LIMITED LIABILITY COMPANY AGREEMENT
OF
HARROWGATE FUND V GP LLC
A Delaware Limited Liability Company
Dated as of [●], 2025
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LIMITED LIABILITY COMPANY AGREEMENT
OF
HARROWGATE FUND V GP LLC
This Limited Liability Company Agreement (this "Agreement") of Harrowgate Fund V GP LLC, a Delaware limited liability company (the "Company"), is entered into and effective as of [●], 2025, by Harrowgate Capital Partners LLC, a Delaware limited liability company, with its principal office at 1200 Concord Pike, Suite 600, Wilmington, Delaware 19803, as the sole member of the Company (the "Member" or "Sole Member").
RECITALS
WHEREAS, the Company has been formed as a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. (as amended from time to time, the "Act"), by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware;
WHEREAS, the Company is formed for the primary purpose of serving as the sole general partner of Harrowgate Private Equity Fund V LP, a Delaware limited partnership (the "Fund"), and Harrowgate Fund V Parallel LP, a Delaware limited partnership (the "Parallel Fund"), and as the general partner, managing member, or managing entity of any related co-investment vehicles, alternative investment vehicles, blocker entities, or offshore feeder entities established in connection therewith;
WHEREAS, the Fund is being organized as a private equity fund focused on North American mid-market and upper-mid-market buyout transactions, with a target hard cap of Two Billion Dollars ($2,000,000,000) in aggregate capital commitments; and
WHEREAS, the Member desires to set forth the terms and conditions governing the management, operation, and affairs of the Company, including the rights and obligations of the Member with respect to the Company's role as general partner of the Fund and the Parallel Fund.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Member hereby agrees as follows:
ARTICLE I — DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Fund LPA.
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time.
"Affiliate" means, with respect to any Person, (a) any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, (b) any officer, director, partner, member, manager, or principal of such Person, (c) any entity of which such Person is an officer, director, partner, member, manager, or principal, and (d) with respect to the Member, the Principals, their respective family members and trusts for the benefit thereof, and any entity directly or indirectly controlled by any of the foregoing. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Limited Liability Company Agreement of the Company, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Capital Contribution" means the aggregate amount of cash and the agreed fair market value of any property (net of liabilities assumed or to which such property is subject) contributed or agreed to be contributed by the Member to the capital of the Company.
"Carried Interest" means the performance-based allocation and distribution equal to twenty percent (20%) of the net profits of the Fund in excess of the Preferred Return (eight percent (8%) per annum, compounded annually), allocated and distributed in accordance with the European-style whole-fund waterfall set forth in the Fund LPA. The Carried Interest represents the Company's entitlement, as general partner of the Fund, to share in the profits of the Fund as described in Article VI of this Agreement and the corresponding provisions of the Fund LPA.
"Catch-Up" means the allocation described in Tier 3 of the Fund waterfall pursuant to which, after limited partners have received distributions equal to their aggregate capital contributions (Tier 1) and the Preferred Return (Tier 2), one hundred percent (100%) of distributions above the Preferred Return are allocated eighty percent (80%) to the Company (as general partner of the Fund) and twenty percent (20%) to the limited partners until cumulative distributions to the Company equal twenty percent (20%) of cumulative net profits, at which point the Residual Split (Tier 4) applies.
"Clawback Amount" has the meaning set forth in Section 7.1 of this Agreement.
"Clawback Obligation" means the obligation of the Company and the Principals to return excess Carried Interest distributions to the Fund, as more fully described in Article VII of this Agreement and the corresponding provisions of the Fund LPA.
"Company" means Harrowgate Fund V GP LLC, a Delaware limited liability company.
"Confidential Private Placement Memorandum" means the Confidential Private Placement Memorandum of the Fund, as supplemented or amended from time to time in connection with the offering of limited partnership interests in the Fund.
"Final Close" means the final closing of the Fund for the acceptance of capital commitments from limited partners, as determined by the Member in accordance with the Fund LPA.
"First Close" means the initial closing of the Fund for the acceptance of capital commitments from limited partners.
"Fund" means Harrowgate Private Equity Fund V LP, a Delaware limited partnership.
"Fund LPA" means the Agreement of Limited Partnership of Harrowgate Private Equity Fund V LP, as such agreement may be amended, restated, supplemented, or otherwise modified from time to time.
"GP Commitment" means the aggregate capital commitment of the Company (or the Member, at the Member's election) to the Fund, which shall be equal to two and one-half percent (2.5%) of the aggregate capital commitments to the Fund. At the Fund's target hard cap of Two Billion Dollars ($2,000,000,000), the GP Commitment shall equal Fifty Million Dollars ($50,000,000).
"Indemnified Person" has the meaning set forth in Section 8.2 of this Agreement.
"Investment Period" means the period commencing on the date of Final Close of the Fund and ending on the fifth (5th) anniversary thereof, subject to earlier termination or suspension as provided in the Fund LPA (including upon the occurrence of a Key Person Event).
"Key Person Event" has the meaning ascribed thereto in the Fund LPA and is further described in Section 4.4 of this Agreement.
"Key Persons" means Marcus J. Harrowgate and Diana R. Castellano.
