CONFIDENTIAL — LPAC PRESENTATION MEMORANDUM
Management Company Restructuring and Economics Realignment
Ardent Capital Partners III LP
Prepared by:
Calderwood & Harkness LLP One Vanderbilt Avenue, 44th Floor New York, NY 10017
Prepared for:
Members of the Limited Partner Advisory Committee of Ardent Capital Partners III LP
February 14, 2024
CONFIDENTIALITY LEGEND AND DISCLAIMER: This memorandum has been prepared at the direction of Ardent Capital GP III LLC (the "General Partner") for the sole use of the members of the Limited Partner Advisory Committee (the "LPAC") of Ardent Capital Partners III LP (the "Fund") in connection with the LPAC's consideration of consent pursuant to Section 9.4 of the Amended and Restated Agreement of Limited Partnership of the Fund, dated as of June 30, 2019 (as amended from time to time, the "LPA"). This memorandum contains attorney-client privileged and confidential information and is protected by the attorney work product doctrine. No portion of this memorandum may be reproduced, distributed, or disclosed to any person or entity other than the LPAC members and their designated legal and financial advisors without the prior written consent of the General Partner. Receipt of this memorandum does not constitute legal advice to, or create an attorney-client relationship between Calderwood & Harkness LLP and, any LPAC member or limited partner of the Fund. Each LPAC member is encouraged to consult its own legal and financial advisors in connection with the matters described herein.
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I. Executive Summary
Ardent Capital GP III LLC (the "General Partner"), the sole general partner of Ardent Capital Partners III LP (the "Fund"), is proposing a comprehensive restructuring of its management company and a corresponding realignment of economics among the Fund's principals. This memorandum has been prepared by Calderwood & Harkness LLP, as special restructuring counsel to the General Partner, to provide the members of the LPAC with a detailed summary of the proposed restructuring, the rationale therefor, and the consents being solicited.
The Fund is a Delaware limited partnership formed in 2019, with approximately $2.8 billion in total commitments from forty-seven (47) limited partners. The Fund held its final close on April 15, 2024. The Fund's investment period commenced on June 30, 2019 and is currently scheduled to end on June 30, 2025. As of the date of this memorandum, approximately $1.96 billion in capital has been called (representing approximately 70% of total commitments), and approximately $1.88 billion has been invested across eleven (11) active portfolio companies. The Fund has generated aggregate gross MOIC of 1.42x and a net IRR of 14.7% as of the most recent quarterly valuation (September 30, 2023). Unrealized value stands at approximately $2.33 billion, and realized proceeds to date total approximately $445 million. Accrued carried interest as of September 30, 2023 totals $87.6 million, none of which has been distributed to date. The Fund's term expires on December 31, 2029, subject to two one-year extensions at the General Partner's discretion.
The proposed restructuring involves four principal workstreams:
(1) Entity Restructuring — the formation of a new parent holding company (Ardent Capital Holdings LLC, "HoldCo") and a new intermediate entity (Ardent GP Intermediate LLC, "GP Intermediate"), which together create a two-tier governance framework consolidating ownership of both the General Partner and the management company (Ardent Capital Management LLC, the "ManCo");
(2) Economics Realignment — the reallocation of carried interest, management company profit share, and GP commitment obligations among the remaining and next-generation principals following the departures of two senior principals;
(3) Departing Principal Separations — the negotiation and execution of separation arrangements with two departing principals, David Kellner (retiring) and Joanna Trask (departing voluntarily), including carry retention and forfeiture provisions, restrictive covenants, and related terms; and
(4) LP Consent and Side-Letter Compliance — the solicitation of LPAC consent under Section 9.4 of the LPA and compliance with applicable provisions across the Fund's fourteen (14) side letters.
LPAC consent is being solicited pursuant to Section 9.4 of the LPA, which requires LPAC approval for certain material actions by the General Partner, including changes to the management structure of the Fund. The General Partner has determined that the restructuring constitutes a "material change in the management structure" within the meaning of Section 9.4 and accordingly is submitting the restructuring for LPAC review and consent.
It is important to emphasize at the outset that the proposed restructuring does not change the Fund's investment strategy, management fee rates, aggregate management fee amount, fund term, or day-to-day investment operations. The Fund will continue to pursue control investments in middle-market industrial and business-services companies under the leadership of Marcus Aldridge and Priya Narayanan, the Fund's co-founding Managing Partners, both of whom are designated Key Persons under Section 5.2 of the LPA and will continue to devote substantially all of their business time to the Fund.
Neither David Kellner nor Joanna Trask is a designated Key Person under the LPA. Accordingly, no Key Person Event is triggered by their departures.
The sections that follow provide a comprehensive overview of the rationale for the restructuring, the proposed new entity structure, the economics realignment, the terms of the departing principal separations, the impact on Fund operations, the Key Person analysis, the side-letter compliance summary, the specific consents being requested, and the anticipated timeline for implementation.
II. Rationale for Restructuring
The proposed restructuring is driven by three interrelated objectives: succession planning in connection with the departure of two senior principals, enhancement of the governance framework to simplify and centralize decision-making, and integration of the next generation of Ardent investment professionals into the platform's economic and governance structure.
A. Succession Planning
Two of the Fund's five senior principals are departing the Ardent platform:
David Kellner (Senior Partner, age 61) is retiring from the firm effective March 31, 2024. Mr. Kellner joined Ardent Capital in 2010 and has served as a senior investment professional across multiple fund cycles, including serving as a deal lead on several of the Fund's portfolio companies. Mr. Kellner's retirement is the culmination of a succession planning process that has been under way internally for approximately eighteen months. As part of the transition, Mr. Kellner will assume a Senior Advisor role under a separate Senior Advisor Agreement, providing limited advisory services for a period of two years following his retirement.
Joanna Trask (Partner, age 48) is departing the firm voluntarily effective April 15, 2024 to join another investment management firm. Ms. Trask joined Ardent Capital in 2013 and has been a valued member of the investment team, contributing to deal sourcing, due diligence, and portfolio management. Her departure, while not anticipated at the outset, has been managed collaboratively, and the separation terms described in Section V.B below reflect a negotiated agreement between the parties. Ms. Trask has cooperated fully in the transition process and has committed to ensuring an orderly handover of her portfolio responsibilities.
Mr. Kellner's and Ms. Trask's combined carried interest allocation in the Fund is 27% (Kellner 15%, Trask 12%), representing a significant portion of the total carry pool. Their departures necessitate a formal reallocation of economics and a restructuring of the entity framework to accommodate the reduced number of principals and the elevation of next-generation professionals. The restructuring is designed to create a durable, institutionalized framework for managing current and future personnel transitions without disruption to Fund operations or investor relationships.
B. Governance Enhancement
Under the current structure, each of the five senior principals holds direct membership interests in both the General Partner (Ardent Capital GP III LLC) and the ManCo (Ardent Capital Management LLC). This parallel ownership structure, while common at the time of the Fund's formation, creates significant complexity in governance and economic alignment, particularly in the context of personnel changes. Each departure or addition of a principal requires amendments to the operating agreements of both entities, separate consent processes, and independent economic negotiations at each level.
The proposed restructuring introduces a centralized holding company — Ardent Capital Holdings LLC ("HoldCo") — that will serve as the sole member of both the ManCo and a newly formed intermediate entity, Ardent GP Intermediate LLC. GP Intermediate will, in turn, serve as the sole member of the General Partner. This two-tier governance framework centralizes all ownership and governance authority in HoldCo, creating a single point of control and simplifying future changes. Personnel transitions, economic reallocations, and governance modifications can be effectuated through amendments to the HoldCo LLC Agreement alone, without the need for parallel amendments to the operating agreements of the General Partner and the ManCo.
The restructuring also formalizes decision-making authority. Under the current structure, each principal has equal governance rights proportional to their membership interests in both the GP and the ManCo, which has at times resulted in ambiguity regarding approval requirements for routine operational matters. The HoldCo LLC Agreement designates Marcus Aldridge and Priya Narayanan as Managing Members with authority over day-to-day operations, while reserving certain material actions for supermajority consent of all HoldCo members. This clear delineation of authority is intended to enhance operational efficiency and reduce administrative burden.
C. Next-Generation Integration
A critical objective of the restructuring is the formal integration of two next-generation principals into the Ardent platform's economic and governance framework:
Elena Marchetti (Principal, age 38) joined Ardent Capital in 2017 and has been a key contributor to the Fund's investment activities, including serving as the primary deal lead on two active portfolio companies. Ms. Marchetti has demonstrated strong investment judgment and leadership capabilities, and her promotion to a carry-bearing role is viewed by the General Partner as an important step in ensuring the platform's continuity.
Samuel Okonkwo (Principal, age 36) joined Ardent Capital in 2018 and has played an increasingly significant role in the Fund's deal origination and portfolio management activities. Mr. Okonkwo has been responsible for sourcing three of the Fund's eleven active investments and has earned the confidence of the senior leadership team through his analytical rigor and operational expertise.
Under the proposed restructuring, Ms. Marchetti and Mr. Okonkwo will each receive a 4% carried interest allocation in the Fund and corresponding membership interests in HoldCo. Their economic participation will be subject to vesting schedules set forth in the HoldCo LLC Agreement, which are designed to align their incentives with long-term performance and retention. The General Partner believes that formalizing the economic participation of these next-generation professionals is essential to the institutional stability of the Ardent platform and to retaining top-tier talent in a competitive market for private equity professionals.
III. New Entity Structure
A. Current Structure (Pre-Restructuring)
Under the Fund's existing organizational framework, five individual principals hold direct membership interests in both the General Partner and the ManCo:
Ardent Capital GP III LLC (the "General Partner") is a Delaware limited liability company and the sole general partner of the Fund. Its members are the five individual principals, each holding membership interests in the following percentages:
• Marcus Aldridge: 35%
• Priya Narayanan: 30%
• David Kellner: 15%
• Joanna Trask: 12%
• Robert Hsiao: 8%
Ardent Capital Management LLC (the "ManCo") is a Delaware limited liability company that serves as the Fund's investment adviser and manager. The ManCo is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 (CRD #298417). Its members are the same five individual principals, holding membership interests in identical percentages to those set forth above.
