Document:

Exhibit 10.1

 

TAX RECEIVABLE AGREEMENT

 

This TAX RECEIVABLE AGREEMENT (the “Agreement”), dated as of May 1, 2014, is entered into by and among Ares Holdings Inc., a Delaware corporation (“Holdings Inc.”), Ares Domestic Holdings Inc., a Delaware corporation (“Domestic Holdings Inc.”), (each a “Corporation” and collectively, the “Corporations”), Ares Holdings L.P., a Delaware limited partnership (“Ares Holdings”), Ares Domestic Holdings L.P., a Delaware limited partnership (“Ares Domestic” and together with Ares Holdings and all other Persons (as defined herein) in which the Corporations acquire a partnership interest or similar interest after the date hereof and who execute and deliver a joinder contemplated in Section 7.12, the “Partnerships”), Ares Management, L.P., a Delaware limited Partnership (the “Parent”), Ares Owners Holdings L.P., a Delaware limited partnership (“AOH”), Alleghany Insurance Holdings LLC, a Delaware limited liability company (“Alleghany”) and each of the parties set forth on Schedule A hereto (the “Limited Partners” and together with AOH and Alleghany, the “TRA Holders”).

 

RECITALS

 

WHEREAS, AOH, Alleghany and the Limited Partners, directly or indirectly, hold limited partnership interests in each of the Partnerships (“Partnership Units”), and each of the Partnerships is classified as a partnership for U.S. federal income tax purposes;

 

WHEREAS, as of the date hereof, each Corporation is the general partner of the Partnership in which such Corporation owns an interest;

 

WHEREAS, pursuant to and subject to the provisions of the Exchange Agreement (as defined below), Alleghany and the Limited Partners are entitled to surrender Partnership Units to the Partnerships in exchange for the delivery by the Partnerships of Common Units, cash or other consideration and the general partners of the Partnerships have a superseding right to acquire such Partnership Units for Common Units, cash or other consideration;

 

WHEREAS, each of the Partnerships, and certain of their direct and indirect subsidiaries that are treated as partnerships for U.S. federal income tax purposes, will have in effect an election under Section 754 of the Code, for each Taxable Year in which a taxable exchange of Partnership Units for Common Units, cash or other consideration occurs, which election is intended to result in an adjustment to the tax basis of the assets owned by the Partnerships at the time of such an exchange of Partnership Units for Common Units, cash or other consideration (collectively, an “Exchange”, the date of such Exchange, the “Exchange Date”, and such assets and any asset whose tax basis is determined, in whole or in part, by reference to the adjusted basis of any such asset, the “Reference Assets”) by reason of such Exchange and the receipt of payments under this Agreement;

 

WHEREAS, the income, gain, loss, expense and other Tax items of (i) the Partnerships solely with respect to the Corporations may be affected by the Basis Adjustment (defined below) and (ii) the Corporations may be affected by the Imputed Interest (as defined below);

 

 

WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the effect of the Basis Adjustment and Imputed Interest on the actual liability for Taxes of the Corporations;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

ARTICLE I
 DEFINITIONS

 

Section 1.01.                          Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings.

 

“Advisory Firm” means Proskauer Rose LLP, other advisors as indicated by the General Partner or any other accounting firm or law firm that is nationally recognized as being expert in Tax matters and that is designated as such by the Board.

 

“Advisory Firm Letter” means a letter from the Advisory Firm stating that the relevant schedule, notice or other information to be provided or made available by the Corporations to TRA Holders or the Principals, as the case may be, and all supporting schedules and work papers were prepared in a manner consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such schedule, notice or other information is delivered or made available to the TRA Holders or the Principals, as the case may be.

 

“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 first Person.

 

“Agreed Rate” means LIBOR plus 100 basis points.

 

“Agreement” is defined in the preamble of this Agreement.

 

“Amended Schedule” is defined in Section 2.04(b) of this Agreement.

 

“AOH” is defined in the preamble of this Agreement.

 

“AOH Partnership Agreement” means the limited partnership agreement of AOH.

 

“AOH Units” means limited partnership interests in AOH.

 

“Ares Group” means, collectively, the Corporations, the Partnerships and any other entity designated by the Board as being a member of the Ares Group.

 

“Ares Holdco” means Ares Partners Holdco LLC, a Delaware limited liability company.

 

“Bankruptcy Code” means The Bankruptcy Reform Act of 1978, codified as 11 U.S.C. Section 101 et seq.

 

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“Basis Adjustment” means the adjustment to the tax basis of a Reference Asset under Sections 1012, 732, 734(b), 743(b) and 754 of the Code and, in each case, comparable sections of U.S. state and local and foreign tax laws (as calculated under Section 2.01 of this Agreement) as a result of an Exchange and the payments made pursuant to this Agreement. In the case of an interest in a Partnership that owns a Reference Asset and that has been the subject of an Exchange, if at any time after such Exchange the interest is transferred to (i) a Corporation or (ii) any entity that is owned directly or indirectly in whole or in part by a Corporation or that is a member of an affiliated or consolidated group of corporations described in Section 7.11(b) that includes a Corporation, the Basis Adjustment for such Reference Asset shall include, to the extent reasonably determined to be appropriate by such Corporation, any adjustment to the tax basis of the Reference Asset under Sections 1012, 732, 734(b), 743(b) and 754 of the Code and, in each case, comparable sections of U.S. state and local and foreign tax laws (as calculated under Section 2.01 of this Agreement) as a result of such transfer to the extent such adjustment does not exceed the unamortized Basis Adjustment for the Reference Asset as determined immediately before such transfer. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Partnership Units shall be determined separately for each such Exchange and without regard to any Pre-Exchange Transfer of such Partnership Units and as if any such Pre-Exchange Transfer had not occurred.

 

A “Beneficial Owner” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security or (ii) investment power, which includes the power to dispose, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.

 

“Board” means the board of directors of the General Partner.

 

“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the U.S. government or the State of New York shall not be regarded as a Business Day.

 

“Change of Control” means the occurrence of any of the following events:

 

(i)  any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Securities and Exchange Act of 1934, excluding a group of Persons, which, if it includes any Principal or any of its Affiliates, includes all Principals then employed by the Parent or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Parent representing more than 50% of the combined voting power of the Parent’s then outstanding voting securities;

 

(ii)  Ares Holdco no longer has the right to appoint the members of the Board;

 

(iii)  there is consummated a merger or consolidation of the Parent or any direct or indirect subsidiary of the Parent with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation Ares Holdco no longer has the right to appoint the members of the Board; or

 

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(iv)  the unitholders of the Parent approve a plan of complete liquidation or dissolution of the Parent or there is consummated an agreement or series of related agreements for the sale or other disposition, directly, or indirectly, by the Parent of all or substantially all of the Parent’s assets, other than such sale or other disposition by the Parent of all or substantially all of the Parent’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by unitholders of the Parent in substantially the same proportions as their ownership of the Parent immediately prior to such sale.

 

Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii) above, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the units of the Parent immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Parent immediately following such transaction or series of transactions.

 

“Code” means the Internal Revenue Code of 1986.

 

“Common Units” means Common Units of the Parent, as defined in the partnership agreement of Parent.

 

“Control” means the possession, direct or indirect, 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.

 

“Corporate Holdcos” means, collectively, each of the Corporations, Ares Real Estate Holdings LLC, a Delaware limited liability company, Ares Offshore Holdings, Ltd., a Cayman limited company, Parent (if it is at any time treated as a corporation for U.S. federal income tax purposes) and any other entity designated as a Corporate Holdco by the Board.

 

“Corporation” is defined in the Preamble of this Agreement.

 

“Corporation Return” means the U.S. federal, state or local or foreign Tax Return, as applicable, of each of the Corporate Holdcos filed with respect to Taxes of any Taxable Year.

 

“Default Rate” means LIBOR plus 500 basis points.

 

“Determination” has the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state and local and foreign tax law, as applicable, or any other event (including the execution of an IRS Form 870-AD (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment)) that finally and conclusively establishes the amount of any liability for Tax.

 

“Early Termination Date” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.

 

“Early Termination Notice” is defined in Section 4.02 of this Agreement.

 

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“Early Termination Objection Notice” is defined in Section 4.02 of this Agreement.

 

“Early Termination Schedule” is defined in Section 4.02 of this Agreement.

 

“Early Termination Payment” is defined in Section 4.03(b) of this Agreement.

 

“Early Termination Rate” means the lesser of (i) 6.5% and (ii) the Agreed Rate.

 

“Exchange” means defined in the Recitals of this Agreement.

 

“Exchange Agreement” means the Exchange Agreement, dated as of the date hereof, among Parent, the Corporations, the Partnerships and the other parties thereto.

 

“Exchange Basis Schedule” is defined in Section 2.02 of this Agreement.

 

“Exchange Date” is defined in the Recitals of this Agreement.

 

“Exchange Payment” means any Tax Benefit Payment or Early Termination Payment required to be made by a Corporation to the TRA Holders under this Agreement.

 

“Exchange Price” is the amount of cash, Common Units or other consideration transferred to a holder of Partnership Units pursuant to an Exchange as payment for the exchanged Partnership Units, other than amounts payable pursuant to this Agreement.

 

“Excluded Assets” is defined in Section 7.11(c) of this Agreement.

 

“Expert” is defined in Section 7.09 of this Agreement.

 

“General Partner” means Ares Management GP, LLC or any successor general partner of Parent.

 

“Imputed Interest” means any interest imputed under Section 1272, 1274, 483 or other provision of the Code and any similar provision of state, local and foreign tax law with respect to a Corporation’s payment obligations under this Agreement.

 

“IRS” means the U.S. Internal Revenue Service.

 

“LIBOR” means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two days prior to the first day of such month, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page “LIBO” or by any other publicly available source of such market rate) for London interbank offered rates for U.S. dollar deposits for such month (or portion thereof).

 

“Limited Partner” is defined in the Recitals of this Agreement.

 

“Market Value” means the closing price of the Common Units on the applicable Exchange Date on the national securities exchange or interdealer quotation system on which

 

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such Common Units are then traded or listed (the “National Exchange”), as reported in the principal consolidated transaction reporting system of the National Exchange; provided that if the closing price is not so reported on the applicable Exchange Date, then the Market Value shall mean the closing price of the Common Units on the Business Day immediately preceding such Exchange Date on the National Exchange, as reported in the principal consolidated transaction reporting system of the National Exchange; provided further, that if the Common Units are not then listed on a national securities exchange or interdealer quotation system, “Market Value” shall mean the cash consideration paid for Common Units, or the fair market value of the other property delivered for Common Units, as determined by the General Partner in good faith.

 

“Non-Stepped Up Tax Basis” means, with respect to any asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustment had been made.

