PROFITS INTEREST AGREEMENT

PROFITS INTEREST AGREEMENT

 

THIS PROFITS INTEREST AGREEMENT (this “Agreement”) is made and entered into as of                     , 2022 (the “Effective Date”), by and between [ENTER NAME] of address [ENTER ADDRESS] (the “Advisor”), and [ENTER NAME] of address [ENTER ADDRESS] (“Company”). Capitalized terms used in this Agreement but not otherwise defined herein shall have their respective meanings set forth in the Company Agreement (each as defined below), as applicable.

 

THE PARTIES HERETO AGREE AS FOLLOWS:

 

  1. Issuance of Award. Pursuant to the Company’s compensation distribution plan (the “Plan”), effective as of the Effective Date, the Company hereby grants to Advisor an Award which represents [ENTER PERCENTAGE] of the Company’s profit (the “Award”) in consideration of Advisor’s agreement to provide services to or for the benefit of the Company on the terms and conditions set forth herein. The Company and Advisor acknowledge and agree that the Profits Interest are hereby issued to the Advisor for the performance of services to or for the benefit of the Company in his or her capacity as an Advisor of the Company. Advisor acknowledges that the Company from time to time may issue or cancel (or otherwise modify) the Profits Interest.

 

  1. Vesting; Restrictions on Transfer of Awards.

 

2.1 The Award shall be fully vested with respect to the Profits Interest subject thereto as of the Effective Date.

 

2.2 Notwithstanding Section 2.1 above, without the consent of the Company (which it may give or withhold in its sole discretion), Advisor shall not sell, pledge, assign, hypothecate, transfer, or otherwise dispose of (collectively, “Transfer”) all or any portion of the Award or any Profits Interest (or any securities into which the Profits Interest are converted or exchanged) prior to the third anniversary of the Effective Date (the “Transfer Restrictions”), other than by will or pursuant to the laws of descent and distribution; provided, however, that the Transfer Restrictions shall not apply to any Transfer of Profits Interest Units to the Company Company”).

 

2.3 The Award is subject to the terms of the Company Agreement, including, without limitation, the restrictions on transfer of shares and/or securities. Any permitted transferee of the Award shall take such Award subject to the terms of this Agreement, and the Company Agreement. Any such permitted transferee must, upon the request of the Company, agree to be bound by the Company Agreement, and this Agreement, and shall execute the same on request, and must agree to such other waivers, limitations, and restrictions as the Company or the Company may reasonably require. Any Transfer of the Award which is not made in compliance with the Company Agreement and this Agreement shall be null and void and of no effect.

 

  1. Representations, Warranties, Covenants, and Acknowledgments of Advisor. Advisor hereby represents, warrants, covenants, acknowledges and agrees on behalf of Advisor and his or her spouse, if applicable, that:

 

3.1 Investment. Advisor is holding the Award for Advisor’s own account, and not for the account of any other Person. Advisor is holding the Award for investment and not with a view to distribution or resale thereof except in compliance with applicable laws regulating securities.

 

3.2 Relation to Company. Advisor is presently an employee of, or consultant to, the Company, or is otherwise providing services to or for the benefit of the Company, and in such capacity has become personally familiar with the business of the Company.

 

3.3 Access to Information. Advisor has had the opportunity to ask questions of, and to receive answers from, the Company with respect to the terms and conditions of the transactions contemplated hereby and with respect to the business, affairs, financial conditions, and results of operations of the Company.

 

3.4 Registration. Advisor understands that the Profits Interest have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and the Profits Interest cannot be transferred by Advisor unless such transfer is registered under the Securities Act or an exemption from such registration is available. The Company has made no agreements, covenants or undertakings whatsoever to register the transfer of the Profits Interest Units under the Securities Act. The Company has made no representations, warranties, or covenants whatsoever as to whether any exemption from the Securities Act, including, without limitation, any exemption for limited sales in routine brokers’ transactions pursuant to Rule 144 of the Securities Act, will be available. If an exemption under Rule 144 is available at all, it will not be available until at least one (1) year from issuance of the Award and then not unless (a) a public trading market then exists in Profits Interest Units (or a successor security thereto); (b) adequate information as to the Company’s financial and other affairs and operations is then available to the public, and (c) all other terms and conditions of Rule 144 have been satisfied.

 

3.5 Public Trading. None of the Company’s securities is presently publicly traded, and the Company has made no representations, covenants or agreements as to whether there will be a public market for any of its securities.

 

3.6 Tax Advice. The Company has made no warranties or representations to Advisor with respect to the income tax consequences of the transactions contemplated by this Agreement, and Advisor is in no manner relying on the Company or its representatives for an assessment of such tax consequences. Advisor is advised to consult with his or her own tax advisor with respect to such tax consequences and his or her ownership of the Profits Interest Units.

 

  1. Capital Account. Advisor shall make no contribution of capital to the Company in connection with the Award and, as a result, Advisor’s Capital Account balance in the Company immediately after its receipt of the Profits Interest Units shall be equal to zero, unless the Advisor was a Partner in the Company prior to such issuance, in which case the Advisor’s Capital Account balance shall not be increased as a result of its receipt of the Profits Interest Units.

