CARRY RETENTION AND CLAWBACK SIDE LETTER
February 28, 2024
This Carry Retention and Clawback Side Letter (this "Side Letter") is entered into as of February 28, 2024, by and between:
ARDENT CAPITAL GP III LLC, a Delaware limited liability company (the "General Partner" or "GP"); and
DAVID KELLNER, an individual residing in the State of New York ("Kellner" or the "Retiring Principal").
The General Partner and Kellner are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
This Side Letter is entered into in connection with the following agreements and instruments:
(i) the Separation and Release Agreement by and among Ardent Capital GP III LLC, Ardent Capital Management LLC, and David Kellner, dated as of February 28, 2024 (the "Separation Agreement");
(ii) the Senior Advisor Agreement between Ardent Capital Management LLC and David Kellner, effective as of March 31, 2024 (the "Advisory Agreement");
(iii) the Second Amended and Restated Limited Liability Company Agreement of Ardent Capital GP III LLC, dated as of February 28, 2024 (the "Amended GP Agreement");
(iv) the Amended and Restated Carried Interest Allocation Agreement, dated as of February 28, 2024 (the "Carry Allocation Agreement"); and
(v) the Amended and Restated Agreement of Limited Partnership of Ardent Capital Partners III LP, as amended by Amendment No. 1, dated as of February 28, 2024 (the "LPA").
RECITALS
WHEREAS:
A. Ardent Capital Partners III LP (the "Fund") is a Delaware limited partnership formed in 2019 with approximately Two Billion Eight Hundred Million Dollars ($2,800,000,000) in total capital commitments 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 total commitments, has been called as of the date hereof. The Fund currently holds eleven (11) active portfolio companies and has aggregate invested capital of approximately One Billion Eight Hundred Eighty Million Dollars ($1,880,000,000). The Fund's term expires on December 31, 2029, subject to two (2) successive one-year extensions at the sole discretion of the General Partner, in each case in accordance with Section 8.1 of the LPA;
B. The General Partner is a Delaware limited liability company serving as the sole general partner of the Fund and holding a one and one-half percent (1.5%) general partner commitment to the Fund in the aggregate amount of Forty-Two Million Dollars ($42,000,000);
C. Kellner has served as a Senior Partner of the Ardent Capital platform since 2010, and as of the date immediately prior to the restructuring described in Recital E below, holds a fifteen percent (15%) membership interest in the General Partner and a fifteen percent (15%) share of the carried interest in the Fund (the "Kellner Carry Percentage");
D. Kellner is retiring from the Ardent Capital platform effective as of March 31, 2024 (the "Retirement Date") and transitioning to the role of Senior Advisor to Ardent Capital Management LLC pursuant to the Advisory Agreement, on the terms and subject to the conditions set forth therein;
E. In connection with a comprehensive restructuring of the management company and an economics realignment among the Fund's principals, the General Partner has caused to be formed (a) Ardent Capital Holdings LLC ("HoldCo"), a Delaware limited liability company (DE File No. 7948231, EIN 93-1847225), and (b) Ardent GP Intermediate LLC ("GP Intermediate"), a Delaware limited liability company (DE File No. 7948237, EIN 93-1847231), each formed on March 1, 2024. Effective upon such formation and the consummation of the restructuring transactions, Ardent GP Intermediate LLC has been admitted as the sole member of the General Partner, replacing the individual principal members, and HoldCo has been admitted as the sole member of GP Intermediate; and
F. The Parties desire to set forth the specific terms governing Kellner's retention of vested carried interest in the Fund following his retirement, including the continuation of clawback obligations and carry escrow requirements, it being understood and agreed that this Side Letter supplements and does not supersede the Separation Agreement or any of the other agreements referenced herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
For purposes of this Side Letter, the following terms shall have the meanings ascribed to them below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the LPA, the Carry Allocation Agreement, or the Separation Agreement, as the context requires.
"Accrued Carry" means the aggregate accrued but undistributed carried interest of the Fund as of the applicable Valuation Date or other measurement date. As of the Valuation Date (September 30, 2023), the Accrued Carry was Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000).
"Advisory Agreement" has the meaning set forth in the preamble to this Side Letter.
"Amended GP Agreement" has the meaning set forth in the preamble to this Side Letter.
"Carry Allocation Agreement" means the Amended and Restated Carried Interest Allocation Agreement, dated as of February 28, 2024, by and among the General Partner, GP Intermediate, HoldCo, and the remaining and next-generation principals of the Ardent Capital platform.
"Carry Escrow" means the escrow account maintained by the General Partner for the benefit of the Fund's limited partners to secure the clawback obligation of carry recipients under the LPA, as further described in Article IV of this Side Letter.
"Clawback Obligation" means the obligation of the Retiring Principal to return previously distributed carried interest to the Fund or its limited partners, as more fully described in Article III of this Side Letter and in the LPA.
"Clawback Period" has the meaning set forth in Section 3.1 of this Side Letter.
"Fund" means Ardent Capital Partners III LP, a Delaware limited partnership (EIN 84-3291057).
"GP Intermediate" means Ardent GP Intermediate LLC, a Delaware limited liability company (DE File No. 7948237, EIN 93-1847231).
"HoldCo" means Ardent Capital Holdings LLC, a Delaware limited liability company (DE File No. 7948231, EIN 93-1847225).
"Kellner Carry Percentage" means fifteen percent (15%) of the carried interest pool of the Fund, as in effect immediately prior to the restructuring described in Recital E.
"Kellner Vested Carry" means one hundred percent (100%) of Kellner's vested carried interest in the Fund, which as of the Valuation Date (September 30, 2023) equals Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), being fifteen percent (15%) of the Accrued Carry of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000), subject in all cases to future appreciation and depreciation in accordance with the performance of the Fund's portfolio.
