:
(a) all Participants then party to this Agreement;
(b) the Managing Members of HoldCo (currently Aldridge and Narayanan), acting on behalf of HoldCo; and
(c) the General Partner.
Any such adjustment shall comply in all respects with the terms of the LPA, including any applicable side-letter obligations, and shall not adversely affect the Departing Participant Carve-Out without the prior written consent of the affected Departing Participant. Any adjustment to the Participant Percentages that would materially alter the economic terms of the Fund shall require notification to the LPAC in accordance with Section 9.4 of the LPA.
Section 3.4 — No Assignment
No Participant may assign, transfer, pledge, hypothecate, encumber, or otherwise dispose of (whether voluntarily or involuntarily, by operation of law or otherwise) any portion of such Participant's interest in the Carried Interest, the Participant Percentage, or any rights or obligations under this Agreement without the prior written consent of both (a) the Managing Members of HoldCo and (b) the General Partner, and compliance in all respects with (i) the transfer restrictions set forth in the HoldCo LLC Agreement, (ii) Section 8.3 of the LPA, and (iii) applicable securities laws. Any purported assignment, transfer, pledge, or encumbrance in violation of this Section 3.4 shall be null and void and of no force or effect.
ARTICLE IV — VESTING
Section 4.1 — Fully Vested Participants
Each of Marcus Aldridge, Priya Narayanan, and Robert Hsiao is fully vested in such Participant's respective Participant Percentage as of the Effective Date. All Carried Interest allocable to each such Participant, whether accrued prior to or after the Effective Date, constitutes Vested Carry, and no portion of such Participant's Carried Interest is subject to forfeiture (other than in connection with a Clawback Obligation under Article VI). For the avoidance of doubt, the full vesting of Aldridge, Narayanan, and Hsiao applies to both (a) their original Participant Percentages under the Original Agreement and (b) the incremental Participant Percentages reallocated to such Participants as part of the Restructuring.
Section 4.2 — Vesting Schedule — Elena Marchetti
Marchetti's Participant Percentage of four percent (4%) of the Go-Forward Carry shall vest in accordance with the following schedule, with each tranche of vesting contingent upon Marchetti's continued service as a principal of the Ardent Capital platform (whether as an employee or partner of the Management Company, HoldCo, or any affiliate thereof) on the applicable vesting date:
(a) Twenty-five percent (25%) of Marchetti's Participant Percentage (representing one percent (1%) of the total Go-Forward Carry) shall vest on the first anniversary of the Effective Date — February 28, 2025;
(b) An additional twenty-five percent (25%) of Marchetti's Participant Percentage (representing an additional one percent (1%) of the total Go-Forward Carry, for a cumulative total of two percent (2%)) shall vest on the second anniversary of the Effective Date — February 28, 2026;
(c) An additional twenty-five percent (25%) of Marchetti's Participant Percentage (representing an additional one percent (1%) of the total Go-Forward Carry, for a cumulative total of three percent (3%)) shall vest on the third anniversary of the Effective Date — February 28, 2027; and
(d) The remaining twenty-five percent (25%) of Marchetti's Participant Percentage (representing the final one percent (1%) of the total Go-Forward Carry, for a cumulative total of four percent (4%)) shall vest on the fourth anniversary of the Effective Date — February 28, 2028.
For the avoidance of doubt, unvested Carried Interest allocable to Marchetti shall accrue for Marchetti's benefit during the vesting period but shall not be distributed to Marchetti until such Carried Interest has become Vested Carry. In the event a distribution of Carried Interest occurs prior to full vesting, only the vested portion of Marchetti's allocation shall be distributed to her, and the unvested portion shall be retained by HoldCo pending vesting or forfeiture.
Section 4.3 — Vesting Schedule — Samuel Okonkwo
Okonkwo's Participant Percentage of four percent (4%) of the Go-Forward Carry shall vest in accordance with the same schedule and on the same terms applicable to Marchetti as set forth in Section 4.2 (four-year ratable vesting commencing February 28, 2025, with each tranche representing one percent (1%) of the total Go-Forward Carry vesting on each anniversary of the Effective Date through February 28, 2028). Okonkwo's vesting is subject to Okonkwo's continued service as a principal of the Ardent Capital platform on each applicable vesting date.