"LPAC" means the Limited Partner Advisory Committee of the Fund, as described in Section 14.1 of this Agreement.
"Management Fee" means the management fee payable by the Fund to the Company or its designee, calculated as follows: (a) during the Investment Period, one and seventy-five hundredths percent (1.75%) per annum of committed capital; and (b) following the Investment Period, one and one-half percent (1.50%) per annum of invested capital (net of realized dispositions), in each case as more fully described in the Fund LPA and Section 6.3 of this Agreement.
"Member" or "Sole Member" means Harrowgate Capital Partners LLC, a Delaware limited liability company, or any successor or permitted assign thereof admitted as a member of the Company in accordance with this Agreement.
"Officers" means the officers of the Company designated by the Member from time to time pursuant to Section 4.2 of this Agreement.
"Offshore Feeder" means Harrowgate Fund V Offshore SLP, a Cayman Islands exempted limited partnership, or any successor offshore feeder vehicle established in connection with the Fund.
"Organizational Expenses" means the organizational and formation expenses of the Fund, including legal, accounting, filing, and regulatory fees and expenses incurred in connection with the formation, organization, and initial closing of the Fund and the Parallel Fund, subject to the cap of Three Million Five Hundred Thousand Dollars ($3,500,000), with any excess to be borne by the Member.
"Parallel Fund" means Harrowgate Fund V Parallel LP, a Delaware limited partnership.
"Parallel Fund LPA" means the Agreement of Limited Partnership of Harrowgate Fund V Parallel LP, as such agreement may be amended, restated, supplemented, or otherwise modified from time to time.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity.
"Preferred Return" or "Hurdle Rate" means eight percent (8%) per annum, compounded annually, as defined and applied in the Fund LPA, representing the cumulative compounded annual return on net contributed capital that must be distributed to limited partners before the Company becomes entitled to receive Carried Interest.
"Principals" means Marcus J. Harrowgate, Diana R. Castellano, and Jonathan P. Birch.
"Residual Split" means the allocation described in Tier 4 of the Fund waterfall, pursuant to which, after application of Tiers 1 through 3, all remaining distributions are allocated eighty percent (80%) to the limited partners and twenty percent (20%) to the Company as general partner of the Fund.
"Transaction Fees" means all net transaction fees, monitoring fees, directors' fees, break-up fees, topping fees, and similar fees received by the Company or any of its Affiliates from portfolio companies of the Fund, one hundred percent (100%) of which shall offset the Management Fee payable by the Fund.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company was formed as a limited liability company under the Act upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware. The registered agent of the Company in the State of Delaware is Calderwood & Harkness LLP, with offices at 400 South Ashbury Asset Advisors, Suite 3000, Wilmington, Delaware 19801 (C&H Matter Number 1003-00002). The Member hereby ratifies and confirms the filing of the Certificate of Formation and all actions taken by any authorized person in connection therewith.
Section 2.2 — Name
The name of the Company is "Harrowgate Fund V GP LLC." The Company may conduct its business and affairs under such name or any other name approved by the Member from time to time. The Member shall have the authority to cause the Company to file any assumed name certificates, trade name registrations, or similar filings as may be necessary or appropriate in connection with the Company's business.
Section 2.3 — Principal Office
The principal office of the Company is located at 1200 Concord Pike, Suite 600, Wilmington, Delaware 19803. The Member may change the location of the principal office at any time and from time to time upon written notice to any parties entitled to receive such notice under this Agreement or any agreement to which the Company is a party.
Section 2.4 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware is located at 400 South Ashbury Asset Advisors, Suite 3000, Wilmington, Delaware 19801. The registered agent of the Company at such address is Calderwood & Harkness LLP. The Member may change the registered office and registered agent of the Company from time to time in accordance with the Act, and shall cause to be filed with the Secretary of State of the State of Delaware such certificates or other documents as may be required by the Act in connection with any such change.
Section 2.5 — Purpose
The Company is formed for the following limited purposes:
(a) serving as the sole general partner of Harrowgate Private Equity Fund V LP, a Delaware limited partnership, and managing the business and affairs of the Fund in accordance with the Fund LPA;
(b) serving as the sole general partner of Harrowgate Fund V Parallel LP, a Delaware limited partnership, and managing the business and affairs of the Parallel Fund in accordance with the Parallel Fund LPA;
(c) serving as the general partner, managing member, or manager of any co-investment vehicle, alternative investment vehicle, or blocker entity (including HGF V blocker Corp., a Delaware C corporation) established in connection with the Fund or the Parallel Fund for the purpose of accommodating the investment needs of certain limited partners or classes of investors;
(d) entering into and performing the Fund LPA, the Parallel Fund LPA, and all ancillary agreements, documents, and instruments in connection with the operation of the Fund and the Parallel Fund, including, without limitation, (i) the subscription credit facility with Ashford National Bank, N.A., (ii) the fund administration agreement with Pinnacle Fund Services LLC, (iii) the custodial arrangement with Ridgeway Trust Company, (iv) the placement agent agreement with Osprey Capital Markets LLC, and (v) all subscription agreements, side letters, and other investor documentation;
(e) receiving, holding, investing, managing, and distributing Management Fees, Carried Interest, and any other amounts payable to the general partner under the Fund LPA, the Parallel Fund LPA, or any related agreement;
(f) making, holding, managing, and disposing of portfolio investments on behalf of the Fund and the Parallel Fund in accordance with the Fund LPA; and
(g) engaging in any and all activities incidental, ancillary, or related to any of the foregoing purposes.
The Company shall not engage in any business or activity other than as described in this Section 2.5 without the prior written consent of the Member.
Section 2.6 — Term
The Company shall continue in existence perpetually until dissolved in accordance with Article X of this Agreement or as otherwise required by the Act. It is anticipated that the Company's existence will parallel the term of the Fund, which shall be ten (10) years from the date of Final Close, subject to two (2) one-year extensions at the sole discretion of the Company (as general partner of the Fund) and one (1) additional one-year extension with the approval of the LPAC, in each case as set forth in the Fund LPA. Notwithstanding the foregoing, the Company shall not be dissolved solely by reason of the expiration of the term of the Fund if the Company continues to have obligations, including Clawback Obligations, that have not been fully satisfied.
Section 2.7 — Filings
The Member shall cause to be filed all certificates, documents, and reports required to be filed under the Act and any other applicable law in connection with the formation, continuation, and dissolution of the Company, including any amendments to the Certificate of Formation that may be necessary or desirable from time to time. The Member shall also cause to be filed or maintained any registrations, qualifications, or other filings necessary to conduct business in any jurisdiction in which the Company transacts business.
ARTICLE III — MEMBER; MEMBERSHIP INTEREST
Section 3.1 — Sole Member
Harrowgate Capital Partners LLC is the sole member of the Company. The Member holds one hundred percent (100%) of the membership interest in the Company, representing all of the outstanding limited liability company interests in the Company. The principal office of the Member is located at 1200 Concord Pike, Suite 600, Wilmington, Delaware 19803. The Member shall have all rights, powers, and obligations of a member under the Act and this Agreement.
Section 3.2 — Admission of Additional Members
No additional members shall be admitted to the Company without the prior written consent of the Member. The Member may, in its sole and absolute discretion, admit one or more additional members to the Company on such terms and conditions as the Member may determine. Any such admission shall require an amendment to this Agreement specifying the terms of such admission, including the capital contribution, if any, to be made by the additional member and the membership interest to be issued in connection therewith. Until such time as any additional member is admitted in accordance with this Section 3.2, the Member shall remain the sole member of the Company with all rights and obligations attendant thereto.
Section 3.3 — No Withdrawal
The Member may not withdraw or resign from the Company except (a) in connection with a dissolution of the Company under Article X of this Agreement, or (b) in connection with a transfer of the entire membership interest of the Member in accordance with Article IX of this Agreement. Any attempted withdrawal in contravention of this Section 3.3 shall be null and void and of no force or effect.
Section 3.4 — Liability of the Member
The Member shall not be personally liable for the debts, obligations, or liabilities of the Company solely by reason of being a member of the Company, except to the extent otherwise provided by the Act or as expressly agreed in this Agreement, the Fund LPA, or any other written agreement. Nothing in this Section 3.4 shall be construed to limit or otherwise affect the Member's liability arising from (a) its status as the sole member of the Company that serves as general partner of the Fund and the Parallel Fund, (b) any obligation of the general partner under the Fund LPA or applicable law, (c) any Clawback Obligation, or (d) any fraud, willful misconduct, or gross negligence of the Member. The Member acknowledges that, as a result of the Company's role as general partner of the Fund, the Member may be subject to liability as provided under the Delaware Revised Uniform Limited Partnership Act and the Fund LPA.
ARTICLE IV — MANAGEMENT AND AUTHORITY
Section 4.1 — Management by the Member
The business and affairs of the Company shall be managed exclusively by the Member. The Member shall have full, exclusive, and complete authority, power, and discretion to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters, and to perform any and all acts or activities customary or incident to the management of the Company's business and affairs, including, without limitation, the authority to act on behalf of the Fund and the Parallel Fund in the Company's capacity as general partner thereof. All decisions and actions taken by the Member on behalf of the Company in its capacity as general partner of the Fund shall be subject to the terms and conditions of the Fund LPA, including any limitations on the general partner's authority set forth therein. No person dealing with the Company shall be required to inquire into the authority of the Member to take any action on behalf of the Company, and any person dealing with the Company may rely conclusively on the authority of the Member to bind the Company.
Section 4.2 — Officers
The Member may from time to time designate one or more Officers of the Company, who shall have such titles, authority, responsibilities, and duties as the Member may determine in its sole discretion. Officers shall serve at the pleasure of the Member and may be removed, with or without cause, and replaced at any time by the Member without the consent of any other Person. The designation of Officers shall not limit or restrict the authority of the Member to manage the business and affairs of the Company, nor shall it create any rights or obligations on the part of the Officers other than as expressly delegated by the Member.
The following individuals are hereby designated as initial Officers of the Company, effective as of the date of this Agreement:
A complete listing of the initial Officers and their respective titles is set forth on Exhibit A attached hereto.
