MANAGEMENT FEE SHARING AND PROFIT ALLOCATION AGREEMENT
by and among
ARDENT CAPITAL HOLDINGS LLC a Delaware limited liability company
and
EACH OF THE MEMBERS IDENTIFIED ON EXHIBIT A HERETO
Effective as of February 28, 2024
MANAGEMENT FEE SHARING AND PROFIT ALLOCATION AGREEMENT
This MANAGEMENT FEE SHARING AND PROFIT ALLOCATION AGREEMENT (this "Agreement") is entered into as of February 28, 2024 (the "Effective Date"), by and among Ardent Capital Holdings LLC, a Delaware limited liability company ("HoldCo"), and each of the Members identified on Exhibit A hereto (each, a "Member" and collectively, the "Members").
RECITALS
WHEREAS, Ardent Capital Holdings LLC is a Delaware limited liability company formed on March 1, 2024, pursuant to a Certificate of Formation filed with the Secretary of State of the State of Delaware under File No. 7948231, having been assigned Employer Identification Number 93-1847225 by the Internal Revenue Service, with its principal office located at 590 Madison Avenue, 28th Floor, New York, New York 10022 (Recital "A");
WHEREAS, HoldCo is the sole member of Ardent Capital Management LLC, a Delaware limited liability company (the "Management Company" or "ManCo"), which serves as the investment adviser and manager of Ardent Capital Partners III LP, a Delaware limited partnership (the "Fund"), and is registered as an investment adviser with the U.S. Securities and Exchange Commission (the "SEC") under Central Registration Depository Number 298417 and Employer Identification Number 84-3291070 (Recital "B");
WHEREAS, HoldCo is the sole member of Ardent GP Intermediate LLC, a Delaware limited liability company (DE Certificate of Formation File No. 7948237; EIN 93-1847231), which is in turn the sole member of Ardent Capital GP III LLC, a Delaware limited liability company (EIN 84-3291063), the sole general partner of the Fund (EIN 84-3291057) (Recital "C");
WHEREAS, the Fund has aggregate capital commitments of Two Billion Eight Hundred Million Dollars ($2,800,000,000) from forty-seven (47) limited partners, of which approximately One Billion Nine Hundred Sixty Million Dollars ($1,960,000,000), representing approximately seventy percent (70%) of aggregate commitments, has been called as of the date hereof, and the Fund currently holds eleven (11) active portfolio company investments (Recital "D");
WHEREAS, pursuant to 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, effective February 28, 2024 (as so amended, the "LPA"), the Management Company receives a management fee equal to one and three-quarters percent (1.75%) per annum of committed capital during the Investment Period (as defined therein), yielding current annual management fee revenue of approximately Forty-Nine Million Dollars ($49,000,000), and one and one-half percent (1.50%) per annum of Invested Capital following the expiration of the Investment Period, which is scheduled to end on June 30, 2025 (Recital "E");
WHEREAS, in connection with the restructuring of the management company and general partner of the Fund (the "Restructuring"), David Kellner (Senior Partner) and Joanna Trask (Partner) have departed or will depart from the Ardent platform, and the economics of the ManCo have been reallocated among the remaining principals and next-generation principals of HoldCo (Recital "F");
WHEREAS, the Members of HoldCo desire to set forth the terms governing the allocation and distribution of the ManCo Profit Share (as defined herein) among the Members (Recital "G"); and
WHEREAS, this Agreement is entered into in connection with, and is intended to be construed consistently with, the Amended and Restated Limited Liability Company Agreement of HoldCo, dated as of February 28, 2024 (the "HoldCo LLC Agreement"), and the Second Amended and Restated Limited Liability Company Agreement of Ardent Capital Management LLC, dated as of February 28, 2024 (the "ManCo LLC Agreement") (Recital "H").
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the HoldCo LLC Agreement.
"Adjusted Allocation Percentage" means a Member's Allocation Percentage as adjusted pursuant to Section 4.3 upon the occurrence of a Departure Event. Following a Departure Event with respect to any Member, the Adjusted Allocation Percentages of the remaining Members shall be determined in accordance with the provisions of Section 4.3 and shall be reflected in an updated Exhibit A.
"Allocation Percentage" means, with respect to each Member, the percentage set forth opposite such Member's name on Exhibit A hereto, representing such Member's share of the ManCo Profit Share. The initial Allocation Percentages as of the Effective Date are as follows:
(a) Marcus Aldridge — forty-two percent (42%);
(b) Priya Narayanan — thirty-six percent (36%);
(c) Robert Hsiao — fourteen percent (14%);
(d) Elena Marchetti — four percent (4%); and
(e) Samuel Okonkwo — four percent (4%).
The aggregate Allocation Percentages of all Members shall at all times equal one hundred percent (100%).
"Annual Management Fee" means the aggregate management fee payable to the Management Company by the Fund for any Fiscal Year, calculated in accordance with the terms of the LPA. During the Investment Period, the Annual Management Fee is equal to one and three-quarters percent (1.75%) per annum of committed capital (currently Two Billion Eight Hundred Million Dollars ($2,800,000,000)), yielding an Annual Management Fee of approximately Forty-Nine Million Dollars ($49,000,000). Following the expiration of the Investment Period, the Annual Management Fee shall be equal to one and one-half percent (1.50%) per annum of Invested Capital, as determined in accordance with the LPA.
"Departure Event" has the meaning set forth in Section 4.3 of this Agreement.
