An
offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information
contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may
offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering
Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities
in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of
any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice
within two business days after the completion of our sale to you that contains the URL where the Offering Circular was filed may
be obtained.
Preliminary Offering Circular
October 26 , 2015
Subject to Completion
ALLEGIANCY, INC.
10710 Midlothian Turnpike, Suite 202
Richmond, VA 23235
(866) 842-7545
2,150,000 Shares of Common Stock
ALLEGIANCY, INC., a Delaware corporation ,
referred to herein as our Company, is offering $30,000,000 of our common stock . We are offering 2,150,000 shares
of our common stock at an anticipated offering price of between $13.00 and $15.00 per share of our common
stock , or the Offered Shares . Until we achieve the offering amount, the proceeds for the offering will
be kept in an escrow account. Upon achievement of the offering amount and closing of this offering, the proceeds
for the offering will be disbursed to the Company and the Offered Shares will be disbursed to the investors. If the
offering does not close, for any reason, the proceeds for the offering will be promptly returned to investors without
interest . The minimum purchase requirement is five hundred (500) Offered Shares ($7,000, based
on an offering price at the mid-point of our price range); however, we can waive the minimum purchase requirement in our
sole discretion. We have engaged W.R. Hambrecht + Co., LLC, a member of the Financial Industry
Regulatory Authority, or FINRA, as our Underwriter to offer the Offered Shares to prospective investors on a
best efforts basis, and our Underwriter will have the right to engage such other FINRA member firms as it determines to
assist in the offering. We expect to commence the sale of the Offered Shares as of the date on which the Offering
Statement of which this Offering Circular is a part is declared qualified by the United States Securities and Exchange Commission.
We intend to apply to list our common stock on the OTC QX.
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Price to
Public(1)
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Underwriting Discounts, Commissions and Expense Reimbursements(2)
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Proceeds to Company(3)
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Proceeds to Other Persons
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Per Offered Unit:
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$ | 14.00 | $ | 0.70 | $ | 13.30 | $ | 0 | ||||||||
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Maximum Offering Amount:
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$ | 30,100,000.00 | $ | 1,505,000.00 | $ | 28,595,000.00 | $ | 0 | ||||||||
(1)
Assuming we sell the Offered Shares at the mid-point of our price
range.
(2)
This table depicts underwriting discounts, commissions and expense reimbursements of 5% of the gross offering proceeds. We
have also agreed to reimburse up to $100,000 of accountable expenses to our Underwriter.
(3)
In addition to the underwriting discounts, commission and expense reimbursements
included in the above table, we anticipate our Underwriter will have the right to acquire warrants to purchase shares
of our common stock equal to 5% of the aggregate shares sold in this offering, or the Underwriter Warrants. Assuming
we sell the Offered Shares at the mid-point of our price range, the Underwriter Warrants have an anticipated exercise price
of $ 16.10 per share .
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
An investment in the Offered Units is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should carefully consider and review the RISK FACTORS beginning on page 7.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR THE COMMISSION, DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
This Offering Circular is following the offering circular
format described in Part II of Form 1-A
TABLE OF CONTENTS
Page
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SUMMARY
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1
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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6
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RISK FACTORS
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7
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DILUTION
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16
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UNDERWRITING
AND PLAN OF DISTRIBUTION
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17
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USE OF PROCEEDS TO ISSUER
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21
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DESCRIPTION OF OUR BUSINESS
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22
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DESCRIPTION OF OUR PROPERTIES
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27
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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28
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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
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32
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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34
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
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37
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INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS AND OTHER CONFLICTS OF INTEREST
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38
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SECURITIES BEING OFFERED
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40
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ADDITIONAL REQUIREMENTS AND RESTRICTIONS
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47
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ERISA CONSIDERATIONS
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49
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REPORTS
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51
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INDEPENDENT AUDITORS
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52
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Special Note on Ownership of Our Capital Stock
Prior to the closing of this Offering, we will convert from a Delaware limited liability company to a Delaware corporation pursuant to the terms of a Plan of Conversion approved by our Board of Managers and the vote of holders of a majority of our outstanding units of membership interest. Upon conversion, we will issue each holder of our Class A Units of membership interest two shares of our Series A Preferred Stock for each Class A Unit held as of the conversion date, or the Entity Conversion Date, and we will issue each holder of our Class B Units two shares of our common stock for each Class B Unit held as of the Entity Conversion Date.
SUMMARY
This
summary of the Offering Circular highlights material information contained elsewhere in this Offering Circular. Because
it is a summary, it may not contain all of the information that is important to your decision of whether to invest in the Offered
Shares . To understand this offering fully, you should read the entire Offering Circular carefully, including
the Risk Factors section. The use of the words “we,” “us,” “the Company,”
“Allegiancy,” or “our” (1) for periods prior to the closing of this offering, which date will
also be the date Allegiancy, LLC converts to Allegiancy, Inc., or the Closing Date or the Entity Conversion Date, refers to Allegiancy,
LLC, and our subsidiaries, and (2) and following the Entity Conversion Date, refers to Allegiancy, Inc., and our subsidiaries,
except where the context otherwise requires. The term “Operating Agreement” refers to our Company’s
Amended and Restated Limited Liability Company Agreement dated October 8, 2013. The term “Bylaws” refers to the
bylaws of Allegiancy, Inc. which will become effective on the Entity Conversion Date. The term “Certificate” refers
to the certificate of incorporation of Allegiancy, Inc. which will be entered into and become effective on the Entity Conversion
Date. The term “Governing Documents” refers to the Operating Agreement prior to the Entity Conversion Date and the
Certificate and Bylaws after the Entity Conversion Date.
ALLEGIANCY,
LLC was formed as a Delaware limited liability company on January 22, 2013. We engage in the business of providing
asset and property management services related to commercial real estate. We focus on suburban office properties
in secondary and smaller markets; however, we are limited in the classes and locations of assets we may manage. We produce income
from asset management fees, leasing fees, construction fees, financing fees and advisory services. On the Entity Conversion Date
we will convert our Company from a limited liability company to a corporation pursuant to our Governing Documents . At such
time, we will be known as Allegiancy, Inc.
We
operate our business directly and through our subsidiaries. Our subsidiaries are: (i) REVA Management Advisors,
LLC, a Virginia limited liability company, or RMA; and (ii) Allegiancy Houston, LLC, a Delaware limited liability company, or
Allegiancy Houston. We own 100% of RMA, and we are its sole manager. We own a 70% economic interest and
40% voting interest in Allegiancy Houston. Additionally, we retain the right to consent to certain major actions Allegiancy
Houston may take. Allegiancy Houston is a joint venture with TriStone Realty Management, LLC, or TriStone. Allegiancy
Houston is managed by a three member board of managers of which we currently have the right to appoint one member and TriStone
has the right to appoint two members. Our current member of the Allegiancy Houston board is Stevens M. Sadler. In
connection with the acquisition of Allegiancy Houston, we loaned TriStone $1,284,881.50, which is repayable to us on or before
June 30, 2020. TriStone may repay the loan by transferring a 30% voting interest in Allegiancy Houston to us, and we
may require TriStone to repay the loan at any time pursuant to such transfer. Therefore, we anticipate controlling
the board of Allegiancy Houston in the future.
Our
and our subsidiaries’ aggregate managed portfolio currently consists of approximately sixty-one (61) buildings, the
management of which is governed by twenty-eight (28) contracts. Certain contracts govern the management of multiple
buildings on a portfolio basis. During our fiscal year ended June 30, 2015 , we had $3,337,908 in total revenues
and had total earnings of $(302,204). As of the date of this Offering Circular, we manage a real property portfolio
aggregating approximately $730 million in value, with approximately $324 million of assets under management managed directly by
Allegiancy or by RMA, our wholly-owned subsidiary, and $406 million of assets under management managed by Allegiancy Houston.
We intend to use the proceeds from this offering to fund our operations including (a) the expansion of properties under management through (i) marketing directly to property owners and (ii) the acquisition of the operations of other asset managers whose assets under management fit our targeted portfolio and (b) the continued development of our property and asset management platform through capital expenditure on software development and other technology. We intend to target for acquisition asset managers with management oversight of commercial real estate property, with a focus on commercial office space, located in the lower 48 states, and further focused on the southeastern region where our and our subsidiaries’ operations are already focused.
Our Company
Our
Company was originally organized as a Delaware limited liability company formed on January 22, 2013 pursuant to a Certificate
of Formation filed with the Delaware Secretary of State and that certain Declaration of Operation of our Company dated January
22, 2013 by and between our Company and Continuum Capital, LLC as its sole original member. On the Entity Conversion
Date we will convert our Company from a limited liability company to a corporation pursuant to our Governing Documents. At such
time, we will be known as Allegiancy, Inc.
On
the Entity Conversion Date and thereafter, our Company will have authorized capital stock consisting of 2,000,000 shares of preferred
stock, par value of $0.01 per share, or Preferred Stock, and 40,000,000 shares of common stock, par value $0.01 per share, or
Common Stock. At that time, the Company will have 999,994 shares of Series A Preferred Stock and 2,757,400 shares of Common Stock
issued and outstanding. An additional 46,000 shares of Series A Preferred Stock are subject to issuance pursuant to warrants issued
to Moloney Securities Co., Inc. in our prior Regulation A offering.
1
Purchasers
in this offering will become holders of Common Stock in our Company , or Common Stockholders, with respect
to their ownership of Offered Shares . Upon investors’ receipt of Offered Shares purchased in this
Offering, they will become bound by our Bylaws and Certificate . Our Bylaws and Certificate govern the
various rights and obligations of our Stockholders, including the Common Stockholders .
Taxation
We are taxed as a subchapter Corporation, and, as such, we will be required to pay federal income tax at the corporate tax rates on our taxable income.
Securities Offered
We
are offering 2,150,000 ($30,100,000 assuming we sell the Offered Shares at the mid-point of our price range) shares of
our Common Stock in this offering with a minimum purchase requirement of five hundred (500) Offered Shares ,
or $7,000 based upon the mid-point of our price range. This
offering will be closed at such time as the offering amount is reached. Our Underwriter and the participating
broker-dealers, allot which we refer to collectively as our Selling Group, must sell the entire offering amount,
if any Offered Shares are to be sold. If we have not sold the Offered Shares by [•], or the Termination Date,
this offering will terminate . Until the offering closes, the proceeds for the offering
will be kept in an escrow account. Upon closing of the offering, the proceeds for the offering will be disbursed
to the Company and the Offered Shares will be disbursed to the investors. If the offering does not close, for
any reason, the proceeds for the offering will be promptly returned to investors without
interest (within one business day) and without deduction.
Purchasers
of Offered Shares will become Common Stockholders. Our Common Stock is common equity and
contains no preferences as to other classes of our Capital Stock. Shares of our Series A Preferred
Stock are entitled to preferential dividends of $ 0.30 per share, per annum, accruing on a quarterly basis. Therefore
we must distribute approximately $75,000 per quarter to our holders of Series A Preferred Stock, or Series A Preferred Stockholders,
before we will be permitted by our Governing Documents to declare and pay dividends to Common Stockholders. Shares
of our Series A Preferred Stock also fully participate in any dividends made relative to the Common Stock .
Each share of our Common Stock entitles the holder to one vote on all matters submitted to the vote of the Stockholders, including the election of directors. Holders of our Series A Preferred Stock are also entitled to one vote per share held.
Our
ability to pay dividends depends on both our achievement of positive cash flow and our board of directors ’
discretion in declaring dividends . For our most recent fiscal year ended June 30, 2015, we realized a net
loss of $348,184, and we paid our accrued preferred distributions on our Class A Units using remaining proceeds from our initial
Regulation A Offering. In the future we may, but are not required to, pay future dividends using offering proceeds. The
order and priority of our dividends is further described in “SECURITIES BEING OFFERED – Dividends .”
We
anticipate our Underwriter will also have the right but not the obligation to purchase warrants, or the Underwriter
Warrants. Set forth below are the anticipated terms of the Underwriter Warrants; however, their actual terms depend upon the terms
of our agreement with our Underwriter . An Underwriter Warrant may be purchased by our Underwriter as of the
Closing Date. An amount of our Common Stock equal to 5.0% of the number of Offered Shares sold in the offering
will underlie the Underwriter Warrant. The purchase price per Underwriter Warrant will be $0.001 per share of Common Stock
underlying the Underwriter Warrant and the exercise price shall be $16.10 per share of Common Stock. Each Underwriter
Warrant will be exercisable commencing on the date that is 180 days immediately following the issuance of such Underwriter
Warrant. The exercise period for all Underwriter Warrants will terminate at 5:00 p.m. Eastern Time on the date which is five years
immediately following the qualification date of this offering. Further terms and conditions of the Underwriter Warrants
will be set forth in a form of warrant mutually acceptable to the Company and our Underwriter . In accordance
with FINRA Rule 5110(g)(1), the Underwriter Warrants may not be sold by the Underwriter during the offering or sold, transferred,
assigned, pledged or hypothecated or be the subject of any hedging short sale derivative put or call transaction that would result
in the effective economic disposition of the warrants by any person for period of 180 days immediately following commencement
of the offering except as permitted by FINRA Rule 5110(g)(2). For purposes of this restriction the commencement of the offering
is deemed to be the date on which the Offering Statement of which this Offering Circular is part is declared qualified by the
SEC.
2
Management
Upon the conversion of the Company from Allegiancy, LLC to Allegiancy, Inc., our Company will be governed by our certificate of incorporation, or our Certificate, and our bylaws, or our Bylaws. The following summary describes material provisions of our Certificate and our Bylaws as those documents pertain to the management of our Company, but it is not a complete description of our Certificate, our Bylaws or any combination of the two. A copy of our Certificate and our Bylaws are filed as exhibits to the Offering Statement of which this Offering Circular is a part. See “SECURITIES BEING OFFERED – Description of Certificate of Formation and Bylaws.”
Board of Directors
Subject to our stockholders’ rights to consent to certain transactions as provided under the Delaware General Corporate Law, or DGCL, and the special voting right of our Series A Preferred Stock described below, the business and affairs of our Company are controlled by, and all powers are exercised by, our board of directors. Our board of directors shall consist of not less than three (3) nor more than seven (7) directors, the exact number to be set from time to time by the board of directors. We anticipate that our board of directors, as of the completion of this offering, will be comprised of Stevens M. Sadler, Christopher K. Sadler and David C. Moore, who are the current members of our board of managers. Our board of directors shall be elected each year, at the annual meeting of stockholders, to hold office until the next annual meeting and until their successors are elected and qualified. Any newly created directorships resulting from an increase in the authorized number of directors and any vacancies occurring in our board of directors, may be filled by the affirmative vote of the remaining directors. A director may resign at any time, and the stockholders may remove a director at any time, with or without cause, by the affirmative vote of a majority of stockholders voting in such decision.
The DGCL provides that stockholders of a Delaware corporation are not entitled to the right to cumulate votes in the election of directors unless its certificate of incorporation provides otherwise. Our Certificate does not provide for cumulative voting.
The board of directors my designate one or more committees. Such committees shall consist of one or more directors. Any such committee, to the extent permitted by applicable law, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Company.
Officers
The board of directors has the authority to select the officers of the Company. The officers shall consist of a Chairman of the Board of Directors, a Chief Executive Officer, a Secretary and a Treasurer. In addition, the board of directors may elect one or more Vice Chairmen, President, Chief Financial Officer and Vice Presidents, and such other offices as the board of directors may determine. Two or more of the aforementioned offices may be held by the same person. We anticipate that upon completion of this offering, our officers will be: (i) Stevens M. Sadler, Chief Executive Officer; (ii) Christopher K. Sadler, President, Chief Financial Officer and Treasurer; and (iii) David M. Starowicz, Chief Operating Officer and Secretary.
At the first meeting of the board of directors following the annual meeting of stockholders, the board of directors shall elect the officers. From time to time, the board of directors may elect other officers. Each officer so elected shall hold office until the first meeting of the board of directors after the annual meeting of stockholders following the officer’s election and until the officer’s successor is elected and qualified or until the officer’s earlier resignation or removal. Each officer may resign at any time and shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the entire board of directors. The Chief Executive Officer shall be in general charge of the general affairs of the Company, subject to the oversight of the board of directors. In case any officer is absent, or for any other reason the board of directors may deem sufficient, the Chief Executive Officer or the Board of Directors may delegate the powers and duties of such officer to any other officer or to any director.
Special Voting Right
The board of directors is authorized to provide for the issuance of any shares of preferred stock not designated as Series A Preferred Stock. Notwithstanding the foregoing, holders of a majority of the outstanding shares of Series A Preferred Stock must affirmatively vote for the creation, authorization or designation of a class or series of capital stock, or selling, issuing or granting capital stock, which has rights or preferences senior to the relative rights and preferences of the Series A Preferred Stock.
3
Summary Risk Factors
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•
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There
are no guaranteed distributions, and dividends will be subject to our financial performance.
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There
is no sinking fund established to fund redemptions of the Series A Preferred Stock .
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Our revenues will be subject to the performance of the real estate assets we manage.
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The national economy and the local economies of our managed properties, which are beyond our control, will affect the performance of our business.
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We do not currently control Allegiancy Houston which represents approximately 56% of the value of our assets under management and approximately 42% of our revenues on a pro forma basis.
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Our business will be subject to competition for assets under management, and if we are unable to successfully compete against our competitors, our performance will be adversely affected.
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Our asset management contracts with tenant in common owners have a greater risk of termination because they must be renewed by each tenant in common every year.
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If a property owner sells a property we manage, our management relationship, and thus a source of ongoing revenue, will terminate.
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We anticipate a substantial portion of the portfolio we manage will be encumbered by mortgage debt with balloon payments at maturity, which could hasten the termination of our management contracts.
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We are dependent upon our management team, and Stevens M. Sadler and Christopher K. Sadler in particular.
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You
will have only limited voting rights with respect to the management of our Company.
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We
may change our operational policies and business and growth strategies without Stockholder consent, which may subject us
to different and more significant risks in the future.
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We do not anticipate a public market for our securities developing.
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Interest of Management and Related Parties
Our
board of directors will receive fees and expenses for acting as our directors as the board of directors shall
from time to time prescribe.
4
Each
of Stevens M. Sadler and Christopher K. Sadler, in addition to being members of our board of directors , are our Chief Executive
Officer and President, respectively, and in such positions will receive salaries, benefits and potentially equity compensation
from us. David W. Starowicz is our Chief Operating Officer, and in this position, he will receive a salary, benefits
and potentially equity compensation from us. See “DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES”
and “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS” for more information.
Stevens
Sadler is also the manager of Continuum Capital, LLC, or Continuum. Continuum was our initial member and received 100
units of Class B membership in Allegiancy, LLC, which units will be converted into 200 shares of Common Stock in Allegiancy,
Inc. on the Entity Conversion Date, for a $1,000 initial capital contribution in January 2013. Additionally, in
March 2014 Continuum received 625,000 units of Class B membership in Allegiancy, LLC, which units will be converted into 1,250,000
shares of Common Stock in Allegiancy, Inc. on the Entity Conversion Date, in exchange for its 50% membership interest in our
predecessor, RMA. The members of Continuum Capital, LLC consist of Stevens Sadler’s spouse and various trusts established
for the benefit of his children.
Christopher
Sadler is the manager of Chesapeake Realty Advisors, LLC, or Chesapeake. Chesapeake received 625,000 units of Class
B membership in Allegiancy, LLC, which units will be converted into 1,250,000 shares of Common Stock in Allegiancy, Inc. on the
Entity Conversion Date, in exchange for its 50% membership interest in our predecessor, RMA, in March 2014. The members of
Chesapeake Realty Advisors, LLC consist of Christopher Sadler’s spouse and various trusts established for the benefit of
his children.
As
a result of the foregoing, the families of Stevens Sadler and Christopher Sadler will benefit from the units of Class B membership
in Allegiancy, LLC, issued to Continuum and Chesapeake in exchange for their membership interests in RMA , which units
will be converted into shares of Common Stock in Allegiancy, Inc. on the Entity Conversion Date.
Reporting Requirements under Tier II of Regulation A
Following
this Tier II , Regulation A offering, we will be required to comply with certain ongoing disclosure requirements under Rule
257 of Regulation A. We will be required to file: an annual report with the SEC on Form 1-K; a semi-annual
report with the SEC on Form 1-SA; current reports with the SEC on Form 1-U; and a notice under cover of Form 1-Z. The
necessity to file current reports will be triggered by certain corporate events. Parts I & II of Form 1-Z will
be filed by us if and when we decide to and are no longer obligated to file and provide annual reports pursuant to the requirements
of Regulation A.
5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Offering Circular contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking
statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,”
“potential,” “intend,” “expect,” “outlook,” “seek,” “anticipate,”
“estimate,” “approximately,” “believe,” “could,” “project,” “predict,”
or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations,
describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our
ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although
we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, our actual results
and performance could differ materially from those set forth or anticipated in our forward-looking statements. Factors
that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial
condition, funds derived from operations, cash available for dividends , cash flows, liquidity and prospects include, but
are not limited to, the factors referenced in this Offering Circular, including those set forth below.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Offering Circular. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Offering Circular. The matters summarized below and elsewhere in this Offering Circular could cause our actual results and performance to differ materially from those set forth or anticipated in forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this Offering Circular, whether as a result of new information, future events or otherwise.
6
RISK FACTORS
An
investment in our Offered Shares is highly speculative and is suitable only for persons or entities that are able to evaluate
the risks of the investment. An investment in our Offered Shares should be made only by persons or entities
able to bear the risk of and to withstand the total loss of their investment. Prospective investors should consider
the following risks before making a decision to purchase our Offered Shares . To the best of our knowledge, we have included
all material risks to investors in this section.
General Risks of an Investment in Us
An
investment in our Offered Shares is a speculative investment, and therefore, no assurance can be given that you
will realize your investment objectives.
No
assurance can be given that investors will realize a return on their investments in us or that they will not lose their entire
investment in our Offered Shares . For this reason, each prospective investor of our Offered Shares should
carefully read this Offering Circular. ALL SUCH PERSONS OR ENTITIES SHOULD CONSULT WITH THEIR ATTORNEY OR FINANCIAL
ADVISOR PRIOR TO MAKING AN INVESTMENT.
Cash
dividends are not guaranteed and may fluctuate with our performance.
There
can be no assurance that cash dividends will, in fact, be made or, if made, whether those dividends will be made
when or in the amount projected. The actual amount of cash that is available to be distributed will depend upon numerous
factors, including:
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cash flow generated by operations;
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our success in acquiring and retaining targeted assets;
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the performance of the underlying real properties which are the subject of our assets;
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cost of acquisitions (including related debt service payments, if any);
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fluctuations in working capital;
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restrictions contained in our debt instruments, if applicable;
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capital expenditures;
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reserves
made by the board of directors in its discretion;
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our
board of directors ’ discretion in declaring distributions;
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prevailing economic and industry conditions; and
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financial, business and other factors, a number of which are beyond our control.
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Investors should not invest in our Common Stock if they are seeking income in the form of dividends. |
Over our past two fiscal years, we have experienced aggregate net losses.
We recorded net income of $102,502 in fiscal 2014 and net losses of $302,214 in fiscal 2015, resulting in an aggregate net loss of $199,712 over our last two fiscal years. If our ability to generate positive net income remains inconsistent in the future, our ability to pay any dividends to you and the value of our common stock would likely be materially and adversely affected.
Cash
dividends on our Offered Shares are subordinate to preferred dividends on Series A Preferred Stock .
Prior
to any dividends being made to purchasers of our Offered Shares , we must pay all accrued but unpaid dividends
on our Series A Preferred Stock . These amount to approximately $75,000 per quarter. If we are
unable to generate sufficient cash flow to pay our preferred dividends, and do not elect to pay them from other sources, including
offering proceeds, we will not be able to pay dividends on our Common Stock.
There is no sinking fund for redemptions.
7
Our
Series A Preferred Stockholders have the right to require the Company to redeem their Series A Preferred Stock in
accordance with our Governing Documents . This will result in redemption obligations to us of up to $2.7 million
in 2017, $2.8 million in 2018, and $3.0 million in 2019. We have not established any sinking fund or other mechanism
to fund these redemptions. Therefore, we must either grow our cash flow or procure additional financing in order to
fund any required redemptions. If we cannot generate sufficient cash flow or procure additional financing to honor
redemption requests, we may be forced to sell some or all of our Company’s assets to fund redemptions, or we may not be
able to fund redemptions in their entirety or at all. If we are forced to sell some or all of our Company’s assets
in order to fund redemptions, such sales may materially adversely affect our continuing business. If we cannot fund
requested redemptions, we will have violated our Governing Documents , and Series A Preferred Stockholders seeking
redemption will have a claim against us with respect to such violation. In such event, your investment in us would
likely be materially and adversely affected.
Our
indebtedness, or that of our subsidiaries, may limit our ability to declare and pay dividends and may affect our
operations.
We,
or our subsidiaries, may seek debt financing to assist with the financing of our or their acquisitions and future operations. Our
ability, or that of our subsidiaries, to make principal and interest payments with respect to such debt incurred depends on future
performance, which performance is subject to many factors, some of which will be outside of our control or the control of our
subsidiaries. In addition, most of such indebtedness will likely be secured by substantially all of our or our subsidiaries’
assets, as applicable, and will contain restrictive covenants that limit our, or our subsidiaries’, ability to distribute
cash and to incur additional indebtedness. Payment of principal and interest on such indebtedness, as well as compliance
with the requirements and covenants of such indebtedness, could limit our or our subsidiaries’ ability to make distributions
to us or dividends to our stockholders , respectively. Such leverage may also adversely affect our ability, or that
of our subsidiaries, to finance future operations and capital needs, or to pursue other business opportunities and make results
of operations more susceptible to adverse business conditions.
We do not currently control the board of managers of Allegiancy Houston.
Allegiancy Houston represents
approximately 56% of our assets under management and 42% of our revenues on a pro forma basis as of the date of this Offering
Circular. While we have significant major decision rights over Allegiancy Houston and may convert the outstanding
promissory note to take control of Allegiancy Houston’s board of managers, we do not currently control the board of
managers of Allegiancy Houston, and, therefore, we do not control the day-to-day management of Allegiancy Houston. If
Allegiancy Houston’s board of managers does not effectively manage Allegiancy Houston and the properties it manages, then
we may not realize all of the anticipated revenues from our 70% economic interest in Allegiancy Houston. In such event,
an investment in us may be adversely affected.
Risks Related to Our Business
Our revenues are subject to and largely dependent upon the success of the underlying assets which we will be managing.
Revenue from our assets, which consist primarily of asset management contracts, largely consist of a percentage of the revenue from the real property assets which we will be managing and other fees from the sale or refinancing of such assets. Therefore, the success of our Company and the economic success of an investment in our Company will greatly depend upon the results of operations of such managed assets, which will be subject to those risks typically associated with investment in real estate. The real estate industry is cyclical and is significantly affected by changes in national and local economic and other conditions, such as employment levels, availability of financing, interest rates, consumer confidence and demand. These factors can cause fluctuations in occupancy rates, rental rates and operating expenses. Reductions in rental rates or increases in vacancy will directly and adversely affect the revenues we earn for managing properties and ultimately our ability to pay distributions to you. In addition, sufficient decreases in rental rates or increases in operating expenses and vacancy rates caused by events outside of our control may nevertheless contribute to a property owner’s decision to terminate us.
The national economy and the regional and local economies of our managed properties’ locations will affect the performance of our business.
The performance of commercial real estate, including our targeted suburban office assets, would likely be negatively affected by a slowing economy, as poorer business performance and diminished confidence will reduce demand for space at our managed properties. Further, over the past several years, financial and geopolitical issues, have contributed to increased volatility and uncertainty in the financial and credit markets and diminished expectations for the economy going forward.
8
Volatility
in the credit markets and the generally weak economic environment may impact the real estate industry through falling
transaction volumes, lower real estate valuations, liquidity restrictions, and diminished confidence. We are unable to predict
the likely duration and severity of the current or future turmoi l in financial markets and adverse economic conditions
in the United States and other countries, or their impact on the real estate industry. Our smaller size as compared
to some of our competition may increase our susceptibility to economic downturns. The current volatile conditions and any downturn
in, or weakening of, the national economy, or the regional and local economies where our managed properties are located, would
likely have an adverse impact on the assets which our Company, or our subsidiaries, manage. In such event our revenues,
profitability and ability to pay dividends to you would likely be materially and adversely affected.
Our business will be subject to competition for assets under management, and if we are unable to successfully compete against our competitors, our performance will be adversely affected.
The
property and asset management industry is highly competitive, with competition based primarily on price and service. Our Company
expects to compete with large-scale, national asset managers such as CBRE, Jones Lang LaSalle and others, as well as regional
and local property and asset management firms. Our larger competitors are better able to take advantage of efficiencies
created by size, have better financial resources, have access to capital at lower costs, and may be better known in the
regional markets in which we compete. We must effectively compete with these firms in order to retain our existing
asset management clients and recruit new business from property owners. If we are unable to retain our existing business
or recruit new business because we do not effectively compete with our competitors, then our revenues and ability to declare
and pay dividends to you will be materially and adversely effective.
We subcontract some of our duties under our asset management contracts to local property managers in the locales of our managed properties, and will be reliant on the performance of such local property managers.
We subcontract certain duties relative to the day-to-day operations of our managed properties to local property managers. Our asset management contracts permit us to do so; as a result, our personnel will not directly perform some of the services we have been contracted to perform. Therefore, we will not have direct control over all aspects of our performance under asset management contracts for which we have subcontracted duties. If a local property manager we engage does not perform the subcontracted services in a satisfactory manner, it could damage our relationship with the property owner.
We may not be successful in executing our growth strategy.
Our
plan is to expand our business through marketing to property owners and by selectively acquiring other asset management firms. Although
we believe there are numerous potential acquisition candidates in the industry, some of which represent material acquisition opportunities,
there can be no assurance that we will continue to find attractive acquisition targets in the future, that we will be able to
acquire such targets on economically acceptable terms, that any acquisitions will not be dilutive to earnings and dividends
or that any additional capital necessary to finance an acquisition will be available upon terms favorable to us or at all.
We may not be able to successfully integrate new asset management contracts into our business.
We
may not have operational experience with any of our acquisition targets. Although we have developed a due diligence
process to assess the viability of our targeted and future acquisitions, there is no guarantee that our due diligence procedures
will reveal any and all issues with the underlying property or properties which are the subject of a targeted asset. Additionally,
we may acquire assets within the United States in which we do not currently operate. Accordingly, to the extent we acquire any
such assets, we will not possess the same level of familiarity with the underlying properties to which they pertain, and therefore
the acquired asset may fail to perform in accordance with our expectations, as a result of our inability to operate them successfully. We
may also fail to integrate assets successfully into our business or inaccurately assess their true value in calculating their
purchase price or otherwise, which could materially and adversely affect us and your investment .
9
We may not be able to retain our asset management contracts or those we acquire in the future, which could materially and adversely affect us and your investment.
Our business is to manage real estate properties which is dependent on the asset management contracts between us and property owners. Such contracts may be terminable by property owners in their sole discretion or upon other terms which are not within our control. Our failure to retain an asset management contract which we have acquired could materially and adversely affect us and our business operations. The pressure facing companies engaged in the asset management business has grown in recent years due to an intensified focus on property level revenues as a result of the global financial crisis and the underperforming real estate market. Our inability to perform to the expectations of our clients due to such economic circumstances or due to external factors specifically affecting the underlying real property which is the subject of an acquisition may affect our ability to retain an asset and therefore have a resulting material and adverse impact on our operations.
Many
of our asset management contracts will be with tenant-in-common groups leading to increased risk that our asset management
contracts may be terminated.
Twenty
(20) out of our twenty-eight (28) asset management contracts, comprising approximately 43.57% of our revenues as of June 30, 2015
are with tenant-in-common owners of the underlying real property asset. Further, because of our management team’s
experience with tenant-in-common owners , we anticipate targeting asset management contracts with tenant-in-common
owners for acquisition in the future. Our asset management contracts with tenant-in-common owners of a property
must be renewed by each tenant-in-common on a yearly basis. Therefore, a single minority owner of a property
owned by tenants-in-common owners may cause the termination of an asset management contract without cause. If
we are unable to retain our asset management contracts, then we will generate less revenue and ultimately will have less cash
flow available to support our business and pay dividends to you.
Our asset management contracts terminate upon the sale of the underlying real property asset to which they apply.
All
of our asset management contracts terminate upon the sale of the underlying real property asset, and we generally do not expect
any of the asset management contracts we may acquire or enter into in the future to bind future owners of any of the real property
assets underlying our asset management contracts. While our asset management contracts generally provide for significant
fees to us upon the sale of a managed property, if the new owner of a property elects not to retain us, then our revenue over
the long-term will be adversely impacted. If we lose contracts due to the sale of properties and are unable to replace
them with new engagements, then our cash flow available to support our business and pay dividends to you and the
value of your investment in us will be materially and adversely impacted.
We anticipate a substantial portion of the portfolio we manage will be encumbered by mortgage debt with balloon payments at maturity, which could hasten the termination of our management.
We expect that most, if not all of the properties we manage will be encumbered by mortgage debt that has a balloon payment at maturity. Most of the properties comprising our managed portfolio are encumbered by mortgage debt with balloon payments at maturity. Properties comprising approximately 98% of our managed square footage and 99% of our revenues are encumbered by mortgage debt requiring a balloon payment within the next ten years. If the owner(s) of a property is unable to pay the balloon payment, the owner will be required to either sell the property or refinance the mortgage debt in order to avoid a default. If the owner elects, and is able to, refinance a property, then our asset management contract would remain in place; however, if the owner elects to sell the property, or is foreclosed upon if it cannot sell or refinance, then our asset management contract would terminate.
In executing our growth strategy, we may purchase the equity of existing asset and property management businesses, which could expose us to the risk of residual liabilities.
While
we intend to attempt to acquire the asset management contracts of existing asset and property management businesses in executing
our growth strategy, there will likely be instances in which we are unable to do so. One such situation in which we
will likely purchase the equity of an existing business, rather than its assets will be when our management determines it will
be difficult to timely obtain the necessary consents from third parties for a potential acquisition target to assign its
asset management contracts to us. If we purchase the equity of an existing business, we generally intend to require
representations and warranties and indemnifications from the sellers of the acquisition target in order to protect us from any
liabilities of the acquired business. However, there can be no assurance that any residual liability in an acquired
business will not exceed the ability of the seller of such business to indemnify us.
10
We may, from time to time, make loans to property owners in order to assist with immediate property capitalization needs and to alleviate management transition costs and there is a risk that we may not be able to collect the full amount of such loans.
Our
Company may make loans to property owners from time to time in order to provide funds for property repairs and other immediate
capitalization needs as well for termination and other transition fees associated with transitioning management of a property
to our Company. Our board of directors will determine, in its sole discretion, the terms and conditions for such loans;
provided, however, each loan will be limited to $100,000 per 12-month period per property and must be repaid from property cash
flows no later than six (6) months from the date of the loan with interest thereon ranging from approximately 8%-10% per annum.
Such loans may be unsecured or may have limited security for their repayment. In the event of a default by the property
owner, we may be unable to collect on the loan. There is also a possibility that our board of directors
may determine it to be in our best interest to make certain concessions to a defaulting client in order to maintain the management
contract for such client. All of the foregoing may have a material adverse effect on our operations.
We
are dependent on our management to achieve our objectives, and our loss of, or inability to obtain, key personnel could delay
or hinder implementation of our business and growth strategies, which could adversely affect the value of your investment and
our ability to pay dividends .
Our success depends on the diligence, experience and skill of our board of directors and officers . Stevens M. Sadler is our director and our Chief Executive Officer. Christopher K. Sadler, Stevens Sadler’s brother, is our director and president. David L. Moore is our non-executive, independent director . We currently hold a $1.5 million key man life insurance policy on each of Messrs. Sadler. However, there can be no assurance that such policies would adequately compensate us for the loss of either of Messrs. Sadler. Each of Messrs. Sadler’s employment agreements have a four-year term, beginning on March 6, 2014, with automatic one-year renewals unless earlier terminated, and will require the individual to devote his time and attention during normal business hours to the business and affairs of our Company and our Company’s affiliates. The termination of such employment agreements or the loss of Mr. Stevens M. Sadler, Mr. Christopher K. Sadler, any future director or any other key person could harm our business, financial condition, cash flow and results of operations. Any such event would likely result in a material adverse effect on your investment.
We do not currently own a majority voting interest in Allegiancy Houston, LLC.
The
present structure of Allegiancy Houston, our joint venture with TriStone, provides us with a 70% economic interest in the joint
venture, but at present, only a 40% voting interest. In connection with the formation of Allegiancy Houston, TriStone
issued a promissory note for the benefit of the Company. This promissory note is payable with the transfer of a 30% voting interest
in Allegiancy Houston from TriStone to the Company. While we have significant major decision rights over Allegiancy Houston
and may convert the outstanding promissory note to take control of Allegiancy Houston’s board of managers , Allegiancy
Houston is governed by a three-member board of managers, one of whom is named by us, one of whom is named by TriStone, and one
of whom is named by the owner of a majority of the voting interest in Allegiancy Houston. While we believe that the joint
venture will prove successful, we cannot guarantee success of the venture, and until such time as we take full operating control,
the joint venture’s success will be subject to TriStone’s management. As a result, this may pose a
risk to any investment in us.
Risks Relating to the Formation and Internal Operation of the Company
You
will have only limited rights regarding our management, therefore, you will not have the ability to actively influence
the day-to-day management of our business and affairs.
Our
board of directors will have sole power and authority over the management of our Company, subject only to the requirements
of the DGCL and the special voting rights of our Series A Preferred Stock relative to the designation and issuance of equity senior
to the Series A Preferred Stock. See “SECURITIES BEING OFFERED – Description of Our Certificate
of Incorporation and Bylaws. ”
11
Therefore,
you will not have an active role in our Company’s day-to-day management.
We
may change our operational policies and business and growth strategies without Stockholder consent, which may subject us
to different and more significant risks in the future.
Our
board of directors determines our operational policies and our business and growth strategies. Our directors may
make changes to, or approve transactions that deviate from, those policies and strategies without a vote of, or notice to, our
Stockholders . This could result in us conducting operational matters or pursuing different business or growth strategies
than those contemplated in this Offering Circular. Under any of these circumstances, we may expose ourselves to different and
more significant risks in the future, which could materially and adversely affect our business and growth
Our management will have significant control over our operations by virtue of the equity ownership in us by entities controlled by Messrs. Sadler.
Stevens
M. Sadler and Christopher K. Sadler are two of our three directors . Further, through their respective
control of Continuum Capital, LLC and Chesapeake Realty Advisors, LLC they will collectively control the voting of 2,500,200 shares
of our Common Stock issued to them as consideration for our acquisition of RMA. These shares of Common
Stock will represent 42.32% of our outstanding shares of capital stock following completion of the offering. In
addition, each of Messrs. Sadler has the right to acquire an additional 30,000 shares of Common Stock
under our equity incentive plan. Therefore, in either case, Messrs. Sadler will collectively control sufficient Common
Stock to significantly influence the election of our board of directors, and actions requiring the consent of a
majority of the Stockholders .
The
ability of a Stockholder to recover all or any portion of such Stockholder’s investment in the event of a
dissolution or termination may be limited.
In
the event of a dissolution or termination of the Company or any of its subsidiaries, the proceeds realized from the liquidation
of the assets of the Company or such subsidiaries will be distributed among the Stockholders , but only after the satisfaction
of the claims of third-party creditors of the Company. The ability of a Stockholder to recover all or any portion
of such Stockholder ’s investment under such circumstances will, accordingly, depend on the amount of net proceeds
realized from such liquidation and the amount of claims to be satisfied therefrom. Further, before Common Stockholders
receive distributions upon liquidation of the Company, the Company must pay the Series A Preferred Stockholders any and all accrued
and unissued dividends owing to them. There can be no assurance that the Company will recognize gains on such liquidation,
nor is there any assurance that Common Stockholders will receive a distribution in such a case.
The
board of directors and our executive officers will have limited liability for, and will be indemnified and held harmless
from, the losses of the Company.
The
Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right
of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. A successful claim for such indemnification could deplete the
Company’s assets by the amount paid. See “SECURITIES BEING OFFERED – Description
of Certificate of Incorporation and Bylaws ” below for a detailed summary of the terms of our Certificate and
Bylaws . Our Certificate and Bylaws are filed as exhibits to the Offering Statement of which this Offering
Circular is a part.
12
Risks Related to Conflicts of Interest and Interested Transactions
Certain of our affiliates possess ownership interests in or control properties which are currently managed by us, which may create a conflict of interest for certain of our managers.
Certain
of our affiliates possess ownership interests in or control properties which are currently managed by us. As a result,
it is possible that the terms and provisions of the asset management agreements between us and the respective affiliated property
owners may not solely reflect the result of arm’s-length negotiations. Thus, such agreements may provide for
less favorable terms to our Company than would have been obtained were such asset management agreements entered into with unaffiliated
third parties.
Members
of our board of directors and our executive officers will have other business interests and obligations to other entities.
Neither
our directors nor our executive officers will be required to manage the Company as their sole and exclusive function and
they may have other business interests and may engage in other activities in addition to those relating to the Company, provided
that such activities do not compete with the business of the Company or otherwise breach their agreements with the Company. We
are dependent on our directors and executive officers to successfully operate our Company, and in particular Messrs. Sadler. Their
other business interests and activities could divert time and attention from operating our business.
A
majority of our board of directors is not independent.
Two
of our directors are officers of the Company and also have significant equity positions in the Company. The
third director is independent, but the majority of the board of directors is not independent. While our independent
director helps to safeguard against interested transactions and other conflicts of interest, that safeguard is not absolute
and there are inherent risks in not having a majority controlled independent board of directors.
Risks Related to the Offering and Lack of Liquidity
There has been no active public market for our common stock prior to this offering and an active trading market may not be developed or sustained following this offering, which may adversely impact the market for shares of our common stock and make it difficult to sell your shares.
Prior to this offering, there was no active market for our common stock. Although we intend to apply to list our common stock on the OTC QX, even if we obtain that listing, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. The initial public offering price for shares of our common stock will be determined by negotiation between us and our Underwriter. You may not be able to sell your shares of Class A common stock at or above the initial offering price.
The OTC QX, as with other public markets, has from time to time experienced significant price and volume fluctuations. As a result, the market price of shares of our common stock may be similarly volatile, and holders of shares of our common stock may from time to time experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. The price of shares of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this Offering Circular.
No assurance can be given that the market price of shares of our common stock will not fluctuate or decline significantly in the future or that holders of shares of our common stock will be able to sell their shares when desired on favorable terms, or at all.
13
This
is a fixed price offering and the fixed offering price may not accurately represent the current value of us or our assets at any
particular time. Therefore, the purchase price you pay for Offered Shares may not be supported by the value of our assets
at the time of your purchase.
This
is a fixed price offering, which means that the offering price for our Offered Shares is fixed and will not vary based
on the underlying value of our assets at any time. Our board of directors , in consultation with our Underwriter ,
has determined the offering price in its sole discretion. The fixed offering price for our Offered Shares has
not been based on appraisals of any assets we own or may own, or of our Company as a whole, nor do we intend to obtain such appraisals. Therefore,
the fixed offering price established for our Offered Shares may not be supported by the current value of our Company or
our assets at any particular time.
The
entire amount of your purchase price for your Offered Shares will not be available for investment in the Company.
A
portion of the offering proceeds will be used to pay selling commissions of five percent (5%) of the offering proceeds to our
Underwriter , which it may re-allow and pay to participating broker-dealers, who sell Offered Shares . See “ UNDERWRITING
AND PLAN OF DISTRIBUTION.” Thus, a portion of the gross amount of the offering proceeds will not be available
for investment in the Company. See “USE OF PROCEEDS TO ISSUER.”
If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.
Our
Offered Shares have not been registered under the Securities Act of 1933, or the Securities Act, and are being offered
in reliance upon the exemption provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We
represent that this Offering Circular does not contain any untrue statements of material fact or omit to state any material fact
necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However,
if this representation is inaccurate with respect to a material fact, if this offering fails to qualify for exemption from registration
under the federal securities laws pursuant to Regulation A, or if we fail to register the Offered Shares or find an exemption
under the securities laws of each state in which we offer the Offered Shares , each investor may have the right to rescind
his, her or its purchase of the Offered Shares and to receive back from the Company his, her or its purchase price with
interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment
may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may
not be able to meet and it may adversely affect any nonrescinding investors.
Our
Series A Preferred Stockholders have the right to purchase Common Stock at a price significantly below the price
in this offering.
Series
A Preferred Stockholders have the right to purchase one share of Common Stock for each Series A Preferred Stock
they hold for a purchase price of $3.75 per share of Common Stock , or the Purchase Right. The Purchase
Rights may only be exercised within 10 days of when the Series A Preferred Stockholder’s applicable shares of Series
A Preferred Stock are redeemed or within 10 days of when we convert them into Common Stock in accordance with our right
to do so beginning in March, 2019. The purchase price per share of Common Stock pursuant to the Purchase
Rights is $11.25 less than the price per s hare of Common Stock in this offering, assuming we sell the Offered Shares
at the upper end of our price range. Therefore, if the Series A Preferred Stockholders exercise their Purchaser
Rights you will experience significant dilution of your percentage interest in the Company and significant economic dilution.
14
Risks Related to Benefit Plan Investors
Fiduciaries investing the assets of a trust or pension or profit sharing plan must carefully assess an investment in our Company to ensure compliance with ERISA.
In considering an investment in the Company of a portion of the assets of a trust or a pension or profit-sharing plan qualified under Section 401(a) of the Code and exempt from tax under Section 501(a), a fiduciary should consider (i) whether the investment satisfies the diversification requirements of Section 404 of ERISA; (ii) whether the investment is prudent, since the Offered Shares are not freely transferable and there may not be a market created in which the Offered Shares may be sold or otherwise disposed; and (iii) whether interests in the Company or the underlying assets owned by the Company constitute “Plan Assets” under ERISA. See “ERISA CONSIDERATIONS.”
15
DILUTION
During
the past year, none of the units of Class B membership in Allegiancy, LLC, which units will be converted into shares of Common
Stock in Allegiancy, Inc. on the Entity Conversion Date, have been acquired by any of our directors , officers, promoters
or affiliates. However, in the past year, we have issued options to purchase an aggregate of 170,000
shares of Common Stock to Messrs. Sadler, Mr. Moore and Mr. Starowicz. Giving effect to the one-to-two
(unit-to-shares) conversion, the average exercise price of the options issued to Messrs. Sadler, Mr. Moore and Mr. Starowicz
is $3.00 representing a difference of $11.00 (78.57%) from the price to the public in this offering, based
on an offering price at the mid-point of our price range, $14.00 .
16
UNDERWRITING AND PLAN OF DISTRIBUTION
Underwriting
We have engaged WR Hambrecht + Co, LLC, our underwriter, with respect to the Offered Shares. We anticipate entering into an underwriting agreement setting forth the definitive terms and conditions of the sale of the Offered Shares on or prior to the qualification of the offering statement of which this Offering Circular is a part.
Subject to certain conditions, the underwriter has agreed to use its best efforts to procure potential purchasers for the Offered Shares. This offering is being undertaken on a best efforts only basis. The underwriter is not required to take or pay for any specific number or dollar amount of our Common Stock. The underwriter will have the right to engage such other FINRA member firms as it determines to assist in this offering.
The Offered Shares are being offered on an all or none basis. Investor funds will be deposited into a non-interest bearing escrow account for the benefit of investors with the SunTrust Bank. The offering will not be completed unless we sell the number of shares specified on the cover page of this Offering Circular. All investor funds received prior to the closing will be deposited into the escrow account until closing. The escrow account will be opened prior to the date of qualification of the offering statement of which this Offering Circular is a part and will remain open until the closing date. All funds received into the escrow account after the pricing of the offering will be held in a non-interest bearing account in accordance with Rule 15c2-4 under the Exchange Act. All funds must be transmitted directly by wire to the specified bank account at the SunTrust Bank per the instructions disseminated at pricing by the underwriter. SunTrust Bank will not accept or handle any funds. On the closing date, the escrow agent will notify the underwriter whether the full amount necessary to purchase the shares to be sold in this offering has been received. If, on the closing date, investor funds are not received in respect of the full amount of shares to be sold in this offering, then all investor funds that were deposited into the escrow account will be returned promptly to investors, and the offering will terminate. The following table shows the per share and total underwriting commissions to be paid to the underwriter, assuming that we sell the Offered Shares at the mid-point of our range.
| Per Share |
Total | |||||||
| Public offering price | $ 14.00 | $ 30,100,000.00 | ||||||
| Underwriting commissions payable by us(1) | $ 0.70 | $ 1,505,000.00 | ||||||
| Proceeds, before expenses, to us | $ 13.30 | $ 28,595,000.00 | ||||||
______________________________________________
| (1) | The underwriting discounts and commissions do not include the expense reimbursement, advisory fee, or underwriter’s warrants as described below. |
Certain accountable expenses of the underwriter (excluding commissions) of up to $100,000 are payable by us. Shares sold to the public will initially be offered at the initial public offering price set forth on the cover of this offering circular. Any shares sold to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares, the offering price and the other selling terms may be subject to change. The offering of the shares is subject to receipt and acceptance and subject to the right to reject any order in whole or in part.
Upon the closing of this offering, we have agreed to issue to the underwriter warrants to purchase a number of shares of our Common Stock equal to 5.0% of the total shares of our Common Stock offered in the final offering statement. The underwriter’s warrants are exercisable commencing on the qualification date of the offering statement related to this offering, and will be exercisable for five years. The underwriter’s warrants are not redeemable by us. The exercise price for the underwriter’s warrants will be the amount that is 15% greater than the offering price, or $16.10 assuming we sell the Offered Shares at the mid-point of our range.
The underwriter’s warrants and the shares of Common Stock underlying the underwriter’s warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriter, or permitted assignees under such rule, may not sell, transfer, assign, pledge, or hypothecate the underwriter’s warrants or the shares of Common Stock underlying the underwriter’s warrants, nor will the underwriter, or permitted assignees engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the underwriter’s warrants or the underlying shares of common stock for a period of 180 days from the qualification date of the offering statement, except that they may be transferred, in whole or in part, by operation of law or by reason of our reorganization, or to any underwriter or selected dealer participating in the offering and their officers or partners if the underwriter’s warrants or the underlying shares of our common stock so transferred remain subject to the foregoing lock-up restrictions for the remainder of the time period. The underwriter’s warrants will provide for adjustment in the number and price of the underwriter’s warrants and the shares of common stock underlying such underwriter’s warrants in the event of recapitalization, merger, stock split, or other structural transaction, or a future financing undertaken by us.
We and our officers, directors, and holders of five percent or more of our common stock have agreed, or will agree, with the underwriter, subject to certain exceptions, that, without the prior written consent of the underwriter, we and they will not, directly or indirectly, during the period ending [ ]days after the date of the offering circular:
offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of our Common Stock or any securities convertible into or exchangeable or exercisable for our Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition; or
enter into any swap or any other agreement or any transaction that transfers, in whole or in part, the economic consequence of ownership of our Common Stock, whether any such swap or transaction is to be settled by delivery of our Common Stock or other securities, in cash or otherwise.
This agreement does not apply, in our case, to securities issued pursuant to existing employee benefit plans or securities issued upon exercise of options and other exceptions, and in the case of our officers, directors and other holders of our securities, exercise of stock options issued pursuant to a stock option or similar plans, and other exceptions.
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Prior to the offering, there has been no public market for the Offered Shares. The initial public offering price will be determined by negotiation between us and the underwriter. The principal factors to be considered in determining the initial public offering price will include:
| · | the information set forth in this Offering Circular and otherwise available to the underwriter; |
| · | our history and prospects and the history of and prospects for the industry in which we compete; |
| · | our past and present financial performance; |
| · | our prospects for future earnings and the present state of our development; |
| · | the general condition of the securities markets at the time of this offering; |
| · | the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| · | other factors deemed relevant by the underwriter and us. |
We expect that our common stock will be quoted on OTC QX immediately following this offering under the symbol “ “.
We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act. The underwriter and its affiliates are engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriter and its affiliates may in the future perform various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriter and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Investment Limitations
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
As a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the offering. The only investor in this offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation D. If you meet one of the following tests you should qualify as an Accredited Investor:
(i) You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
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(ii) You
are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase
Offered Shares (please see below on how to calculate your net worth);
(iii) You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
(iv) You
are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation,
a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares ,
with total assets in excess of $5,000,000;
(v) You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, as amended, or the Investment Company Act, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
(vi) You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
(vii) You
are a trust with total assets in excess of $5,000,000, your purchase of Units is directed by a person who either alone or with
his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience
in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you
were not formed for the specific purpose of investing in the Offered Shares ; or
(viii) You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000.
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Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
NOTE: For the purposes of calculating your net worth, or Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the Units.
In
order to purchase Offered Shares and prior to the acceptance of any funds from an investor, an investor will be required to represent,
to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or
annual income limitation on investment in this offering.
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USE OF PROCEEDS TO ISSUER
Net
proceeds to our Company from this offering are anticipated to be $28,230,000, following the payment of selling commissions,
underwriter fees and other offering costs, assuming that we sell the Offered Shares at the mid-point of our
price range. Set forth below is a table showing the estimated sources and uses of the proceeds from this offering.
| Aggregate Offering Amount | % | |||||||
| Gross Proceeds | $ | 30,100,000 | 100.00 | % | ||||
Estimated Offering Expenses1 | $ | 365,000 | 1.21 | % | ||||
Selling Commissions & Fees2 | $ | 1,505,000 | 5.00 | % | ||||
| Net Proceeds | $ | 28,230,000 | 93.79 | % | ||||
Acquisition of Assets3 | $ | 26,230,000 | 87.14 | % | ||||
Capital Expenditures4 | $ | 500,000 | 1.66 | % | ||||
Working Capital5 | $ | 1,500,000 | 4.98 | % | ||||
| Total Use of Proceeds | $ | 30,000,000 | 100.00 | % |
1
Estimated offering expenses include legal, accounting, printing, advertising,
travel, marketing, blue sky compliance and other expenses of this offering, and transfer agent and escrow fees.
2
Our Underwriter will receive selling commissions of 5% of the gross offering
proceeds, which it may re-allow and pay to participating broker-dealers.
3
We intend to use approximately 87.14 % of
the gross proceeds of this offering to acquire the operations of, or if required equity interests in, other asset managers whose
assets under management fit our targeted portfolio. We currently have not yet identified any acquisition targets. We
intend to target for acquisition asset managers with management oversight of commercial real estate property, with a focus on
commercial office, located in the lower 48 states, with an initial focus on the southeastern region where our subsidiaries’
operations are already focused. If required to acquire an equity interest in a target asset manager, we intend to acquire an
interest granting us sufficient control over the target asset manager to enable us to consolidate the target asset manager’s
financial statements with our own and to ensure that we do not become an investment company as defined under the Investment Company
Act of 1940, or the Investment Company Act.
4 We
intend to use approximately $500,000, 1.66 % of the gross offering proceeds from this offering, on additional capital
expenditures including software infrastructure for our platform.
5 We
intend to use approximately 5.00% of the gross offering proceeds to manage our business and provide working capital for operations
including integration costs related to new management contracts and acquisitions and for increased marketing and transition expenses
for organic growth including attracting new employees . These amounts may be used to pay salaries and other
compensation to members of our board of directors and our officers.
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DESCRIPTION OF OUR BUSINESS
General
Allegiancy,
LLC was formed as a Delaware limited liability company on January 22, 2013. We engage in the business of providing
asset and property management services related to commercial real estate with an emphasis on suburban office properties in secondary
and smaller markets. We produce income from asset management fees, leasing fees, construction fees, financing fees and advisory
services. On the Entity Conversion Date, we will convert our Company from a limited liability company to a corporation pursuant
to our Governing Documents. At such time, we will be known as Allegiancy, Inc.
We
differentiate between asset management services and property management services. Asset management services revolve
around the strategic, long-term positioning of a property, including the sourcing and negotiation of leases and financing, management
of significant capital investments, construction and repairs, the marketing of a property for lease and disposition as
well as the tactical oversight of daily property operations. On the other hand, property management services relate
to the day-to-day operations of the property, including procuring utilities and other vendors (such as trash, landscaping and
maintenance) and providing onsite maintenance support to a property’s tenants.
In order to maximize our ability to grow quickly with limited fixed costs, we outsource many of the property management services to third party property managers doing business in the local areas where our properties under management are located. We pay these third party property managers a base management fee equal to a portion of the gross revenues of the property, in addition to other fees and expense reimbursements in some instances. The fees paid to the third party property managers we contract with are paid out of the percentage of the gross revenues of the property we earn pursuant to our asset management agreements. Therefore, the profit we earn from any property is reduced by the fees payable to the third party property manager with respect to such property. We also pay certain brokers and property managers leasing commissions for bringing tenants to our managed properties. All accounting and finance functions are handled internally by our employees.
Operators
The Operations of the Company and RMA
The Company directly or through its wholly owned subsidiary, RMA, manages properties in Pennsylvania, Virginia, North Carolina, South Carolina, Georgia, Florida and Texas consisting primarily of office properties with some flex/office and warehouse space. This portfolio consists of approximately forty (40) buildings, which management is governed by fourteen (14) contracts. Certain contracts govern the management of multiple properties on a portfolio basis. Square footage of the properties range from 10,784 square feet to 299,186 square feet, with an aggregate of 2,409,951 square feet under management. These operations currently employ eighteen (18) employees and staff for the purposes of its day to day operations.
Gross
annual revenue from the operations of properties under management directly by Allegiancy or by RMA as of the end of the 2015 fiscal
year was $3,337,908.
Our management of these properties is governed by various management agreements, which each have a term of one year and are renewable automatically subject to: (i) the right of the property owner to terminate with notice at the end of the calendar year or for cause, or (ii) the right of the Company or RMA to terminate upon the default of the property owner. The management fees payable to the Company or RMA under the asset management agreements vary as follows:
| • |
property management fees ranging from 4% to 6% of the gross revenues of the property;
|
| • |
asset management fees, if any, of 2% of the gross revenues of the property;
|
| • |
leasing commissions ranging from 1% to 6% of the value of new leases entered into and 1% to 4% for renewals;
|
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| • |
construction management fees of 5% of amounts spent on construction or repair of the property in a calendar year;
|
| • |
selling commissions ranging from 1% to 3% of the gross sales price of the property; and
|
| • |
financing fees of 1% for the procurement of financing for a property.
|
Contracts representing thirty-two (32) out of the above forty (40) managed buildings are with affiliates of our Company and RMA. See “INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS AND OTHER CONFLICTS OF INTEREST - Affiliated Ownership or Control of Managed Properties.”
We have contracted with third party property managers in respect to some of our asset management contracts. We generally pay base property management fees and additional fees, including leasing commissions, construction fees, personnel and payroll costs and accounting fees with respect to certain property management relationships. For the fiscal year ended June 30, 2015, we paid approximately $405,327 in fees to third party property managers.
Additional Operations via Allegiancy Houston
On
April 30, 2015, we created Allegiancy Houston, LLC. On June 1, 2015, we caused Allegiancy Houston to enter into an
agreement whereby Allegiancy Houston acquired the asset management business of Tristone and its affiliates. As partial
consideration, TriStone received a 30% economic interest and a 70% voting interest, subject to our rights under the terms of the
convertible promissory note, in Allegiancy Houston. We also granted TriStone 128,600 Class B Units in us, which
units will be converted into 257,200 shares of Common Stock in Allegiancy, Inc. on the Entity Conversion Date . From
this transaction, we retained a 70% economic interest in Allegiancy Houston and a 40% voting interest.
As
additional consideration, we loaned $1,284,881.50 to TriStone, which is evidenced by a convertible promissory note bearing interest
at the rate of four percent (4%) per annum with a maturity date of June 30, 2020. All accrued interest
and principal is payable at maturity of the note. In addition, we may call the note at any time. At
that time or on the maturity date, whichever comes earlier, TriStone will be required to transfer to us a 30% voting interest
in Allegiancy Houston as payment in full on the convertible promissory note. After that time, we will have a 70% economic
interest and a 70% voting interest in Allegiancy Houston.
Allegiancy
Houston is governed by its amended and restated operating agreement dated as of June 1, 2015, or the AH Operating Agreement,
which has been filed with the SEC as an exhibit to the Offering Statement of which this Offering Circular is a part. The
AH Operating Agreement provides for a three-member board of managers with one manager named by us, one named by TriStone, and
one named by the member(s) holding a majority of the voting interests in Allegiancy Houston. Currently we hold a 40%
voting interest and TriStone owns a 60% voting interest. The current board of managers is comprised of Stevens M. Sadler,
named by us, and two individuals named by Allegiancy Houston. Allegiancy Houston’s board manages its day-to-day
affairs, subject to the requirement that we and TriStone consent to certain major decisions as described in the AH Operating Agreement. The
AH Operating Agreement further provides that if either our or TriStone’s voting interest is reduced below 30% then the respective
manager appointed by the member so reduced shall be automatically removed from office, subject to the right of owners of 60% of
the voting interests to retain such manager.
Although we currently only own a 40% voting interest in Allegiancy Houston, as the lender of the promissory note issued to Tristone in the transaction, we have the authority, at our discretion to demand payment under the promissory note in the form of a transfer to us of an additional 30% voting interest in Allegiancy Houston. This option to call these shares at our sole discretion would increase our voting percentage in Allegiancy Houston from 40% to 70%.
Although we do not currently control the board of managers of Allegiancy Houston, we also have the right to consent to the following significant actions of Allegiancy Houston which require the approval of Allegiancy Houston’s board and us: (a) merger or consolidation with, or acquisition of, any other business; (b) causing or permitting Allegiancy Houston to obtain a loan or incur any indebtedness for borrowed money, other than trade debt in the ordinary course of business of the Allegiancy Houston, in excess of Five Thousand Dollars ($5,000); (c) pledging, placing in trust, assigning or otherwise, encumbering any existing property, real or personal, of Allegiancy Houston; (d) Causing or permitting Allegiancy Houston to make any loan, ordinary expenditure, capital expenditure, call or other contribution with respect to any security, asset, venture or investment project or item held or engaged in by Allegiancy Houston, or any series of related or similar loans, expenditures, calls or other contributions in an amount in excess of Five Thousand Dollars ($5,000); (e) making any investment in any person or taking any action, giving any consent or casting any vote required under the terms of any stock, membership interest or equity purchase, stockholder, transfer, registration rights, operating, put or other agreement of any nature pertaining to any investment in any person; (f) commencing or entering into the resolution of any actual or threatened litigation involving Allegiancy Houston with respect to which the aggregate amount in controversy exceeds Five Thousand Dollars ($5,000) or that is otherwise material or seeking injunctive relief against or on behalf of Allegiancy Houston; (g) selling or otherwise disposing of, or contracting to sell or otherwise dispose of, any of Allegiancy Houston’s assets in any transaction or series of similar or related transactions out of the ordinary course of business of Allegiancy Houston; (h) making any distributions of Allegiancy Houston’s cash or other property except as specifically provided in its limited liability company agreement; (i) approval of the compensation payable to any member of Allegiancy Houston, or any amendment, adjustment or other change to the compensation or other terms applicable to any Allegiancy Houston member, with respect to such member’s employment with the Allegiancy Houston or engagement as independent contractor with Allegiancy Houston; (j) approving, disapproving or modifying any annual budget; (k) creating or authorizing any new class of series of equity or selling, issuing, granting or selling any additional equity of Allegiancy Houston; and (l) exercising any rights set forth in the Allegiancy Houston limited liability company agreement to purchase the membership interest of a member proposing to transfer his, her or its membership interest.
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Allegiancy Houston, our partially owned subsidiary, currently manages properties in North Carolina, Georgia, Tennessee, Illinois, Oklahoma, Texas, Utah, and California consisting primarily of office properties with some flex/office space. Allegiancy Houston’s current managed portfolio consists of approximately twenty-one (21) buildings, which management is governed by fourteen (14) contracts. Certain contracts govern the management of multiple properties on a portfolio basis. Square footage of the properties range from 53,500 square feet to 550,980 square feet, with an aggregate of approximately 2,292,375 square feet under management. It currently employs three (3) employees and staff for the purposes of its day to day operations.
Gross annual revenue from the operations of its properties under management as of the 2015 fiscal year was $1,417,517.
Allegiancy Houston’s management of these properties is governed by various management agreements, which each have a term of one year and are renewable automatically subject to: (i) the right of the property owner to terminate with notice at the end of the calendar year or for cause, or (ii) the right of Allegiancy Houston to terminate upon the default of the property owner. The management fees payable to Allegiancy Houston under the asset management agreements vary as follows:
| • |
property management fees ranging from 1.15% to 6% of the gross revenues of the property;
|
| • |
asset management fees ranging from 0.85% to 2% of the gross revenues of the property;
|
| • |
leasing commissions ranging from 3% to 5% of the value of new leases entered into and 2.5% to 3% for renewals;
|
| • |
construction management fees ranging from 3% to 5% of amounts spent on construction or repair of the property in a calendar year;
|
| • |
selling commissions ranging from 0.25% to 4% of the gross sales price of the property; and
|
| • |
financing fees ranging from 0.1% to 1% for the procurement of financing for a property.
|
Contracts representing fourteen (14) out of the above twenty-one (21) managed buildings are with affiliates of Allegiancy Houston. See “INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS AND OTHER CONFLICTS OF INTEREST - Affiliated Ownership or Control of Managed Properties.”
Operations
Our business depends on two critical aspects of our operations:
|
1)
|
Effective, performance-driven management of the properties we are hired to manage; and
|
|
2)
|
Effective expansion of the portfolio which we manage on behalf of our property-owning clientele.
|
Asset/Property Management
We operate our business with a singular objective being paramount – increase the profitability of our clientele’s real estate assets. We believe our approach is analogous to that of financial asset managers where investments in personnel, technology, research and systems result in performance advantages. We believe this is the ultimate test of the effectiveness of professional property and asset management and should allow for developing long term relationships with our existing clientele, increasing our revenue, as well as assisting us in effectively marketing to others as we grow the portfolio of assets under management.
We use what we refer to as our Aggressively Proactivesm approach to asset and property management, which emphasizes:
| • |
aggressive marketing and effective management in an effort to increase tenant occupancy at subject properties and increase tenant retention;
|
| • |
utilization of technology and data driven decision-making in an effort to reduce property operating costs, thus providing improved financial performance of our properties, and better service to our subject properties’ tenant base;
|
24
| • |
personal
interaction with key tenants, investors and vendors to provide a quality of “old-fashioned customer service” –
increasing personal affinity that is meant to make us and our subject properties a priority to our vendors, helping to
retain tenants and establish trust with our property owners; and
|
| • |
Proactively and prudently managing capital investment at each property with a view to maximizing rental income, tenant retention and long term asset value.
|
Expansion of Client Base
We seek to expand the property base for which we provide management services through direct marketing and recruitment of property owners to our services, as well as selectively targeting acquisitions of the operations of other asset/property management firms. Regardless of the channel to be used, a particular emphasis will be placed on the identification of management opportunities with significant potential for cash flow improvement, asset value strengthening, conservation of capital and maximization of investor returns with a view to creating high gross revenue on which our fee income is based. We intend to target for acquisition asset managers with management oversight of commercial real estate property, with a focus on commercial office, located in the lower 48 states, with an initial focus on the southeastern region where our subsidiaries’ operations are already focused.
Promotion of our services among property owners and their agents within our established networks of commercial real estate attorneys, alternative asset investment specialists and investors will be critical to attracting property owners to our services. We believe a significant opportunity exists to recruit new business from groups that own previously syndicated properties, looking to transition the management of their property. As part of such transitions, we may make loans to such owners in order to assist with immediate property capitalization needs and to alleviate management transition costs as an incentive to hire us. Although the terms of each loan may vary, each loan will be limited to $100,000 per 12-month period per property and must be repaid from property cash flows no later than six (6) months from the date of the loan with interest thereon ranging from approximately 8%-10% per annum.
Acquisition Structure
Allegiancy’s acquisitions are each negotiated separately, but they generally all share the same basic structure. Pricing of acquisitions is based on a thorough underwriting of both the management contracts in question and the health of the properties serviced under those contracts. Our team reviews each in great detail to assess the viability of the property, probability of various types of income being realized and the expected life of the contracts. The basic formula yields a purchase price range of approximately one times gross revenue or four times in place earnings before interest, taxes, depreciation and amortization, or EBITDA. Our acquisition process and analysis template are as follows:
|
•
|
initiate
acquisition discussions at the principal / owner level where relationships can be established that move the process
forward efficiently;
|
|
•
|
conduct thorough management contract analysis to verify opportunity;
|
|
•
|
review property operating history;
|
|
•
|
perform business level due diligence to include personnel evaluation;
|
|
•
|
conduct client satisfaction investigation;
|
|
•
|
analyze cost savings, revenue enhancements and efficiency improvement opportunities; and
|
|
•
|
present contract purchase offer to corporation or property ownership.
|
When we acquire the operations of other asset/property managers, we intend to structure such acquisitions as purchases of their assets, and specifically only their asset management contracts. However, if a selling asset manager is unwilling or unable to sell its assets, then we may purchase the equity of the target manager outright
25
from
its owners. The consideration we pay for any corporate acquisition may be cash,
equity in our Company, or both. Furthermore, we anticipate a portion of the purchase
price in any corporate acquisition may be contingent in nature and be based on future
performance of the acquired business or assets.
One
additional wrinkle in our acquisition program is the introduction of an “affiliate”
structure that allows Allegiancy to capture assets, leverage our infrastructure and secure
talented personnel by forming joint venture affiliates where our acquisition targets
are not seeking retirement or a complete exit from the industry. The affiliate structure
offers our partners the added incentive of a meaningful participation in growth and upside
of the new affiliate entity and we believe the program will deliver additional asset
growth.
We
intend to structure any partial or joint venture in a manner to provide us with a controlling interest in the joint venture or
equity acquisition target such that we may consolidate such target asset Manager’s or joint venture’s financial statements
into our own and to ensure that we do not become an investment company as defined under the Investment Company Act.
In
closing our first acquisition on June 1, 2015 we used this affiliate structure and added approximately $406 million in
assets under management by forming the Allegiancy Houston joint venture to acquire the TriStone assets. On a proforma
basis this transaction will add approximately $1.4 million to our annual revenues and $570,000 to our net income, and we
anticipate that those amounts will increase once this transaction is fully integrated into Allegiancy’s
platform. Our goal is to achieve one additional large scale acquisition, meaning an acquisition generating at
least $300 million of additional assets under management and an additional $1.5 million in revenue in this fiscal year
2016.
Structure
Chart
Set
forth below is a structure chart for our Company as it will appear immediately following this offering. This chart
assumes that we sell 2,150,000 shares of Common Stock in the offering and that we sell our Offered Shares at the
mid-point of our price range.
1Repesents
the percentage of outstanding shares of Common Stock held by each ownership group.
2We own a 70% economic interest but only a 40% voting interest in Allegiancy Houston.
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DESCRIPTION OF OUR PROPERTIES
As of the date of this Offering Circular, our primary assets are our equity interests in RMA and Allegiancy Houston and the asset management contracts we have entered into directly. We do not own any real property. See “DESCRIPTION OF BUSINESS” for more information.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Allegiancy
is a focused specialist in commercial real estate asset management. In much the same way that a private equity firm manages business
investments for clients, at Allegiancy we oversee strategic and tactical real estate operations to benefit the owners of the property.
Allegiancy was formed in 2013 to leverage opportunities identified by the principals of our predecessor, RMA, since its founding
in 2006. Allegiancy acquired RMA in March of 2014 contemporaneously with the initial closing of a $5,000,000 offering
of our units of Class A membership in Allegiancy, LLC, which units will be converted into shares of Series A Preferred Stock
in Allegiancy, Inc. on the Entity Conversion Date , pursuant to former Regulation A . We refer to this transaction as
or our Initial Regulation A Offering. We ultimately received $4,275,642 in net proceeds from our Initial Regulation
A Offering, which capitalized the company and positioned it to make targeted acquisitions to drive growth.
We operate in an industry that remains very fragmented with more than 85,000 service providers in the United States alone. This is an industry that affords a tremendous opportunity to specialize, differentiate through technology and consolidate smaller, less efficient operators.
Revenue Model
Allegiancy
is a fee based asset manager of commercial real estate. We deliver strategic direction along with tactical oversight to create
enhanced investment returns to property owners. Our fee structure is directly tied to the value we create and the value we preserve. Approximately
50%-60% of Allegiancy’s top line revenue is derived from asset management fees that are based on the effective gross
revenue at each property. These fees range from 1.15% to 6% of property revenues depending upon the nature of the property,
the tenancy at each property and the market for our services in the property’s area. Typically, the lower the
number of tenants and more responsibility held by the tenants (for example in the triple net leases), the lower our fees will
be, and, conversely, we typically earn higher fees for multi-tenanted full service buildings. Our weighted average
management fee per property is 5.0% of property revenue. As the asset manager, Allegiancy controls the accounts for each of the
properties and the portfolio management fees are paid in the month earned.
The
second component of Allegiancy’s revenues comes from property administration fees which amount to 40%-50% of
total income. These fees are derived from event-driven activities:
|
•
|
Up to 5% of project cost when a construction project is undertaken, for either tenant improvements or capital improvements;
|
|
•
|
1%
to 6% of lease values of new leases;
|
|
•
|
1%
to 4% of lease values of renewal leases;
|
|
•
|
0.1%
to 1% of loan amount in financing transactions; and
|
|
•
|
0.25%
to 4% of sale price when assets are sold.
|
All of these revenues are a function of the size of the asset base (AUM or assets under management) and their financial performance. As a general guide, Allegiancy expects to earn between 75-100 basis points (0.75% - 1.0%) on assets under management, so for every $1 million in asset value we expect to generate approximately $7,500 - $10,000 in top line revenue.
For our fiscal year ended June 30, 2015, we earned $1,772,135 in asset management fees, $94,257 in construction fees, $932,346 in lease commissions, $266,085 in financing fees and $100,081 in sales commissions.
Growth Opportunity
The number of underperforming commercial real estate assets exploded with the onset of the 2008 global financial crisis and recession in the United States. Even though this downturn is nearly six years behind us, there continues to be a significant range of current issues and risks that are preventing a robust recovery. The pressure of reduced property level revenues has been compounded by a large wave of loan maturities and refinancing/ recapitalization problems resulting in existential difficulties for many asset manager and owners. Many commercial real estate portfolio managers, especially those who had been in the business of syndicating real estate (such as tenant-in-common programs) are no longer able to generate the transaction revenues that had been important profitability generators for their firms.
28
Management believes that we are positioned to offer an attractive sale opportunity to those portfolio managers seeking to exit the asset management business as a result of business models built on transaction revenues no longer being sustainable.
In
addition to benefiting from organic growth, it is our objective to implement and execute a series of acquisitions where Allegiancy
completes the purchase of competing asset managers. Our selected acquisition targets manage portfolios of complementary
properties, primarily suburban office buildings in secondary markets. Acquisition of the assets of target companies, whether
in the entirety or through joint ventures like the Allegiancy Houston transaction, will transfer the management contracts to Allegiancy
or its subsidiaries where we can leverage our existing operating infrastructure, implement our proven efficiencies to improve
both property performance and operating profitability with benefits accruing to the property owners as well as to Allegiancy. We
believe our strategy is beginning to work and our first transaction was completed June 1, 2015.
Growth Strategy
Allegiancy has deployed a three-pronged strategic approach to drive growth through acquisitions, organic accretion and private label servicing.
Acquisitions - we will continue to leverage long-term relationships with colleagues and former competitors to accomplish corporate asset acquisition through the purchase of existing operating entities that manage a substantial asset base.
Organic Accretion - we will continue to utilize our relationships with an extensive network of registered representatives, investors, industry groups, syndicators and attorneys to identify individual direct contract acquisition targets.
Private
Label Servicing – there is a significant push underway for private equity firms to reduce their reliance on operating
partnerships and the costs related to that deal structure. This is being driven by investor demand for lower fees and costs. Thus,
many private equity real estate investors are looking for a new way to accomplish asset management and we believe Allegiancy
is very well positioned to capitalize on this new opportunity.
Operating Results
Allegiancy operates on a fiscal year basis from July 1 to June 30. Our predecessor, RMA, operated on a calendar year basis, and, therefore, we have revised and restated the prior years’ results of RMA to comport with our fiscal year.
Fiscal Year 2014 (7/1/2013 – 6/30/2014)
At the beginning of this period, we were operating as our predecessor, RMA, and had significantly fewer assets under management at approximately $150 million in real estate assets. We were also deeply engaged in constructing the operating platform and infrastructure for the enterprise that would become Allegiancy in 2014. Management was then and continues today to balance the desire for efficiency of operations and current profitability with the need to invest in the development and buildout of the business process management (BPM) and business process automation (BPA) platform and to leverage technology to create scalable infrastructure in support of our growth by acquisition strategy.
In
this period our predecessor, and subsequently we, delivered total revenues from operations of $1,074,733 and assets
under management remained stable with moderate organic growth and no acquisitions of other property/asset managers. Operating
costs in fiscal 2014 came in at approximately $900,843. The resultant operating profit, excluding extraordinary
items related to our Initial Regulation A Offering, was $103,781.
29
At the end of fiscal 2014, Allegiancy had approximately $275 million assets under management.
Fiscal Year 2015 (7/1/2014 – 6/30/2015)
In
this period Allegiancy grew assets under management from approximately $275 million to approximately $730 million as a result
of increased marketing activity in support of our Organic Accretion (see more below) efforts and our first company acquisition,
the Allegiancy Houston transaction. Each of the foregoing used proceeds of our Initial Regulation A Offering.
The Company also added staff in the accounting and administrative areas in anticipation of future growth. Our
efforts across all areas of business operations intensified and significant investments were made in technology infrastructure
buildout, quantitative analytics tools and software systems integration. Naturally all of these efforts entailed expenditure
of capital and a resultant decrease in profitability and net cash flow.
The
Allegiancy business model is intended to drive growth through acquisition and access to the capital markets is an important
factor for our continued success. Once the rules implementing new Regulation A were finalized in March of 2015, confidence increased
that Allegiancy would be successful and the firm was able to quickly move forward with our first acquisition. On
June 1, 2015, Allegiancy Houston acquired the asset management business of Tristone and its affiliates, as described in “DESCRIPTION
OF OUR BUSINESS,” adding approximately $406 million in assets under management to our managed portfolio ,
from which we receive 70% of the management revenue as a result of our 70% economic interest in Allegiancy Houston. The
terms of the acquisition were more favorable than we anticipated, therefore our management has been encouraged in regards to future
acquisitions. We expect to continue to make cash outlays and to issue equity in our company to acquire attractive asset
management businesses.
In
the fiscal 2015 period which only includes one month of post-acquisition numbers, Allegiancy delivered total revenues
from operations of $3,337,908 and assets under management grew to approximately $324 million through organic growth and then we
added another approximately $406 million when the TriStone acquisition closed. Operating costs in fiscal 2015 came in at approximately
$3,788,796. The resultant operating loss of $450,888, includes extraordinary items related to the preparations for
this offering and expenses related to the acquisition of TriStone were $534,419. Costs incurred in this period
as part of this offering include legal expenses of approximately $45,000, along with the due diligence, legal and transaction
costs related to the TriStone deal of approximately $350,000.
Management believes that our current infrastructure is more than sufficient to accommodate the growth represented by our recent acquisition and we do not expect to require additional staffing to handle the workload. It is our view that the biggest risk for Allegiancy over the next twelve months relates to our ability to repeat our success in structuring attractive acquisitions. While we are working diligently to line up additional asset managers and we have a number of attractive opportunities, there can be no guarantee of future success in these acquisitions. We are constantly in discussions with other asset managers; however, we have not yet entered into any purchase documentation or letters of intent for additional acquisitions.
Liquidity and Capital Resources
As of June 30, 2015, we had cash on hand of $1,897,015. We also expect that the proceeds from this offering will improve our financial performance through changes in our capital structure, enabling us to further implement our acquisition strategy, and increase cash flows. We have identified no additional material internal or external sources of liquidity as of the date of this offering circular.
Short Term Liquidity
Our
short-term liquidity requirements include the payment of the preferred returns on our units of Class A membership in Allegiancy,
LLC, which units will be converted into shares of Series A Preferred Stock in Allegiancy, Inc. on the Entity Conversion Date,
in the amount of approximately $300,000 per year, and approximately $500,000 in additional capital expenditures.
Long-Term Liquidity
Our
units of Class A membership in Allegiancy, LLC, which units will be converted into shares of Series A Preferred Stock in Allegiancy,
Inc. on the Entity Conversion Date, issued in our initial Regulation A Offering include redemptions at the option of the Series
A Preferred Stockholders that could obligate Allegiancy to potential redemption expense of approximately $2.7 million in 2017,
$2.8 million in 2018, and $3.0 million in 2019. We intend to meet these long-term liquidity needs through the use of
increased operating profits resulting from our growth strategy.
30
However, if we are unable to meet these needs with internal funds, we may be forced to seek bank or other financing or issue equity or debt securities in the capital markets in order to meet our redemption obligations.
Trend Information
Management
is encouraged by the positive reception received when potential acquisition targets have been approached since the approval
of final Regulation A+ rules. We are seeing an increase in interest from asset management companies in both merger and
acquisition transactions. Additionally, our organic growth efforts have exceeded our expectations and
projections. Fiscal year 2015 saw growth of assets under management of approximately $455 million and management
anticipates continued organic and acquisition growth for
fiscal year 2016.
Our costs related to mergers and acquisitions met management’s expectations and we believe the relative costs of our acquisition activities will decline given the size of future anticipated transactions. Additionally, our operating infrastructure is fully developed and management anticipates that operating costs per property will continue to decline. Technology development costs in fiscal year 2015 exceeded our original projections, but management has refined the approach, changed technology service vendors and implemented a software development protocol that is expected to result in lower costs and more rapid build out of our proprietary platform. Management believes that fiscal year 2016 will see both increased revenues and expanded operating margins resulting in improved profitability.
31
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Subject to our stockholders’ rights to consent to certain transactions as described below, the business and affairs of our Company are controlled by, and all powers are exercised by, our board of directors. Our board of directors shall consist of not less than three (3) nor more than seven (7) directors, the exact number to be set from time to time by the board of directors. We anticipate that our board of directors, as of the completion of this offering, will be comprised of Stevens M. Sadler, Christopher K. Sadler and David C. Moore, who are the current members of our board of managers. Our board of directors shall be elected each year, at the annual meeting of stockholders, to hold office until the next annual meeting and until their successors are elected and qualified. Any newly created directorships resulting from an increase in the authorized number of directors and any vacancies occurring in our board of directors, may be filled by the affirmative vote of the remaining directors. A director may resign at any time, and the stockholders may remove a director at any time, with or without cause, by the affirmative vote of a majority of stockholders voting in such decision.
Our
board of directors has delegated our day-to-day operations to our executive officers. Stevens M. Sadler is currently
our Chief Executive Officer. Christopher K. Sadler is currently our President. David W. Starowicz is currently
our Chief Operating Officer. Our executive officers have accepted their appointment, or nomination to be appointed,
on the basis of the compensation to be paid to them. See “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
– Remuneration of Executive Officers and Managers of Our Company” for more information. Our executive officers
will serve indefinitely until their death, resignation or removal, subject to the terms of any employment agreements we enter
into with them and the actions of our board of directors. Our board of directors may remove our executive
officers subject to the terms of any employment agreements we enter into with them. See “COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS – Employment Agreements” for more information.
|
Name
|
Position
|
Age
|
Term of Office
|
Hours/Year (for Part-Time Employees)
|
|
Stevens M. Sadler
|
Chairman and Chief Executive Officer |
49
|
January 2013
|
N/A
|
|
Christopher K. Sadler
|
President,
Chief Financial Officer,
Treasurer
and Director
|
55
|
October 2013
|
N/A
|
|
David W. Starowicz
|
Chief Operating Officer and
Secretary
|
59
|
January 2015
|
N/A
|
|
David L. Moore
|
Independent
Director
|
67
|
October 2013
|
30
|
Biographical Information
Biographical
information regarding our directors, executive officers, and executive officer nominees is set forth below.
Stevens
M. Sadler, CFA. Steve Sadler is a member of our board of managers and our Chief Executive Officer. As
of the Entity Conversion Date, Steve Sadler will be named Chief Executive Officer and Chairman of our board of directors.
He graduated from Florida State University in August 1989 with a Bachelor of Arts in East Asian Studies/Economics and has
held a Chartered Financial Analyst designation since September 1996. He has spent nearly twenty years in financial services
and the investment banking field. Steve started pursuing investment banking projects in commercial real estate during his
tenure in Signet Bank’s Capital Markets Group (now Wells Fargo) from September 1993 to October 1997. Steve has
participated in public and private securities offerings related to commercial real estate valued at more than $1 billion, and
through the same has been involved in a wide range of asset classes and financing structures. Together with his
brother Chris, Steve founded Real Estate Value Advisors, LLC, an affiliate of our Company, in December 2005 and founded RMA
in January 2006. He has been a managing director of both since their inception. Through Real Estate Value
Advisors, LLC, Steve and Chris have sponsored single and multi-property commercial real estate investments and they manage a
commercial real estate investment fund
32
through REVA’s subsidiary, REVA Catalyst Manager, LLC. Together, they operated and grew RMA’s asset management operations until our acquisition of RMA in March 2014. Steve has primary responsibility for the strategic direction and growth of RMA with daily oversight over marketing and capital fundraising, as well as over the early stages (first 120 days) of asset management and property operations for assets that have underperformed prior to joining the RMA portfolio.
Christopher
K. Sadler, MBA. Christopher Sadler is a member of our board of managers and our President. As
of the Entity Conversion Date, Christopher Sadler will be named President, Chief Financial Officer, and Treasurer of Alligiancy,
Inc., as well as a member of our board of directors. He graduated from Vanderbilt University with a Bachelor of Science in
economics in May 1982 and an Master of Business Administration from Vanderbilt’s Owen Graduate School of Management in May
1984. Chris has spent the entirety of his career in the commercial real estate business. The first ten years were spent in the
investment banking field with Prudential Real Estate Investors in New York from May 1984 to September 1989 and Baring Brothers,
LTD in London from September 1989 to October 1993; where Chris was responsible for over $2 billion in acquisition and sales transactions.
In October 1993, Chris left the world of corporate finance and pursued various investment and development projects until December
2005 when Chris co-founded Real Estate Value Advisors, LLC, an affiliate of our Company and RMA, with his brother Steve. In
January 2006, he and his brother Steve founded, our predecessor, RMA and he was a managing director of RMA until its acquisition
by us in March 2014. Through Real Estate Value Advisors, LLC Steve and Chris have sponsored single and multi-property
commercial real estate investments and they manage a commercial real estate investment fund through REVA’s subsidiary, REVA
Catalyst Manager, LLC. Together they have also operated and grown RMA’s asset management operations over the
last five years. Chris is primarily responsible for the asset management of all stabilized properties in RMA’s
portfolio including oversight over accounting, property management and leasing.
David
W. Starowicz, Chief Operating Officer. David W. Starowicz joined our team in January of 2015 as our Chief Operating
Officer. As of the Entity Conversion Date, David Starowicz will be named our Chief Operating Officer and Secretary. Prior
to this, he was employed by Harbor Group International for more than 10 years. There, he was a Managing Director and
provided asset management leadership for a portfolio of commercial assets, primarily consisting of central business district office
towers throughout the eastern United States. He graduated from SUNY College of Environmental Science & Forestry
with a BS in Environmental Studies and a Bachelor of Landscape Architecture, from University of Dallas with a Master of Business
Administration, and from Texas A&M University School of Law with a Juris Doctor.
David
L. Moore, CPA. David L. Moore is our independent, non-executive member of our board of managers. As
of the Entity Conversion Date, David Moore will be named a member of our board of directors. Mr. Moore graduated from Penn
State University with a Bachelor of Science in Accounting in December 1969 and has been a Certified Public Accountant since May
1983. He has over 20 years of experience as a corporate controller and/or CFO for businesses in the central Virginia
area. Since January 2006, Mr. Moore has been the controller for Logistics Solutions Group, Inc., a Virginia based information-technology
company servicing the needs of the Department of Defense and other government agencies. Mr. Moore’s responsibilities
as controller for Logistics Solutions Group, Inc. include the supervision of all financial operations of the Company, the preparation
of financial statements and preparing and analyzing budgets, cash flow forecasts and strategic plans.
33
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Messrs.
Sadler receive compensation for acting in their capacities as our executive officers, and they may be paid fees and expenses
associated with serving on our board of directors, subject to approval by our board of directors. Mr. Starowicz
receives compensation for acting in his capacity as an executive officer. See – Remuneration of Executive
Officers and Directors of Our Company” for more information. We pay David L. Moore, our
independent director , $2,500 per meeting of the board of directors which he attends (up to $10,000 total
per calendar year) and equity compensation as may be determined by our board of directors in addition to reimbursing Mr.
Moore for his expenses incurred in acting in his capacity as a director . In the Company’s fiscal year ended
June 30, 2015, $10,000 total compensation was paid to Mr. Moore, the Company’s independent director .
Remuneration
of Executive Officers and Directors of Our Company
Set
forth below is a table of remuneration that our executive officers and directors received for our fiscal year ended June
30, 2015.
|
Name
|
Capacity in which
Compensation
Was Received
|
Cash
Compensation
($)
|
Other
Compensation
($)
|
Total
Compensation
($)
|
||||
|
Stevens M. Sadler
|
CEO
|
$200,000
|
Indeterminate1
|
$200,000
|
||||
|
Christopher K. Sadler
|
President
|
$200,000
|
Indeterminate2
|
$200,000
|
||||
|
David W. Starowicz
|
COO
|
$61,442
|
Indeterminate3
|
$61,442
|
|
(1)
|
On
March 30, 2015, Mr. Stevens M. Sadler was granted equity incentive options of 15,000 units of Class B membership in Allegiancy,
LLC, which options will be converted into options to acquire 30,000 shares of Common Stock in Allegiancy, Inc. on the Entity Conversion
Date with an option price of $3.00 per share of Common Stock in Allegiancy, Inc . These options will vest
on March 30, 2018.
|
|
(2)
|
On
March 30, 2015, Mr. Christopher K. Sadler was granted equity incentive options of 15,000 units of Class B membership in
Allegiancy, LLC, which options will be converted into options to acquire 30,000 shares of Common Stock in Allegiancy, Inc. on
the Entity Conversion Date with an option price of $3.00 per share of Common Stock in Allegiancy, Inc. These
options will vest on March 30, 2018.
|
|
(3)
|
On
March 9, 2015, Mr. David W. Starowicz was granted equity incentive options of 50,000 units of Class B membership in
Allegiancy, LLC, which options will be converted into options to acquire 100,000 shares of Common Stock in Allegiancy, Inc.
on the Entity Conversion Date with an option price of $3.00 per share of Common Stock in Allegiancy, Inc.
These options vested at issuance.
|
In
addition to the above, and as previously stated, Mr. David L. Moore, a director, is paid $2,500 per meeting of the board
of directors but no more than $10,000 in any given year. In our fiscal year ended June 30, 2015, he was paid
$10,000. On March 30, 2015, Mr. David L. Moore was also granted equity incentive options of 5,000 units of
Class B membership in Allegiancy, LLC, which options will be converted into options to acquire 10,000 shares of Common Stock in
Allegiancy, Inc. on the Entity Conversion Date with an option price of $3.00 per share of Common Stock in Allegiancy,
Inc. These options will vest on March 30, 2018.
Employment Agreements
We
have entered into employment agreements with each of Stevens M. Sadler and Christopher K. Sadler with respect to their respective
positions as our Chief Executive Officer and President. Each of Messrs. Sadlers’ employment agreements have a four-year
term, beginning on March 6, 2014, with automatic one-year renewals unless earlier terminated, and will require the individual
to devote his time and attention during normal business hours to the business and affairs of our Company and our Company’s
affiliates. Messrs. Sadlers’ employment agreements provide that they shall not accept any director, trustee,
officer or equivalent appointment for another business, civic, charitable or other organization without the approval of our board
and independent director; provided, that, they may maintain their current positions with certain businesses, including
affiliates of our Company, for whom they act as managers, officers, directors or other equivalents.
The employment agreements provide for:
|
•
|
an
initial base salary of $180,000 for each of Messrs. Sadler, which will thereafter be subject to potential annual increases
based on each executive’s performance after review by our board of managers, including our independent director who
must approve any salary increase; and
|
34
|
•
|
Bonus
compensation equivalent to a percentage of annual base salary, which percentage is fixed on an annual basis by our board of managers,
and subject to the approval of our independent manager. Any bonus compensation payable may be contingent on our Company’s
meeting performance hurdles to be fixed by our board, with independent manager approval. Bonus compensation is paid
25% in cash and 75% in equity consisting of restricted Common Stock. Currently, no specific performance hurdles have been fixed
relative to bonus compensation under either of Messrs. Sadler’s employment agreements.
|
If the executive’s employment is terminated by us without “cause” or by the executive for “good reason” (each as defined in the applicable employment agreement), the executive will be entitled to receive:
|
•
|
accrued but unpaid salary and bonus compensation; and
|
|
•
|
Severance pay in the form of the continued payment of salary, at the rate in effect as of the date of termination and in accordance with the Company’s customary payroll practices, until the end of the calendar year in which termination occurs, provided that such payments must continue for at least six months.
|
The executive’s right to receive the severance pay will be subject to the delivery of a release of claims in favor of the Company.
If the executive’s employment is terminated by us for “cause,” or if the executive voluntarily terminates his or her employment without “good reason” the executive will be entitled to any accrued but unpaid salary. Further, if the executive’s employment is terminated by us for “cause” then he shall be required to forfeit one half of all equity compensation he has received from our Company.
In the event of the executive’s death or disability, the executive (or designated beneficiary in the case of death) will be entitled to:
|
•
|
accrued but unpaid salary and bonus compensation;
|
|
•
|
any vested but unpaid benefits;
|
|
•
|
any benefits payable under applicable benefit plans; and
|
|
•
|
accelerated vesting of any outstanding equity awards (if so provided pursuant to the terms of the awards).
|
The
employment agreements also contain confidentiality provisions that apply indefinitely and non-solicitation and non-competition
provisions that will apply during the term of the executive’s employment and for a period of twelve months following termination
of employment (in the event of termination by us or by the employee during the term of the agreement).
Equity Incentive Plan
In
an effort to further the long-term stability and financial success of the Company, by attracting and retaining personnel, including
employees, directors and consultants for the Company and its subsidiaries, the Company adopted its 2014 Equity Incentive Plan,
or our Equity Incentive Plan, in May, 2014, and revised it in January 2015. There are 1,000,000 units of Class B membership
in Allegiancy, LLC, which units will be converted into 2,000,000 shares of Common Stock in Allegiancy, Inc. on the Entity
Conversion Date, authorized for issuance through our Equity Incentive Plan , and as of the date of this Offering Circular ,
we have issued unit incentives of 242,150 units of Class B membership in Allegiancy, LLC, which units will be converted
into 484,300 shares of Common Stock in Allegiancy, Inc. on the Entity Conversion Date, through our Equity Incentive Plan.
Through the use of unit incentives, the Equity Incentive Plan will stimulate the efforts of those persons upon whose judgment,
interest and efforts the Company and its subsidiaries are and will be largely dependent for the successful conduct of their respective
businesses and will further the identification of those persons’ interests with the interests of the Company’s shareholders.
The
Equity Incentive Plan is administered by our board of directors . The board has the power and sole discretion
to grant or award an equity incentive, or an Award, to any employee of, manager of, or Consultant to the Company or any subsidiary,
each a Participant, who, in the sole judgment of our board of directors , has contributed, or can be expected to contribute,
to the profits or growth of the Company or any such subsidiary. Our board of directors also has the power and
sole discretion to determine the size, terms, conditions and nature of each Award to achieve the objectives of the Award and the
Equity Incentive Plan. This includes the board of directors’ ability to determine: (i) which
eligible persons shall receive an Award and the nature of the Award, (ii) the number of units to be covered by each Award,
(iii) the fair market value of units, (iv) the time or times when an Award shall be granted, (v) whether an award
shall become vested over a period of time, according to a performance-based or other vesting schedule or otherwise, and when it
shall be fully vested, (vi) the terms and conditions under which restrictions imposed upon an Award shall lapse, (vii) whether
a change of control exists, (viii) factors relevant to the satisfaction, termination or lapse of restrictions on certain
Awards, (ix) when certain Awards may be exercised, (x) whether to approve a Participant’s election with respect
to applicable withholding taxes, (xi) conditions relating to the length of time before disposition of units received in connection
with an Award is permitted, (xii) notice provisions relating to the sale of units acquired under the Equity Incentive Plan,
and (xiii) any additional requirements relating to Awards that the board of directors deems appropriate.
35
Key Man Insurance
We own key man life insurance policies of $1.5 million each on Stevens M. Sadler and Christopher K. Sadler.
36
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
Our
Company has: (i) 2,000,000 shares of Preferred Stock par value $0.01 per share, authorized; and (ii) 40,000,000
shares of Common Stock par value $0.01 per share, authorized. Of the 2,000,000 shares of Preferred Stock, 1,045,994
shares are designated as Series A Preferred Stock, and our board of directors has the right to designate the rights and preferences
of the remaining preferred stock, subject to the requirement that the holders of a majority of our outstanding shares of Series
A Preferred Stock consent to the designation and issuance of any class or series of preferred stock senior in rights and preferences
to the Series A Preferred Stock.
Capitalization
At
the “Closing Date” , Continuum Capital, LLC, or Continuum, will own 1,250,200 shares of Common Stock . Stevens
M. Sadler, as Continuum’s sole manager, will have voting and investment power with respect to such units. Continuum
is owned by Stevens M. Sadler’s spouse and various trusts for the benefit of his children. Chesapeake Realty
Advisors, LLC, or Chesapeake, will own 1,250,000 shares of Common Stock. Christopher K. Sadler, as Chesapeake’s
sole manager, will have voting and investment power with respect to such shares . Chesapeake is owned by Christopher
K. Sadler’s spouse and various trusts for the benefit of his children. Various, unaffiliated investors will
own 999,994 shares of Series A Preferred Stock. Moloney Securities Co., Inc., our former dealer-manager,
will have warrants to acquire approximately 46,000 shares of Series A Preferred Stock for an exercise price
of $6.25 per s hare of Series A Preferred Stock , and we will have issued incentives under our Equity Incentive
Plan in the amount of 484,300 shares of Common Stock .
The
following table sets forth those executive officers, directors and other security holders holding 10% or a greater percentage
of any class of shares , as of the date of this offering circular
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Amount and Nature of Beneficial Ownership Acquirable | Percent of Class |
| Series A Preferred Stock | N/A | N/A | N/A | N/A |
| Common Stock | Stevens M. Sadler | 1,250,200 shares 1 | Option to Acquire 30,000 Shares | 45.34% |
| Chairman and Chief Executive Officer | ||||
| 10710 Midlothian Turnpike, Suite 202 | ||||
| Richmond, Virginia 23235 | ||||
| Common Stock | Christopher K. Sadler | 1,250,000 shares 2 | Option to Acquire 30,000 Shares | 45.33% |
| President, Chief Financial Officer, Treasurer and Director | ||||
| 10710 Midlothian Turnpike, Suite 202 | ||||
| Richmond, Virginia 23235 |
1Continuum
Capital, LLC is the record owner of the shares set forth in this row. Stevens M. Sadler, Chief Executive Officer
and manager of our Company is Continuum’s sole manager, and therefore will have voting and investment power with respect
to any shares owned by Continuum. Continuum is owned by Stevens M. Sadler’s spouse and various trusts
for the benefit of his children.
2
Chesapeake Realty Advisors, LLC is the record owner of the shares set forth
in this row. Christopher K. Sadler, manager and President Nominee of our Company, is Chesapeake’s sole manager
and therefore will have voting and investment power with respect to any shares owned by Chesapeake. Chesapeake
is owned by Christopher K. Sadler’s spouse and various trusts for the benefit of his children.
Upon
closing the offering, Continuum will own 21.16% of our total outstanding shares of capital stock and Chesapeake will
own 21.16% of our total outstanding shares of capital stock . See “COMPENSATION OF DIRECTORS
AND EXECUTIVE OFFICERS – Equity Incentive Plan” above.
Our
board of directors may, from time to time, also cause shares of capital stock to be issued to directors ,
officers, employees or consultants of our Company or its affiliates as equity incentive compensation under our equity incentive
plan, which shares will have all benefits, rights and preferences as our board of directors may designate as applicable
to such shares.
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INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS AND OTHER CONFLICTS OF INTEREST
Affiliated Ownership or Control of Managed Properties
Stevens
M. Sadler and Christopher K. Sadler, our Chairman and Chief Executive Officer and Director , President, Chief
Financial Officer and Treasurer, respectively, directly or indirectly own interests in or control certain properties managed
by us. In addition, Continuum and Chesapeake are respectively controlled by Stevens M. Sadler and Christopher K. Sadler. Therefore,
the terms and provisions of the asset management agreements between us and the respective property owners of the properties described
below do not reflect the result of arm’s-length negotiations. Thus, such agreements may provide for more favorable
or less favorable terms to our Company, than would have been obtained were such property management agreements entered into with
unaffiliated third parties. However, we do not believe this to be the case, and our contracts with affiliated parties
do not differ materially from those contracts entered into with unaffiliated parties.
Allegiancy and RMA
Affiliates, which are owned and/or controlled by Messrs. Sadler, are the counterparties to our asset management contracts for (1) a portfolio of seven buildings located in Lewisburg, Pennsylvania, (2) one building located in Greensboro, North Carolina and one building located in Orlando, Florida, (3) a portfolio of three buildings and adjacent undeveloped real estate located in Norfolk, Virginia, (4) one building located in Gainesville, Georgia, (5) one building located in Raleigh, North Carolina, (6) one building located in North Charleston, South Carolina, (7) one building located in Greensboro, North Carolina, (8) one building located in Charleston, South Carolina, (9) one building located in Greensboro, North Carolina, and (10) a portfolio of fourteen buildings located in Greensboro, North Carolina and Winston-Salem, North Carolina.
Allegiancy Houston
Affiliates of Tristone are the counterparties to our asset management contracts for (1) a portfolio of two buildings located in Bedford, Texas, (2) one building located in San Antonio, Texas, (3) one building located in Tulsa, Oklahoma, (4) one building located in Downers Grove, Illinois, (5) one building located in Brentwood, Tennessee, (6) one building located in Fairfield, California, (7) a portfolio of three buildings located in Atlanta, Georgia, (8) one building located in Oklahoma City, Oklahoma, (9) one building located in Houston, Texas, (10) one building located in College Station, Texas, and (11) one building located in Brentwood, Tennessee.
Obligations to Other Entities
Our
directors and executive officers are involved in other businesses, including other commercial real estate businesses. Therefore
conflicts of interest may exist between their obligations to such businesses and to us. In particular, Messrs. Sadler,
who are our executive officers and have principal responsibility for the day-to-day operations of our business, sponsor additional
real estate related investments through our affiliates Real Estate Value Advisors, LLC and REVA Catalyst Manager, LLC. While
the investments sponsored by these two entities are in the direct ownership of real property, rather than the management of real
property, and therefore won’t be directly competitive with our business, such activities could compete with us for the time
and resources of Messrs. Sadler, who may have conflicts of interest in allocating management time amongst our Company and other
existing and future companies and businesses with which they may be associated in the future. We believe our directors
and executive officers have the capacity to discharge their responsibilities to our Company notwithstanding participation
in other present and future investment programs and projects.
Affiliated Transactions
Our
Company is permitted to enter into transactions with, including making loans to and loan guarantees on behalf of, our directors ,
executive officers and their affiliates; so long as the person or persons approving the transaction on behalf of the Company
acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company . Neither
we nor our subsidiaries have any outstanding loans or loan guarantees with any related party, and, as of the date of this Offering
Circular, we do not have any intentions to enter into any such transactions.
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Contribution Transaction
Continuum and Chesapeake, or our contributors, each contributed a 50% membership interest in RMA to us as of the initial closing of our initial Regulation A offering on March 6, 2014 in accordance with the terms of a contribution agreement between us on the one hand, and our contributors on the other. In exchange for their membership interests we issued each of our contributors 625,000 units of Class B membership in Allegiancy, LLC, which units will be converted into 1,250,000 shares of Common Stock in Allegiancy, Inc. on the Entity Conversion Date, valued at $10.00 per unit of Class B membership in Allegiancy, LLC,or $5.00 per share of Common Stock in Allegiancy, Inc. on the Entity Conversion Date, as the closing of the contribution. The amount of units of Class B membership in Allegiancy, LLC that we issued to our contributors in exchange for the membership interests in RMA was determined pursuant to negotiations of our valuation and the valuation of RMA between our former dealer-manager, our contributors and us. We did not obtain independent, third party valuations or fairness opinions in connection with our contribution agreement. As a result, the consideration we paid for RMA may have exceeded its fair market value. However our independent, non-executive manager reviewed and approved the contribution agreement and contribution transactions.
Stevens M. Sadler, our manager and Chief Executive Officer, is the sole manager of Continuum Capital LLC and his wife and various trusts for the benefit of his children are the members thereof. Christopher K. Sadler, our manager and President, is the sole manager of Chesapeake Realty Advisors LLC and his wife and various trusts for the benefit of his children are the members thereof.
39
SECURITIES BEING OFFERED
General
Our
Company is offering $ 2,150,000 of the Offered Shares . The minimum order is five hundred (500) Offered Units
($7,000, based on an assumed offering price of $14.00 , the mid-point of our price range); however,
we can waive the minimum order in our sole discretion. The Offered Shares are common equity and are not entitled to any
preferences regarding distributions. See “– Distributions.”
Our
Company and Stockholders are governed by our Certificate of Incorporation and Bylaws. See “–
Description of Certificate of Incorporation and Bylaws ” below for a detailed summary of terms of our Certificate
of Incorporation and Bylaws . Our Certificate of Incorporation and Bylaws are filed as an exhibit
to the Offering Statement of which this Offering Circular is a part. Our Company has: (i) 2,000,000 shares of Preferred
Stock, par value $0.01, authorized; and (ii) 40,000,000 shares of Common Stock, par value $0.01, authorized. Our
board of directors has the right to create, authorize and issue new shares in our Company, including new classes, provided
that it may not authorize or issue shares senior to the rights and preferences of our Series A Preferred Stock without
the consent of the members holding a majority of the outstanding shares of Series A preferred Stock.
Registrar,
Paying Agent and Transfer Agent for our Offered Shares
Duties
Issuer
Direct, Inc. will serve as the registrar, paying agent and transfer agent for our Offered Shares . We will pay
all fees charged by the transfer agent for transfers of our Offered Shares except for special charges for services requested
by the holder of a share of Common Stock.
There
will be no charge to our Stockholders for disbursements of our cash dividends, if any . We will indemnify the
transfer agent, its agents and each of their respective stockholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due
to any gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or Removal
The
transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become
effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no successor
has been appointed and has accepted the appointment within 30 days after notice of the resignation or removal, our board
of directors , or a designee of our board of directors , may act as the transfer agent and registrar until a successor
is appointed.
Dividends
No
dividends to purchasers of our Offered Shares are assured, nor are any returns on, or of, a purchaser’s investment
guaranteed. Dividends are subject to our ability to generate positive cash flow from operations. All dividends
are further subject to the discretion of our board of directors . It is possible that we may have cash available
for dividends , but our board of directors could determine that the reservation, and not distribution, of such cash
by our Company would be in our best interest.
Our
board of directors , in its sole discretion, may determine from time to time to declare and pay dividends out of
any funds legally available therefore. Notwithstanding the foregoing, we intend to, but are not obligated, to issue
dividends on a quarterly basis. Our Series A Preferred Stock accrues preferred dividends quarterly at the rate of $0.60
per share annually, or $0.15 quarterly. To the extent our board of directors declares and pays dividends on our capital
stock, the holders of our Preferred Stock must be paid the entirety of their accrued but unpaid preferred dividends prior to
the payment of any dividends on our Common Stock. Our Preferred Stock will also participate pari passu on any
dividends paid on our Common Stock.
Any
dividends paid to our Series A Preferred Stockholders annually in excess of their cumulative preferred returns accrued
for such year shall not be applied against or reduce the cumulative preferred returns to which the Series A Preferred Stockholders
are entitled in any subsequent year.
Liquidating
Preferences
Upon
the dissolution and liquidation of our Company, holders of our Series A Preferred Stock will receive a preference in
the distribution of liquidation proceeds equal to any accrued but unpaid preferred dividends. Following payment of any accrued
but unpaid preferred dividends to holders of our Series A Preferred Stock, liquidating distributions will be shared pari passu
between our Common Stock and our Series A Preferred Stock, subject to the right of our board of directors to designate the rights
and privileges of our authorized but unissued Preferred Stock in the future.
41
Basis
for Dividends
Our
Company’s ability, and our board of directors ’ decisions, to issue dividends to our stockholders
will be based upon the consolidated operating results of our Company and our subsidiaries. Although our board of
directors has discretion over whether to declare and pay dividends to our Stockholders , our board of directors
does not intend, and has no reason to withhold dividends from our Stockholders , except as may be necessary to
fund reserves for our Company, or our subsidiaries, as deemed appropriate by our board of directors or required by any
financing arrangements we may enter into.
Description of Certificate of Incorporation and Bylaws
Upon the conversion of the Company from Allegiancy, LLC to Allegiancy, Inc., our Company will be governed by our certificate of incorporation, or our Certificate, and our bylaws, or our Bylaws. The following summary describes material provisions of our Certificate and our Bylaws, but it is not a complete description of our Certificate, our Bylaws or any combination of the two. A copy of our Certificate and our Bylaws are filed as exhibits to the Offering Statement of which this Offering Circular is a part.
Board of Directors
Subject to our stockholders’ rights to consent to certain transactions as described below, the business and affairs of our Company are controlled by, and all powers are exercised by, our board of directors. We anticipate that our board of directors, as of the completion of this offering, will be comprised of Stevens M. Sadler, Christopher K. Sadler and David C. Moore, who are the current members of our board of managers. Our board of directors shall consist of not less than three (3) nor more than seven (7) directors, the exact number to be set from time to time by the board of directors. Our board of directors shall be elected each year, at the annual meeting of stockholders, to hold office until the next annual meeting and until their successors are elected and qualified. Any newly created directorships resulting from an increase in the authorized number of directors and any vacancies occurring in our board of directors, may be filled by the affirmative vote of the remaining directors. A director may resign at any time, and the stockholders may remove a director at any time, with or without cause, by the affirmative vote of a majority of stockholders voting in such decision.
The board of directors my designate one or more committees. Such committees shall consist of one or more directors. Any such committee, to the extent permitted by applicable law, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Company.
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Officers
The board of directors has the authority to select the officers of the Company. The officers shall consist of a Chairman of the Board of Directors, a Chief Executive Officer, a Secretary and a Treasurer. In addition, the board of directors may elect one or more Vice Chairmen, President, Chief Financial Officer and Vice Presidents, and such other offices as the board of directors may determine. Two or more of the aforementioned offices may be held by the same person. We anticipate that upon completion of this offering, our officers will be: (i) Stevens M. Sadler, Chief Executive Officer; (ii) Christopher K. Sadler, President, Chief Financial Officer and Treasurer; and (iii) David M. Starowicz, Chief Operating Officer.
At the first meeting of the board of directors following the annual meeting of stockholders, the board of directors shall elect the officers. From time to time, the board of directors may elect other officers. Each officer so elected shall hold office until the first meeting of the board of directors after the annual meeting of stockholders following the officer’s election and until the officer’s successor is elected and qualified or until the officer’s earlier resignation or removal. Each officer may resign at any time and shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the entire board of directors. The Chief Executive Officer shall be in general charge of the general affairs of the Company, subject to the oversight of the board of directors. In case any officer is absent, or for any other reason the board of directors may deem sufficient, the Chief Executive Officer or the Board of Directors may delegate the powers and duties of such officer to any other officer or to any director.
Fiduciary Duties and Indemnification
The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding the foregoing, except with respect to a proceeding to enforce rights to indemnification or advancement of expenses, the Company shall be required to indemnify a person as described above in connection with a proceeding (or part thereof) initiated by such person, only if such proceeding (or part thereof) was authorized by the board of directors.
Company Stock
The Company may issue up to 42,000,000 shares of capital stock, of which 40,000,000 shares will be common stock, par value $0.01 per share and 2,000,000 shares shall be preferred stock, par value $0.01 per share.
Preferred Stock
Our Certificate designates a series of preferred stock consisting of 1,045,994 shares, par value $0.01 per share, or the Series A Preferred Stock. The board of directors is authorized to designate the rights and preferences of any shares of preferred stock not designated as Series A Preferred Stock. Notwithstanding the foregoing, holders of a majority of the outstanding shares of Series A Preferred Stock must affirmatively vote for the creation, authorization or designation of a class or series of capital stock, or selling, issuing or granting capital stock, which has rights or preferences senior to the relative rights and preferences of the Series A Preferred Stock.