 

“Non-Stepped Up Tax Liability” means, with respect to any Taxable Year, the liability for Taxes of a Corporation or any Partnership in which such Corporation owns an interest, but only with respect to Taxes imposed on such Partnership and allocable to such Corporation using the same methods, elections, conventions and similar practices used on the relevant Corporation Return, but using the Non-Stepped Up Tax Basis instead of the tax basis of the Reference Assets and excluding any deduction attributable to the Imputed Interest.

 

“Objection Notice” is defined in Section 2.04(a) of this Agreement.

 

“Parent” is defined in the Recitals of this Agreement.

 

“Partnerships” is defined in the Recitals of this Agreement.

 

“Partnership Agreement” means, with respect to a Partnership, the limited partnership agreement or similar agreement of such Partnership.

 

“Partnership Units” is defined in the Recitals of this Agreement.

 

“Payment Date” means any date on which a payment is required to be made pursuant to this Agreement.

 

“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

 

“Pre-Exchange Transfer” means any direct or indirect transfer of one or more Partnership Units (i) that occurs prior to an Exchange of such Partnership Units, and (ii) to which either Section 734(b) or 743(b) of the Code applies.

 

“Principals” means the Persons set forth on Schedule B hereto and any additional Persons who may from time to time be designated by the Board as Principals; provided that (i) unless the Parent determines otherwise, if any Principal is an employee of the Parent or one or more of its Subsidiaries or Affiliates as of the date of this Agreement or hereafter, such Person shall cease to a Principal once such Person ceases to be an employee of the Parent or one or more of its

 

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Subsidiaries or Affiliates and (ii) a Person will be a Principal only with respect to the provisions of this Agreement, and subject to the limitations, set forth on Schedule B.

 

“Put Right” means a contractual right, pursuant to which a TRA Holder has the right, but not the obligation, to cause the Partnerships or their Affiliates to redeem all, or a portion of, such TRA Holder’s Partnership Units at a predetermined price.

 

“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the Non-Stepped Up Tax Liability over the actual liability for Taxes of a Corporation or any Partnership in which such Corporation owns an interest, using the “with or without” methodology. If all or a portion of the actual tax liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.

 

“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of the actual liability for Taxes of a Corporation or any Partnership in which such Corporation owns an interest over the Non-Stepped Up Tax Liability for such Taxable Year using the “with or without” methodology. If all or a portion of the actual tax liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.

 

“Reconciliation Dispute” is defined in Section 7.09 of this Agreement.

 

“Reconciliation Procedures” means those procedures set forth in Section 7.09 of this Agreement.

 

“Reference Assets” is defined in the Recitals of this Agreement.

 

“Schedule” means any Exchange Basis Schedule, Tax Benefit Schedule and the Early Termination Schedule.

 

“Subsequent Exchange” is defined in Section 4.01 of this Agreement.

 

“Subsidiaries” means, with respect to any Person, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting shares or other similar interests or the general partner interest, managing member interest or similar interest of such Person.

 

“Tax Benefit Payment” is defined in Section 3.01(b) of this Agreement.

 

“Tax Benefit Schedule” is defined in Section 2.03 of this Agreement.

 

“Tax Return” means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including any information return, claim for refund, amended return and declaration of estimated Tax.

 

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“Taxable Year” means a taxable year as defined in Section 441(b) of the Code or comparable section of state, local or foreign tax law, as applicable, (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made) ending on or after the Exchange Date in which there is a Basis Adjustment due to an Exchange.

 

“Taxes” means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges measured with respect to net income or profits and any interest related to such Tax.

 

“Taxing Authority” means any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.

 

“TRA Holder” is defined in the Recitals of this Agreement, and for the avoidance of doubt shall not include any direct or indirect holder of Partnership Units that is not a party to this Agreement.

 

“Treasury Regulations” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.

 

“Valuation Assumptions” means, as of an Early Termination Date, with respect to a Corporation, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, the Corporation will have taxable income sufficient to fully utilize the deductions arising from the Basis Adjustment and the Imputed Interest during such Taxable Year, (2) the federal income tax rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, (3) any loss carryovers generated by the Basis Adjustment or the Imputed Interest and available as of the date of the Early Termination Schedule will be utilized by the Corporation on a pro rata basis from the date of the Early Termination Date through the scheduled expiration date of such loss carryovers, (4) any non-amortizable assets are deemed to be disposed of (A) with respect to fund related assets, pro-rata over the number of years remaining under the original fund agreement until expected liquidation (without extensions) of the applicable fund (or, (y) if such expected liquidation date has passed, on the Early Termination Date and (z) if with respect to “evergreen” funds, after eighteen (18) months) and (B) with respect to all other assets, on the fifteenth anniversary of the earlier of the Basis Adjustment and the Early Termination Date and (5) if an Early Termination is effected prior to an Exchange of Partnership Units, the first sentence of Section 2.01 shall be read to include the cash, Common Units or other consideration that would be transferred if the Exchange occurred on the Early Termination Date.

 

Section 1.02.                          Interpretation. Unless a clear contrary intention appears: (i) the defined terms herein shall apply equally to both the singular and plural forms of such terms; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such

 

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successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) any pronoun shall include the corresponding masculine, feminine and neuter forms; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) reference to any law, rule or regulation means such law, rule or regulation as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law, rule or regulation means that provision of such law, rule or regulation from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) “hereunder,” “hereof,” “hereto,”  and words of similar import shall be deemed references to this Agreement as a whole and not to any particular article, section or other provision hereof; (vii) numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement; (viii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; (ix) “or” is used in the inclusive sense of “and/or”; (x) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto; and (xi) reference to dollars or $ shall be deemed to refer to U.S. dollars.

 

ARTICLE II
 DETERMINATION OF REALIZED TAX BENEFIT

 

Section 2.01.                          Basis Adjustment. The Corporations and the Partnerships, on the one hand, and the TRA Holders, on the other hand, acknowledge that, as a result of an Exchange, each Corporation’s basis in the applicable Reference Assets shall be increased, if at all, as provided in the definition of Basis Adjustment. For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest. The parties agree that (i) all Tax Benefit Payments attributable to the Basis Adjustments (other than amounts treated as interest under the Code) (A) will be treated as purchase price adjustments that result in additional Basis Adjustments to the Reference Assets for the Corporations and (B) have the effect of creating additional Basis Adjustments to the Reference Assets for the Corporations in the year such Tax Benefit Payments are made, and (ii) as a result, such additional Basis Adjustments will be included in computing the current year’s Tax Benefit Payment calculation and included in computing future years’ Tax Benefit Payment calculations, as appropriate.

 

Section 2.02.                          Exchange Basis Schedule. Within 90 calendar days after the filing of the U.S. federal income tax return of a Corporation for each Taxable Year in which any Exchange has been effected, the Corporation shall deliver to the Principals a schedule (the “Exchange Basis Schedule”) that shows, in reasonable detail, for purposes of Taxes, (i) the actual unadjusted tax basis of the Reference Assets as of each applicable Exchange Date, (ii) the Basis Adjustment with respect to the Reference Assets as a result of the Exchanges effected in such Taxable Year, calculated in the aggregate and separately stated for each applicable TRA Holder, (iii) the period or periods, if any, over which the Reference Assets are amortizable or depreciable and (iv) the

 

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period or periods, if any, over which each Basis Adjustment is amortizable or depreciable (which, for non-amortizable assets shall be based on the Valuation Assumptions).

 

Section 2.03.                          Tax Benefit Schedule. Within 90 calendar days after the filing of the U.S. federal income tax return of a Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, such Corporation shall provide to the Principals a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year setting forth the Realized Tax Benefit or Realized Tax Detriment, as the case may be, for each TRA Holder (a “Tax Benefit Schedule”). The Schedule will become final as provided in Section 2.04(a) and may be amended as provided, and subject to the procedures set forth, in Section 2.04(b).

 

Section 2.04.                          Procedures, Amendments

 

(a)                                 Procedure. Every time a Corporation makes available to the Principals an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.04(b), but excluding any Early Termination Schedule or amended Early Termination Schedule, such Corporation shall also (x) make available to the Principals schedules and work papers providing reasonable detail regarding the preparation of the Schedule and an Advisory Firm Letter supporting such Schedule and (y) allow the Principals reasonable access at no cost to the appropriate representatives at each of such Corporation and the Advisory Firm in connection with a review of such Schedule. The applicable Schedule shall become final and binding on all parties unless a Principal, within 30 calendar days after receiving notice that an Exchange Basis Schedule or amendment thereto is available or 30 calendar days after receiving notice that a Tax Benefit Schedule or amendment thereto is available, provides such Corporation with notice (an “Objection Notice”) of a material objection to such Schedule made in good faith; provided that only Principals (or their designees) shall have the right to object to any Schedule or Amended Schedule pursuant to this Section 2.04. If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days of receipt by such Corporation of an Objection Notice, if with respect to an Exchange Basis Schedule, or 30 calendar days of receipt by such Corporation of an Objection Notice, if with respect to a Tax Benefit Schedule, after such Schedule was made available to the Principals, such Corporation and such Principal shall employ the reconciliation procedures as described in Section 7.09 of this Agreement (the “Reconciliation Procedures”).

 

(b)                                 Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by a Corporation (i) in connection with a Determination affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was made available to the Principals, (iii) to comply with the Expert’s determination under the Reconciliation Procedures, (iv) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other tax item to such Taxable Year, (v) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust the Exchange Basis Schedule to take into account payments made pursuant to this Agreement (such Schedule, an “Amended Schedule”).

 

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ARTICLE III
 TAX BENEFIT PAYMENTS

 

Section 3.01.                          Payments

 

(a)                                 Payments. Within five calendar days of a Tax Benefit Schedule becoming final in accordance with Section 2.04(a), the applicable Corporation shall pay to each applicable TRA Holder for such Taxable Year the Tax Benefit Payment determined pursuant to Section 3.01(b). The portion of such Tax Benefit Payment that is payable to a particular TRA Holder shall be determined by taking into account (A) in the case of an Exchange by a TRA Holder (other than pursuant to the exercise of a Put Right), the portion of such Tax Benefit Payment attributable to such TRA Holder’s Exchanges and (B) in the case of AOH, the portion of such Tax Benefit Payment attributable to an Exchange pursuant to the exercise of a Put Right or an Exchange by a holder of Partnership Units who is not a TRA Holder, in all cases, for such Taxable Year relative to the aggregate Tax Benefit Payments attributable to all Exchanges for such Taxable Year, provided that such accounting shall be determined by the Corporation in good faith and exercising reasonable discretion. Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to a bank account previously designated by the applicable TRA Holder. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including federal income tax payments. For the avoidance of doubt, no Tax Benefit Payment shall be made to any current or former holder of AOH Units or Partnership Units that is not a party to this Agreement. Notwithstanding anything herein to the contrary, in no event shall the Aggregate Tax Benefit Payments to any TRA Holder (other than amounts treated as interest under the Code) in respect of the Exchanges under this Agreement exceed an amount equal to 85% of the portion of the Exchange Price paid to such TRA Holder (or in the case of AOH, the Exchange Price paid to the holders of Partnership Units who are not party to this Agreement or the Exchange Price paid pursuant to the exercise of a Put Right, as applicable) pursuant to such Exchanges.

