| Redeemable senior preferred membership interests and equity |
8. | Redeemable senior preferred membership interests and equity |
Capital contributions and allocations The Company has three classes of membership interests: Redeemable Senior Preferred Members, Common Members, and Series P Members. Redeemable Senior Preferred Members and Common Members have accounts that reflect initial and subsequent contributions, allocations of net income or loss, and distributions. | ● | Redeemable Senior Preferred Members – Hold a preferred equity interest and are entitled to an annual fixed preferred return as noted in detail below, paid before any distributions to Common Members. Redeemable Senior Preferred Members have no voting rights but hold liquidation preferences. During the year ended December 31, 2022, the Company sold 150,000 units of Redeemable Senior Preferred Membership Interests with a stated value of $150,000 for aggregate gross cash proceeds of $147,000. |
| ● | Common Members – Hold standard equity interests with full voting rights and share in the remaining profits and losses after Redeemable Senior Preferred Members receive their fixed returns. |
| ● | Series P Members – Hold no equity interest but are entitled to profit interest based on the Unit Incentive Plan. Series P Members have no voting rights. Series P Interests may not exceed 2.5% of the total member interests outstanding. During the year ended December 31, 2020, the Company awarded all 2.5% Series P Interests. Series P Interests are granted at no cost to Plan Participants and consist of time-based vesting conditions. The value of the Series P Interests issued to Plan Participants was not material. |
Profit and loss allocations Net income is allocated among the members in a manner so as to cause the capital account of each member, immediately after such allocation and after taking into account actual distributions made during the period, to equal as nearly as possible (proportionately) the excess of (a) the distributions that would be made to such member, if, at the time of allocation, the Company sold all of its assets for cash equal to their book values, repaid all of its creditors, and distributed the remaining proceeds to the members in accordance with the provisions of the operating agreement over (b) such member’s share of minimum gain and member nonrecourse debt minimum gain, as determined immediately prior to the hypothetical sale of assets. For purposes of making allocations, all Series P Interests shall be treated as fully vested. Distributions Distributions are made as follows. | ● | First, Redeemable Senior Preferred Members receive their accrued but unpaid preferred return. The holders of Redeemable Senior Preferred Membership Interests shall be entitled to receive, prior and in preference to the declaration or payment of any distribution on any other currently-outstanding membership interest, distributions when, as and if declared by the Board of Managers, payable quarterly on March 31st, June 30th, September 30th, and December 31st of each calendar year (each date a “Distribution Payment Date”), commencing on and including March 31, 2023, which distribution shall be paid in cash at a rate equal to 9.75% plus Term SOFR per annum on the then-current Liquidation Preference Amount (as defined below), which shall increase by 1.50% per annum on the second through seventh anniversaries of the issuance date. If not paid in cash on the Distribution Payment Dates, the distributions shall cumulate and compound quarterly at a rate equal to 10.50% plus Term SOFR, which shall increase by 1.50% per annum on the second through seventh anniversaries of the issuance date. As of March 31, 2026, the Company has $99,287 of cumulative distributions in arrears recorded at Redeemable Senior Preferred Membership Interests in the accompanying unaudited Condensed Consolidated Balance Sheets. |
| ● | Second, Common Members receive distributions up to total contributions made. |
| ● | Third, Series P Interest holders receive their percentage profit interest of such distributions, until such holder has received an aggregate amount of distributions equal to such holder’s aggregate Series P percentage of the sum of (i) the aggregate amount distributed to all Common Members for all time periods and (ii) the aggregate amount of distributions equal to such holder’s aggregate Series P percentage of the amounts distributed to all Members following the date on which the Series P Interest was granted. |
| ● | Thereafter, the remainder is apportioned as follows: (i) each holder of Series P Interests shall be entitled to its aggregate Series P percentage of the balance; and (ii) each Common Member shall be entitled to its then-Common Membership percentage interest of the difference between the balance and the amount distributed to holders of Series P Interests. |
Liquidation and transfer restrictions Redeemable Senior Preferred Members have priority over Common Members in the event of liquidation, receiving their initial capital contributions plus any unpaid preferred returns before Common Members receive distributions. In the event of any voluntary or involuntary liquidation event, dissolution, winding up of the Company, each holder of the outstanding Redeemable Senior Preferred Membership Interests will be entitled to receive a preferential payment equal to the stated value ($1,000 per share) plus the aggregate amount of all accrued, accumulated and unpaid distributions (the “Liquidation Preference Amount”), prior and in preference to any distributions to other members. As of March 31, 2026, the Company has a Liquidation Preference Amount equal to the Redemption value amount of $249,287. Redeemable Senior Preferred Members have no conversion or exchange rights. Transfers of Common Member Interests and Series P Interests require written approval by the Board, except for certain permitted transfers specified in the operating agreement. Redemption The Company, may at any time, redeem the whole or any part of the outstanding Redeemable Senior Preferred Membership Interests at a redemption price based on the greater of (i) the product of (a) 1.30 multiplied by (b) the aggregate purchase price of such interests being redeemed less any distributions previously paid in cash and (ii) the Liquidation Preference Amount (the “Redemption Amount”). In addition, the Redeemable Senior Preferred Membership Interests are redeemable upon the occurrence of (i) any change of control of the Company, (ii) the consummation of a qualified IPO or (iii) any insolvency event, at the Redemption Amount. Common Members and Series P Members do not have redemption rights.
|