CONFIDENTIAL TREATMENT REQUESTED
DRAFT — Subject to Further Review and Revision
TAX PROTECTION AGREEMENT
by and among
PINNACLE CV PARTNERS LLC
a Delaware limited liability company,
as General Partner of
PINNACLE CONTINUATION VEHICLE LP
a Delaware limited partnership,
and
THE PROTECTED PARTNERS IDENTIFIED ON SCHEDULE A HERETO
Dated as of [●], 2025
Prepared by:
Calderwood & Harkness LLP 555 California Street, Suite 4200 San Francisco, California 94104
Engagement Reference No.: 1002-00005 Matter No.: 117443.00001
Target Execution Date: October 31, 2025 (Continuation Vehicle Closing)
TAX PROTECTION AGREEMENT
This TAX PROTECTION AGREEMENT (this "Agreement") is entered into as of [●], 2025 (the "Execution Date"), by and among:
(1) PINNACLE CV PARTNERS LLC, a Delaware limited liability company ("CV GP"), in its capacity as the general partner of PINNACLE CONTINUATION VEHICLE LP, a Delaware limited partnership ("PCV" or the "Partnership"); and
(2) The certain limited partners of PCV identified on Schedule A attached hereto (collectively, the "Protected Partners" and each, individually, a "Protected Partner").
The CV GP and the Protected Partners are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS:
A. Background of Fund II and the Continuation Vehicle Transaction. Pinnacle Venture Fund II LP, a Delaware limited partnership (EIN 84-3291067; Delaware LP File No. DE-LP-2019-04817) ("Fund II"), is a venture capital fund with a December 2019 vintage and Eight Hundred Seventy-Five Million Dollars ($875,000,000) in total committed capital, of which Eight Hundred Thirty-One Million Two Hundred Fifty Thousand Dollars ($831,250,000) has been called, representing approximately ninety-five percent (95%) of committed capital. Fund II is managed by Pinnacle Capital Management LLC, a Delaware limited liability company (EIN 82-6140538), with its principal office located at 2100 Sand Hill Road, Suite 340, Menlo Park, California 94025. The general partner of Fund II is Pinnacle Capital Partners II LLC, a Delaware limited liability company (EIN 84-3291104). Fund II holds concentrated equity positions in three Delaware C-corporation portfolio companies operating in the software and software-as-a-service ("SaaS") sector, which positions have an aggregate fair market value of approximately One Billion Three Hundred Forty Million Dollars ($1,340,000,000) and an aggregate original cost basis of approximately One Hundred Thirty-Eight Million Dollars ($138,000,000), resulting in aggregate unrealized gain of approximately One Billion Two Hundred Two Million Dollars ($1,202,000,000), representing an implied gross multiple on invested capital ("MOIC") of approximately 9.71×, in each case as of the June 30, 2025 valuation date, based upon valuations prepared by Kessler Pratt LLP.
B. Formation of PCV. In connection with a GP-led secondary transaction (the "CV Transaction"), Fund II is contributing its portfolio company interests to Pinnacle Continuation Vehicle LP, a newly formed Delaware limited partnership organized under the Delaware Revised Uniform Limited Partnership Act, with Pinnacle CV Partners LLC serving as its general partner. PCV has a proposed term of five (5) years from the final close, subject to two (2) one-year extensions at the discretion of the CV GP. PCV will charge a management fee of one and one-quarter percent (1.25%) per annum calculated on net asset value, and carried interest of fifteen percent (15%) over a seven percent (7%) preferred return, calculated on a European-style (whole-fund) waterfall basis. The total capitalization of PCV is expected to be approximately One Billion Seventy-Four Million Dollars ($1,074,000,000), consisting of approximately Six Hundred Eighty Million Dollars ($680,000,000) from rolling limited partners of Fund II (who are electing to continue their investment through PCV rather than receive a cash distribution), Three Hundred Eighty Million Dollars ($380,000,000) from Garrison Secondaries Fund IV LP (the lead secondary buyer), and Fourteen Million Dollars ($14,000,000) of general partner co-investment by the CV GP.
C. Portfolio Companies. The three portfolio companies whose equity interests are being contributed to PCV in connection with the CV Transaction are as follows:
(i) Luminos Systems Inc. (EIN 47-8823156), a Delaware C-corporation headquartered at 500 Folsom Street, 14th Floor, San Francisco, California 94105, which develops and markets an AI-powered revenue operations platform. Fund II owns approximately twenty-four and seven-tenths percent (24.7%) of Luminos on a fully diluted basis. The fair market value of Fund II's stake in Luminos is approximately Six Hundred Twelve Million Dollars ($612,000,000), based on an enterprise value of Two Billion Four Hundred Eighty Million Dollars ($2,480,000,000). Fund II's original cost basis in its Luminos shares is Fifty-Eight Million Five Hundred Thousand Dollars ($58,500,000), consisting of investments made at original issuance in a Series B financing and a Series C financing. The initial investment was made in the first quarter of 2020.
(ii) ClearArc Software Inc. (EIN 83-5519274), a Delaware C-corporation headquartered at 1201 Lake Austin Boulevard, Suite 600, Austin, Texas 78703, which develops and markets a cloud-native compliance and audit automation platform for financial services institutions. Fund II owns approximately thirty-one and two-tenths percent (31.2%) of ClearArc on a fully diluted basis. The fair market value of Fund II's stake in ClearArc is approximately Four Hundred Sixty-Eight Million Dollars ($468,000,000), based on an enterprise value of One Billion Five Hundred Million Dollars ($1,500,000,000). Fund II's original cost basis in its ClearArc shares is Thirty-Seven Million Four Hundred Thousand Dollars ($37,400,000), consisting of investments made at original issuance in a Series A financing (as lead investor) and a Series B financing. The initial investment was made in the second quarter of 2020.
(iii) Vectral Cloud Inc. (EIN 85-1102847), a Delaware C-corporation headquartered at 700 17th Street, Suite 2200, Denver, Colorado 80202, which develops and markets a multi-cloud infrastructure orchestration and FinOps platform. Fund II owns approximately eighteen and nine-tenths percent (18.9%) of Vectral on a fully diluted basis. The fair market value of Fund II's stake in Vectral is approximately Two Hundred Sixty Million Dollars ($260,000,000), based on an enterprise value of One Billion Three Hundred Seventy-Six Million Dollars ($1,376,000,000). Fund II's original cost basis in its Vectral shares is Forty-Two Million One Hundred Thousand Dollars ($42,100,000), consisting of an investment made at original issuance in a Series B financing. The initial investment was made in March 2021.