 

  1. Redemption Rights. Notwithstanding any other applicable contrary terms, Company shares and/or securities which are acquired upon the exchange of the Profits Interest shall not, without the consent of the Company (which may be given or withheld in its sole discretion), be redeemed within two years of the date of the issuance of such Profits Interest.

 

  1. Covenants. Advisor hereby covenants that so long as Advisor holds any Profits Interest, at the request of the Company, Advisor shall disclose to the Company in writing such information relating to Advisor’s ownership of the Profits Interest as the Company reasonably believes to be necessary or desirable to ascertain in order to comply with the Code or the requirements of any other appropriate taxing authority.

 

  1. Binding Effect. Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the executors, administrators, heirs, legal representatives, successors and assigns of the parties hereto.

 

  1. Taxes. The Company and the Advisor intend that (i) the Profits Interest be treated as a “profits interest” as defined in Internal Revenue Service Revenue Procedure 93-27, (ii) the issuance of such units not be a taxable event to the Company or the Advisor as provided in such revenue procedure, and (iii) this Agreement be interpreted consistently with such intent. The Company may withhold from Advisor’s wages, or require Advisor to pay to the Company, any applicable withholding or employment taxes resulting from the issuance of Award hereunder, from the lapse of any restrictions imposed on the Award, or from the ownership or disposition of the Profits Interest.

 

  1. Remedies. Advisor shall be liable to the Company for all costs and damages, including incidental and consequential damages, resulting from a disposition of the Award which is in violation of the provisions of this Agreement. Without limiting the generality of the foregoing, Advisor agrees that the Company shall be entitled to obtain specific performance of the obligations of Advisor under this Agreement and immediate injunctive relief in the event any action or proceeding is brought in equity to enforce the same. Advisor will not urge as a defense that there is an adequate remedy at law.

 

  1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [ENTER STATE] applicable to contracts entered into and wholly to be performed within the State of ENTER STATE by its residents, without regard to any otherwise governing principles of conflicts of law.

 

  1. Survival of Representations and Warranties. The representations, warranties and covenants contained in Section 3 hereof shall survive the later of the date of execution and delivery of this Agreement or the issuance of the Award.

 

  1. Profits Interest Certificate Restrictive Legends. Certificates evidencing the Award, to the extent such certificates are issued, may bear such restrictive legends as the Company and/or the Company’s counsel may deem necessary or advisable under applicable law or pursuant to this Agreement, including, without limitation, the following legends:

 

“The offering and sale of the securities represented hereby have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). Any transfer of such securities will be invalid unless a Registration Statement under the Securities Act is in effect as to such transfer or in the opinion of counsel for the Company such registration is unnecessary in order for such transfer to comply with the Securities Act.”

 

“The securities represented hereby are subject to transferability and other restrictions as set forth in (i) a written agreement with the Company, and (ii) the Company’s Incentive Award Plan, in each case, as may be amended from time to time, and such securities may not be sold or otherwise transferred except pursuant to the provisions of such documents.”

 

  1. Restrictions on Public Sale by Advisor. To the extent not inconsistent with applicable law, the Advisor agrees not to effect any sale or distribution of the Profits Interest or any similar security of the Company, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and during the 90-day period beginning on, the effective date of a registration statement filed by the Company (except as part of such registration), if and to the extent requested in writing by the Company in the case of a non-underwritten public offering or if and to the extent requested in writing by the managing underwriter or underwriters and consented to by the Company, which consent may be given or withheld in the Company’s sole and absolute discretion, in the case of an underwritten public offering (such agreement to be in the form of lock-up agreement provided by the managing underwriter or underwriters).

 

  1. Conformity to Securities Laws. Advisor acknowledges that this Agreement is intended to conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation the applicable exemptive conditions of Rule 16b-3 of the Exchange Act) and to such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Award shall be administered, and the Award of Profits Interest Units is made, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, this Agreement and the Award shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

 

  1. Counterparts. This Agreement may be executed in any number of counterparts, any of which may be executed and transmitted by facsimile, and each of which shall be deemed to be an original, but all of which together shall be deemed to be one and the same instrument.

 

  1. Successors and Assigns. Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the executors, administrators, heirs, legal representatives, successors and assigns of the parties hereto, including, without limitation, any business entity that succeeds to the business of the Company.

 

  1. Entire Agreement; Amendments and Waivers. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. This Agreement may not be amended except in an instrument in writing signed on behalf of each of the parties hereto and approved by the Committee. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

 

  1. Invalidity. If for any reason one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.

 

  1. Titles. The titles, captions or headings of the Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

In Witness Whereof, this Agreement is duly executed by the parties or their duly authorized representatives as set forth below:

 

__________________________________ ______________________   ___________________

         On behalf of Advisor                                       Signature           Date

 

__________________________________ ______________________ ____________________

         On behalf of Company                                  Signature           Date

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