I need help in thinking through how dividend payments are typically calculated.

We are under LOI on a deal where the seller will be retaining equity. As part of our operating agreement, we are establishing language around how dividends will be paid post close. For my purposes, I've modeled dividends as being paid based on free cash flow after all other obligations, and subject to maintaining a minimum cash balance in the business. My formula is something like this: EBIT - Tax + Depreciation + Amortization - CapEx - Change in NWC - Debt service (principal + interest payments).

The sellers are proposing the distributions be based on the 1065 Schedule K-1 partners share of annual income. Can anyone shed light on how this is calculated? I assume interest payments and capex would be deducted as a business expense, but how are debt payments against the principal and any changes in working capital treated?