All three Portfolio Companies are Delaware C-corporations, and in each case, the shares held by Fund II were acquired at original issuance from the respective Portfolio Company.
D. Section 721 Contribution and Tax Treatment. The contribution of the portfolio company interests from Fund II to PCV (the "Contribution") is intended to qualify for non-recognition treatment under Section 721(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to Section 722 of the Code, PCV's basis in the contributed assets will equal Fund II's adjusted tax basis therein, which in the aggregate is approximately One Hundred Thirty-Eight Million Dollars ($138,000,000). Pursuant to Section 723 of the Code, the rolling limited partners' adjusted tax basis in their PCV partnership interests will equal their adjusted tax basis in their contributed Fund II partnership interests (i.e., a substituted basis). The Parties intend that the Contribution not be recharacterized as a "disguised sale" within the meaning of Section 707(a)(2)(B) of the Code and the Treasury Regulations promulgated thereunder.
E. Qualified Small Business Stock Status. The shares of Luminos Systems Inc. and ClearArc Software Inc. held by Fund II are believed to constitute "qualified small business stock" ("QSBS") within the meaning of Section 1202 of the Code. With respect to Luminos, the five-year holding period requirement of Section 1202(a)(1) was satisfied as of approximately August 2025, and the ten-times (10×) exclusion ceiling per eligible taxpayer is approximately Five Hundred Eighty-Five Million Dollars ($585,000,000) (calculated as 10× the aggregate adjusted basis of $58,500,000). With respect to ClearArc, the five-year holding period requirement was satisfied as of approximately September 2025, and the ten-times exclusion ceiling per eligible taxpayer is approximately Three Hundred Seventy-Four Million Dollars ($374,000,000) (calculated as 10× the aggregate adjusted basis of $37,400,000). With respect to Vectral Cloud Inc., the five-year holding period requirement under Section 1202(a)(1) has not yet been satisfied; the five-year period, measured from the March 2021 Series B issuance, reaches completion in approximately March 2026. Furthermore, the aggregate gross assets of Vectral Cloud at the time of the Series B issuance were near the Fifty Million Dollar ($50,000,000) statutory threshold, and additional due diligence regarding this determination is pending. The tacking of the QSBS holding period under Section 1202(h) of the Code must be preserved through the transfer of Vectral shares to PCV, and any premature disposition of Vectral shares could destroy tacking and potentially disqualify such shares from QSBS treatment entirely.
F. Purpose of This Agreement. The Protected Partners are rolling their interests from Fund II into PCV, representing approximately Six Hundred Eighty Million Dollars ($680,000,000) in aggregate net asset value. This Agreement is intended to provide the Protected Partners with tax protections in connection with the Contribution, including: (i) protections against premature dispositions of Contributed Interests that could trigger gain recognition on approximately One Billion Two Hundred Two Million Dollars ($1,202,000,000) of aggregate unrealized built-in gain; (ii) protections designed to preserve QSBS status under Section 1202 of the Code with respect to the shares of each Portfolio Company; and (iii) protections against recharacterization of the Contribution as a disguised sale under Section 707 of the Code. The Parties acknowledge that the State of California does not conform to the Section 1202 QSBS gain exclusion and that capital gains recognized by California-resident Protected Partners will be subject to California income tax at ordinary income tax rates of up to thirteen and three-tenths percent (13.3%), irrespective of QSBS status at the federal level.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
"Agreement" means this Tax Protection Agreement, including all Schedules and Exhibits attached hereto, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Applicable Tax Rate" means, with respect to any Protected Partner, the highest combined marginal federal, state, and local income tax rate applicable to such Protected Partner with respect to the type of income or gain at issue, as determined in good faith by the Tax Matters Advisor. For purposes of this Agreement, the Applicable Tax Rate for federal long-term capital gains is currently twenty-three and eight-tenths percent (23.8%), consisting of the twenty percent (20%) maximum federal long-term capital gains rate plus the three and eight-tenths percent (3.8%) net investment income tax imposed under Section 1411 of the Code. For purposes of this Agreement, the applicable California income tax rate on capital gains is currently thirteen and three-tenths percent (13.3%), reflecting California's treatment of capital gains as ordinary income and its non-conformity with Section 1202 of the Code.
"blocker Entities" means, collectively, PCV Domestic blocker Inc., a Delaware C-corporation to be formed prior to the Closing Date for the purpose of blocking unrelated business taxable income for tax-exempt investors, and PCV International Holdings Ltd., a Cayman Islands exempted company to be formed prior to the Closing Date for the purpose of blocking effectively connected income and FIRPTA gain for non-U.S. investors.
"Closing Date" means the date of the final closing of PCV and the consummation of the Contribution, which is targeted to occur on October 31, 2025.
"Code" means the Internal Revenue Code of 1986, as amended from time to time. References to any section of the Code shall include any successor provision thereto and any Treasury Regulations promulgated thereunder.
"Contributed Interests" means the shares of stock of each Portfolio Company contributed by Fund II to PCV in connection with the Contribution, consisting of the Luminos shares, the ClearArc shares, and the Vectral shares, as more particularly described in Schedule B hereto.
"CV GP" means Pinnacle CV Partners LLC, a Delaware limited liability company, in its capacity as the general partner of PCV.
"CV LPA" means the Amended and Restated Agreement of Limited Partnership of Pinnacle Continuation Vehicle LP, as initially prepared by Hawthorne Reid LLP and marked up by Calderwood & Harkness LLP, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"Disguised Sale" means a transaction described in Section 707(a)(2)(B) of the Code and the Treasury Regulations promulgated thereunder (including Treasury Regulation Sections 1.707-3, 1.707-4, 1.707-5, and 1.707-6).
"Disposition" means any sale, exchange, transfer, or other taxable disposition of a Contributed Interest, in whole or in part, whether voluntary or involuntary, and including any merger, consolidation, recapitalization, redemption, or similar transaction involving a Portfolio Company that results in the recognition of gain or loss with respect to such Contributed Interest for federal income tax purposes. A Disposition shall not include a transfer that qualifies for non-recognition treatment under the Code (including, without limitation, under Section 351, Section 368, or Section 721 of the Code) unless such transfer results in the recognition of gain.