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Series
A Preferred Stock, Conversion and Purchase Rights
Redemptions
We are required to redeem up to one-third of the Series A Preferred Stock purchased in our initial Regulation A offering for cash on each of the third (March 6, 2017), fourth (March 6, 2018) and fifth (March 6, 2019) anniversaries of the initial closing of our initial Regulation A Offering. The cash redemption price for the Series A Preferred Stock will be $8.00 per share on the third anniversary of the initial closing of the initial Regulation A Offering, $8.50 per share on the fourth anniversary of the initial closing of the initial Regulation A offering, and $9.00 per share on the fifth anniversary of the initial closing of the initial Regulation A offering. We have no obligation to redeem sharers of Series A Preferred Stock after the fifth anniversary of the initial closing of the initial Regulation A offering. We have not established a sinking fund or other mechanism to fund these redemptions. Therefore our ability to honor requests for redemption will be subject to our ability to generate sufficient cash flow or procure additional financing in order to fund redemptions. If we cannot generate sufficient cash flow or procure additional financing to honor redemption requests, we may be forced to sell some or all of our Company’s assets to fund redemptions or we may not be able to fund redemptions in their entirety or at all. If we cannot fund requested redemptions we will have violated our Certificate and holders of Series A Preferred Stock seeking redemption will have claims against us with respect to such violation.
Conversion
We have the right to convert any Series A Preferred Stock remaining outstanding following the fifth anniversary of the initial closing of our Initial Regulation A Offering into common stock; provided, however, that in order for us to convert the Series A Preferred Stock, a closing price for our Common Stock must be available based upon trading of the Common Stock on a national securities exchange, through the OTC markets or other alternative trading system, or though bid and ask prices established by professional market maker making a market in the common. If we elect to convert the remaining Series A Preferred Stock into common stock each holder of Series A Preferred Stock whose Series A Preferred Stock is being converted, in whole or in part, shall receive that number of shares of common stock equaling $20.00 for each share of Series A Preferred Stock converted.
Purchase Rights
Each share of Series A Preferred Stock also entitles its holder to the right to purchase one share of common stock. The Purchase Right may only be exercised either within ten (10) days following the date on which the Series A Preferred Stock associated with the Purchase Right are redeemed by the Company or within ten (10) days following our conversion of the Series A Preferred Stock into common stock. The exercise price for common stock which may be purchased pursuant to the exercise of the Purchase Right is $3.75 per share of common stock. Purchase rights for 999,994 shares of Series A Preferred Stock are outstanding.
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Stockholder Rights
Voting
Each holder of common stock shall be entitled to one vote for each share of common stock held of record on all matters on which the holders of shares of common stock are entitled to vote. Except as otherwise provided in “– COMPANY STOCK – PREFERRED STOCK,” Series A Preferred Stock shall vote as a single class with the common stock on all matters on which the holders of shares of the common stock are entitled to vote, and when voting in this way, each holder of shares of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock held of record.
Meetings
The annual meeting of the stockholders shall be held at such date, time and place, if any, as shall be determined by the board of directors and stated in the notice of the meeting. Special meetings of the stockholders shall be called pursuant to resolution approved by the board of directors and may not be called by any other person or persons. The only business which may be conducted at a special meeting shall be the matter or matters set forth in the notice of such meeting.
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Dividends
and Liquidations
Upon
any liquidation, dissolution or winding up of the Company and its subsidiaries, whether
voluntary or involuntary, a Liquidation Event, each holder of outstanding shares of Series
A Preferred Stock shall be entitled to be paid in cash, before any amount shall be paid
or distributed to the holders of the Common Stock, an amount equal to any accrued or
declared and unpaid Series A Preferred Dividends, or the Series A Preference. If the
amounts available for distribution by the Company to the holders of Series A Preferred
Stock upon a Liquidation Event are not sufficient to pay the aggregate Series A Preferences
due to such holders, such holders of Series A Preferred Stock shall share ratably in
any distribution in connection with such Liquidation Event in proportion to the full
respective preferential amounts to which they are entitled. After the prior payment in
full of the aggregate Series A Preference in connection with a Liquidation Event, the
remaining assets and funds of the Corporation available for distribution to its stockholders,
if any, shall be distributed among the holders of shares of Series A Preferred Stock
and common stock, pro rata, then outstanding.
Amendment
The stockholders may amend, alter or repeal our Certificate and our Bylaws.
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ADDITIONAL REQUIREMENTS AND RESTRICTIONS
Broker-Dealer Requirements
Each
of the participating broker-dealers, authorized registered representatives or any other person selling Offered Shares on
our behalf is required to:
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make
every reasonable effort to determine that the purchase of Offered Shares is a suitable and appropriate investment for each
investor based on information provided by such investor to the broker-dealer, including such investor’s age, investment
objectives, income, net worth, financial situation and other investments held by such investor; and
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maintain,
for at least six (6) years, records of the information used to determine that an investment in our Offered Shares is suitable
and appropriate for each investor.
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In
making this determination, your participating broker-dealer, authorized registered representative or other person selling Offered
Shares on our behalf will, based on a review of the information provided by you, consider whether you:
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meet the minimum suitability standards established by us and the investment limitations established under Regulation A;
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can
reasonably benefit from an investment in our Offered Shares based on your overall investment objectives and portfolio structure;
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are able to bear the economic risk of the investment based on your overall financial situation; and
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have an apparent understanding of:
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the
fundamental risks of an investment in the Offered Shares ;
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the risk that you may lose your entire investment;
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the
lack of liquidity of the Offered Shares ;
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the
restrictions on transferability of the Offered Shares ;
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the background and qualifications of our management; and
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our business.
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Restrictions Imposed by the USA PATRIOT Act and Related Acts
In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, the securities offered hereby may not be offered, sold, transferred or delivered, directly or indirectly, to any “unacceptable investor,” which means anyone who is:
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a “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions set forth in the Foreign Assets Control Regulations of the United States, or U.S., Treasury Department;
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acting on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes under the Regulations of the U.S. Treasury Department;
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within the scope of Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001;
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a person or entity subject to additional restrictions imposed by any of the following statutes or regulations and executive orders issued thereunder: the Trading with the Enemy Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act of 1996, the International Emergency Economic Powers Act, the United Nations Participation Act, the International Security and Development Cooperation Act, the Nuclear Proliferation Prevention Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya Sanctions Act of 1996, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export Financing and Related Programs Appropriations Act or any other law of similar import as to any non-U.S. country, as each such act or law has been or may be amended, adjusted, modified or reviewed from time to time; or
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designated or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply in the future similar to those set forth above.
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An investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and restrictions imposed by Section 4975 of the Code. For these purposes the term “employee benefit plan” includes, but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, consideration should be given to:
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whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
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whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and
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whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment returns.
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The person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in us is authorized by the appropriate governing instrument and is a proper investment for the plan.
Section 406 of ERISA and Section 4975 of the Code prohibit employee benefit plans from engaging in specified transactions involving “plan assets” with parties that are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to the plan.
In
addition to considering whether the purchase of Offered Shares is a prohibited transaction, a fiduciary of an employee
benefit plan should consider whether the plan will, by investing in us, be deemed to own an undivided interest in our assets,
with the result that our operations would be subject to the regulatory restrictions of ERISA, including its prohibited transaction
rules, as well as the prohibited transaction rules of the Code.
The Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed “plan assets” under some circumstances. Under these regulations, an entity’s assets would not be considered to be “plan assets” if, among other things:
(1) the equity interests acquired by employee benefit plans are publicly offered securities - i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal securities laws;
(2) the entity is an “operating company”—i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or
(3) there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest is held by the employee benefit plans referred to above.
We
do not intend to limit investment by benefit plan investors in us because we anticipate that we will qualify as an “operating
company”. If the Department of Labor were to take the position that we are not an operating company and we had
significant investment by benefit plans, then we may become subject to the regulatory restrictions of ERISA which would likely
have a material adverse effect on our business and the value of our Common Stock .
Plan
fiduciaries contemplating a purchase of Offered Shares should consult with their own counsel regarding the consequences
under ERISA and the Code in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.
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ACCEPTANCE
OF ORDERS ON BEHALF OF PLANS IS IN NO RESPECT A REPRESENTATION BY OUR BOARD OF DIRECTORS OR ANY OTHER PARTY RELATED TO
US THAT THIS INVESTMENT MEETS THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS
INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR
HER ATTORNEY AND FINANCIAL ADVISERS AS TO THE PROPRIETY OF AN INVESTMENT IN US IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR
PLAN.
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REPORTS
We will furnish the following reports, statements, and tax information to each Class B Member:
Reporting
Requirements under Tier II of Regulation A. Following this Tier II , Regulation A offering, we will
be required to comply with certain ongoing disclosure requirements under Rule 257 of Regulation A. We will be required
to file: an annual report with the SEC on Form 1-K; a semi-annual report with the SEC on Form 1-SA; current reports
with the SEC on Form 1-U; and a notice under cover of Form 1-Z. The necessity to file current reports will be triggered
by certain corporate events, similar to the ongoing reporting obligation faced by issuers under the Exchange Act, however the
requirement to file a Form 1-U is expected to be triggered by significantly fewer corporate events than that of the Form 8-K. Parts
I & II of Form 1-Z will be filed by us if and when we decide to and are no longer obligated to file and provide annual reports
pursuant to the requirements of Regulation A.
Annual
Reports. As soon as practicable, but in no event later than one hundred twenty (120) days after the close of our
fiscal year, ending June 30, our board of directors will cause to be mailed or made available, by any reasonable means,
to each Stockholder as of a date selected by the board of directors , an annual report containing financial statements
of the Company for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations,
company equity and cash flows, with such statements having been audited by an accountant selected by the board of directors . The
board of directors shall be deemed to have made a report available to each Stockholder as required if it has either
(i) filed such report with the SEC via its Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system and such report
is publicly available on such system or (ii) made such report available on any website maintained by the Company and available
for viewing by the Stockholders .
Tax
Information. On or before January 31st of the year immediately following our fiscal year, which is currently July
1st through June 30th, we will send to each Stockholder such tax information as shall be reasonably required for federal
and state income tax reporting purposes.
Stock
Certificates. We do not anticipate issuing stock certificates representing Offered Shares purchased
in this offering to the Common Stockholders . However, we are permitted to issue stock certificates and
may do so at the request of our transfer agent. The number of Offered Shares held by each Common Stockholder,
will be maintained by us or our transfer agent in our company register.
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INDEPENDENT AUDITORS
The
consolidated balance sheet of Allegiancy, LLC and subsidiaries as of the fiscal years ended June 30, 2015 and 2014, and
the consolidated statements of operations, changes in members’ equity and cash flows of Allegiancy, LLC for each of the
two years ended June 30, 2015 have been included in this Offering Circular in reliance upon the report of Keiter, Stephens, Hurst,
Gary & Shreaves, P.C., independent certified public accountants, and upon the authority of said firm as experts in accounting
and auditing.
The
combined balance sheet of TriStone Realty Management Group for the period ended June 1, 2015 and for the year ended June 30, 2014
and the combined consolidated statements of operations, changes in members’ equity and cash flows of TriStone Realty Management
Group for each such period have been included in this Offering Circular in reliance upon the report of Artesian CPA, LLC,
independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing.
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Index to Financial Statements
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Allegiancy, LLC
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Allegiancy, LLC Consolidated Pro Forma for Fiscal Year Ended June 30, 2015
|
F-1
|
|
|
Allegiancy, LLC Financial Statements for Fiscal Year Ended June 30, 2014
|
F-3
|
|
|
Report of Independent Accountants
|
F-4
|
|
|
Balance Sheet as of June 30, 2014
|
F-5
|
|
|
Statement of Operations For the Year Ended June 30, 2014
|
F-6
|
|
|
Statement of Members’ Equity For the Year Ended June 30, 2014
|
F-7
|
|
|
Statement of Cash Flows For the Year Ended June 30, 2014
|
F-8
|
|
|
Notes to Financial Statements
|
F-9
|
|
|
Allegiancy, LLC Consolidated Financial Statements June 30, 2015
|
F-16
|
|
|
Report of Independent Accountants
|
F-17
|
|
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Consolidated Balance Sheet June 30, 2015
|
F-18
|
|
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Consolidated Statement of Operations For the Year Ended June 30, 2015
|
F-19
|
|
|
Consolidated Statement of Members’ Equity For the Year Ended June 30, 2015
|
F-20
|
|
|
Consolidated Statement of Cash Flows For the Year Ended June 30, 2015
|
F-21
|
|
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Notes to Consolidated Financial Statements
|
F-22
|
|
|
TriStone
Realty Management Group
|
||
|
TriStone Realty Management Group Combined Financial Statements and Independent Auditor’s Report June 1, 2015 and June 30, 2014
|
F-30 | |
|
Independent Auditor’s Report (Artesian CPA, LLC)
|
F-31
|
|
|
Combined Balance Sheets As of June 1, 2015 and June 30, 2014
|
F-33
|
|
|
Combined Statements of Operations For the Period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014
|
F-34
|
|
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Combined Statements of Changes in Members’ Equity For the Period from July 1, 2014 to June 2015 and the year ended June 30, 2014
|
F-35
|
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Combined Statements of Cash Flows For the Period from July 1, 2014 to June 1, 2015 and the Year Ended June 30, 2014
|
F-36
|
|
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Notes to the Combined Financial Statements As of June 1, 2015 and June 30, 2014, for the period from July1, 2014 to June 1, 2015, and the Year Ended June 30, 2014
|
F-37
|
|
|
REVA Management Advisors, LLC
|
||
|
REVA Management Advisors, LLC Financial Statements – April 8, 2014
|
F-44
|
|
|
Report of Independent Accountants
|
F-45
|
|
|
Balance Sheet As of April 8, 2014
|
F-46
|
|
|
Statement of Operations and Members’ Equity (Deficit) For the Period from July 1, 2013 to April 8, 2014
|
F-47
|
|
|
Statement of Cash Flows For the Period from July 1, 2013 to April 8, 2014
|
F-48
|
|
|
Notes to Financial Statements
|
F-49
|
|
Consolidated
Pro Forma Statement of Operations of Allegiancy, LLC
For
the Year Ended June 30,2015
|
||||||||||||||||||||
Allegiancy,
LLC
|
TriStone
Realty Management Group
|
ProForma
Adjustments
|
ProForma
Consolidated
|
|||||||||||||||||
Revenues:
|
||||||||||||||||||||
Management
fees
|
1,772,135 | 730,938 | (147,084 | ) | A | |||||||||||||||
| 685,394 | G | 3,041,383 | ||||||||||||||||||
Leasing
commissions
|
932,346 | 425,789 | - | |||||||||||||||||
| 278,040 | G | 1,636,175 | ||||||||||||||||||
Sales
commissions
|
100,081 | - | - | 100,0081 | ||||||||||||||||
Administrative
fees
|
517,765 | 114,909 | (24,581 | ) | A | |||||||||||||||
| 172,410 | E | 780,503 | ||||||||||||||||||
Other
|
15,581 | 145,881 | (745 | ) | A | 160,717 | ||||||||||||||
Total
revenues
|
3,337,908 | 1,417,517 | 963,434 | 5,718,859 | ||||||||||||||||
Direct
costs:
|
||||||||||||||||||||
Administrative
fees
|
506,510 | - | 685,394 | G | 1,191,904 | |||||||||||||||
Leasing commissions
|
785,422 | - | 278,040 | G | 1,063,462 | |||||||||||||||
Total
direct costs
|
1,291,932 | - | 963,434 | 2,255,366 | ||||||||||||||||
Gross
profit
|
2,045,976 | 1,417,517 | - | 3,463,493 | ||||||||||||||||
General
and administrative expenses:
|
||||||||||||||||||||
Compensation
and benefits
|
1,324,219 | 524,219 | 195,617 | B | ||||||||||||||||
| (373,969 | ) | C | 1,670,086 | |||||||||||||||||
Professional
fees
|
147,584 | 138,581 | (1,500 | ) | A | 284,665 | ||||||||||||||
| (34,645 | ) | C | ||||||||||||||||||
Software
development
|
253,703 | - | 493 | A | 254,196 | |||||||||||||||
Administrative
expenses
|
411,121 | 142,791 | - | 533,912 | ||||||||||||||||
| (35,698 | ) | C | ||||||||||||||||||
Depreciation
and amortization
|
72,586 | 5,855 | (5,855 | ) | D | |||||||||||||||
| 329,030 | F | 401,616 | ||||||||||||||||||
Interest
|
- | 8,842 | (8,842 | ) | D | - | ||||||||||||||
Other
costs
|
287,651 | 25,586 | (4,149 | ) | A | 309,088 | ||||||||||||||
Total
general and administrative expenses
|
2,496,864 | 845,874 | 60,482 | 3,473,563 | ||||||||||||||||
Net
Income (loss) before taxes
|
(450,888 | ) | 571,643 | (60,482 | ) | (10,070 | ) | |||||||||||||
Income
tax (benefit)
|
145,924 | - | (165,412 | ) | I | (19,488 | ) | |||||||||||||
Net
income (loss) before noncontrolling interest
|
(304,964 | ) | 571,643 | (225,893 | ) | 40,786 | ||||||||||||||
Net
income (loss) attributable to noncontrolling interest
|
2,750 | - | (103,725 | ) | H | (100,975 | ) | |||||||||||||
F-1
|
Net income (loss)
|
(302,214 | ) | 571,643 | (329,618 | ) | (60,189 | ) |
| A | Proforma adjustments for assets not conveyed in the acquisition. Therefore, a proforma adjustment is recorded to remove all P&L activity associated with those assets. | |||
| B | Proforma adjustment for the addition of an employee and related costs. | |||
| C | Proforma adjustment for costs, employees payroll and related costs and benefits not continuing after the acquisition. | |||
| D | Proforma adjustment to remove depreciation and interest expense as these are derived from assets and liabilities which are not being conveyed in the acquisition. | |||
| E | Proforma adjustment to record administrative services. | |||
| F | Proforma adjustment to record amortization of acquired contracts. | |||
| G | Proforma adjustment to record the direct costs associated with third party leasing commissions and management fees. | |||
| H | Proforma adjustment to record the non-controlling interest of Allegiancy Houston, LLC | |||
| I | Proforma adjustment for income taxes associated with the acquisition. |
F-2
ALLEGIANCY, LLC
Financial Statements
June 30, 2014
F-3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of Allegiancy, LLC
Report on the Financial Statements
We have audited the accompanying financial statements of Allegiancy, LLC, which comprise the balance sheet as of June 30, 2014, and the related statements of operations, members’ equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Allegiancy, LLC as of June 30, 2014, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States.
Keiter
August
18, 2015
Glen Allen, Virginia
F-4
ALLEGIANCY, LLC
Balance Sheet
June 30, 2014
| 2014 | ||||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 3,400,190 | ||
| Accounts receivable | 117,922 | |||
| Related party receivables | 698,471 | |||
| Other receivables | 104,647 | |||
| Prepaid expenses | 197,358 | |||
| Total current assets | 4,518,588 | |||
| Other assets: | ||||
| Deposit | 200,268 | |||
| Property and equipment - net | 74,643 | |||
| Deferred income taxes | 16,978 | |||
| Contract acquisition costs - net | 35,793 | |||
| Total other assets | 327,682 | |||
| Total assets | $ | 4,846,270 | ||
| Liabilities and Members' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 82,845 | ||
| Accrued expenses | 32,435 | |||
| Deferred revenue | 166,393 | |||
| Deferred income taxes | 88,999 | |||
| Current maturities of long-term debt | 10,443 | |||
| Total current liabilities | 381,115 | |||
| Long term liabilities: | ||||
| Long-term debt | 14,403 | |||
| Total liabilities | 395,518 | |||
| Members' equity: | ||||
| Class A preferred units - authorized 1,000,000 units, $10 par, | ||||
| 499,997 units issued and outstanding at June 30, 2014 | 4,438,432 | |||
| Class B common units - authorized 20,000,000 units, $0 par, | ||||
| 1,250,100 units issued and outstanding at June 30, 2014 | (3,817 | ) | ||
| Retained earnings | 16,137 | |||
| Total members' equity | 4,450,752 | |||
| Total liabilities and members' equity | $ | 4,846,270 | ||
See
accompanying notes to financial statements.
F-5
ALLEGIANCY,
LLC
Statement
of Operations
For
the Year Ended June 30, 2014
| Revenues: | ||||
| Management fees | $ | 315,982 | ||
| Leasing commissions | 82,036 | |||
| Sales commissions | 617,510 | |||
| Administrative fees | 59,205 | |||
| Total revenues | 1,074,733 | |||
| Direct costs: | ||||
| Administrative fees | 90,129 | |||
| Leasing commissions | 74,921 | |||
| Total direct costs | 165,050 | |||
| Gross profit | 909,683 | |||
| General and administrative expenses: | ||||
| Compensation and benefits | 239,354 | |||
| Professional fees | 37,542 | |||
| Software development | 114,701 | |||
| Administrative expenses | 182,662 | |||
| Depreciation and amortization | 5,591 | |||
| Loss on terminated contracts | 112,163 | |||
| Other costs | 43,147 | |||
| Total general and administrative expenses | 735,160 | |||
| Income before taxes | 174,523 | |||
| Provision for income taxes | 72,021 | |||
| Net income | $ | 102,502 |
See
accompanying notes to financial statements.
F-6
ALLEGIANCY,
LLC
Statement
of Members’ Eqquity
For
the Year Ended June 30, 2014
| Class A - Preferred Units | Class B - Common Units | Retained Earnings | Total Members' Equity | |||||||||||||
| Members' equity, July 1, 2013 | $ | — | $ | 1,000 | $ | — | $ | 1,000 | ||||||||
| Capital contributions | 4,999,970 | (6,881 | ) | — | 4,993,089 | |||||||||||
| Syndication costs | (724,328 | ) | — | — | (724,328 | ) | ||||||||||
| Accumulated preferred return | 86,365 | — | (86,365 | ) | — | |||||||||||
| Warrants issued | 76,425 | — | — | 76,425 | ||||||||||||
| Equity based compensation | — | 2,064 | — | 2,064 | ||||||||||||
| Net income | — | — | 102,502 | 102,502 | ||||||||||||
| Members' equity, June 30, 2014 | $ | 4,438,432 | $ | (3,817 | ) | $ | 16,137 | $ | 4,450,752 | |||||||
See
accompanying notes to financial statements.
F-7
ALLEGIANCY,
LLC
Statement
of Cash Flows
For
the Year Ended June 30, 2014
| Cash flows from operating activities: | ||||
| Net income | $ | 102,502 | ||
| Adjustments to reconcile
net income to net cash from operating activities: | ||||
| Depreciation and amortization | 5,591 | |||
| Loss on terminated contracts | 112,163 | |||
| Deferred income tax expense | 72,021 | |||
| Equity based compensation | 2,064 | |||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | 295,883 | |||
| Related party receivables | (698,471 | ) | ||
| Other receivables | (104,647 | ) | ||
| Deposits | (200,268 | ) | ||
| Prepaid expenses | (186,634 | ) | ||
| Accounts payable | (75,660 | ) | ||
| Accrued expenses | (93,533 | ) | ||
| Net cash used in operating activities | (768,989 | ) | ||
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (33,466 | ) | ||
| Purchases of lease contracts, net of refund | (148,711 | ) | ||
| Net cash used in investing activities | (182,177 | ) | ||
| Cash flows from financing activities: | ||||
| Capital contributions | 4,999,970 | |||
| Syndication costs | (647,903 | ) | ||
| Payments on long-term debt | (1,711 | ) | ||
| Net cash provided by financing activities | 4,350,356 | |||
| Net change in cash and cash equivalents | 3,399,190 | |||
| Cash and cash equivalents, beginning of the year | 1,000 | |||
| Cash and cash equivalents, end of the year | $ | 3,400,190 | ||
| Supplemental disclosure of cash flow information: | ||||
| Noncash transactions: | ||||
| Contribution of RMA for Class B Membership Units (Note 2) | $ | (6,881 | ) | |
| Stock warrants issued to underwriters | $ | 76,425 | ||
| Accrued preferred return | $ | 86,365 |
See
accompanying notes to financial statements.
F-8
ALLEGIANCY,
LLC
Notes
to Financial Statements
1. Summary
of Significant Accounting Policies:
Allegiancy,
LLC (the “Company”) is a limited liability company organized under the laws of the State of Delaware on January, 22,
2013 for the primary purpose of providing asset and property management services related to commercial real estate. On April 8,
2014, REVA Management Advisors, LLC (“RMA”) a related party property management company, contributed its net assets
of ($6,881) to the Company. See Note 2.
Refer
to the Company’s operating agreement (the “Agreement”) for more information.
Basis of Presentation: The Company prepares
its financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Defined
terms used in the Notes to the Financial Statements are as defined in the Operating Agreement. A summary of the
significant accounting and reporting policies of the Company are presented below.
|
Revenue Recognition: The Company recognizes revenues
from property management, administration fees and leasing commissions as services have been performed and are billable.
|
Credit
Risk and Concentrations: Financial instruments which potentially expose the Company to concentrations of credit risk consist
of cash. The Company maintains its cash in financial institutions at levels that may periodically exceed federally-insured
limits.
Three
customers accounted for 70% of revenues for the year ended June 30, 2014 and three customers accounted for 94% of accounts receivable
as of June 30, 2014.
Accounts
Receivable: Accounts receivable are reported net of an allowance for doubtful accounts. The allowance
is based on management's estimate of the amount of receivables that will actually be collected. No allowance for doubtful accounts
was considered necessary at June 30, 2014.
Property
and Equipment: Property and equipment are stated at cost. Major repairs and betterments are capitalized and normal
maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line and accelerated
methods over the estimated useful lives of the related assets, which range from three to seven years. Upon retirement
or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in
operations.
Contract
Acquisition Costs: Costs relating to obtaining new property management contracts are capitalized and amortized on a straight-line
basis over the expected length of the contracts, usually ten years. The amount presented on the balance sheet as of June 30, 2014
is net of accumulated amortization of $755. Amortization expense was $755 for 2014. The Company recorded a loss for terminated
contracts of $112,163 during 2014.
F-9
ALLEGIANCY,
LLC
Notes
to Financial Statements
1.
|
Summary
of Significant Accounting Policies, Continued:
|
Use
of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods
reported. Actual results could differ from those estimates.
Income
Taxes: The Internal Revenue Service approved the Company’s election filed on Form 8832, Entity Classification Election,
to be taxed as a C corporation effective June 30, 2013.
The
Company accounts for deferred income taxes by the liability method. Deferred income tax liabilities are computed based on the
temporary differences between the financial statement carrying amounts and income tax basis of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to reverse.
The
Company follows FASB guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the financial
statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s
tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged”
or “when examined” by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax expense and liability in the current year.
Management
has evaluated the effect of guidance surrounding uncertain income tax positions and concluded that the Company has no significant
financial statement exposure to uncertain income tax positions at June 30, 2014. The Company’s income tax returns since
organization remain open for examination by tax authorities. The Company is not currently under audit by any tax jurisdiction.
Marketing
Expenses: The Company expenses marketing costs as they are incurred. Marketing expense amounted to $154,555 during 2014.
Syndication
Costs: Syndication costs represent costs incurred in connection with the syndication of member interest and those costs are
reflected as a reduction of members’ equity. Syndication costs were $724,328 during 2014, including $76,425 for the estimated
fair value of warrants issued.
Organization
Costs: Costs of start-up activities and organization costs totaling $221,968 for the year ended June 30, 2014 have been expensed
as incurred.
Software
Development: Software development is expenses associated with developing internal software programs. The Company expenses
software development costs as they are incurred. Software development expenses amounted to $253,703 for 2015.
F-10
ALLEGIANCY,
LLC
Notes
to Financial Statements
1.
|
Summary
of Significant Accounting Policies, Continued:
|
Subsequent
Events: Management has evaluated subsequent events through August 18, 2015, the date the financial statements were available
to be issued, and has determined there are no subsequent events to be reported in the accompanying financial statements.
2.
|
RMA
Capital Contribution:
|
On
April 8, 2014, the net assets of RMA were contributed to the Company in exchange for Class B units. The contribution agreement
also included transfer of 15 property management agreements from RMA to the Company. The owners of RMA received 1,250,100 Class
B common units in exchange for the RMA’s net assets. The assets acquired and liabilities assumed were valued at RMA’s
book value upon acquisition, as RMA was determined to be a related party.
The
assets and liabilities contributed by RMA consist of the following:
| Accounts receivable | $ | 413,807 | ||
| Prepaid expenses | 10,724 | |||
| Property and equipment | 46,013 | |||
| Accounts payable | (158,505 | ) | ||
| Deferred revenue | (166,394 | ) | ||
| Accrued expenses | (95,238 | ) | ||
| Accrued payroll and benefits | (30,731 | ) | ||
| Long term debt | (26,557 | ) | ||
| Net assets contributed | $ | (6,881 | ) |
3.
|
Property
and Equipment:
|
Property
and equipment consisted of the following components at June 30, 2014:
| Website | $ | 31,069 | ||
| Furniture and equipment | 13,913 | |||
| Computer software and license | 9,750 | |||
| Vehicles | 24,747 | |||
| $ | 79,479 | |||
| Less: Accumulated depreciation | (4,836 | ) | ||
| $ | 74,643 |
Depreciation
expense was $4,836 for the year ended June 30, 2014.
F-11
ALLEGIANCY,
LLC
Notes
to Financial Statements
4.
|
Long-Term
Debt:
|
The
Company’s long term debt consisted of loans for two vehicles with fixed payment schedules consisting of 60 consecutive monthly
installments of principal and interest of at 2.9% at $918 total. The debt is secured by the related vehicles. Future minimum principal
payments are $10,443 in 2015, $10,750 in 2016 and $3,653 in 2017.
5.
|
Income
Taxes:
|
The
Company’s effective tax rate differs from the deferral statutory tax rate due primarily to local income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The
provision for deferred income taxes for the year ended June 30, 2014 consists of the following components:
| Federal | $ | 64,508 | ||||
| State | 7,513 | |||||
| $ | 72,021 |
The
Company has elected to pay taxes on the cash basis.
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as
follows:
| Property and equipment | $ | 1,140 | ||
| Contract acquisition costs | (1,196 | ) | ||
| Equity based compensation | 783 | |||
| Accounts and related party receivables | (309,903 | ) | ||
| Prepaid expenses | (63,518 | ) | ||
| Accounts payable | 31,448 | |||
| Accrued expenses | 12,312 | |||
| Deferred revenue | 63,163 | |||
| Net operating loss carry forward | 193,750 | |||
| $ | (72,021 | ) |
As
of June 30, 2014, the Company had net operating loss carryforward of approximately $510,400. The timing and manner in which the
operating loss carryforward may be utilized in any year will be limited by the Company’s ability to generate future earnings.
The ability to utilize the operating loss carryforward expires in 2034.
F-12
ALLEGIANCY,
LLC
Notes
to Financial Statements
6.
|
Members’
Equity:
|
Class
A Units: On March 6, 2014, the Company issued 499,997 Class A preferred membership units with a par value of $10 for a total
of $4,999,970 (the “Offered Units”). The preferred membership units have one voting right per unit. The preferred
membership units provide for an annual cumulative, non-compounding return of 6% annually. At June 30, 2014, accrued preferred
return amounted to $86,365. In the event of redemption or liquidation, the preferred membership units have preference over the
common membership units.
Conversion
Rights: The Company has the right to convert any Offered Class A Units remaining outstanding following the fifth anniversary
of the initial closing into Class B Units, subject to certain conditions described by the Operating Agreement. If the Company
elects to convert the remaining Offered Units into Class B Units, each Class A member whose Offered Units are being converted
shall receive that number of Class B units equaling $20 for each Class A Unit converted. The value of the Class B units shall
be established using the most recent closing price for the Class B units.
Purchase
Rights: Each Offered Unit also entitles its holder to a right to purchase one Class B unit, (the “Purchase Right”).
The Purchase Right may only be exercised either (a) within ten days following the date on which the Offered Units associated with
the Purchase right are redeemed by the Company; or (b) within ten days following the conversion of the Offered Units into Class
B units. The exercise price for a Class B Units which may be purchased pursuant to the exercise of a Purchase Right is $7.50 per
purchased unit.
Redemption
Requirement: The Company will be required to redeem up to one-third of the outstanding Class A units purchased in the initial
offering for cash on each of the third, fourth and fifth anniversaries of March 6, 2014, the initial closing of the offering,
(each the “redemption date”). The cash redemption price for the Class A units will be $16.00 per Class A Unit on the
third anniversary of the initial closing of the offering, $17.00 per Class A Unit on the fourth anniversary of the initial closing
of the offering, and $18.00 per Class A Unit on the fifth anniversary of the initial closing of the offering. The Company will
have no obligation to redeem Class A units after the fifth anniversary of the initial closing of the offering. If requests for
the redemption of more than one-third of the Offered Units purchased in the offering are received with respect to any redemption
date, then the Company shall redeem the Offered Units pro rata in accordance with the number of Offered Units each requesting
Class A Member has tendered for redemption, which may result in Class A Members retaining fractional Offered Units.
Class
B Units: The Company issued 1,250,100 Class B common membership units in exchange for RMA’s net assets. See Note 2 for
more information about this transaction. The common membership shares have one voting right per unit.
F-13
ALLEGIANCY,
LLC
Notes
to Financial Statements
6.
|
Members’
Equity, Continued:
|
Underwriter
Warrants: On March 6, 2014, in connection with the issuance of the Class A preferred membership units noted above, the Company
offered stock warrants for 4.6% of the 499,997 (totaling 23,000) for the 2014 Class A offering to the underwriter (“Underwriter
Warrants”). The purchase price per Underwriter Warrant will be $0.001 per Class A Unit underlying the Underwriter Warrant,
and the exercise price shall be $12.50 per Class A Unit. Each Underwriter Warrant will be exercisable commencing on the date that
is 370 days immediately following the issuance of such Underwriter Warrant. The value of the warrants of $76,425 is recorded as
a component of Class A membership units on the accompanying statement of members’ equity and included as a component of
the syndication costs. The warrants were valued based on the value of the underlying units.
7.
|
Stock
Options:
|
The
Company created the 2014 Equity Incentive Plan (The “Plan”) effective June 1, 2014. The Board of Managers has the
right to terminate the Plan at any time; however, the Plan is set to terminate May 30, 2020. As of June 30, 2014, the maximum
aggregate number of common shares that may be issued under the Plan is 175,000 Class B common units. Only employees
of the Company, members of the Board of Managers, and individuals who provide services to the Company are eligible to participate
in the Plan. Once vested, the options do not expire until the employee separates from the Company.
During
2014, 95,100 options were granted and are outstanding at June 30, 2014, with an exercise price per share of $6.00 and $10.00.
No shares were exercised in 2014. The shares vest between June 2014 and June 2017. 6,000 shares with a $6 exercise price vested,
and no shares were forfeited in 2014.
The
weighted average exercise price for share options outstanding at June 30, 2014 was $7.81. The following table summarizes additional
information about stock options outstanding and exercisable at June 30, 2014:
| Options Outstanding Exercisable | ||||||||||||
Exercise Price | Outstanding | Exercisable | Remaining
Contractual Life (Years) | |||||||||
| $ | 6.00 | 52,000 | 6,000 | N/A | ||||||||
| $ | 10.00 | 43,150 | N/A | |||||||||
F-14
ALLEGIANCY,
LLC
Notes
to Financial Statements
7.
|
Stock
Options, Continued:
|
The
fair value of the options granted in 2014 were estimated on the grant date using the Black-Scholes pricing model to calculate
fair value. The inputs used in the Black-Scholes model included the following:
| $6 Options | $10 Options | |||||||
| Estimated stock price | ||||||||
| (on date of grant) | $ | 3.06 | $ | 3.06 | ||||
| Exercise price | $ | 6.00 | $ | 10.00 | ||||
| Expected life (years) | 1.79 | 3 | ||||||
| Volatility | 50 | % | 50 | % | ||||
| Risk free rate | 1.57 | % | 1.57 | % | ||||
| Fair value of options granted | $ | 0.24 | $ | 0.19 | ||||
The
Company recognized equity based compensation expense of $2,064 for the 2014 awards. At June 30, 2014, there was $18,594 of total
unrecognized compensation related to non-vested option units, which will be recognized ratably over the remaining vesting period
of three years.
8.
|
Related
Party Transactions:
|
The
Company performs property management services for real estate entities, some of which are determined to be related parties through
common ownership and management. Total related party revenue was $779,147 during 2014. Total related party receivables were $698,971
at June 30, 2014.
9.
|
Guarantees:
|
Pursuant
to its operating agreement, the Company has certain obligations to indemnify its current officers and directors for certain events
or occurrences while the officer or director is, or was serving, at the Company’s request in such capacities. The maximum
liability under these obligations is unlimited; however, the Company’s insurance policies serve to limit its exposure.
F-15
ALLEGIANCY,
LLC
Consolidated
Financial Statements
June
30, 2015
F-16
REPORT
OF INDEPENDENT ACCOUNTANTS
To
the Members of Allegiancy, LLC
Report
on the Consolidated Financial Statements
We
have audited the accompanying consolidated financial statements of Allegiancy, LLC and its subsidiary, which comprise the consolidated
balance sheet as of June 30, 2015, and the related consolidated statements of operations, members’ equity, and cash flows
for the year then ended, and the related notes to the consolidated financial statements.
Management's
Responsibility for the Consolidated Financial Statements
Management
is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's
Responsibility
Our
responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Allegiancy, LLC and its subsidiary as of June 30, 2015, and the results of their operations and their cash flows for the year
then ended in accordance with accounting principles generally accepted in the United States.
Keiter
August
18, 2015
Glen
Allen, Virginia
F-17
ALLEGIANCY,
LLC
Consolidated
Balance Sheet
June
30, 2015
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 1,897,015 | ||
| Accounts receivable | 71,762 | |||
| Prepaid expenses | 160,711 | |||
| Deferred income taxes - current | 41,374 | |||
| Total current assets | 2,170,862 | |||
| Other assets: | ||||
| Property and equipment-net | 47,145 | |||
| Deferred income taxes | 32,529 | |||
| Acquired contracts-net | 4,150,845 | |||
| Goodwill | 81,670 | |||
| Total other assets | 4,312,189 | |||
| Total assets | $ | 6,483,051 | ||
| Liabilities and Members' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 167,944 | ||
| Accrued expenses | 39,932 | |||
| Deferred revenue | 20,443 | |||
| Total current liabilities | 228,319 | |||
| Members' equity: | ||||
| Controlling interest: | ||||
| Class A preferred units - authorized 1,000,000 units, $10 par, | ||||
| 499,997 units issued and outstanding at June 30, 2015 | 4,427,067 | |||
| Class B common units - authorized 20,000,000 units, $0 par, | ||||
| 1,378,700 units issued and outstanding at June 30, 2015 | 1,315,163 | |||
| Accumulated deficit | (586,075 | ) | ||
| Total controlling interest | 5,156,155 | |||
| Noncontrolling interest | 1,098,577 | |||
| Total members' equity | 6,254,732 | |||
| Total liabilities and members' equity | $ | 6,483,051 | ||
See
accompanying notes to consolidated financial statements.
F-18
ALLEGIANCY,
LLC
Consolidated
Statement of Operations
For
the Year Ended June 30, 2015
| Revenues: | ||||
| Management fees | $ | 1,772,135 | ||
| Leasing commissions | 932,346 | |||
| Sales commissions | 100,081 | |||
| Administrative fees | 517,765 | |||
| Other | 15,581 | |||
| Total revenues | 3,337,908 | |||
| Direct costs: | ||||
| Administrative fees | 506,510 | |||
| Leasing commissions | 785,422 | |||
| Total direct costs | 1,291,932 | |||
| Gross profit | 2,045,976 | |||
| General and administrative expenses: | ||||
| Compensation and benefits | 1,324,219 | |||
| Professional fees | 147,584 | |||
| Software development | 253,703 | |||
| Administrative expenses | 411,121 | |||
| Depreciation and amortization | 72,586 | |||
| Other costs | 287,651 | |||
| Total general and administrative expenses | 2,496,864 | |||
| Loss before taxes | (450,888 | ) | ||
| Income tax benefit | 145,924 | |||
| Net loss before noncontrolling interest | (304,964 | ) | ||
| Net loss attributable to noncontrolling interest | 2,750 | |||
| Net loss | $ | (302,214 | ) |
See
accompanying notes to consolidated financial statements.
F-19
ALLEGIANCY,
LLC
Consolidated
Statement of Members’ Equity
For
the Year Ended June 30, 2015
| Class A - Preferred Units | Class B - Common Units | Retained Earnings (Accumulated Deficit) | Non-Controlling Interest | Total Members' Equity | ||||||||||||||||
| Members' equity, June 30, 2014 | $ | 4,438,432 | $ | (3,817 | ) | $ | 16,137 | $ | — | $ | 4,450,752 | |||||||||
| Capital contributions | — | 1,284,882 | — | 1,101,327 | 2,386,209 | |||||||||||||||
| Dividends paid on preferred return | (86,365 | ) | — | (224,998 | ) | — | (311,363 | ) | ||||||||||||
| Accumulated preferred return | 75,000 | — | (75,000 | ) | — | — | ||||||||||||||
| Equity based compensation | — | 34,098 | — | — | 34,098 | |||||||||||||||
| Net loss | — | — | (302,214 | ) | (2,750 | ) | (304,964 | ) | ||||||||||||
| Members' equity, June 30, 2015 | $ | 4,427,067 | $ | 1,315,163 | $ | (586,075 | ) | $ | 1,098,577 | $ | 6,254,732 |
See
accompanying notes to consolidated financial statements.
F-20
ALLEGIANCY,
LLC
Consolidated
Statement of Cash Flows
For
the Year Ended June 30, 2015
| Cash flows from operating activities: | ||||
| Net loss | $ | (304,964 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Deferred income tax benefit | (145,924 | ) | ||
| Depreciation and amortization | 82,336 | |||
| Equity based compensation | 34,098 | |||
| Loss on sale of property and equipment | 2,729 | |||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | 46,160 | |||
| Related party receivables | 698,471 | |||
| Other receivables | 104,647 | |||
| Deposits | 200,268 | |||
| Prepaid expenses | 36,647 | |||
| Accounts payable | 85,099 | |||
| Deferred revenue | (145,950 | ) | ||
| Accrued expenses | 7,497 | |||
| Net cash provided by operating activities | 701,114 | |||
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (12,081 | ) | ||
| Proceeds from sale of fixed assets | 17,069 | |||
| Purchase of interest in Tristone | (1,284,882 | ) | ||
| Purchases of lease contracts, net of refund | (588,186 | ) | ||
| Net cash used in investing activities | (1,868,080 | ) | ||
| Cash flows from financing activities: | ||||
| Dividends paid on preferred return | (311,363 | ) | ||
| Payments on long-term debt | (24,846 | ) | ||
| Net cash provided by financing activities | (336,209 | ) | ||
| Net change in cash and cash equivalents | (1,503,175 | ) | ||
| Cash and cash equivalents, beginning of the year | 3,400,190 | |||
| Cash and cash equivalents, end of the year | $ | 1,897,015 | ||
| Supplemental disclosure of cash flow information: | ||||
| Noncash transactions: | ||||
| Acquisition of Tristone for Class B shares | $ | 1,284,882 | ||
| Accrued preferred return | $ | 75,000 |
See
accompanying notes to consolidated financial statements.
F-21
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
1. Summary
of Significant Accounting Policies:
Allegiancy,
LLC (the “Company”) is a limited liability company organized under the laws of the State of Delaware on January, 22,
2013 for the primary purpose of providing asset and property management services related to commercial real estate. On June 1,
2015, the Company acquired a 70% economic controlling interest in Tristone Realty Management, LLC. See Note 2.
Refer
to the Company’s operating agreement (the “Agreement”) for more information.
Basis of Presentation: The Company prepares
its consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Defined
terms used in the Notes to the consolidated financial statements are as defined in the Operating Agreement. A summary
of the significant accounting and reporting policies of the Company are presented below.
|
Basis of Consolidation: The consolidated financial statements
include all of the accounts of the Allegiancy, LLC and its subsidiary. All significant intercompany transactions have been
eliminated in consolidation.
|
Revenue Recognition: The Company recognizes revenues
from property management, administration fees and leasing commissions as services have been performed and are billable.
|
Credit
Risk and Concentrations: Financial instruments which potentially expose the Company to concentrations of credit risk consist
of cash. The Company maintains its cash in financial institutions at levels that may periodically exceed federally-insured
limits.
One
customer accounted for 15% of revenues for the year ended June 30, 2015. One customer accounted for 93% of accounts receivable
at June 30, 2015.
Accounts
Receivable: Accounts receivable are reported net of an allowance for doubtful accounts. The allowance
is based on management's estimate of the amount of receivables that will actually be collected. No allowance for doubtful accounts
was considered necessary at June 30, 2015.
Property
and Equipment: Property and equipment are stated at cost. Major repairs and betterments are capitalized and normal
maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line and accelerated
methods over the estimated useful lives of the related assets, which range from three to seven years. Upon retirement
or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in
operations.
F-22
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
1.
|
Summary
of Significant Accounting Policies, Continued:
|
Acquired
Contracts: Costs relating to obtaining new property management contracts are capitalized and amortized on a straight-line
basis over the expected length of the contracts, usually ten years. The amount presented on the consolidated balance sheet as
of June 30, 2015 of $4,141,095 is net of accumulated amortization of $175,472. Amortization expense was $174,717 for 2015, and
consisted of amortization of current contracts and write-off of contract costs for contracts terminated in 2015.
Noncontrolling
Interest: The noncontrolling interest of Tristone Realty Management, LLC is presented as a separate component of equity and
the net income (loss) attributable to the noncontrolling interest is offset in the Company’s consolidated statement of operations.
Use
of Estimates: The preparation of consolidated financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the periods reported. Actual results could differ from those estimates.
Income
Taxes: The Internal Revenue Service approved the Company’s election filed on Form 8832, Entity Classification Election,
to be taxed as a C corporation effective June 30, 2013.
The
Company accounts for deferred income taxes by the liability method. Deferred income tax liabilities are computed based on the
temporary differences between the financial statement carrying amounts and income tax basis of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to reverse.
The
Company follows FASB guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the consolidated
financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the
Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when
challenged” or “when examined” by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded as a tax expense and liability in the current year.
Management
has evaluated the effect of guidance surrounding uncertain income tax positions and concluded that the Company has no significant
financial statement exposure to uncertain income tax positions at June 30, 2015. The Company’s income tax returns since
organization remain open for examination by tax authorities. The Company is not currently under audit by any tax jurisdiction.
Marketing
Expenses: The Company expenses marketing costs as they are incurred. Marketing expense amounted to $205,368 during 2015.
F-23
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
1.
|
Summary
of Significant Accounting Policies, Continued:
|
Goodwill
and Acquired Contracts: The Company evaluates the potential impairment of finite (acquired contracts) and indefinitely
lived (goodwill) intangibles annually in accordance with FASB guidance. Under this guidance, impairment losses are to be recognized
in the period of determination. The Company completed its evaluation and did not record any impairment charge for 2015.
Software
Development: Software development consists of costs associated with developing internal software programs. The Company expenses
software development costs as they are incurred. Software development expenses amounted to $253,703 for 2015.
Subsequent
Events: Management has evaluated subsequent events through August 18, 2015, the date the consolidated financial statements
were available to be issued, and has determined there are no subsequent events to be reported in the accompanying consolidated
financial statements.
2.
|
Tristone
Acquisition:
|
On
June 1, 2015, the Company acquired a controlling interest in Tristone Realty Management, LLC (“Tristone”). The Company
is entitled to 70% of the profits and loss interests of Tristone. The acquisition of Tristone was accounted for using the acquisition
method, in which acquired assets are recorded at fair value. In consideration of the assets acquired, the Company issued Class
B shares valued at $1,284,882, and paid cash of $1,284,882. The assets acquired consisted of property management contracts of
$3,589,420 and goodwill of $81,670. There were no liabilities assumed in the transaction. The acquired property management contracts
are presented on the consolidated balance sheet as a component of acquired contracts. Tristone’s noncontrolling interest
of $1,101,327 on the transaction date is recorded as a non-cash capital contribution on the consolidated statement of members’
equity.
3.
|
Property
and Equipment:
|
Property
and equipment consisted of the following components at June 30, 2015:
| Website | $ | 31,070 | ||
| Furniture and equipment | 18,418 | |||
| Computer Software and License | 17,325 | |||
| $ | 66,813 | |||
| Less: Accumulated depreciation | (19,668 | ) | ||
| $ | 47,145 |
Depreciation
expense was $19,781 for the year ended June 30, 2015.
F-24
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
4.
|
Acquired
Contracts-Net:
|
Acquired
contracts are amortized over the expected lives of the contracts, generally between 5-12 years. Amortization expense amounted
to $174,717 for 2015.
Estimated
future annual amortization expense is as follows at June 30, 2015:
| 2016 | $ | 419,425 | ||||
| 2017 | 419,425 | |||||
| 2018 | 419,425 | |||||
| 2019 | 419,425 | |||||
| 2020 | 419,425 | |||||
| Thereafter | 2,053,720 | |||||
| $ | 4,150,845 |
5.
|
Income
Taxes:
|
The
Company’s effective tax rate differs from the deferral statutory tax rate due primarily to local income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes:
The
provision (benefit) for deferred income taxes for the year ended June 30, 2015 consists of the following:
| Federal | $ | (130,701 | ) | |
| State | (15,223 | ) | ||
| Deferred tax benefit | $ | (145,924 | ) |
The
Company has elected to pay taxes on the cash basis. The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at June 30, 2015 consists of the following:
| Property and equipment | $ | 350 | ||
| Contract acquisition costs | 2,201 | |||
| Equity based compensation | 13,727 | |||
| Accounts and related party receivables | (26,223 | ) | ||
| Prepaid expenses | (18,055 | ) | ||
| Accounts payable | 62,734 | |||
| Accrued expenses | 22,918 | |||
| Net operating loss carry forward | 16,251 | |||
| $ | 73,903 |
F-25
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
5.
|
Income
Taxes, Continued:
|
As
of June 30, 2015, the Company had net operating loss carryforward of approximately $42,800. The timing and manner in which the
operating loss carryforward may be utilized in any year will be limited by the Company’s ability to generate future earnings.
The ability to utilize the operating loss carryforward expires in 2034.
6.
|
Leases:
|
The
Company leases office space under short and long term operating leases. Future minimum payments under operating lease obligations
consisted of the following at June 30, 2015:
| 2016 | $ | 39,458 | ||||
| 2017 | 39,458 | |||||
| 2018 | 22,572 | |||||
| $ | 101,489 |
Total
operating lease expense was $38,459 for 2015.
7.
|
Members’
Equity:
|
Class
A Units: On March 6, 2014, the Company issued 499,997 Class A preferred membership units with a par value of $10 for a total
of $4,999,970 (the “Offered Units”). The preferred membership units have one voting right per unit. The preferred
membership units provide for an annual cumulative, non-compounding return of 6% annually. At June 30, 2015, accrued preferred
return amounted to $75,000. In the event of redemption or liquidation, the preferred membership units have preference over the
common membership units. During 2015, the Company paid Class A preferred dividends of $311,363.
Conversion
Rights: The Company has the right to convert any Offered Class A Units remaining outstanding following the fifth anniversary
of the initial closing into Class B Units, subject to certain conditions described by the Operating Agreement. If the Company
elects to convert the remaining Offered Units into Class B Units, each Class A member whose Offered Units are being converted
shall receive that number of Class B units equaling $20 for each Class A Unit converted. The value of the Class B units shall
be established using the most recent closing price for the Class B units.
Purchase
Rights: Each Offered Unit also entitles its holder to a right to purchase one Class B unit, (the “Purchase Right”).
The Purchase Right may only be exercised either (a) within ten days following the date on which the Offered Units associated with
the Purchase right are redeemed by the Company; or (b) within 10 days following the conversion of the Offered Units into Class
B units. The exercise price for a Class B Units which may be purchased pursuant to the exercise of a Purchase Right is $7.50 per
purchased unit.
F-26
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
7.
|
Members’
Equity, Continued:
|
Redemption
Requirement: The Company will be required to redeem up to one-third of the outstanding Class A units purchased in the initial
offering for cash on each of the third, fourth and fifth anniversaries of March 6, 2014, the initial closing of the offering,
(each the “redemption date”). The cash redemption price for the Class A units will be $16.00 per Class A Unit on the
third anniversary of the initial closing of the offering, $17.00 per Class A Unit on the fourth anniversary of the initial closing
of the offering, and $18.00 per Class A Unit on the fifth anniversary of the initial closing of the offering. The Company will
have no obligation to redeem Class A units after the fifth anniversary of the initial closing of the offering. If requests for
the redemption of more than one-third of the Offered Units purchased in the offering are received with respect to any redemption
date, then the Company shall redeem the Offered Units pro rata in accordance with the number of Offered Units each requesting
Class A Member has tendered for redemption, which may result in Class A Members retaining fractional Offered Units.
Class
B Units: The Company issued 1,250,100 Class B common membership units in 2014 and issued 128,600 in 2015 related to the acquisition
of Tristone. See Note 2 for more information about this transaction. The common membership shares have one voting right per unit.
Underwriter
Warrants: On March 6, 2014, in connection with the issuance of the Class A preferred membership units noted above, the Company
offered stock warrants for 4.6% of the 499,997 (totaling 23,000 for the 2014 Class A offering) to the underwriter (“Underwriter
Warrants”). The purchase price per Underwriter Warrant will be $0.001 per Class A Unit underlying the Underwriter Warrant,
and the exercise price shall be $12.50 per Class A Unit. Each Underwriter Warrant will be exercisable commencing on the date that
is 370 days immediately following the issuance of such Underwriter Warrant. The value of the warrants of $76,425 was recorded
as a component of Class A membership units on the accompanying consolidated statement of changes in members’ equity and
included as a component of the syndication costs during 2014. The warrants were valued based on the value of the underlying units.
8.
|
Stock
Options:
|
The
Company created the 2014 Equity Incentive Plan (The “Plan”) effective June 1, 2014. The Board of Managers has the
right to terminate the Plan at any time; however, the Plan is set to terminate May 30, 2020. As of June 30, 2015, the maximum
aggregate number of common shares that may be issued under the Plan is 1,000,000 Class B common units. Only employees of the Company,
members of the Board of Managers, and individuals who provide services to the Company are eligible to participate in the Plan.
Once vested, the options do not expire until the employee separates from the Company. The options cliff vest at anniversary
dates ranging from one to three years. Certain options vest immediately on the grant date. The Company recognizes compensation
expense ratably during the vesting period.
F-27
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
8.
|
Stock
Options, Continued:
|
During
2015, 171,400 options were granted, with exercise prices per share of $6.00 and $10.00. No shares were exercised in 2015. The
shares vest between March 2015 and March 2018. 65,000 shares with an exercise price of $6 vested in 2015.
The
following table summarizes the option units outstanding:
| Non-Vested | Vested | Total | ||||||||||||
| Outstanding at June 30, 2014 | 89,150 | 6,000 | 95,150 | |||||||||||
| Granted | 106,400 | 65,000 | 171,400 | |||||||||||
| Forfeited | (49,400 | ) | — | (49,400 | ) | |||||||||
| Outstanding at June 30, 2015 | 146,150 | 71,000 | 217,150 |
The
weighted average exercise price for share options outstanding at June 30, 2015 was $9.01 The following table summarizes additional
information about stock options outstanding and exercisable at June 30, 2015:
| Options
Outstanding and Exercisable at December 31, 2012 | ||||||||||||
| Exercise Price | Outstanding | Exercisable | Remaining Contractual Life (Years) | |||||||||
| $ | 6.00 | 107,000 | 71,000 | N/A | ||||||||
| $ | 10.00 | 110,150 | — | N/A | ||||||||
The
fair value of the options granted in 2015 were estimated on the grant date using the Black-Scholes pricing model to calculate
fair value. The inputs used in the Black-Scholes model included the following:
| $6 Options | $10 Options | |||||||
| Estimated stock price (on date of grant) | $ | 3.06 | $ | 3.06 | ||||
| Exercise price | $ | 6.00 | $ | 10.00 | ||||
| Expected life (years) | 3 | 3 | ||||||
| Volatility | 50 | % | 50 | % | ||||
| Risk free rate | 2.20 | % | 2.24 | % | ||||
| Fair value of options granted | $ | 0.24 | $ | 0.20 | ||||
F-28
ALLEGIANCY,
LLC
Notes
to Consolidated Financial Statements
8.
|
Stock
Options, Continued:
|
The
Company recognized equity based compensation expense of $34,098 during 2015. At June 30, 2015 there was $31,406 of total unrecognized
compensation related to non-vested option units, which will be recognized ratably over the remaining vesting period of three years.
9.
|
Related
Party Transactions:
|
The
Company performs property management services for real estate entities, some of which are determined to be related parties through
common ownership and management. Total related party revenue was $1,531,534 during 2015.
