AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
ARDENT CAPITAL HOLDINGS LLC
a Delaware Limited Liability Company
Effective as of February 28, 2024
This Amended and Restated Limited Liability Company Agreement (this "Agreement") of Ardent Capital Holdings LLC, a Delaware limited liability company (the "Company"), is entered into effective as of February 28, 2024, by and among the Members listed on Schedule A attached hereto.
This Agreement amends and restates in its entirety the original Limited Liability Company Agreement of Ardent Capital Holdings LLC dated as of March 1, 2024 (the date of formation of the Company), and is entered into effective as of February 28, 2024.
First draft circulated November 15, 2023. Execution version dated February 28, 2024. Prepared by Calderwood & Harkness LLP, restructuring counsel to the Company. Fund counsel: Pemberton Hale LLP.
RECITALS
WHEREAS, Ardent Capital Holdings LLC (the "Company" or "HoldCo") is a Delaware limited liability company formed on March 1, 2024, by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware, File No. 7948231, with Prestige Registered Agents LLC, located at 850 New Burton Road, Suite 201, Dover, Delaware 19904, serving as the Company's registered agent;
WHEREAS, the Company was formed in connection with the restructuring of the management company and general partner entities associated with Ardent Capital Partners III LP, a Delaware limited partnership (the "Fund"), which has approximately $2,800,000,000 in total commitments from forty-seven (47) limited partners;
WHEREAS, the Company will serve as the parent holding company of both Ardent Capital Management LLC, a Delaware limited liability company and SEC-registered investment adviser (CRD #298417) (the "Management Company" or "ManCo"), and Ardent GP Intermediate LLC, a Delaware limited liability company (File No. 7948237) ("GP Intermediate"), which in turn is the sole member of Ardent Capital GP III LLC, a Delaware limited liability company (the "General Partner" or "GP"), the sole general partner of the Fund;
WHEREAS, the restructuring was undertaken in connection with the departures of David Kellner and Joanna Trask (collectively, the "Departing Principals"), each of whom has ceased to be a member of the GP and ManCo, and the resulting reallocation of economics and governance rights among the remaining principals and certain next-generation professionals;
WHEREAS, the Members of the Company desire to set forth their respective rights, obligations, and economic interests in the Company, including the allocation of carried interest, management fee economics, GP commitment obligations, and governance authority;
WHEREAS, the principal office of the Company is located at 590 Madison Avenue, 28th Floor, New York, New York 10022, and the Company's Employer Identification Number is 93-1847225; and
WHEREAS, this Agreement amends and restates in its entirety the original Limited Liability Company Agreement of the Company entered into on March 1, 2024 (the date of formation), to reflect the terms negotiated among the Members and memorialized 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 Members 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:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the correlative terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Limited Liability Company Agreement of Ardent Capital Holdings LLC, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Ardent Capital" or "the Fund" means Ardent Capital Partners III LP, a Delaware limited partnership, with total commitments of $2,800,000,000 from forty-seven (47) limited partners.
"Capital Account" means the capital account maintained for each Member in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) promulgated under Section 704(b) of the Internal Revenue Code, as further described in Section 4.4 of this Agreement.
"Capital Contribution" means any contribution of cash, property, or services (to the extent permitted) made by a Member to the Company, as reflected in such Member's Capital Account.
"Carried Interest" means the twenty percent (20%) carried interest (i.e., the performance-based allocation) to which the General Partner is entitled under the LPA, subject to an eight percent (8%) preferred return to the limited partners and a full catch-up allocation to the General Partner, as further described in Article 6 of the LPA.
"Carried Interest Allocation Agreement" means the Amended and Restated Carried Interest Allocation Agreement dated February 28, 2024, by and among the Members, setting forth the allocation of carried interest received by the Company from the GP through GP Intermediate.
"Cause" means (a) the commission of a felony or crime involving moral turpitude; (b) a material breach of this Agreement, the LPA, or any employment or consulting agreement that remains uncured for thirty (30) days following written notice thereof; (c) fraud, embezzlement, or misappropriation of Company or Fund assets; (d) willful misconduct or gross negligence in the performance of duties; or (e) a material violation of the ManCo's compliance policies and procedures, including those required by the Investment Advisers Act of 1940, as amended.
"Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware on March 1, 2024, File No. 7948231, as it may be amended or restated from time to time.
"Change of Control" means (a) a sale or disposition of all or substantially all of the assets of the Company or the ManCo; (b) a merger, consolidation, or other business combination of the Company with or into another entity, unless the Members immediately prior to such transaction continue to hold at least fifty percent (50%) of the voting or economic interests in the surviving entity; or (c) a transaction or series of related transactions resulting in a single Person (other than a current Member) acquiring more than fifty percent (50%) of the aggregate Percentage Interests.
"Clawback Obligation" means the obligation of each Member to return carried interest distributions as required under Section 6.7 of the LPA. Such obligation is one hundred percent (100%) joint and several among all recipients of carried interest, with each Member maintaining an individual escrow of thirty percent (30%) of carried interest distributions received pending final determination of the clawback amount.
"Code" or "IRC" means the Internal Revenue Code of 1986, as amended from time to time. References to specific sections of the Code shall include any successor provisions thereto.
"Company" means Ardent Capital Holdings LLC, a Delaware limited liability company.
"Covered Person" means each Member, each Managing Member, and each officer, employee, and agent of the Company and its Subsidiaries, in each case acting in their capacity as such.
"Departing Principals" means David Kellner and Joanna Trask, each of whom has ceased to be a member of the GP and ManCo in connection with the restructuring and whose interests have been addressed through their respective Separation and Release Agreements, each dated as of the date hereof.
"Disability" means a physical or mental condition that renders a Member unable to perform the essential functions of such Member's position for a period of one hundred eighty (180) consecutive days, or two hundred seventy (270) days in any three hundred sixty-five (365)-day period, as determined in good faith by the Managing Members (or, with respect to a Managing Member, by the other Managing Member in consultation with a qualified physician).
"Fiscal Year" means the calendar year ending December 31 of each year, or such shorter period as may result from the formation or dissolution of the Company.
"General Partner" or "GP" means Ardent Capital GP III LLC, a Delaware limited liability company (EIN: 84-3291063), the sole general partner of the Fund.
"GP Commitment" means the one and one-half percent (1.5%) general partner commitment to the Fund, totaling $42,000,000 in aggregate.
"GP Intermediate" means Ardent GP Intermediate LLC, a Delaware limited liability company (EIN: 93-1847231, File No. 7948237), which is the sole member of the General Partner.
"Key Person" means, as defined in Section 5.2 of the LPA, each of Marcus Aldridge and Priya Narayanan.
"Key Person Event" has the meaning set forth in Section 5.2 of the LPA and as further described in Section 7.5 of this Agreement.
"LPA" means the Amended and Restated Agreement of Limited Partnership of Ardent Capital Partners III LP, dated as of the initial closing of the Fund, as amended by Amendment No. 1 thereto, and as it may be further amended, restated, supplemented, or otherwise modified from time to time.
"LPAC" means the Limited Partners Advisory Committee of the Fund, as constituted pursuant to Section 9.3 of the LPA.
"Management Company" or "ManCo" means Ardent Capital Management LLC, a Delaware limited liability company (EIN: 84-3291070, CRD #298417), an investment adviser registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.
"Management Fee" means the management fee payable to the ManCo under Section 4.1 of the LPA, calculated as one and three-quarters percent (1.75%) per annum on committed capital during the investment period and one and one-half percent (1.50%) per annum on invested capital (at cost) thereafter. As of the date hereof, annual management fee revenue is approximately $49,000,000.
"Management Fee Sharing and Profit Allocation Agreement" means the Management Fee Sharing and Profit Allocation Agreement dated February 28, 2024, by and among the Members, setting forth the allocation of ManCo Profit Share.
"Managing Members" means Marcus Aldridge and Priya Narayanan, each in their capacity as a managing member of the Company.
"ManCo Profit Share" means the portion of Management Fee revenue distributable to the Members through the Company after payment of ManCo operating expenses, which is approximately thirty-five percent (35%) of Management Fee revenue, or approximately $17,150,000 per year as of the date hereof.
"Member" means each Person listed on Schedule A hereto and admitted as a member of the Company in accordance with the Act and this Agreement, together with any Person subsequently admitted as a member in accordance with the terms hereof, in each case for so long as such Person remains a member.
