| 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
December 17, 2015
Subject to Completion
ALLEGIANCY, LLC
(to be converted into
Allegiancy, Inc.)
1100 Boulders Parkway, Suite
605
Richmond, VA 23225
(866) 842-7545
$15,050,000 Minimum Offering Amount (1,075,000 Shares of Common Stock)
$30,100,000 Maximum Offering Amount (2,150,000 Shares of Common Stock)
ALLEGIANCY, LLC ,
a Delaware limited liability company to be converted into Allegiancy, Inc., a Delaware corporation, on or before the initial
closing of this offering , referred to herein as our Company, is offering a minimum of $15,050,000 and a maximum of
$30,100,000 of its common stock , as converted, or our common stock . To date, we have operated our business as Allegiancy, LLC, which, prior to the initial closing of this
offering, will be converted into a Delaware corporation and renamed Allegiancy, Inc. The offering will consist of
a minimum of 1,075,000 and a maximum of 2,150,000 shares of our common stock at an offering price of $14.00 per share,
or the Offered Shares. This offering will terminate on [•], 2016, subject to the Company’s ability to extend the
offering for thirty (30) days with the mutual agreement of our Underwriter, as defined below; provided that, if we have received
and accepted subscriptions for the minimum number of Offered Shares on or before [•], 2016 or the end of the thirty (30)
day extension, if exercised, then the Company will close on the minimum offering amount and this offering will continue until
the date which is sixty (60) days after the initial closing of this offering or the date on which the maximum offering amount
is sold, whichever occurs first. If, on the initial closing date, we have sold less than the maximum Offered Shares, then we will
hold one or more additional closings for additional sales, up to the maximum number of Offered Shares, for sixty (60) days following
the initial closing. Until we achieve the minimum
offering amount, the proceeds for the offering will be kept in an escrow account. Upon achievement of the minimum offering
amount and closing of this offering, the proceeds for the offering will be distributed to the Company and the Offered Shares
will be issued 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 one hundred (100)
Offered Shares ($1,400); however, we can waive the minimum purchase requirement on a case to case basis in our sole discretion. We
have engaged W.R. Hambrecht + Co., LLC, a registered broker-dealer and 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 for quotation of our common stock on the OTCQX Marketplace by the OTC Markets Group, Inc., or OTCQX,
under the Symbol “AGCY.” We anticipate quotation on the OTCQX to begin following the termination of this offering.
|
Price to
Public
|
Underwriting Discounts, Commissions and Expense
Reimbursements 1
|
Proceeds to Company 2
|
Proceeds to Other Persons
|
|||||||||||||
|
Per Offered Share :
|
$ | 14.00 | $ | 0.70 | $ | 13.30 | $ | 0 | ||||||||
| Minimum Offering Amount: | $ | 15,050,000.00 | $ | 752,500.00 | $ | 14,297,500.00 | $ | 0 | ||||||||
|
Maximum Offering Amount:
|
$ | 30,100,000.00 | $ | 1,505,000.00 | $ | 28,595,000.00 | $ | 0 | ||||||||
|
1
This table depicts underwriting commissions of 5% of the gross offering proceeds. We have also agreed to reimburse
certain expenses to our Underwriter. Please refer to the section entitled “UNDERWRITING AND PLAN OF DISTRIBUTION”
beginning on page 17 of this Offering Circular for additional information regarding total underwriter compensation.
2
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. The
Underwriter Warrants have an 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 Shares
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
|
SUMMARY
|
1
|
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|
6
|
|
RISK FACTORS
|
7
|
|
DILUTION
|
16
|
|
UNDERWRITING
AND PLAN OF DISTRIBUTION
|
17
|
|
USE OF PROCEEDS TO ISSUER
|
22
|
|
DESCRIPTION OF OUR BUSINESS
|
23
|
|
DESCRIPTION OF OUR PROPERTIES
|
28
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
29
|
|
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
|
33
|
|
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
|
35
|
|
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
|
38
|
|
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS AND OTHER CONFLICTS OF INTEREST
|
39
|
|
SECURITIES BEING OFFERED
|
41
|
|
ADDITIONAL REQUIREMENTS AND RESTRICTIONS
|
48
|
|
ERISA CONSIDERATIONS
|
50
|
|
REPORTS
|
52
|
|
INDEPENDENT AUDITORS
|
53
|
Special Note on Ownership of Our Capital Stock
Prior to the initial 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 date Allegiancy, LLC converts to Allegiancy,
Inc., or the Entity Conversion Date, refers to Allegiancy, LLC, and our subsidiaries, and (2) for periods
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 following 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 not 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 , which will be on or prior to the initial closing of this offering, we will convert our Company from a limited
liability company to a Delaware corporation pursuant to our Governing Documents. At such time, we will be known as Allegiancy,
Inc. Purchasers in this offering will acquire common stock of Allegiancy, Inc., as converted.
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. See “DESCRIPTION OF OUR BUSINESS - Additional Operations via Allegiancy Houston”
for more information. 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 by effectuating such transfer. As a result, while we do
not currently have the right to name a majority of the Allegiancy Houston board of managers, we are able to exercise substantial
control over the operations of Allegiancy Houston through our right to consent to major actions and our ability to call the promissory
note at any time which would result in our having the right to name a majority of the Allegiancy Houston board of managers.
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 $( 302,214 ). 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 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 Delaware 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 p referred s tock, and 40,000,000 shares of common stock, par value $0.01
per share, or c ommon s tock. As of the conversion, the Company will have 999,994 shares of Series A Preferred
Stock and 2,757,400 shares of its c ommon s tock 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 acquire our common stock and become holders of our c ommon s tock, or our c ommon
s tockholders, 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 s tockholders, including the Common Stockholders.
Taxation
We
are taxed as a subchapter C 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 a minimum of 1,075,000 ($15,050,000) and a maximum of 2,150,000 ($30,100,000) shares of our c ommon s tock
in this offering with a minimum purchase requirement of one hundred (100) Offered Shares, or $1,400. Our
Underwriter and the participating broker-dealers, which we refer to collectively as our Selling Group, must sell the minimum
offering amount, if any Offered Shares are to be sold. If we have not sold the minimum number of Offered Shares by [•],
2016 this offering will terminate; provided that, the Company may extend the offering for an additional thirty (30) days
with the mutual agreement of our Underwriter, or the Extension. We refer to [•], 2016 or the last day of the Extension,
if exercised, as the Termination Date. If we sell at least the minimum number of Offered Shares, or the Minimum
Offering, on or before the Termination Date, then we will close on the Minimum Offering, or the Initial Closing, and this
offering will terminate on the earlier of the date which is sixty (60) days after the Initial Closing or the date on which we
sell the maximum number of Offered Shares, or the Maximum Offering. If, on the Initial Closing date, we have sold less than the Maximum Offering, then we will hold one or more additional closings in our sole discretion
for additional sales, up to the Maximum Offering, for sixty (60) days following the Initial Closing, or the Additional
Closings, and each, an Additional Closing. For the Initial Closing and each subsequent Additional Closing, proceeds for such
closing will be kept in an escrow account. Upon each closing, the proceeds collected for such closing will be disbursed to
the Company and the Offered Shares for such closing will be issued to investors. If a closing does not occur
for any reason, the proceeds for such closing will be promptly returned
to investors without interest (within one business day) and without deduction.
Purchasers
of the Offered Shares will become our c ommon s tockholders. Our c ommon s tock is common
equity and contains no preferences as to other classes of our c apital s tock. 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 c ommon s tockholders. Shares
of our Series A Preferred Stock also fully participate in any dividends declared or paid on our common stock .
Each share of our c ommon s tock entitles the holder to one vote on all matters submitted to the vote of the s tockholders, including the election of directors. Series A Preferred Stockholders 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 $ 302,214 ,
and we paid 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 dividends using offering proceeds. The order and priority of
our dividends is further described in “SECURITIES BEING OFFERED – Dividends.”
Upon
each 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 sold in such closing, or the Underwriter’s
Warrants. The Underwriter’s Warrants are exercisable commencing 180 days after the qualification date of the offering
statement related to this offering, and will be exercisable until the fifth anniversary of the qualification date. 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.
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 our p referred s tock less the amount of preferred stock already issued and outstanding as Series A p referred s tock. 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
|
•
|
There
are no guaranteed distributions, and dividends will be subject to our financial performance.
|
| • |
There
is no sinking fund established to fund redemptions of the Series A Preferred Stock.
|
| • |
Our revenues will be subject to the performance of the real estate assets we manage.
|
| • |
The national economy and the local economies of our managed properties, which are beyond our control, will affect the performance of our business.
|
| • |
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.
|
| • |
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.
|
| • |
If a property owner sells a property we manage, our management relationship, and thus a source of ongoing revenue, will terminate.
|
| • |
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.
|
| • |
We are dependent upon our management team, and Stevens M. Sadler and Christopher K. Sadler in particular.
|
| • |
You
will have only limited voting rights with respect to the management of our Company.
|
| • |
We
may change our operational policies and business and growth strategies without s tockholder consent, which may subject us
to different and more significant risks in the future.
|
| • |
We do not anticipate a public market for our securities developing.
|
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
Class B Units in Allegiancy, LLC, which units will be converted into 200 shares of c ommon s tock 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 Class B Units in Allegiancy, LLC, which units will be converted into 1,250,000 shares of
c ommon s tock 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 Class B Units
in Allegiancy, LLC, which units will be converted into 1,250,000 shares of common s tock 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 Class B Units in
Allegiancy, LLC, issued to Continuum and Chesapeake in exchange for their membership interests in RMA, which units will be converted
into shares of c ommon s tock 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:
| ● |
cash flow generated by operations;
|
|
●
|
our success in acquiring and retaining targeted assets;
|
|
●
|
the performance of the underlying real properties which are the subject of our assets;
|
|
●
|
cost of acquisitions (including related debt service payments, if any);
|
|
●
|
fluctuations in working capital;
|
|
●
|
restrictions contained in our debt instruments, if applicable;
|
| ● |
capital expenditures;
|
|
●
|
reserves
made by the board of directors in its discretion;
|
|
●
|
our
board of directors’ discretion in declaring distributions;
|
|
●
|
prevailing economic and industry conditions; and
|
|
●
|
financial, business and other factors, a number of which are beyond our control.
|
●
|
Investors should not invest in our c ommon s tock 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 c ommon s tock 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 c ommon s tock.
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 have the right to name a majority of 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, and therefore are able to exercise substantial
control over Allegiancy Houston, we do not currently have the right to name a majority of the board of managers of
Allegiancy Houston. While we believe that the joint venture will prove successful, we cannot guarantee the success of
the venture, and until such time as we take full operating control, the joint venture’s success will be subject, to some
degree, to the judgment of TriStone’s representatives to management. As a result, this may pose a risk to any investment
in us.
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 turmoil 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 term, 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.
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 s tockholder 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 s tockholders.
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 c ommon
s tock issued to them as consideration for our acquisition of RMA. These shares of c ommon s tock
will represent 42.32% of our outstanding shares of capital stock following completion of the offering, assuming we sell the
Maximum Offering . If we sell the Minimum Offering, the aforementioned shares will represent 51.74% of our outstanding
shares of capital stock following completion of this offering. In addition, each of Messrs. Sadler has the right to
acquire an additional 30,000 shares of c ommon s tock under our equity incentive plan. Therefore, in either
case, Messrs. Sadler will collectively control sufficient c ommon s tock to significantly influence the election of
our board of directors, and actions requiring the consent of a majority of the s tockholders.
The
ability of a s tockholder to recover all or any portion of such s tockholder’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 s tockholders, but only after the satisfaction
of the claims of third-party creditors of the Company. The ability of a s tockholder to recover all or any portion
of such s tockholder’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 c ommon s tockholders
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 c ommon s tockholders 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 c ommon s tock 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 c ommon s tock and make it difficult to sell your shares.
Prior to this offering, there was no active market for our c ommon s tock. Although we intend to apply for quotation of our c ommon s tock on the OTCQX, even if we obtain that quotation, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. F urther, our common stock will not be quoted on the OTCQX until after the termination of this offering, if at all. Therefore, purchasers in the Initial Closing will be required to wait until at least after the final termination date of this offering for such quotation. The initial public offering price for shares of our c ommon s tock will be determined by negotiation between us and our Underwriter. You may not be able to sell your shares of c ommon s tock at or above the initial offering price.
The OTCQX, 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 c ommon s tock may be similarly volatile, and holders of shares of our c ommon s tock 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 c ommon s tock 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 c ommon s tock will not fluctuate or decline significantly in the future or that c ommon stockholders 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 c ommon s tock at a price significantly below the price
in this offering.
Series
A Preferred Stockholders have the right to purchase one share of c ommon s tock for each Series A Preferred Stock
they hold for a purchase price of $3.75 per share of c ommon s tock, 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 c ommon s tock in accordance with our right to do
so beginning in March, 2019. The purchase price per share of c ommon s tock pursuant to the Purchase Rights
is $11.25 less than the price per share of c ommon s tock 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 Class B Units in Allegiancy, LLC, which units will be converted into shares of c ommon
s tock 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 c ommon
s tock 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 .
16
UNDERWRITING AND PLAN OF DISTRIBUTION
Underwriting
We have engaged W.R. Hambrecht + Co . , LLC, our U nderwriter, 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 U nderwriter 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 U nderwriter is not required to take or pay for any specific number or dollar amount of our c ommon s tock. The U nderwriter will have the right to engage such other FINRA member firms as it determines to assist in this offering.
The Offered Shares will be issued in one or more closings . For the Initial Closing and each subsequent Additional Closing, proceeds for such closing will be kept in a non-interest bearing escrow account with SunTrust Bank. Upon each closing, the proceeds collected for such closing will be disbursed to the Company and the Offered Shares for such closing will be issued to investors. The Underwriter and the Selling Group must sell the Minimum Offering if any shares are to be sold at all. 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 Termination Date; provided, that if the Initial Closing occurs, the escrow account will remain open until the date which is sixty (60) days after the Initial Closing or the date on which all Offered Shares have been sold, whichever occurs first, or the Offering Termination Date . All funds received into the escrow account 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 or electronic funds transfer via ACH to the specified bank account at the SunTrust Bank per the instructions in the subscription agreement. The subscription agreement is available at www.______.com. The Underwriter will not accept or handle any funds. T he escrow agent will notify the U nderwriter when the full amount necessary to purchase the Minimum Offering has been received. If, on the Termination Date , investor funds are not received in respect of the Minimum 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 U nderwriter .
| Per Share | Total (Mimimum Offering) | Total Maximum Offering | ||||||||||
| Public offering price | $ | 14.00 | $ | 15,050,000.00 | $ | 30,100,000.00 | ||||||
| Underwriting commissions payable by us1 | $ | 0.70 | $ | 752,500.00 | $ | 1,505,000.00 | ||||||
| Proceeds, before expenses, to us | $ | 13.30 | $ | 14,297,500.00 | $ | 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. |
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 $0.42 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 subscription in whole or in part , for any reason or no reason.
Engagement Agreement with the Underwriter
We are currently party to an engagement agreement with the Underwriter. The term of the engagement agreement began on September 22, 2015 and will continue for one year, until September 22, 2016, unless one of the following events occurs prior to September 22, 2016, in which case the engagement agreement would be terminated early:
| (i) | we and the Underwriter mutually agree to terminate the engagement agreement; |
| (ii) | we execute a definitive underwriting or placement agency agreement with the Underwriter; |
| (iii) | we terminate the engagement agreement due to the Underwriter’s material failure to provide the services contemplated by the engagement agreement; or |
| (iv) | we decide not to proceed with the offering or withdraw any offering statement filed with the Commission. |
Compensation for Advisory Services. As part of the engagement agreement, the Underwriter agreed to provide us with financial advice and assistance concerning our business. As compensation for these advisory services, we agreed to pay the Underwriter $10,000 per month during the term of the engagement agreement. If the engagement agreement were to stay in place for its full one-year term, we would pay the Underwriter a total of $120,000 as compensation for its advisory services.
17
Offering Expenses. We are responsible for all offering fees and expenses, including the following: (i) fees and disbursements of our legal counsel, accountants, and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) all filing fees, including FINRA and blue sky filing fees; (iv) all of the legal fees related to the registration and qualification of the Offered Shares under state securities laws and FINRA clearance (not to exceed $30,000 in the aggregate); and (v) our transportation, accommodation, and other roadshow expenses. To the extent that any of our fees and expenses are paid by the Underwriter with our approval, we will, upon request, reimburse the Underwriter for such fees and expenses.
Reimbursable Expenses in the Event of Termination. In the event the offering does not close or the engagement agreement is terminated for any reason other than because of the Underwriter’s material failure to provide the services contemplated by the engagement agreement, we have agreed to reimburse the Underwriter for all unreimbursed, reasonable, documented, out-of-pocket fees, expenses, and disbursements, including the Underwriter’s legal fees, up to $100,000. However, the amount of reimbursable expenses to be paid to the Underwriter will be reduced by the amount of financial advisory fees we have paid to the Underwriter. For a description of the financial advisory fees, see “Compensation for Advisory Services” above.
Termination Fee. If we terminate the engagement agreement and then consummate a public offering in which the Underwriter does not serve as the Underwriter or placement agent within six months of such termination, then we have agreed to pay the Underwriter a termination fee equal to $100,000. However, the termination fee will be reduced by the amount of reimbursable expenses and financial advisory fees we have paid to the Underwriter. See “Reimbursable Expenses” and “Compensation for Advisory Services” above. The termination fee is not payable in the event we terminate the engagement agreement due to the Underwriter’s material failure to provide the services contemplated by the engagement agreement.
Underwriting Commission. We have agreed that the definitive underwriting agreement will provide for us to pay a commission of 5.0% of the gross offering proceeds to the Underwriter as compensation immediately upon consummation of the offering.
Underwriter’s Warrants
Upon each 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 sold in such closing, or the Underwriter’s Warrants. 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.
The Underwriter’s Warrants and the shares of c ommon s tock 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 exercise , sell, transfer, assign, pledge, or hypothecate the Underwriter’s Warrants or the shares of c ommon s tock 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.
Lock-Up Agreements
We and our officers, directors, and holders of five percent or more of our c ommon s tock have agreed, or will agree, with the U nderwriter, subject to certain exceptions, that, without the prior written consent of the U nderwriter, we and they will not, directly or indirectly, during the period ending 180 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 c ommon s tock or any securities convertible into or exchangeable or exercisable for our c ommon s tock, 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 c ommon s tock, whether any such swap or transaction is to be settled by delivery of our c ommon s tock 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.
18
Pricing
of the Offering
Prior to the offering, there has been no public market for the Offered Shares. The initial public offering price was determined by negotiation between us and the U nderwriter. The principal factors considered in determining the initial public offering price include:
| · | the information set forth in this Offering Circular and otherwise available to the U nderwriter; |
| · | 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 c ommon s tock of generally comparable companies; and |
| · | other factors deemed relevant by the U nderwriter and us. |
We intend to apply to have our c ommon s tock quoted on OTCQX following the termination of this offering under the symbol “ AGCY.”
Indemnification and Control
We have agreed to indemnify the U nderwriter against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to the payments the Underwriter and its selling agents, affiliates and controlling persons may be required to make in respect of these liabilities.
The U nderwriter 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 U nderwriter 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.
Our Relationship with the Underwriter
In the ordinary course of their various business activities, the U nderwriter 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 U nderwriter 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;
19
(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 Offered Shares 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.
Offering
Period and Expiration Date
This offering will start on or after the date this Offering Circular is declared qualified by the SEC and will terminate on the Offering Termination Date.
Procedures for Subscribing
If you decide to subscribe for Offering Shares in this offering, you should:
Go to www.[____________].com, click on the “Invest Now” button and follow the procedures as described.
| 1. | Electronically receive, review, execute and deliver to us a subscription agreement; and |
| 2. | Deliver funds directly by wire or electronic funds transfer via ACH to the specified bank account at SunTrust Bank. |
Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such Subscription Documents upon request after a potential investor has had ample opportunity to review this Offering Circular.
The Underwriter has engaged FundAmerica Technologies, LLC to provide certain technology and administrative services in connection with the offering, including the online platform by which subscribers may receive, review, execute and deliver subscription agreements electronically.
Right to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to the escrow agent, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.
Acceptance of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.
20
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 Offered Shares .
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.
21
USE OF PROCEEDS TO ISSUER
Net
proceeds to our Company from this offering are anticipated to be $28,230,000, assuming we sell the Maximum Offering, and $13,932,500,
assuming we sell the Minimum Offering, following the payment of selling commissions, underwriter fees and other offering costs. Set forth below is a table showing the
estimated sources and uses of the proceeds from this offering.
| Minimum Offering | % | Maximum Offering Amount | % | |||||||||||||
| Gross Proceeds | $ | 15,050,000 | 100.00 | % | $ | 30,100,000 | 100.00 | % | ||||||||
Estimated Offering Expenses1 | $ | 365,000 | 2.43 | % | $ | 365,000 | 1.21 | % | ||||||||
Selling Commissions & Fees2 | $ | 752,500 | 5.00 | % | $ | 1,505,000 | 5.00 | % | ||||||||
| Net Proceeds | $ | 13,932,500 | 92.57 | % | $ | 28,230,000 | 93.79 | % | ||||||||
Acquisition of Assets3 | $ | 11,932,500 | 79.29 | % | $ | 26,230,000 | 87.14 | % | ||||||||
Capital Expenditures4 | $ | 500,000 | 3.32 | % | $ | 500,000 | 1.66 | % | ||||||||
Working Capital5 | $ | 1,500,000 | 9.97 | % | $ | 1,500,000 | 4.98 | % | ||||||||
| Total Use of Proceeds | $ | 15,050,000 | 100.00 | % | $ | 30,100,000 | 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 79.29%
of the gross offering proceeds if the Minimum Offering is sold or approximately 87.14% of the gross proceeds if the Maximum
Offering is sold to acquire the operations of, or if required , majority 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. See “DESCRIPTION OF OUR BUSINESS - Acquisition Structure - Investment
Company Act Considerations” for more information.
4 We
intend to use approximately $500,000, 3.32% of the gross offering proceeds if the Minimum Offering is sold or 1.66% of
the gross offering proceeds if the Maximum Offering is sold , on additional capital expenditures including software infrastructure
for our platform.
5 We
intend to use approximately 9.97% of the gross offering proceeds if the Minimum Offering is sold or 5.00% of the gross
offering proceeds if the Maximum Offering is sold 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.
22
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 Delaware 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;
|
23
| • |
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 60 % 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 c ommon s tock 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 have the right to appoint a majority of the board of managers of Allegiancy Houston, we can exercise substantial contol over Allegiancy Houston and its board of managers as a result of our right to consent to the following significant actions of Allegiancy Houston: (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.
24
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;
|
25
| • |
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 space , 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
26
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.
An
additional aspect
of 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.
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.
Investment Company Act Considerations
We currently conduct our asset management business directly through our wholly-owned subsidiary, RMA, and through Allegiancy Houston, in which we own a 70% economic interest and a 40% voting interest coupled with additional substantive control and ownership rights as described above. As a part of our acquisition strategy, we may acquire, in whole or in part, equity interests in other asset managers.
We intend to conduct our acquisitions and operations such that we do not become an “investment company” under the Investment Company Act of 1940, as amended, or the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the “40% Test”). “Investment securities” do not include (A) U.S. government securities, (B) securities issued by employees’ securities companies and (C) securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
Our primary business is asset management and the owning and holding of our wholly and majority-owned subsidiaries that are engaged in the asset management business. Therefore, we believe that we will not be an investment company as defined in Section 3(a)(1)(A).
We also do not believe our acquisition strategy will cause us to become an investment company under Section 3(a)(1)(C) of the Investment Company Act. While we may acquire equity interests in our target asset managers, we intend to only acquire majority interests in those asset managers. As such, those asset managers would be majority-owned subsidiaries of our company. We do not intend to make minority investments in our target asset managers. We must acquire at least 50 percent of the outstanding voting securities of a target asset manager, or otherwise comply with SEC staff guidance regarding majority-owned subsidiaries, for the acquired company to meet the definition of “majority-owned subsidiary” under the Investment Company Act.
If we were to fail to structure one or more of our acquisitions in a manner permitting us to treat the acquired asset manager(s) as a wholly or majority-owned subsidiary, then we would be required to analyze the amount of our investment in the securities of our subsidiaries not qualifying as wholly or majority owned subsidiaries for purposes of the 40% Test. If we were to fail the 40% Test, we, nevertheless, anticipate complying with the requirements of the safe harbor from being deemed an investment company pursuant to Rule 3a-1 under the Investment Company Act. We anticipate that any asset manager we acquire that is not treated as a majority-owned subsidiary, will be primarily controlled by our company for purposes of Rule 3a-1(4), and we anticipate any such acquisitions will be of companies engaged in our company’s primary business, asset management, and that are not investment companies.
As a result of the foregoing, we will be required to monitor the structure of our acquisitions to ensure that we do not inadvertently become an investment company. If we fail to successfully structure our acquisitions to avoid becoming an investment company, if the law or the SEC’s interpretation changes, or if we are otherwise required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, and transactions with affiliated persons (as defined in the Investment Company Act). In addition, we would not be permitted to rely upon Regulation A to offer our securities. Compliance with the Investment Company Act would, accordingly, limit our ability to execute our acquisition strategy and require us to significantly restructure our business plan.
27
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 the Maximum Offering .
1Repesents
the percentage of outstanding shares of c ommon s tock held by each ownership group.
2We
own a 70% economic interest but only a 40% voting interest in Allegiancy Houston. Our voting interest in Allegiancy Houston
will increase to 70% when we call the convertible promissory note made between TriStone and us.
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.
28
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 Class A Units , 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.
29
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.
30
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 Class A Units , 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
Class A Units , 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.
31
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.
32
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 |
50
|
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
33
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.
34
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 Class B Units in Allegiancy, LLC,
which options will be converted into options to acquire 30,000 shares of c ommon s tock in Allegiancy, Inc. on the
Entity Conversion Date with an option price of $3.00 per share of c ommon s tock 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 Class B Units in Allegiancy, LLC,
which options will be converted into options to acquire 30,000 shares of c ommon s tock in Allegiancy, Inc. on the
Entity Conversion Date with an option price of $3.00 per share of c ommon s tock 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 Class B Units in Allegiancy, LLC, which
options will be converted into options to acquire 100,000 shares of c ommon s tock in Allegiancy, Inc. on the
Entity Conversion Date with an option price of $3.00 per share of c ommon s tock 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 to acquire 5,000 Class B Units in Allegiancy,
LLC, which options will be converted into options to acquire 10,000 shares of c ommon s tock in Allegiancy, Inc. on
the Entity Conversion Date with an option price of $3.00 per share of c ommon s tock 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
|
35
|
•
|
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 c ommon s tock. 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 Class B Units
in Allegiancy, LLC, which units will be converted into 2,000,000 shares of c ommon s tock 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 Class B Units in Allegiancy, LLC, which units will be converted into 484,300
shares of c ommon s tock 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 stockholders .
36
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 securities to be covered
by each Award, (iii) the fair market value of such securities , (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 securities
received in connection with an Award is permitted, (xii) notice provisions relating
to the sale of securities acquired under the Equity Incentive Plan, and (xiii) any
additional requirements relating to Awards that the board of directors deems appropriate.
Key
Man Insurance
We
own term, key man life insurance policies of $1.5 million each on Stevens M. Sadler and Christopher K. Sadler.
37
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
c ommon s tock 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. On the Entity Conversion Date and prior to the Initial Closing, we will
have 999,994 shares of Series A Preferred Stock and 2,757,400 shares of common stock issued and outstanding. 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
On
the date of Initial Closing , 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 share
of Series A Preferred Stock, and we will have issued incentives under our Equity Incentive Plan in the amount of 484,300 shares
of c ommon s tock.
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 shares1 | Option to Acquire 30,000 Shares | 45.34% |
| Chairman and Chief Executive Officer | ||||
| 1100
Boulders Parkway, Suite 605 | ||||
| Richmond, Virginia 23225 | ||||
| Common Stock | Christopher K. Sadler | 1,250,000 shares2 | Option to Acquire 30,000 Shares | 45.33% |
| President, Chief Financial Officer, Treasurer and Director | ||||
| 1100
Boulders Parkway, Suite 605 | ||||
| Richmond, Virginia 23225 |
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 of the Minimum Offering, Continuum will own 25.87% of our total outstanding shares of capital stock and Chesapeake will
own 25.87% of our total outstanding shares of capital stock. Upon closing
of the Maximum 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.
38
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.
39
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 Class B Units in Allegiancy, LLC, which units will be converted into 1,250,000 shares of c ommon s tock in Allegiancy, Inc. on the Entity Conversion Date, valued at $10.00 per Class B Unit in Allegiancy, LLC, or $5.00 per share of c ommon s tock in Allegiancy, Inc. on the Entity Conversion Date, as consideration for their contribution. The number of Class B Units 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.
40
SECURITIES BEING OFFERED
General
Our
Company is offering a minimum of 1,050,000 and a maximum of 2,150,000 shares of our common stock at a price
of $14.00 per share ($15,050,000 and $30,100,000, respectively) . The minimum subscription is one hundred (100) Offered Shares
($1,400); however, we can waive the minimum subscription on a case to case basis in our sole discretion. The Offered
Shares are common equity and are not entitled to any preferences regarding distributions. See “– Distributions.”
This offering will
terminate on the Termination Date, provided that if we have received and accepted subscriptions for the Minimum Offering on
or before the Termination Date, then this offering will terminate on the date which is sixty (60) days after the Initial
Closing or when all Offered Shares have been sold, whichever occurs first. If, at the Initial Closing, we have sold less than the
Maximum Offering, we will hold Additional Closings, up to the Maximum Offering, for sixty (60) days following the Initial
Closing. For the Initial Closing and each subsequent Additional Closing, proceeds for such closing will be kept in an escrow
account. Upon each closing, the proceeds collected for such closing will be disbursed to the Company and the Offered Shares
for such closing will be issued to investors.
Our
Company and s tockholders are governed by our Certificate and Bylaws. See “– Description
of Certificate of Incorporation and Bylaws” below for a detailed summary of terms of our Certificate and Bylaws. Our
Certificate 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 c ommon
s tock, 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 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 a stockholder .
There
will be no charge to our s tockholders 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 $0.30 per share annually, or $0.075
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 c ommon s tock.
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, Series A Preferred Stockholders 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 Stockholders , liquidating distributions will be shared pari passu between
our c ommon s tock 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 p referred s tock in the future.
42
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 s tockholders, our board of directors does not intend, and has no reason
to withhold dividends from our s tockholders, 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.
43
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 c ommon s tock, par value $0.01 per share and 2,000,000 shares shall be p referred s tock, 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 less those already 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.
44
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 Stockholders 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 c ommon s tock; provided, however, that in order for us to convert the Series A Preferred Stock, a closing price for our c ommon s tock must be available based upon trading of the c ommon s tock 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 c ommon s tock of Series A Preferred Stockholder whose Series A Preferred Stock is being converted, in whole or in part, shall receive that number of shares of c ommon s tock equaling $10.00 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 c ommon s tock. 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 c ommon s tock. The exercise price for c ommon s tock which may be purchased pursuant to the exercise of the Purchase Right is $3.75 per share of c ommon s tock. Purchase rights for 999,994 shares of Series A Preferred Stock are outstanding.
45
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 Series A Preferred Stockholder 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.
46
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 c ommon s tock, 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 Series A Preferred Stockholders
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 Series A Preferred Stockholders and common
stockholders , pro rata, then outstanding.
Amendment
The stockholders may amend, alter or repeal our Certificate and our Bylaws.
47
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:
|
•
|
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
|
|
|
•
|
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.
|
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:
|
•
|
meet the minimum suitability standards established by us and the investment limitations established under Regulation A;
|
||
|
•
|
can
reasonably benefit from an investment in our Offered Shares based on your overall investment objectives and portfolio structure;
|
||
|
•
|
are able to bear the economic risk of the investment based on your overall financial situation; and
|
||
|
•
|
have an apparent understanding of:
|
||
|
•
|
the
fundamental risks of an investment in the Offered Shares;
|
||
|
•
|
the risk that you may lose your entire investment;
|
||
|
•
|
the
lack of liquidity of the Offered Shares;
|
||
|
•
|
the
restrictions on transferability of the Offered Shares;
|
||
|
•
|
the background and qualifications of our management; and
|
||
|
•
|
our business.
|
||
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:
|
•
|
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;
|
|
|
•
|
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;
|
|
|
•
|
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;
|
|
48
|
•
|
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
|
|
|
•
|
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.
|
49
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:
|
•
|
whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
|
|
•
|
whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and
|
|
•
|
whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment returns.
|
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 c ommon s tock.
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.
50
ACCEPTANCE
OF SUBSCRIPTIONS 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.
51
REPORTS
We
will furnish the following reports, statements, and tax information to each stockholder:
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 s tockholder 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 s tockholders.
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 s tockholder 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 c ommon s tockholders. 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 c ommon s tockholder, will be
maintained by us or our transfer agent in our company register.
52
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.
53
Index to Financial Statements
|
Allegiancy, LLC
|
||
|
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
|
|
|
Consolidated Balance Sheet June 30, 2015
|
F-18
|
|
|
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
|
|
|
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
|
|
|
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
|
|
|
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
|
|
|
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 initial
closing of this offering. ***
|
(2)(b)
|
Form
of Bylaws of Allegiancy, Inc., to be effective prior to the initial closing
of this offering. ***
|
| (4) | Form of Purchaser Questionnaire and Subscription Agreement . |
(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 the initial closing of this offering. *** |
(8)
|
Form
of 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)(a)
|
Initial
Filing Press Release, dated September 4, 2015.
|
| (13)(b) | Amendment Filing Press Release, dated October 26, 2015 . |
| (13)(c) | Investor Relations Video Transcript. |
| (13)(d) | Investor Information Sheet. |
| (13)(e) | Form of Email Campaign Correspondence. |
| (13)(f) | Underwriter Landing Web Page available at www.wrhambrecht.com/allegiancy-company/ until December 17, 2015. |
| (13)(g) | Under writer Landing Web Page available at www.wrhambrecht.com/allegiancy-company/ after December 17, 2015. |
*To
be filed by Amendment.
**Included
with the legal opinion provided pursuant to Item (11)
***Previously
Filed
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
December 17, 2015.
ALLEGIANCY,
LLC
a
Delaware Limited Liability Company
By:
/s/ Stevens M. Sadler
Stevens
M. Sadler, Manager
/s/
Stevens M. Sadler
Stevens
M. Sadler
Manager
and Chief Executive Officer (Principal Executive Officer)
/s/
Christopher K. Sadler
Christopher
K. Sadler
Manager
and President (Principal Financial Officer and Principal Accounting Officer)
Exhibit 1(a)
ALLEGIANCY, INC.
Minimum: [ ● ] Shares of Common Stock
Maximum: [ ● ] Shares of Common Stock
$0.01 par value per share
UNDERWRITING AGREEMENT
[ ● ], 2016
909 Montgomery Street, 3rd Floor
San Francisco, California 94133
Dear Ladies and Gentlemen:
Allegiancy, Inc., a Delaware corporation (the “Company”), formerly Allegiancy, LLC, a Delaware limited liability company, proposes, subject to the terms and conditions contained in this Underwriting Agreement (this “Agreement”), to issue and sell a minimum of [ • ] shares and up to a maximum of [ • ] shares of its common stock, $0.01 par value per share (the “Common Stock”), to investors (collectively, the “Investors”) in an initial public offering pursuant to Regulation A through you as underwriter (the “Underwriter”), acting on a best efforts basis only, in connection with such sales. The shares of Common Stock to be sold in this offering are referred to herein as the “Shares.” The Shares are more fully described in the Offering Statement (as hereinafter defined).
The Company hereby confirms its agreements with the Underwriter concerning the purchase and sale of the Shares, as follows:
1. Agreement to Act on a Best Efforts Basis. On the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions of this Agreement, the Underwriter agrees to act on a best efforts, min/max basis only, in connection with the issuance and sale by the Company of the Shares to the Investors. Under no circumstances will the Underwriter be obligated to underwrite or purchase any of the Shares for its own account or otherwise provide any financing. The Company will pay to the Underwriter a fee equal to five percent (5%) (the “Fee”) of the gross offering proceeds received by the Company from the sale of the Shares as set forth on the cover page of the Final Offering Circular (as hereinafter defined). The retainer fees paid to the Underwriter by the Company in accordance with the Engagement Agreement, dated September 22, 2015 (the “Retainer Fees”), will be credited toward the Fee.
The Underwriter shall have the right to enter into selected dealer agreements with other broker-dealers participating in the Offering (each dealer being referred to herein as a “Dealer” and said dealers being collectively referred to herein as the “Dealers”). The Fee shall be re-allowable, in whole or in part, to the Dealers. The Company will not be liable or responsible to any Dealer for direct payment of compensation to any Dealer, it being the sole and exclusive responsibility of the Underwriter for payment of compensation to Dealers.
1
(i) On or after the date of this Agreement, the Company, the Underwriter and SunTrust Bank, Richmond, Virginia (the “Escrow Agent”) will enter into an Escrow Agreement substantially in the form included as an exhibit to the Offering Statement (the “Escrow Agreement”), pursuant to which an escrow account will be established, at the Company’s expense, for the benefit of the Investors (the “Escrow Account”).
(ii) Prior to the initial closing date of the offering and any subsequent closing date, (i) each Investor will execute and deliver a Purchaser Questionnaire and Subscription Agreement (each, an “Investor Subscription Agreement”) to the Company and the Company will make available to the Underwriter and the Escrow Agent copies of each such Investor Subscription Agreement; (ii) each Investor will transfer to the Escrow Account funds in an amount equal to the price per Share as shown on the cover page of the Final Offering Circular (as defined below) multiplied by the number of Shares subscribed by such Investor; (iii) subscription funds received from any Investor will be promptly transmitted to the Escrow Account in compliance with Rule 15c2-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (iv) the Escrow Agent will notify the Company and the Underwriter in writing whether the balance of the Escrow Account contains collected funds in the amount equal to the proceeds for the sale of at least [ ● ] Shares offered hereby (the “Requisite Funds”).
(a) If the Escrow Agent shall have received at least the Requisite Funds on or before [ ]:00 a.m., New York City time, on [_____], 2016, or at such other time(s) on such other date(s), not more than thirty (30) days thereafter, as may be agreed upon by the Company and the Underwriter (each such date, a “Closing Date”), the Escrow Agent will release the balance of the Escrow Account for collection by the Company and the Underwriter as provided in the Escrow Agreement and the Company shall deliver the Shares purchased on such Closing Date to the Investors, which delivery may be made through the facilities of the Depository Trust Company (“DTC”) or via book entry with the Company’s securities registrar and transfer agent, Issuer Direct Corporation, Morrisville, North Carolina (the “Transfer Agent”). The initial closing (the “Closing”) and any subsequent closing (each, a “Subsequent Closing”) shall take place at the office of the Underwriter or such other location as the Underwriter and the Company shall mutually agree. All actions taken at the Closing shall be deemed to have occurred simultaneously on the date of the Closing and all actions taken at any Subsequent Closing shall be deemed to have occurred simultaneously on the date of any such Subsequent Closing.
(b) If the Requisite Funds have not been received immediately prior to the initial Closing Date, the offering will not proceed and the Escrow Agent will promptly return the funds to the investors without interest.
(c) On each Closing Date, the Company will issue to the Underwriter (and/or its designee) warrants to purchase that number of shares of Common Stock equal to five percent (5%) of the shares issued and sold by the Company on such Closing Date (adjusted upward to the nearest whole share) (the “Underwriter’s Warrants”). The Underwriter’s Warrants shall be in the form of Exhibit D attached hereto. The Underwriter’s Warrants shall have an exercise price per share equal to one hundred fifteen percent (115%) of the price per Share as shown on the cover page of the Final Offering Circular (as defined below). The Underwriter’s Warrants will be exercisable for a term of five years beginning on the Qualification Date (as defined below). The Underwriter understands and agrees that there are significant restrictions pursuant to Financial Industry Regulatory Authority (“FINRA”) Rule 5110 against transferring the Underwriter’s Warrants and the underlying shares of Common Stock during the one hundred eighty (180) days after the Qualification Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Underwriter’s Warrants, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Qualification Date to anyone other than (i) an underwriter or selected dealer in connection with the offering contemplated hereby or (ii) a bona fide officer or partner of the Underwriter or of any underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
2
3. Representations and Warranties of the Company. The Company represents and warrants and covenants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange Commission (the “Commission”) an offering statement on Form 1-A (File No. 024-10482) (collectively, with the various parts of such offering statement, each as amended as of the Qualification Date for such part, including any Offering Circular and all exhibits to such offering statement, the “Offering Statement”) relating to the Shares pursuant to Regulation A as promulgated under the Securities Act of 1933, as amended (the “Act”), and the other applicable rules, orders and regulations (collectively referred to as the “Rules and Regulations”) of the Commission promulgated under the Act. As used in this Agreement:
(1) “Applicable Time” means [__] (Eastern time) on the date of this Agreement;
(2) “Final Offering Circular” means the final offering circular relating to the public offering of the Shares as filed with the Commission pursuant to Regulation A of the Rules and Regulations;
(3) “Preliminary Offering Circular” means any preliminary offering circular relating to the Shares included in the Offering Statement pursuant to Regulation A of the Rules and Regulations;
(4) “Pricing Disclosure Materials” means the most recent Preliminary Offering Circular and the materials identified in Schedule 2 hereto;
(5) “Qualification Date” means the date as of which the Offering Statement was or will be qualified with the Commission pursuant to Regulation A, the Act and the Rules and Regulations; and
3
(6) “Testing-the-Waters Communication” means any video or written communication with potential investors undertaken in reliance on Rule 255 of the Rules and Regulations.
(b) The Offering Statement has been filed with the Commission in accordance with the Act and Regulation A of the Rules and Regulations; no stop order of the Commission preventing or suspending the qualification or use of the Offering Statement, or any amendment thereto, has been issued, and no proceedings for such purpose have been instituted or, to the Company’s, knowledge, are contemplated by the Commission.
(c) The Offering Statement, at the time it became qualified, as of the date hereof, and as of each Closing Date, conformed and will conform in all material respects to the requirements of Regulation A, the Act and the Rules and Regulations.
(d) The Offering Statement, at the time it became qualified, as of the date hereof, and as of each Closing Date, did not and will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(e) The Preliminary Offering Circular did not, as of its date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty with respect to the statements contained in the Preliminary Offering Circular as provided by the Underwriter in Section 8(ii).
(f) The Final Offering Circular will not, as of its date and on each Closing Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty with respect to the statements contained in the Final Offering Circular as provided by the Underwriter in Section 8(ii).
(g) the Pricing Disclosure Materials and each Testing-the-Waters Communication, when considered together, did not, as of the Applicable Time, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided, however, that the Company makes no representation or warranty with respect to the statements contained in the Preliminary Offering Circular as provided by the Underwriter in Section 8(ii).
(h) Prior to the initial Closing Date, the Company, which formerly existed as a Delaware limited liability company under the name of Allegiancy, LLC, was converted into a corporation under the laws of the State of Delaware, pursuant to Section 265 of the Delaware General Corporation Law, under the name of Allegiancy, Inc. The Company has taken all necessary action to complete this conversion, including, but not limited to, the conversion of all authorized membership units of Allegiancy, LLC, into capital stock of Allegiancy, Inc., and filing all necessary documents with the Delaware Secretary of State, and the assets and liabilities of the Company immediately following the conversion are identical to the assets and liabilities of Allegiancy, LLC immediately preceding the conversion.
4
(i) As of each Closing Date, the Company is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware. The Company has full power and authority to conduct all the activities conducted by it, to own and lease all the assets owned and leased by it and to conduct its business as presently conducted and as described in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular. The Company is duly licensed or qualified to do business and in good standing as a foreign organization in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on or affecting the business, prospects, properties, management, financial position, stockholders’ equity, or results of operations of the Company and its Subsidiaries taken as a whole (a “Material Adverse Effect”). Complete and correct copies of the certificate of incorporation and of the bylaws of the Company and all amendments thereto have been made available to the Underwriter, and no changes therein will be made subsequent to the date hereof and prior to any Closing Date.
(j) The Company has no subsidiaries, nor does it own a controlling interest in any entity other than those entities set forth on Schedule 4 to this Agreement (each a “Subsidiary” and collectively the “Subsidiaries”). Each Subsidiary has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of formation. Each Subsidiary is duly qualified and in good standing as a foreign company in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which would not be reasonably expected to have a Material Adverse Effect. All of the shares of issued capital stock of each corporate subsidiary, and all of the share capital, membership interests and/or equity interests of each subsidiary that is not a corporation, have been duly authorized and validly issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, shareholders’ agreement, proxy, voting trust or other defect of title whatsoever.
(k) The Company is organized in, and its principal place of business is in, the United States.
(l) The Company is not subject to the ongoing reporting requirements of Section 13 or 15(d) of the Exchange Act and has not been subject to an order by the Commission denying, suspending, or revoking the registration of any class of securities pursuant to Section 12(j) of the Exchange Act that was entered within five years preceding the date the Offering Statement was originally filed with the Commission. The Company is not, and has not been at any time during the two-year period preceding the date the Offering Statement was originally filed with the Commission, required to file with the Commission the ongoing reports required by the Rules and Regulations under Regulation A
5
(m) The Company is not, nor upon completion of the transactions contemplated herein will it be, an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Company is not a development stage company or a “business development company” as defined in Section 2(a)(48) of the Investment Company Act. The Company is not a blank check company and is not an issuer of fractional undivided interests in oil or gas rights or similar interests in other mineral rights. The Company is not an issuer of asset-backed securities as defined in Item 1101(c) of Regulation AB.
(n) Neither the Company, nor any predecessor of the Company; nor any other issuer affiliated with the Company; nor any director or executive officer of the Company or other officer of the Company participating in the offering, nor any beneficial owner of 20% or more of the Company's outstanding voting equity securities, nor any promoter connected with the Company, is subject to the disqualification provisions of Rule 262 of the Rules and Regulations.
(o) The Company is not a “foreign private issuer,” as such term is defined in Rule 405 under the Act.
(p) The Company has full legal right, power and authority to enter into this Agreement and the Escrow Agreement and perform the transactions contemplated hereby and thereby. This Agreement and the Escrow Agreement have each been authorized and validly executed and delivered by the Company and are each a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and equitable principles of general applicability.
(q) The issuance and sale of the Shares have been duly authorized by the Company, and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable and will not be subject to preemptive or similar rights. The holders of the Shares will not be subject to personal liability by reason of being such holders. The Shares, when issued, will conform to the description thereof set forth in the Final Offering Circular in all material respects.
(r) The Company has not authorized anyone other than the management of the Company and the Underwriter to engage in Testing-the-Waters Communications. The Company reconfirms that the Underwriter has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Testing-the-Waters Communications other than those listed on Schedule 2 hereto.
(s) The financial statements and the related notes included in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular present fairly, in all material respects, the financial condition of the Company and its Subsidiaries as of the dates thereof and the results of operations and cash flows at the dates and for the periods covered thereby in conformity with United States generally accepted accounting principles (“GAAP”), except as may be stated in the related notes thereto. No other financial statements or schedules of the Company, any Subsidiary or any other entity are required by the Act or the Rules and Regulations to be included in the Offering Statement or the Final Offering Circular. There are no off-balance sheet arrangements (as defined in Regulation S-K Item 303(a)(4)(ii)) that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
6
(t) Keiter, Stephens, Hurst, Gary & Shreaves, P.C. (the “Accountants”), who have reported on the financial statements and schedules described in Section 3(s), are registered independent public accountants with respect to the Company as required by the Act and the Rules and Regulations and by the rules of the Public Company Accounting Oversight Board. The financial statements of the Company and the related notes and schedules included in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular comply as to form in all material respects with the requirements of the Act and the Rules and Regulations and present fairly the information shown therein.
(u) Since the date of the most recent financial statements of the Company included or incorporated by reference in the Offering Statement and the most recent Preliminary Offering Circular and prior to the Closing and any Subsequent Closing, other than as described in the Final Offering Circular (A) there has not been and will not have been any change in the capital stock of the Company or long-term debt of the Company or any Subsidiary or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock or equity interests, or any material adverse change, or any development that would reasonably be expected to result in a material adverse change, in or affecting the business, prospects, properties, management, financial position, stockholders’ equity, or results of operations of the Company and its Subsidiaries taken as a whole (a “Material Adverse Change”) and (B) neither the Company nor any Subsidiary has sustained or will sustain any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular.
(v) Since the date as of which information is given in the most recent Preliminary Offering Circular, neither the Company nor any Subsidiary has entered or will before the Closing or any Subsequent Closing enter into any transaction or agreement, not in the ordinary course of business, that is material to the Company and its Subsidiaries taken as a whole or incurred or will incur any liability or obligation, direct or contingent, not in the ordinary course of business, that is material to the Company and its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary has any plans to do any of the foregoing.
(w) The Company and each Subsidiary has good and valid title in fee simple to all items of real property and good and valid title to all personal property described in the Offering Statement or the Final Offering Circular as being owned by them, in each case free and clear of all liens, encumbrances and claims except those that (1) do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries or (2) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Any real property described in the Offering Statement or the Final Offering Circular as being leased by the Company or any Subsidiary that is material to the business of the Company and its Subsidiaries taken as a whole is held by them under valid, existing and enforceable leases, except those that (A) do not materially interfere with the use made or proposed to be made of such property by the Company and its Subsidiaries or (B) would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect.
7
(x) There are no legal, governmental or regulatory actions, suits or proceedings pending, either domestic or foreign, to which the Company is a party or to which any property of the Company is the subject, nor are there, to the Company’s knowledge, any threatened legal, governmental or regulatory investigations, either domestic or foreign, involving the Company or any property of the Company that, individually or in the aggregate, if determined adversely to the Company, would reasonably be expected to have a Material Adverse Effect or materially and adversely affect the ability of the Company to perform its obligations under this Agreement; to the Company’s knowledge, no such actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others.
(y) The Company and each Subsidiary has, and at each Closing Date will have, (1) all governmental licenses, permits, consents, orders, approvals and other authorizations necessary to carry on its business as presently conducted except where the failure to have such governmental licenses, permits, consents, orders, approvals and other authorizations would not be reasonably expected to have a Material Adverse Effect, and (2) performed all its obligations required to be performed, and is not, and at each Closing Date will not be, in default, under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement, lease, contract or other agreement or instrument (collectively, a “contract or other agreement”) to which it is a party or by which its property is bound or affected and, to the Company’s knowledge, no other party under any material contract or other agreement to which it is a party is in default in any respect thereunder. The Company and its Subsidiaries are not in violation of any provision of its organizational or governing documents.
(z) The Company has obtained all authorization, approval, consent, license, order, registration, exemption, qualification or decree of, any court or governmental authority or agency or any sub-division thereof that is required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Shares and the Underwriter’s Securities under this Agreement or the consummation of the transactions contemplated by this Agreement as may be required under federal, state, local and foreign laws, the Act or the rules and regulations of the Commission thereunder, state securities or Blue Sky laws, the rules and regulations of FINRA or The OTC QX Capital Market (“OTC QX”).
(aa) There is no actual or, to the knowledge of the Company, threatened, enforcement action or investigation by the FDA or any other governmental authority that has jurisdiction over the Company, and the Company has received no notice of any pending or threatened claim or investigation against the Company that would provide a legal basis for any enforcement action, and the Company has no reason to believe that any governmental authority is considering such action.
8
(bb) Neither the execution of this Agreement, nor the issuance, offering or sale of the Shares, nor the consummation of any of the transactions contemplated herein, nor the compliance by the Company with the terms and provisions hereof or thereof will conflict with, or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to the terms of any contract or other agreement to which the Company or any Subsidiary may be bound or to which any of the property or assets of the Company or any Subsidiary is subject, except such conflicts, breaches or defaults as may have been waived or would not, in the aggregate, be reasonably expected to have a Material Adverse Effect; nor will such action result in any violation, except such violations that would not be reasonably expected to have a Material Adverse Effect, of (1) the provisions of the organizational or governing documents of the Company or any Subsidiary, or (2) any statute or any order, rule or regulation applicable to the Company or any Subsidiary or of any court or of any federal, state or other regulatory authority or other government body having jurisdiction over the Company or any Subsidiary.
(cc) There is no document or contract of a character required to be described in the Offering Statement or the Final Offering Circular or to be filed as an exhibit to the Offering Statement which is not described or filed as required. All such contracts to which the Company or any Subsidiary is a party have been authorized, executed and delivered by the Company or any Subsidiary, and constitute valid and binding agreements of the Company or any Subsidiary, and are enforceable against the Company in accordance with the terms thereof, subject to the effect of applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and equitable principles of general applicability. None of these contracts have been suspended or terminated for convenience or default by the Company or any of the other parties thereto, and the Company has not received notice of any such pending or threatened suspension or termination.
(dd) The Company and its directors, officers or controlling persons have not taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Company’s Common Stock.
(ee) Other than as previously disclosed to the Underwriter in writing, the Company, or any person acting on behalf of the Company, has not and, except in consultation with the Underwriter, will not publish, advertise or otherwise make any announcements concerning the distribution of the Shares, and has not and will not conduct road shows, seminars or similar activities relating to the distribution of the Shares nor has it taken or will it take any other action for the purpose of, or that could reasonably be expected to have the effect of, preparing the market, or creating demand, for the Shares.
(ff) No holder of securities of the Company has rights to the registration of any securities of the Company as a result of the filing of the Offering Statement or the transactions contemplated by this Agreement, except for such rights as have been waived or as are described in the Offering Statement.
9
(gg) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is threatened, and the Company is not aware of any existing or threatened labor disturbance by the employees of any of its or any Subsidiary’s principal suppliers, manufacturers, customers or contractors.
(hh) The Company and each of its subsidiaries: (i) are and have been in material compliance with all laws, to the extent applicable, and the regulations promulgated pursuant to such laws, and comparable state laws, and all other local, state, federal, national, supranational and foreign laws, manual provisions, policies and administrative guidance relating to the regulation of the Company and its subsidiaries except for such non-compliance as would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect; (ii) have not received notice of any ongoing claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Regulatory Agency or third party alleging that any product operation or activity is in material violation of any laws and has no knowledge that any such Regulatory Agency or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; and (iii) are not a party to any corporate integrity agreement, deferred prosecution agreement, monitoring agreement, consent decree, settlement order, or similar agreements, or has any reporting obligations pursuant to any such agreement, plan or correction or other remedial measure entered into with any Governmental Authority.
(ii) The business and operations of the Company, and each of its Subsidiaries, have been and are being conducted in compliance with all applicable laws, ordinances, rules, regulations, licenses, permits, approvals, plans, authorizations or requirements relating to occupational safety and health, or pollution, or protection of health or the environment (including, without limitation, those relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic substances, materials or wastes into ambient air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, gaseous or liquid in nature) of any governmental department, commission, board, bureau, agency or instrumentality of the United States, any state or political subdivision thereof, or any foreign jurisdiction (“Environmental Laws”), and all applicable judicial or administrative agency or regulatory decrees, awards, judgments and orders relating thereto, except where the failure to be in such compliance would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice from any governmental instrumentality or any third party alleging any material violation thereof or liability thereunder (including, without limitation, liability for costs of investigating or remediating sites containing hazardous substances and/or damages to natural resources).
(jj) There has been no storage, generation, transportation, use, handling, treatment, Release or threat of Release of Hazardous Materials (as defined below) by or caused by the Company or any of its Subsidiaries (or, to the knowledge of the Company, any other entity (including any predecessor) for whose acts or omissions the Company or any of its Subsidiaries is or could reasonably be expected to be liable) at, on, under or from any property or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries, or at, on, under or from any other property or facility, in violation of any Environmental Laws or in a manner or amount or to a location that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which would not, individually or in the aggregate, have a Material Adverse Effect. “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials, brine, and drilling mud, regulated or which can give rise to liability under any Environmental Law. “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into from or through any building or structure.
10
(jj) The Company and its Subsidiaries own, possess, license or have other adequate rights to use, on reasonable terms, all material patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, know-how and other intellectual property necessary for the conduct of the Company’s and each of its Subsidiary’s business as now conducted (collectively, the “Intellectual Property”), except to the extent such failure to own, possess or have other rights to use such Intellectual Property would not result in a Material Adverse Effect. Except as set forth in the Final Offering Circular: (a) no party has been granted an exclusive license to use any portion of such Intellectual Property owned by the Company or its Subsidiaries; (b) to the knowledge of the Company, there is no infringement by third parties of any such Intellectual Property owned by or exclusively licensed to the Company or its Subsidiaries; (c) the Company is not aware of any defects in the preparation and filing of any of patent applications, as listed in Exhibit C, within the Intellectual Property; (d) to the knowledge of the Company, the patent applications, as listed in Exhibit C, within the Intellectual Property are being prosecuted so as to avoid the abandonment thereof; (e) to the knowledge of the Company, the patents, as listed in Exhibit C, within the Intellectual Property are being maintained and the required maintenance fees (if any) are being paid; (f) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the Company’s or any of its Subsidiaries’ rights in or to any Intellectual Property, and the Company and its Subsidiaries are unaware of any facts which would form a reasonable basis for any such claim; (g) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the validity or scope or enforceability of any such Intellectual Property, and the Company and its Subsidiaries are unaware of any facts which would form a reasonable basis for any such claim; and (h) there is no pending, or to the knowledge of the Company, threatened action, suit, proceeding or claim by others that the Company’s or any of its Subsidiaries’ business as now conducted infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others, and the Company and its Subsidiaries are unaware of any other fact which would form a reasonable basis for any such claim. To the knowledge of the Company, no opposition filings or invalidation filings have been submitted which have not been finally resolved in connection with any of the Company’s patents and patent applications in any jurisdiction where the Company has applied for, or received, a patent.
11
(kk) Except as would not have, individually or in the aggregate, a Material Adverse Effect, the Company and each Subsidiary (1) has timely filed all federal, state, provincial, local and foreign tax returns that are required to be filed by such entity through the date hereof, which returns are true and correct, or has received timely extensions for the filing thereof, and (2) has paid all taxes, assessments, penalties, interest, fees and other charges due or claimed to be due from the Company, other than (A) any such amounts being contested in good faith and by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP or (B) any such amounts currently payable without penalty or interest. There are no tax audits or investigations pending, which if adversely determined could have a Material Adverse Effect; nor to the knowledge of the Company are there any proposed additional tax assessments against the Company or any Subsidiary which could have, individually or in the aggregate, a Material Adverse Effect. No transaction, stamp, capital or other issuance, registration, transaction, transfer or withholding tax or duty is payable by or on behalf of the Underwriter to any foreign government outside the United States or any political subdivision thereof or any authority or agency thereof or therein having the power to tax in connection with (i) the issuance, sale and delivery of the Shares by the Company; (ii) the purchase from the Company, and the initial sale and delivery of the Shares to purchasers thereof; or (iii) the execution and delivery of this Agreement or any other document to be furnished hereunder. The Company has, prior to the date hereof and during its existence as a Delaware limited liability company, made an election with the Internal Revenue Service on Form 8832 to be treated as an association taxable as a corporation for U.S. federal income tax purposes. The Company, upon its conversion to a Delaware corporation prior to the initial Closing Date in accordance with Section 3(h) of this Agreement, will continue to be an entity taxable as a corporation for U.S. federal income tax purposes.
(ll) On each Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be issued and sold on such Closing Date will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.
(mm) The Company and its Subsidiaries are insured with insurers with appropriately rated claims paying abilities against such losses and risks and in such amounts as are prudent and customary for the businesses in which they are engaged; all policies of insurance and fidelity or surety bonds insuring the Company, each Subsidiary or their respective businesses, assets, employees, officers and directors are in full force and effect; and there are no claims by the Company or its Subsidiary under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any Subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that is not materially greater than the current cost. The Company has obtained director’s and officer’s insurance in such amounts as is customary for a similarly situated company engaging in an initial public offering of securities.
12
(nn) Neither the Company nor its Subsidiaries, nor any director, officer, agent or employee of either the Company or any Subsidiary has directly or indirectly, (1) made any unlawful contribution to any federal, state, local and foreign candidate for public office, or failed to disclose fully any contribution in violation of law, (2) made any payment to any federal, state, local and foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof, (3) violated or is in violation of any provisions of the U.S. Foreign Corrupt Practices Act of 1977, or (4) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
(oo) The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no material action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(pp) Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any director, officer, agent or employee of the Company or any of its Subsidiaries is currently subject to any U.S. sanctions (the “Sanctions Regulations”) administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or listed on the OFAC Specially Designated Nationals and Blocked Persons List. Neither the Company nor, to the knowledge of the Company, any director, officer, agent or employee of the Company, is named on any denied party or entity list administered by the Bureau of Industry and Security of the U.S. Department of Commerce pursuant to the Export Administration Regulations (“EAR”); and the Company will not, directly or indirectly, use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any Sanctions Regulations or to support activities in or with countries sanctioned by said authorities, or for engaging in transactions that violate the EAR.
(qq) The Company has not distributed and, prior to the later to occur of the last Closing Date and completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than each Preliminary Offering Circular, the Pricing Disclosure Materials and the Final Offering Circular, or such other materials as to which the Underwriter shall have consented in writing.
(tt) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all stock purchase, stock option, stock-based severance, employment, change-in-control, medical, disability, fringe benefit, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees, directors or independent contractors of the Company or its Subsidiaries, or under which the Company or any of its Subsidiaries has had or has any present or future obligation or liability, has been maintained in material compliance with its terms and the requirements of any applicable federal, state, local and foreign laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred which would result in a material liability to the Company with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption; no event has occurred (including a “reportable event” as such term is defined in Section 4043 of ERISA) and no condition exists that would subject the Company to any material tax, fine, lien, penalty, or liability imposed by ERISA, the Code or other applicable law; and for each such plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding deficiency” as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeds the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions.
13
(uu) No relationship, direct or indirect, exists between or among the Company or any Subsidiary, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any Subsidiary, on the other, which would be required to be disclosed in the Offering Statement, the Preliminary Offering Circular and the Final Offering Circular and is not so disclosed.
(vv) The Company has not sold or issued any securities that would be integrated with the offering of the Shares contemplated by this Agreement pursuant to the Act, the Rules and Regulations or the interpretations thereof by the Commission or that would fail to come within the safe harbor for integration under Regulation A.
(xx) The Shares have been approved for listing, subject to notice of issuance and approval of the Underwriter’s Form 211 by FINRA relative to the Underwriter’s quotation of the Shares, on the OTC QX, under the symbol “[____].”
(yy) Except as set forth in this Agreement, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or the Underwriter for a brokerage commission, finder’s fee or other like payment in connection with the offering of the Shares.
(zz) To the knowledge of the Company, there are no affiliations with FINRA among the Company’s directors, officers or any five percent or greater stockholder of the Company or any beneficial owner of the Company’s unregistered equity securities that were acquired during the 180-day period immediately preceding the initial filing date of the Offering Statement.
14
(aaa) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members. The Company has not directly or indirectly, including through its Subsidiaries, extended or maintained credit, arranged for the extension of credit, or renewed any extension of credit, in the form of a personal loan to or for any director or executive officer of the Company or any of their respective related interests, other than any extensions of credit that ceased to be outstanding prior to the initial filing of the Offering Statement. No transaction has occurred between or among the Company and any of its officers or directors, stockholders, customers, suppliers or any affiliate or affiliates of the foregoing that is required to be described or filed as an exhibit to in the Offering Statement, the Preliminary Offering Circular, the Pricing Disclosure Materials or the Final Offering Circular and is not so described.
(bbb) The Company has the power to submit, and pursuant to Section 13 of this Agreement, has legally, validly, effectively and irrevocably submitted, to the personal jurisdiction of each United States federal court and New York state court located in the Borough of Manhattan, in the City of New York, New York, U.S.A. (each, a “New York Court”), and the Company has the power to designate, appoint and authorize, and pursuant to Section 13 of this Agreement, has legally, validly, effectively and irrevocably designated, appointed and authorized an agent for service of process in any action arising out of or relating to this Agreement or the Shares in any New York Court, and service of process effected on such authorized agent will be effective to confer valid personal jurisdiction over the Company as provided in Section 13 hereof.
(ccc) The Underwriter’s Warrants have been duly authorized for issuance. The Company has reserved a sufficient number of shares of its Common Stock for issuance upon exercise of the Underwriter’s Warrants and, when issued and paid for in accordance with the terms of the Underwriter’s Warrants, such shares of Common Stock will be validly issued, fully paid and non-assessable (such shares of Common Stock, together with the Underwriter’s Warrants, the “Underwriter’s Securities”). The issuance of the Common Stock pursuant to the Underwriter’s Warrants will not be subject to any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company or any of its subsidiaries.
(a) The Offering Statement has become qualified, and the Company will file the Final Offering Circular, subject to the prior approval of the Underwriter, pursuant to Rule 253 and Regulation A, within the prescribed time period and will provide a copy of such filing to the Underwriter promptly following such filing.
(b) The Company will not, during such period as the Final Offering Circular would be required by law to be delivered in connection with sales of the Shares by an underwriter or dealer in connection with the offering contemplated by this Agreement (whether physically or through compliance with Rules 251 and 254 under the Act or any similar rule(s)), file any amendment or supplement to the Offering Statement or the Final Offering Circular unless a copy thereof shall first have been submitted to the Underwriter within a reasonable period of time prior to the filing thereof and the Underwriter shall not have reasonably objected thereto in good faith.
15
(c) The Company will notify the Underwriter promptly, and will, if requested, confirm such notification in writing: (1) when any amendment to the Offering Statement is filed; (2) of any request by the Commission for any amendments to the Offering Statement or any amendment or supplements to the Final Offering Circular or for additional information; (3) of the issuance by the Commission of any stop order preventing or suspending the qualification of the Offering Statement or the Final Offering Circular, or the initiation of any proceedings for that purpose or the threat thereof; (4) of becoming aware of the occurrence of any event that in the judgment of the Company makes any statement made in the Offering Statement, the Preliminary Offering Circular, the Pricing Disclosure Materials or the Final Offering Circular untrue in any material respect or that requires the making of any changes in the Offering Statement, the Preliminary Offering Circular, the Pricing Disclosure Materials or the Final Offering Circular in order to make the statements therein, in light of the circumstances in which they are made, not misleading; and (5) of receipt by the Company of any notification with respect to any suspension of the qualification or exemption from registration of the Shares for offer and sale in any jurisdiction. If at any time the Commission shall issue any order suspending the qualification of the Offering Statement in connection with the offering contemplated hereby or in connection with sales of Common Stock pursuant to market making activities by the Underwriter, the Company will make every reasonable effort to obtain the withdrawal of any such order at the earliest possible moment. If the Company has omitted any information from the Offering Statement, it will use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Regulation A, the Act and the Rules and Regulations and to notify the Underwriter promptly of all such filings.
(d) If, at any time when the Final Offering Circular relating to the Shares is required to be delivered under the Act, the Company becomes aware of the occurrence of any event as a result of which the Final Offering Circular, as then amended or supplemented, would, in the reasonable judgment of counsel to the Company or counsel to the Underwriter, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or the Offering Statement, as then amended or supplemented, would, in the reasonable judgment of counsel to the Company or counsel to the Underwriter, include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if for any other reason it is necessary, in the reasonable judgment of counsel to the Company or counsel to the Underwriter, at any time to amend or supplement the Final Offering Circular or the Offering Statement to comply with the Act or the Rules and Regulations, the Company will promptly notify the Underwriter and will promptly prepare and file with the Commission, at the Company’s expense, an amendment to the Offering Statement and/or an amendment or supplement to the Final Offering Circular that corrects such statement and/or omission or effects such compliance and will deliver to the Underwriter, without charge, such number of copies thereof as the Underwriter may reasonably request. The Company consents to the use of the Final Offering Circular or any amendment or supplement thereto by the Underwriter, and the Underwriter agrees to provide to each Investor, prior to the Closing and, as applicable, any Subsequent Closing, a copy of the Final Offering Circular and any amendments or supplements thereto.
16
(e) The Company will furnish to the Underwriter and their counsel, without charge (a) one conformed copy of the Offering Statement as originally filed with the Commission and each amendment thereto, including financial statements and schedules, and all exhibits thereto, and (b) so long as an offering circular relating to the Shares is required to be delivered under the Act or the Rules and Regulations, as many copies of each Preliminary Offering Circular or the Final Offering Circular or any amendment or supplement thereto as the Underwriter may reasonably request.
(f) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company has or will promptly notify the Underwriter in writing and has or will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(i) Prior to the sale of the Shares to the Investors, the Company will cooperate with the Underwriter and its counsel in connection with the registration or qualification, or exemption therefrom, of the Shares for offer and sale under the state securities or Blue Sky laws of such jurisdictions as the Underwriter may reasonably request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject.
(j) The Company will apply the net proceeds from the offering and sale of the Shares in the manner set forth in the Final Offering Circular under the caption “Use of Proceeds.”
(k) The Company will use its reasonable best efforts to ensure that the Shares are listed for trading on the OTC QX upon approval of the Underwriter’s Form 211 filed with FINRA relative to the Underwriter’s quotation of the Shares.
(l) The Company will not at any time, directly or indirectly, take any action intended, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of the Shares to facilitate the sale or resale of any of the Shares.
(m) The Company will not, directly or indirectly, without the prior written consent of the Underwriter, offer to sell, sell, contract to sell, grant any option or warrant to purchase, make any short sale, or otherwise dispose of (or announce any offer, sale, grant of any option or warrant to purchase or other disposition), any shares of capital stock of the Company or securities convertible into, or exchangeable or exercisable for, shares of capital stock of the Company, (the “Lock-Up Securities”) for a period of 180 days after the date of this Agreement (the “Lock-Up Period”), except with respect to (i) the Shares to be sold hereunder, (ii) the issuance of shares of Common Stock upon the exercise of stock options and warrants outstanding as of the date hereof and the issuance of Common Stock or stock options under any employee benefit or stock incentive plan of the Company existing on the date hereof, and described in the Final Offering Circular, (iii) the issuance of Common Stock or stock options under any non-employee director stock plan or dividend reinvestment plan described in the Final Offering Circular, or (iv) the issuance of any shares of Common Stock by the Company in connection with a licensing agreement, joint venture, acquisition or business combination or other collaboration or strategic transaction, provided, however that recipients of such shares of Common Stock agree to be bound by the terms of the lock-up letter described in Section 7(x) hereof and the sum of the aggregate number of shares of Common Stock so issued shall not exceed 10% of the total outstanding shares of Common Stock outstanding immediately following the consummation of this offering of Shares. If the Underwriter agrees to waive or release any Lock-Up Securities from the Lock-Up Period, the Company will announce the impending release or waiver by press release through a major news service at least two business days before the effective date of such release or waiver.
17
5. Representations and Warranties of the Underwriter; Agreements of the Underwriter. The Underwriter represents and warrants and covenants to the Company that:
(a) The Underwriter agrees that it shall not include any “issuer information” (as defined in Rule 433 under the Act) in any Written Testing-the-Waters Communication used or referred to by such Underwriter without the prior consent of the Company (any such issuer information with respect to whose use the Company has given its consent, “Permitted Issuer Information”), provided that “issuer information” (as defined in Rule 433 under the Act) within the meaning of this Section 5 shall not be deemed to include information prepared by the Underwriter on the basis of, or derived from, “issuer information”.
(b) Neither the Underwriter nor any Dealer, nor any managing member of the Underwriter or any Dealer, nor any director or executive officer of the Underwriter or any Dealer or other officer of the Underwriter or any Dealer participating in the offering of the Shares is subject to the disqualification provisions of Rule 262 of the Rules and Regulations. No registered representative of the Underwriter or any Dealer, or any other person being compensated by or through the Underwriter or any Dealer for the solicitation of Investors, is subject to the disqualification provisions of Rule 262 of the Rules and Regulations.
(c) The Underwriter and each Dealer is a member of FINRA and each of them and their respective employees and representatives have all required licenses and registrations to act under this Agreement, and each shall remain a member or duly licensed, as the case may be, during the Offering.
(d) Except for Participating Dealer Agreements, no agreement will be made by the Underwriter with any person permitting the resale, repurchase or distribution of any Shares purchased by such person.
18
(e) Except as otherwise consented to by the Company, the Underwriter has not and will not use or distribute any written offering materials other than the Preliminary Offering Circular, Pricing Disclosure Materials and the Final Offering Circular. The Underwriter has not and will not use any “broker-dealer use only” materials with members of the public, or has not and will not make any unauthorized verbal representations or verbal representations which contradict or are inconsistent with the statements made in the Offering Statement in connection with offers or sales of the Shares.
(i) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay, or reimburse if paid by the Underwriter, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including but not limited to costs and expenses of or relating to (i) the preparation, printing and filing of the Offering Statement (including each and every amendment thereto) and exhibits thereto, each Preliminary Offering Circular, the Pricing Disclosure Materials, the Final Offering Circular and any amendments or supplements thereto, including all fees, disbursements and other charges of counsel and accountants to the Company, (ii) the preparation and delivery of certificates representing the Shares (if any), (iii) furnishing (including costs of shipping and mailing) such copies of the Offering Statement (including each and every amendment thereto), each Preliminary Offering Circular, the Pricing Disclosure Materials, the Final Offering Circular, and all amendments and supplements thereto, as may be requested for use in connection with the direct placement of the Shares and market making activities of the Underwriter, (iv) all fees and expenses in connection with listing the Shares on the OTC QX including any supplemental listing application, (v) any filings required to be made by the Underwriter with FINRA, and the fees, disbursements and other charges of counsel for the Underwriter in connection therewith, and in connection with any required review by FINRA, (vi) the registration or qualification of the Shares and the Underwriter’s Securities (as defined in Section 3(aaa)) for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 4(j), including the fees, disbursements and other charges of counsel to the Underwriter in connection therewith and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (vii) fees, disbursements and other charges of counsel to the Company, (viii) all transfer taxes, if any, with respect to the sale and delivery of the Shares by the Company to the Investors, (ix) fees and disbursements of the Accountants incurred in delivering the letter(s) described in Section 7(vii) of this Agreement and (x) the fees and expenses of the Escrow Agent. Notwithstanding the foregoing, the Company shall have no obligation to pay or reimburse amounts incurred under romanettes (v) and (vi) above in excess of $30,000.
(ii) If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 7, Section 9(i)(c), (d) or (f), the Company shall reimburse the Underwriter for all of its documented out-of-pocket expenses, up to a maximum reimbursement of $100,000 (“Reimbursable Expenses”); provided, that the amount of any Retainer Fees paid to the Underwriter will be credited to reduce the amount of Reimbursable Expense to be to the Underwriter.
19
7. Conditions of the Obligations of the Underwriter. The obligations of the Underwriter hereunder are subject to the following conditions:
(i) (a) No stop order suspending the qualification of the Offering Statement shall have been issued, and no proceedings for that purpose shall be pending or threatened by any securities or other governmental authority (including, without limitation, the Commission), (b) no order suspending the effectiveness of the Offering Statement or the qualification or exemption of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before, or threatened or contemplated by, any securities or other governmental authority (including, without limitation, the Commission), (c) any request for additional information on the part of the staff of any securities or other governmental authority (including, without limitation, the Commission) shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (d) after the date hereof no amendment or supplement to the Offering Statement or the Final Offering Circular shall have been filed unless a copy thereof was first submitted to the Underwriter and the Underwriter did not object thereto in good faith, and the Underwriter shall have received certificates of the Company, dated as of each Closing Date and signed by the President and Chief Executive Officer of the Company, and the Chief Financial Officer of the Company, to the effect of clauses (a), (b) and (c).
(ii) Since the respective dates as of which information is given in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular, (a) there shall not have been a Material Adverse Change, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular and (b) the Company shall not have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular, if in the reasonable judgment of the Underwriter any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Shares to Investors and the delivery of the Underwriter’s Securities as contemplated hereby.
(iii) Since the respective dates as of which information is given in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular, there shall have been no litigation or other proceeding instituted against the Company or any of its officers or directors in their capacities as such, before or by any federal, state or local or foreign court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, which litigation or proceeding, in the reasonable judgment of the Underwriter, would reasonably be expected to have a Material Adverse Effect.
(iv) Each of the representations and warranties of the Company contained herein shall be true and correct as of each Closing Date in all respects for those representations and warranties qualified by materiality and in all material respects for those representations and warranties that are not qualified by materiality, as if made on such date, and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to such Closing Date shall have been duly performed, fulfilled or complied with in all material respects.
20
(v) The Underwriter shall have received an opinion and 10b-5 negative assurances letter, dated as of each Closing Date, of Kaplan Voekler Cunningham & Frank PLC, as counsel to the Company, substantially in the form of Exhibit B hereto.
(vi) The Underwriter shall have received an opinion, dated as of each Closing Date, of Wyrick Robbins Yates & Ponton LLP, as counsel to the Underwriter.
(vii) At the Closing and at any Subsequent Closing, the Accountants shall have furnished to the Underwriter a letter, dated the date of its delivery (the “Comfort Letter”), addressed to the Underwriter and in form and substance reasonably satisfactory to the Underwriter containing statements and information of the type ordinarily included in accountants’ “comfort letters” to Underwriter with respect to the financial statements and certain financial information contained in the Offering Statement, the Pricing Disclosure Materials and the Final Offering Circular.
(viii) At the Closing and at any Subsequent Closing, there shall be furnished to the Underwriter a certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Underwriter to the effect that each signer has carefully examined the Offering Statement, the Final Offering Circular and the Pricing Disclosure Materials, and that to each of such person’s knowledge:
(a) (1) As of the date of each such certificate, (x) the Offering Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (y) neither the Final Offering Circular nor the Pricing Disclosure Materials contains any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (2) no event has occurred as a result of which it is necessary to amend or supplement the Final Offering Circular in order to make the statements therein not untrue or misleading in any material respect.
(b) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all respects for those representations and warranties qualified by materiality and in all material respects for those representations and warranties that are not qualified by materiality.
(c) Each of the covenants required herein to be performed by the Company on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by the Company on or prior to the delivery of such certificate has been duly, timely and fully complied with.
21
(d) No stop order suspending the qualification of the Offering Statement or of any part thereof has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission.
(e) Subsequent to the date of the most recent financial statements in the Offering Statement and in the Final Offering Circular, there has been no Material Adverse Change.
(ix) The Company shall have furnished or caused to be furnished to the Underwriter such certificates, in addition to those specifically mentioned herein, as the Underwriter may have reasonably requested as to the accuracy and completeness on any Closing Date of any statement in the Offering Statement, the Preliminary Offering Circular, the Pricing Disclosure Materials or the Final Offering Circular, as to the accuracy on such Closing Date of the representations and warranties of the Company as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Underwriter.
(x) The Underwriter shall have received the lock-up letters referred to in Section 4(n) hereof substantially in the form of Exhibit A from each director, officer and stockholder of the Company named in Schedule 3 hereto.
(xii) The Shares have been approved for quotation upon notice of issuance on the OTC QX and subject to FINRA’s approval of the Underwriter’s Form 211 filed with FINRA relative to the quotation of the Shares.
(xiii) The Company shall have furnished or caused to be furnished to the Underwriter on each Closing Date satisfactory evidence of the good standing of the Company and the Subsidiaries in their respective jurisdiction of organization and their good standing as foreign entities in such other jurisdictions as the Underwriter may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.
(xiv) FINRA shall not have raised any objection with respect to the fairness or reasonableness of the plan of distribution, or other arrangements of the transactions, contemplated hereby.
(xv) On or after the Applicable Time there shall not have occurred any of the following: (a) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, Inc., NYSE MKT or Nasdaq; (b) a general moratorium on commercial banking activities declared by either Federal or New York authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (c) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (d) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (c) or (d) in the judgment of the Underwriter makes it impracticable or inadvisable to proceed with the offering or the delivery of the Shares being delivered on any Closing Date on the terms and in the manner contemplated in the Final Offering Circular.
22
8. Indemnification.
(i) The Company shall indemnify and hold harmless the Underwriter and each of the Dealers, and each of their directors, officers, employees and agents and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each an “Indemnified Party”), from and against any and all losses, claims, liabilities, expenses and damages, joint or several (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted (whether or not such Indemnified Party is a party thereto)), to which it, or any of them, may become subject under the Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (a) any untrue statement or alleged untrue statement made by the Company in Section 3 of this Agreement, (b) any untrue statement or alleged untrue statement of any material fact contained in (1) any Preliminary Offering Circular, the Offering Statement or the Final Offering Circular or any amendment or supplement thereto, (2) the Pricing Disclosure Materials, (3) any Written Testing-the-Waters Communication or (4) any application or other document, or any amendment or supplement thereto, executed by the Company based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Shares under the securities or Blue Sky laws thereof or filed with the Commission or any securities association or securities exchange (each, an “Application”), or (c) the omission or alleged omission to state in any Preliminary Offering Circular, the Offering Statement, the Final Offering Circular, the Pricing Disclosure Materials, or any Written Testing-the-Waters Communication, or any amendment or supplement thereto, or in any Permitted Issuer Information or any Application a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the offering to any person and is based solely on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with written information furnished to the Company by any Indemnified Party through the Underwriter expressly for inclusion in the Offering Statement, any Preliminary Offering Circular, the Final Offering Circular, or Written Testing-the-Waters Communication, or in any amendment or supplement thereto or in any Application, it being understood and agreed that the only such information furnished by any Indemnified Party consists of the information described as such in subsection (ii) below. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
(ii) The Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) that (a) arise out of or are based upon any untrue statement made by the Underwriter in Section 5 of this Agreement, (b) arise out of or are based upon any failure or alleged failure of the Underwriter to pay any compensation to a Dealer or Dealers, or (c) arise out of or are based solely upon an untrue statement or alleged untrue statement of a material fact contained in the Offering Statement, any Preliminary Offering Circular or the Final Offering Circular, or any amendment or supplement thereto, or any Written Testing-the-Waters Communication, or arise out of or are based solely upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Offering Statement, any Preliminary Offering Circular or the Final Offering Circular, or any amendment or supplement thereto, or any Written Testing-the-Waters Communication, in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. The Company acknowledges that, for all purposes under this Agreement, the statements set forth in the [__________] paragraphs under the caption “Underwriting” in any Preliminary Offering Circular and the Final Offering Circular constitute the only information relating to the Underwriter furnished in writing to the Company by the Underwriter expressly for inclusion in the Offering Statement, any Preliminary Offering Circular or the Final Offering Circular.
23
(iii) Promptly after receipt by an Indemnified Party under subsection (i) or (ii) above of notice of the commencement of any action, such Indemnified Party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any Indemnified Party otherwise than under such subsection. In case any such action shall be brought against any Indemnified Party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such Indemnified Party (who shall not, except with the consent of the Indemnified Party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such Indemnified Party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnified Party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (a) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim and (b) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party.
(iv) If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an Indemnified Party under subsection (i) or (ii) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the Indemnified Party failed to give the notice required under subsection (iii) above, then each indemnifying party shall contribute to such amount paid or payable by such Indemnified Party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriter on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bears to the Fee received by the Underwriter. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriter on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this subsection (iv) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (iv). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (iv) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (iv), the Underwriter will not be required to contribute any amount in excess of the Fee received by the Underwriter. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
24
9. Termination.
(i) The obligations of the Underwriter under this Agreement may be terminated at any time prior to the initial Closing Date, by notice to the Company from the Underwriter, without liability on the part of the Underwriter to the Company if, prior to delivery and payment for the Shares, in the sole judgment of the Underwriter: (a) there has occurred any material adverse change in the securities markets or any event, act or occurrence that has materially disrupted, or in the opinion of the Underwriter, will in the future materially disrupt, the securities markets or there shall be such a material adverse change in general financial, political or economic conditions or the effect of international conditions on the financial markets in the United States is such as to make it, in the judgment of the Underwriter, inadvisable or impracticable to market the Shares or enforce contracts for the sale of the Shares; (b) there has occurred any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, including without limitation as a result of terrorist activities, such as to make it, in the judgment of the Underwriter, inadvisable or impracticable to market the Shares or enforce contracts for the sale of the Shares; (c) trading in the Shares or any securities of the Company has been suspended or materially limited; (d) trading generally on the New York Stock Exchange, Inc., NYSE Amex or Nasdaq has been suspended or materially limited, or minimum or maximum ranges for prices for securities shall have been fixed, or maximum ranges for prices for securities have been required, by any of said exchanges or by such system or by order of the Commission, FINRA, or any other governmental or regulatory authority; (e) a banking moratorium has been declared by any state or Federal authority; or (f) in the judgment of the Underwriter, there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Final Offering Circular, any material adverse change in the assets, properties, condition, financial or otherwise, or in the results of operations, business affairs or business prospects of the Company and its Subsidiaries considered as a whole, whether or not arising in the ordinary course of business.
25
(ii) The obligations of the parties under this Agreement shall be automatically terminated in the event that notice is given to the Escrow Agent as determined prior to the close of business on the latest date scheduled for receipt of the Requisite Funds, that the Requisite Funds have not been deposited by the Investors into the Escrow Account.
(iii) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 6 hereof.
10. Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (i) if to the Company, at the office of the Company, 1100 Boulders Parkway, Suite 605, Richmond, Virginia, 23225, Attention: Stevens M. Sadler, with copies to Kaplan Voekler Cunningham & Frank PLC, 1401 E. Cary Street, Richmond, Virginia, 23219, Attention: Robert R. Kaplan, Jr., Esq. or (ii) if to the Underwriter, at the office of W.R. Hambrecht + Co., LLC, 909 Montgomery Street, 3rd Floor, San Francisco, California 94133, Attention: John Hullar, with copies to Wyrick Robbins Yates & Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607, Attention: W. David Mannheim, Esq. Any such notice shall be effective only upon receipt. Any notice under Section 8 may be made by facsimile or telephone, but if so made shall be subsequently confirmed in writing.
11. Survival. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company and the Underwriter set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, the Underwriter or any controlling person referred to in Section 8 hereof and (ii) delivery of and payment for the Shares. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 7, 8 and 10 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement.
12. Successors. This Agreement shall inure to the benefit of and shall be binding upon the Underwriter, the Company and their respective successors, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnification and contribution contained in Sections 8(i) and (iv) of this Agreement shall also be for the benefit of the directors, officers, employees and agents of the Underwriter and any person or persons who control the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnification and contribution contained in Sections 8(ii) and (iv) of this Agreement shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Offering Statement and any person or persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Shares shall be deemed a successor because of such purchase.
26
13. Governing Law Provisions. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed in such state. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) may be instituted in the New York Courts, and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the New York Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. The Company has irrevocably appointed [_____] pursuant to a Form U-2 Uniform Consent to Service of Process filed with the Secretary of State of the State of New York, as its agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding that may be instituted in any state or federal court in the Borough of Manhattan in the City of New York.
With respect to any Related Proceeding, each party irrevocably waives, to the fullest extent permitted by applicable law, all immunity (whether on the basis of sovereignty or otherwise) from jurisdiction, service of process, attachment (both before and after judgment) and execution to which it might otherwise be entitled in the New York Courts, and with respect to any Related Judgment, each party waives any such immunity in the New York Courts or any other court of competent jurisdiction, and will not raise or claim or cause to be pleaded any such immunity at or in respect of any such Related Proceeding or Related Judgment, including, without limitation, any immunity pursuant to the United States Foreign Sovereign Immunities Act of 1976, as amended.
The obligations of the Company pursuant to this Agreement in respect of any sum due to the Underwriter shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day following receipt by the Underwriter of any sum adjudged to be so due in such other currency, on which the Underwriter may in accordance with normal banking procedures purchase United States dollars with such other currency. If the United States dollars so purchased are less than the sum originally due to the Underwriter in United States dollars hereunder, the Company agrees as a separate obligation and notwithstanding any such judgment, to indemnify the Underwriter against such loss. If the United States dollars so purchased are greater than the sum originally due to the Underwriter hereunder, the Underwriter agrees to pay to the Company an amount equal to the excess of the dollars so purchased over the sum originally due to the Underwriter hereunder.
27
14. Acknowledgement. The Company acknowledges and agrees that the Underwriter is acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby. Additionally, the Underwriter is not advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether the Underwriter has advised or is advising the Company on other matters). The Company has conferred with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriter shall have no responsibility or liability to the Company or any other person with respect thereto. The Underwriter advises that it and its affiliates are engaged in a broad range of securities and financial services and that it or its affiliates may have business relationships or enter into contractual relationships with purchasers or potential purchasers of the Company’s securities. Any review by the Underwriter of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriter and shall not be on behalf of, or for the benefit of, the Company.
15. Applicable Law. The validity and interpretations of this Agreement, and the terms and conditions set forth herein, shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any provisions relating to conflicts of laws.
16. 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 instrument.
17. Entire Agreement. This Agreement constitutes the entire understanding between the parties hereto as to the matters covered hereby and supersedes all prior understandings, written or oral, relating to such subject matter.
[SIGNATURE PAGE FOLLOWS]
28
If the foregoing is in accordance with your understanding, please sign and return to the Company one of the counterparts hereof, and upon the acceptance hereof by you as the Underwriter, this Agreement and such acceptance hereof shall constitute a binding agreement between the Underwriter and the Company.
Very truly yours,
ALLEGIANCY, INC.
By: _________________________________
Name:
Title:
Accepted as of the date hereof:
W.R. HAMBRECHT + CO., LLC
By: _________________________________
Name:
Title:
29
SCHEDULE 1
PRICING INFORMATION
30
SCHEDULE 2
WRITTEN TESTING-THE-WATERS COMMUNICATION
31
SCHEDULE 3
LOCK-UP PARTIES
[Lock-Up Parties to be Confirmed]
32
SCHEDULE 4
SUBSIDIARIES
|
2.
|
Allegiancy Houston, LLC, a Delaware limited liability company
|
33
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
[To be provided]
34
EXHIBIT B
COUNSEL TO THE COMPANY
[To be provided]
35
SCHEDULE OF MATERIAL PATENT RIGHTS
None.
36
EXHIBIT D
FORM OF UNDERWRITER’S WARRANT
[To be provided]
37
Exhibit 1(b)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE 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 SUCH SECURITIES BY ANY PERSON FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS IMMEDIATELY FOLLOWING THE DATE OF QUALIFICATION OF THE PUBLIC OFFERING OF THE COMPANY’S SECURITIES PURSUANT TO OFFERING STATEMENT NO. 024-10482, AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION, EXCEPT IN ACCORDANCE WITH FINRA RULE 5110(g)(2).
ALLEGIANCY, LLC
COMMON STOCK PURCHASE WARRANT
| Warrant Shares: [•] | Issuance Date: [•], 2016 |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, W.R. Hambrecht + Co., LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date that is 180 days after the qualification date of the Offering Statement (the “Initial Exercise Date”) and on or before the close of business on the five (5) year anniversary of the qualification date of the Offering Statement (the “Termination Date”) but not thereafter, to subscribe for and purchase from Allegiancy, Inc., a Delaware corporation (the “Company”), up to [•] shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Underwriting Agreement, dated [•], 2016 (the “Agreement”), between the Company and the Holder.
Section 2. Exercise.
(a) Method of Exercise. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise form annexed hereto (the “Notice of Exercise”). Within three (3) trading days after the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is available and specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) trading days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases; provided that the records of the Company, absent manifest error, will be conclusive with respect to the number of Warrant Shares purchasable from time to time hereunder. The Company shall deliver any objection to any Notice of Exercise within one (1) business day after receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
(b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $[•], subject to adjustment hereunder (the “Exercise Price”). Except as where otherwise permitted in accordance with Section 2(c), this Warrant may only be exercised by means of payment by wire transfer or cashier’s check drawn on a United States bank.
(c) Cashless Exercise. This Warrant may at the option of the Holder be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the trading day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market (as defined below), the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (“Bloomberg”) (based on a trading day from 9:30 a.m., Eastern time, to 4:00 p.m., Eastern time), (b) if the OTC Bulletin Board or any market, exchange or quotation system maintained by the OTC Markets Group, Inc., including, without limitation, OTCQB, OTCQX or OTC Pink (or any successors of the foregoing) is not a Trading Market and the Common Stock is then traded on such market, exchange or quotation system, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on such market, exchange or quotation system or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the board of directors of the Company and reasonably acceptable to the Holder, the fees and expenses of which shall be paid by the Company.
“Trading Market” means the Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select Market, or any other national securities exchange, market, or trading or quotation facility on which the Common Stock is then listed or quoted.
(d) Mechanics of Exercise.
(i) Delivery of Warrant Shares Upon Exercise. The Company shall use best efforts to cause the Warrant Shares purchased hereunder to be issued by the Company’s stock transfer agent and registrar (the “Transfer Agent”) to the Holder in book entry form by the date that is five (5) trading days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) before the issuance of such shares, having been paid.
(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
(iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
(iv) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
(vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the assignment form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.
(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
(e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates (as defined below), and any other Persons (as defined below) acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents, as defined below) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether, and representation and certification to the Company that, this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission (the “Commission”), as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) trading days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior written notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
“Affiliate” means any Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, a Person.
“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Person” means any natural person, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, or association.
Section 3. Certain Adjustments.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time during which this Warrant is outstanding the Company grants, issues or sells any Common Stock Equivalents or other rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). The provisions of this Section 3(b) will not apply to any grant, issuance or sale of Common Stock Equivalents or other rights to purchase stock, warrants, securities or other property of the Company which is not made pro rata to the record holders of any class of shares of Common Stock.
(c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant after such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on either (i) a national securities exchange, including, but not limited to, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, or (ii) OTC Bulletin Board or any market, exchange or quotation system maintained by the OTC Markets Group, Inc., including, without limitation, OTCQB, OTCQX or OTC Pink (or any successors of the foregoing), the Company or any Successor Entity (as defined below) shall, at the option of the Holder or the Company or any Successor Entity, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(c), and to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) before such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
(d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
(e) Notice to Holder.
(i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
(ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined in Section 4(c)) of the Company, at least 10 business days before the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company required to be filed pursuant to Rule 257(b)(4) of Regulation A, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 1-U. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Warrant.
(a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this original Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. Neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be 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 securities by any person for a period of 180 days immediately following the date of qualification or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security:
(i) by operation of law or by reason of reorganization of the Company;
(ii) to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period; or
(iii) the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period.
(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
(c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Piggyback Registration Rights.
To the extent the Company does not maintain an effective registration statement for the Warrant Shares and in the further event that the Company files a registration statement with the Commission covering the sale of its shares of Common Stock (other than a registration statement on Form S-4 or S-8, or on another form, or in another context, in which such “piggyback” registration would be inappropriate), then, for a period commencing on the Initial Exercise Date and terminating on the second (2nd) anniversary of the Initial Exercise Date, the Company shall give written notice of such proposed filing to the holders of Warrant Shares as soon as practicable but in no event less than ten (10) business days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and offer to the holders of Warrant Shares in such notice the opportunity to register the sale of such number of shares of Warrant Shares as such holders may request in writing within five (5) business days after receipt of such notice (a “Piggyback Registration”). The Company shall cause such Warrant Shares to be included in such registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Warrant Shares requested to be included in a Piggyback Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Warrant Shares in accordance with the intended method(s) of distribution thereof. All holders of Warrant Shares proposing to distribute their securities through a Piggyback Registration that involves an underwriter or underwriters shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggyback Registration.
Section 6. Miscellaneous.
(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividend rights or other rights as a stockholder of the Company before the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth herein.
(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then, such action may be taken or such right may be exercised on the next succeeding business day.
(d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such commercially reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions therefor, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the laws of the State of New York, without regard to conflict of laws principles, and federal or state courts sitting in the State of New York shall have exclusive jurisdiction over matters arising out of this Warrant.
(f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.
(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any and all costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered to the Holder at its last address as it shall appear upon the Warrant Register.
(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages alone would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALLEGIANCY, INC. | ||
| By: | /s/ | |
| Name: | ||
| Title: | ||
[CORPORATE SEAL]
ATTEST:
__________________________________
Secretary
[Signature Page to Underwriter’s Warrant] |
NOTICE OF EXERCISE
TO: ALLEGIANCY, INC.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant, dated _______, 2016, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[_] in lawful money of the United States by wire transfer or cashier’s check drawn on a United States bank; or
[_] if permitted by the terms of the Warrant, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
| Name of Investing Entity: |
| Signature of Authorized Signatory of Investing Entity: |
| Name of Authorized Signatory: |
| Title of Authorized Signatory: |
| Date: | |
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, ____ all of or _______ shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| whose address is: |
Date: ______________, _______
| Holder’s Signature: | ||
| Holder’s Address: | ||
| Signature Guaranteed: |
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
Exhibit 4
PURCHASER QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT
Common Stock
In
Allegiancy, Inc.
This Subscription Agreement relates to my/our agreement to purchase ____ shares of the common stock, $0.01 par value (the “Shares”) to be issued by Allegiancy, Inc., a Delaware corporation (the “Company”), for a purchase price of $[•] per Share), for a total purchase price of $______________ (“Subscription Price”), subject to the terms, conditions, acknowledgments, representations and warranties stated herein and in the Final Offering Circular for the sale of the Shares, dated ____________, 201__ (collectively, the “Circular”). Capitalized terms used but not defined herein shall have the meanings given to them in the Circular.
Simultaneously with the execution and delivery hereof, I am making either an ACH authorization or a wire transfer pursuant to the escrow instructions set forth at www.___________.com, or delivered to me by my broker-dealer, in the amount of my Subscription Price. I understand that if I wish to purchase Shares, I must complete this Subscription Agreement and submit the applicable Subscription Price. Subscription funds will be held by and at an FDIC insured bank in compliance with SEC Rule 15c2-4, with funds released to the Company only after we have achieved the minimum offering amount as described in the Circular. In the event that the Company does not achieve the minimum offering amount then the Offered Shares will not be sold to investors pursuant to this offering and all funds will be returned to investors from escrow. There will be no interest or other investment proceeds attributable or accruing to the benefit of subscribers or the Company on any funds held in the escrow account.
In order to induce the Company to accept this Subscription Agreement for the Shares and as further consideration for such acceptance, I hereby make, adopt, confirm and agree to all of the following covenants, acknowledgments, representations and warranties with the full knowledge that the Company and its affiliates will expressly rely thereon in making a decision to accept or reject this Subscription Agreement:
1. Type of Ownership (Select only one.)
|
Non-Custodial Ownership
|
Custodial Ownership
|
|
|
Individual — One signature required.
Joint Tenants with Rights of Survivorship —
All parties must sign.
Community Property — All parties must sign.
Tenants in Common — All parties must sign.
Uniform Gift to Minors Act — State of ______
Custodian signature required.
Uniform Transfer to Minors Act — State of _____
Custodian signature required.
Qualified Pension or Profit Sharing Plan —
Include plan documents.
Trust — Include title, signature and “Powers of
the Trustees” pages.
Corporation — Include corporate resolution, articles
of incorporation and bylaws. Authorized signature
required.
Partnership — Include partnership agreement.
Authorized signature(s) required.
Other (Specify) — ___________________________
Include title and signature pages.
|
Traditional IRA — Owner and custodian
signatures required.
Roth IRA — Owner and custodian signatures required.
Simplified Employee Pension/Trust (SEP) —
Owner and custodian signatures required.
KEOGH — Owner and custodian signatures required.
Other — ________________________________
Owner and custodian signatures required.
Custodian Information (To be completed by custodian.)
Custodian Information (To be completed by custodian.)
_____________________________
Name of Custodian
_____________________________
Mailing Address
_____________________________
City:
_____________________________
State: Zip Code:
_____________________________
Custodian Tax ID #:
_____________________________
Custodian Account #:
_____________________________
Custodian Phone #:
|
2. Investor Information (You must include a permanent street address even if your mailing address is a P.O. Box.)
|
Individual/Beneficial Owner: (Please print name(s) to whom shares are to be registered.)
|
||
| First, Middle, Last Name: | Social Security #: |
Date of Birth:
|
| Street Address: |
City:
Zip Code:
|
State: |
| Daytime Phone #: | If Not a US Citizen, Specific Country of Citizenship: | |
|
E-mail Address:
|
||
|
Joint-Owner/Minor: (If applicable.)
|
||
| First, Middle, Last Name: | Social Security #: | Date of Birth: |
| Street Address: |
City:
Zip Code:
|
State: |
| Daytime Phone #: | If Not a US Citizen, Specific Country of Citizenship: | |
|
Trust:
|
||
| Name of Trust: | Tax ID #: | Date of Trust: |
| Name(s) of Trustee(s)*: | Name(s) of Beneficial Owner(s)*: | |
| Beneficial Owner(s) Street Address: |
City:
Zip Code:
|
State: |
| Social Security #: | Date of Birth: | Occupation: |
|
Corporation/Partnership/Other:
|
||
| Entity Name: | Tax ID #: | Date of Entity Foundation: |
|
Name of Officer(s), General Partner or other Authorized Person(s):
|
||
| Street Address: |
City:
Zip Code:
|
State: |
*If there is more than one trustee or beneficial owner, we will require documents for the requested information for each additional trustee and/or beneficial owner.
3. Investor Eligibility Certifications
I understand that to purchase Shares, I must either be an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the act, or I must limit my investment in the Shares to a maximum of: (i) 10% of my net worth or annual income, whichever is greater, if I am a natural person; or (ii) 10% of my revenues or net assets, whichever is greater, for my most recently completed fiscal year, if I am a non-natural person.
I understand that if I am a natural person I should determine my net worth for purposes of these representations by calculating the difference between my total assets and total liabilities. I understand this calculation must exclude the value of my primary residence and may exclude any indebtedness secured by my 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 Shares.
I hereby represent and warrant that I meet the qualifications to purchase Shares because (please mark one):
___ I am a natural person, and the aggregate purchase price for the Common Stock I am purchasing in
the Offering does not exceed 10% of my net worth or annual income, whichever is greater.
___ I am a non-natural person, and the aggregate purchase price for the Common Stock I am purchasing in the Offering does not exceed 10% of my revenues or net assets, whichever is greater, for my most recently completed fiscal year.
___ I am an accredited investor.
If you marked that you are an accredited investor, please mark as appropriate below.
If a natural person, I hereby represent and warrant that (mark as appropriate):
|
(a) That I have an individual net worth, or joint net worth with my spouse, of more than $1,000,000; or
|
|
|
___
|
|
|
___
|
(b) That I have individual income in excess of $200,000 or joint income with my spouse in excess of $300,000, in each of the two most recent years and I have a reasonable expectation of reaching the same income level in the current year.
|
If other than a natural person, I represent and warrant that I am: (mark as appropriate):
|
(a) a corporation, Massachusetts or similar business trust, partnership, or organization described in Code Section 501(c)(3), not formed for the specific purpose of acquiring Common Stock, with total assets over $5,000,000;
|
|
|
___
|
|
|
___
|
(b) a trust, with total assets over $5,000,000, not formed for the specific purpose of acquiring Common Stock and whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of an investment in the Common Stock as described in Rule 506(b)(2)(ii) under the Act;.
|
|
___
|
(c) a broker-dealer registered under Section 15 of the Securities Exchange Act of 1934, as amended;
|
|
___
|
(d) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”) or a business development company (as defined in Section 2(a)(48) of the Investment Company Act);
|
|
___
|
(e) a small business investment company licensed by the Small Business Administration under Section 301(c) or (d) or the Small Business Investment Act of 1958, as amended
|
|
___
|
(f) an employee benefit plan within the meaning of ERISA, if the investment decision is made by a plan fiduciary (as defined in Section 3(21) of ERISA), which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if such employee benefit plan has total assets over $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who are accredited investors;
|
|
___
|
(g) a private business development company (as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended);
|
|
___
|
(h) a bank as defined in Section 3(a)(2) of the Securities Act, any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity, or any insurance company as defined in Section 2(13) of the Securities Act;
|
|
___
|
(i) 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 total assets of more than $5,000,000; or
|
|
___
|
(j) an entity in which all of the equity owners are accredited investors.
|
4. I understand that the Company reserves the right to, in its sole discretion, accept or reject this subscription, in whole or in part, for any reason whatsoever, and to the extend no accepted, unused funds transmitted herewith shall be returned to the undersigned in full, with any interest accrued thereon.
5. I have received the Circular.
6. I accept the terms of the Certificate of Incorporation of Allegiancy, Inc.
7. I am purchasing the Shares for my own account.
8. I hereby represent and warrant that I am not, and am not acting as an agent, representative, intermediary or nominee for any person identified on the list of blocked persons maintained by the Office of Foreign Assets Control, U.S. Department of Treasury. In addition, I have complied with all applicable U.S. laws, regulations, directives, and executive orders relating to anti-money laundering including but not limited to the following laws: (1) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56; and (2) Executive Order 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) of September 23, 2001.
By making the foregoing representations you have not waived any right of action you may have under federal or state securities law. Any such waiver would be unenforceable. The company will assert your representations as a defense in any subsequent litigation where such assertion would be relevant. This subscription agreement and all rights hereunder shall be governed by, and interpreted in accordance with, the laws of the State of Delaware without giving effect to the principles of conflict of laws.
9. Digital (“electronic”) signatures, often referred to as an “e-signature”, enable paperless contracts and help speed up business transactions. The 2001 E-Sign Act was meant to ease the adoption of electronic signatures. The mechanics of this Subscription Agreement’s electronic signature include your signing this Agreement below by typing in your name, with the underlying software recording your IP address, your browser identification, the timestamp, and a securities hash within an SSL encrypted environment. This electronically signed Subscription Agreement will be available to both you and the Company, as well as any associated brokers, so they can store and access it at any time, and it will be stored and accessible on the FundAmerica Technologies software tools platform and hosting provider, including backups. You and the Company each hereby consents and agrees that electronically signing this Agreement constitutes your signature, acceptance and agreement as if actually signed by you in writing. Further, all parties agree that no certification authority or other third party verification is necessary to validate any electronic signature; and that the lack of such certification or third party verification will not in any way affect the enforceability of your signature or resulting contract between you and the Company. You understand and agree that your e-signature executed in conjunction with the electronic submission of this Subscription Agreement shall be legally binding and such transaction shall be considered authorized by you. You agree your electronic signature is the legal equivalent of your manual signature on this Subscription Agreement you consent to be legally bound by this Subscription Agreement's terms and conditions. Furthermore, you and the Company each hereby agrees that all current and future notices, confirmations and other communications regarding this Subscription Agreement specifically, and future communications in general between the parties, may be made by email, sent to the email address of record as set forth in this Subscription Agreement or as otherwise from time to time changed or updated and disclosed to the other party, without necessity of confirmation of receipt, delivery or reading, and such form of electronic communication is sufficient for all matters regarding the relationship between the parties. If any such electronically sent communication fails to be received for any reason, including but not limited to such communications being diverted to the recipients spam filters by the recipients email service provider, or due to a recipient’s change of address, or due to technology issues by the recipients service provider, the parties agree that the burden of such failure to receive is on the recipient and not the sender, and that the sender is under no obligation to resend communications via any other means, including but not limited to postal service or overnight courier, and that such communications shall for all purposes, including legal and regulatory, be deemed to have been delivered and received. No physical, paper documents will be sent to you, and if you desire physical documents then you agree to be satisfied by directly and personally printing, at your own expense, the electronically sent communication(s) and maintaining such physical records in any manner or form that you desire.
Your Consent is Hereby Given: By signing this Subscription Agreement electronically, you are explicitly agreeing to receive documents electronically including your copy of this signed Subscription Agreement as well as ongoing disclosures, communications and notices.
SIGNATURES:
THE UNDERSIGNED HAS THE AUTHORITY TO ENTER INTO THIS PURCHASER QUESTIONNAIRE AND SUBSCRIPTION AGREEMENT ON BEHALF OF THE PERSON(S) OR ENTITY REGISTERED ABOVE.
Executed this_____day of__________20__
|
|
X ___________________________________
|
Signature (Investor, or authorized signatory)
Title:
|
|
X ___________________________________
|
|
|
Joint Signature (Investor, or authorized signatory)
|
Title:
SUBSCRIPTION Allegiancy, Inc.
ACCEPTED a Delaware corporation
By: ________________________
Its: _________________________
Dated:
Exhibit 6(a)
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of October 10, 2013 (the “Contract Date”), by and among Continuum Capital, LLC, a Virginia limited liability company, and Chesapeake Realty Advisors, LLC, a Virginia limited liability company (each, a “Contributor” and collectively, the “Contributors”), and Allegiancy, LLC, a Delaware limited liability company (the “Company”).
RECITALS
WHEREAS, the Company was formed on January 22, 2013 for the purpose of engaging in the business of providing asset and property management services related to commercial real estate;
WHEREAS, to raise capital for its operations, the Company intends to conduct an offering (the “Offering”) of up to an aggregate of $4,999,970 of Class A Units of limited liability company interest in the Company (each, an “Offered Unit” and collectively, the “Offered Units”) pursuant to the exemption from registration with the U.S. Securities and Exchange Commission (the “SEC”) found under Section 3(b)(1) of the Securities Act of 1933, as amended (the “Securities Act”) and Regulation A promulgated by the SEC thereunder;
WHEREAS, the Class A Units of limited liability company interest (the “Class A Units”) and Class B Units of limited liability company interest (the “Class B Units”) are the only classes of limited liability company membership interests currently offered by the Company;
WHEREAS, the Company currently has $1,000 in assets and intends, concurrently with the initial closing of the Offering, which is expected to occur upon the sale of a minimum of 250,000 Offered Units (the “Initial Closing”), to acquire all of the membership interests of REVA Management Advisors, LLC, a Virginia limited liability company (“RMA”), which was formed on January 6, 2006, is a going concern and currently engages in the business of commercial real estate property and asset management;
WHEREAS, RMA currently manages a portfolio of approximately 32 buildings (each, a “Property” and collectively, the “Properties”), pursuant to which it has entered into various asset management agreements with the owners of the Properties (each, an “Asset Management Contract” and collectively, the “Asset Management Contracts”);
WHEREAS, the Contributors each own a 50% limited liability company interest in RMA (each an “RMA LLC Interest” and collectively the “RMA LLC Interests”);
WHEREAS, subject to the occurrence of the Initial Closing, the Contributors desire to contribute all of their right, title and interest in and to the RMA LLC Interests, free and clear of any mortgages, pledges, liens, options, charges, security interests, prior assignments, conveyances, conditions, reservations, encumbrances, restrictions, covenants, encroachments, assessments, purchase rights, rights of others, licenses, easements, voting agreements, liabilities or claims of any kind or nature whatsoever, direct or indirect, including, without limitation, interests in or claims to revenues generated by such Property (each, an “Encumbrance” and collectively, “Encumbrances”), to the Company in exchange for Class B Units of the Company in accordance with the terms and subject to the conditions of, this Agreement; and
WHEREAS, the Company desires to accept the Contributors’ contribution of the RMA LLC Interests in exchange for the issuance of the Class B Units of the Company to the Contributors, pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Contribution of Contributors’ RMA LLC Interests. All of the preceding Recitals are hereby incorporated into this Agreement as though separately set forth in the body of this Agreement. The Contributors agree to contribute, transfer, convey and assign all of the Contributors’ right, title and interest to all of the RMA LLC Interests to the Company concurrent with the Initial Closing. The RMA LLC Interests shall be transferred free of Encumbrances and pursuant to the terms and conditions set forth in this Agreement.
2. Acceptance by Company of RMA LLC Interests. The Company hereby agrees to accept the RMA LLC Interests and be bound under the limited liability company operating agreement and articles of organization of RMA and the Virginia Limited Liability Company Act, (Title 13.1, Chapter 12 of the Code of Virginia), each as amended from time to time, as a member thereof, with respect to the contributed RMA LLC Interests.
3. Consideration. On the Closing Date (as defined below) of the transfer of the RMA LLC Interests by the Contributors to the Company, the Contributors, in consideration for the transfer of their RMA LLC Interests to the Company, shall be issued a number of Class B Units as set forth in Exhibit A attached to this Agreement and incorporated herein by this reference (collectively, the “Consideration”). If the Company so elects, at Closing, the Company may also issue physical certificates representing such Class B Units (the “Certificates”). Upon the assignment of their RMA LLC Interests, the Contributors will become Class B members of the Company, and shall agree to be bound under the Delaware Limited Liability Company Act (Title 6, Subtitle II, Chapter 18 of the Delaware Code), as amended from time to time, and the certificate of formation (the “Certificate of Formation”) and limited liability company agreement of the Company (the “LLC Agreement”, together with the Certificate of Formation, the “Company Organizational Documents”), as amended from time to time. The transfer of the Class B Units comprising the Consideration to the Contributors shall be evidenced by an Assignment of LLC Interest from each Contributor, the form of which is attached hereto as Exhibit B (the “Assignment”). The parties to this Agreement shall take such additional actions and execute such additional documentation as may be required by the LLC Agreement, as amended from time to time, in order to effect the transactions contemplated by this Agreement.
4. Closing Date; Delivery of Closing Documents.
A. Closing Date. The completion of the acquisition of the RMA LLC Interests by the Company (the “Closing”) shall be on the date of the Initial Closing (the “Closing Date”); subject, however, to the satisfaction or waiver of the conditions set forth in Sections 10 and 11 of this Agreement. Closing shall take place at the offices of Kaplan Voekler Cunningham & Frank, PLC, at 7 East 2nd Street, Richmond, Virginia or at such other place as the parties hereto may agree upon.
B. Delivery of Closing Documents. At Closing, each Contributor shall deliver to the Company a duly executed counterpart of its respective Assignment.
5. Representations, Warranties and Covenants of the Contributors. Each Contributor hereby makes the following representations, warranties and covenants (in each case on its own behalf and not on the part of or with respect to the other Contributor), each and every one of which is true, correct, and complete, as of the Contract Date (unless expressly provided otherwise), and will be true, correct, and complete as of the Closing Date:
2
A. Organization and Authority. The Contributor is a limited liability company duly organized or formed, validly existing and in good standing under the laws of the Commonwealth of Virginia and in all jurisdictions in which it is authorized to conduct its business, with full limited liability company power to own and use its property and assets, as applicable, that it purports to own or use. The Contributor has full right, power and authority to (i) execute and deliver this Agreement and any other documents to which the Contributor is a party and which are required to be delivered hereunder or which may be necessary to consummate the transactions contemplated in this Agreement, and (ii) perform all of its obligations thereunder. This Agreement constitutes the legal, valid and binding obligation of the Contributor, enforceable against it in accordance with its terms and conditions, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors’ rights generally and to general principles of equity.
B. Ownership.
(i) The Contributor is the lawful owner of its respective RMA LLC Interest, and owns such RMA LLC Interest beneficially and of record, free and clear of any and all Encumbrances, and has not incurred any indebtedness with respect to its RMA LLC Interest. The delivery to the Company of the Contributor’s RMA LLC Interest will transfer to the Company valid title thereto, free and clear of any and all Encumbrances.
(ii) The Contributors are the only members of RMA and the RMA LLC Interests represent one hundred percent (100%) of the membership, economic or other beneficial interest in RMA.
(iii) Except for this Agreement or rights granted by the Contributors to each other or RMA or by RMA to the Contributors, (A) the Contributor has not granted to any other person or entity (x) any options, warrants, or rights to subscribe to securities, membership interests, rights or obligations convertible into or exchangeable for, or given any right to subscribe for or participate in the profits of all or any portion of, its RMA LLC Interest, or (y) any option to purchase or a right of first refusal with respect to its RMA LLC Interest, or any portion thereof or any direct or indirect interest therein, (B) there are no agreements or understandings between the Contributor and any other person or entity with respect to the disposition of such Contributor’s RMA LLC Interest or any portion thereof. At Closing, upon the consummation of the transactions contemplated hereby, the Company will acquire all right, title and interest in and to the entire legal and beneficial interest of the Contributor’s RMA LLC Interest, free and clear of any and all Encumbrances.
C. Noncontravention. Neither the entry into nor the performance of, nor the compliance with, this Agreement by the Contributor will directly or indirectly (with or without notice or lapse of time):
(i) Conflict with or result in a violation of any provision of the organizational documents of such Contributor or any resolution adopted by the authorized persons of such Contributor;
3
(ii) Conflict with or result in a violation of or default under or result in the acceleration of any agreement, note, permit, judgment, decree, order or restrictive covenant to which either of the Contributors is a party or by which any of them is bound; or
(iii) Result in the imposition or creation of any Encumbrance upon or with respect to any assets of the Contributor.
D. Consent. The execution, delivery and performance of this Agreement by the Contributor of its respective obligations hereunder require no further action, consent, approval or authorization of any other individuals, entities or any governmental agency or quasi-governmental agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign (each, a “Governmental Entity”), including any party to an Asset Management Contract, in order to constitute this Agreement as a binding and enforceable obligation of each Contributor in accordance with its terms subject, as to enforcement, to the bankruptcy, reorganization, insolvency and other similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity.
E. No Violation of Law. No event has occurred or circumstance exists that (with or without notice or lapse of time) would reasonably be expected to constitute or result in a violation by either Contributor or RMA of, or a failure on the part of either Contributor or RMA to comply with, and neither Contributor has received any written notice from any Governmental Entity of, any actual, alleged, possible or potential violation of or failure to comply with, any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty (each, a “Legal Requirement”), the noncompliance with or violation of which could have a material adverse affect on the business and operations of the Contributors or RMA.
F. Litigation. Neither of the Contributors has been served with any summons or complaint in connection with, nor to the knowledge of Contributors, is there any threatened, action, suit, or proceeding against either or both of the Contributors, each Contributor’s RMA LLC Interest or any assets of such Contributor, in any court or before any arbitrator or Governmental Entity which (i) in any manner raises any question affecting the validity or enforceability of this Agreement; (ii) could materially and adversely affect the business, financial position, or results of operations of the Contributor; (iii) could materially and adversely affect the ability of any Contributor to perform its obligations hereunder, or under any document to be delivered pursuant hereto; or (iv) could create an Encumbrance on any Contributor’s portion of the RMA LLC Interests, any part thereof, or any interest therein. If, at any time prior to Closing, either of the Contributors is served with a summons or complaint with respect to any of the foregoing, the Contributors shall promptly so advise the Company in writing.
G. Securities Law Matters.
(i) In acquiring the Class B Units and engaging in this transaction, the Contributor represents that it (a) is aware of the risks involved in investing in the Class B Units; (b) has had an opportunity to ask questions of, and to receive answers from, the Company or a person or persons authorized to act on its behalf, concerning the terms and conditions of this investment and the financial condition, affairs and business of the Company; and (c) all documents, records and information pertaining to its investment in the Company that have been requested by it, including a complete copy of the Company Organizational Documents, have been made available or delivered to it prior to the date hereof. The Contributor further represents and warrants that it has reviewed such documents and information as Contributor has deemed appropriate, and made its own investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company.
4
(ii) The Contributor understands that the Class B Units have not been registered under the Securities Act, or any state securities acts and are instead being offered and sold in reliance on an exemption from such registration requirements. The Class B Units are being acquired by the Contributor solely for its own account, for investment, and are not being acquired with a view to, or for resale in connection with, any distribution, subdivision, or fractionalization thereof, in violation of such laws, and the Contributor does not have any present intention to enter into any contract, undertaking, agreement or arrangement with respect to any such resale. The Contributor understands that the LLC Agreement will impose certain restrictions with respect to the transfer of the Class B Units and, if the Company elects to issue the Certificates, the Certificates will contain the following legend reflecting the requirement that the Class B Units cannot be resold without registration under such laws or the availability of an exemption from such registration:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO ALLEGIANCY, LLC, AN OPINION OF COUNSEL SATISFACTORY TO ALLEGIANCY, LLC, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS
H. Tax Matters. The Contributor represents and warrants that it has obtained from its own counsel advice regarding the tax consequences of the transfer of its RMA LLC Interests to the Company and the receipt of the Consideration, as consideration therefor. The Contributor further represents and warrants that it has not relied on the Company or the other Contributor or any of such party’s respective affiliates, representatives, counsel or other advisors and their respective representatives for such tax advice.
I. Brokerage Commission. Neither RMA nor the Contributor has engaged the services of any broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transactions described herein. The Contributors hereby agree to indemnify and hold the Company harmless against any claims, liabilities, damages or expenses arising out of a breach of the foregoing. This indemnification shall survive Closing or any termination of this Agreement.
J. Further Representations and Warranties. Each of the following statements is true, correct and complete as of the Contract Date (unless expressly provided otherwise herein), and will be true, correct and complete as of the Closing Date:
(i) RMA Formation; Foreign Qualification. RMA is a limited liability company formed and in good standing under the laws of the Commonwealth of Virginia. RMA is qualified to do business as a foreign limited liability company under the laws of each state and each jurisdiction in which either the ownership or use of the properties owned, used or managed by it (including the Properties), or the nature of the activities conducted by it, requires such qualifications.
5
(ii) Organizational Documents. Attached hereto as Exhibit C is a true and correct copy of the Limited Liability Company Agreement of RMA as in effect on the date hereof. Attached hereto as Exhibit D are the articles of organization of RMA.
(iii) Financial Statements. RMA has delivered to the Company complete and correct copies of RMA’s consolidated financial statements, including the unaudited consolidated balance sheets and consolidated income statements and statements of cash flows for the years ended December 31, 2010, December 31, 2011 and December 31, 2012, respectively (collectively, the “Financial Statements”). All of the Financial Statements fairly present RMA’s financial position as of the dates thereof and the results of RMA’s consolidated operations for the periods then ended, and each of the Financial Statements was prepared in accordance with United States generally accepted accounting principles applied on a consistent basis for the periods involved.
(iv) Taxes.
(a) All federal and state income tax returns that are or were required to be filed by RMA have been timely filed (including proper extensions). Such tax returns have been accurately prepared and RMA is treated as a partnership for federal income tax purposes and has not elected to be treated as a corporation for federal tax purposes. RMA has paid or caused to be paid, or has made provision for or caused to have been made provision for, the payment of all taxes of RMA accrued for the period prior to Closing. There are no pending or, to the Contributors’ knowledge, threatened audits, investigations or claims for, or relating to, such tax returns or the failure to file any such tax returns.
(b) There are no liens for taxes upon, pending against or, to the Contributor’s knowledge, threatened against, any asset of RMA.
(c) For the last five taxable years, RMA has not filed any consolidated tax returns with any other entity.
(d) RMA is not a party to any consent or other agreement with any Governmental Entity under which RMA is required to take or refrain from taking any action with respect to any matter specifically related to taxes.
(v) Asset Management Contracts.
(a) A true, correct and complete list of the Asset Management Contracts is attached hereto as Exhibit E. Prior to the Contract Date, the Contributors have caused RMA to deliver a copy of each of the Asset Management Contracts to the Company. The Contributors shall update Exhibit E on or prior to the Closing Date, if necessary.
(b) Neither of the Contributors has any actual knowledge or has received any written notice that any present default or breach, either by RMA or by the counterparty(ies) to any Asset Management Contract (each, a “Property Owner”), exists under any Asset Management Contract. None of the Contributors has any actual knowledge or has received any written notice that any counterparty(ies) is terminating or intends to terminate or not renew any Asset Management Contract, or has threatened to do so.
6
(c) Neither of the Contributors has any actual knowledge, or has received any written notice, of any pending, threatened or potential sale or foreclosure of a Property.
(vi) Subsidiaries. RMA has no subsidiaries, and it does not own any capital stock or other equity or ownership interest in any corporation, partnership, limited liability company, association, trust, joint venture or other entity.
|
|
(vii)
|
Other Defaults. Neither of the Contributors has any actual knowledge or has received any written notice of any pending or potential default by RMA under, and to each Contributor’s knowledge, RMA is in compliance with, any and all other agreements to which it is a party or to which RMA is subject, including but not limited to, any financing agreements, management agreements or service contracts.
|
(viii) Noncontravention. Neither the entry into nor the performance of, nor the compliance with, this Agreement by the Company will directly or indirectly (with or without notice or lapse of time):
(a) Conflict with or result in a violation of any provision of the organizational documents of RMA or any resolution adopted by the authorized persons of RMA;
(b) Conflict with or result in a violation of or default under or result in the acceleration of any agreement, note, permit, judgment, decree, order, restrictive covenant, statute, rule, or regulation to which RMA is a party or by which it is bound; or
(c) Result in the imposition or creation of any Encumbrance upon or with respect to any assets of RMA.
(ix) Litigation. Neither of the Contributors nor RMA has been served with any summons or complaint in connection with, nor to the knowledge of Contributors, is there any threatened action, suit, or proceeding against RMA or any assets of RMA, in any court or before any arbitrator or Governmental Entity which (i) in any manner raises any question affecting the validity or enforceability of this Agreement; (ii) could materially and adversely affect the business, financial position, or results of operations of RMA; (iii) could materially and adversely affect the ability of any Contributor to perform its obligations hereunder, or under any document to be delivered pursuant hereto; or (iv) could create an Encumbrance on any Contributor’s portion of the RMA LLC Interests, any part thereof, or any interest therein. If, at any time prior to Closing, either RMA or either of the Contributors is served with a summons or complaint with respect to any of the foregoing, the Contributors shall promptly so advise the Company in writing.
K. Employees. Exhibit F sets forth a true and complete list of each current employee of RMA (each an “Employee”), his or her name, title or position, current rate of compensation (including salary, bonus and commission),and whether such Employee is hourly or salaried. To the actual knowledge of the Contributor, none of RMA’s current Employees has an intention to terminate his or her employment with RMA, and RMA has not provided any current Employee with a notice of termination. RMA has not entered into an employment agreement with any Employee. RMA will not be delinquent on any amounts due to any of its current Employees or independent contractors as of the Closing Date, including, without limitation, any amounts incurred for wages, bonuses, vacation pay, sick leave or any severance obligations.
7
L. Disclosure. In the event that changes occur as to any material information, documents or exhibits referred to in this Agreement, of which the Contributor has knowledge and such change shall cause any of the preceding representations and warranties to be rendered untrue, in any material respect, such Contributor will promptly disclose the same to the Company; and, in the event of any such material change, the Company may, at its election and in its reasonable discretion, terminate this Agreement in writing, on or before the Closing Date, in the event that the Contributors fail, for any reason, to cure the resulting breach of such warranty or representation on or before the Closing Date and to the reasonable satisfaction of the Company.
M. AS-IS, WHERE-IS. Except as expressly set forth in this Section 5, the Contributors make no express or implied warranty of any kind whatsoever. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED AND EXCEPT TO THE LIMITED AND SPECIFIC EXTENT PROVIDED HEREIN TO THE CONTRARY, THE CONTRIBUTIONS OF THE RMA LLC INTERESTS SHALL OCCUR ON A STRICT AND ABSOLUTE “AS-IS,” “WHERE-IS” BASIS.
N. Knowledge. All references in this Agreement to “Contributors’ knowledge,” “Contributors’ actual knowledge,” or words of similar import shall refer only to the actual (as opposed to deemed, imputed or constructive) knowledge of Stevens M. Sadler or Christopher K. Sadler, after reasonable inquiry and, notwithstanding any fact or circumstance to the contrary, shall not be construed to refer to the knowledge of any other person or entity. All references to “Company’s knowledge” or words of similar import shall refer to the actual (as opposed to deemed, imputed or constructive) knowledge, after reasonable inquiry, of Stevens M. Sadler, in his capacity as manager of the Company.
6. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties, each of which is (x) material and being relied upon by each Contributor, (y) true, correct, and complete as of the Contract Date (unless expressly provided otherwise herein) and (z) will be true, correct and complete as of the Closing Date:
A. Organization and Authority. The Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has full limited liability company right, power, and authority to (i) execute and deliver this Agreement and any other documents to which the Company is a party and which are required to be delivered hereunder or which may be necessary to consummate the transactions contemplated in this Agreement, and (ii) perform all of its obligations thereunder. The execution and delivery of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized by all requisite limited liability company action and require no further action or approval of the Company’s managers, officers or members or of any other individuals or entities. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors’ rights generally and to general principles of equity.
B. Noncontravention. Neither the entry into nor the performance of, or compliance with, this Agreement by the Company has resulted, or will result, in any violation of, or default under, or result in the acceleration of, any obligation under the Company Organizational Documents, or any material mortgage, indenture, lien agreement, note, contract, Permit, judgment, decree, order, restrictive covenant or Legal Requirement applicable to the Company.
8
C. Litigation. There is no action, suit, or proceeding, pending or, to the knowledge of the Company, threatened, against or affecting the Company in any court or before any arbitrator or before any Governmental Entity, which in any manner raises any question affecting the validity or enforceability of this Agreement or could materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or under any document to be delivered pursuant to this Agreement.
D. Units Validly Issued. The Class B Units to be issued to the Contributors hereunder shall be duly and validly authorized and issued, free of any preemptive or similar rights or any Encumbrances, other than Encumbrances arising under applicable securities laws.
E. Consents. Except as may otherwise be set forth in this Agreement, each consent, approval, authorization, order, license, certificate, permit, registration, designation, or filing by or with any Governmental Entity necessary for the execution, delivery, and performance of this Agreement or the transactions contemplated hereby by the Company has been obtained or will be obtained on or before the Closing Date.
F. Brokerage Commission. The Company has not engaged the services of any broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transactions described herein. The Company hereby agrees to indemnify and hold each Contributor harmless against any claims, liabilities, damages or expenses arising out of a breach of the foregoing. This indemnification shall survive the Closing or any termination of this Agreement.
G. Disclosure. In the event that changes occur as to any material information, documents or exhibits referred to in this Agreement, of which the Company has knowledge and such change shall cause any of the preceding representations and warranties to be rendered untrue, in any material respect, the Company will promptly disclose the same to the Contributors; and, in the event of any such material change, the Contributors may, at their election, terminate this Agreement in writing, on or before the Closing Date, in the event that the Company fails, for any reason, to cure (on or before the Closing Date) the resulting breach of such warranty or representation to the reasonable satisfaction of the Contributors.
7. Covenants of Contributors.
A. Between the Contract Date and the Closing Date, the Contributors will, and will cause RMA to, conduct the business of RMA in (and only in) the ordinary course of business, and use commercially reasonable efforts to (i) preserve intact the current organization of RMA, (ii) keep available the services of its current managers, officers, employees and agents, and (iii) maintain the relations and good will with and of the Property Owners, creditors, employees and agents, all as the same exist on the Contract Date.
B. Between the Contract Date and the Closing Date, the Contributors will, and will cause RMA to, notify the Company promptly in writing if either of the Contributors or RMA has actual knowledge of any fact or condition that causes or constitutes a breach of any of the Contributors’ representations and warranties, or if either of the Contributors or RMA has actual knowledge of the occurrence after the Contract Date of any fact or condition that would (except as expressly contemplated by this Agreement) reasonably be expected to cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, the Contributors will, and will cause RMA to, promptly notify the Company of the occurrence of any breach of any covenant of the Contributors in this Section 7 or of the occurrence of any event that would reasonably be expected to make the satisfaction of the conditions in Section 10 impossible or unlikely.
9
8. Covenants of the Company. Between the Contract Date and the Closing Date, the Company will promptly notify the Contributors in writing if the Company has actual knowledge of any fact or condition that causes or constitutes a breach of any of the Company’s representations and warranties, or if the Company has actual knowledge of the occurrence after the Contract Date of any fact or condition that would (except as expressly contemplated by this Agreement) reasonably be expected to cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, the Company will promptly notify the Contributors of the occurrence of any breach of any covenant of the Company in this Section 8 or of the occurrence of any event that would reasonably be expected to make the satisfaction of the conditions in Section 11 impossible or unlikely.
9. Waivers of Rights Under Agreements. As of the Closing Date, each Contributor waives and relinquishes all rights and benefits otherwise afforded to such Contributor under any agreement relating to its ownership of its respective RMA LLC Interest or its right, title and interest in any assets of RMA, including the Asset Management Contracts.
10. Conditions Precedent to the Obligations of the Company. The performance of the Company’s obligations provided for in this Agreement is conditioned upon the occurrence of the following conditions on or before the Closing Date:
A. The representations, warranties and covenants of the Contributors contained in this Agreement shall be true and correct as of the Closing Date.
B. The obligations of each Contributor contained in this Agreement to be performed by them shall have been duly performed by them on or before the Closing Date and the Contributors shall not have breached, in any material respect, any of their covenants or agreements contained herein and failed to cure such breach prior to the Closing Date.
C. Concurrently with the Closing, each Contributor shall have executed and delivered to the Company the documents required to be delivered pursuant to Section 4.B of this Agreement and such other documents and instruments as may reasonably be required by the Company and its counsel and that are necessary to consummate the transactions which are the subject of this Agreement and to otherwise effect the agreements of the parties hereto.
Any or all of the foregoing conditions may be waived by the Company in its sole and absolute discretion.
11. Conditions Precedent to the Obligations of the Contributors. Each Contributor’s obligation to perform any obligations provided for in this Agreement is conditioned upon the occurrence of the following conditions on or before the Closing Date:
A. The representations, warranties and covenants of the Company contained in this Agreement shall be true and correct as of the Closing Date.
B. The obligations contained in this Agreement to be performed by the Company shall have been duly performed on or before the Closing Date and the Company shall not have breached, in any material respect, any of its covenants or agreements contained herein and failed to cure such breach prior to the Closing Date.
10
C. Concurrently with the Closing, the Company shall have executed and delivered to the Contributors such documents and instruments as may reasonably be required by the Contributors and their respective counsel and that are necessary to consummate the transactions which are the subject of this Agreement and to otherwise effect the agreements of the parties hereto.
Any or all of the foregoing conditions may be waived by the Contributors in their sole and absolute discretion.
12. Survival of Representations and Warranties; Indemnity for Breach by Contributors; Indemnity for Breach by Company.
A. Survival. Except as otherwise set forth herein, all representations and warranties of the Contributors and the Company in this Agreement shall survive the Closing for a period of one (1) year after the Closing Date (the “Survival Period”).
B. Indemnity for Breach by Contributors. Each Contributor hereby jointly and severally agrees to indemnify and hold the Company and its respective employees, managers, directors, members, partners, affiliates and agents (collectively, the “CompanyIndemnified Parties”) harmless of and from any direct or indirect liability, indebtedness, guaranty, endorsement, claim, loss, damage, judgment, deficiency, cost, expense, assessment, fee, interest payment, penalty, disbursement, obligation or responsibility (collectively, “Losses”) actually suffered or incurred by the Company Indemnified Parties as a result of, or by reason of (i) any breach of such Contributor’s representations, warranties or covenants contained in this Agreement, or (ii) any undisclosed liability of RMA arising from or relating to the business or operations of RMA prior to the Closing Date. The Contributors shall have the option to pay all or any portion of any Losses pursuant to the preceding indemnity in cash, or may instead satisfy any obligation to pay any such Losses to the Company through an assignment of such Contributor’s Class B Units, with each Class B Unit valued at $10.00 per Class B Unit. If the Company is notified in any document, or in writing by the Contributors, or otherwise becomes aware (which awareness shall be deemed to have occurred if and to the extent that the Company is provided with access to books, records or other materials that directly contradict a representation or warranty made by the Contributors), that any representation or warranty made by the Contributors is not true or correct as of the Contract Date, or that any such representation or warranty is not true or correct on or before the Closing; or if the Company is notified in any document, or in writing by the Contributors, or otherwise becomes aware (which awareness shall be deemed to have occurred if and to the extent that the Company is provided with access to books, records or other written material that directly indicates a covenant of the Contributors has not been satisfied), that the Contributors have failed to perform any covenant and agreement herein contained and the Company shall nevertheless accept the assignment of the RMA LLC Interests notwithstanding such fact, the Company shall not be entitled to seek indemnity from the Contributors due to such representation or warranty failing to be true or correct (and the Company shall not be entitled to rely on such representation or warranty), or such covenant(s) and agreement(s) having failed to be performed by the Contributors.
C. Indemnity for Breach by the Company. The Company hereby agrees to indemnify and hold the Contributors and their respective employees, managers, directors, members, partners, trustees, affiliates and agents (collectively, the “Contributor Indemnified Parties”) harmless of and from all Losses which any of them actually suffers or incurs as a direct result of, by direct reason of, any breach of the Company’s representations or warranties contained in this Agreement or breach of any covenant or agreement made or to be performed by the Company pursuant to this Agreement. If a Contributor is notified in any document, or in writing by the Company, or otherwise becomes aware (which awareness shall be deemed to have occurred if and to the extent that the Contributor is provided with access to books, records or other materials that directly contradict a representation or warranty made by the Company), that any representation or warranty made by the Company is not true or correct as of the Contract Date, or that any such representation or warranty is not true or correct on or before the Closing; or if the Contributor is notified in any document, or in writing by the Company, or otherwise becomes aware (which awareness shall be deemed to have occurred if and to the extent that the Contributor is provided with access to books, records or other written material that directly indicates a covenant of the Company has not been satisfied), that the Company has failed to perform any covenant and agreement herein contained and the Contributor shall nevertheless accept the issuance of its Class B Units notwithstanding such fact, the Contributor shall not be entitled to seek indemnity from the Company due to such representation or warranty failing to be true or correct (and the Contributor shall not be entitled to rely on such representation or warranty), or such covenant(s) and agreement(s) having failed to be performed by the Company.
11
D. Claims for Breach. A party seeking indemnification pursuant to the provisions of this Section 12 (“Indemnitee”) may do so provided that (a) the valid claims for all such breaches by the indemnifying party (“Indemnitor”) collectively aggregate more than One Hundred Thousand No/100 Dollars ($100,000.00), and (b) written notice containing a description of the specific nature of such breach shall have been delivered by such party to Indemnitor prior to the expiration of the Survival Period. The maximum amount that an Indemnitee shall be entitled to collect from an Indemnitor in connection with all claims for indemnity resulting from all breaches of an Indemnitor of any representation or warranty made by the Indemnitor, or the failure of any covenants of the Indemnitor, shall in no event exceed $12,500,000. Any claim for indemnification under this Section 12 must be asserted in writing, stating the nature of such claim and the basis for indemnification therefor, within the Survival Period. If so asserted in writing within the Survival Period, such claims for indemnification shall survive until resolved by mutual agreement between the Indemnitor and the Indemnitee or by judicial determination.
E. The provisions of this Section 12 shall survive the Closing.
13. Injunctions. The Company or the Contributors, as the case may be, shall be permitted to seek, and the terms of this Section 13 shall not stop the Contributors and the Company, as the case may be, from obtaining a temporary or permanent injunction from a court of competent jurisdiction in order to prevent irreparable harm from occurring due to of the actions of the other party. Each party hereto agrees that irreparable damage would occur to the other parties in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that a party shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the other party(ies) and to enforce specifically the terms and provisions hereof in any federal or state court in the Commonwealth of Virginia (as to which the parties agree to submit to jurisdiction for the purposes of such action), this being in addition to any other remedy to which the party seeking injunctive relief is entitled under this Agreement.
14. Assignment. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void.
15. Successors and Assigns. The rights and obligations created by this Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, executors, receivers, trustees, successors and permitted assigns.
16. Governing Law; Venue. This Agreement and all transactions contemplated hereby shall be governed by, construed and enforced in accordance with the laws of the State of Delaware. The parties hereto hereby covenant and agree that any dispute, claim, action, proceeding or controversy arising out of or related to this Agreement shall be litigated in the courts of the Commonwealth of Virginia sitting in the City of Richmond and/or the United States District Court for the Eastern District of Virginia. The parties hereto hereby waive any objection to the personal or subject matter jurisdiction of such courts or to the laying of venue of such dispute, claim, action, proceeding or controversy therein. The parties hereto hereby consent to the exercise of personal jurisdiction over them by the courts of the Commonwealth of Virginia, sitting in the City of Richmond and/or the United States District Court for the Eastern District of Virginia in any such dispute, claim, action, proceeding or controversy.
12
17. Third Party Beneficiary. Except as specifically set forth in this Agreement, no provision of this Agreement is intended, nor shall it be interpreted, to provide or create any third party beneficiary rights or other rights of any kind in any customer, affiliate, stockholder, partner, member, manager, director, officer, or employee of any party to this Agreement or any other person or entity.
18. Severability. If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business, and other purposes of the void or unenforceable provision and to execute any amendment, consent, or agreement mutually acceptable to the parties hereto and deemed reasonably necessary or desirable by the parties to effect such replacement.
19. Reliance. Each party to this Agreement acknowledges and agrees that it is not relying on tax advice or other advice from the other parties to this Agreement and that it has or will consult with its own advisors.
20. Certain Securities Matters. No sale of Class B Units is intended by the parties by virtue of their execution of this Agreement. Any sale of Class B Units contemplated under this Agreement will occur, if at all, upon the Closing.
21. Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally, by nationally recognized overnight delivery service, by e-mail transmission or by first class postage prepaid to the parties at the following postal or email addresses:
If to the Contributors, to
Contributors’ Agent:
Stevens M. Sadler
10710 Midlothian Turnpike
Suite 202
Richmond, Virginia 23235
E-Mail: steve@revacompanies.com
13
If to the Company, to:
Allegiancy, LLC
c/o Stevens M. Sadler
10710 Midlothian Turnpike
Suite 202
Richmond, Virginia 23235
E-Mail: steve@revacompanies.com
With a copy to:
Robert R. Kaplan, Jr., Esq.
c/o Kaplan Voekler Cunningham & Frank, PLC
7 East Second Street
Richmond, Virginia 23224
E-Mail: rkaplan@kv-legal.com
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 21, be deemed given upon delivery, (ii) if delivered by nationally recognized overnight delivery service to the address as provided in this Section 21, be deemed delivered the next day following the mailing of the same, (iii) if delivered by e-mail to the e-mail address as provided in this Section 21, be deemed given upon transmission of such e-mail communication; and (iv) if delivered by first class mail in the manner described above to the address as provided in this Section 21, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice is to be delivered pursuant to this Section 21). Any party from time to time may change its physical address, e-mail address or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto in accordance with this Section 21.
22. Construction. This Agreement shall not be construed more strictly against one party than against the other merely by virtue of the fact that it may have been prepared by counsel for one of the parties, it being recognized that both of the Contributors and the Company have contributed substantially and materially to the preparation of this Agreement. The headings of various sections in this Agreement are for convenience only, and are not to be utilized in construing the content or meaning of the substantive provisions hereof.
23. Partial Invalidity. The provisions hereof shall be deemed independent and severable, and the invalidity or partial invalidity or enforceability of any one provision shall not affect the validity of enforceability of any other provision hereof.
24. Weekends, Holidays, Etc. If the time period by which any right, option or election provided for under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which Closing must be held, expires on a day which is a Saturday, Sunday, or official federal or a state holiday for the Commonwealth of Virginia, then such time period shall be automatically extended through the close of business on the next business day.
25. Further Assurances. From time to time, at either party’s request, whether on or after Closing, and without further consideration, the other party shall execute and deliver any further instruments of conveyance and take such other actions as the requesting party may reasonably require to complete more effectively the transfer of the RMA LLC Interests to the Company. The Contributors shall not, however, be required to incur any out-of-pocket expense in order to satisfy or comply with a request from the Company.
14
26. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
27. Entire Agreement and Amendments. This Agreement, together with all exhibits attached hereto or referred to herein, contain all representations and the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Agreement and exhibits hereto. This Agreement may only be modified or amended upon the written consent of each party hereto.
[Signature pages follow.]
15
IN WITNESS WHEREOF, the parties have executed this Contribution Agreement effective as of the Contract Date.
|
CONTRIBUTORS:
|
|||
|
CONTINUUM CAPITAL, LLC,
|
|||
|
a Virginia limited liability company
|
|||
|
By:
|
/s/ Stevens M. Sadler | ||
| Name: | Stevens M. Sadler | ||
| Title: | Manager |
|
CHESAPEAKE REALTY ADVISORS, LLC,
|
|||
|
a Virginia limited liability company
|
|||
|
|
By:
|
/s/ Christopher K. Sadler | |
| Name: | Christopher K. Sadler | ||
| Title: | Manager | ||
|
COMPANY:
|
|||
|
ALLEGIANCY, LLC,
|
|||
|
a Delaware limited liability company
|
|||
|
|
By:
|
/s/ Stevens M. Sadler | |
| Name: | Stevens M. Sadler | ||
| Title: | Manager | ||
16
EXHIBITS
Exhibit A - Class B Units
Exhibit B - Form of Assignment of LLC Interest
Exhibit C - Limited Liability Company Agreement of REVA Management Advisors, LLC
Exhibit D - Articles of Organization of REVA Management Advisors, LLC
Exhibit E - List of Asset Management Contracts
Exhibit F - List of Employees of REVA Management Advisors, LLC
17
EXHIBIT A
|
Contributor
|
No. of Class B Units Issued
|
Value of Class B Units Issued
|
|
Continuum Capital, LLC
|
625,000
|
$6,250,000
|
|
Chesapeake Realty Advisors, LLC
|
625,000
|
$6,250,000
|
|
TOTAL
|
1,250,000
|
$12,500,000
|
Exhibit 8
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the “Escrow Agreement”) is entered into and effective this _____ day of ___________, 201_ by and among SunTrust Bank (“Escrow Agent” or “Bank”), Allegiancy, LLC, a Delaware limited liability company (“Allegiancy”), and W.R. Hambrecht + Co., LLC, a ______________ limited liability company (“Hambrecht” and, together with Escrow Agent and Allegiancy, the “Parties,” and each, a “Party”).
WHEREAS, Allegiancy plans to offer for sale to investors through Hambrecht and one or more participating dealers a minimum of 1,075,000 and up to a maximum of 2,150,000 shares of Allegiancy’s common stock (the “Securities”);
WHEREAS, prior to the issuance of the securities, Allegiancy will convert from a Delaware limited liability company to a Delaware corporation, and all references to “Allegiancy” in this Escrow Agreement shall refer to the as-converted corporation following the date of such conversion;
WHEREAS, the Parties hereto desire for the Escrow Agent to open an account (the “Escrow Account”) into which funds received from investors will be deposited with, and held and invested by, the Escrow Agent in accordance with this Escrow Agreement; and
WHEREAS, the term “Participating Dealers” as used herein shall include Hambrecht and all other participating dealers as part of the selling group in the offering. Hambrecht will enter into a separate Participating Dealers Agreement with the other participating dealers pursuant to which all Participating Dealers will agree to be bound by the terms of this Escrow Agreement. For purposes of communications and directives under this Escrow Agreement, the Escrow Agent need only accept those communications and directives made by Hambrecht.
NOW, THEREFORE, in consideration of the premises herein, the parties hereto agree as follows:
I. Terms and Conditions
1.1. Allegiancy and Hambrecht, as representative of the Participating Dealers, hereby appoint the Bank as their Escrow Agent and the Bank hereby accepts its duties as provided herein.
1.2. The Participating Dealers shall cause investors from time to time to remit funds to the Escrow Agent, by wire transfer using the wire instructions below or by electronic money transfer (via ACH) to the accounts below. All funds received by the Escrow Agent shall be held and invested as provided in this Escrow Agreement.
Wire Instructions
SunTrust Bank
ABA: 061000104
Account: 9443001321
Account Name: SunTrust Escrow Services
Reference: Allegiancy / WR Hambrecht & Co Escrow
Attention: Matt Ward
ACH Instructions
SunTrust Bank
ABA: 061000104
Account: 0000201325799
Account Name: Escrow Services ACH
Reference: Allegiancy / WR Hambrecht & Co Escrow
Attention: Matt Ward
1.3. The “Escrow Period” shall begin on the date of this Escrow Agreement and shall terminate upon the earlier to occur of the following dates: (a) the date which is sixty (60) days after the date on which the Escrow Agent confirms that it has received in the Escrow Account gross proceeds of $15,050,000 in deposited funds (the “Minimum”); (b) [•], as may be extended for up to thirty (30) days pursuant to written notice from Allegiancy and Hambrecht (the “Minimum Termination Date”); or (c) the date upon which a determination is made by Allegiancy and Hambrecht to terminate the offering prior to receipt of the Minimum; provided, that, if the Escrow Agent confirms it has received the Minimum prior to the Minimum Termination Date, but the date calculated pursuant to subsection (a) would come after the Minimum Termination Date, the Escrow Period shall terminate on the date calculated pursuant to subsection (a) and not the Minimum Termination Date.
1.4. Hambrecht, on behalf of the Participating Dealers, agrees that it shall, by noon of the next business day following receipt thereof, deliver all monies received from investors for the payment of the Securities to the Escrow Agent for deposit in the Escrow Account together with a written account of each sale, which account shall set forth, among other things, the investor’s name and address, the number of securities purchased, the amount paid therefor, and whether the consideration received was in the form of a check, draft, or money order.
1.5. Within two business days of receipt of written instructions, signed by an authorized representative of Allegiancy and an authorized representative of Hambrecht (a list of whom are provided in Exhibit A-1 and Exhibit A-2), the Escrow Agent shall disburse funds as provided in such written instructions, but only if the written instructions include a statement that the Minimum has been received and only to the extent that funds are collected and available.
1.6. In the event the Escrow Agent does not receive the Minimum prior to the termination of the Escrow Period, the Escrow Agent shall refund to each investor the amount received from the investor, without deduction, penalty, or expense to the investor, and the Escrow Agent shall notify Allegiancy and Hambrecht, on behalf of the Participating Dealers, of its distribution of the funds. The purchase money returned to each investor shall be free and clear of any and all claims of Allegiancy or any of its creditors. In the event the Escrow Agent does receive the Minimum prior to termination of the Escrow Period, in no event will the funds in the Escrow Account be released to Allegiancy until such amount is received by the Escrow Agent in collected funds. For purposes of this Escrow Agreement, the term “collected funds” shall mean all funds received by the Escrow Agent which have cleared normal banking channels and are in the form of cash.
2
II. Provisions as to Escrow Agent
2.1. This Escrow Agreement expressly and exclusively sets forth the duties of Escrow Agent with respect to any and all matters pertinent hereto and no implied duties or obligations shall be read into this Escrow Agreement against Escrow Agent. In performing its duties under this Escrow Agreement, or upon the claimed failure to perform its duties, the Escrow Agent shall have no liability except for the Escrow Agent’s willful misconduct or gross negligence. In no event shall the Escrow Agent be liable for incidental, indirect, special, consequential or punitive damages. The Escrow Agent shall have no liability with respect to the transfer or distribution of any funds effected by the Escrow Agent pursuant to wiring or transfer instructions provided to the Escrow Agent in accordance with the provisions of this Escrow Agreement. The Escrow Agent shall not be obligated to take any legal action or to commence any proceedings in connection with this Escrow Agreement or any property held hereunder or to appear in, prosecute or defend in any such legal action or proceedings.
2.2. Escrow Agent acts hereunder as a depository only, and is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of the Escrow Agreement or any part thereof, or of any person executing or depositing such subject matter.
2.3. This Escrow Agreement constitutes the entire agreement between the Escrow Agent and the other parties hereto in connection with the subject matter of the Escrow Account, and no other agreement entered into between the parties, or any of them, shall be considered as adopted or binding, in whole or in part, upon the Escrow Agent, notwithstanding that any such other agreement may be deposited with Escrow Agent or the Escrow Agent may have knowledge thereof.
2.4. Escrow Agent shall in no way be responsible for nor shall it be its duty to notify any party hereto or any other party interested in this Escrow Agreement of any payment required or maturity occurring under this Escrow Agreement or under the terms of any instrument deposited therewith unless such notice is explicitly provided for in the Escrow Agreement.
2.5. Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, certificate, receipt, authorization, power of attorney or other paper or document which Escrow Agent in good faith believes to be genuine and what it purports, to be, including, but not limited to, items directing investment or non-investment of funds, items requesting or authorizing release, disbursement or retainage of the subject matter of the Escrow Agreement and items amending the terms of the Escrow Agreement.
3
2.6. Escrow Agent may consult with legal counsel in the event of any dispute or question as to the construction of any of the provisions hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in acting in accordance with the advice of such counsel.
2.7. In the event of any disagreement between any of the Parties, or between any of them and any other party, resulting in adverse claims or demands being made in connection with the matters covered by this Escrow Agreement, or in the event that Escrow Agent, in good faith, be in doubt as to what action it should take hereunder, Escrow Agent may, at its option, refuse to comply with any claims or demands on it, or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists, and in any such event, Escrow Agent shall not be or become liable in any way or to any party for its failure or refusal to act, and Escrow Agent shall be entitled to continue to refrain from acting until (i) the rights of all interested parties shall have been fully and finally adjudicated by a court of competent jurisdiction, or (ii) all differences shall have been adjudged and all doubt resolved by agreement among all of the interested parties, and Escrow Agent shall have been notified thereof in writing signed by all such parties. Notwithstanding the preceding, Escrow Agent may in its discretion obey the order, judgment, decree or levy of any court, whether with or without jurisdiction, or of an agency of the United States or any political subdivision thereof, or of any agency of the Commonwealth of Virginia or of any political subdivision thereof, and Escrow Agent is hereby authorized in its sole discretion, to comply with and obey any such orders, judgments, decrees or levies. The rights of Escrow Agent under this sub-paragraph are cumulative of all other rights which it may have by law or otherwise.
2.8. Allegiancy agrees to indemnify and hold harmless the Escrow Agent and each of the Escrow Agent’s officers, directors, agents and employees (the “Indemnified Parties”) from and against any and all losses, liabilities, claims, damages, expenses and costs (including attorneys’ fees) of every nature whatsoever which any such Indemnified Party may incur and which arise directly or indirectly from this Escrow Agreement or which arise directly or indirectly by virtue of the Escrow Agent’s undertaking to serve as Escrow Agent hereunder; provided, however, that no Indemnified Party shall be entitled to indemnity in case of such Indemnified Party’s gross negligence or willful misconduct. The provisions of this section shall survive the termination of this Escrow Agreement and any resignation or removal of the Escrow Agent.
2.9. In the event that any controversy should arise among the parties with respect to the Escrow Agreement or should the Escrow Agent resign and the parties fail to select another Escrow Agent to act in its stead, the Escrow Agent shall have the right to institute a bill of interpleader in any court of competent jurisdiction to determine the rights of the parties or, at the election of the Escrow Agent, deposit all property held under this Escrow Agreement into the registry of the court of competent jurisdiction and notify the parties of such deposit, and in either such event the Escrow Agent shall be discharged from all further duties as escrow agent under the terms of this Escrow Agreement.
4
2.10. The Escrow Agent may resign at any time from its obligations under this Escrow Agreement by providing written notice to the parties hereto. Such resignation shall be effective on the date set forth in such written notice, which shall be no earlier than thirty (30) days after such written notice has been furnished. In the event no successor escrow agent has been appointed on or prior to the date such resignation is to become effective, the Escrow Agent shall be entitled to tender into the custody of any court of competent jurisdiction all funds and other property then held by the Escrow Agent hereunder and the Escrow Agent shall thereupon be relieved of all further duties and obligations under this Escrow Agreement. The Escrow Agent shall have no responsibility for the appointment of a successor escrow agent hereunder.
III. Compensation of Escrow Agent
3.1. Escrow Agent shall be entitled to reasonable compensation as well as reimbursement for its reasonable costs and expenses incurred in connection with the performance by it of services under this Escrow Agreement (including reasonable fees and expenses of Escrow Agent’s counsel). Each of the Parties, with the exception of Escrow Agent, hereby jointly and severally bind and obligate themselves to pay to Escrow Agent the compensation and reimbursement to which it is entitled and further agree that Escrow Agent shall have a lien on the assets of the Escrow Account for payment of its fees and expense from the assets of the Escrow Account if they are not otherwise paid and without judicial action to foreclose the said lien. Escrow Agent’s fee is as provided in Exhibit B to this Escrow Agreement.
IV. Miscellaneous
4.1. If money is a part of the subject matter of this Escrow Agreement, then Escrow Agent shall make no disbursement, investment or other use of funds until and unless it has collected funds. Escrow Agent shall not be liable for collection items until the proceeds of the same in actual cash have been received or the Federal Reserve has given Escrow Agent credit for the funds.
4.2. The Escrow Agent shall invest all funds held pursuant to this Agreement in the SunTrust Non-Interest Deposit Option. The investments in the SunTrust Non-Interest Deposit Option are insured, subject to the applicable rules and regulations of the Federal Deposit Insurance Corporation (the “FDIC”), in the standard FDIC insurance amount of $250,000, including principal and accrued interest, and are not secured. The SunTrust Non-Interest Deposit Option is more fully described in materials which have been furnished to Allegiancy and Hambrecht by the Escrow Agent, and Allegiancy and Hambrecht acknowledge receipt of such materials from the Escrow Agent. Instructions to make any other investment must be in writing and signed by Allegiancy and Hambrecht. Allegiancy and Hambrecht represent and warrant that the investment in SunTrust Non-Interest Deposit Option is a legal investment under applicable law for the funds in the Escrow Account and that Allegiancy and Hambrecht will not direct that the funds be invested in any investment that would not be a legal investment under applicable law for such funds. Allegiancy and Hambrecht recognize and agree that the Escrow Agent will not provide supervision, recommendations or advice relating to the investment of moneys held hereunder or the purchase, sale, retention or other disposition of any investment, and the Escrow Agent shall not be liable to Allegiancy, Hambrecht, any Subscriber or any other person or entity for any loss incurred in connection with any such investment. The Escrow Agent is hereby authorized to execute purchases and sales of investments through the facilities of its own trading or capital markets operations or those of any affiliated entity. The Escrow Agent or any of its affiliates may receive compensation with respect to any investment directed hereunder including without limitation charging any applicable agency fee in connection with each transaction. The Escrow Agent shall use its best efforts to invest funds on a timely basis upon receipt of such funds; provided, however, that the Escrow Agent shall in no event be liable for compensation to Allegiancy, Hambrecht any Subscriber or any other person or entity related to funds which are held un-invested or funds which are not invested timely. The Escrow Agent is authorized and directed to sell or redeem any investments as it deems necessary to make any payments or distributions required under this Agreement.
5
4.3. The Escrow Agent shall provide monthly reports of transactions and holdings to the Parties as of the end of each month, at the address provided by the Parties. On or before the execution and delivery of this Escrow Agreement, each of Allegiancy and Hambrecht shall provide to the Escrow Agent a completed Form W-9 or Form W-8, whichever is appropriate. Notwithstanding anything to the contrary herein provided, the Escrow Agent shall have no duty to prepare or file any Federal or state tax report or return with respect to any funds held pursuant to this Agreement or any income earned thereon. If notified of a specified closing date for the Offering by Allegiancy and Hambrecht, the Escrow Agent shall notify Allegiancy and Hambrecht in writing whether the investors have transferred to the Escrow Account funds in the amount equal to the proceeds of the sale of the all of the Securities.
4.4. Any notice, request for consent, report, or any other communication required or permitted in this Escrow Agreement shall be in writing and shall be deemed to have been given when personally delivered to the party specified and addressed as follows:
If to Escrow Agent: SunTrust Bank
Attn: Escrow Services
919 East Main Street, 7th Floor
Richmond, Virginia 23219
Phone: 804-782-7182
Fax: 804-225-7141
E-mail: matthew.ward@suntrust.com
If to Allegiancy: Allegiancy, LLC
10710 Midlothian Tnpk., Suite G
Richmond, Virginia 23235
Attention: Stevens M. Sadler, President and CEO
Phone #: (866) 842-7545
Fax #: (866) 842-7591
E-mail: steve@revacompanies.com
Tax identification #: 46-2793187
6
If to Hambrecht: W. R. Hambrecht + Co., LLC
Address: 909 Montgomery Street, 3rd Floor
San Francisco, California 94133
Attention: John Hullar
Phone #: (415) 551-8654
Fax #:
E-mail: jhullar@wrhambrecht.com
Tax identification #:
Any party may unilaterally designate a different address by giving notice of each change in the manner specified above to each other party.
4.5. This Escrow Agreement is being made in and is intended to be construed according to the laws of the Commonwealth of Virginia. It shall inure to and be binding upon the Parties and their respective successors, heirs and assigns. All representations, covenants, and indemnifications contained herein shall survive the termination of this Escrow Agreement.
4.6. The terms of this Escrow Agreement may be altered, amended, modified or revoked only by an instrument in writing signed by all the Parties.
4.7. If any provision of this Escrow Agreement shall be held or deemed to be or shall in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatsoever.
4.8. All titles and headings in this Escrow Agreement are intended solely for convenience of reference and shall in no way limit or otherwise affect the interpretation of any of the provisions hereof.
4.9. This Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
4.10. Contemporaneously with the execution and delivery of this Escrow Agreement and, if necessary, from time to time thereafter, Allegiancy and Hambrecht shall execute and deliver to the Escrow Agent a Certificate of Incumbency substantially in the form of Exhibit A-1 and Exhibit A-2 hereto (a “Certificate of Incumbency”) for the purpose of establishing the identity and authority of persons entitled to issue notices, instructions or directions to the Escrow Agent on behalf of each such party. Until such time as the Escrow Agent shall receive an amended Certificate of Incumbency replacing any Certificate of Incumbency theretofore delivered to the Escrow Agent, the Escrow Agent shall be fully protected in relying, without further inquiry, on the most recent Certificate of Incumbency furnished to the Escrow Agent. Whenever this Escrow Agreement provides for joint written notices, joint written instructions or other joint actions to be delivered to the Escrow Agent, the Escrow Agent shall be fully protected in relying, without further inquiry, on any joint written notice, instructions or action executed by persons named in such Certificate of Incumbency.
7
4.11 Hambrecht agrees that it shall transmit all checks or other funds or payments received from investors to the Escrow Agent by noon of the next business day following receipt thereof.
4.12 Allegiancy and Hambrecht agree that in the event the offering to which this Escrow Agreement relates is not consummated because the Minimum is not received, they shall promptly provide written instructions to the Escrow Agent to return investor funds promptly.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT:
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. When a client opens an account, Bank will ask for client’s name, address, date of birth, or other appropriate information that will allow Bank to identify client. Bank may also ask to see client’s driver’s license or other identifying documents.
8
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written.
SUNTRUST BANK, as Escrow Agent
By: ________________________________________
Name: ____________________________________
Title: ___________________________________
ALLEGIANCY, LLC
By: _________________________________________
Name: Stevens M. Sadler
Title: Chief Executive Officer
W. R. HAMBRECHT + CO., LLC
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
9
EXHIBIT A-1
Certificate of Incumbency
(List of Authorized Representatives)
Client Name: Allegiancy, LLC.
As an Authorized Officer of the above referenced entity, I hereby certify that each person listed below is an authorized signor for such entity, and that the title and signature appearing beside each name is true and correct.
|
Name
|
Title
|
Signature
|
Contact Number
|
|
Stevens M. Sadler
|
Chief Executive Officer
|
(866) 842-7545
|
|
IN WITNESS WHEREOF, this certificate has been executed by a duly authorized officer on:
___________________________________________.
Date
By:______________________________
Name (print): _____________________
Its: Secretary
EXHIBIT A-2
Certificate of Incumbency
(List of Authorized Representatives)
Client Name: W. R. Hambrect + Co., LLC
As an Authorized Officer of the above referenced entity, I hereby certify that each person listed below is an authorized signor for such entity, and that the title and signature appearing beside each name is true and correct.
|
Name
|
Title
|
Signature
|
Contact Number
|
IN WITNESS WHEREOF, this certificate has been executed by a duly authorized officer on:
___________________________________________.
DateBy:______________________________
Name (print): _____________________
Its: ______________________________
EXHIBIT B
SunTrust Bank, as Escrow Agent
Schedule of Fees & Expenses
|
Acceptance/Legal Review Fee:
|
$500 – one time only payable at the time of signing the escrow agreement
|
|
|
(Fee is waived if no legal review is needed)
|
The Legal Review Fee includes review of all related documents and accepting the appointment of Escrow Agent on behalf of SunTrust Bank. The fee also includes setting up the required account(s) and accounting records, document filing, and coordinating the receipt of funds/assets for deposit to the Escrow Account. This is a one-time fee payable upon execution of the Escrow Agreement. As soon as SunTrust Bank’s attorney begins to review the Escrow Agreement, the legal review fee is subject to payment regardless if the Parties decide to appoint a different escrow agent or a decision is made that the Escrow Agreement is not needed.
|
Administration Fee:
|
$2,500 – payable at the time of signing the Escrow Agreement and on the anniversary date thereafter, if applicable
|
The Administration Fee includes providing routine and standard services of an Escrow Agent. The fee includes administering the Escrow Account, performing investment transactions, processing cash transactions (including wires and check processing), disbursing funds in accordance with the Escrow Agreement (note any pricing considerations below), and providing trust account statements to applicable parties for a twelve (12) month period. If the account remains open beyond the twelve (12) month term, the Parties will be invoiced each year on the anniversary date of the execution of the Escrow Agreement. Additional fees will be billed for processing claim notices and/or objections. Extraordinary expenses, including legal counsel fees, will be billed as out-of-pocket. The Administration Fee is due upon execution of the Escrow Agreement. The fees shall be deemed earned in full upon receipt by the Escrow Agent, and no portion shall be refundable for any reason, including without limitation, termination of the Escrow Agreement.
Out-of-Pocket Expenses: At Cost
Out-of-pocket expenses such as, but not limited to, postage, courier, overnight mail, insurance, money wire transfer, long distance telephone charges, facsimile, stationery, travel, legal (out-of-pocket to counsel) or accounting, will be billed at cost.
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
December
15, 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
December 17, 2015
Exhibit 13(a)
Allegiancy files $50 million offering with SEC under new Reg A+ rules
Richmond, Va., Sept. 4, 2015 — With an eye on an aggressive company expansion, Allegiancy filed on Thursday a $50 million offering with the Securities and Exchange Commission (“SEC”) under the new Reg A+ rules to become one of the first companies in the nation to tap this new capital raising model.
Richmond-based Allegiancy, a commercial real estate asset management firm with a portfolio of office buildings that stretches across the nation, will use the capital to make significant investments in its proprietary technology platform, consummate new acquisitions and expand its employee base to handle the intended growth.
“A new era of the democratization of capital is here and for Allegiancy we are poised to be at the forefront of this financial revolution,” said CEO Steve Sadler. “We have charted a bold future at Allegiancy and have worked vigorously toward today’s filing, which we believe is just the start of a rapid acceleration of our proven business model.”
Under the 2012 Jumpstart Our Business Startups Act, or JOBS Act, companies can raise up to $50 million in equity from investors — including non-accredited investors — under what’s known as the new “Reg A+”rules. Previously, companies were limited to raising $5 million under the past Regulation A rules.
The Allegiancy sparked dramatic growth last year after a $5 million capital raise under Regulation A prior to the new rules becoming effective. With that injection of capital, Allegiancy rolled out programs to accelerate organic growth and doubled in size. In June, Allegiancy more than doubled its assets under management again when it closed its first portfolio asset management transaction with a Houston, Tex., firm.
Allegiancy’s tremendous growth earned the company a place in the top half of the Inc. 5000 list in 2015. This growth led the company to more than triple its employees over the past year and double the size of its headquarters when it moved into its 7,000-square-foot headquarters in Richmond this July.
Sadler said Allegiancy is far from alone in being a beneficiary of raising capital under the new Reg A+ rules. “This could be the road back to dynamism for the U.S. economy,” he said. “It allows entrepreneurs to work directly with investors and business owners with guts, dreams and a desire to work hard can raise the capital to build their businesses.”
With the new capital, Allegiancy intends to acquire more companies, secure additional asset management contracts, hire more employees and continue to improve its proprietary technology for the benefit of property owners and investors.
About Allegiancy
Allegiancy is changing the business of asset management for commercial real estate owners and investors with radical specialization. With a technology-enabled operating platform and singular focus on serving as the owners’ advocate, the company brings fresh vigor and unparalleled discipline to a poorly understood business. Combining its proactive Value Assurance operational rigor with an intense focus on cash flow and profitability, Allegiancy is expanding on a track record of its principals of more than four decades of success.
For more information about the company or to arrange an interview with our CEO, contact Audrey Bevel at audrey@allegiancy.us, or 866.842.7545
###
No money or other consideration is being solicited pursuant to this press release, and if any is sent in response, it will not be accepted. No offer to buy Allegiancy’s securities and no part of the purchase price for Allegiancy’s securities can be received until the offering statement Allegiancy has filed with the SEC is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. Any indication of interest in Allegiancy or its offering involved no obligation or commitment of any kind. A copy of Allegiancy’s offering statement containing its most current preliminary offering circular describing the offering that is the subject of this press release can be found at: http://www.sec.gov/Archives/edgar/data/1579173/000135448815004203/0001354488-15-004203-index.htm
Exhibit 13(b)
Allegiancy Amends Reg A+ Filing, Taps WR Hambrecht + Co as its lead underwriter
Richmond, Va., October 26, 2015 — Allegiancy filed its first amendment to its Regulation A Offering Statement on October 26, 2015, naming WR Hambrecht + Co. as its lead underwriter, and adjusting the raise to $30 million. In keeping with this filing, Allegiancy has engaged WR Hambrecht + Co, a firm that has been at the forefront of the development and implementation of the new Regulation A rules, known as Reg A+, to lead the placement of the offering.
Allegiancy is among the first companies in the U.S. to capitalize on the new Reg A+ rules. Last year, under the previous Regulation A rules, Allegiancy raised $5 million in capital that spurred 400 percent growth for the company. With the injection of capital, Allegiancy doubled in size, tripled the number of its employees and then doubled its assets under management again in June when it closed its first asset management portfolio acquisition. Allegiancy’s tremendous growth earned the company a place in the top half of the Inc. 5000 list in 2015. In July, the company doubled the size of its headquarters with a move to a new office in Richmond.
“Allegiancy intends to use the proceeds of this offering to grow its operations, organically and through new acquisitions, as well as investing in its proprietary technology platform and new employees to support this growth,” said Allegiancy CEO Steve Sadler. He continued, “we are delighted to partner with WR Hambrecht + Co on this offering. With the deep resources of WR Hambrecht behind us, we anticipate a robust, fruitful capital raise that will propel Allegiancy on to further growth.”
About Allegiancy
Allegiancy is changing the business of asset management for commercial real estate owners and investors with radical specialization. With a technology-enabled operating platform and singular focus on serving as the owners’ advocate, the company brings fresh vigor and unparalleled discipline to a poorly understood business. Combining its proactive Value Assurance operational rigor with an intense focus on cash flow and profitability, Allegiancy is leveraging the experience of its principals of more than four decades of success.
For more information about the company or to arrange an interview with our CEO, Steve Sadler, contact Audrey Bevel at audrey@allegiancy.us, or 866.842.7545.
About WR Hambrecht + Co
WR Hambrecht + Co was founded in January 1998 to level the playing field for investors and corporate clients. Founder and Chairman Bill Hambrecht is a Silicon Valley pioneer who has financed growth for many companies including Apple to Google. Like its predecessor firm, Hambrecht & Quist, WR Hambrecht +Co, seeks to identify high prospect growth-stage companies, and then enable access to the capital necessary to fund development, marketing and infrastructure so that these companies can achieve their full potential. WRH+Co’s Regulation A+ strategy is a continuation of Bill Hambrecht’s legacy of conducting small public offerings for what were once considered high-risk start-ups that are now household names and Fortune 500 companies.
Contact Helen Miazga at hmiazga@wrhambrecht.com, or 415-551-3237
www.wrhambrecht.com
PLEASE NOTE:
No money or other consideration is being solicited pursuant to this press release, and if any is sent in response, it will not be accepted. No offer to buy Allegiancy’s securities and no part of the purchase price for Allegiancy’s securities can be received until the offering statement Allegiancy has filed with the SEC is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. Any indication of interest in Allegiancy or its offering involved no obligation or commitment of any kind. A copy of Allegiancy’s offering statement containing its most current preliminary offering circular describing the offering that is the subject of this press release can be found at: http://www.sec.gov/Archives/edgar/data/1579173/000135448815004717/0001354488-15-004717-index.htm
Exhibit 13(c)
Exhibit 13(d)
Exhibit 13(e)
Hello <<First Name>>:
Allegiancy, based in Richmond, Virginia, has an intriguing business model: apply data-driven processes and technology to the antiquated business of real estate management. The company is looking to raise $30 million in a Regulation A+ offering (a type of offering made available as part of the 2012 JOBS Act).
Allegiancy has created a fully integrated proprietary asset management, analysis and workflow platform that fuels the company’s decision-making processes for commercial real estate. Allegiancy’s technology captures data from its properties that is filtered by algorithms and decision engines, and then analyzed by experts who rapidly and efficiently push information to managers to execute performance-oriented tasks. These improved management tools are designed to benefit owners and investors by substantially improving returns and lowering ownership costs.
Click here for a brief description of the offering. The company’s Preliminary Offering Circular can be found on EDGAR here:
Allegiancy, Inc. Preliminary Offering Circular (SEC EDGAR Website)
If you are interested in a conference call with management please contact me directly, or call the WRH+Co trading desk on (415) 551-3200.
[Sender Name]
[Sender Contact Information]
These securities may not be sold nor may offers to buy be accepted prior to the time the company’s offering statement is qualified. This document shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful.
No money or other consideration is being solicited in connection this document, and if sent in response, will not be accepted. No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement on Form 1-A is qualified pursuant to Regulation A of the Securities Act of 1933, as amended, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. Any person's indication of interest involves no obligation or commitment of any kind.
IMPORTANT NOTICES:
**************************************
This message is intended only for the addressee. Please notify
the sender by email if you are not the intended recipient. If you are not the intended recipient, you may not copy, disclose, or
distribute this message or its content to any other person and any such actions may be unlawful. Electronic mail sent through the
Internet is not secure.
WR Hambrecht + Co (WRH+Co) does not accept time sensitive, action-oriented messages or transaction orders, including orders to
purchase or sell securities, via email. Such orders and/or instructions will not be accepted by WRH+Co, who will not be responsible
for carrying out such orders or instructions, including orders to purchase and sell securities. Nothing contained in this email
shall be considered an offer or solicitation of an order to purchase or sell any security.
WRH+Co reserves the right to monitor and review the content of all messages sent to or from this email address. Messages sent to
or from this email address may be stored on the WRH+Co email system.
**************************************
Exhibit 13(f)
Exhibit 13(g)
/A\0S7
M2./)EG .W#?=) R#Z9Q7#:%J5A;Z/\+=EW;1RPZC,7U!UMDFL;>6-I3M#(J ,P)_A&#D]!
M7F27UF?V<=8@%S!YK:T-L?F#< *O'5KH?@F?Q+HPM-