10.
|
Guarantees:
|
Pursuant
to its operating agreement, the Company has certain obligations to indemnify its current officers and directors for certain events
or occurrences while the officer or director is, or was serving, at the Company’s request in such capacities. The maximum
liability under these obligations is unlimited; however, the Company’s insurance policies serve to limit its exposure.
F-29
TriStone
Realty Management Group
Combined
Financial Statements and Independent Auditor’s Report
June
1, 2015 and June 30, 2014
F-30
To
the Members of:
TriStone
Realty Management Group
INDEPENDENT AUDITOR’S
REPORT
Report
on the Combined Financial Statements
We
have audited the accompanying combined financial statements of TriStone Realty Management Group, which comprise the combined balance
sheets as of June 1, 2015 and June 30, 2014, and the related combined statements of operations, changes in members’ equity,
and cash flows for the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014, and the related notes to the
combined financial statements.
Management’s
Responsibility for the Combined Financial Statements
Management
is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting
principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s
Responsibility
Our
responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from
material misstatements.
An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the combined financial statements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
F-31
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
Opinion
In
our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position
of TriStone Realty Management Group, as of June 1, 2015 and June 30, 2014, and the results of its operations and its cash flows
for the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014, in accordance with accounting principles generally
accepted in the United States of America.
/s/
Artesian CPA, LLC
Denver,
Colorado
August
7, 2015
Artesian
CPA, LLC
Denver,
CO
303.823.3220
ArtesianCPA.com
F-32
TRISTONE
REALTY MANAGEMENT GROUP
COMBINED
BALANCE SHEETS
As
of June 1, 2015 and June 30, 2014
| June 1, 2015 | June 30, 2014 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 587,590 | $ | 942,275 | ||||
| Accounts receivable | 286,933 | 269,361 | ||||||
| Receivables from affiliated properties | 104,665 | 124,393 | ||||||
| Receivables from related parties - current | 46,957 | 1,562 | ||||||
| Receivables from employees | 28,229 | 800 | ||||||
| Prepaid expenses | 3,000 | — | ||||||
| Total current assets | 1,057,374 | 1,338,391 | ||||||
| Other assets: | ||||||||
| Receivables from related parties - non-current | 3,944,675 | 3,470,420 | ||||||
| Deposits | 3,042 | 3,042 | ||||||
| Property and equipment - net | 10,342 | 16,196 | ||||||
| Total other assets | 3,958,059 | 3,489,658 | ||||||
| TOTAL ASSETS | $ | 5,015,433 | $ | 4,828,049 | ||||
| LIABILITIES & MEMBERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 97,826 | $ | 82,246 | ||||
| Accrued expenses | 9,847 | 12,723 | ||||||
| Due to affiliated properties | 388,923 | 917,663 | ||||||
| Earnest money deposit (See Note 8) | 284,882 | — | ||||||
| Total current liabilities | 781,478 | 1,012,632 | ||||||
| Members' equity | 4,233,955 | 3,815,417 | ||||||
| TOTAL LIABILITIES & MEMBERS' EQUITY | $ | 5,015,433 | $ | 4,828,049 | ||||
See
Independent Auditor’s Report and accompanying notes, which are an integral part of these combined financial statements.
F-33
TRISTONE
REALTY MANAGEMENT GROUP
COMBINED
STATEMENTS OF OPERATIONS
For
the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014
Period
Ended
|
Year
Ended
|
|||||||
June
1, 2015
|
June
30, 2014
|
|||||||
Revenues:
|
||||||||
Management
fees
|
$ | 730,938 | $ | 839,168 | ||||
Leasing
commissions
|
425,789 | 127,667 | ||||||
Administrative
fees
|
114,909 | 121,112 | ||||||
Other
|
145,881 | 200,776 | ||||||
Total
Revenues
|
1,417,517 | 1,288,723 | ||||||
Expenses:
|
||||||||
Compensation
and benefits
|
524,219 | 525,138 | ||||||
Professional
fees
|
138,581 | 48,637 | ||||||
Administrative
|
142,791 | 187,846 | ||||||
Other
costs
|
25,586 | 36,578 | ||||||
Depreciation
|
5,855 | 8,688 | ||||||
Interest
|
8,842 | 2,912 | ||||||
Total
Expenses
|
845,874 | 809,799 | ||||||
NET
INCOME
|
$ | 571,643 | $ | 478,924 | ||||
See
Independent Auditor’s Report and accompanying notes, which are an integral part of these combined financial statements
F-34
TRISTONE
REALTY MANAGEMENT GROUP
COMBINED
STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
For
the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014
Members'
equity, July 30, 2013
|
$ | 3,343,034 | ||
Capital
contributions
|
403 | |||
Distributions
|
(6,944 | ) | ||
Net
income
|
478,924 | |||
Members'
equity, June 30, 2014
|
3,815,417 | |||
Capital
contributions
|
- | |||
Distributions
|
(153,105 | ) | ||
Net
income
|
571,643 | |||
Members'
equity, June 1, 2015
|
$ | 4,233,955 |
See
Independent Auditor’s Report and accompanying notes, which are an integral part of these combined financial statements
F-35
TRISTONE
REALTY MANAGEMENT GROUP
COMBINED
STATEMENTS OF CASH FLOWS
For
the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014
Period
Ended
|
Year
Ended
|
|||||||
June
1, 2015
|
June
30, 2014
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 571,643 | $ | 478,924 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
(used
in) / provided by operating activities:
|
||||||||
Depreciation
|
5,855 | 8,688 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(17,572 | ) | 88,924 | |||||
Receivables
from affiliated properties
|
19,728 | (81,033 | ) | |||||
Receivables
from related parties
|
(519,651 | ) | (565,839 | ) | ||||
Receivables
from employees
|
(27,429 | ) | 497 | |||||
Prepaid
expenses
|
(3,000 | ) | - | |||||
Accounts
payable
|
15,580 | 29,236 | ||||||
Accrued
expenses
|
(2,876 | ) | (5,381 | ) | ||||
Due
to affiliated properties
|
(528,740 | ) | 560,362 | |||||
Earnest
money deposit
|
284,882 | - | ||||||
Net
cash (used in)/provided by operating activities
|
(201,580 | ) | 514,378 | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
- | (4,461 | ) | |||||
Net
cash used in investing activities
|
- | (4,461 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Capital
contributions
|
- | 403 | ||||||
Capital
distributions
|
(153,105 | ) | (6,944 | ) | ||||
Net
cash used in financing activities
|
(153,105 | ) | (6,541 | ) | ||||
Net
change in cash
|
(354,685 | ) | 503,376 | |||||
Cash
at beginning of the period
|
942,275 | 438,899 | ||||||
Cash
at end of the period
|
$ | 587,590 | $ | 942,275 | ||||
See
Independent Auditor’s Report and accompanying notes, which are an integral part of these combined financial statements
F-36
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
NOTE
1: NATURE OF OPERATIONS
The
TriStone Realty Management Group (the “Company”) consists of the following entities (each an “Entity”,
collectively the “Entities” or the “Company”), combined for financial reporting purposes due to common
ownership, control, and management.
| ● | TriStone
Realty Management LLC, a Delaware Limited Liability Company, organized April 12, 2012
|
| ● | Principle
Equity Properties LLC, a Delaware Limited Liability Company, organized April 25, 2006
|
| ● | Principal
Equity Properties LP, a Delaware Limited Partnership, organized April 25, 2006
|
Each
Entity is organized under the laws of the State of Delaware on the above referenced dates for the primary purpose of providing
management services related to commercial real estate. The Company specializes in providing real estate management
to its customers; the services are performed by the Company under long-term contracts entered into with its customers. The properties
under management are located throughout the United States.
The
rights and obligations of the members of each of the Limited Liability Companies comprising the Company are governed by separate
Operating Agreements which stipulate that members’ liability is limited with regards to debts, liabilities, contracts, or
any other obligations of the Entities. Each member’s interest in each Entity is defined by the Operating Agreement. The
rights and obligations of the partners of the Limited Partnership are governed by a separate Partnership Agreement. Each partner’s
interest is defined by Partnership Agreement. These combined financial statements use the term Members’ Equity in reference
to combined limited liability company membership interests and limited partnership partner interests.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Presentation
The
Company prepares the combined financial statements in accordance with generally accepted accounting principles in the United States
of America (GAAP) and Article 8 of Regulation S-X of the rules and regulations of the Securities and Exchange Commission (SEC). The
combined financial statements include the accounts of each Entity and are presented on a combined basis. All transactions
and balances between and among the Entities have been eliminated in combining the accounts for combined financial statement presentation. The
accounting and reporting policies of the Company conform to GAAP and Article 8 of Regulation S-X of the rules and regulations
of the SEC.
The
June 1, 2015 balances and activity included in these combined financial statements do not give effect to the joint venture transaction
described in Note 8, instead presenting all activity and balances going into the transaction closing.
See
accompanying Independent Auditor’s Report
F-37
TRISTONE REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
The
Company adopted the calendar year as its basis of reporting, but has approved a fiscal year ending June 30 for the purposes of
these combined financial statements to conform to the fiscal year of the other parties to the joint venture transaction described
in Note 8.
Use
of Estimates
The
preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the combined financial statements and the reported amounts of revenues and
expenses during the periods reported. Actual results could differ from those estimates.
Cash
Equivalents
For
purposes of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to
be cash equivalents.
Accounts
Receivable
Accounts
receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability
based on past credit history with clients and other factors. Provisions for losses on accounts receivable are determined on the
basis of loss experience, known and inherent risk in the account balance and current economic conditions. No allowance
for doubtful accounts was considered necessary as of June 1, 2015 or June 30, 2014.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets, which range from three to seven years. Upon retirement or sale of an asset,
the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.
Revenue
and Cost Recognition
The
Company recognizes revenues from property and asset management fees, administrative fees, leasing commissions, and other sources. The
Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition, only when the price is fixed
or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured. Management
and administrative fees are generally billed on a monthly basis in accordance with contractual terms.
Income
Taxes
The
Entities comprising the Company presented in these combined financial statements are two limited liability companies and a limited
partnership. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its members
or partners. Therefore, no provision for income tax has been recorded in the statements. Income from the
Company is reported and taxed to the members or partners on their individual tax returns.
F-38
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
There
was no interest or penalties paid to the Internal Revenue Service included in these combined financial statements. The limited
liability companies and limited partnership tax returns are generally subject to examination by the Internal Revenue Service and
relevant state jurisdictions for a period of three years from the date they are required to be filed. The Company files Texas
franchise tax as part of a company under common ownership that is not included in these combined financial statements. The
Company’s portion of such Texas franchise tax is not material to these combined financial statements and therefore has not
been included in these combined financial statements.
The
Company follows FASB ASC 740, Income Taxes, which provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that
there are no significant uncertain tax positions requiring recognition in the Company’s combined financial statements. The
Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would
result in a material change to its financial position.
NOTE 3: PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
June
1, 2015
|
June
30, 2014
|
|||||||
Computers
|
$ | 30,463 | $ | 30,463 | ||||
Software
|
5,549 | 5,549 | ||||||
Furniture
& fixtures
|
20,395 | 20,395 | ||||||
Other
equipment
|
6,923 | 6,923 | ||||||
Leasehold
improvements
|
12,541 | 12,541 | ||||||
Property
and equipment - at cost
|
75,871 | 75,871 | ||||||
Less:
Accumulated depreciation
|
65,529 | 59,675 | ||||||
Property
and equipment - net
|
$ | 10,342 | $ | 16,196 | ||||
NOTE 4: OPERATING LEASES
The
Company leases office space under a lease agreement executed on August 17, 2012, which commenced November 1, 2012 for a term of
64 months expiring on February 28, 2018. The agreement stipulates monthly rent payments of $3,041 subject to annual CPI adjustments
over the term of the lease. The monthly rent payment was $3,322 as of June 1, 2015. Rent expense for the
period ended June 1, 2015 and the year ended June 30, 2014 was $36,564 and $34,733, respectively.
See
accompanying Independent Auditor’s Report
F-39
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
Minimum
future rent payments under the lease are as follows:
Minimum
|
||||
Year
ending:
|
Payments
|
|||
June
30, 2016
|
$ | 19,932 | ||
June
30, 2017
|
19,932 | |||
June
30, 2018
|
14,949 | |||
| $ | 54,813 | |||
NOTE 5: RELATED PARTY TRANSACTIONS
The
Company is managed by a member whose salary is paid by Kalee Investments, Inc. (“Kalee”), a related company under
common ownership, management, and control. No expense has been reflected in these combined financial statements for
his management services.
The
Company makes advances to and receives advances from Kalee. At June 1, 2015 and June 30, 2014, amounts receivable from Kalee amounted
to $303,382 and $33,000, respectively. These balances are reflected in the receivables from related parties account in the combined
balance sheets.
The
Company makes advances to and receives advances from Principle Equity Management, LP (“PEM”), a related company under
common ownership, management, and control. At June 1, 2015 and June 30, 2014, amounts receivable from PEM amounted to $3,641,106
and $3,438,979, respectively. These balances are reflected in the receivables from related parties account in the combined balance
sheets. The Company is listed as co-borrower and guarantor on a note payable to a bank by PEM. The entirety of the
outstanding balance due of $223,054 and $332,888 as of June 1, 2015 and June 30, 2014, respectively, is reflected on the PEM financial
statements. Loan payments are $10,000 per month, plus interest at 6% on the outstanding balance.
The
Company advanced $40,000 to the managing member during the period ended June 1, 2015, which remains outstanding as of June 1,
2015. This balance is reflected in the receivables from related parties account in the combined balance sheets.
Members
of the Company have ownership interests in many of the properties under management. These ownership interests are insignificant
and non-controlling and amount to no more than 3.25% per property. The Company generates substantially all of its revenues from
the affiliated properties, with the exception of $123,473 for the period ended June 1, 2015 and $146,059 for the year ended June
30, 2014, of management fees derived from properties where the Company’s affiliates or members do not have a financial stake
in the underlying property. The Company also makes advances to, and receives advances from these affiliated properties. Substantially
all accounts
See
accompanying Independent Auditor’s Report
F-40
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
receivable,
receivables from affiliated properties, and due to affiliated properties as of June 1, 2015 and June 30, 2014 are balances to
or from affiliated properties, with the exception of $11,985 of receivables from a property where the Company’s affiliates
or members do not have a financial stake in the underlying property. This balance in included in the accounts receivable line
of the combined balance sheet
NOTE
6: CONCENTRATIONS OF CREDIT RISK AND CUSTOMERS
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and receivables. The
Company also assessed concentrations with regards to its revenues.
Cash
The
Company may be subject to credit risk to its cash balances, which are placed with high credit-quality financial institutions.
The Federal Deposit Insurance Corporation (“FDIC”) covers up to $250,000 for substantially all depository accounts.
From time to time, the Company may have amounts on deposit in excess of FDIC limits. Management believes the Company is not exposed
to any significant credit risk on cash and cash equivalents.
Accounts
Receivable
The
Company assesses concentrations of credit risk related to its receivables in two categories: 1) Receivables from related parties;
2) Combined accounts receivable and receivables from affiliated properties.
Regarding
receivables from related parties as presented on the combined balance sheets, there is a concentration of credit risk with respect
to the related party receivable with Principle Equity Management, LP (see Note 5). These balances were $3,641,106,
or 91%, and $3,438,979, or 99%, of receivables from related parties, as of June 1, 2015, and June 30, 2014, all respectively. Additionally,
all receivables from related parties are either with the Company’s managing member directly or through other entities which
he controls, and therefore, all receivables from related parties are dependent upon the economic stability of the managing member
and the entities he controls.
Regarding
accounts receivables and receivables from affiliated properties, both as presented on the combined balance sheets, the Company
assessed concentrations of credit risk with these receivables on a combined basis due to the accounts containing common obligors
between the accounts. The differentiation between the accounts is the accounts receivable balance contains receivables
related to earned revenues whereas the receivables from affiliated properties account contains due from accounts tracking various
non-revenue producing transactions such as expense payments advanced by the Company on the affiliate properties’ behalves,
cash advances, and other non-revenue producing activity. On this combined basis, 35% of combined accounts receivable
and receivables from affiliated properties are receivable from a property as of June 1, 2015, while 25% and 21% of
See
accompanying Independent Auditor’s Report
F-41
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
combined
accounts receivable and receivables from affiliated properties are receivable from two other properties as of June 30, 2014. These
balances represent a concentration of credit risk to the Company and may subject the Company to the economic stability of these
properties.
Revenues
The
Company assesses concentration with regards to its regularly recurring revenues, consisting of management fees and administrative
fees. For the period ended June 1, 2015, three properties exceeded 10% of total management fees and administrative
fees, which the Company determined represents a revenue concentration for disclosure in the combined financial statements, with
such properties representing 18%, 13%, and 13% of the aforementioned revenues. For the year ended June 30, 2014, the
same three properties were identified as exceeding 10% of total management fees and administrative fees, with such properties
representing 16%, 15%, and 12% of the aforementioned revenues.
NOTE
7: RECENT ACCOUNTING PRONOUNCEMENTS
In
August 2014, the FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) –
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance
in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability
to continue as a going concern or to provide related footnote disclosures. The amendments in this update provide such guidance.
In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial
doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering
the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result
of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is
not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued
(or available to be issued). The amendments in this update are effective for public and nonpublic entities for annual periods
ending after December 15, 2016. Early adoption is permitted. The Company has not elected to early adopt
this pronouncement.
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
combined financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under
the circumstances.
NOTE
8: SUBSEQUENT EVENTS
On
June 1, 2015, the Company entered into a joint venture arrangement with Allegiancy, LLC. Under this arrangement, the
Company contributed the majority of its real estate management and
See
accompanying Independent Auditor’s Report
F-42
TRISTONE
REALTY MANAGEMENT GROUP
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
As
of June 1, 2015 and June 30, 2014, for the period from July 1, 2014 to June 1, 2015,
and the year ended June 30, 2014
administration
contracts portfolio to a new entity formed for the purposes of the joint venture, Allegiancy Houston, LLC (“Allegiancy Houston”),
in exchange for 30% of the profits derived from Allegiancy Houston, $1,284,882 cash, and Class B shares of Allegiancy, LLC valued
at $1,284,882. No other assets and none of the Company’s liabilities were conveyed in the transaction.
An
earnest money deposit of $284,882 is presented in the June 1, 2015 combined balance sheet for a deposit paid from Allegiancy,
LLC to the Company in May 2015 related to this transaction. Aside from the earnest money deposit, the June 1, 2015
balances and activity included in these combined financial statements do not give effect to this transaction, instead presenting
all activity and balances going into the transaction closing.
The
Company has evaluated subsequent events through August 7, 2015, the date the combined financial statements were available to be
issued. Based on the evaluation, no other material events were identified which require adjustment or disclosure in
these combined financial statements.
See
accompanying Independent Auditor’s Report
F-43
REVA
MANAGEMENT ADVISORS, LLC
REVA MANAGEMENT
ADVISORS, LLC
Financial
Statements
April
8, 2014
F-44
REVA
MANAGEMENT ADVISORS, LLC
REPORT
OF INDEPENDENT ACCOUNTANTS
To
the Member of REVA Management Advisors, LLC
Report
on the Financial Statements
We
have audited the accompanying financial statements of REVA Management Advisors, LLC, which comprise the balance sheet as of April
8, 2014, and the related statements of operations and members’ equity (deficit), and cash flows for the period from July
1, 2013 through April 8, 2014, and the related notes to the financial statements.
Management's
Responsibility for the Financial Statements
Management
is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles
generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor's
Responsibility
Our
responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of REVA
Management Advisors, LLC as of April 8, 2014, and the results of its operations and its cash flows for the period from July 1,
2013 through April 8, 2014 in accordance with accounting principles generally accepted in the United States.
Keiter
August
25, 2015
Glen
Allen, Virginia
F-45
REVA
MANAGEMENT ADVISORS, LLC
Balance
Sheet
April
8, 2014
Assets
Current
assets:
|
||||
Accounts
receivable
|
$ | 274,338 | ||
Other
receivables
|
139,469 | |||
Prepaid
expenses
|
10,724 | |||
Total
current assets
|
424,531 | |||
Property
and equipment - net
|
46,013 | |||
Total
assets
|
$ | 470,544 | ||
Liabilities
and Members’ Deficit
Current
liabilities:
|
||||
Accounts
payable
|
$ | 158,505 | ||
Due
to related parties
|
93,929 | |||
Accrued
payroll and benefits
|
30,731 | |||
Deferred
revenue
|
166,394 | |||
Accrued
expenses
|
1,309 | |||
Current
maturities of long-term debt
|
12,586 | |||
Total
current liabilities
|
463,454 | |||
Long-term
debt
|
13,971 | |||
Total
liabilities
|
477,425 | |||
Members’
deficit:
|
(6,881 | ) | ||
Total
liabilities and members’ deficit
|
$ | 470,544 | ||
See
accompanying notes to financial statements.
F-46
REVA
MANAGEMENT ADVISORS, LLC
Statement
of Operations and Members’ Equity (Deficit)
For
the Period from July 1, 2013 to April 8, 2014
Revenues:
|
||||
Management
fees
|
$ | 890,143 | ||
Leasing
commissions
|
391,174 | |||
Administrative
fees
|
250,452 | |||
Total
revenues
|
1,531,769 | |||
Direct
costs:
|
||||
Administrative
fees
|
409,701 | |||
Leasing
commissions
|
309,775 | |||
Total
direct costs
|
719,476 | |||
Gross
Profit
|
812,293 | |||
General
and administrative expenses:
|
||||
Compensation
and benefits
|
477,409 | |||
Professional
fees
|
56,525 | |||
Administrative
expenses
|
66,999 | |||
Depreciation
and amortization
|
5,068 | |||
Forgiveness
of loan due from related parties
|
778,174 | |||
Other
costs
|
110,664 | |||
Total
general and administrative expenses
|
1,494,839 | |||
Operating
loss
|
(682,546 | ) | ||
Other
expenses:
|
||||
Interest
expense
|
28,679 | |||
Net
loss
|
(711,225 | ) | ||
Members’
equity, beginning of year
|
854,844 | |||
Distributions
|
(150,500 | ) | ||
Members’
deficit, end of year
|
$ | (6,881 | ) | |
See
accompanying notes to financial statements.
F-47
REVA
MANAGEMENT ADVISORS, LLC
Statement
of Cash Flows
For
the Period from July 1, 2013 to April 8, 2014
Cash
flows from operating activities:
|
||||
Net
loss
|
$ | (711,225 | ) | |
Adjustments
to reconcile net loss
|
||||
to
net cash from operating activities:
|
||||
Depreciation
and amortization
|
5,715 | |||
Changes
in operating assets and liabilities:
|
||||
Accounts
receivable
|
164,924 | |||
Other
receivables
|
(139,469 | ) | ||
Deposits
|
30,731 | |||
Prepaid
expenses
|
(10,724 | ) | ||
Accounts
payable
|
122,566 | |||
Due
to related parties
|
93,929 | |||
Accrued
expenses
|
1,309 | |||
Deferred
revenue
|
166,394 | |||
Net
cash used in operating activities
|
(275,850 | ) | ||
Cash
flows from financing activities:
|
||||
Capital
distributions
|
$ | (150,500 | ) | |
Proceeds
from line of credit
|
355,150 | |||
Payments
on long-term debt
|
(8,593 | ) | ||
Net
cash provided by financing activities
|
196,057 | |||
Net
change in cash and cash equivalents
|
(79,793 | ) | ||
Cash
and cash equivalents, beginning of the period
|
79,793 | |||
Cash
and cash equivalents, end of the period
|
$ | - | ||
Supplemental
disclosure of cash flow information
|
||||
Cash
paid for interest
|
$ | 28,673 | ||
Noncash
transactions:
|
||||
Assignment
of line of credit to related party in
|
||||
exchange
for forgiveness of receivable
|
$ | 1,285,150 | ||
See
accompanying notes to financial statements.
F-48
REVA
MANAGEMENT ADVISORS, LLC
Notes
to Financial Statements
1. Summary
of Significant Accounting Policies:
REVA
Management Advisors, LLC (“RMA or the “Company”) is a limited liability company organized under the laws of
the State of Virginia on April 6, 2006 for the primary purpose of providing asset and property management services related to
commercial real estate. On April 8, 2014, RMA contributed net assets totaling ($6,881) to Allegiancy, LLC (“Allegiancy”),
a related party property management company. See Note 2.
Refer
to the Company’s operating agreement (the “Agreement”) for more information.
Basis of Presentation: The Company prepares
its financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Defined
terms used in the Notes to the Financial Statements are as defined in the Operating Agreement. A summary of the
significant accounting and reporting policies of the Company are presented below.
|
The April 8, 2014 balances and activity included in these financial
statement do not give effect to the transaction described in Note 2, instead presenting all activity and balance going into
the transaction closing.
|
Revenue Recognition: The Company recognizes revenues
from property management, administration fees and leasing commissions as services have been performed and are billable.
|
Credit
Risk and Concentrations: Financial instruments which potentially expose the Company to concentrations of credit risk consist
of cash. The Company maintains its cash in financial institutions at levels that may periodically exceed federally-insured
limits.
Two
customers accounted for 42% of revenues for the period ended April 8, 2014 and four customers accounted for 78% of accounts receivable
as of April 8, 2014.
Accounts
Receivable: Accounts receivable are reported net of an allowance for doubtful accounts. The allowance
is based on management's estimate of the amount of receivables that will actually be collected. No allowance for doubtful accounts
was considered necessary at April 8, 2014.
Property
and Equipment: Property and equipment are stated at cost. Major repairs and betterments are capitalized and normal
maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line and accelerated
methods over the estimated useful lives of the related assets, which range from three to seven years. Upon retirement
or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in
operations.
F-49
REVA
MANAGEMENT ADVISORS, LLC
Notes
to Financial Statements
1.
Summary of Significant Accounting Policies, Continued:
Use
of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods
reported. Actual results could differ from those estimates.
Income
Taxes: The Company is treated as a partnership for federal and state income tax purposes, and its members report their respective
share of the Company’s taxable income or loss on their income tax returns. Accordingly, no provision or liability for income
taxes has been included in the accompanying financial statements.
Income
Tax Uncertainties: The Company follows FASB guidance for how uncertain tax positions should be recognized, measured, disclosed
and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not’
of being sustained “when challenged or “when examined” by the applicable tax authority. Tax positions not deemed
to meet the more- likely-than-not threshold would be recorded as a tax expense and liability in the current year. Management evaluated
the Company’s tax position and concluded that the Company had taken no uncertain tax positions that require adjustment to
the financial statements to comply with the provisions of this guidance. The Company’s income tax returns for the years
since 2011 remain open for examination by tax authorities. The Company is not currently under audit by any tax jurisdiction.
2.
RMA Capital Contribution:
Management
has evaluated subsequent events through August 25, 2015, the date the financial statements were available to be issued, and determined
that the following is to be reported. On April 8, 2014, the net assets of RMA were contributed to Allegiancy in exchange for Class
B units in Allegiancy. The contribution agreement also included transfer of 15 property management agreements from RMA to Allegiancy.
The owners of RMA received 1,250,100 Class B common units in exchange for the RMA’s net assets. The assets acquired and
liabilities assumed were valued at RMA’s book value upon acquisition, as Allegiancy was determined to be a related party.
Besides as described above, there were no additional subsequent events to be reported in the accompanying financial statements
F-50
REVA
MANAGEMENT ADVISORS, LLC
Notes
to Financial Statements
2. RMA
Capital Contribution Continued:
The
assets and liabilities contributed by RMA consist of the following:
Accounts
receivable
|
$ | 413,807 | ||
Prepaid
expenses
|
10,724 | |||
Property
and equipment
|
46,013 | |||
Accounts
payable
|
(158,505 | ) | ||
Deferred
revenue
|
(166,394 | ) | ||
Accrued
expenses
|
(95,238 | ) | ||
Accrued
payroll and benefits
|
(30,731 | ) | ||
Long
term debt
|
(26,557 | ) | ||
Net
assets contributed
|
$ | (6,881 | ) |
3. Property
and Equipment:
Property
and equipment consisted of the following components at April 8, 2014:
Furniture
and equipment
|
$ | 13,358 | ||
Computer
software and license
|
23,400 | |||
Vehicles
|
51,200 | |||
| $ | 87,958 | |||
Less:
Accumulated depreciation
|
(41,945 | ) | ||
| $ | 46,013 |
Depreciation
expense was $5,715 for the period ended April 8, 2014.
4. Long-Term
Debt:
The
Company’s long term debt consisted of loans for two vehicles with fixed payment schedules consisting of 60 consecutive monthly
installments of principal and interest of at 2.9% at $918 total. The debt is secured by the related vehicles. Future minimum principal
payments were $10,443 in 2015, $10,750 in 2016 and $3,653 in 2017. The vehicles and related debt were contributed to Allegiancy
on April 8, 2014. The Company had a line of credit for working capital. The Company paid interest of 3.25% monthly of the outstanding
balance. The line of credit was collateralized by substantially all of the Company’s assets. The balance of $1,285,100 was
assigned to a related party in exchange for forgiveness of debt on April 8, 2014. Interest expense totaled $28,679 for the period
ended April 8, 2014.
F-51
REVA
MANAGEMENT ADVISORS, LLC
Notes
to Financial Statements
5. Related
Party Transactions:
The
Company performs property management services for real estate entities, some of which are determined to be related parties through
common ownership and management. Total related party revenue was $1,021,484 during the period ended April 8, 2014. Total related
party receivables were $103,484 at April 8, 2014. Total related party payables totaled $93,929 at April 8, 2014 The Company had
loans outstanding with related parties totaling $778,174 which were forgiven as part of the transaction with Allegiancy. These
loans had no set interest or repayment terms. The forgiveness of loans due from related parties is presented on the accompanying
statement of activities. The Company also had receivables from related parties of $1,285,100 which was forgiven in exchange for
the assignment of the Company’s outstanding line of credit balance to those related parties on April 8, 2014.
6. Guarantees:
Pursuant
to its operating agreement, the Company has certain obligations to indemnify its current officers and directors for certain events
or occurrences while the officer or director is, or was serving, at the Company’s request in such capacities. The maximum
liability under these obligations is unlimited; however, the Company’s insurance policies serve to limit its exposure.
7. Subsequent
Events:
On
April 8, 2014, the Company contributed substantially all of its net assets to Allegiancy, LLC, a related party property management
company. Subsequent to the contribution, RMA ceased operations.
F-52
PART
III – EXHIBITS
EXHIBIT
INDEX
Exhibit
Number
|
Exhibit Description |
(1)(a)
|
Form
of Underwriting Agreement by and between our Underwriter and us.*
|
(1)(b)
|
Form
of Underwriter Warrant.*
|
(2)(a)
|
Form
of Certificate of Incorporation of Allegiancy, Inc. to be effective prior to the
completion of this offering.
|
(2)(b)
|
Form
of Bylaws of Allegiancy, Inc., to be effective prior to the completion of this offering.
|
(6)(a)
|
Equity
Contribution Agreement by and among Continuum Capital, LLC, Chesapeake Realty Advisors,
LLC, and us.*
|
(6)(b)
|
Employment
Agreement by and between Stevens M. Sadler and us. *
|
(6)(c)
|
Employment
Agreement by and between Christopher K. Sadler and us. *
|
| (6)(d) | 2014 Equity Incentive Plan |
(6)(e)
|
Acquisition
Agreement by and among TriStone Realty Management, LLC, Principle Equity Properties,
LP, Principle Equity Properties, LLC, Randolph A. McQuay and us.
|
(6)(f)
|
Convertible
Promissory Note by us in favor of TriStone Realty Management, LLC.
|
(6)(g)
|
Amended
and Restated Operating Agreement of Allegiancy Houston, LLC.
|
| (7) | Form of Plan of Conversion to Allegiancy, Inc. to be effective prior to completion of this offering. |
(8)
|
Escrow
Agreement by and among SunTrust Bank, our underwriter, and us.*
|
(11)(a)
|
Consent
of Keiter, Stephens, Hurst, Gary & Shreaves, P.C.
|
(11)(b)
|
Consent
of Artesian CPA, LLC.
|
(11)(c)
|
Consent
of Kaplan, Voekler, Cunningham & Frank, PLC*
|
(12)
|
Opinion
of Kaplan Voekler Cunningham & Frank, PLC regarding legality of the Offered Shares . *
|
(13)
|
Testing
the Waters Material.*
|
*To
be filed by Amendment.
**Included
with the legal opinion provided pursuant to Item (11)
SIGNATURES
Pursuant
to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form 1-A and has duly caused this amendment to Offering Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Richmond, Commonwealth of Virginia on
October 26, 2015.
ALLEGIANCY,
INC.
a
Delaware Corporation
By:
/s/ Stevens M. Sadler
Stevens
M. Sadler, Director
/s/
Stevens M. Sadler
Stevens
M. Sadler
Director
and Chief Executive Officer (Principal Executive Officer)
/s/
Christopher K. Sadler
Christopher
K. Sadler
Director
and President (Principal Financial Officer and Principal Accounting Officer)
Exhibit 2a
CERTIFICATE OF INCORPORATION
OF
ALLEGIANCY, INC.
ARTICLE I
The name of the Corporation is Allegiancy, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is 2711 Centerville Rd., Wilmington, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall have authority to issue is Forty-Two Million (42,000,000), of which (i) Forty Million (40,000,000) shares shall be common stock, par value $.01 per share (“Common Stock”) and (ii) Two Million (2,000,000) shares shall be preferred stock, par value $.01 per share (the “Preferred Stock”).
The voting powers, designations, preferences, powers and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of each class of capital stock of the Corporation, shall be as provided in this Article IV. No stockholder shall have any preemptive right to subscribe to an additional issue of shares of any class of stock of the corporation or to any security convertible into such stock.
A. PREFERRED STOCK
1. .Designation. The authorized series of Preferred Stock shall be designated as follows: (i) One Million Forty-FiveThousand, Nine Hundred Ninety-Four (1,045,994) shares shall be Series A Preferred Stock, par va1ue $.01 per share (the "Series A Preferred Stock”), and (ii) The Board of Directors of the Corporation is authorized, subject to any limitations prescribed by law, and subject to the vote of the holders of the Series A Preferred Stock as described in Article IV, Section B(2)(a)(i) below, to provide for the issuance of any shares of Preferred Stock not designated as Series A Preferred Stock hereunder in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a “Preferred Stock Designation”) to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.
The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of the majority of the shares of common stock and, without a vote of the holders of the shares of Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to this Certificate of Incorporation, or the Preferred Stock Designation or Preferred Stock Designations establishing the series of Preferred Stock.
B. VOTING
1. Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock held of record on all matters on which the holders of shares of common stock are entitled to vote.
1
2. Preferred Stock.
(a) Series A Preferred Stock. Except as provided in (i) below, Series A Preferred Stock shall vote as a single class with the Common Stock on all matters on which the holders of shares of the Common Stock are entitled to vote. Each holder of shares of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock held of record on all matters on which the holders of shares of Series A Preferred Stock are entitled to vote.
(i) Notwithstanding the foregoing, holders of a majority of the outstanding shares of Series A Preferred Stock must affirmatively vote for the creation, authorization or designation of a class or series of capital stock, or selling, issuing or granting capital stock, which has rights or preferences senior to the relative rights and preferences of the Series A Preferred Stock.
C. DIVIDENDS AND LIQUIDATING DISTRIBUTIONS
1. Series A Preferred Stock. The holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, out of any funds legally available there for, cumulative dividends at the rate of $0.30 per share of Series A Preferred Stock (the “Series A Preferred Dividend”) from the date of original issuance such shares (or any predecessor security thereof), which dividends shall accrue quarterly in arrears, whether or not such dividends are declared by the Board of Directors and paid.
(a) The holders of shares of Series A Preferred Stock shall also be entitled to receive, out of funds legally available therefor, dividends at such times and in such amounts as are received by holders of outstanding shares of Common Stock, pro rata based on the combined number of shares of Common Stock and Series A Preferred Stock held by each. Such dividends shall not be cumulative.
2. Common Stock. The Board of Directors may declare and pay dividends to the holders of the Common Stock out of any funds legally available therefore.
3. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation and its subsidiaries. whether voluntary or involuntary (a “Liquidation Event”):
(a) Series A Preference Amount. Each holder of outstanding shares of Series A Preferred Stock shall be entitled to be paid in cash, before any amount shall be paid or distributed to the holders of the Common Stock, an amount equal to any accrued or declared and unpaid Series A Preferred Dividends (the “Series A Preference”). If the amounts available for distribution by the Corporation to the holders of Series A Preferred Stock upon a Liquidation Event are not sufficient to pay the aggregate Series A Preferences due to such holders, such holders of Series A Preferred Stock shall share ratably in any distribution in connection with such Liquidation Event in proportion to the full respective preferential amounts to which they are entitled.
(b) Remaining Assets. After the prior payment in full of the aggregate Series A Preference in connection with a Liquidation Event, the remaining assets and funds of the Corporation available for distribution to its stockholders, if any, shall be distributed among the holders of shares of Series A Preferred Stock and Common Stock, pro rata, then outstanding.
D. REDEMPTION
The Series A Preferred Stock shall have the redemption rights provided in this Article IV, Section D.
1. Generally. The Corporation shall be required, on each of March 6, 2017, March 6, 2018 and March 6, 2019 (each a “Redemption Date”), to redeem up to one-third of the aggregate shares of Series A Preferred Stock outstanding as of the date of this Certificate, including shares of Series A Preferred Stock issuable upon the exercise of options, warrants or other convertible securities outstanding as of such date (a “Redemption Cap”). Redemptions shall be made in the amount and manner described in this Article IV, Section D at the request of those holders of Series A Preferred Stock who submit a Notice of Redemption to the Corporation in accordance with Article IV, Section D(1)(b) below. The Corporation shall send written notice of each upcoming Redemption Period (as defined below) to each holder of Series A Preferred Stock no later than 30 days prior to the beginning of the upcoming Redemption Period. Such notice may be transmitted via email, facsimile or other electronic means.
2. Redemption Notice. A holder of Series A Preferred Stock may exercise his, her or its right of redemption in accordance with this Article IV, Section D by delivering to the Corporation, during the period beginning 120 days prior to a Redemption Date and ending 30 days prior to a Redemption Date (each a “Redemption Period”), a Redemption Notice (executed by the trustee or authorized agent in the case of a retirement plan) indicating such holder’s desire to have his, her or its Series A Preferred Stock redeemed.
2
3. Redemption Price; Payment. The redemption of Series A Preferred Stock shall be effected upon the payment by the Corporation of a cash sum equal to (i) a redemption purchase price of either (A) $8.00 if redemption is sought for the first Redemption Date, (B) $8.50 if redemption is sought for the second Redemption Date or (C) $9.00 if redemption is sought for the third Redemption Date, per share of Series A Preferred Stock held by such holder multiplied by the total outstanding number of shares of Series A Preferred Stock held by such holder, plus (ii) accrued or declared but unpaid Series A Preferred Dividends of such holder as of the date of such holder’s Redemption Notice (the “Redemption Price”). The Redemption Price shall be paid and redemptions effected on the applicable Redemption Date, or as soon as practicable thereafter, but no later than five (5) business days following the applicable Redemption Date.
4. Redemptions Pro Rata. In the event that holders of Series A Preferred Stock holding shares of Series A Preferred Stock equal to more than an applicable Redemption Cap, then the Corporation shall redeem the requesting holders’ Series A Preferred Stock in pro rata amounts in accordance with the numbers of shares of Series A Preferred Stock held by the requesting holders, which may result in such holders retaining fractional shares of Series A Preferred Stock.
5. Effect of Redemption. Immediately upon payment in full of the Redemption Price to a holder of Series A Preferred Stock, the number of shares of Series A Preferred Stock of such holder being redeemed shall be immediately deemed canceled.
E. CONVERSION
1. If shares of Series A Stock remain outstanding following the third Redemption Date, then the Corporation shall have the right to convert the remaining outstanding shares of Series A Preferred Stock into Common Stock at the Corporation’s discretion, subject to the provisions of this Article IV, Section E.
2. At any time following the third Redemption Date, the Corporation may elect to convert all, but not less than all, of the then outstanding shares of Series A Preferred Stock into Common Stock. Upon conversion, each holder of Series A Preferred Stock shall be issued shares of Common Stock having a value equal to $10.00, based upon the Closing Price for the Common Stock as of the date of conversion (the “Conversion Date”), for each share of Series A Preferred Stock being converted (the “Class A Conversion Price”). In order to exercise its right to convert, the Corporation shall transmit a conversion notice to each holder of Series A Preferred Stock stating its intent to convert the Series A Preferred Stock to Common Stock and the Conversion Date.
3. As of the Conversion Date, each holder’s shares of Series A Stock will be canceled, and such holder shall be issued fully paid and nonassessable shares of Common Stock equal to such holder’s aggregate shares of Series A Preferred Stock multiplied by the Class A Conversion Price.
4. Notwithstanding anything to the contrary contained herein, the Corporation shall be permitted to exercise the conversion rights set forth in this Article IV, Section E solely if a Closing Price has been established for the Common Stock.
(a) “Closing Price” with respect to any class or series of the Corporation’s capital stock, on any date shall mean (i) the last sale price for such capital stock, or, in case no such sale takes place on such day, (ii) the average of the closing bid and asked prices, for such capital stock, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such capital stock is not listed or admitted to trading on the NYSE, (iii) as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such capital stock is listed or admitted to trading or, if such capital stock is not listed or admitted to trading on any national securities exchange, (iv) the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by OTC Marketsor, if such system is no longer in use, the principal other automated quotation system that may then be in use or, (v) if such capital stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such capital stock selected by the Corporation’s Board of Directors.
F. PURCHASE RIGHT
Each share of Series A Preferred Stock shall entitle its holder to purchase one share of Common Stock upon such terms, including purchase or exercise price, as set forth in this Article IV, Section F (the “Purchase Right”). The Corporation’s Board of Directors shall reserve, from the Corporation’s authorized securities, the number of shares of Common Stock necessary to satisfy any outstanding Purchase Rights.
1. Exercise Price; Term. The exercise price per share of Common Stock (the “Share Price”) entitled to be purchased pursuant to the Purchase Right shall be $3.75. Subject to the conditions set forth in Article IV, Section F(1)(b) below, the Purchase Right may be exercised solely (i) within ten (10) days of any Redemption Date as to any shares of Series A Preferred Stock of a holder actually redeemed as of such date (the “Redemption Exercise Period”), or (ii) within ten (10) days of the Conversion Date for all remaining outstanding shares of Series A Preferred Stock (the “Conversion Exercise Period”) and, if not then exercised, shall expire and be of no further force or effect.
2. Conditions to Exercise. Notwithstanding anything contained herein, the Purchase Right associated with the Series A Preferred Stock shall not be exercisable until such time as the Corporation:
(a) has caused the Common Stock issuable pursuant to the exercise of the Purchase Right (the “Issuable Shares”) to be exempt from registration under the Securities Act of 1933, as amended (the “Act”) pursuant to Section 3(b) of the Act and the regulations promulgated thereunder by the Securities and Exchange Commission (“SEC”), including without limitation Regulation A, or has determined, upon the opinion of counsel, that there exists another exemption or exception from registration under the Act applicable to the Issuable Shares; and
3
(b) has caused the Issuable Shares to be registered or qualified under the state securities or “blue sky” laws of the state of the holder’s residence, or has determined, upon the opinion of counsel, that there exists an exemption or exception from registration of the Issuable Shares in the applicable state.
3. Qualification Rights.
(a) The Company agrees to prepare and file with the SEC an Offering Statement on Form 1-A to seek an exemption pursuant to Section 3(b) of the Act (an “Offering Statement”) with respect to the Issuable Shares associated with each applicable Redemption Date or the Conversion Date, as applicable, and will use commercially reasonable efforts to cause such Offering Statement to be declared qualified by the SEC as soon as practicable thereafter. Such Offering Statement shall be filed with the SEC sufficiently in advance, in the Company’s commercially reasonable judgment, to provide for such Offering Statement to be declared qualified on or prior to the applicable Redemption Date or the Conversion Date, as applicable.
(2) The Company shall use commercially reasonable efforts to keep the Offering Statement continuously qualified for at least that period beginning on the date on which the Offering Statement is declared qualified and ending on a date sufficient to allow for the expiration of the applicable Redemption Exercise Period or the Conversion Exercise Period, as applicable. During the period that the Offering Statement is qualified, the Company shall supplement or make amendments to the Offering Statement, as required by the Act or other law, and shall use its commercially reasonable efforts to have such supplements and amendments declared qualified, if required, as soon as practicable after filing.
(3) The Company shall use its commercially reasonable efforts to register or qualify Issuable Shares under applicable state securities or “blue sky” laws as of the date of qualification of the Offering Statement or as soon as practicable thereafter, but only to the extent legally required to do so, and shall use its commercially reasonable efforts to keep such registration or qualification in effect for so long as the Offering Statement remains qualified with the SEC.
(4) Notwithstanding the provisions of subsections (1) – (3) of this Section:
(A) the Company shall have no obligation to file or seek qualification of an Offering Statement with the SEC if the Company has determined, upon the opinion of counsel, that another exemption or exception from registration under the Act is applicable to the issuance of the Issuable Shares; and
(B) the Company shall have no obligation to register or qualify the Issuable Shares under any state’s securities or “blue sky” laws if the Company has determined, upon the opinion of counsel, that another exemption or exception from registration or qualification under the applicable state securities or “blue sky” laws is applicable.
4. Exercise of Purchase Right. The Purchase Right associated with any share of Series A Preferred Stock may be exercised prior to the expiration of the applicable Redemption Exercise Period or the Conversion Exercise Period, as applicable, by delivering notice of such exercise to the Corporation at its registered address or at its principal place of business stating the number of shares of Common Stock to be acquired and the aggregate purchase price to be paid (a “Notice of Exercise”). The Notice of Exercise shall be accompanied by payment in cash or by check payable to the order of the Corporation in an amount equal to the Share Price (the “Exercise Purchase Price”). Upon receipt by the Company of the Notice of Exercise, together with the applicable Exercise Purchase Price, the acquiring holder of Series A Preferred Stock shall be issued fully paid, nonassessable shares of Common Stock in the amount stated on the Notice of Exercise.
ARTICLE V
In furtherance of and not in limitation of powers conferred by statute, it is further provided:
1. Election of Directors need not be by written ballot unless the bylaws of the Corporation so provide.
2. The Board of Directors is expressly authorized to adopt, amend or repeal the by-laws of the Corporation to the extent specified therein, but any by-laws so made, altered or amended by the Board of Directors may be altered or amended by the stockholders.
3. The by-laws of the Corporation may fix and alter the number of directors and may prescribe their term of office, and from time to time the number of directors may be increased or decreased by amendment of the by-laws, provided that in no case shall the number of directors be less than three. In case of any increase in the number of directors, the additional directors shall be chosen by the directors for a term to continue until the next annual meeting of the stockholders or until their successors are elected and qualify.
ARTICLE VI
Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide.
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ARTICLE VII
To the extent permitted by law, the books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated in the by-laws of the Corporation or from time to time by its Board of Directors.
ARTICLE VIII
A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this Article VIII by the stockholders of the Corporation or by an amendment to the Delaware General Corporation Law shall not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring either before such repeal or modification of a person serving as a Director prior to or at the time of such repeal or modification.
ARTICLE IX
Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE X
This Corporation is to have perpetual existence.
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Exhibit 2b
ARTICLE I
Offices
Section 1.01 Offices. The address of the registered office of Allegiancy, Inc. (hereinafter called the “Corporation”) in the State of Delaware shall be at 2711 Centerville Rd., Wilmington, Delaware 19808. The Corporation may have other offices, both within and without the State of Delaware, as the board of directors of the Corporation (the “Board of Directors”) from time to time shall determine or the business of the Corporation may require.
Section 1.02 Books and Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be maintained on any information storage device or method; provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to applicable law.
ARTICLE II
Meetings of the Stockholders
Section 2.01 Place of Meetings. All meetings of the stockholders shall be held at such place, if any, either within or without the State of Delaware, as shall be designated from time to time by resolution of the Board of Directors and stated in the notice of meeting.
Section 2.02 Annual Meeting. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such date, time and place, if any, as shall be determined by the Board of Directors and stated in the notice of the meeting.
Section 2.03 Special Meetings. Special meetings of stockholders for any purpose or purposes shall be called pursuant to a resolution approved by the Board of Directors and may not be called by any other person or persons. The only business which may be conducted at a special meeting shall be the matter or matters set forth in the notice of such meeting.
Section 2.04 Adjournments. Any meeting of the stockholders, annual or special, may be adjourned from time to time to reconvene at the same or some other place, if any, and notice need not be given of any such adjourned meeting if the time, place, if any, thereof and the means of remote communication, if any, are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date is fixed for stockholders entitled to vote at the adjourned meeting, the Board of Directors shall fix a new record date for notice of the adjourned meeting and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at the adjourned meeting as of the record date fixed for notice of the adjourned meeting.
Section 2.05 Notice of Meetings. Notice of the place, if any, date, hour, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and means of remote communication, if any, of every meeting of stockholders shall be given by the Corporation not less than ten days nor more than 60 days before the meeting (unless a different time is specified by law) to every stockholder entitled to vote at the meeting as of the record date for determining the stockholders entitled to notice of the meeting. Notices of special meetings shall also specify the purpose or purposes for which the meeting has been called. Except as otherwise provided herein or permitted by applicable law, notice to stockholders shall be in writing and delivered personally or mailed to the stockholders at their address appearing on the books of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, notice of meetings may be given to stockholders by means of electronic transmission in accordance with applicable law. Notice of any meeting need not be given to any stockholder who shall, either before or after the meeting, submit a waiver of notice or who shall attend such meeting, except when the stockholder attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of the meeting shall be bound by the proceedings of the meeting in all respects as if due notice thereof had been given.
Section 2.06 List of Stockholders. The officer of the Corporation who has charge of the stock ledger shall prepare a complete list of the stockholders entitled to vote at any meeting of stockholders (provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares of each class of capital stock of the Corporation registered in the name of each stockholder at least ten days before any meeting of the stockholders. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network if the information required to gain access to such list was provided with the notice of the meeting or during ordinary business hours, or at the principal place of business of the Corporation for a period of at least ten days before the meeting. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting the whole time thereof and may be inspected by any stockholder who is present. If the meeting is held solely by means of remote communication, the list shall also be open for inspection by any stockholder during the whole time of the meeting as provided by applicable law. Except as provided by applicable law, the stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger and the list of stockholders or to vote in person or by proxy at any meeting of stockholders.
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Section 2.07 Quorum. Unless otherwise required by law, the Corporation’s Certificate of Incorporation (the “Certificate of Incorporation”) or these bylaws, at each meeting of the stockholders, a majority in voting power of the shares of the Corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power, by the affirmative vote of a majority in voting power thereof, to adjourn the meeting from time to time, in the manner provided in Section 2.04, until a quorum shall be present or represented. A quorum, once established, shall not be broken by the subsequent withdrawal of enough votes to leave less than a quorum. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called.
Section 2.08 Conduct of Meetings. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. At every meeting of the stockholders, the Chairman of the Board of Directors, or in his or her absence or inability to act, Chief Executive Officer, or, in his or her absence or inability to act, the person whom the Chairman of the Board of Directors shall appoint, shall act as chairman of, and preside at, the meeting. The secretary or, in his or her absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (c) rules and procedures for maintaining order at the meeting and the safety of those present; (d) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (e) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (f) limitations on the time allotted to questions or comments by participants.
Section 2.09 Voting; Proxies. Unless otherwise required by law or the Certificate of Incorporation the election of directors shall be by written ballot and shall be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election. Unless otherwise required by law, the Certificate of Incorporation or these bylaws, any matter, other than the election of directors, brought before any meeting of stockholders shall be decided by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the matter. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot.
Section 2.10 Inspectors at Meetings of Stockholders. The Board of Directors, in advance of any meeting of stockholders, may, and shall if required by law, appoint one or more inspectors, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares represented at the meeting, the existence of a quorum and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board of Directors, the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies, votes or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election.
Section 2.11 Written Consent of Stockholders Without a Meeting. Any action to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 2.11, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by applicable law, be given to those stockholders who have not consented in writing, and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation.
Section 2.12 Fixing the Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than ten days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for the determination of stockholders entitled to vote therewith at the adjourned meeting.
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(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting: (i) when no prior action by the Board of Directors is required by law, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery (by hand, or by certified or registered mail, return receipt requested) to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded and (ii) if prior action by the Board of Directors is required by law, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE III
Board of Directors
Section 3.01 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may adopt such rules and procedures, not inconsistent with the Certificate of Incorporation, these bylaws or applicable law, as it may deem proper for the conduct of its meetings and the management of the Corporation.
Section 3.02 Number; Term of Office. The whole Board of Directors shall consist of not less than three (3) nor more than seven (7) members, the exact number to be set from time to time by the Board of Directors. No decrease in the number of directors shall shorten the term of any incumbent director. In absence of the Board of Directors setting the number of directors, the number shall be three (3). The Board of Directors shall be elected each year, at the annual meeting of stockholders, to hold office until the next annual meeting and until their successors are elected and qualified.
Section 3.03 Newly Created Directorships and Vacancies. Any newly created directorships resulting from an increase in the authorized number of directors and any vacancies occurring in the Board of Directors, may be filled by the affirmative votes of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a sole remaining director. A director so elected shall be elected to hold office until the earlier of the expiration of the term of office of the director whom he or she has replaced, a successor is duly elected and qualified or the earlier of such director’s death, resignation or removal.
Section 3.04 Resignation. Any director may resign at any time by notice given in writing or by electronic transmission to the Corporation. Such resignation shall take effect at the date of receipt of such notice by the Corporation or at such later time as is therein specified.
Section 3.05 Removal. Except as prohibited by applicable law or the Certificate of Incorporation, the stockholders entitled to vote in an election of directors may remove any director from office at any time, with or without cause, by the affirmative vote of a majority in voting power thereof.
Section 3.06 Fees and Expenses. Directors shall receive such fees and expenses as the Board of Directors shall from time to time prescribe.
Section 3.07 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places as may be determined from time to time by the Board of Directors or its chairman.
Section 3.08 Special Meetings. Special meetings of the Board of Directors may be held at such times and at such places as may be determined by the Chairman of the Board of Directors or the Chief Executive Officer on at least 24 hours notice to each director given by one of the means specified in Section 3.11 hereof other than by mail or on at least three days notice if given by mail. Special meetings shall be called by the Chairman of the Board of Directors or the Chief Executive Officer in like manner and on like notice on the written request of any two or more directors.
Section 3.09 Telephone Meetings. Board of Directors or Board of Directors committee meetings may be held by means of telephone conference or other communications equipment by means of which all persons participating in the meeting can hear each other and be heard. Participation by a director in a meeting pursuant to this Section 3.09 shall constitute presence in person at such meeting.
Section 3.10 Adjourned Meetings. A majority of the directors present at any meeting of the Board of Directors, including an adjourned meeting, whether or not a quorum is present, may adjourn and reconvene such meeting to another time and place. At least 24 hours notice of any adjourned meeting of the Board of Directors shall be given to each director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.11 hereof other than by mail, or at least three days notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called.
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Section 3.11 Notices. Subject to Section 3.08, Section 3.10 and Section 3.12 hereof, whenever notice is required to be given to any director by applicable law, the Certificate of Incorporation or these bylaws, such notice shall be deemed given effectively if given in person or by telephone, mail addressed to such director at such director’s address as it appears on the records of the Corporation, facsimile, e-mail or by other means of electronic transmission.
Section 3.12 Waiver of Notice. Whenever notice to directors is required by applicable law, the Certificate of Incorporation or these bylaws, a waiver thereof, in writing signed by, or by electronic transmission by, the director entitled to the notice, whether before or after such notice is required, shall be deemed equivalent to notice. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special Board of Directors or committee meeting need be specified in any waiver of notice.
Section 3.13 Organization. At each meeting of the Board of Directors, the Chairman of the Board of Directors or, in his or her absence, another director selected by the Board of Directors shall preside. The secretary shall act as secretary at each meeting of the Board of Directors. If the secretary is absent from any meeting of the Board of Directors, an assistant secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the secretary and all assistant secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting.
Section 3.14 Quorum of Directors. The presence of a majority of the Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board of Directors.
Section 3.15 Action By Majority Vote. Except as otherwise expressly required by these bylaws, the Certificate of Incorporation or by applicable law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 3.16 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all directors or members of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee in accordance with applicable law.
Section 3.17 Committees of the Board of Directors. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present at the meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it to the extent so authorized by the Board of Directors. Unless the Board of Directors provides otherwise, at all meetings of such committee, a majority of the then authorized members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings. Unless the Board of Directors provides otherwise, each committee designated by the Board of Directors may make, alter and repeal rules and procedures for the conduct of its business. In the absence of such rules and procedures each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to this Article III.