Section 4.4 — Acceleration of Vesting
Notwithstanding the vesting schedules set forth in Sections 4.2 and 4.3, one hundred percent (100%) of a Participant's then-unvested Carried Interest shall immediately and fully vest upon the occurrence of any of the following events:
(a) Change of Control. A Change of Control of the General Partner, HoldCo, or the Management Company;
(b) Death or Disability. The death or Disability of such Participant; or
(c) Termination Without Cause. The termination of such Participant's service as a principal of the Ardent Capital platform by the Management Company, HoldCo, or the General Partner without Cause (as defined in such Participant's employment or service agreement).
For the avoidance of doubt, no acceleration of vesting shall occur in the event of (i) such Participant's voluntary resignation from the Ardent Capital platform, or (ii) the termination of such Participant's service for Cause. In any such event, the provisions of Section 4.5 shall apply.
Section 4.5 — Forfeiture of Unvested Carry
If a Participant ceases to be a principal of the Ardent Capital platform for any reason prior to such Participant's full vesting under Sections 4.2 or 4.3, all then-unvested Carried Interest allocable to such Participant shall be immediately and automatically forfeited, without any payment or compensation to such Participant for the forfeited amount. Such forfeited Carried Interest shall be reallocated among the remaining Participants pro rata in proportion to their then-current Participant Percentages. For the avoidance of doubt, the Vested Carry of a departing Participant shall be treated in accordance with the procedures and principles set forth in Article V (as may be applied by the General Partner by analogy in the event of a future departure), subject to such terms as may be agreed between the departing Participant and HoldCo at the time of such departure.
Section 4.6 — Treatment of Forfeited Carry from Trask Departure
As described in Recital G, Trask forfeited one hundred percent (100%) of her unvested Carried Interest and forty percent (40%) of her vested Carried Interest, resulting in an aggregate forfeited amount of Four Million Two Hundred Four Thousand Eight Hundred Dollars ($4,204,800) of vested Carried Interest plus all unvested amounts. Such forfeited amounts have been reallocated among the Participants in connection with the determination of the post-Restructuring Participant Percentages set forth in Section 3.1. The Parties acknowledge and agree that the forfeiture and reallocation of Trask's carried interest was negotiated and agreed upon as part of the Restructuring and is reflected in the economics of this Agreement. Trask has consented to the forfeiture pursuant to the Trask Separation Agreement and the Trask Carry Side Letter.
ARTICLE V — DEPARTING PARTICIPANT CARVE-OUTS
Section 5.1 — Kellner Retained Carry
(a) Retained Amount. David Kellner retains one hundred percent (100%) of his vested Carried Interest in the Fund. Kellner's vested Carried Interest as of September 30, 2023 was Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), calculated as fifteen percent (15%) of the Accrued Carried Interest of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000) (the "Kellner Retained Carry").
(b) Adjustment for Subsequent Appreciation and Depreciation. The Kellner Retained Carry is subject to adjustment for subsequent appreciation and depreciation of Fund investments attributable to the period during which Kellner was an active principal of the Ardent Capital platform. Such adjustments shall be calculated by the General Partner quarterly, in consultation with Broadleaf Consulting Group and Heathrow Whitman & Co., based on the fair value of the Fund's portfolio as of each applicable valuation date.
(c) Distribution Mechanics. The Kellner Retained Carry shall be distributed to Kellner through GP Intermediate in accordance with the waterfall mechanics set forth in Article II; provided, however, that the Kellner Retained Carry shall be carved out from the Go-Forward Carry pool and treated as a separate distribution tranche. On each distribution date, the General Partner shall determine the portion of Carried Interest attributable to the Kellner Retained Carry and shall cause such portion to be distributed to Kellner (net of applicable escrow withholdings and tax withholdings) through the flow-through structure described in Section 2.5.
(d) Reference to Side Letter. The specific terms and conditions governing the Kellner Retained Carry, including any modifications, sunset provisions, or additional clawback mechanics, are set forth in the Kellner Carry Side Letter dated February 28, 2024. In the event of any conflict between this Agreement and the Kellner Carry Side Letter with respect to the Kellner Retained Carry, the Kellner Carry Side Letter shall control.