"General Protection Period" means the period commencing on the Closing Date and ending on the date that is thirty-six (36) months after the Closing Date. Assuming the Closing Date is October 31, 2025, the General Protection Period would expire on October 31, 2028.
"Incremental Tax Liability" means, with respect to a Protected Partner and a Prohibited Disposition, the excess, if any, of (a) the total federal, state, and local income tax liability of such Protected Partner that is attributable to gain recognized by such Protected Partner as a result of the Prohibited Disposition (determined by taking into account the Protected Partner's allocable share of such gain and the Protected Partner's Applicable Tax Rate), over (b) the total federal, state, and local income tax liability that such Protected Partner would have incurred on the same amount and character of gain if the Disposition had occurred immediately after the expiration of the applicable Protection Period (i.e., the General Protection Period or, in the case of Vectral Cloud shares disposed of prior to March 31, 2026, the QSBS Protection Period, whichever is later), taking into account any QSBS exclusion under Section 1202 of the Code, any favorable long-term capital gains rates, and any other tax benefits that would have been available to such Protected Partner had the Disposition occurred after the applicable Protection Period.
"Partnership" or "PCV" means Pinnacle Continuation Vehicle LP, a Delaware limited partnership.
"Permitted Disposition" has the meaning set forth in Section 2.3 of this Agreement.
"Portfolio Companies" means, collectively, Luminos Systems Inc., ClearArc Software Inc., and Vectral Cloud Inc., and "Portfolio Company" means any one of them.
"Prohibited Disposition" means any Disposition of a Contributed Interest during the applicable Protection Period (whether the General Protection Period or the QSBS Protection Period, as applicable) that does not constitute a Permitted Disposition.
"Protected Partners" means the limited partners of PCV identified on Schedule A hereto who are rolling their interests from Fund II into PCV.
"Protection Period" means, as applicable, the General Protection Period or the QSBS Protection Period.
"QSBS" means "qualified small business stock" within the meaning of Section 1202 of the Code.
"QSBS Protection Period" means, with respect to the shares of Vectral Cloud Inc., the period commencing on the Closing Date and ending on March 31, 2026, which date represents the month following the date on which the five-year holding period requirement of Section 1202(a)(1) of the Code is expected to be satisfied with respect to the Vectral Cloud shares (the Series B shares having been acquired at original issuance in March 2021). The QSBS Protection Period is sometimes referred to herein as the "Vectral QSBS Protection Period."
"Qualifying IPO" means an initial public offering of the equity securities of any Portfolio Company on a nationally recognized securities exchange, including the New York Stock Exchange ("NYSE") or the Nasdaq Stock Market ("Nasdaq"), pursuant to an effective registration statement under the Securities Act of 1933, as amended.
"Section 704(c) Method" means the remedial allocation method under Treasury Regulation Section 1.704-3(d), as adopted in the CV LPA for purposes of making allocations with respect to the built-in gain inherent in the Contributed Interests at the time of the Contribution.
"Supermajority LP Consent" means the prior written approval of Protected Partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate limited partnership interests held by all Protected Partners as of the relevant date of determination.
"Tax Matters Advisor" means, initially, Calderwood & Harkness LLP, a law firm with offices at 555 California Street, Suite 4200, San Francisco, California 94104, or such other nationally recognized tax counsel as may be engaged by the CV GP from time to time in consultation with Protected Partners holding a majority of the aggregate interests held by all Protected Partners. Any change in the Tax Matters Advisor shall require written notice to all Protected Partners.
Section 1.2 Rules of Construction. Unless the context otherwise requires:
(a) References to any section of the Code shall include the corresponding Treasury Regulations promulgated thereunder and any successor provisions, as in effect at the relevant time.
(b) References to any entity shall include such entity's successors, assigns, and any successor entity resulting from a merger, conversion, reorganization, or similar transaction, to the extent permitted under this Agreement.
(c) The terms "hereof," "herein," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision hereof.
(d) The terms "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(e) All references to dollar amounts shall mean United States Dollars.
(f) All references to "days" shall mean calendar days unless otherwise specified as "business days."
(g) The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
(h) The Schedules and Exhibits attached hereto are incorporated herein by reference and shall be deemed a part of this Agreement as if fully set forth herein.
ARTICLE II
MINIMUM HOLDING PERIOD COVENANTS
Section 2.1 General 36-Month Holding Covenant.
(a) The CV GP hereby covenants and agrees, for the benefit of the Protected Partners, that PCV shall not effect, cause to be effected, or permit to occur any Disposition of any Contributed Interest during the General Protection Period (i.e., the thirty-six (36) month period commencing on the Closing Date and ending on October 31, 2028, assuming the Closing Date is October 31, 2025), except as expressly provided in Section 2.3 of this Agreement.
(b) This covenant applies to all three Portfolio Companies and all of their respective Contributed Interests, as follows:
(i) Luminos Systems Inc.: Fair market value of Six Hundred Twelve Million Dollars ($612,000,000) with built-in gain of Five Hundred Fifty-Three Million Five Hundred Thousand Dollars ($553,500,000), representing the excess of the $612,000,000 fair market value over the $58,500,000 original cost basis.
(ii) ClearArc Software Inc.: Fair market value of Four Hundred Sixty-Eight Million Dollars ($468,000,000) with built-in gain of Four Hundred Thirty Million Six Hundred Thousand Dollars ($430,600,000), representing the excess of the $468,000,000 fair market value over the $37,400,000 original cost basis.
(iii) Vectral Cloud Inc.: Fair market value of Two Hundred Sixty Million Dollars ($260,000,000) with built-in gain of Two Hundred Seventeen Million Nine Hundred Thousand Dollars ($217,900,000), representing the excess of the $260,000,000 fair market value over the $42,100,000 original cost basis.
(c) The thirty-six (36) month General Protection Period has been designed to serve multiple purposes:
(i) Disguised Sale Protection. The General Protection Period exceeds, by a buffer of twelve (12) months, the twenty-four (24) month presumption window established under Treasury Regulation Section 1.707-3(c)(1), pursuant to which transfers of property to a partnership followed by distributions to the contributing partner within two (2) years are presumed to be a Disguised Sale unless the facts and circumstances clearly establish otherwise. The additional twelve-month buffer provides meaningful assurance that the Contribution will not be subject to recharacterization as a Disguised Sale.
(ii) Section 1061 Alignment. The General Protection Period aligns with the three-year holding period requirement applicable to "applicable partnership interests" under Section 1061 of the Code. The CV GP's carried interest in PCV (the new carry tranche issued at the CV closing) constitutes an "applicable partnership interest" subject to Section 1061, and the three-year "API holding period" commences on the Closing Date. Assuming a Closing Date of October 31, 2025, the three-year API holding period will be satisfied on October 31, 2028, which coincides with the expiration of the General Protection Period. This alignment ensures that the CV GP's incentives with respect to the timing of dispositions are consistent with the interests of the Protected Partners.
(iii) General Tax Protection. The General Protection Period provides a meaningful window during which the Protected Partners' positions in the Contributed Interests, and the associated built-in gain of approximately $1.202 billion in the aggregate, are protected from premature realization events.
Section 2.2 Vectral Cloud Special Holding Covenant for QSBS Preservation.
(a) In addition to, and without limiting, the General Protection Period applicable to all Contributed Interests under Section 2.1, the CV GP hereby specifically covenants and agrees, for the benefit of the Protected Partners, that PCV shall not effect, cause to be effected, or permit to occur any Disposition of the shares of Vectral Cloud Inc. constituting Contributed Interests prior to March 31, 2026.
(b) The purpose of this special holding covenant is to preserve the QSBS status of the Vectral Cloud shares. The shares of Vectral Cloud held by Fund II were acquired at original issuance in March 2021 in a Series B financing. The five-year holding period requirement under Section 1202(a)(1) of the Code will not be satisfied until March 2026. Any Disposition of the Vectral Cloud shares prior to satisfaction of the five-year holding period would destroy the QSBS holding period for such shares and would render Section 1202(h)(4)(A) tacking unavailable, potentially disqualifying such shares from QSBS treatment entirely and eliminating the potential Section 1202 gain exclusion of up to Four Hundred Twenty-One Million Dollars ($421,000,000) per eligible taxpayer (calculated as 10× the $42,100,000 adjusted basis).
(c) The transfer of the Vectral Cloud shares from Fund II to PCV via the Section 721 Contribution has been structured to preserve tacking of the QSBS holding period under Section 1202(h) of the Code. This Section 2.2 covenant ensures that, following the Contribution, PCV does not effect a Disposition of the Vectral Cloud shares before the five-year holding period is satisfied through tacking.
(d) For the avoidance of doubt, even after March 31, 2026 (when the QSBS Protection Period expires), the Vectral Cloud shares remain subject to the General Protection Period under Section 2.1, which extends through October 31, 2028 (assuming a Closing Date of October 31, 2025). Accordingly, the QSBS Protection Period operates as an additional layer of protection specific to the QSBS status of the Vectral Cloud shares, and expiration of the QSBS Protection Period does not relieve PCV of its obligations under the General Protection Period.
Section 2.3 Exceptions to Holding Covenants (Permitted Dispositions).
Notwithstanding the covenants set forth in Sections 2.1 and 2.2, a Disposition of Contributed Interests during an applicable Protection Period shall constitute a "Permitted Disposition" and shall not be subject to the indemnification provisions of Article III if, and only if, such Disposition satisfies one or more of the following conditions:
(a) Supermajority LP Consent. The Disposition has been approved in advance by Supermajority LP Consent — that is, by Protected Partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate limited partnership interests held by all Protected Partners. Such consent shall be obtained in writing and shall specify the Contributed Interests to be disposed of, the material terms of the Disposition, and an acknowledgment by the consenting Protected Partners that the Disposition constitutes a Permitted Disposition for purposes of this Agreement.
(b) Qualifying IPO. The Disposition is effected in connection with, or following, a Qualifying IPO of the applicable Portfolio Company on a nationally recognized securities exchange (including the NYSE or Nasdaq), provided that:
(i) the Disposition is structured as a secondary sale of shares in or following the Qualifying IPO (and not as a sale of assets or other transaction that would terminate the QSBS status of the remaining shares); and
(ii) the CV GP has obtained a written opinion from the Tax Matters Advisor, addressed to the Protected Partners, concluding that the Disposition will not cause the loss of QSBS status with respect to any shares of the applicable Portfolio Company that are not being disposed of in the Qualifying IPO or the secondary sale.
(c) Regulatory Requirement. The Disposition is required by applicable law, court order, or regulatory mandate issued by a governmental authority of competent jurisdiction, and the CV GP has used commercially reasonable efforts to resist, defer, or minimize the scope of such required Disposition.
(d) Partial Dispositions. Any Permitted Disposition under clauses (a), (b), or (c) above may be a partial disposition (i.e., a disposition of less than all of PCV's holdings of a particular Portfolio Company's shares), and the holding covenants set forth in Sections 2.1 and 2.2 shall continue to apply in full force and effect to any Contributed Interests that are not subject to the Permitted Disposition.
Section 2.4 Covenant Not to Take Certain Actions.
(a) During any Protection Period, the CV GP covenants and agrees that PCV shall not, and the CV GP shall cause PCV not to, directly or indirectly:
(i) cause, request, consent to, or otherwise facilitate any redemption by any Portfolio Company of shares held by PCV (or by any blocker Entity through which PCV holds Contributed Interests), whether for cash, property, or other consideration;
(ii) cause, request, consent to, or otherwise facilitate the conversion of any Portfolio Company from a C-corporation to an S-corporation, a partnership, a limited liability company taxed as a partnership, or any other entity classification that would cause the Portfolio Company to cease to be a "qualified small business" within the meaning of Section 1202(d) of the Code;
(iii) cause, request, consent to, or otherwise facilitate any reorganization, recapitalization, merger, consolidation, spin-off, split-off, or similar transaction involving any Portfolio Company that would constitute a "sale or exchange" for purposes of Section 1202 of the Code or that would otherwise jeopardize the QSBS status of the Contributed Interests; or
(iv) take any other action, or fail to take any action, with respect to the Contributed Interests or the Portfolio Companies, that would reasonably be expected to jeopardize the QSBS status of any Contributed Interest, trigger gain recognition on any Contributed Interest, or otherwise impair the tax protections provided to the Protected Partners under this Agreement.