ARTICLE IV
Officers
Section 4.01 Officers of the Company. The officers of the Company shall be selected by the Board of Directors and shall be a Chairman of the Board of Directors, a Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors may elect one or more Vice Chairmen, President, Chief Financial Officer and Vice Presidents, and such other offices as the Board of Directors may determine. Two or more offices may be held by the same person.
Section 4.02 Election of Officers. At the first meeting of the Board of Directors after each annual meeting of stockholders, the Board of Directors shall elect the officers. From time to time the Board of Directors may elect other officers.
Section 4.03 Tenure of Office; Removal. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders following the officer’s election and until the officer’s successor is elected and qualified or until the officer’s earlier resignation or removal. Each officer shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the entire Board of Directors. The removal of an officer shall be without prejudice to his or her contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the president or the secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Should any vacancy occur among the officers, the position shall be filled for the unexpired portion of the term by appointment made by the Board of Directors.
Section 4.04 Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside over meetings of the Board of Directors and shall consult and advise with the Board of Directors and committees thereof on the business and the affairs of the Company. The Chairman of the Board of Directors shall have such other duties as may be assigned by the Board of Directors.
Section 4.05 Chief Executive Officer. The Chief Executive Officer, subject to the overall direction and supervision of the Board of Directors and committees thereof, shall be in general charge of the affairs of the Company, and shall consult and advise with the Board of Directors and committees thereof on the business and the affairs of the Company. The Chief Executive Officer shall have the power to make and execute contracts and other instruments, including powers of attorney, on behalf of the Company and to delegate such power to others.
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Section 4.06 President. The Board of Directors may select a President who shall have such powers and perform such duties, including those of Chief Operating Officer, as may be assigned by the Board of Directors or by the Chief Executive Officer. In the absence or disability of the President, his or her duties shall be performed by the Chief Executive Officer or such persons as the Board of Directors or the Chief Executive Officer may designate. The President shall also have the power to make and execute contracts on the Company’s behalf and to delegate such power to others.
Section 4.07 Vice Presidents. Each Vice President shall have such powers and perform such duties as may be assigned to the officer by the Board of Directors or by the Chief Executive Officer.
Section 4.08 Secretary. The Secretary shall keep minutes of all meetings of the stockholders and of the Board of Directors, and shall keep, or cause to be kept, minutes of all meetings of committees of the Board of Directors, except where such responsibility is otherwise fixed by the Board of Directors. The Secretary shall issue all notices for meetings of the stockholders and Board of Directors and shall have charge of and keep the seal of the Company and shall affix the seal attested by the Secretary’s signature to such instruments as may properly require same. The Secretary shall cause to be kept such books and records as the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer or the President may require; and shall cause to be prepared, recorded, transferred, issued, sealed and cancelled certificates of stock as required by the transactions of the Company and its stockholders. The Secretary shall attend to such correspondence and such other duties as may be incident to the office of the Secretary or assigned by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer or the President.
Section 4.09 Treasurer. The Treasurer shall perform all duties and acts incident to the position of Treasurer, shall have custody of the Company funds and securities, and shall deposit all money and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Company as may be authorized, taking proper vouchers for such disbursements, and shall render to the Board of Directors, whenever required, an account of all the transactions of the Treasurer and of the financial condition of the Company. The Treasurer shall vote all of the stock owned by the Company in any corporation and may delegate this power to others. The Treasurer shall perform such other duties as may be assigned to the Treasurer and shall report to the Chief Financial Officer or, in the absence of the Chief Financial Officer, to the Chief Executive Officer.
Section 4.10 Duties of Officers May be Delegated. In case any officer is absent, or for any other reason that the Board of Directors may deem sufficient, the Chief Executive Officer or the Board of Directors may delegate for the time being the powers or duties of such officer to any other officer or to any director.
ARTICLE V
Stock Certificates and Their Transfer
Section 5.01 Certificates Representing Shares. The shares of stock of the Corporation shall be represented by certificates; provided that the Board of Directors may provide by resolution or resolutions that some or all of any class or series shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock. If shares are represented by certificates, such certificates shall be in the form, other than bearer form, approved by the Board of Directors. The certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the Chairman of the Board of Directors, any vice chairman, the Chief Executive Officer, the president or any vice president, and by the secretary, any assistant secretary, the treasurer or any assistant treasurer. Any or all such signatures may be facsimiles. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue.
Section 5.02 Transfers of Stock. Stock of the Corporation shall be transferable in the manner prescribed by law and in these bylaws. Transfers of stock shall be made on the books of the Corporation only by the holder of record thereof, by such person’s attorney lawfully constituted in writing and, in the case of certificated shares, upon the surrender of the certificate thereof, which shall be cancelled before a new certificate or uncertificated shares shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. To the extent designated by the Chief Executive Officer, president or any vice president or the treasurer of the Corporation, the Corporation may recognize the transfer of fractional uncertificated shares, but shall not otherwise be required to recognize the transfer of fractional shares.
Section 5.03 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
Section 5.04 Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the owner of the allegedly lost, stolen or destroyed certificate. When authorizing such issue of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate or uncertificated shares.
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ARTICLE VI
General Provisions
Section 6.01 Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise, as may be prescribed by law or custom or by the Board of Directors.
Section 6.02 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
Section 6.03 Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.
Section 6.04 Dividends. Subject to applicable law and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock, unless otherwise provided by applicable law or the Certificate of Incorporation.
Section 6.05 Conflict With Applicable Law or Certificate of Incorporation. These bylaws are adopted subject to any applicable law and the Certificate of Incorporation. Whenever these bylaws may conflict with any applicable law or the Certificate of Incorporation, such conflict shall be resolved in favor of such law or the Certificate of Incorporation.
ARTICLE VII
Indemnification
Section 7.01 Indemnification of Directors, Officers, Employees and Agents. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Notwithstanding the foregoing, except with respect to a proceeding to enforce rights to indemnification or advancement of expenses under this Article VII, the Company shall be required to indemnify a person under this Article VII in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.
Section 7.02 Expenses. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise, in whole or in part, in defense of any action, suit or proceeding referred to in Section 7.01 or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith. The entitlement to expenses under this Section 7.02 shall include any expenses incurred by a director, officer, employee or agent of the Company in connection with any action, suit or proceeding brought by such director, officer, employee or agent to enforce a right to indemnification or payment of expenses under this Article. If successful in whole or in part in any such action, suit or proceeding, or in any action, suit or proceeding brought by the Company to recover a payment of expenses pursuant to the terms of an undertaking provided in accordance with Section 7.04, the director, officer, employee or agent also shall be entitled to be paid the expense of prosecuting or defending such action, suit or proceeding.
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Section 7.03 Procedure for Receiving Indemnification. To receive indemnification under these Bylaws, a director, officer, employee or agent of the Company shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to him and reasonably necessary to determine his entitlement to indemnification. Upon receipt by the Company of a written request for indemnification, a determination, if required by applicable law, with respect to a claimant’s request shall be made: (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, even though less than a quorum; or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or (4) by the stockholders. The determination of a claimant’s entitlement to indemnification shall be made within a reasonable time, and in any event within no more than 60 days, after receipt by the Company of a written request for indemnification, together with the supporting documentation required by this Section. The burden of establishing that a claimant is not entitled to be indemnified under this Article or otherwise shall be on the Company.
Section 7.04 Payment of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding within 30 days after receipt by the Company of a statement requesting payment of such expenses. Such statement shall evidence the expenses incurred by the claimant and shall include an undertaking by or on behalf of the claimant to repay such expenses if it shall ultimately be determined, by final judicial decision from which there is no further right to appeal, that he is not entitled to be indemnified by the Company as authorized by this Article. The burden of establishing that a claimant is not entitled to payment of expenses under this Article or otherwise shall be on the Company. Any such payment shall not be deemed to be a loan or extension or arrangement of credit by or on behalf of the Company.
Section 7.05 Provisions Non-Exclusive; Survival of Rights. The indemnification and payment of expenses provided by or granted pursuant to this Article shall not be deemed exclusive of any other rights to which those indemnified or those who receive payment of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 7.06 Insurance. The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Article.
Section 7.07 Authority to Enter into Indemnification Agreements. The Company shall have the power to enter into contracts with any director, officer, employee or agent of the Company in furtherance of the provisions of this Article to provide for the payment of such amounts as may be appropriate, in the discretion of the Board of Directors, to effect indemnification and payment of expenses as provided in this Article.
Section 7.08 Effect of Amendment. Any amendment, repeal or modification of this Article shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification in respect of any act or omission occurring prior to such amendment, repeal or modification.
Section 7.09. No Duplication of Payments. The Company’s obligation, if any, to indemnify or pay expenses to any person under this Article shall be reduced to the extent such person has otherwise received payment (under any insurance policy, indemnity clause, bylaw, agreement, vote or otherwise).
ARTICLE VIII
Amendments
These bylaws may be amended, altered, changed, adopted and repealed or new bylaws adopted by the Board of Directors. The stockholders may make additional bylaws and may alter and repeal any bylaws whether such bylaws were originally adopted by them or otherwise.
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Exhibit 6(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 6, 2014, is made effective between ALLEGIANCY, LLC, a Delaware limited liability company (the “Company”), and STEVENS M. SADLER, residing at 7855 Berkshire Lane, Gloucester, Virginia 23061 (the “Executive”).
The Company and the Executive agree as follows:
1. Position. The Executive is hereby employed and appointed as Chief Executive Officer of the company and its subsidiary, REVA Management Advisors, LLC, reporting to the Company’s Board of Managers (the “Board”). The parties intend that the Executive shall continue to so serve in the aforesaid capacity throughout the Term (as such term is defined in Section 2 below).
2. Term of Employment. The Executive’s employment by the Company hereunder shall commence on March 6, 2014 (the “Commencement Date”). The term of this Agreement shall be a period commencing on the Commencement Date and ending Four (4) years thereafter unless sooner terminated as provided herein. As of the second anniversary of the Commencement Date, and each anniversary thereafter (each an “Extension Date”), the Term shall automatically be extended for one (1) additional year, unless either the Company or the Executive notifies the other party, by written notice delivered no later than 90 days prior to such Extension Date, that the Term shall not be extended for an additional year (collectively, the “Term”).
3. Duties. Throughout the Term, the Executive shall devote his time and attention during normal business hours to the business and affairs of the Company and its affiliates (“Affiliates”), except for holidays and vacations consistent with applicable Company policy and except for illness or incapacity. The Executive shall not accept any proposed appointment to serve as a director, trustee or the equivalent of any business, civic, charitable or other organization, without the prior approval of the Board, which such approval shall not be unreasonably withheld. The Executive shall report directly to the Board and shall have the duties set forth on Exhibit A of this Agreement and such other duties as the Board from time to time assigns him commensurate with his title and responsibilities at the Company.
4. Compensation.
(a) Salary. During the Term, the Company shall pay to the Executive a salary at the minimum rate of $180,000 per year (such annual amount, the “Base Salary”), payable in equal installments not less frequently than bi-monthly in arrears, prorated for any partial employment period. The Board shall review such Base Salary in its discretion at the end of the Initial Term and thereafter at least annually, taking into account, among other factors, corporate and individual performance.
(b) Bonus Compensation.
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(i)
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The Executive shall be entitled to an annual bonus (the “Bonus Compensation”) in an amount equal to a percentage of the Executive’s Base Salary determined annually by the Board, with the approval of the Company’s Independent Manager (as defined in Section 5.13 of the Company’s Amended and Restated Limited Liability Company Agreement, as may be amended). The payment of any Bonus Compensation may be made contingent on the Company’s meeting performance hurdles, the requirements for and form of which shall be determined by the Company’s Board, with the approval of the Company’s Independent Manager.
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(ii)
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The Bonus Compensation, if any, shall be paid no less frequently than annually, on such date as may be set by the Board, with the approval of the Independent Manager.
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(iii)
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The Bonus Compensation shall be paid 25% in cash and 75% through the issuance of restricted Class B Units of the Company (the “Equity”). Subject to the provisions of this Agreement, the Equity shall be subject to vesting terms to be determined by the Company’s Board, with the approval of the Independent Manager; provided, that, if the Executive dies during the Term or the Company determines to terminate the employment of the Executive due to Disability, any issued but unvested Equity shall automatically vest as of the date of death or termination due to Disability.
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(c) Benefit Plans. During the Term, the Executive shall be entitled to participate in such retirement and employment benefit plans (if any) of the Company that are generally available to senior executives of the Company, provided that such participation would not result in the noncompliance of any such retirement or benefit plan with applicable laws governing such plans. Any participation by the Executive in any plan sponsored by the Company shall be pursuant to (i) the terms and conditions of such plans, as the same shall be amended from time to time, (ii) generally applicable policies of the Company and (iii) the discretion of the Board.
(d) Vacation. The Executive shall be entitled to accrue annual vacation at full pay, subject to the applicable vacation policies of the Company; provided, however, that the maximum amount of vacation that the Executive may accrue under the Company vacation policy may be subject to a “reasonable” cap permissible under applicable law.
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(e) Business Expenses. During the Term, the Company shall, in accordance with policies then in effect with respect to payments of expenses, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses, including reasonable travel expenses in connection with traveling to and from the Company’s headquarters (but not including ordinary commuting expenses), incurred by the Executive, and consistent with the Company’s budget, in performing services hereunder. All such expenses shall be accounted for in such reasonable detail as the Company may require.
(f) Indemnity. As an officer of the Company, the Executive shall be entitled to indemnity as provided in Section 5.10 of the Company’s Amended and Restated Limited Liability Company Agreement, as the same shall be amended from time to time.
5. Termination.
(a) Death. In the event of the death of the Executive during the Term, his employment shall be terminated as of the date of death and his salary for the month in which his death occurs shall be paid to his designated beneficiary, or in the absence of such designation, to the estate or other legal representative of the Executive, as will any earned and accrued Bonus Compensation. Any Equity held by the Executive at the time of his death and the termination of his employment shall be deemed the property of his estate. Except in accordance with the terms of the Company’s benefit programs and plans then in effect, after his date of death, Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(b) Disability. In the event of the Executive’s Disability during the Term, as hereinafter defined, the Company may terminate the employment of the Executive and his salary for the month in which his Disability occurs shall be paid to the Executive, as will any earned and accrued Bonus Compensation. Any Equity held by the Executive at the time of his Disability and the termination of his employment shall be deemed the property of the Executive. After termination of employment for Disability, except in accordance with the Company’s benefit programs and plans then in effect, Executive shall not be entitled to any compensation or benefits from the Company or hereunder. “Disability,” for purposes of this Agreement, shall mean the Executive’s incapacity due to physical or mental illness causing his complete and full-time absence from his duties, as specified in Section 3, for either a consecutive period of more than three months or at least 120 days within any 270-day period. Any determination of the Executive’s Disability made in good faith by the Board shall be conclusive and binding on the Executive.
(c) Termination by the Company With Due Cause. Nothing herein shall prevent the Company during the Term from terminating the Executive’s employment for Due Cause. The Executive shall continue to receive the Base Salary provided for in this Agreement only through the period ending with the date of such termination of the Executive for Due Cause (the “Due Cause Termination Date”). Following the Due Cause Termination Date, the Executive shall be entitled to retain one-half of any vested Equity theretofore issued to him hereunder (the “Retained Equity”). Except as provided in the two immediately preceding sentences, after the Due Cause Termination Date, the Executive shall not be entitled to any additional compensation or benefits from the Company or hereunder, including without limitation, any Equity, Bonus Compensation, severance pay, or any other compensation.
The term “Due Cause,” as used herein, shall mean (i) any of the following acts or omissions by the Executive in the course of performing the duties contemplated by this Agreement, which is not cured promptly after written notice to the Executive from the Company specifying the misconduct and requesting a cure pursuant to this Section 5(c): (A) willful and material misconduct or (B) any material breach of a representation, warranty or covenant of the Executive hereunder, including without limitation the Standard Terms attached hereto as Exhibit B, (ii) any material violation of laws or regulations by either the Executive or a person under the Executive’s supervision and for which the Executive had actual knowledge or constructive knowledge to the extent that applicable law would attribute such constructive knowledge to the Executive, (iii) an act or acts of dishonesty on the Executive’s part which are intended to or do result in either the Executive’s personal enrichment or material adverse affect upon the Company’s assets, business, prospects or reputation, or (iv) commission of a (A) felony, (B) crime of moral turpitude or (C) misdemeanor involving fraud, breach of trust, or misappropriation, whether or not the commission of such felony, crime or misdemeanor is in connection with the business of the Company.
(d) Termination by the Company Without Due Cause. The foregoing notwithstanding, the Company may terminate the Executive’s employment during the Term for any other reason it deems appropriate. If the Executive’s termination is not due to the circumstances provided in Sections 5(b) or (c) (other than a non-renewal under section 2 hereof), then the Company shall pay the Executive: (i) all accrued and unpaid Base Salary and Bonus Compensation (the Equity portion of which shall vest immediately) for services rendered by the Executive through the effective date of termination (the “Without Due Cause Termination Date”), and (ii) severance pay in the form of continued payment of the Executive’s Base Salary (at the rate in effect on the Without Due Cause Termination Date) in an amount equal to one month of Base Salary for each month of the balance of the year in which the termination occurs, but not less than an amount equal to six (6) months thereof; provided, however, such severance pay shall be paid in accordance with the Company’s customary payroll practices.
(e) Constructive Termination of Employment by the Company Without Due Cause. A termination of the Executive by the Company without Due Cause shall be deemed to have occurred if the Executive elects to resign and terminate his employment for Good Reason; in such event, the Executive’s rights and benefits shall be as provided in connection with a termination Without Due Cause under Section 5(d) above. “Good Reason” means any of the following acts or omissions by the Company which is not cured after written notice from the Executive to the Company specifying the misconduct and requesting a cure pursuant to this Section 5(e), all without the Executive’s consent: (i) a material reduction in the Executive’s Base Salary, Bonus Compensation or other benefits or rights as provided under Section 4 of this Agreement, (ii) a material reduction in the Executive’s duties and reporting relationships as provided in Section 3 of this Agreement, (iii) requiring the Executive’s permanent residential relocation to a location more than Fifty (50) miles from Richmond, Virginia without the Executive’s consent, or (iv) a material breach of this Agreement by the Company.
(f) Voluntary Termination. In the event that the Executive resigns and terminates his employment at his own volition prior to the expiration of the Term (except as provided in Section 5(e) above), such termination shall constitute a “Voluntary Termination” and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Due Cause under Section 5(c) above.
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(g) Notice; Resignation, Release. Any termination of the Executive by the Company under Sections 5(b) or 5(d) or by the Executive pursuant to a constructive termination under Sections 5(e) or 5(f) shall be communicated by a Notice of Termination to the other party thereto given in accordance with Section 10. A “Notice ” shall (i) indicate the specific termination provision in this Agreement relied upon, and (ii) specify the applicable effective date of termination (which date shall not be prior to the date of such notice or more than fifteen (15) days after the giving of such notice).
Notwithstanding anything in this Agreement to the contrary, in order to be eligible to receive any post-termination payments or benefits hereunder, the Executive shall, in addition to fulfilling all other applicable conditions, within five days after the effective termination date (i) on behalf of the Executive and his estate, heirs and representatives, execute a release in the form attached hereto as Exhibit C.
For purposes of this Agreement, “Affiliate” shall mean (i) any person or entity that directly or indirectly, is controlled by, or is under common control with such specified person or entity; (ii) any person or entity that directly or indirectly controls ten percent (10%) or more of the outstanding equity securities of the specified entity or of which the specified person or entity is directly or indirectly the owner of ten percent (10%) or more of any class of equity securities; (iii) any person or entity that is an officer of, director of, manager of, partner in, or trustee of, or serves is a similar capacity with respect to, the specified person or entity or of which the specified person or entity is an officer, director, partner, manager or trustee, or with respect to which the specified person or entity serves in a similar capacity; or (iv) any person that is a member of the immediate family of (i.e. spouse, father, mother or sibling) of the specified person.
(h) Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive’s employment at any time, for any reason, the Executive (A) shall be paid all amounts that had already been earned and accrued as of the time of termination, and (B) any rights and benefits under separate employee benefit plans or other programs shall be separately governed by their terms and conditions.
6. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term “Company,” as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.
(b) Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company; provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of his legal incompetency or his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries,” as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of his incompetency) or the Executive’s estate.
7. Governing Law. This Agreement, including without limitation Exhibit B, shall be governed by the laws of the Commonwealth of Virginia without reference to the choice or conflict of law principles thereof.
8. Entire Agreement. This Agreement contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. This Agreement may only be modified by an instrument in writing signed by all parties.
9. Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time.
10. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:
If to the Company:
Allegiancy, LLC
10710 Midlothian Turnpike
Suite 202
Richmond, VA 23235
Attn: Board of Managers
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With a copy to:
Robert R. Kaplan, Jr., Esquire
Kaplan Voekler Cunningham & Frank, PLC
7 East 2nd Street
Richmond, Virginia 23224
If to the Executive:
Stevens M. Sadler
7855 Berkshire Lane
Gloucester, Virginia 23061
11. Jurisdiction and Venue. Any litigation in connection with this Agreement, including without limitation Exhibit B, shall be venued solely and exclusively within the state or federal courts located within the Commonwealth of Virginia. The parties agree not to assert in any action, suit or proceeding that it or he is not subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum, or that venue of the action, suit or proceeding is improper or that selection of Virginia law is improper or unenforceable.
12. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.
13. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.
14. Titles. Titles to the Sections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section.
15. Counsel. Kaplan Voekler Cunningham & Frank, PLC, has acted as counsel to the Company in the preparation and negotiation of this Agreement. The Executive has reviewed the contents of this Agreement and fully understands its terms. The Executive acknowledges that he is fully aware of his right to seek independent advice and the risks in not seeking such independent advice, and that he fully understands the potentially adverse interests of the parties with respect to this Agreement. The Executive further acknowledges that neither the Company nor its counsel has made representations or given any advice with respect to the tax or other consequences of this Agreement or any matters contemplated by this Agreement to him, that he has been advised of the importance of seeking independent counsel with respect to such consequences. By executing this Agreement, the Executive represents that he has, after being advised of the potential conflicts between him and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel. Each party agrees that in any construction or interpretation of this Agreement the same shall not be construed against any party on the basis that the party was the drafter or any other basis.
16. Code Section 409A.
(a) General. It is intended that this Agreement shall comply with the provisions of Code Section 409A and the Treasury regulations relating thereto so as not to subject the Executive to the payment of additional taxes and interest under IRC Section 409A. In furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions, and to the extent that any regulations or other guidance issued under IRC Section 409A would result in the Executive being subject to payment of additional income taxes or interest under IRC Section 409A, the parties agree to amend the Agreement to maintain to the maximum extent practicable the original intent of the Agreement while avoiding the application of such taxes or interest under IRC Section 409A.
(b) Payments. Notwithstanding any provision in this Agreement to the contrary if, as of the effective date of the Executive’s termination of employment, he is a Specified Employee, then, to the extent required pursuant to IRC Section 409A(a)(2)(B)(i), payments due under Section 7 which may constitute “deferred compensation,” shall be subject to a six (6) month delay such that amounts otherwise payable during the six (6) month period following the Executive’s Separation from Service shall be accumulated and paid in a lump-sum catch-up payment as of the first day of the seventh (7th) month following Separation from Service (or, if earlier, the date of death of the Executive). Any portion of the benefits hereunder that were not otherwise due to be paid during the six (6) month period following the termination shall be paid to the Executive in accordance with the payment schedule established herein.
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(c) Reimbursements. For purposes of complying with IRC Section 409A and without extending the payment timing otherwise provided in this Agreement, taxable reimbursements under this Agreement, subject to the following sentence and to the extent required to comply with IRC Section 409A, will be made no later than the end of the calendar year following the calendar year in which the expense was incurred. To the extent required to comply with IRC Section 409A, any taxable reimbursements and any in-kind benefits under this Agreement will be subject to the following: (i) payment of such reimbursements or in-kind benefits during one calendar year will not affect the amount of such reimbursement or in-kind benefits provided during any other calendar year (other than for medical reimbursement arrangements as excepted under Treasury Regulations § 1.409A-3(i)(1)(iv)(B) solely because the arrangement provides for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period the arrangement remains in effect); (ii) such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another form of compensation to the Executive; and (iii) the right to reimbursements under this Agreement will be in effect for the lesser of the time specified in this Agreement or ten (10) years plus the lifetime of the Executive. Any taxable reimbursements or in-kind benefits shall be treated as not subject to IRC Section 409A to the maximum extent provided by Treasury Regulations § 1.409A-1(b)(9)(v) or otherwise under IRC Section 409A.
(d) Cooperation. If any compensation or benefits provided by this Agreement may result in the application of IRC Section 409A, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to exclude such compensation from the definition of “deferred of compensation” within the meaning of IRC Section 409A or in order to comply with the provisions of IRC Section 409A and without any diminution in the value of the payments or benefits to the Executive. This Section 16 is not intended to impose any restrictions on payments or benefits to Executive other than those set forth in this Agreement or required for Executive not to incur additional tax under IRC Section 409A and shall be interpreted and operated accordingly. The Company to the extent reasonably requested by the Executive shall modify this Agreement to effectuate the intention set forth in the preceding sentence.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first above written.
| COMPANY: | ||
| Allegiancy, LLC | ||
| By: /s/ Stevens M. Sadler | ||
| Name: Stevens M. Sadler |
||
| Its: Chief Executive Officer and Manager | ||
| EXECUTIVE: | ||
| /s/ Christopher K. Sadler | ||
| Christopher K. Sadler | ||
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EXHIBIT A
JOB DUTIES
Chief Executive Officer: The Executive shall have all normal and customary duties and responsibilities of Chief Executive Officers of companies of similar size and business purposes as the Company.
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EXHIBIT B
Standard Provisions
In connection with Executive’s (or “You”) Employment Agreement to which this Exhibit B is attached (“Agreement”), Executives shall observe and comply with all internal policies of Company and any applicable affiliates that serve as your employer (collectively, “Company”), whether now existing or adopted hereafter. Executive shall at all times maintain the highest standards of conduct and act within the highest ethical principles, and shall act as a fiduciary with respect to Company and the financial products it and its affiliate’s offers.
Former Employers:
You represent that you are not subject to any employment, confidentiality, or other agreement or restriction that would prevent you from fully satisfying your duties hereunder, or that would be violated if you did so. You agree not to disclose proprietary information belonging to a former employer or other entity without its written permission. With respect to any such former employers, you will indemnify and hold Company and its Affiliates harmless from any liabilities, including defense costs, it may incur because you are alleged to have improperly revealed or used such proprietary information or to have threatened to do so, or if a former employer challenges your entering into the Agreement or rendering services pursuant to it, but this provision shall not be construed as a waiver of any right of indemnity you have against Company and its Affiliates (or any other employer) for claims or expenses that arise from your performing your assigned duties for Company and its Affiliates or following the directions of management of the Company and its Affiliates.
Non-Solicitation/Non-Competition:
The Executive hereby agrees that in the event his employment is terminated, during the Term, for a period of one (1) year following the Date of Termination (the “Restricted Period”), except with the express prior written consent of the Company, the Executive will not directly, or indirectly engage in or facilitate any of the following activities anywhere in the United States:
(i) soliciting or inducing, or attempting to solicit or induce, any employee of the Company or its subsidiaries or affiliates, as of the Date of Termination, to terminate employment and become employed by, or on behalf of, any company that is a public or private office real estate investment trust (government or otherwise); or
(ii) performing services as an employee, director, officer, consultant, independent contractor or advisor; or investing in, whether in the form of equity or debt, owning any interest or otherwise having an ownership or other interest or a connection to any Prohibited Entity or performing services as an employee, director, officer, consultant, independent contractor or advisor to any other company, entity or person if those services relate directly to a business or businesses that directly and materially compete with the Company (limited to governmental leased properties) anywhere in the United States. Nothing in this Section (ii) shall, however, restrict the Executive from making an investment in and owning up to one-percent (1%) of the common stock of any company whose stock is listed on a national exchange, provided that such investment does not give the Executive the right or ability to control or influence the policy decisions of any direct competitor. For purposes of this Agreement, a “Prohibited Entity” is any company, entity or person that derives more than 20% of its consolidated gross revenues from a business or businesses that involves, property and asset management services related to commercial real estate.
Confidentiality:
The Executive acknowledges that, during the course of his employment with the Company, the Executive may produce and have access to confidential and/or proprietary non-public information concerning the Company, and it’s subsidiaries and Affiliates, including marketing materials, customers lists, records, data, trade secrets, proprietary business information, proposed transactions, possible acquisitions, pricing lists and policies, strategic planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to the public (collectively, “Confidential Information”). The Executive agrees not to directly or indirectly use, disclose, copy or make lists of Confidential Information for the benefit of anyone other than the Company, either during or after his employment with the Company, except to the extent that such disclosure is authorized in writing by the Company, required by law or any competent administrative agency or judicial authority, or otherwise as reasonably necessary or appropriate in connection with performance by the Executive of his duties hereunder. Confidential Information does not include any information which; (i) the Executive was aware of or was in the Executive’s possession prior to becoming an employee of the Company; (ii) is or becomes generally available to the public by acts other than those of the Executive after receiving it; or (iii) has been received lawfully and in good faith by the Executive from a third party not under a similar duty of confidentiality to Company. The Executive agrees that if he receives a subpoena or other court order or is otherwise required by law to provide Confidential Information to a governmental authority or other person concerning the activities of the Company, or his activities in connection with the business of the Company, the Executive will, to the extent permitted by law, immediately notify the Company of such subpoena, court order or other requirement and deliver forthwith to the Company a copy thereof and any attachments and non-privileged correspondence related thereto so that the Company may seek an appropriate protective order to protect such Confidential Information,. The Executive shall take reasonable precautions to protect against the inadvertent disclosure of Confidential Information. During his employment, the Executive agrees to abide by the Company’s reasonable policies, as in effect from time to time, respecting avoidance of interests conflicting with those of the Company.
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Non-Disparagement:
The Company and the Executive agree that, at all times during the Term following the Date of Termination, they shall use reasonable and good faith efforts to ensure that neither party engages in any vilification of the other, and shall refrain from making any false, negative, critical or disparaging statements, implied or expressed, concerning the other, including, but not limited to, management style, methods of doing business, the quality of products and services, role in the community, or treatment of employees. The parties further agree to do nothing that would damage the other’s business reputation or good will; provided, however, that nothing in this Agreement shall prohibit either party’s disclosure of information which is required to be disclosed in compliance with applicable laws or regulations or by order of a court or other regulatory body of competent jurisdiction. The Executive acknowledges that the only persons whose statements may be attributed to the Company for purposes of this Agreement, other than his own, shall be the members of the Board.
Injunctive Relief/Attorneys Fees:
You acknowledge that should you breach these provisions, Company and/or its Affiliates will suffer immediate and irreparable harm and that money damages will be inadequate relief. Therefore, you agree Company and/or its Affiliates will be entitled to injunctive relief to enforce these provisions, and you consent to the issuance by court of competent jurisdiction of a temporary restraining order, preliminary or permanent injunction to enforce the rights under these provisions. You further agree to compensate and reimburse Company and/or its Affiliates for all reasonable attorneys fees it may incur as a result of any efforts Company and/or its Affiliates may undertake to enforce these rights, or any other rights it has in connection with this Agreement, including to defend itself from adverse claims by you, or related to your retention hereunder.
Entire Agreement/Amendment:
All previous oral or written agreements or representations express or implied, with respect to the subject matter of this Agreement are superseded and the entire agreement of the parties is set forth in this Agreement. No provisions of this Agreement may be modified, waived, or discharged except by a written document signed by you and a duly authorized Company officer. A waiver of any conditions or provisions of this Agreement in a given instance shall not be deemed a waiver of such conditions or provisions at any other time.
Interpretation/Venue:
The validity, interpretation, construction, and performance of the Agreement including without limitation this Exhibit B shall be governed by the laws of the Commonwealth of Virginia, without regard to conflict of law principles, and any litigation in connection therewith shall be venued solely and exclusively within the courts of the Commonwealth of Virginia. The parties agree not to assert in any action, suit or proceeding that it or he is not subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum, or that venue of the action, suit or proceeding is improper or that selection of Virginia law is improper or unenforceable.
Validity:
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
Counterparts:
This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute the same instrument.
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Exhibit 6(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 6, 2014, is made effective between ALLEGIANCY, LLC, a Delaware limited liability company (the “Company”), and CHRISTOPHER K. SADLER, residing at 483 Meadow Ridge Drive, Rice, Virginia 23966 (the “Executive”).
The Company and the Executive agree as follows:
1. Position. The Executive is hereby employed and appointed as President of the company and its subsidiary, REVA Management Advisors, LLC, reporting to the Company’s Board of Managers (the “Board”). The parties intend that the Executive shall continue to so serve in the aforesaid capacity throughout the Term (as such term is defined in Section 2 below).
2. Term of Employment. The Executive’s employment by the Company hereunder shall commence on March 6, 2014 (the “Commencement Date”). The term of this Agreement shall be a period commencing on the Commencement Date and ending Four (4) years thereafter unless sooner terminated as provided herein. As of the second anniversary of the Commencement Date, and each anniversary thereafter (each an “Extension Date”), the Term shall automatically be extended for one (1) additional year, unless either the Company or the Executive notifies the other party, by written notice delivered no later than 90 days prior to such Extension Date, that the Term shall not be extended for an additional year (collectively, the “Term”).
3. Duties. Throughout the Term, the Executive shall devote his time and attention during normal business hours to the business and affairs of the Company and its affiliates (“Affiliates”), except for holidays and vacations consistent with applicable Company policy and except for illness or incapacity. The Executive shall not accept any proposed appointment to serve as a director, trustee or the equivalent of any business, civic, charitable or other organization, without the prior approval of the Board, which such approval shall not be unreasonably withheld. The Executive shall report directly to the Board and shall have the duties set forth on Exhibit A of this Agreement and such other duties as the Board from time to time assigns him commensurate with his title and responsibilities at the Company.
4. Compensation.
(a) Salary. During the Term, the Company shall pay to the Executive a salary at the minimum rate of $180,000 per year (such annual amount, the “Base Salary”), payable in equal installments not less frequently than bi-monthly in arrears, prorated for any partial employment period. The Board shall review such Base Salary in its discretion at the end of the Initial Term and thereafter at least annually, taking into account, among other factors, corporate and individual performance.
(b) Bonus Compensation.
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(i)
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The Executive shall be entitled to an annual bonus (the “Bonus Compensation”) in an amount equal to a percentage of the Executive’s Base Salary determined annually by the Board, with the approval of the Company’s Independent Manager (as defined in Section 5.13 of the Company’s Amended and Restated Limited Liability Company Agreement, as may be amended). The payment of any Bonus Compensation may be made contingent on the Company’s meeting performance hurdles, the requirements for and form of which shall be determined by the Company’s Board, with the approval of the Company’s Independent Manager.
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(ii)
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The Bonus Compensation, if any, shall be paid no less frequently than annually, on such date as may be set by the Board, with the approval of the Independent Manager.
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(iii)
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The Bonus Compensation shall be paid 25% in cash and 75% through the issuance of restricted Class B Units of the Company (the “Equity”). Subject to the provisions of this Agreement, the Equity shall be subject to vesting terms to be determined by the Company’s Board, with the approval of the Independent Manager; provided, that, if the Executive dies during the Term or the Company determines to terminate the employment of the Executive due to Disability, any issued but unvested Equity shall automatically vest as of the date of death or termination due to Disability.
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(c) Benefit Plans. During the Term, the Executive shall be entitled to participate in such retirement and employment benefit plans (if any) of the Company that are generally available to senior executives of the Company, provided that such participation would not result in the noncompliance of any such retirement or benefit plan with applicable laws governing such plans. Any participation by the Executive in any plan sponsored by the Company shall be pursuant to (i) the terms and conditions of such plans, as the same shall be amended from time to time, (ii) generally applicable policies of the Company and (iii) the discretion of the Board.
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(d) Vacation. The Executive shall be entitled to accrue annual vacation at full pay, subject to the applicable vacation policies of the Company; provided, however, that the maximum amount of vacation that the Executive may accrue under the Company vacation policy may be subject to a “reasonable” cap permissible under applicable law.
(e) Business Expenses. During the Term, the Company shall, in accordance with policies then in effect with respect to payments of expenses, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses, including reasonable travel expenses in connection with traveling to and from the Company’s headquarters (but not including ordinary commuting expenses), incurred by the Executive, and consistent with the Company’s budget, in performing services hereunder. All such expenses shall be accounted for in such reasonable detail as the Company may require.
(f) Indemnity. As an officer of the Company, the Executive shall be entitled to indemnity as provided in Section 5.10 of the Company’s Amended and Restated Limited Liability Company Agreement, as the same shall be amended from time to time.
5. Termination.
(a) Death. In the event of the death of the Executive during the Term, his employment shall be terminated as of the date of death and his salary for the month in which his death occurs shall be paid to his designated beneficiary, or in the absence of such designation, to the estate or other legal representative of the Executive, as will any earned and accrued Bonus Compensation. Any Equity held by the Executive at the time of his death and the termination of his employment shall be deemed the property of his estate. Except in accordance with the terms of the Company’s benefit programs and plans then in effect, after his date of death, Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(b) Disability. In the event of the Executive’s Disability during the Term, as hereinafter defined, the Company may terminate the employment of the Executive and his salary for the month in which his Disability occurs shall be paid to the Executive, as will any earned and accrued Bonus Compensation. Any Equity held by the Executive at the time of his Disability and the termination of his employment shall be deemed the property of the Executive. After termination of employment for Disability, except in accordance with the Company’s benefit programs and plans then in effect, Executive shall not be entitled to any compensation or benefits from the Company or hereunder. “Disability,” for purposes of this Agreement, shall mean the Executive’s incapacity due to physical or mental illness causing his complete and full-time absence from his duties, as specified in Section 3, for either a consecutive period of more than three months or at least 120 days within any 270-day period. Any determination of the Executive’s Disability made in good faith by the Board shall be conclusive and binding on the Executive.
(c) Termination by the Company With Due Cause. Nothing herein shall prevent the Company during the Term from terminating the Executive’s employment for Due Cause. The Executive shall continue to receive the Base Salary provided for in this Agreement only through the period ending with the date of such termination of the Executive for Due Cause (the “Due Cause Termination Date”). Following the Due Cause Termination Date, the Executive shall be entitled to retain one-half of any vested Equity theretofore issued to him hereunder (the “Retained Equity”). Except as provided in the two immediately preceding sentences, after the Due Cause Termination Date, the Executive shall not be entitled to any additional compensation or benefits from the Company or hereunder, including without limitation, any Equity, Bonus Compensation, severance pay, or any other compensation.
The term “Due Cause,” as used herein, shall mean (i) any of the following acts or omissions by the Executive in the course of performing the duties contemplated by this Agreement, which is not cured promptly after written notice to the Executive from the Company specifying the misconduct and requesting a cure pursuant to this Section 5(c): (A) willful and material misconduct or (B) any material breach of a representation, warranty or covenant of the Executive hereunder, including without limitation the Standard Terms attached hereto as Exhibit B, (ii) any material violation of laws or regulations by either the Executive or a person under the Executive’s supervision and for which the Executive had actual knowledge or constructive knowledge to the extent that applicable law would attribute such constructive knowledge to the Executive, (iii) an act or acts of dishonesty on the Executive’s part which are intended to or do result in either the Executive’s personal enrichment or material adverse affect upon the Company’s assets, business, prospects or reputation, or (iv) commission of a (A) felony, (B) crime of moral turpitude or (C) misdemeanor involving fraud, breach of trust, or misappropriation, whether or not the commission of such felony, crime or misdemeanor is in connection with the business of the Company.
(d) Termination by the Company Without Due Cause. The foregoing notwithstanding, the Company may terminate the Executive’s employment during the Term for any other reason it deems appropriate. If the Executive’s termination is not due to the circumstances provided in Sections 5(b) or (c) (other than a non-renewal under section 2 hereof), then the Company shall pay the Executive: (i) all accrued and unpaid Base Salary and Bonus Compensation (the Equity portion of which shall vest immediately) for services rendered by the Executive through the effective date of termination (the “Without Due Cause Termination Date”), and (ii) severance pay in the form of continued payment of the Executive’s Base Salary (at the rate in effect on the Without Due Cause Termination Date) in an amount equal to one month of Base Salary for each month of the balance of the year in which the termination occurs, but not less than an amount equal to six (6) months thereof; provided, however, such severance pay shall be paid in accordance with the Company’s customary payroll practices.
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(e) Constructive Termination of Employment by the Company Without Due Cause. A termination of the Executive by the Company without Due Cause shall be deemed to have occurred if the Executive elects to resign and terminate his employment for Good Reason; in such event, the Executive’s rights and benefits shall be as provided in connection with a termination Without Due Cause under Section 5(d) above. “Good Reason” means any of the following acts or omissions by the Company which is not cured after written notice from the Executive to the Company specifying the misconduct and requesting a cure pursuant to this Section 5(e), all without the Executive’s consent: (i) a material reduction in the Executive’s Base Salary, Bonus Compensation or other benefits or rights as provided under Section 4 of this Agreement, (ii) a material reduction in the Executive’s duties and reporting relationships as provided in Section 3 of this Agreement, (iii) requiring the Executive’s permanent residential relocation to a location more than Fifty (50) miles from Richmond, Virginia without the Executive’s consent, or (iv) a material breach of this Agreement by the Company.
(f) Voluntary Termination. In the event that the Executive resigns and terminates his employment at his own volition prior to the expiration of the Term (except as provided in Section 5(e) above), such termination shall constitute a “Voluntary Termination” and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Due Cause under Section 5(c) above.
(g) Notice; Resignation, Release. Any termination of the Executive by the Company under Sections 5(b) or 5(d) or by the Executive pursuant to a constructive termination under Sections 5(e) or 5(f) shall be communicated by a Notice of Termination to the other party thereto given in accordance with Section 10. A “Notice ” shall (i) indicate the specific termination provision in this Agreement relied upon, and (ii) specify the applicable effective date of termination (which date shall not be prior to the date of such notice or more than fifteen (15) days after the giving of such notice).
Notwithstanding anything in this Agreement to the contrary, in order to be eligible to receive any post-termination payments or benefits hereunder, the Executive shall, in addition to fulfilling all other applicable conditions, within five days after the effective termination date (i) on behalf of the Executive and his estate, heirs and representatives, execute a release in the form attached hereto as Exhibit C.
For purposes of this Agreement, “Affiliate” shall mean (i) any person or entity that directly or indirectly, is controlled by, or is under common control with such specified person or entity; (ii) any person or entity that directly or indirectly controls ten percent (10%) or more of the outstanding equity securities of the specified entity or of which the specified person or entity is directly or indirectly the owner of ten percent (10%) or more of any class of equity securities; (iii) any person or entity that is an officer of, director of, manager of, partner in, or trustee of, or serves is a similar capacity with respect to, the specified person or entity or of which the specified person or entity is an officer, director, partner, manager or trustee, or with respect to which the specified person or entity serves in a similar capacity; or (iv) any person that is a member of the immediate family of (i.e. spouse, father, mother or sibling) of the specified person.
(h) Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive’s employment at any time, for any reason, the Executive (A) shall be paid all amounts that had already been earned and accrued as of the time of termination, and (B) any rights and benefits under separate employee benefit plans or other programs shall be separately governed by their terms and conditions.
6. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term “Company,” as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.
(b) Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company; provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of his legal incompetency or his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries,” as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of his incompetency) or the Executive’s estate.
7. Governing Law. This Agreement, including without limitation Exhibit B, shall be governed by the laws of the Commonwealth of Virginia without reference to the choice or conflict of law principles thereof.
8. Entire Agreement. This Agreement contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. This Agreement may only be modified by an instrument in writing signed by all parties.
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9. Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time.
10. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:
If to the Company:
Allegiancy, LLC
10710 Midlothian Turnpike
Suite 202
Richmond, VA 23235
Attn: Board of Managers
With a copy to:
Robert R. Kaplan, Jr., Esquire
Kaplan Voekler Cunningham & Frank, PLC
7 East 2nd Street
Richmond, Virginia 23224
If to the Executive:
Christopher K. Sadler
483 Meadow Ridge Drive
Rice, Virginia 23966
11. Jurisdiction and Venue. Any litigation in connection with this Agreement, including without limitation Exhibit B, shall be venued solely and exclusively within the state or federal courts located within the Commonwealth of Virginia. The parties agree not to assert in any action, suit or proceeding that it or he is not subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum, or that venue of the action, suit or proceeding is improper or that selection of Virginia law is improper or unenforceable.
12. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.
13. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.
14. Titles. Titles to the Sections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section.
15. Counsel. Kaplan Voekler Cunningham & Frank, PLC, has acted as counsel to the Company in the preparation and negotiation of this Agreement. The Executive has reviewed the contents of this Agreement and fully understands its terms. The Executive acknowledges that he is fully aware of his right to seek independent advice and the risks in not seeking such independent advice, and that he fully understands the potentially adverse interests of the parties with respect to this Agreement. The Executive further acknowledges that neither the Company nor its counsel has made representations or given any advice with respect to the tax or other consequences of this Agreement or any matters contemplated by this Agreement to him, that he has been advised of the importance of seeking independent counsel with respect to such consequences. By executing this Agreement, the Executive represents that he has, after being advised of the potential conflicts between him and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel. Each party agrees that in any construction or interpretation of this Agreement the same shall not be construed against any party on the basis that the party was the drafter or any other basis.
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16. Code Section 409A.
(a) General. It is intended that this Agreement shall comply with the provisions of Code Section 409A and the Treasury regulations relating thereto so as not to subject the Executive to the payment of additional taxes and interest under IRC Section 409A. In furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions, and to the extent that any regulations or other guidance issued under IRC Section 409A would result in the Executive being subject to payment of additional income taxes or interest under IRC Section 409A, the parties agree to amend the Agreement to maintain to the maximum extent practicable the original intent of the Agreement while avoiding the application of such taxes or interest under IRC Section 409A.
(b) Payments. Notwithstanding any provision in this Agreement to the contrary if, as of the effective date of the Executive’s termination of employment, he is a Specified Employee, then, to the extent required pursuant to IRC Section 409A(a)(2)(B)(i), payments due under Section 7 which may constitute “deferred compensation,” shall be subject to a six (6) month delay such that amounts otherwise payable during the six (6) month period following the Executive’s Separation from Service shall be accumulated and paid in a lump-sum catch-up payment as of the first day of the seventh (7th) month following Separation from Service (or, if earlier, the date of death of the Executive). Any portion of the benefits hereunder that were not otherwise due to be paid during the six (6) month period following the termination shall be paid to the Executive in accordance with the payment schedule established herein.
(c) Reimbursements. For purposes of complying with IRC Section 409A and without extending the payment timing otherwise provided in this Agreement, taxable reimbursements under this Agreement, subject to the following sentence and to the extent required to comply with IRC Section 409A, will be made no later than the end of the calendar year following the calendar year in which the expense was incurred. To the extent required to comply with IRC Section 409A, any taxable reimbursements and any in-kind benefits under this Agreement will be subject to the following: (i) payment of such reimbursements or in-kind benefits during one calendar year will not affect the amount of such reimbursement or in-kind benefits provided during any other calendar year (other than for medical reimbursement arrangements as excepted under Treasury Regulations § 1.409A-3(i)(1)(iv)(B) solely because the arrangement provides for a limit on the amount of expenses that may be reimbursed under such arrangement over some or all of the period the arrangement remains in effect); (ii) such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another form of compensation to the Executive; and (iii) the right to reimbursements under this Agreement will be in effect for the lesser of the time specified in this Agreement or ten (10) years plus the lifetime of the Executive. Any taxable reimbursements or in-kind benefits shall be treated as not subject to IRC Section 409A to the maximum extent provided by Treasury Regulations § 1.409A-1(b)(9)(v) or otherwise under IRC Section 409A.
(d) Cooperation. If any compensation or benefits provided by this Agreement may result in the application of IRC Section 409A, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to exclude such compensation from the definition of “deferred of compensation” within the meaning of IRC Section 409A or in order to comply with the provisions of IRC Section 409A and without any diminution in the value of the payments or benefits to the Executive. This Section 16 is not intended to impose any restrictions on payments or benefits to Executive other than those set forth in this Agreement or required for Executive not to incur additional tax under IRC Section 409A and shall be interpreted and operated accordingly. The Company to the extent reasonably requested by the Executive shall modify this Agreement to effectuate the intention set forth in the preceding sentence.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first above written.
COMPANY:
Allegiancy, LLC
By:
Name: Stevens M. Sadler
Its: Chief Executive Officer and Manager
EXECUTIVE:
_______________________
Christopher K. Sadler
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EXHIBIT A
JOB DUTIES
President: The Executive shall have all normal and customary duties and responsibilities of Presidents of companies of similar size and business purposes as the Company.
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EXHIBIT B
Standard Provisions
In connection with Executive’s (or “You”) Employment Agreement to which this Exhibit B is attached (“Agreement”), Executives shall observe and comply with all internal policies of Company and any applicable affiliates that serve as your employer (collectively, “Company”), whether now existing or adopted hereafter. Executive shall at all times maintain the highest standards of conduct and act within the highest ethical principles, and shall act as a fiduciary with respect to Company and the financial products it and its affiliate’s offers.
Former Employers:
You represent that you are not subject to any employment, confidentiality, or other agreement or restriction that would prevent you from fully satisfying your duties hereunder, or that would be violated if you did so. You agree not to disclose proprietary information belonging to a former employer or other entity without its written permission. With respect to any such former employers, you will indemnify and hold Company and its Affiliates harmless from any liabilities, including defense costs, it may incur because you are alleged to have improperly revealed or used such proprietary information or to have threatened to do so, or if a former employer challenges your entering into the Agreement or rendering services pursuant to it, but this provision shall not be construed as a waiver of any right of indemnity you have against Company and its Affiliates (or any other employer) for claims or expenses that arise from your performing your assigned duties for Company and its Affiliates or following the directions of management of the Company and its Affiliates.
Non-Solicitation/Non-Competition:
The Executive hereby agrees that in the event his employment is terminated, during the Term, for a period of one (1) year following the Date of Termination (the “Restricted Period”), except with the express prior written consent of the Company, the Executive will not directly, or indirectly engage in or facilitate any of the following activities anywhere in the United States:
(i) soliciting or inducing, or attempting to solicit or induce, any employee of the Company or its subsidiaries or affiliates, as of the Date of Termination, to terminate employment and become employed by, or on behalf of, any company that is a public or private office real estate investment trust (government or otherwise); or
(ii) performing services as an employee, director, officer, consultant, independent contractor or advisor; or investing in, whether in the form of equity or debt, owning any interest or otherwise having an ownership or other interest or a connection to any Prohibited Entity or performing services as an employee, director, officer, consultant, independent contractor or advisor to any other company, entity or person if those services relate directly to a business or businesses that directly and materially compete with the Company (limited to governmental leased properties) anywhere in the United States. Nothing in this Section (ii) shall, however, restrict the Executive from making an investment in and owning up to one-percent (1%) of the common stock of any company whose stock is listed on a national exchange, provided that such investment does not give the Executive the right or ability to control or influence the policy decisions of any direct competitor. For purposes of this Agreement, a “Prohibited Entity” is any company, entity or person that derives more than 20% of its consolidated gross revenues from a business or businesses that involves, property and asset management services related to commercial real estate.
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Confidentiality:
The Executive acknowledges that, during the course of his employment with the Company, the Executive may produce and have access to confidential and/or proprietary non-public information concerning the Company, and it’s subsidiaries and Affiliates, including marketing materials, customers lists, records, data, trade secrets, proprietary business information, proposed transactions, possible acquisitions, pricing lists and policies, strategic planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to the public (collectively, “Confidential Information”). The Executive agrees not to directly or indirectly use, disclose, copy or make lists of Confidential Information for the benefit of anyone other than the Company, either during or after his employment with the Company, except to the extent that such disclosure is authorized in writing by the Company, required by law or any competent administrative agency or judicial authority, or otherwise as reasonably necessary or appropriate in connection with performance by the Executive of his duties hereunder. Confidential Information does not include any information which; (i) the Executive was aware of or was in the Executive’s possession prior to becoming an employee of the Company; (ii) is or becomes generally available to the public by acts other than those of the Executive after receiving it; or (iii) has been received lawfully and in good faith by the Executive from a third party not under a similar duty of confidentiality to Company. The Executive agrees that if he receives a subpoena or other court order or is otherwise required by law to provide Confidential Information to a governmental authority or other person concerning the activities of the Company, or his activities in connection with the business of the Company, the Executive will, to the extent permitted by law, immediately notify the Company of such subpoena, court order or other requirement and deliver forthwith to the Company a copy thereof and any attachments and non-privileged correspondence related thereto so that the Company may seek an appropriate protective order to protect such Confidential Information,. The Executive shall take reasonable precautions to protect against the inadvertent disclosure of Confidential Information. During his employment, the Executive agrees to abide by the Company’s reasonable policies, as in effect from time to time, respecting avoidance of interests conflicting with those of the Company.
Non-Disparagement:
The Company and the Executive agree that, at all times during the Term following the Date of Termination, they shall use reasonable and good faith efforts to ensure that neither party engages in any vilification of the other, and shall refrain from making any false, negative, critical or disparaging statements, implied or expressed, concerning the other, including, but not limited to, management style, methods of doing business, the quality of products and services, role in the community, or treatment of employees. The parties further agree to do nothing that would damage the other’s business reputation or good will; provided, however, that nothing in this Agreement shall prohibit either party’s disclosure of information which is required to be disclosed in compliance with applicable laws or regulations or by order of a court or other regulatory body of competent jurisdiction. The Executive acknowledges that the only persons whose statements may be attributed to the Company for purposes of this Agreement, other than his own, shall be the members of the Board.
Injunctive Relief/Attorneys Fees:
You acknowledge that should you breach these provisions, Company and/or its Affiliates will suffer immediate and irreparable harm and that money damages will be inadequate relief. Therefore, you agree Company and/or its Affiliates will be entitled to injunctive relief to enforce these provisions, and you consent to the issuance by court of competent jurisdiction of a temporary restraining order, preliminary or permanent injunction to enforce the rights under these provisions. You further agree to compensate and reimburse Company and/or its Affiliates for all reasonable attorneys fees it may incur as a result of any efforts Company and/or its Affiliates may undertake to enforce these rights, or any other rights it has in connection with this Agreement, including to defend itself from adverse claims by you, or related to your retention hereunder.
Entire Agreement/Amendment:
All previous oral or written agreements or representations express or implied, with respect to the subject matter of this Agreement are superseded and the entire agreement of the parties is set forth in this Agreement. No provisions of this Agreement may be modified, waived, or discharged except by a written document signed by you and a duly authorized Company officer. A waiver of any conditions or provisions of this Agreement in a given instance shall not be deemed a waiver of such conditions or provisions at any other time.
Interpretation/Venue:
The validity, interpretation, construction, and performance of the Agreement including without limitation this Exhibit B shall be governed by the laws of the Commonwealth of Virginia, without regard to conflict of law principles, and any litigation in connection therewith shall be venued solely and exclusively within the courts of the Commonwealth of Virginia. The parties agree not to assert in any action, suit or proceeding that it or he is not subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum, or that venue of the action, suit or proceeding is improper or that selection of Virginia law is improper or unenforceable.
Validity:
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
Counterparts:
This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute the same instrument.
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Exhibit
6d
ALLEGIANCY, LLC1
2014 Equity Incentive Plan
1. Purpose and Effective Date.
(a) The purpose of the Allegiancy, LLC, 2014 Equity Incentive Plan (the “Plan”) is to further the long-term stability and financial success of Allegiancy, LLC, a Delaware limited liability company (the “Company”), by attracting and retaining personnel, including employees, directors and consultants for the Company and its Subsidiaries, through the use of Units incentives. The Company believes that ownership of Units will stimulate the efforts of those persons upon whose judgment, interest and efforts the Company and its Subsidiaries are and will be largely dependent for the successful conduct of their respective businesses and will further the identification of those persons’ interests with the interests of the Company’s shareholders.
(b) The Plan was adopted by the Board of Managers of the Company on
June 1, 2014 pursuant to Section VI of the LLC Agreement, and shall become effective on June 1, 2014.
2. Definitions.
In addition to other terms defined herein, the terms as used herein shall have the following meanings:
(a) Act. The Securities Exchange Act of 1934, as amended.
(b) Applicable Withholding Taxes. The aggregate amount of federal, state and local income and payroll taxes that the Company or any Subsidiary is required to withhold (based on the minimum applicable statutory withholding rates) in connection with any exercise of an Option, the award, lapse of restrictions or payment with respect to Restricted Units or Unit Appreciation Rights.
(c) Award. The award of an Option, Restricted Units or Unit Appreciation Rights under the Plan.
(d) Board. The Board of Managers of the Company.