Section 5.2 — Trask Retained Carry
(a) Retained Amount. Joanna Trask retains sixty percent (60%) of her vested Carried Interest in the Fund. Trask's vested Carried Interest as of September 30, 2023 was Ten Million Five Hundred Twelve Thousand Dollars ($10,512,000), calculated as twelve percent (12%) of the Accrued Carried Interest of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000). Trask's retained portion is sixty percent (60%) of Ten Million Five Hundred Twelve Thousand Dollars ($10,512,000), equaling Six Million Three Hundred Seven Thousand Two Hundred Dollars ($6,307,200) (the "Trask Retained Carry").
(b) Forfeited Amount. Trask forfeited (i) forty percent (40%) of her vested Carried Interest, equaling Four Million Two Hundred Four Thousand Eight Hundred Dollars ($4,204,800), and (ii) one hundred percent (100%) of her unvested Carried Interest. Such forfeited amounts have been redistributed among the Participants and are reflected in the Participant Percentages set forth in Section 3.1.
(c) Adjustment for Subsequent Appreciation and Depreciation. The Trask Retained Carry is subject to adjustment for subsequent appreciation and depreciation of Fund investments attributable to the period during which Trask was an active principal of the Ardent Capital platform, on the same basis as described in Section 5.1(b) with respect to the Kellner Retained Carry.
(d) Distribution Mechanics. The Trask Retained Carry shall be distributed in the same manner as the Kellner Retained Carry — carved out from the Go-Forward Carry pool and treated as a separate distribution tranche, flowing through GP Intermediate and HoldCo to Trask in accordance with the waterfall mechanics of Article II and Section 2.5.
(e) Reference to Side Letter. The specific terms and conditions governing the Trask Retained Carry, including any modifications, sunset provisions, or additional clawback mechanics, are set forth in the Trask Carry Side Letter dated February 28, 2024. In the event of any conflict between this Agreement and the Trask Carry Side Letter with respect to the Trask Retained Carry, the Trask Carry Side Letter shall control.
Section 5.3 — Priority of Departing Participant Distributions
The Departing Participant Carve-Out amounts (i.e., the Kellner Retained Carry and the Trask Retained Carry) shall be distributed pari passu with distributions to the Participants on each distribution date. Neither the Departing Participants nor the Participants shall have priority over the other with respect to the timing of distributions; provided, however, that each distribution shall be subject to the applicable escrow and clawback requirements specific to each Departing Participant as set forth in Sections 6.3 and 6.4, which may result in differential net distributions after escrow withholdings.
Section 5.4 — Interaction with Go-Forward Carry
(a) Definition. Go-Forward Carry is defined as all Carried Interest in excess of the Departing Participant Carve-Out. The Participant Percentages set forth in Section 3.1 apply exclusively to the Go-Forward Carry and do not apply to the Departing Participant Carve-Out.
(b) Allocation Methodology. On any distribution of Carried Interest by the Fund to the General Partner, the General Partner shall first calculate the portion of such distribution attributable to the Departing Participant Carve-Out and the portion constituting Go-Forward Carry. The General Partner shall make such calculation in good faith, in consultation with Heathrow Whitman & Co., based on the relative proportions of the Departing Participant Carve-Out and the Go-Forward Carry to total Accrued Carried Interest as of the most recent valuation date.
(c) Distribution. Following such calculation, the General Partner shall cause (i) the Departing Participant Carve-Out portion to be distributed to the applicable Departing Participant(s) in accordance with their respective retained amounts, and (ii) the Go-Forward Carry portion to be distributed to the Participants in accordance with their respective Participant Percentages, in each case subject to applicable escrow withholdings and tax withholdings.
ARTICLE VI — CLAWBACK OBLIGATIONS
Section 6.1 — Joint and Several Clawback
Each Participant's Clawback Obligation is one hundred percent (100%) joint and several among all Participants (and, with respect to their respective Departing Participant Carve-Outs, each Departing Participant), as required by Section 10.3 of the LPA. Each Participant acknowledges and agrees that the Clawback Obligation may require the repayment of previously distributed Carried Interest to the Fund to the extent that the Fund's overall returns, as finally determined upon the dissolution and winding up of the Fund (or at such earlier time as may be specified in the LPA), fall below the levels necessary to support prior Carried Interest distributions. The joint and several nature of the Clawback Obligation means that each Participant may be liable for amounts in excess of such Participant's pro rata share of the aggregate Clawback Obligation in the event any other Participant fails to satisfy such other Participant's share, subject to the contribution provisions of Section 6.6. The maximum Clawback Obligation of each Participant shall not exceed, in the aggregate, the cumulative Carried Interest distributions received by such Participant (net of taxes paid or payable on such distributions), as set forth in Section 10.3 of the LPA.