 

(b)                                 A “Tax Benefit Payment” means an amount, not less than zero, equal to 85% of the sum of the Net Tax Benefit and the Interest Amount. The “Net Tax Benefit” shall equal: (1) each Corporation’s Realized Tax Benefit, if any, for a Taxable Year plus (2) the excess of the Realized Tax Benefit reflected on an amended Tax Benefit Schedule for a previous Taxable Year over the Realized Tax Benefit (or Realized Tax Detriment (expressed as a negative number)) reflected on the Tax Benefit Schedule for such previous Taxable Year, minus (3) an amount equal to each Corporation’s Realized Tax Detriment (if any) for the current or any previous Taxable Year, minus (4) the excess of the Realized Tax Benefit reflected on a Tax Benefit Schedule for a previous Taxable Year over the Realized Tax Benefit (or Realized Tax Detriment (expressed as a negative number)) reflected on the amended Tax Benefit Schedule for such previous Taxable Year; provided that (x) to the extent the amounts described in 3.01(b)(2), (3) and (4) were taken into account in determining any Tax Benefit Payment in a preceding Taxable Year, such amounts shall not be taken into account in determining a Tax Benefit Payment attributable to any other Taxable Year and (y) no TRA Holder shall be required to return any portion of any previously made Tax Benefit Payment. The “Interest Amount” shall equal the interest on the Net Tax Benefit calculated at the Agreed Rate from the due date (without extensions) for filing the Corporation Return with respect to Taxes for such Taxable

 

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Year until the Payment Date. Notwithstanding the foregoing, for each Taxable Year ending on or after the date of a Change of Control, all Tax Benefit Payments, whether paid with respect to Partnership Units that were exchanged (i) prior to the date of such Change of Control or (ii) on or after the date of such Change of Control, shall be calculated by utilizing Valuation Assumptions (1), (3), and (4), substituting in each case the terms “the closing date of a Change of Control” for an “Early Termination Date”.

 

Section 3.02.                          No Duplicative Payments. It is intended that the above provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement provide that 85% of each Corporation’s Realized Tax Benefit and Interest Amount is paid to the TRA Holders pursuant to this Agreement. The provisions of this Agreement shall be construed in the appropriate manner so that such intentions are realized.

 

Section 3.03.                          Pro Rata Payments. For the avoidance of doubt, to the extent any Corporation’s deductions with respect to a Basis Adjustment is limited in a particular Taxable Year, or such Corporation lacks sufficient funds to satisfy its obligations to make all Tax Benefit Payments due in a particular taxable year, the limitation on such deduction shall be taken into account, or the Tax Benefit Payments shall be made, as the case may be, to each TRA Holder on a pro rata basis which reflects the proportion of the total amount of deductions attributable to such TRA Holder relative to the aggregate deductions for all of the TRA holders (as determined by the Corporation in good faith and exercising reasonable discretion).

 

ARTICLE IV
 TERMINATION

 

Section 4.01.                          Early Termination and Breach of Agreement.

 

(a)                                 A Corporation may terminate this Agreement with respect to all of the Partnership Units held (or previously held and exchanged) by the TRA Holders, or indirectly held by holders of AOH Units, at any time by paying to the TRA Holders the Early Termination Payment; provided that (a) this Agreement shall only terminate upon the receipt of the Early Termination Payment by the TRA Holders, and (b) that a Corporation may withdraw any notice to execute its termination rights under this Section 4.01 prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payments by a Corporation, such Corporation shall not have any further payment obligations under this Agreement in respect of the TRA Holders, other than for any (a) Tax Benefit Payment agreed to by such Corporation and the Principals as due and payable but unpaid as of the Early Termination Notice and (b) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (b) is included in the Early Termination Payment). If an Exchange occurs after such Corporation exercises its termination rights under this Section 4.01, such Corporation shall have no obligations under this Agreement with respect to such Exchange.

 

(b)                                 If a Corporation breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any

 

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other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of a breach, (2) any Tax Benefit Payment agreed to by such Corporation and any TRA Holders as due and payable but unpaid as of the date of a breach, and (3) any Tax Benefit Payment due for the Taxable Year ending with or including the date of a breach. Notwithstanding the foregoing, if a Corporation breaches this Agreement, the TRA Holders shall be entitled to elect to receive the amounts set forth in (1), (2) and (3), above or to seek specific performance of the terms hereof. The failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement; provided that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement if such payment is made within three months of the date such payment is due.

 

(c)                                  The undersigned parties agree that the aggregate value of the Tax Benefit Payments cannot be ascertained with any reasonable certainty for U.S. federal income tax purposes.

 

Section 4.02.                          Early Termination Notice. If a Corporation chooses to exercise its right of early termination under Section 4.01 above, such Corporation shall deliver to the TRA Holders notice of such intention to exercise such right (“Early Termination Notice”) and shall deliver to the Principals a schedule (the “Early Termination Schedule”) specifying such Corporation’s intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment. The applicable Early Termination Schedule shall become final and binding on all parties unless a Principal, within 30 calendar days after receiving the Early Termination Schedule thereto provides such Corporation with notice (“Early Termination Objection Notice”) of a material objection to such Schedule made in good faith. If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days after receipt by such Corporation of the Early Termination Objection Notice, such Corporation and a Principal shall employ the Reconciliation Procedures as described in Section 7.09 of this Agreement.

 

Section 4.03.                          Payment upon Early Termination. (a) Within three calendar days after agreement between the Principals and a Corporation of the Early Termination Schedule, such Corporation shall pay to the TRA Holders an amount equal to the Early Termination Payment. Such payment shall be made by wire transfer of immediately available funds to the bank accounts designated by each of the TRA Holders.

 

(b)                                 The “Early Termination Payment” as of the date of the delivery of an Early Termination Schedule shall equal with respect to a TRA Holder the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by such Corporation to such TRA Holder beginning from the Early Termination Date assuming the Valuation Assumptions are applied.

 

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ARTICLE V
 LATE PAYMENTS

 

Section 5.01.                          Late Payments by a Corporation. The amount of all or any portion of any Exchange Payment not made to the TRA Holders when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Exchange Payment was due and payable.

 

ARTICLE VI
 NO DISPUTES; CONSISTENCY; COOPERATION

 

Section 6.01.                          Principal Participation in the Corporations’ and Partnerships’ Tax Matters. Except as otherwise provided herein, each Corporation shall have full responsibility for, and sole discretion over, all Tax matters concerning such Corporation and the Partnerships, including the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, each Corporation shall notify each Principal of, and keep the Principals reasonably informed with respect to the portion of any audit of such Corporation and the Partnerships by a Taxing Authority the outcome of which is reasonably expected to affect any TRA Holder’s rights and obligations under this Agreement, and shall provide to the Principals reasonable opportunity to provide information and other input to such Corporation, the Partnerships and their respective advisors concerning the conduct of any such portion of such audit; provided that each Corporation and the Partnerships shall not be required to take any action that is inconsistent with any provision of any of the Partnership Agreements.

 

Section 6.02.                          Consistency. Except upon the written advice of an Advisory Firm, each Corporation and the TRA Holders agree to report and cause to be reported for all purposes, including federal, state, local and foreign Tax purposes and financial reporting purposes, all Tax-related items (including the Basis Adjustment and each Tax Benefit Payment) in a manner consistent with that specified by each Corporation in any Schedule required to be provided by or on behalf of such Corporation under this Agreement.

 

Section 6.03.                          Cooperation. The TRA Holders shall (a) furnish to each Corporation in a timely manner such information, documents and other materials as such Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make themselves available to each Corporation and its representatives to provide explanations of documents and materials and such other information as such Corporation or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and each Corporation shall reimburse the TRA Holders for any reasonable and documented third-party costs and expenses incurred pursuant to this Section.

 

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ARTICLE VII
  MISCELLANEOUS

 

Section 7.01.                          Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or by email upon confirmation of transmission by the sender’s server if sent on a Business Day (or otherwise on the next Business Day) or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service.  All notices hereunder shall be delivered as set forth below or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

 

If to the Parent, to:

 

Ares Management, L.P.
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, California 90067
 (T) (310) 201-4100
 Attention:  Michael D. Weiner
 Email:  list_taxreceivablenotice@aresmgmt.com

 

with a copy to:

 

Proskauer Rose LLP
 2049 Century Park East, Suite 3200
 Los Angeles, California 90067
 (T) (310) 557-2900
 Attention:  Michael A. Woronoff

Jonathan Benloulou
 Email:  MWoronoff@proskauer.com

JBenloulou@proskauer.com

 

If to any Corporation, any Partnership or AOH, to:

 

c/o Ares Management, L.P.
 2000 Avenue of the Stars, 12th Floor
 Los Angeles, California 90067
 (T) (310) 201-4100
 Attention:  Michael D. Weiner
 Email:  list_taxreceivablenotice@aresmgmt.com

 

with a copy to:

 

Proskauer Rose LLP
 2049 Century Park East, Suite 3200
 Los Angeles, California 90067
 (T) (310) 557-2900
 Attention:  Michael A. Woronoff

 

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Jonathan Benloulou
 Email:  MWoronoff@proskauer.com

JBenloulou@proskauer.com

 

If to Alleghany, to:

 

The address and electronic mail address set forth in the records of the Partnerships.

 

If to a Limited Partner, to:

 

The address and electronic mail address set forth in the records of the AOH.

 

Any party may change its address or electronic mail address by giving the other party written notice of such new address in the manner set forth above.

 

Section 7.02.                          Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile or electronic transmission), all of which shall constitute one and the same instrument.

 

Section 7.03.                          Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 7.04.                          Governing Law. This Agreement shall be construed and enforced, along with any rights, remedies, or obligations provided for hereunder, in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within the State of Delaware by residents of the State of Delaware; provided, that the enforceability of Section 7.08 shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and not the laws of the State of Delaware.

 

Section 7.05.                          Severability. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein, if the economic and legal substance of the arrangements contemplated hereby are not affected in any manner materially adverse to any party hereto. Upon such a determination, each of the Corporations and the Principals shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties

 

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as closely as possible in an acceptable manner that the transactions contemplated hereby shall be consummated as originally contemplated to the fullest extent possible.

