# Partnership & Equity Framework — Kiowa Scott

# PARTNERSHIP & EQUITY FRAMEWORK

SnS Network Solutions Holdings LLC — Kiowa Scott
Holding entity: SnS Network Solutions Holdings LLC
Managing Member: Samuel S. James (97%)
Partner: Kiowa Scott
State: Indiana
Effective: ________________
Not legal advice. This is a working draft for LegalShield / attorney review. Items in [brackets] need confirmation before signing. Neither party should rely on this document until reviewed by an Indiana-licensed attorney and CPA.

## 1. Purpose & Scope

This framework governs the Membership Interest granted to Kiowa Scott ("Kiowa") in SnS Hospitality Group LLC (the "Group"), a subsidiary of SnS Network Solutions Holdings LLC ("Holdings"). Kiowa's 15% interest is at the Group level — she participates in ALL mobile/trailer-based ventures operated under the Group (coffee trailers, food trucks, and any future mobile venture).

Kiowa is not a Member of Holdings itself. Samuel S. James remains Holdings' sole owner. This framework applies only to SnS Hospitality Group LLC.

Territory: NW Indiana and Southern Michigan.

## 2. Kiowa's Role (Per Venture)

- Sourcing and scouting the business opportunity
- Entity formation — Articles of Organization, EIN application, INBiz filings
- Ongoing legal compliance — permits, renewals, filings, registered-agent duties
- Management oversight — financial review, vendor coordination, ensuring profitability
- Handling or coordinating any legal issues that arise in operations

## 3. The Grant — Split Structure

Total potential equity per venture: 15% Membership Interest, split into two buckets:

Bucket | Amount | Condition
--- | --- | ---
Formation Grant | 5% | Vests immediately on the Formation Date (date Articles of Organization are filed). Payment for sourcing the venture and completing entity formation. No clawback.
Service Grant | 10% | Vests in 4 equal quarterly tranches (2.5% each) from the Opening Date, conditional on active service (see §4).

Formation Date = day the subsidiary's Articles of Organization are filed with the Indiana Secretary of State.
Opening Date = day the venture begins revenue-generating operations (e.g., first paying customer). The vesting clock starts here, not the Formation Date.

## 4. Service Grant — Vesting Schedule

Measured from the Opening Date (first coffee trailer serves its first paying customer):

Milestone | Vests | Cumulative Total | Condition
--- | --- | --- | ---
Formation Date (Group LLC filed) | 5.0% | 5.0% | Immediate — formation work complete
3 months | 2.5% | 7.5% | Actively performing duties
6 months | 2.5% | 10.0% | Actively performing duties
9 months | 2.5% | 12.5% | Actively performing duties
12 months | 2.5% | 15.0% | Actively performing duties

### 4.1 "Actively Performing" Defined

At each quarterly milestone, Kiowa must be, at minimum:

- Handling or coordinating legal filings, permits, renewals, and regulatory compliance
- Providing regular management oversight (financial reviews, vendor/operator coordination, staffing decisions)
- Responsive and available for Company business decisions within reasonable timeframes
- Not in material breach of the NDA or operating agreement

### 4.2 Acceleration

If cumulative net profit reaches 2× Sam's invested capital at any point before month 12, all remaining unvested service tranches vest immediately — Kiowa jumps to the full 15%. This rewards exceptional performance without punishing normal first-year economics.

### 4.3 During Vesting (Months 1-12)

If at any quarterly milestone Kiowa is not actively performing (she resigned, became unresponsive, or was removed for cause), that tranche and all future tranches do not vest. She keeps the 5% formation grant + any service tranches that already vested. Unvested tranches revert to Holdings.

Scenario (During Vesting Year) | Kiowa Keeps
--- | ---
Quits before Opening Date (formation work done) | 5%
Quits at month 2 (before first service tranche) | 5%
Active through month 3, quits at month 5 | 7.5%
Active through month 9 | 12.5%
Active through month 12 | 15% (fully vested)
Business hits 2× at month 7, Kiowa active | 15% (accelerated)

### 4.4 After Full Vesting (Month 12+) — Permanent Ownership

Once Kiowa is fully vested at 15%, the equity is hers permanently. She owns it free and clear regardless of future involvement.

If she stops working after full vesting:

- She loses management authority — can no longer make operational decisions, sign leases, hire/fire, or represent the Group to vendors or landlords
- She retains economic rights — continues receiving 15% of distributions as a passive member for as long as the Group exists
- Holdings assumes full management control (or designates a replacement manager)

Her incentive to keep working: distributions only exist if the trailers are profitable, and profitability requires active management. 15% of nothing is nothing.

## 5. Distributions

- The 5% formation grant earns distributions from the Formation Date forward.
- Service tranches earn distributions only once vested — unvested tranches do not participate in distributions.
- Once fully vested, Kiowa receives 15% of the Group's combined net profit across all ventures (coffee trailers, food trucks, and any future mobile business).
- Distributions are pro rata to each Member's vested Membership Interest.

## 6. Group-Level Ownership

Kiowa's 15% Membership Interest is in SnS Hospitality Group LLC as a whole, not in any individual venture. She participates economically in every venture the Group operates — coffee trailers, food trucks, and any future mobile business added to the Group.

Her distributions are 15% of the Group's combined net profit across all ventures. A strong-performing coffee trailer can offset a slower food truck month — diversification benefits her.

## 7. Distributions

- The 5% formation grant earns distributions from the Formation Date forward.
- Service tranches earn distributions only once vested — unvested tranches do not participate in distributions.
- Once fully vested, Kiowa receives 15% of the Group's combined net profit across all ventures.
- Distributions are pro rata to each Member's vested Membership Interest.
- After vesting, if Kiowa becomes a passive member (stops working), she continues to receive distributions — 15% of whatever profit the Group generates.

## 8. Tax Treatment

- The formation + service grant (15%) is intended as a profits interest under Rev. Proc. 93-27 / 2001-43 — no taxable income to Kiowa on grant.
- The capital buy-up is a straightforward capital contribution — not a profits interest. Kiowa's tax basis equals her cash contributed.
- Section 83(b) election: Kiowa should file a protective 83(b) within 30 days of each grant date. This is a hard IRS deadline with no extensions — the single highest-stakes item in this arrangement.
- Each two-member subsidiary files its own Form 1065 partnership return and issues K-1s to both Members.

CPA review required before any grant: confirm profits-interest qualification, 83(b) timing, and tiered-partnership filing mechanics between the subsidiary and Holdings.

## 9. Confidentiality

Kiowa's access to Sam's personal information (SSN, financial accounts, IRS correspondence) during formation work is governed by a separate Non-Disclosure Agreement (see `nda-formation-partner.md`). The NDA applies regardless of which ventures she vests into and survives termination of any individual venture relationship.

## 10. Definitions

Term | Meaning
--- | ---
"Holdings" | SnS Network Solutions Holdings LLC
"Sam" | Samuel S. James, authorized representative of Holdings
"Kiowa" | Kiowa Scott
"Formation Date" | Date Articles of Organization filed with IN Secretary of State
"Opening Date" | Date the venture begins revenue-generating operations
"Sam's invested capital" | Cumulative cash Holdings contributes to that subsidiary
"Cumulative net profit" | Venture's net profit from Opening Date forward
"Actively performing" | Meeting the duties defined in §4.1

## 9. Worked Examples

### Example A — Year 1: 2 Coffee Trailers (Slightly Above Average)

Setup: Sam invests $50K for Trailer #1 (Month 1), then $35K for Trailer #2 (Month 4, funded from Trailer #1 profits). Both doing 120 customers/day at $8 avg.

Metric | Trailer #1 (12 months) | Trailer #2 (9 months) | Combined
--- | --- | --- | ---
Revenue | $299,520 | $224,640 | $524,160
Costs (supply + fixed) | -$116,496 | -$87,372 | -$203,868
Net profit | $183,024 | $137,268 | $320,292

Kiowa's Year 1:

- Months 1-3: earning on 5% (formation) → ~$4,000
- Months 4-6: earning on 7.5-10% (tranches vesting) → ~$8,000
- Months 7-12: earning on 12.5-15% → ~$28,000
- Total Year 1 pre-tax: ~$40,000
- After tax (~35%): ~$26,000

Sam's Year 1 after tax: ~$180,000

### Example B — Year 2: Scale to 10 Trailers

Setup: 10 trailers running by month 20, all at average (100 customers/day, $8). Year 2 full-year profit with all 10 running:

Metric | Per Trailer | 10 Trailers
--- | --- | ---
Annual revenue | $249,600 | $2,496,000
Annual costs | -$109,008 | -$1,090,080
Net profit | $140,592 | $1,405,920

Distributions (full year, all 10 running):

Member | Share | Pre-tax | After tax | Monthly
--- | --- | --- | --- | ---
Holdings (Sam) — 85% | $1,195,032 | $776,771 | $64,731/mo
Kiowa — 15% | $210,888 | $137,077 | $11,423/mo

Kiowa clears $137K after tax with 10 trailers at average performance. Goal met.

### Example C — Kiowa Stops Working (Year 3+, Fully Vested)

Scenario: At month 14 (fully vested since month 12), Kiowa decides to step back. 10 trailers running, $1.4M annual profit.

- Kiowa loses: management authority, signing power, hiring/firing, lease negotiations
- Kiowa keeps: 15% of distributions permanently = $137K+/yr after tax (passive)
- Holdings hires a replacement operations manager (salaried — comes out of expenses before profit)
- Net profit drops slightly (manager salary), but Kiowa still gets 15% of whatever remains

Key: Kiowa has every incentive to stay — if she leaves, whoever replaces her may not manage as well, profits could drop, and her passive 15% shrinks. But she can never be forced to work, and she can never lose the equity.

## 12. Amendments

This framework may be amended only by written agreement signed by both Sam and Kiowa. Each subsidiary's operating agreement incorporates this framework's terms for that specific venture — amendments to this framework do not retroactively change terms already locked into a signed subsidiary operating agreement.

## 13. Governing Law

This Agreement is governed by the laws of the State of Indiana. Each subsidiary operating agreement is also governed by Indiana law unless otherwise specified therein.

## Execution

The undersigned acknowledge and agree to this Partnership & Equity Framework as of the Effective Date first written above.

HOLDINGS — Samuel S. James

Signature

Printed name: Samuel S. James

Title: Managing Member, SnS Network Solutions Holdings LLC

Date

PARTNER — Kiowa Scott

Signature

Printed name: Kiowa Scott

Date