(e) Cause. Unless otherwise defined in a written agreement between an employee and the Company or any of its Subsidiaries that is in effect at the time of termination of the employee, Cause shall mean:
(i) any material breach of a representation, warranty or covenant by the employee of a material term or obligation of his or her employment agreement (if any), or any other agreement between the employee and the Company or any of its Subsidiaries, including without
limitation material failure to perform a substantial portion of his or her duties and responsibilities thereunder, which breach is not cured within ten (10) days after written notice thereof by the Company or any Subsidiary to the employee specifically describing such alleged breach;
(ii) any material violation by the employee of a written directive from the Board or the officer or other supervisory personnel of the Company or any Subsidiary to whom such employee reports which is not due to the Disability of the employee;
(iii) commission by the employee of a (A) felony, (B) crime of moral turpitude or (C) misdemeanor involving fraud, breach of trust or misappropriation, whether or not the commission of such felony, crime or misdemeanor is in connection with the business of the Company or any Subsidiary; or
(iv) gross incompetence, gross negligence, or gross or willful misconduct in office or breach of a fiduciary duty owed to the Company or any Subsidiary.
(f) Change of Control. The occurrence after the date of adoption of this Plan by the Board of any of the following events:
(i) any person, including a “group” as defined in Section 13(d)(3) of the Act becomes the owner or beneficial owner of Company securities having more than 50% of the combined voting power of the then outstanding Company securities that may be cast for the election of the Company’s directors (other than as a result of an issuance of securities initiated by the Company, or open market purchases of Company securities, approved by the Board, as long as the majority of the Board approving such purchases is also the majority at the time the purchases are made);
(ii) approval by the Unit holders of the Company of a reorganization, merger or consolidation, in each ease, in which the owners of the Units of the Company do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of the voting securities of the corporation or other entity resulting from such reorganization, merger or consolidation; or
(iii) a complete liquidation or dissolution of the Company, or the sale or other disposition of all or substantially all of the assets of the Company.
(g) Code. The Internal Revenue Code of 1986, as amended.
(h) Committee. The Committee appointed to administer the Plan pursuant to Plan Section 15, or if no such Committee has been appointed, the Board.
(i) Company. Allegiancy, LLC, a Delaware limited liability company.
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(j) Consultant. A person or entity rendering services to the Company who is not an “employee” for purposes of employment tax withholding under the Code.
(k) Date of Grant. The effective date of an Award granted by the Committee.
(l) Disability or Disabled. As to all any Award, the terms “Disability” or “Disabled” shall have the meaning ascribed to such term or terms in the agreement or instrument approved by the committee to evidence such Award.
(m) Fair Market Value.
(iii) If the Units are (x) listed on any established securities exchange, (y) traded in the NASDAQ system, or (z) otherwise traded in the national over-the-counter securities market, then its Fair Market Value shall be the per Unit price reported as the last trade for such Units on the Date of Grant, as reported by such exchange, NASDAQ or by a market maker for the Units in the national over-the-counter securities market, as the case may be; or, if there are no trades of Units so reported on the Date of Grant, then the Fair Market Value for purposes of the particular Award shall be the per Unit price so reported on the trading day next preceding the Date of Grant on which there was a trade on such exchange, as reported over NASDAQ or as reported by a market maker of the Company’s Units in the national over-the-counter securities market, as the case may be.
(iv) If the Units are not publicly traded, the Fair Market Value shall be determined in good faith by the Committee, using any reasonable method.
(v) Fair Market Value shall be determined as of the Date of Grant specified in the Award.
(p) Insider. A person subject to Section 16(b) of the Securities Exchange
Act of 1934.
(r) Limitation Amount. An amount equal to $100,000.00.
(s) LLC Agreement. The Amended and Restated Limited Liability Agreement of the Company dated as of October 8, 2013, as may be amended from time to time.
(s) Nonstatutory Unit Option. An Option that does not meet the
requirements of Code Section 422.
(t) Option. A right to purchase Units granted under the Plan, at a
price determined in accordance with the Plan.
(u) Participant. Any individual who is granted an Award under the Plan.
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(v) Restricted Units. Units awarded upon the terms and subject
to the restrictions set forth in Section 8 below.
(w) Rule 16b-3. Rule 16b-3 promulgated under the Act, including any
corresponding subsequent rule or any amendments to Rule 16b-3 enacted after the effective date of the Plan.
(x) Subsidiary or Subsidiaries. An affiliated corporation, limited liability company, partnership or other business entity in which the Company owns voting securities possessing at least 51% of the combined voting power of all classes of voting securities of such affiliated corporation, limited liability company, partnership or other business entity.
(y) Units. The Company’s Class B Units. In the event of a change in the capital structure of the Company (as provided in Section 13 below), the units resulting from such a change shall be deemed to be Units within the meaning of the Plan.
(z) Unit Appreciation Rights. A cash Award, the value of which is equal to
the increase between the per share value of Units on the Date of Grant and a date specified in or determinable in accordance with the agreement or instrument approved by the committee to evidence such Award.
3. General. Awards of Options, Restricted Units, or Unit Appreciation Rights may be granted under the Plan. Options granted under the Plan may solely be Nonstatutory Unit Options.
4. Units. Subject to Section 13 of the Plan, as amended, there shall be reserved for issuance under the Plan an aggregate of 1,000,000 Units, which may include authorized, but unissued, Units. Units allocable to Options granted under the Plan that expire or otherwise terminate unexercised and Units that are forfeited pursuant to restrictions on Restricted Units awarded under the Plan may again be subjected to an Award under this Plan. For purposes of determining the number of Units that are available for Awards under the Plan, such number shall include the number of Units surrendered by a Participant or retained by the Company (a) in connection with the exercise of an Option or (b) in payment of Applicable Withholding Taxes.
5. Eligibility.
(a) Any employee of, director/manager of, or Consultant to, the Company or any Subsidiary who, in the judgment of the Committee, has contributed, or can be expected to contribute, to the profits or growth of the Company or any such Subsidiary is eligible to become a Participant. The Committee shall have the power and complete discretion, as provided in Section 15, to select eligible Participants and to determine for each Participant the terms, conditions and nature of the Award and the number of Units to be allocated to the Award, if the same is of Options or Restricted Units, or ascribed to such Award, if the Award is of a Units Appreciation Right; provided, however, that any Award made to a member of the Committee
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must be approved by the Board. The Committee is expressly authorized to make an Award to a Participant conditioned on the surrender for cancellation of an existing Award.
(b) The grant of an Award shall not obligate the Company or any Subsidiary to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter.
6. Unit Options.
(a) Whenever the Committee deems it appropriate to grant Options, the Options shall be evidenced by a Unit Option agreement between the Company and the Participant, which shall be subject to the applicable provisions of this Plan and to such other provisions as the Committee may determine. Such agreement shall be given to the Participant and shall state the number of Units for which Options are granted, the exercise price per Unit, and the conditions to which the grant and exercise of the Options are subject.
(b) The Committee shall establish the exercise price of Options, provided, however, that the exercise price of Nonstatutory Unit Option Awards intended to be performance-based for purposes of Code Section 162(m) shall not be less than 100% of the Fair Market Value of such shares on the Date of Grant.
(c) Subject to subsection (d) below, Options may be exercised in whole or in part at such times as may be specified by the Committee in the Participant’s Units option agreement. The Committee may impose such vesting conditions and other requirements as the Committee deems appropriate, and the Committee may include such provisions regarding a Change of Control as the Committee deems appropriate.
(d) The Committee shall establish the term of each Option in the Participant’s Unit Option agreement. No Option may be exercised after the expiration of its term or, except as set forth in the Participant’s Unit Option agreement, after the termination of the Participant’s employment. The Committee shall set forth in the Participant’s Unit Option agreement when, and under what circumstances, an Option may be exercised after termination of the Participant’s employment or period of service.
(e) If a Participant dies and if the Participant’s Unit Option agreement provides that part or all of the Option may be exercised after the Participant’s death, then such portion may be exercised by the personal representative of the Participant’s estate during the time period specified in the Unit Option agreement.
(f) If a Participant’s employment or services is terminated by the Company for Cause, the Participant’s Options, whether vested or unvested, shall terminate as of the date of the act or failure to act constituting Cause.
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7. Method of Exercise of Options.
(a) Options may be exercised by giving written notice of the exercise to the Company, stating the number of Units the Participant has elected to purchase under the Option. Such notice shall be effective only if accompanied by the exercise price in full in cash; provided that, if the terms of the Unit Option agreement in respect of an Option so permit, the Participant may (i) deliver Units that the Participant has previously acquired and owned (valued at Fair Market Value on the date of exercise), or (ii) if permitted by the Option agreement, deliver a properly executed exercise notice, together with irrevocable instructions to a broker to deliver promptly to the Company, from the sale or loan proceeds with respect to the sale of Units or a loan secured by Units, the amount necessary to pay the exercise price and, if required by the Committee, Applicable Withholding Taxes. Unless otherwise specifically provided in the Option, any payment of the exercise price paid by delivery of Units acquired directly or indirectly from the Company shall be paid only with Units that have been held by the Participant for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes).
(b) The Company may place on any certificate representing Units issued upon the exercise of an Option any legend deemed desirable by the Company’s counsel to comply with federal or state securities laws. The Company may require of the Participant a customary indication of his or her investment intent. A Participant shall not possess Unitsholder rights with respect to Units acquired upon the exercise of an Option until the Participant has made any required payment, including payment of Applicable Withholding Taxes, and, if the Units are then certificated, the Company has issued a certificate for Units acquired.
(c) Notwithstanding anything to the contrary contained herein, Awards of Options shall always be granted and exercised in such a manner as to conform to the provisions of Rule 16b-3, if on the Date of Grant or the date on which Options are exercised the Company is registered under the Act or otherwise subject to rules under the Act appertaining to short swing profits in the Units by Insiders.
8. Restricted Units Awards.
(a) Whenever the Committee deems it appropriate to grant a Restricted Units Award, notice shall be given to the Participant stating the number of Restricted Units for which the Award is granted, the Date of Grant, and the terms and conditions to which the Award is subject. Certificates, if any, representing the Restricted Units Award shall be issued in the name of the Participant, subject to the restrictions imposed by the Plan and the Committee. A Restricted Units Award may be made by the Committee in its discretion without cash consideration.
(b) The Committee may place such restrictions on the transferability and vesting of Restricted Units as the Committee deems appropriate, including, but not limited to, restrictions relating to continued employment or financial performance goals. Without limiting the foregoing, the Committee may provide performance or Change of Control acceleration
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parameters under which all, or a portion, of the Restricted Units will vest on the Company’s achievement of established performance objectives. Restricted Units may not be sold, assigned, transferred, disposed of, pledged, hypothecated or otherwise encumbered until the restrictions on such shares shall have lapsed or shall have been removed pursuant to subsection 8(c).
(c) As to each Restricted Units Award the Committee shall establish the terms and conditions upon which the restrictions on transferability set forth in subsection 8(b) shall lapse. Such terms and conditions may include, without limitation, the passage of time, the meeting of performance goals, the lapsing of such restrictions as a result of the Disability, death or retirement of the Participant, or the occurrence of a Change of Control.
(d) A Participant shall hold Restricted Units subject to the restrictions set forth in the Award agreement appertaining thereto and in the Plan. In other respects, the Participant shall have all the rights of a Unitsholder with respect to the Restricted Units, including, but not limited to, the right to receive all cash dividends and other distributions paid thereon. Certificates, if any, representing Restricted Units shall bear a legend referring to the restrictions set forth in the Plan and the Participant’s Award agreement. If distributions are declared on Restricted Units or other distributions are made in respect thereof, such distributions shall be subject to the same restrictions as the underlying Restricted Units.
(e) Notwithstanding anything to the contrary contained herein, Awards of Restricted Units and the disposition of Restricted Units by the recipient following the expiration or termination of restrictions appertaining thereto, shall be made in such a manner as to conform to the provisions of rule 16b-3, if on the date of grant or the date of such expiration or termination the Company or any Subsidiary is registered under the Act or otherwise subject to rules under the Act that apply to short swing profits in the Units by Insiders.
9. Unit Appreciation Rights.
(a) Whenever the Committee deems it appropriate, Units Appreciation
Rights may be granted in connection with all or any part of an Option or in a separate Award.
(b) The following provisions apply to all Unit Appreciation Rights that are not granted in connection with Options:
(i) Unit Appreciation Rights shall entitle the participant, upon exercise of all or any part of the Unit Appreciation Rights, to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the Unit Appreciation Right payment date of the Units to which the Units Appreciation Right appertains over (y) the Fair Market Value of the Units to which the Units Appreciation Right appertains on the Date of Grant. In the Unit Appreciation Rights Agreement the Committee may limit the amount that the participant will be entitled to receive pursuant to the Unit Appreciation Rights.
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(ii) A Units Appreciation Right may only be exercised or paid at a time when the Fair Market Value of the Units covered by the Units Appreciation Right exceeds the Fair Market Value of the Units on the Date of Grant of the Units Appreciation Right.
(b) The following provisions apply to all Unit Appreciation Rights that are awarded in connection with Options:
(i) Unit Appreciation Rights that are awarded in connection with Options shall entitle the participant to exercise all or any part of the Unit Appreciation Rights, and in connection therewith to surrender to the Company unexercised that portion of the underlying Option relating to the same number of Units as is covered by the Unit Appreciation Rights (or the portion of the Unit Appreciation Rights so exercised) and to receive in exchange from the Company an amount in cash Units (as provided in the applicable Units Appreciation Right agreement) equal to the excess of (x) the Fair Market Value on the date of exercise of the Units covered by the surrendered portion of the underlying Option over (y) the exercise price of the Units covered by the surrendered portion of the underlying Option. The Committee may limit the amount that the participant will be entitled to receive upon exercise of the Units Appreciation Right.
(ii) Upon the exercise of a Units Appreciation Right that is awarded in connection with Options and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, shall not thereafter be exercisable.
(iii) Subject to any further conditions upon exercise imposed by the Committee, a Units Appreciation Right issued in tandem with an Option shall be exercisable only to the extent that the related Option is exercisable, except if the company or any Subsidiary is registered under the Act or otherwise subject to rules under the Act that apply to short swing profits in the Units by Insiders, then in no event shall a Units Appreciation Right held by an Insider be exercisable for cash within the first six (6) months after it is awarded even though the related Option is or becomes exercisable, and shall expire no later than the date on which the related Option expires.
(iv) A Units Appreciation Right awarded in connection with Options may only be exercised at a time when the Fair Market Value of the Units covered by the Units Appreciation Right exceeds the exercise price of the Units covered by the underlying Option.
(c) The manner in which the Company’s obligation arising upon the exercise of a Units Appreciation Right shall be paid shall be determined by the Committee and shall be set forth in the Unit Appreciation Rights agreement or in the Option agreement or the related Unit Appreciation Rights agreement, if the Unit Appreciation Rights in question are being awarded in connection with Options. The Committee may provide for payment in Units or cash, or a fixed combination of Units and cash, or the Committee may reserve the right to determine the manner of payment at the time the Units Appreciation Right is exercised. Units issued upon
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the exercise or maturity of a Units Appreciation Right shall be valued at their Fair Market Value on the date of exercise or maturity.
10. Applicable Withholding Taxes. Each Participant shall agree, as a condition of receiving an Award, to pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, all Applicable Withholding Taxes with respect to the Award. Until the Applicable Withholding Taxes have been paid or arrangements satisfactory to the Company have been made, no Units certificates (or, in the case of Restricted Units, no Units certificates free of a restrictive legend) shall be issued to the Participant, nor shall any Units be recorded in book-entry form in favor of the Participant, and no payments in respect of Unit Appreciation Rights that have been exercised or matured and otherwise would be payable to the Participant. As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Tax obligations, the Committee may establish procedures permitting the Participant to elect to (a) deliver Units at the time beneficially and of record owned by the Participant, or (b) if the applicable withholding taxes are arising in connection with the exercise of Options or the termination of restrictions on Restricted Units, deliver to the Company or have the Company retain that number of Units that would satisfy all or a specified portion of the Applicable Withholding Taxes. Any such election shall be made only in accordance with procedures established by the Committee to avoid a charge to earnings for financial accounting purposes and if the company or any Subsidiary is registered under the Act or otherwise subject to rules under the Act that apply to short swing profits in the Units by Insiders in accordance with Rule 16b-3.
11. Nontransferability of Awards.
(a) In general, Awards, by their terms, shall not be transferable by the Participant except by will or by the laws of descent and distribution or except as described below. Options shall be exercisable, during the Participant’s lifetime, only by the Participant or by his guardian or legal representative.
(b) Notwithstanding the provisions of subsection 11(a) and subject to federal and state securities laws, the Committee may grant Unit Appreciation Rights or Nonstatutory Units Options that permit, or amend outstanding Nonstatutory Units Options to permit, a Participant to transfer such Unit Appreciation Rights or Options to one or more immediate family members, to a trust for the benefit of immediate family members, or to a partnership, limited liability company, or other entity, the only partners, members, or interest-holders of which are among the Participant’s immediate family members. Consideration may not be paid for such transfer. The transferee shall be subject to all conditions applicable to the Units Appreciation Right or Option prior to its transfer. The agreement granting the Units Appreciation Right or Option shall set forth the transfer conditions and restrictions. The Committee may impose on any transferable Option and on Units issued upon the exercise of an Option such limitations and conditions as the Committee deems appropriate.
12. Termination, Modification, Change. If not sooner terminated by the Board, this Plan shall terminate at the close of business on May 30, 2020. No Awards shall be made under the Plan after its termination. The Board may terminate the Plan or may amend the Plan in such
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respects as it shall deem advisable. A termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect a Participant’s rights under an Award previously granted to him; provided, that, the Board may unilaterally amend the Plan and Awards as it deems appropriate to ensure compliance with Rule 16b-3, if applicable.
13. Change in Capital Structure.
(a) In the event of a Units distribution, Units split or combination of units, spin-off, recapitalization or merger in which the Company is the surviving entity, or other change in the Company’s capital units (including, but not limited to, the creation or issuance to unit holders generally of rights, options or warrants for the purchase of units or preferred units of the Company), the number and kind of Units or securities of the Company to be issued under the Plan (under outstanding Awards and Awards to be granted in the future), the exercise price of Options, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. If the adjustment would produce fractional Units with respect to any Award, the Committee may adjust appropriately the number of Units covered by the Award so as to eliminate the fractional Units.
(b) In the event the Company makes a distribution to its Unit holders, or sells or causes to be sold to a person other than the Company or a Subsidiary equity securities if any entity (a “Spinoff Company”), which immediately before the distribution or sale was a majority owned subsidiary of the Company, the Committee shall have the power, in its sole discretion, to make such adjustments as the Committee deems appropriate. The Committee may make adjustments in the number and kind of units or other securities to be issued under the Plan (under outstanding Awards and Awards to be granted in the future), the exercise price of Options, and other relevant provisions, and, without limiting the generality of the foregoing, may substitute securities of a Spinoff Company for securities of the Company. The Committee shall make such adjustments as it determines to be appropriate, considering the economic effect of the distribution or sale on the interests of the Company’s unit holders and the Participants in the businesses operated by the Spinoff Company. The Committee’s determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any Award, the Committee may adjust appropriately the number of shares covered by the Award so as to eliminate the fractional shares.
(c) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions for all purposes without the consent of any Participant, and the Committee’s determination shall be conclusive and binding on all persons including without limitation all Participants, regardless of whether they became Participants before the Committee takes, or become Participants after the Committee has taken, any such action. The Committee shall make its determinations consistent with Rule 16b-3, if at the time the Company or any Subsidiary is registered under the Act or otherwise subject to the rules under the Act applicable to short swing process in the Units by Insiders and the applicable provisions of the Code.
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(d) To the extent required to avoid a charge to earnings for financial accounting purposes, adjustments made by the Committee to outstanding Awards pursuant to this Section 13 shall be made so that both (i) the aggregate intrinsic value of an Award immediately after the adjustment is not greater, or less, than the Award’s aggregate intrinsic value before the adjustment, and (ii) the ratio of the exercise price per share to the market value per share is not reduced.
14. Change of Control. In the event of a Change of Control, the Committee may take such actions with respect to Awards as the Committee deems appropriate. These actions may include, but shall not be limited to, the following:
(a) At the time the Award is made, provide for the acceleration of the vesting schedule relating to the exercise or realization of the Award so that the Award may be exercised or realized in full on or before a date initially fixed by the Committee;
(b) Provide for the purchase or settlement of any such Award by the Company for any amount of cash equal to the amount which could have been obtained upon the exercise of such Award or realization of a Participant’s rights had such Award been currently exercisable or payable;
(c) Make adjustments to Awards then outstanding as the Committee deems appropriate to reflect such Change of Control; provided, however, that to the extent required to avoid a charge to earnings for financial accounting purposes, such adjustments shall be made so that both (i) the aggregate intrinsic value of an Award immediately after the adjustment is not less than or greater than the Award’s aggregate intrinsic value before the Award and (ii) the ratio of the exercise price per share to the market value per share is not reduced; or
(d) Cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation or other business entity, regardless of how organized in such Change of Control.
15. Administration of the Plan.
(a) The Plan shall be administered by the Committee, who shall be appointed by the Board. If no Committee is appointed, the Plan shall be administered by the Board. To the extent required by Rule 16b-3, all members of the Committee shall be “Non-Employee Directors”, as that term is defined in Rule 16b-3 if at the time or thereafter the Company or any Subsidiary is registered under the Act or otherwise subject to the rules under the Act applicable to short swing profits in the Units by Insiders.
(b) The Committee shall have the authority to impose such limitations or conditions upon an Award as the Committee deems appropriate to achieve the objectives of the Award and the Plan. Without limiting the generality of the foregoing and in addition to the powers set forth elsewhere in the Plan, the Committee shall have the power and complete discretion to determine (i) which eligible persons shall receive an Award and the nature of the
11
Award, (ii) the number of Units to be covered by each Award, (iii) the Fair Market Value of Units, (iv) the time or times when an Award shall be granted, (v) whether an Award shall become vested over a period of time, according to a performance-based or other vesting schedule or otherwise, and when it shall be fully vested, (vi) the terms and conditions under which restrictions imposed upon an Award shall lapse, (vii) whether a Change of Control exists, (viii) factors relevant to the satisfaction, termination or lapse of restrictions on Restricted Units, Unit Appreciation Rights or Options, (ix) when Options or Unit Appreciation Rights may be exercised, (x) whether to approve a Participant’s election with respect to Applicable Withholding Taxes, (xi) conditions relating to the length of time before disposition of Units received in connection with an Award is permitted, (xii) notice provisions relating to the sale of Units acquired under the Plan, and (xiii) any additional requirements relating to Awards that the Committee deems appropriate.
(c) In addition to, and not as a limitation upon, the provisions of Section 12 hereof, the Committee shall have the power to amend the terms of previously granted Awards so long as the terms as amended are consistent with the terms of the Plan. The consent of the Participant must be obtained with respect to any amendment that would adversely affect the Participant’s rights under the Award, except that such consent shall not be required if such amendment is for the purpose of complying with Rule 16b-3 or any requirement of the Code applicable to the Award.
(d) The Committee may adopt rules and regulations for carrying out the Plan. The Committee shall have the express discretionary authority to construe and interpret the Plan and the Award agreements, to resolve any ambiguities, to define any terms, and to make any other determinations required by the Plan or an Award agreement. The interpretation and construction of any provisions of the Plan or an Award agreement by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel.
(e) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting.
16. Compliance with Code Section 409A. Notwithstanding anything to the contrary contained herein, to the extent applicable, this Plan is intended to comply with Section 409A of the Code, and the Committee shall interpret and administer the Plan in accordance therewith. In addition, any provision, including without limitation any definition in this Plan that is determined to violate the requirements of Section 409A of the Code shall be void and without effect and any provision, including without limitation any definition that is required to appear in this Plan document under Section 409A of the Code that is not expressly set forth shall be deemed to be set forth herein, and the Plan shall be administered in all respects as if such provisions were expressly set forth herein. In addition, to, and not as a limitation upon the other provisions of
12
this Section 16, the timing of certain payment of benefits provided for under this Plan shall be revised as necessary for compliance with Section 409A of the Code.
17. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally, electronically, or mailed first class, postage prepaid, as follows: (a) if to the Company - at its principal business address to the attention of the Secretary; (b) if to any Participant, at the last address of the Participant known to the sender at the time the notice or other communication is sent.
18. Interpretation and Governing Law. The terms of this Plan and Awards granted pursuant to the Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware. The Plan and Awards are subject to all present and future applicable provisions of the Code and, to the extent applicable in accordance with the Plan, they are subject to all present and future rulings of the United States Securities and Exchange Commission with respect to Rule 16b-3. If any provision of the Plan or an Award conflicts with any such Code provision or ruling, the Committee shall cause the Plan to be amended, and shall modify any agreement theretofore executed in connection with an Award, so as to comply or, if for any reason amendments cannot be so made, that provisions of the Plan or any such agreement in such conflict shall be deemed to be, and shall be, void and of no effect.
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IN WITNESS WHEREOF, the Company has caused this Plan to be amended this 1st day of January, 2015.
| ALLEGIANCY, LLC | |||
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By:
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/s/ Stevens M. Sadler | |
| Name | Stevens M. Sadler | ||
| Its: | Chief Executive Officer | ||
[Signature Page to 2014 Equity Incentive Plan as Amended]
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Exhibit 6(e)
ACQUISITION AGREEMENT
by and among
TRISTONE REALTY MANAGEMENT, LLC,
PRINCIPLE EQUITY PROPERTIES, LP
PRINCIPLE EQUITY PROPERTIES, LLC
RANDOLPH A. MCQUAY
and
ALLEGIANCY HOUSTON, LLC
Dated as of June 1, 2015
TABLE OF CONTENTS
| Page | |||
| 1. | Basic Transaction |
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(a)
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Contribution of Acquired Assets
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2
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(b)
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Excluded Assets
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2
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(c)
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Assumed Liabilities
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2
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(d)
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Excluded Liabilities
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3
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(e)
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Ernest Money Deposit
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3
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(f)
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Consideration for Acquired Assets
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3
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(g)
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Obligations of Asset Manager
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3
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| 2. | Closing of the Transactions |
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(a)
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The Closing
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(b)
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Deliveries at the Closing
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3
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| 3. | Conditions to Obligation to Close |
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(a)
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Conditions to Obligation of Asset Manager to Close
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(b)
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Conditions to Obligation of the Company to Close
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| 4. | Representations and Warranties of Asset Manager and R. McQuay |
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(a)
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Organization of Asset Manager
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(b)
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Authorization of Transaction; Legal Capacity
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(c)
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Noncontravention
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(d)
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Brokers’ Fees
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(e)
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Financial Statements
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(f)
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Events Subsequent to Reference Fiscal Year End
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(g)
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Undisclosed Liabilities
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(h)
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Legal Compliance
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8
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(i)
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Tax Matters
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8
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(j)
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Title to Acquired Assets
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9
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(k)
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Property Documents; Other Contracts, Agreements and Arrangements; Rent Rolls
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9
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(l)
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Litigation
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10
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(m)
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Customers
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10
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(n)
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Service Liabilities
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10
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(o)
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Permits
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10
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(p)
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Interest in the Company
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10
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(q)
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Disclosure
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(r)
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Effectiveness of Representations and Warranties
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| 5. | Representations and Warranties of the Company |
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(a)
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Organization
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(b)
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Authorization of Transaction
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(c)
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Noncontravention
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12
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(d)
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Brokers’ Fees
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12
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(e)
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Issuance of Interest
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12
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(f)
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Effectiveness of Representations and Warranties
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i
| 6. | Pre‑Closing Covenants |
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(a)
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General
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(b)
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Notices and Consents
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(c)
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Operation of Business
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(d)
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Full Access
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(e)
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Notice of Developments
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(f)
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Exclusivity
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| 7. | Additional Agreements |
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(a)
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Survival
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(b)
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Indemnification
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(c)
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Confidentiality; Publicity
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16
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(d)
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Transaction Expenses
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16
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(e)
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Certain Taxes
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16
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(f)
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Further Assurances
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(g)
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Employees
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(h)
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Non-Transferable Assets
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| 8. | Termination; Effect of Termination |
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(a)
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Termination
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(b)
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Effect of Termination
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| 9. | Definitions |
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| 10. | Miscellaneous |
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(a)
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No Third Party Beneficiaries
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(b)
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Entire Agreement
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(c)
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Successors and Assigns
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(d)
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Counterparts
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20
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(e)
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Notices
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20
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(f)
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Governing Law
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(g)
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Forum Selection and Consent to Jurisdiction
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21
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(h)
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Waiver of Jury Trial
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21
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(i)
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No Presumption Against Drafter
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21
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(j)
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Amendments and Waivers
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21
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(k)
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Incorporation of Exhibits and Schedules
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21
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(l)
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Interpretation
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21
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ii
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this “Agreement”) effective June 1st, 2015 (the “Effective Date”) by and among TRISTONE REALTY MANAGEMENT, LLC, a Delaware limited liability company (“Tristone”), PRINCIPLE EQUITY PROPERTIES, LP, a Delaware limited partnership (“PE Properties”), PRINCIPLE EQUITY PROPERTIES, LLC, a Delaware limited liability company and the general partner of PE Properties (“PE Partner” and, together with Tristone and PE Properties, collectively, the Asset Manager”), RANDOLPH A. MCQUAY, an individual resident of the State of Texas (“R. McQuay”), and ALLEGIANCY HOUSTON, LLC, a Delaware limited liability company (the “Company”), Allegiancy, LLC, a Delaware limited liability company (“Allegiancy”) (each of the Asset Manager, R. McQuay the Company and Allegiancy is referred to herein as a “Party” or, collectively, the “Parties”). Capitalized terms used herein and not otherwise defined have the meanings set forth in Section 9 of this Agreement.
R E C I T A L S:
WHEREAS, Asset Manager provides certain management services, including, but not limited to, supervisory, management, leasing, operation and maintenance services (collectively, the “Asset Management Business”), to various owners of commercial real estate pursuant to the “Property Documents” as that term is defined below;
WHEREAS, the Company is a newly formed entity wherein Allegiancy, LLC, a Delaware limited liability company (“Allegiancy”) is presently the owner of 100% of the membership interests of the Company.
WHEREAS, the Parties intend to cause the Asset Manager4 to affiliate with the Company, and the Company to affiliate with the Asset Manager, under the terms and conditions set forth in this Agreement.
WHEREAS, the Parties intend, subject to the terms and conditions set forth in this Agreement, that the Asset Manager shall transfer to the Company certain rights, title and interests in and to the Asset Management Business and other assets described herein in exchange for, (a) 128,600 shares of class B common stock in Allegiancy, LLC representing a value of $1,284,881.50 which value shall never be diminished through dilution, (b) a 60% membership interest in Allegiancy Houston, LLC (the “Interest”), (c) a convertible loan in favor of Allegiancy in the amount of $1,284,881.50 (“Loan Amount”), which will be evidenced by the Convertible Note (as defined below), which when due shall either be paid in full with interest or converted into an additional 30% membership interest in the Company, thereby increasing Allegiancy’s ownership interest in the Company to 70% (assuming no intervening equity transactions), and (d) the Earnest Money Deposit (as defined below).
WHEREAS, the Parties intend, subject to the terms and conditions set forth in this Agreement, that (a) R. McQuay continue to handle, as an employee of the Company, the ordinary and regular duties performed by the Asset Manager prior to the date of this Agreement, (b) that the Company, after obtaining any necessary approvals, assume all of the ordinary course liabilities and contractual liabilities of the Asset Manager arising out of the Property Documents, and (c) that Allegiancy retain a 40% membership interest in the Company.
1
WHEREAS, the Parties intend that the consummation of the transactions contemplated hereby will constitute a tax free contribution transaction under §721 (Nonrecognition of gain or loss on contribution) of the Code.
NOW, THEREFORE, in consideration of the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
(a) Contribution of Acquired Assets. Pursuant to an assignment and assumption agreement, the form of which is attached hereto as Exhibit A (“Assignment Agreement”), on and subject to the terms and conditions of this Agreement, at the Closing, Asset Manager shall contribute, convey, transfer, assign and deliver to Company, the following rights, title and interests (collectively, the “Acquired Assets”):
(i) all of the agreements related to the management of the properties, including the management agreements, master leases, trust documents, service agreements, or any other agreement (collectively “Property Documents”) which are listed and described in Schedule 4(k)(i) attached hereto, held by the Asset Manager related to the management and operation of the properties. Prior to the transfer of any Property Document, to the extent required wherein such assignment, without prior approval, would violate another agreement, loan document, or prior assignment, the parties will obtain the necessary approval. ;
(ii) all approvals, permits, licenses, authorizations, orders, registrations, certificates and similar rights obtained, or required to be obtained, from governments and governmental agencies to the extent transferable to the Company and necessary for Asset Manager’s performance under the Property Documents (“Permits”);
(iii) all office furniture, office equipment, telephone systems, computers, servers, books, records, general ledgers, files, documents, correspondence, lists, advertising and promotional materials, studies, reports and other printed or written materials related to the Property Documents and used in the Asset Management Business;
(iv) all operating accounts, escrow accounts, reserve accounts, and any other account related to the Property Documents, and property assets
(v) Any and all rights to use the names, “TriStone” “TriStone Realty Management” and other names derived from “TriStone”, and the names “Principle Equity Properties” “Principle Equity Management” and other names derived from “Principle Equity” as used in Asset Management Business.
(b) Excluded Assets. Notwithstanding the foregoing or any other provision to the contrary contained in this Agreement, the Acquired Assets shall not include any other assets of Asset Manager, including any rights of Asset Manager under this Agreement (collectively, the “Excluded Assets”).
2
(c) Assumed Liabilities. On and subject to the terms and conditions of this Agreement, at the Closing the Company shall assume the obligations and liabilities of Asset Manager arising after the Closing under the Property Agreements (collectively, the “Assumed Liabilities”). For avoidance of doubt, the Company shall not assume any obligation or liability arising as of or prior to the Closing, whether relating to the Property Agreements or otherwise.
(d) Excluded Liabilities. Notwithstanding any other provision to the contrary contained in this Agreement, except as set forth in Section 1(c) above, the Company shall not assume or be liable for any liabilities or obligations of Asset Manager (including any litigation existing or yet to be commenced arising out of or in connection with Asset Manager’s conduct of the Asset Management Business on or prior to the Closing or any other conduct of Asset Manager or its officers, directors, managers, members, employees, consultants, agents or advisors, whether or not set forth on Schedule 4(l)) (such liabilities and obligations of Asset Manager, other than the Assumed Liabilities, collectively, the “Excluded Liabilities”). Asset Manager hereby acknowledges that it is retaining the Excluded Liabilities, and Asset Manager shall pay, discharge and perform the Excluded Liabilities promptly when due.
(e) Earnest Money Deposit. On the Effective Date, the Company shall deposit (or cause to be deposited), via wired funds, with the Asset Manager $284,881.50 (the “Earnest Money Deposit”).
(f) Consideration for Acquired Assets. As consideration for Asset Manager’s contribution of the Acquired Assets to the Company, at the Closing the Company shall, subject to the terms and conditions of this Agreement, (i) pay, via wired funds the Loan Amount, less the Earnest Money Deposit, to Asset Manager pursuant to the terms of Section 2(b)(i) below, (ii) issue the Interest in the Company to Asset Manager, (iii) issue 128,600 class B units of Allegiancy to Asset Manager, and (iv) assume the Assumed Liabilities.
(g) Obligations of Asset Manager. The Parties acknowledge and agree that (i) as defined in the header paragraph to this Agreement, the term “Asset Manager” means, collectively, TriStone, PE Properties and PE Partner; and (ii) any and all obligations of the Asset Manager pursuant to this Agreement shall be the joint and several obligation of each of TriStone, PE Properties and PE Partner.
2. Closing of the Transactions.
(a) The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place on June 1st, 2015, or on such other date as the Parties may mutually determine (the “Closing Date”) at the offices of LeClairRyan, A Professional Corporation, located at 951 East Byrd Street, Richmond, Virginia at 10:00 a.m. Eastern Standard Time, subject to the satisfaction or waiver of all of the conditions to Closing set forth in Section 3 below (other than conditions which, by their nature, are to be satisfied on the Closing Date). The Closing will be deemed to be effective as of the close of business on the Closing Date for tax and accounting purposes.
(b) Deliveries at the Closing. At the Closing:
(i) Asset Manager shall deliver to the Company:
3
(A) the various certificates, instruments and documents referred to in Section 3(b) of this Agreement, as applicable;
(B) such verified Tax lien, Uniform Commercial Code and judgment searches relating to Asset Manager and the Acquired Assets as the Company may reasonably request; and
(C) such other instruments of sale, transfer, conveyance and assignment as the Company may reasonably request for the consummation of the transactions contemplated in this Agreement, in a form reasonably satisfactory to the Company; and
(ii) the Company shall deliver to Asset Manager:
(A) the Loan Amount, less the Earnest Money Deposit, by wire transfer of immediately available funds to an account designated in writing by Asset Manager;
(B) the various certificates, instruments and documents referred to in Section 1(f)(ii) & (iii) and 3(a) of this Agreement; and
(C) such other instruments and documents as Asset Manager may reasonably request for the consummation of the transactions contemplated in this Agreement, in a form reasonably satisfactory to Asset Manager; and
(iii) Asset Manager shall deliver to Allegiancy the convertible note evidencing the Loan (the “Convertible Note”) in a form mutually agreed upon by them.
3. Conditions to Obligation to Close.
(a) Conditions to Obligation of Asset Manager to Close. The obligation of Asset Manager to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions as of the Closing:
(i) the representations and warranties of the Company set forth in Section 5 shall be true and correct in all material respects (without taking into account any disclosure made pursuant to Section 6(f));
(ii) the Company shall have performed and complied in all material respects with all of its covenants hereunder which are required to be performed or complied with prior to the Closing;
(iii) no action, suit or proceeding shall be pending before any court, arbitrator or other body or administrative agency of any federal, state, local or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would prevent consummation of any of the transactions contemplated by this Agreement (and no such injunction, judgment, order, decree, ruling or charge shall be in effect);
4
(iv) Asset Manager and the Company shall have entered into an amended and restated operating agreement in the form of Exhibit B attached hereto (the “Operating Agreement”), and the Operating Agreement shall be in full force and effect;
(v) each of the Key Employees shall have entered into an employment agreement with the Company in the form of Exhibit C attached hereto (an “Employment Agreement”), and each of the Employment Agreements shall be in full force and effect; and
(vi) the Closing Documents (other than this Agreement), and all other documents, instruments, certificates and other deliverables required to be delivered in accordance with Section 2(c) above, shall have been executed and delivered by each Party to the other parties thereto.
Asset Manager may waive any condition specified in this Section 3(a) if it executes a written notification so stating at or prior to the Closing.
(b) Conditions to Obligation of the Company to Close. The obligation of the Company to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions as of the Closing:
(i) the representations and warranties of Asset Manager and R. McQuay set forth in Section 4 shall be true and correct in all material respects (without taking into account any disclosure made pursuant to Section 6(f));
(ii) Asset Manager and R. McQuay shall have performed and complied in all material respects with all of their covenants hereunder which are required to be performed or complied with prior to the Closing;
(iii) no action, suit or proceeding shall be pending before any court, arbitrator or other body or administrative agency of any federal, state, local or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would prevent consummation of any of the transactions contemplated by this Agreement (and no such injunction, judgment, order, decree, ruling or charge shall be in effect);
(iv) Asset Manager shall have delivered to the Company a certificate to the effect that each of the conditions specified in Section 3(b)(i), (ii) and (iii), have been satisfied (subject to any disclosure made pursuant to Section 6(f));
(v) Asset Manager and the Company shall have entered into the Operating Agreement, and the Operating Agreement shall be in full force and effect;
(vi) the Company shall be satisfied that there has not been a material adverse change since the Effective Date in the Asset Management Business, the Acquired Assets or the financial condition, operating results or customer relationships (measured individually and in the aggregate) of Asset Manager;
(vii) all corporate proceedings taken or required to be taken by Asset Manager in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all documents related to such corporate proceedings shall be reasonably satisfactory in form and substance to the Company and its counsel; and
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(viii) the Closing Documents (other than this Agreement), and all other documents, instruments, certificates and other deliverables required to be delivered in accordance with Section 2(c) above, shall have been executed and delivered by each of the parties thereto.
The Company may waive any condition specified in this Section 3(b) if it executes a writing so stating at or prior to the Closing.
4. Representations and Warranties of Asset Manager and R. McQuay Asset Manager and R. McQuay jointly and severally represent and warrant to the Company as follows:
(a) Organization of Asset Manager. Asset Manager is a limited liability company duly organized in Delaware and validly existing and in good standing under the laws of the State of Texas Asset Manager has not conducted any business under any name other than those identified in this Agreement.
(b) Authorization of Transaction; Legal Capacity.
(i) Asset Manager has all requisite corporate or other power and authority and all material licenses, permits and authorizations necessary to carry on the Asset Management Business as now conducted and to execute and deliver this Agreement and each of the other agreements, certificates, instruments and documents contemplated hereby to which it is a party and to perform its obligations hereunder and thereunder. This Agreement constitutes the valid and legally binding obligation of Asset Manager, enforceable against Asset Manager in accordance with its respective terms and conditions.
(ii) R. McQuay has all requisite power and legal capacity to execute and deliver this Agreement and each of the other agreements, certificates, instruments and documents contemplated hereby to which he is a party and to perform his obligations hereunder and thereunder. This Agreement constitutes the valid and legally binding obligation of R. McQuay, enforceable against R. McQuay in accordance with its respective terms and conditions.
(c) Noncontravention.
(i) Neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby, (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency, or court to which Asset Manager is subject or any provision of the organizational documents of Asset Manager, (B) except as set forth on Schedule 4(c), conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any agreement, contract, lease, license, instrument or other arrangement to which Asset Manager is a party or by which Asset Manager is bound or to which any of the Acquired Assets is subject, or (C) result in the imposition of any Lien upon any of the Acquired Assets. Except as set forth on Schedule 4(c) attached hereto, Asset Manager is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any third party, government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement.
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(ii) Neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby, (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency, or court to which R. McQuay is subject or (B) except as set forth on Schedule 4(c), conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any agreement, contract, lease, license, instrument or other arrangement to which the R. McQuay is a party or by which R. McQuay is bound.
(d) Brokers’ Fees. Neither Asset Manager nor R. McQuay has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.
(e) Financial Statements. Schedule 4(e)(i) attached hereto contains the unaudited balance sheets and statements of income and expense as of and for the years ended December 31, 2013 and December 31, 2014 (the “Financial Statements”). Except as set forth on Schedule 4(e)(ii), the Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Asset Manager as of such dates and the results of operations of Asset Manager for such periods, and are consistent with the books and records of Asset Manager. Asset Manager maintains, and at all times since January 1, 2013 has maintained, a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions were and are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The systems of internal accounting controls maintained by Asset Manager are sufficient to meet the broad objectives of preventing and detecting errors or irregularities in the Financial Statements. Neither Asset Manager nor any employee or agent of Asset Manager has made any payment or transfer of any funds or assets of Asset Manager other than in the ordinary course of business, or received any funds, assets or personal benefit in violation of any applicable laws.
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(f) Events Subsequent to Reference Fiscal Year End. Except as set forth on Schedule 4(f) attached hereto, since December 31, 2014 (the “Reference Fiscal Year End”), there has not been any change in the business, financial condition, results of operations, assets or future prospects of the Asset Management Business which could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4(f), since the Reference Fiscal Year End:
(i) Asset Manager has not sold, leased, transferred, encumbered or assigned any of the Acquired Assets;
(ii) except for this Agreement, Asset Manager has not entered into any agreement, contract, lease or license (or series of related agreements, contracts, leases and licenses) other than in the ordinary course of business;
(iii) no party (including Asset Manager) has accelerated, terminated, modified or canceled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) related to the Asset Management Business, to which Asset Manager is a party or by which Asset Manager is bound, including the Property Documents, and, to Asset Manager’s knowledge, no party intends to take any such action; there has not been any change in the customer relationships of Asset Manager, and Schedule 4(f) sets forth a list of all current disputes with Asset Manager’s existing customers that have caused, are causing or could cause such customers to refuse payment to Asset Manager;
(iv) Asset Manager has not delayed or postponed the payment of any obligations or liabilities with respect to the Asset Management Business or the Acquired Assets;
(v) Asset Manager has not entered into any transaction with any of its members, managers, directors, officers, employees or Affiliates with respect to the Acquired Assets;
(vi) there has not been any other occurrence, event, incident, action, failure to act or transaction outside the ordinary course of business involving the Asset Management Business or the Acquired Assets; and
(vii) Asset Manager has not committed to do any of the foregoing.
(g) Undisclosed Liabilities. Except as set forth on Schedule 4(g), Asset Manager does not have any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due and regardless of when asserted), and, to Asset Manager’s knowledge, there is no basis for any proceeding, hearing, investigation, charge, complaint or claim with respect to any liability, except for (i) liabilities reflected in the liabilities section of Asset Manager’s balance sheet for the Reference Fiscal Year End, (ii) liabilities under agreements, contracts and other similar arrangements set forth on Schedule 4(k) attached hereto, and (iii) liabilities which have arisen after the Reference Fiscal Year End in the ordinary course of business of the Asset Management Business (none of which relates to breach of contract or warranty, tort, violation of law, or any action, suit or proceeding).
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(h) Legal Compliance. Asset Manager and its predecessors, if any, have complied with all applicable laws, rules and regulations of federal, state, local and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against any of them alleging any failure to so comply.
(i) Tax Matters. Except as set forth on Schedule 4(i), (i) Asset Manager and R. McQuay have timely filed or shall timely file all Tax Returns which are required to be filed by such Party and that relate to the Asset Management Business, and all such Tax Returns are true, complete and accurate in all respects, (ii) all Taxes relating to the Asset Management Business or the Acquired Assets have been paid when due and payable or shall be paid by Asset Manager or R. McQuay, as applicable, when due and payable, and no Taxes are delinquent, (iii) no deficiency for any amount of Tax has been asserted or assessed by a taxing authority against Asset Manager or R. McQuay with respect to the Asset Management Business or the Acquired Assets and neither Asset Manager nor R. McQuay has any knowledge that any such assessment or asserted Tax liability shall be made, (iv) neither Asset Manager nor R. McQuay has consented to extend the time in which any such Tax may be assessed or collected by any taxing authority, (v) Asset Manager has not been a member of an Affiliated Group (as defined in Section 1504 of the Code), and (viii) none of the Acquired Assets is subject to any Lien arising in connection with any failure or alleged failure to pay any Tax.
(j) Title to Acquired Assets. Asset Manager has good and marketable title to the Acquired Assets, free and clear of any Lien or restriction on transfer, except for any Liens which are set forth on Schedule 4(j) (“Permitted Liens”) and any required third party consents which are set forth on Schedule 4(c).
(k) Property Documents; Other Contracts, Agreements and Arrangements; Rent Rolls.
(i) Schedule 4(k)(i) lists the following with respect to each Property Document, including any amendments or addenda thereto: (A) the date of the Property Document; (B) the name and address of the property managed; (C) the age of the property; (D) the name of the owner(s) of such property; (E) the names of the tenants presently occupying such property or with whom leases have been executed; (F) the total square footage of the property; (G) the annual and monthly gross revenue, categorized by base rent, percentage rent and additional rent, of such property; (H) the annual and monthly operating expenses of the property; (I) the annual and monthly net income of the property; (J) the leasing commissions payable; (K) the deposits due and held; (L) the debt service on the property and the lender and the term of such debt; (M) the costs of tenant improvements made and to be made on the property; (N) reserves held for the property; and (O) cash flow after payment of debt service.
(ii) Other than the Property Documents, and except as set forth in Schedule 4(k)(ii), there exist no other contracts, agreements or other arrangements, whether oral or written, and including any amendments or addenda thereto, between Asset Manager and any customer of Asset Manager.
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(iii) Set forth in Schedule 4(k)(iii) is a rent roll, dated as of the Effective Date, for each property managed by Asset Manager pursuant to each Property Document listed on Schedule 4(k)(i). Each rent roll shall include for each tenant (A) the name of the tenant; (B) the term of the lease for such tenant; (C) the commencement and expiration dates of such lease; (D) the square footage and location occupied by such tenant within the property; (E) the status of rent payments by such tenant, including whether current or delinquent and if delinquent, the extent to which delinquent; (F) the monthly and annual base rent, percentage rent and additional rent payable, as applicable, by such tenant; (G) the deposit due and deposit balance held by Asset Manager for such tenant.
(iv) Asset Manager has delivered to the Company a true, correct and complete copy of each Property Document, including all amendments and addenda thereto, and each agreement listed in Schedule 4(k)(ii).
(v) With respect to each of the contracts, agreements and other arrangements listed in Schedule 4(k)(i) and Schedule 4(k)(ii): (A) such contract, agreement or arrangement is legal, valid, binding and enforceable in accordance with its terms and in full force and effect, (B) no party thereto is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default by any party or permit any party to terminate, modify, or accelerate, such contract, agreement or arrangement, (C) no party has repudiated any provision of such contract, agreement or arrangement, (D) Asset Manager does not have any present expectation or intention of not fully performing any obligation on its part to be performed pursuant to such contract, agreement or arrangement, and (E) Asset Manager has no knowledge of any anticipated breach by any other party to such contract, agreement or arrangement. There are no other contracts, agreements or arrangements, other than those listed in Schedule 4(k)(i) and Schedule 4(k)(ii), under which the consequences of a default or termination could reasonably be expected to have a Material Adverse Effect on the Asset Management Business or the Acquired Assets.
(l) Litigation. Schedule 4(l) attached hereto sets forth each instance in which Asset Manager (i) is subject to any outstanding injunction, judgment, order, decree, ruling or charge of any judicial or administrative body or agency or (ii) is a party or, to Asset Manager’s knowledge, is threatened to be made a party to any action, suit, proceeding, hearing or investigation of, in, or before any court, arbitrator or other body or administrative agency of any federal, state, local, or foreign government or jurisdiction.
(m) Customers. None of the parties to the Property Documents have terminated or provided any notice or other indication to Asset Manager of its intent to terminate such party’s respective Property Document, and to the best knowledge of Asset Manager, none of such parties has any such intention. There are no current, pending, or to the knowledge of Asset Manager, threatened, disputes or discussions with any party to any Property Document.
(n) Service Liabilities. Each of the services rendered by Asset Manager is, and at all times up to and including the Closing Date has been or will be, (a) in compliance with all applicable federal, state, local and foreign laws and regulations, and (b) in conformance in all material respects with any express promises or affirmations of fact provided in connection with the rendition of such services.
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(o) Permits. Except for state qualifications to do business as a foreign limited liability company, Schedule 4(o) sets forth a list of all Permits necessary for Asset Manager’s performance under the Property Documents. Such Permits (i) are in full force and effect, (ii) have not been violated, and (iii) are not subject to any pending or, to the best knowledge of Asset Manager, threatened proceeding seeking their revocation or limitation. To the best knowledge of Asset Manager, the Permits indicated with an asterisk on Schedule 4(o) are assignable to the Company and the consummation of the transactions contemplated by this Agreement will not adversely impact any of such Permits.
(p) Interest in the Company. In connection with and as a condition of the issuance by the Company of the Interest to Asset Manager pursuant to Section 1(e), Asset Manager hereby makes the following acknowledgments, representations, warranties and covenants with the full knowledge that the Company will expressly rely on them:
(i) Asset Manager understands that the Interest has not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or under any state securities laws, and is being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering;
(ii) The Interest may not be resold or transferred by Asset Manager without appropriate registration or the availability of an exemption from such requirements;
(iii) Asset Manager is acquiring the Interest solely for its own account for investment purposes, and not with a view to the distribution, transfer, assignment, resale or subdivision thereof;
(iv) Asset Manager is an “Accredited Investor” (as defined under Rule 501(a) of Regulation D promulgated under the Securities Act (“Regulation D”));
(v) Asset Manager is able to bear the economic risk and lack of liquidity inherent in holding the Interest;
(vi) Neither Asset Manager nor any subsidiary, Affiliate, owner, shareholder, partner, member, indemnitor, guarantor or related person or entity: (a) is a Sanctioned Person (as defined below); (b) has more than 15% of its assets in Sanctioned Countries (as defined below); or (c) derives more than 15% of its operating income from investments in, or transactions with Sanctioned Persons or Sanctioned Countries. For purposes of the foregoing, a “Sanctioned Person” means: (a) a person named on the list of “specially designated nationals” or “blocked persons” maintained by the U.S. Office of Foreign Assets Control (“OFAC”) at http://www.treas.gov/offices/eotffc/ofac/, or as otherwise published from time to time, or (b) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC. A “Sanctioned Country” or “Sanctioned Countries” shall mean a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/eotffc/ofac/, or as otherwise published from time to time; and
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(vii) Neither Asset Manager nor any beneficial owner of Asset Manager is a “bad actor” under the provisions of Rule 506(d) of Regulation D promulgated under the Securities Act.
(q) Disclosure. The representations, warranties and statements made by Asset Manager and R. McQuay in this Agreement, including the Schedules, and in the certificates and other documents delivered pursuant hereto, including the Related Agreements, do not contain any untrue statement of a material fact, and, when taken together, do not omit or fail to state any material fact necessary to make such representations, warranties and statements, in light of the circumstances under which they are made, not misleading.
(r) Effectiveness of Representations and Warranties. The representations and warranties of Asset Manager and R. McQuay contained in this Section 4 and elsewhere in this Agreement and all information contained in any Exhibit, Schedule or attachment hereto or in any writing delivered by, or on behalf of, Asset Manager and R. McQuay to the Company shall be true and correct on both the Effective Date and on the Closing Date as though then made.
5. Representations and Warranties of the Company. The Company represents and warrants to Asset Manager as follows:
(a) Organization. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. The Company has full power and authority to execute and deliver this Agreement and all Related Agreements and to perform its obligations hereunder and thereunder. This Agreement and the Related Agreements to which it is a party constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with their respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery by the Company of this Agreement or the Related Agreements, nor the consummation by the Company of the transactions contemplated hereby or thereby, shall (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject, or any provision of its certificate of formation or operating agreement or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject. The Company is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement and the Related Agreements.
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(d) Brokers’ Fees. The Company has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement or the Related Agreements.
(e) Issuance of Interest. The Interest issuable to Asset Manager hereunder, when issued in accordance with the provisions of this Agreement, will be duly and validly authorized and issued and will be fully paid and non-assessable. The Interest to be issued hereunder will be issued in compliance with all applicable federal and state securities laws. Subject to the terms of the Operating Agreement, the issuance, sale and delivery of the Interest hereunder are not in any way subject to any preemptive right of members of the Company or to any right of first refusal or other right in favor of any other Person.
(f) Effectiveness of Representations and Warranties. The representations and warranties of the Company contained in this Section 5 and elsewhere in this Agreement and all information contained in any Exhibit, Schedule or attachment hereto or in any writing delivered by, or on behalf of, the Company to Asset Manager or R. McQuay shall be true and correct on both the Effective Date and on the Closing Date as though then made.
6. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the Effective Date and the earlier to occur of the Closing or termination of this Agreement pursuant to Section 8:
(a) General. Each of the Parties shall use its reasonable best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement.
(b) Notices and Consents. Asset Manager shall give any notices to third parties, and shall use its reasonable best efforts to obtain any third party consents set forth on Schedule 4(c) or that the Company may reasonably request. Each of the Parties shall give any notices to, make any filings with, and use its reasonable efforts to obtain any authorizations, consents and approvals of governments and governmental agencies in connection with the matters referred to in Sections 4(c) and 5(c).
(c) Operation of Business. Asset Manager shall not engage in any practice, take any action, or enter into any transaction outside the ordinary course of business except as hereinafter permitted. Without limiting the generality of the foregoing or any other provision of this Agreement, Asset Manager shall:
(i) not sell, convey, transfer or encumber any of the Acquired Assets;
(ii) not engage in any practice, take any action, or enter into any transaction which would be required to be disclosed under Section 4(f);
(iii) preserve and maintain all of its Permits;
(iv) pay its expenses and payables, Taxes and other obligations when due and collect receivables in the ordinary course of business, all in accordance with past custom and practice;
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(v) perform all of its obligations under the Property Documents;
(vi) maintain its books and records in accordance with past practice;
(vii) cause the Company to comply in all material respects with all applicable Laws;
(viii) conduct the Asset Management Business in accordance with past custom and practice, including its present operations and relationships with its customers and cause the Company not to take or permit any action that would cause any of a Material Adverse Effect to the Asset Management Business or the Acquired Assets to occur; and
(d) Full Access. Asset Manager shall permit representatives of the Company (including its accountants, attorneys, consultants and other agents) to have full access to Asset Manager’s books, records, customers, employees and independent accountants during normal business hours and upon prior notice to Asset Manager , in connection with the Company’s due diligence review of Asset Manager , the Asset Management Business and the Acquired Assets. No investigation by the Company or other information received by the Company shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Asset Manager in this Agreement.