"Next-Generation Members" means Elena Marchetti and Samuel Okonkwo.
"Partnership Representative" has the meaning set forth in Section 8.4 of this Agreement.
"Percentage Interest" means, with respect to each Member, such Member's percentage interest in the Company as set forth on Schedule A hereto, as such percentage may be adjusted from time to time in accordance with the terms of this Agreement.
"Permitted Transferee" means, with respect to any Member who is an individual, (a) such Member's spouse, (b) any lineal descendant of such Member (including by adoption), (c) any trust for the primary benefit of such Member, such Member's spouse, or any lineal descendant of such Member, or (d) any entity wholly owned and controlled by such Member or such Member's Permitted Transferees.
"Person" means any individual, corporation, limited liability company, partnership, limited partnership, joint venture, trust, estate, unincorporated association, governmental authority, or other entity.
"Subsidiary" means, collectively, the Management Company and GP Intermediate, and, through GP Intermediate, the General Partner.
"Tax Matters Partner" has the meaning set forth in Section 8.4 of this Agreement.
"Transfer" means any direct or indirect sale, assignment, pledge, encumbrance, hypothecation, gift, exchange, or other disposition, whether voluntary or involuntary, by operation of law or otherwise, of all or any portion of a Member's Percentage Interest or any rights, interests, or obligations appurtenant thereto.
"Treasury Regulations" means the regulations promulgated under the Code by the U.S. Department of the Treasury, as amended from time to time.
"Vesting Commencement Date" means February 28, 2024, with respect to each of the Next-Generation Members.
"Vesting Schedule" means the schedule applicable to the Next-Generation Members as set forth in Section 4.6 and Schedule C of this Agreement.
Section 1.2 — Rules of Construction
Unless the context otherwise requires:
(a) Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
(b) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(c) References to "Sections," "Articles," "Exhibits," and "Schedules" refer to the Sections, Articles, Exhibits, and Schedules of this Agreement, unless otherwise specified.
(d) References to any statute or regulation include any successor statute or regulation and any rules and regulations promulgated thereunder.
(e) The terms "hereof," "herein," "hereunder," "hereby," and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement.
(f) Words in the singular include the plural, and words in the plural include the singular. Pronouns in the masculine, feminine, or neuter gender shall be construed to include any other gender.
(g) The word "or" is not exclusive.
(h) All references to dollar amounts are to United States dollars unless otherwise specified.
(i) The Schedules and Exhibits attached hereto are incorporated by reference and made a part of this Agreement as if fully set forth herein.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company was formed as a Delaware limited liability company by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware on March 1, 2024, File No. 7948231, in accordance with the provisions of the Act. Marcus Aldridge was the authorized person who executed and filed the Certificate of Formation on behalf of the Company. Upon the effectiveness of this Agreement, any powers of an authorized person under the Certificate of Formation shall cease, and the Managing Members shall have all rights and authority granted to them pursuant to this Agreement and the Act.
Section 2.2 — Name
The name of the Company is "Ardent Capital Holdings LLC." The Company may conduct its business under such name or under any other name or names as the Managing Members may from time to time determine, provided that any such name change shall comply with the Act and shall be reflected in an amendment to the Certificate of Formation as required by law. The Managing Members shall have the authority to execute, file, and record any assumed name certificates, trade name registrations, or similar filings as may be necessary or appropriate.
Section 2.3 — Principal Office
The principal office of the Company is located at 590 Madison Avenue, 28th Floor, New York, New York 10022. The Managing Members may change the location of the principal office at any time upon thirty (30) days' prior written notice to all Members. The Company may maintain additional offices at such other locations as the Managing Members may from time to time determine to be necessary or desirable for the conduct of the Company's business.
Section 2.4 — Registered Agent and Office
The registered agent of the Company in the State of Delaware is Prestige Registered Agents LLC, and the registered office of the Company in the State of Delaware is located at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The Managing Members may change the registered agent or registered office of the Company from time to time in accordance with the Act, and shall promptly notify all Members of any such change.