 

Section 7.06.                          Successors; Assignment; Amendments; Waivers. No TRA Holder may assign this Agreement to any Person without the prior written consent of each Corporation; provided that (i) except with respect to a transfer of Partnership Units (including indirectly through a transfer of AOH Units), to the extent the Partnership Units are effectively transferred by a TRA Holder (including indirectly through a transfer of AOH Units) in accordance with the terms of the relevant Partnership Agreements (or the AOH Partnership Agreement), the transferring TRA Holder shall have the option to assign to the transferee of such Partnership Units (including indirectly through a transfer of AOH Units) the transferring TRA Holder’s rights under this Agreement, as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to each Corporation, agreeing to become a “TRA Holder” for all purposes of this Agreement, except as otherwise provided in such joinder, and (ii) once an Exchange has occurred, any and all payments that may become payable to a TRA Holder pursuant to this Agreement with respect to such Exchange may be assigned to any Person or Persons, as long as any such Person has executed and delivered, or, in connection with such assignment, executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to each Corporation. For the avoidance of doubt, to the extent a Principal or other Person transfers Partnership Units (including indirectly through a transfer of AOH Units) to another Principal, the Principal receiving such Partnership Units (including indirectly through a transfer of AOH Units) shall have all rights under this Agreement with respect to such transferred Partnership Units as such Principal has, under this Agreement, with respect to the other Partnership Units directly or indirectly held by such Principal.

 

No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Corporations, on behalf of themselves and the respective Partnerships they Control, and by the Principals that control, directly or indirectly, at least two-thirds of the Partnership Units held by all Principals; provided that no such amendment shall be effective if such amendment will have a disproportionate adverse effect on the payments certain TRA Holders will or may receive under this Agreement unless all such TRA Holders disproportionately adversely affected consent in writing. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.

 

All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. Each Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of such Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that such Corporation would be required to perform if no such succession had taken place. Notwithstanding anything to the contrary herein, if a Principal transfers Partnership Units (including indirectly through a transfer of AOH Units), to a Permitted Transferee (as defined in the relevant Partnership Agreements), excluding any other Principal, such Principal shall have

 

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the right, on behalf of such transferee, to enforce the provisions of Sections 2.04, 4.02 or 6.01 with respect to such transferred Partnership Units.

 

Section 7.07.                          Headings. All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.

 

Section 7.08.                          Resolution of Disputes. (a) Any and all disputes, claims or controversies arising out of or relating to this Agreement, including any and all disputes, claims or controversies arising out of or relating to (i) the parties to this Agreement, (ii) any party’s rights and obligations hereunder, (iii) the validity or scope of any provision of this Agreement, (iv) whether a particular dispute, claim or controversy is subject to arbitration under this Section 7.08, and (v) the power and authority of any arbitrator selected hereunder, that are not resolved by mutual agreement shall be submitted to final, binding and confidential arbitration in Los Angeles, California, before one arbitrator, conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successor.  Disputes shall be resolved in accordance with the Federal Arbitration Act, 9 U.S.C. §§1—16, and JAMS’ Comprehensive Arbitration Rules and Procedures then in effect.  The arbitrator will have the same, but no greater, remedial authority than would a court of law and shall issue a written decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.  The prevailing party in any such arbitration proceeding, as determined by the arbitrator, or in any proceeding to enforce the arbitration award, will be entitled, to the extent permitted by law, to reimbursement from the other party for all of the prevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses and attorneys’ fees.  If no party entirely prevails in such arbitration or proceeding, the arbitrator or court shall apportion an award of such fees based on the relative success of each party.  In the event of a conflict between this provision and any provision in the applicable rules of JAMS, the provisions of this Agreement will prevail.  The parties to the arbitration shall participate in the arbitration in good faith.

 

(b)                                 The provisions of this Section 7.08 may be enforced by any court of competent jurisdiction, and, to the extent permitted by law, the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the party against whom enforcement is ordered. Notwithstanding any provision of this Agreement to the contrary, a party to an arbitration pursuant to this Section 7.08 shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any violation of the provisions of this Agreement pending a final determination on the merits by the arbitrator, and each party hereby consents that such a restraining order or injunction may be granted without the necessity of posting any bond.

 

(c)                                  The details of any arbitration pursuant to this Section 7.08, including the existence and/or outcome of such arbitration and any information obtained in connection with any such arbitration, shall be kept strictly confidential and shall not be disclosed or discussed with any person not a party to the arbitration; provided that such party may make such disclosures as are required by applicable law or legal process; provided further that such party may make such disclosures to its, his or her attorneys, accountants or other agents and

 

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representatives who reasonably need to know the disclosed information in connection with any arbitration pursuant to this Section 7.08 and who are obligated to keep such information confidential to the same extent as such party. If either party to the arbitration, as the case may be, receives a subpoena or other request for information from a third party that seeks disclosure of any information that is required to be kept confidential pursuant to the prior sentence, or otherwise believes that it, he or she may be required to disclose any such information, such the party to the arbitration, as the case may be, shall (i) promptly notify the other party to the arbitration and (ii) reasonably cooperate with such other party in taking any legal or otherwise appropriate actions, including the seeking of a protective order, to prevent the disclosure, or otherwise protect the confidentiality, of such information.

 

Section 7.09.                          Reconciliation. If a Corporation and a Principal are unable to resolve a disagreement with respect to the matters governed by Sections 2.04, 4.02 and 6.02 within the relevant period designated in this Agreement (“Reconciliation Dispute”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “Expert”) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner in a nationally recognized accounting firm or a law firm (other than the Advisory Firm), and the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with either such Corporation or such Principal or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within 15 days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the International Chamber of Commerce Centre for Expertise. The Expert shall resolve any matter relating to the Exchange Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within 30 calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within 15 calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement is due or any Tax Return reflecting the subject of a disagreement is due, such payment shall be made on the date prescribed by this Agreement and such Tax Return may be filed as prepared by such Corporation, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation; except as provided in the next sentence. Each participating Corporation and each Principal shall bear their own costs and expenses of such proceeding, unless the Principal has a prevailing position that is more than 10% of the payment at issue, in which case such Corporation shall reimburse such Principal for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.09 shall be decided by the Expert. The determinations of the Expert pursuant to this Section 7.09 shall be final and binding on such Corporation and such Principal and may be entered and enforced in any court having jurisdiction.

 

Section 7.10.                          Withholding. Each Corporation shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as such Corporation is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall

 

19

 

be treated for all purposes of this Agreement as having been paid to such TRA Holder. The TRA Holders shall provide each Corporation with such withholding and other tax certificates (including all required attachments) as may be reasonably requested from time to time.

 

Section 7.11.                          Affiliated Corporations of the Corporate Holdcos; Admission of the Corporations into a Consolidated Group; Transfers of Corporate Assets.

 

(a)                                 The other Corporate Holdcos shall provide that all provisions of this Agreement shall correspondingly apply, including the payment of Tax Benefit Payments by any corporation owned directly or indirectly in whole or in part, now or in the future, by the other Corporate Holdcos, with respect to any Realized Tax Benefit with respect to limited partnership interests in the other Ares Group entities, that are part of the Exchange and in which such corporation owns an interest, under the same terms and conditions as set forth in this Agreement, and the other Corporate Holdcos shall cause such corporation to execute and deliver a joinder to this Agreement to such effect. If either (i) the Parent or any other Corporate Holdco (other than the Corporations) elects to be treated or is otherwise treated as a corporation for tax purposes, or (ii) the Parent holds any other Corporate Holdco directly or indirectly through an entity that is treated as a corporation for tax purposes, then the provisions of this Agreement shall apply (w) to the Parent or such other Corporate Holdco or such entity as the case may be in the same manner as it applies to the Corporations and (x) to each partnership, limited partnership and limited liability company Controlled by any other Corporate Holdco as if each such entity were a Partnership; provided that, if any Partnership Units or limited partnership interests in other Ares Group entities were Exchanged prior to an event described in clause (i) or (ii) above, then (y) such Exchange shall be treated for purposes of this Agreement as having occurred immediately after such event at the Market Value in existence at the time of such prior Exchange, and (z) the entity that is to be treated in the same manner as the Corporations shall be required to make the same Tax Benefit Payments pursuant to the terms of this Agreement that it would have been required to make had it been treated in the same manner as the Corporations on the date of such Exchange; provided that such Tax Benefit Payments shall be payable only with respect to (I) Reference Assets that are still owned at the time of the event described in clause (i) or (ii) above, and (II) taxable years of such entity ending on or after the date of the event described in clause (i) or (ii) above. The parties agree that the terms of this Agreement will be applied to any corporation under this Section 7.11 only if the aggregate Tax Benefit Payments payable with respect to such corporation are reasonably expected to be more than $10 million.

 

(b)                                 If a Corporation becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole and (ii) Tax Benefit Payments shall be computed with reference to the consolidated taxable income of the group as a whole.

 

(c)                                  Notwithstanding any other provision of this Agreement, if Parent acquires one or more assets that, as of an Exchange Date, have not been contributed to a Corporation (other than Parent’s interests in the other Corporate Holdcos) (such assets, “Excluded Assets”), then all Tax Benefit Payments due hereunder shall be computed as if such

 

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assets had been contributed to such Corporation on the date such assets were first acquired by Parent; provided that if an Excluded Asset consists of stock in a corporation, then, for purposes of this Section 7.11(c), (i) such corporation (and any corporation Controlled by such corporation) shall be deemed to have contributed its assets to the Corporation in a transaction described in Section 351 of the Code, and (ii) such Corporation shall be deemed to have contributed all such assets to the Partnership, in each case on the date on which the Parent acquired stock of such corporation.

 

(d)                                 If any entity that is obligated to make an Exchange Payment hereunder transfers one or more assets to a corporation with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Exchange Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset, plus (i) the amount of debt to which such asset is subject, in the case of a contribution of an encumbered asset or (ii) the amount of debt allocated to such asset, in the case of a contribution of a partnership interest.

 

Section 7.12.                          Partnerships. Each Corporation hereby agrees that, to the extent it acquires a general partnership interest, managing member interest or similar interest in any Person after the date hereof, it shall cause such Person to execute and deliver a joinder to this Agreement and become a “Partnership” for all purposes of this Agreement.

 

Section 7.13.                          Conclusive Nature of Calculations. All determinations, interpretations, calculations, adjustments and other actions of a Corporation or any Partnership or a designee of any of the foregoing that are within such Person’s authority hereunder (including in connection with the preparation of any Schedule) shall be made in good faith by such Person and shall be binding and conclusive absent manifest error. In connection with any such determination, interpretation, calculation, adjustment or other action, each Corporation or any Partnership or the designee of any of the foregoing shall be entitled to resolve any ambiguity with respect to the manner in which such determination, interpretation, calculation, adjustment or other action is to be made or taken, and shall be entitled to interpret the provisions of this Agreement, in such a manner as it determines to be fair and equitable, and such resolution or interpretation shall be binding and conclusive absent manifest error.

 

[Signatures on following pages]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.

 

	
 
    	
Ares   Management, L.P.
    
	
 
    	
 
    
	
 
    	
By:   Ares Management GP LLC, its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Ares   Holdings Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Ares   Domestic Holdings Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Ares   Holdings L.P.
    
	
 
    	
 
    
	
 
    	
By:   Ares Holdings Inc., its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    

 

 

	
 
    	
Ares   Domestic Holdings L.P.
    