"LPA" means the Amended and Restated Agreement of Limited Partnership of Ardent Capital Partners III LP, as amended by Amendment No. 1, dated as of February 28, 2024.
"LPAC" means the Limited Partner Advisory Committee of the Fund, as constituted from time to time in accordance with the LPA.
"Preferred Return" means the preferred return payable to the Fund's limited partners at the rate of eight percent (8%) per annum, compounded annually, as specified in Section 6.3(a) of the LPA.
"Retirement Date" means March 31, 2024.
"Separation Agreement" means the Separation and Release Agreement by and among Ardent Capital GP III LLC, Ardent Capital Management LLC, and David Kellner, dated as of February 28, 2024.
"Side Letter" has the meaning set forth in the preamble.
"Valuation Date" means September 30, 2023, being the date of the most recent quarterly valuation of the Fund's portfolio performed by Broadleaf Consulting Group and reviewed by Heathrow Whitman & Co.
Unless the context otherwise requires, all references herein to Articles, Sections, and Exhibits are to Articles, Sections, and Exhibits of this Side Letter. Words importing the singular include the plural, and vice versa. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." All references to "dollars" or "$" are to United States dollars.
ARTICLE II — CARRY RETENTION
Section 2.1 — Retention of Vested Carried Interest
Kellner shall retain one hundred percent (100%) of his vested carried interest in the Fund (the "Kellner Vested Carry"). The Kellner Vested Carry represents Kellner's economic entitlement to receive distributions of carried interest from the Fund in respect of the Kellner Carry Percentage, as determined in accordance with the distribution waterfall set forth in the LPA.
As of the Valuation Date (September 30, 2023), the Kellner Vested Carry equals Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), calculated as fifteen percent (15%) of the Accrued Carry of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000). The Parties acknowledge that the foregoing figure represents a point-in-time estimate based on the quarterly valuation performed by Broadleaf Consulting Group as of the Valuation Date and does not represent a guaranteed or fixed entitlement. The Kellner Vested Carry is and shall remain subject to future appreciation and depreciation based on the performance of the Fund's eleven (11) active portfolio companies and any future realized proceeds from the disposition of such portfolio companies, consistent with the Fund's carried interest waterfall, which provides for a carry rate of twenty percent (20%) of net profits, subject to the Preferred Return (eight percent (8%) per annum, compounded annually) and a full catch-up provision, all as more fully set forth in Section 6.3 of the LPA.
The retention of the Kellner Vested Carry shall not be conditioned upon or subject to Kellner's continued provision of advisory services under the Advisory Agreement. For the avoidance of doubt, the Kellner Vested Carry shall survive the expiration or termination of the Advisory Agreement, regardless of the reason for such expiration or termination, subject only to the clawback and escrow provisions set forth in Articles III and IV hereof and to the restrictive covenant provisions incorporated by reference in Article XI hereof.
Section 2.2 — No Go-Forward Carry Allocation
Following the Retirement Date, Kellner shall not participate in any allocation of carried interest on (a) future investments made by the Fund after the Retirement Date, or (b) future appreciation of the Fund's existing portfolio attributable to the period after the Retirement Date, except as described in Section 2.1 above with respect to his Kellner Vested Carry. For the avoidance of doubt, the Kellner Vested Carry includes Kellner's proportionate share of all carried interest that becomes distributable with respect to the Fund's existing portfolio, regardless of whether such carried interest is attributable to value created before or after the Retirement Date, it being acknowledged that the Fund's carried interest waterfall operates on a whole-fund basis as set forth in the LPA.
The go-forward carried interest pool (being the portion of the Fund's carried interest not attributable to the Kellner Vested Carry) has been reallocated among the remaining and next-generation principals of the Ardent Capital platform pursuant to the Carry Allocation Agreement, in the following percentages:
Kellner acknowledges and agrees that he has no interest in, and no right or claim to, the go-forward carry allocation set forth above or any future carried interest allocation from any successor fund or any other investment vehicle managed by the Ardent Capital platform.
Section 2.3 — Determination of Vested vs. Unvested Carry
All of Kellner's carried interest in the Fund is deemed fully vested as of the Retirement Date. This determination is made in recognition of Kellner's tenure with the Ardent Capital platform since 2010, his significant contributions to the formation, fundraising, and investment activities of the Fund, and the agreements reached among the principals of the Ardent Capital platform in connection with the restructuring contemplated by the Amended GP Agreement and the Carry Allocation Agreement.
Accordingly, no forfeiture of carried interest applies to Kellner, and the Kellner Vested Carry shall not be subject to any vesting schedule, time-based forfeiture, or performance-based forfeiture of any kind. The Parties acknowledge that this treatment is distinguishable from the treatment of Joanna Trask, a former principal of the Ardent Capital platform, under her separate arrangement with the General Partner, the terms of which are not relevant to this Side Letter and are not incorporated herein.
Section 2.4 — Treatment on Fund Dissolution
Upon the dissolution and final liquidation of the Fund (expected to occur no later than December 31, 2031, accounting for the exercise of both of the two (2) available one-year extension periods beyond the Fund's initial term expiration date of December 31, 2029), the Kellner Vested Carry shall be finally calculated and distributed to Kellner in accordance with the waterfall provisions set forth in Section 6.3 of the LPA, subject to the clawback provisions set forth in Article III hereof and the escrow provisions set forth in Article IV hereof. To the extent that the final accounting of the Fund results in an adjustment (upward or downward) to the aggregate carried interest distributed to Kellner, such adjustment shall be made in accordance with the LPA and the terms of this Side Letter.
Upon the final liquidation of the Fund and the completion of all distributions required under the LPA, and provided that no clawback claim or other obligation is then outstanding, Kellner's rights under this Side Letter shall terminate, and neither Party shall have any further obligation to the other hereunder, except for those obligations which by their terms survive termination.
ARTICLE III — CLAWBACK OBLIGATION
Section 3.1 — Continuation of Clawback
Notwithstanding the retirement of Kellner from the Ardent Capital platform, Kellner's clawback obligation under the LPA shall continue in full force and effect for a period of three (3) years following the Retirement Date (i.e., through and including March 31, 2027) (the "Clawback Period"). Kellner acknowledges that the continuation of the Clawback Obligation is a material term of this Side Letter and was a condition precedent to the agreement of the General Partner and the remaining principals to permit Kellner to retain the Kellner Vested Carry.
During the Clawback Period, Kellner shall remain jointly and severally liable (together with the other carry recipients, whether current or former members of the General Partner, including Marcus Aldridge, Priya Narayanan, Robert Hsiao, Elena Marchetti, and Samuel Okonkwo) for any Clawback Obligation arising under the LPA, up to the aggregate amount of carried interest distributions actually received by Kellner from the Fund. The joint and several nature of this obligation is consistent with Section 6.5 of the LPA and is intended to protect the interests of the Fund's forty-seven (47) limited partners.
Section 3.2 — Scope of Clawback
The Clawback Obligation applies to all carried interest distributions received by Kellner from the Fund at any time, whether such distributions were received prior to the Retirement Date, on the Retirement Date, or during the Clawback Period. For the avoidance of doubt, the Clawback Obligation encompasses both (a) carried interest distributions made to Kellner in his former capacity as a member of the General Partner, and (b) carried interest distributions made to Kellner in his capacity as a retained carry holder following the restructuring.
The Clawback Obligation is subject to the standard set forth in the LPA, which provides for one hundred percent (100%) joint and several liability among GP members and former GP members for the return of excess carried interest distributions. Kellner acknowledges that a clawback event may arise if, at the time of the final liquidation of the Fund or at any interim measurement date specified in the LPA, the aggregate carried interest distributions received by the carry recipients exceed the amount of carried interest that would have been distributable had the Fund been liquidated as of such date, taking into account all realized and unrealized gains and losses and the Preferred Return.
Section 3.3 — Release of Clawback Obligation
Upon the expiration of the Clawback Period (March 31, 2027), and provided that:
(a) no clawback claim has been asserted by the Fund, the General Partner, or any of the Fund's limited partners against Kellner;
(b) no arbitration, litigation, or other proceeding relating to a potential clawback claim is then pending or, to the knowledge of the General Partner, threatened; and
(c) no event has occurred that, with the giving of notice or the passage of time or both, would give rise to a clawback claim against Kellner,
then Kellner's Clawback Obligation shall be automatically and irrevocably released and discharged in full, and the General Partner shall deliver written confirmation of such release to Kellner (at the address specified in Section 13.3 hereof) within thirty (30) days following the expiration of the Clawback Period.
If a clawback claim has been asserted but not yet finally resolved as of the expiration of the Clawback Period, Kellner's Clawback Obligation shall continue with respect to such pending claim, and only with respect to such pending claim, until such claim has been finally resolved by settlement, arbitral award, or judicial determination, as applicable. Upon the final resolution of any such pending claim, the General Partner shall deliver written confirmation of the release of Kellner's Clawback Obligation to the extent such claim is resolved favorably to Kellner, or shall enforce the clawback to the extent such claim is resolved adversely to Kellner, in each case within thirty (30) days following such final resolution.
Section 3.4 — Limitation
Kellner's aggregate clawback liability under this Side Letter and the LPA shall not exceed the total amount of carried interest distributions actually received by him from the Fund, net of taxes paid or payable by Kellner with respect to such distributions (determined using the highest combined marginal federal, state, and local tax rate applicable to Kellner in the year of receipt of each such distribution). This limitation is consistent with Section 6.5(c) of the LPA, and Kellner shall provide the General Partner, upon reasonable request, with documentation supporting the tax amounts used in calculating this limitation.
In no event shall Kellner be required to return or disgorge any portion of his funded GP commitment (as described in Section 6.3 hereof) in satisfaction of a Clawback Obligation. The Clawback Obligation relates solely to carried interest distributions and not to returns of invested capital.
ARTICLE IV — CARRY ESCROW
Section 4.1 — Maintenance of Escrow
The existing Carry Escrow balance attributable to Kellner of Three Million Nine Hundred Forty-Two Thousand Dollars ($3,942,000), being thirty percent (30%) of the Kellner Vested Carry of Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000), shall remain in the Carry Escrow account maintained by the General Partner at Greaves Bancorp (or such other financial institution as the General Partner may from time to time designate in accordance with the LPA). The Carry Escrow shall continue to be maintained for a period of three (3) years following the Retirement Date (i.e., through and including March 31, 2027), coterminous with the Clawback Period described in Article III hereof.
The Carry Escrow is held for the benefit of the Fund's limited partners as security for Kellner's Clawback Obligation. Kellner shall not have the right to withdraw, pledge, encumber, or otherwise transfer any amounts held in the Carry Escrow during the Clawback Period, except as expressly provided in this Article IV.
Section 4.2 — Escrow Adjustments
To the extent additional carry distributions are made to Kellner during the Clawback Period in respect of the Kellner Vested Carry, thirty percent (30%) of each such distribution shall be deposited into the Carry Escrow, consistent with the escrow provisions applicable to all carry recipients under Section 6.4 of the LPA. The balance of each such distribution (seventy percent (70%)) shall be paid directly to Kellner (subject to applicable tax withholding as described in Section 5.3 hereof).
The General Partner shall provide Kellner with a written accounting of each such deposit to the Carry Escrow within ten (10) business days of the date of such deposit, specifying the gross amount of the carry distribution, the amount deposited into the Carry Escrow, the amount of any tax withholding, and the net amount paid to Kellner.
Section 4.3 — Release of Escrow
Upon expiration of the Clawback Period (March 31, 2027), and subject to the conditions for release of the Clawback Obligation set forth in Section 3.3 hereof, the entire balance of the Carry Escrow (including the initial deposit of Three Million Nine Hundred Forty-Two Thousand Dollars ($3,942,000) and any additional amounts deposited pursuant to Section 4.2 hereof), together with any investment earnings thereon (net of custodial fees and expenses), shall be released and paid to Kellner within thirty (30) days following the expiration of the Clawback Period. Payment shall be made by wire transfer of immediately available funds to an account designated by Kellner.
If a clawback claim is pending at the time of the scheduled release, the Carry Escrow shall remain in place to the extent of such pending claim (as reasonably determined by the General Partner, acting in good faith) until the final resolution of such pending claim. Any portion of the Carry Escrow not subject to a pending claim shall be released to Kellner within the thirty (30)-day period described in the preceding paragraph.
Upon the final resolution of any pending clawback claim, (a) if the claim is resolved favorably to Kellner, the remaining balance of the Carry Escrow shall be released to Kellner within thirty (30) days following such resolution, and (b) if the claim is resolved adversely to Kellner, the appropriate amount shall be disbursed from the Carry Escrow to the Fund's limited partners, and any remaining balance shall be released to Kellner within thirty (30) days thereafter.
Section 4.4 — Escrow Agent and Investment
The Carry Escrow shall continue to be maintained in accordance with the existing escrow arrangements established under Section 6.4 of the LPA. Escrow funds may be invested in short-term, investment-grade instruments (including money market funds, United States Treasury obligations with maturities of ninety (90) days or less, and certificates of deposit issued by commercial banks with total assets in excess of Ten Billion Dollars ($10,000,000,000)), as directed by the General Partner in its reasonable discretion. All investment earnings on the Carry Escrow shall accrue for the benefit of Kellner, net of any custodial, administrative, or investment management fees. The General Partner shall include information regarding the investment performance and balance of the Carry Escrow in the quarterly reports provided to Kellner pursuant to Section 7.1 hereof.
ARTICLE V — MECHANICS OF CARRY DISTRIBUTIONS
Section 5.1 — Distribution Channel
Following the restructuring described in Recital E, carry distributions to Kellner in respect of the Kellner Vested Carry shall be paid through the following chain of entities:
(a) The Fund shall distribute carried interest to the General Partner (Ardent Capital GP III LLC, EIN 84-3291063) in accordance with the waterfall provisions of the LPA;
(b) The General Partner shall distribute such amounts to its sole member, Ardent GP Intermediate LLC (EIN 93-1847231);
(c) GP Intermediate shall distribute Kellner's allocable share of such amounts to Kellner in respect of his Kellner Vested Carry, net of (i) the thirty percent (30%) escrow withholding described in Section 4.2 hereof, and (ii) any applicable tax withholding as described in Section 5.3 hereof.
The General Partner shall cause GP Intermediate to make distributions to Kellner in respect of his Kellner Vested Carry in accordance with the foregoing. HoldCo (Ardent Capital Holdings LLC, EIN 93-1847225), as the sole member of GP Intermediate, shall cause GP Intermediate to comply with this obligation. Notwithstanding the interposition of GP Intermediate and HoldCo in the chain of distribution, Kellner's economic entitlement to the Kellner Vested Carry shall not be diminished, impaired, or delayed by reason of the restructuring.
Section 5.2 — Timing of Distributions
Carry distributions to Kellner shall be made at the same time and on the same schedule as carry distributions to the remaining and next-generation principals under the Carry Allocation Agreement. The General Partner shall not discriminate against Kellner in the timing or sequencing of carry distributions, and Kellner shall be treated on a pari passu basis with the other carry recipients in respect of the timing of all distributions of carried interest.
The Fund's carried interest is subject to the following economic terms, as set forth in Section 6.3 of the LPA:
(a) a carry rate of twenty percent (20%) of net profits;
(b) an eight percent (8%) per annum preferred return (compounded annually) to the Fund's limited partners (the "Preferred Return"); and
(c) a full catch-up provision, pursuant to which one hundred percent (100%) of distributions in excess of the Preferred Return are distributed to the General Partner until the General Partner has received twenty percent (20%) of all cumulative net profits.
Section 5.3 — Tax Withholding
The General Partner (or GP Intermediate, as applicable) shall withhold from any distribution to Kellner such amounts as may be required under applicable federal, state, or local tax law, including without limitation any withholding required under Sections 1441, 1442, 1445, 1446, or 1471 through 1474 of the Internal Revenue Code of 1986, as amended (the "Code"), or any comparable provision of state or local law. The General Partner shall promptly remit all withheld amounts to the appropriate governmental authorities and shall provide Kellner with documentation of such withholding.
Kellner acknowledges that carry distributions constitute his allocable share of Fund income (including, without limitation, long-term capital gains, short-term capital gains, dividend income, and other categories of income allocated by the Fund) and shall be reported on Schedule K-1 (Form 1065) issued by the Fund or the appropriate entity in the restructured chain. Kellner shall be solely responsible for the payment of all federal, state, and local income taxes arising from his allocable share of Fund income, whether or not distributed, and shall timely file all required tax returns.
Section 5.4 — Coordination with Fund Auditor
The General Partner shall cause Heathrow Whitman & Co. (the Fund's independent auditor and tax advisor, engagement partner Paul Devereux) to include Kellner's carried interest allocation in the Fund's federal, state, and local tax returns and to issue appropriate Schedule K-1s (and any comparable state or local forms) to Kellner for each fiscal year during which he holds the Kellner Vested Carry. The General Partner shall use commercially reasonable efforts to cause Heathrow Whitman & Co. to deliver such Schedule K-1s to Kellner no later than March 15 of the year following the close of each fiscal year, or such earlier date as may be required by applicable law.
The General Partner shall further cause Heathrow Whitman & Co. to cooperate with Kellner and Kellner's personal tax advisors in connection with any questions regarding the tax treatment of Kellner's carried interest, including the application of Section 1061 of the Code (applicable partnership interests held in connection with the performance of services) and any related Treasury Regulations.
ARTICLE VI — GP COMMITMENT
Section 6.1 — Status of Kellner's GP Commitment
Kellner's total GP commitment to the Fund was Six Million Three Hundred Thousand Dollars ($6,300,000), being fifteen percent (15%) of the aggregate GP commitment of Forty-Two Million Dollars ($42,000,000). As of the Retirement Date, Kellner has funded Four Million Four Hundred Ten Thousand Dollars ($4,410,000) of his GP commitment (representing Six Million Three Hundred Thousand Dollars ($6,300,000) multiplied by seventy percent (70%), corresponding to the Fund's overall capital call ratio), with an unfunded balance of One Million Eight Hundred Ninety Thousand Dollars ($1,890,000).
Section 6.2 — Assumption of Unfunded Commitment
Kellner's unfunded GP commitment of One Million Eight Hundred Ninety Thousand Dollars ($1,890,000) shall be assumed by the remaining members of HoldCo, pro rata in accordance with their respective post-restructuring membership percentages in HoldCo, as set forth below:
Effective as of the Retirement Date, Kellner shall have no further obligation to fund capital calls in respect of the GP commitment, and the General Partner, HoldCo, and GP Intermediate shall hold Kellner harmless from any liability in connection with the unfunded portion of his former GP commitment. Each of the individuals identified in the table above has acknowledged and agreed to the assumption of his or her pro rata share of the unfunded GP commitment pursuant to the Amended GP Agreement and the Carry Allocation Agreement.
Section 6.3 — Funded Commitment
Kellner's funded GP commitment of Four Million Four Hundred Ten Thousand Dollars ($4,410,000) shall continue to be treated as part of the General Partner's capital account in the Fund and shall be returned to Kellner in accordance with the distribution waterfall provisions of the LPA, pari passu with the remaining GP commitment holders. Kellner's funded GP commitment shall be entitled to the same rate of return and the same priority of distribution as the capital commitments of the Fund's limited partners, including the Preferred Return and all other economic terms set forth in the LPA.
For the avoidance of doubt, the return of Kellner's funded GP commitment is a return of invested capital and is separate and distinct from the Kellner Vested Carry. The funded GP commitment shall not be subject to the Clawback Obligation or the Carry Escrow provisions set forth in Articles III and IV hereof.
ARTICLE VII — REPORTING OBLIGATIONS
Section 7.1 — Quarterly Reports
The General Partner shall provide Kellner with quarterly reports on the Fund's performance, in a form and level of detail substantially consistent with the reports provided to the Fund's limited partners, including at a minimum the following information:
(a) the aggregate Accrued Carry as of the end of each fiscal quarter;
(b) Kellner's allocable share of the Accrued Carry, calculated in accordance with the Kellner Carry Percentage;
(c) the balance of Kellner's Carry Escrow, including any amounts deposited or released during the quarter and the investment earnings accrued thereon;
(d) a summary of any realized proceeds or portfolio dispositions during the quarter, including the identity of the portfolio company involved, the gross and net proceeds realized, and the impact on the Accrued Carry; and
(e) any changes to the Fund's net asset value, including unrealized gains and losses on the Fund's active portfolio companies.
Such reports shall be provided to Kellner within sixty (60) days of the end of each fiscal quarter, which is consistent with the timeline for delivery of quarterly reports to the Fund's limited partners under the LPA. Reports shall be delivered to Kellner at the address specified in Section 13.3 hereof, or by electronic delivery to an email address designated by Kellner.
Section 7.2 — Annual Tax Reporting
The General Partner shall cause Schedule K-1s and any other required tax reporting documents (including any state or local equivalents) to be delivered to Kellner no later than the dates required by applicable law. Such delivery shall be coordinated with Heathrow Whitman & Co. in accordance with Section 5.4 hereof. To the extent the Fund files for an extension of time to file its federal or state partnership tax returns, the General Partner shall promptly notify Kellner of such extension and shall use commercially reasonable efforts to deliver estimated Schedule K-1 information to Kellner in advance of Kellner's personal tax filing deadlines.
Section 7.3 — Notice of Material Events
The General Partner shall provide Kellner with prompt written notice (and in any event within ten (10) business days of the occurrence or, in the case of a threatened event, of the General Partner's becoming aware thereof) of each of the following events:
(a) any clawback event or potential clawback claim against the carry recipients, including Kellner, whether asserted by the Fund, the General Partner, any limited partner, or any other person;
(b) any dissolution, winding-up, or termination of the Fund, or any determination by the General Partner to exercise or not exercise the available one-year term extensions under the LPA;
(c) any amendment, modification, supplement, or waiver of any provision of the LPA or the Carry Allocation Agreement that materially affects or could reasonably be expected to materially affect Kellner's retained carry, the Carry Escrow, or the Clawback Obligation;
(d) any change in the Fund's independent valuation advisor (currently Broadleaf Consulting Group, lead Martin Schreiber), the Fund's independent auditor (currently Heathrow Whitman & Co., engagement partner Paul Devereux), or any other key service provider to the Fund; and
(e) any regulatory investigation, examination, or proceeding involving the Fund, the General Partner, or any affiliated entity that could reasonably be expected to affect Kellner's rights under this Side Letter.
Section 7.4 — Kellner's Obligations
Kellner shall promptly notify the General Partner (at the address specified in Section 13.3 hereof) of any change in his contact information (including mailing address, telephone number, and email address), his taxpayer identification number, or his tax residency status. Kellner shall cooperate in good faith with the General Partner and its advisors (including Heathrow Whitman & Co. and any successor auditor or tax advisor) in connection with any audit, tax examination, information request, or regulatory inquiry relating to the Fund, the General Partner, or any affiliated entity, to the extent such matter involves or relates to Kellner's carried interest, GP commitment, or tax reporting. Such cooperation shall include, without limitation, the timely execution of tax elections, consent forms, and other documents reasonably requested by the General Partner or its advisors.
ARTICLE VIII — REPRESENTATIONS AND WARRANTIES
Section 8.1 — Representations and Warranties by the General Partner
The General Partner hereby represents and warrants to Kellner as of the date hereof as follows:
(a) Organization and Good Standing. The General Partner is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. GP Intermediate and HoldCo are each limited liability companies duly organized, validly existing, and in good standing under the laws of the State of Delaware.
(b) Power and Authority. The General Partner has full power and authority to enter into this Side Letter, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. The execution and delivery of this Side Letter and the performance of the General Partner's obligations hereunder have been duly authorized by all necessary action on the part of the General Partner, GP Intermediate, and HoldCo.
(c) No Conflicts. The execution, delivery, and performance of this Side Letter by the General Partner do not and will not (i) conflict with, violate, or result in a breach of any provision of the Amended GP Agreement, the LPA, or the organizational documents of GP Intermediate or HoldCo, (ii) conflict with, violate, or result in a breach of any side letter entered into by the General Partner with any of the Fund's limited partners, or (iii) require any consent or approval not already obtained.
(d) LPAC Consent. The LPAC of the Fund has consented to the restructuring described in Recital E and to the terms of this Side Letter, which consent was obtained on February 14, 2024, pursuant to Section 9.4 of the LPA. The LPAC consent was obtained by written consent of a majority of the LPAC members in accordance with the procedures set forth in the LPA.
(e) Accrued Carry. The Accrued Carry figure of Eighty-Seven Million Six Hundred Thousand Dollars ($87,600,000) as of September 30, 2023, is derived from the most recent quarterly valuation performed by Broadleaf Consulting Group and has been reviewed by Heathrow Whitman & Co. The General Partner is not aware of any material error or discrepancy in such valuation, and the General Partner believes in good faith that the methodology employed by Broadleaf Consulting Group in arriving at such valuation is consistent with the valuation policies and procedures adopted by the Fund and disclosed to the Fund's limited partners.
Section 8.2 — Representations and Warranties by Kellner
Kellner hereby represents and warrants to the General Partner as of the date hereof as follows:
(a) Legal Capacity. Kellner has full legal capacity to enter into this Side Letter and to perform his obligations hereunder.
(b) Independent Legal Counsel. Kellner has had the opportunity to consult with independent legal counsel of his choosing, specifically Whitford & Chase LLP (lead partner Richard Beaulieu), regarding the terms of this Side Letter and the related Separation Agreement, Advisory Agreement, and other agreements entered into in connection with his retirement and the restructuring. Kellner has either availed himself of such opportunity or has knowingly and voluntarily elected not to do so, and in either case he enters into this Side Letter freely and voluntarily, with a full understanding of its terms and their legal consequences.
(c) Acknowledgment of Valuation Risk. Kellner acknowledges and agrees that his Kellner Vested Carry is subject to future appreciation and depreciation and that the figure of Thirteen Million One Hundred Forty Thousand Dollars ($13,140,000) represents a point-in-time valuation as of September 30, 2023, based on the quarterly valuation performed by Broadleaf Consulting Group. Kellner understands that the ultimate value of the Kellner Vested Carry may be greater than, less than, or equal to such amount, depending on the future performance of the Fund's portfolio companies and the realization of proceeds upon the disposition of such companies. Kellner hereby waives any claim against the General Partner, GP Intermediate, HoldCo, or any principal of the Ardent Capital platform based on the actual value of the Kellner Vested Carry differing from the valuation as of the Valuation Date.
(d) No Assignment. Kellner has not sold, assigned, pledged, encumbered, or otherwise transferred any interest in his carried interest or GP commitment, other than as contemplated by this Side Letter and the related agreements.
ARTICLE IX — RELATIONSHIP TO OTHER AGREEMENTS
Section 9.1 — Separation Agreement
This Side Letter supplements and does not supersede the Separation Agreement dated February 28, 2024. The Separation Agreement addresses the comprehensive terms of Kellner's departure from the Ardent Capital platform, including severance, benefits continuation, release of claims, and other matters. In the event of any conflict or inconsistency between the terms of this Side Letter and the terms of the Separation Agreement with respect to carry retention, clawback, escrow, or GP commitment matters, the terms of this Side Letter shall control and govern. In all other respects, the Separation Agreement shall remain in full force and effect in accordance with its terms.
Section 9.2 — LPA
The terms of the LPA (as amended by Amendment No. 1, dated February 28, 2024) shall govern the rights and obligations of the Parties to the extent not specifically addressed in this Side Letter. Nothing in this Side Letter shall be construed to modify, abridge, or otherwise affect the rights of the Fund's limited partners under the LPA, including without limitation their rights to distributions, their clawback rights, their information rights, and their rights to consent to or approve certain actions under the LPA. In the event of any conflict between this Side Letter and the LPA with respect to the rights of the Fund's limited partners, the LPA shall control.
Section 9.3 — Carry Allocation Agreement
The Carry Allocation Agreement governs the go-forward allocation of carried interest among the remaining and next-generation principals of the Ardent Capital platform (Marcus Aldridge, Priya Narayanan, Robert Hsiao, Elena Marchetti, and Samuel Okonkwo). Kellner's retained carry (the Kellner Vested Carry) is carved out from, and is not subject to, the reallocation provisions of the Carry Allocation Agreement. Kellner has no rights, obligations, or interests under the Carry Allocation Agreement, and the Carry Allocation Agreement does not create any obligations on the part of Kellner. The Parties acknowledge that the Carry Allocation Agreement was entered into contemporaneously with this Side Letter and the other restructuring documents, and the terms thereof have been taken into account in arriving at the arrangements set forth herein.
Section 9.4 — Advisory Agreement
Nothing in this Side Letter shall be construed to create an employment relationship between Kellner and the General Partner, HoldCo, GP Intermediate, Ardent Capital Management LLC, or any other entity affiliated with the Ardent Capital platform. Following the Retirement Date, Kellner's relationship with Ardent Capital Management LLC shall be governed solely by the Advisory Agreement, which provides for a two (2)-year term (effective March 31, 2024 through March 30, 2026), compensation of Three Hundred Fifty Thousand Dollars ($350,000) per year, and an obligation on the part of Kellner not to exceed ten (10) hours of advisory services per month. Kellner's status under the Advisory Agreement shall be that of an independent contractor, and the Advisory Agreement expressly disclaims any employment relationship. The retention of the Kellner Vested Carry is independent of and not conditioned upon Kellner's performance under the Advisory Agreement, and the termination or expiration of the Advisory Agreement (whether by Kellner, by Ardent Capital Management LLC, or by passage of time) shall not affect Kellner's rights under this Side Letter.
ARTICLE X — CONFIDENTIALITY
Section 10.1 — Kellner's Confidentiality Obligations. Kellner shall maintain the strict confidentiality of all Fund information, including without limitation (a) the terms of this Side Letter, (b) the Accrued Carry amounts (whether as of the Valuation Date or as of any subsequent date), (c) all portfolio company information (including financial statements, business plans, valuations, and proprietary data of the Fund's eleven (11) active portfolio companies), (d) the economics and compensation arrangements of the other principals of the Ardent Capital platform (including the carry allocations set forth in Section 2.2 hereof), (e) the identity and commitment levels of the Fund's limited partners, and (f) all other non-public information relating to the Fund, the General Partner, or the Ardent Capital platform. The foregoing confidentiality obligations shall be subject to disclosures (i) required by applicable law, regulation, or order of any court or governmental authority of competent jurisdiction, (ii) required by any regulatory authority having jurisdiction over Kellner, (iii) necessary for Kellner's personal tax reporting obligations, or (iv) made to Kellner's legal, tax, and financial advisors, provided that such advisors agree to be bound by confidentiality obligations no less restrictive than those set forth herein.
Section 10.2 — General Partner's Confidentiality Obligations. The General Partner shall maintain the confidentiality of Kellner's personal financial information, including the specific amounts of his carried interest, GP commitment, and compensation arrangements, subject to disclosures (a) required to be made to the Fund's limited partners or LPAC members in accordance with the LPA, (b) required by applicable law, regulation, or order of any court or governmental authority of competent jurisdiction, (c) required by any regulatory authority having jurisdiction over the General Partner, the Fund, or any affiliated entity, and (d) made to the Fund's advisors, including Heathrow Whitman & Co. (auditor and tax advisor), Broadleaf Consulting Group (valuation advisor), and Calderwood & Harkness LLP (legal counsel), in each case in connection with the performance of their professional services.
Section 10.3 — Survival. The confidentiality obligations set forth in this Article X shall survive the expiration or termination of this Side Letter and shall continue in full force and effect for a period of five (5) years following the final dissolution and liquidation of the Fund.
ARTICLE XI — RESTRICTIVE COVENANTS (CROSS-REFERENCE)
Section 11.1 — Incorporation by Reference. This Side Letter incorporates by reference the restrictive covenant provisions set forth in Sections 7.1, 7.2, and 7.3 of the Separation Agreement, which include the following:
(a) Non-Compete. For a period of eighteen (18) months following the Retirement Date (i.e., through and including September 30, 2025), Kellner shall not, directly or indirectly, serve as a partner, principal, managing director, portfolio manager, senior advisor, or consultant to any private equity fund or alternative investment vehicle with a substantially similar investment strategy to the Fund (mid-market leveraged buyouts and growth equity investments in North American industrial, healthcare, and technology companies), as more fully described in Section 7.1 of the Separation Agreement.
(b) Non-Solicitation of Employees. For a period of twenty-four (24) months following the Retirement Date (i.e., through and including March 31, 2026), Kellner shall not, directly or indirectly, solicit, recruit, or hire any employee of Ardent Capital Management LLC or any affiliated entity, or encourage any such employee to terminate his or her employment, as more fully described in Section 7.2 of the Separation Agreement.
(c) Non-Solicitation of Limited Partners. For a period of twenty-four (24) months following the Retirement Date (i.e., through and including March 31, 2026), Kellner shall not, directly or indirectly, solicit any limited partner of the Fund or any other fund managed by the Ardent Capital platform for the purpose of providing capital commitments or investment opportunities to any competing fund or vehicle, as more fully described in Section 7.3 of the Separation Agreement.
Section 11.2 — Effect of Breach on Carry Distributions. A breach or threatened breach by Kellner of any of the restrictive covenants described in Section 11.1 above shall constitute an event entitling the General Partner to suspend carry distributions to Kellner pending resolution of such breach. Any such suspension shall continue until (a) the General Partner determines in good faith that no breach has occurred or is continuing, (b) the Parties reach a written agreement resolving the matter, or (c) an arbitral award or judicial determination is issued pursuant to Section 13.2 hereof. Suspended distributions shall accrue and shall be released to Kellner promptly upon the resolution of the matter if no breach is found to have occurred. If a breach is found to have occurred, the General Partner's remedies shall be as set forth in the Separation Agreement, and any suspended distributions shall be treated in accordance with such determination.
ARTICLE XII — INDEMNIFICATION
Section 12.1 — Indemnification of Kellner. The General Partner shall continue to indemnify, defend, and hold harmless Kellner from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses) arising out of or relating to Kellner's acts and omissions during his tenure as a member and Senior Partner of the General Partner, to the extent and subject to the limitations provided in Article X of the Amended GP Agreement and Section 7.8 of the LPA. Such indemnification shall cover, without limitation, any claims asserted by the Fund's limited partners, any third-party claims, and any regulatory proceedings, in each case arising from or relating to Kellner's service to the General Partner and the Fund prior to the Retirement Date. The General Partner's indemnification obligations under this Section 12.1 shall survive the Retirement Date and the expiration or termination of this Side Letter, and shall continue for the full period specified in the Amended GP Agreement and the LPA.
Section 12.2 — Indemnification by Kellner. Kellner shall indemnify, defend, and hold harmless the General Partner, HoldCo, GP Intermediate, and each of their respective members, managers, officers, employees, agents, and affiliates from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses) arising out of or relating to (a) Kellner's breach of any provision of this Side Letter, (b) Kellner's breach of any provision of the Separation Agreement, (c) any misrepresentation by Kellner in this Side Letter or the Separation Agreement, or (d) Kellner's willful misconduct or fraud. Kellner's indemnification obligations under this Section 12.2 shall survive the expiration or termination of this Side Letter.
ARTICLE XIII — MISCELLANEOUS
Section 13.1 — Governing Law
This Side Letter shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof that would require the application of the laws of any other jurisdiction. Each Party irrevocably submits to the exclusive jurisdiction of the courts of the State of Delaware and the federal courts of the United States located in the District of Delaware for purposes of any action, suit, or proceeding arising out of or relating to this Side Letter, subject to the arbitration provisions set forth in Section 13.2 hereof.
Section 13.2 — Dispute Resolution
Any dispute, controversy, or claim arising out of or relating to this Side Letter, or the breach, termination, or invalidity thereof, shall be resolved by binding arbitration in New York, New York, administered by the American Arbitration Association (the "AAA") in accordance with its Commercial Arbitration Rules then in effect. The arbitration shall be conducted before a panel of one (1) arbitrator selected in accordance with the AAA's rules, who shall have expertise in private equity fund matters. The arbitrator's decision shall be final and binding upon the Parties, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. The costs of the arbitration (excluding attorneys' fees) shall be borne equally by the Parties, unless the arbitrator determines otherwise. Each Party shall bear its own attorneys' fees and expenses, unless the arbitrator determines that one Party is the substantially prevailing party, in which case the arbitrator may award reasonable attorneys' fees and expenses to such prevailing Party.
Section 13.3 — Notices
All notices, requests, demands, consents, and other communications under this Side Letter shall be in writing and shall be deemed to have been duly given when (a) delivered personally, (b) sent by certified mail, return receipt requested, postage prepaid, (c) sent by nationally recognized overnight courier service, or (d) sent by email (with confirmation of receipt), addressed as follows:
If to the General Partner:
Ardent Capital GP III LLC 590 Madison Avenue, 28th Floor New York, NY 10022
Attention: Marcus Aldridge, Co-Founder & Managing Partner
Email: maldridge@ardentcapital.com
With a copy (which shall not constitute notice) to:
Calderwood & Harkness LLP One Vanderbilt Avenue, 44th Floor New York, NY 10017
Attention: Nicholas Stern
Email: nstern@calderwoodharkness.com
If to Kellner:
At the address on file with the General Partner.
With a copy (which shall not constitute notice) to:
Whitford & Chase LLP 200 Park Avenue, Suite 4200 New York, NY 10166
Attention: Richard Beaulieu
Email: rbeaulieu@whitfordchase.com
Either Party may change its address for notice by giving written notice to the other Party in accordance with this Section 13.3.
Section 13.4 — Amendment and Waiver
This Side Letter may not be amended, modified, or supplemented except by a written instrument duly executed by both Parties. No waiver of any provision of this Side Letter shall be effective unless made in writing and signed by the Party against whom enforcement of the waiver is sought. No failure or delay by either Party in exercising any right, power, or privilege under this Side Letter shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.
Section 13.5 — Entire Agreement (as to Subject Matter)
This Side Letter, together with the Separation Agreement, the Advisory Agreement, the Carry Allocation Agreement, the Amended GP Agreement, and the LPA (each as defined herein), constitutes the entire agreement between the Parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, negotiations, representations, warranties, and understandings, whether oral or written, relating to such subject matter. No Party has relied on any representation or warranty not expressly set forth in this Side Letter or the agreements referenced herein.
Section 13.6 — Severability
If any provision of this Side Letter is held by a court of competent jurisdiction or an arbitrator to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Side Letter, and this Side Letter shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. In such event, the Parties shall negotiate in good faith a substitute provision that most nearly reflects the original intent of the Parties.