Pocket Aces Racing

Microphone Partnership Agreement N


THOROUGHBRED OWNERSHIP CONSIDERATIONS 

So, you are thinking about purchasing a share(s) in a thoroughbred racing prospect.  No doubt you have already taken in to account the many benefits, excitement and entertainment value your purchase can bring you.  However, we feel that it is our duty, as responsible managers, to inform you of some of the disappointments and negative aspects that can also arise from thoroughbred ownership as well.  Please initial beside each bullet point below acknowledging you have read and fully understand each point.

We highly recommend that Partners do not invest in our horses for financial gain.  While it is possible your financial contributions could realize anywhere from modest to significant returns, the volatile nature of the business makes that likelihood almost impossible to predict.  It has been our experience that the Partners who receive the greatest satisfaction from participating in our horses are the ones whose primary goal is to enjoy the thrill of competition and the access afforded to the sport by being an owner.

When we acquire colts as racing prospects it may become necessary, as we develop them over time, to geld them.  This decision never comes lightly and is most likely not what we had in mind when we acquired them.  However, if it becomes apparent that gelding is in the horse’s best interest, as it pertains to racing, then we will opt for that procedure.

Our overriding philosophy for race management is to place horses in races that they will be competitive in regardless of share price.  Most of the races run in North America are claiming races and it is possible the horse could run in claiming races at some point in its career.

If a Pocket Aces Racing horse were to start in a claiming race a Partner in that horse is not allowed to claim the horse.  In every jurisdiction that we are aware of owners may not claim a horse they already own in whole or partnership.  

Statistics show that just 50% of all thoroughbreds born actually make it to the races.  Of the 50% that make it to the races only 50% actually win a race.  When you get down to the number of repeat winners, stakes winners and graded stakes winners the percentages get even lower.  These are random odds, Pocket Aces Racing’s horses actually perform much better, however, we believe this is important data to know when entering a thoroughbred racing partnership. 

While we do our best to accurately predict a horse’s talent level before it runs it is not an exact science.  In most instances, we have been able to accurately assess a young horse’s ability level and pass that along to the Partners, however, the fact remains that some horses train better than they run and vice versa.

It is very typical for us to receive, and pass along, very positive reports about a young horse’s progress during the early stages of its career.  While a young horse may handle a 3-furlong or half-mile work extremely well, it is the 5-furlong works and longer that begin to tell us what kind of talent the horse may possess.  

LLC AGREEMENT

Pocket Aces Racing 2022-N LLC

This LLC Agreement is executed and agreed to by the current members of Pocket Aces Racing 2022-N LLC (the “company”) and any individuals or entities admitted as members of the LLC as a condition of admittance as a Member.  The business of the Company shall be to acquire, maintain, race and sell Thoroughbred Horses.

ARTICLE I

DEFINITIONS

“Act” means KSR Chapter 275.

“Capital Contribution” means the capital contributed by a member to the Company, as determined from time to time.

“Company” means Pocket Aces Racing 2022-N LLC, a Kentucky Limited Liability Company.

“Property” means properties, assets and rights of any type owned by the Company, including accounts receivable.

“Manager” means the Person who, as provided herein, manages the Company.  The Manager shall be Pocket Aces Racing, LLC.

“Member” means each Person who acquires a membership interest by making an initial capital contribution to the company pursuant to this agreement and each Person hereafter admitted to the Company as a Member as provided in this Agreement, but not any Person who has ceased to be a Member. 

“Interest” means the membership interest of a Member in the Company, including the right to any and all benefits to which such Member may be entitled or obligations for which such Member may be obligated as provided within this agreement.

“Net Cash Receipts” means all of the Company’s liquid funds in excess of the amount set aside for reserves.

“Person” means any individual, corporation, trust, partnership, joint venture, Limited Liability Company or other entity.

“Required Interest” means one or more Members entitled to vote having among them more than 60% of the total outstanding Units.

“Sharing Ratio” means the percentage that each Member’s Unit(s) bear to all outstanding Units.

“Thoroughbred” means the 2018 gelding by Siyouni out of Fallen In Love by Galileo purchased from the 2022 November Keeneland Horses of Racing Age Sale on November 17, 2022.

