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Related Party Transactions
 12 Months Ended
Dec. 31, 2024
Related Party Transactions [Abstract]  
Related Party Transactions
Note Q — Related Party Transactions (As Restated)
The LLC has entered into related party transactions with its Manager, CGM, and Sostratus LLC, an affiliate of CGM, including the following:
•Management Services Agreement
•LLC Agreement
•Integration Services Agreements
•Cost Reimbursement and Fees
Management Services Agreement
The LLC entered into a MSA with CGM effective May 16, 2006, as amended. Our Chief Executive Officer is a the managing member of CGM. The MSA, as in effect for fiscal year 2024, provides for, among other things, CGM to perform services for the LLC in exchange for a management fee paid quarterly and equal to 0.5% of the LLC’s adjusted net assets, as defined in the MSA. The management fee is required to be paid prior to the payment of any distributions to shareholders.
Pursuant to the MSA, CGM is entitled to enter into off-setting management service agreements with each of the operating segments. The amount of the fee is negotiated between CGM and the operating management of each segment and is based upon the value of the services to be provided. The fees paid directly to CGM by the segments offset on a dollar for dollar basis the amount due CGM by the LLC under the MSA.
At December 31, 2023, CGM entered into a waiver to exclude cash balances held at the LLC from the calculation of the management fee.
During 2022, CGM entered into a waiver of the MSA for the period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee than would normally have been due during this period. At March 31, 2022 and June 30, 2022, CGM entered into a waiver to exclude cash balances held at the LLC from the calculation of the management fee.
See "Note T - Subsequent Events" for additional information concerning the Management Services Agreement.
For the years ended December 31, 2024, 2023 and 2022, the Company incurred the following management fees to CGM, by entity:
Year ended December 31,
(in thousands)
202420232022
5.11$1,000 $1,000 $1,000 
BOA1,000 1,000 1,000 
Lugano750 750 750 
PrimaLoft1,000 1,000 500 
The Honey Pot Co.750 — — 
Velocity500 500 500 
Altor Solutions750 750 750 
Arnold500 500 500 
Sterno 500 500 500 
Corporate68,017 61,945 56,604 
$74,767 $67,945 $62,104 
Approximately $18.0 million and $16.0 million of the management fees incurred were unpaid as of December 31, 2024 and 2023, respectively, and are reflected in "Due to related party" on the consolidated balance sheets.
Effect of Restatement on Management Fees
As a result of the restatement of the financial statements as of December 31, 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022, as well as for the period ended December 31, 2021, the management fees paid to CGM were in excess of the amounts that should have been due under the MSA. While the MSA does not contain an express mechanism that permits the Company to immediately clawback the overpayment of management fees during the aforementioned periods, the MSA provides that future payments under the MSA will be reduced, on a dollar-for-dollar basis, by the aggregate amount of all overpaid management fees. The Company currently estimates the aggregate amount of overpaid management fees at approximately $38.2 million, which amount will reduce future payments on a dollar-for-dollar basis. The Board intends to direct the Company to establish a plan for recovering all such excess management fees paid to the Manager as soon as is reasonably practicable, balancing prompt recovery with the need to fund Manager’s ongoing management services to the Company.
The table below presents the management fee amounts that were in excess of the amount due after the restatement (in thousands).
Quarter Ended
Management Fee - Incurred (1)
Management Fee - Adjusted for RestatementOverpayment of Management Fee
December 31, 2021 (2)
$12,939 $11,668 $1,271 
March 31, 202214,436 13,128 1,308 
June 30, 202214,900 13,117 1,783 
September 30, 202216,592 14,785 1,807 
December 31, 202217,300 14,784 2,516 
March 31, 202316,458 14,202 2,256 
June 30, 202316,920 14,363 2,557 
September 30, 202318,596 15,392 3,204 
December 31, 202316,909 13,080 3,829 
March 31, 202418,067 14,867 3,200 
June 30, 202418,864 14,283 4,581 
September 30, 202418,758 14,351 4,407 
December 31, 202419,453 13,951 5,502 
Total $220,192 $181,971 $38,221 
(1) Management Fee incurred as reflected in the previously issued financial statements prior to the effect of discontinued operation, as applicable.
(2) Lugano was acquired on September 3, 2021. The overpayment of Management fee in 2021 is limited to the three months ended December 31, 2021.