Section 6.2 — Individual Escrow Requirement
Each Participant shall maintain a Carry Escrow in an amount equal to thirty percent (30%) of all cumulative Carried Interest distributions received by such Participant. The Carry Escrow shall be held in a segregated account maintained by the General Partner (or its designee, which may include a nationally recognized financial institution acceptable to the Managing Members). The Carry Escrow shall serve as security for each Participant's Clawback Obligation and shall be available to satisfy clawback claims as and when they arise. On each distribution of Carried Interest to a Participant, thirty percent (30%) of such distribution shall be withheld by the General Partner and deposited into such Participant's Carry Escrow account prior to the release of the remaining seventy percent (70%) to such Participant.
Section 6.3 — Kellner Clawback and Escrow
(a) Clawback Period. Kellner's Clawback Obligation shall continue for a period of three (3) years following his retirement date of March 31, 2024 (the "Kellner Clawback Period"), expiring on March 31, 2027. During the Kellner Clawback Period, Kellner shall remain subject to clawback claims to the same extent as if he remained an active Participant.
(b) Escrow Balance. Kellner's existing Carry Escrow balance of Three Million Nine Hundred Forty-Two Thousand Dollars ($3,942,000), calculated as thirty percent (30%) of the Kellner Retained Carry of Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), shall remain in the Carry Escrow for the duration of the Kellner Clawback Period. To the extent additional Carried Interest distributions are made to Kellner during the Kellner Clawback Period in respect of the Kellner Retained Carry, thirty percent (30%) of such additional distributions shall also be deposited into the Kellner Carry Escrow.
(c) Release. Following the expiration of the Kellner Clawback Period on March 31, 2027, and provided that (i) no clawback claims are then pending, asserted, or, in the reasonable judgment of the General Partner (in consultation with Heathrow Whitman & Co.), reasonably anticipated, and (ii) the Fund's overall performance metrics (including Gross MOIC and Net IRR) support the conclusion that no clawback is likely, the Kellner Carry Escrow shall be released to Kellner within sixty (60) days of the expiration of the Kellner Clawback Period.
(d) Reference to Side Letter. Additional terms governing Kellner's clawback obligations are set forth in the Kellner Carry Side Letter.
Section 6.4 — Trask Clawback and Escrow
(a) Clawback Period. Trask's Clawback Obligation on her Trask Retained Carry shall continue for a period of two (2) years following her departure date of April 15, 2024 (the "Trask Clawback Period"), expiring on April 15, 2026.
(b) Escrow Adjustment. Trask's adjusted Carry Escrow shall be One Million Eight Hundred Ninety-Two Thousand One Hundred Sixty Dollars ($1,892,160), calculated as thirty percent (30%) of the Trask Retained Carry of Six Million Three Hundred Seven Thousand Two Hundred Dollars ($6,307,200). Trask's prior Carry Escrow balance, established under the Original Agreement, was Three Million One Hundred Fifty Thousand Dollars ($3,150,000). Following the Restructuring and the reduction of Trask's retained Carried Interest, One Million Two Hundred Fifty-Seven Thousand Eight Hundred Forty Dollars ($1,257,840) shall be released from the Trask Carry Escrow ($3,150,000 minus $1,892,160 equals $1,257,840), with such release to occur within thirty (30) days of the Effective Date. The remaining One Million Eight Hundred Ninety-Two Thousand One Hundred Sixty Dollars ($1,892,160) shall be held in the Trask Carry Escrow for the duration of the Trask Clawback Period.
(c) Release. Following the expiration of the Trask Clawback Period on April 15, 2026, and provided that the same conditions applicable to the release of the Kellner Carry Escrow (as set forth in Section 6.3(c)) are satisfied, the Trask Carry Escrow shall be released to Trask within sixty (60) days of the expiration of the Trask Clawback Period.
(d) Reference to Side Letter. Additional terms governing Trask's clawback obligations are set forth in the Trask Carry Side Letter.