(b) The covenants set forth in this Section 2.4 extend to and apply with equal force to any actions taken by or through the blocker Entities (PCV Domestic blocker Inc. and PCV International Holdings Ltd.) with respect to any Contributed Interests held through such blocker Entities. The CV GP shall cause the blocker Entities to comply with the covenants set forth herein as if such blocker Entities were parties to this Agreement.
ARTICLE III
MAKE-WHOLE AND INDEMNIFICATION PROVISIONS
Section 3.1 Tax Indemnification for Prohibited Dispositions.
(a) If a Prohibited Disposition occurs (i.e., a Disposition of one or more Contributed Interests during an applicable Protection Period that does not constitute a Permitted Disposition under Section 2.3), the Partnership shall indemnify, defend, and hold harmless each Protected Partner from and against such Protected Partner's Incremental Tax Liability arising from or attributable to such Prohibited Disposition.
(b) The indemnification payment to each affected Protected Partner shall equal the excess of:
(i) the total federal, state, and local income tax liability of such Protected Partner that is attributable to gain recognized by such Protected Partner as a result of the Prohibited Disposition (including such Protected Partner's allocable share of the gain recognized by PCV on the Prohibited Disposition, as allocated to such Protected Partner on its Schedule K-1), over
(ii) the total federal, state, and local income tax liability that such Protected Partner would have incurred on the same amount and character of gain if the Disposition had occurred immediately after the expiration of the applicable Protection Period (taking into account all tax benefits, exclusions, preferential rates, and other favorable tax attributes that would have been available to such Protected Partner had the Disposition occurred at such later time).
(c) The Incremental Tax Liability shall be computed using the Protected Partner's Applicable Tax Rate, which shall be determined in good faith by the Tax Matters Advisor based on information provided by or on behalf of such Protected Partner. Without limiting the generality of the foregoing, the computation shall take into account:
(i) the federal long-term capital gains rate, currently twenty percent (20%), plus the net investment income tax rate of three and eight-tenths percent (3.8%) under Section 1411 of the Code, for a combined federal rate of twenty-three and eight-tenths percent (23.8%);
(ii) applicable state income tax rates, including the California income tax rate of thirteen and three-tenths percent (13.3%) for California-resident Protected Partners, the Colorado income tax rate of four and four-tenths percent (4.4%) for Colorado-resident Protected Partners, and other applicable state and local tax rates as determined by the Tax Matters Advisor;
(iii) the loss of any Section 1202 QSBS exclusion that would have been available to such Protected Partner had the Disposition occurred after the applicable Protection Period, including the potential exclusion of up to one hundred percent (100%) of gain on QSBS acquired after September 27, 2010, subject to the greater of (A) Ten Million Dollars ($10,000,000) per issuer or (B) ten times (10×) the aggregate adjusted basis of the QSBS at the time of issuance; and
(iv) any other tax benefits, deductions, credits, or favorable tax attributes that would have been available to such Protected Partner had the Disposition occurred after the applicable Protection Period.
(d) With respect to Vectral Cloud Inc. specifically, if a Prohibited Disposition occurs before March 31, 2026 (i.e., during the QSBS Protection Period), the Incremental Tax Liability of each affected Protected Partner shall include the full value of the lost Section 1202 exclusion on the Vectral Cloud shares. The potential Section 1202 exclusion ceiling for Vectral Cloud is Four Hundred Twenty-One Million Dollars ($421,000,000) per eligible taxpayer (calculated as 10× the $42,100,000 aggregate adjusted basis of the Vectral Cloud shares at the time of issuance), and the loss of this exclusion as a result of a Prohibited Disposition prior to satisfaction of the five-year holding period would represent a substantial and compensable Incremental Tax Liability.
Section 3.2 Gross-Up.
Any indemnification payment made to a Protected Partner under Section 3.1 shall be "grossed up" to account for the income tax consequences to such Protected Partner of receiving the indemnification payment itself, so that after payment of all taxes on the indemnification amount (including any taxes on the gross-up amount), the Protected Partner is made whole on a full after-tax basis. The gross-up calculation shall be performed by the Tax Matters Advisor in good faith, using the Applicable Tax Rate of the Protected Partner, and shall be provided to the Protected Partner in writing. For the avoidance of doubt, the gross-up shall account for both federal and applicable state and local income taxes on the indemnification payment.
Section 3.3 Timing of Indemnification Payments.
(a) Any indemnification payment due to a Protected Partner under this Article III shall be paid by the Partnership within thirty (30) days after the later of:
(i) the date on which the Protected Partner files (or is required to file) its federal income tax return for the taxable year in which the Prohibited Disposition occurs (including any applicable extension period); and
(ii) the date on which the Incremental Tax Liability of such Protected Partner is finally determined, as certified by the Tax Matters Advisor.
(b) Indemnification payments may be funded from any of the following sources, in such order of priority as the CV GP shall determine:
(i) available cash assets of PCV;
(ii) net proceeds received by PCV from the Prohibited Disposition;
(iii) amounts held in the GP clawback reserve maintained by Coastal Fiduciary Trust Company, acting as escrow agent, at its offices located at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110 (contact: Alan Driscoll, Vice President); or
(iv) any combination of the foregoing.
(c) In the event that the Incremental Tax Liability is subject to adjustment following the initial indemnification payment (whether as a result of an IRS audit, a state tax examination, an amended return, or otherwise), the CV GP and the affected Protected Partner shall cooperate in good faith to make any necessary true-up payments within thirty (30) days of the date on which such adjustment becomes final.
Section 3.4 Cap on Indemnification.
(a) The aggregate indemnification obligation of the Partnership under this Article III with respect to any Prohibited Disposition shall not exceed the lesser of:
(i) the net proceeds received by the Partnership from such Prohibited Disposition (after deduction of transaction costs and expenses directly attributable thereto); and
(ii) the aggregate Incremental Tax Liability of all Protected Partners arising from such Prohibited Disposition (including gross-up amounts under Section 3.2).
