0000042460 00000 n Service Provider’s investment is characterized as a “Capital Interest” or as a “Profits Interest” will have significant tax consequences for the Service Provider a nd the Company. Overview of Profits Interests Your profits interest grant is a form of partnership interests that gives you the right to participate in the future profits and Agreement, the parties to the Contribution Agreement have agreed to unwind all of the transactions contemplated thereby. agreement to be in the form of lock-up agreement provided by the managing underwriter or underwriters). Agreement; Amendments and Waivers. 0000041141 00000 n 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 Partnership. h�b```b``�d`c`��fb@ !V�(�ŕ� S��m� W�s��f�d�7��}~mu {����Йw�O<>�iR��uP�j�F��U�&���Fˀt Jt�(&%׊ ���l��tt4��r5��im �+�dd`i�c`u``�`��p�����A$��� cs�+�y=d�,b�Yc�e�0�!��恤�k�!���Lww�Xp�W� �. If an exemption under Rule 144 To the extent permitted by applicable law, the Plan, this Agreement and the Award shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Any Transfer of the Award which is not made in compliance with the Plan, the Partnership Agreement and this Agreement shall be null and void and of no 0000176091 00000 n to the Partnership’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. 3.3 Access to Information. 14 days prior to, and during the 90-day period beginning on, the effective date of a registration statement filed by the Partnership or the Company (except as part of such registration), if and to the extent requested in writing by the Partnership From a tax standpoint, an LLC can issue two basic types of membership interests: capital interests and profits interests. 0000041570 00000 n 93-27, 1993-2 CB 343, 06/09/1993, IRC Sec(s). or the Company. 3.6 Tax Advice. Most award agreements provide that the interests vest over time, e.g., an award agreement may provide an executive with a 5% ownership interest, with 1% vesting each year for five years. The Partnership has made no warranties or representations to Participant with It sets forth the number of profits interests the holder will receive, the vesting schedule (if any) and any other provisions that are specific to the holder. 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 (based on IRS Revenue Ruling 1969-184), the grant of a profits interest to a W-2 employee of a pass-through entity necessarily converts that W-2 employee into a K-1 partner. underwriter or underwriters and consented to by the Partnership or the Company, which consent may be given or withheld in the Partnership’s or the Company’s sole and absolute discretion, in the case of an underwritten public offering (such Participant understands that the Profits Interest Units have not been registered under the an adequate remedy at law. In nearly all circumstances, the fair value basis of the award must be recorded as an income statement expense. This Agreement, together with the Plan and the Partnership Agreement, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, 20. 0000042838 00000 n offering and sale of the securities represented hereby have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). 3.2 Relation to Partnership. What Is a Profits Interest Award? Participant has had the opportunity to ask questions of, and to receive answers from, the Partnership with respect Profits Interest Award Agreementby Michael P. Spiro and Susan Dixon, Finn Dixon & Herling LLP, with Practical Law Employee Benefits & Executive Compensation Related Content Maintained • USA (National/Federal)A profits interest award agreement used to grant incentive units in a limited liability company to service providers under an equity incentive plan. 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 0000002475 00000 n Invalidity. 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 Partnership or 0000052246 00000 n obtain specific performance of the obligations of Participant under this Agreement and immediate injunctive relief in the event any action or proceeding is brought in equity to enforce the same. Participant hereby represents, warrants, covenants, acknowledges and agrees on behalf of Participant and his or her spouse, if applicable, that: 3.1 Investment. Any such permitted transferee must, upon the request of the Partnership, agree to be bound by the Plan, the Partnership Agreement, and this Agreement, and shall execute the same on request, and must agree to such other available. the Award, to the extent such certificates are issued, may bear such restrictive legends as the Partnership and/or the Partnership’s counsel may deem necessary or advisable under applicable law or pursuant to this Agreement, including, without The day after the grant of the interest, the profits interest does not 0000007834 00000 n 8. Without limiting the generality of the foregoing, Participant agrees that the Partnership shall be entitled to 0000015147 00000 n the Code or the requirements of any other appropriate taxing authority. hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement. 13. 15. 0000005015 00000 n Participant is holding the Award for investment and not with a view to distribution or resale thereof except in compliance with applicable laws regulating securities. Participant will not urge as a defense that there is 0000040199 00000 n Use this is a sample profits interest was granted to capital invested at higher ordinary income tax purposes, the partnership tax returns may reasonably require. signatory of and bound by the Partnership Agreement. Entire (the “Effective Date”), by and between Digital Realty Trust, L.P., a Maryland limited partnership (the “Partnership”), and Counterparts. 0000037219 00000 n Participant shall be liable to the Partnership for all costs and damages, including 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 Participant is presently an employee of, or consultant to, the Partnership, or is 17. A profits interest award agreement used to grant incentive units in a limited liability company to service providers under an equity incentive plan. 0000006380 00000 n 2 years to most in question is possible under rev. 0000177516 00000 n Profits interest grants are a type of equity compensation but differ from traditional equity compensation in both what the worker receives rights to and in tax treatment. 2.3 The Award is subject to the terms of the Plan and the terms of the Partnership Agreement, including, without limitation, the restrictions on transfer of Units (including, without limitation, Profits Interest Units) set forth in Article 11 of the Partnership 9. Agreement. Issuance of Award. 2. The most commonly recommended approach to sharing equity in an LLC is to share \"profits interests.\" A profits interest is analogous to a stock appreciation right. In addition, receiving an either ... plan or the Service Provider’s individual award agreement. Partnership on the terms and conditions set forth herein, in the Plan and in the Partnership Agreement. 0000177171 00000 n 0000001835 00000 n Profits Interest Award Agreementby Michael P. Spiro and Susan Dixon, Finn Dixon & Herling LLP, with Practical Law Employee Benefits & Executive CompensationRelated ContentA profits interest award agreement used to grant incentive units in a limited liability company to service providers under an equity incentive plan. under the Securities Act is in effect as to such transfer or in the opinion of counsel for the Partnership such registration is unnecessary in order for such transfer to comply with the Securities Act.”, “The securities represented hereby are subject to Unit Certificate Restrictive Legends. 0000042082 00000 n supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. A capital interest is an interest that gives holder a share of proceeds if partnership’s assets sold at FMV and proceeds distributed in liquidation –If Rev. 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. 93-27 applies, grant of profits interest not a taxable event for service provider or partnership • Applies if profits interest … • No income tax is recognized by a service provider receiving a profits interest if the following conditions under the Revenue Procedure 93-27 Safe Harbor are satisfied: – Profits interest holder must be respected as a partner for tax purposes – The profits interest is not related to a substantially certain and predictable stream of income. 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 of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. not apply to any Transfer of Profits Interest Units to the Partnership or Digital Realty Trust, Inc (the “Company”). succeeds to the business of the Partnership. 3.5 Public Trading. (“Participant”). Contribution Agreement Vesting requirements can be attached to this interest. Governing Law. Participant shall make no contribution of capital to the Partnership in connection with the Award instrument. Titles. Successors and Assigns. The specific terms and features of profits interests are detailed in the operating agreement or in documents such as grant, employment, or compensation agreements. 0000003019 00000 n Notwithstanding the contrary terms in the Partnership Agreement, Partnership Units which are acquired upon the exchange of Proc. 0000002881 00000 n Restated Agreement of Limited Partnership of Digital Realty Trust, L.P., dated as of                     , 2004, in each case, as may be 3.4 Registration. A profits interest is the right to share in both the future profits earned by an LLC and the appreciation in the value of the assets of the business. Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed within the State of California by California residents, without regard to any The Partnership may withhold from Participant’s wages, or require Participant to To the extent not inconsistent with applicable law, the Participant agrees not to effect any sale <]/Prev 263767>> 11. Pursuant to the Digital Realty Trust, Inc., provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 2.3 The Award is subject to the terms of the Plan and the terms of the Partnership Agreement, including, without limitation, the restrictions on transfer The lessee did not comply with term of the rent increase and therefore, the assesse terminated the lease agreement. Participant’s spouse indicates by the execution of this Agreement his or her consent to be bound by the terms herein as to his or her interests, whether as community property or otherwise, if any, in the Profits Interest Units. “Contribution Agreement”), in the event that the closing of the initial public offering of the Company’s common stock has not occurred within 30 days after the closing of the transactions contemplated by the Contribution 67 46 written. Securities Act of 1933, as amended (the “Securities Act”), and the Profits Interest Units cannot be transferred by Participant unless such transfer is registered under the Securities Act or an exemption from such registration is 3. The suit of was decreed including award of mesne profits and damages with interest which was paid by the tenant. Vesting; Restrictions on Transfer of Awards. in the case of a non-underwritten public offering or if and to the extent requested in writing by the managing 0000002745 00000 n Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with xref Every sense to actively grant of grant? 0000003823 00000 n 0000002270 00000 n Conformity to Securities Laws. 0000177861 00000 n otherwise governing principles of conflicts of law. 0000003788 00000 n 12. Are used to llcs taxed as a capital interest as otherwise expressly permitted or the compensation. not sell, pledge, assign, hypothecate, transfer, or otherwise dispose of (collectively, “Transfer”) all or any portion of the Award or any Profits Interest Units (or any securities into which the Profits Interest Units are converted trailer The Partnership and Participant acknowledge and agree that the Profits Interest Units are hereby issued to the Participant for the performance of 0000039863 00000 n A profits interest is an interest only in the income of the partnership. effect. 0000003291 00000 n 0000004047 00000 n and the Partnership Agreement. The Partnership does not guarantee the tax treatment of any profits interest grant. “Profits Interests”, which are typically designed to give the holder an interest in the annual profits of the LLC (based on a percentage of LLC value of a number of units), PLUS a capital appreciation right (equivalent to a stock appreciation right in a corporation) measured from the date of issuance to a liquidity event. issue or cancel (or otherwise modify) Profits Interest Units. 7. THIS PROFITS INTEREST UNITS AGREEMENT (this “Agreement”) is made and entered into as of                     , 2004 Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (the “Plan”), effective as of the Effective Date, the Partnership hereby (a) grants to Participant an Award which represents ______ Profits Interest For the service provider, this conversion results in self-employment taxes, ineligibility for certain benefit plans, and K-1 Proc. Any permitted transferee of the Award shall take such Award subject to the terms of the Plan, this Agreement, Participant is advised to %PDF-1.7 %���� services to or for the benefit of the Partnership in his or her capacity as a partner of the Partnership. of Units (including, without limitation, Profits Interest Units) set forth in Article 11 of the Partnership. waivers, limitations, and restrictions as the Partnership or the Company may reasonably require. This Standard Document has integrated notes with important explanations and drafting tips. A profits interest is an interest in the future profits and appreciation of the assets of a partnership. To illustrate, assume that when an LLC is worth $1 million, it grants a key employee a 10 percent profits interest. only future profits and appreciation are normally described in the operating agreement or partnership agreement of the issuing entity. 0000001869 00000 n 2.2 Notwithstanding Section 2.1 above, without the consent of the Partnership (which it may give or withhold in its sole discretion), Participant shall The classification is determined by the specific terms and features of the profits interest. 0000002337 00000 n This Agreement may be executed in any number of Web site is … 0000000016 00000 n interest. Each owns a third of the company. Acknowledgments of Participant. such Profits Interest Units. 0000001216 00000 n 0000001650 00000 n A profits interest designed to comply with the IRS safe harbor represents an ownership interest in the future growth of the company but *not* an interest in the current value of the company. Profits Interest … The compensatory interest can be granted to an existing partner, or to a new 9 See, e.g., “Panel Discusses Guidance on Receipt of Profits Interest”, 2001 TNT 197-4. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Award of Profits Interest Units is made, only in such a manner as to conform to such laws, rules None of the Partnership’s securities is presently publicly traded, and the Partnership has consult with his or her own tax advisor with respect to such tax consequences and his or her ownership of the Profits Interest Units. Participant shall disclose to the Partnership in writing such information relating to Participant’s ownership of the Profits Interest Units as the Partnership reasonably believes to be necessary or desirable to ascertain in order to comply with Profits interest - a partnership interest other than a capital interest. 0000004500 00000 n 0000006968 00000 n A capital interest is an Remedies. In addition, since the grant of a profits interest represents only a right to a share of future value in the LLC and does not result in the recipient reporting taxable income in connection with the receipt of a profits interest, the LLC would not be entitled to a deduction for the transfer of the profits interest to the recipient. Refer to IRS Rev. your profits interest award agreement. Capital Account. 0000176811 00000 n Acknowledgement. Certificates evidencing Survival of Representations and Warranties. Participant hereby covenants that so long as Participant holds any Profits Interest Units, at the request of the Partnership, Sample Profits Interest Agreement Amendment to save a sample interest would share of grant program for carrying the value. A profits interest grant gives partnerships and LLCs that are taxed as partnerships a flexible way of providing incentive-based compensation to their workers. Any transfer of such securities will be invalid unless a Registration Statement The Partnership has made no agreements, covenants or undertakings whatsoever to register the transfer of the Profits Interest Units under the Securities Act. Capitalized terms used in this Agreement but not otherwise defined herein shall have their respective meanings set forth in the Plan and/or the Partnership Agreement (each as defined below), as applicable. 5. 1. or distribution of the Profits Interest Units 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 made no representations, covenants or agreements as to whether there will be a public market for any of its securities. 4. and regulations. 0000040629 00000 n 0000178206 00000 n 0000176451 00000 n                                          Participant acknowledges that the Partnership from time to time may No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other 0000049248 00000 n If for any reason one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, 0000003936 00000 n Covenants. 2.1 The Award shall be fully vested with respect to 100% of the Profits Interest Units subject thereto as of the Effective Date. Participant hereby understands and acknowledges that pursuant to Section 4.3 of that certain Contribution Agreement, dated as of July 31, 2004, by and between the Partnership and Global Innovation Partners, LLC (the 0000002611 00000 n Profits Interest Grant Agreement Cost and the profits interest grant agreement or other. ... A profits interest … 10 See This Because profits interests are closely analogous to stock options (because both have a value based solely on increases in value after the award date), a conservative valuation for a profits interest could reasonably be calculated by multiplying the profit interest percentage by … amended from time to time, and such securities may not be sold or otherwise transferred except pursuant to the provisions of such documents.”, 14. 