Section 6.5 — Escrow Mechanics for Active Participants
(a) Escrow Withholding. Each Participant (Aldridge, Narayanan, Hsiao, Marchetti, and Okonkwo) shall have thirty percent (30%) of each Carried Interest distribution received by such Participant deposited into such Participant's individual Carry Escrow account, as described in Section 6.2.
(b) Investment of Escrow Funds. Funds held in the Carry Escrow accounts may be invested in cash equivalents, including money market funds, U.S. Treasury bills, and certificates of deposit with maturities of ninety (90) days or less, at the General Partner's reasonable discretion. Any interest or investment returns on the Carry Escrow shall accrue for the benefit of the Participant to whose Carry Escrow such returns are attributable.
(c) Release of Escrow. Funds held in a Participant's Carry Escrow shall be released to such Participant upon the earliest to occur of:
(i) the final dissolution and winding up of the Fund (including any extension periods beyond December 31, 2029), provided that all Clawback Obligations have been fully satisfied or determined to be inapplicable;
(ii) a determination by the General Partner, in consultation with Heathrow Whitman & Co. (the Fund's auditor and tax advisor), that the Carry Escrow (or a portion thereof) is no longer necessary to secure the Participant's Clawback Obligation, based on the Fund's overall performance and the absence of any pending or anticipated clawback claims; or
(iii) such earlier date as may be specified in the LPA or agreed in writing by the General Partner and the affected Participant.
(d) Drawdown on Escrow. In the event of a clawback under the LPA, the General Partner shall first draw upon the Carry Escrow of the affected Participants to satisfy the Clawback Obligation. To the extent the Carry Escrow is insufficient to satisfy the full Clawback Obligation of any Participant, such Participant shall be personally liable for the deficiency, subject to the contribution provisions of Section 6.6.
Section 6.6 — Contribution Among Participants
In the event of a clawback, the Participants shall bear the aggregate Clawback Obligation in proportion to the cumulative Carried Interest distributions previously received by each Participant (net of tax payments attributable thereto). If any Participant's proportionate share of the Clawback Obligation exceeds the cumulative Carried Interest distributions (net of taxes) received by such Participant, the excess shall be borne by the remaining Participants on a joint and several basis, in proportion to their respective cumulative distributions. Any Participant who pays more than such Participant's pro rata share of a clawback (determined based on cumulative distributions) shall have a right of contribution against the other Participants for the excess amount paid. Such right of contribution shall survive the termination of this Agreement and the dissolution of the Fund.
ARTICLE VII — GP COMMITMENT
Section 7.1 — GP Commitment Overview
The General Partner's aggregate capital commitment to the Fund is Forty-Two Million Dollars ($42,000,000), representing one and one-half percent (1.5%) of the total capital commitments of the Fund of Two Billion Eight Hundred Million Dollars ($2,800,000,000). The GP Commitment is funded by the members of HoldCo (through GP Intermediate) and constitutes a limited partner-equivalent investment in the Fund. As of the Effective Date, Twenty-Nine Million Four Hundred Thousand Dollars ($29,400,000) of the GP Commitment has been called (representing seventy percent (70%) of the GP Commitment, consistent with the Fund's overall capital call rate of seventy percent (70%) of total commitments as of September 30, 2023), and the remaining Twelve Million Six Hundred Thousand Dollars ($12,600,000) remains uncalled.
Section 7.2 — Departing Principals' GP Commitment
The GP Commitment was originally shared among the five principals of the Ardent Capital platform in proportion to their respective Participant Percentages under the Original Agreement. The Departing Participants' shares of the GP Commitment are as follows:
(a) Kellner. Kellner's share of the GP Commitment was Six Million Three Hundred Thousand Dollars ($6,300,000), calculated as fifteen percent (15%) of Forty-Two Million Dollars ($42,000,000). As of the Effective Date, Four Million Four Hundred Ten Thousand Dollars ($4,410,000) of Kellner's share has been funded, and One Million Eight Hundred Ninety Thousand Dollars ($1,890,000) remains unfunded.
(b) Trask. Trask's share of the GP Commitment was Five Million Forty Thousand Dollars ($5,040,000), calculated as twelve percent (12%) of Forty-Two Million Dollars ($42,000,000). As of the Effective Date, Three Million Five Hundred Twenty-Eight Thousand Dollars ($3,528,000) of Trask's share has been funded, and One Million Five Hundred Twelve Thousand Dollars ($1,512,000) remains unfunded.