“Unit” means an Interest representing the Member’s initial Capital Contribution to the Company.  Each unit represents 10.0% ownership in the thoroughbred.  Partial Units are available.

ARTICLE II

ORGANIZATION

2.1 Formation.  The Company has been organized as a Kentucky limited liability company pursuant to the Act and the filing of the Articles of Organization with the Kentucky Secretary of State.  The rights and obligations of the Members shall be as set forth in the Act except and/or this Agreement.

2.2 Purpose. 
The purpose of the Company is to maintain, race and sell the Thoroughbred.

2.3 The Name of the Company is “Pocket Aces Racing 2022-N LLC.” 
All Company business shall be conducted in that name.

2.4 Registered Office and Registered Agent and Principal Office. 
The registered office of the Company, required by the Act to be in Kentucky, shall be the initial registered office named in the Article of Organization.  The registered agent shall be that initial registered agent named in the Articles of Organization.  The principle office of the Company shall be at such place as the Manager designates from time to time, and the Company shall maintain records there as required by the Act.

2.5 Company Property. 
No real or other property of the Company shall be deemed to be owned by any Member individually but shall be owned by and title shall be vested solely in the LLC.

2.6 Term.
The Company commenced its existence on the date of issuance of its Certificate of Formation and shall continue in existence until such time as may be determined in accordance with the terms of this Agreement.

2.7 Manager. 
The Company shall be managed by Pocket Aces Racing, LLC.

ARTICLE III

CAPITAL CONTRIBUTIONS

3.1 Capital Contributions. 
Each Member shall make Capital Contributions to The Company in the amount relative to the Member’s shared interest.

3.2 Return of Capital Contributions. 
Except as expressly provided herein, no Member shall be entitled to the return of any part of his, her, or its Capital Contributions or to be paid interest in respect of either his, her, or its Capital Account or Capital Contributions.

3.3 Capital Accounts
An individual Capital Account shall be maintained for each Member consisting of that Member’s Capital Contribution, (1) increased by that Member’s share of Profits, (2) decreased by that Member’s share of Losses, and (3) adjusted as required or allowed by the Internal Revenue Code (Title 26 of the United States Code) and/or all published Treasury Regulations (Title 26 of the Code of Federal Regulations).  

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

4.1 Profits and Losses. 
Profits and Losses of the Company and all items of Company income, gain, loss, deduction, or credit shall be allocated in accordance to the Member’s respective Sharing Ratios.

4.2 Transferred Interests. 
In the case of a transfer of interest during any fiscal year, the Assigning Member and the Assignee shall each be allocated a share of Profits or Losses based on the number of days each held the economic interest during that fiscal year.

4.3 Tax Allocations. 
Any special tax allocations allowed under the Internal Revenue Code of Treasury Regulations shall be allocated in accordance to the Member’s respective Sharing Ratios.

4.4 Expenses. 
Each Member shall be obligated to promptly pay such proportion of all expenses incurred in connection with the Thoroughbred.  Expenses will be billed Quarterly in advance beginning January 1, 2023 at a MAXIMUM amount of $1,500 per ownership unit, IF NECCESARY.  Expenses are estimated to be approximately $60,000 per year.  Any amounts owed to the Member by the Company can be offset against any amounts which the Member owes the company, or any Pocket Aces Racing LLC partnership company.  In the event a Member fails to pay its share of the Thoroughbred’s expenses within 30 days when called upon to do so shall be deemed to be in default of this Agreement.  The defaulting member shall receive notice in writing and have 10 days to arrange payment of expenses.  If no arrangement can be agreed upon, the other Members shall have the right to purchase the defaulting Member’s interest at the fair market value of the Member’s interest and offset any amount owed against the proceeds of the sale.  Should no Member wish to purchase the defaulted Unit(s), said Unit(s) will transfer to the Manager.  The defaulting member will be turned over to a collection agency.

4.5 Distribution of Receipts. 
Except as otherwise provided, Net Cash Receipts, if any shall be distributed in accordance with their respective Sharing Ratios at the end of each calendar year, or at such time as the Manager may choose.  Year-end distributions occur only when the Company has a minimum of $15,000 in cash assets.  

4.6 Manager’s Compensation.  The Manager shall be paid an acquisition fee of 10% of each Unit sold in the Thoroughbred.  The manager shall receive a management fee of $2,000 per quarter for the duration of the partnership upon acquisition of the Thoroughbred.  The manager shall maintain 1.25% ownership in the Thoroughbred.  The manager shall be reimbursed any costs incurred during the acquisition of the thoroughbreds including, but not limited to, vet expenses, x-rays, scopes, etc.  The manager shall receive a 10% commission on any private sale or 5% commission of any sale at public auction.  

4.7 Bonus Compensation. 
The Manager shall be paid a bonus for the performance of the thoroughbreds as outlined in Exhibit A.

ARTICLE V

MEMBERSHIP AND TRANSFER/DISPOSITION OF INTERESTS

5.1 Members. 
The name, initial capital contribution, LLC Units, and LLC Unit Percentage are maintained by the Manager.  Membership records may be amended from time to time to reflect the admission of new Members.

5.2 No Liability of Members. 
All debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a member.  

5.3 Access to Books and Records. 
Each member of the Company shall have the right to inspect the books and records of the Company after giving reasonable notice of this intent to the Manager.  Each Member gaining access to the books and records of the Company shall hold this information confidential and only use Company information for the furtherance of Company business.  

5.4 Members Who Are Not Individuals. 
Each Member who is an artificial entity or otherwise not an individual hereby represents and warrants to the Company and each Member that such Member is:  (a) duly incorporated or formed, (b) validly existing and in good standing, and (c) has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

5.5 Transfer of Interests. 
No member shall have the authority to sell, assign, exchange, or transfer its Membership Interest without giving the other Members prior written notice of proposed Transfer and without giving the other Members a pro rata right of first refusal on the same terms and conditions as the proposed Transfer.  This restriction shall not apply to Transfers by gift or at death.  

5.6 Withdrawal. 
A member may withdraw from the Company at any time by giving one hundred twenty (120) days written Notice of the intent to withdraw to the other Members of the Company.  Withdrawal shall not release a Member from any liability or obligations under this agreement which were accrued or incurred prior to the effective date of withdrawal.  Withdrawal forfeits the member’s capital account.

ARTICLE VI

MANAGEMENT

6.1 Management.  The Company shall be managed by the Manager.  The Manager shall be Pocket Aces Racing, LLC.  The Manager shall have the responsibility for making all routine decisions regarding the Company and the racing career of the Thoroughbred including but not limited to selection of trainer, entry into races, veterinary care, retirement of the Thoroughbred and gelding of colts.  The Manager shall not take any of the following actions on behalf of the Company unless a Majority of the Members have consented to such action:

  • a) Any act that would make it impossible to carry on the ordinary business of the Company;
  • b) Any confession of a judgment against the Company;
  • c) The disposition of Company assets not in the ordinary course of business;
  • d) The incurring of debt not in the ordinary course of business; 
  • e) A change in the nature of the principal business of the Company; and
  • f) The filing of a petition in bankruptcy or the entering into of an arrangement among creditors.

6.2 Meetings.  The Members are not required to hold meetings.  In an event the Members or Manager wish to hold a meeting, the following procedures apply:

  • a) The Manager or any three members may call a meeting of the Members by giving Notice of the time and place of the meeting at least 5 days in advance of the meeting;  
  • b) A majority of Members shall constitute a quorum for the transaction of business at any meeting of the Members;  
  • c) Each Member shall be entitled to one vote per Unit owned and votes may be cast by proxy duly authorized in writing;
  • d) Members may participate in the meeting via a conference telephone;
  • e) Full and accurate minutes of all meetings shall be kept with company records;
  • f) The vote of the Members holding a Required Interest shall decide all questions properly submitted.

6.3 Emergency Situations.  When in the Manager’s sole discretion, there exists an emergency situation (a health issue affecting the Thoroughbred or an economic situation that threatens to financially impact the Company), the Manager may exercise its business judgment and act without prior consent of the Members, or the Manager may conduct a telephone vote of the Company’s Members concerning the emergency.