	
 
    	
By:   Ares Domestic Holdings Inc., its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Ares   Owners Holdings L.P.
    
	
 
    	
By:   Ares Partners Holdco LLC, its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Authorized Signatory
    

 

 

	
 
    	
Alleghany   Insurance Holdings LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John L. Sennott, Jr.
    
	
 
    	
 
    	
Name:   John L. Sennott, Jr.
    
	
 
    	
 
    	
Title:   Senior Vice President
    

 

 

	
 
    	
Each   Limited Partner set forth on Schedule A hereto:
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael D. Weiner
    
	
 
    	
 
    	
Name:   Michael D. Weiner
    
	
 
    	
 
    	
Title:   Attorney-in-factExhibit 10.2

 

ARES MANAGEMENT, L.P.

 

 

2014 EQUITY INCENTIVE PLAN

 

 

ARTICLE I

 

PURPOSE

 

The purpose of this Ares Management, L.P. 2014 Equity Incentive Plan is to (i) engender a true “owners” mentality by providing broad ownership of our Partnership across the entire professional population; (ii) create long-term alignment between owners and Service Providers and Non-Employee Directors; (iii) create long-term compensation opportunities for Service Providers and Non-Employee Directors; and (iv) recognize the contributions of certain Service Providers and Non-Employee Directors.  The Plan, as set forth herein, is effective as of the Effective Date.

 

ARTICLE II

 

DEFINITIONS

 

For purposes of the Plan, the following terms shall have the following meanings:

 

2.1                               “Acquisition Event” means a merger or consolidation in which the Partnership is not the surviving entity, any transaction that results in the acquisition of all or substantially all of the Partnership’s outstanding Common Units by a single Person or by a group of Persons acting in concert, or the sale or transfer of all or substantially all of the Partnership’s assets.

 

2.2                               “Affiliate” means each of the following: (a) any corporation, limited liability company, partnership, entity, trade or business that is directly or indirectly controlled by the Partnership (whether by ownership of stock, partnership or membership interests, assets or an equivalent ownership interest or voting interest, through a general partner or manager or by contract); (b) any corporation, limited liability company, partnership, entity, trade or business that directly or indirectly controls the Partnership (whether by ownership of stock, partnership or membership interests, assets or an equivalent ownership interest or voting interest, through a general partner or manager or by contract); and (c) any other entity in which the Partnership or any Affiliate thereof has a material equity interest and that is designated as an “Affiliate” by resolution of the Committee; provided that, unless otherwise determined by the Committee, in any event, no portfolio company in which a fund managed, directly or indirectly, by the Partnership, has an investment, shall be deemed an Affiliate of the Partnership.

 

2.3                               “Appreciation Award” means any Option or any Other Unit-Based Award that is based on the appreciation in value of a Unit in excess of an amount at least equal to the Fair Market Value on the date such Other Unit-Based Award is granted.

 

2.4                               “Ares Operating Group Entities” means each of Ares Domestic Holdings L.P., Ares Investments L.P., Ares Holdings L.P., Ares Offshore Holdings L.P., and Ares Real Estate

 

1

 

Holdings L.P. and any future entity designated by the Board in its discretion as an Ares Operating Group Entity for purposes of the Plan.

 

2.5                               “Ares Operating Group Unit” means, collectively, one partnership unit in each of the Ares Operating Group Entities.

 

2.6                               “Award” means any award under the Plan of any Option or Other Unit-Based Award.

 

2.7                               “Board” means the Board of Directors of the General Partner.

 

2.8                               “Cause” means, with respect to a Participant’s Termination of Services: (a) if there is no written employment agreement, consulting agreement, change in control agreement or similar agreement that defines “cause” (or words of like import) in effect between the Partnership or an Affiliate and the Participant at the time of the grant of the Award, termination due to (i) the Participant’s conviction of, or plea of guilty or nolo contendere to, (A) a felony, or (B) a misdemeanor where imprisonment of one or more months is imposed (including, in each case, a foreign law equivalent); (ii) perpetration by the Participant of an illegal act, dishonesty or fraud that could cause significant economic injury to the Partnership or any of its Affiliates; (iii) the Participant’s insubordination or willful and deliberate failure or refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity; (iv) materially unsatisfactory performance by the Participant of his or her duties in any material respect, provided that the Participant is given notice and an opportunity to cure as determined by the Committee; or (v) the Participant’s willful misconduct with regard to the Partnership or any of its Affiliates, as determined by the Committee; or (b) if there is a written employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Partnership or any of its Affiliates and the Participant at the time of the grant of the Award that defines “cause” (or words of like import) or if “cause” is defined in the applicable Award agreement, “cause” as defined under such agreement; provided that with regard to any agreement under which the definition of “cause” only applies on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually takes place and then only with regard to a termination thereafter.  With respect to a Participant’s Termination of Directorship, “cause” means an act or failure to act that constitutes cause for removal of a director under Delaware law.

 

2.9                               “Change in Control” unless otherwise defined in the applicable Award agreement or other written agreement approved by the Committee and subject to Section 12.11(b), means the occurrence of any of the following: (a) any Person, other than a Person approved by the current General Partner, becoming the general partner of the Partnership; or (b) during any period of two consecutive years, Continuing Directors cease for any reason to constitute a majority of the directors serving on the Board. For purposes of this definition, “Continuing Director” means any director of the General Partner (i) serving on the Board at the beginning of the relevant period of two consecutive years referred to in the immediately preceding sentence, (ii) appointed or elected to the Board by the members of the General Partner or (iii) whose appointment or election to the Board by such Board, or nomination for election to the Board by the limited partners of the Partnership, was approved by a majority of the directors of the Board then still serving at the time of such approval who were so serving at the beginning of the relevant period of two consecutive years, were so appointed or elected by the members of

 

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the General Partner or whose appointment or election or nomination for election was so approved.

 

2.10                        “Change in Control Price” has the meaning set forth in Article IX.

 

2.11                        “Code” means the Internal Revenue Code of 1986.

 

2.12                        “Committee” means: (a) with respect to the application of the Plan to Service Providers, a committee or subcommittee of the Board consisting of at least two directors, who are granted the appropriate authority to administer the Plan in compliance with applicable law; and (b) with respect to the application of the Plan to Non-Employee Directors, the Board.  To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board and all references herein to the Committee shall be deemed references to the Board.

 

2.13                        “Common Units” mean the common units representing limited partnership interests in the Partnership, as defined in the Partnership Agreement.

 

2.14                        “Disability” means with respect to a Participant’s Termination, a permanent and total disability as defined in Section 22(e)(3) of the Code.  A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability.  Notwithstanding the foregoing, for an Award that provides for payment or settlement triggered upon a Disability and that constitutes a Section 409A Covered Award, the foregoing definition shall apply for purposes of vesting of such Award, provided that for purposes of payment or settlement of such Award, such Award shall not be paid (or otherwise settled) until the earliest of: (A) the Participant’s “disability” within the meaning of Section 409A(a)(2)(C)(i) or (ii) of the Code, (B) the Participant’s “separation from service” within the meaning of Section 409A of the Code and (C) the date such Award would otherwise be settled pursuant to the terms of the Award agreement.

 

2.15                        “Effective Date” means the date on which the Board adopts the Plan, or such later date as is designated by the Board.

 

2.16                        “Exchange Act” means the Securities Exchange Act of 1934.

 

2.17                        “Exercisable Awards” has the meaning set forth in Section 4.2(d).

 

2.18                        “Fair Market Value” of a Unit, means as of any date, unless otherwise required by any applicable provision of the Code and except as provided below, (a) the closing price reported for the Unit on such date: (i) as reported on the principal national securities exchange in the United States on which it is then traded; or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the Financial Industry Regulatory Authority or (b) if the Unit shall not have been reported or quoted on such date, on the first day prior thereto on which the Unit was reported or quoted.  If the Unit is not traded, listed or otherwise reported or quoted, then Fair Market Value of a Unit means the fair market value of the Unit as determined by the Committee in good faith in whatever manner it considers appropriate taking into account the requirements of Section 409A of the Code.

 

2.19                        “Family Member” means “family member” as defined in Section A.1.(5) of the general instructions of Form S-8.

 

2.20                        “General Partner” means Ares Management GP LLC, a Delaware limited liability company.

 

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2.21                        “Good Reason” with respect to a Participant’s voluntary Termination of Service shall have the meaning ascribed to such term under an employment or consulting agreement or Award agreement between the Partnership or any of its Affiliates and the Participant in effect as of the time of such Termination; provided that with regard to any agreement under which the definition of “good reason” only applies upon an occurrence of a change in control, such definition of “good reason” shall not apply until a change in control actually takes place and then only with regard to a termination thereafter.  In the absence of any such agreement defining such term, a Participant shall not have “Good Reason”.

 

2.22                        “Non-Employee Director” means a director of the General Partner who is not a Service Provider of the Partnership or any of its Affiliates other than with respect to service as a director of the General Partner.

 

2.23                        “Option” means any option to purchase Units granted to Service Providers or Non-Employee Directors pursuant to Article VI.

 

2.24                        “Other Extraordinary Event” has the meaning in Section 4.2(b).

 

2.25                        “Other Unit-Based Award” means an Award under Article VII that is valued in whole or in part by reference to, or is payable in or otherwise based on, Units.

 

2.26                        “Participant” means a Service Provider or Non-Employee Director to whom an Award has been granted pursuant to the Plan.

 

2.27                        “Partnership” means Ares Management, L.P., a Delaware limited partnership.

 

2.28                        “Partnership Agreement” means the Amended and Restated Agreement of Limited Partnership of the Partnership, dated on or about May 1, 2014.

 

2.29                        “Person” means any individual, entity (including any employee benefit plan or any trust for an employee benefit plan) or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision).

 

2.30                        “Plan” means this Ares Management, L.P. Equity Incentive Plan, as amended from time to time.

 

2.31                        “Rule 16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act.

 

2.32                        “Section 4.2 Event” has the meaning set forth in Section 4.2(b).

 

2.33                        “Section 409A” means the nonqualified deferred compensation rules under Section 409A of the Code.

 

2.34                        “Section 409A Covered Award” has the meaning set forth in Section 12.11.

 

2.35                        “Securities Act” means the Securities Act of 1933.

 

2.36                        “Service Provider” means any natural person or, with the approval of the Committee, entity, that provides bona fide services to the Partnership or any of its Affiliates, including any natural person who is an employee, professional, consultant, member or partner of the Partnership or any of its Affiliates; provided that no consultant shall be a Service Provider for performing services in connection with the offer or sale of securities in a capital-raising transaction, or directly or indirectly promoting or maintaining a market for the Partnership’s or any of its Affiliates’ securities.

 

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2.37                        “Termination” means a Termination of Directorship or Termination of Services, as applicable.

 

2.38                        “Termination of Directorship” means that the Non-Employee Director has ceased to be a director of the General Partner; except that if a Non-Employee Director becomes a Service Provider upon the termination of his or her directorship, his or her ceasing to be a director of the Partnership shall not be treated as a Termination unless and until the Participant has a Termination of Services.

 

2.39                        “Termination of Services” means: (a) a termination of employment or service as a professional, consultant, partner or member (for reasons other than a military or approved personal leave of absence) of a Participant from the Partnership and its Affiliates; or (b) when an entity that is employing a Participant, or of which the Participant is a Service Provider, ceases to be an Affiliate of the Partnership, unless the Participant otherwise is, or thereupon becomes a Service Provider of, the Partnership or another Affiliate of the Partnership.  If a Service Provider becomes a Non-Employee Director upon his or her Termination of Services, unless otherwise determined by the Committee no Termination shall be deemed to occur until such time as such Service Provider is no longer a Non-Employee Director.  Notwithstanding the foregoing, the Committee may otherwise define Termination of Services for any Service Provider in any Award agreement and, if no rights of a Service Provider are substantially impaired, may otherwise amend the definition of Termination of Services from time to time.

 

2.40                        “Transfer” means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of equity in a Person), whether for value or no value and whether voluntary or involuntary (including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, hypothecate, encumber or otherwise dispose of (including by issuing equity in a Person) whether for value or for no value and whether voluntarily or involuntarily (including by operation of law).  “Transferred” and “Transferable” shall have correlative meanings.

 

2.41                        “Units” mean Common Units or Ares Operating Group Units that are issued or may be issued under the Plan.

 

ARTICLE III

 

ADMINISTRATION

 

3.1                               The Committee.  The Plan shall be administered and interpreted by the Committee.

 

3.2                               Grant and Administration of Awards.  The Committee shall have full authority and discretion, as provided in Section 3.7, to grant and administer Awards including the authority to:

 

(a)                                 select the Service Providers and Non-Employee Directors to whom Awards may from time to time be granted;

 

(b)                                 determine the number of Units to be covered by each Award;

 

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(c)                                  determine the type and the terms and conditions, not inconsistent with the terms of the Plan, of each Award (including the exercise or purchase price (if any), any restrictions or limitations thereon or any vesting schedule or acceleration thereof);

 

(d)                                 determine whether to require a Participant, as a condition of the granting of any Award, to refrain from selling or otherwise disposing of Units acquired pursuant to such Award for a period of time;

 

(e)                                  amend, after the date of grant, the terms that apply to an Award upon a Participant’s Termination, provided that such amendment does not substantially impair the Participant’s rights under the Award, as determined by the Committee;

 

(f)                                   determine the circumstances under which Units and other amounts payable with respect to an Award may be deferred automatically or at the election of the Participant, in each case in a manner intended to comply with or be exempt from Section 409A;

 

(g)                                  generally, exercise such powers and perform such acts as the Committee deems necessary or advisable to promote the best interests of the Partnership in connection with the Plan that are not inconsistent with the provisions of the Plan;

 

(h)                                 construe and interpret the terms and provisions of the Plan and any Award (and all agreements relating thereto); and

 

(i)                                     correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto.

 

3.3                               Award Agreements.  All Awards shall be evidenced by, and subject to the terms and conditions of, a written notice provided by the Partnership to the Participant or a written agreement executed by the Partnership and the Participant.

 

3.4                               Guidelines.  The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem necessary or advisable.  The Committee may adopt special guidelines and provisions for persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdiction to comply with applicable tax and securities laws and may impose such limitations and restrictions that it deems necessary or advisable to comply with the applicable tax and securities laws of such domestic or foreign jurisdiction.

 

3.5                               Sub-Plans.  The Committee shall have the authority to adopt, alter and repeal such sub-plans to the Plan as it shall deem necessary or advisable.  Such sub-plans may be a plan of the General Partner, the Partnership, or any Affiliate of the Partnership adopted to grant awards pursuant to the Plan.

 

3.6                               Delegation; Advisors.  The Committee may as it deems advisable, to the extent permitted by applicable law and securities exchange rules:

 

(a)                                 delegate its responsibilities to officers or employees of the Partnership or any of its Affiliates, including delegating authority to officers or Affiliates to grant Awards or execute agreements or other documents on behalf of the Committee; and

 

(b)                                 engage legal counsel, consultants, professional advisors and agents to assist in the administration of the Plan and rely upon any opinion or computation received from any such Person.

 

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3.7                               Decisions Final.  All determinations, evaluations, elections, approvals, authorizations, consents, decisions, interpretations and other actions made or taken by or at the direction of the Partnership, the Board or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the sole and absolute discretion of all and each of them, and shall be final, binding and conclusive on all Service Providers and Participants and their respective beneficiaries, heirs, executors, administrators, successors and assigns.  Except as otherwise required by applicable law, nothing in this Plan shall obligate the Partnership, the Board or the Committee (or any of its members) to treat any Service Provider or Participant alike, whether or not such Service Providers or Participants are similarly situated, and the exercise of any power or discretion by the Partnership, the Board or the Committee (or any of its members) in the case of any Service Provider or Participant shall not create any obligation on the part of the Partnership, the Board or the Committee (or any of its members) to take any similar action in the case of any other Service Provider or Participant, it being understood that any power or discretion conferred upon the the Partnership, the Board or the Committee (or any of its members) shall be treated as having been so conferred as to each Service Provider and Participant separately.

 

3.8                               Procedures.  If the Committee is appointed, the Committee shall hold meetings, if any, at such times and places as it shall deem advisable, including by telephone conference.  The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.  The Committee may also act by written consent.

 

3.9                               Payment of Taxes Due.  The Committee may withhold or require payment of any amount it may determine to be necessary for federal, state, local or other taxes as a result of the exercise, grant or vesting of an Award.  In connection therewith, the Partnership or any of its Affiliates shall have the right to withhold from any compensation or other amount owing to a Participant, applicable withholding taxes with respect to any issuance or transfer under the Plan and to take such action as may be necessary or advisable in the opinion of the Partnership to satisfy the payment of such withholding taxes.  Additionally, the Committee may permit or require a Participant to sell, in a manner prescribed by the Committee, a sufficient number of Units in connection with the settlement of an Award to cover applicable tax withholdings (with the sale proceeds going to the Partnership).

 

3.10                        Liability; Indemnification.

 

(a)                                 To the maximum extent permitted by applicable law, the Board, the Committee, their respective members and any officer, employee delegate or other Person engaged pursuant to Section 3.6 shall not be liable for any action or determination made in good faith with respect to the Plan or any Award.

 

(b)                                 To the maximum extent permitted by applicable law and to the extent not covered by insurance directly insuring such Person, each current or former (i) officer or employee of the Partnership or any of its Affiliates and (ii) member of the Committee or the Board shall be indemnified and held harmless by the Partnership against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Committee) or liability (including any sum paid in settlement of a claim with the approval of the Committee), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the administration of the 

 

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Plan, except to the extent arising out of such Person’s fraud or bad faith.  Such indemnification shall be in addition to any rights of indemnification provided for under applicable law, the Partnership Agreement and the organizational documents of any of the Partnership’s Affiliates.  Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her.

 

ARTICLE IV

 

UNIT LIMITATIONS

 

4.1                               Units.

 

(a)                                 General Limitations.

 

(i)                                     The aggregate number of Units that may be issued or used for reference purposes or with respect to which Awards may be granted over the term of the Plan shall not exceed 31,704,545 Units (subject to any increase or decrease pursuant to Section 4.2) of which all or any portion may be issued as Common Units or Ares Operating Group Units. Notwithstanding the foregoing, the total number of Units subject to the Plan shall be increased on the first day of each fiscal year beginning in calendar year 2015 by a number of Units equal to the positive difference, if any, of (x) 15% of the aggregate number of Common Units and Ares Operating Group Units outstanding on the last day of the immediately preceding fiscal year (excluding Ares Operating Group Units held by the Partnership or its wholly-owned subsidiaries) minus (y) the aggregate number of Units that were available for the issuance of future Awards under the Plan on such last day of the immediately preceding fiscal year, unless the Committee should decide to increase the number of Units covered by the Plan by a lesser amount on any such date.  Awards may, in the discretion of the Committee, be made under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Partnership or any of its Affiliates or any entity acquired by the Partnership or with which the Partnership merges, consolidates or otherwise combines. The number of Units underlying such substitute awards shall be counted against the aggregate number of Units available for Awards under the Plan.

 

(ii)                                  If any Appreciation Award expires, terminates or is canceled for any reason without having been exercised in full, the number of Units underlying any unexercised portion shall again be available under the Plan.  If Other Unit-Based Awards that are not Appreciation Awards are forfeited for any reason, the number of forfeited Units comprising or underlying the Award shall again be available under the Plan.

 

(iii)                               The number of Units available under the Plan shall be reduced by (A) the total number of Appreciation Awards that have been exercised, regardless of whether any of the Units underlying such Awards are not actually issued to the Participant as the result of a net exercise or settlement, and (B) all Units used to pay any exercise price or tax withholding obligation with respect to any Award.  In addition, the Partnership may not use the cash proceeds it receives from Option exercises to repurchase Units on the open market for reuse under the Plan.  Notwithstanding anything to the contrary herein, Awards that may be settled solely in cash shall not be deemed to use any Units under the Plan.

 

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(iv)                              Unless the Committee determines otherwise, Common Units delivered by the Partnership or any of its Affiliates upon exchange of Ares Operating Group Units that have been issued under the Plan shall be deemed issued under the Plan.

 

4.2                               Changes.

 

(a)                                 The existence of the Plan and the Awards shall not affect in any way the right or power of the Board or the unitholders of the Partnership to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Partnership’s capital structure, equity interests or its business, (ii) any merger or consolidation of the Partnership or any of its Affiliates, (iii) any issuance of bonds, debentures, preferred or prior preference equity interests senior to or otherwise affecting the Units, (iv) the dissolution or liquidation of the Partnership or any of its Affiliates, (v) any sale or transfer of all or part of the assets or business of the Partnership or any of its Affiliates, or (vi) any Section 4.2 Event.

 

(b)                                 Subject to the provisions of Section 4.2(d), in the event of any change in the capital structure, equity interests or business of the Partnership by reason of any unit split, reverse split, distribution of equity interests, combination or reclassification of Units, recapitalization, merger, consolidation, spin off, reorganization or partial or complete liquidation, issuance of rights to purchase Units or other equity interests convertible into Units, sale or transfer of all or part of the Partnership’s assets or business, or other transaction or event that would be considered an “equity restructuring” within the meaning of FASB ASC Topic 718 (each, a “Section 4.2 Event”), then (i) the aggregate number or kind of Units or other securities that thereafter may be issued under the Plan, (ii) the number or kind of Units or other property (including cash) subject to an Award, or (iii) the purchase or exercise price of Awards shall be adjusted by the Committee as the Committee determines, in good faith, to be necessary or advisable to prevent substantial dilution or enlargement of the rights of Participants under the Plan.  In connection with any Section 4.2 Event, the Committee may provide for the cancellation of outstanding Awards and payment in cash or other property in exchange therefor.  In addition, subject to Section 4.2(d), in the event of any change in the capital structure or equity interests of the Partnership that is not a Section 4.2 Event (an “Other Extraordinary Event”), then the Committee may (but shall not be obligated to) make the adjustments described in clauses (i), (ii) and (iii) above as it determines, in good faith, to be necessary or advisable to prevent substantial dilution or enlargement of the rights of Participants under the Plan.  Notice of any such adjustment shall be given by the Committee, or otherwise made available, to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is provided) shall be binding for all purposes of the Plan.  Except as expressly provided in this Section 4.2(b) or in an applicable Award agreement, a Participant shall have no rights by reason of any Section 4.2 Event or any Other Extraordinary Event.  Notwithstanding the foregoing, (x) any adjustments made pursuant to Section 4.2(b) to Awards that are considered “non-qualified deferred compensation” within the meaning of Section 409A shall be made in a manner intending to comply with the requirements of Section 409A; and (y) any adjustments made pursuant to Section 4.2(b) to Awards that are not considered “non-qualified deferred compensation” subject to Section 409A shall be made in a manner intending that after such adjustment, the Awards either (A) continue not to be subject to Section 409A or (B) comply with the requirements of Section 409A.

 

(c)                                  Fractional Units resulting from any adjustment in Awards pursuant to Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time of exercise by 

 

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rounding down fractions to the nearest whole Unit.  Unless otherwise determined by the Committee, no cash settlements shall be made with respect to fractional Units eliminated by rounding.

 

(d)                                 Upon the occurrence of an Acquisition Event, the Committee may terminate all outstanding and unexercised Options or any Other Unit-Based Award that provides for a Participant-elected exercise (collectively, “Exercisable Awards”), effective as of the date of the Acquisition Event, by delivering notice of termination to each Participant at least 20 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of such Exercisable Awards that are then outstanding to the extent vested on the date such notice of termination is given (or, at the discretion of the Committee, without regard to any limitations on exercisability otherwise contained in the Award agreements), but any such exercise shall be contingent on the occurrence of the Acquisition Event, and if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void and the applicable provisions of Section 4.2(b) and Article IX shall apply.  For the avoidance of doubt, in the event of an Acquisition Event, the Committee may terminate any Exercisable Award for which the exercise price is equal to or exceeds the Fair Market Value on the date of the Acquisition Event without payment of consideration therefor.  If an Acquisition Event occurs but the Committee does not terminate the outstanding Awards pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) and Article IX shall apply.

 

ARTICLE V

 

ELIGIBILITY

 

5.1                               General Eligibility.  All current and prospective Service Providers and current Non-Employee Directors, are eligible to be granted Awards.  Eligibility for the grant of Awards and actual participation in the Plan shall be determined by the Committee.  Notwithstanding anything herein to the contrary, no Award under which a Participant may receive Units may be granted to a Service Provider or Non-Employee Director of any Affiliate of the Partnership if such Units do not constitute “service recipient stock” for purposes of Section 409A of the Code with respect to such Service Provider or Non-Employee Director if such Units are required to constitute “service recipient stock” for such Award to comply with, or be exempt from, Section 409A of the Code.

 

5.2                               General Requirement.  The grant of Awards to a prospective Service Provider and the vesting and exercise of such Awards shall be conditioned upon such Person actually becoming a Service Provider; provided that no Award may be granted to a prospective Service Provider unless the Partnership determines that the Award will comply with applicable laws, including the securities laws of all relevant jurisdictions.  Awards may be awarded in consideration for past services actually rendered to the Partnership or any of its Affiliates.

 

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ARTICLE VI

 

OPTIONS

 

6.1                               Options.  The Committee shall have the authority to grant Options to any Service Provider or Non-Employee Director.

 

6.2                               Terms of Options.  Options shall be subject to the following terms and conditions and such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

 

(a)                                 Exercise Price.  The exercise price per Unit subject to an Option shall be determined by the Committee on or before the date of grant, provided that the per Unit exercise price of an Option shall not be less than 100% of the Fair Market Value of a Unit on the date of grant.

 

(b)                                 Option Term.  The term of each Option shall be fixed by the Committee, provided that no Option shall be exercisable more than ten years after the date such Option is granted.

 

(c)                                  Exercisability.  Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant.

 

(d)                                 Method of Exercise.  To the extent vested, an Option may be exercised in whole or in part at any time during the Option’s term, by giving written notice of exercise to the Committee (or its designee) specifying the number of Units to be purchased.  Such notice shall be in a form acceptable to the Committee and shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order of the Partnership; or (ii) on such other terms and conditions as may be acceptable to the Committee (including  the relinquishment of Options or by payment in full or in part in the form of Units owned by the Participant (for which the Participant has good title free and clear of any liens and encumbrances)).  No Units shall be issued until payment therefor, as provided herein, has been made or provided for.

 

(e)                                  Termination by Death or Disability.  Unless otherwise determined by the Committee at grant, if a Participant’s Termination is by reason of death or Disability, all Options that are held by such Participant that are vested and exercisable on the date of the Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a period of 180 days after the date of such Termination, but in no event beyond the expiration of the stated term of such Options.

 

(f)                                   Involuntary Termination Without Cause or for Good Reason.  Unless otherwise determined by the Committee, if a Participant’s Termination is by involuntary termination without Cause or by the Participant for Good Reason, all Options that are held by such Participant that are vested and exercisable on the date of the Participant’s Termination may be exercised by the Participant at any time within a period of 180 days after the date of such Termination, but in no event beyond the expiration of the stated term of such Options.

 

(g)                                  Termination for Cause; Voluntary Termination without Good Reason.  Unless otherwise determined by the Committee, if a Participant’s Termination (i) is for Cause, or (ii) is voluntary and without Good Reason, all Options that are held by such Participant that are vested and exercisable on the date of the Participant’s Termination may be exercised by the

 

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Participant at any time within a period of 30 days after the date of such Termination, but in no event beyond the expiration of the stated term of such Options.

 

(h)                                 Unvested Options.  Unless otherwise determined by the Committee, Options that are not vested as of the date of a Participant’s Termination for any reason shall terminate and expire on the date of such Termination.

 

(i)                                     Form, Modification, Extension and Renewal of Options.  Options may be evidenced by such form of agreement as is approved by the Committee.  The Committee may (i) modify, extend or renew outstanding Options (provided that (A) the rights of a Participant are not substantially impaired without his or her consent and (B) such action does not subject the Options to Section 409A or otherwise extend the Options beyond their stated term), and (ii) accept the surrender of outstanding Options and authorize the granting of new Options in substitution therefor.  Notwithstanding anything herein to the contrary, an outstanding Option may not be modified to reduce the exercise price thereof nor may a new Option at a lower price be substituted for a surrendered Option (other than adjustments or substitutions in accordance with Section 4.2), unless such action is approved in accordance with applicable securities exchange rules.

 

(j)                                    No Reload Options.  Options shall not provide for the grant of the same number of Options as the number of Units used to pay for the exercise price of Options or Units used to pay withholding taxes (i.e., “reloads”).

 

ARTICLE VII

 

OTHER UNIT-BASED AWARDS

 

7.1                               Other Awards.  The Committee is authorized to grant Other Unit-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to Units, including phantom restricted units, restricted Units, Units awarded purely as a bonus and not subject to any restrictions or conditions, Units in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Partnership or any of its Affiliates, unit appreciation rights, unit equivalent awards and deferred restricted units valued by reference to book value of Units.

 

The Committee shall have authority to determine the Participants, to whom, and the time or times at which, Other Unit-Based Awards shall be made, the number of Units to be awarded pursuant to such Awards, and all other terms and conditions of the Awards.

 

7.2                               Terms and Conditions.  Other Unit-Based Awards made pursuant to this Article VII shall be subject to the following terms and conditions:

 

(a)                                 Distributions.  The Committee shall determine to what extent, and under what conditions, the Participant shall have the right to receive distributions with respect to Units covered by Other Unit-Based Awards.

 

(b)                                 Vesting.  Other Unit-Based Awards and any underlying Units shall vest or be forfeited to the extent set forth in the applicable Award agreement or as otherwise determined by the Committee.  The Committee may, at or after grant, accelerate the vesting of all or any part of any Other Unit-Based Award.

 

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(c)                                  Payment.  Following the vesting of the Other Unit-Based Awards, Units or, as determined by the Committee, the cash equivalent of such Units shall be delivered to the Service Provider or Non-Employee Director, or his legal representative, in an amount equal to such individual’s earned Other Unit-Based Award.  Notwithstanding the foregoing, the Committee may subject the payment of all or part of any Other Unit-Based Award to additional vesting, forfeiture and deferral conditions as it deems appropriate.

 

(d)                                 Termination.  Upon a Participant’s Termination for any reason prior to the vesting of the Other Unit-Based Awards, all unvested Awards will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant, or, if no rights of a Participant are substantially impaired, thereafter.

 

ARTICLE VIII

 

TRANSFERABILITY

 

8.1                               Non-Transferability of Awards.  No Option shall be Transferable by the Participant other than by will or by the laws of descent and distribution, and all Options shall be exercisable, during the Participant’s lifetime, only by the Participant.  Notwithstanding the foregoing, the Committee may determine that an Option that otherwise is not Transferable pursuant to this section is Transferable to a Family Member in whole or in part.  An Option that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be Transferred subsequently other than by will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award agreement.

 

8.2                               Non-Transferability of Other Unit-Based Awards.  Unless otherwise determined by the Committee, no Other Unit-Based Award shall be Transferable by the Participant other than by will or by the laws of descent and distribution.

 

8.3                               No Assignment of Benefits.  Except as otherwise specifically provided in the Plan or permitted by the Committee, no Award or other benefit payable under the Plan shall be Transferable in any manner, and any attempt to Transfer any such benefit shall be void, and any such benefit shall not in any manner be available for or subject to the debts, contracts, liabilities, engagements or torts of any Person entitled to such benefit, nor shall it be subject to attachment or legal process for or against such Person.

 

8.4                               Death/Disability.  The Committee may require the transferee of a Participant to supply it with written notice of the Participant’s death or Disability and to supply it with a copy of the will (in the case of the Participant’s death) or such other evidence as the Committee deems necessary or advisable to establish the validity of the Transfer of an Award.  The Committee also may require that the transferee agree to be bound by all of the terms and conditions of the Plan.

 

ARTICLE IX

 

CHANGE IN CONTROL PROVISIONS

 

In the event of a Change in Control of the Partnership, except as otherwise provided by the Committee in an Award agreement or otherwise in writing, a Participant’s unvested Award 

 

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shall not vest and a Participant’s Award shall be treated in accordance with one of the following methods as determined by the Committee:

 

(a)                                 Awards, whether or not then vested, may be continued, assumed, have new rights substituted therefor or be treated in accordance with Section 4.2(d), and Awards may, where appropriate in the discretion of the Committee, receive the same distribution as other Units on such terms as determined by the Committee; provided that, the Committee may decide to award additional Awards in lieu of any cash distribution.

 

(b)                                 Awards may be purchased by the Partnership or any of its Affiliates for an amount of cash equal to the Change in Control Price (as defined below) per Unit covered by such Awards, less, in the case of an Appreciation Award, the exercise price per Unit covered by such Award.  The “Change in Control Price” means the price per Unit paid in the Change in Control transaction, subject to adjustment as determined by the Committee for any contingent purchase price, escrow obligations, indemnification obligations or other adjustments to the purchase price after the consummation of such Change in Control.

 

(c)                                  Appreciation Awards may be cancelled without payment therefor, if the Change in Control Price is less than the exercise price per Unit of such Appreciation Awards.

 

Notwithstanding anything else herein, the Committee may provide for accelerated vesting or lapse of restrictions, of an Award at any time.

 

ARTICLE X

 

TERMINATION OR AMENDMENT OF PLAN

 

Notwithstanding any other provision of the Plan, the Board or the Committee (to the extent permitted by law), may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary or advisable to ensure that the Partnership may comply with any regulatory requirement referred to in Article XII or Section 409A), or suspend or terminate it entirely, retroactively or otherwise; provided that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be substantially impaired without the consent of such Participant.

 

The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively; provided that no such amendment substantially impairs the rights of any Participant without the Participant’s consent.  Actions taken by the Committee in accordance with Article IV shall be deemed to not substantially impair the rights of any Participant.

 

Notwithstanding anything herein to the contrary, the Board or the Committee may amend the Plan or any Award at any time without any Participant’s consent to comply with Section 409A or any other applicable law.

 

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ARTICLE XI

 

UNFUNDED PLAN

 

The Plan is an “unfunded” plan for incentive and deferred compensation.  With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Partnership, nothing contained herein shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Partnership.

 

ARTICLE XII

 

GENERAL PROVISIONS

 

12.1                        Legend.  The Committee may require each Person receiving Units pursuant to an Award to represent to and agree with the Partnership in writing that the Participant is acquiring the Units without a view to distribution thereof and such other securities law related representations as the Committee shall request.  In addition to any legend required by the Plan, the certificates or book entry accounts for such Units may include any legend that the Committee deems appropriate to reflect any restrictions on Transfer.

 

All Units delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Units are then listed or any national automated quotation system on which the Units are then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.  If necessary or advisable in order to prevent a violation of applicable securities laws then, notwithstanding anything herein to the contrary, any Unit-settled Awards shall be paid in cash in an amount equal to the Fair Market Value on the date of settlement of such Awards.

 

12.2                        Other Plans.  Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements; and such arrangements may be either generally applicable or applicable only in specific cases.

 

12.3                        No Right to Service/Directorship.  Neither the Plan nor the grant of any Award thereunder shall give any Participant or other Person any right to employment, service, consultancy or directorship by the Partnership or any Affiliate, or limit in any way the right of the Partnership or any of its Affiliates to terminate any Participant’s employment, service, consultancy or directorship at any time.

 

12.4                        Listing and Other Conditions.  If at any time counsel to the Partnership shall be of the opinion that any offer or sale of Units pursuant to an Award is or may be unlawful or prohibited, or will or may result in the imposition of excise taxes on the Partnership or any of its Affiliates, under the statutes, rules or regulations of any applicable jurisdiction or under the rules of the national securities exchange on which the Common Units then are listed, the Partnership shall have no obligation to make such offer or sale, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to the Units or Awards, and the right to exercise any Option or Exercisable Award shall be 

 

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suspended until, in the opinion of said counsel, such offer or sale shall be lawful, permitted or will not result in the imposition of excise taxes on the Partnership or any of its Affiliates.

 

12.5                        Governing Law.  The Plan and matters arising under or related to it shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to its principles of conflicts of laws.

 

12.6                        Construction.  Unless a clear contrary intention appears: (i) the defined terms herein shall apply equally to both the singular and plural forms of such terms; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by the Plan or any Award agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) any pronoun shall include the corresponding masculine, feminine and neuter forms; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) reference to any law, rule or regulation means such law, rule or regulation as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law, rule or regulation means that provision of such law, rule or regulation from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) “hereunder,” “hereof,” “hereto,”  and words of similar import shall be deemed references to the Plan as a whole and not to any particular article, section or other provision hereof; (vii) numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of the Plan; (viii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; (ix) “or” is used in the inclusive sense of “and/or”; (x) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto; and (xi) reference to dollars or $ shall be deemed to refer to U.S. dollars.

 

12.7                        Other Benefits.  No Award, whether at grant or payment, shall be deemed compensation for purposes of computing benefits under any retirement plan of the Partnership or any of its Affiliates or shall affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation, unless expressly provided to the contrary in such benefit plan.

 

12.8                        Costs.  The Partnership shall bear all expenses associated with administering the Plan, including expenses of issuing Units pursuant to any Awards.

 

12.9                        No Right to Same Benefits.  The provisions of Awards need not be the same with respect to each Participant, and each Award to an individual Participant need not be the same.

 

12.10                 Section 16(b) of the Exchange Act.  All elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving Units are intended to comply with any applicable exemptive condition under Rule 16b-3.  The Board may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or advisable for the administration and operation of the Plan and the transaction of business thereunder.

 

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12.11                 Section 409A.  Although the Partnership does not guarantee to a Participant the particular tax treatment of any Award, all Awards are intended to comply with, or be exempt from, the requirements of Section 409A and the Plan and any Award agreement shall be limited, construed and interpreted in accordance with such intent.  To the extent that any Award constitutes “non-qualified deferred compensation” pursuant to Section 409A (a “Section 409A Covered Award”), it is intended to be paid in a manner that will comply with Section 409A.  In no event shall the Partnership be liable for any additional tax, interest or penalties that may be imposed on a Participant by Section 409A or for any damages for failing to comply with Section 409A.  Notwithstanding anything in the Plan or in an Award to the contrary, the following provisions shall apply to Section 409A Covered Awards:

 

(a)                                 A Termination of Services shall not be deemed to have occurred for purposes of any provision of a Section 409A Covered Award providing for payment upon or following a termination of the Participant’s services to the Partnership unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of a Section 409A Covered Award, references to a “termination,” “termination of employment” or like terms shall mean separation from service. For purposes of determining a service recipient or employer in connection with a “separation from service” under the Plan within the meaning of Section 409A and in accordance with Section 1.409A-1(h)(3) of the Treasury Regulations, in the application of Sections 1563(a)(1), (2) and (3) of the Code to determine the controlled group under Section 414(b) of the Code, “at least 20 percent” shall replace “at least 80 percent” in every place it appears in Sections 1563(a)(1), (2) and (3) of the Code and, in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, “at least 20 percent” shall replace “at least 80 percent” in every place it appears in Section 1.414(c)-2 of the Treasury Regulations.  Notwithstanding any provision to the contrary in the Plan or the Award, to the extent applicable, if the Participant is deemed on the date of the Participant’s Termination to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by the Partnership from time to time, or if none, the default methodology set forth in Section 409A, then with regard to any such payment under a Section 409A Covered Award, to the extent required to be delayed in compliance with Section 409A(a)(2)(B) of the Code, such payment shall not be made prior to the earlier of (i) the expiration of the six-month period measured from the date of the Participant’s separation from service, and (ii) the date of the Participant’s death.

 

(b)                                 With respect to any payment pursuant to a Section 409A Covered Award that is triggered upon a Change in Control, unless otherwise provided in the Award agreement at grant, the settlement of such Award shall not occur until the earliest of (i) the Change in Control if such Change in Control constitutes a “change in the ownership of the corporation,” a “change in effective control of the corporation” or a “change in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Code, (ii) the date such Award otherwise would be settled pursuant to the terms of the applicable Award agreement and (iii) the Participant’s 

 

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“separation from service” within the meaning of Section 409A, subject to Section 12.11(a).

 

(c)                                  For purposes of Section 409A, a Participant’s right to receive any installment payments under the Plan or pursuant to an Award shall be treated as a right to receive a series of separate and distinct payments.

 

(d)                                 Whenever a payment under the Plan or pursuant to an Award specifies a payment period with reference to a number of days (e.g., “payment shall be made within 30 days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Partnership.

 

12.12                 Successor and Assigns.  The Plan shall be binding on all successors and permitted assigns of a Participant, including the estate of such Participant and the executor, administrator or trustee of such estate.

 

12.13                 Severability of Provisions.  If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

 

12.14                 Payments to Minors, Etc.  Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Board, the Partnership, its Affiliates and their employees, agents and representatives with respect thereto.

 

12.15                 Headings and Captions.  The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

 

12.16                 Recoupment.  All Awards granted or other compensation paid by the Partnership under the Plan, including any Units issued under any Award thereunder, will be subject to any compensation recapture policies established by the Board or the Committee from time to time, as well as any such policies required pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, other applicable law or the rules of any national securities exchange on which the Units are then traded.

 

12.17                 Reformation.  If any provision set forth in the Plan or an Award agreement is found by any court of competent jurisdiction or arbitrator to be invalid, void or unenforceable or to be excessively broad as to duration, activity, geographic application or subject, such provision or provisions shall be construed, by limiting or reducing them to the extent legally permitted, so as to be enforceable to the maximum extent compatible with then applicable law.

 

12.18                 Electronic Communications.  Notwithstanding anything else herein to the contrary, any Award agreement, notice of exercise of an Exercisable Award, or other document or notice required or permitted by the Plan or an Award that is required to be delivered in writing may, to the extent determined by the Committee, be delivered and accepted electronically. Signatures also may be electronic unless otherwise determined by the Committee.

 

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12.19                 Agreement. As a condition to the grant of an Award, if requested by the Partnership and the lead underwriter of any public offering of the Units (the “Lead Underwriter”), a Participant shall irrevocably agree not to Transfer, grant any option to purchase, otherwise transfer the economic risk of ownership in, make any short sale of, or contract to do any of the foregoing with respect to, any interest in any Units or any securities convertible into, derivative of, or exchangeable or exercisable for Units, or any other rights to purchase or acquire Units during such period of time as the Lead Underwriter shall specify (the “Lock-up Period”).  The Participant shall further agree to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agree that the Partnership may impose stop-transfer instructions with respect to Units acquired pursuant to an Award until the end of such Lock-up Period.

 

ARTICLE XIII

 

TERM OF PLAN

 

No Award shall be granted on or after the tenth anniversary of the Effective Date, provided that Awards granted prior to such tenth anniversary may extend beyond that date in accordance with the terms of the Plan.

 

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