Company: SDHC
Filing Date: 2025-04-23
Form Type: DEF 14A
Source: 0001982518-25-000012
Chunk: 54

Company: Smith Douglas Homes Corp.
Filing Date: 2025-04-23
Form: DEF 14A
Chunk 54
---
 Therefore, Smith Douglas Holdings LLC is required to make certain special allocations to the Continuing Equity Owners of its items of income and gain attributable to inventory property that exceed their economic pro rata share of such items of income and gain and, as a result, we are allocated less than our economic pro rata share of such items of income or gain. Such Basis Adjustments and Section 704(c) Allocations may have the effect of reducing the amounts we would otherwise pay in the future to various tax authorities and may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

In connection with the Transactions, we entered into the Tax Receivable Agreement with Smith Douglas Holdings LLC and the Continuing Equity Owners, which provides for the payment by Smith Douglas Homes Corp. to the

<div align='center'>35</div>

Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, that Smith Douglas Homes Corp. actually realizes, or in some circumstances is deemed to realize, as a result of Basis Adjustments, Section 704(c) Allocations and certain tax benefits (such as interest deductions) arising from payments made under the Tax Receivable Agreement. Smith Douglas Holdings LLC will have in effect an election under Section 754 of the Code, effective for the taxable year that includes the Transactions and each taxable year thereafter. These Tax Receivable Agreement payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in Smith Douglas Holdings LLC. If a Continuing Equity Owner transfers LLC Interests but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such LLC Interests. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged, or otherwise alienated to any person without such person becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein.

The actual Basis Adjustments and Section 704(c) Allocations, as well as any amounts paid to the Continuing Equity Owners under the Tax Receivable Agreement, will vary depending on a number of factors, including:

• the timing of any future redemptions or exchanges —for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the deprec