(c) Combined Unfunded. The combined unfunded GP Commitment of the Departing Participants is Three Million Four Hundred Two Thousand Dollars ($3,402,000).
Section 7.3 — Assumption of Unfunded Departing GP Commitment
The remaining Participants shall assume the combined unfunded GP Commitment of the Departing Participants in the aggregate amount of Three Million Four Hundred Two Thousand Dollars ($3,402,000), allocated among the Participants pro rata in proportion to their respective Participant Percentages as set forth in Section 3.1, as follows:
Any rounding adjustments necessary to reconcile the individual allocations to the aggregate assumed unfunded GP Commitment of Three Million Four Hundred Two Thousand Dollars ($3,402,000) shall be allocated to Aldridge. Each Participant's assumed unfunded GP Commitment shall be added to such Participant's existing unfunded GP Commitment (if any) and shall be subject to capital calls by the General Partner in accordance with the LPA and as necessary to fund the GP's ongoing capital obligations to the Fund.
Section 7.4 — Relationship of GP Commitment to Carried Interest
The GP Commitment represents a co-investment by the General Partner alongside the limited partners of the Fund and entitles the General Partner to a pro rata share of Fund returns on the same basis as the limited partners (i.e., a return of contributed capital plus the Preferred Return). For the avoidance of doubt, the GP Commitment is a limited partner-equivalent return and is not included in the calculation of Carried Interest. Distributions attributable to the GP Commitment are separate from, and in addition to, distributions of Carried Interest to the Participants. The GP Commitment return is allocated among the members of HoldCo in proportion to their respective capital contributions to the GP Commitment through GP Intermediate.
ARTICLE VIII — DISTRIBUTIONS
Section 8.1 — Timing of Distributions
Carried Interest distributions to the Participants and the Departing Participants shall be made in accordance with the timing provisions set forth in the LPA. Carried Interest shall be distributed as and when Net Profits are distributed by the Fund to the General Partner. The General Partner has no obligation to make distributions of Carried Interest to the Participants at any particular time or in any particular amount, except as required by the LPA. The General Partner shall use commercially reasonable efforts to cause downstream distributions (from the General Partner through GP Intermediate and HoldCo to the Participants) to occur within fifteen (15) business days of the Fund's distribution to the General Partner, subject to the time required for the computation of escrow withholdings and allocations between the Go-Forward Carry and the Departing Participant Carve-Out.
Section 8.2 — Flow of Distributions
All distributions of Carried Interest shall flow through the following chain of entities, in the order specified:
(a) from the Fund to the General Partner;
(b) from the General Partner to GP Intermediate (as the sole member of the General Partner);
(c) from GP Intermediate to HoldCo (as the sole member of GP Intermediate); and
(d) from HoldCo to the individual Participants (in accordance with their respective Participant Percentages) and to the Departing Participants (in accordance with the Departing Participant Carve-Out), in each case net of (i) Carry Escrow withholdings as described in Article VI, (ii) applicable tax withholdings as described in Section 8.4, and (iii) any other amounts properly deductible under this Agreement or the LPA.
Section 8.3 — Tax Distributions
The General Partner may, in its sole discretion, cause the Fund to make tax distributions in accordance with the applicable provisions of the LPA in order to provide the Participants and the Departing Participants with sufficient liquidity to satisfy federal, state, and local income tax liabilities arising from the allocation of income or gain to such persons by the Fund. Tax distributions shall be treated as advances against, and shall reduce, subsequent distributions of Carried Interest to the applicable Participant or Departing Participant. The amount of any tax distribution shall be calculated based on an assumed combined federal, state, and local tax rate determined by the General Partner in consultation with Heathrow Whitman & Co.
Section 8.4 — Withholding
The General Partner (and each of GP Intermediate and HoldCo acting in its capacity as an intermediate distribution entity) shall be entitled to deduct and withhold from any distribution to a Participant or a Departing Participant any amounts required to be withheld under applicable federal, state, local, or foreign tax law. Any amounts so withheld shall be treated as having been distributed to the applicable Participant or Departing Participant for all purposes of this Agreement.
ARTICLE IX — TAX MATTERS