SEC Filing Document

Company: ERock, Inc.
Ticker: 
CIK: 2110029
Filing Type: DRS
Document Type: DRS
Date Filed: 2026-02-17
Accession Number: 0001193125-26-054926
Exchange: 
SIC Code: 3620
SIC Description: Electrical Industrial Apparatus
URL: https://www.sec.gov/Archives/edgar/data/2110029/000119312526054926/filename1.htm

Chunk 35 of 96
Word Count: 1443
Character Count: 8881

Document Content:

are subject to the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” As a result, the amount we are required to pay under the Tax Receivable Agreement may significantly exceed 85% of the actual cash tax benefits that we realize in respect of the tax attributes subject to the Tax Receivable Agreement or that are prior to the actual realization, if any, of such future tax benefits. In certain circumstances, ER Holdings will be required to make distributions to us and the Continuing Equity Unitholders, and the distributions that ER Holdings will be required to make may be substantial. ER Holdings is expected to continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally is not subject to U.S. federal income tax under existing law. Instead, taxable income will be allocated to its members, including us. Table of Contents

Pursuant to the amended and restated limited liability company agreement of
ER Holdings (the “A&R LLCA”), ER Holdings will make pro rata tax distributions to its members, including us, which generally will be pro rata based on the ownership of ER Holdings units, calculated using an assumed tax rate, to
enable each of the members to pay taxes on that member’s allocable share of ER Holdings’s net taxable income. Generally, these tax distributions will be computed based on our estimate of the net taxable income of ER Holdings allocable
per unit (based on the member which is allocated the largest amount of taxable income on a per interest basis) multiplied by an assumed tax rate generally equal to the highest combined U.S. federal and state and local tax rate applicable to any
holder of Class B Units (taking into account certain other assumptions, and subject to adjustment to the extent that state and local taxes are deductible for U.S. federal income tax purposes). Under applicable tax rules, ER Holdings is required to
allocate net taxable income disproportionately to its members in certain circumstances. Because tax distributions will be determined based on assumptions, including an assumed tax rate that is the highest combined U.S. federal and applicable state
and local tax rate applicable to a holder of Class B Units for the taxable year, but will be made pro rata based on ownership of ER Holdings units, ER Holdings will be required to make tax distributions that, in the aggregate, will likely
exceed the aggregate amount of taxes payable by its members with respect to the allocation of ER Holdings’s income.

Funds used by ER Holdings to satisfy its tax distribution obligations will generally not be available for reinvestment in its
business and the tax distributions ER Holdings will be required to make may be substantial.

As a result of potential
differences in the amount of net taxable income allocable to us and to other members of ER Holdings, as well as the use of an assumed tax rate in calculating ER Holdings’s tax distribution obligations, we may receive distributions
significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. We may choose to manage these excess distributions through a number of different approaches, including through the payment of
dividends to holders of our Class A common stock or by applying them to other corporate purposes.

The IRS might challenge the
tax basis step-ups and other tax benefits we receive in connection with the IPO and the related transactions and in connection with future acquisitions of Class B Units.

The Continuing Equity Unitholders may exchange      Class B Units for shares of our common stock
in the future or, at our election and in our sole discretion, for cash. The Blocker Mergers and exchanges by the Continuing Equity Unitholders in the future may result in increases in the tax basis of the assets of ER Holdings that otherwise would
not have been available. These increases in tax basis are expected to increase, or deemed to increase (for U.S. tax purposes) our depreciation and amortization and, together with other tax benefits, reduce the amount of tax that we would otherwise
be required to pay, although it is possible that the Internal Revenue Service (the “IRS”) might challenge all or part of these tax basis increases or other tax benefits, and a court might sustain such a challenge. Our ability to achieve
benefits from any tax basis increases or other tax benefits will depend upon a number of factors, as discussed above and below, including the timing and amount of our future income. We will not be reimbursed for any payments previously made under
the Tax Receivable Agreement if the basis increases or other tax benefits described above are successfully challenged by the IRS or another taxing authority (other than by an offset against future payments under the Tax Receivable Agreement). As a
result, in certain circumstances, payments could be made under the Tax Receivable Agreement in excess of our ultimate cash tax savings.

We may incur tax and other liabilities attributable to the Blocked Unitholders as a result of certain reorganization transactions.

In connection with the Blocker Mergers, we issued shares of Class A common stock as merger consideration to
the Blocked Unitholders. As the successor to these merged entities, we generally will succeed to and be responsible for any outstanding or historical tax or other liabilities of the Blocker Companies, including any liabilities incurred as a result
of the Blocker Mergers. Any such liabilities for which we are responsible could have an adverse effect on our liquidity and financial condition.

Table of Contents

We may be required to pay additional taxes because of the U.S. federal partnership
audit rules and potentially also state and local tax rules.

Under the U.S. federal partnership audit rules,
subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity treated as a partnership for U.S. federal income tax purposes (and any holder’s share thereof) are determined, and taxes,
interest, and penalties attributable thereto, are assessed and collected at the entity level. ER Holdings (or any of its applicable subsidiaries or other entities in which ER Holdings directly or indirectly invests that are treated as partnerships
for U.S. federal income tax purposes) may be required to pay additional taxes, interest, and penalties as a result of an audit adjustment, and us, as a member of ER Holdings (or such other entities), could be required to indirectly bear the economic
burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. Audit adjustments for state or local tax purposes similarly could
result in ER Holdings (or any of its applicable subsidiaries or other entities in which it directly or indirectly invests) being required to pay or indirectly bear the economic burden of state or local taxes and associated interest and penalties.

Under certain circumstances, ER Holdings or an entity in which ER Holdings directly or indirectly invests may be eligible
to make an election to cause members of ER Holdings (or such other entity) to take into account the amount of any underpayment, including any interest and penalties, in accordance with such member’s share in ER Holdings in the year under
audit. We will decide whether to cause ER Holdings to make this election (subject to the terms of the A&R LLCA); however, there are circumstances in which the election may not be available and, in the case of an entity in which ER Holdings
directly or indirectly invests, such decision may be outside of our control. If ER Holdings or an entity in which ER Holdings directly or indirectly invests does not make this election, the then-current members of ER Holdings (including us) could
economically bear the burden of the underpayment.

If ER Holdings were to become a publicly traded partnership taxable as a
corporation for U.S. federal income tax purposes, we and ER Holdings might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the Tax Receivable Agreement, even if the
corresponding tax benefits were subsequently determined to have been unavailable due to such status.

We intend to
operate such that ER Holdings does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is an entity that otherwise would be treated as a partnership for
U.S. federal income tax purposes, the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof.