# 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 any subsidiary LLC of SnS Network Solutions Holdings LLC ("Holdings") that Kiowa originates, sources, or manages for launch. It is applied fresh, per venture — each venture gets its own independent grant, vesting clock, and invested-capital figure. Performance on one venture has no effect on any other.

Kiowa is not a Member of Holdings itself. Samuel S. James remains Holdings' controlling owner. This framework applies only at the subsidiary level.

## 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:

Milestone | Vests | Cumulative Total | Condition
--- | --- | --- | ---
Formation Date | 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 Forfeiture / Separation

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 | 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)

No cure period. No re-earning forfeited tranches. Final and permanent.

## 5. Capital Contributions & Buy-Up Option

The default arrangement is that Kiowa contributes $0 cash — her equity is earned through services. However, Kiowa may elect to invest her own capital into a venture under the following terms:

### 5.1 Buy-Up Mechanics

- Additional equity available: up to 10% additional Membership Interest beyond the 15% service/formation grant (maximum total: 25%)
- Price: at the same valuation as Sam's invested capital (i.e., $1 of Kiowa's money buys the same % as $1 of Sam's money)
- Timing: capital must be contributed before or on the Opening Date — this is a launch investment, not a mid-stream buy-in at a discount
- Vesting: capital-contributed equity vests immediately (she paid cash, so no service condition — same as Sam's investment)
- Cap: Holdings must retain at least 51% of any subsidiary to maintain control. Kiowa's total (service + capital) cannot exceed 49%.

### 5.2 How the Math Works

If Sam invests $50,000 for Holdings' share, that $50,000 buys the "remaining" percentage after Kiowa's service grant (85% under the default). Kiowa can buy additional points at the same rate:

Rate per point = Sam's invested capital ÷ Sam's percentage
Example: $50,000 ÷ 85% = $588.24 per 1% of Membership Interest
Kiowa wants 10% more → contributes $5,882.35 at or before Opening Date

The resulting cap table would be:

Member | Interest | Capital | How Earned
--- | --- | --- | ---
Holdings (Sam) | 75% | $50,000 | Cash investment
Kiowa (service) | 15% | $0 | Formation + management (vesting)
Kiowa (capital) | 10% | $5,882 | Cash investment (immediate vest)
Total | 100% | $55,882 |

## 6. Per-Venture Independence

Each venture Kiowa brings or manages gets its own:

- Grant (fresh 15% service + optional capital buy-up)
- Opening Date and vesting clock
- Invested-capital figure and acceleration threshold
- Operating agreement

Underperformance on one venture has no bearing on her interest in any other. Overperformance on one does not accelerate another.

## 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.
- Capital-contributed equity earns distributions immediately (same as Sam's).
- Distributions are pro rata to each Member's vested Membership Interest.

## 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

## 11. Worked Examples

### Example A — Food Truck (Service Only, No Capital Buy-Up)

Setup: Sam invests $60,000 in Foodtruck1 LLC (truck + build-out + working capital). Kiowa does formation work and manages the business.

Event | Kiowa's Vested % | Holdings' %
--- | --- | ---
Formation Date (Articles filed) | 5% | 95%
Opening Date (first customer served) | 5% (clock starts) | 95%
Month 3 — Kiowa active, truck doing $8K/mo revenue | 7.5% | 92.5%
Month 6 — Kiowa active, truck profitable | 10% | 90%
Month 9 — Kiowa active | 12.5% | 87.5%
Month 12 — Kiowa active, cumulative profit $45K (below 2× $60K) | 15% | 85%

Result: Kiowa fully vests at 15% through service alone. The 2× test wasn't hit, so no acceleration — but she wasn't penalized either. She earned it by showing up every quarter.

Distributions: From month 6 onward (when truck starts netting ~$4K/mo profit), Kiowa gets 10% × $4,000 = $400/mo in distributions (growing as her vested % increases).

### Example B — Food Truck (Kiowa Invests Her Own Money)

Setup: Same $60,000 truck. But Kiowa believes in this one and wants more skin in the game. She contributes $7,059 of her own cash at launch.

Math: Sam's rate = $60,000 ÷ 85% = $705.88 per 1%. Kiowa's $7,059 buys 10% additional.

Member | Interest | Capital In | Type
--- | --- | --- | ---
Holdings | 75% | $60,000 | Cash
Kiowa (service) | 15% | $0 | Vesting per §4
Kiowa (capital) | 10% | $7,059 | Immediate (cash)
Total | 100% | $67,059 |

Day 1 (Opening Date): Kiowa already holds 5% (formation, vested) + 10% (capital, vested) = 15% vested immediately, earning distributions from day one. Her service tranches continue vesting quarterly toward a max of 25% total.

Month 6: Kiowa active → she's now at 5% + 5% (two service tranches) + 10% (capital) = 20% vested.

Month 12: Fully vested → 25% total. Holdings holds 75%.

Distributions at month 12: If the truck nets $6K/mo, Kiowa gets 25% × $6,000 = $1,500/mo. Plus she gets 25% of any year-end profit distribution.

Why Kiowa might do this: her $7,059 investment is earning distributions from day one (no vesting wait), and she's betting that 25% of a profitable food truck is worth far more than $7K within a year or two. If the truck does $72K/yr net profit, her 25% = $18K/yr return on a $7K investment. That's a 257% annual return.

### Example C — Second Venture (Kiowa Scouts a Laundromat)

Setup: Kiowa finds a laundromat opportunity. Sam invests $120,000. Kiowa invests $14,118 (buys another 10%). Completely separate from Foodtruck1.

Member | Interest | Capital
--- | --- | ---
Holdings | 75% | $120,000
Kiowa (service) | 15% | $0
Kiowa (capital) | 10% | $14,118

Month 5: The laundromat crushes it — cumulative net profit hits $240,000 (2× Sam's $120K). Kiowa's service tranches accelerate → she immediately jumps to 25% fully vested. No waiting for months 6, 9, 12.

Meanwhile, Foodtruck1 is still on its own clock, unaffected. If it's struggling, Kiowa's laundromat success doesn't help or hurt her food truck 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