"Distribution Date" means each Quarterly Distribution Date and any Special Distribution Date designated in accordance with Section 4.2.
"Fiscal Year" means the calendar year (January 1 through December 31), or such shorter period as may be applicable in the case of the formation or dissolution of HoldCo during a calendar year.
"Fund" means Ardent Capital Partners III LP, a Delaware limited partnership (EIN 84-3291057).
"GP" means Ardent Capital GP III LLC, a Delaware limited liability company (EIN 84-3291063), the sole general partner of the Fund.
"GP Intermediate" means Ardent GP Intermediate LLC, a Delaware limited liability company (DE File No. 7948237; EIN 93-1847231), the sole member of the GP and a wholly owned subsidiary of HoldCo.
"HoldCo" means Ardent Capital Holdings LLC, a Delaware limited liability company (DE File No. 7948231; EIN 93-1847225).
"HoldCo LLC Agreement" means the Amended and Restated Limited Liability Company Agreement of Ardent Capital Holdings LLC, dated as of February 28, 2024, as may be further amended, restated, or supplemented from time to time.
"Invested Capital" means the aggregate amount of capital invested by the Fund in portfolio company investments that has not been returned to the limited partners through disposition, realization, or other return of capital. As of September 30, 2023, Invested Capital was approximately One Billion Eight Hundred Eighty Million Dollars ($1,880,000,000).
"Investment Period" means the period commencing on June 30, 2019 and ending on June 30, 2025, during which the Fund may make new portfolio company investments, subject to the terms and conditions of the LPA.
"LPA" means the Amended and Restated Agreement of Limited Partnership of Ardent Capital Partners III LP, as amended by Amendment No. 1, effective February 28, 2024, and as may be further amended, restated, or supplemented from time to time.
"Management Company" or "ManCo" means Ardent Capital Management LLC, a Delaware limited liability company (CRD #298417; EIN 84-3291070), the investment adviser and manager of the Fund.
"ManCo Operating Expenses" means the aggregate operating expenses of the Management Company for any applicable period, including, without limitation: (i) compensation, benefits, and payroll taxes of non-principal employees of the Management Company (currently sixty-two (62) professionals, excluding principals' profit distributions); (ii) rent and occupancy costs for the Management Company's offices at 590 Madison Avenue, 28th Floor, New York, New York 10022; (iii) technology, data, and systems costs; (iv) compliance and regulatory costs, including SEC examination and filing expenses; (v) errors and omissions insurance, directors and officers insurance, and other insurance premiums; and (vi) other ordinary course overhead and administrative expenses. As of the Effective Date, ManCo Operating Expenses are estimated at approximately Thirty-One Million Eight Hundred Fifty Thousand Dollars ($31,850,000) per annum, representing approximately sixty-five percent (65%) of the Annual Management Fee.
"ManCo Profit Share" means, for any applicable period, the amount remaining from the Annual Management Fee actually received by the Management Company during such period after the deduction of ManCo Operating Expenses incurred during such period, which amount is available for distribution to HoldCo and, through HoldCo, to the Members pursuant to this Agreement. As of the Effective Date, the ManCo Profit Share is estimated at approximately Seventeen Million One Hundred Fifty Thousand Dollars ($17,150,000) per annum, representing approximately thirty-five percent (35%) of the Annual Management Fee (i.e., $49,000,000 multiplied by 35%).
"Managing Members" means Marcus Aldridge and Priya Narayanan, in their capacity as Managing Members of HoldCo pursuant to the HoldCo LLC Agreement, and any successor Managing Members appointed in accordance therewith.
"Member" means each Person identified on Exhibit A as a member of HoldCo and party to this Agreement, and any Person who subsequently becomes a member of HoldCo and a party to this Agreement in accordance with the terms hereof and the HoldCo LLC Agreement.
"Next-Generation Members" means Elena Marchetti and Samuel Okonkwo, and any other Member designated as a "Next-Generation Member" by the Managing Members from time to time in accordance with the HoldCo LLC Agreement.
"Quarterly Distribution Date" means the date falling within thirty (30) days following the last day of each fiscal quarter of HoldCo (i.e., within thirty (30) days following each of March 31, June 30, September 30, and December 31 of each Fiscal Year), as determined by the Managing Members.
"Special Distribution Date" means any additional date designated by the Managing Members for the distribution of ManCo Profit Share to the Members in accordance with Section 4.2.
"Vesting Schedule" means the vesting schedule applicable to Next-Generation Members as set forth in Section 3.4 of this Agreement and Exhibit B hereto, and as further described in the HoldCo LLC Agreement.
Section 1.2 — Rules of Construction
(a) Unless the context otherwise requires, references herein to the LPA, the HoldCo LLC Agreement, the ManCo LLC Agreement, and any other agreement or instrument shall be deemed to refer to such agreement or instrument as it may be amended, restated, supplemented, or otherwise modified from time to time.
(b) All dollar amounts referenced in this Agreement are stated in United States Dollars and shall be rounded to the nearest whole dollar unless otherwise specified.
(c) The headings and captions contained in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
(d) References to "Sections," "Articles," "Exhibits," and "Schedules" are to Sections, Articles, Exhibits, and Schedules of this Agreement unless otherwise specified.
(e) The terms "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(f) References to any statute or regulation shall include any successor statute or regulation and any rules promulgated thereunder.
(g) Words in the singular shall include the plural and vice versa, and words of one gender shall include the other genders, as the context requires.