(b) The CV GP shall not be personally liable for indemnification payments under this Article III except to the extent of the CV GP's co-investment in PCV (currently Fourteen Million Dollars ($14,000,000)). Nothing in this Section 3.4 shall limit the CV GP's liability for fraud, willful misconduct, or intentional breach of its covenants under Article II.
(c) For the avoidance of doubt, the aggregate indemnification cap under this Section 3.4 applies on a per-Prohibited-Disposition basis, and multiple Prohibited Dispositions may give rise to separate indemnification obligations, each subject to the cap set forth herein.
Section 3.5 No Double Recovery.
A Protected Partner shall not be entitled to indemnification under this Agreement with respect to any Incremental Tax Liability to the extent that such Protected Partner has received a distribution from the Partnership (whether a tax distribution, a liquidating distribution, or otherwise) that compensates such Protected Partner for the same tax liability that is the subject of the indemnification claim. In determining whether a distribution compensates a Protected Partner for the same tax liability, the Tax Matters Advisor shall consider the timing, amount, and character of the distribution and the tax liability at issue. This Section 3.5 is intended to prevent duplicative recovery and shall be interpreted accordingly.
ARTICLE IV
SECTION 752 DEBT ALLOCATION AND DISGUISED SALE PROTECTION
Section 4.1 Mandatory Allocation of Partnership Liabilities.
(a) To provide a minimum adjusted outside basis for the Protected Partners' partnership interests in PCV and to support the determination that the Contribution of Contributed Interests to PCV is not a Disguised Sale under Section 707(a)(2)(B) of the Code, the CV GP shall allocate partnership liabilities of PCV to the Protected Partners in accordance with the provisions of Section 752 of the Code and Treasury Regulation Sections 1.752-1, 1.752-2, 1.752-3, and 1.752-4.
(b) The CV GP shall use commercially reasonable efforts to ensure that each Protected Partner's share of partnership liabilities (including both recourse liabilities under Treasury Regulation Section 1.752-2 and nonrecourse liabilities under Treasury Regulation Section 1.752-3) is sufficient to provide such Protected Partner with an adjusted outside basis in its PCV partnership interest that is at least equal to such Protected Partner's pre-contribution adjusted outside basis in its Fund II partnership interest (i.e., the substituted basis determined under Section 723 of the Code). To the extent that a Protected Partner's share of PCV liabilities would be less than such Protected Partner's pre-contribution outside basis, the CV GP shall take all commercially reasonable steps to increase such Protected Partner's share of liabilities, including by causing PCV to incur additional indebtedness or by restructuring existing liabilities, in each case to the extent consistent with the overall investment objectives and fiduciary duties of the CV GP.
(c) The CV GP shall provide each Protected Partner with an annual statement, prepared by Andover & Strauss LLP, setting forth such Protected Partner's share of partnership liabilities as of the last day of each fiscal year of PCV, together with a comparison to such Protected Partner's pre-contribution outside basis.
Section 4.2 Limitations on Distributions Within Two-Year Window.
(a) The CV GP covenants and agrees that PCV shall not make any distribution (other than a Tax Distribution as described below) to any Protected Partner within twenty-four (24) months of the Closing Date if such distribution, when aggregated with such Protected Partner's share of partnership liabilities and all prior distributions to such Protected Partner, would cause the Contribution to be recharacterized as a Disguised Sale under Section 707(a)(2)(B) of the Code and Treasury Regulation Section 1.707-3.
(b) For purposes of the analysis under Treasury Regulation Section 1.707-3(c)(1), any transfer of money or other consideration by PCV to a Protected Partner within two (2) years of the Contribution is presumed to be part of a Disguised Sale unless the facts and circumstances clearly establish that the transfer was not made in connection with the Contribution. The CV GP shall structure all distributions during this two-year window in compliance with this presumption and shall consult with the Tax Matters Advisor prior to authorizing any distribution to a Protected Partner during such period.
(c) Exception for Tax Distributions. Notwithstanding the foregoing, PCV may make tax distributions to Protected Partners as required under the CV LPA to satisfy the minimum estimated income tax liability obligations of such Protected Partners attributable to PCV income allocations. Such tax distributions shall be structured to qualify for the exception set forth in Treasury Regulation Section 1.707-4(a)(1) as reasonable guaranteed payments for services or the use of capital, or, alternatively, as operating cash flow distributions, and shall not be treated as Disguised Sale proceeds for purposes of Section 707.
Section 4.3 Qualified Liability Safe Harbor.
(a) The CV GP shall take all actions necessary to ensure that any partnership liabilities incurred by PCV that are allocated to the Protected Partners qualify as "qualified liabilities" within the meaning of Treasury Regulation Section 1.707-5(a)(6). Qualified liabilities include liabilities that were incurred by the partnership in the ordinary course of its trade or business and that were outstanding at the time of the Contribution, liabilities that are allocable under Treasury Regulation Section 1.163-8T to capital expenditures, and liabilities that were not incurred in anticipation of the Contribution.
(b) To the extent PCV incurs indebtedness during the Protection Period or otherwise, such indebtedness shall be structured to satisfy the qualified liability safe harbor to the maximum extent practicable, including by ensuring that the proceeds of any borrowing are used for bona fide business purposes and are not distributed to Protected Partners within the two-year Disguised Sale presumption window.
Section 4.4 Cooperation on Section 707 Analysis.
(a) Each Protected Partner shall cooperate with the CV GP and the Tax Matters Advisor in providing such information as may be reasonably necessary to complete the Disguised Sale analysis under Section 707 of the Code, including information regarding such Protected Partner's investment history, the timing and amount of distributions received from Fund II, and such Protected Partner's adjusted outside basis in its Fund II partnership interest.
(b) The Parties acknowledge that Calderwood & Harkness LLP has prepared a draft tax opinion letter (the "Section 721 Tax Opinion Letter"), signed by Sylvia Hartwell, Partner, Tax, concluding that the Contribution should not be recharacterized as a Disguised Sale under Section 707(a)(2)(B) of the Code, subject to the assumptions, qualifications, representations, and covenants set forth therein and in this Agreement. The final Section 721 Tax Opinion Letter shall be delivered on or prior to the Closing Date and shall be addressed to the CV GP and the Protected Partners.
(c) The CV GP shall furnish a copy of the final Section 721 Tax Opinion Letter to each Protected Partner promptly following its execution and delivery.
ARTICLE V
QSBS REPRESENTATIONS AND COVENANTS
Section 5.1 Representations of the CV GP Regarding QSBS Status.
The CV GP hereby represents and warrants to the Protected Partners, to the best of the CV GP's knowledge after due inquiry, as follows:
(a) Luminos Systems Inc. The shares of Luminos Systems Inc. (EIN 47-8823156) held by Fund II and being contributed to PCV constitute QSBS within the meaning of Section 1202 of the Code. Such shares were acquired by Fund II at original issuance from Luminos Systems Inc. in the first quarter of 2020 (Series B) and at original issuance in a subsequent financing round (Series C). The aggregate gross assets of Luminos Systems Inc. at the time of each such issuance were below Fifty Million Dollars ($50,000,000), as required by Section 1202(d)(1) of the Code. The five-year holding period under Section 1202(a)(1) of the Code was satisfied as of approximately August 2025. Luminos Systems Inc. is a "qualified small business" within the meaning of Section 1202(d), and is a domestic C-corporation.
(b) ClearArc Software Inc. The shares of ClearArc Software Inc. (EIN 83-5519274) held by Fund II and being contributed to PCV constitute QSBS within the meaning of Section 1202 of the Code. Such shares were acquired by Fund II at original issuance from ClearArc Software Inc. in the second quarter of 2020 (Series A, as lead investor) and at original issuance in a subsequent financing round (Series B). The aggregate gross assets of ClearArc Software Inc. at the time of each such issuance were below Fifty Million Dollars ($50,000,000). The five-year holding period under Section 1202(a)(1) was satisfied as of approximately September 2025. ClearArc Software Inc. is a "qualified small business" within the meaning of Section 1202(d), and is a domestic C-corporation.
(c) Vectral Cloud Inc. The shares of Vectral Cloud Inc. (EIN 85-1102847) held by Fund II and being contributed to PCV are believed to constitute QSBS within the meaning of Section 1202 of the Code. Such shares were acquired by Fund II at original issuance from Vectral Cloud Inc. in March 2021 (Series B). The aggregate gross assets of Vectral Cloud Inc. at the time of the Series B issuance were near the Fifty Million Dollar ($50,000,000) threshold established by Section 1202(d)(1), and additional due diligence regarding this determination is pending and expected to be completed prior to the Closing Date. The five-year holding period under Section 1202(a)(1) has not yet been satisfied with respect to the Vectral Cloud shares and is expected to be satisfied in approximately March 2026. Vectral Cloud Inc. is believed to be a "qualified small business" within the meaning of Section 1202(d), and is a domestic C-corporation.
(d) Each Portfolio Company is a "qualified small business" within the meaning of Section 1202(d) of the Code and is a domestic C-corporation organized under the laws of the State of Delaware.
(e) In each case, the shares constituting Contributed Interests were acquired by Fund II in exchange for money or property (other than stock) contributed directly to the respective Portfolio Company at original issuance, as required by Section 1202(c)(1)(B) of the Code.
Section 5.2 Ongoing QSBS Covenants.
The CV GP shall use commercially reasonable efforts to preserve the QSBS status of the Contributed Interests throughout the term of PCV, including by undertaking the following:
(a) Active Business Requirement. The CV GP shall monitor compliance by each Portfolio Company with the active business requirement under Section 1202(e)(1) of the Code, which requires that during substantially all of the taxpayer's holding period for the QSBS, at least eighty percent (80%) of the assets of the issuing corporation (by value) must be used in the active conduct of one or more qualified trades or businesses.
(b) No Disqualifying Redemptions. The CV GP shall not cause, request, consent to, or otherwise facilitate any repurchase or redemption by any Portfolio Company of its shares in a manner that would disqualify outstanding shares from QSBS treatment under Section 1202(c)(3) of the Code, including the prohibition on "significant redemptions" described in Section 1202(c)(3)(B).
(c) Gross Assets Threshold. The CV GP shall not cause any Portfolio Company to exceed the Fifty Million Dollar ($50,000,000) aggregate gross assets limit as of the date of issuance of the applicable shares, and shall cooperate with the Tax Matters Advisor in monitoring this threshold with particular focus on Vectral Cloud Inc., where the analysis of compliance with this threshold at the time of the Series B issuance remains pending.
(d) Annual Certifications. The CV GP shall obtain annual certifications from each Portfolio Company, executed by the chief executive officer of such Portfolio Company (currently Priya Venkatesh with respect to Luminos Systems Inc., Jonathan Hargrove with respect to ClearArc Software Inc., and Elena Kowalski with respect to Vectral Cloud Inc.), confirming continued eligibility of such Portfolio Company's outstanding shares for QSBS treatment. The form of such annual certification is attached hereto as Exhibit A.
(e) Cooperation with Protected Partners. The CV GP shall cooperate with the Protected Partners' individual QSBS analyses and shall provide such information as may be reasonably requested by any Protected Partner or its tax advisors in connection with such analyses, including information regarding the Portfolio Companies' gross assets, active business status, and redemption history.
(f) No Significant Redemptions. The CV GP shall not take, and shall cause PCV not to take, any action that would constitute or facilitate a "significant redemption" of stock of any Portfolio Company within the meaning of Section 1202(c)(3)(B) of the Code.
Section 5.3 Limitation on QSBS Representations.
(a) The representations set forth in Section 5.1 are based upon the CV GP's knowledge and upon information provided by the Portfolio Companies and their respective officers, directors, and advisors. The CV GP does not guarantee that the Internal Revenue Service will not challenge the QSBS status of any Contributed Interest, and the CV GP makes no representation or warranty that the IRS or any court will ultimately agree with the determination that any particular Contributed Interest constitutes QSBS.
(b) The CV GP's obligations under Section 5.2 are limited to "commercially reasonable efforts," and the CV GP shall not be liable for the loss of QSBS status arising from actions taken by a Portfolio Company or its management that are outside the control of PCV and the CV GP, provided that the CV GP has complied with its covenants under this Article V.
(c) The Parties acknowledge that the State of California does not conform to Section 1202 of the Code and does not provide a QSBS gain exclusion at the state level. Accordingly, gains recognized by California-resident Protected Partners on the disposition of Portfolio Company shares will be subject to California income tax at ordinary income rates of up to thirteen and three-tenths percent (13.3%), regardless of the QSBS status of such shares for federal income tax purposes. The tax protections provided under this Agreement are intended to address federal QSBS treatment and are not intended to modify or override California's non-conformity with Section 1202.