LLC Agreement
The LLC agreement gives Holders the right to distributions pursuant to a profit allocation formula upon the occurrence of a Sale Event or a Holding Event. The Holders are entitled to receive and as such can elect to receive, if due pursuant to the profit allocation formula, an allocation payment upon the sale of a business (a "Sale Event") and upon election of the Holders during the 30-day period following the fifth anniversary of the date upon which we acquired a controlling interest in a business (Holding Event). Holders received $48.9 million and $26.5 million in distributions related to Sale and Holding Events that occurred during 2024 and 2023, respectively. There were no profit allocation payments during the year ended December 31, 2022. Refer to "Note K - Stockholders' Equity" for a description of the profit allocation payments.
The Lugano bankruptcy will be a Sale Event and any corresponding loss on such Sale Event will have the effect of reducing future allocation payments. The LLC Agreement also contains a mechanism to adjust future profit allocation payments by over-paid and under-paid profit distributions. The Company intends to cause future allocation payments to be adjusted, as necessary, to reflect the impact of the restatement of the Company’s financial statements as described in this Form 10-K/A.
Certain persons who are employees and partners of the Manager, including the Company’s Chief Executive Officer, beneficially own (through Sostratus LLC) 54.0% of the Allocation Interests at December 31, 2024 and 62.0% at December 31, 2023. Of the remaining 46.0% at December 31, 2024 and 38.0% at December 31, 2023, 5.0% is held by CGI Diversified Holdings LP, 5.0% is held by the estate of a former director of the Company's Board, and the remaining percentage of Allocation Interests are held by the former founding partners and certain former employees of the Manager.
Integration Services Agreements
Integration services represent fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership. Under the Integration Services Agreement ("ISA"), CGM provides services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in
establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our other subsidiaries.
The Honey Pot Co., which was acquired in January 2024, entered into an ISA with CGM whereby The Honey Pot Co. will pay CGM a total integration services fee of $3.5 million, payable quarterly over a twelve-month period beginning June 30, 2024.
PrimaLoft, which was acquired in July 2022, entered into an ISA with CGM whereby PrimaLoft paid CGM a total integration services fee of $4.8 million, paid quarterly over a twelve-month period ended June 30, 2023.
During the years ended December 31, 2024, 2023 and 2022, CGM received $2.6 million, $2.4 million, and $4.1 million, respectively, in total integration service fees. Integration service fees are included in selling, general and administrative expense on the subsidiaries' statement of operations in the period in which they are incurred.
Cost Reimbursement and Fees
The Company reimbursed its Manager, CGM, approximately $8.8 million, $6.4 million, and $6.5 million, principally for occupancy and staffing costs incurred by CGM on the Company’s behalf during the years ended December 31, 2024, 2023 and 2022, respectively.
The Company and its businesses have the following significant related party transactions:
5.11
Related Party Vendor Purchases - 5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. During the years ended December 31, 2024, 2023 and 2022, 5.11 purchased approximately $1.4 million, $1.7 million, and $2.0 million, respectively, in inventory from the vendor.
BOA
Recapitalization - In December 2023, the Company completed a recapitalization of BOA whereby the LLC entered into an amendment to the intercompany credit agreement with BOA (the "BOA Credit Agreement"). The BOA Credit Agreement was amended to provide for additional term loan borrowings of $165.9 million to fund a distribution to shareholders. The LLC received a distribution of $131.0 million related to their ownership of the outstanding shares of BOA on the date of the distribution. Noncontrolling shareholders received a distribution of $11.7 million, and the remaining amount of the recapitalization was used to repurchase shares owned by employees after the exercise of fully vested employee stock options, and to pay a bonus to employees who held phantom stock options and were not eligible to participate in the distribution to noncontrolling shareholders. BOA recorded compensation expense of $3.1 million related to the bonus paid to employees as part of the recapitalization.
Related Party Vendor Purchases - A contract manufacturer used by BOA as the primary supplier of molded injection parts is a noncontrolling shareholder of BOA. During the years ended December 31, 2024 and 2023 and 2022, BOA purchased approximately $48.1 million, $42.1 million and $56.1 million, respectively, from this supplier.
Lugano
Related Party Vendor Purchases - Lugano purchases inventory from a vendor who is a related party to Lugano through one of the executive officers of Lugano. The related party relationship commenced in 2024. During the year ended December 31, 2024, Lugano purchased approximately $7.0 million in inventory from the vendor.