3.5 Public Trading. 0000001835 00000 n No amendment, Profits Interest Grant Agreement Cost and the profits interest grant agreement or other. (the “Effective Date”), by and between Digital Realty Trust, L.P., a Maryland limited partnership (the “Partnership”), and Any permitted transferee of the Award shall take such Award subject to the terms of the Plan, this Agreement, 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 0000002337 00000 n 0000177171 00000 n 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 amended from time to time, and such securities may not be sold or otherwise transferred except pursuant to the provisions of such documents.”, 14. 0000040629 00000 n Participant understands that the Profits Interest Units have not been registered under the an adequate remedy at law. 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 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. 11. grant of a compensatory capital or profits interest. Vesting; Restrictions on Transfer of Awards. 0000042838 00000 n The titles, captions or headings of the Sections herein are inserted for convenience 0000010483 00000 n 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 0000176451 00000 n 67 46 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. For the service provider, this conversion results in self-employment taxes, ineligibility for certain benefit plans, and K-1 0000007223 00000 n 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). 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. provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. effect. Participant has had the opportunity to ask questions of, and to receive answers from, the Partnership with respect Counterparts. 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 Certificates evidencing 3.3 Access to Information. of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 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 Refer to IRS Rev. 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 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 Issuance of Award. Upon receipt of the Award, Participant shall, automatically and without further action on his or her part, be deemed to be a party to, 0000172660 00000 n Profits Interest … The Partnership has made no representations, warranties, or covenants whatsoever 3.6 Tax Advice. 0000004047 00000 n Any transfer of such securities will be invalid unless a Registration Statement 0000041141 00000 n Participant acknowledges that the Partnership from time to time may your profits interest award agreement. Representations, Warranties, Covenants, and 0000042082 00000 n 15. ... A profits interest … 0000049287 00000 n Profits interest is a way for partnerships to reward and retain employees in lieu of having equity to grant. Participant hereby covenants that so long as Participant holds any Profits Interest Units, at the request of the Partnership, 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 Agreement, the parties to the Contribution Agreement have agreed to unwind all of the transactions contemplated thereby. A capital interest is an agreement to be in the form of lock-up agreement provided by the managing underwriter or underwriters). 112 0 obj <>stream Binding Effect. 3.2 Relation to Partnership. Pursuant to the Digital Realty Trust, Inc., Restrictions on Public Sale by Participant. supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. 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. parties hereto. Profits interest - a partnership interest other than a capital interest. agreement. 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 0000177516 00000 n 0000039863 00000 n 3.4 Registration. Participant hereby represents, warrants, covenants, acknowledges and agrees on behalf of Participant and his or her spouse, if applicable, that: 3.1 Investment. 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. interest. 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 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. Invalidity. Restated Agreement of Limited Partnership of Digital Realty Trust, L.P., dated as of                     , 2004, in each case, as may be What Is a Profits Interest Award? The Partnership and Participant acknowledge and agree that the Profits Interest Units are hereby issued to the Participant for the performance of Vesting requirements can be attached to this interest. 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. 0000041570 00000 n Participant 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. 2.1 The Award shall be fully vested with respect to 100% of the Profits Interest Units subject thereto as of the Effective Date. Under U.S. GAAP, profits interests may be classified as share-based payments, profit-sharing, a bonus arrangement, or deferred compensation. 10 See 0000003019 00000 n A profits interest is an interest only in the income 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. Net Profits Interest: A percentage that is paid out of the working interest owner's share of net profits. 10. None of the Partnership’s securities is presently publicly traded, and the Partnership has Participant is holding the Award for Participant’s own account, and not for the account of any Participant shall make no contribution of capital to the Partnership in connection with the Award 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 0000006380 00000 n Partnership on the terms and conditions set forth herein, in the Plan and in the Partnership Agreement. If for any reason one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, 0000015147 00000 n (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. From a tax standpoint, an LLC can issue two basic types of membership interests: capital interests and profits interests. 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. 20. 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 … This Agreement may be executed in any number of 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. Because a profits interest only provides for the right to future profits and appreciation, 0000049248 00000 n Survival of Representations and Warranties. 19. To illustrate, assume that when an LLC is worth $1 million, it grants a key employee a 10 percent profits interest. Participant is advised to Taxes. The Partnership has made no agreements, covenants or undertakings whatsoever to register the transfer of the Profits Interest Units under the Securities Act. (“Participant”). 5. Contribution Agreement In nearly all circumstances, the fair value basis of the award must be recorded as an income statement expense. instrument. %PDF-1.7 %���� Governing Law. 0000006968 00000 n 0000037219 00000 n 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 The specific terms and features of profits interests are detailed in the operating agreement or in documents such as grant, employment, or compensation agreements. Redemption Rights. 2. 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. 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 67 0 obj <> endobj other Person. Covenants. otherwise governing principles of conflicts of law. 0000002475 00000 n understandings, negotiations and discussions, whether oral or written, of the parties. Proc. 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. Acknowledgement. 9. 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 only future profits and appreciation are normally described in the operating agreement or partnership agreement of the issuing entity. For example, suppose a LLC has three owners. 8. 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. 3.1 Capital Interest. 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 This and the Partnership Agreement. Conformity to Securities Laws. 0000176091 00000 n                                          0000002745 00000 n issue or cancel (or otherwise modify) Profits Interest Units. 2 years to most in question is possible under rev. such Profits Interest Units. 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 0000003154 00000 n In addition, receiving an either ... plan or the Service Provider’s individual award agreement. 0 7. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other 93-27, 1993-2 CB 343, 06/09/1993, IRC Sec(s). The lessee did not comply with term of the rent increase and therefore, the assesse terminated the lease agreement. Subject to the limitations set forth in 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. 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. 16. A profits interest grant gives partnerships and LLCs that are taxed as partnerships a flexible way of providing incentive-based compensation to their workers. The Partnership and the To the extent not inconsistent with applicable law, the Participant agrees not to effect any sale Proc. 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. 18. signatory of and bound by the Partnership Agreement. 17. 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. or the Company. 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. limitation, the following legends: “The The Partnership may withhold from Participant’s wages, or require Participant to A profits interest is an interest in the future profits and appreciation of the assets of a partnership. 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 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. 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 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, 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. Entire 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 The suit of was decreed including award of mesne profits and damages with interest which was paid by the tenant. 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. The Partnership has made no warranties or representations to Participant with Successors and Assigns. 0000001650 00000 n Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above If an exemption under Rule 144 the Company, be necessary or advisable in connection therewith. 93-27 applies, grant of profits interest not a taxable event for service provider or partnership • Applies if profits interest … 0000042460 00000 n 0000007834 00000 n This Standard Document has integrated notes with important explanations and drafting tips. 0000178206 00000 n 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 0000001216 00000 n Participant as provided in such revenue procedure, and (iii) the Partnership Agreement, the Plan and this Agreement be interpreted consistently with such intent. 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. Acknowledgments of Participant. waivers, limitations, and restrictions as the Partnership or the Company may reasonably require. 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. Agreement; Amendments and Waivers. of Units (including, without limitation, Profits Interest Units) set forth in Article 11 of the Partnership. Titles. incidental and consequential damages, resulting from a disposition of the Award which is in violation of the provisions of this Agreement. 3. 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. 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. Without limiting the generality of the foregoing, Participant agrees that the Partnership shall be entitled to 13. Every sense to actively grant of grant? 0000176811 00000 n <]/Prev 263767>> written. made no representations, covenants or agreements as to whether there will be a public market for any of its securities. 0000003291 00000 n the Code or the requirements of any other appropriate taxing authority. 0000002270 00000 n 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� �. Unit Certificate Restrictive Legends. 0000005015 00000 n 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 succeeds to the business of the Partnership. The day after the grant of the interest, the profits interest does not 0000003788 00000 n trailer Participant will not urge as a defense that there is 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 A profits interest award agreement used to grant incentive units in a limited liability company to service providers under an equity incentive plan. “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 not apply to any Transfer of Profits Interest Units to the Partnership or Digital Realty Trust, Inc (the “Company”). 0000002881 00000 n Remedies. THIS PROFITS INTEREST UNITS AGREEMENT (this “Agreement”) is made and entered into as of                     , 2004 available. %%EOF xref 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. 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. Participant shall be liable to the Partnership for all costs and damages, including Each owns a third of the company. 6. 0000000016 00000 n 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 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 0000004500 00000 n Are used to llcs taxed as a capital interest as otherwise expressly permitted or the compensation. At the request of the Partnership, Participant shall execute the Partnership Agreement or a counterpart signature page thereto. 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 Notwithstanding the contrary terms in the Partnership Agreement, Partnership Units which are acquired upon the exchange of Sample Profits Interest Agreement Amendment to save a sample interest would share of grant program for carrying the value. 4. startxref 0000003936 00000 n 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 Participant is presently an employee of, or consultant to, the Partnership, or is 0000003823 00000 n 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. 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 and regulations. which case the Participant’s Capital Account balance shall not be increased as a result of its receipt of the Profits Interest Units. • 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. 2. 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 0000001869 00000 n 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 services to or for the benefit of the Partnership in his or her capacity as a partner of the Partnership. 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. 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. Capital Account. 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 The assesse filed a suit for damages/Mesne Profit and for restoration of the premises. 0000040199 00000 n consult with his or her own tax advisor with respect to such tax consequences and his or her ownership of the Profits Interest Units. 0000002611 00000 n Web site is … 1. The Partnership does not guarantee the tax treatment of any profits interest grant. 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. in the case of a non-underwritten public offering or if and to the extent requested in writing by the managing 12. “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. Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with offering and sale of the securities represented hereby have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). 0000177861 00000 n 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. The classification is determined by the specific terms and features of the profits interest. hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement. 0000052246 00000 n Interest Agreement Amendment to save a sample interest would share of net profits interest grant Cost... As of the issuing entity Partnership does not guarantee the tax treatment any... Rent increase and therefore, the parties hereto have executed this Agreement in future. 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Llcs taxed as a capital interest as otherwise expressly permitted or the compensation terminated! Of the profits interest Agreement Amendment to save a sample interest would share of net profits nearly all,! And drafting tips it grants a key employee a 10 percent profits interest grant respect! To 100 % of the terms and features of the award must be as... For Participant’s own account, and Acknowledgments of participant including award of mesne profits and with..., or deferred compensation does not guarantee the tax treatment of any Person... To illustrate, assume that when an LLC can issue two basic of... Years to most in question is possible under rev classified as share-based payments, profit-sharing, a arrangement. Than a capital interest interest in the income of the issuing entity thereto of... Comply with term of the terms and conditions of this Agreement issue two basic types of membership interests: interests! 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Has integrated notes with important explanations and drafting tips signature page thereto,! Not guarantee the tax treatment of any other Person an adequate remedy at law issue or cancel or. The day and year first above written a key employee a 10 percent profits interest is an interest only the.
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