The General Partner is the sole general partner of Ardent Capital Partners III LP (the Fund). The ManCo provides investment advisory and management services to the Fund pursuant to the terms of the Investment Management Agreement entered into at the time of the Fund's formation.
The parallel ownership structure described above — in which each principal holds identical percentage interests in both the GP and the ManCo — was established at the time of the Fund's formation for simplicity and to align the principals' economic and governance interests across both entities. However, as discussed in Section II.B above, this structure has proven cumbersome in the context of personnel changes and does not provide an efficient mechanism for the admission of new carry-bearing professionals.
B. Proposed Structure (Post-Restructuring)
Following the restructuring, the organizational framework will be as follows:
Ardent Capital Holdings LLC ("HoldCo") — a newly formed Delaware limited liability company — will serve as the parent holding company for the Ardent platform. HoldCo will be the sole member of both the ManCo (directly) and GP Intermediate (directly). The Certificate of Formation for HoldCo was filed with the Delaware Secretary of State on March 1, 2024 (DE File No. 7948231).
The members of HoldCo and their respective membership interests will be as follows:
• Marcus Aldridge: 42%
• Priya Narayanan: 36%
• Robert Hsiao: 14%
• Elena Marchetti: 4%
• Samuel Okonkwo: 4%
Ardent GP Intermediate LLC ("GP Intermediate") — a newly formed Delaware limited liability company — will serve as an intermediate entity between HoldCo and the General Partner. GP Intermediate will be the sole member of Ardent Capital GP III LLC (the General Partner). The Certificate of Formation for GP Intermediate was filed with the Delaware Secretary of State on March 1, 2024 (DE File No. 7948237).
Ardent Capital GP III LLC (the General Partner) will remain in existence as a Delaware limited liability company and will continue to serve as the sole general partner of the Fund. The only change is that its sole member will be GP Intermediate (replacing the five individual principals). The LLC agreement of the General Partner will be amended and restated (Second Amended and Restated LLC Agreement) to reflect this change in membership.
Ardent Capital Management LLC (the ManCo) will remain in existence as a Delaware limited liability company and will continue to serve as the Fund's SEC-registered investment adviser (CRD #298417). Its sole member will be HoldCo (replacing the five individual principals). The LLC agreement of the ManCo will be amended and restated (Second Amended and Restated LLC Agreement) to reflect this change in membership. Form ADV will be amended to reflect the new ownership structure.
Ardent Capital Partners III LP (the Fund) will remain in existence as a Delaware limited partnership. Ardent Capital GP III LLC will continue to serve as its sole general partner. The Fund's LPA will be amended (Amendment No. 1 to the LPA) to reflect the structural changes to the General Partner's ownership.
The key structural features of the proposed framework are summarized below:
• HoldCo is formed as a Delaware limited liability company. Its Certificate of Formation has been filed with the Delaware Secretary of State (filed March 1, 2024, DE File No. 7948231).
• GP Intermediate is formed as a Delaware limited liability company. Its Certificate of Formation has been filed with the Delaware Secretary of State (filed March 1, 2024, DE File No. 7948237).
• The registered agent for both HoldCo and GP Intermediate is Prestige Registered Agents LLC, 850 New Burton Road, Suite 201, Dover, DE 19904.
• HoldCo has been assigned EIN 93-1847225 by the Internal Revenue Service. GP Intermediate has been assigned EIN 93-1847231.
• The ManCo will remain an SEC-registered investment adviser (CRD #298417). An amended Form ADV Part 1 will be filed with the SEC to reflect the new ownership structure, including the identification of HoldCo as the ManCo's sole member and the updated Schedule A and Schedule B information. The amendment is targeted for filing on or about March 10, 2024.
• The Managing Members of HoldCo will be Marcus Aldridge and Priya Narayanan, who will have authority over the day-to-day operations of HoldCo and, by extension, the ManCo and the General Partner.
• The departing principals (David Kellner and Joanna Trask) will withdraw as members of both the General Partner and the ManCo. Ardent GP Intermediate LLC will be substituted as the sole member of the General Partner, and HoldCo will be substituted as the sole member of the ManCo.
Organizational charts depicting the current structure (pre-restructuring) and the proposed structure (post-restructuring) are attached hereto as Appendix A and Appendix B, respectively.
C. Governance Provisions of HoldCo
The HoldCo LLC Agreement, which will govern the internal affairs of Ardent Capital Holdings LLC, includes the following key governance provisions:
Managing Members. Marcus Aldridge and Priya Narayanan will serve as the Managing Members of HoldCo, with authority over the day-to-day management and operations of HoldCo, the ManCo, and the General Partner. The Managing Members will have the power to act on behalf of HoldCo in all matters arising in the ordinary course of business, including the execution of contracts, the hiring and termination of personnel, the management of portfolio company investments, and the conduct of investor relations.
Supermajority Consent Provisions. Certain material actions will require the affirmative consent of members holding at least 75% of the total membership interests in HoldCo (a "Supermajority Consent"). Actions requiring Supermajority Consent include, among others:
(a) the transfer, assignment, pledge, or encumbrance of any membership interest in HoldCo;
(b) the admission of any new member to HoldCo;
(c) any amendment to the carried interest allocation percentages set forth in the Carried Interest Allocation Agreement;
(d) the incurrence of any indebtedness by HoldCo, the ManCo, or the General Partner in excess of $500,000 in the aggregate;
(e) the entry into any transaction with an affiliate of HoldCo or any member thereof;
(f) the dissolution, liquidation, or winding up of HoldCo, the ManCo, or the General Partner; and
(g) any amendment to the HoldCo LLC Agreement.
Transfer Restrictions. The HoldCo LLC Agreement contains customary restrictions on the transfer of membership interests. No member may transfer, assign, pledge, or otherwise dispose of any membership interest without the prior written consent of the Managing Members and, in the case of transfers to third parties, a Supermajority Consent. Permitted transfers to immediate family members and estate planning vehicles are subject to the prior written consent of the Managing Members and compliance with applicable securities laws.
Buy-Sell Provisions. The HoldCo LLC Agreement includes buy-sell provisions that are triggered upon the occurrence of certain events, including the death, disability, or termination of a member. Upon the occurrence of a triggering event, the remaining members (or HoldCo itself, at the election of the Managing Members) will have the right to purchase the departing member's interest at a price determined by a formula-based valuation methodology set forth in the LLC Agreement.
Tag-Along and Drag-Along Rights. The HoldCo LLC Agreement includes customary tag-along and drag-along provisions. If the Managing Members propose to transfer more than 50% of their combined membership interests in HoldCo to a third party, each non-Managing Member will have the right to participate in such transfer on a pro rata basis and on the same terms and conditions (tag-along). Conversely, if the Managing Members receive a bona fide offer to acquire 100% of the membership interests in HoldCo, they will have the right to require all other members to participate in such transfer on the same terms and conditions (drag-along).
Vesting Schedules for Next-Generation Principals. The membership interests of Elena Marchetti and Samuel Okonkwo in HoldCo will be subject to vesting schedules set forth in the HoldCo LLC Agreement. The specific vesting terms are under negotiation and are expected to include a four-year vesting period with a one-year cliff, subject to continued employment with the ManCo and satisfaction of applicable performance conditions. Unvested interests will be subject to forfeiture upon termination of employment, except in cases of death, disability, or termination without cause.
IV. Economics Realignment
The restructuring necessitates a comprehensive realignment of the Fund's economic arrangements, including carried interest allocations, management company profit share distributions, and GP commitment obligations. This section describes the pre-restructuring and post-restructuring economics in detail.
A. Pre-Restructuring Carry Allocation
Under the current carried interest allocation framework, the Fund's 20% carried interest (subject to the 8% preferred return and full catch-up mechanism described in Articles VI and VII of the LPA) is allocated among the five senior principals in the following percentages:
The carried interest rate is 20% of net profits generated by the Fund, calculated on a whole-fund basis, subject to an 8% per annum compounded preferred return to the limited partners and a full (100%) catch-up to the General Partner until the 20/80 split is achieved, all as set forth in Article VII of the LPA. The clawback obligation under the LPA is joint and several among all members of the General Partner, with each individual principal maintaining an escrow account equal to 30% of aggregate carried interest distributions received.
B. Post-Restructuring Carry Allocation
Following the restructuring, the carried interest allocations will be realigned as follows:
The aggregate 27 percentage points of carried interest freed up by the departures of David Kellner (15%) and Joanna Trask (12%) are redistributed among the remaining and next-generation principals as set forth above. The redistribution reflects the General Partner's assessment of each principal's relative contribution to the Fund's investment activities, leadership responsibilities, and long-term commitment to the Ardent platform.
For illustrative purposes, the following table sets forth the notional shares of the $87.6 million of accrued carried interest (as of September 30, 2023) under the post-restructuring allocation percentages:
It is important to note, however, that the accrued carried interest attributable to the vested interests of David Kellner and Joanna Trask will be carved out and addressed separately pursuant to their respective separation agreements, as described in Section V below. The redistribution of carry percentages described in this Section IV.B applies to go-forward carried interest on future appreciation of the Fund's portfolio and on future realizations. The Amended and Restated Carried Interest Allocation Agreement will contain detailed provisions governing the allocation of carried interest between the departing principals' retained vested interests and the post-restructuring allocations.
The carried interest rate (20%), preferred return (8%), catch-up mechanism, and clawback mechanics are unchanged. There is no modification to any economic term of the LPA that affects the limited partners' rights, including the preferred return, the distribution waterfall, or the clawback.
C. Management Fee Allocation
The Fund's annual management fee during the investment period is 1.75% of total committed capital, yielding annual management fee revenue of approximately $49 million ($2.8 billion × 1.75%). Following the expiration of the investment period on June 30, 2025, the management fee will step down to 1.50% of invested capital (net of write-offs and write-downs), as provided in Section 4.1 of the LPA.
The ManCo's operating expenses — including compensation and benefits for sixty-two (62) non-principal employees, office lease payments (590 Madison Avenue, 28th Floor, New York, NY 10022), technology infrastructure and systems, compliance and regulatory costs, professional liability insurance, and other general and administrative expenses — total approximately $31.85 million per annum, representing approximately 65% of the annual management fee revenue.
The ManCo Profit Share — the residual management fee revenue after payment of operating expenses — is approximately $17.15 million per annum (approximately 35% of the $49 million annual management fee). This profit share is distributed to the principals in accordance with their respective ownership interests in the ManCo (and, following the restructuring, through their membership interests in HoldCo).
Pre-Restructuring Profit Share Allocation:
Post-Restructuring Profit Share Allocation (through HoldCo):
There is no change to the management fee rate charged to the Fund, the total management fee amount payable by the limited partners, or the ManCo's operating expense budget. The redistribution of the ManCo profit share is an internal economic matter among the principals and does not affect the Fund or its limited partners. The management fee payable by the limited partners under Section 4.1 of the LPA remains $49 million per annum during the investment period (subject to adjustments for new closings and defaulting limited partners as provided therein).
D. GP Commitment Reallocation
The General Partner's aggregate commitment to the Fund is $42 million, representing 1.5% of the Fund's $2.8 billion in total commitments, as required by Section 3.2 of the LPA. This commitment is funded pro rata by the individual principals in proportion to their membership interests in the General Partner.
The departing principals' GP commitment obligations are summarized as follows:
David Kellner:
• Total GP commitment: $6,300,000 (15% × $42,000,000)
• Funded amount (70%): $4,410,000
• Unfunded balance: $1,890,000
Joanna Trask:
• Total GP commitment: $5,040,000 (12% × $42,000,000)
• Funded amount (70%): $3,528,000
• Unfunded balance: $1,512,000
Combined unfunded departing commitment: $3,402,000 ($1,890,000 + $1,512,000)
The unfunded balance of the departing principals' GP commitments ($3,402,000 in the aggregate) will be assumed by the remaining HoldCo members on a pro rata basis in accordance with their post-restructuring membership percentages:
The funded portion of the departing principals' GP commitments ($4,410,000 for Kellner and $3,528,000 for Trask, totaling $7,938,000) remains invested in the Fund. The economic interest attributable to these funded amounts — including distributions of investment proceeds — will follow the carry retention and forfeiture provisions set forth in the respective separation agreements, as described in Section V below. To the extent that Kellner retains 100% of his vested carry and Trask retains 60% of her vested carry, distributions attributable to their funded GP commitments will be allocated in accordance with those retention percentages, with forfeited amounts redistributed to the remaining principals.
V. Departing Principal Terms
A. David Kellner — Retirement
The separation terms for David Kellner have been negotiated between Mr. Kellner and the General Partner, with the assistance of their respective counsel. A summary of the material terms is set forth below:
Effective Retirement Date: March 31, 2024.
Senior Advisor Transition: Upon retirement, Mr. Kellner will transition to a Senior Advisor role under a separate Senior Advisor Agreement. The Senior Advisor Agreement provides for a two-year term commencing April 1, 2024 and ending March 31, 2026. Mr. Kellner will receive annual compensation of $350,000 (aggregate $700,000 over the two-year term) in exchange for advisory services limited to a maximum of ten (10) hours per month. Advisory services may include participation in portfolio company board meetings (at the request of the Managing Partners), mentoring of junior investment professionals, and consultation on matters within Mr. Kellner's areas of expertise. The Senior Advisor Agreement does not confer any management authority, voting rights, or decision-making power upon Mr. Kellner with respect to the Fund, the General Partner, or the ManCo.
Withdrawal from GP and ManCo: Mr. Kellner will withdraw as a member of both Ardent Capital GP III LLC (the General Partner) and Ardent Capital Management LLC (the ManCo) effective as of his retirement date. His membership interests in both entities will be cancelled, and Ardent GP Intermediate LLC and HoldCo, respectively, will be substituted as the sole members of the General Partner and the ManCo.
Carried Interest Retention: Mr. Kellner will retain 100% of his vested carried interest. As of September 30, 2023, Mr. Kellner's vested carried interest totals $13,140,000 (based on his 15% allocation of the $87.6 million in accrued carry). Mr. Kellner's right to receive distributions of his retained vested carry will survive his withdrawal from the General Partner and will be governed by the Amended and Restated Carried Interest Allocation Agreement and a separate Carry Participation Agreement to be entered into between Mr. Kellner and the General Partner.
Clawback Obligation: Mr. Kellner's clawback obligation with respect to his retained vested carried interest will continue for three (3) years following his retirement date (through March 31, 2027). Upon the expiration of this three-year period, Mr. Kellner's clawback obligation will be released in full, provided that no clawback event has occurred or is reasonably anticipated to occur during such period.
Carry Escrow: Mr. Kellner's existing carry escrow balance of $3,942,000 (representing 30% of his $13,140,000 in vested accrued carry) will remain in place and will continue to be held in the escrow account maintained by the Fund's escrow agent in accordance with the LPA for a period of three (3) years following his retirement date. The escrow will be released upon the expiration of the clawback period, subject to any claims or offsets.
ManCo Profit Share: Mr. Kellner's entitlement to receive distributions of ManCo profit share will cease upon his retirement effective March 31, 2024. Mr. Kellner will receive a pro rata distribution of ManCo profit share for the period from January 1, 2024 through March 31, 2024, calculated in accordance with the ManCo's customary distribution schedule.
GP Commitment: Mr. Kellner's unfunded GP commitment balance of $1,890,000 will be assumed by the remaining HoldCo members pro rata as set forth in Section IV.D above. Mr. Kellner's funded GP commitment of $4,410,000 will remain invested in the Fund, and distributions attributable thereto will be made to Mr. Kellner in accordance with his carry retention rights.
Restrictive Covenants: Mr. Kellner has agreed to the following post-retirement restrictive covenants:
(a) Non-Compete: For a period of eighteen (18) months following his retirement date, Mr. Kellner will not, directly or indirectly, engage in, own, manage, operate, join, control, or participate in the ownership, management, operation, or control of any investment fund, investment vehicle, or investment advisory business that pursues a strategy substantially similar to the Fund's strategy (control investments in middle-market industrial and business-services companies).
(b) Non-Solicitation of Employees: For a period of twenty-four (24) months following his retirement date, Mr. Kellner will not, directly or indirectly, solicit, recruit, hire, or attempt to solicit, recruit, or hire any employee of the ManCo or any of its affiliates.
(c) Non-Solicitation of Limited Partners: For a period of twenty-four (24) months following his retirement date, Mr. Kellner will not, directly or indirectly, solicit or contact any limited partner of the Fund or any investor in any Ardent-affiliated fund for the purpose of offering or providing competing investment management services.
Health Insurance Continuation: The ManCo will provide Mr. Kellner with health insurance continuation benefits equivalent to COBRA coverage for a period of twenty-four (24) months following his retirement date. The estimated cost of such benefits is approximately $52,000 over the twenty-four-month period.
Mutual General Release: Mr. Kellner and the General Partner (on behalf of itself and its affiliates, including the Fund) will execute mutual general releases of all claims, demands, causes of action, and liabilities arising out of or relating to Mr. Kellner's employment, membership, and service with the Ardent platform, except for those obligations that expressly survive under the separation arrangement (including carry retention rights, clawback obligations, and restrictive covenants).
B. Joanna Trask — Voluntary Departure
The separation terms for Joanna Trask have been negotiated between Ms. Trask and the General Partner, with the assistance of their respective counsel. Ms. Trask is represented by Whitford & Chase LLP (Richard Beaulieu, partner; Hannah Polk, associate), 200 Park Avenue, Suite 4200, New York, NY 10166. The negotiation process commenced in late 2023, with an initial draft separation agreement sent by Calderwood & Harkness LLP to Whitford & Chase LLP on December 8, 2023. A counter-proposal was received from Ms. Trask's counsel on January 12, 2024, and a revised agreement reflecting the negotiated terms was circulated on January 19, 2024. The parties reached agreement in principle on the material terms in late January 2024, and the definitive separation agreement is expected to be executed in connection with the closing of the restructuring.
A summary of the material terms of Ms. Trask's separation is set forth below:
Effective Departure Date: April 15, 2024.
Reason for Departure: Ms. Trask is departing voluntarily to join another investment management firm. Her departure is not the result of termination for cause, disability, or any dispute with the General Partner or the Fund.
Withdrawal from GP and ManCo: Ms. Trask will withdraw as a member of both Ardent Capital GP III LLC (the General Partner) and Ardent Capital Management LLC (the ManCo) effective as of her departure date. Her membership interests in both entities will be cancelled.
Carried Interest Retention: Ms. Trask will retain 60% of her vested carried interest. As of September 30, 2023, Ms. Trask's vested carried interest totals $10,512,000 (based on her 12% allocation of the $87.6 million in accrued carry). Accordingly:
• Retained vested carry (60%): $6,307,200
• Forfeited vested carry (40%): $4,204,800
• Forfeited unvested carry: 100% of any unvested carry
The 60% retention rate reflects the negotiated outcome between the parties. Under the terms of the existing Carried Interest Allocation Agreement, a voluntarily departing principal is entitled to retain between 50% and 75% of vested carry, with the exact percentage determined by the Managing Partners based on factors including length of service, nature of departure, and compliance with transition obligations. The Managing Partners determined that a 60% retention rate is appropriate given the circumstances of Ms. Trask's departure, including her cooperation with the transition process and her agreement to restrictive covenants.
Carry Forfeiture: Ms. Trask will forfeit 40% of her vested carried interest ($4,204,800) and 100% of any unvested carried interest. Forfeited amounts will be redistributed among the remaining and next-generation principals in accordance with the post-restructuring carry allocations described in Section IV.B above.
Clawback Obligation: Ms. Trask's clawback obligation with respect to her retained vested carried interest ($6,307,200) will continue for two (2) years following her departure date (through April 15, 2026). Upon the expiration of this two-year period, Ms. Trask's clawback obligation will be released in full, provided that no clawback event has occurred or is reasonably anticipated to occur during such period.
Carry Escrow: Ms. Trask's carry escrow will be adjusted to reflect the reduced retention amount. The required escrow balance is $1,892,160 (30% × $6,307,200). Ms. Trask's existing escrow balance of $3,150,000 (which reflected 30% of her full $10,512,000 accrued carry) will be partially released, with $1,257,840 returned to Ms. Trask within thirty (30) days of the closing of the restructuring. The remaining escrow balance of $1,892,160 will continue to be held for the duration of the two-year clawback period.
ManCo Profit Share: Ms. Trask's entitlement to receive distributions of ManCo profit share will cease upon her departure effective April 15, 2024. Ms. Trask will receive a pro rata distribution of ManCo profit share for the period from January 1, 2024 through April 15, 2024, calculated in accordance with the ManCo's customary distribution schedule.
GP Commitment: Ms. Trask's unfunded GP commitment balance of $1,512,000 will be assumed by the remaining HoldCo members pro rata as set forth in Section IV.D above. Ms. Trask's funded GP commitment of $3,528,000 will remain invested in the Fund, and distributions attributable thereto will be made to Ms. Trask in accordance with her carry retention rights.
Separation Payment: Ms. Trask will receive a lump sum separation payment of $1,250,000, payable within thirty (30) days of her departure date. This payment is in consideration of Ms. Trask's cooperation with the transition, her execution of the mutual general release, and her agreement to the restrictive covenants described below.
Restrictive Covenants: Ms. Trask has agreed to the following post-departure restrictive covenants:
(a) Non-Compete: For a period of twelve (12) months following her departure date, Ms. Trask will not, directly or indirectly, engage in, own, manage, operate, join, control, or participate in the ownership, management, operation, or control of any investment fund, investment vehicle, or investment advisory business that pursues a strategy substantially similar to the Fund's strategy.
(b) Non-Solicitation of Employees: For a period of eighteen (18) months following her departure date, Ms. Trask will not, directly or indirectly, solicit, recruit, hire, or attempt to solicit, recruit, or hire any employee of the ManCo or any of its affiliates.
(c) Non-Solicitation of Limited Partners: For a period of eighteen (18) months following her departure date, Ms. Trask will not, directly or indirectly, solicit or contact any limited partner of the Fund or any investor in any Ardent-affiliated fund for the purpose of offering or providing competing investment management services.
Mutual General Release: Ms. Trask and the General Partner (on behalf of itself and its affiliates, including the Fund) will execute mutual general releases of all claims, demands, causes of action, and liabilities arising out of or relating to Ms. Trask's employment, membership, and service with the Ardent platform, except for those obligations that expressly survive under the separation arrangement.
C. Forfeited Carry Redistribution
Ms. Trask's forfeited carry of $4,204,800 (representing 40% of her vested accrued carry) and the entirety of the go-forward carry allocation freed up by the departures of both Kellner (15%) and Trask (12%) will be redistributed among the remaining and next-generation principals in accordance with the post-restructuring carry percentages described in Section IV.B above. The Amended and Restated Carried Interest Allocation Agreement, which will be executed in connection with the closing of the restructuring, will govern all post-restructuring allocations, including specific carve-out provisions for Mr. Kellner's retained vested carry (100% of $13,140,000) and Ms. Trask's retained vested carry (60% of $10,512,000, i.e., $6,307,200). These carve-outs will ensure that distributions attributable to the departing principals' retained interests are properly allocated before the application of the post-restructuring carry percentages to the remaining carry pool.
A summary of the departing principal separation terms is attached hereto as Appendix D.
VI. Impact on Fund Operations
The General Partner wishes to emphasize that the restructuring is an internal organizational matter that does not affect the Fund's operations, investment activities, or economic terms from the perspective of the limited partners. The following subsections address each area of potential concern.
A. Investment Strategy
There is no change to the Fund's investment strategy. The Fund will continue to pursue control investments in middle-market industrial and business-services companies, consistent with the investment strategy and objectives described in the Fund's Confidential Private Placement Memorandum and the LPA. Target transaction sizes, sector focus, geographic parameters, and leverage guidelines remain unchanged. The Fund's eleven (11) active portfolio companies will continue to be managed by the same deal teams, with oversight by the Managing Partners. The departures of Mr. Kellner and Ms. Trask have been anticipated, and their portfolio responsibilities have been transitioned to other members of the investment team, including Ms. Marchetti and Mr. Okonkwo, who have been closely involved in the relevant investments since inception.
B. Management Fee
There is no change to the management fee rate charged to the Fund. The management fee during the investment period remains 1.75% of committed capital ($49 million per annum). Following the expiration of the investment period on June 30, 2025, the management fee will step down to 1.50% of invested capital, as provided in Section 4.1 of the LPA. The total annual management fee revenue payable by the limited partners is unchanged. The internal allocation of ManCo profit share among the principals (as described in Section IV.C above) is a matter of internal economics and does not affect the amount of the management fee payable by the limited partners.
C. Fund Term
The Fund's term remains December 31, 2029, subject to two one-year extensions at the General Partner's discretion, as provided in Section 10.1 of the LPA. The restructuring does not modify or otherwise affect the Fund's term or extension provisions.
D. Investment Team Continuity
The Fund's investment team will continue to be led by the platform's co-founders and Managing Partners:
• Marcus Aldridge (Co-Founder & Managing Partner) will continue to devote substantially all of his business time and attention to the Fund and the Ardent platform. Mr. Aldridge is a designated Key Person under Section 5.2 of the LPA.
• Priya Narayanan (Co-Founder & Managing Partner) will continue to devote substantially all of her business time and attention to the Fund and the Ardent platform. Ms. Narayanan is a designated Key Person under Section 5.2 of the LPA.
• Robert Hsiao (Partner) will continue in his current role, providing investment leadership and portfolio oversight.
• Elena Marchetti (Principal) will assume expanded responsibilities as a carry-bearing member of the investment team, reflecting her existing contributions to the Fund's investment activities and her demonstrated leadership capabilities.
• Samuel Okonkwo (Principal) will similarly assume expanded responsibilities as a carry-bearing member of the investment team, consistent with his growing contributions to deal origination and portfolio management.
The ManCo's sixty-two (62) professional employees — including investment professionals, operations and finance staff, investor relations personnel, legal and compliance professionals, and administrative staff — remain employed by the ManCo, and no other personnel changes are anticipated in connection with the restructuring. The General Partner is committed to maintaining the depth and stability of the investment team and support infrastructure that the Fund's limited partners have relied upon since the Fund's formation.
E. Service Providers — No Change
The Fund's key service providers will remain unchanged in connection with the restructuring:
• Fund Formation Counsel: Pemberton Hale LLP (Victoria Langford, partner), One Liberty Plaza, 40th Floor, New York, NY 10006. Pemberton Hale continues to serve as counsel for routine fund operations and will not be replaced.
• Auditor / Tax Advisor: Heathrow Whitman & Co. (Paul Devereux, CPA). Heathrow Whitman has served as the Fund's independent auditor and tax advisor since formation and continues in that capacity.
• Valuation Advisor: Broadleaf Consulting Group (Martin Schreiber, ASA). Broadleaf continues to provide independent valuation advisory services in connection with the Fund's quarterly portfolio valuations.
• Placement Agent: Lockwood Placement Partners LLC (Sarah Fontaine). Lockwood served as the Fund's placement agent during the fundraising period. Tail-fee obligations continue pursuant to the existing Placement Agent Agreement and are unaffected by the restructuring.
• Restructuring Counsel: Calderwood & Harkness LLP (Nicholas Stern, responsible partner) has been engaged specifically for the restructuring matter and is the author of this memorandum. Calderwood & Harkness does not serve as the Fund's ongoing legal counsel and will not replace Pemberton Hale in that role.
VII. Key-Person Analysis
A. LPA Key-Person Provisions (Section 5.2)
Section 5.2 of the LPA designates Marcus Aldridge and Priya Narayanan as the "Key Persons" of the Fund. Under Section 5.2, a "Key Person Event" is triggered if:
(a) both Key Persons cease to devote substantially all of their business time and attention to the affairs of the Fund; or
(b) one Key Person ceases to devote substantially all of his or her business time and attention to the affairs of the Fund and is not replaced by a substitute approved by the LPAC within one hundred twenty (120) days of such cessation.
Upon the occurrence of a Key Person Event, the Fund's investment period is automatically suspended, and the General Partner may not make new investments (other than follow-on investments in existing portfolio companies and investments for which binding commitments have been entered into prior to the Key Person Event) until either (i) the LPAC approves a substitute Key Person, or (ii) the LPAC waives the Key Person Event by affirmative vote.
Neither David Kellner nor Joanna Trask is a designated Key Person under Section 5.2 of the LPA. Their departures do not, individually or in combination, constitute a Key Person Event under the LPA.
Conclusion: No Key Person Event is triggered by the departures of David Kellner and Joanna Trask. Both designated Key Persons — Marcus Aldridge and Priya Narayanan — continue in their full-time roles as Managing Partners of the Ardent platform and will continue to devote substantially all of their business time and attention to the affairs of the Fund.
B. Expanded Key-Person Provisions in Side Letters
Notwithstanding the absence of a Key Person Event under the LPA, certain side letters contain "expanded key person" provisions that extend the scope of the key person framework beyond the two designated Key Persons.
Six (6) of the Fund's fourteen (14) side letters contain expanded key person provisions that designate David Kellner as a "Contributing Person." Under these side letter provisions, the departure of a Contributing Person triggers the following requirements:
(a) Notification Requirement: The General Partner is required to provide written notification to the affected limited partner within fifteen (15) business days of the Contributing Person's departure or announcement of departure.
(b) Investment Period Suspension Right: Three (3) of the six side letters containing expanded key person provisions grant the affected limited partner the right to request a suspension of the Fund's investment period for a period of ninety (90) days, during which time the LPAC will review the circumstances of the departure and determine whether any further action is warranted.
The General Partner has taken the following steps to comply with these side letter provisions:
• Notification letters will be sent to each of the six affected limited partners within fifteen (15) business days of the announcement of Mr. Kellner's retirement, in compliance with the notification requirements of their respective side letters.
• With respect to the three side letters that grant an investment period suspension right, the General Partner believes that the LPAC's consent to the restructuring, the orderly and planned nature of Mr. Kellner's retirement, his continued involvement with the platform as a Senior Advisor for a period of two years, and the promotion of Ms. Marchetti and Mr. Okonkwo to carry-bearing roles should address any concerns and obviate the need for any suspension of the investment period. The General Partner intends to engage proactively with the affected limited partners to discuss these matters and to respond to any questions or concerns.