Section 2.5 — Term
The Company shall have a perpetual term and shall continue in existence until dissolved in accordance with the provisions of Article XII of this Agreement or as otherwise required by the Act. The existence of the Company as a separate legal entity shall continue until the filing of a Certificate of Cancellation with the Secretary of State of the State of Delaware.
Section 2.6 — Purpose
The purposes of the Company are as follows:
(a) To serve as the sole member of Ardent Capital Management LLC, the SEC-registered investment adviser and management company of the Fund;
(b) To serve as the sole member of Ardent GP Intermediate LLC, which in turn is the sole member of Ardent Capital GP III LLC, the sole general partner of the Fund;
(c) To receive, hold, and distribute carried interest, management fees, and other economics derived from the Fund and the Company's Subsidiaries;
(d) To hold, manage, and oversee the Subsidiaries, including the exercise of all rights and obligations associated with ownership of the Subsidiaries;
(e) To enter into agreements, contracts, and arrangements in furtherance of the foregoing, including employment agreements, advisory agreements, credit facilities, insurance policies, and other instruments as may be necessary or appropriate; and
(f) To engage in any other lawful business, purpose, or activity permitted under the Act and related to or in furtherance of the foregoing purposes.
Section 2.7 — Tax Classification
The Company shall be classified as a partnership for United States federal income tax purposes and for applicable state and local income tax purposes. No Member shall take any action inconsistent with such classification, including filing any election or taking any position on any tax return, without the prior unanimous written consent of the Managing Members. The Company's Employer Identification Number is 93-1847225. Each Member shall cooperate fully with the Company in connection with all tax-related filings, elections, and proceedings.
Section 2.8 — Title to Property
All real and personal property owned by the Company shall be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in any Company property in such Member's individual name or right. Each Member's interest in the Company shall be personal property for all purposes. All Company property shall be recorded as the property of the Company in its books and records, and no Member shall have any right to partition or otherwise divide any Company property.
ARTICLE III — MEMBERS
Section 3.1 — Members
The Members of the Company as of the effective date of this Agreement are the Persons set forth on Schedule A attached hereto, together with their respective Percentage Interests, as follows:
Each of the foregoing Persons has been admitted as a Member of the Company as of the effective date and shall have all of the rights, obligations, and interests set forth in this Agreement with respect to such Person's Percentage Interest. The Percentage Interests of Elena Marchetti and Samuel Okonkwo are subject to the vesting provisions set forth in Section 4.6 and Schedule C hereof.
Section 3.2 — Representations and Warranties of Members
Each Member hereby represents and warrants to the Company and to each other Member as of the effective date of this Agreement as follows:
(a) Authority. Such Member has full power, authority, and legal capacity to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. If such Member is an entity, the execution, delivery, and performance of this Agreement have been duly authorized by all necessary action on the part of such entity.
(b) 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, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, any agreement, indenture, instrument, order, judgment, or decree to which such Member is a party or by which such Member is bound, or (ii) violate any law, rule, regulation, order, or decree of any governmental authority applicable to such Member.
(c) Investment Intent. Such Member is acquiring its interest in the Company for investment purposes only and for its own account, and not with a view toward the distribution or resale thereof, in whole or in part, in any transaction that would be in violation of the Securities Act of 1933, as amended, or any applicable state securities laws.
(d) Accredited Investor / Qualified Purchaser. Such Member is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended, and a "qualified purchaser" as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended.
(e) Risk Acknowledgment. Such Member understands that the interests in the Company are illiquid, that there is no public market for such interests, that the transfer of such interests is subject to significant restrictions, and that an investment in the Company involves a high degree of risk, including the risk of loss of such Member's entire investment.
Section 3.3 — No Personal Liability
No Member shall be personally liable for any debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Member of the Company, except to the extent otherwise required by the Act or as expressly provided in this Agreement. The foregoing shall not limit a Member's obligations to make capital contributions, fund clawback obligations, or otherwise perform its obligations under this Agreement.
Section 3.4 — Admission of Additional Members
Additional Members may be admitted to the Company only with the prior written consent of both Managing Members. Any Person admitted as an additional Member shall execute a joinder agreement in substantially the form attached hereto as Exhibit B, agreeing to be bound by all of the terms and conditions of this Agreement. Upon the admission of any additional Member, Schedule A shall be amended to reflect such additional Member's Percentage Interest, Capital Contributions, and notice information.