(e) Notice of Developments. From the Effective Date until the Closing:
(i) Asset Manager shall give prompt written notice to the Company of:
(A) any development causing, or reasonably likely to cause a breach of any of the representations, warranties or covenants of Asset Manager in this Agreement or could result in the failure of any of the conditions precedent set forth in this Agreement to be satisfied;
(B) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;
(C) any notice or other communication received in writing from any governmental authority or agency in connection with the transactions contemplated by this Agreement (other than routine correspondence);
(D) any actions commenced or, to Asset Manager’s knowledge, threatened against, relating to or involving or otherwise affecting Asset Manager that, if pending on the date of this Agreement, would have been required to have been disclosed or that relates to the consummation of the transactions contemplated by this Agreement;
(ii) The Company shall give prompt written notice to Asset Manager of any development causing, or reasonably likely to cause a breach of any of the representations, warranties or covenants of the Company contained in this Agreement or could result in the failure of any of the conditions precedent set forth in this Agreement to be satisfied.
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(f) Exclusivity. Neither Asset Manager nor any Asset Manager Affiliate shall (i) solicit, initiate or encourage the submission of any proposal or offer from any Person (a “Asset Manager Acquisition Proposal”) relating to (A) the acquisition of Asset Manager’s membership interests or other voting securities (whether issued or unissued), or (B) any assets of Asset Manager (including any acquisition structured as a merger, consolidation, share exchange or otherwise) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any Asset Manager Acquisition Proposal. Asset Manager shall notify the Company immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any Asset Manager Acquisition Proposal. Asset Manager agrees that the rights and remedies for noncompliance with this Section 6(f) shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company.
7. Additional Agreements.
(a) Survival. Subject to Section 7(a), the representations, warranties, covenants and agreements set forth in this Agreement or in any certificate or other writing delivered in connection with this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby notwithstanding any examination made for or on behalf of Asset Manager or the Company.
(b) Indemnification.
(i) Subject to the limitations set forth in Section 7(b)(ii), Asset Manager and R. McQuay shall jointly and severally indemnify and hold the Company and its officers, directors, members (other than Asset Manager), managers, employees, agents and representatives (the “Company Indemnified Parties”), harmless against any loss, liability, damage or expense, including reasonable legal expenses and costs of investigation (“Losses”), which any of the Company Indemnified Parties may incur, suffer, sustain or become subject to as the result of:
(A) the failure of any representation or warranty contained in Section 4 of this Agreement or in any Related Agreement, as such representation or warranty may have been supplemented by additional disclosure made pursuant to Section 6(e), to be true and correct as remade hereunder as of the Closing Date;
(B) the breach by Asset Manager and R. McQuay of any covenant or agreement contained in this Agreement or in any Related Agreement or in any Exhibit, Schedule or attachment hereto or in any certificate delivered by Asset Manager and R. McQuay in connection herewith; or
(C) any Excluded Liability.
(ii) With respect to claims for breaches of representations and warranties referred to in Section 7(b)(i)(A), Asset Manager and R. McQuay shall not be liable for any Losses arising therefrom unless written notice of such breach is given by a Company Indemnified Party to Asset Manager or R. McQuay within twenty-four (24) months after the Closing Date, except for: (1) Losses arising from a breach of the representations and warranties contained in Section 4(a) (Organization of Asset Manager), Section 4(b) (Authorization of Transaction) and Section 4(d) (Brokers’ Fees), for which neither Asset Manager nor R. McQuay shall be liable for any Losses arising therefrom unless written notice of such breach is given by a Company Indemnified Party to Asset Manager or R. McQuay prior to the expiration of the applicable statute of limitations for making a contract claim for a breach of this Agreement under applicable law (and any extensions thereof), and (2) Losses arising from a breach of the representations and warranties contained in Section 4(i) (Tax Matters) and Section 4(j) (Title to Assets), for which Asset Manager and R. McQuay shall remain liable forever.
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(iii) Subject to the limitations set forth in Section 7(b)(iv), the Company shall indemnify and hold Asset Manager and its Affiliates, officers, directors, managers, members, employees, agents and representatives (the “Asset Manger Indemnified Parties”), harmless against any Losses which any of the Asset Manager Indemnified Parties may incur, suffer, sustain or become subject to as the result of:
(A) the failure of any representation or warranty contained in Section 5 of this Agreement or in any Related Agreement, as such representation or warranty may have been supplemented by additional disclosure made pursuant to Section 6(e), to be true and correct as remade hereunder as of the Closing Date;
(B) the breach by the Company of any covenant or agreement contained in this Agreement or in any Related Agreement or in any Exhibit, Schedule or attachment hereto or in any certificate delivered by the Company in connection herewith; or
(C) any Assumed Liability.
(iv) With respect to claims for breaches of representations and warranties referred to in Section 7(b)(iii)(A), the Company shall not be liable for any Losses arising therefrom unless written notice thereof is given by an Asset Manager Indemnified Party to the Company within twenty-four (24) months after the Closing Date.
(v) If any third party shall notify any Party to this Agreement (the “Indemnified Party”) with respect to any matter which may give rise to a claim for indemnification against any other Party to this Agreement (the “Indemnifying Party”) under this Section 7(a), then the Indemnified Party shall notify each Indemnifying Party of such claim, with adequate particularity as to the nature of the claim giving rise to such Losses and the calculation of the Losses (including all component parts thereof) to the extent then feasible (which calculation shall not be conclusive of the final amount of such claim). Within thirty (30) days after receipt of notice of a particular matter, the Indemnifying Party may assume the defense of such matter if the Indemnifying Party admits responsibility and reaffirms its obligation for indemnification with respect to such matter; provided that (A) the Indemnifying Party shall retain counsel reasonably acceptable to the Indemnified Party, (B) the Indemnified Party, at its sole cost and expense which shall not be included as part of the Losses sustained by it, may participate in the defense of such claim with co-counsel of its choice to the extent that the Indemnified Party believes in its sole discretion that such matter shall affect its ongoing business and (C) the Indemnifying Party shall not consent to the entry of any judgment with respect to the matter or enter into any settlement with respect to the matter which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto. If, within such 30-day period, the Indemnifying Party does not assume the defense of such matter, the Indemnified Party may defend against the matter in any manner that it reasonably may deem appropriate and may consent to the entry of any judgment with respect to the matter or enter into any settlement with respect to the matter without the consent of the Indemnifying Party, subject to the right of the Indemnifying Party to contest its obligation to indemnify and hold harmless the Indemnified Party.
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(vi) To the extent Asset Manager or R. McQuay, as Indemnifying Parties, are required to indemnify the Company Indemnified Parties pursuant to Section 7(b)(i), the Company may effect an offset by withholding any and all amounts payable to Asset Manager pursuant to the terms of the Operating Agreement until the Company has recouped, by such offset, the full amount of the Losses incurred.
(c) Confidentiality; Publicity. Whether or not the transactions contemplated hereby are consummated, each Party to this Agreement shall keep confidential all information and materials regarding the other Parties reasonably designated by such Parties as confidential at the time of disclosure thereof. Without the prior written approval of the other Parties, no Party shall disclose to the public or to any third party any information concerning the transactions contemplated herein, other than disclosures to its financing sources and financial, legal and other advisors and to governmental authorities as required or as may, in the reasonable opinion of counsel, be required by law; provided, however that notwithstanding anything to the contrary stated herein, the Company may issue a press release regarding the transactions described herein, without disclosing the financial metrics of such transactions.
(d) Transaction Expenses. Except as otherwise specifically provided herein, each Party hereto shall bear such Party’s own costs and expenses (including all Taxes and all legal, accounting, consulting, investment banking, brokerage and other fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby (whether or not consummated).
(e) Certain Taxes. Notwithstanding any other terms of this Agreement, all transfer, documentary, sales, use, stamp, registration and other such Taxes (excluding any income taxes) incurred in connection with this Agreement and the transfer of the Acquired Assets or the Assumed Liabilities, shall be paid by Asset Manager when due, and Asset Manager shall, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, the Company shall join in the execution of any such Tax Returns and other documentation.
(f) Further Assurances. Each Party shall execute and deliver such further instruments of conveyance and transfer and take such additional action as another Party may reasonably request to effect, consummate, confirm or evidence the transactions contemplated herein, and Asset Manager and R. McQuay shall execute such documents, including without limitation any powers of attorney, bills of sale or other agreements as requested by the Company in connection with the terms of Section 7(h) below, as may be necessary to assist the Company in preserving or perfecting its rights in the Acquired Assets.
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(g) Employees. Asset Manager shall terminate the Key Employees immediately prior to the Closing and the Company shall hire the Key Employees as employees of the Company effective as of the Closing Date. Each of the Key Employees shall enter into an employment agreement with the Company in the form of Exhibit C attached hereto (an “Employment Agreement”), and each of the Employment Agreements shall be in full force, no later than 30 days after Closing. The Company shall not be responsible for any compensation or other benefits payable to the Key Employees, except as set forth in the Employment Agreements, or any other employees of Asset Manager.
(h) Non-Transferable Assets. Notwithstanding the foregoing, if any Property Document is not assignable or transferable (each, a “Non-Transferable Asset”) without a third party consent (a “Consent”), and any such Consent is not obtained on or prior to the Closing Date, (i) this Agreement and the related instruments of transfer shall not constitute an assignment or transfer of such Non-Assignable Asset, (ii) the Company or its designee shall not assume Asset Manager’s rights or obligations under such Non-Transferable Asset (and such Non-Transferable Asset shall not be included in the Acquired Assets and such obligations thereunder shall not be included in the Assumed Liabilities), and (iii) Asset Manager shall use its best efforts, under the direction of the Company to obtain any such Consent(s) as soon as reasonably practicable after the Closing Date and thereafter Asset Manager shall transfer and assign to the Company such Non-Transferable Assets. Following any such assignment or transfer, such Non-Transferable Assets shall be deemed Acquired Assets for purposes of this Agreement. After the Closing, Asset Manager shall use reasonable best efforts to provide the Company or its designee(s) with all of the rights and benefits of any Non-Transferable Assets after the Closing as if the appropriate Consent had been obtained, including by granting subleases, sublicenses or other rights and establishing arrangements whereby the Company shall have the benefits of and shall undertake the obligation to perform under the Property Documents (including enforcement for the benefit of the Company of any and all rights of Asset Manager against any other party arising out of any breach or cancellation of any such Non-Transferable Assets by such other party and, if requested by the Company, acting as an agent on behalf of the Company or as the Company shall otherwise reasonably require). Effective on the Closing Date, Asset Manager hereby constitutes and appoints the Company the true and lawful attorney of Asset Manager, with full power of substitution, in the name of Asset Manager or the Company , but on behalf of and for the benefit of the Company: (i) to demand and receive from time to time any and all of the Acquired Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; (ii) to institute, prosecute, compromise and settle any and all claims that the Company may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Acquired Assets; (iii) to defend or compromise any or all Proceedings in respect of any of the Acquired Assets; and (iv) to do all such acts and things in relation to the matters set forth in the preceding clauses (i) through (iii) as the Company shall deem desirable. Asset Manager hereby acknowledges that the appointment hereby made and the powers hereby granted are coupled with an interest and are not and shall not be revocable by it in any manner or for any reason.
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8. Termination; Effect of Termination.
(a) Termination. The Company may terminate this Agreement by delivering a written notice of termination (the “Termination Notice”) to the other Parties at any time prior to the Closing in the event that (i) the Asset Manager or R. McQuay breaches or has breached any representation, warranty or covenant contained in this Agreement and such breach has not been cured by such Party within fifteen (15) days after receipt the Termination Notice, (ii) the Closing shall not have occurred on or before the Closing Date, (iii) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited, or (iv) any governmental authority or agency shall have issued an order restraining or enjoining the transactions contemplated by this Agreement.
(b) Effect of Termination.
(i) In the event of the termination of this Agreement in accordance with this Section 8, this Agreement shall forthwith become void and there shall be no liability on the part of any Party hereto except (a) as otherwise set forth in this Section 8 or any other provision of this Agreement providing for the survival of terms or provisions hereof, and (b) that nothing herein shall relieve any Party hereto from liability for any willful breach of any provision hereof.
(ii) If this Agreement is terminated by the Company pursuant to Section 8 due to a material breach of any representation, warranty or covenant under this Agreement by the Asset Manager or R. McQuay or one or more of the closing conditions in favor of the Company (other than those conditions that by their nature are to occur on the Closing Date) have failed to occur, then the Company shall be entitled to receive the Earnest Money Deposit, and the Asset Manager and R. McQuay, shall jointly and severally, be liable to the Company for the repayment to the Company of the Earnest Money Deposit. The obligations of the Asset Manager and R. McQuay pursuant to this Section 8(b)(ii) shall survive termination of this Agreement.
(iii) The Parties acknowledge and agree that (i) the repayment to the Company of the Earnest Money Deposit constitutes liquidated damages (and not a penalty) with respect to any claim that the Company would otherwise be able to assert against the Asset Manager or R. McQuay , (ii) the right of the Company to receive the Earnest Money Deposit shall be the sole and exclusive remedy of the Company with respect to any such termination of this Agreement, and (iii) the Company may not bring any cause of action against or otherwise seek remedies from, the Asset Manager or R. McQuay or any of their Affiliates or directors, officers, managers, members, employees, service providers, advisors or representatives, whether at equity or in law, for breach of contract, in tort or otherwise, and any such claim is hereby fully waived, released and forever discharged. The payment of the Earnest Money Deposit in the circumstances specified herein is supported by due and sufficient consideration.
9. Definitions.
“Affiliate,” with respect to any entity, shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. The term “control” (including the terms “controls”, “controlling”, “controlled by”, and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of at least fifty percent (50%) of the voting securities, by contract or otherwise..
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“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations issued thereunder.
“GAAP” means United States generally accepted accounting principles.
“Key Employees” means R. McQuay and Linda Larabee.
“Lien” means any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust, the grant of a power to confess judgment, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).
“Related Agreements” means the Assignment Agreement, the Operating Agreement and the Employment Agreements.
“Asset Manager’s Knowledge,” “to the best of Asset Manager’s Knowledge” and words of similar import mean the actual knowledge or awareness of R. McQuay after conducting a reasonable investigation consistent with each such Person’s respective relationship or position with Asset Manager so that, as a result of such investigation, such individual is able to express an informed understanding as to the particular matters represented.
“Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person.
“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
10. Miscellaneous.
(a) No Third Party Beneficiaries. Except for the rights of the Asset Manager Indemnified Parties and the Company Indemnified Parties contemplated by Section 7(a), this Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
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(b) Entire Agreement. This Agreement, together with the Related Agreements, sets forth the entire agreement and understanding of the Parties hereto with respect to the matters set forth herein and supersedes any and all prior agreements, arrangements and understandings among the Parties.
(c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Parties.
(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement.
(e) Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given when delivered personally to the recipient or sent to the recipient by reputable express courier service (charges prepaid) and addressed to the intended recipient as set forth below or sent to the recipient via e-mail to the applicable e-mail address set forth below:
If to Asset Manager or R. McQuay:
Tristone Realty Management, LLC
13831 Northwest Freeway, Suite 510
Houston, Texas 77040
Attention: Randolph A. McQuay
Telephone: (713) 446-9482
E-Mail: rmcquay@TriSton-Realty.com
If to the Company:
Allegiancy Houston, LLC
10710 Midlothian Turnpike, Suite 202
Richmond, Virginia 23235
Attention: Stevens M. Sadler
Telephone: (866) 842-7545
E-Mail: steve@allegiancy.us
with a copy to:
LeClairRyan, P.C.
951 E. Byrd Street, Eighth Floor
Richmond, Virginia 23219
Attention: Andrew W. White
Telephone: (804) 343-4063
E-Mail: andrew.white@leclairryan.com
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Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means, but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it is actually received by the intended recipient. Any Party may change the address or e-mail address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(g) Forum Selection and Consent to Jurisdiction. EACH OF THE PARTIES HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT BETWEEN OR AMONG SUCH PARTIES, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE COMMONWEALTH OF VIRGINIA LOCATED IN RICHMOND, VIRGINIA OR IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF VIRGINIA LOCATED IN RICHMOND, VIRGINIA AND OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(h) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE RELATED AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
(i) No Presumption Against Drafter. Each of the Parties has jointly participated in the negotiation and drafting of this Agreement. In the event of any ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the Parties and no presumptions or burdens of proof shall arise favoring any Party by virtue of the authorship of any of the provisions of this Agreement.
(j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties hereto. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
(k) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.
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(l) Interpretation. Underscored or capitalized references herein to any “Section,” “Exhibit” or “Schedule” shall refer to a Section of, or an Exhibit or Schedule to, this Agreement, unless expressly indicating otherwise. The headings to Exhibits and Schedules are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The use of the masculine, feminine or neuter gender herein shall not limit any provision of this Agreement. The use of the terms “including” or “include” shall in all cases herein mean “including, without limitation” or “include, without limitation,” respectively. No specific representation, warranty or covenant contained herein shall limit the generality or applicability of a more general representation, warranty or covenant contained herein. A breach of or inaccuracy in any representation, warranty or covenant shall not be affected by the fact that any more general or less general representation, warranty or covenant was not also breached or inaccurate. In any case where the concept of materiality is applied more than once to qualify any provision of this Agreement (whether by cross-referencing or incorporation or otherwise), such provision shall be interpreted as if only one such materiality qualification applied to it. Any due diligence review, audit or other investigation or inquiry undertaken or performed by or on behalf of a Party shall not limit, qualify, modify or amend the representations, warranties or covenants of, or indemnities by, made or undertaken by any other Party pursuant to this Agreement, irrespective of the knowledge and information received (or which should have been received) therefrom by the investigating Party, and consummation of the transactions contemplated herein by a Party shall not be deemed a waiver of a breach of or inaccuracy in any representation, warranty or covenant or of any other Party’s rights and remedies with regard thereto.
[COUNTERPART SIGNATURE PAGE(S) FOLLOW]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.
ASSET MANAGER:
Tristone Realty Management, LLC
a Delaware limited liability company
By:
/s/ Randy McQuay______________
Name:
Randy McQuay
Title:
Manager
Principle Equity Properties, LP,
a Delaware limited partnership
By: Principle
Equity Properties, LLC
a
Delaware limited liability company
By:
/s/ Randy McQuay______________
Name:
Randy McQuay
Title:
Manager
Principle
Equity Properties, LLC
a
Delaware limited liability company
By: /s/
Randy McQuay______________
Name:
Randy McQuay
Title: Manager
R. McQuay:
/s/
Randy McQuay_________________
RANDOLPH A. MCQUAY
COMPANY:
ALLEGIANCY HOUSTON, LLC,
a Delaware limited liability company
By:
/s/ Stevens M. Sadler____________
Name:
Stevens M. Sadler
Title:
Manager
ALLEGIANCY, LLC:
a Delaware limited liability company
By:
/s/ Stevens M. Sadler____________
Name:
Stevens M. Sadler
Title:
Chief Executive Officer
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EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
See attached.
EXHIBIT B
AMENDED AND RESTATED OPERATING AGREEMENT
See attached.
EXHIBIT C
FORM OF EMPLOYMENT AGREEMENT
See attached.
Exhibit 6(f)
Recording requested by
And when recorded
return to:
Space Above For Recorder’s Use)
CONVERTIBLE PROMISSORY NOTE
| $1,284,881.50 |
_____ County, ______
June _____, 2015
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This Convertible Promissory Note (together with all extensions, renewals, modifications, substitutions and amendments thereof, collectively, the “Convertible Note”)) is entered into by and between TRISTONE REALTY MANAGEMENT, LLC, a Delaware limited liability company (“Borrower” or “TriStone,” as the context may require, provided, however, that the context shall always be one which affords the Lender the broadest possible rights and remedies and which permits Lender, in its discretion, to enforce the obligations and liabilities hereunder against one or more of the Borrowers) and ALLEGIANCY, LLC, a Delaware limited liability company (“Lender” or “Holder”).
RECITALS
A. Borrower is the owner of membership units of Allegiancy Houston, LLC (the “Company”) denominated as 600 “Shares” as that term is defined in the Amended and Restated Operating Agreement of the Company dated June 1st, 2015 (the “(Operating Agreement”).
B. Lender is the owner of membership units of the Company denominated as 400 Shares.
C. As consideration and to induce Lender to lend to Borrower, Borrower agrees to pay Lender the full amount of the loan represented by this Convertible Note, with interest, or transfer membership units of the Company denominated as 300 Shares (the “Company Interest Denominated as 300 Shares”) to Lender on or before the Maturity Date (as defined below), all in accordance with the terms of this Convertible Note.
D. Borrower by this Convertible Note given to Lender is indebted to Lender in the principal sum set forth above, in lawful money of the United States of America, with interest from the date thereof at the rates set forth in this Convertible Note, principal and interest to be payable in accordance with the terms and conditions provided in this Convertible Note.
E. As of the Maturity Date, or as the parties may otherwise agree, Lender may, at Lender’s sole option and discretion, pursuant to the terms more fully set forth herein, demand payment
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under this Convertible Note in the form of a transfer to Lender of the Company Interest Denominated as 300 Shares.
F. Any principle and interest balance remaining as of the Maturity Date shall be immediately due and payable.
G. The unpaid principle balance may be prepaid in full or part at any time prior to the maturity date, without penalty.
H. Interest shall accrue at the rate of 4% per annum as more fully set forth below.
FOR VALUE RECEIVED, THE UNDERSIGNED promises to pay to the order of Lender the principal sum of One Million, Two Hundred Eighty-Four Thousand, Eight Hundred Eighty-One and 50/100 Dollars ($1,284,881.50), together with interest on the principal balance of this Convertible Note, from time to time remaining unpaid, from the date of disbursement by Lender hereof at the applicable interest rate hereinafter set forth, together with all other sums due hereunder in lawful money of the United States of America which shall be legal tender in payment of all debts at the time of such payment. Both principal and interest and all other sums due hereunder shall be payable to Lender as specified herein, or at such other place as Lender may from time to time designate. Said principal and interest shall be paid over a term, at the times, and in the manner set forth below.
1. Loan Balance and Maturity Date.
1.1 Maturity Date. Subject to the terms of Section 5 below, the principal amount of this Convertible Note and all interest accrued hereunder shall be due and payable on June 31, 2020 (“Maturity Date”); provided however, that the Borrower has not paid all or any portion of the outstanding balance due prior to the Maturity Date.
1.2 Loan Amount. The amount loaned to Borrower shall be One Million Dollars, Two Hundred Eighty-Four Thousand, Eight Hundred Eighty-One and 50/100 ($1,284,881.50), and the annual interest rate hereunder is four percent (4%).
2. Payment Obligations.
2.1 Any principal and interest balance remaining as of the Maturity Date shall be immediately due and payable under the terms of this Convertible Note.
2.2 Interest at the rate of four percent (4%) per annum shall accrue under this Convertible Note.
2.3 Lender’s sole recourse for payment of this Convertible Note shall be the transfer of the Company Interest Denominated as 300 Shares.
3. Application of Payments. All payments shall be applied first to the payment of accrued unpaid interest on this Convertible Note and the balance, if any, shall be applied to the reduction of the outstanding principal balance of this Convertible Note. Interest due hereunder shall be calculated on the basis of a 360-day year composed of twelve 30-day months; provided however in no event shall the interest payable under the terms of this Convertible Note exceed the maximum rate of interest permitted under applicable law. Unless payments are made in the
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required amount in immediately available funds at the place where the Convertible Note is payable, remittances in payment of all or any part of the inedebtedness hereunder shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Convertible Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default (as hereinafter defined).
4. Conversion.
4.1 Automatic Conversion. Subject to and upon compliance with the provisions of this Section, and the limitations set forth below, on the date (“Conversion Date”) on which the Lender delivers the Conversion Notice (as defined below), this Convertible Note shall, without any action required on the part of either the Borrower or Lender, automatically convert into, and the Lender shall be entitled to receive in lieu of payment of the indebtedness evidence hereby, the Company Interest Denominated as 300 Shares.
4.2 Conversion Guidelines. Automatic conversion hereof is conditioned only upon Lender’s delivery to Borrower of written notice demanding conversion of all amounts of principal and interest hereunder into the Company Interest Denominated as 300 Shares (the “Conversion Notice”). Without limiting the foregoing, however, it is the intention of, but not a requirement of, the Lender and the Borrower that the following conditions shall have been satisfied prior to Lender’s delivery of the Conversion Notice ("Conversion Guidelines"):
4.2.1 Lender shall have obtained any necessary approvals of the members of the Company with respect to the terms of this Convertible Note.
4.2.2 The Lender shall have determined that a sufficient number of the third party consents required under that certain Acquisition Agreement dated June 1st, 2015 by and among the Borrower, the Lender, the Company and other parties have been obtained.
4.3 Notice of Satisfaction. Lender and Borrower shall use their reasonable best efforts promptly to take or cause to be taken all actions and to do or cause to be done all things necessary, proper, or advisable, to satisfy the Conversion Guidelines.
4.4 Issuance of LLC Membership Units. As of the Conversion Date, the Lender shall vbe entitled to complete the Membership Interest Power which Borrower executed in blank and delivered to Lender at the time of execution of this Convertible Note, and the Lender shall be entitled to direct the agent of the Company to issue and deliver to the Lender at the address of the Lender, without any charge to the Lender, a statement acknowledging the transfer of the Company Interest Denominated as 300 Shares to Lender.
4.5 Status on Conversion. Upon conversion of this Convertible Note, the Lender shall be deemed to hold the Company Interest Denominated as 300 Shares in addition to any previously held membership units in the Company.
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4.6 Taxes Upon Conversion. The Borrow shall pay any and all taxes (other than taxes in respect of income or gross receipts) that may be payable in respect of the issuance or delivery of any membership units in the Company on conversion of this Convertible Note. The Borrower shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of the membership units in the Company in a name other than that of the Lender, and the Borrower shall not be required to issue or deliver such membership units in such other name unless or until the person or persons requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such taxes have been paid.
4.7 Effect of Reclassification, Consolidation, Merger, etc. In case of reclassification or change of membership units, or as a result of a subdivision or combination, or in the case of any consolidation or merger of the Company (other than a consolidation or merger into which the Company is the survivor and which does not result in any reclassification or change of membership units), or in the case of a sale or conveyance to another corporation of all or substantially all of the assets of the Company, this Convertible Note shall be converted prior to such sale, reclassification, or change of membership units.
4.8 Transfer, Exchange and Replacement of Convertible Note. This Convertible Note shall be transferred only upon written consent of the Borrower, in its sole discretion, and shall be transferable only upon delivery thereof duly endorsed by, or accompanied (if required by the Company) by proper evidence of succession, assignment or authority to transfer executed by the Lender. Upon the execution of this Convertible Note, the Borrower acknolwedges and agrees that the Lender shall be entitled to hold any certificate that may be created to evidence the Company Interest Denominated as 300 Shares in order to facilitate the conversion, provided that no such conversion shall occur unless and until the arrival of the Conversion Date.
5. Prepayment. The principal amount of this Convertible Note may be prepaid, in whole or in part, at any time prior to the Maturity Date. Any prepayment amount shall include principal plus interest amount in the amount of 4% per annum of the principle amount being prepaid.
6. Acquisition for Investment and Restrictions on Transfer.
6.1 Investment Intent.
6.1.1 The Lender, by acceptance of this Convertible Note, represents that this Convertible Note and any membership units in the Company issuable upon conversion of this Convertible Note are being and will be acquired for the Lender's own account for investment and not with a view to, or for resale in connection with, the distribution thereof in violation of applicable securities laws, and that the Lender has no present intention of distributing or reselling this Convertible Note or any membership units in the Company.
6.1.2 The Lender, by acceptance of this Convertible Note, further represents that it has not offered or sold this Convertible Note, or any membership units in the Company into which this Convertible Note is convertible, directly or indirectly to any other "Person," as defined in Section 11 below, and that the Lender is not acquiring this Convertible Note or any such membership units in the Company for the account of any other Person.
6.2 Restrictions on Transfer. The Lender, by the acceptance of this Convertible Note, agrees that the Lender will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of
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this Convertible Note or any of the membership units in the Company issuable upon conversion of this Convertible Note, or any interest in the same unless: (i) a registration statement under the Securities Act of 1933, as amended (the "Act"), covering the sale or transfer of this Convertible Note or the membership units in the Company issuable upon conversion of this Convertible Note as the case may be, is in effect; (ii) the Lender first provides the Borrower with an opinion of counsel (which may be counsel for the Company) reasonably acceptable to the Borrower to the effect that such sale, transfer, assignment, pledge, hypothecation or other disposition will be exempt from the registration and the prospectus delivery requirements of the Act; (iii) such sale, transfer, assignment, pledge, hypothecation or other disposal shall be made to a corporation or other entity which is wholly-owned by the Lender or by which the Lender is wholly-owned; or (iv) such sale, transfer, assignment, pledge, hypothecation or other disposal is made in accordance with the terms of the Operating Agreement. Any such sale, transfer, assignment, pledge, hypothecation or other disposition shall also comply with applicable state securities or "Blue Sky" laws.
6.3 Legends. Certificates evidencing membership units in the Company issuable upon conversion of this Convertible Note shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF IN VIOLATION OF APPLICABLE SECURITIES LAWS, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
6.4 The certificates representing such membership units in the Company, and each certificate issued upon transfer thereof, also shall bear any legend required under any applicable state securities or "Blue Sky" laws. The Lender consents to the Borrower making a notation on its records or giving instructions to any transfer agent of the membership units in the Company in order to implement the restrictions on transfer of this Convertible Note and membership units in the Company issuable upon conversion hereof set forth herein.
7. Defaults and Remedies.
7.1 Events of Default. The occurrence and continuance of any one or more of the following events shall constitute an "Event of Default" hereunder:
7.1.1 the Borrower fails to observe, perform or comply with any covenant, agreement or term contained in this Convertible Note and, if subject to remedy, the same is not remedied within 30 days after written notice from the Lender; provided, however, that such 30-day period shall be extended for an additional 30 days so long as within such initial 30-day period the Borrower has commenced to cure and are proceeding with due diligence to cure such failure; or
7.1.2 either Borrower makes a general assignment for the benefit of creditors; any proceeding is instituted by or against either Borrower seeking to adjudicate it a bankrupt or
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insolvent, seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debts, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property, provided that, in any such case, if the same is dismissed or vacated within 60 days of being instituted, then any such default shall be deemed cured; or either Borrower takes any corporate action to authorize any of the actions set forth above.
7.2 Remedies. Upon any "Event of Default" as defined above, the Lender may, at its sole option, declare the entire amount of principal and accrued, unpaid interest on this Convertible Note (if any) immediately due and payable, by written notice to the Borrower, in which event the Borrower immediately shall pay to the Lender the entire unpaid principal balance of this Convertible Note together with accrued, unpaid interest thereon to the date of such payment or shall immediately convert the Convertible Note pursuant to the terms of this Convertible Note. No delay or omission of the Lender to exercise any right or power occurring upon any Event of Default hereunder shall impair any such right or power or shall be construed as a waiver of any such Event of Default or an acquiescence therein. To the fullest extent permitted by law, the Lender's rights and remedies under this Convertible Note shall be cumulative, and the Lender shall have all other rights and remedies not inconsistent herewith as are provided under the Uniform Commercial Code as in effect in the relevant jurisdictions, by law or in equity. No exercise by the Lender of one right or remedy shall be deemed an election, no waiver by the Lender of any default on the part of the Borrowers shall be deemed a continuing waiver, and no delay by the Lender shall constitute a waiver, election or acquiescence by it.
8. Miscellaneous Provisions
8.1 Savings Clause and Severability. If any clauses or provisions herein contained operate or would prospectively operate to invalidate this Convertible Note, then such clauses or provisions only shall be held for naught, as though not herein contained and the remainder of this Convertible Note shall remain operative and in full force and effect.
8.2 Transfer and Assignment. This Convertible Note shall be non-assignable and non-transferable without the express written consent of the non-transferring party. Any such transfer in violation of this provision is a material breach of this Convertible Note.
8.3 Captions. The captions set forth at the beginning of the various paragraphs of this Convertible Note are for convenience only and shall not be used to interpret or construe the provisions of this Convertible Note.
8.4 Legal Fees. As used herein, the phrase “Reasonable Attorneys’ Fees” shall mean fees charged by attorneys selected by Lender based upon such attorneys’ then prevailing hourly rates as opposed to any statutory presumption specified by any statute then in effect in the State of Texas. The Borrower agrees to pay any reasonable collection expense, court costs, and Reasonable Attorneys Fees and costs that may be sustained by the Lender in the collection or enforcement of this Convertible Note or any part hereof.
8.5 Choice of Law. This Convertible Note is made in the State of Texas, which State the parties agree has a substantial relationship to the parties and to the underlying transaction
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embodied hereby. Accordingly, in all respects, this Convertible Note and the Loan Documents and the obligations arising hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the State of Texas applicable to contracts made and performed in such State and any applicable law of the United States of America. Each party unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim to assert that the law of any jurisdiction other than the State of Texas governs this Convertible Note and the Loan Documents.
8.6 No Waiver. No delay on the part of the Holder in the exercise of any power or right under this Convertible Note, or under the other Loan Documents, or any other instrument executed in connection herewith, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or exercise of any other power or right. Enforcement by Holder of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it.
IN WITNESS WHEREOF, Borrower has executed this Convertible Note as of the day and year indicated below.
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Lender:
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ALLEGIANCY, LLC,
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a Delaware limited liability company
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By: /s/ Stevens M. Sadler
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Its: Chief Executive Officer
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Borrower:
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TRISTONE REALTY MANGEMENT, LLC,
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a Delaware limited liability company
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By: /s/ Randy McQuay
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Its: Manager
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Exhibit 6(g)
AMENDED AND RESTATED OPERATING AGREEMENT
OF
ALLEGIANCY HOUSTON, LLC
Exhibit 6(g)
AMENDED AND RESTATED OPERATING AGREEMENT
OF
ALLEGIANCY HOUSTON, LLC
a Delaware limited liability company
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this “Agreement”) of ALLEGIANCY HOUSTON, LLC, a Delaware limited liability company (the “Company”), is made as of this 29th day of May, 2015, by and among the Company, Allegiancy, LLC, a Delaware limited liability company (“Allegiancy”), and TriStone Realty Management, LLC, a Delaware limited liability company (“TriStone” and, together with Allegiancy and any and all other Persons (as defined below) that become members of the Company from time to time, the “Members” and each, a “Member”) for the regulation of the affairs and the conduct of the business of the Company, recites and provides as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
“Act” shall mean the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., as amended from time to time.
“Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant fiscal year, after crediting to such account any amounts which such Member is treated as obligated to restore pursuant to the penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5) and debiting such account by the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of “Adjusted Capital Account Deficit” is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
“Affiliate” shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. The term “control” (including the terms “controls”, “controlling”, “controlled by”, and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of at least fifty percent (50%) of the voting securities, by contract or otherwise.
“Affiliate Transferee(s)” shall mean any or all, as appropriate, of the Affiliates of the Member to whom such Member may transfer such Member’s Shares, or any of them.
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“Agreement” shall mean this Amended and Restated Operating Agreement of the Company, as it may be amended from time to time, which amends and restates the Operating Agreement of the Company dated April 30, 2015.
“Board of Managers or Board” shall mean the board of Managers of the Company as described and as designated or elected under Article IV.
“Bona Fide Offer” shall mean an offer in writing made on an arm’s-length basis, signed by the offeror, who must not be an Affiliate of the recipient of the offer and who must be financially capable of carrying out the terms of the offer, and binding the offeror to such terms and, in the event consummation of such terms does not result in termination of this Agreement, further binding the offeror to the terms of this Agreement.
“Capital Contribution” shall mean the amount of money or the fair market value of other property contributed to the capital of the Company by each Member, as set forth in Exhibit B, as amended from time to time.
“Change of Control” means any sale by the Company of all or substantially all of its operating assets, or a change in ownership, or a series of changes, whether resulting from any sale of Shares, merger, consolidation, share exchange, reorganization, combination or other event, which results in the ownership by the Members existing as of the date of execution of a promissory note in favor of a member pursuant to Section 11.9 or Section 11.10 below of less than fifty percent (50%) of the Shares following such event.
“Code” shall mean the Internal Revenue Code of 1986, as amended, or any successor provision of law.
“Company” shall mean Allegiancy Houston, LLC, a Delaware limited liability company.
“Conflict of Interest Transaction” shall mean a transaction between or involving, directly or indirectly, (i) the Company or an Affiliate of the Company, on one hand, and (ii) a Manager or an Affiliate of a Manager, on the other.
“Conversion Event” shall mean the payment by TriStone of all amounts due and owing under that certain promissory note made by TriStone in favor of Allegiancy in the amount of $1,000,000 and dated , 2015 by delivering to Allegiancy, in lieu of cash, three hundred (300) Shares (as may be adjusted to account for any Shares split, recapitalization or similar transaction) pursuant to the terms of such promissory note.
“Disabled” shall mean, with respect to an individual, where such individual suffers any illness, injury, or other physical or mental incapacity that prevents him or her from adequately performing the duties associated with his or her duties as a Manager, Officer, employee of, or independent contractor or consultant to, the Company (whichever applies) for an uninterrupted period of twelve (12) months, as determined by a panel consisting of (i) the regular attending physician of such individual, (ii) a physician selected by a simple majority vote of the issued and outstanding Shares (exclusive of the Shares owned directly or beneficially by such individual), and (iii) a third physician selected by the first two (2) panel-members.
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“IRS” shall mean the Internal Revenue Service.
“Managers” shall mean the Managers elected or appointed pursuant to Section 4.1(b)
“Member” or “Members” shall have the meaning provided in the Preamble hereof.
“Officers” shall mean the Officers elected or appointed pursuant to Section 5.1.
“Percentage Interest” means, with respect to each Member, such Member’s percentage ownership interest in the Company (for all purposes other than those instances where the term “Profit/Loss Percentage” is used in this Agreement), calculated by dividing the number of Shares held by such Member by the total of all outstanding Shares of the Company. The Percentage Interest of each Member shall be set forth on Exhibit B, as may be amended from time to time.
“Person” shall mean and include an individual, proprietorship, trust, estate, partnership, joint venture, association, company, corporation, limited liability company or other entity.
“Profit/Loss Percentage” means, with respect to each Member, such Member’s percentage interest in the Company’s profits and losses, and cash distributions, as set forth on Exhibit B, as may be amended from time to time. Pursuant to the agreement of the Members as of the date of this Agreement, (i) until the Conversion Event occurs, the Profit/Loss Percentage of TriStone shall be 30% and the Profit/Loss Percentage of Allegiancy shall be 70%, and (ii) upon the occurrence of the Conversion Event and thereafter, the Profit/Loss Percentage of each Member shall be equal to the Percentage Interest of such Member.
“Separation” shall mean, with respect to an individual, the occurrence of any of the following: (i) such individual ceases to perform any substantial duties as a Manager, Officer, or employee of, or independent contractor or consultant to, the Company for an uninterrupted period of six (6) months, (ii) such individual states in writing that he or she has separated from the Company and will no longer perform any such duties, or (iii) any employment agreement between the Company and such individual is terminated by the Company for Cause.
“Shares” shall mean, with respect to each Member, such Member’s units of membership interest in the Company at any particular time, including the right of such Member to any and all benefits to which such Member may be entitled as provided in this Agreement and in the Act, together with the obligations of such Member to comply with all the provisions of this Agreement and of the Act. The number of Shares owned by each Member shall be set forth on Exhibit B, as may be amended from time to time.
“State” shall mean the State of Delaware.
“Terminating Capital Transaction” shall mean the sale, exchange or other disposition (including a disposition pursuant to foreclosure or deed in lieu of foreclosure) of the assets of the Company or following the dissolution and termination of the Company pursuant to one of the other events listed in Section 7.6 hereof.
“Transfer” shall mean (a) when used as a noun, any sale, exchange, pledge, encumbrance, gift, bequest, attachment or other transfer or disposition of Shares, or any right or interest therein, or permitting any Shares or any right or interest therein to be sold, exchanged, pledged, encumbered, given, bequeathed, attached or otherwise disposed of or having or allowing the ownership of any Shares, or any right or interest therein, to be changed, assigned, exchanged or converted in any manner, whether voluntarily, involuntarily or by operation of law, or (b) when used as a verb, to consummate such sale or other transaction described in clause (a) above.
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“Treasury Regulations” shall mean the Treasury regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Treasury Regulations shall mean that provision of the Treasury regulations on the date hereof and any successor provision of the Treasury Regulations.
ARTICLE II
NAME; PURPOSE; TERM
Section 2.1 Formation.
The Members hereby acknowledge the formation of the Company as a limited liability company pursuant to the Act by virtue of the Certificate of Formation filed with the Delaware Secretary of State effective as of April 30, 2015.
Section 2.2 Name, Office, and Registered Agent.
(a) The name of the Company shall be “Allegiancy Houston, LLC.” The principal office and place of business shall be 13831 Northwest Freeway, Ste 510, Houston, Texas 77040. The Board may at any time change the location of such office to another location.
(b) The registered agent and office of the Company required under the Act shall be as designated in the Company’s Certificate of Formation, and may be changed by the Board in accordance with the Act. The principal business office of the Company shall be located at the principal office address on file with the Delaware Secretary of State, as updated from time to time.
Section 2.3 Governing Law.
This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement, and interpretation hereof, and the formation, administration, and termination of the Company shall be governed by the provisions of the Act and other applicable laws of the State, without regard to its conflict of law provisions.
Section 2.4 Purpose.
The Company was formed for the purpose of engaging in (i) real estate asset management services, and (ii) any other lawful business, purpose or activity for which a limited liability company may be organized under the Act. The Company shall have all powers and rights of a limited liability company organized under the Act, to the extent such powers and rights are not proscribed by the Company’s Certificate of Formation.
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Section 2.5 Term.
(a) The Company’s existence shall be perpetual, except the Company shall be dissolved and terminated upon the first to occur of the following:
(i) The unanimous written agreement of all the Members to dissolve and terminate the Company;
(ii) The entry of a decree of judicial dissolution under Section 18-802 of the Act;
(iii) The automatic cancellation of the Company’s Certificate of Formation pursuant to the Act; or
(iv) As otherwise required by the Act.
(b) Upon the dissolution of the Company for any reason, the Members shall promptly proceed to wind up the affairs of and liquidate the Company. Except as otherwise provided in this Agreement, the Members shall continue to share distributions and allocations during the liquidation period in the same manner as before dissolution.
ARTICLE III
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 3.1 Members.
The rights and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein. The address, telephone number and facsimile number of each Member are set forth opposite each Member’s name on Exhibit A attached hereto.
Section 3.2 Other Business Activities; No Outside Asset Management Activities.
Any Member may engage in or possess an interest in other business ventures of every nature and description, independently or with others; provided, however, that neither TriStone nor Randy McQuay may, directly or indirectly or by or through any Affiliate of either of them, engage in any real estate asset management services or activities other than through the Company. For avoidance of doubt, TriStone and Randy McQuay, in their own names or by or through an Affiliate, may engage in real estate acquisition and ownership and other real estate-related activities, other than asset management, but (i) must perform all asset management services or activities with respect to the real estate involved in such other activities through the Company, and (ii) may not refer any asset management services or activities to any service provider other than the Company.
Section 3.3 No Right to Withdraw.
Except as otherwise provided in this Agreement, no Member shall have any right to voluntarily resign, disassociate or otherwise withdraw from the Company without the written consent of all of the other Members of the Company.
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Section 3.4 Meetings of the Members.
No annual or special meetings of the Members shall be required. Any action required or permitted to be taken at any meeting may be taken without a meeting if a written consent setting forth the action to be taken is signed by that number of Members required to act with respect to the subject matter thereof. Meetings of the Members may be held by telephone or other device so long as all participants in such meeting can be heard. Meetings of the Members may be held at any time at the written request of either Member on not less than two (2) days advance written notice. Written notice to a Member may be delivered in person or sent by mail or facsimile transmission to the address of such Member set forth on Exhibit A of this Agreement, as such address may be changed from time to time.
Section 3.5 Limitations on Actions by Members.
Except for any matters expressly reserved to the Members, no Member shall have any right to take part in the management or operation of the Company other than in such Member’s capacity as a Manager or Officer, if applicable. No Member shall, without the prior written approval of the Board, take any action on behalf of or in the name of the Company, or enter into any commitment or obligation binding upon the Company, except for actions expressly authorized by the terms of this Agreement.
Section 3.6 Actions Requiring Unanimous Consent.
The written consent of Members who together hold all of the Shares (a “Unanimous Member Consent”) shall be required to authorize the Company to:
(a) File or consent to the filing of any bankruptcy, insolvency or reorganization case or proceeding; institute any proceedings under any applicable insolvency law or otherwise seek relief under any laws relating to the relief from debts or the protection of debtors generally;
(b) Seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for the Company or a substantial portion of its properties;
(c) Make any assignment for the benefit of the creditors of the Company;
(d) Amend the Certificate of Formation or this Agreement in any way having any effect on this Section 3.6, either directly or indirectly;
(e) approve the dissolution of the Company.
ARTICLE IV
MANAGEMENT OF THE COMPANY
Section 4.1 General Powers; Designation of the Board of Managers.
(a) The property, business and affairs of the Company, and the Officers of the Company, shall be managed under the direction of the Board of Managers. Except as otherwise expressly provided by law, the Certificate of Formation or this Agreement, and except as otherwise delegated by the Board to the Officers (including the delegation of power to the President and Chief Executive Officer as provided in Article V below), the Board shall have complete and exclusive control of the management of the Company’s business and affairs, with the right, power, and authority on behalf of the Company and in its name to execute documents or other instruments and exercise all of the rights, powers, and authority of the Company under the Act and to take any and all actions that the Company may be entitled to take.
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(b) The Board shall consist of three (3) Persons (the “Managers”). So long as TriStone and its Affiliates own at least three hundred (300) Shares (as may be adjusted to account for any Shares split, recapitalization or similar transaction), TriStone or its Affiliate Transferees shall be entitled to appoint one (1) Manager (the “TriStone Manager”). So long as Allegiancy and its Affiliates own, collectively, at least three hundred (300) Shares (as may be adjusted to account for any Shares split, recapitalization or similar transaction), Allegiancy or its Affiliate Transferees shall be entitled to appoint one (1) Manager (the “Allegiancy Manager”). As between TriStone and its Affiliates, on one hand, and Allegiancy and its Affiliates, on the other, the Member that holds Shares representing a higher Percentage Interest than the other shall be entitled to appoint one (1) additional Manager (the “Third Manager”). TriStone, which holds more Shares than Allegiancy as of the date of this Agreement, hereby appoints Randy McQuay (“McQuay”) as the initial TriStone Manager and (““) as the Third Manager, and Allegiancy hereby appoints Stevens M. Sadler (“Stevens”) as the initial Allegiancy Manager. Accordingly, the initial Managers shall be McQuay, Stevens and .
(c) A replacement Manager to fill each vacancy that may exist from time to time on the Board shall be appointed by (i) TriStone or its Affiliate Transferees, with respect to a TriStone Manager vacancy, (ii) Allegiancy or its Affiliate Transferees, with respect to an Allegiancy Manager vacancy, or (iii) the affirmative vote or approval of Members owning at least sixty percent (60%) of all then-outstanding Shares, with respect a Manager vacancy that is neither a TriStone Manager vacancy or an Allegiancy Manager vacancy.
Section 4.2 Decisions and Voting by the Board of Managers.
(a) So long as two (2) or more Managers are serving in accordance with the terms of this Agreement, (a) a majority of the Managers then serving shall be required to constitute a quorum for the transaction of business by the Board, and (b) the act of at least a majority of the Managers then serving shall be the act of the Board. Less than a quorum may adjourn any meeting.
(b) Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting, if a written consent setting forth the action to be taken is signed by that number of Managers required to act with respect to the subject matter thereof.
(c) Notwithstanding anything to the contrary stated above, the affirmative vote or consent of both the Allegiancy Manager and the TriStone Manager (a “TriStone-Allegiancy Manager Consent”) shall be required, and shall be sufficient, to take the following actions on behalf of the Company:
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(i) Merger or consolidation with, or acquisition of, any other business;
(ii) Causing or permitting the Company to obtain a loan or incur any indebtedness for borrowed money, other than trade debt in the ordinary course of business of the Company, in excess of Five Thousand Dollars ($5,000);
(iii) Pledging, placing in trust, assigning or otherwise, encumbering any existing property, real or personal, now owned or hereafter acquired by the Company, excluding accounts receivable from trade creditors, as collateral or security for any borrowing or other obligation of the Company, to secure any Company indebtedness except for pledges or deposits under workmen’s compensation, unemployment insurance or social security laws or to secure the performance of bids, tenders, contracts (other than the repayment of money), or leases, or to secure statutory obligations or surety or appeal bonds or to secure indemnity, performance or similar bonds used in the ordinary course of business of the Company;
(iv) Causing or permitting the Company to make any loan, ordinary expenditure, capital expenditure, call or other contribution with respect to any security, asset, venture or investment project or item held or engaged in by the Company, or any series of related or similar loans, expenditures, calls or other contributions in an amount in excess of Five Thousand Dollars ($5,000), except as specifically provided in this Agreement;
(v) Making any investment in any Person or taking any action, giving any consent or casting any vote required under the terms of any stock, membership interest or equity purchase, stockholder, transfer, registration rights, operating, put or other agreement of any nature pertaining to any investment in any Person;
(vi) Commencing or entering into the resolution of any actual or threatened litigation involving the Company with respect to which the aggregate amount in controversy exceeds Five Thousand Dollars ($5,000) or that is otherwise material or seeking injunctive relief against or on behalf of the Company;
(vii) Selling or otherwise disposing of, or contracting to sell or otherwise dispose of, any of the Company’s assets in any transaction or series of similar or related transactions out of the ordinary course of business of the Company;
(viii) Making any distributions of Company cash or other property except as specifically provided in this Agreement;
(ix) Approval of the compensation payable to any Member, or any amendment, adjustment or other change to the compensation or other terms applicable to any Member, with respect to such Member’s employment with the Company or engagement as independent contractor with the Company;
(x) Approving or disapproving any Annual Budget (as hereafter defined), or any modifications to any Approved Annual Budget (as hereafter defined).
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(xi) Creating or authorizing any new class or series of Shares or equity, or selling, issuing, granting, or selling any additional Shares or equity of the Company; and
(xii) Exercising any rights to purchase the Shares of any Transferring Member pursuant to, or taking any other actions specified in, Article XI of this Agreement;
provided, however, that in the event that the transaction described in this Section 4.2(b) is a Conflict of Interest Transaction, the interested Manager shall have abstained and each of the two (2) disinterested Managers shall have voted for or consented to the transaction. For avoidance of doubt, no Member vote, consent or other form of approval shall be required to approve the actions described in this Section 4.2.
Section 4.3 Removal or Resignation of Managers.
(a) Upon such time that TriStone and its respective Affiliates own less than three hundred (300) Shares (as may be adjusted to account for any Shares split, recapitalization or similar transaction), the then-serving TriStone Manager shall automatically be removed as Manager unless the Members owning at least sixty percent (60%) of all then-outstanding Shares, by their affirmative vote or consent, agree to retain such former TriStone Manager as a Manager.
(b) McQuay shall be entitled to serve as the TriStone Manager until such time as (i) he resigns, dies, is Disabled or is removed or replaced by TriStone or its Affiliate Transferees, or (ii) he is removed for Cause (as hereafter defined) by the unanimous vote or consent of the remaining Managers. The term “Cause” shall have the meaning assigned to such term in any employment agreement between McQuay and the Company; provided, however, that if there is no such employment agreement or defined term therein, the term “Cause” shall mean (1) McQuay’s material violation of any agreement between McQuay and the Company, which violation is not cured within ten (10) days after written notice thereof by the Company to McQuay (which notice shall specifically describe such alleged violation), (2) an act or acts of dishonesty by McQuay which are intended to or do result in McQuay’s personal enrichment or a material adverse effect upon the Company’s or any of its Affiliates’ assets, business condition (financial or otherwise), prospects or reputation, or (3) conviction of a felony or misdemeanor involving fraud, breach of trust or misappropriation.
(c) Upon such time that Allegiancy and its respective Affiliates own less than three hundred (300) Shares (as may be adjusted to account for any Shares split, recapitalization or similar transaction), the then-serving Allegiancy Manager shall automatically be removed as Manager unless the Members owning at least sixty percent (60%) of all then-outstanding Shares, by their affirmative vote or consent, agree to retain such former Allegiancy Manager as a Manager.
(d) Any Manager may resign at any time by giving written notice of his intention to do so to the Board. In the event of a removal or resignation of a Manager, a replacement for such Manager shall be appointed in the manner provided in Section 4.1(c) within thirty (30) days after such Manager’s removal or resignation.
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Section 4.4 Duties of Managers.
Each Manager shall devote such time, effort, and skill to the Company’s business affairs as is necessary and proper for the Company’s welfare and success. The Members expressly recognize that the Managers have or may have substantial other business activities and agree that the Managers shall not be bound to devote all of their business time to the affairs of the Company.
Section 4.5 Meetings of the Board.
(a) Meetings of the Board may be called by any Manager. Notice of a meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each Manager either by mail not less than fourteen (14) days before the date of the meeting or by telephone, facsimile or telegram no less than five business days before the date and hour of the meeting. Presence at the meeting shall constitute waiver of any deficiency of notice under this Section 4.6.
(b) The Board shall hold its meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another. The Board may approve any action that could be taken at a meeting by written consent pursuant to the terms set forth in Section 4.2(a). Participation in a meeting or the execution of a written consent pursuant to Section 4.2(a) shall constitute presence in person at such meeting and shall constitute a waiver of any deficiency of notice pursuant to Section 4.6(a).
Section 4.6 Annual Budget.
The Company’s President shall, for the calendar year 2015 and for each calendar year thereafter, prepare a proposed annual budget setting forth in reasonable detail a projection of the Company’s gross revenue, operating expenses, net operating income, capital costs for such calendar year (each, an “Annual Budget”), and shall submit such proposed Annual Budget to the Board no later than November 15 of the year preceding such calendar year. The Board shall review each proposed Annual Budget so submitted by the President, and shall, promptly upon the completion of such review, either approve the proposed Annual Budget or advise the President with reasonable specificity of the Board’s objections thereto, if any. The President and the Board shall, promptly thereafter, work together in good faith to revise such proposed Annual Budget to address the Board’s objections, if any, and to include such additional information requested by the Board, if any, until the Board approves such Annual Budget. Each such Annual Budget, when so approved by the Board pursuant to Section 4.2(b)(x) above, shall be referred to as an “Approved Annual Budget”.
ARTICLE V
OFFICERS
Section 5.1 Designation and Election of Officers; Terms.
The Board shall appoint such officers of the Company, including without limitation a President and Treasurer, as it deems appropriate from time to time (all such officers, the “Officers”). Except as otherwise set forth in Section 5.2 below, all Officers shall hold office until the next annual meeting of the Board and until removed by the Board or until their successors are elected. Any two (2) or more offices may be held by the same person. McQuay is hereby appointed as the Company’s initial President.
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Section 5.2 Removal of Officers; Vacancies.
(a) Any Officer may be removed summarily with or without cause, at any time, by the Board. Vacancies, including a vacancy caused by the death, disability, resignation, or removal of any Officer, may be filled by the Board.
(b) Notwithstanding the provisions of Section 5.2(a) above, McQuay shall serve as the President of the Company until such time as (i) McQuay resigns, (ii) McQuay dies or is Disabled, (iii) McQuay is removed for Cause by TriStone-Allegiancy Manager Consent, or (iv) TriStone and its Affiliates own less than thirty percent (30%) of all then-outstanding Shares; in any such case, McQuay shall automatically be removed as President unless retained as President by TriStone-Allegiancy Manager Consent.
Section 5.3 Duties.
The Officers shall have such powers and duties as generally pertain to their respective offices as well as such powers and duties as are hereinafter provided or as from time to time shall be conferred upon them by the Board. The duties of the President and Treasurer are set forth below. Subject to the terms of Section 3.6, the Board shall have the power to delegate any of its authority hereunder to any Officer or Officers.
Section 5.4 President.
The President of the Company shall serve as the Company’s chief executive officer. He or she shall have be primarily responsible for the implementation of the policies of the Board, and the day-to-day management and direction of the business, affairs and operations of the Company and its divisions, if any, subject only to the ultimate authority and direction of the Board. Furthermore, he or she shall be responsible for preparing the Annual Budgets in accordance with the provisions of Section 4.7 above, and shall have such duties and authorities generally associated with the title “general manager.” In addition, he or she shall perform such other duties as from time to time may be assigned to him by the Board.
Section 5.5 Treasurer.