ARTICLE II — MANAGEMENT FEE; MANCO PROFIT SHARE DETERMINATION
Section 2.1 — Management Fee Revenue
(a) The Management Company receives the Annual Management Fee from the Fund pursuant to Section 6.1 of the LPA. The Annual Management Fee constitutes the primary source of revenue from which the ManCo Profit Share is derived and from which distributions are made to the Members under this Agreement.
(b) During the Investment Period, which commenced on June 30, 2019 and is scheduled to end on June 30, 2025, the Annual Management Fee is calculated as one and three-quarters percent (1.75%) per annum of the aggregate committed capital of the Fund. As of the Effective Date, aggregate committed capital is Two Billion Eight Hundred Million Dollars ($2,800,000,000), resulting in an Annual Management Fee of approximately Forty-Nine Million Dollars ($49,000,000) per year. The management fee is payable by the Fund in quarterly installments, in advance, on the first business day of each calendar quarter, subject to proration for any partial quarter.
(c) Following the expiration of the Investment Period (i.e., from and after July 1, 2025), the Annual Management Fee shall be calculated as one and one-half percent (1.50%) per annum of Invested Capital. As of September 30, 2023, Invested Capital was approximately One Billion Eight Hundred Eighty Million Dollars ($1,880,000,000), which would result in a post-Investment Period Annual Management Fee of approximately Twenty-Eight Million Two Hundred Thousand Dollars ($28,200,000) per year. The actual amount of Invested Capital at the expiration of the Investment Period will depend on realizations, write-downs, and any new investments made prior to June 30, 2025, and accordingly the post-Investment Period Annual Management Fee may differ materially from this estimate.
(d) The Members acknowledge that the Fund has a stated term expiring on December 31, 2029, subject to two (2) one-year extensions at the GP's discretion (each, a "Term Extension"), which, if both exercised, would extend the Fund's term through December 31, 2031. The Annual Management Fee shall continue to be payable through the end of the Fund's term (including any extension periods), subject to the terms of the LPA.
Section 2.2 — Calculation of ManCo Profit Share
(a) The ManCo Profit Share for any Fiscal Year (or portion thereof) shall equal the Annual Management Fee actually received by the ManCo during such period, minus the ManCo Operating Expenses actually incurred by the ManCo during such period.
(b) As of the Effective Date, the estimated ManCo Operating Expenses are approximately Thirty-One Million Eight Hundred Fifty Thousand Dollars ($31,850,000) per annum, representing approximately sixty-five percent (65%) of the current Annual Management Fee. This estimate encompasses, without limitation, the following expense categories:
(i) Compensation, benefits, and payroll taxes for sixty-two (62) non-principal professionals employed by or engaged through the Management Company, including investment professionals, operations staff, investor relations personnel, compliance and legal staff, and administrative support (excluding, for the avoidance of doubt, any distributions of ManCo Profit Share to the Members, which are not treated as ManCo Operating Expenses);
(ii) Rent and related occupancy costs for the Management Company's offices located at 590 Madison Avenue, 28th Floor, New York, New York 10022;
(iii) Technology infrastructure, data subscriptions, portfolio monitoring systems, cybersecurity, and related information technology expenses;
(iv) Compliance and regulatory expenses, including costs associated with SEC examinations, Form ADV filings, and ongoing investment adviser regulatory obligations;
(v) Insurance premiums, including errors and omissions liability insurance, directors and officers liability insurance, fidelity bonds, and general commercial liability insurance; and
(vi) Other ordinary course overhead and administrative expenses, including travel, professional development, office supplies, telecommunications, and similar costs.
(c) Based on the foregoing estimates, the current estimated ManCo Profit Share is approximately Seventeen Million One Hundred Fifty Thousand Dollars ($17,150,000) per annum, representing approximately thirty-five percent (35%) of the current Annual Management Fee.
(d) The ManCo Profit Share shall be determined by the Managing Members on a quarterly basis for purposes of estimated quarterly distributions under Section 2.3, subject to annual reconciliation and true-up pursuant to Section 2.4. The Managing Members shall exercise reasonable judgment in determining the ManCo Profit Share and shall maintain accurate books and records in support thereof.
Section 2.3 — Quarterly Estimated Distributions
(a) On each Quarterly Distribution Date, the Managing Members shall cause HoldCo to distribute to each Member such Member's Allocation Percentage of the estimated ManCo Profit Share for the applicable fiscal quarter.
(b) The quarterly estimated ManCo Profit Share shall be calculated based on the actual management fee revenue received by the ManCo for the applicable quarter and the estimated ManCo Operating Expenses for such quarter, as determined by the Managing Members in consultation with Heathrow Whitman & Co. (the Fund's independent auditor and tax advisor; engagement partner: Paul Devereux, CPA). The Managing Members shall use reasonable efforts to ensure that the quarterly estimates are based on current information and reasonable projections of full-year ManCo Operating Expenses.
(c) Based on the current estimated annual ManCo Profit Share of approximately Seventeen Million One Hundred Fifty Thousand Dollars ($17,150,000), the estimated quarterly ManCo Profit Share is approximately Four Million Two Hundred Eighty-Seven Thousand Five Hundred Dollars ($4,287,500) per quarter, and the estimated quarterly distribution to each Member is as follows:
(d) The foregoing estimates are for illustrative purposes only and are subject to adjustment based on actual management fee revenue received and actual ManCo Operating Expenses incurred. Each Member acknowledges that actual quarterly distributions may be higher or lower than the estimates set forth above.
Section 2.4 — Annual True-Up
(a) Within sixty (60) days following the end of each Fiscal Year, the Managing Members shall cause HoldCo's accountants (Heathrow Whitman & Co.) to determine the actual ManCo Profit Share for the preceding Fiscal Year (the "Annual Determination"). The Annual Determination shall be based on audited or reviewed financial statements of the Management Company and shall reflect all actual management fee revenue received and all actual ManCo Operating Expenses incurred during the applicable Fiscal Year.
(b) If the aggregate quarterly estimated distributions made to any Member during a Fiscal Year exceed such Member's Allocation Percentage of the actual ManCo Profit Share for such Fiscal Year (an "Overpayment"), the amount of such excess shall be deducted from the next succeeding quarterly distribution(s) to such Member until the Overpayment has been fully recouped. The Managing Members shall provide each affected Member with written notice of the Overpayment amount and the anticipated schedule of deductions.
(c) If the aggregate quarterly estimated distributions made to any Member during a Fiscal Year are less than such Member's Allocation Percentage of the actual ManCo Profit Share for such Fiscal Year (an "Underpayment"), the shortfall shall be distributed to such Member by wire transfer within fifteen (15) business days following the date of the Annual Determination.
(d) Concurrently with the Annual Determination, the Managing Members shall provide each Member with a written statement setting forth in reasonable detail the computation of the actual ManCo Profit Share for the applicable Fiscal Year, the aggregate quarterly estimated distributions made to such Member during the Fiscal Year, the amount of any Overpayment or Underpayment, and the method of adjustment.
Section 2.5 — Transition Year Adjustments (2024)
(a) For the Fiscal Year ending December 31, 2024, the ManCo Profit Share shall be allocated in two separate periods as follows:
(i) Pre-Restructuring Period (January 1, 2024 through February 27, 2024). The ManCo Profit Share allocable to the period from January 1, 2024 through February 27, 2024 (the "Pre-Restructuring Period") shall be allocated pursuant to the pre-restructuring allocation percentages in effect immediately prior to the Effective Date, which were as follows: 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%). The allocation and distribution of the ManCo Profit Share for the Pre-Restructuring Period to David Kellner and Joanna Trask shall be subject to and governed by the terms of their respective Separation and Release Agreements, each dated as of February 28, 2024.
(ii) Post-Restructuring Period (February 28, 2024 through December 31, 2024). The ManCo Profit Share allocable to the period from February 28, 2024 through December 31, 2024 (the "Post-Restructuring Period") shall be allocated pursuant to the Allocation Percentages set forth in this Agreement.
(b) The ManCo Profit Share for each of the Pre-Restructuring Period and the Post-Restructuring Period shall be calculated on the basis of actual management fee revenue received and actual ManCo Operating Expenses incurred during each such period, with ManCo Operating Expenses allocated between the two periods on a pro rata basis (based on the number of days in each period relative to the full Fiscal Year) unless the Managing Members determine that a different allocation methodology more accurately reflects the expenses attributable to each period.
ARTICLE III — ALLOCATION PERCENTAGES; VESTING
Section 3.1 — Initial Allocation Percentages
(a) The initial Allocation Percentages of each Member as of the Effective Date are set forth below and on Exhibit A:
(b) The estimated annual ManCo Profit Share allocations set forth above are based on the current Annual Management Fee of approximately Forty-Nine Million Dollars ($49,000,000) and estimated ManCo Operating Expenses of approximately Thirty-One Million Eight Hundred Fifty Thousand Dollars ($31,850,000), resulting in an estimated ManCo Profit Share of approximately Seventeen Million One Hundred Fifty Thousand Dollars ($17,150,000). These estimates are for informational purposes only and are subject to change based on actual management fee revenue and actual operating expenses in any given period.
Section 3.2 — Modification of Allocation Percentages
(a) The Allocation Percentages may be modified only by the unanimous written consent of the Managing Members and each Member whose Allocation Percentage would be directly affected by such modification. Any such modification shall be set forth in a written amendment to this Agreement and shall be reflected in an updated Exhibit A delivered to all Members.
(b) No modification of Allocation Percentages shall be effective unless and until it is in compliance with the terms of the HoldCo LLC Agreement, including any approval or consent requirements set forth therein.
(c) Any modification that affects the aggregate economics payable from the Fund or that would alter the economic terms applicable to the limited partners of the Fund shall require compliance with the applicable provisions of the LPA, including the consent of the Limited Partner Advisory Committee (the "LPAC") to the extent required under Section 9.4 of the LPA.
Section 3.3 — Relationship to Carried Interest Allocation
(a) This Agreement governs solely the allocation of the ManCo Profit Share (i.e., management fee economics). The allocation among the Members of carried interest distributions received by HoldCo (through GP Intermediate and the GP) is governed exclusively by the separate Amended and Restated Carried Interest Allocation Agreement, dated as of February 28, 2024, among HoldCo and the Members (the "Carried Interest Allocation Agreement").
(b) For the avoidance of doubt, each Member's Allocation Percentage under this Agreement is, as of the Effective Date, equal to such Member's percentage allocation under the Carried Interest Allocation Agreement (Aldridge 42%, Narayanan 36%, Hsiao 14%, Marchetti 4%, Okonkwo 4%). Notwithstanding the foregoing, the two allocations are independently governed instruments and may diverge in the future if either this Agreement or the Carried Interest Allocation Agreement is amended separately in accordance with its terms. An amendment to one agreement shall not, by its terms, constitute or require an amendment to the other.
Section 3.4 — Vesting of Next-Generation Member Allocations
(a) The Allocation Percentages of Elena Marchetti and Samuel Okonkwo (each, a "Next-Generation Member") shall vest in accordance with the vesting schedule set forth in Exhibit B to this Agreement (the "Vesting Schedule") and the corresponding vesting provisions of the HoldCo LLC Agreement. Except as otherwise provided in Exhibit B or the HoldCo LLC Agreement, the vesting of Next-Generation Members' Allocation Percentages shall be conditioned upon continued service as a Member and employee or service provider of the Management Company.
(b) Until a Next-Generation Member's Allocation Percentage is fully vested in accordance with the Vesting Schedule, the unvested portion of such Next-Generation Member's Allocation Percentage shall remain subject to forfeiture upon the occurrence of a Departure Event with respect to such Next-Generation Member, in accordance with the provisions of Section 4.3.
(c) The vested portion of a Next-Generation Member's Allocation Percentage shall not be subject to forfeiture, except as may be otherwise provided in the HoldCo LLC Agreement (including, without limitation, any clawback or forfeiture provisions applicable in the event of a termination for Cause, fraud, or material breach).
(d) For purposes of quarterly estimated distributions under Section 2.3, each Next-Generation Member shall receive distributions based on such Member's full Allocation Percentage (including both vested and unvested portions), subject to the forfeiture and reallocation provisions of Section 4.3 in the event of a subsequent Departure Event.
Section 3.5 — No Allocation to Departing Principals
(a) From and after the Effective Date, neither David Kellner (whose retirement from the Ardent platform is effective March 31, 2024) nor Joanna Trask (whose departure from the Ardent platform is effective April 15, 2024) shall have any right, title, or interest in or to any portion of the ManCo Profit Share under this Agreement.
(b) The ManCo Profit Share allocable to Kellner and Trask for the Pre-Restructuring Period (January 1, 2024 through February 27, 2024) is governed exclusively by Section 2.5 of this Agreement and the applicable Separation and Release Agreements entered into by each such individual, each dated as of February 28, 2024. Neither Kellner nor Trask is a party to this Agreement.
(c) For informational purposes, the pre-restructuring ManCo Profit Share economics attributable to Kellner and Trask were as follows:
(i) David Kellner: fifteen percent (15%) Allocation Percentage, representing estimated annual ManCo Profit Share of approximately Two Million Five Hundred Seventy-Two Thousand Five Hundred Dollars ($2,572,500); and
(ii) Joanna Trask: twelve percent (12%) Allocation Percentage, representing estimated annual ManCo Profit Share of approximately Two Million Fifty-Eight Thousand Dollars ($2,058,000).
Such economics have ceased as of the Effective Date of the Restructuring, and the corresponding percentages have been reallocated among the Members as reflected in the Allocation Percentages set forth in Section 3.1.
ARTICLE IV — DISTRIBUTIONS
Section 4.1 — Quarterly Distributions
(a) On each Quarterly Distribution Date, HoldCo shall distribute to each Member such Member's Allocation Percentage of the estimated ManCo Profit Share for the applicable fiscal quarter, as determined in accordance with Section 2.3.
(b) All distributions under this Section 4.1 shall be made by wire transfer of immediately available funds to the bank account designated by each Member in writing to HoldCo. Each Member shall be responsible for providing and maintaining current wire transfer instructions on file with HoldCo; HoldCo shall have no liability for any delay or misdirection resulting from a Member's failure to provide accurate wire transfer instructions.
(c) The Managing Members shall cause HoldCo to provide each Member with a written distribution statement (in the form substantially similar to the form attached hereto as Exhibit C) at least five (5) business days prior to each Quarterly Distribution Date. Such distribution statement shall set forth, in reasonable detail, the calculation of the estimated ManCo Profit Share for the applicable quarter and the amount distributable to such Member.
Section 4.2 — Special Distributions
(a) The Managing Members may, in their sole discretion, authorize Special Distributions to the Members on any date if, in the Managing Members' reasonable judgment, the estimated ManCo Profit Share for the applicable Fiscal Year is expected to exceed the aggregate of quarterly estimated distributions made or anticipated to be made during such Fiscal Year.
(b) Any Special Distribution shall be made to all Members pro rata in accordance with their respective Allocation Percentages. The Managing Members shall provide each Member with not less than five (5) business days' prior written notice of any Special Distribution, together with a distribution statement setting forth the basis for and calculation of the Special Distribution amount.
(c) The Managing Members shall not be under any obligation to authorize Special Distributions and may, in their discretion, retain any excess ManCo Profit Share within HoldCo or the Management Company to fund reserves, anticipated expenses, or other purposes consistent with the prudent management of the Ardent platform.
Section 4.3 — Treatment Upon Departure of a Member (Departure Event)
(a) A "Departure Event" means, with respect to any Member, the occurrence of any of the following:
(i) such Member's voluntary resignation from the Ardent platform and termination of all employment, consulting, and service relationships with HoldCo, the Management Company, the GP, GP Intermediate, and their respective affiliates;
(ii) such Member's termination for Cause (as defined in the HoldCo LLC Agreement);
(iii) such Member's death or Disability (as defined in the HoldCo LLC Agreement); or
(iv) such Member's Retirement (as defined in the HoldCo LLC Agreement).
(b) Upon the occurrence of a Departure Event with respect to any Member (the "Departing Member"), the following provisions shall apply:
(i) Cessation of Allocation. The Departing Member's ManCo Profit Share allocation shall cease as of the effective date of such Departing Member's departure from the Ardent platform (the "Departure Date"). From and after the Departure Date, the Departing Member shall have no right to receive any further distributions of ManCo Profit Share, except as provided in clause (iv) below with respect to the prorated distribution for the quarter in which the Departure Event occurs.
(ii) Treatment of Vested Allocation Percentage. The Departing Member's vested Allocation Percentage (or, in the case of a Member whose Allocation Percentage is fully vested, such Member's entire Allocation Percentage) shall be treated in accordance with the terms of any applicable separation agreement entered into between the Departing Member and HoldCo and the relevant provisions of the HoldCo LLC Agreement. To the extent not otherwise addressed in a separation agreement, the vested Allocation Percentage of a Departing Member shall be subject to reallocation among the remaining Members as determined by the Managing Members in their reasonable discretion.
(iii) Forfeiture of Unvested Allocation Percentage. In the case of a Departing Member who is a Next-Generation Member, the unvested portion of such Departing Member's Allocation Percentage shall be immediately and automatically forfeited as of the Departure Date and shall be reallocated among the remaining Members pro rata in proportion to their respective Allocation Percentages, unless the Managing Members determine in their sole discretion that a different allocation among the remaining Members is appropriate under the circumstances. Any such reallocation shall be reflected in an updated Exhibit A.
(iv) Proration of Quarter. The pro rata distribution for the fiscal quarter in which the Departure Event occurs shall be prorated based on the number of days elapsed in such quarter through the Departure Date (inclusive), divided by the total number of days in such quarter. The Departing Member shall be entitled to receive such prorated distribution for the portion of the quarter prior to the Departure Date, and the remaining Members shall be entitled to receive distributions for the balance of such quarter in accordance with their respective Allocation Percentages (or Adjusted Allocation Percentages, as applicable, following any reallocation under this Section 4.3).
(c) Cross-Reference to Restructuring Departures. The treatment of the departures of David Kellner and Joanna Trask in connection with the Restructuring is governed exclusively by their respective Separation and Release Agreements, each dated as of February 28, 2024, and the applicable provisions of Section 2.5 of this Agreement. The departure of Kellner and Trask shall not be treated as a Departure Event under this Section 4.3, except as specifically referenced in Section 2.5.
Section 4.4 — Withholding
HoldCo may deduct and withhold from any distribution payable to a Member under this Agreement such amounts as are required to be deducted and withheld under applicable federal, state, local, or foreign tax law or regulation. Any amounts so withheld shall be treated for all purposes of this Agreement as having been distributed to the applicable Member. HoldCo shall provide each affected Member with written notice of any amounts withheld and the basis therefor within a reasonable period following the applicable Distribution Date.
Section 4.5 — Reserves
(a) The Managing Members may, from time to time, establish and maintain reasonable reserves against the ManCo Profit Share for any of the following purposes:
(i) contingent liabilities of the Management Company, including pending or threatened litigation, indemnification obligations, and regulatory proceedings;
(ii) anticipated operating expenses of the Management Company, including expenses expected to be incurred in future quarters that may not be evenly distributed throughout the Fiscal Year;
(iii) regulatory costs, including costs anticipated in connection with SEC examinations, remediation efforts, or changes in applicable law or regulation; and
(iv) such other items as the Managing Members reasonably determine to be appropriate in the exercise of their fiduciary duties and business judgment.
(b) The amount and purpose of any reserves established pursuant to this Section 4.5 shall be disclosed in the quarterly distribution statement provided to each Member under Section 4.1(c). Reserves shall be released and distributed to the Members at such time and in such manner as the Managing Members determine is appropriate, taking into account the resolution or abatement of the contingency or purpose for which the reserve was established.
ARTICLE V — TAX MATTERS
Section 5.1 — Tax Classification
HoldCo shall be treated as a partnership for U.S. federal income tax purposes. The Members acknowledge that HoldCo shall not elect to be treated as a corporation or an association taxable as a corporation for U.S. federal income tax purposes. Each Member's distributive share of HoldCo's items of income, gain, loss, deduction, and credit shall be determined in accordance with the HoldCo LLC Agreement and this Agreement.
Section 5.2 — Allocation of Income
(a) The ManCo Profit Share distributed to HoldCo by the Management Company shall, for U.S. federal income tax purposes, be allocated among the Members in accordance with their respective Allocation Percentages, subject to the provisions of this Article V and the HoldCo LLC Agreement.
(b) All allocations of income, gain, loss, deduction, and credit among the Members shall be made in a manner that complies with Sections 704(b) and 704(c) of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable Treasury Regulations promulgated thereunder, including the requirements for allocations having "substantial economic effect" within the meaning of Treasury Regulation Section 1.704-1(b)(2). The Managing Members shall maintain capital accounts for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) and shall make such adjustments to capital accounts and allocations as are required by the Code and Treasury Regulations.
(c) The tax structuring and allocation methodology applicable to HoldCo is described in greater detail in the Tax Structuring Memorandum dated November 22, 2023, prepared by Sylvia Hartwell of Calderwood & Harkness LLP, and the accompanying Section 704(b)/704(c) Analysis Memorandum. Each Member acknowledges receipt and review of such memoranda and agrees to cooperate with the Managing Members and HoldCo's tax advisors in implementing the tax allocation methodology set forth therein.
Section 5.3 — Tax Reporting
(a) HoldCo shall prepare and furnish to each Member a Schedule K-1 (Form 1065) reflecting such Member's distributive share of HoldCo's items of income, gain, loss, deduction, and credit for each Fiscal Year. HoldCo shall use commercially reasonable efforts to deliver draft Schedule K-1s to the Members on or before March 15 of each year and final Schedule K-1s on or before September 15 of each year (taking into account any applicable filing extensions).
(b) Tax return preparation and reporting for HoldCo shall be coordinated with Heathrow Whitman & Co. (engagement partner: Paul Devereux, CPA), the Fund's independent auditor and tax advisor, to ensure consistency of tax reporting across the Fund (EIN 84-3291057), the GP (EIN 84-3291063), the ManCo (EIN 84-3291070), HoldCo (EIN 93-1847225), and GP Intermediate (EIN 93-1847231).
(c) Each Member shall provide HoldCo with such information as HoldCo may reasonably request for the purpose of preparing and filing tax returns, including IRS Form W-9 (or applicable Form W-8) and any state or local tax information required by HoldCo or its tax advisors.
Section 5.4 — Tax Matters Partner
Marcus Aldridge shall serve as the "Tax Matters Partner" (within the meaning of Section 6231(a)(7) of the Code, as in effect prior to the amendments made by the Bipartisan Budget Act of 2015, to the extent applicable) and as the "Partnership Representative" (within the meaning of Section 6223(a) of the Code, as amended by the Bipartisan Budget Act of 2015) for HoldCo. In his capacity as Tax Matters Partner and Partnership Representative, Marcus Aldridge shall have the authority and obligations set forth in the Code and Treasury Regulations, including the authority to make elections, participate in administrative and judicial proceedings, and take other actions on behalf of HoldCo in connection with tax matters, subject to the provisions of the HoldCo LLC Agreement.
ARTICLE VI — MANAGEMENT FEE CHANGES
Section 6.1 — Effect of Changes in Management Fee Rate or Base
(a) The Members acknowledge that the Annual Management Fee may change during the term of this Agreement as a result of various events and circumstances, including, without limitation:
(i) the transition from committed capital to Invested Capital as the fee base upon the expiration of the Investment Period on June 30, 2025;
(ii) any management fee reduction negotiated with the limited partners of the Fund, whether pursuant to an amendment to the LPA or otherwise;
(iii) any fee offset, reduction, or rebate required under any of the eight (8) side letters currently in effect for the Fund that contain fee discount or rebate provisions; and
(iv) any other change in the management fee rate, fee base, or fee calculation methodology under the LPA.
(b) In the event of any change described in Section 6.1(a), the ManCo Profit Share shall be recalculated accordingly, and distributions to the Members shall be adjusted on a prospective basis beginning with the first Quarterly Distribution Date following the effective date of such change.
(c) Following the expiration of the Investment Period, the estimated Annual Management Fee would be one and one-half percent (1.50%) per annum of Invested Capital. Based on current Invested Capital of approximately One Billion Eight Hundred Eighty Million Dollars ($1,880,000,000), the post-Investment Period Annual Management Fee would be approximately Twenty-Eight Million Two Hundred Thousand Dollars ($28,200,000) per year. The ManCo Profit Share would then equal such post-Investment Period Annual Management Fee minus ManCo Operating Expenses. The Members acknowledge that, while ManCo Operating Expenses may decrease following the expiration of the Investment Period (e.g., due to potential headcount reductions or reduced deal sourcing activities), such decreases are not expected to be proportional to the decrease in management fee revenue, and accordingly the ManCo Profit Share margin may decrease in absolute dollar terms and potentially as a percentage of revenue during the post-Investment Period.
Section 6.2 — Side-Letter Fee Adjustments
To the extent any management fee reductions, offsets, rebates, or similar adjustments are required to be made under any of the fourteen (14) side letters currently in effect for the Fund (of which eight (8) contain fee discount or rebate provisions), such amounts shall reduce the Annual Management Fee for purposes of calculating the ManCo Profit Share under this Agreement. The economic impact of all such side-letter fee adjustments shall be borne by all Members pro rata in proportion to their respective Allocation Percentages. No Member shall bear a disproportionate share of any side-letter fee adjustment, nor shall any Member be entitled to an allocation of ManCo Profit Share that is calculated without regard to such adjustments.
Section 6.3 — Placement Agent Fee Obligations
Certain tail-fee obligations remain outstanding and payable to Lockwood Placement Partners LLC (lead contact: Sarah Fontaine) in connection with the Fund III capital-raising process. To the extent any such placement agent tail fees are paid from ManCo revenue during any applicable period, such fees shall be treated as ManCo Operating Expenses for purposes of this Agreement and shall be deducted from the Annual Management Fee revenue prior to the calculation of the ManCo Profit Share. The Members acknowledge that the amount and timing of such tail-fee payments may vary from period to period and that the Managing Members shall have discretion to determine the appropriate accounting treatment of such payments, consistent with generally accepted accounting principles and the Management Company's existing placement agent agreements.
ARTICLE VII — COVENANTS AND UNDERTAKINGS
Section 7.1 — Devotion of Time
(a) Each Member who serves as a Managing Member or in the capacity of Partner (or equivalent title) within the Ardent platform shall devote substantially all of his or her business time, attention, skill, and best efforts to the affairs of the Fund, the Management Company, and the Ardent platform, consistent with the Key Person provisions of the LPA.
(b) Marcus Aldridge and Priya Narayanan are each designated as a "Key Person" under Section 5.2 of the LPA. A "Key Person Event" under the LPA would be triggered if (i) both Marcus Aldridge and Priya Narayanan cease to devote substantially all of their business time and attention to the affairs of the Fund, or (ii) one of them ceases to devote substantially all of his or her business time and attention to the affairs of the Fund and a replacement reasonably acceptable to the LPAC is not identified and approved within one hundred twenty (120) days following such cessation. The occurrence of a Key Person Event would result in a suspension of the Fund's ability to make new investments during the Investment Period, subject to the cure provisions of the LPA.
(c) Each Member acknowledges the critical importance of the Key Person provisions to the Fund's limited partners and agrees to cooperate fully with the Managing Members in maintaining compliance with such provisions. Each Member shall promptly notify the Managing Members of any circumstance that could reasonably be expected to affect such Member's ability to devote substantially all of his or her business time to the affairs of the Fund and the Management Company.
Section 7.2 — Non-Competition; Non-Solicitation
Each Member shall be bound by, and hereby agrees to comply with, the non-competition, non-solicitation, and non-interference covenants and restrictions set forth in the HoldCo LLC Agreement and any applicable employment, consulting, or services agreement between such Member and HoldCo, the Management Company, or any of their affiliates. The obligations under this Section 7.2 are in addition to, and not in limitation of, any similar obligations arising under any other agreement to which such Member is a party.
Section 7.3 — Confidentiality
(a) Each Member shall maintain the strict confidentiality of the terms and conditions of this Agreement, the ManCo Profit Share amounts (whether estimated or actual), the individual Allocation Percentages, the distribution amounts paid to each Member, and any other non-public financial or business information relating to HoldCo, the Management Company, the GP, GP Intermediate, or the Fund to which such Member may have access (collectively, "Confidential Information").
(b) The foregoing confidentiality obligations shall not apply to disclosures that are (i) required by applicable law, regulation, or governmental or regulatory order or request (including disclosures required by the SEC or other regulatory authority), (ii) required by the LPA or any side letter, (iii) made to such Member's legal, tax, or financial advisors on a need-to-know basis, provided such advisors are bound by obligations of confidentiality, or (iv) made with the prior written consent of the Managing Members.
Section 7.4 — Compliance with LPA and Side Letters
Each Member acknowledges and agrees that the allocation and distribution of the ManCo Profit Share under this Agreement is at all times subject to and conditioned upon compliance with the terms and provisions of the LPA, as amended, and the fourteen (14) side letters currently in effect for the Fund. Each Member agrees to comply with, and to refrain from taking any action that would cause HoldCo, the Management Company, or the GP to violate, any provision of the LPA or any side letter.
ARTICLE VIII — REPRESENTATIONS AND WARRANTIES
Section 8.1 — Representations by Each Member
Each Member hereby represents and warrants to HoldCo and to each other Member, as of the Effective Date, as follows:
(a) Capacity and Authority. Such Member has the full legal capacity and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby.
(b) Valid and Binding Obligation. This Agreement constitutes a valid, legal, and binding obligation of such Member, enforceable against such Member in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
(c) No Conflicts. The execution, delivery, and performance of this Agreement by such Member does not and will not (i) violate, conflict with, or result in a breach of any provision of any agreement, instrument, order, judgment, decree, or other obligation to which such Member is a party or by which such Member is bound, or (ii) require any consent, approval, or authorization of, or filing or registration with, any governmental authority or other Person (other than any consent, approval, or authorization that has been obtained prior to the Effective Date).
(d) Independent Advice. Such Member has had the opportunity to receive, and has received or knowingly waived the right to receive, independent legal and tax advice with respect to this Agreement and the transactions contemplated hereby. Such Member has read and understands this Agreement and has entered into this Agreement voluntarily and without coercion.
Section 8.2 — Representations by HoldCo
HoldCo hereby represents and warrants to each Member, as of the Effective Date, as follows:
(a) Formation and Good Standing. HoldCo is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware.
(b) Power and Authority. HoldCo has the limited liability company power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Managing Members on behalf of HoldCo, and the performance by HoldCo of its obligations hereunder, have been duly authorized by all necessary limited liability company action.
(c) LPAC Consent. The consent of the Limited Partner Advisory Committee of the Fund required under Section 9.4 of the LPA in connection with the Restructuring was duly obtained on February 14, 2024. A copy of the written LPAC consent has been provided to each Member upon request.
(d) No Key Person Event. No Key Person Event has been triggered under Section 5.2 of the LPA in connection with the departures of David Kellner and Joanna Trask. Neither David Kellner nor Joanna Trask is a designated "Key Person" under the LPA, and accordingly their departure from the Ardent platform does not constitute a Key Person Event.
ARTICLE IX — TERM AND TERMINATION
Section 9.1 — Term
This Agreement shall become effective as of the Effective Date and shall continue in full force and effect until the earliest to occur of:
(a) the termination, dissolution, or winding up of HoldCo in accordance with the HoldCo LLC Agreement and applicable law;
(b) the termination, dissolution, or winding up of the Management Company in accordance with the ManCo LLC Agreement and applicable law;
(c) the expiration of the Fund's term, which is December 31, 2029, subject to two (2) one-year extensions at the GP's discretion (and thus potentially extending through December 31, 2031), including the completion of any wind-down or liquidation period following such expiration; or