Any admission of an additional Member that would constitute a "material change in the management structure" of the Fund, within the meaning of the LPA or any applicable side letter, must comply with the notification and consent requirements set forth in the LPA and the following side letters, each of which contains provisions requiring prior written notice and, in certain cases, affirmative consent prior to any such change:
(i) Ridgeline Public Employees' Retirement System Side Letter, dated as of the initial closing of the Fund;
(ii) Pinnacle Insurance Group Side Letter, dated as of the initial closing of the Fund;
(iii) Crestwood Endowment Partners Side Letter, dated as of the second closing of the Fund; and
(iv) Haverford Capital Partners Side Letter, dated as of the final closing of the Fund.
The Managing Members shall be responsible for determining whether any proposed admission triggers such requirements and for ensuring compliance therewith.
Section 3.5 — Withdrawal
No Member may voluntarily withdraw from the Company without the prior written consent of both Managing Members, except as otherwise provided in the buy-sell provisions of Article IX of this Agreement. Any attempted withdrawal without such consent shall be null and void and of no force or effect.
Upon the withdrawal of a Member (whether voluntary with consent or as a result of a Triggering Event under Article IX), the following consequences shall apply:
(a) The withdrawing Member shall cease to receive any allocations of ManCo Profit Share as of the effective date of such withdrawal;
(b) The withdrawing Member's carried interest shall be treated in accordance with the Amended and Restated Carried Interest Allocation Agreement, which generally provides for the retention of vested accrued carry and forfeiture of go-forward carry allocations; and
(c) Any unvested portion of the withdrawing Member's Percentage Interest shall be immediately and automatically forfeited and reallocated among the remaining Members in accordance with Section 4.6(d) of this Agreement.
ARTICLE IV — CAPITAL CONTRIBUTIONS AND ACCOUNTS
Section 4.1 — Initial Capital Contributions
Each Member has made or shall make initial Capital Contributions to the Company as set forth on Schedule A hereto. The initial Capital Contributions include the contribution (or deemed contribution) by Marcus Aldridge, Priya Narayanan, and Robert Hsiao of their respective membership interests in the GP and ManCo previously held directly by such Members. Such contributions of membership interests are intended to qualify as tax-free contributions to the Company under Section 721 of the Internal Revenue Code, and the Members and the Company shall report such contributions consistently on all applicable tax returns. The Contributing Members' Capital Accounts shall be credited with the adjusted tax basis of the contributed interests, and appropriate book-tax adjustments shall be maintained in accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder.
The Next-Generation Members, Elena Marchetti and Samuel Okonkwo, have each made initial Capital Contributions in cash, as reflected on Schedule A hereto. Such cash contributions reflect a negotiated value for the Percentage Interests acquired by the Next-Generation Members, taking into account the vesting conditions set forth in Section 4.6 of this Agreement.
Section 4.2 — GP Commitment Contributions
The Company, through GP Intermediate and the GP, holds a one and one-half percent (1.5%) general partner commitment to the Fund, totaling $42,000,000 in aggregate. As of the date hereof, the Fund has called approximately seventy percent (70%) of total commitments, representing capital calls of approximately $1,960,000,000 in aggregate. The pro rata GP funding obligation corresponding to such capital calls is approximately $29,400,000, which has been funded to date.
In connection with the restructuring and the departures of the Departing Principals, the unfunded GP commitments previously attributable to David Kellner and Joanna Trask have been assumed by the Members pro rata in accordance with their respective Percentage Interests, as follows:
(a) David Kellner's total GP commitment was $6,300,000. At a seventy percent (70%) funding rate, $4,410,000 has been funded and $1,890,000 remains unfunded.
(b) Joanna Trask's total GP commitment was $5,040,000. At a seventy percent (70%) funding rate, $3,528,000 has been funded and $1,512,000 remains unfunded.
(c) The combined unfunded departing commitment is $3,402,000.
(d) Such unfunded amount has been reallocated among the Members as follows:
(i) Marcus Aldridge (42%): $1,428,840
(ii) Priya Narayanan (36%): $1,224,720
(iii) Robert Hsiao (14%): $476,280
(iv) Elena Marchetti (4%): $136,080
(v) Samuel Okonkwo (4%): $136,080
(e) Any rounding adjustments necessary to reconcile the foregoing amounts to the aggregate unfunded departing commitment of $3,402,000 shall be allocated to Marcus Aldridge.