Section 4.3 — Authority to Bind the Company
The Member, the President, and any other duly authorized Officer may execute and deliver any and all agreements, contracts, instruments, certificates, documents, and other writings on behalf of the Company, and may take any and all actions in the name and on behalf of the Company that the Member deems necessary or appropriate in connection with the business and affairs of the Company. No Officer shall have the authority to bind the Company except to the extent expressly delegated by the Member, whether by resolution, written directive, power of attorney, or this Agreement. Any action taken by an Officer within the scope of such Officer's delegated authority shall be deemed to be the act of the Company.
Section 4.4 — Key Person Provisions
The Member acknowledges and agrees that Marcus J. Harrowgate and Diana R. Castellano are designated as "Key Persons" under the Fund LPA. The Member shall use commercially reasonable efforts to cause each Key Person to devote substantially all of his or her professional time, attention, and business efforts to the business and affairs of the Fund and the Parallel Fund during the Investment Period, subject to customary exceptions for service on boards of directors of portfolio companies, charitable and civic activities, management of personal investments, and other activities that do not materially interfere with the Key Person's duties to the Fund.
A "Key Person Event" (as defined in the Fund LPA) shall be triggered if either Key Person ceases to devote substantially all of his or her professional time and attention to the business of the Fund, whether by reason of death, disability, voluntary departure, removal, or otherwise. Upon the occurrence of a Key Person Event, the Investment Period shall be automatically suspended in accordance with the terms of the Fund LPA, and the Company shall not make any new portfolio investments (other than follow-on investments in existing portfolio companies and investments committed prior to the Key Person Event) unless and until (a) the Key Person Event is cured (including by the designation of a replacement key person acceptable to a majority-in-interest of the Fund's limited partners) or (b) such suspension is waived by a majority-in-interest of the Fund's limited partners (excluding GP-affiliated commitments).
Section 4.5 — Delegation
The Member may delegate any of its management authority to one or more Officers, or to any committee, advisory board, investment committee, or other Person or entity, on such terms and subject to such conditions as the Member may determine, provided that no such delegation shall relieve the Member of its duties and obligations under this Agreement, the Fund LPA, or applicable law. Any delegation of authority made pursuant to this Section 4.5 may be revoked by the Member at any time. The Member may establish an investment committee or other internal committee to review and approve investment decisions, provided that the ultimate authority for such decisions shall remain with the Member.
Section 4.6 — Investment Decisions
Investment decisions on behalf of the Fund shall be made by the Member, acting through the Company as general partner, in accordance with the investment strategy, investment guidelines, and investment restrictions set forth in the Fund LPA and the Confidential Private Placement Memorandum. The Fund's investment strategy is focused on North American mid-market and upper-mid-market leveraged buyout transactions in the following target sectors: (a) industrials, (b) business services, (c) healthcare services, and (d) technology-enabled services, with target equity checks ranging from Seventy-Five Million Dollars ($75,000,000) to Two Hundred Fifty Million Dollars ($250,000,000) per transaction.
No single portfolio investment shall exceed twenty percent (20%) of the aggregate capital commitments to the Fund at the time of commitment (the "Concentration Limit"). At the Fund's target hard cap of Two Billion Dollars ($2,000,000,000), the Concentration Limit equals Four Hundred Million Dollars ($400,000,000) per investment. All investments shall be made in compliance with the investment restrictions, diversification requirements, and other limitations set forth in the Fund LPA, including restrictions on non-control investments, investments outside North America, and investments in securities of publicly traded companies.
Section 4.7 — Third-Party Arrangements
The Member, on behalf of the Company in its capacity as general partner of the Fund, is hereby authorized to engage, retain, and compensate third-party service providers for the Fund, the Parallel Fund, and any related vehicles, including, without limitation, the following:
(a) Fund Administrator. Pinnacle Fund Services LLC shall serve as the fund administrator for the Fund. The annual base fee payable to Pinnacle Fund Services LLC shall be Three Hundred Fifty Thousand Dollars ($350,000), scaling to Four Hundred Twenty-Five Thousand Dollars ($425,000) when aggregate commitments to the Fund exceed One Billion Five Hundred Million Dollars ($1,500,000,000). The fund administration agreement shall cover partnership accounting, investor services, capital call and distribution processing, financial statement preparation, and regulatory reporting.
(b) Independent Auditor. Caldwell, Fitch & Hartley LLP shall serve as the independent auditor for the Fund. The primary contact shall be Robert A. Fonseca, Audit Partner, at 30 Rockefeller Plaza, Suite 4500, New York, New York 10112. The auditor shall perform annual audits of the Fund's financial statements in accordance with U.S. generally accepted accounting principles.
(c) Subscription Credit Facility Lender. Ashford National Bank, N.A. shall provide a revolving subscription credit facility to the Fund in an aggregate amount of up to Five Hundred Million Dollars ($500,000,000), at a pricing of the Secured Overnight Financing Rate (SOFR) plus one hundred seventy-five (175) basis points on drawn amounts and twenty-five (25) basis points on undrawn amounts, with a three hundred sixty-four (364)-day tenor, subject to renewal. The terms of the subscription credit facility are more fully described in Section 4.8 of this Agreement.
(d) Custodian. Ridgeway Trust Company shall serve as the custodian for the Fund's assets, including cash, securities, and other investments held on behalf of the Fund.