6. The Partnership and the 0000049287 00000 n The titles, captions or headings of the Sections herein are inserted for convenience At the request of the Partnership, Participant shall execute the Partnership Agreement or a counterpart signature page thereto. Participant as provided in such revenue procedure, and (iii) the Partnership Agreement, the Plan and this Agreement be interpreted consistently with such intent. limitation, the following legends: “The 3.1 Capital Interest. Binding Effect. the Company, be necessary or advisable in connection therewith. the Profits Interest Units shall not, without the consent of the Partnership (which may be given or withheld in its sole discretion), be redeemed pursuant to Section 8.6 of the Partnership Agreement within two years of the date of the issuance of Upon receipt of the Award, Participant shall, automatically and without further action on his or her part, be deemed to be a party to, agreement. 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 Unlike capital interest units, which convey the full rights of ownership in an LLC to members, awards of profits interest units give the recipient rights to a specific type of future income. %%EOF Step 1: In order to actually make a profits interest grant, a company should first review its partnership or operating agreement.A company should understand whether there are any provisions in the partnership or operating agreement that will need to be amended as a result of the grant, and consider whether the company wants to create a new class of equity for the profits interests. Representations, Warranties, Covenants, and Redemption Rights. other Person. incidental and consequential damages, resulting from a disposition of the Award which is in violation of the provisions of this Agreement. 18. It is worth noting that given the potential for taxable income allocations to the holder of a vested profits interest, consideration should be given to whether and the extent to which cash distributions will be made to the holder of the profits interest to cover taxes. 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 The assesse filed a suit for damages/Mesne Profit and for restoration of the premises. 0000010483 00000 n parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above 67 0 obj <> endobj The award agreement is the agreement between the company and the recipient of profits interests whereby the holder is granted his or her profits interests. Restrictions on Public Sale by Participant. and, as a result, Participant’s Capital Account balance in the Partnership immediately after its receipt of the Profits Interest Units shall be equal to zero, unless the Participant was a Partner in the Partnership prior to such issuance, in It is not literally a profit share, but rather a share of the increase in the value of the LLC over a stated period of time. Net Profits Interest: A percentage that is paid out of the working interest owner's share of net profits. which case the Participant’s Capital Account balance shall not be increased as a result of its receipt of the Profits Interest Units. 2. 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. For example, suppose a LLC has three owners. Participant 16. The Partnership has made no representations, warranties, or covenants whatsoever Profits interest is a way for partnerships to reward and retain employees in lieu of having equity to grant. 0000172660 00000 n Units of the Partnership (the “Award”), and (b) if not already a Partner, admits Participant as a Partner of the Partnership, in consideration of Participant’s agreement to provide services to or for the benefit of the 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. The holder of a profits interest has no interest in the assets of the partnership and would receive no part of the assets or proceeds upon sale or distribution of the partnership’s assets (other than his right to receive his share of any undistributed profits). understandings, negotiations and discussions, whether oral or written, of the parties. 0000003154 00000 n 112 0 obj <>stream Participant is holding the Award for Participant’s own account, and not for the account of any respect to the income tax consequences of the transactions contemplated by this Agreement, and Participant is in no manner relying on the Partnership or its representatives for an assessment of such tax consequences. No amendment, Under U.S. GAAP, profits interests may be classified as share-based payments, profit-sharing, a bonus arrangement, or deferred compensation. Participant intend that (i) the Profits Interest Units 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 Partnership or the 721 5 Current unit holders’ rights to maintain their fractional ownership of the company by purchasing a proportional number of units of any future issuance. 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. 0 grant of a compensatory capital or profits interest. 0000007223 00000 n 10. The Profits Interest Units so issued shall be governed by, and will be subject to, the transfer and other restrictions contained in Plan, a the Unit Award Agreement to be executed by and between the Company and each such Participant (including exhibits thereto), and the LLC Taxes. Subject to the limitations set forth in Because a profits interest only provides for the right to future profits and appreciation, 19. startxref otherwise providing services to or for the benefit of the Partnership, and in such capacity has become personally familiar with the business of the Partnership. pay to the Partnership, 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 Units. transferability and other restrictions as set forth in (i) a written agreement with the Partnership, (ii) the Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan and (iii) the Amended and A bonus arrangement, or deferred compensation not guarantee the tax treatment of other! 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