(f) Funded amounts previously attributable to the Departing Principals ($4,410,000 for David Kellner and $3,528,000 for Joanna Trask) remain in the Fund as called capital and are reflected in the Departing Principals' respective capital accounts in the Fund, subject to the terms of their Separation and Release Agreements.
Future capital calls on the GP commitment shall be funded by the Members pro rata in accordance with their respective Percentage Interests. The Managing Members shall provide written notice to each Member of any such capital call in accordance with Section 4.3 of this Agreement. The detailed allocation of GP commitment obligations is set forth on Schedule B hereto.
Section 4.3 — Additional Capital Contributions
No Member shall be required to make additional Capital Contributions to the Company, except in the following circumstances:
(a) GP Commitment Funding. Each Member shall fund its pro rata share of capital calls on the GP commitment as described in Section 4.2 of this Agreement.
(b) Clawback Funding. Each Member shall fund its pro rata share of any Clawback Obligation arising under the LPA, to the extent such Member has received carried interest distributions from the Company and such distributions are subject to clawback.
(c) Unanimous Approval. The Members may unanimously approve additional Capital Contributions for any purpose consistent with the purposes of the Company.
The Managing Members shall deliver written notice to each Member of any required capital call at least ten (10) business days prior to the date on which such contribution is due. Any notice of a capital call shall specify the aggregate amount of the capital call, each Member's pro rata share, the purpose of the capital call, and the date on which such contribution is required. Failure to fund a required capital contribution within five (5) business days of the specified due date shall constitute a default, and the defaulting Member shall be subject to a default interest charge of twelve percent (12%) per annum on the unpaid amount, in addition to any other remedies available to the Company under this Agreement or applicable law.
Section 4.4 — Capital Accounts
A separate Capital Account shall be maintained for each Member in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv). Each Member's Capital Account shall be:
(a) Increased by (i) the amount of cash contributed by such Member to the Company, (ii) the fair market value of property contributed by such Member to the Company (net of liabilities assumed by the Company or to which such property is subject), and (iii) allocations of Net Profits and items of income and gain allocated to such Member; and
(b) Decreased by (i) the amount of cash distributed to such Member by the Company, (ii) the fair market value of property distributed to such Member by the Company (net of liabilities assumed by such Member or to which such property is subject), and (iii) allocations of Net Losses and items of loss and deduction allocated to such Member.
In the event of a Transfer of all or any portion of a Member's Percentage Interest in accordance with the terms of this Agreement, the transferee's Capital Account shall include the appropriate portion of the transferor's Capital Account that is attributable to the transferred interest, as determined in accordance with the Treasury Regulations.
The Capital Accounts shall be maintained in compliance with the Treasury Regulations under Section 704(b) of the Code, and the provisions of this Section 4.4 shall be interpreted and applied consistently with such regulations. The Managing Members shall have the authority to make such adjustments to the Capital Accounts as may be necessary to comply with such regulations or to reflect the economic agreement of the Members as set forth in this Agreement.
Section 4.5 — No Interest on Capital
No Member shall be entitled to receive interest on such Member's Capital Contributions or on such Member's Capital Account balance. No Member shall have the right to demand or receive the return of such Member's Capital Contributions, except upon dissolution and winding up of the Company as provided in Article XII of this Agreement.
Section 4.6 — Vesting of Next-Generation Members' Interests
(a) Vesting Schedule. The Percentage Interests of Elena Marchetti (4%) and Samuel Okonkwo (4%) shall vest in accordance with the following schedule, commencing on the Vesting Commencement Date of February 28, 2024:
(i) Twenty-five percent (25%) of such Member's Percentage Interest shall vest on the first anniversary of the Vesting Commencement Date (February 28, 2025);
(ii) An additional twenty-five percent (25%) of such Member's Percentage Interest shall vest on the second anniversary of the Vesting Commencement Date (February 28, 2026);
(iii) An additional twenty-five percent (25%) of such Member's Percentage Interest shall vest on the third anniversary of the Vesting Commencement Date (February 28, 2027); and
(iv) The remaining twenty-five percent (25%) of such Member's Percentage Interest shall vest on the fourth anniversary of the Vesting Commencement Date (February 28, 2028), at which point one hundred percent (100%) of such Member's Percentage Interest shall be fully vested.