(e) Placement Agent. Osprey Capital Markets LLC shall serve as the exclusive placement agent for the Fund, with a placement fee of one and one-quarter percent (1.25%) of capital placed by Osprey Capital Markets LLC. The placement fee shall be paid by the Member (or its Affiliates) and shall not be an expense of the Fund or the limited partners. All arrangements with the placement agent shall comply with the requirements of SEC Rule 206(4)-3 and any successor rules or guidance thereunder.
The Member may, in its discretion, engage additional or alternative service providers for the Fund from time to time, subject to the terms and limitations set forth in the Fund LPA.
Section 4.8 — Subscription Facility Borrowing
The Company, as general partner of the Fund, may cause the Fund to enter into and borrow under a subscription credit facility with Ashford National Bank, N.A. (or any successor lender), subject to the following limitations set forth in the Fund LPA:
(a) Outstanding subscription facility borrowings shall not exceed twenty-five percent (25%) of uncalled capital commitments to the Fund at any time.
(b) Bridge financing drawn under the subscription credit facility for the purpose of funding portfolio investments shall be limited to a maximum duration of one hundred eighty (180) days, after which time the Company shall cause capital calls to be issued to limited partners to repay such borrowings.
(c) The borrowing base for the subscription credit facility shall be calculated as ninety percent (90%) of uncalled capital commitments from included investors, defined as limited partners that are investment-grade rated institutions, sovereign wealth funds, or government-plan investors, as determined by Ashford National Bank, N.A. in its sole discretion.
The Company shall use subscription facility borrowings solely for the purposes permitted under the Fund LPA, including (i) bridging capital calls for portfolio investments, (ii) funding working capital and expenses of the Fund pending receipt of capital contributions, and (iii) such other purposes as are consistent with the Fund's investment objectives and are expressly permitted under the Fund LPA.
ARTICLE V — CAPITAL CONTRIBUTIONS
Section 5.1 — Initial Capital Contribution
The Member shall make an initial Capital Contribution to the Company in the amount of [●] Dollars ($[●]) in cash upon or promptly following the formation of the Company. Such initial Capital Contribution shall constitute the Member's initial investment in the Company and shall be credited to the Member's capital account.
Section 5.2 — GP Commitment to the Fund
The Company (or, at the Member's election, the Member directly) shall make a capital commitment to the Fund equal to two and one-half percent (2.5%) of the aggregate capital commitments to the Fund (the "GP Commitment"). At the Fund's target hard cap of Two Billion Dollars ($2,000,000,000), the GP Commitment shall equal Fifty Million Dollars ($50,000,000). The calculation of the GP Commitment is set forth in Exhibit B attached hereto.
The GP Commitment shall be funded through capital calls issued by the Company (as general partner of the Fund) in the same manner and at the same times as capital calls made to the limited partners of the Fund, such that the Company (or the Member) participates pro rata alongside the limited partners in each investment and each payment of Fund expenses. The Member shall cause sufficient capital to be contributed to the Company to fund the Company's share of each capital call as and when such capital calls are made. The GP Commitment shall be invested on the same terms and subject to the same conditions as the commitments of the limited partners, except as otherwise provided in the Fund LPA.
Section 5.3 — Organizational Expenses
The Company may fund Organizational Expenses of the Fund from Fund assets, subject to the cap of Three Million Five Hundred Thousand Dollars ($3,500,000). All Organizational Expenses in excess of Three Million Five Hundred Thousand Dollars ($3,500,000) shall be borne by the Member and shall not be charged to the Fund or the limited partners. Organizational Expenses shall include, without limitation, legal fees and expenses of counsel to the Fund, accounting and auditing fees, filing and registration fees, printing and mailing expenses, and other costs and expenses incurred in connection with the formation, organization, and initial closing of the Fund, the Parallel Fund, and any related vehicles.
Section 5.4 — No Additional Capital Contributions
Except as set forth in Section 5.2, the Member shall not be required to make any additional Capital Contributions to the Company without its prior written consent. The Member may, in its sole discretion, make additional Capital Contributions to the Company from time to time for any purpose, including to fund the Company's share of expenses, to satisfy Clawback Obligations, or for any other purpose determined by the Member.
Section 5.5 — No Interest
No interest shall accrue on any Capital Contributions made to the Company, regardless of when such contributions are made or the period during which they are held by the Company.
ARTICLE VI — ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 — Allocations Generally
All items of income, gain, loss, deduction, and credit of the Company, and all net profits and net losses of the Company, shall be allocated to the Member in accordance with its one hundred percent (100%) membership interest in the Company, subject to the provisions of Section 6.2 relating to Carried Interest allocations.
Section 6.2 — Carried Interest Allocations
The Company, as general partner of the Fund, shall be entitled to receive Carried Interest equal to twenty percent (20%) of the net profits of the Fund in excess of the Preferred Return (eight percent (8%) per annum, compounded annually), as determined and distributed in accordance with the European-style (whole-fund) waterfall set forth in the Fund LPA. The European-style waterfall provides that Carried Interest is not distributable until all contributed capital and the Preferred Return thereon have been returned to the limited partners, thereby aligning the interests of the general partner with those of the limited partners over the life of the Fund.
The waterfall mechanics set forth in the Fund LPA, which are incorporated herein by reference, provide for distributions in the following order of priority:
Tier 1 — Return of Capital. First, one hundred percent (100%) to the limited partners of the Fund (pro rata in accordance with their respective capital contributions) until each limited partner has received cumulative distributions equal to its aggregate capital contributions to the Fund (including capital contributions attributable to Fund expenses, Management Fees, and Organizational Expenses borne by the Fund).
Tier 2 — Preferred Return. Second, one hundred percent (100%) to the limited partners of the Fund (pro rata in accordance with their respective net contributed capital balances) until each limited partner has received a cumulative compounded annual return of eight percent (8%) per annum on its net contributed capital (i.e., capital contributions less prior distributions of capital under Tier 1).
Tier 3 — GP Catch-Up. Third, eighty percent (80%) to the Company (as general partner of the Fund) and twenty percent (20%) to the limited partners (pro rata) until the cumulative distributions received by the Company under this Tier 3 equal twenty percent (20%) of cumulative net profits (i.e., the sum of amounts distributed under Tiers 2, 3, and 4), such that the Company "catches up" to its twenty percent (20%) share of all net profits above the return of capital.
Tier 4 — Residual Split. Thereafter, eighty percent (80%) to the limited partners (pro rata) and twenty percent (20%) to the Company (as general partner of the Fund).
All Carried Interest allocations and distributions shall be subject to the Clawback Obligation set forth in Article VII of this Agreement and the corresponding provisions of the Fund LPA.
Section 6.3 — Management Fee
The Company (or its designee, Harrowgate Capital Partners LLC) shall be entitled to receive the Management Fee from the Fund, calculated and payable as follows:
(a) During the Investment Period: one and seventy-five hundredths percent (1.75%) per annum of committed capital (i.e., the aggregate capital commitments of the limited partners to the Fund), payable quarterly in advance. At full raise of Two Billion Dollars ($2,000,000,000), the annual Management Fee during the Investment Period shall equal Thirty-Five Million Dollars ($35,000,000).
(b) Following the Investment Period: one and one-half percent (1.50%) per annum of invested capital (net of the cost basis of investments that have been realized, written off, or otherwise disposed of), payable quarterly in advance.
The following fee adjustments shall apply:
(c) Early Close discount. Limited partners that commit at First Close shall receive a reduction of ten (10) basis points in the Management Fee rate applicable during the Investment Period, resulting in an effective rate of one and sixty-five hundredths percent (1.65%) per annum during the Investment Period for such limited partners.
(d) Large LP discount. Limited partners that commit One Hundred Fifty Million Dollars ($150,000,000) or more to the Fund shall receive an additional reduction of five (5) basis points in the Management Fee rate applicable during the Investment Period, resulting in an effective rate of one and seventy hundredths percent (1.70%) per annum for such limited partners (or, for limited partners that also qualify for the Early Close discount, a cumulative effective rate of one and sixty hundredths percent (1.60%) per annum during the Investment Period).
One hundred percent (100%) of net Transaction Fees received by the Company or any of its Affiliates from portfolio companies of the Fund shall offset the Management Fee payable by the Fund on a dollar-for-dollar basis (the "Transaction Fee Offset"). For purposes of this Section 6.3, "net" Transaction Fees means Transaction Fees after deducting any out-of-pocket expenses incurred by the Company or its Affiliates in connection with the relevant transaction, deal, or portfolio company engagement.
Section 6.4 — Distributions to the Member
All amounts received by the Company, including, without limitation, Carried Interest, Management Fees (to the extent retained by the Company and not paid directly to the Member), distributions of capital, and any other distributions or payments from the Fund, the Parallel Fund, or any related vehicle, shall be distributed to the Member at such times and in such amounts as the Member may determine in its sole discretion, net of (a) reserves for Company obligations, liabilities, and contingencies (including potential Clawback Obligations), (b) amounts required to fund or maintain Clawback escrow or holdback accounts pursuant to Section 7.3, and (c) Company expenses, including amounts payable for indemnification under Article VIII, tax obligations, and other operating costs. The Member shall have sole discretion in determining the timing and amount of distributions, including the right to retain amounts in the Company as working capital or as reserves.
Section 6.5 — Sub-Allocation of Carried Interest Among Principals
The Member shall determine the sub-allocation of Carried Interest among the Principals and other investment professionals, partners, and employees of Harrowgate Capital Partners LLC, in the Member's sole and absolute discretion. The initial sub-allocation percentages, which are subject to adjustment by the Member from time to time, are as follows:
The foregoing sub-allocations are reflected in a separate internal carried interest allocation agreement maintained by the Member. Such sub-allocations may be adjusted, reallocated, or forfeited in connection with the departure or termination of any participant, the hiring of new investment professionals, or as otherwise determined by the Member, all in accordance with the terms of such internal allocation agreement. The sub-allocation of Carried Interest is an internal matter of the Member and shall not affect the Company's entitlement to Carried Interest under the Fund LPA or the obligations of any limited partner of the Fund.