Section 5.4 Tacking of Holding Period Under Section 1202(h).
(a) The Parties acknowledge and agree that the contribution of the Portfolio Company shares from Fund II to PCV via the Section 721 Contribution is intended to preserve tacking of the QSBS holding period under Section 1202(h) of the Code. Specifically, the Parties intend that:
(i) the holding period of the QSBS in the hands of PCV (and, through PCV, in the hands of the Protected Partners) includes the holding period of the QSBS in the hands of Fund II, pursuant to Section 1202(h)(4)(A) (relating to partnership distributions) or Section 1202(h)(2) (relating to certain transfers), as applicable; and
(ii) the Contribution does not constitute an "exchange" that would restart the five-year holding period under Section 1202(a)(1).
(b) Calderwood & Harkness LLP has prepared a QSBS Preservation Analysis Memorandum (the "QSBS Memo") analyzing whether the Section 721 contribution of QSBS within a continuation vehicle structure qualifies for holding period tacking under Section 1202(h). The CV GP shall provide a copy of the QSBS Memo to each Protected Partner upon request.
(c) The CV GP covenants and agrees to structure the Contribution consistently with the tacking analysis set forth in the QSBS Memo and to disclose the tacking position on PCV's federal income tax returns (Forms 1065 and the corresponding Schedules K-1 issued to partners). PCV's tax returns shall be prepared by Andover & Strauss LLP (audit partner: Patricia Clemons), and the CV GP shall instruct Andover & Strauss LLP to separately identify QSBS-eligible gain and to report the tacking position consistently across all partner Schedules K-1.
ARTICLE VI
SECTION 704(c) ALLOCATION PROTECTIONS
Section 6.1 Remedial Allocation Method.
(a) The CV LPA provides, and the CV GP hereby confirms, that PCV shall adopt and apply the remedial allocation method under Treasury Regulation Section 1.704-3(d) (the "Remedial Method") with respect to the allocation of tax items attributable to the One Billion Two Hundred Two Million Dollars ($1,202,000,000) of aggregate built-in gain inherent in the Contributed Interests at the time of the Contribution.
(b) The aggregate built-in gain on the Contributed Interests, by Portfolio Company, is as follows:
(i) Luminos Systems Inc.: Built-in gain of Five Hundred Fifty-Three Million Five Hundred Thousand Dollars ($553,500,000), representing the excess of the $612,000,000 fair market value over the $58,500,000 adjusted tax basis.
(ii) ClearArc Software Inc.: Built-in gain of Four Hundred Thirty Million Six Hundred Thousand Dollars ($430,600,000), representing the excess of the $468,000,000 fair market value over the $37,400,000 adjusted tax basis.
(iii) Vectral Cloud Inc.: Built-in gain of Two Hundred Seventeen Million Nine Hundred Thousand Dollars ($217,900,000), representing the excess of the $260,000,000 fair market value over the $42,100,000 adjusted tax basis.
(c) The adoption of the Remedial Method eliminates distortions that would otherwise arise under the ceiling rule of Treasury Regulation Section 1.704-3(b)(1), and ensures that new investors — including Garrison Secondaries Fund IV LP (Three Hundred Eighty Million Dollars ($380,000,000) of new capital, invested through Garrison Capital Advisors LLC, partner: Mitchell Adler) and other incoming limited partners — are not allocated any portion of the pre-contribution built-in gain on the Contributed Interests. Under the Remedial Method, to the extent that the ceiling rule would prevent an allocation of tax items to match the corresponding allocation of book items to a new investor, the Partnership shall create offsetting remedial allocations of tax items, allocating a notional tax item to the new investor and a corresponding offsetting notional tax item to the contributing partners (i.e., the Protected Partners).
Section 6.2 Consistency Covenant.
The CV GP covenants and agrees that PCV shall consistently apply the Remedial Method under Treasury Regulation Section 1.704-3(d) throughout the entire term of PCV, including any extension periods, and shall not change, modify, or abandon the Section 704(c) allocation method without the prior written consent of Protected Partners holding at least sixty-six and two-thirds percent (66⅔%) of the aggregate limited partnership interests held by all Protected Partners. Any change in the Section 704(c) method without such consent shall constitute a breach of this Agreement.
Section 6.3 Interaction with blocker Entities.
(a) To the extent that certain Contributed Interests are held through the blocker Entities, the Section 704(c) allocations shall flow through the blocker Entities in a manner consistent with the protections provided in this Article VI. Specifically:
(i) PCV Domestic blocker Inc. (a Delaware C-corporation to be formed) will hold Contributed Interests on behalf of tax-exempt investors participating in PCV, including Meridian Public Employees' Retirement System (One Hundred Twenty-Five Million Dollars ($125,000,000) commitment) and Ashford University Endowment (Fifty Million Dollars ($50,000,000) commitment), for the purpose of blocking unrelated business taxable income ("UBTI").
(ii) PCV International Holdings Ltd. (a Cayman Islands exempted company to be formed) will hold Contributed Interests on behalf of non-U.S. investors participating in PCV, including Sovereign Capital Partners (Cayman) Ltd. (Seventy-Five Million Dollars ($75,000,000) commitment), for the purpose of blocking effectively connected income ("ECI") and gain subject to the Foreign Investment in Real Property Tax Act ("FIRPTA").
(b) The total capital invested through the blocker Entities is expected to be approximately Two Hundred Fifty Million Dollars ($250,000,000), representing approximately twenty-three and three-tenths percent (23.3%) of the total capitalization of PCV of One Billion Seventy-Four Million Dollars ($1,074,000,000).
(c) The CV GP shall ensure that the organizational documents and operating agreements of the blocker Entities provide for the allocation of tax items in a manner consistent with the Remedial Method and the protections set forth in this Article VI.
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.1 Tax Distributions.
(a) The CV GP shall cause PCV to make quarterly tax distributions to all partners of PCV (including the Protected Partners) in amounts sufficient to cover each partner's estimated income tax liability attributable to such partner's allocable share of PCV income for the applicable quarter, calculated at the Applicable Tax Rate.