The vesting schedule applicable to each Next-Generation Member is set forth in detail on Schedule C hereto.
(b) Acceleration. Notwithstanding the foregoing vesting schedule, the unvested portion of a Next-Generation Member's Percentage Interest shall become immediately and fully vested upon the occurrence of any of the following events:
(i) A Change of Control of the Company or the Fund;
(ii) The death or Disability of such Next-Generation Member; or
(iii) The termination of such Next-Generation Member's employment or service relationship without Cause by the Managing Members.
(c) Forfeiture. Any unvested portion of a Next-Generation Member's Percentage Interest shall be immediately and automatically forfeited, without payment of any consideration, upon such Member's (i) voluntary departure from the Company, the ManCo, or the Fund, or (ii) termination for Cause.
(d) Reallocation of Forfeited Interests. Any Percentage Interest forfeited pursuant to Section 4.6(c) above shall be reallocated among the remaining Members pro rata based on their then-current Percentage Interests (excluding, for purposes of such calculation, any unvested portions of any other Next-Generation Member's Percentage Interest). Upon any such reallocation, Schedule A shall be updated to reflect the revised Percentage Interests of all Members.
(e) Scope of Vesting. The vesting provisions of this Section 4.6 apply to both the Next-Generation Member's share of carried interest allocations and ManCo Profit Share allocations. No distinction shall be made between the vesting of economic rights with respect to carried interest and ManCo Profit Share; both vest on a unified basis.
(f) Escrow of Unvested Distributions. During the vesting period, any distributions from the Company that would otherwise be attributable to unvested portions of a Next-Generation Member's Percentage Interest shall not be paid directly to such Member but shall instead be held in escrow by the Company (or an escrow agent designated by the Managing Members) pending the applicable vesting date. Upon vesting, escrowed amounts (together with any interest or investment earnings thereon) shall be promptly released to the applicable Next-Generation Member. Upon forfeiture, escrowed amounts attributable to forfeited interests shall be distributed to the remaining Members in accordance with their reallocated Percentage Interests.
Section 4.7 — Return of Capital
No Member shall have the right to demand or receive a return of such Member's Capital Contributions, in whole or in part, except upon the dissolution and winding up of the Company in accordance with Article XII of this Agreement. No Member shall have priority over any other Member with respect to the return of Capital Contributions, except as expressly provided in this Agreement or as required by the Act.
ARTICLE V — ALLOCATIONS
Section 5.1 — Allocation of Profits and Losses
Net Profits and Net Losses of the Company for each Fiscal Year (or other applicable period) shall be allocated among the Members in accordance with their respective Percentage Interests, as follows: Marcus Aldridge — 42%; Priya Narayanan — 36%; Robert Hsiao — 14%; Elena Marchetti — 4%; Samuel Okonkwo — 4%. All such allocations are subject to (a) the special allocation provisions set forth in Section 5.2 of this Agreement, (b) the tax allocation provisions set forth in Section 5.3, and (c) the requirements of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. In the event that any allocation of Net Profits or Net Losses would cause the Capital Account of any Member to have a deficit balance in excess of such Member's obligation to restore such deficit, if any, the allocations shall be adjusted as necessary to comply with the Treasury Regulations.
Section 5.2 — Special Allocations
Notwithstanding the provisions of Section 5.1, the following special allocations shall be made in the following order of priority:
(a) Minimum Gain Chargeback. If there is a net decrease in Company minimum gain (as defined in Treasury Regulations Section 1.704-2(b)(2)) during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Company minimum gain, determined in accordance with Treasury Regulations Section 1.704-2(f). The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.2(a) is intended to comply with the minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a net decrease in Member nonrecourse debt minimum gain (as defined in Treasury Regulations Section 1.704-2(i)(2)) attributable to a Member nonrecourse debt during any Fiscal Year, each Member who has a share of the Member nonrecourse debt minimum gain attributable to such debt shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member nonrecourse debt minimum gain, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). This Section 5.2(b) is intended to comply with the partner nonrecourse debt minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the adjusted Capital Account deficit (if any) of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.2(c) shall be made only if and to the extent that such Member would have an adjusted Capital Account deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit Capital Account balance at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.2(d) shall be made only if and to the extent that such Member would have a deficit Capital Account balance in excess of such sum after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(d) were not in the Agreement.