Section 6.6 — Tax Distributions
The Company shall use commercially reasonable efforts to make tax distributions to the Member in amounts sufficient to cover the Member's (and its direct or indirect beneficial owners') estimated federal, state, and local income tax liability arising from the Company's allocable share of taxable income of the Fund, determined using the highest combined marginal tax rate applicable to individuals residing in the applicable jurisdiction. Tax distributions shall be treated as advances against, and shall reduce, subsequent distributions otherwise payable to the Member under this Article VI. The Company's obligation under this Section 6.6 shall be subject to the availability of cash and shall not require the Company to borrow funds, liquidate investments, or take any action that would be inconsistent with the terms of the Fund LPA.
ARTICLE VII — CLAWBACK OBLIGATIONS
Section 7.1 — GP Clawback
Upon the final liquidation and winding up of the Fund, if the Company has received cumulative Carried Interest distributions that exceed the amount to which the Company would be entitled on a cumulative basis under the Fund waterfall described in Section 6.2 (after giving effect to all Fund investments, dispositions, write-downs, write-offs, and other realized and unrealized gains and losses over the entire life of the Fund), the Company shall return such excess amount (the "Clawback Amount") to the Fund for distribution to the limited partners in accordance with the Fund LPA.
The Clawback Amount shall be calculated net of income taxes actually paid (or, if the relevant Principal or beneficial owner is a pass-through entity for tax purposes, the income taxes actually paid by the direct or indirect beneficial owners thereof) attributable to the Carried Interest being returned, determined using the highest combined marginal federal, state, and local income tax rate applicable to individuals residing in the relevant jurisdiction in the relevant taxable year. The Company shall make commercially reasonable efforts to recover any tax benefits subsequently realized as a result of the return of Carried Interest and shall remit such recovered amounts to the Fund.
Section 7.2 — Principal Guarantees
Each of the following Principals personally guarantees the Clawback Obligation on a several (and not joint) basis, in proportion to his or her respective share of Carried Interest allocations received from the Company (directly or indirectly through the Member):
(a) Marcus J. Harrowgate;
(b) Diana R. Castellano; and
(c) Jonathan P. Birch.
Each Principal's maximum liability under this guarantee shall not exceed the cumulative after-tax Carried Interest distributions actually received by such Principal from the Company, whether directly or indirectly through the Member or any other intermediary entity. The several (and not joint) nature of the guarantee means that each Principal is responsible only for his or her pro rata share of the Clawback Obligation (determined based on such Principal's share of cumulative Carried Interest distributions); no Principal shall be liable for the Clawback Obligation or guarantee of any other Principal.
Each Principal shall execute a separate Principal Clawback Guarantee substantially in the form attached hereto as Exhibit C, which shall constitute the Principal's binding obligation under this Section 7.2.
Section 7.3 — Escrow and Holdback
The Member may, in its sole discretion, establish an escrow account or holdback reserve from Carried Interest distributions to fund potential Clawback Obligations. Any amounts held in escrow or reserve shall be invested in short-term, investment-grade liquid instruments and shall be released to the Member (or distributed to the Fund in satisfaction of the Clawback Obligation, as applicable) upon the final determination of the Clawback Amount following the liquidation of the Fund. The establishment and maintenance of an escrow or holdback reserve shall be at the sole discretion of the Member and shall not relieve any Principal of his or her personal guarantee obligation under Section 7.2.
Section 7.4 — Survival
The Clawback Obligation and the related Principal guarantees set forth in this Article VII shall survive the dissolution and winding up of the Company and shall remain enforceable for a period of three (3) years following the date of the final distribution by the Fund to the limited partners. Any claim by the Fund or any limited partner in respect of the Clawback Obligation must be asserted in writing within such three (3)-year period. After the expiration of such three (3)-year period, the Clawback Obligation and the related Principal guarantees shall terminate and be of no further force or effect, except with respect to claims that have been asserted prior to the expiration of such period.
ARTICLE VIII — INDEMNIFICATION AND EXCULPATION
Section 8.1 — Exculpation
Neither the Company, the Member, nor any Officer, employee, or agent of the Company or the Member (each, an "Exculpated Person") shall be liable to the Company, any other member (if additional members are admitted), or to any limited partner of the Fund for any loss, damage, claim, liability, cost, or expense arising from any act or omission performed or omitted by such Exculpated Person in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company and the Fund, provided that such act or omission does not constitute (a) fraud, (b) willful misconduct, (c) gross negligence, or (d) a material breach of this Agreement or the Fund LPA. The elimination of liability provided by this Section 8.1 shall apply to the fullest extent permitted by the Act. In performing their respective duties, the Exculpated Persons shall be entitled to rely in good faith on the advice, reports, opinions, and statements of accountants, attorneys, appraisers, and other professional advisors.
Section 8.2 — Indemnification of the Member, Officers, and Agents
The Company shall, to the fullest extent permitted by the Act and applicable law, indemnify and hold harmless the Member, each Officer, each Principal, and their respective agents, employees, partners, members, managers, and representatives (each, an "Indemnified Person") from and against any and all losses, claims, damages, liabilities, expenses (including reasonable attorneys' fees, court costs, and disbursements), judgments, fines, penalties, settlements, and other amounts (collectively, "Losses") arising from any and all claims, demands, actions, suits, or proceedings (whether civil, criminal, administrative, investigative, or otherwise) in which the Indemnified Person may be involved, or is threatened to be involved, as a party, witness, or otherwise, by reason of the Indemnified Person's status as a member, officer, principal, agent, or representative of the Company, or as a general partner or its representative in connection with the Fund, the Parallel Fund, or any related vehicle, or by reason of any action taken or omitted to be taken by the Indemnified Person in any such capacity.
Notwithstanding the foregoing, indemnification shall not be available to the extent that the Losses arise from or are attributable to (a) fraud, (b) willful misconduct, (c) gross negligence, or (d) a material breach of this Agreement or the Fund LPA by the Indemnified Person seeking indemnification.
Expenses (including attorneys' fees) incurred by an Indemnified Person in defending or investigating any claim, demand, action, suit, or proceeding may be advanced by the Company prior to the final disposition of such proceeding, upon receipt of an undertaking by the Indemnified Person to repay the full amount of such advances if it is ultimately determined by a court of competent jurisdiction (in a final, non-appealable judgment) that the Indemnified Person is not entitled to indemnification hereunder. Any such advance shall be made in the sole discretion of the Member, taking into account the merits of the claim and the financial resources of the Company.
Section 8.3 — Insurance
The Company may obtain and maintain, at the Company's or the Fund's expense (to the extent permitted by the Fund LPA), directors' and officers' liability insurance, errors and omissions insurance, and such other insurance coverage as the Member may deem appropriate to cover the Indemnified Persons against any Losses for which indemnification is provided under this Article VIII. The coverage amounts, terms, and carriers of any such insurance shall be determined by the Member in its sole discretion.
Section 8.4 — Non-Exclusivity
The indemnification and exculpation provisions of this Article VIII are in addition to, and not exclusive of, any other rights to which an Indemnified Person or Exculpated Person may be entitled under any other agreement, the Act, or otherwise. The rights to indemnification and exculpation provided in this Article VIII shall inure to the benefit of the heirs, estates, executors, administrators, and personal representatives of each Indemnified Person and Exculpated Person.
ARTICLE IX — TRANSFER OF MEMBERSHIP INTEREST
Section 9.1 — Restrictions on Transfer
The Member may not transfer, sell, assign, pledge, hypothecate, encumber, or otherwise dispose of (each, a "Transfer") all or any portion of its membership interest in the Company without the prior written consent of the limited partners of the Fund, if such Transfer would materially and adversely affect the Fund or its limited partners. Any purported Transfer in violation of this Section 9.1 shall be null and void and of no force or effect. Any Transfer of a membership interest must comply with all applicable federal and state securities laws and the terms and conditions of the Fund LPA.
Section 9.2 — Permitted Transfers
Notwithstanding Section 9.1, the Member may Transfer its membership interest to an Affiliate of the Member without the consent of any other Person, provided that:
(a) the transferee Affiliate assumes in writing all obligations of the Member under this Agreement, the Fund LPA, the Parallel Fund LPA, and applicable law;
(b) the transferee Affiliate is capable of fulfilling the duties and obligations of the general partner of the Fund and the Parallel Fund;
(c) the Transfer would not result in a violation of any applicable law or regulation, including securities laws;
(d) the Transfer would not cause the Fund to be classified as a "publicly traded partnership" within the meaning of Section 7704 of the Internal Revenue Code; and
(e) the Transfer would not materially and adversely affect the tax status of the Fund or any limited partner thereof.
The Fund LPA contains provisions permitting the removal of the Company as general partner of the Fund as follows:
(i) No-Fault Removal. Seventy-five percent (75%) in interest of the limited partners of the Fund (excluding GP-affiliated commitments) may remove the Company as general partner of the Fund without cause, upon written notice to the Company and in accordance with the procedures set forth in the Fund LPA.
(ii) For-Cause Removal. A majority in interest of the limited partners of the Fund may remove the Company as general partner of the Fund for cause, which shall mean (A) fraud, (B) willful misconduct, (C) material breach of the Fund LPA that is not cured within the applicable cure period, or (D) bankruptcy, insolvency, or dissolution of the Company.
The consequences of removal, including the treatment of the Company's Carried Interest, GP Commitment, and other interests in the Fund, shall be as set forth in the Fund LPA.
Section 9.3 — Substitute Member
Any transferee of the Member's membership interest that is admitted to the Company as a substitute member in accordance with this Agreement shall succeed to all of the rights, powers, and obligations of the transferring Member under this Agreement, including, without limitation, the obligation to serve as general partner of the Fund and the Parallel Fund, and the Clawback Obligations set forth in Article VII. The admission of a substitute member shall be conditioned upon the substitute member's execution of a written instrument, in form and substance satisfactory to the Member, accepting and assuming all such rights and obligations.
ARTICLE X — DISSOLUTION AND WINDING UP
Section 10.1 — Events of Dissolution
The Company shall be dissolved upon the earliest to occur of any of the following events:
(a) the written determination of the Member to dissolve the Company;
(b) the dissolution, liquidation, and winding up of both the Fund and the Parallel Fund (and any other vehicles of which the Company serves as general partner, managing member, or manager);
(c) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act;