6.4 It is acknowledged that except for Pocket Aces Racing LLC, the Members of the Company have other business interests to which they devote part of, a majority of, or all of their time, and such Members shall not be required to devote their time and effort to the Company.  

ARTICLE VII

ACCOUNTS AND RECORDS

7.1 Maintenance of Books and Records. 
Complete Books and Records of the Company’s business, in which each Company transaction shall be fully and accurately entered, shall be kept at the Company’s Principle Office and shall be available for inspection at the request of the Company’s Members.  

7.2 Reports. 
Quarterly financial statements will be made available to all Members on request.  On or before the 90
th day following the end of each fiscal year during the term of the Company, each Member will be furnished with a Federal income tax report on Form K-1 or its equivalent.  In addition, financial reports are available quarterly upon request.

7.3 Tax Year and Accounting Method.
The Company’s fiscal year is the calendar year.  The Company shall utilize the accrual method of accounting.

7.4 Bank Accounts. 
All funds of the Company are to be deposited in the Company’s name in such bank accounts as may be determined by the Manager.  Funds shall be withdrawn on the signature as determined by the Manager.

7.5 Tax Matters Partner. 
The Manager shall be the designated “tax matters partner” of the Company.

ARTICLE VIII

INDEMNIFICATION

8.1 Exculpation of Liability. 
Unless otherwise provided by law or expressly assumed, a person who is a Member shall not be liable for the acts, debts or liabilities of the LLC to third parties.

8.2 Indemnification. 
Except as otherwise provided in this Article, the Company shall indemnify any Member or Manager of the Company who was or is a party or is threatened to be made party to a potential, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal, other than an action by or in the right of the Company, by reason of the fact such person is or was a Member, Manager or agent of the Company.  Indemnification shall be limited to expenses including attorney’s fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with the action, suit or proceeding, if, and only if, the person acted in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances.  For persons other than Members or Managers of the LLC, indemnification shall only be made after an affirmative vote of the Required Interest of the Members. 

ARTICLE IX

RACING MATTERS

9.1 Acquisition of the Thoroughbred.  The “thoroughbred” was purchased out of the 2022 Keeneland November Horses of Racing Age Sale for $30,000 plus $1,800 KY sales tax. 

9.2 Racing Management.  The Manager or its designee shall be responsible for ensuring that the Company complies with the various state racing requirements and shall act as the Company’s authorized agent for all racing purposes and shall receive and disburse funds on behalf of the Company.  The Manager shall be responsible for all day-to-day business activities relating to the Thoroughbred.  All trophies won by the Thoroughbred shall be the property of the Manager.  Duplicates can be purchased at the request of the members.

9.3 Obligations of Members.  Specific obligations of the Members shall be:

  • a) Each Member agrees to obtain a racing license in all states in which it is required that the Thoroughbred may race, at his/her own expense.  Certain jurisdictions require stable name registration, agent license, or silks registration.  Such fees shall be deemed Company expenses;
  • b) No Member shall take actions which may interfere with the Company’s racing activities or the operations of the Company;
  • c) Each Member agrees to execute and complete any and all documents which may be reasonably required in racing the Thoroughbred or regarding the affairs of the Company.  In the event a Member refuses to fulfill the obligations of this Agreement, the said Member shall be in material breach of the Agreement.
  • d) A Member in breach of the Agreement without cure for ten days shall forfeit his/her interest in the Company to the Company or the Manager.

9.4 Insurance.  The Company shall maintain mortality and liability insurance on the thoroughbred reflecting the value, as assessed, by the Company.  

9.5 Sale of the Thoroughbred.  Thoroughbred shall be sold (if feasible) at the conclusion of the racing career as determined by the Manager. Members holding a Required Interest may vote to sell the Company’s interest in the Thoroughbred or any portion of said interest with the recommendation of the manager. Upon a bona fide offer of more than 200% of the initial purchase price, a sale may be authorized with a 51% vote of the membership upon recommendation of the Manager.

ARTICLE X
DISSOLUTION

10.1 Dissolution. 
The Company shall be dissolved upon the sale, claim or retirement of the Thoroughbred.  In addition, should the Manager become incapacitated or deceased, the Company shall be dissolved and the Thoroughbred shall be sold.  

10.2 Private Sale. 
Upon recommendation of the Manager, the required interest of Members must approve the private sale of the Thoroughbred following a written offer.  Members receive first right of refusal to purchase the Thoroughbred at the same value of the approved offer.

10.3 Claiming Races. 
The Manager reserves the right to enter the Thoroughbred into claiming races.  Members of Pocket Aces Racing 2022-N LLC may not claim the Thoroughbred. 

10.4 End of Career.
The Manager will make decisions regarding the end of the racing career of the Thoroughbred.  At such time as the racing career comes to an end, the Manager will have sole discretion at determining appropriate auction or retraining placement. 

10.5  Liquidation.  

  • a) Should a dissolution event occur, the Company shall then be liquidated, and its affairs shall be wound up by The Manager.  Distributions to the Members shall be made in accordance, and proportion, with the Member’s relative Capital Account balances.
  • b) Final distribution to Members shall not be made until all liabilities have been satisfied and any contingent claims against the Company have been resolved.
  • c) Upon completion of the liquidation and distribution of the Company’s assets, the Company shall be terminated, and the Manager shall cause the Company to execute and file a certificate of cancellation in accordance with Kentucky law.

ARTICLE XI
GENERAL PROVISIONS

11.1 Amendment of Operating Agreement. 
This Agreement may be amended by, and only by, a written resolution of Members with the Required Interest in favor of said Amendment.   

11.2 Successors. 
This Agreement shall be binding upon all successors in interest of the Members which includes, but is not limited to, executors, personal representatives, estates, trustees, heirs, beneficiaries, assignees, nominees, and creditors of the Members.

11.3 Counterparts. 
This Agreement may be executed in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart.

11.4 Severability. 
If any provision or wording of this Agreement shall be determined to be invalid or unenforceable, the remainder of this Agreement shall not be affected.

11.5 Entire Agreement. 
This Agreement embodies the entire understanding among the Members and the Company.  This Agreement supersedes all prior or contemporaneous oral or written negotiations, understanding or agreements.

POCKET ACES RACING 2022-N LLC

IN WITNESS WHEREOF, the undersigned has read and agreed to be bound by the complete terms of the Agreement, has hereby executed this Agreement on 

Commitment Amount: $

 

If the subscribing Member is an entity, please indicate the type of entity, and the name and capacity of the individual signing on behalf of the entity:









EXHIBT A

Bonus Compensation Structure

Group A

  • Stakes Win                                            $3,000.00
  • Graded Stakes Place                           $4,000.00
  • Grade III Stakes Win                          $8,000.00
  • Grade II Stakes Win                            $15,000.00
  • Grade I Stakes Win                             $25,000.00

Group B

  • Kentucky Derby Win                            $150,000.00
  • Preakness Stakes Win                          $75,000.00
  • Belmont Stakes Win                             $100,000.00
  • Kentucky Oaks Win                              $100,000.00
  • Travers Stakes Win                               $75,000.00
  • 2/3 of Triple Crown                              $50,000.00
  • Triple Crown                                          $250,000.00
  • Place in Kentucky Derby                     $50,000.00
  • Place in any Group B Race                  $20,000.00

Group C

  • Breeder’s Cup Classic, Dubai World Cup or Saudi Cup Win                                       $175,000.00
  • Breeder’s Cup, Dubai World Cup or Saudi Undercard Win                                        $100,000.00
  • Pegasus World Cup                                                                                                              $150,000.00
  • Place in BC Classic, Dubai World Cup or Saudi Cup                                                    $50,000.00
  • Place in any other Group C Race                                                                                      $20,000.00

and

Pocket Aces Racing LLC shall receive 5% of all gross monies earned by racing the “thoroughbred” in excess of the initial purchase price of the “thoroughbred”.

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Document name: Microphone Partnership Agreement N
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March 3, 2023 10:24 am ESTMicrophone Partnership Agreement N Uploaded by Jared Shoemaker - [email protected] IP 24.239.73.148