The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Company, and shall deposit all monies and securities of the Company in such banks and depositories as he or she shall deem appropriate. He or she shall be responsible (a) for maintaining adequate financial accounts and records in accordance with generally accepted accounting practices; (b) for the preparation of appropriate operating budgets and financial statements; (c) for the preparation and filing of all tax returns required by law; (d) for financial and accounting matters; and (e) for the performance of all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board. The Treasurer may sign and execute in the name of the Company certificates evidencing Shares, deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and the execution thereof shall be expressly and exclusively delegated by the Board or by this Agreement to some other officer or agent of the Company or shall be required by law or otherwise to be signed or executed.
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Section 5.6 Compensation of Officers.
The compensation of the Officers and all policies pertaining thereto shall be established by the Board on an annual basis. Any fee paid to an Officer who is also a Member shall be deemed a guaranteed payment pursuant to Section 707(c) of the Code.
ARTICLE VI
CAPITAL CONTRIBUTIONS OF MEMBERS
Section 6.1 Initial Capital Contributions.
Each Member’s initial Capital Contribution, Percentage Interest and Profit/Loss Percetentage are set forth on Exhibit B hereto.
Section 6.2 Additional Capital Contributions; Capital Calls.
Whenever the Board, by TriStone-Allegiancy Manager Consent, determines that additional capital is required for operating expenses, debt service, an acquisition or other Company obligations, the Board may, by TriStone-Allegiancy Manager Consent, at any time and from time to time, call for additional Capital Contributions by each Member in amounts that are proportionate to their respective Profit/Loss Percentages. Each Member shall make such additional Capital Contributions within ten (10) business days after such Member’s receipt of notice of such capital call pursuant to this Section 6.2. Except as otherwise expressly provided in this Section 6.2 or elsewhere in this Agreement, no Member shall be required under any circumstances to contribute any additional money or property to the Company.
Section 6.3 Effect of Failure to Contribute Capital.
(a) In the event that any Member or Members (the “Contributors”) shall make an additional Capital Contribution requested under Section 6.2 above and any other Member or Members (the “Non-Contributors”) fail to make such Capital Contribution (the “Required Contribution”) in full within the ten (10) business day period described in Section 6.2 above, each such Contributor shall be entitled to elect, within fifteen (15) days after the expiration of such ten (10) business day period, to either (i) withdraw the Required Contribution made by such Contributor pursuant to Section 6.2 above, or (ii) advance to the Company both (A) its Required Contribution and (B) any amount of the Required Contribution of the Non-Contributors which the Non-Contributors failed to timely contribute. In the event any one or more Contributors elect to advance their Required Contribution and the portion of the Non-Contributors’ Required Contribution that such Non-Contributors failed to timely contribute (such electing Contributors, the “Lending Members”), the total of such Required Contribution shall be treated as and shall constitute indebtedness of the Company owed to the Lending Members.
(b) The loans described in Section 6.3(a) above shall be evidenced by the Company’s promissory notes in a form to be provided by legal counsel to the Company, provided that (i) the terms of such notes shall require the entire principal of the note to be paid to the Lending Members prior to any distribution of Cash Available for Distribution to the Members under Section 7.3 below, (ii) the note shall bear interest at an annual rate equal to the Merrill Lynch High Yield Corporate Bond Index—Triple C Rated as published in the Wall Street Journal, (the “Merrill Lynch High Yield Coprorate Bond Index Rate”), as of the date of the expiration of ten (10) business days after the written notice described in Section 6.2 above, plus 100 basis points, and (iii) the note shall be secured by a first lien security interest in the assets of the Company (provided, that such lien shall be subordinated to any pre-existing liens in favor of any prior institutional lenders to the Company). On each one-year anniversary date of the note, the interest rate on the note shall be adjusted to equal the Merrill Lynch High Yield Coprorate Bond Index Rate in effect on such anniversary date, plus 100 basis points.
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Section 6.4 Capital Accounts.
A separate capital account (“Capital Account”) shall be established and maintained for each Member. The initial Capital Account of each Member shall reflect the Capital Contributions set forth on Exhibit B hereto.
Section 6.5 No Interest on Contributions.
No interest shall be paid on Capital Contributions or on the balance in each Member’s Capital Account, except as specifically provided herein.
Section 6.6 Return of Capital Contributions.
No Member shall be entitled to withdraw any part of its Capital Contribution or its Capital Account, or to receive any distribution from the Company, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Member or withdrawn Member any part of such Member’s Capital Contribution to the Company for so long as the Company continues to exist.
Section 6.7 Member Loans.
If approved in advance by the Board, Members may make loans to the Company.
ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS
Section 7.1 Allocation of Profits and Losses.
(a) Profit and loss of the Company for each Fiscal Year shall be allocated to the Members in accordance with their respective Profit/Loss Percentages.
(b) If a Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii) (d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate the Member’s Adjusted Capital Account Deficit to the extent required by Treasury Regulations Section 1.704-1(b)(2)(ii)(d). The provision in this Section 7.1(b) is intended to be a “qualified income offset” provision within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner that is consistent with the requirements of that section.
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(c) Notwithstanding any other provision of this Agreement, (i) nonrecourse deductions of the Company within the meaning of Treasury Regulations Section 1.704-2(b)(1) other than Member nonrecourse deductions within the meaning of Treasury Regulations Section 1.704-2(i) shall be allocated to the Members in accordance with their respective Profit/Loss Percentages, (ii) any Member nonrecourse deductions within the meaning of Treasury Regulations Section 1.704-2(i) shall be allocated in accordance with that section, and (iii) if there is a net decrease in “minimum gain” within the meaning of Treasury Regulations Sections 1.704-2(d) and (i) for any fiscal period of the Company, items of gain and income shall be allocated among the Members in accordance with the “minimum gain chargeback” rules contained in Treasury Regulations Sections 1.704-2(f) and 1.704-2(i)(4). The Members’ respective “interests in Company profits for purposes of allocating excess nonrecourse liabilities” of the Company within the meaning of Treasury Regulations Section 1.752-3(a)(3) shall be equal to their respective Profit/Loss Percentages.
(d) If items of income and gain are allocable pursuant to the qualified income offset provision in Section 7.1(b) or the minimum gain chargeback provision in Section 7.1(b) (the “Regulatory Allocations”), items of income, gain, loss, and deduction otherwise allocable pursuant to Section 7.1(a) shall be allocated among the Members so that, to the extent possible, the allocation of items among the Members shall be equal to the allocation that would have occurred if the Regulatory Allocations had not been made.
(e) In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of the amount such Member is treated as obligated to restore pursuant to the penultimate sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 7.1(e) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article VII have been made as if Section 7.1(b) and this Section 7.1(e) were not in the Agreement.
(f) To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member’s interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4) applies.
(g) Losses allocated pursuant to Section 7.1(a) hereof shall not exceed the maximum amount of losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of the Fiscal Year. In the event that some but not all of the Members would have an Adjusted Capital Account Deficit as a consequence of an allocation of Losses pursuant to Section 7.1(a) hereof, the limitation set forth in this Section 7.1(g) shall be applied on a Member by Member basis and Losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members’ Capital Accounts so as to allocate the maximum permissible Losses to each Member under Treasury Regulation Section 1.704-1(b)(2)(ii)(d).
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(h) All allocations of profits and losses (and all items contained therein) for federal income tax purposes shall be identical to all book allocations of such items set forth in this Article VII except as otherwise provided in this Article VII or as otherwise required by law.
(i) “Profits” and “losses” and any items of income, gain, expense or loss referred to in this Section 7.1 shall be determined in accordance with federal income tax accounting principles as modified by Treasury Regulations Section 1.704-1(b)(2)(iv), except that profits and losses shall not include items of income, gain, and expense that are specially allocated pursuant to Sections 7.1(c), 7.1(e)or 7.1(f) hereof. All allocations of income, profits, gains, expenses, and losses (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 7.1, except as otherwise required by Section 704(c) of the Code and Section 1.704-1(b)(4) of the Treasury Regulations.
Section 7.2 Cash Available for Distribution, Defined.
As used herein, “Cash Available for Distribution” means, for any period, the excess (if any) of (i) the cash receipts of the Company (other than from a Terminating Capital Transaction) including receipts from the sale, exchange or other disposition of the assets of the Company, and amounts withdrawn from reserves, over (ii) disbursements of cash by the Company (other than distributions to Members and amounts paid with receipts from a Terminating Capital Transaction), including: (A) the payment of operating expenses and debt service on loans from both Members and third parties, (B) capital expenditures, and (C) amounts deposited in reserves, in each case as determined by the Board in its sole discretion.
Section 7.3 Distribution of Cash Available for Distribution; Tax Distributions.
For each calendar quarter, the Board shall, within thirty (30) days of the day following the end of such calendar quarter, distribute to the Members the Cash Available for Distribution for such calendar quarter pro rata among the Members in accordance with their respective Profit/Loss Percentages, unless otherwise determined by the unanimous vote or approval of the Managers. Notwithstanding the foregoing, within thirty (30) days following the end of each Fiscal Year (as hereafter defined), the Board of Managers shall make a good faith estimate of the amount of taxable income to be recognized by each of the Members, and shall distribute to the Members from Cash Available for Distribution, pro rata among the Members in accordance with their respective Profit/Loss Percentages, an amount equal to forty percent (40%) times such Member’s distributive share of such taxable income so as to permit the Members to pay their respective federal, state and local income tax obligations. Distributions required to be made pursuant to the preceding sentence shall be made at such times as may be appropriate to permit the Members to make estimated tax payments.
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Section 7.4 No Right to Distributions in Kind.
No Member shall be entitled to demand property other than cash in connection with any distributions by the Company.
Section 7.5 Limitations on Return of Capital Contributions; Right of Offset.
Notwithstanding any of the provisions of this Article VII, (i) no Member shall have the right to receive from the Company, and the Company shall not have the right to make, a distribution which includes a return of all or part of a Member’s Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Company liabilities, other than the liabilities to a Member for the return of his Capital Contribution, does not exceed the fair market value of the Company’s assets; and (ii) the terms of this this Article VII are subject to the Company’s right of offset pursuant to section 7(b)(vi) of the Contribution Agreement of even date herewith by and among the Company, TriStone and certain other parties.
Section 7.6 Distributions Upon Liquidation.
Upon liquidation of the Company in connection with a Terminating Capital Transaction or otherwise, any remaining assets of the Company shall be distributed to the Members in the following order of priority:
(a) toward satisfaction of all outstanding debts and other obligations of the Company other than those specified in Section 7.6(b) hereof;
(b) toward repayment of outstanding loans, if any, made by Members to the Company; and
(c) thereafter, the balance, if any, to the Members with positive Capital Accounts in accordance with their respective positive Capital Account balances.
For purposes of this Section 7.6, the Capital Account of each Member shall be determined after all allocations of income, Profit, gain, Loss, and expense and all other adjustments made in accordance with Section 7.1 and Section 7.3 resulting from Company operations and from all sales and dispositions of all or any part of the Company’s assets. Any distributions pursuant to this Section 7.6 should be made by the end of the Company’s taxable year in which the liquidation occurs (or, if later, within ninety (90) days after the date of the liquidation). To the extent deemed advisable by the Board of Managers, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations.
ARTICLE VIII
ACCOUNTING, TAX AND FISCAL MATTERS
Section 8.1 Fiscal Year.
The Company hereby adopts the calendar year, January 1 through and including December 31, as its fiscal year (the “Fiscal Year”).
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Section 8.2 Books of Account.
(a) The Company shall keep full and accurate books of account in accordance with GAAP. At the end of each Fiscal Year of the Company, the books shall be reviewed by such independent public accountants as may be selected by the Board of Managers (the “Company’s Accountant”), at the Company’s expense, and unaudited annual financial statements showing the financial position of the Company at the end of such Fiscal Year with the results of its operations for such Fiscal Year, reported upon by the Company’s Accountant, shall be mailed to each Member when available, but not later than March 31 of the year following the end of such Fiscal Year.
(b) The Members intend that the Company be treated as a partnership for federal income tax purposes, and the Company shall not elect to be treated as an association taxable as a corporation. As soon as reasonably practicable after the end of each Fiscal Year of the Company, but in any event no later than March 31 of each year, the Board of Managers shall furnish each Member with Internal Revenue Service Form K-1, Federal Form 1065, and such other information as shall be necessary to enable each Member to prepare its income tax returns. All questions of accounting shall be determined by the Board of Managers.
(c) The Board of Managers must approve all tax elections and tax accounting methods adopted by the Company for income tax purposes, and all agreements and settlements proposed to be entered into with the Internal Revenue Service as a result of any audit or examination of the Company’s federal income tax return. Each Member shall have the right to participate equally in the conduct and negotiation of such agreement or settlement, and no Member shall litigate a tax issue involving the Company without the consent of the other Members. Expenses of administrative proceedings and of litigation of Company tax issues, as approved by the Members, shall be paid by the Company. Each Member shall have the right to review the Company’s income tax returns prior to the filing of such returns.
Section 8.3 Inspection of Books and Records; Reports.
Each of the Members or its duly authorized representatives shall have the right at its expense to examine and inspect, at any reasonable time and for any purpose, any of the books and records, accounts, properties and/or operations of the Company. Such examination and inspection may be conducted by the Members’ own employees, by its own independent certified public accounts and/or by its other agents; provided, however, that such examination or inspection shall not unreasonably interfere with the operation of the Company
Section 8.4 Company Funds.
The funds of the Company shall be kept in the name of the Company in one or more separate bank accounts with banks or trust companies as selected by the Board of Managers. Withdrawals from such bank accounts shall be made only by persons approved by the Board.
Section 8.5 Tax Matters and Tax Elections.
(a) Allegiancy shall be the Tax Matters Partner for the Company within the meaning of Section 6231(a)(7) of the Code. The Tax Matters Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. The Tax Matters Partner shall have the right to retain professional assistance in respect of any audit or controversy proceeding initiated with respect to the Company by the IRS or any state or local taxing authority, and all expenses and fees incurred by the Tax Matters Partner on behalf of the Company shall constitute expenses of the Company. In the event the Tax Matters Partner receives notice of a final partnership adjustment under Section 6223(a)(2) of the Code, the Tax Matters Partner shall either (i) file a court petition for judicial review of such adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all other Members on the date such petition is filed, or (ii) mail a written notice to all other Members, within such period, that describes the Tax Matters Partner’s reasons for determining not to file such a petition.
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(b) Except as otherwise provided in this Section 8.5, the Board shall, in its sole discretion, decide whether to make any available elections under the Code or any applicable state or local tax law on behalf of the Company.
The Tax Matters Partner may, upon receiving the written consent of each other Member, make or revoke, on behalf of the Company, an election in accordance with Section 754 of the Code, so as to adjust the basis of Company property in the case of a distribution of property within the meaning of Section 734 of the Code, and in the case of a transfer of a Company Interest within the meaning of Section 743 of the Code. Each Member shall, upon request of the Tax Matters Partner, supply the information necessary to give effect to such an election.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnification of Managers and Members.
Unless otherwise prohibited by law, the Company shall indemnify and hold harmless the Managers, the Members, the Officers, their respective agents, officers, Managers, and employees, and the agents, Officers and employees of the Company and their respective successors (individually, an “Indemnitee”) from any claim, loss, expense, liability, action or damage resulting from any act or omission performed by or on behalf of or omitted by an Indemnitee in its capacity as a Manager, a Member, or an agent, Officer or employee of the Company, including, without limitation, reasonable costs and expenses of its attorneys engaged in defense of any such act or omission; provided, however, that an Indemnitee shall not be indemnified or held harmless for any act or omission that is in violation of any of the provisions of this Agreement or that constitutes fraud, gross negligence or willful misconduct. Any indemnification pursuant to this Section 9.1 shall be made only out of the assets of the Company.
Section 9.2 Expenses.
To the fullest extent permitted by law, expenses (including legal fees) incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding with respect to which such Indemnitee is entitled to indemnification under Section 9.1 hereof shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined that the Indemnitee is not entitled to be indemnified as authorized in this Article IX.
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Section 9.3 Insurance.
The Company may purchase and maintain insurance coverage to the extent and in such amounts as the Board shall, in its discretion, deem reasonable, on behalf of the Indemnitees against any liability that may be asserted against or expense that may be incurred by any Indemnitees in connection with activities of the Company or such Indemnitees with respect to which the Company would have the power to indemnify such Indemnitee against such liability under the provisions of this Agreement.
Section 9.4 Miscellaneous.
In no event may an Indemnitee subject a Member to personal liability by reason of these indemnification provisions. An Indemnitee shall not be denied indemnification in whole or in part under this ARTICLE IX because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. The provisions of this ARTICLE IX are for the benefit of the Indemnitees and their heirs, successors, assigns, administrators and personal representatives and shall not be deemed to create any rights for the benefit of any other Persons.
Section 9.5 Notice of Claims.
With respect to any claim made or threatened against (i) a Manager, a Member, any of their agents, officers, Managers or employees or any agent, Officer or employee of the Company, or their respective successors for which such Indemnitee is or may be entitled to indemnification under this ARTICLE IX or (ii) the Company, the Board shall, or shall cause such Indemnitee to:
(a) give written notice to the Members of such claim promptly after such claim is made or threatened, which notice shall specify in reasonable detail the nature of the claim and the amount (or an estimate of the amount) of the claim;
(b) provide the Members with such information and cooperation with respect to such claim as the Members may require, including, without limitation, making appropriate personnel available to the Members at such times as the Members shall request;
(c) cooperate and take all such steps as the Members may request to preserve and protect any defense to such claim;
(d) in the event suit is brought with respect to such claim, upon prior notice, afford the Members the right, which the Members may exercise in their sole discretion and at their expense, to participate in the investigation, defense, and settlement of such claim; and
(e) neither incur any material expense to defend against nor release or settle such claim or make any admission with respect thereto without the prior written consent of the Members.
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ARTICLE X
MEMBER REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 10.1 Representations and Warranties.
Each Member represents and warrants to the Company and each other Member that, on the date of this Agreement (or such later date as such Member shall become admitted as a Member of the Company):
(a) Organization and Existence. Such Member, if not an individual, is duly organized, validly existing, and in good standing under the laws of the state of its organization.
(b) Power and Authority. Such Member has the full power and authority to execute, to deliver, and to perform this Agreement, and to carry out the transactions contemplated hereby.
(c) Authorization and Enforceability. The execution and delivery of this Agreement by such Member and the carrying out by such Member of the transactions contemplated hereby have been duly authorized by all requisite corporate action, if necessary, and this Agreement has been duly executed and delivered by such Member and constitutes the legal, valid, and binding obligation of such Member, enforceable against it in accordance with the terms hereof.
(d) No Consents. No authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing with any governmental authority or other third parties is required for the execution, delivery, and performance by such Member of this Agreement or the carrying out by such Member of the transactions contemplated hereby, except those previously obtained.
(e) No Conflict or Breach. None of the execution, delivery, and performance by such Member of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the organizational or corporate documents of such Member or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such Member or by which it or any of its properties (other than its Shares in the Company) is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such Member is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties.
(f) No Proceedings. There is no suit, action, hearing, inquiry, investigation or proceeding, at law or in equity, pending, or, to the knowledge of such Member, threatened, before, by or in any court or before any regulatory commission, board or other governmental administrative agency against or affecting such Member which could have a material adverse effect on the business, affairs, financial position, results of operations, property or assets, or condition, financial or otherwise, of such Member or on its ability to fulfill its obligations hereunder.
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Section 10.2 Survival.
All representations and warranties contained in Section 10.1 shall survive the execution and delivery of this Agreement.
ARTICLE XI
TRANSFERS; RIGHTS WITH RESPECT TO TRANSFER
Section 11.1 Restrictions on Transfers; Securities Law Compliance.
No Shares may be Transferred, in whole or in part, unless (i) such Transfer is made in compliance with the terms of this Article XI, or (ii) compliance with the terms of this Article XI is waived by Unanimous Member Consent. Any Transfer not in accordance with the terms of the immediately preceding sentence shall be void ab initio and without legal effect. Unless waived by the Board, Shares shall not be Transferred in the absence of an opinion of counsel, satisfactory to the Board, that the registration of the Transfer of the Shares is not required under the Securities Act of 1933, as amended, or any other applicable federal or state securities laws.
Section 11.2 Affiliate Transfers.
Section 11.3(a) through (g), and Section 11.5, Section 11.6. Section 11.7 and Section 11.8, shall not apply, nor in any way bind or obligate a Member or any Affiliate Transferee of such Member with respect to any initial or successive Transfer by any of them of all or any portion of such Member’s Shares to any one or more of any Affiliate Transferees of such Member, provided that the Transferring Member either retains the right to directly vote any Shares so Transferred or the Transferring Member “controls” (as that term is defined in the definition of the term “Affiliate” in Section 1.1 above) each such Affiliate Transferee, and, provided, further, that each such Affiliate Transferee executes a writing in form acceptable to the Company’s legal counsel agreeing to become bound by all of the terms of this Agreement. For the sake of clarity, a Transfer of Shares from a Member to any one or more Affiliate Transferees of such Member, provided that each such Affiliate Transferee executes a writing in form acceptable to the Company’s legal counsel agreeing to become bound by all of the terms of this Agreement, shall be effective to admit each such Affiliate Transferee as a Member of the Company, and no further Member approval shall be required
Section 11.3 Right of First Refusal; Transfers Generally.
(a) If any Member receives a Bona Fide Offer to sell all or any portion of his Shares (the “Offered Interest”) and desires to accept such Bona Fide Offer, such Member or his duly authorized representative (hereinafter called “Seller”) shall give written notice thereof (accompanied by a copy of the Bona Fide Offer) to the Company and to all other Members of the Company (the “Remaining Members”), which notice (hereinafter referred to as “Seller’s Notice”) shall set forth the following:
(i) the identity of the Person (hereinafter called “Purchaser”) to whom the Offered Interest is proposed to be Transferred;
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(ii) the purchase price for the Offered Interest, the nature of the consideration to be paid and terms and schedule of payment therefor; and
(iii) any other terms and conditions associated with the sale of the Offered Interest.
(b) Upon receipt of Seller’s Notice, the Company shall have a period of thirty (30) days next following the date of mailing of Seller’s Notice within which to accept Seller’s offer to sell the Offered Interest to the Company. If the Company elects to purchase the Offered Interest, written notice thereof shall be given to Seller on or before the last day of said thirty (30) day period. Upon receipt of said notice, Seller shall be obligated to deliver to the Company the certificates or other instruments evidencing the Offered Interest, if any, properly endorsed for transfer, and the Company shall be obligated to accept the Offered Interest and pay the purchase price therefor. If the Company fails to exercise its right to purchase the Offered Interest, the Company shall be deemed to have waived its right to purchase the Offered Interest, and all rights of the Company to purchase such Offered Interest under Seller’s Notice shall terminate. If the right of the Company to purchase the Offered Interest terminates, the Company shall provide prompt written notice of such termination (the “Termination Notice”) to the Remaining Members.
(c) Upon receipt of the Termination Notice, each Remaining Member shall have a period of thirty (30) days next following the date of mailing of the Termination Notice within which to accept Seller’s offer to sell the Offered Interest. The Remaining Members shall be entitled to purchase such portion of the Offered Interest as they may among themselves agree, or, if they shall not agree, each of the Remaining Members shall have the right to purchase that portion of the Offered Interest equal to the fraction, the numerator of which shall be the number of Shares of such Remaining Member and the denominator of which shall be the total Shares of all Remaining Members exercising the right of purchase; provided, however, that the Members exercising the right of purchase shall be required to purchase all of the Offered Interest. If a Remaining Member elects to purchase the Offered Interest, written notice thereof shall be given to Seller on or before the last day of said thirty (30) day period. Upon receipt of such notice, Seller shall be obligated to deliver to the Remaining Member or Members the certificates or other instruments evidencing the Offered Interest, if any, properly endorsed for transfer, and the Remaining Members who have exercised the above purchase rights shall be obligated to purchase the applicable portion of the Offered Interest and pay the purchase price therefor. The Remaining Members failing to exercise their right to purchase the Offered Interest shall be deemed to have waived their right to purchase the Offered Interest, and all rights of those Remaining Members to purchase such Offered Interest under such Seller’s Notice shall terminate.
(d) If the forms of consideration (other than cash or cash-equivalents) offered by the Purchaser are such that the Company or the Members, as the case may be, cannot, despite reasonable efforts, furnish the same form of consideration, then the Company or the Members, as the case may be, may purchase the Offered Interest for substitute consideration in a cash amount determined by an independent valuation of such consideration performed by a qualified appraiser selected by the Board. The running of all time periods provided herein shall be tolled until such appraisal is completed and delivered to the Company.
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(e) If the Offered Interest is not purchased by the Company or the Remaining Members, but subject to the terms of Section 11.5 and Section 11.6 below, if applicable, Seller may make a bona fide Transfer or encumbrance to the Purchaser named in Seller’s Notice on the terms and conditions set forth therein. If Seller fails to make such Transfer or encumbrance within thirty (30) days following the expiration of the Remaining Members’ purchase rights, such Shares shall become again subject to all the restrictions of this Agreement.
(f) The closing of any purchase by the Company or a Member pursuant to this Article XI shall take place at the principal office of the Company.
(g) Any Transfer of Shares, other than a Transfer that is expressly permitted by this Agreement, shall be effective only to give the Transferee the right to receive the share of allocations and distributions to which the transferor would otherwise be entitled. Any Transferee (other than pursuant to a Transfer that is expressly permitted by this Agreement) shall not have the right to become a substituted Member without the written consent of the Board, which approval may be granted or denied in the exercise of the sole and absolute discretion of the Board, and in any event only if the Transferee agrees to be bound by all of the terms and conditions of this Agreement as then in effect. Unless and until a Transferee (other than pursuant to a Transfer that is expressly permitted by this Agreement) is admitted as a substituted Member, the Transferee shall have no right to exercise any of the powers, rights, and privileges of a Member hereunder. A Member who has assigned all of his Shares shall cease to be a Member and thereafter shall have no further powers, rights, and privileges as a Member hereunder, but shall, unless otherwise relieved of such obligations by agreement of the Board or by operation of law, remain liable for all obligations and duties incurred as a Member. A Transferee who becomes a substitute Member is liable for any obligations of his transferor to make or retain capital contributions as provided in this Agreement and by the Act; provided, however, such Transferee shall not be obligated for liabilities of his transferor unknown to him at the time he became a Member.
(h) The Board may, in its reasonable discretion, charge a fee to cover the additional administrative expenses (including attorney’s fees) incurred in connection with, or as a consequence of the Transfer of, any Shares.
(i) The Company, each Member, and any other Person having business with the Company need deal only with Members who are admitted as Members or as substituted Members of the Company, and they shall not be required to deal with any other Person by reason of assignment by a Member or by reason of the death of a Member, except as otherwise provided in this Agreement. In the absence of the substitution (as provided herein) of a Member for an assigning or a deceased Member, any payment to a Member or to a Member’s executors or administrators shall release the Company, its officers and the Board from all liability to any other Persons who may be interested in such payment by reason of an assignment by, or the death of, such Member.
(j) No Person shall have a perfected lien or security interest in any Shares unless the creation of such security interest is in accordance with the provisions of this Agreement and the Company is notified of such security interest and provided a copy of all documentation with respect thereto, including financing statements, before execution and filing.
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(k) Each Member agrees not to Transfer any part of his Shares (or take or omit to take any action, filing, election, or other action which could result in a deemed Transfer) if such Transfer (either considered alone or in the aggregate with prior Transfers by other Members) would result in the termination of the Company for federal income tax purposes and, in the sole discretion of the Board, such termination would have a material adverse effect on the Company and the Remaining Members. Such a Transfer is void ab initio and without legal effect.
Section 11.4 Dilution; New Members.
Any issuance of additional Shares in accordance with this Agreement will cause a pro rata reduction in each Member’s Share Percentage. No new Members shall be entitled to any retroactive allocation of income, losses, or expense deductions the Company incurs.
Section 11.5 Participation Rights.
Upon the receipt by one or more Members (the “Transferring Members”) of a Bona Fide Offer from a Purchaser to purchase all or a portion of the Shares of the Transferring Members that in the aggregate constitute at least sixty-six and two-thirds percent (66 2/3%) of all then-outstanding Shares, either in a single transaction or a series of related transactions, which offer the Transferring Members desire to accept, and the Company shall not have exercised its right of first refusal pursuant to Section 11.3, Section 11.3Section 11.3(b), and the Remaining Members shall have not exercised the right of first refusal pursuant to Section 11.3(c), then (i) the Transferring Members shall give written notice to the Remaining Members within fifteen (15) days following the expiration of the Remaining Members’ purchase rights under Section 11.3(c), and (ii) each Remaining Member may elect to include the Remaining Member’s Shares in the sale to the proposed Purchaser, at such price and upon such terms as shall be stated in Seller’s Notice. To the extent a Remaining Member exercises such right of participation in accordance with the terms and conditions set forth below, the Shares which the Transferring Member may sell pursuant to the Seller’s Notice shall be correspondingly reduced. The Remaining Members electing to exercise their right of participation may sell all or any part of their Shares that is not in excess of the product obtained by multiplying (i) the aggregate number of Shares covered by the Seller’s Notice by (ii) a fraction, the numerator of which is the number of Shares owned by the Remaining Members, and the denominator of which is the total number of Shares at the time owned by all selling Members. The Remaining Members may make this election only by giving written notice to the Transferring Members of such election to participate in the sale, stating in such notice the number of Shares desired to be sold. If a Remaining Member has not given such notice within fifteen (15) days after its receipt of the notice provided by the Transferring Members pursuant to this paragraph, such Member shall be deemed to have chosen not to participate. The right of participation of the Remaining Members and the Transferring Member shall be subject to the following terms and conditions:
(a) The Remaining Members exercising rights under this Section 11.5 (a “Participant”) shall effect participation in the sale by delivering promptly to the Transferee(s) one or more certificates, if any such certificates exist, properly endorsed for Transfer, which represent the type and number of Shares which such Participant elects to sell, against tender of that portion of the sale proceeds to which such Participant is entitled by reason of its participation in such sale. To the extent that any Transferee prohibits such assignment or otherwise refuses to purchase Shares from a Participant exercising its rights of participation hereunder, the Transferring Member shall not sell to such Transferee any Shares unless and until, simultaneously with such sale, the Transferring Member shall purchase such Shares from such Participant. Each Participant shall also enter into the same form of agreement with the Transferee as is required to be entered into by the Transferring Member; provided, that no Participant shall be required to make any representation, warranty or covenant other than a representation as to the Participant’s power and authority or capacity to effect such sale and title to its Shares; and, provided, further, that all Members required to indemnify or hold harmless the Transferee shall share such obligations on a pro rata basis based upon their respective ownership interests.
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(b) The exercise or non-exercise of the rights of the Remaining Members hereunder to participate in one or more sales of Shares as the case may be, made by the Transferring Member shall not adversely affect their rights to participate in subsequent sales of Shares subject to this Section 11.5.
Section 11.6 Member’s Obligation to Participate in Sale.
(a) If (i) a Transferring Member desires to sell or in any manner to dispose of or otherwise Transfer either in a single transaction or a series of related transactions, a portion or all of his Shares to a Person that is not an Affiliate, (ii) such Shares in the aggregate constitute at least sixty-six and two-thirds percent (66 2/3%) of all outstanding Shares as of the date of the Seller’s Notice, and (iii) the Company and the Remaining Members entitled to exercise such rights have not exercised the right of first refusal in accordance with Section 11.3Section 11.3(b) or Section 11.3(c) to purchase all of the Offered Interest, or the right of participation in accordance with Section 11.5 (to the extent applicable) for all of the Remaining Members’ Shares, the Transferring Member may require by written demand that the Remaining Members be obligated to sell all, but not less than all, of the Shares of the Company then held by the Remaining Members at such price and upon such terms as shall be stated in the Seller’s Notice.
(b) If the Transferring Member shall have required the Remaining Members to sell their Shares pursuant to Section 11.6(a), the Remaining Members will deliver the certificate(s) for their Shares duly endorsed for Transfer to the Transferee thereof against tender of the purchase price to be paid to the Remaining Members in accordance with the Seller’s Notice. The Remaining Members also shall enter into the same form of agreement with the Transferee as is required to be entered into by the Transferring Member; provided, that the Remaining Members shall not be required to make any representation, warranty or covenant other than a representation as to their power and authority or capacity to effect such sale and title to their Shares; and, provided, further, that all Members required to indemnify or hold harmless the Transferee shall share such obligations on a pro rata basis based upon their respective ownership interests.
(c) In the event that any Remaining Member fails to deliver such certificates, such Remaining Member shall for all purposes be deemed no longer to be a Member; provided, however, that the purchase price which would have been paid to such Remaining Member under this Section 11.6 shall be deposited in a bank or with an escrow agent for delivery to such Remaining Member at such time as such Remaining Member shall deliver the certificates required hereunder or a lost stock affidavit satisfactory in form and substance to the Company.
25
Section 11.7 Call Right.
(a) The occurrence of each of the following shall be deemed a “Triggering Event”: (i) December 31 of each calendar year, beginning on December 31, 2018; (ii) McQuay’s death; (iii) McQuay becoming Disabled; and (iv) McQuay’s Separation from the Company. As used herein, the term “Offer Date” shall mean, as appropriate in accordance with the foregoing, (i) December 31 of such calendar year, (ii) the date of McQuay’s death, (iii) the date on which McQuay was determined to be Disabled, or (iv) the date on which McQuay’s Separation was determined to have occurred. As used in this Section 11.7 and Section 11.8 below, the term “Transferring Member” shall mean TriStone and/or the Affiliate Transferees of TriStone as of the Offer Date (if any).
(b) Upon the occurrence of each and every Triggering Event, and at any time within the sixty (60) day period immediately following the Offer Date relating thereto (the “Call Right Period”), the Company shall have the right, but not the obligation, to redeem all of the Shares held by the Transferring Member at one (1) or more closings (the “Call Right”), at a price determined in accordance with Section 11.7(c) below and on a date which is not more than ninety (90) days following the date on which notice of the Company’s exercise of the Call Right is provided to the Transferring Member (the “Call Right Notice Date”) unless otherwise mutually agreed upon by the parties to such redemption in writing (such redemption date, the “Call Right Redemption Date”).
(c) The purchase price for Shares being redeemed by the Company pursuant to an exercise of the Call Right (the “Call Right Price”) shall be equal to the product of (i) the Profit/Loss Percentage with respect to the Shares being redeemed as of the Call Right Notice Date, times (ii) the Put-Call Value (as hereafter defined).
(d) The term “Put-Call Value” shall mean the product of (i) the Valuation Multiple (as hereafter defined), times (ii) the average of the Company’s gross revenue for each of the two calendar years immediately preceding the calendar year of the Call Right Notice Date or Put Right Notice Date (as hereafter defined). The term “Valuation Multiple” shall mean (i) two and one-half (2.5) where the Call Right or Put Right (as hereafter defined, and together with the Call Right, the “Put-Call Rights”) is exercised on December 31, 2018 or in the calendar year beginning on January 1, 2019, (ii) two and one-quarter (2.25) where any of the Put-Call Rights are exercised in the calendar year beginning on January 1, 2020, (iii) two (2) where any of the Put-Call Rights are exercised in the calendar year beginning on January 1, 2021, (iv) one and three-quarters (1.75) where any of the Put-Call Rights are exercised in the calendar year beginning on January 1, 2022, (v) one and one-half (1.5) where any of the Put-Call Rights are exercised in the calendar year beginning on January 1, 2023, (vi) one and one-quarter (1.25) where any of the Put-Call Rights are exercised in the calendar year beginning on January 1, 2024, and (vii) one (1) where any of the Put-Call Rights are is exercised in the calendar year beginning on January 1, 2025 and any calendar year thereafter.
26
(e) Effective as of the Call Right Notice Date, automatically and without any action by any Person, all Shares held by the Transferring Member shall become non-voting, the TriStone Manager shall be deemed to have resigned as a Manager, and McQuay shall be deemed to have resigned as an Officer of the Company.
(f) The parties to any redemption of Shares pursuant to this Section 11.7 shall close and settle on the Call Right Redemption Date at the offices of the Company’s legal counsel, unless otherwise mutually agreed upon by the parties to such redemption in writing. The Company shall on the Call Right Redemption Date pay to the Transferring Member ten percent (10%) of the Call Right Price in cash, and shall pay the remaining ninety percent (90%) of the Call Right Price to the Transferring Member, at the Company’s sole option and in its sole discretion, in the form of (i) a promissory note executed by the Company in favor of the Transferring Member, bearing interest on the unpaid principal balance at an annual rate equal to the annual prime commercial rate, as published by the Company’s primary depository institution (the “Prime Rate”) as of the Call Right Redemption Date plus one percent (1%), providing for five (5) equal annual principal and interest installments and amortization over a term of five (5) years, subject to prepayment in whole or in part at any time or times without penalty, and subject to acceleration upon a Change of Control, (ii) [Class B units] of Allegiancy of equivalent value as of the Call Right Redemption Date, (iii) cash, or (iv) any combination of the foregoing. The Transferring Member shall on the Call Right Redemption Date deliver the certificates representing the Shares being redeemed to the Company properly endorsed in blank for transfer; provided, however, that if the Transferring Member fails to deliver such certificates on the Call Right Redemption Date, the Transferring Member shall for all purposes be deemed no longer to be a Member, and the Call Right Price that would have been paid shall be deposited in a bank or with an escrow agent for delivery to the Transferring Member upon such Transferring Member’s delivery of the certificates or a lost Shares affidavit in a form acceptable to the Company.
(g) Upon the closing of a redemption pursuant to this Section 11.7, the Company and the Remaining Members shall use reasonable efforts and take all steps reasonably necessary or prudent to obtain a release of the Transferring Member from any personal guarantee made by the Transferring Member of any debt, loan, contract, agreement, or obligation of the Company.
Section 11.8 Put Right.
(a) At any time within the ninety (90) day period immediately following the expiration of each Call Right Period which results from a Triggering Event occurring on December 31 only, the Transferring Member shall have the right, but not the obligation, to require the Company to redeem all of the Shares held by the Transferring Member at one (1) or more closings (the “Put Right”), at a price determined in accordance with Section 11.8(b) below and on a date which is not more than ninety (90) days following the date on which notice of the Transferring Member’s exercise of the Put Right is provided to the Company (the “Put Right Notice Date”) unless otherwise mutually agreed upon by the parties to such redemption in writing (such redemption date, the “Put Right Redemption Date”).
(b) The purchase price for Shares being redeemed by the Company pursuant to an exercise of the Put Right by the Transferring Member (the “Put Right Price”) shall be equal to the product of (i) the Profit/Loss Percentage with respect to the Shares being redeemed as of the Put Right Notice Date, times (ii) the Put-Call Value.
27
(c) Effective as of the Put Right Notice Date, automatically and without any action by any Person, all Shares held by the Transferring Member shall become non-voting, the TriStone Manager shall be deemed to have resigned as a Manager, and McQuay shall be deemed to have resigned as an Officer of the Company.
(d) The parties to any redemption of Shares pursuant to this Section 11.8 shall close and settle on the Put Right Redemption Date at the offices of the Company’s legal counsel, unless otherwise mutually agreed upon by the parties to such redemption in writing. The Company shall on the Put Right Redemption Date pay the Put Right Price to the Transferring Member, at the Company’s sole option and in its sole discretion, in the form of (i) a promissory note executed by the Company in favor of the Transferring Member, bearing interest on the unpaid principal balance at an annual rate equal to Prime Rate as of the Put Right Redemption Date plus one percent (1%), providing for five (5) equal annual principal and interest installments and amortization over a term of five (5) years, subject to prepayment in whole or in part at any time or times without penalty, and subject to acceleration upon a Change of Control, (ii) [Class B units] of Allegiancy of equivalent value as of the Put Right Redemption Date, (iii) cash, or (iv) any combination of the foregoing. The Transferring Member shall on the Put Right Redemption Date deliver the certificates representing the Shares being redeemed to the Company properly endorsed in blank for transfer; provided, however, that if the Transferring Member fails to deliver such certificates on the Put Right Redemption Date, the Transferring Member shall for all purposes be deemed no longer to be a Member, and the Put Right Price that would have been paid shall be deposited in a bank or with an escrow agent for delivery to the Transferring Member upon such Transferring Member’s delivery of the certificates or a lost Shares affidavit in a form acceptable to the Company.
(e) Upon the closing of a redemption pursuant to this Section 11.8, the Company and the Remaining Members shall use reasonable efforts and take all steps reasonably necessary or prudent to obtain a release of the Transferring Member from any personal guarantee made by the Transferring Member of any debt, loan, contract, agreement, or obligation of the Company.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Confidentiality.
Each Member shall, at all times during the term of this Agreement, use its best efforts and take all appropriate steps to safeguard the secrecy and confidentiality of the Company’s marketing plans, customer information, specialized information, data bases, financial information and other confidential information regarding the Company and its activities.
Section 12.2 Notices.
Unless otherwise provided herein, any offer, acceptance, election, approval, consent, certification, request, waiver, notice or other communication required or permitted to be given hereunder (collectively referred to as a “Notice”), shall be in writing and shall be deemed to have been given at the earlier of the date when actually delivered to a Member or when sent by facsimile (if confirmed) or nationally recognized reliable overnight carrier at the address of such Member set forth on Exhibit A attached hereto or at such other address as any Member hereafter may designate to the others in accordance with the provisions of this Section 12.2. In addition, the Board shall be sent a copy of all such Notices, by facsimile or nationally recognized overnight carrier. The date at which notice shall be deemed received shall be the date of the receipt of the copy of such notice by the Board.
28
Section 12.3 Entire Agreement.
This Agreement, including the Exhibit(s) or Schedules attached hereto or incorporated herein by reference, constitutes the entire agreement of the Members with respect to the matters covered herein. This Agreement supersedes all prior and contemporaneous agreements and oral understandings among the Members with respect to such matters, including without limitation the Operating Agreement of the Company dated April 30, 2015. In the event there is any litigation, arbitration or other form of dispute resolution between the Members over the interpretation of any provision of this Agreement, the substantially prevailing Member(s) in such action shall be entitled to recover reasonable attorney’s fees from the nonprevailing Member(s) in such action.
Section 12.4 Amendment.
Except as provided by law, in the Company’s Certificate of Formation or otherwise set forth herein, this Agreement may be amended or altered only by a writing signed by all of the Members.
Section 12.5 Interpretation.
Wherever the context may require, any noun or pronoun used herein shall include the corresponding masculine, feminine, or neuter forms. The singular form of nouns, pronouns, and verbs shall include the plural, and vice versa.
Section 12.6 Severability.
Each provision of this Agreement shall be considered severable and if for any reason any provision hereof is determined to be invalid and contrary to existing or future law, such invalidity shall not impair the operation or affect those portions of this Agreement which are valid, and this Agreement shall remain in full force and effect and shall be construed and enforced in all respects, and such invalid or unenforceable provision shall be replaced with the alternative valid and enforceable provision which otherwise gives maximum effect to the original intent of such invalid or unenforceable provision.
Section 12.7 Successors.
Except as expressly otherwise provided herein, this Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and assigns.
29
Section 12.8 Further Assurances.
Each Member hereby agrees that it shall hereafter execute and deliver further instruments, provide all information and take or forbear such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.
Section 12.9 Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart.
Section 12.10 Legal Counsel.
This Agreement has been prepared by LeClairRyan, A Professional Corporation (“LeClairRyan”), as counsel to the Company, after full disclosure of its representation of the Company and with the consent and at the direction of the Company and each Member. Each Member acknowledges that it has reviewed the contents of this Agreement and fully understands its terms. Each Member acknowledges that it is fully aware of its right to the advice of counsel independent from that of the Company, that it was advised by LeClairRyan that a conflict exists among the Members’ and the Company’s individual interests with respect to this Agreement and that such interests may presently and in the future be adverse, and that it should seek the advice of independent counsel, and that it has had the opportunity to seek the advice of independent counsel. Each Member further acknowledges that LeClairRyan has provided no advice or representations to it regarding the tax consequences of this Agreement to it, and that it has been advised to seek the advice and consultation of its own personal tax advisers with respect to such tax consequences. Each Member, by executing this Agreement, represents that it has, after being advised of the potential conflicts among the Members and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, not to consult such independent legal counsel.
[Counterpart Signature Page(s) Follow]
30
COUNTERPART SIGNATURE PAGE TO OPERATING AGREEMENT OF ALLEGIANCY HOUSTON, LLC
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
MEMBERS:
ALLEGIANCY, LLC,
a Delaware limited liability company
By: /s/ Stevens M. Sadler
Its: Chief Executive Officer
TRISTONE REALTY MANGEMENT, LLC,
a Delaware limited liability company
By: /s/ Randy McQuay
Its: Manager
COMPANY:
ALLEGIANCY HOUSTON, LLC,
a Delaware limited liability company
By: /s/ Stevens M. Sadler
Its: Manager
31
Exhibit A
Member Information and Address for Notices
If to Allegiancy:
Steven Sadler, CEO
10710 Midlothian Turnpike, Suite 202
Richmond, VA 23235
Telephone: 804 379 9560
Facsimile: 866 842 7591
If to TriStone:
Randy McQuay, CEO
13831 Northwest Freeway, Suite 510
Houston, TX 77040
Telephone: 713 446 9482
Facsimile: 281 847 9966
32
Exhibit B
Capital Contributions, Shares, Percentage Interests and Profit/Loss Percentages
May 29, 2015
|
Member
|
Capital Contribution
|
Shares
|
Percentage Interest
|
Profit/Loss Percentage*
|
||||
|
TriStone Realty Management, LLC
|
On file with Company records
|
600
|
60.00%
|
30.00%
|
||||
|
Allegiancy, LLC
|
On file with Company records
|
400
|
40.00%
|
70.00%
|
||||
|
TOTALS:
|
On file with Company records
|
1000
|
100%
|
100%
|
* Reflects Profit/Loss Percentages prior to occurrence of Conversion Event. Upon occurrence of Conversion Event and thereafter, each Member’s Profit/Loss Percentage shall be equal to such Member’s Percentage Interest.
33
Exhibit 7
PLAN OF CONVERSION
This Plan of Conversion (this “Plan of Conversion”) of Allegiancy, LLC, a Delaware limited liability company (the “Company”), is made and entered into effective as of ____________, 2015 in accordance with the terms of the Company’s Amended and Restated Limited Liability Company Operating Agreement, dated as of October 8, 2013, as amended (the “LLC Agreement”), the Delaware Limited Liability Company Act and the Delaware General Corporation Law. Capitalized terms used but not otherwise defined in this Plan of Conversion have the meanings ascribed to such terms in the LLC Agreement.
RECITALS
A. The Company was formed under the name Allegiancy, LLC on January 22, 2013 by the filing of a certificate of formation with the Secretary of State of the State of Delaware. Under the terms of the LLC Agreement, the Company is managed by its board of managers (the “Board”).
B. A conversion of a Delaware limited liability company into a Delaware corporation may be made under Title 8, Section 265 of the Delaware General Corporation Law and Title 6, Section 18-216 of the Delaware Limited Liability Company Act.
C. Sections 5.8(c) and 4.9 of the LLC Agreement respectively provide that upon unanimous approval by the Board and the approval of a Majority of the Members, the Board has the power and authority to, among other matters, convert the Company to another type of entity organized within or without the State.
D. The Board has unanimously approved the conversion of the Company into a Delaware corporation (the “Conversion”) and the terms of this Plan of Conversion, and a Majority of the Members have approved each of the same.
NOW, THEREFORE, the Company does hereby adopt this Plan of Conversion to effectuate the Conversion as follows:
1. Terms and Conditions of Conversion.
(a) The name of the converting entity is Allegiancy, LLC, and the name of the converted entity is Allegiancy, Inc. (the “Corporation”).
(b) The Conversion shall become effective at the time of the filing of the Certificate of Conversion (the “Effective Time”) with the Secretary of State of the State of Delaware, in substantially the form attached hereto as Exhibit A.
(c) At the Effective Time, the Company shall continue its existence in the organizational form of a Delaware corporation. All of the rights, privileges and powers of the Company and all property and all debts due to the Company, as well as all other things and causes of action belonging to the Company, shall remain vested in the Corporation and shall be the property of the Corporation. All actions and resolutions of the Board and the Members, as applicable, taken or adopted from the inception of the Company prior to the Effective Time shall continue in full force and effect as if the Corporation’s Board of Directors and the stockholders, respectively, had taken such actions and adopted such resolutions. All rights of creditors and all liens upon any property of the Company shall be preserved unimpaired, and all debts, liabilities and duties of the Company shall remain attached to the Corporation and may be enforced against the Corporation to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by the Corporation in its capacity as a Delaware corporation.
(d) At the Effective Time, all outstanding membership interests of the Company shall be automatically converted into shares of capital stock of the Corporation, par value $0.01 (the “Capital Stock”), as provided in Section 3 below, with such shares of Capital Stock having the respective rights, preferences and privileges set forth in the Certificate of Incorporation (as defined below).
(e) At the Effective Time, the LLC Agreement shall be terminated and of no further force or effect, and no party shall have any further rights, duties or obligations pursuant to the LLC Agreement, except that Section 5.10 of the Agreement shall survive such termination. Notwithstanding the foregoing, the termination of the LLC Agreement shall not relieve any party thereto from any liability arising in connection with any breach by such party of the LLC Agreement.
2. Certificate of Incorporation; Directors. At the Effective Time, a Certificate of Incorporation of the Corporation shall be filed with the Secretary of State of the State of Delaware in substantially the form attached hereto as Exhibit B (the “Certificate of Incorporation”). Pursuant to a Consent of the Sole Incorporator substantially in the form attached hereto as Exhibit C, which shall be executed immediately following the filing of the Initial Certificate of Incorporation, the initial directors of the Corporation shall be elected. Thereafter immediately following the filing of the Initial Certificate of Incorporation, the initial directors shall ratify and approve the bylaws of the Corporation substantially in the form attached hereto as Exhibit D.
1
3. Manner and Basis of Converting Units in the Company.
(a) Class A Units. At the Effective Time, the Class A Units outstanding immediately prior to the Effective Time shall be converted automatically, without any action on the part of the holder thereof, into validly issued, fully paid and non-assessable shares of the Corporation’s Series A Preferred Stock on a two-for-one basis with each Class A Unit being converted into two shares of Series A Preferred Stock.
(b) Class B Units. At the Effective Time, the Class B Units outstanding immediately prior to the Effective Time shall be converted automatically, without any action on the part of the holder thereof, into validly issued, fully paid and non-assessable shares of the Corporation’s common stock on a two-for-one basis with each Class B Unit being converted into two shares of Common Stock.
(c) Any shares of common stock or Series A Preferred Stock issued in exchange for Class B Units or Class A Units, respectively, that, immediately prior to the Effective Time, were unvested or were subject to a repurchase option, risk of forfeiture or other condition pursuant to the terms of the LLC Agreement, an employment agreement or any other applicable agreement of the Company shall be subject to the same vesting requirements, repurchase options, risks of forfeiture or other conditions unless different terms are set forth in a new or amended employment agreement or other applicable agreement between the Corporation and the holder receiving such shares of common stock or Series A Preferred Stock, and the certificate representing such shares of Common Stock, if any, may accordingly be marked with appropriate legends in the discretion of the Corporation.
(d) The shares of common stock and Series A Preferred Stock into which the Class B Units and Class A Units, respectively, shall be converted at the Effective Time have not been registered under the Securities Act or the securities laws of any state and may not be transferred, pledged or hypothecated except as permitted under the Securities Act and applicable state securities laws pursuant to registration or exemption therefrom; any certificates evidencing the common stock or preferred stock, if any, or any other securities issued in respect of the common stock or Series A Preferred Stock upon any split, dividend, recapitalization, merger, consolidation or similar event, shall bear any legend required by the Corporation, required under applicable U.S. federal and state securities laws or called for by any agreement between the Corporation and any stockholder.
4. Amendment or Termination. This Plan of Conversion may be amended or terminated by the Company and the Conversion may be abandoned at any time prior to the Effective Time, notwithstanding any prior approval of this Plan of Conversion by the Members.
5. Governing Law. This Plan of Conversion shall be governed by and construed under the laws of the State of Delaware.
2
IN WITNESS WHEREOF, the undersigned, having received the required approval from the Board and the Members, hereby adopts this Plan of Conversion as of the date set forth above.
|
ALLEGIANCY, LLC
|
|||
|
|
By:
|
||
|
Name: Stevens M. Sadler
|
|||
|
Title: Chief Executive Officer
|
|||
3
Exhibit A
Certificate of Conversion
STATE OF DELAWARE
CERTIFICATE OF CONVERSION
FROM A LIMITED LIABILITY COMPANY TO A CORPORATION
Pursuant to Title 8, Section 265 of the Delaware General Corporation Law, the undersigned, on behalf of Allegiancy, LLC, a Delaware limited liability company, does hereby submit this Certificate of Conversion for the purpose of converting to a Delaware corporation.
|
1.
|
The date on which Allegiancy, LLC was first formed is January 22, 2013.
|
|
2.
|
The jurisdiction in which Allegiancy, LLC was first formed is the state of Delaware.
|
|
3.
|
The jurisdiction immediately prior to the filing of this Certificate of Conversion is the state of Delaware.
|
|
4.
|
The name of the limited liability company immediately prior to the filing of this Certificate of Conversion is “Allegiancy, LLC”.
|
|
5.
|
The name of the corporation as set forth in its Certificate of Incorporation filed in accordance with Section 265(b)(2) of the Delaware General Corporation Law is “Allegiancy, Inc.”.
|
IN WITNESS WHEREOF, the undersigned being duly authorized to sign on behalf of the converting limited liability company has executed this Certificate on this day of , 2015.
|
ALLEGIANCY, LLC
|
|||
|
|
By:
|
||
|
Name: Stevens M. Sadler
|
|||
|
Title: Chief Executive Officer
|
|||
4
Exhibit B
Certificate of Incorporation
[In the form filed with the Offering Statement]
5
Exhibit B
Consent of Sole Incorporator
ALLEGIANCY, INC.
WRITTEN CONSENT OF THE SOLE INCORPORATOR
THE UNDERSIGNED, being the sole incorporator of Allegiancy, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby consents, pursuant to Sections 107 and 108(c) of the General Corporation Law of the State of Delaware, to the adoption of the following resolutions with the same force and effect as if such resolutions had been adopted at a duly convened meeting of the sole incorporator of the Company:
RESOLVED, that the Board of Directors of the Company consists of three (3) members; and be it
FURTHER RESOLVED, that each of Stevens M. Sadler, Christopher K. Sadler and David L. Moore be, and hereby is, elected as a Director of the Company effective on the date hereof, to serve or hold office until the first annual meeting of stockholders or until their successors are elected and qualify; and be it
FURTHER RESOLVED, that Stevens M. Sadler be, and hereby is, appointed as the Chairman of the Board of Directors of the Company; and be it
FURTHER RESOLVED, the sole incorporator of the Company shall have no further rights, duties, or obligations in connection with the Company as incorporator thereof.
Executed as of the date set forth beside the sole incorporator’s signature below.
|
|
|
, 2015
|
|
|||||
|
Stevens M. Sadler, Incorporator
|
||||||||
6
Exhibit D
Bylaws
[In the form filed with the Offering Statement]
7
Exhibit 11(a)
Consent of Independent Accountants and Auditors
The Members of
Allegiancy, LLC
Richmond, Virginia
We consent to the use in the Offering Circular constituting a part of this Offering Statement on Form 1-A, as it may be amended, of: our independent accountants’ auditor’s reports dated August 17, 2015 relating to the consolidated balance sheets of Allegiancy, LLC as of June 30, 2014 and June 30, 2015, respectively, and of the related consolidated statements of operations, members’ equity and cash flows for the years ended as of each such date.
We also consent to the use in the Offering Circular constituting a part of this Offering Statement on Form 1-A, as may be amended, of our independent accountants’ auditor’s report dated August 25, 2015 relating to the balance sheet of REVA Management Advisors, LLC as of April 8, 2014 and of the related consolidated statements of operations and members’ equity, and cash flows, for the period from July 1, 2013 to April 8, 2014
/s/ Keiter
Glen Allen, Virginia
October
26, 2015
Exhibit 11(b)
CONSENT OF INDEPENDENT AUDITOR
The Members of
Allegiancy, LLC
Richmond, Virginia
We consent to the use in the Offering Circular constituting a part of this Offering Statement on Form 1-A, as it may be amended, of our Independent Auditor’s Report dated August 7, 2015 relating to the combined balance sheets of TriStone Realty Management Group as of June 1, 2015 and June 30, 2014, and the related combined statements of operations, changes in members’ equity, and cash flows for the period from July 1, 2014 to June 1, 2015 and the year ended June 30, 2014, and the related notes to the combined financial statements. We also consent to the reference to us as “experts” under the heading “Independent Auditors” in such Offering Statement.
/s/ Artesian CPA, LLC
Denver, CO
October 26, 2015
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