(e) Section 704(c) Allocations. In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, items of income, gain, loss, and deduction with respect to any property contributed to the Company (including the membership interests in the GP and ManCo contributed by Marcus Aldridge, Priya Narayanan, and Robert Hsiao at the time of formation) shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial book value (as determined under Treasury Regulations Section 1.704-1(b)(2)(iv)(d)). The traditional method under Treasury Regulations Section 1.704-3(b) shall be applied with respect to built-in gain or loss on contributed property, subject to the Tax Matters Partner's authority to adopt the remedial method under Treasury Regulations Section 1.704-3(d) if warranted by the circumstances.
(f) Curative and Remedial Allocations. The Tax Matters Partner (or Partnership Representative, as applicable) shall have the authority to make such curative and remedial allocations as may be necessary or appropriate to ensure that the allocations under this Article V have substantial economic effect within the meaning of Section 704(b) of the Code or are otherwise in accordance with each Member's interest in the Company within the meaning of Section 704(b) of the Code.
Section 5.3 — Tax Allocations
For federal, state, and local income tax purposes, items of income, gain, loss, deduction, and credit shall be allocated among the Members in a manner consistent with the allocations of the corresponding items of book income, gain, loss, and deduction under Sections 5.1 and 5.2 of this Agreement, except as otherwise required by Section 704(c) of the Code and the Treasury Regulations thereunder. To the extent that there exist book-tax disparities arising from the restructuring (including the contribution of GP and ManCo interests at values differing from their adjusted tax bases), the Tax Matters Partner (or Partnership Representative) shall determine the appropriate method of allocation under Section 704(c). The traditional method shall be the default method, with the Tax Matters Partner having the authority to adopt the remedial method under Treasury Regulations Section 1.704-3(d) if the Tax Matters Partner, in consultation with the Company's tax advisors at Heathrow Whitman & Co., determines that such method would more appropriately reflect the economic agreement of the Members.
Section 5.4 — Allocation of Carried Interest
Carried interest distributions received by the Company from the GP through GP Intermediate shall be allocated among the Members in accordance with the Amended and Restated Carried Interest Allocation Agreement dated February 28, 2024. The post-restructuring carry pool allocations are as follows:
As of September 30, 2023, the accrued carry of the Fund was approximately $87,600,000. The notional shares of such accrued carry attributable to each Member (based on such Member's Percentage Interest applied to the total accrued carry) are as follows:
Marcus Aldridge: $36,792,000
Priya Narayanan: $31,536,000
Robert Hsiao: $12,264,000
Elena Marchetti: $3,504,000
Samuel Okonkwo: $3,504,000
Carve-Outs for Departing Principals. The following carry amounts have been carved out and are not subject to reallocation among the Members:
(i) David Kellner's retained vested carry: $13,140,000, governed by the Carry Retention and Clawback Side Letter between Kellner and the Company dated as of the date hereof; and
(ii) Joanna Trask's retained vested carry: $6,307,200, governed by the Carry Retention and Clawback Side Letter between Trask and the Company dated as of the date hereof.
The redistribution of carry allocations effected by the restructuring applies only to go-forward carry on future appreciation of Fund assets. The Departing Principals' retained vested carry amounts remain subject to the Clawback Obligation under the LPA and are governed exclusively by their respective Carry Retention and Clawback Side Letters.
Section 5.5 — Allocation of ManCo Profit Share
The ManCo Profit Share shall be allocated and distributed to the Members through the Company in accordance with the Management Fee Sharing and Profit Allocation Agreement dated February 28, 2024. The ManCo Profit Share is currently approximately $17,150,000 per year, representing approximately thirty-five percent (35%) of the annual Management Fee revenue of approximately $49,000,000, after deduction of ManCo operating expenses. The allocation of ManCo Profit Share among the Members is as follows: